As filed with the Securities and Exchange Commission on September 16, 2016
File No. 001-37794
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
to
Form 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
Hilton Grand Vacations Inc.
(Exact name of registrant as specified in its charter)
Delaware | 81-2545345 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
6355 MetroWest Boulevard, Suite 180
Orlando, Florida |
32835 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants telephone number, including area code:
(407) 722-3100
With copies to:
Joshua Ford Bonnie
Edgar J. Lewandowski
425 Lexington Avenue New York, New York 10017 (212) 455-2000 |
Kristin A. Campbell
7930 Jones Branch Drive, Suite 1100 McLean, Virginia 22102 (703) 883-1000 |
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class to Be So Registered |
Name of Each Exchange on Which
|
|
Common stock, par value $0.01 per share | New York Stock Exchange, Inc. |
Securities to be registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10
Item 1. Business
The information required by this item is contained under the sections Summary, Risk Factors, Special Note About Forward-Looking Statements, Unaudited Pro Forma Consolidated Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business, Management, Executive and Director Compensation and Certain Relationships and Related Party Transactions of the information statement filed as Exhibit 99.1 to this Form 10 (the information statement). Those sections are incorporated herein by reference.
Item 1A. Risk Factors
The information required by this item is contained under the section Risk Factors of the information statement. That section is incorporated herein by reference.
Item 2. Financial Information
The information required by this item is contained under the sections SummarySummary Historical and Unaudited Pro Forma Consolidated Financial Data, Capitalization, Selected Historical Consolidated Financial Data, Unaudited Pro Forma Consolidated Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations of the information statement. Those sections are incorporated herein by reference.
Item 3. Properties
The information required by this item is contained under the section BusinessProperties of the information statement. That section is incorporated herein by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained under the section Security Ownership of Certain Beneficial Owners and Management of the information statement. That section is incorporated herein by reference.
Item 5. Directors and Executive Officers
The information required by this item is contained under the section Management of the information statement. That section is incorporated herein by reference.
Item 6. Executive Compensation
The information required by this item is contained under the sections Management and Executive and Director Compensation of the information statement. Those sections are incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is contained under the sections Management, Executive and Director Compensation and Certain Relationships and Related Party Transactions of the information statement. Those sections are incorporated herein by reference.
Item 8. Legal Proceedings
The information required by this item is contained under the section BusinessLegal Proceedings of the information statement. That section is incorporated herein by reference.
Item 9. Market Price of and Dividends on the Registrants Common Equity and Related Stockholder Matters
The information required by this item is contained under the sections Risk Factors, The Spin-Off, Dividend Policy, Executive and Director Compensation and Description of Capital Stock of the information statement. Those sections are incorporated herein by reference.
Item 10. Recent Sales of Unregistered Securities
On May 4, 2016, Hilton Grand Vacations Inc. issued 100 shares of its common stock, par value $0.01 per share, to Park Hotels & Resorts Inc. for $1.00 in cash. The issuance of such shares of common stock was not registered under the Securities Act of 1933, as amended (the Securities Act), because the shares were offered and sold in a transaction by the issuer not involving any public offering exempt from registration under Section 4(a)(2) of the Securities Act.
Item 11. Description of Registrants Securities to be Registered
The information required by this item is contained under the sections Risk FactorsRisks Related to Ownership of Our Common Stock, Dividend Policy and Description of Capital Stock of the information statement. Those sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers
The information required by this item is contained under the sections Certain Relationships and Related Party TransactionsIndemnification Agreements and Description of Capital StockLimitations on Liability and Indemnification of Officers and Directors of the information statement. Those sections are incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data
The information required by this item is contained under the sections Selected Historical Consolidated Financial Data, Unaudited Pro Forma Consolidated Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations and Index to Financial Statements and the statements referenced therein of the information statement. Those sections are incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 15. Financial Statements and Exhibits
(a) | Financial Statements |
The information required by this item is contained under the section Index to Financial Statements beginning on page F-1 of the information statement. That section is incorporated herein by reference.
(b) | Exhibits |
The following documents are filed as exhibits hereto:
Exhibit No. |
Description |
|
2.1 | Form of Distribution Agreement among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. | |
3.1 | Form of Amended and Restated Certificate of Incorporation* | |
3.2 | Form of Amended and Restated Bylaws* |
Exhibit No. |
Description |
|
10.1 | Form of Employee Matters Agreement among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc. | |
10.2 | Form of Tax Matters Agreement among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc. and Hilton Grand Vacations Inc.* | |
10.3 | Form of Transition Services Agreement between Hilton Worldwide Holdings Inc. and Hilton Grand Vacations Inc. | |
10.4 | Form of Hilton Grand Vacations Inc. 2016 Omnibus Incentive Plan | |
10.5 | Form of Indemnification Agreement to be entered into between Hilton Grand Vacations Inc. and each of its directors and executive officers* | |
10.6 | Form of Registration Rights Agreement among Hilton Grand Vacations Inc. and certain of its stockholders* | |
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 (incorporated by reference to Exhibit 10.7 to Hilton Worldwide Holdings Inc.s Registration Statement on Form S-1 (No. 333-191110)). | |
10.8 | Amendment No. 1 to Receivables Loan Agreement, effective as of July 25, 2013, among Hilton Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying agent and securities intermediary, Deutsche Bank AG, New York Branch, as a committed lender and a managing agent, Montage Funding, LLC, as a conduit lender, Deutsche Bank Securities, Inc., as administrative agent, and Bank of America, N.A., as assignee (incorporated by reference to Exhibit 10.8 to Hilton Worldwide Holdings Inc.s Registration Statement on Form S-1 (No. 333-191110)). | |
10.9 | Omnibus Amendment No. 2 to Receivables Loan Agreement, Amendment No. 1 to Sale and Contribution Agreement and Consent to Custody Agreement, effective as of October 25, 2013, among Hilton Grand Vacations Trust I LLC, as borrower, Grand Vacations Services, LLC, as servicer, Hilton Resorts Corporation, as seller, Wells Fargo Bank, National Association, as custodian, the financial institutions signatory thereto, as managing agents, and Deutsche Bank Securities, Inc., as administrative agent (incorporated by reference to Exhibit 10.9 to Hilton Worldwide Holdings Inc.s Registration Statement on Form S-1 (No. 333-191110)). | |
10.10 | Amendment No. 3 to Receivables Loan Agreement, effective as of December 5, 2014, among Hilton Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying agent and securities intermediary, Deutsche Bank AG, New York Branch, as a committed lender and a managing agent, Bank of America, N.A., as a committed lender and a managing agent, and Deutsche Bank Securities, Inc., as administrative agent (incorporated by reference to Exhibit 10.1 to Hilton Worldwide Holdings Inc.s Current Report on Form 8-K (File No. 001-36243) filed on December 8, 2014). | |
10.11 | Omnibus Amendment No. 4 to Receivables Loan Agreement and Amendment No. 2 to Sale and Contribution Agreement, effective as of August 18, 2016, among Hilton Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying agent and securities intermediary, the financial institutions signatory thereto, as managing agents, the financial institutions signatory thereto as committed lenders and Deutsche Bank Securities, Inc., as administrative agent. | |
10.12 | Form of Credit Agreement* | |
10.13 | Form of Hilton Grand Vacations Inc. 2016 Stock Plan for Non-Employee Directors. | |
10.14 | Form of Hilton Grand Vacations, Inc. 2016 Executive Deferred Compensation Plan. | |
10.15 | Offer Letter, dated July 6, 2016, with James E. Mikolaichik. | |
21.1 | Subsidiaries of Hilton Grand Vacations Inc.* | |
99.1 | Preliminary Information Statement, dated September 16, 2016 | |
99.2 | Section 13(r) Disclosure | |
99.3 | Form of Notice of Internet Availability of Information Statement Materials* |
* | To be filed by amendment. |
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Hilton Grand Vacations Inc. | ||
By: |
/s/ Mark D. Wang |
|
Mark D. Wang | ||
President and Chief Executive Officer |
Date: September 16, 2016
Exhibit 2.1
FORM OF DISTRIBUTION AGREEMENT
by and among
HILTON WORLDWIDE HOLDINGS INC.,
PARK HOTELS & RESORTS INC.,
HILTON GRAND VACATIONS INC.,
and
HILTON DOMESTIC OPERATING COMPANY INC.
Dated as of , 2016
TABLE OF CONTENTS
Page | ||||||
ARTICLE I DEFINITIONS AND INTERPRETATION |
2 | |||||
Section 1.1. |
General |
2 | ||||
Section 1.2. |
References; Interpretation |
27 | ||||
ARTICLE II THE SEPARATION |
27 | |||||
Section 2.1. |
General |
27 | ||||
Section 2.2. |
Restructuring: Transfer of Assets; Assumption of Liabilities |
27 | ||||
Section 2.3. |
Intercompany Accounts |
28 | ||||
Section 2.4. |
Limitation of Liability |
29 | ||||
Section 2.5. |
Transfers Not Effected at or Prior to the Effective Time; Transfers Deemed Effective as of the Effective Time |
29 | ||||
Section 2.6. |
Conveyancing and Assumption Instruments |
30 | ||||
Section 2.7. |
Further Assurances |
31 | ||||
Section 2.8. |
Guarantees; Letters of Credit |
31 | ||||
Section 2.9. |
Return of Assets and Payments |
32 | ||||
Section 2.10. |
Disclaimer of Representations and Warranties |
33 | ||||
ARTICLE III CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTIONS |
34 | |||||
Section 3.1. |
Certificates of Incorporation; By-laws |
34 | ||||
Section 3.2. |
Directors |
34 | ||||
Section 3.3. |
Officers |
34 | ||||
Section 3.4. |
Resignations and Removals |
35 | ||||
ARTICLE IV EFFECTING THE DISTRIBUTION; CONDITIONS TO THE DISTRIBUTION |
35 | |||||
Section 4.1. |
Stock Dividends to HLT Stockholders |
35 | ||||
Section 4.2. |
Actions in Connection with the Distribution |
36 | ||||
Section 4.3. |
Sole Discretion of HLT |
37 | ||||
Section 4.4. |
Conditions to the Distribution |
37 | ||||
ARTICLE V CERTAIN COVENANTS |
38 | |||||
Section 5.1. |
Intellectual Property |
38 | ||||
Section 5.2. |
Administration of Specified Shared Expenses |
38 | ||||
Section 5.3. |
Cooperation |
39 | ||||
Section 5.4. |
Periodic Meetings |
39 | ||||
Section 5.5. |
No Solicit; No Hire |
39 | ||||
ARTICLE VI SHARED CONTINGENT LIABILITIES |
40 | |||||
Section 6.1. |
Shared Contingent Liabilities |
40 | ||||
Section 6.2. |
Management of Shared Contingent Liabilities |
41 | ||||
Section 6.3. |
Access to Information; Certain Services; Expenses |
42 | ||||
Section 6.4. |
Notice Relating to Shared Contingent Liabilities; Disputes |
43 | ||||
Section 6.5. |
Cooperation with Governmental Entity |
43 | ||||
Section 6.6. |
Default |
44 |
i
ARTICLE VII INDEMNIFICATION |
44 | |||||
Section 7.1. |
Release of Pre-Distribution Claims |
44 | ||||
Section 7.2. |
Indemnification by HLT |
45 | ||||
Section 7.3. |
Indemnification by PK |
46 | ||||
Section 7.4. |
Indemnification by HGV |
46 | ||||
Section 7.5. |
Procedures for Indemnification |
46 | ||||
Section 7.6. |
Cooperation in Defense and Settlement |
48 | ||||
Section 7.7. |
Indemnification Payments |
49 | ||||
Section 7.8. |
Indemnification Obligations Net of Insurance Proceeds and Other Amounts |
49 | ||||
Section 7.9. |
Additional Matters; Survival of Indemnities |
49 | ||||
ARTICLE VIII PRESERVATION OF RECORDS; ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE |
50 | |||||
Section 8.1. |
Preservation of Corporate Records |
50 | ||||
Section 8.2. |
Financial Statements and Accounting |
51 | ||||
Section 8.3. |
Provision of Corporate Records |
52 | ||||
Section 8.4. |
Witness Services |
53 | ||||
Section 8.5. |
Reimbursement |
53 | ||||
Section 8.6. |
Confidentiality |
54 | ||||
Section 8.7. |
Privilege Matters |
55 | ||||
Section 8.8. |
Ownership of Information |
56 | ||||
Section 8.9. |
Other Agreements |
56 | ||||
ARTICLE IX DISPUTE RESOLUTION |
57 | |||||
Section 9.1. |
Negotiation |
57 | ||||
Section 9.2. |
Mediation |
57 | ||||
Section 9.3. |
Arbitration |
57 | ||||
Section 9.4. |
Arbitration Period |
58 | ||||
Section 9.5. |
Treatment of Negotiations, Mediation and Arbitration |
58 | ||||
Section 9.6. |
Continuity of Service and Performance |
58 | ||||
Section 9.7. |
Consolidation |
58 | ||||
Section 9.8. |
Provisional Relief |
58 | ||||
ARTICLE X INSURANCE |
59 | |||||
Section 10.1. |
Policies and Rights Included Within Assets |
59 | ||||
Section 10.2. |
Post-Effective Time Claims |
59 | ||||
Section 10.3. |
Administration; Other Matters |
60 | ||||
Section 10.4. |
Agreement for Waiver of Conflict and Shared Defense |
61 | ||||
Section 10.5. |
Agreement for Waiver of Conflict and Insurance Litigation and/or Recovery Efforts |
61 | ||||
Section 10.6. |
Directors and Officers Liability Insurance; Fiduciary Liability Insurance; Employment Practices Liability Insurance |
61 | ||||
Section 10.7. |
No Coverage for Post-Effective Occurrences |
61 | ||||
Section 10.8. |
Cooperation |
61 | ||||
Section 10.9. |
Excluded Policies |
61 | ||||
Section 10.10. |
HLT as General Agent and Attorney-In-Fact |
61 | ||||
Section 10.11. |
Additional Premiums, Return Premiums and Pro Rata Cancellation Premium Credits |
62 |
ii
ARTICLE XI MISCELLANEOUS |
62 | |||||
Section 11.1. |
Complete Agreement; Construction |
62 | ||||
Section 11.2. |
Ancillary Agreements |
62 | ||||
Section 11.3. |
Counterparts |
62 | ||||
Section 11.4. |
Survival of Agreements |
62 | ||||
Section 11.5. |
Expenses |
62 | ||||
Section 11.6. |
Notices |
63 | ||||
Section 11.7. |
Consents |
64 | ||||
Section 11.8. |
Assignment |
64 | ||||
Section 11.9. |
Successors and Assigns |
64 | ||||
Section 11.10. |
Termination and Amendment |
64 | ||||
Section 11.11. |
Payment Terms |
64 | ||||
Section 11.12. |
No Circumvention |
64 | ||||
Section 11.13. |
Subsidiaries |
64 | ||||
Section 11.14. |
Third Party Beneficiaries |
65 | ||||
Section 11.15. |
Title and Headings |
65 | ||||
Section 11.16. |
Exhibits and Schedules |
65 | ||||
Section 11.17. |
Governing Law |
65 | ||||
Section 11.18. |
Consent to Jurisdiction |
65 | ||||
Section 11.19. |
Waiver of Jury Trial |
66 | ||||
Section 11.20. |
Severability |
66 | ||||
Section 11.21. |
Force Majeure |
66 | ||||
Section 11.22. |
Interpretation |
66 | ||||
Section 11.23. |
No Duplication; No Double Recovery |
66 | ||||
Section 11.24. |
Tax Treatment of Payments |
66 | ||||
Section 11.25. |
No Waiver |
67 | ||||
Section 11.26. |
No Admission of Liability |
67 |
iii
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (this Agreement ), dated as of , by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Park Hotels & Resorts Inc., a Delaware corporation ( PK ) and Hilton Grand Vacations Inc., a Delaware corporation ( HGV ) and for purposes of Sections 7.2 and 7.3, Hilton Domestic Operating Company Inc. ( OpCo ), a subsidiary of HLT. Each of HLT, PK and HGV is sometimes referred to herein as a Party and, collectively, as the Parties . Capitalized terms used and not defined herein shall have the meaning set forth in Section 1.1 .
W I T N E S S E T H:
WHEREAS, HLT, acting through its direct and indirect Subsidiaries, currently conducts a number of businesses, including (i) the HLT Retained Business (as defined herein), (ii) the Ownership Business (as defined herein) and (iii) the Timeshare Business (as defined herein);
WHEREAS, the Board of Directors of HLT (the Board ) has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business, which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business, which shall be owned and conducted, directly or indirectly, by PK (which will elect to be a REIT), and (iii) the Timeshare Business, which shall be owned and conducted, directly or indirectly, by HGV;
WHEREAS, in order to effect such separation, the Board has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders (i) to enter into a series of transactions after giving effect to which (A) HLT and/or one or more of its Subsidiaries will, collectively, own all of the HLT Retained Assets (as defined herein) and assume (or retain) all of the HLT Retained Liabilities (as defined herein), (B) PK and/or one or more of its Subsidiaries will, collectively, own all of the Ownership Assets and assume (or retain) all of the Ownership Liabilities, and (C) HGV and/or one or more of its Subsidiaries will, collectively, own all of the Timeshare Assets and assume (or retain) all of the Timeshare Liabilities (such transactions as described in Annex I hereto and, as they may be amended or modified from time to time, collectively, the Plan of Reorganization ) and (ii) for HLT to distribute to the holders of the HLT Common Stock (as defined herein), on a pro rata basis (in each case without consideration being paid by such stockholders), (A) all of the outstanding shares of common stock, par value $0.01 per share, of PK (the PK Common Stock ) and (B) all of the outstanding shares of common stock, par value $0.01 per share, of HGV (the HGV Common Stock );
WHEREAS, each of HLT, PK and HGV has determined that it is necessary and desirable, on or prior to the Effective Time (as defined herein), (i) to allocate and transfer to the applicable Party or its Subsidiaries those Assets (as defined herein), and to allocate and assign to the applicable Party or its Subsidiaries responsibility for those Liabilities (as defined herein), in respect of the activities of the applicable Businesses of such entities and (ii) to allocate, transfer and assign, as applicable, those Assets and Liabilities in respect of other current and former businesses and activities of HLT and its current and former Subsidiaries;
WHEREAS, it is the intention of the Parties that (i) each of the contributions by PK of Assets to, and the assumption of Liabilities by, OpCo (such contribution, the OpCo Contribution ) and HGV together with the corresponding distribution by PK of all of the OpCo common stock and the HGV Common Stock, respectively, qualifies as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the Code ) (each such distribution, an Internal Distribution and together, the Internal Distributions ) and (ii) each of the distributions by HLT of all of the PK Common Stock and HGV Common Stock qualifies as a tax-free distribution within the meaning of Section 355 of the Code;
1
WHEREAS, each of HLT, PK and HGV has determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Plan of Reorganization and each Distribution and to set forth other agreements that will govern certain other matters following the Effective Time.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. General . As used in this Agreement, the following terms shall have the following meanings:
(1) Action shall mean any demand, action, claim, suit, countersuit, arbitration, inquiry, subpoena, case, litigation, proceeding or investigation (whether civil, criminal, administrative or investigative) by or before any court or grand jury, any Governmental Entity or any arbitration or mediation tribunal.
(2) Affiliate shall mean, when used with respect to any Person, another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For the purposes of this definition, control, when 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 and policies of such Person, whether through the ownership of voting securities or other interests, by Contract or otherwise. It is expressly agreed that no Party or member of any Partys Group shall be deemed to be an Affiliate of another Party or member of such other Partys Group by reason of having one or more directors in common or by reason of having been under common control of HLT or HLTs stockholders prior to or, in case of HLTs stockholders, after, the Effective Time.
(3) Ancillary Agreements shall mean all of the written Contracts, instruments, assignments, licenses, guarantees, indemnities or other arrangements (other than this Agreement) entered into in connection with the transactions contemplated hereby, including the Transition Services Agreement, the Employee Matters Agreement, the Tax Matters Agreement, the License Agreement, the Telecommunications Agreement, the IP Assignments and the Managing and Franchise Agreements (the Transition Services Agreement, the Employee Matters Agreement, the Tax Matters Agreement, the License Agreement, the Telecommunications Agreement, the IP Assignments and the Managing and Franchise Agreements, collectively, the Specified Ancillary Agreements ).
(4) Applicable HGV Percentage shall mean percent ( %).
(5) Applicable HLT Percentage shall mean percent ( %).
(6) Applicable Percentage shall mean (i) as to HLT, the Applicable HLT Percentage, (ii) as to PK, the Applicable PK Percentage and (iii) as to HGV, the Applicable HGV Percentage.
2
(7) Applicable PK Percentage shall mean percent ( %).
(8) Asset Transferors shall mean the entities transferring Assets to a Managing and Franchising Asset Transferee, an Ownership Asset Transferee or a Timeshare Asset Transferee in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(9) Assets shall mean assets, properties, claims, Intellectual Property and other rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent. Except as otherwise expressly provided for in the Employee Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes shall not be treated as Assets.
(10) Assume shall have the meaning set forth in Section 2.2(b) ; and the terms Assumed and Assumption shall have their correlative meanings.
(11) Blackstone shall mean The Blackstone Group L.P., a Delaware limited partnership.
(12) Business shall mean the HLT Retained Business, the Ownership Business or the Timeshare Business, as applicable.
(13) Business Day means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by Law to be closed in New York City.
(14) Business Entity shall mean any corporation, partnership, limited liability company, joint venture or other entity which may legally hold title to Assets.
(15) Claims Administration shall mean the processing of claims made under the Company Policies, including the reporting of losses or claims to insurance carriers (including as a result of reports provided to HLT by PK or HGV), management and defense of claims, the settlement of claims and providing for appropriate releases upon settlement of claims.
(16) Commission shall mean the United States Securities and Exchange Commission.
(17) Company Policies shall mean all Policies, current or past (to the extent any such past Policy still provides for benefits), which are or at any time were maintained by or on behalf of or for the benefit or protection of HLT or any of its predecessors which relate to the HLT Retained Business, the Ownership Business or the Timeshare Business, or current or past directors, officers, employees or agents of any of the foregoing Businesses.
(18) Confidential Information shall mean all non-public, confidential or proprietary Information of or concerning (a) a Party, its Group and/or its Subsidiaries or their past, current or future activities, businesses, finances, assets, liabilities or operations or (b) any third party who has provided Information to a Party, its Group and/or its Subsidiaries in confidence, except for any Information that is (i) in the public domain or available to the public through no fault of the receiving Party or its Subsidiaries or their authorized recipients of the Information, (ii) lawfully acquired after the Effective Time by such Party or its Subsidiaries from other sources not known to be subject to confidentiality obligations with respect to such Information or (iii) independently developed by the receiving Party after the Effective Time without reference to any Confidential Information.
3
(19) Consents shall mean any consents, waivers or approvals from, or notification requirements to, any Person other than a Governmental Entity.
(20) Continuing Arrangements shall mean those arrangements set forth on Schedule 1.1(20) and such other commercial arrangements among the Parties that are intended to survive and continue following the Effective Time as expressly set forth in the Transition Services Agreement; provided , however , that for the avoidance of doubt, Continuing Arrangements shall not apply to Third Party Agreements.
(21) Continuing Directors shall mean, as of any date of determination, any member of the board of directors of HLT, PK or HGV, as applicable, who (i) was a member of such Partys board of directors at the Effective Time; or (ii) was nominated for election, elected or appointed to such Partys board of directors with the approval of a majority of the Continuing Directors who were members of such Partys board of directors at the time of such nomination, election or appointment (either by a specific vote or by approval by such directors of the proxy statement of such Party in which such member was named as a nominee for election as a director).
(22) Contract shall mean any agreement, contract, subcontract, obligation, binding understanding, note, indenture, guarantee, instrument, option, lease, promise, arrangement, release, warranty, license, sublicense, insurance policy, benefit plan, purchase order or legally binding commitment or undertaking of any nature (whether written or oral and whether express or implied).
(23) Conveyancing and Assumption Instruments shall mean, collectively, the various Contracts, resolutions and other documents heretofore entered into and to be entered into to effect the Transfer of Assets and the Assumption of Liabilities in the manner contemplated by this Agreement and the Plan of Reorganization, or otherwise relating to, arising out of or resulting from the transactions contemplated by this Agreement, in such form or forms as the applicable Parties thereto agree.
(24) Customer Information shall mean all information and data in recorded form, whether written, electronic, computerized or digital or stored in any other media, relating to past, current or prospective customers or clients and their activities, experiences and transactions.
(25) Disclosure Documents shall mean any registration statement (including any registration statement on Form 10) or other document filed with the Commission by or on behalf of any Party or any of its controlled Affiliates, and also includes any information statement, prospectus, offering memorandum, offering circular or similar disclosure document, whether or not filed with the Commission or any other Governmental Entity, which offers for sale or registers the Transfer or distribution of any security of such Party or any of its controlled Affiliates.
(26) Distribution shall mean, collectively, the PK Distribution and the HGV Distribution.
(27) Distribution Agent shall mean Wells Fargo Bank, N.A.
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(28) Distribution Date shall mean the date on which HLT distributes all of the issued and outstanding shares of PK Common Stock and HGV Common Stock to the holders of HLT Common Stock.
(29) Distribution Record Date shall mean such date as may be determined by HLTs Board as the record date for the Distribution.
(30) Effective Time shall mean 6:01 p.m., New York time, on the Distribution Date.
(31) Employee Matters Agreement shall mean the Employee Matters Agreement by and among HLT, PK and HGV, in substantially the form attached hereto as Exhibit A .
(32) Environmental Laws shall mean all Laws relating to pollution, protection of the environment, or protection against harmful or deleterious substances.
(33) Excluded Policies shall mean the Policies listed on Schedule 10.9 .
(34) Final Determination shall have the meaning set forth in the Tax Matters Agreement.
(35) Financing Arrangements shall the financing arrangements described in the PK Information Statement (including the Unaudited Pro Forma Combined Consolidated Financial Statements included therein), and the HGV Information Statement (including the Unaudited Pro Forma Combined Consolidated Financial Statements included therein).
(36) Force Majeure shall mean, with respect to a Party, an event beyond the control of such Party (or any Person acting on its behalf), which by its nature could not have been foreseen by such Party (or such Person), or, if it could have been foreseen, was unavoidable, and includes acts of God, storms, floods, riots, labor unrest, pandemics, nuclear incidents, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) or armed hostilities or other national or international calamity or one or more acts of terrorism or failure of energy sources or distribution facilities.
(37) Governmental Approvals shall mean any notices or reports to be submitted to, or other registrations or filings to be made with, or any consents, approvals, licenses, permits or authorizations to be obtained from, any Governmental Entity.
(38) Governmental Entity shall mean any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission, department, board, bureau or court, whether domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any executive official thereof.
(39) Group shall mean (i) with respect to HLT, the HLT Group, (ii) with respect to PK, the PK Group and (iii) with respect to HGV, the HGV Group.
(40) HGV Balance Sheet shall mean the pro forma balance sheet of the HGV Group, including the notes thereto, as of , as filed with the HGV Form 10.
(41) HGV Offering Memorandum shall mean any offering memorandum or offering circular distributed to potential investors in connection with any private offering of debt securities by HGV, or its subsidiaries, as the case may be, in connection with the Financing Arrangements.
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(42) HGV Common Stock shall have the meaning set forth in the recitals hereto.
(43) HGV Distribution shall mean the distribution on the Distribution Date to holders of record of shares of HLT Common Stock as of the Distribution Record Date of the HGV Common Stock owned by HLT on the basis of one (1) share of HGV Common Stock, or such other number of shares of HGV Common Stock as shall have been approved by the Board and set forth in the HGV Information Statement, for every outstanding share[s] of HLT Common Stock.
(44) HGV Form 10 shall mean the registration statement on Form 10 (Registration No. 001-37794) filed by HGV with the Commission under the Securities Exchange Act of 1934, as amended, in connection with the HGV Distribution, including any amendment or supplement thereto.
(45) HGV Group shall mean HGV and each Person that is a direct or indirect Subsidiary of HGV immediately after the Effective Time, and each Person that becomes a Subsidiary of HGV after the Effective Time, and shall include the Timeshare Entities.
(46) HGV Information Statement shall mean the Information Statement attached as an exhibit to the HGV Form 10 to be sent to the holders of shares of HLT Common Stock in connection with the HGV Distribution, including any amendment or supplement thereto.
(47) HLT Common Stock shall mean the issued and outstanding shares of common stock of HLT, par value $0.01 per share.
(48) HLT Disclosure Sections shall mean all information set forth in, or omitted from, the sections of the PK Form 10, the HGV Form 10, the PK Offering Memorandum or the HGV Offering Memorandum, identified on Schedule 1.1(48) .
(49) HLT Group shall mean HLT and each Person that is a direct or indirect Subsidiary of HLT immediately after the Effective Time, and each Person that becomes a Subsidiary of HLT after the Effective Time, and shall include the HLT Retained Entities.
(50) HLT Retained Assets shall mean any and all Assets that are owned, leased or licensed, at or prior to the Effective Time, by HLT and/or any of its Subsidiaries, that are not Ownership Assets or Timeshare Assets, including:
(i) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have been or are to remain with HLT or any other member of the HLT Group;
(ii) the ownership interests in those Business Entities set forth on Schedule 1.1(50)(ii) (such entities, the HLT Retained Entities ) and all Assets of the HLT Retained Entities;
(iii) all rights, title and interest in and to the owned real property set forth on Schedule 1.1(50)(iii) (the HLT Owned Real Property ), including all land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
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(iv) all right, title and interest in, to and under the leases or subleases of the real property set forth on Schedule 1.1(50)(iv) (the HLT Retained Leases ), including, to the extent provided for in any HLT Retained Lease, any land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
(v) to the extent not provided in clauses (iii) and (iv) of this definition, all fixtures, machinery, equipment, apparatuses, computer hardware and other electronic data processing equipment, information technology and communications equipment, tools, instruments, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, and other tangible personal property, in each case located at any of the HLT Owned Real Property or the locations subject to the HLT Retained Leases, except for laptop computers and related desktop equipment, cellular phones and other mobile computing devices in each case primarily used by PK Employees (as defined in the Employee Matters Agreement) or HGV Employees (as defined in the Employee Matters Agreement), which shall be retained by such PK Employees and HGV Employees in accordance with the terms of the Transition Services Agreement;
(vi) all inventories, including products, goods, materials, parts, raw materials, work in process and supplies;
(vii) all HLT Retained Contracts and any rights or claims arising thereunder;
(viii) all Intellectual Property, including the registrations and applications set forth on Schedule 1.1(50)(viii) , except for Intellectual Property listed on Schedules 1.1(76)(ix) or 1.1(106)(ix) , subject, as applicable, to the applicable License Agreement;
(ix) all licenses, permits, approvals and authorizations which have been issued by any Governmental Entity;
(x) Information as follows, subject to any express exceptions in Article VIII :
(a) Sole ownership and all originals and copies of all (i) Information used exclusively in the HLT Retained Business and all Intellectual Property incorporated therein (provided that counsel for PK and HGV may retain a copy of any of same to the extent (A) it is already in possession of PK and HGV, as applicable and (B) such retention is required by applicable Law) and (ii) Loyalty Program Data;
(b) the original of all Information (other than Loyalty Program Data) that was used but not exclusively used in the HLT Retained Business and is in the possession or control of HLT as of the Distribution Date, and to the extent that (x) prior to the Distribution Date, PK has used such Information in the Ownership Business (or, following the Distribution Date, PK reasonably requires the use of such Information in the Ownership Business as conducted as of the Distribution Date) or (y) prior to the Distribution Date, HGV has used such Information in the Timeshare Business (or, following the Distribution Date, HGV reasonably requires the use of such Information in the Timeshare Business as
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conducted as of the Distribution Date), PK and/or HGV, as applicable, shall (1) be deemed an equal co-owner with HLT of the Intellectual Property in such Information and each co-owning Party shall have the right to (and to allow others to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (2) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained in the ordinary course of business at the time of such request, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information; and
(c) a copy of all Information (other than Loyalty Program Data) that was used but not exclusively used in the HLT Retained Business, and is in the possession or control of PK or HGV but not HLT as of the Distribution Date, and HLT shall (i) be deemed an equal co-owner with the possessing or controlling Party of the Intellectual Property in such Information and have the right to (and to allow others to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (ii) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained in the ordinary course of business at the time of such request, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information;
(xi) all deposits, prepaid expenses, letters of credit and performance and surety bonds;
(xii) all bonds, notes, debentures or other debt securities issued by any Person and held by any member of the HLT Group, all loans, advances or other extensions of credit or capital contributions to any Person on the books of any member of the HLT Group and all other investments in securities of any Person held by any member of the HLT Group;
(xiii) subject to Article X , any rights of any member of the HLT Group under any Policies, including any rights thereunder arising after the Effective Time in respect of any Policies that are occurrence policies and all rights in the nature of insurance, indemnification or contribution;
(xiv) the Assets set forth on Schedule 1.1(50)(xiv) ; and
(xv) any claims, counterclaims, setoffs, rights of recoupment, equity rights or defenses, whether known or unknown, that HLT and/or any of its Subsidiaries may have with respect to any HLT Retained Assets and HLT Retained Liabilities.
Notwithstanding the foregoing, the HLT Retained Assets shall not include any Assets that are expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the PK Group or the HGV Group, as the case may be, including any Assets (A) specified in clauses (i) through (xv) of the definition of Ownership Assets or (B) specified in clauses (i) through (xv) of the definition of Timeshare Assets.
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(51) HLT Retained Business shall mean the businesses conducted through the management of the day-to-day operations of Hilton-branded hotels, the ownership, development, franchising and promotion of the Hilton brands and the leasing or ownership of certain Hilton-branded hotels by HLT or any other member of the HLT Group prior to the Effective Time, including, for the avoidance of doubt, the businesses of (i) the management, franchising, leasing or ownership of the hotel and resort properties set forth on Schedule 1.1(51) hereto, (ii) any other division, Subsidiary, line of business or investment managed or operated by HLT or any other member of the HLT Group prior to the Effective Time, including the businesses conducted through the ownership and operation of the hotel management and franchising business of HLT prior to the Effective Time, unless such other division, Subsidiary, line of business or investment is included in the definitions of Ownership Business or Timeshare Business, and (iii) those business entities acquired or established by or for HLT or any other member of the HLT Group after the Effective Time. For the avoidance of doubt, the HLT Retained Business with respect to any of the properties set forth on Schedule 1.1(77) shall be deemed to be limited to the business activities prescribed to the applicable member of the HLT Group engaged as the manager or franchisor with respect to such property pursuant to the applicable Managing and Franchising Agreement entered into following the Distribution Date.
(52) HLT Retained Contracts shall mean any Contracts to which HLT or any of its Subsidiaries is a party as of the date hereof or becomes a party prior to the Effective Time or by which it or any of its Subsidiaries or any of their respective Assets is bound as of the date hereof or becomes bound prior to the Effective Time, whether or not in writing, except for any such Contract or part thereof that is an Ownership Contract or a Timeshare Contract, including:
(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the HLT Group;
(ii) any Contract that relates primarily to the HLT Retained Business, including any contract providing for the acquisition or disposition of a HLT Retained Entity or any HLT Retained Assets;
(iii) any Contract that represents or underlies any HLT Retained Assets or HLT Retained Liabilities;
(iv) any Contract or part thereof that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b) ) or any of the Ancillary Agreements to be assigned to or retained by any member of the HLT Group; and
(v) any guarantee, indemnity, representation or warranty of or in favor of any member of the HLT Group.
(53) HLT Retained Liabilities shall mean any and all Liabilities of the HLT Group that are not Ownership Liabilities or Timeshare Liabilities, including:
(i) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from: (a) the operation or conduct of the HLT Retained Business, as conducted at any time prior to, at or after (except as otherwise provided in Managing and Franchise Agreements) the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the HLT Group); (b) the operation or conduct of any business conducted by
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any member of the HLT Group at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the HLT Group); or (c) any HLT Retained Assets, whether arising prior to, on or after the Effective Time;
(ii) any Liabilities to the extent relating to, arising out of or resulting from, the HLT Retained Contracts;
(iii) the Applicable HLT Percentage of any Shared Contingent Liability;
(iv) the liabilities set forth on Schedule 1.1(53)(iv) (the Specified HLT Retained Liabilities );
(v) any Liabilities assumed or retained by the HLT Group pursuant to this Agreement or the Ancillary Agreements;
(vi) any Liabilities arising prior to, at or after the Effective Time for any infringement by the HLT Retained Business of the Intellectual Property of any other Person or breach by the HLT Retained Business of any Contract relating to Intellectual Property;
(vii) all Liabilities arising prior to, at or after the Effective Time to the extent resulting from any (A) violation prior to the Effective Time of any Environmental Laws by the HLT Group, any HLT Discontinued Operation or the conduct of the HLT Retained Business, (B) use, treatment, or disposal prior to the Effective Time of Materials of Environmental Concern by or on behalf of the HLT Group, any HLT Discontinued Operation or in the conduct of the HLT Retained Business or (C) presence of Materials of Environmental Concern at, or release of Materials of Environmental Concern from, any HLT Retained Assets or any HLT Discontinued Operation; provided that Liabilities of the type described in this subsection (vi) relating to real estate that is an Ownership Asset or a Timeshare Asset pursuant to this Agreement, shall not be HLT Retained Liabilities but shall instead be, respectively, Ownership Liabilities and Timeshare Liabilities;
(viii) any Liabilities relating to, arising out of or resulting from, any division, Subsidiary, line of business or investment managed or operated by HLT or any of its Subsidiaries at any time prior to the Effective Time and sold, transferred or otherwise discontinued prior to the Effective Time, including the divisions, Subsidiaries, lines of business or investments set forth on Schedule 1.1(53)(viii) , unless such division, Subsidiary, line of business or investment is an Ownership Discontinued Operation or a Timeshare Discontinued Operation (each such division, Subsidiary, line of business or investment, an HLT Discontinued Operation );
(ix) for the avoidance of doubt, any Liabilities relating primarily to, arising primarily out of or resulting primarily from, the operation or conduct of the HLT Retained Business by any Business Entity that is an Ownership Entity or a Timeshare Entity under this Agreement but has conducted the HLT Retained Business at any time prior to the Effective Time;
(x) any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission
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to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, the HLT Disclosure Sections;
(xi) Specified Shared Expenses to the extent provided in Section 5.2 ;
(xii) for the avoidance of doubt, and without limiting any other matters that may constitute HLT Retained Liabilities, any Liabilities relating to, arising out of or resulting from the claims, proceedings, litigation and disputes listed on Schedule 1.1(53)(xii) ; and
(xiii) any Liabilities relating primarily to, arising primarily out of or resulting primarily from, a workers compensation claim brought by or on behalf of an employee employed at any time in the HLT Retained Business or any HLT Discontinued Operation, except in the case where such employee was employed in either the Ownership Business or any Ownership Discontinued Operation or the Timeshare Business or any Timeshare Discontinued Operation subsequent to such employees final employment in the HLT Retained Business or HLT Discontinued Operations in which case the Liability shall be retained by PK or HGV, respectively.
Notwithstanding the foregoing, the HLT Retained Liabilities shall not include any Liabilities that are (A) expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be Assumed by any member of the PK Group or the HGV Group, as the case may be, including any Liabilities specified (1) in clauses (i) through (xiii) of the definition of Ownership Liabilities or (2) in clauses (i) through (xiii) of the definition of Timeshare Liabilities or (B) expressly discharged pursuant to Section 2.3 of this Agreement.
For the avoidance of doubt, no Liability shall be a HLT Retained Liability solely as a result of HLT being named as party to or in any Action relating to any Ownership Liability or Timeshare Liability due to HLTs status as the remaining and legacy Business Entity, or as a result of its status as the former direct or indirect stockholder of any Business Entity.
(54) Income Taxes shall have the meaning set forth in the Tax Matters Agreement.
(55) Indebtedness shall mean, with respect to any Person, (i) the principal value, prepayment and redemption premiums and penalties (if any), unpaid fees and other monetary obligations in respect of any indebtedness for borrowed money, whether short term or long term, including all obligations evidenced by bonds, debentures, notes, other debt securities or similar instruments, (ii) any indebtedness arising under any capital leases (excluding, for the avoidance of doubt, any real estate leases), whether short term or long term, (iii) all liabilities secured by any lien on any assets of such Person, (iv) all liabilities under any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, hedging arrangement or other similar agreement designed to protect such Person against fluctuations in interest rates, (v) all interest bearing indebtedness for the deferred purchase price of property or services, (vi) all liabilities under any letters of credit, performance bonds, bankers acceptances or similar obligations, (vii) all interest, prepayment or breakage costs, fees and other expenses owed with respect to indebtedness described in the foregoing clauses (i) through (vi), and (viii) without duplication, all guarantees of indebtedness referred to in the foregoing clauses (i) through (vii).
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(56) Indemnifiable Loss and Indemnifiable Losses shall mean any and all Liabilities, deficiencies, obligations, penalties, judgments, settlements, claims, payments, fines, administrative penalties, interest and Taxes (including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the reasonable costs and expenses of attorneys, accountants, consultants and other professionals fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), excluding special, consequential, reputational, indirect or punitive damages (other than special, consequential, indirect, reputational and/or punitive damages awarded by a court of competent jurisdiction in connection with a Third Party Claim (and, in such a case, only to the extent awarded in such Third Party Claim)).
(57) Information shall mean information and data in recorded form, whether written, electronic, computerized or digital or stored in any other media, including (i) books and records, whether accounting, legal or otherwise, ledgers, studies, reports, surveys, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, marketing plans, communications, correspondence, materials, product literature, artwork, files, documents, policies, procedures and manuals, research and analyses of any nature, including operational, technical or legal; (ii) financial and business information, including earnings reports and forecasts, macro-economic reports and forecasts, all cost information, sales and pricing data, business plans, market evaluations, surveys and credit-related information; and (iii) Customer Information.
(58) Insurance Proceeds shall mean those monies (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of an insured, in either case net of any applicable deductible or retention.
(59) Insured Claims shall mean those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Company Policies, whether or not subject to deductibles, co-insurance, uncollectability or retrospectively rated premium adjustments, but only to the extent that such Liabilities are within applicable Company Policy limits, including aggregates.
(60) Intellectual Property shall mean all worldwide intellectual property, proprietary and industrial property rights of any kind, including all (i) patents, patent applications, inventions and invention disclosures and utility models, (ii) trademarks, service marks, corporate names, trade names, domain names, social and mobile media identifiers, logos, slogans, designs, trade dress and other designations of source or origin, together with the goodwill symbolized by any of the foregoing ( Trademarks ), (iii) copyrights and copyrighted works, including software, code, compilations and documentation, website and mobile media content, photography, graphics and advertising materials, (iv) technology, trade secrets, know-how, processes, formulae, models, methodologies, discoveries, techniques, designs, specifications, drawings, and (v) all registrations, applications, continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, renewals, extensions and foreign counterparts thereof.
(61) IP Assignments shall mean the short-form assignment documents executed for the purpose of recording the transfer of Intellectual Property applications and registrations with the United States Patent and Trademark Office, the United States Copyright Officer or any other applicable office in any applicable foreign jurisdiction.
(62) IRS Ruling shall mean that certain IRS private letter ruling delivered to HLT and addressing, among other things, certain issues relevant to the tax-free treatment of the Distribution.
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(63) Law shall mean any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, income tax treaty, order, requirement or rule of law (including common law) or other binding directives of any Governmental Entity.
(64) Liabilities shall mean any and all Indebtedness, losses, damages, liabilities, costs, expenses, interest and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, reserved or unreserved, or determined or determinable, including those arising under any Law, claim, demand, Action, whether asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity and those arising under any Contract or any fines, damages or equitable relief which may be imposed and including all costs and expenses related thereto. Except as otherwise expressly provided for in the Employee Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes shall not be treated as Liabilities.
(65) LIBOR shall mean an interest rate per annum equal to the applicable three-month London Interbank Offer Rate for deposits in United States dollars published in The Wall Street Journal .
(66) License Agreement shall mean the License Agreement by and among HLT and HGV, in substantially the form attached hereto as Exhibit B .
(67) Loyalty Program Data shall have the meaning set forth in the License Agreement.
(68) Managing and Franchise Agreements shall mean the Management Agreements and Franchise Agreements by and among certain subsidiaries of PK, on the one hand, and certain subsidiaries of HLT, on the other hand.
(69) Managing and Franchising Asset Transferee shall mean the HLT Retained Entities to which HLT Retained Assets shall be or have been transferred by an Asset Transferor in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(70) Managing and Franchising Indemnitees shall mean each member of the HLT Group and each of their respective Affiliates from and after the Effective Time and each member of the HLT Groups and such Affiliates respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.
(71) Materials of Environmental Concern shall mean any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, molds, and radioactivity; any substance classified or regulated as hazardous or toxic (or words of similar meaning); and any other substances regulated pursuant to or that could give rise to liability under any applicable Environmental Law.
(72) Nonqualifying Income shall mean any amount that is treated as gross income for purposes of Section 856 of the Code and which is not Qualifying Income.
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(73) NYSE shall mean the New York Stock Exchange.
(74) OpCo Contribution shall have the meaning set forth in the recitals hereto.
(75) Ownership Asset Transferees shall mean the Ownership Entities to which Ownership Assets shall be or have been Transferred by an Asset Transferor in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(76) Ownership Assets shall mean those Assets that are owned, leased or licensed at or prior to the Effective Time, by HLT and/or any of its Subsidiaries, relating primarily to, used primarily in, or arising primarily from, the Ownership Business, and shall include:
(i) any and all Assets reflected on the PK Balance Sheet or the accounting records supporting such balance sheet and any Assets acquired by or for PK or any member of the PK Group subsequent to the date of the PK Balance Sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on the PK Balance Sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of the PK Balance Sheet;
(ii) the Assets set forth on Schedule 1.1(76)(ii) and any and all other Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have been or are to be Transferred to PK or any other member of the PK Group;
(iii) the ownership interests in those Business Entities set forth on Schedule 1.1(76)(iii) (such entities, the Ownership Entities ), other than PK, and all Assets of the Ownership Entities relating primarily to, used primarily in, or arising primarily from the Ownership Business;
(iv) all rights, title and interest in and to the owned real property set forth on Schedule 1.1(76)(iv) (the PK Owned Real Property ), including all land and land improvements, structures, buildings and building improvements, other improvements, fixtures and appurtenances located thereon;
(v) all right, title and interest in, to and under the leases or subleases of the real property set forth on Schedule 1.1(76)(v) (the Ownership Leases ), including, to the extent provided for in the Ownership Leases, any land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
(vi) to the extent not provided in clauses (iv) and (v) of this definition, all fixtures, machinery, equipment, apparatuses, computer hardware and other electronic data processing equipment, information technology and communications equipment, tools, instruments, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, special and general tools, test devices, molds, tooling, dies, prototypes and models and other tangible personal property in each case located at any of the PK Owned Real Property or the locations subject to the Ownership Leases;
(vii) all inventories, including products, goods, materials, parts, raw materials, work-in-process and supplies, relating primarily to, used primarily in, or arising primarily from, the Ownership Business;
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(viii) all Ownership Contracts and any rights or claims arising thereunder;
(ix) all Intellectual Property set forth on Schedule 1.1(76)(ix) , subject, as applicable, to the Managing and Franchise Agreements;
(x) all licenses, permits, approvals and authorizations which have been issued by any Governmental Entity and which relate primarily to, are used primarily in, or arise primarily from, the Ownership Business;
(xi) Information as follows, subject to any express exceptions in Article VIII :
(a) sole ownership and all originals and copies of all Information (other than Loyalty Program Data) used exclusively in the Ownership Business and all Intellectual Property incorporated therein (provided that counsel for HLT and HGV may retain a copy of any of same to the extent (A) it is already in possession of HLT and HGV, as applicable and (B) such retention is required by applicable Law);
(b) the original of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Ownership Business and is in the possession or control of PK as of the Distribution Date, and to the extent that (x) prior to the Distribution Date, HLT has used such Information in the HLT Retained Business (or, following the Distribution Date, HLT reasonably requires the use of such Information in the HLT Retained Business as conducted as of the Distribution Date) or (y) HGV has used such Information in the Timeshare Business (or, following the Distribution Date, HGV reasonably requires the use of such Information in the Timeshare Business as conducted as of the Distribution Date), HLT and/or HGV, as applicable, shall (1) be deemed an equal co-owner with PK of the Intellectual Property in such Information and each co-owning Party shall have the right to (and to allow others to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (2) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained at the time of the request, if such Party does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information; and
(c) a copy of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Ownership Business, and is in the possession or control of HLT or HGV but not PK as of the Distribution Date, and PK shall (i) be deemed an equal co-owner with the possessing or controlling Party of the Intellectual Property in such Information and have the right to (and to allow others to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (ii) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained at the time of the request, if PK does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information;
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(xii) all deposits, prepaid expenses, letters of credit and performance and surety bonds relating primarily to, used primarily in, or arising primarily from, the Ownership Business;
(xiii) all bonds, notes, debentures or other debt securities issued by any Person and held by any member of the PK Group, all loans, advances or other extensions of credit or capital contributions to any Person on the books of any member of the PK Group and all other investments in securities of any Person held by any member of the PK Group;
(xiv) subject to Article X , any rights of any member of the PK Group under any Policies, including any rights thereunder arising after the Effective Time in respect of any Policies that are occurrence policies and all rights in the nature of insurance, indemnification or contribution; provided , that ownership of the Company Policies shall remain with the HLT Group; and
(xv) any claims, counterclaims, setoffs, rights of recoupment, equity rights or defenses, whether known or unknown, that HLT and/or any of its Subsidiaries may have with respect to any Ownership Assets or Ownership Liabilities.
Notwithstanding the foregoing, the Ownership Assets shall not include any Assets that are expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the HLT Group or the HGV Group, as the case may be, including any Assets (A) specified in clauses (i) through (xv) of the definition of HLT Retained Assets, or (B) specified in clauses (i) through (xv) of the definition of Timeshare Assets.
(77) Ownership Business shall mean (A) the businesses conducted through the ownership, asset management (as opposed to hotel management), acquisition, development, refurbishment, redevelopment and sale of, and the provision of other services relating to hotel properties owned or leased by HLT or any other member of the HLT Group prior to the Effective Time, including, for the avoidance of doubt, the businesses of (i) the acquisition, development, refurbishment, redevelopment and sale of, and the provision of other services relating to the hotel properties set forth on Schedule 1.1(77) hereto, (ii) any other division, Subsidiary, line of business or investment of HLT or any other member of the HLT Group managed or operated prior to the Effective Time by any Ownership Entity, unless such other division, Subsidiary, line of business or investment is a HLT Retained Entity, a HLT Retained Asset, a Timeshare Entity or a Timeshare Asset, and (iii) those business entities acquired or established by or for PK or any other member of the PK Group after the Effective Time (B) the management of the day-to-day operations of the four hotels properties owned by PK and specified as such on Schedule 1.1(77) and (C) the laundry businesses at certain of the hotel properties described above.
(78) Ownership Contracts shall mean the following Contracts to which HLT or any of its Subsidiaries is a party as of the date hereof or becomes a party prior to the Effective Time or becomes a party after the Effective Time in respect of quotations, proposals and bids that were pending as of the date hereof or by which it or any of its Subsidiaries or any of their respective Assets is bound as of the date hereof or becomes bound prior to the Effective Time, whether or not in writing, except for any such Contract or part thereof (a) that is expressly contemplated not to be Transferred by any member of the HLT Group or the HGV Group to the PK Group or (b) that is expressly contemplated to be Transferred to (or remain with) any member of the HLT Group or the HGV Group, in each case, pursuant to any provision of this Agreement or any Specified Ancillary Agreement:
(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the PK Group; provided that if such Contract was entered into by Hilton Worldwide Inc. (now known as Park Hotels & Resorts Inc.), such fact shall not, by itself, result in the determination that such Contract is an Ownership Contract;
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(ii) any Contract that relates primarily to the Ownership Business, including any contract providing for the acquisition or disposition of an Ownership Entity or Ownership Assets;
(iii) any Contract that relates primarily to the Ownership Business that was entered into after the Effective Time and for which a quotation, proposal, or bid was pending as of the date hereof;
(iv) any Contract that represents or underlies any Ownership Assets or Ownership Liabilities;
(v) any Contract or part thereof that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b) ) or any of the Ancillary Agreements to be assigned to or retained by any member of the PK Group; and
(vi) any guarantee, indemnity, representation or warranty of or in favor of any member of the PK Group.
(79) Ownership Indemnitees shall mean each member of the PK Group and each of their respective Affiliates from and after the Effective Time and each member of the PK Groups and such respective Affiliates respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.
(80) Ownership Liabilities shall mean any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from: (a) the operation or conduct of the Ownership Business, as conducted at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the PK Group); (b) the operation or conduct of any business conducted by any member of the PK Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the PK Group); or (c) any Ownership Assets, whether arising prior to, on or after the Effective Time, including:
(i) any and all Liabilities reflected on the PK Balance Sheet or the accounting records supporting such balance sheet and any Liabilities incurred by or for PK or any member of the PK Group subsequent to the date of the PK Balance Sheet which, had they been so incurred on or before such date, would have been reflected on the PK Balance Sheet if prepared on a consistent basis, subject to any discharge of any of such Liabilities subsequent to the date of the PK Balance Sheet;
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(ii) any Liabilities to the extent relating to, arising out of or resulting from, the Ownership Contracts;
(iii) the Applicable PK Percentage of any Shared Contingent Liability;
(iv) the liabilities set forth on Schedule 1.1(80)(iv) (the Specified Ownership Liabilities );
(v) any Liabilities assumed or retained by the PK Group pursuant to this Agreement or the Ancillary Agreements;
(vi) any Liabilities arising prior to, at or after the Effective Time for any infringement by the Ownership Business of the Intellectual Property of any other Person or breach by the Ownership Business of any Contract relating to Intellectual Property;
(vii) all Liabilities arising prior to, at or after the Effective Time to the extent resulting from any (A) violation prior to the Effective Time of any Environmental Laws by the PK Group, any Ownership Discontinued Operation or the conduct of the Ownership Business, (B) use, treatment, or disposal prior to the Effective Time of Materials of Environmental Concern by or on behalf of the PK Group, any Ownership Discontinued Operation or in the conduct of the Ownership Business or (C) presence of Materials of Environmental Concern at, or release of Materials of Environmental Concern from, any Ownership Assets or any Ownership Discontinued Operation; provided that Liabilities of the type described in this subsection (vii) relating to real estate that is a HLT Retained Asset or a Timeshare Asset pursuant to this Agreement, shall not be Ownership Liabilities but shall instead be, respectively, HLT Retained Liabilities and Timeshare Liabilities;
(viii) any Liabilities relating to, arising out of or resulting from, any division, Subsidiary, line of business or investment of HLT or any of its Subsidiaries managed or operated at any time prior to the Effective Time by the Ownership Entities and sold, transferred or otherwise discontinued prior to the Effective Time, including the divisions, Subsidiaries, lines of business or investments set forth on Schedule 1.1(80)(viii) , unless such division, Subsidiary, line of business or investment is listed on Schedule 1.1(53)(viii) or Schedule 1.1(110)(viii) (each such division, Subsidiary, line of business or investment, an Ownership Discontinued Operation );
(ix) for the avoidance of doubt, any Liabilities relating primarily to, arising primarily out of or resulting primarily from, the operation or conduct of the Ownership Business by any Business Entity that is a HLT Retained Entity or a Timeshare Entity under this Agreement but has conducted the Ownership Business at any time prior to the Effective Time;
(x) any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated in the PK Form 10 or in any PK Offering Memorandum, or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, the PK Form 10, any PK Offering Memorandum and any other Disclosure Documents filed by PK in connection with the Distribution or as contemplated by this Agreement, other than with respect to the HLT Disclosure Sections;
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(xi) Specified Shared Expenses to the extent provided in Section 5.2 ;
(xii) for the avoidance of doubt, and without limiting any other matters that may constitute Ownership Liabilities, any Liabilities relating to, arising out of or resulting from the claims, proceedings, litigation and disputes listed on Schedule 1.1(80)(xii) ; and
(xiii) any Liabilities relating primarily to, arising primarily out of or resulting primarily from, a workers compensation claim brought by or on behalf of an employee employed at any time in the Ownership Business or any Ownership Discontinued Operation, except in the case where such employee was employed in either the Timeshare Business or any Timeshare Discontinued Operation or the HLT Retained Business or any HLT Discontinued Operation subsequent to such employees final employment in the Ownership Business or Ownership Discontinued Operations, as applicable, in which case the Liability shall be retained by HGV or HLT, respectively.
Notwithstanding the foregoing, the Ownership Liabilities shall not include any Liabilities that are expressly (A) contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be Assumed by any member of the HLT Group or the HGV Group, as the case may be, including any Liabilities specified (1) in the definition of HLT Retained Liabilities, including clauses (i) through (xiii) thereof, or (2) in clauses (i) through (xiii) of the definition of Timeshare Liabilities, or (B) discharged pursuant to Section 2.3 of this Agreement.
For the avoidance of doubt, no Liability shall be an Ownership Liability solely as a result of PK being named as party to or in any Action relating to any HLT Retained Liability or Timeshare Liability, or as a result of PKs status as the former direct or indirect stockholder or equityholder of any member of the HLT Group or HGV Group.
(81) Person shall mean any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership or other organization or entity, whether incorporated or unincorporated, or any Governmental Entity.
(82) PK Balance Sheet shall mean the pro forma balance sheet of the PK Group, including the notes thereto, as of , included in the PK Form 10.
(83) PK Common Stock shall have the meaning set forth in the recitals hereto.
(84) PK Distribution shall mean the distribution on the Distribution Date to holders of record of shares of HLT Common Stock as of the Distribution Record Date of the PK Common Stock owned by HLT on the basis of one (1) share of PK Common Stock, or such other number of shares of PK Common Stock as shall have been approved by the Board and set forth in the PK Information Statement, for every outstanding share[s] of HLT Common Stock.
(85) PK Form 10 shall mean the registration statement on Form 10 (Registration No. 001-37795) filed by PK with the Commission under the Securities Exchange Act of 1934, as amended, in connection with the PK Distribution, including any amendment or supplement thereto.
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(86) PK Group shall mean PK and each Person that is a direct or indirect Subsidiary of PK immediately after the Effective Time, and each Person that becomes a Subsidiary of PK after the Effective Time, and shall include the Ownership Entities.
(87) PK Information Statement shall mean the Information Statement attached as an exhibit to the PK Form 10 to be sent to the holders of shares of HLT Common Stock in connection with the PK Distribution, including any amendment or supplement thereto.
(88) PK Offering Memorandum shall mean any offering memorandum or offering circular distributed to potential investors in connection with any private offering of debt securities by PK, or its Subsidiaries, as the case may be, in connection with the Financing Arrangements.
(89) Plan of Reorganization shall have the meaning set forth in the recitals.
(90) Policies shall mean all insurance policies and insurance contracts of any kind including bonds (other than policies or contracts related to employee benefit plans) currently in place for HLT programs, together with the rights, benefits and privileges thereunder.
(91) Protected REIT shall mean any entity that (i) has elected to be taxed as a REIT and (ii) either (A) is an Indemnitee or (B) owns a direct or indirect equity interest in any Indemnitee and is treated for purposes of Section 856 of the Code as owning all or a portion of the assets of such Indemnitee or as receiving all or a portion of the Indemnitees income.
(92) Qualifying Income shall mean gross income that is described in Section 856(c)(3) of the Code.
(93) Records shall mean any Contracts, documents, books, records or files.
(94) REIT shall mean a real estate investment trust, as defined under the Code.
(95) REIT Requirements shall mean the requirements imposed on REITs pursuant to Sections 856 through and including 860 of the Code.
(96) Security Interest shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-entry, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever, excluding restrictions on transfer under securities Laws.
(97) Shared Contingent Liabilities shall mean any of the Liabilities set forth on Schedule 1.1(97) .
(98) Specified Shared Expenses shall mean any costs and expenses relating to the items or categories set forth on Schedule 1.1(98) and shall be shared in the manner specified in Section 5.2 .
(99) Subsidiary shall mean with respect to any Person (i) a corporation, fifty percent (50%) or more of the voting or capital stock of which is, as of the time in question, directly or indirectly owned by such Person and (ii) any other Person in which such Person, directly or indirectly, owns fifty percent (50%) or more of the equity or economic interest thereof or has the power to elect or direct the election of fifty percent (50%) or more of the members of the governing body of such entity.
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(100) Tax shall have the meaning set forth in the Tax Matters Agreement.
(101) Tax Contest shall have the meaning in the definition of Audit as set forth in the Tax Matters Agreement.
(102) Tax Matters Agreement shall mean the Tax Matters Agreement by and among HLT, PK and HGV, in substantially the form attached hereto as Exhibit C .
(103) Tax Return shall have the meaning set forth in the Tax Matters Agreement.
(104) Third Party Agreements shall mean any of the following Contracts, arrangements, course of dealings or understandings:
(i) any agreements, arrangements, commitments or understandings to which any Person other than the Parties and their respective Groups is a party hereto (it being understood that to the extent that the rights and obligations of the Parties and the members of their respective Groups under any such Contracts constitute Timeshare Assets or Timeshare Liabilities, Ownership Assets or Ownership Liabilities or HLT Retained Assets or HLT Retained Liabilities, such Contracts shall be assigned or retained pursuant to Article II ); and
(ii) any agreements, arrangements, commitments or understandings to which any non-wholly owned Subsidiary of HLT, PK or HGV, as the case may be, is a Party.
(105) Timeshare Asset Transferee shall mean the Timeshare Entities to which Timeshare Assets shall be or have been transferred by an Asset Transferor in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(106) Timeshare Assets shall mean those Assets that are owned, leased or licensed, at or prior to the Effective Time, by HLT and/or any of its Subsidiaries, relating primarily to, used primarily in, or arising primarily from, the Timeshare Business, and shall include:
(i) any and all Assets reflected on the HGV Balance Sheet or the accounting records supporting such balance sheet and any Assets acquired by or for HGV or any member of the HGV Group subsequent to the date of the HGV Balance Sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on the HGV Balance Sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of the HGV Balance Sheet;
(ii) the Assets set forth on Schedule 1.1(106)(ii) and any and all other Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have been or are to be Transferred to HGV or any other member of the HGV Group;
(iii) the ownership interests in those Business Entities set forth on Schedule 1.1(106)(iii) (such entities, the Timeshare Entities ), other than HGV, and all Assets of the Timeshare Entities relating primarily to, used primarily in, or arising primarily from the Timeshare Business;
(iv) all rights, title and interest in and to the owned real property set forth on Schedule 1.1(106)(iv) (the Timeshare Owned Real Property ), including all land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
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(v) all rights, title and interest in, and to and under the leases or subleases of the real property set forth on Schedule 1.1(106)(v) (the Timeshare Leases ) including, to the extent provided for in the Timeshare Leases, any land and land improvements, structures, buildings and building improvements, other improvements and appurtenances;
(vi) to the extent not provided in clauses (iv) and (v) of this definition, all fixtures, machinery, equipment, apparatuses, computer hardware and other electronic data processing equipment, information technology and communications equipment, tools, instruments, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, special and general tools, test devices, molds, tooling, dies, prototypes and models and other tangible personal property, in each case located at any of the Timeshare Owned Real Property or the locations subject to the Timeshare Leases;
(vii) all inventories, including products, goods, materials, parts, raw materials, work-in-process and supplies, relating primarily to, used primarily in, or arising primarily from, the Timeshare Business;
(viii) all Timeshare Contracts and any rights or claims arising thereunder;
(ix) all Intellectual Property set forth on Schedule 1.1(106)(ix) , subject, as applicable, to the applicable License Agreement;
(x) all licenses, permits, approvals and authorizations which have been issued by any Governmental Entity and which relate primarily to, are used primarily in, or arise primarily from, the Timeshare Business;
(xi) Information as follows, subject to any express exceptions in Article VIII :
(a) sole ownership and all originals and copies of all Information (other than Loyalty Program Data) used exclusively in the Timeshare Business and all Intellectual Property incorporated therein (provided that counsel for PK and HLT may retain a copy of any of same to the extent (A) it is already in possession of PK and HLT, as applicable, and (B) such retention is required by applicable Law);
(b) the original of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Timeshare Business and is in the possession or control of HGV as of the Distribution Date, and to the extent that (x) prior to the Distribution Date, HLT has used such Information in the HLT Retained Business (or following the Distribution Date HLT reasonably requires the use of such Information in the HLT Retained Business as conducted as of the Distribution Date) or (y) PK has used such Information in the Ownership Business (or following the Distribution Date PK reasonably requires the use of such Information in the Ownership Business as conducted as of the Distribution Date), HLT and/or PK, as applicable, shall (1) be deemed an equal co-owner with HGV of the Intellectual Property in such Information and each co-owning Party shall have the right to (and to allow others to) use and disclose such Information without an accounting to the other co-owning Party and (2) subject to Section 8.5,
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have the right to retain or receive a copy of such Information in the media in which it was maintained at the time of such request in the ordinary course of business prior to the Distribution Date, if such Party does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information; and
(c) a copy of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Timeshare Business, and is in the possession or control of HLT or PK but not HGV as of the Distribution Date, and HGV shall (i) be deemed an equal co-owner with the possessing or controlling Party of the Intellectual Property in such Information and have the right to (and to allow others to) use and disclose such Information without an accounting to the other co-owning Party and (ii) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained at the time of such request, if HGV does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information;
(xii) all deposits, prepaid expenses, letters of credit and performance and surety bonds relating primarily to, used primarily in, or arising primarily from, the Timeshare Business;
(xiii) all bonds, notes, debentures or other debt securities issued by any Person and held by any member of the HGV Group, all loans, advances or other extensions of credit or capital contributions to any Person on the books of any member of the HGV Group and all other investments in securities of any Person held by any member of the HGV Group;
(xiv) subject to Article X , any rights of any member of the HGV Group under any Policies, including any rights thereunder arising after the Effective Time in respect of any Policies that are occurrence policies and all rights in the nature of insurance, indemnification or contribution; provided that ownership of the Company Policies shall remain with the HLT Group; and
(xv) any claims, counterclaims, setoffs, rights of recoupment, equity rights or defenses, whether known or unknown, that HLT and/or any of its Subsidiaries may have with respect to any Timeshare Assets and Timeshare Liabilities.
Notwithstanding the foregoing, the Timeshare Assets shall not include any Assets that are expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the PK Group or the HLT Group, as the case may be, including any Assets (A) specified in clauses (i) through (xv) of the definition of Ownership Assets or (B) specified in clauses (i) through (xv) of the definition of HLT Retained Assets.
(107) Timeshare Business shall mean the businesses conducted through the ownership, development, redevelopment and management of, the sale and financing of interests in, and the servicing of receivables with respect to timeshare properties by HLT or any other
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member of the HLT Group prior to the Effective Time, including, for the avoidance of doubt, the businesses of (i) the ownership, development, redevelopment and management of, the sale and financing of interests in, and the servicing of receivables with respect to the timeshare properties set forth on Schedule 1.1(107) hereto, (ii) any other division, Subsidiary, line of business or investment of HLT or any other member of the HLT Group managed or operated prior to the Effective Time by any Timeshare Entity, unless such other division, Subsidiary, line of business or investment is an Ownership Entity, an Ownership Asset, a HLT Retained Entity or a HLT Retained Asset and (iii) those business entities acquired or established by or for HGV or any other member of the HGV Group after the Effective Time.
(108) Timeshare Contracts shall mean the following Contracts to which HLT or any of its Subsidiaries is a party as of the date hereof or becomes a party prior to the Effective Time or becomes a party after the Effective Time in respect of quotations, proposals and bids that were pending as of the date hereof or by which it or any of its Subsidiaries or any of their respective Assets is bound as of the date hereof or becomes bound prior to the Effective Time, whether or not in writing, except for any such Contract or part thereof (i) that is expressly contemplated not to be Transferred by any member of the HLT Group or the PK Group to the HGV Group or (ii) that is expressly contemplated to be Transferred to (or remain with) any member of the HLT Group or the PK Group, in each case, pursuant to any provision of this Agreement or any Specified Ancillary Agreement:
(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the HGV Group;
(ii) any Contract that relates primarily to the Timeshare Business, including any contract providing for the acquisition or disposition of a Timeshare Entity or Timeshare Assets;
(iii) any Contract that relates primarily to the Timeshare Business that was awarded after the Effective Date and for which the quotation, proposal, or bid was pending as of the date hereof;
(iv) any Contract that represents or underlies any Timeshare Assets or Timeshare Liabilities;
(v) any Contract or part thereof that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b) ) or any of the Ancillary Agreements to be assigned to any member of the HGV Group; and
(vi) any guarantee, indemnity, representation or warranty of or in favor of any member of the HGV Group.
(109) Timeshare Indemnitees shall mean each member of the HGV Group and each of their respective Affiliates from and after the Effective Time and each member of the HGV Groups and such respective Affiliates respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.
(110) Timeshare Liabilities shall mean any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from: (a) the operation or conduct of the Timeshare Business, as conducted at any time prior to, at or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer,
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employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the HGV Group); (b) the operation or conduct of any business conducted by any member of the HGV Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the HGV Group); or (c) any Timeshare Assets, whether arising prior to, at or after the Effective Time, including:
(i) any and all Liabilities reflected on the HGV Balance Sheet or the accounting records supporting such balance sheet and any Liabilities incurred by or for HGV or any member of the HGV Group subsequent to the date of the HGV Balance Sheet which, had they been so incurred on or before such date, would have been reflected on the HGV Balance Sheet if prepared on a consistent basis, subject to any discharge of any of such Liabilities subsequent to the date of the HGV Balance Sheet;
(ii) any Liabilities to the extent relating to, arising out of or resulting from, the Timeshare Contracts;
(iii) the Applicable HGV Percentage of any Shared Contingent Liability;
(iv) The liabilities set forth on Schedule 1.1(110)(iv) (the Specified Timeshare Liabilities );
(v) any Liabilities assumed or retained by the HGV Group pursuant to this Agreement or the Ancillary Agreements;
(vi) any Liabilities arising prior to, at or after the Effective Time for any infringement by the Timeshare Business of the Intellectual Property of any other Person or breach by the Timeshare Business of any Contract relating to Intellectual Property;
(vii) all Liabilities arising prior to, at or after the Effective Time to the extent resulting from any (A) violation prior to the Effective Time of any Environmental Laws by the HGV Group, any Timeshare Discontinued Operation or the conduct of the Timeshare Business, (B) use, treatment, or disposal prior to the Effective Time of Materials of Environmental Concern by or on behalf of the HGV Group, any Timeshare Discontinued Operation or in the conduct of the Timeshare Business or (C) presence of Materials of Environmental Concern at, or release of Materials of Environmental Concern from, any Timeshare Assets or any Timeshare Discontinued Operation; provided that Liabilities of the type described in this subsection (vii) relating to real estate that is an Ownership Asset or a HLT Retained Asset pursuant to this Agreement, shall not be Timeshare Liabilities but shall instead be, respectively, Ownership Liabilities and HLT Retained Liabilities;
(viii) any Liabilities relating to, arising out of or resulting from, any division, Subsidiary, line of business or investment of HLT or any of its Subsidiaries managed or operated at any time prior to the Effective Time by the Timeshare Entities and sold, transferred or otherwise discontinued prior to the Effective Time, including the divisions, Subsidiaries, lines of business or investments set forth on Schedule 1.1(110)(viii) , unless such division, Subsidiary, line of business or investment is listed on Schedule 1.1(53)(ix) or Schedule 1.1(80)(viii) (each such division, Subsidiary, line of business or investment, a Timeshare Discontinued Operation );
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(ix) for the avoidance of doubt, any Liabilities relating primarily to, arising primarily out of or resulting primarily from, the operation or conduct of the Timeshare Business by any Business Entity that is a HLT Retained Entity or an Ownership Entity under this Agreement but has conducted the Timeshare Business at any time prior to the Effective Time;
(x) any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated in the HGV Form 10 or in any HGV Offering Memorandum, or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, the HGV Form 10, any HGV Offering Memorandum and any other Disclosure Documents filed by HGV in connection with the Distribution or as contemplated by this Agreement, other than with respect to the HLT Disclosure Sections;
(xi) Specified Shared Expenses to the extent provided in Section 5.2 ; and
(xii) for the avoidance of doubt, and without limiting any other matters that may constitute Timeshare Liabilities, any Liabilities relating to, arising out of or resulting from the claims, proceedings, litigation and disputes listed on Schedule 1.1(110)(xii) ; and
(xiii) Any Liabilities relating primarily to, arising primarily out of or resulting primarily from, a workers compensation claim brought by or on behalf of an employee employed at any time in the Timeshare Business or any Timeshare Discontinued Operation, except in the case where such employee was employed in either the Ownership Business or any Ownership Discontinued Operation or the HLT Retained Business or any HLT Discontinued Operation subsequent to such employees final employment in the Timeshare Business or Timeshare Discontinued Operations, as applicable, in which case the Liability shall be retained by PK or HLT, respectively.
Notwithstanding the foregoing, the Timeshare Liabilities shall not include any Liabilities that are expressly (A) contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be Assumed by any member of the PK Group or the HLT Group, as the case may be, including any Liabilities specified (1) in clauses (i) through (xiii) of the definition of Ownership Liabilities or (2) in the definition of HLT Retained Liabilities, including clauses (i) through (xiii) thereof, or (B) discharged pursuant to Section 2.3 of this Agreement.
For the avoidance of doubt, no Liability shall be a Timeshare Liability solely as a result of HGV being named as party to or in any Action relating to any HLT Retained Liability or Ownership Liability, or as a result of HGVs status as the former direct or indirect stockholder or equityholder of any member of the HLT Group or PK Group.
(111) Transfer shall have the meaning set forth in Section 2.2(b) ; and the term Transferred shall have its correlative meaning.
(112) Transition Services Agreement shall mean the Master Transition Services Agreement by and among HLT, PK and HGV, in substantially the form attached hereto as Exhibit D .
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(113) Waiver Letter shall mean that letter agreement from Blackstone to each of PK and Hogan Lovells US LLP in the form attached as Exhibit E hereto.
Section 1.2. References; Interpretation . References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words include, includes and including when used in this Agreement shall be deemed to be followed by the phrase without limitation. Unless the context otherwise requires, references in this Agreement to Articles, Sections, Annexes, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement. Unless the context otherwise requires, the words hereof, hereby and herein and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. The words written request when used in this Agreement shall include email. In the event of any inconsistency or conflict which may arise in the application or interpretation of any of the definitions set forth in Section 1.1 , for the purpose of determining what is and is not included in such definitions, any item explicitly included on a Schedule referred to in any such definition shall take priority over any provision of the text thereof.
ARTICLE II
THE SEPARATION
Section 2.1. General . Subject to the terms and conditions of this Agreement, the Parties shall use, and shall cause their respective Affiliates to use, their respective commercially reasonable efforts to consummate the transactions contemplated hereby, including as set forth in the Plan of Reorganization, a portion of which may have already been implemented prior to the date hereof. It is the intent of the Parties that, after consummation of the transactions contemplated hereby HLT shall have been restructured, to the extent necessary, such that following the consummation of such restructuring, subject to Section 2.5 and Section 2.6 , (i) HLT shall, directly or indirectly, own the equity interests of all of the HLT Retained Entities (other than HLT), all of HLTs and its controlled Affiliates rights, title and interest in and to the HLT Retained Assets shall be owned or held by the HLT Group, the HLT Retained Business shall be conducted by the HLT Group and all of the HLT Retained Liabilities shall be Assumed directly or indirectly by (or remain with) the HLT Group, (ii) PK shall, directly or indirectly, own the equity interests of all of the Ownership Entities (other than PK), all of HLTs and its controlled Affiliates rights, title and interest in and to the Ownership Assets shall be owned or held by the PK Group, the Ownership Business shall be conducted by the PK Group and all of the Ownership Liabilities shall be Assumed directly or indirectly by (or remain with) the PK Group, and (iii) HGV shall, directly or indirectly, own the equity interests of all of the Timeshare Entities (other than HGV), all of HLTs and its controlled Affiliates rights, title and interest in and to the Timeshare Assets shall be owned or held by the HGV Group, the Timeshare Business shall be conducted by the HGV Group and all of the Timeshare Liabilities shall be Assumed directly or indirectly by (or remain with) the HGV Group.
Section 2.2. Restructuring: Transfer of Assets; Assumption of Liabilities .
(a) Restructuring of Entities . Prior to the Effective Time, to the extent not already completed, HLT and its controlled Affiliates will use commercially reasonable efforts to take such steps (which may include the transfer of shares or other equity interests, the formation of new entities and/or the declaration of dividends) as may be necessary or desirable to effect the Plan of Reorganization (and any additional steps that may have been omitted from (or are otherwise required in order to effect) the Plan of Reorganization) in order to cause (i) HLT to, directly or indirectly, own the HLT Retained Entities (other than HLT), (ii) PK to, directly or indirectly, own the Ownership Entities (other than PK) and (iii) HGV to, directly or indirectly, own the Timeshare Entities (other than HGV). In the event such steps are not able
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to be completed by the Effective Time, the Parties shall use commercially reasonable efforts to effect other actions following the Effective Time in accordance with, and subject to the limitations of, Sections 2.5 and 2.6 to cause the result set forth above.
(b) Transfer of Other Assets and Assumption of Liabilities . Prior to the Effective Time, except as otherwise specifically set forth in any Specified Ancillary Agreement and without duplication of the obligations set forth in Section 2.2(a) , pursuant to the Conveyancing and Assumption Instruments: (x) HLT shall use commercially reasonable efforts to cause the applicable Asset Transferors to, transfer, contribute, distribute, assign and/or convey or cause to be transferred, contributed, distributed, assigned and/or conveyed ( Transfer ) to (A) the respective Managing and Franchising Asset Transferees, all of the applicable Asset Transferors right, title and interest in and to the HLT Retained Assets, (B) PK and/or the respective Ownership Asset Transferees, all of its and the applicable Asset Transferors right, title and interest in and to the Ownership Assets and (C) HGV and/or the respective Timeshare Asset Transferees, all of its and the applicable Asset Transferors right, title and interest in and to the Timeshare Assets and (y) (i) HLT shall use commercially reasonable efforts to cause a member of the HLT Group to accept, assume (or, as applicable, retain) and perform, discharge and fulfill, in accordance with their respective terms ( Assume ), all of the HLT Retained Liabilities, (ii) PK shall, or shall cause a member of the PK Group to, Assume all of the Ownership Liabilities and (iii) HGV shall, or shall cause a member of the HGV Group to, Assume all of the Timeshare Liabilities, in each case, regardless of (I) when or where such Liabilities arose or arise, (II) whether the facts upon which they are based occurred prior to, on or subsequent to the Effective Time, (III) where or against whom such Liabilities are asserted or determined or (IV) whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the HLT Group, the PK Group or the HGV Group, as the case may be, or any of their past or present respective directors, officers, employees, agents, Subsidiaries or Affiliates. In the event and to the extent any such Transfers and Assumptions are not completed by the Effective Time, the Parties shall use commercially reasonable efforts to effect such Transfers and Assumptions following the Effective Time in accordance with, and subject to the limitations of, Sections 2.5 and 2.6 ).
(c) Consents . The Parties shall use their commercially reasonable efforts to obtain the required Consents or Governmental Approvals to Transfer any Assets, Contracts, licenses, permits and/or authorizations issued by any Governmental Entity or parts thereof as contemplated by this Agreement. Nothing herein shall be deemed to require the Transfer of any Assets or the Assumption of any Liabilities which by operation of Law cannot be Transferred or Assumed; provided , however , that the Parties shall cooperate and use their commercially reasonable efforts to seek to obtain, in accordance with applicable Law, any required Consents or Governmental Approvals for the Transfer of all Assets and Assumption of all Liabilities to the fullest extent permitted by applicable Law contemplated to be Transferred and Assumed pursuant to this Article II .
Section 2.3. Intercompany Accounts . Except as set forth in Section 7.1(b) and to the extent not otherwise settled, capitalized or otherwise eliminated pursuant to any Ancillary Agreement, all (i) intercompany receivables, payables and loans (other than receivables, payables and loans otherwise specifically provided for under this Agreement, under any Ancillary Agreement or under any Continuing Arrangements as set forth on Schedule 1.1(20) , and other than payables created or required hereby or by any Ancillary Agreement or any Continuing Arrangements), if any, and (ii) intercompany balances, including in respect of any cash balances, any cash balances representing deposited checks or drafts or any cash held in any centralized cash management system (A) between any member of the HLT Group, on the one hand, and any member of the PK Group or the HGV Group, on the other hand or (B) between any member of the PK Group, on the one hand, and any member of the HGV Group, on the other hand, in each case, which exist and are reflected in the accounting records of the relevant Parties immediately prior to the Effective Time, shall be settled or capitalized, in each case as of the Effective Time, as may
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be agreed prior to the Effective Time by HLT, PK and/or HGV, and their respective Subsidiaries, as applicable. Each of the Parties shall, and shall cause their respective Subsidiaries to, take all actions and do all things reasonably necessary on its part, or such Subsidiaries part, under applicable Law or contractual obligations to consummate and make effective the transactions contemplated by such agreement or agreements in respect of such settlements or capitalizations.
Section 2.4. Limitation of Liability . No Party shall have any Liability to any other Party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate.
Section 2.5. Transfers Not Effected at or Prior to the Effective Time; Transfers Deemed Effective as of the Effective Time .
(a) To the extent that any Transfer of Assets (including any entity) or Assumption of Liabilities contemplated by this Article II shall not have been consummated at or prior to the Effective Time, the Parties shall use commercially reasonable efforts to effect such Transfers as promptly following the Effective Time as shall be practicable. Nothing herein shall be deemed to require the Transfer of any Assets or the Assumption of any Liabilities which by their terms or operation of Law cannot be Transferred; provided , however , that the Parties and their respective Subsidiaries shall cooperate and use commercially reasonable efforts to seek to obtain, in accordance with applicable Law, any necessary Consents or Governmental Approvals for the Transfer of all Assets and Assumption of all Liabilities to the fullest extent permitted by applicable Law contemplated to be Transferred and Assumed pursuant to this Article II .
(b) In the event that any such Transfer of Assets (including any entity) or Assumption of Liabilities has not been consummated, from and after the Effective Time (i) the Party retaining such Asset shall thereafter hold such Asset in trust for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and (ii) the Party intended to Assume such Liability shall, or shall cause the applicable member of its Group to (A) pay or reimburse the Party retaining such Liability for all amounts paid or incurred in connection with the retention of such Liability or (B) perform any non-monetary Liabilities in the place of the Party retaining such Liability to the extent such performance is practicable, permitted under applicable Law and does not result in a breach or default (or give rise to any termination rights, penalties or other remedies for the benefit of any counterparty) under any applicable Contract. To the extent the foregoing applies to any Contracts to be assigned for which any necessary Consents or Governmental Approvals are not received prior to the Effective Time, the treatment of such Contracts shall, for the avoidance of doubt, be subject to Section 2.7 , to the extent applicable. In addition, the Party retaining such Asset or Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Asset or Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the Party to which such Asset is to be Transferred or by the Party Assuming such Liability in order to place such Party, insofar as reasonably possible, in the same position as if such Asset or Liability had been Transferred or Assumed as contemplated hereby and so that all of the benefits and burdens relating to such Asset or Liability, including possession, use, risk of loss, potential for gain, and dominion, control and command over such Asset or Liability, are to inure from and after the Effective Time to the member or members of the HLT Group, the HGV Group or the PK Group entitled to the receipt of such Asset or required to Assume such Liability. In furtherance of the foregoing, the Parties agree that, as of the Effective Time, subject to Section 2.2(c) , to the extent permitted by applicable Law, each Party shall be deemed to have acquired complete and sole beneficial ownership over all of the Assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have Assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incident thereto, which such Party is entitled to acquire or required to Assume pursuant to the terms of this Agreement.
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(c) If and when the Consents, Governmental Approvals and/or conditions, the absence or non-satisfaction of which caused the deferral of Transfer of any Asset or deferral of the Assumption of any Liability pursuant to Section 2.5(a) , are obtained or satisfied, the Transfer, assignment, Assumption or novation of the applicable Asset or Liability shall be effected in accordance with and subject to the terms of this Agreement (including Section 2.2 ) and/or the applicable Ancillary Agreement, and shall, to the extent possible without the imposition of any substantial cost on any Party, be deemed to be effective as of the Effective Time.
(d) Costs and Expenses . Any costs and expenses incurred after the Effective Time and on or prior to the second anniversary of the Distribution Date to effect any Transfer of Assets (including any entity) or Assumption of Liabilities shall be shared equally between the Parties to which such Transfer of Assets or Assumption of Liabilities relates. Following the second anniversary of the Distribution Date, the Party retaining any Asset (including any entity) contemplated by this Agreement to be Transferred to another Party or retaining any Liability contemplated by this Agreement to be Assumed by another Party shall not be obligated to expend any money to Transfer such Asset to such other Party or have such other Party assume such Liability unless the necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Party entitled to such Asset or the Party intended to be subject to such Liability. Other than costs and expenses incurred and reimbursed in accordance with the foregoing, nothing in this Section 2.5(d) shall require any member of any Group to incur any material obligation or grant any material concession for the benefit of any member of any other Group in order to effect any transaction contemplated by Section 2.2 or Section 2.5 .
(e) With respect to Assets and Liabilities described in Section 2.5(a) , each of HLT, PK and HGV shall, and shall cause the members of its respective Group to, (i) treat for all Income Tax purposes (A) the deferred Assets as assets having been Transferred to and owned by the Party entitled to such Assets not later than the Effective Time (or the time of the Internal Distribution of OpCo common stock in the case of Assets intended to be part of the OpCo Contribution) and (B) the deferred Liabilities as liabilities having been Assumed and owned by the Person intended to be subject to such Liabilities not later than the Effective Time (or the time of the Internal Distribution of OpCo common stock in the case of Assets intended to be part of the OpCo Contribution) and (ii) neither report nor take any Income Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by a change in applicable Tax Law, good faith resolution of a Tax Contest relating to Income Taxes or a Final Determination).
Section 2.6. Conveyancing and Assumption Instruments . In connection with, and in furtherance of, the Transfers of Assets and the Assumptions of Liabilities contemplated by this Agreement, the Parties shall execute or cause to be executed, on or after the date hereof by the appropriate entities to the extent not executed prior to the date hereof (but subject to Section 2.5), any Conveyancing and Assumption Instruments necessary to evidence the valid Transfer to the applicable Party or member of such Partys Group of all right, title and interest in and to its accepted Assets and the valid and effective Assumption by the applicable Party of its Assumed Liabilities for Transfers and Assumptions to be effected pursuant to New York Law or the Laws of one of the other states of the United States or, if not appropriate for a given Transfer or Assumption, and for Transfers or Assumptions to be effected pursuant to non-U.S. Laws, in such form as the Parties shall reasonably agree, including the Transfer of real property by mutually acceptable conveyance deeds as may be appropriate and in form and substance as may be required by the jurisdiction in which the real property is located. The Transfer of capital stock shall be effected by means of executed stock powers and notation on the stock record books of the corporation or other legal entities involved, or by such other means as may be required in any non-U.S. jurisdiction to Transfer title to stock and, only to the extent required by applicable Law, by notation on public registries.
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Section 2.7. Further Assurances .
(a) In addition to and without limiting the actions specifically provided for elsewhere in this Agreement, including Section 2.5 , each of the Parties shall cooperate with each other and use (and shall cause its respective Subsidiaries and Affiliates to use) commercially reasonable efforts, at and after the Effective Time, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary on its part under applicable Law or contractual obligations to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, at and after the Effective Time, each Party shall cooperate with the other Parties, and, subject to Section 2.5 , from and after the Effective Time, to execute and deliver, or use commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of Transfer or title, and to make all filings with, and to obtain all Consents and/or Governmental Approvals, any permit, license, Contract, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by any other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the Transfers of the applicable Assets and the assignment and Assumption of the applicable Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each Party shall, subject to Section 2.5, take such other actions as may be reasonably necessary to vest in such other Party such title and such rights as possessed by the transferring Party to the Assets allocated to such other Party under this Agreement or any of the Ancillary Agreements, free and clear of any Security Interest, if and to the extent it is practicable to do so.
(c) At or prior to the Effective Time, each of HLT, PK and HGV shall enter into, and/or (where applicable) shall cause a member or members of their respective Group to enter into, the Specified Ancillary Agreements and shall, subject to Section 2.5 , use commercially reasonable efforts to enter into any other Ancillary Agreements and any other Contracts in respect of the Distributions reasonably necessary or appropriate in connection with the transactions contemplated hereby and thereby ( provided , however , that for the avoidance of doubt the Managing and Franchising Agreements shall not become effective until after the Distributions).
Section 2.8. Guarantees; Letters of Credit .
(a) Except as otherwise set forth in Section 2.8(b) , any member of the HLT Group, the PK Group or the HGV Group, as applicable (an Existing Guarantor ), shall remain as the guarantor or obligor under any guarantee and/or letter of credit by such Existing Guarantor in favor of any member of another Group (a Guaranteed Party ) to which it is a party, and the applicable Guaranteed Party shall indemnify and hold harmless the Existing Guarantor for any Indemnifiable Loss arising from or relating thereto (in accordance with the provisions of Article VII ).
(b) With respect to those guarantees and/or letters of credit set forth on Schedule 2.8(b) , (i) HLT shall (with the reasonable cooperation of the applicable member of the HGV Group or PK Group) use its commercially reasonable efforts to have any member of the HGV Group and/or the PK Group removed as guarantor of or obligor for any HLT Retained Liability to the fullest extent permitted by applicable Law, including in respect of those guarantees set forth on Schedule 2.8(b)(i) , to the extent that they relate to HLT Retained Liabilities, (ii) PK shall (with the reasonable cooperation of the applicable member of the HLT Group or HGV Group) use commercially reasonable efforts to have any member of the HLT Group and/or the HGV Group removed as guarantor of or obligor for any Ownership Liability to the fullest extent permitted by applicable Law, including in respect of those guarantees set forth on Schedule 2.8(b)(ii) , to the extent that they relate to Ownership Liabilities and (iii) HGV shall (with the
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reasonable cooperation of the applicable member of the HLT Group or PK Group) use commercially reasonably efforts to have any member of the HLT Group and/or the PK Group removed as guarantor of or obligor for any Timeshare Liability, to the fullest extent permitted by applicable Law, including in respect of those guarantees set forth on Schedule 2.8(b)(iii) , to the extent that they relate to Timeshare Liabilities.
(c) At or prior to the Effective Time, to the extent required to obtain a release from a guaranty (a Guaranty Release ) in accordance with Section 2.8(b) :
(i) of any member of the HLT Group, PK and/or HGV shall, as applicable, execute a guaranty agreement substantially in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which PK or HGV, as the case may be, would be reasonably unable to comply or (B) which would be reasonably expected to be breached;
(ii) of any member of the PK Group, HLT and/or HGV shall, as applicable, execute a guaranty agreement substantially in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which HLT or HGV, as the case may be, would be reasonably unable to comply or (B) which would be reasonably expected to be breached; and
(iii) of any member of the HGV Group, HLT and/or PK, shall, as applicable, execute a guaranty agreement substantially in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which HLT or PK, as the case may be, would be reasonably unable to comply or (B) which would be reasonably expected to be breached.
(d) If HLT, PK or HGV is unable to obtain, or to cause to be obtained, any such required removal as set forth in clauses (b) and (c) of this Section 2.8 , (i) the relevant member of the HLT Group, PK Group or HGV Group, as applicable, that has assumed the underlying Liability with respect to such guaranty shall indemnify and hold harmless the guarantor or obligor for any Indemnifiable Loss arising from or relating thereto (in accordance with the provisions of Article VII ) and shall or shall cause one of its Subsidiaries, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder and (ii) each of HLT, PK and HGV, on behalf of themselves and the members of their respective Groups, agree not to renew or extend the term of, increase its obligations under, or Transfer to a third party, any loan, guarantee, lease, contract or other obligation for which another Party or member of such Partys Group is or may be liable without the prior written consent of such other Party, unless all obligations of such other Party and the other members of such Partys Group with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to such Party; provided , however , with respect to leases, in the event a Guaranty Release is not obtained and the relevant beneficiary wishes to extend the term of such guaranteed lease, then such beneficiary shall have the option of extending the term if it provides such security as is reasonably satisfactory to the guarantor under such guaranteed lease.
Section 2.9. Return of Assets and Payments .
(a) In the event that, at any time from and after the Effective Time, any Party (or any member of its Group) discovers that it or one of the members of its Group is the owner of, receives or
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otherwise comes to possess or benefit from any Asset (including the receipt of payments made pursuant to Contracts and proceeds from accounts receivable with respect to such Asset) or is liable for any Liability that is otherwise allocated to any Person that is a member of the other Group pursuant to this Agreement or any Ancillary Agreement (except in the case of any acquisition of Assets or assumption of Liabilities from the other Party for value subsequent to the Effective Time), such Party shall promptly Transfer, or cause to be Transferred, such Asset or Liability to the Person so entitled thereto (and the applicable Party shall cause such entitled Person to accept such Asset or Assume such Liability) for no further consideration. Prior to any such transfer, such Asset shall be held in accordance with the other provisions of Section 2.5 .
(b) After the Effective Time, each Party (or any member of its Group) may receive mail, packages and other communications properly belonging to another Party (or any member of its Group). Accordingly, at all times after the Effective Time, each Party is hereby authorized to receive and open all mail, packages and other communications received by such Party that belongs to such other Party, and to the extent that they do not relate to the business of the receiving Party, the receiving Party shall promptly deliver such mail, packages or other communications (or, in case the same also relates to the business of the receiving Party or another Party, copies thereof) to such other Party as provided for in Section 11.6 . The provisions of this Section 2.9(b) are not intended to, and shall not, be deemed to constitute an authorization by any Party to permit the other to accept service of process on its behalf and no Party is or shall be deemed to be the agent of any other Party for service of process purposes.
(c) As between any two Parties (and the members of their respective Group) all payments and reimbursements received after the Effective Time by any Party (or member of its Group) that relate to a Business, Asset or Liability of another Party (or member of its Group), shall be held by such Party in trust for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and, promptly upon receipt by such Party of any such payment or reimbursement, such Party shall pay or shall cause the applicable member of its Group to pay over to the Party entitled thereto the amount of such payment or reimbursement without right of set-off.
Section 2.10. Disclaimer of Representations and Warranties . EACH OF HLT (ON BEHALF OF ITSELF AND EACH MEMBER OF THE HLT GROUP), PK (ON BEHALF OF ITSELF AND EACH MEMBER OF THE PK GROUP), AND HGV (ON BEHALF OF ITSELF AND EACH MEMBER OF THE HGV GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT OR IN ANY CONTINUING ARRANGEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENTS OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR LIABILITIES CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS, RESTRICTIONS ON TRANSFER, ENCUMBRANCE OR LIEN, NON-INFRINGEMENT, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY CONTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN AS IS, WHERE IS BASIS (AND, IN THE CASE OF ANY REAL
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PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, RESTRICTIONS ON TRANSFER, ENCUMBRANCE OR LIEN AND (II) ANY NECESSARY CONSENTS OR GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.
ARTICLE III
CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTIONS
Section 3.1. Certificates of Incorporation; By-laws .
(a) PK . On or prior to the Distribution Date, all necessary actions shall be taken to adopt the form of amended and restated certificate of incorporation and form of amended and restated by-laws filed by PK with the Commission as exhibits to the PK Form 10, to be effective as of the Effective Time.
(b) HGV . On or prior to the Distribution Date, all necessary actions shall be taken to adopt the form of amended and restated certificate of incorporation and form of amended and restated by-laws filed by HGV with the Commission as exhibits to the HGV Form 10, to be effective as of the Effective Time.
Section 3.2. Directors .
(a) HLT . On or prior to the Distribution Date, HLT shall take all necessary actions, including procuring the resignations of the directors named on Schedule 3.2(a) , such that, at the Effective Time, its Board shall include the individuals named on Schedule 3.2(a) .
(b) PK . On or prior to the Distribution Date, HLT shall take all necessary action to cause the Board of Directors of PK to include, at the Effective Time, the individuals identified in the PK Information Statement as director nominees of PK.
(c) HGV . On or prior to the Distribution Date, HLT shall take all necessary action to cause the Board of Directors of HGV to include, at the Effective Time, the individuals identified in the HGV Information Statement as director nominees of HGV.
Section 3.3. Officers .
(a) HLT . On or prior to the Distribution Date, HLT shall take all necessary actions, including procuring the resignations of its officers, such that at the Effective Time its officers shall be the individuals named on Schedule 3.3(a) .
(b) PK . On or prior to the Distribution Date, HLT shall take all necessary action to cause the individuals identified as such in the PK Information Statement to be officers of PK as of the Effective Time.
(c) HGV . On or prior to the Distribution Date, HLT shall take all necessary action to cause the individuals identified as such in the HGV Information Statement to be officers of HGV as of the Effective Time.
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Section 3.4. Resignations and Removals .
(a) PK . On or prior to the Distribution Date or as soon thereafter as practicable, (i) HLT shall cause all of its employees and any employees of its Subsidiaries (excluding any employees of any member of the PK Group) to resign or be removed, effective as of the Effective Time, from all positions as officers or directors of any member of the PK Group in which they serve, and (ii) PK shall cause all of its employees and any employees of its Subsidiaries to resign, effective as of the Effective Time, from all positions as officers or directors of any members of the HLT Group or the HGV Group in which they serve.
(b) HGV . On or prior to the Distribution Date or as soon thereafter as practicable, (i) HLT shall cause all of its employees and any employees of its Subsidiaries (excluding any employees of any member of the HGV Group) to resign or be removed, effective as of the Effective Time, from all positions as officers or directors of any member of the HGV Group in which they serve, and (ii) HGV shall cause all of its employees and any employees of its Subsidiaries to resign, effective as of the Effective Time, from all positions as officers or directors of any members of the HLT Group or the PK Group in which they serve.
(c) No Person shall be required by any Party to resign from any position or office with another Party if such Person is disclosed in the applicable Information Statement as the Person who is to hold such position or office following the applicable Distribution.
ARTICLE IV
EFFECTING THE DISTRIBUTION; CONDITIONS TO THE DISTRIBUTION
Section 4.1. Stock Dividends to HLT Stockholders .
(a) PK . On the Distribution Date, HLT shall cause the Distribution Agent to distribute all of the outstanding shares of PK Common Stock then owned by HLT to holders of HLT Common Stock on the Distribution Record Date, and to credit the appropriate number of such shares of PK Common Stock to book entry accounts for each such holder or designated transferee or transferees of such holder of PK Common Stock. For stockholders of HLT who own HLT Common Stock through a broker or other nominee, their shares of HLT Common Stock shall be credited to their respective accounts by such broker or nominee. Unless otherwise provided for in the Employee Matters Agreement, each holder of HLT Common Stock on the Distribution Record Date (or such holders designated transferee or transferees) shall be entitled to receive in the PK Distribution one (1) share of PK Common Stock, or such other number of shares of PK Common Stock as shall have been approved by the Board and set forth in the PK Information Statement, for every share[s] of HLT Common Stock held by such stockholder. No action by any such stockholder shall be necessary for such stockholder (or such stockholders designated transferee or transferees) to receive the applicable number of shares (and, if applicable, cash in lieu of any fractional shares) of PK Common Stock such stockholder is entitled to in the PK Distribution. HLT shall cause the Distribution Agent to aggregate fractional shares to which holders of HLT Common Stock would otherwise be entitled into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder of HLT Common Stock who would otherwise have been entitled to receive a fractional share in the PK Distribution.
(b) HGV . On the Distribution Date, HLT shall cause the Distribution Agent to distribute all of the outstanding shares of HGV Common Stock then owned by HLT to holders of HLT Common Stock on the Distribution Record Date, and to credit the appropriate number of such shares of HGV Common
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Stock to book entry accounts for each such holder or designated transferee or transferees of such holder of HGV Common Stock. For stockholders of HLT who own HLT Common Stock through a broker or other nominee, their shares of HGV Common Stock shall be credited to their respective accounts by such broker or nominee. Unless otherwise provided for in the Employee Matters Agreement, each holder of HLT Common Stock on the Distribution Record Date (or such holders designated transferee or transferees) shall be entitled to receive in the HGV Distribution one (1) share of HGV Common Stock, or such other number of shares of HGV Common Stock as shall have been approved by the Board and set forth in the HGV Information Statement, for every share[s] of HLT Common Stock held by such stockholder. No action by any such stockholder shall be necessary for such stockholder (or such stockholders designated transferee or transferees) to receive the applicable number of shares (and, if applicable, cash in lieu of any fractional shares) of HGV Common Stock such stockholder is entitled in the HGV Distribution. HLT shall cause the Distribution Agent to aggregate fractional shares to which holders of HLT Common Stock would otherwise be entitled into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder of HLT Common Stock who would otherwise have been entitled to receive a fractional share in the HGV Distribution.
Section 4.2. Actions in Connection with the Distribution .
(a) Prior to the Distribution Date, each of PK and HGV shall file such amendments and supplements to their respective Form 10s as HLT may reasonably request, and such amendments as may be necessary in order to cause the same to become and remain effective as required by Law, including filing such amendments and supplements to their respective Form 10s as may be required by the Commission or federal, state or foreign securities Laws. Each of PK and HGV shall mail to the holders of HLT Common Stock, at such time on or prior to the Distribution Date as HLT shall determine, a Notice of Internet Availability of Information Statement Materials, as well as any other information concerning PK or HGV, as applicable, their business, operations and management, the Plan of Reorganization, the PK Distribution or HGV Distribution, as applicable, and such other matters as HLT shall reasonably determine are necessary and as may be required by Law. Promptly after receiving a request from HLT, to the extent requested, each of PK and HGV shall prepare and, in accordance with applicable Law, file with the Commission any such documentation that HLT reasonably determines is necessary or desirable to effectuate the applicable Distribution, and HLT, PK and HGV shall each use commercially reasonable efforts to obtain all necessary approvals from the Commission with respect thereto as soon as practicable.
(b) Each of PK and HGV shall use commercially reasonable efforts in preparing, filing with the Commission and causing to become effective, as soon as reasonably practicable (but in any case prior to the Effective Time), effective registration statements or amendments thereof which are required in connection with the establishment of, or amendments to, any employee benefit plans of such Party.
(c) To the extent not already approved and effective, each of PK and HGV shall use commercially reasonable efforts to have approved and made effective, the respective application for the original listing of the PK Common Stock and HGV Common Stock, as applicable, to be distributed in the applicable Distribution on the NYSE, subject to official notice of distribution.
(d) Each Party shall provide all cooperation reasonably requested by the other Parties that is necessary or desirable in connection with the Financing Arrangements.
(e) Nothing in this Section 4.2 shall be deemed to shift or otherwise impose Liability for any portion of such Form 10s or Information Statements to HLT.
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Section 4.3. Sole Discretion of HLT . HLT shall, in its sole and absolute discretion, determine the Distribution Date, the Effective Time and all other terms of the Distribution, including the form, structure and terms of any transactions and/or offerings to effect the Distribution and the timing of and conditions to the consummation thereof. In addition, HLT may, in accordance with Section 11.10, at any time and from time to time until the completion of the Distribution decide to abandon the PK Distribution and/or the HGV Distribution or modify or change the terms of the PK Distribution and/or the HGV Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution. Without limiting the foregoing, HLT shall have the right not to complete the Distribution if, at any time prior to the Effective Time, the Board shall have determined, in its sole discretion, that the Distribution is not in the best interests of HLT or its stockholders.
Section 4.4. Conditions to the Distribution . Subject to Section 4.3 , the following are conditions to the consummation of the Distribution. The conditions are for the sole benefit of HLT and shall not give rise to or create any duty on the part of HLT or the Board to waive or not waive any such condition.
(a) The applicable Form 10 shall have been declared effective by the Commission, no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the Commission, and the applicable Information Statement (or applicable Notice of Internet Availability of Information Statement Materials) shall have been mailed to the holders of HLT Common Stock;
(b) With respect to the (i) PK Distribution, the PK Common Stock to be delivered in the PK Distribution shall have been approved for listing on the NYSE, subject to official notice of distribution and (ii) HGV Distribution, the HGV Common Stock to be delivered in the HGV Distribution shall have been approved for listing on the NYSE, subject to official notice of distribution;
(c) Prior to the Distribution Date, HLT shall have obtained an opinion from Simpson Thacher & Bartlett LLP, its tax counsel, in form and substance satisfactory to HLT (in its sole discretion), to the effect that the Distribution should qualify as a tax-free distribution under Section 355 of the Code;
(d) On or prior to the Distribution Date, Blackstone shall have delivered the Waiver Letter to PK;
(e) Prior to the Distribution Date, with respect to the PK Distribution, PK shall have obtained an opinion from Hogan Lovells US LLP, in form and substance reasonably satisfactory to PK, to the effect that, commencing with PKs taxable year ending December 31, 2016, PK should have been organized in conformity with the requirements for qualification as a REIT under the Code, and its proposed method of operation should enable it to meet the requirements for qualification and taxation as a REIT;
(f) The IRS Ruling shall not have been revoked or modified in any material respect;
(g) Prior to the Distribution Date, the Board shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to HLT, with respect to the capital adequacy and solvency of each of HLT, PK and HGV after giving effect to the Distribution;
(h) Any material Governmental Approvals and other Consents necessary to consummate the applicable Distribution or any portion thereof shall have been obtained and be in full force and effect, it being understood that, for the avoidance of doubt, the Governmental Approvals and Consents contemplated by Section 2.5 shall not be deemed necessary to consummate any Distribution;
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(i) No order, injunction or decree issued by any Governmental Entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the applicable Distribution shall be pending, threatened, issued or in effect, and no other event outside the control of HLT shall have occurred or failed to occur that prevents the consummation of all or any portion of the applicable Distribution;
(j) No other events or developments shall have occurred or failed to occur prior to the Distribution Date that, in the judgment of the Board, would result in the Distribution having a material adverse effect on HLT or its stockholders;
(k) The Financing Arrangements described in the applicable Information Statements as having occurred prior to the Distribution shall have been consummated on or prior to the Distribution;
(l) The Plan of Reorganization shall have been completed, except for such steps as HLT in its sole discretion shall have determined may be completed after the Effective Time;
(m) The actions and events set forth in Sections 3.1 , 3.2 and 3.3 shall have occurred;
(n) The Board shall have approved the Distribution, which approval may be given or withheld at its absolute and sole discretion;
(o) Each Specified Ancillary Agreement shall have been executed by each party thereto.
ARTICLE V
CERTAIN COVENANTS
Section 5.1. Intellectual Property . Each Party shall not use or exploit the Intellectual Property of the other Parties after the Effective Time, except (i) as permitted in the Ancillary Agreements, (ii) as required by applicable Law, (iii) as permitted by the fair use or similar doctrines or defenses, or (iv) for neutral, non-trademark use of the other Parties Trademarks to describe the history of each Partys respective business. Subject to the terms and conditions herein, effective as of the Distribution Date, HLT grants to the Subsidiaries of PK a non-exclusive, non-sublicensable, non-assignable license to continue to maintain and renew any corporate or trade name registrations that (i) contain any Trademarks owned by HLT or its Subsidiaries as of the Distribution Date, (ii) are owned by such Subsidiaries of PK as of the Distribution Date and (iii) are duly registered and are in good standing (and are used in connection with Subsidiaries of PK that exist and are in good standing) as of the Distribution Date. The above license does not give PK and its Subsidiaries the right to (a) file for new registrations containing any Trademarks owned by HLT or its Subsidiaries, (b) use any Trademarks owned by HLT or its Subsidiaries as the corporate, trade or other name of any entity not in existence and good standing as of the Distribution Date, (c) represent to any Person that PK or any of its Subsidiaries is affiliated with or doing business as HLT or an Affiliate thereof or (d) make trademark use of any Trademark owned by HLT or its Subsidiaries or apply to register or register any such Trademarks (as any type of Trademark) or use such Trademarks in any manner other than as set forth above.
Section 5.2. Administration of Specified Shared Expenses . HLT shall be responsible for administering each Specified Shared Expense. Each Party shall be responsible for payment of its Applicable Percentage of any Specified Shared Expense, except with respect to certain Specified Shared Expenses otherwise allocated among the Parties as set forth on Schedule 1.1(98) . HLT shall invoice each of PK and HGV on a quarterly basis, and PK and HGV shall each promptly following invoice reimburse HLT for its allocable share of such Specified Shared Expenses. In addition, HLT shall, in connection with each invoice, provide a quarterly estimated budget (for informational and planning purposes only) to PK and HGV of Specified Shared Expenses for the following quarter.
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Section 5.3. Cooperation . From and after the Effective Time and subject to compliance with the other provisions of this Agreement (including Section 8.6 ) and the Ancillary Agreements, each Party shall, and shall cause each of its respective Affiliates and employees to, (i) provide reasonable cooperation and assistance to each other Party (and any member of their respective Groups) in connection with the completion of the Plan of Reorganization (including assisting in the preparation of the Distributions) and the Distributions, (ii) provide knowledge transfer regarding its applicable Business or HLTs historical business at the reasonable request of another Party, (iii) reasonably assist each other Party in the orderly and efficient transition in becoming an independent company to the extent set forth in the Transition Services Agreement and (iv) reasonably assist each other Party to which such Party is providing or has provided services, as applicable, pursuant to the Transition Services Agreement, in connection with requests for information from, audits or other examinations of, such other Party by a Governmental Entity; in each case, except as set forth in Section 2.5 , as may otherwise be agreed to by the Parties in writing or as contemplated by the immediately following sentence, at no additional cost to the Party requesting such assistance other than for the actual out-of-pocket costs (which shall not include the costs of salaries and benefits of employees of such Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing) incurred by any such Party, if applicable. If an employee of one Party is requested to dedicate a significant portion or his or her working time to a project requested by another Party, the Parties agree that such services shall only be provided if contemplated by the Transition Services Agreement, in which case such services shall be provided in accordance with the terms of the Transition Services Agreement. In furtherance of, and without limiting, the foregoing, each Party shall make reasonably available those employees with particular knowledge of any function or service of which another Party was not allocated the employees, agents or consultants involved in such function or service in connection with the Plan of Reorganization (including, employee benefits functions, risk management, etc.) and the Distributions.
Section 5.4. Periodic Meetings . Unless otherwise agreed to by the Parties, at least once during each fiscal quarter during the two (2) year period following the Distribution Date, the Parties shall hold a meeting for the purpose of sharing Information related to this Agreement, any Shared Contingent Liabilities or the preparation of any Partys financial statements. Each Party shall designate between one (1) and three (3) persons as its standing representatives for such meetings. The Managing Party shall be responsible for scheduling such meeting at reasonably consistent and convenient times and on no less than thirty (30) days notice. The Parties standing representatives and others may participate in such meetings in person or other medium by which all participants may hear each other.
Section 5.5. No Solicit; No Hire .
(a) None of HLT, PK or HGV or any member of their respective Groups shall, from the Effective Time through and including the date set forth on Schedule 5.5 , without the prior written consent of the applicable Party, directly or indirectly, recruit, solicit, hire or retain any person who is an employee specified on Schedule 5.5 of any other Party or its Subsidiaries as of the Effective Time or induce, or attempt to induce, any such employee to terminate his or her employment with, or otherwise cease his or her relationship with, any other Party or its Subsidiaries; provided , however , that (i) nothing in this Section 5.5 shall be deemed to prohibit any general solicitation for employment through advertisements and search firms not specifically directed at employees of such other applicable Party or, except with respect to employees defined as CEOs and Directly Reporting Employees on Schedule 5.5 , any hiring as a result thereof, and (ii) the prohibitions of this Section 5.5 shall not apply (A) with respect to employees who have been terminated by a Party and (B) following a Change in Control of HLT, PK or
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HGV, as applicable, with respect to the employees of such Party. The Parties agree that irreparable damage may occur in the event that the provisions of this Section 5.5 were not performed in accordance with their specific terms. Accordingly, it is hereby agreed that the Parties shall be entitled to an injunction or injunctions to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. In respect of countries whose local Laws declare as invalid or unenforceable or prohibit any agreement between employers not to hire Employees (as defined in the Employee Matters Agreement) of the other, the Parties shall not have an agreement not to hire Employees of the other but agree not to actively solicit the services of each others Employees for such period on and after the Effective Time as specified in this Section 5.5 .
(b) For purposes of this Agreement, Change in Control shall mean, with respect to any of HLT, PK or HGV, the occurrence of any one of the following after the Effective Time: (i) the direct or indirect Transfer (other than by way of merger, amalgamation, arrangement or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of HLT, PK or HGV, as applicable, and those of such Partys Subsidiaries, taken as a whole, to one or more Persons, other than to such Party or one of such Partys Subsidiaries; (ii) the first day on which a majority of the members of the board of directors of HLT, PK or HGV, as applicable, is not composed of Continuing Directors; (iii) the consummation of any transaction including any merger, amalgamation, arrangement or consolidation the result of which is that any Person becomes the beneficial owner, directly or indirectly, of more than 50% of the Voting Stock of HLT, PK or HGV, as applicable; (iv) any of HLT, PK or HGV, as applicable, consolidate with, or merge with or into, any Person, or any Person consolidates with, or merges with or into, any of HLT, PK or HGV, in any such event pursuant to a transaction in which any of the outstanding voting stock of HLT, PK or HGV, as applicable, or of such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of such Partys voting stock outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the voting stock of the surviving Person immediately after giving effect to such transaction; or (v) the adoption of a plan relating to the liquidation or dissolution (other than a liquidation into a newly formed holding company) of HLT, PK or HGV, as applicable. Notwithstanding the foregoing, a transaction described in clause (iii) above will not be deemed to involve a Change in Control if (a) HLT, PK or HGV, as applicable, becomes a direct or indirect wholly owned subsidiary of a holding company (which shall include a parent company) and (b)(A) the direct or indirect holders of the voting stock of such holding company immediately following that transaction are substantially the same as, and hold in substantially the same proportions as, the holders of such Partys voting stock immediately prior to that transaction or (B) immediately following that transaction no Person (other than a holding company satisfying the requirements of this sentence) is the beneficial owner, directly or indirectly of more than 50% of the then outstanding voting stock, measured by voting power, of such holding company. Following any such transaction referred to in the foregoing sentence, references in this definition to HLT, PK or HGV, as applicable, shall be deemed to refer to such holding company. For the purposes of this definition, person and beneficial owner have the meanings used in Section 13(d) of the Securities Exchange Act of 1934.
ARTICLE VI
SHARED CONTINGENT LIABILITIES
Section 6.1. Shared Contingent Liabilities . From and after the Effective Time, except as otherwise expressly set forth in this Article VI or the Tax Matters Agreement (with respect to Taxes) and without limiting the indemnification provisions of Article VII , HLT, PK and HGV shall each be responsible for (i) its Applicable Percentage of any Shared Contingent Liabilities pursuant to and in
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accordance with the relevant provisions of Article VII and, without duplication, (ii) its Applicable Percentage of any Specified Shared Expenses related to or arising out of any Shared Contingent Liability. Any amounts owed in respect of any Shared Contingent Liabilities other than Specified Shared Expenses (which are addressed pursuant to Section 5.2 ) shall be remitted promptly after the Party entitled to such amount provides an invoice (including reasonable supporting Information with respect thereto and a calculation of the amounts owed by each Party based on such Partys Applicable Percentage) to the Party or Parties owing such amount and such costs and expenses shall be included in the calculation of the amount of the applicable Shared Contingent Liability in determining the reimbursement obligations of the other Parties with respect thereto; provided , however , that if so directed by the Party providing the invoice, in lieu of remitting amounts directly to the Party providing the invoice, the owing Party shall remit the owed amount directly to the appropriate third party or parties or to an account established by the invoicing Party for the benefit of the Parties, in which case each Party shall contribute its Applicable Percentage of such amount to such account for the benefit of the Parties. It shall not be a defense to any obligation by any Party to pay any amounts, whether pursuant to this Article VI or in respect of Indemnifiable Losses pursuant to Article VII , in respect of any Shared Contingent Liability that (i) such Party was not consulted in the defense or management thereof, (ii) that such Partys views or opinions as to the conduct of such defense were not accepted or adopted, (iii) that such Party does not approve of the quality or manner of the defense thereof or (iv) that such Shared Contingent Liability was incurred by reason of a settlement rather than by a judgment or other determination of Liability.
Section 6.2. Management of Shared Contingent Liabilities .
(a) Managing Party shall initially mean HLT or such other Party as may be identified on Schedule 1.1(97) ; provided , however , another Party may become the Managing Party with respect to any Shared Contingent Liabilities or other matters set forth in this Agreement upon the prior written agreement of each of the Parties.
(b) Except as provided in the Tax Matters Agreement (with respect to management of Tax Contests), the Managing Party shall, on behalf of the other Parties, have sole and exclusive authority to, and shall actively and diligently, commence, prosecute, manage, control, conduct or defend (or assume or conduct the defense of) or otherwise determine all matters whatsoever (including, as applicable, litigation strategy and choice of legal counsel or other professionals) with respect to, on behalf of the other Parties, any Action or Third Party Claim with respect to a Shared Contingent Liability (including with respect to those Shared Contingent Liabilities set forth on Schedule 1.1(97) ). The Managing Party shall use its commercially reasonable efforts to promptly notify the other Parties in the event that it receives notice of any Shared Contingent Liability including any claim or demand relating thereto; provided , that the failure to provide such notice shall not give rise to any rights on the part of the other Parties against the Managing Party or affect any other provision of this Section 6.2 , except to the extent any Party is actually and materially prejudiced thereby in a manner different from any other Party. No Party other than the Managing Party shall consent to the entry of any judgment or enter into any settlement with respect to any Shared Contingent Liability without the prior written consent of the Managing Party and the other Party. Any settlement by the Managing Party shall be subject to without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed.
(c) The Managing Party shall on a quarterly basis, or if a material development occurs as soon as reasonably practicable thereafter, inform the other Parties of the status of and developments relating to any matter involving a Shared Contingent Liability and provide copies of any material document, notices or other materials related to such matters; provided , that the failure to provide any such information shall not be a basis for liability of the Managing Party except and solely to the extent the receiving Party shall have been actually and materially prejudiced thereby in a manner different than any other Party. Each Party shall cooperate fully with the Managing Party in its management of any of such
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Shared Contingent Liability and shall take such actions in connection therewith that the Managing Party reasonably requests (including providing access to such Partys Records and other Information and employees as set forth in Section 6.3 ).
(d) In the event of any dispute as to whether any Liability is a Shared Contingent Liability as set forth in Section 6.4(b) , the Managing Party may, but shall not be obligated to, commence prosecution or other assertion of such claim or right pending resolution of such dispute. In the event that the Managing Party commences any such prosecution or assertion and, upon resolution of the dispute (pursuant to Article IX or otherwise), it is determined that such Liability is not a Shared Contingent Liability and that such Liability belongs to another Party, pursuant to the provisions of this Agreement or any Ancillary Agreement, the Managing Party shall cease the prosecution or assertion of such right or claim and the applicable Parties shall cooperate to transfer the control thereof to the applicable other Party. In such event, the applicable other Party shall promptly reimburse the Managing Party (or any other Party who has fronted costs and expenses) for all out-of-pocket costs and expenses incurred to such date in connection with the prosecution or assertion of such claim or right (which shall not include the costs of salaries and benefits of employees of the Managing Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing).
Section 6.3. Access to Information; Certain Services; Expenses .
(a) Access to Information and Employees by the Managing Party . Unless otherwise prohibited by Law, in connection with the management and disposition of any Shared Contingent Liability, each of the Parties shall make readily available to and afford to the Managing Party and its authorized accountants, counsel and other designated representatives reasonable access, subject to appropriate restrictions for classified Information, Confidential Information or Privileged Information, to the employees, properties, Records and other Information of such Party and the members of such Partys Group insofar as such access relates to the relevant Shared Contingent Liability; it being understood by the Parties that such access as well as any services provided pursuant to Section 6.3(b) below may require a significant time commitment on the part of such Partys employees and that any such commitment shall not otherwise limit any of the rights or obligations set forth in this Article VI ; it also being understood that such access and such services provided shall not unreasonably interfere with any of such Partys employees normal functions. Nothing in this Section 6.3(a) shall require any Party to violate any agreement with any third party regarding the confidentiality of confidential and proprietary information relating to that third party or its business; provided , however , that in the event that a Party is required to disclose any such Information, such Party shall use commercially reasonable efforts to seek to obtain such third partys written consent to the disclosure of such Information.
(b) Certain Services . Each of HLT, PK and HGV shall make available to the others, upon reasonable written request, its and its Subsidiaries officers, directors, employees, counsel and agents to assist in the management (including, if applicable, as witnesses in any Action) of any Shared Contingent Liabilities to the extent that such Persons may reasonably be required in connection with the prosecution, defense or day-to-day management of any Shared Contingent Liability. In respect of the foregoing, Schedule 1.1(97) sets forth certain identified Shared Contingent Liabilities, respectively, and identify (but do not limit) those employees and agents who shall assist the Managing Party in its management of such Shared Contingent Liabilities.
(c) Costs and Expenses Relating to Access by the Managing Party . Except as otherwise provided in any Ancillary Agreement, the provision of access and other services pursuant to this Section 6.3 (including by the Managing Party) shall be borne by the Party providing such access and services (other than for actual out-of-pocket costs and expenses, which shall constitute Specified Shared Expenses) and shall be shared by the other Parties accordingly.
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(d) Other Specified Shared Expenses . The Managing Party (and the Party or Parties providing assistance to the Managing Party pursuant to Section 6.3(b) ) shall be entitled, upon presentation of reasonable supporting documentation thereof, to reimbursement by the other Parties (in accordance with their Applicable Percentages) of any out-of-pocket costs and expenses (which shall include, in the case of the Managing Party, the pro rata portion of the costs of salaries and benefits of such employees with respect to whom at least % of their professional time over a period of one month or greater is dedicated to the management or defense of such Shared Contingent Liability) related to or arising out of defending or managing any such Shared Contingent Liability from PK and HGV, as applicable, from time to time when invoiced, but no more frequently than quarterly, in advance of a final determination or resolution of any Action related to a Shared Contingent Liability. Specified Shared Expenses in respect of Shared Contingent Liabilities shall also include the reasonable out-of-pocket costs and expenses of defending, managing or providing assistance to the Managing Party pursuant to Section 6.3(b) with respect to any Third Party Claim that is a Shared Contingent Liability, which shall include any amounts with respect to a bond, prepayment or similar security or obligation required (or determined to be advisable by the Managing Party) to be posted by the Managing Party in respect of any claim and shall not include the costs of salaries and benefits of employees or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing).
Section 6.4. Notice Relating to Shared Contingent Liabilities; Disputes .
(a) In the event that any Party or any member of such Partys Group or any of their respective Affiliates, becomes aware of (i) any Liability that may be a Shared Contingent Liability, (ii) any matter or occurrence that has given or could give rise to a Shared Contingent Liability or (iii) any matter that is material and is reasonably relevant to the Managing Partys ongoing or future management, prosecution, defense and/or administration of any Shared Contingent Liability, such Party shall promptly (but in any event within thirty (30) days of becoming aware, unless, by its nature the subject matter of such notice would reasonably require earlier notice) notify each of the Managing Party and the other Party of any such matter (setting forth in reasonable detail the subject matter thereof); provided , however , that no Party shall be liable for the failure to provide such notice except and solely to the extent the Managing Party and the other Party shall have been actually prejudiced as a result of such failure in a manner different than any other Party.
(b) In the event that any Party disagrees whether a claim, obligation or Liability is a Shared Contingent Liability or whether such claim, obligation or Liability is a Liability allocated to one of the Parties pursuant to this Agreement or any Ancillary Agreement, then such matter shall be resolved pursuant to and in accordance with the dispute resolution provisions set forth in Article IX .
Section 6.5. Cooperation with Governmental Entity . If, in connection with any Shared Contingent Liability, a Party is required by Law to respond to and/or cooperate with a Governmental Entity, such Party shall be entitled to cooperate and respond to such Governmental Entity after, to the extent practicable under the specific circumstances, consultation with the Managing Party with respect to such Shared Contingent Liability; provided , that to the extent such consultation was not practicable such Party shall promptly inform the Managing Party of such cooperation and/or response to the Governmental Entity and the subject matter thereof. In the event that any Party is requested or required by any Governmental Entity in connection with any Shared Contingent Liability pursuant to written or oral question or request for Information or documents in any legal or administrative proceeding, review, interrogatory, subpoena, investigation, demand, or similar process, such Party shall notify the Managing Party promptly of the request or requirement and such Partys response thereto, and shall use commercially reasonable efforts to consult with the Managing Party with respect to the nature of such Partys response to the extent practicable and not in violation of any attorney-client Privilege or legal process.
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Section 6.6. Default . In the event that one or more of the Parties defaults in any full or partial payment in respect of any Shared Contingent Liability (as provided in this Article VI and in Article VII ), including the payment of the costs and expenses of the Managing Party, then each non-defaulting Party (including HLT) shall be required to pay its relative Applicable Percentage of the amount in default; provided , however , that any such payment by a non-defaulting Party shall in no way release the defaulting Party from its obligations to pay its obligations in respect of such Shared Contingent Liability (both for past and future obligations) and any non-defaulting Party may exercise any available legal remedies available against such defaulting Party.
ARTICLE VII
INDEMNIFICATION
Section 7.1. Release of Pre-Distribution Claims .
(a) Except (i) as provided in Section 7.1(b) , (ii) as may be otherwise expressly provided in this Agreement or in any Ancillary Agreement and (iii) for any matter for which any Party is entitled to indemnification pursuant to this Article VII , each Party (A) for itself and each member of its respective Group, their respective Affiliates as of the Effective Time and all Persons who at any time prior to the Effective Time were directors, officers, agents or employees of any member of their Group (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, does hereby remise, release and forever discharge the other Parties and the other members of such other Parties Group, their respective Affiliates and all Persons who at any time prior to the Effective Time were stockholders, directors, officers, agents or employees of any member of such other Parties (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at Law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Effective Time, including in connection with the Plan of Reorganization and all other activities to implement the Plan of Reorganization and the Distributions and any of the other transactions contemplated hereunder and under the Ancillary Agreements and (B) in any event will not, and will cause its respective Subsidiaries not to, bring any Action or claim against any member of the other Groups in respect of any such Liabilities.
(b) Nothing contained in Section 7.1(a) shall impair or otherwise affect any right of any Party and, as applicable, a member of such Partys Group, to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings contemplated in this Agreement or in any Ancillary Agreement to continue in effect after the Effective Time. In addition, nothing contained in Section 7.1(a) shall release any Person from:
(i) any Liability Assumed, Transferred or allocated to a Party or a member of such Partys Group pursuant to or contemplated by, or any other Liability of any member of such Group under, this Agreement or any Ancillary Agreement including (A) with respect to any Shared Contingent Liability, (B) with respect to HLT, any HLT Retained Liability, (C) with respect to PK, any Ownership Liability and (D) with respect to HGV, any Timeshare Liability;
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(ii) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by a member of one Group or its Affiliates at the request or on behalf of a member of another Group;
(iii) any Liability provided in or resulting from any other Contract or understanding that is entered into after the Effective Time between any Party (and/or a member of such Partys or Parties Group), on the one hand, and any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand;
(iv) any Liability with respect to any Continuing Arrangements set forth on Schedule 1.1(20) ; and
(v) any Liability that the Parties may have with respect to indemnification pursuant to this Agreement or otherwise for claims brought against the Parties by other Persons, which Liability shall be governed by the provisions of this Agreement and, in particular, this Article VII and, if applicable, the appropriate provisions of the Ancillary Agreements.
In addition, nothing contained in Section 7.1(a) shall release HLT from indemnifying any director, officer or employee of PK and HGV who was a director, officer or employee of HLT or any of its Affiliates prior to the Effective Time or the Distribution Date, as the case may be, to the extent such director, officer or employee is or becomes a named defendant in any Action with respect to which he or she was entitled to such indemnification pursuant to then existing obligations.
(c) Each Party shall not, and shall not permit any member of its Group to, make any claim, demand or offset, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against any other Party or any member of any other Partys Group, or any other Person released pursuant to Section 7.1(a) , with respect to any Liabilities released pursuant to Section 7.1(a) .
(d) It is the intent of each Party, by virtue of the provisions of this Section 7.1 , to provide, to the fullest extent permitted by applicable Law, for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed at or before the Effective Time, whether known or unknown, between or among any Party (and/or a member of such Partys Group), on the one hand, and any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members at or before the Effective Time), except as specifically set forth in Sections 7.1(a) and 7.1(b) . At any time, at the reasonable request of any other Party, each Party shall cause each member of its respective Group and, to the extent practicable, each other Person on whose behalf it released Liabilities pursuant to this Section 7.1 to execute and deliver releases, to the fullest extent permitted by applicable Law, reflecting the provisions hereof.
Section 7.2. Indemnification by HLT . Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Effective Time, HLT shall and shall cause the other members of the HLT Group to indemnify, defend and hold harmless the Ownership Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable Losses of the Ownership Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (a) the HLT Retained Liabilities or alleged HLT Retained Liabilities or (b) any breach by HLT of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder. In furtherance of the foregoing, HLT and OpCo shall be jointly and severally liable to any of the Ownership Indemnitees for any and all Indemnifiable Losses of the Ownership Indemnitees arising out of, by reason of or otherwise in connection with the foregoing.
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Section 7.3. Indemnification by PK . Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Effective Time, PK shall and shall cause the other members of the PK Group to indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable Losses of the Managing and Franchising Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (a) the Ownership Liabilities or alleged Ownership Liabilities or (b) any breach by PK of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder. In furtherance of the foregoing, any and all payments by PK or any other members of the PK Group in respect of Indemnifiable Losses of the Managing and Franchising Indemnitees arising out of, by reason of or otherwise in connection with the foregoing shall be made directly to OpCo or one or more of its Subsidiaries.
Section 7.4. Indemnification by HGV . Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Effective Time, HGV shall and shall cause the other members of the HGV Group to indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Ownership Indemnitees from and against any and all Indemnifiable Losses of the Managing and Franchising Indemnitees and the Ownership Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (a) the Timeshare Liabilities or alleged Timeshare Liabilities or (b) any breach by HGV of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder.
Section 7.5. Procedures for Indemnification .
(a) Other than with respect to Third Party Claims, which shall be governed by Section 7.5(b) , and Shared Contingent Liabilities, which shall be governed by Section 6.4 , each Managing and Franchising Indemnitee, Ownership Indemnitee and Timeshare Indemnitee (each, an Indemnitee ) shall notify in writing, with respect to any matter that such Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement or any Ancillary Agreement, the Party which is or may be required pursuant to this Article VII or pursuant to any Ancillary Agreement to make such indemnification (the Indemnifying Party ), within thirty (30) days of such determination, stating the amount of the Indemnifiable Loss claimed, if known, and method of computation thereof, and referring to the provisions of this Agreement in respect of which such right of indemnification is claimed by such Indemnitee or arises; provided , however , that the failure to provide such written notice shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure. Each such Indemnitee shall provide the applicable Indemnifying Party with reasonable access, upon reasonable prior written notice and during normal business hours, in a manner so as not to unreasonably interfere in any material respect with the normal business operations of such Indemnitee, to its books and records, properties and personnel relating to the claim the Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement or any Ancillary Agreement.
(b) Third Party Claims . If a claim or demand is made against an Indemnitee by any Person who is not a party to this Agreement (a Third Party Claim ) as to which such Indemnitee is or may be entitled to indemnification pursuant to this Agreement or any Ancillary Agreement, such Indemnitee shall notify the Indemnifying Party in writing, and in reasonable detail, of the Third Party Claim promptly (and in any event within thirty (30) days) after receipt by such Indemnitee of written notice of the Third Party
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Claim; provided , however , that the failure to provide notice of any such Third Party Claim pursuant to this or the preceding sentence shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure. If any Party shall receive notice or otherwise learn of the assertion of a Third Party Claim which may reasonably be determined to be a Shared Contingent Liability, such Party, as appropriate, shall give the Managing Party written notice thereof within thirty (30) days after such Person becomes aware of such Third Party Claim subject to and in compliance with Section 6.4 ; provided, however, that if the first notice is a lawsuit or other notice documentation requiring a timely response, such notice documentation shall be delivered immediately (and in any event within five (5) Business Days). Thereafter, the Indemnitee shall deliver to the Indemnifying Party (and, if applicable, to the Managing Party), promptly (and in any event within five (5) Business Days) after the Indemnitees receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim.
(c) Other than in the case of (i) a Shared Contingent Liability (the defense of which shall be assumed and controlled by the Managing Party) or (ii) Taxes addressed in the Tax Matters Agreement, an Indemnifying Party shall be entitled to participate in the defense of any Third Party Claim and, if it so chooses, to assume the defense thereof, at such Indemnifying Partys own cost and expense and by such Indemnifying Partys own counsel, that is reasonably acceptable (provided that insurer-appointed counsel shall be automatically deemed acceptable) to the applicable Indemnitees, within thirty (30) days of the receipt of such notice from such Indemnitees; provided, however, that the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim to the extent such Third Party Claim (x) is an allegation of a criminal violation or (ii) seeks injunctive relief against the Indemnitee but shall have the right to employ separate counsel to participate in (but not control) the defense, compromise or settlement thereof at its own expense. In connection with the Indemnifying Partys defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, at its own expense and, in any event, shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Partys expense, all witnesses, pertinent Information, materials and information in such Indemnitees possession or under such Indemnitees control relating thereto as are reasonably required by the Indemnifying Party; provided , however , that in the event of a conflict of interest between the Indemnifying Party and the applicable Indemnitee(s), such Indemnitee(s) shall be entitled to retain, at the Indemnifying Partys expense, separate counsel as required by the applicable rules of professional conduct with respect to such matter; provided , further , that if (i) the Third Party Claim is not a Shared Contingent Liability and (ii) the Indemnifying Party has assumed the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions to such defense or to its liability therefor, then, in any such case, the reasonable fees and expenses of one separate counsel for all Indemnitees shall be borne by the Indemnifying Party.
(d) Notwithstanding any assumption of defense of a Third Party Claim by an Indemnifying Party in accordance with Section 7.5(c) , in the event that in the course of defending such Third Party Claim the Indemnifying Party or another Party shall become aware that the subject matter of such Third Party Claim relates to a Liability of another Party and not to a Liability of such Indemnifying Party, then the Indemnifying Party shall, subject to the prior written consent of the other Party to which such Liability belongs, use commercially reasonable efforts to transfer the defense of such claim to such other Party, and shall thereafter cooperate fully with such other Party in such defense and make available to such other Party, at such Partys expense, all witnesses, pertinent Information, materials and information in such Indemnifying Partys possession or under such Indemnifying Partys control relating to such Third Party Claim as are reasonably required by such other Party.
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(e) Other than in the case of a Shared Contingent Liability, if an Indemnifying Party fails for any reason to assume responsibility for defending a Third Party Claim within the time specified, such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying Party. However, the Indemnifying Party shall, subject to the prior written consent of the other Party to which such Liability belongs, use commercially reasonable efforts to transfer the defense of such claim to such other Party, and shall thereafter cooperate fully with such other Party in such defense and make available to such other Party, at such Partys expense, all witnesses, pertinent Information, materials and information in such Indemnifying Partys possession or under such Indemnifying Partys control relating to such Third Party Claim as are reasonably required by such other Party. If the Indemnitee is conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnitee in such defense and make available to the Indemnitee, at the Indemnitees expense, all witnesses, pertinent Information, and material in such Indemnifying Partys possession or under such Indemnifying Partys control relating thereto as are reasonably required by the Indemnitee.
(f) Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim (with any Shared Contingent Liability governed by Article VI ) without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
(g) In the case of a Third Party Claim (including in respect of a Shared Contingent Liability), no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third Party Claim without the prior written consent of the Indemnitee (not to be unreasonably withheld or delayed) if the effect thereof is to permit any injunction, declaratory judgment, other order or other non-monetary relief, to be entered, directly or indirectly, against any Indemnitee; it being understood that in the case of a Third Party Claim that is a Shared Contingent Liability, the Managing Party shall be subject to the same requirement to seek the consent of the other Parties in connection with any such judgment or settlement.
(h) Notwithstanding anything to the contrary in this Article VII , subject to Article VI, the Managing Party shall, on behalf of the other Parties, have sole and exclusive authority to, and shall actively and diligently, commence, prosecute, manage, control, conduct or defend (or assume or conduct the defense of) or otherwise determine all matters whatsoever (including, as applicable, litigation strategy and choice of legal counsel or other professionals) with respect to any Action or Third Party Claim with respect to a Shared Contingent Liability.
(i) Except as otherwise set forth in Section 5.5 , Article VI and Section 8.6 , or as set forth in any Ancillary Agreement, absent fraud or willful misconduct by an Indemnifying Party, the indemnification provisions of this Article VII shall be the sole and exclusive remedy of an Indemnitee for any monetary or compensatory damages or losses resulting from any breach of this Agreement and each Indemnitee expressly waives and relinquishes any and all rights, claims or remedies such Person may have with respect to the foregoing other than under this Article VII against any Indemnifying Party. For the avoidance of doubt, all disputes in respect of this Article VII shall be resolved in accordance with Article IX .
Section 7.6. Cooperation in Defense and Settlement .
(a) With respect to any Third Party Claim that is not a Shared Contingent Liability and that implicates two or more Parties in any material respect due to the allocation of Liabilities, responsibilities for management of defense and related indemnities pursuant to this Agreement or any of the Ancillary Agreements, the applicable Parties agree to use commercially reasonable efforts to cooperate fully and maintain a joint defense (in a manner that will preserve for all Parties any Privilege with respect thereto). The Party that is not responsible for managing the defense of any such Third Party Claim shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if necessary or helpful, retain counsel to assist in the defense of such claims.
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(b) Each of HLT, PK and HGV agrees that at all times from and after the Effective Time, if an Action is commenced by a third party naming two (2) or more Parties (or any member of such Parties respective Groups) as defendants and with respect to which one or more named Parties (or any member of such Partys respective Group) is a nominal defendant and/or such Action is otherwise not a Liability allocated to such named Party under this Agreement or any Ancillary Agreement, then the other Party or Parties shall use commercially reasonable efforts to cause such nominal defendant to be removed from such Action, as soon as reasonably practicable.
Section 7.7. Indemnification Payments . Indemnification required by this Article VII shall be made by periodic payments of the amount of Indemnifiable Losses in a timely fashion during the course of the investigation or defense, as and when bills are received or an Indemnifiable Loss incurred.
Section 7.8. Indemnification Obligations Net of Insurance Proceeds and Other Amounts .
(a) Any Indemnifiable Loss subject to indemnification pursuant to this Article VII including, for the avoidance of doubt, in respect of any Shared Contingent Liability, shall be calculated (i) net of insurance proceeds that actually reduce the amount of the Indemnifiable Loss, (ii) net of any proceeds received by the Indemnitee from any third party for indemnification for such Liability that actually reduce the amount of the Indemnifiable Loss ( Third Party Proceeds ) and (iii) net of any Tax benefits actually realized in accordance with, and subject to, the principles set forth or referred to in Section 7.3 of the Tax Matters Agreement, and increased in accordance with, and subject to, the principles set forth in Section 7.3 of the Tax Matters Agreement. Accordingly, the amount which any Indemnifying Party is required to pay pursuant to this Article VII to any Indemnitee pursuant to this Article VII shall be reduced by any Insurance Proceeds or Third Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee in respect of the related Indemnifiable Loss. If an Indemnitee receives a payment required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Loss (an Indemnity Payment ) and subsequently receives Insurance Proceeds or Third Party Proceeds, then the Indemnitee shall pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or Third Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.
(b) The Parties acknowledge that the indemnification provisions hereof do not relieve any insurer who would otherwise be obligated to pay any claim to pay such claim. In furtherance of the foregoing, the Indemnitee shall use commercially reasonable efforts to seek to collect or recover any Insurance Proceeds and any Third Party Proceeds (other than Insurance Proceeds under an arrangement where future premiums are adjusted to reflect prior claims in excess of prior premiums or Insurance Proceeds under the Excluded Policies) to which the Indemnitee is entitled in connection with any Indemnifiable Loss for which the Indemnitee seeks indemnification pursuant to this Article VII ; provided , that the Indemnitees inability to collect or recover any such Insurance Proceeds or Third Party Proceeds (despite having used commercially reasonable efforts) shall not limit the Indemnifying Partys obligations hereunder.
Section 7.9. Additional Matters; Survival of Indemnities .
(a) The indemnity agreements contained in this Article VII shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee; (ii) the knowledge by the Indemnitee of Indemnifiable Losses for which it might be entitled to indemnification hereunder; and (iii) any termination of this Agreement following the Effective Time.
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(b) The rights and obligations of each Party and their respective Indemnitees under this Article VII shall survive the sale or other Transfer by any Party or its respective Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities, with respect to any Indemnifiable Loss of any Indemnitee related to such Assets, businesses or Liabilities.
(c) Notwithstanding anything to the contrary in this Agreement, in the event that counsel or independent accountants for a Protected REIT determine that there exists a material risk that any indemnification payments due under this Agreement would be treated as Nonqualifying Income upon the payment of such amounts to the relevant Indemnitee, the amount paid to the Indemnitee pursuant to this Agreement in any tax year shall not exceed the maximum amount that can be paid to the Indemnitee in such year without causing the Protected REIT to fail to meet the REIT Requirements for any tax year, determined as if the payment of such amount were Nonqualifying Income as determined by such counsel or independent accountants to the Protected REIT. If the amount payable for any tax year pursuant to the preceding sentence is less than the amount which the relevant Indemnifying Party would otherwise be obligated to pay to the relevant Indemnitee pursuant to this Agreement (the Expense Amount ), then: (1) the Indemnifying Party shall place the Expense Amount into an escrow account (the Escrow Account ) using an escrow agent and agreement reasonably acceptable to the Indemnitee (which shall include that (y) the amount in the Escrow Account shall be treated as the property of the Indemnifying Party, unless it is released from such Escrow Account to the Indemnitee, and (z) all income earned upon the amount in the Escrow Account shall be treated as the property of the Indemnifying Party and reported, as and to the extent required by applicable Law, by the escrow agent to the Internal Revenue Service ( IRS ), or any other taxing authority, on IRS Form 1099 or 1042S (or other appropriate form) as income earned by the Indemnifying Party whether or not said income has been distributed during such taxable year) and shall not release any portion thereof to the Indemnitee, and the Indemnitee shall not be entitled to any such amount, unless and until the Indemnitee delivers to the Indemnifying Party, at the sole option of the relevant Protected REIT, (i) an opinion (an Expense Amount Tax Opinion ) of the Protected REITs tax counsel to the effect that such amount, if and to the extent paid, would not constitute Nonqualifying Income, (ii) a letter (an Expense Amount Accountants Letter ) from the Protected REITs independent accountants indicating the maximum portion of the Expense Amount that can be paid at that time to the Indemnitee without causing the Protected REIT to fail to meet the REIT Requirements for any relevant taxable year, or (iii) a private letter ruling issued by the IRS to the Protected REIT indicating that the receipt of any Expense Amount hereunder will not cause the Protected REIT to fail to satisfy the REIT Requirements (a REIT Qualification Ruling and, collectively with an Expense Amount Tax Opinion and an Expense Amount Accountants Letter, a Release Document ); (2) pending the delivery of a Release Document by the Indemnitee to the Indemnifying Party, the Indemnitee shall have the right, but not the obligation, to borrow the Expense Amount from the Escrow Account pursuant to a loan agreement reasonably acceptable to the Indemnitee that (i) requires the Indemnifying Party to lend the Indemnitee immediately available cash proceeds in an amount equal to the Expense Amount, and (ii) provides for (A) a commercially reasonable interest rate and commercially reasonable covenants, taking into account the credit standing and profile of the Indemnitee or any guarantor of the Indemnitee, including the Protected REIT, at the time of such loan, and (B) a fifteen (15) year maturity with no periodic amortization; and (3) the Indemnitee shall bear all costs and expenses with respect to the escrow as contemplated by clauses (1) and (2) in this Section 7.9(c) .
ARTICLE VIII
PRESERVATION OF RECORDS; ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE
Section 8.1. Preservation of Corporate Records
(a) The Parties shall comply with those document retention policies as shall be set forth on Schedule 8.1(a) hereto or otherwise established and agreed to in writing by their respective authorized officers at or prior to the Effective Time in respect of Records and related matters.
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(b) Notwithstanding anything to the contrary herein and other than with respect to Tax Records (in which event the provisions of the Tax Matters Agreement shall govern), if on or before the sixth (6th) anniversary of the Distribution Date HLT (or any Affiliate of HLT) wishes to destroy any Records that were in existence as of the Effective Date, then HLT shall (or shall cause such Affiliate to) give sixty (60) days prior written notice, including a reasonable description of the Records it wishes to destroy, to the other Parties and (to the extent permitted by applicable Law) each other Party shall have the right at its option and expense, upon prior written notice given within such sixty (60) day period to the other two Parties, to take possession or make copies of such Records within thirty (30) days after the date such notice is given by such Party to the other Parties, it being understood that in the event both other Parties wish to take possession of such Records, such Parties shall (i) agree on which Party shall be entitled to retain such Records and (ii) share equally the reasonable costs incurred by the other non-destroying Party in making copy of such Records within such thirty (30) day period.
Section 8.2. Financial Statements and Accounting . Each Party agrees to provide the following assistance and reasonable access to its properties, Records, other Information and personnel set forth in this Section 8.2 , (i) at any time, with the consent of the other applicable Party (not to be unreasonably withheld or delayed) for reasonable business purposes relating to financial reporting and other regulatory obligations (including disclosure obligations) or other obligations to Governmental Entities; (ii) from the Effective Time until the later of (a) March 31, 2019 and (b) completion of each Partys audit for the fiscal year ending December 31, 2016, in connection with the preparation and audit of each Partys financial statements for the fiscal years ended December 31, 2016 and 2017 (including financial statements for any interim periods), the printing, filing and public dissemination of such financial statements and the audit of each Partys internal controls over financial reporting and managements assessment thereof and managements assessment of each Partys disclosure controls and procedures, if required; (iii) in the event that any Party changes its independent auditors within three (3) years following the Distribution Date, then such Party may request reasonable access on the terms set forth in this Section 8.2 for a period of up to one hundred and eighty (180) days from such change; and (iv) to the extent reasonably necessary to respond (and for the limited purpose of responding) to any written request or official comment from a Governmental Entity, such as in connection with responding to a comment letter from the Commission. Without limiting the foregoing, each Party agrees as follows:
(a) Financial Statements . Each Party shall provide reasonable access to the other Party in accordance with the timing set forth on Schedule 8.2(a) to all Information reasonably required to meet its schedule for the preparation, printing, filing, and public dissemination of its quarterly and annual financial statements and for managements assessment of the effectiveness of its disclosure controls and procedures and its internal controls over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K and, to the extent applicable to such Party, its auditors audit of its internal controls over financial reporting and managements assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the Commissions and the Public Company Accounting Oversight Boards rules and auditing standards thereunder, if required (such assessments and audit being referred to as the Internal Control Audit and Management Assessments ). Without limiting the generality of the foregoing, each Party shall provide all required financial and other Information with respect to itself and its Subsidiaries to its auditors in a sufficient and reasonable time and in sufficient detail to permit its auditors to take all steps and perform all reviews necessary to provide sufficient assistance, if requested, to each other Partys auditors with respect to Information to be included or contained in such other Partys annual financial statements and to permit such other Partys auditors and management to complete the Internal Control Audit and Management Assessments, for 2016 and 2017.
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(b) Access to Personnel and Records . Except to the extent otherwise contemplated by the Ancillary Agreements, each Party shall authorize its respective auditors to make reasonably available to each other Partys auditors (each such other Partys auditors, collectively, the Other Parties Auditors ) both the personnel who performed or are performing the annual audits of such audited Party (each such Party with respect to its own audit, the Audited Party ) and work papers related to the annual audits of such Audited Party (subject to the execution of any reasonable and customary access letters that such Audited Partys auditors may require in connection with the review of such work papers by such Other Parties Auditors), in all cases within a reasonable time prior to such Audited Partys auditors opinion date, so that the Other Parties Auditors are able to perform the procedures they reasonably consider necessary to take responsibility for the work of the Audited Partys auditors as it relates to their auditors report on such other Partys financial statements, all within sufficient time to enable such other Party to meet its timetable for the printing, filing and public dissemination of its annual financial statements. Each Party shall make reasonably available to the other Parties and to such Other Parties Auditors and management its personnel and Records and other Information in a reasonable time prior to the Other Parties Auditors opinion date and other Parties managements assessment date so that the Other Parties Auditors and other Parties management are able to perform the procedures they reasonably consider necessary to conduct the Internal Control Audit and Management Assessments for 2016 and 2017.
(c) Annual Reports . Each Party shall deliver to the other Parties a reasonably complete draft of the first report on Form 10-K to be filed with the Commission (or otherwise) that includes its respective financial statements (in the form expected to be covered by the audit report of such Partys independent auditors) for the year ended December 31, 2016 (such reports, collectively, the Annual Reports ), on or prior to the time set forth on Schedule 8.2(c) ; provided , however , that each Party may continue to revise its respective Annual Report prior to the filing thereof, which changes shall be delivered to the other Parties as soon as reasonably practicable. Each Party shall notify the other Parties, as soon as reasonably practicable after becoming aware thereof, of any material accounting differences between the financial statements to be included in such Partys Annual Report and the pro-forma financial statements included, as applicable, in the PK Form 10 or the HGV Form 10 or the Form 8-K to be filed by HLT with the Commission on or about the time of the Distribution. If any such differences are notified by any Party, the Parties shall confer and/or meet as soon as reasonably practicable thereafter, and in any event prior to the filing of any Annual Report, to consult with each other in respect of such differences and the effects thereof on the Parties Annual Reports.
(d) Nothing in this Article VIII shall require any Party to violate any agreement with any third party regarding the confidentiality of confidential and proprietary Information relating to that third party or its business; provided , however , that in the event that a Party is required under this Section 8.2 to disclose any such Information, such Party shall use commercially reasonable efforts to seek to obtain such third partys written consent to the disclosure of such Information.
Section 8.3. Provision of Corporate Records . Other than in circumstances in which indemnification is sought pursuant to Article VII (in which event the provisions of such Article shall govern) or for matters related to provision of Tax Records (in which event the provisions of the Tax Matters Agreement shall govern) and without limiting the applicable provisions of Article VI , and subject to appropriate restrictions for classified Information, Privileged Information or Confidential Information:
(a) after the Effective Time, upon the prior written request by PK or HGV for specific and identified Information which relates to (x) PK or HGV or the conduct of the Ownership Business or the Timeshare Business, as the case may be, prior to the Effective Time or (y) any Ancillary Agreement to which HLT and one or more of PK and/or HGV are parties, as applicable, HLT shall provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if the Party making the request is the owner of such originals or has a reasonable need for such originals) in the possession or control of HLT or any of its Affiliates or Subsidiaries;
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(b) after the Effective Time, upon the prior written request by HLT or HGV for specific and identified Information which relates to (x) HLT or HGV or the conduct of the HLT Retained Business or Timeshare Business, as the case may be, prior to the Effective Time or (y) any Ancillary Agreement to which PK and one or more of HLT and/or HGV are parties, as applicable, PK shall provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if the Party making the request is the owner of such originals or has a reasonable need for such originals) in the possession or control of PK or any of its Subsidiaries; and
(c) after the Effective Time, upon the prior written request by HLT or PK for specific and identified Information which relates to (x) HLT or PK or the conduct of the HLT Retained Business or Ownership Business, as the case may be, prior to the Effective Time or (y) any Ancillary Agreement to which HGV and one or more of HLT and/or PK are parties, as applicable, HGV shall provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if the Party making the request is the owner of such originals or has a reasonable need for such originals) in the possession or control of HGV or any of its Subsidiaries;
provided that, to the extent any originals (other than originals that are owned by the requesting Party) are delivered to any requesting Party pursuant to this Agreement or the Ancillary Agreements, such Party shall, at its own expense, return them to the Party having provided such originals within a reasonable time after the need to retain such originals has ceased.
Section 8.4. Witness Services . Except in the event any Parties are opposing one another in an Action, in which case normal discovery rules shall apply, at all times from and after the Effective Time, each of HLT, PK and HGV shall use its commercially reasonable efforts (including as described on Schedule 8.4 ) to make available to the others, upon reasonable written request, its and its Subsidiaries former (to the extent practicable), current (to the extent practicable) and future directors, officers, employees, other personnel and agents of such Party as witnesses and any Records or other Information within its control or which it otherwise has the ability to make available (other than materials covered by any Privilege) to the extent that such Persons (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or Records or other Information may reasonably be required to testify, in the case of Persons, or be provided, in the case of Records or Information, in connection with the prosecution or defense of any Action in which the requesting Party may from time to time be involved (except for claims, demands or Actions between members of each Group). A Party providing a witness to the other Party under this Section 8.4 shall be entitled to receive from the recipient of such witness services, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and benefits of employees who are witnesses or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service as witnesses), as may be reasonably incurred and properly paid under applicable Law.
Section 8.5. Reimbursement . Except to the extent otherwise contemplated by this Agreement (including Section 6.3 ) or any Ancillary Agreement, a Party providing Information or access to Information to the other Party under this Article VIII shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and benefits of employees of such Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing), as may be reasonably incurred in providing such Information or access to such Information.
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Section 8.6. Confidentiality
(a) Notwithstanding any termination of this Agreement, except with the prior written consent of the Party to whom the Confidential Information relates (which consent may be withheld in such Partys sole and absolute discretion, except where disclosure is required by applicable Law), each Party shall, and shall cause each of its respective Subsidiaries to, and shall cause its and their respective officers, employees, agents, consultants and advisors to, (i) hold in strict confidence and (ii) not disclose or release or, unless otherwise permitted by this Agreement or any Ancillary Agreement, use any and all Confidential Information (as defined herein) concerning or belonging to the other Parties; provided , that each Party may disclose, or may permit disclosure of, Confidential Information (A) to its respective auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors who have a need to know such Information and are informed of the obligation to hold such Information confidential and in respect of whose failure to comply with such obligations, the applicable Party will be responsible, (B) if any Party or any of its respective Subsidiaries is required or compelled to disclose any such Confidential Information by judicial or administrative process or by other requirements of Law or stock exchange rule or is advised by outside counsel in connection with a governmental proceeding that it is advisable to do so, (C) as required in connection with any legal or other proceeding by one Party against any other Party, (D) as necessary to permit a Party to prepare and disclose its financial statements, Tax Returns or other required disclosures, (E) as necessary for a Party to enforce its rights or perform its obligations under this Agreement or an Ancillary Agreement (including as necessary to obtain consents from third parties to any of the transactions contemplated hereby), (F) to Governmental Entities in accordance with applicable procurement regulations and contract requirements or (G) to other Persons in connection with their evaluation of, and negotiating and consummating, a potential strategic transaction, to the extent reasonably necessary in connection therewith, provided an appropriate and customary confidentiality agreement has been entered into with the Person receiving such Confidential Information. If any demand or request for disclosure of Confidential Information is made pursuant to clause (B), (C), (D), (E) or (F) above, each Party, as applicable, shall promptly notify (to the extent permissible by Law) the Party to whom the Confidential Information relates of the existence of such request, demand or disclosure requirement and shall provide such affected Party a reasonable opportunity to seek an appropriate protective order or other remedy, which such Party will cooperate in obtaining to the extent reasonably practicable. In the event that such appropriate protective order or other remedy is not obtained, the Party which faces the disclosure requirement shall furnish only that portion of the Confidential Information that is required to be disclosed and shall take commercially reasonable steps to ensure that confidential treatment is accorded such Confidential Information. Notwithstanding the foregoing, any Confidential Information of or concerning one or more other Parties, its or their Groups and/or Subsidiaries, to the extent such information is comingled and inseparable from Confidential Information concerning one or more other Parties, its or their Groups and/or Subsidiaries, shall not be the Confidential Information of any such Party, and all concerned Parties may use or disclose it without the consent of any other Party.
(b) The Parties agree that irreparable damage may occur in the event that the provisions of this Section 8.6 were not performed in accordance with their specific terms. Accordingly, it is hereby agreed that the Parties shall be entitled to seek an injunction or injunctions to enforce specifically the terms and provisions hereof, without posting bond or other security, in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.
(c) For the avoidance of doubt, the disclosure and sharing of Privileged Information shall be governed by Section 8.7 and not by this Section 8.6 .
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Section 8.7. Privilege Matters .
(a) Pre-Separation Services . The Parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of each of the members of the HLT Group, the PK Group and the HGV Group, and that each of the members of the HLT Group, the PK Group and the HGV Group should be deemed to be the client with respect to such pre-separation services for the purposes of asserting all privileges, immunities, or other protections from disclosure which may be asserted under applicable Law, including attorney-client privilege, business strategy privilege, joint defense privilege, common interest privilege, and protection under the work-product doctrine ( Privilege ). The Parties shall have a shared Privilege with respect to all Information subject to Privilege ( Privileged Information ) which relates to such pre-separation services. For the avoidance of doubt, Privileged Information within the scope of this Section 8.7 includes, but is not limited to, services rendered by legal counsel retained or employed by any Party (or any member of such Partys respective Group), including outside counsel and in-house counsel.
(b) Post-Separation Services . The Parties recognize that legal and other professional services will be provided following the Effective Time to each of HLT, PK and HGV. The Parties further recognize that certain of such post-separation services will be rendered solely for the benefit of HLT, PK or HGV, as the case may be, while other such post-separation services may be rendered with respect to claims, proceedings, litigation, disputes or other matters which involve two or more of HLT, PK or HGV. With respect to such post-separation services and related Privileged Information, the Parties agree as follows:
(i) All Privileged Information relating to any claims, proceedings, litigation, disputes or other matters which involve two or more of HLT, PK or HGV shall be subject to a shared Privilege among the Parties involved in the claims, proceedings, litigation, disputes or other matters at issue;
(ii) Except as otherwise provided in Section 8.7(b)(i) , Privileged Information relating to post-separation services provided solely to one of HLT, PK or HGV shall not be deemed shared between the Parties, provided , that the foregoing shall not be construed or interpreted to restrict the right or authority of two or more Parties (x) to enter into any further agreement, not otherwise inconsistent with the terms of this Agreement, concerning the sharing of Privileged Information or (y) otherwise to share Privileged Information without waiving any Privilege which could be asserted under applicable Law; and
(iii) Each of HLT, PK or HGV shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with Privileged Information which relates solely to the HLT Retained Business, Ownership Business or Timeshare Business, as applicable, whether or not the Privileged Information is in the possession of or under the control of HLT, PK or HGV, as applicable, or the other Parties (or their respective Affiliates).
(c) The Parties agree as follows regarding all Privileged Information with respect to which the Parties shall have a shared Privilege under Section 8.7(a) or (b) :
(i) Subject to Section 8.7(c)(iii) and (iv) , no Party may waive any Privilege which could be asserted under any applicable Law, and in which any other Party has a shared Privilege, without the consent of the other Party, which shall not be unreasonably withheld or delayed. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within ten (10) Business Days after written notice by the requesting Party to the Party whose consent is sought;
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(ii) If a dispute arises between or among the Parties or their respective Subsidiaries regarding whether a Privilege should be waived to protect or advance the interest of any Party, each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other Parties, and shall not unreasonably withhold consent to any request for waiver by another Party. Each Party specifically agrees that it shall not withhold consent to waive for any purpose except to protect its own legitimate interests;
(iii) If, within ten (10) Business Days of receipt by the requesting Party of written objection, the Parties have not succeeded in negotiating a resolution to any dispute regarding whether a Privilege should be waived, and the requesting Party determines that a Privilege should nonetheless be waived to protect or advance its interest, the requesting Party shall provide the objecting Party ten (10) Business Days written notice prior to effecting such waiver. Each Party specifically agrees that failure within ten (10) Business Days of receipt of such notice to commence proceedings in a court of competent jurisdiction to enjoin such disclosure under applicable Law shall be deemed full and effective consent to such disclosure; and
(iv) In the event of any litigation or dispute between or among any of the Parties, or any members of their respective Groups, either such Party may waive a Privilege in which the other Party or member of such Group has a shared Privilege, without obtaining the consent of the other Party; provided , that such waiver of a shared Privilege shall be effective only as to the use of Privileged Information with respect to the litigation or dispute between the relevant Parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared Privilege with respect to third parties.
(d) The transfer of all Information pursuant to this Agreement is made in reliance on the agreement of HLT, PK or HGV as set forth in Sections 8.6 and this Section 8.7 , to maintain the confidentiality of Privileged Information and to assert and maintain any applicable Privilege. The access to Information being granted pursuant to Sections 6.3 , 7.6 , 8.2 and 8.3 hereof, the agreement to provide witnesses and individuals pursuant to Sections 6.3 , 7.6 and 8.4 hereof, the furnishing of notices and documents and other cooperative efforts contemplated by Sections 6.5 and 7.6 hereof, and the transfer of Privileged Information between and among the Parties and their respective Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any Privilege that has been or may be asserted under this Agreement or otherwise.
(e) Notwithstanding any provision to the contrary in this Section 8.7 , the Party responsible under the Tax Matters Agreement for controlling a Tax Contest shall have the authority to disclose or not disclose, in its sole discretion, any and all Privileged Information to (i) any Taxing Authority (as defined in the Tax Matters Agreement) conducting a Tax Contest or (ii) to third parties in connection with connection with the defense of a Tax Contest, including expert witnesses, accountants and other advisors, potential witnesses and other parties whose assistance is deemed, in the sole discretion of such Party, to be necessary or beneficial to representing the interests of the Parties hereunder.
Section 8.8. Ownership of Information . Any Information owned by one Party or any of its Subsidiaries that is provided to a requesting Party pursuant to this Article VIII shall be deemed to remain the property of the providing Party (except to the extent set forth in the definitions of HLT Retained Assets, Ownership Assets and Timeshare Assets). Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.
Section 8.9. Other Agreements . The rights and obligations granted under this Article VIII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement.
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ARTICLE IX
DISPUTE RESOLUTION
Section 9.1. Negotiation . In the event of a controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or the Ancillary Agreements or otherwise arising out of, or in any way related to, this Agreement or the Ancillary Agreements or the transactions contemplated hereby, including any claim for indemnification pursuant to Article VII or any claim based on contract, tort, statute or constitution (collectively, Agreement Disputes ), the general counsels of the relevant Parties (or such other individuals designated by the respective general counsels) and/or the executive officers designated by the relevant Parties, shall negotiate for a reasonable period of time to settle such Agreement Dispute; provided , that such reasonable period shall not, unless otherwise agreed by the relevant Parties in writing, exceed twenty-one (21) days from the time of receipt by a Party of written notice of such Agreement Dispute ( Dispute Notice ); provided , further , that in the event of any arbitration in accordance with Section 9.3 hereof, the relevant Parties shall not assert the defenses of statute of limitations and laches arising during the period beginning after the date of receipt of the Dispute Notice, and any contractual time period or deadline under this Agreement or any Ancillary Agreement to which such Agreement Dispute relates occurring after the Dispute Notice is received shall not be deemed to have passed until such Agreement Dispute has been resolved.
Section 9.2. Mediation . If, within twenty-one (21) days after receipt by a Party of a Dispute Notice, the Parties have not succeeded in negotiating a resolution of the Agreement Dispute, the Parties agree to submit the Agreement Dispute at the earliest possible date to mediation conducted in accordance with the Mediation Procedure of the International Institute for Conflict Prevention and Resolution ( CPR ), and to bear equally the costs of the mediation; provided , however , that each Party shall bear its own attorneys fees and expenses and other costs in connection with such mediation. The parties agree to participate in good faith in the mediation and negotiations related thereto for a period of fourteen (14) days or such longer period as they may mutually agree following the initial mediation session (the Mediation Period ).
Section 9.3. Arbitration . If the Agreement Dispute has not been resolved for any reason after the Mediation Period, such Agreement Dispute shall be determined, at the request of any relevant Party, by arbitration conducted in Virginia, before and in accordance with the then-existing Rules for Non-Administered Arbitration of the CPR, except as modified herein (the Rules ). There shall be three arbitrators, one of which shall be designated by each Party and the third of which shall be selected by the two so designated, which two shall be appointed by the Parties within ten (10) days of receipt by respondent of a copy of the demand for arbitration and which third arbitrator shall be selected within ten (10) days thereafter. If the arbitrators are not timely appointed by the Parties (or by the selected arbitrators) under this Section 9.3 , such arbitrators shall be appointed by the CPR in accordance with the Rules, and in any such procedure, each Party shall be given two strikes, excluding strikes for cause. Any controversy concerning whether an Agreement Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived, whether an assignee of this Agreement is bound to arbitrate, or as to the interpretation, validity or enforceability of this Article IX shall be determined by the arbitrator. In resolving any Agreement Dispute, the Parties intend that the arbitrator shall apply the substantive Laws of the State of Delaware, without regard to any choice of law principles thereof that would mandate the application of the laws of another jurisdiction. The Parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable, and any award rendered by the arbitrator shall be final and binding on the Parties. The Parties agree to comply and cause the members of their applicable Group to comply with any award made in any such arbitration proceedings and agree to enforcement of or entry of judgment upon such award, in any court of competent jurisdiction, including the Delaware Courts. The
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arbitrator shall be entitled, if appropriate, to award any remedy in such proceedings, including monetary damages, specific performance and all other forms of legal and equitable relief; provided , however , the arbitrator shall not be entitled to award special, consequential, reputational, indirect or punitive damages unless in connection with indemnification for a Third Party Claim (and in such a case, only to the extent awarded in such Third Party Claim).
Section 9.4. Arbitration Period . Any arbitration proceeding shall be concluded in a maximum of three (3) months from the commencement of the arbitration or such other period as the arbitrator together with the Parties involved in such proceeding shall deem reasonable.
Section 9.5. Treatment of Negotiations, Mediation and Arbitration .
(a) Without limiting the provisions of the Rules, unless otherwise agreed in writing by or among the relevant Parties or permitted by this Agreement, the relevant Parties shall keep, and shall cause the members of their applicable Group to keep, confidential all matters relating to and any negotiation, mediation, conference or discussion or otherwise pursuant to this Article IX , all of which shall be treated as compromise and settlement negotiations for purposes of Rule 408 of the Federal Rules of Evidence and comparable state rules; provided , that such matters may be disclosed (i) to the extent reasonably necessary in any proceeding ancillary to an arbitration hereunder, including to enforce the award or for entry of a judgment upon the award and (ii) to the extent otherwise required by Law or the rules of any stock exchange on which the relevant Partys securities may be listed. Nothing said or disclosed, nor any document produced, in the course of any negotiations, conferences and discussions that is not otherwise independently discoverable shall be offered or received as evidence or used for impeachment or for any other purpose in any current or future arbitration.
Section 9.6. Continuity of Service and Performance . Unless otherwise agreed in writing, the Parties shall continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article IX with respect to all matters not subject to such dispute resolution.
Section 9.7. Consolidation . The arbitrator may consolidate an arbitration under this Agreement with any arbitration arising under or relating to the Ancillary Agreements or any other agreement between the Parties entered into pursuant hereto, as the case may be, if the subject of the Agreement Disputes thereunder arises out of or relates essentially to the same set of facts or transactions. Such consolidated arbitration shall be determined by the arbitrator appointed for the arbitration proceeding that was commenced first in time.
Section 9.8. Provisional Relief . Nothing contained in this Agreement is intended to or shall be construed to prevent any Party from applying to any court of competent jurisdiction for interim measures or other provisional relief (including an injunction or other equitable remedies) in connection with the subject matter of any Agreement Disputes. Without prejudice to such provisional remedies as may be available under the jurisdiction of a court, the arbitral tribunal shall have full authority to grant provisional remedies and to direct the Parties to request that any court modify or vacate any temporary or preliminary relief issued by such court, and to award damages for the failure of any Party to respect the arbitral tribunals orders to that effect.
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ARTICLE X
INSURANCE
Section 10.1. Policies and Rights Included Within Assets . (a) The HLT Retained Assets shall include any and all rights of a first named insured under Policies where HLT is a first named insured, subject to the terms of such Policies and any limitations or obligations of HLT contemplated by this Article X , specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred prior to the Effective Time by any party in or in connection with the conduct of the HLT Retained Business or, to the extent any claim is made against HLT or any of its Subsidiaries, the conduct of the Ownership Business or the Timeshare Business, and which claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Company Policies; provided , however , that nothing in this Section 10.1 shall be deemed to constitute (or to reflect) an assignment of such Policies by HLT.
(b) The Ownership Assets shall include any and all rights of an insured party under each of the Company Policies, subject to Sections 10.9 and 10.10 and to the terms of such Company Policies and any limitations or obligations of PK contemplated by this Article X or Schedule 10.1 , specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred prior to the Effective Time by any party in or in connection with the conduct of the Ownership Business or, to the extent any claim is made against PK or any of its Subsidiaries, the conduct of the HLT Retained Business or the Timeshare Business, and which claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Company Policies; provided , however , that nothing in this clause shall be deemed to constitute (or to reflect) an assignment of such Company Policies, or any of them, to PK.
(c) The Timeshare Assets shall include any and all rights of an insured party under each of the Company Policies, subject to Sections 10.9 and 10.10 and to the terms of such Company Policies and any limitations or obligations of HGV contemplated by this Article X or Schedule 10.1 , specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred prior to the Effective Time by any party in or in connection with the conduct of the Timeshare Business or, to the extent any claim is made against HGV or any of its Subsidiaries, the conduct of the HLT Retained Business or the Ownership Business, and which claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Company Policies; provided , however , that nothing in this clause shall be deemed to constitute (or to reflect) an assignment of such Company Policies, or any of them, to HGV.
Section 10.2. Post-Effective Time Claims .
(a) If, subsequent to the Effective Time, any Person shall assert a claim against PK or any of its Subsidiaries (including where PK or its Subsidiaries are joint defendants with other Persons) with respect to any claim, suit, action, proceeding, injury, loss, liability, damage or expense incurred or claimed to have been incurred prior to the Effective Time in or in connection with the conduct of the Ownership Business or, to the extent any claim is made against PK or any of its Subsidiaries (including where PK or its Subsidiaries are joint defendants with other persons), the conduct of the HLT Retained Business or the Timeshare Business, and which claim, suit, action, proceeding, injury, loss, liability, damage or expense may arise out of an insured or insurable occurrence under one or more of the Company Policies, HLT shall act on behalf of all insured parties to assert and manage all claims and to collect any related Insurance Proceeds on behalf of all insured parties under such
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Company Policy. PK, as an additionally insured party, shall have any and all rights of an additionally insured party under such Company Policy including asserting claims and with respect to such asserted claim, be entitled to rights of indemnity and the right to be defended by or at the expense of the insurer and the right to any applicable Insurance Proceeds thereunder; provided, however, that nothing in this Section 10.2(a) shall be deemed to constitute (or to reflect) an assignment of the Company Policies, or any of them, to PK nor be deemed to override existing policy terms and conditions.
(b) If, subsequent to the Effective Time, any person shall assert a claim against HGV or any of its Subsidiaries (including where HGV or its Subsidiaries are joint defendants with other persons) with respect to any claim, suit, action, proceeding, injury, loss, liability, damage or expense incurred or claimed to have been incurred prior to the Effective Time in or in connection with the conduct of the Timeshare Business or, to the extent any claim is made against HGV or any of its Subsidiaries (including where HGV or its Subsidiaries are joint defendants with other persons), the conduct of the HLT Retained Business or the Ownership Business, and which claim, suit, action, proceeding, injury, loss, liability, damage or expense may arise out of an insured or insurable occurrence under one or more of the Company Policies, HLT shall act on behalf of all insured parties to assert and manage all claims and to collect any related Insurance Proceeds on behalf of all insured parties under such Company Policy. HGV, as an additionally insured party shall have any and all rights of an additionally insured party under such Company Policy including asserting claims and with respect to such asserted claim, be entitled to rights of indemnity and the right to be defended by or at the expense of the insurer and the right to any applicable Insurance Proceeds thereunder; provided , however , that nothing in this Section 10.2(b) shall be deemed to constitute (or to reflect) an assignment of the Company Policies, or any of them, to HGV nor deemed to override existing policy terms and conditions.
Section 10.3. Administration; Other Matters .
(a) Administration . Subject to Section 10.10 , from and after the Effective Time, HLT shall be responsible for Claims Administration under Company Policies with respect to all Insured Claims. Each of PK and HGV shall provide prompt notice to HLT of any claims submitted by them or by their respective Subsidiaries under the Company Policies. Each Party shall be responsible for any amounts of its respective Insured Claims under Company Policies that fall below applicable deductibles or self-insured retentions, and shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of its respective Insured Claims under Company Policies. HLT shall have the sole right to change any Company Policies; provided that such change may not adversely and disproportionately affect PK or HGV as compared to HLT, without the consent of the adversely and disproportionately affected Party (not to be unreasonably withheld or delayed). HLT may, with the consent of the other Parties (not to be unreasonably withheld or delayed), commute or otherwise terminate any Company Policies.
(b) Liability Limitation . HLT, PK and HGV shall not be liable to one another for claims not reimbursed by insurers for any reason not within the control of HLT, PK or HGV, as the case may be, including coinsurance provisions, deductibles, quota share deductibles, exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Company Policy limitations or restrictions, any coverage disputes, any failure to timely claim by HLT, PK or HGV or any defect in such claim or its processing.
(c) Maximization of Insurance Proceeds . Each Party agrees to use commercially reasonable efforts to maximize available coverage under those Company Policies applicable to it, and to take all commercially reasonable steps to recover from all other responsible parties in respect of an Insured Claim, including, as may be applicable, pursuing recoveries under other insurance policies available to such Party.
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Section 10.4. Agreement for Waiver of Conflict and Shared Defense . In the event that Insured Claims of more than one Party exist relating to the same occurrence, the relevant Parties shall jointly defend and waive any conflict of interest to the extent necessary to the conduct of the joint defense. Nothing in this Section 10.4 shall be construed to limit or otherwise alter in any way the obligations of the Parties, including those created by this Agreement, by operation of law or otherwise.
Section 10.5. Agreement for Waiver of Conflict and Insurance Litigation and/or Recovery Efforts . In the event of any Action by any Party (or all of the Parties) to recover or obtain insurance proceeds, or to defend against any Action by an insurance carrier to deny any Policy benefits, all Parties may join in any such Action and be represented by joint counsel and all Parties shall waive any conflict of interest to the extent necessary to conduct any such Action. Nothing in this Section 10.5 shall be construed to limit or otherwise alter in any way the obligations of the Parties, including those created by this Agreement, by operation of Law, or otherwise.
Section 10.6. Directors and Officers Liability Insurance; Fiduciary Liability Insurance; Employment Practices Liability Insurance . HLT agrees that, from and after the Distribution Date to the sixth (6 th ) anniversary of the Effective Time, it will maintain in full force and effect the Company Policies identified as Directors & Officers Liability Insurance, Excess Directors & Officers Liability Insurance, Fiduciary Liability Insurance and Employment Practices Liability Insurance on Schedule 10.1 (or, through the purchase of extended discovery, the full benefits and coverage of such Company Policies) and shall not amend the terms of such Policies in a manner materially adverse to any persons covered by such insurance unless it is commercially impossible or unreasonable to maintain such Company Policies as they currently exist due to insurance market conditions. The provisions of this Section 10.6 are intended for the benefit of, and shall be enforceable by, each of the persons covered by those Company Policies referenced in the preceding sentence.
Section 10.7. No Coverage for Post-Effective Occurrences . Each of PK and HGV, on behalf of itself and its Subsidiaries, acknowledges and agrees that it will have no coverage under the Company Policies for acts or events that occur after the Effective Time, except as provided for in any Ancillary Agreements including under the Managing and Franchise Agreements pursuant to which HLT (or another member of the HLT Group) makes available to PK (or another member of the PK Group) coverage under certain Company Policies to the extent provided for in the applicable Managing and Franchise Agreement.
Section 10.8. Cooperation . The Parties agree to use their commercially reasonable efforts to cooperate with respect to the various insurance matters contemplated by this Agreement (including in connection with Policies where HLT is an additional or first named insured).
Section 10.9. Excluded Policies . Each of PK and HGV, on behalf of itself and its Subsidiaries, disclaims any rights that it otherwise may have under the Excluded Policies and agrees not to submit any claim or to pursue any recovery under any Excluded Policy, it being understood that the Excluded Policies are for the sole benefit of HLT and/or other parties.
Section 10.10. HLT as General Agent and Attorney-In-Fact . Notwithstanding anything to the contrary contained herein, HLT remains the owner and holder of all rights and claims in and to the Company Policies. Should the provisions of Sections 10.1 and 10.2 as they pertain to PK and/or HGV be challenged and/or fail of their purpose, HLT shall act as agent and attorney-in-fact for PK and HGV and thereby effectuate, on behalf of PK and HGV, the provisions of Sections 10.2(a) and 10.2(b) of this Agreement, provided that, PK or HGV, as the case may be, shall pay HLTs reasonable out-of-pocket costs relating thereto.
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Section 10.11. Additional Premiums, Return Premiums and Pro Rata Cancellation Premium Credits . If additional premiums are payable, or return premiums are receivable, on any Company Policies after the Effective Time as a result of an insurance carriers retrospective audit of insured exposure, each of HLT, PK and HGV shall be responsible for its respective share of any such additional premiums, and shall be entitled to receive its respective share of any such return premiums, that are attributable to a change in its or its Subsidiaries insured exposure. If cancellation premium credits are received after the Effective Time in connection with the cancellation of any Company Policies, each of HLT, PK and HGV shall be entitled to receive its Applicable Percentage of such cancellation premium credits.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Complete Agreement; Construction . This Agreement, including the Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. In the event and to the extent that there shall be a conflict between the provisions of (a) this Agreement and the provisions of any Specified Ancillary Agreement or Continuing Arrangement, such Specified Ancillary Agreement or Continuing Arrangement shall control and (b) this Agreement and any Ancillary Agreement which is not a Specified Ancillary Agreement, this Agreement shall control unless specifically stated otherwise in such Ancillary Agreement. Except as expressly set forth in this Agreement or any Ancillary Agreement: (i) all matters relating to Taxes and Tax Returns of the Parties and their respective Subsidiaries shall be governed exclusively by the Tax Matters Agreement; and (ii) for the avoidance of doubt, in the event of any conflict between this Agreement or any Ancillary Agreement, on the one hand, and the Tax Matters Agreement, on the other hand, with respect to such matters, the terms and conditions of the Tax Matters Agreement shall govern.
Section 11.2. Ancillary Agreements . Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements.
Section 11.3. Counterparts . This Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.
Section 11.4. Survival of Agreements . Except as otherwise contemplated by this Agreement or any Ancillary Agreement, all covenants and agreements of the Parties contained in this Agreement and each Ancillary Agreement shall survive the Effective Time and remain in full force and effect in accordance with their applicable terms.
Section 11.5. Expenses . Except as otherwise provided (a) in this Agreement (including (i) with respect to costs and expenses incurred after the Effective Time, responsibility for which is allocated pursuant to Section 2.5 , (ii) with respect to Specified Shared Expenses, responsibility for which is allocated pursuant to Section 5.2 , (iii) with respect to Shared Contingent Liabilities, responsibility for which is allocated pursuant to Article VI , (iv) with respect to fees and expenses incurred in the preservation of records and access to information, responsibility for which is allocated pursuant to Section 8.1 , Section 8.4 or Section 8.5 , or (v) with respect to fees and expenses incurred in connection with dispute resolution, responsibility for which is allocated pursuant to Article IX ) or (b) in any Ancillary Agreement, the Parties agree that all out-of-pocket fees and expenses incurred, or to be incurred and
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directly related to the Plan of Reorganization, the Distributions and the transactions contemplated hereby (including third party professional fees, fees and expenses incurred in connection with the execution and delivery of this Agreement and such other third party fees and expenses incurred on a non-recurring basis directly as a result of the Plan of Reorganization and the Distributions, including expenses set forth on Schedule 11.5 , and excluding the costs of salaries and benefits of employees or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing) (collectively, Separation Expenses ) shall (A) to the extent set forth on Schedule 11.5 , be paid by HLT and (B) otherwise, be paid by the Party incurring such expenses. For the avoidance of doubt, except as expressly set forth in this Agreement or any Ancillary Agreements, each Party shall be responsible for its own internal fees (and reimburse any other Party to the extent such Party has paid such costs and expenses on behalf of the responsible Party), costs and expenses (e.g., salaries of personnel working in its respective Business) incurred following the Distribution Date in connection with the Plan of Reorganization and the Distributions, including any costs and expenses relating to such Partys (or any member of its Groups) Disclosure Documents filed following the Distribution Date in connection with the Plan of Reorganization and the Distributions (including, printing, mailing and filing fees) or any costs and expenses incurred following the Distribution Date with the continued listing of such Partys common stock on the NYSE following the Distribution.
Section 11.6. Notices . All notices, requests, claims, demands and other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 11.6 ):
To HLT or Hilton Domestic Operating Company Inc.:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 883-6188
To PK:
Park Hotels & Resorts Inc.
McLean, Virginia 22102
Attn: General Counsel
Facsimile:
To HGV:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, Florida 32835
Attn: General Counsel
Facsimile:
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Section 11.7. Consents . Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party (and its Group).
Section 11.8. Assignment . This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other Parties (not to be unreasonably withheld or delayed), and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, this Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a party hereto so long as the resulting, surviving or transferee Business Entity assumes all the obligations of the relevant party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other parties to this Agreement. No assignment permitted by this Section 11.8 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
Section 11.9. Successors and Assigns . The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.
Section 11.10. Termination and Amendment . This Agreement (including Article VII hereof) may be terminated, modified or amended and the Distribution may be amended, modified or abandoned at any time prior to the Effective Time by and in the sole discretion of HLT upon written notice to PK and HGV but without the approval of PK, HGV or the stockholders of HLT. In the event of such termination, no Party shall have any liability of any kind to any other Party or any other Person. After the Effective Time, this Agreement may not be terminated, modified or amended except by an agreement in writing signed by HLT, PK and HGV.
Section 11.11. Payment Terms .
(a) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount to be paid or reimbursed by any Party (and/or a member of such Partys Group), on the one hand, to any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand, under this Agreement shall be paid or reimbursed hereunder within forty-five (45) days after presentation of an invoice or a written demand therefor and setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount.
(b) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within forty-five (45) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to LIBOR, from time to time in effect, calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.
(c) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, a Party (or any member of a Partys Group) may direct that any payment owed such Party (or member of such Partys Group) hereunder or under any Ancillary Agreement be paid directly to another member of the same Group.
Section 11.12. No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Partys Group to take any actions (including the failure to take a reasonable action) such that the resulting
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effect is to materially undermine the effectiveness of any of the provisions of this Agreement or any Ancillary Agreement (including adversely affecting the rights or ability of any Party to successfully pursue indemnification or payment pursuant to Articles VI and VII ).
Section 11.13. Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be Assumed or otherwise performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party at and after the Effective Time, to the extent such Subsidiary remains a Subsidiary of the applicable Party.
Section 11.14. Third Party Beneficiaries . Except (i) as provided in Article VII relating to Indemnitees and for the release under Section 7.1 of any Person provided therein, (ii) as provided in Section 10.6 relating to the directors, officers, employees, fiduciaries or agents provided therein and (iii) as specifically provided in any Ancillary Agreement, this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 11.15. Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
Section 11.16. Exhibits and Schedules .
(a) The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Nothing in the Exhibits or Schedules constitutes an admission of any liability or obligation of any member of the HLT Group, PK Group or HGV Group or any of their respective Affiliates to any third party, nor, with respect to any third party, an admission against the interests of any member of the HLT Group, PK Group or HGV Group or any of their respective Affiliates. The inclusion of any item or liability or category of item or liability on any Exhibit or Schedule is made solely for purposes of allocating potential liabilities among the Parties and shall not be deemed as or construed to be an admission that any such liability exists.
(b) Subject to the prior written consent of the other Parties (not to be unreasonably withheld or delayed), each Party shall be entitled to update the Schedules from and after the date hereof until the Effective Time.
Section 11.17. Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.
Section 11.18. Consent to Jurisdiction . Subject to the provisions of Article IX hereof, each of the Parties irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware and any appeals court thereof or (b) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the State of Delaware and any appeals court thereof (the courts referred to in clauses (a) and (b), the Delaware Courts ), for the purposes of any suit, action or other proceeding to compel arbitration or for provisional relief in aid of arbitration in accordance with Article IX or to prevent irreparable harm, and to the non-exclusive jurisdiction of the Delaware Courts for the enforcement of any award issued thereunder. Each of the Parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any action, suit or
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proceeding in the Delaware Courts with respect to any matters to which it has submitted to jurisdiction in this Section 11.18 . Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in the Delaware Courts, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
Section 11.19. Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.19 .
Section 11.20. Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 11.21. Force Majeure . No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
Section 11.22. Interpretation . The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
Section 11.23. No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances (including with respect to the rights, entitlements, obligations and recoveries that may arise out of one or more of the following Sections: Article VI ; Section 7.2 ; Section 7.3 ; Section 7.4 ; and Section 7.5 ).
Section 11.24. Tax Treatment of Payments . Unless otherwise required by a Final Determination, this Agreement or the Tax Matters Agreement or otherwise agreed to among the Parties, for U.S. federal Tax purposes, any payment made pursuant to this Agreement (other than any payment of interest pursuant to Section 11.11 ) by: (i) PK to OpCo shall be treated for all Tax purposes as a tax-free contribution by PK to OpCo with respect to its stock occurring immediately before the Internal
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Distribution of OpCo common stock; (ii) HGV to HLT shall be treated for all Tax purposes as a distribution by HGV to HLT with respect to its stock occurring after HGV is directly owned by HLT and immediately before the HGV Distribution; (iii) OpCo to PK shall be treated for all Tax purposes as a distribution by OpCo to PK with respect to stock of OpCo occurring immediately before the Internal Distribution of OpCo common stock; (iv) HLT to PK shall be treated for all Tax purposes as a tax-free contribution by HLT to PK with respect to its stock occurring immediately before the PK Distribution; (v) HLT to HGV shall be treated for all Tax purposes as a tax-free contribution by HLT to HGV with respect to its stock occurring after HGV is directly owned by HLT and immediately before the HGV Distribution; (vi) PK to HGV shall be treated for all Tax purposes as a tax-free contribution by PK to HGV with respect to its stock occurring immediately before the Internal Distribution of HGV Common Stock; (vii) HGV to PK shall be treated for all Tax purposes as a distribution by HGV to PK with respect to its stock occurring immediately before the Internal Distribution of HGV Common Stock; and in each case, none of the Parties shall take any position inconsistent with such treatment. In the event that a Taxing Authority (as defined in the Tax Matters Agreement) asserts that a Partys treatment of a payment pursuant to this Agreement should be other than as required pursuant to this Agreement (ignoring any potential inconsistent or adverse Final Determination), such Party shall use its commercially reasonable efforts to contest such challenge.
Section 11.25. No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder or under the other Ancillary Agreements shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
Section 11.26. No Admission of Liability . The allocation of Assets and Liabilities herein (including on the Schedules hereto) is solely for the purpose of allocating such Assets and Liabilities among HLT, PK and HGV and is not intended as an admission of liability or responsibility for any alleged Liabilities vis-a-vis any third party, including with respect to the Liabilities of any non-wholly owned subsidiary of HLT, PK or HGV.
[ Signature Page Follows ]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. | ||
By: |
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Name: | ||
Title: | ||
PARK HOTELS & RESORTS INC. | ||
By: |
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Name: | ||
Title: | ||
HILTON GRAND VACATIONS INC. | ||
By: |
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Name: | ||
Title: | ||
HILTON DOMESTIC OPERATING COMPANY INC. | ||
By: |
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Name: | ||
Title: |
[Distribution Agreement]
Exhibit 10.1
FORM OF EMPLOYEE MATTERS AGREEMENT
by and among
HILTON WORLDWIDE HOLDINGS INC.,
PARK HOTELS & RESORTS INC.,
HILTON GRAND VACATIONS INC., and
HILTON DOMESTIC OPERATING COMPANY INC.
Dated as of , 2016
Table of Contents
Page | ||||||
1. |
DEFINITIONS | 2 | ||||
2. |
EMPLOYEES | 4 | ||||
3. |
BENEFIT PROGRAM PARTICIPATION | 5 | ||||
4. |
DEFINED BENEFIT PENSION PLANS | 7 | ||||
5. |
DEFINED CONTRIBUTION PENSION PLANS | 10 | ||||
6. |
NON-QUALIFIED RETIREMENT/DEFERRED COMPENSATION PLANS | 15 | ||||
7. |
EMPLOYEE HEALTH AND WELFARE BENEFIT PLANS | 17 | ||||
8. |
SEVERANCE PLANS | 23 | ||||
9. |
PAID TIME OFF | 24 | ||||
10. |
PERQUISITES | 25 | ||||
11. |
CASH BONUS PLANS | 26 | ||||
12. |
EQUITY-BASED AWARDS | 27 | ||||
13. |
COLLECTIVE BARGAINING AGREEMENTS | 29 | ||||
14. |
TRANSITION SERVICES | 30 | ||||
15. |
ACCESS TO INFORMATION AND DATA EXCHANGE | 30 | ||||
16. |
NOTICES; COOPERATION | 32 | ||||
17. |
FURTHER ASSURANCES | 32 | ||||
18. |
INDEMNIFICATION | 32 | ||||
19. |
DISPUTE RESOLUTION | 33 | ||||
20. |
PAYROLL REPORTING AND TAX WITHHOLDING | 34 | ||||
21. |
MISCELLANEOUS | 34 |
i
This EMPLOYEE MATTERS AGREEMENT (this Agreement ), dated as of , 2016, is by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Park Hotels & Resorts Inc., a Delaware corporation ( PK ), Hilton Grand Vacations Inc., a Delaware corporation ( HGV ) and, solely for purposes of Section 18, Hilton Domestic Operating Company Inc., a Delaware corporation and subsidiary of HLT ( OpCo ). Each of HLT, PK, HGV and, solely for purposes of Section 18, OpCo, is sometimes referred to herein as a Party and collectively, as the Parties . Capitalized terms used and not defined herein shall have the meaning set forth in the Distribution Agreement (as defined below) or in Section 1 below.
WHEREAS, HLT, acting through its direct and indirect Subsidiaries, currently conducts a number of businesses, including (i) the HLT Retained Business, (ii) the Ownership Business and (iii) the Timeshare Business;
WHEREAS, the Board of Directors of HLT (the Board ) has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business, which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business, which shall be owned and conducted, directly or indirectly, by PK (which shall elect to be a REIT), and (iii) the Timeshare Business, which shall be owned and conducted, directly or indirectly, by HGV;
WHEREAS, in order to effect such separation, the Board has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders (i) to enter into a series of transactions after giving effect to which (A) HLT and/or one or more of its Subsidiaries shall, collectively, own all of the HLT Retained Assets and Assume all of the HLT Retained Liabilities, (B) PK and/or one or more of its Subsidiaries shall, collectively, own all of the Ownership Assets and Assume all of the Ownership Liabilities, and (C) HGV and/or one or more of its Subsidiaries shall, collectively, own all of the Timeshare Assets and Assume all of the Timeshare Liabilities (such transactions as described in Annex I to the Distribution Agreement and, as they may be amended or modified from time to time, collectively, the Plan of Reorganization ) and (ii) for HLT to distribute to the holders of its common stock, par value $0.01 per share ( HLT Common Stock ), on a pro rata basis (in each case without consideration being paid by such stockholders), (A) all of the outstanding shares of common stock, par value $0.01 per share, of PK (the PK Common Stock ) and (B) all of the outstanding shares of common stock, par value $0.01 per share, of HGV (the HGV Common Stock );
WHEREAS, each of the Parties has executed the distribution agreement, dated as of the date hereof (as it may be amended or modified from time to time, the Distribution Agreement ) to effectuate such Plan of Reorganization; and
WHEREAS, each of the Parties has determined that it is necessary and desirable to allocate and assign responsibility for certain employee, compensation and benefits-related Assets and Liabilities in respect of the activities of the business of such entities on the Distribution Date.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the Parties agree as follows:
1. DEFINITIONS . As used in this Agreement, the following terms shall have the following meanings:
(a) Cut-Off Date shall mean the day immediately preceding the Distribution Date.
(b) Employee shall mean, with respect to any entity, an individual who is considered, according to the payroll and other records of such entity, to be employed by such entity and, for the avoidance of doubt, shall not include a leased employee (as defined in Section 414(n) of the Code), an independent contractor, or other individual performing services with respect to any entity who is not on the payroll of such entity.
(c) ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary or final regulation or other published IRS guidance in force under that provision.
(d) Former Employees shall mean, collectively, any Former HGV Employees, any Former Hilton Employees and any Former PK Employees.
(e) Former HGV Employee shall mean each Employee of Hilton who provided services primarily related to the Timeshare Business and whose employment terminated for any reason prior to the Distribution Date.
(f) Former Hilton Employee shall mean each Employee of Hilton who provided services primarily related to the HLT Retained Business whose employment terminated for any reason prior to the Distribution Date.
(g) Former PK Employee shall mean each Employee of Hilton who provided services primarily related to the Ownership Business and whose employment terminated for any reason prior to the Distribution Date.
(h) HGV Board shall mean the board of directors of HGV.
(i) HGV Plan shall mean each Plan sponsored or maintained by any member of the HGV Group immediately on and after the Plan Effective Time.
(j) HGV Compensation Committee shall mean the compensation committee of the HGV Board.
(k) Hilton shall mean HLT or one of its Subsidiaries immediately prior to the Plan Effective Time.
(l) Hilton Controlled Group shall mean, as of any date of determination prior to the Distribution Date, any trade or business (whether or not incorporated) which is considered a member of a controlled group of organizations within the meaning of Section 414(b), (c), (m), or (o) of the Code that includes HLT or is considered a single employer under common control with HLT under Section 4001(b)(1) of ERISA.
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(m) Hilton Plan shall mean each Plan sponsored or maintained by HLT or one of its Subsidiaries immediately prior to the Plan Effective Time.
(n) HLT Compensation Committee shall mean the compensation committee of the Board.
(o) HLT Plan shall mean each Plan sponsored or maintained by any member of the HLT Group immediately on and after the Plan Effective Time.
(p) Liabilities shall have the same meaning as ascribed to such term in the Distribution Agreement, provided, however that for purposes of this Agreement, Taxes shall be treated as Liabilities.
(q) PK Board shall mean the board of directors of PK.
(r) PK Compensation Committee shall mean the compensation committee of the PK Board.
(s) PK Plan shall mean each Plan sponsored or maintained by any member of the PK Group immediately on and after the Plan Effective Time.
(t) Plan shall mean each plan, policy, program, practice, agreement, or arrangement providing compensation or benefits for any group of Employees or individual Employee, or the dependents or beneficiaries of any such Employee(s), including without limitation, each employee benefit plan (within the meaning of Section 3(3) of ERISA), whether formal or informal or written or unwritten, and including, any means, whether or not legally required, pursuant to which any benefit is provided by an employer to any Employee or the beneficiaries of any such Employee. The term Plan as used in this Agreement does not include any contract, agreement or understanding relating to the settlement of actual or potential employment Action.
(u) Plan Effective Time shall mean 12:01 a.m., New York time, on the Distribution Date.
(v) Pre-Existing Hilton Employee shall mean each Employee employed by Hilton prior to the Distribution Date (other than a Former Employee) including each Employee who is absent from work with the HLT Group on the Cut-Off Date by reason of layoff, leave of absence or disability.
(w) Terminated Hilton DB Plans shall mean, collectively, the Terminated Hilton UK DB Plans and the Terminated Hilton US DB Plans.
(x) Terminated Hilton UK DB Plan shall mean each defined benefit pension Plan which was sponsored or maintained by HLT or one of its Subsidiaries prior to the Plan Effective Time and that was made available to certain Pre-Existing Hilton Employees and Former Employees in the United Kingdom, but which, as of the Plan Effective Time, is not a Hilton Plan due to such Plans termination prior to such date.
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(y) Terminated Hilton US DB Plan shall mean each tax-qualified defined benefit pension Plan which was sponsored or maintained by HLT or one of its Subsidiaries prior to the Plan Effective Time and that was made available to certain Pre-Existing Hilton Employees and Former Employees in the United States, but which, as of the Plan Effective Time, is not a Hilton Plan due to such Plans termination prior to such date.
(z) Terminated Japanese DB Plans shall mean each defined benefit pension Plan which was sponsored or maintained by Vacations prior to the Plan Effective Time and that was made available to certain HGV Employees and Former HGV Employees in Japan, but which, as of the Plan Effective Time, is not a Japanese DB Plan due to such Plans termination prior to such date.
(aa) Vacations shall mean HGV or one of its Subsidiaries immediately prior to the Plan Effective Time.
2. EMPLOYEES . (a) Allocation of Employees . The Parties shall take all steps necessary or appropriate so that all of the Employees of HLT and its Subsidiaries as of the Cut-Off Date are allocated among the HLT Retained Business, the Ownership Business and the Timeshare Business as of the Distribution Date in accordance with the principles set forth in this Section 2(a). In making such allocation of Employees of HLT and its Subsidiaries pursuant to Section 2(a)(i) and (ii), the Parties shall share such information regarding the allocation of Employees as is reasonably requested. An Employee, other than a PK Employee (as defined below) or an HGV Employee (as defined below), who is (1) allocated to the HLT Retained Business and (2) employed by a member of the HLT Group as of the Distribution Date is a HLT Employee . An Employee who is (1) allocated to the Ownership Business and (2) employed by a member of the PK Group as of the Distribution Date is a PK Employee . An Employee who is (1) allocated to the Timeshare Business and (2) employed by a member of the HGV Group as of the Distribution Date is an HGV Employee . All Employees of HLT and its Subsidiaries as of the Cut-Off Date shall be allocated as an HLT Employee, a PK Employee or an HGV Employee on the Distribution Date. Except as otherwise expressly provided for herein or in the Distribution Agreement, a member of the HLT Group shall be liable for all Liabilities involving HLT Employees and Former Hilton Employees, a member of the PK Group shall be liable for all Liabilities involving PK Employees and Former PK Employees and a member of the HGV Group shall be liable for all Liabilities involving HGV Employees and Former HGV Employees.
(i) In making the allocation provided for in this Section 2(a), and subject to clause (ii) below, the Parties shall allocate each Employee whose employment duties prior to the Distribution Date relate exclusively to the Ownership Business to a member of the PK Group and the Timeshare Business to a member of the HGV Group. The Parties shall allocate all other Employees in a mutually agreeable manner that, to the extent possible, takes into account the Employees expertise, experience and existing positions and duties and does not unreasonably disrupt the HLT Retained Business, the Ownership Business or the Timeshare Business and maximizes the ability of each of the HLT Retained Business, the Ownership Business and the Timeshare Business to manage and operate their respective businesses on and after the Distribution Date, taking into account the respective needs of such businesses as established by past practice, to the extent applicable.
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(ii) The Parties each agree that, between the date hereof and the Distribution Date, Employees shall not be transferred among the HLT Retained Business, the Ownership Business and the Timeshare Business except (A) as necessary to effectuate the second sentence of clause (i) of this Section 2(a), (B) in the ordinary course of business, consistent with past practice, or (C) in accordance with the procedures described in the next sentence. The Parties agree that, between the date hereof and the Distribution Date, the senior human resources executives of each Party shall consult with one another in connection with the transfer of any Employee whose duties relate primarily to the HLT Retained Business, the Ownership Business or the Timeshare Business, as the case may be, and whose supervisor objects to the transfer. Consent by the transferee Party to any such transfer shall not be required.
(b) Leaves of Absence . Employees who are on an approved leave of absence as of the Distribution Date shall be treated as HLT Employees, PK Employees or HGV Employees, as the case may be, notwithstanding such leave of absence and each Party shall continue to apply the same leave of absence policy applicable to such inactive Employees as of such date until such inactive Employee returns to active employment with the HLT Group, the PK Group or the HGV Group, as the case may be.
(c) Subsequent Transfers of Employment . To the extent that the employment of any individual transfers among the HLT Group, the PK Group and the HGV Group following the Distribution Date but on or prior to December 31, 2017, the Parties shall use their reasonable efforts to effect the provisions of this Agreement with respect to the compensation and benefits of any such individual on and after the date of such transfer, it being understood that (i) it may not be possible to replicate the effect of such provisions under such circumstances and (ii) none of the Parties shall be bound by the provisions of this Section 2(c) to Assume any Liabilities or Transfer any Assets. Notwithstanding the foregoing, for compensation subject to the provisions of Section 409A of the Code, any such subsequent transfer, regardless of whether prior to, on or after December 31, 2017, shall be a separation from service from the applicable employer for purposes of such compensation, and the consequences of such separation from service shall be determined in accordance with the terms of the applicable Plan.
(d) No Creation/Acceleration of Benefits . Except as otherwise expressly provided for herein, no provision of, or event arising under, this Agreement, the Distribution Agreement or any of the Ancillary Agreements shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any Pre-Existing Hilton Employee, Former Employee or other future, present or former Employee of any member of the HLT Group, the PK Group or the HGV Group.
(e) At-Will Status . Nothing in this Agreement shall create any obligation on the part of any member of the HLT Group, the PK Group or the HGV Group to continue the employment of any Employee or permit the return from a leave of absence of any Employee following the date of this Agreement or the Distribution Date (except as required by applicable Law) or change the employment status of any Employee from at-will, to the extent such Employee was an at-will employee under applicable Law.
3. B ENEFIT PROGRAM PARTICIPATION . (a) Except as otherwise expressly provided for herein with respect to a particular Plan or otherwise provided for under
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applicable Law, all Employees who will become PK Employees and HGV Employees as of the Distribution Date shall cease active participation in all Hilton Plans no later than 11:59 p.m. on the Cut-Off Date (or such other time as may be required pursuant to applicable local Law).
(b) Recognition of Prior Service; No Duplication of Benefits . Except as otherwise expressly provided for under the terms of an HLT Plan, a PK Plan or an HGV Plan, each of HLT, PK and HGV shall, or shall cause another member or members of their respective Groups to, recognize each HLT Employees, PK Employees and HGV Employees, as the case may be, service with Hilton for purposes of determining such Employees eligibility, vested status, benefit levels and benefit accruals under each applicable HLT Plan, PK Plan and HGV Plan, as the case may be, and, in each case, to the extent required under applicable local Law or, in the event there is no applicable local Law, to the same extent such service would be credited under the corresponding Hilton Plan, as applicable, or if none, as required by the applicable Plan terms. Notwithstanding the foregoing, for purposes of any Plans subject to any federal, state or local Laws of the United States, hours of service performed outside of the United States are not required to be credited for purposes of eligibility under any such HLT Plan, PK Plan or HGV Plan that is a welfare plan (within the meaning of Section 3(1) of ERISA), to the extent permitted by applicable Law. In addition, to the extent it would result in a duplication of benefits or duplication of service credit under one or more Plans sponsored or maintained by any member of the HLT Group, the PK Group or the HGV Group, as applicable, service credit shall not be awarded for purposes of retirement, severance, paid time off or any other Plan sponsored or maintained by any member of the HLT Group, the PK Group or the HGV Group, if the HLT Employee, PK Employee or HGV Employee, as the case may be, is compensated or otherwise eligible for a benefit, as applicable, on account of such service under a Hilton Plan as in effect on the Cut-Off Date. Notwithstanding the foregoing and for the avoidance of doubt, service credit shall be awarded for purposes of eligibility for any HLT Plan that is subject to any federal, state or local Laws of the United States (as adopted by any member of the PK Group or the HGV Group through no later than December 31, 2017), even if such award results in duplication of service credit.
(c) Amendment and Termination . Nothing in this Agreement shall be construed or interpreted to restrict the right or authority of any member of the HLT Group, the PK Group or the HGV Group, as applicable, to amend or terminate any HLT Plan, PK Plan or HGV Plan, or any Plan that is newly adopted or implemented in accordance with the terms hereof after the Distribution Date, as applicable, effective as of a date on and after the Distribution Date, to the extent permitted by applicable Law.
(d) Non-Termination of Employment . Any Pre-Existing Hilton Employee who, on the Distribution Date, is employed by a member of the HLT Group, the PK Group or the HGV Group shall not be deemed either to have terminated employment, incurred a separation from service or severance from employment, or to be in retirement status under any HLT Plan, PK Plan or HGV Plan solely as a result of the Distribution or related transactions except to the extent required by applicable Law or the applicable Plan terms. Except to the extent required by applicable Law or the applicable Plan terms, any Pre-Existing Hilton Employee who, on the Distribution Date, is employed by a member of the HLT Group, the PK Group or the HGV Group shall not, solely as a result of the Distribution or related transactions, be eligible to receive payment of, or exercise any portability rights in respect of, such Employees vested benefit or
6
retirement allowance under any HLT Plan, PK Plan or HGV Plan; provided that each HLT Employee, PK Employee and HGV Employee shall receive credit for their service with Hilton prior to the Distribution Date from a member of the HLT Group, the PK Group or the HGV Group, as applicable, as provided for in this Section 3.
(e) No Change in Control . The Parties acknowledge and agree that neither the consummation of the Distribution nor any transaction in connection with the Distribution shall be deemed a change of control, a change in control or term of similar import for purposes of any Hilton Plan, HLT Plan, PK Plan or HGV Plan.
(f) Fiduciary Matters . The Parties acknowledge that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release the other Parties for any Liabilities caused by the failure to satisfy any such responsibility.
(g) Consent of Third Parties . If any provision of this Agreement is dependent on the consent of any third party and such consent is withheld, the Parties shall use commercially reasonable efforts to implement the applicable provision of this Agreement to the full extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, the Parties shall negotiate in good faith to implement the provision in a mutually satisfactory manner.
4. DEFINED BENEFIT PENSION PLANS . (a) US Tax-Qualified DB Plans . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members or members of the HLT Group to, Assume (i) each tax-qualified defined benefit pension Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 4(a)(i) (such Plans, the US DB Plans ), (ii) all Liabilities associated with the US DB Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether incurred prior to, on or after the Plan Effective Time, (iii) all Assets and Liabilities related to any Terminated Hilton US DB Plans, and (iv) all Assets and accrued benefits associated with the US DB Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to any US DB Plans or any Terminated Hilton US DB Plans. For the avoidance of doubt, no member of the HLT Group is Assuming any Assets or Liabilities related to non-Hilton participating employers under the US DB Plans.
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(b) Non-US DB Plans .
(i) HLT Group . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein, HLT shall, or shall cause another member or members or members of the HLT Group to, Assume (w) each defined benefit pension plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date, including without limitation, the Plans listed on Schedule 4(b)(i), and any legally enforceable agreements or guarantees given by Hilton to support such plans (collectively, the Non-US DB Plans ), (x) all Liabilities associated with the Non-US DB Plans related to HLT Employees and Former Hilton Employees, and, solely with respect to the Hilton UK Pension Plan (the UK DB Plan ), Liabilities relating to benefits built up by any HLT Employees, Former Employees, PK Employees, and HGV Employees, in each case, while employed by Hilton, whether incurred prior to, on or after the Plan Effective Time, (y) all Assets and Liabilities related to any Terminated Hilton UK DB Plans, and (z) all Assets and accrued benefits associated with the Non-US DB Plans related to HLT Employees and Former Hilton Employees and, solely with respect to the UK DB Plans, Assets related to and accrued benefits built up by any HLT Employees, Former Employees, PK Employees, and HGV Employees while employed by Hilton, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise expressly provided for herein, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under the Non-US DB Plans, HLT Employees or Former Employees under any Terminated Hilton UK DB Plan or, solely with respect to the UK DB Plan, HLT Employees, Former Employees, PK Employees, or HGV Employees.
(ii) PK Group .
(A) Establishment of New Non-US DB Plans/Transfer of Assets and Liabilities . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume (x) a portion of each Non-US DB Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become PK Employees at PK properties based outside of the United States, including, without limitation, the Plans listed on Schedule 4(b)(ii)(B), but excluding the UK DB Plan (such Plans, the Non-US PK DB Plans ), (y) all Liabilities associated with the Non-US PK DB Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits related to PK Employees and Former PK Employees associated with the Non-US PK DB Plans, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to the Non-US PK DB Plans.
(B) UK Life Assurance Plans . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to (x) establish, adopt and implement a new life assurance Plan to provide life assurance benefits to PK Employees employed in the United Kingdom on substantially similar terms, in all material respects, to the terms on which the PK Employees employed in the United Kingdom were provided with life assurance benefits as of the Cut-Off Date, and, if any member of the PK Group provides life assurance benefits to any new Employees employed by a member of the PK Group in the United Kingdom after the Distribution Date, it shall be through the same Plan and
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on the same terms as for PK Employees, and (y) Assume all Liabilities associated with such Plan related to PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date who are provided with life assurance benefits).
(C) UK DB Plan Mitigation Arrangements . As a result of ceasing to participate in the UK DB Plan, following the Distribution Date, PK shall, or shall cause another member or members of the PK Group to pay, on a monthly basis, in arrears, to or in respect of each PK Employee who was an Active Deferred Member (as defined in the UK DB Plan) participating in the UK DB Plan immediately before the Distribution Date, in respect of each calendar month in which such PK Employee is employed by a member of the PK Group, either (x) a contribution to the defined contribution pension scheme that such PK Employee is a member of and provided under Section 5(b)(ii)(A), based on a fixed percentage (the Mitigation Percentage ) of such PK Employees basic salary as communicated to such PK Employee before the Distribution Date, or (y) a cash salary supplement in an amount equal to the product of (I) the Mitigation Percentage and (II) such PK Employees basic salary. These payments shall be paid on such terms, including as to duration, as are communicated to such PK Employees before the Distribution Date, and subject to any ability of PK or any other member or members of the PK Group to change the affected PK Employees contractual terms where permitted by applicable Law following the Distribution Date. These payments are to be provided as mitigation to such PK Employee for the loss of the salary linkage feature provided under the UK DB Plan prior to the Distribution Date.
(iii) HGV Group .
(A) Establishment of New Non-US DB Plans/Transfer of Assets and Liabilities . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume (x) each defined benefit pension plan sponsored or maintained by Vacations as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in Japan who become HGV Employees at HGV properties based in Japan (such Plans, the Japanese DB Plans ), all Liabilities associated with the Japanese DB Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets and accrued benefits associated with the Japanese DB Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (y) (I) a portion of each other Non-US DB Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become HGV Employees based outside the United States, including, without limitation, the Plans listed on Schedule 4(b)(iii)(A), but excluding the UK DB Plan (such Plans, the Non-US HGV DB Plans ), (II) all Liabilities associated with the Non-US HGV DB Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (III) all Assets and accrued benefits related to HGV Employees and Former HGV Employees associated with the Non-US HGV DB Plans, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to the Japanese DB Plans and the Non-US HGV DB Plans.
(B) UK Life Assurance Plans . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to (x)
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establish, adopt and implement a new life assurance Plan to provide life assurance benefits to HGV Employees employed in the United Kingdom on substantially similar terms, in all material respects, to the terms on which the HGV Employees employed in the United Kingdom were provided with life assurance benefits as of the Cut-Off Date, and, if any member of the HGV Group provides life assurance benefits to any new Employees employed by a member of the HGV Group in the United Kingdom after the Distribution Date, it shall be through the same Plan and on the same terms as for HGV Employees, and (y) Assume all Liabilities associated with such Plan related to HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date who are provided with life assurance benefits).
(C) UK DB Plan Mitigation Arrangements . As a result of ceasing to participate in the UK DB Plan, following the Distribution Date, HGV shall, or shall cause another member or members of the HGV Group to pay, on a monthly basis, in arrears, to or in respect of each HGV Employee who was an Active Deferred Member participating in the UK DB Plan immediately before the Distribution Date, in respect of each calendar month in which such HGV Employee is employed by a member of the HGV Group, either (x) a contribution to the defined contribution pension scheme that such HGV Employee is a member of and provided under Section 5(b)(ii)(A), based on the Mitigation Percentage of such HGV Employees basic salary as communicated to such HGV Employee before the Distribution Date, or (y) a cash salary supplement in an amount equal to the product of (I) the Mitigation Percentage and (II) such HGV Employees basic salary. These payments shall be paid on such terms, including as to duration, as are communicated to such HGV Employees before the Distribution Date, and subject to any ability of HGV or any other member or members of the HGV Group to change the affected HGV Employees contractual terms where permitted by applicable Law following the Distribution Date. These payments are to be provided as mitigation to such HGV Employee for the loss of the salary linkage feature provided under the UK DB Plan prior to the Distribution Date.
5. DEFINED CONTRIBUTION PENSION PLANS . (a) US Tax-Qualified DC Plans .
(i) General . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each tax-qualified defined contribution pension plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 5(a)(i) (such Plans, the US DC Plans ), (y) all Liabilities associated with the US DC Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the US DC Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under the US DC Plans. For the avoidance of doubt, no member of the HLT Group is Assuming any Assets or Liabilities related to non-Hilton participating employers under the US DC Plans.
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(ii) Continued Participation in HW 401(k) Plan . Prior to the Plan Effective Time, each of (x) the Subsidiaries of HLT and (y) PK, HGV and their respective Subsidiaries with Employees who participate in the Hilton Worldwide 401(k) Plan as of the Cut-Off Date (the HW 401(k) Plan ) shall have adopted the HW 401(k) Plan each as a participating employer. Effective as of the Plan Effective Time, each of the applicable members of the PK Group and the HGV Group shall remain as participating employers in the HW 401(k) Plan until no later than December 31, 2017 and, in connection therewith, each of the HLT Group, the PK Group and the HGV Group shall (x) pay their proportional share of the administrative and contribution costs associated with the HW 401(k) Plan during such period and (y) Assume all Liabilities associated with the HW 401(k) Plan related to HLT Employees, Former HLT Employees, PK Employees, Former PK Employees, HGV Employees and Former HGV Employees (and any new Employees employed by any member of the HLT Group, the PK Group or the HGV Group, as applicable, after the Distribution Date), respectively.
(iii) Establishment of New US Tax-Qualified DC Plans/Transfer of Assets and Liabilities . Effective no later than January 1, 2018, each of PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to establish, adopt and administer one or more new defined contribution pension plans that are intended to meet the requirements of Sections 401(a) and 401(k) of the Code and a related trust that is intended to meet the requirements of Section 501(a) of the Code for the benefit of eligible PK Employees and HGV Employees, as applicable, in the United States (or on temporary assignment outside of the United States, if applicable) (and any new Employees employed by any member of the PK Group or HGV Group after the Distribution Date) (collectively, the New 401(k) Plans ), the terms and conditions of which shall be determined by the PK Compensation Committee or the HGV Compensation Committee (or their respective designees), as applicable, taking into account the terms and conditions of the HW 401(k) Plan.
(iv) As soon as practicable following the adoption of each New 401(k) Plan, HLT shall, or shall cause the applicable member of the HLT Group to, cause the trustee of the HW 401(k) Plan to Transfer to the trustee or other funding agent of each New 401(k) Plan the amounts (in cash, securities, other property or a combination thereof, including any promissory notes reflecting outstanding participant loan balances) representing the account balances of all PK Employees, Former PK Employees, HGV Employees and Former HGV Employees (and any new Employees employed by any member of the PK Group or the HGV Group, as applicable, after the Distribution Date) who were participating in the HW 401(k) Plan with said amounts to be established as account balances of such Employees under the applicable New 401(k) Plan. Each such Transfer shall comply with Section 414(l) of the Code and the requirements of ERISA. Each of PK and HGV shall, or shall cause the applicable member of the PK Group or the HGV Group, as applicable, to (x) cause the trustees or other funding agent of the applicable New 401(k) Plan to accept the plan-to-plan Transfer from the HW 401(k) Plan, and to credit the accounts of such PK Employees, Former PK Employees, HGV Employees and Former HGV Employees, as applicable (and any new Employees employed by any member of the PK Group and the HGV Group after the Distribution Date, as applicable) under the applicable New 401(k) Plan with the amounts Transferred on their behalf and (y) Assume and be
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solely responsible for all Liabilities under the applicable New 401(k) Plan relating to the accounts that are so Transferred as of the time of such Transfer. In connection with the plan-to-plan Transfer described above, the Parties agree to cooperate in making any and all appropriate filings required under applicable Law and to take all such action(s) as may be necessary or appropriate to cause such plan-to-plan Transfer to take place as soon as practicable following the adoption of each New 401(k) Plan.
(b) Non-US DC Plans .
(i) HLT Group . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each defined contribution pension plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 5(b)(i) (such Plans, the Non-US DC Plans ), (y) all Liabilities associated with (I) the Non-US DC Plans and (II) the HOGARENTE (the Hotel and Restaurant Association) and the Pensioenfond Horeca & Catering Retirement Plan (such Plans, the Mandatory DC Plans ), in each case, related to HLT Employees and Former Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the Non-US DC Plans, in each case, related to HLT Employees and Former Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under the Non-US DC Plans or the Mandatory DC Plans.
(ii) PK Group .
(A) Continued Participation in HLT Plans/Establishment of New Plans in the UK . (1) Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, for the purposes of providing defined contribution pension benefits for PK Employees employed in the United Kingdom, either:
(x) adopt and implement one or more new defined contribution pension plans that have the same terms as to contribution rates and eligibility as the Legal and General Group Pension Plan - Hilton Worldwide Personal UK Retirement Plan (the UK GPP ) and The Peoples Pension Scheme Hilton Hotels Worldwide Section (the UK Auto-Enrolment Plan ) (the UK GPP and the UK Auto-Enrolment Plan, collectively, the UK DC Plans ); or
(y) with the consent of HLT and the trustees or providers of the UK DC Plans, continue participation in the UK DC Plans until no later than December 31, 2017 (the Transitional Period ). During such time, the contribution and eligibility terms of the UK DC Plans shall be the same for PK Employees employed in the United Kingdom as they were for such PK Employees when they were employed by Hilton immediately prior to the Plan Effective Time. For the avoidance of doubt, in connection therewith, each of the HLT Group and the PK Group shall (I) pay their proportional share
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of the administrative and contribution costs associated with the UK DC Plans during such period and (II) Assume all Liabilities associated with the UK DC Plans related to HLT Employees and PK Employees (and any new Employees employed by any member of the HLT Group or the PK Group, as applicable, after the Distribution Date), respectively. Effective from immediately after the end of the Transitional Period and no later than January 1, 2018, PK shall, or shall cause another member or members of the PK Group to, take the action(s) set out in clause (x) above.
(2) Following the establishment, adoption and implementation by PK or another member or members of the PK Group of one or more new defined contribution pension plans as required by clause (1)(x) above, if it would not otherwise automatically happen, PK shall, or shall cause another member or members of the PK Group to, request the trustee of the UK Auto-Enrolment Plan to Transfer all Assets and Liabilities of the UK Auto-Enrolment Plan attributable to PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date) to the applicable new defined contribution pension plan, subject to the agreement of the new defined contribution pension plan trustee or provider. Following such Transfer, no member of the HLT Group or the HGV Group shall have any Liabilities relating thereto. In addition, if it would not otherwise automatically be permitted, PK shall, or shall cause another member or members of the PK Group to request that the trustee or provider of the new defined contribution pension plan accept a Transfer of the Assets and Liabilities in the UK GPP attributable to any PK Employee (and any new Employees employed by any member of the PK Group after the Distribution Date) who wishes to Transfer such Assets and Liabilities to the new defined contribution pension plan, provided such PK Employee (and any such new Employee employed by any member of the PK Group after the Distribution Date) is still an active member of the new defined contribution pension plan at the date of the Transfer.
(B) Assumption/Establishment of New Plans . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to (x) commence participation in the Mandatory DC Plans and (y) Assume (I) each Non-US DC Plan that is made available as the Cut-Off Date to certain Pre-Existing Hilton Employees as of the Cut-Off Date in South Africa who become PK Employees at PK properties based in South Africa (such Plans, the SA DC Plans ), all Liabilities associated with the SA DC Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets and accrued benefits associated with the SA DC Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time, and (II) (1) a portion of each other Non-US DC Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become PK Employees at PK properties based outside of the United States, including, without limitation, the Plans listed on Schedule 5(b)(ii)(B), but excluding the UK DC Plans (such Plans, PK Required Plans ), (2) all Liabilities associated with the PK Required Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and (3) all Assets and accrued benefits associated with the PK Required Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees or Former PK Employees under
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the SA DC Plans or the PK Required Plans. The PK Compensation Committee (or its designee) shall establish, adopt and implement one or more new defined contribution pension plans that have substantially similar terms, in all material respects, to the PK Required Plans. Following the adoption of such plans, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets and Liabilities attributable to PK Employees and Former PK Employees under the respective PK Required Plans to each such newly adopted plan. On and after such Transfer, no member of the HLT Group or the HGV Group shall have any Liabilities related thereto. Following commencement of participation in the Mandatory DC Plans, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities associated with such the Mandatory DC Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time.
(iii) HGV Group .
(A) Continued Participation in HLT Plans/Establishment of New Plans in the UK . (1) Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, for the purposes of providing defined contribution pension benefits for HGV Employees employed in the United Kingdom, either:
(x) adopt and implement one or more new defined contribution pension plans that have the same terms as to contribution rates and eligibility as each applicable UK DC Plan; or
(y) with the consent of HLT and the trustees or providers of the UK DC Plans, continue participation in the UK DC Plans until no later than the last day of the Transitional Period. During such time, the contribution and eligibility terms of the UK DC Plans shall be the same for HGV Employees employed in the United Kingdom as they were for such HGV Employees when they were employed by Hilton immediately prior to the Plan Effective Time. For the avoidance of doubt, in connection therewith, each of the HLT Group and the HGV Group shall (I) pay their proportional share of the administrative and contribution costs associated with the UK DC Plans during such period and (II) Assume all Liabilities associated with the UK DC Plans related to HLT Employees and HGV Employees (and any new Employees employed by any member of the HLT Group or the HGV Group, as applicable, after the Distribution Date), respectively. Effective from immediately after the end of the Transitional Period and no later than January 1, 2018, HGV shall, or shall cause another member or members of the HGV Group to, take the action(s) set out in clause (x) above.
(2) Following the establishment, adoption and implementation by HGV or another member or members of the HGV Group of one or more new defined contribution pension plans as required by clause (1)(x) above, if it would not otherwise automatically happen, HGV shall, or shall cause another member or members of the HGV Group to, request the trustee of the UK Auto-Enrolment Plan to Transfer all Assets and Liabilities of the UK Auto-Enrolment Plan attributable to HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date) to the applicable new defined contribution pension plan, subject to the agreement of the new defined contribution pension plan trustee or provider. Following such Transfer, no
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member of the HLT Group or the PK Group shall have any Liabilities relating thereto. In addition, if it would not otherwise automatically be permitted, HGV shall, or shall cause another member or members of the HGV Group to request that the trustee or provider of the new defined contribution pension plan accept a Transfer of the Assets and Liabilities in the UK GPP attributable to any HGV Employee (and any new Employees employed by any member of the HGV Group after the Distribution Date) who wishes to Transfer such Assets and Liabilities to the new defined contribution pension plan, provided such HGV Employee (and any such new Employee employed by any member of the HGV Group after the Distribution Date) is still an active member of the new defined contribution pension plan at the date of the Transfer.
(B) Assumption/Establishment of New Plans Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume (x) each Non-US DC Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in Japan who become HGV Employees at HGV properties based in Japan (the Japanese DC Plans ), all Liabilities associated with the Japanese DC Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets and accrued benefits associated with the Japanese DC Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time, and (y) (I) a portion of each other Non-US DC Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become HGV Employees at HGV properties based outside of the United States, including, without limitation, the Plans listed on Schedule 5(b)(iii)(B) (such Plans, excluding the UK DC Plans, the Hilton International Plan (Hilton Retirement Capital Plan section) and the Hilton Worldwide International Retirement Plan, the HGV Required Plans ), (II) all Liabilities associated with the HGV Required Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (III) all Assets and accrued benefits associated with the HGV Required Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees or Former HGV Employees under the Japanese DC Plans or the HGV Required Plans. The HGV Compensation Committee (or its designee) shall establish, adopt and implement one or more new defined contribution pension plans that have substantially similar terms, in all material respects, to the HGV Required Plans, effective as of the Plan Effective Time. Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets and Liabilities attributable to HGV Employees and Former HGV Employees under each applicable HGV Required Plan to each such newly adopted plan. On and after such Transfer, no member of the HLT Group or the PK Group shall have any Liabilities related thereto.
6. NON-QUALIFIED RETIREMENT/DEFERRED COMPENSATION PLANS . (a) General . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each non-qualified retirement and deferred compensation plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 6(a),
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(such Plans, the Hilton Deferred Compensation Plans ), (y) all Liabilities associated with the Hilton Deferred Compensation Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets (including any associated rabbi trust) and accrued benefits associated with the Hilton Deferred Compensation Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether accrued prior to, on or after the Plan Effective Time. Except as otherwise expressly provided for herein, on and after the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to Former Employees, HLT Employees, PK Employees or HGV Employees under the Hilton Deferred Compensation Plans.
(b) New PK and HGV Deferred Compensation Plans/Transfer of Liabilities .
(i) PK Group . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and administer one or more new deferred compensation and/or non-qualified retirement plans for eligible PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date) in the United States. The terms and conditions of one such plan for PK Employees who participated in the Hilton Hotels 2005 Executive Deferred Compensation Plan (the 2005 EDCP ) as of the Cut-Off Date shall be substantially similar, in all material respects, to the 2005 EDCP. Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities related to the 2005 EDCP attributable to PK Employees who participated in the 2005 EDCP as of the Cut-Off Date. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees under the 2005 EDCP and no member of the PK Group shall have any Liabilities related to the HLT Employees and Former Employees under the 2005 EDCP. Any such other plans that are adopted by any member of the PK Group shall be on such terms and conditions as determined by the PK Compensation Committee (or its designee).
(ii) HGV Group . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and administer one or more new deferred compensation and/or non-qualified retirement plans for eligible HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date) in the United States. The terms and conditions of one such plan for HGV Employees who participated in the 2005 EDCP as of the Cut-Off Date shall be substantially similar, in all material respects, to the 2005 EDCP. Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities related to the 2005 EDCP attributable to HGV Employees who participated in the 2005 EDCP as of the Cut-Off Date. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees under the 2005 EDCP and no member of the HGV Group shall have any Liabilities related to the HLT Employees under the 2005 EDCP. Any such other plans that are adopted by any member of the HGV Group shall be on such terms and conditions as determined by the HGV Compensation Committee (or its designee).
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(iii) No Separation from Service .
(A) The Parties agree that transfers of employment in connection with the Distribution shall not be treated as separations from service under any Hilton Deferred Compensation Plan, and such employment shall only be considered to terminate for purposes of the applicable Hilton Deferred Compensation Plans or a PK or HGV non-qualified retirement/deferred compensation plan that receives the Liabilities, as applicable, as a result of (x) a transfer of employment among the HLT Group, the PK Group and the HGV Group, or (y) a termination of employment with the HLT Group, the PK Group or the HGV Group, as applicable, following the Plan Effective Time. All non-qualified retirement/deferred compensation benefits payable on and after the Plan Effective Time related to HLT Employees, PK Employees and HGV Employees shall be paid under the applicable Hilton Deferred Compensation Plans or a PK or HGV non-qualified retirement/deferred compensation plan that receives the Liabilities, as applicable.
7. EMPLOYEE HEALTH AND WELFARE BENEFIT PLANS . (a) US H&W Plans .
(i) General . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each health and welfare benefit Plan (other than severance Plans) sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States and Puerto Rico as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 7(a)(i) (the Hilton H&W Plans ), (y) all Liabilities associated with the Hilton H&W Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the Hilton H&W Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise provided for in Section 7(a)(iii), no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Hilton Employees under the Hilton H&W Plans, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees or Former PK Employees under the Hilton H&W Plans and no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees or Former HGV Employees under the Hilton H&W Plans.
(ii) COBRA . HLT or another member or members of the HLT Group shall be responsible for providing continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA) ( COBRA Coverage ) under the applicable HLT Plan with respect to qualified beneficiaries whose qualifying event occurred prior to or in conjunction with the Distribution. For qualifying events occurring on and after the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, be responsible for providing COBRA Coverage to qualified beneficiaries whose qualifying event relates to a HLT Employee (and any new Employees employed by any member of the HLT Group after the Distribution Date), PK shall, or shall cause another member or members of the PK Group to, be responsible for providing COBRA Coverage to qualified beneficiaries whose
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qualifying event relates to a PK Employee (and any new Employees employed by any member of the PK Group after the Distribution Date), and HGV shall, or shall cause another member or members of the HGV Group to, be responsible for providing COBRA Coverage to qualified beneficiaries whose qualifying event relates to a HGV Employee (and any new Employees employed by any member of the HGV Group after the Distribution Date).
(iii) Continued Participation In Hilton H&W Plans . Subject to the consent of the applicable insurers or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the PK Group and the HGV Group shall remain participating employers in the Hilton H&W Plans until no later than December 31, 2017, but shall cease participating in any cafeteria Plans, salary continuation Plans, health savings accounts, health and dependent care flexible spending accounts, voluntary benefit Plans, commuter benefit Plans and tuition reimbursement Plans, in each case, sponsored or maintained by Hilton as of the Cut-Off Date that are made available to certain Pre-Existing Hilton Employees in the United States as of the Cut-Off Date (such Plans, the Specified H&W Plans ) as of the Plan Effective Time. In connection with such continued participation, each of the HLT Group, the PK Group and the HGV Group shall (x) pay their proportional share of the administrative and contribution costs associated with such Plans during such period and (y) Assume all Liabilities associated with such Plans related to HLT Employees, Former HLT Employees, PK Employees, Former PK Employees, HGV Employees or Former HGV Employees (and any new Employees employed by any member of the HLT Group, the PK Group or the HGV Group, as applicable, after the Distribution Date), respectively. Insurance premiums under the Hilton H&W Plans, including premiums related to COBRA Coverage, shall be paid either (x) directly to the applicable insurer by a member of each of the HLT Group, the PK Group and the HGV Group on behalf of the participating Former Employees, Employees and dependents of each, or (y) directly to the applicable insurer by a member of the HLT Group on behalf of Former Employees, HLT Employees, PK Employees and HGV Employees and their respective dependents with reimbursement of such amounts being made by a member of the PK Group and the HGV Group within the time period required under ERISA. During the period commencing on the Distribution Date and ending no later than December 31, 2017, the HLT Group, the PK Group and the HGV Group shall share proportionally in any credits returned ( e.g., MLR credits, subrogation recoveries, etc.) to any health and welfare benefit Plan sponsored or maintained by any member of the HLT Group in which a member of the PK Group and HGV Group continue to participate on and after the Plan Effective Time.
(iv) New PK and HGV Health and Welfare Benefit Plans .
(A) Effective as of the Plan Effective Time, each of PK and HGV shall, or shall cause another member or members of the PK Group or the HGV Group, as applicable, to, establish, adopt and implement one or more new health and welfare benefit Plans in which eligible PK Employees and HGV Employees (and any new Employees employed by any member of the PK Group and the HGV Group after the Distribution Date) in the United States shall participate, with terms and conditions that are substantially similar, in all material respects, to the terms and conditions of the Specified H&W Plans in which such Employees were participating as of the Cut-Off Date.
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(B) Effective no later than January 1, 2018, each of PK and HGV shall, or shall cause another member or members of the PK Group or the HGV Group, as applicable, to, establish, adopt and implement one or more new health and welfare benefit Plans (excluding a Retiree Health Plan and retiree life insurance arrangements) under which PK Employees and HGV Employees (and any new Employees employed by any member of the PK Group and the HGV Group after the Distribution Date) in the United States shall participate, the terms and conditions of which shall be determined by the PK Compensation Committee (or its designee) or the HGV Compensation Committee (or its designee), as applicable, taking into account the terms and conditions of the corresponding Hilton H&W Plan.
(C) Each of PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to use commercially reasonable efforts to waive all pre-existing condition exclusions and actively-at-work requirements for each health and welfare benefit Plan in which PK Employees and HGV Employees in the United States were participating as of the Cut-Off Date or the effective date of the new Plan, as applicable.
(D) Each of PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to provide credit for expenses incurred by PK Employees and HGV Employees in the United States and their eligible dependents during the portion of the plan year that includes the Distribution Date for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to each such Employee.
(E) For the plan year in which the Distribution Date occurs, flexible spending accounts and health savings accounts of PK Employees and HGV Employees shall be transferred to the corresponding PK or HGV health and welfare benefit Plan, including contribution and payment history.
(b) Non-US H&W Plans .
(i) HLT Group .
(A) General . Effective as of the Plan Effective Time, except as expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each health and welfare benefit Plan (including each related insurance policy, trust instrument and other related contract or agreement) sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date, including without limitation, the Plans listed on Schedule 7(b)(i)(A) (such Plans, the Hilton Non-US H&W Plans ), (y) all Liabilities associated with the Hilton Non-US H&W Plans related to HLT Employees, Former Employees, PK Employees and HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the Non-US H&W Plans related to HLT Employees, Former Hilton Employees, PK Employees and HGV Employees. On and after the Plan Effective Time, except as expressly provided for herein or in the Transition Services Agreement, no member of the PK Group or the HGV Group shall have any Liabilities related HLT Employees and Former Employees under the Non-US H&W Plans.
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(B) Continued Participation in Brazilian H&W Plans/New Brazilian H&W Plans . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, for the purposes of providing health and welfare and/or life insurance benefits for HLT Employees employed in Brazil (and any new Employees employed by any member of the HLT Group in Brazil after the Distribution Date), either (x) to establish, adopt or implement one or more new health and welfare and/or life insurance benefit plans that have substantially similar terms, in all material respects, to the Seguro Saude Empresarial, the Seguro Coletivo Empresarial de Assistencia a Saude Na Segmentacao Odontologico and/or the Seguro de Vida Em Groupo, as applicable (each such Plan, a Brazilian H&W Plan ) or (y) subject to consent of the applicable insurer(s) or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the HLT Group shall remain as participating employers in one or more Brazilian H&W Plans until no later than December 31, 2017 and, in connection therewith, each of the HLT Group and the PK Group shall (I) pay their proportional share of the administrative and contribution costs associated with the applicable Brazilian H&W Plan(s) during such period and (II) Assume all Liabilities associated with the applicable Brazilian H&W Plan(s) related to HLT Employees, Former HLT Employees, PK Employees and Former PK Employees (and any new Employees employed by any member of the HLT Group or the PK Group, as applicable, after the Distribution Date), respectively. Effective no later than January 1, 2018, HLT shall, or shall cause another member or members of the HLT Group to, establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to the applicable Brazilian H&W Plan(s).
(ii) PK Group .
(A) Continued Participation in HLT Plans . Subject to consent of the applicable insurers or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the PK Group shall remain as participating employers in the Plans listed on Schedule 7(b)(ii)(A) (each such Plan, a Continued PK H&W Plan ) until no later than December 31, 2017 and, in connection therewith, each of the HLT Group and the PK Group shall (x) pay their proportional share of the administrative and contribution costs associated with each such Continued PK H&W Plan during such period and (y) Assume all Liabilities associated with each such Continued PK H&W Plan related to HLT Employees, Former HLT Employees, PK Employees and Former PK Employees (and any new Employees employed by any member of the HLT Group or the PK Group, as applicable, after the Distribution Date), respectively. Effective no later than January 1, 2018, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to each applicable Continued PK H&W Plan.
(B) Assumption/Establishment of New Plans . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume (I) each health and welfare benefit Plan sponsored or maintained by a member of the PK Group as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing
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Hilton Employees in Brazil and South Africa who become PK Employees at PK properties based in Brazil and South Africa (such Plans, collectively, the Brazilian and SA H&W Plans ), all Liabilities associated with the Brazilian and SA H&W Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets (including each related insurance policy, trust instrument and other related contract or agreement) and accrued benefits associated with the Brazilian and SA H&W Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time, and (II) (1) a portion of each other health and welfare benefit Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become PK Employees at PK properties based outside of the United States, including, without limitation, the Plans listed on Schedule 7(b)(ii)(B) (collectively, PK Required H&W Plans ), (2) all Liabilities associated with the PK Required H&W Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and (3) all Assets (other than those held in an insurance policy or those that the PK Employee has the right to elect to retain with the applicable insurer) and accrued benefits associated with the PK Required H&W Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees or Former PK Employees under the Brazilian and SA H&W Plans or the PK Required H&W Plans. The PK Compensation Committee (or its designee) shall establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to the PK Required H&W Plans. Following the adoption of such Plans, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets (other than those held in an insurance policy or those that the PK Employee or Former PK Employee has the right to elect to retain with the applicable insurer) and Liabilities attributable to PK Employees and Former PK Employees under the respective PK Required H&W Plans to each such newly adopted Plan. Following such Transfer, no member of the HLT Group or the HGV Group shall have any Liabilities related thereto.
(iii) HGV Group .
(A) Continued Participation in HLT Plans . Subject to consent of the applicable insurers or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the HGV Group shall remain as participating employers in the Plans listed on Schedule 7(b)(iii)(A) (each such Plan, a Continued HGV H&W Plan ) until no later than December 31, 2017 and, in connection therewith, each of the HLT Group and the HGV Group shall (x) pay their proportional share of the administrative and contribution costs associated with each such Continued HGV H&W Plan during such period and (y) Assume all Liabilities associated with each such Continued HGV H&W Plan related to HLT Employees or HGV Employees (and any new Employees employed by any member of the HLT Group or the HGV Group, as applicable, after the Distribution Date), respectively. Effective no later than January 1, 2018, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to each applicable Continued HGV H&W Plan.
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(B) Assumption/Establishment of New Plans . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume (I) each health and welfare benefit Plan sponsored or maintained by a member of the HGV Group as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in Japan who become HGV Employees at HGV properties based in Japan (such Plans, the Japanese H&W Plans ), all Liabilities associated with the Japanese H&W Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets (other than those held in an insurance policy or those that the HGV Employee or Former HGV Employee has the right to elect to retain with the applicable insurer) and accrued benefits associated with the Japanese H&W Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time, and (II) (1) a portion of each other health and welfare benefit Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become HGV Employees at HGV properties based outside of the United States (collectively, HGV Required H&W Plans ), (2) all Liabilities associated with the HGV Required H&W Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (3) all Assets (other than those held in an insurance policy or those that the HGV Employee or Former HGV Employee has the right to elect to retain with the applicable insurer) and accrued benefits associated with the HGV Required H&W Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees or Former HGV Employees under the Japanese H&W Plans or the HGV Required H&W Plans. The HGV Compensation Committee (or its designee) shall establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to the HGV Required H&W Plans. Following the adoption of such Plans, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets (other than those held in an insurance policy or those that the HGV Employee or Former HGV Employees has the right to elect to retain with the applicable insurer) and Liabilities attributable to HGV Employees and Former HGV Employees under the respective HGV Required H&W Plans to each such newly adopted Plan. Following such Transfer, no member of the HLT Group or the PK Group shall have any Liabilities related thereto.
(iv) Credit . To the extent available under local Law, PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to use commercially reasonable efforts to waive all pre-existing condition exclusions and actively-at-work requirements for each Non-US health and welfare benefit Plan in which such PK Employees and HGV Employees were participating as of the Cut-Off Date or the effective date of such new Plan, as applicable.
(A) PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to provide credit for expenses incurred by such PK Employees and HGV Employees and their respective eligible dependents during the portion of the plan year that includes the Distribution Date for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to each such Employee.
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(B) For purposes of this Section 7, a claim or Liability is deemed to be incurred (i) with respect to medical, dental, vision and/or prescription drug benefits, upon the rendering of health services giving rise to such claim or Liability; (ii) with respect to life insurance, accidental death and dismemberment and business travel accident insurance, upon the occurrence of the event giving rise to such claim or Liability; (iii) with respect to disability benefits, upon the date of an Employees disability, as determined by the disability benefit insurance carrier or claim administrator, giving rise to such claim or Liability; and (iv) with respect to a period of continuous hospitalization, upon the date of admission to the hospital.
8. SEVERANCE PLANS. (a) US Plans . (i) Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each severance plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 8(a)(i) (collectively, the Hilton Severance Plans ), (y) all Liabilities associated with the Hilton Severance Plans related to HLT Employees as of the Plan Effective Time, and (z) all accrued benefits associated with the Hilton Severance Plans related to HLT Employees as of the Plan Effective Time. Effective as of the Plan Effective Time, (I) HLT shall, or shall cause another member or members of the HLT Group to, Assume all Liabilities associated with the Hilton Severance Plans related to Former Hilton Employees, (II) PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities associated with the Hilton Severance Plans related to Former PK Employees, and (III) HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities associated with the Hilton Severance Plans related to Former HGV Employees.
(ii) On or after the Plan Effective Time, PK and/or HGV may establish, adopt and implement one or more new severance Plans in the United States, the terms and conditions of which shall be determined by the PK Compensation Committee (or its designee) and/or the HGV Compensation Committee (or its designee), as applicable.
(iii) The Parties agree that transfers of employment in connection with the Distribution shall not be treated as terminations of employment under any Hilton Severance Plan and all severance benefits payable on and after the Plan Effective Time related to HLT Employees, PK Employees and HGV Employees (and any new Employees employed by any member of the HLT Group, the PK Group and the HGV Group after the Distribution Date) shall be paid under the applicable Hilton Severance Plan or, upon adoption following the Distribution Date, the new PK Group severance Plan or HGV Group severance Plan, as applicable.
(b) Non-US Plans . HLT, PK and HGV shall, or shall cause another member or members of the HLT Group, the PK Group and the HGV Group, as applicable, to provide severance or end of service benefits ( Non-US Severance ), as applicable, to their respective Employees to the extent required by applicable Law and Assume all such Liabilities related to HLT Employees, PK Employees and HGV Employees, as applicable. Effective as of the Plan Effective Time, (i) HLT shall, or shall cause another member or members of the HLT Group to, Assume all Liabilities associated with Non-US Severance related to Former Hilton Employees, (ii) PK shall, or shall cause another member or members of the PK Group to, Assume all
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Liabilities associated with Non-US Severance related to Former PK Employees, and (iii) HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities associated with Non-US Severance related to Former HGV Employees.
9. PAID TIME OFF . (a) Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume each US and non-US paid time off Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to Pre-Existing Hilton Employees as of the Cut-Off Date who become HLT Employees (such Plans, the Hilton PTO Plans ) and all Liabilities associated with the Hilton PTO Plans related to HLT Employees as of the Plan Effective Time. On and after the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees under the Hilton PTO Plans.
(b) Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and implement one or more new US and non-US paid time off Plans (each such Plan, a PK PTO Plan ), the terms and conditions of which shall be determined by one or more members of the PK Group, taking into account the terms and conditions of the corresponding Hilton PTO Plan. Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities related to PK Employees under the applicable Hilton PTO Plan. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related thereto.
(c) Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and implement one or more new US and non-US paid time off plans (each such Plan, a HGV PTO Plan ), the terms and conditions of which shall be determined by one or more members of the HGV Group, taking into account the terms and conditions of the corresponding Hilton PTO Plan. Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities related to HGV Employees under the applicable Hilton PTO Plan. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related thereto.
(d) Unless otherwise required by applicable Law, the Parties agree that transfers of employment in connection with the Distribution shall not be treated as terminations of employment under any Hilton PTO Plan, PK PTO Plan or HGV PTO Plan and all paid time off benefits accrued under any Hilton PTO Plan as of the Plan Effective Time related to HLT Employees, PK Employees and HGV Employees shall remain with the applicable Hilton PTO Plan or transfer to a PK PTO Plan or HGV PTO Plan, as applicable.
(e) To the extent that any member of the HLT Group, PK Group or HGV Group (such member, the Paying Entity ) is required to pay any amounts relating to paid time off benefits associated with HLT Employees, PK Employees or HGV Employees who are not Employees of the Paying Entity as of the Distribution Date in connection with the Distribution, the employing entity agrees to reimburse the Paying Entity for such amounts.
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10. PERQUISITES. (a) TMTP/Go Hilton . Effective as of the Plan Effective Time, HGV Employees and PK Employees (and any new Employees employed by any member of the HGV Group and the PK Group after the Distribution Date) shall continue to be eligible to participate in the Go Hilton Program, as amended from time to time in the HLT Groups sole discretion (the Program), subject to annual review of such participation by the HLT Group. HGV and PK participation in the Program is subject to the terms and conditions of reciprocity agreement(s) between a member of the HLT Group and a member of the HGV Group or the PK Group, as applicable, and reciprocal loading of HGV and PK inventory to be centrally managed by the HLT Go Hilton team. Such participation is intended to qualify as a fringe benefit excludible from gross income of HLT Employees, HGV Employees and PK Employees (and any new Employees employed by any member of the HLT Group, PK Group and the HGV Group after the Distribution Date) under Section 132(a) of the Code. This Agreement and any reciprocity agreement(s) shall each constitute a reciprocal agreement between HLT and HGV and HLT and PK, as applicable, within the meaning of Section 132(i) of the Code and each of HLT, PK and HGV shall, or shall cause another member or members of the HLT Group, the PK Group and the HGV Group to, execute such further documentation as may be required for tax purposes or otherwise necessary to effect such arrangement.
(b) HGV Discount Program . Effective as of the Plan Effective Time, HLT Employees and PK Employees shall no longer participate in the discount program offered by the HGV Group with respect to purchases of HGV inventory. The HGV Compensation Committee (or its designee) shall determine, in its sole discretion, whether to continue to offer discounts on HGV inventory to HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date) following the Plan Effective Time.
(c) HLT Non-US Perquisites . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume, establish, adopt and implement, as applicable, one or more new perquisite policies covering HLT Employees (and any new Employees employed by any member of the HLT Group after the Distribution Date) outside of the United States, the terms and conditions of which shall be determined by the HLT Compensation Committee (or its designee), taking into account the terms and conditions of the perquisite policy sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date (such plans, the Hilton Non-US Perk Plans ). In connection with the foregoing, effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume all Liabilities associated with the Hilton Non-US Perk Plans related to HLT Employees and Former Hilton Employees. Following the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Hilton Employees under the Hilton Non-US Perk Plans.
(d) PK Non-US Perquisites . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and implement, as applicable, one or more new perquisite policies covering eligible PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date) outside of the United States, the terms and conditions of which shall be determined by the PK Compensation Committee (or its designee), taking into account the terms and conditions of the corresponding Hilton Non-US Perk Plan. Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities associated with the Hilton Non-US Perk Plans related to PK Employees and Former PK Employees.
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(e) HGV Non-US Perquisites . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and implement, as applicable, one or more new perquisite policies covering eligible HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date) outside of the United States, the terms and conditions of which shall be determined by the HGV Compensation Committee (or its designee), taking into account the terms and conditions of the corresponding Hilton Non-US Perk Plan. Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities associated with the Hilton Non-US Perk Plans related to HGV Employees and Former HGV Employees.
11. CASH BONUS PLANS . (a) General . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume each cash bonus Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees as of the Cut-Off Date, including, without limitation, the Hilton 2016 corporate and hotel operations (general managers and hotel management) and hotel sales incentive Plans other than the 2016 Assumed HGV Plans (as defined below) (such Plans, the Hilton Bonus Plans ) and all Assets and Liabilities with respect to the bonus amounts earned (or to be earned) under the Hilton Bonus Plans based on the performance of Hilton for the period beginning on January 1, 2016 and ending on December 31, 2016 with respect to HLT Employees and Former Hilton Employees. Such bonus amounts, if any, shall be paid, following the determination and certification by the HLT Compensation Committee (or its designee), by a member of the HLT Group in accordance with the terms and conditions of the applicable Hilton Bonus Plan.
(b) HGV Cash Bonus Plans . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume each cash bonus Plan sponsored or maintained by Vacations as of the Cut-Off Date in respect of the 2016 fiscal year (the 2016 Assumed HGV Plans ) and all Assets and Liabilities with respect to bonus amounts earned under the 2016 Assumed HGV Plans based on the performance of the HGV Group for the period commencing on January 1, 2016 and ending on December 31, 2016 ( CY 2016 ) with respect to HGV Employees and Former HGV Employees, as determined and certified by the HGV Compensation Committee (or its designee). Such bonus amounts, if any, shall be paid by a member of the HGV Group in accordance with the terms and conditions of the applicable 2016 Assumed HGV Plan.
(c) 2016 PK and HGV Cash Bonuses . Effective as of the Plan Effective Time, each of PK and HGV shall, or shall cause another member or members of the PK Group or the HGV Group to, establish, adopt and implement one or more new cash bonus Plans under which eligible PK Employees and HGV Employees (and any new Employees employed by any member of the PK Group and the HGV Group after the Distribution Date), as applicable, shall participate, the terms and conditions of which shall be substantially similar to the Hilton Bonus Plans in effect with respect to the 2016 fiscal year (such plans, the 2016 Spinco Bonus Plans ). Under the 2016 Spinco Bonus Plans, to the extent any bonus payable thereunder is based on
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company performance, with respect to the period commencing on January 1, 2016 and ending on the Distribution Date, company performance shall be based on the actual performance of Hilton and its Subsidiaries during such period, as determined and certified by the HLT Compensation Committee (or its designee) and, with respect to the period commencing on the day immediately following the Distribution Date and ending on December 31, 2016, company performance shall be based on the actual performance of the PK Group or the HGV Group, as applicable, during such period, as determined and certified by the HGV Compensation Committee or the PK Compensation Committee (or its designee), as applicable. Effective as of the Distribution Date, each of PK and HGV shall, or shall cause another member or members of the PK Group and HGV Group, as applicable, to, Assume all Liabilities associated with bonuses for CY 2016 related to PK Employees and HGV Employees, as applicable. Such bonus amounts, if any, shall be paid by a member of the PK Group or the HGV Group, as applicable, in accordance with the terms and conditions of the applicable 2016 Spinco Bonus Plan.
12. EQUITY-BASED AWARDS . (a) General . Effective as of the Plan Effective Time, HLT shall Assume each equity-based incentive plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees as of the Cut-Off Date, including, without limitation, the HLT 2013 Omnibus Incentive Plan (the OIP ) and all Assets and Liabilities associated with such plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether incurred prior to, on or following the Plan Effective Time. Following the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under such plans. Employees who separate from service with Hilton prior to the Plan Effective Time and whose awards are subject to continued vesting under the retirement eligibility provisions of the OIP and the award agreements thereunder shall be treated as HLT Employees regardless of their roles with Hilton prior to the Plan Effective Time.
(b) New PK and HGV Plans . (i) Effective not later than the Plan Effective Time, PK shall have adopted (x) the Park Hotels & Resorts Inc. 2016 Omnibus Incentive Plan (the PK OIP ), which shall permit the issuance of equity-based and cash-based incentive awards denominated in PK Common Stock and (y) the Park Hotels & Resorts Inc. 2016 Stock Plan for Non-Employee Directors, which shall permit the issuance of equity-based awards denominated in PK Common Stock (the PK Director Plan ). HLT shall cause the PK OIP and the PK Director Plan to both be approved prior to the Plan Effective Time by HLT, as PKs sole stockholder.
(ii) Effective not later than the Plan Effective Time, HGV shall have adopted (x) the Hilton Grand Vacations Inc. 2016 Omnibus Incentive Plan (the HGV OIP ), which shall permit the issuance of equity-based and cash-based incentive awards denominated in HGV Common Stock and (y) the Hilton Grand Vacation Inc. 2016 Stock Plan for Non-Employee Directors, which shall permit the issuance of equity-based awards denominated in HGV Common Stock (the HGV Director Plan ). HLT shall cause the HGV OIP and the HGV Director Plan to both be approved prior to the Plan Effective Time by HLT, as HGVs sole stockholder.
(iii) No individual awards (other than as expressly contemplated below) shall be granted under the PK OIP, the PK Director Plan, the HGV OIP or the HGV Director Plan until after the Distribution Date with any such awards at the discretion of the PK Board, the PK Compensation Committee, the HGV Board or the HGV Compensation Committee, as applicable.
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(c) Treatment of Equity-Based Awards . (i) Equity-based awards granted under the OIP based on HLT Common Stock held by HLT Employees, Former Employees, HLT non-employee Board members and PK Employees who serve as General Managers at Hilton-branded PK properties outside of the United States ( PK Non-US GMs ) shall remain outstanding under the OIP and be adjusted, effective as of the Distribution Date, in accordance with the terms of the OIP in a manner as determined by the HLT Compensation Committee, to reflect the impact of the Distribution, but shall otherwise remain subject to the same terms and conditions, including vesting schedule, as the original awards.
(ii) Equity-based awards granted under the OIP based on HLT Common Stock held by PK Employees (other than PK Non-US GMs) shall be converted, effective as of the Distribution Date, into awards under the PK OIP with equivalent value based on, and settled in, PK Common Stock but shall otherwise remain subject to the same terms and conditions, including vesting schedule, as the original awards, except as expressly provided for below.
(iii) Equity-based awards granted under the OIP based on HLT Common Stock held by HGV Employees shall be converted, effective as of the Distribution Date, into awards under the HGV OIP with equivalent value based on, and settled in, HGV Common Stock but shall otherwise remain subject to the same terms and conditions, including vesting schedule, as the original awards, except as expressly provided for below.
(iv) Outstanding and unvested restricted stock units granted under the OIP in 2013 to HLT non-employee Board members shall vest and be settled in shares of HLT Common Stock as of a date prior to the Distribution Date as determined by the Board, which date shall be no later than the day before the Distribution Record Date, and, accordingly, such Board members shall receive shares of each of PK Common Stock and HGV Common Stock in connection with the Distribution.
(v) Performance-based awards granted in 2014 under the OIP held by HLT Employees, PK Employees and HGV Employees shall be treated as follows: the performance period applicable to such awards which was originally scheduled to end December 31, 2016 shall instead end on a date prior to the Distribution Date as determined by the HLT Compensation Committee. The HLT Compensation Committee shall determine to what extent such awards vest based on performance from the beginning of the applicable performance period through the vesting date determined by the HLT Compensation Committee and any such vested awards shall be settled in shares of HLT Common Stock prior to the Distribution Date, but in no event later than the day before the Distribution Record Date.
(vi) Performance-based awards granted in 2015 and 2016 under the OIP held by HLT Employees, PK Employees and HGV Employees shall be converted into time vesting awards, effective as of the Distribution Date, based on a performance level determined by the HLT Compensation Committee and, subject to continued employment, shall vest on the date that the applicable performance period would have otherwise ended and be settled in shares of HLT Common Stock, PK Common Stock or HGV Common Stock, as applicable.
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(d) PK and HGV shall, or shall cause another member or members of the PK Group or the HGV Group to, Assume all Liabilities related to any cash long-term incentive awards granted under the OIP by HLT to PK Employees and HGV Employees, respectively, whether incurred prior to, on or following the Distribution Date. On and after the Distribution Date, no member of the HLT Group shall have any Liabilities related thereto.
(e) All of the adjustments and conversions described in this Section 12 shall be effected in accordance with Sections 424 and 409A of the Code, as applicable.
(f) The Parties shall use commercially reasonable efforts to maintain effective registration statements with the SEC with respect to the awards described in this Section 12, to the extent any such registration statement is required by applicable Law.
13. COLLECTIVE BARGAINING AGREEMENTS . (a) HLT Collective Bargaining Agreements . HLT or another member or members of the HLT Group shall expressly Assume all collective bargaining or other labor agreements so identified on Schedule 13(a) (such agreements, the HLT CBAs ) and associated Liabilities, in each case, effective as of the Distribution Date. For each such HLT CBA in effect as of the Distribution Date, HLT or another member or members of the HLT Group, as applicable, agrees to recognize the union which is a party to each such HLT CBA as the exclusive collective bargaining representative for the HLT Employees covered under the terms of each such HLT CBA. PK shall, or shall cause another member or members of the PK Group to, at the request of HLT, execute all Owners Letters and take all other actions necessary for HLTs and/or PKs compliance with any collective bargaining agreement or other labor agreement identified on Schedule 13(a) or Schedule 13(c).
(b) PK Collective Bargaining Agreements . PK or a member of the PK Group shall expressly Assume all collective bargaining or other labor agreements so identified on Schedule 13(b) (such agreements, the PK CBAs ) and associated Liabilities, in each case, effective as of the Distribution Date. For each such PK CBA in effect as of the Distribution Date, PK or another member or members of the PK Group agrees to recognize the union which is a party to each such PK CBA as the exclusive collective bargaining representative for the PK Employees covered under the terms of each such PK CBA.
(c) HGV Collective Bargaining Agreements . HGV or a member of the HGV Group shall expressly Assume all collective bargaining or other labor agreements so identified on Schedule 13(c) (such agreements, the HGV CBAs ) and associated Liabilities, in each case, effective as of the Distribution Date. For each such HGV CBA in effect as of the Distribution Date, HGV or another member or members of the HGV Group agrees to recognize the union which is a party to each such HGV CBA as the exclusive collective bargaining representative for the HGV Employees covered under the terms of each such HGV CBA. HGV shall, or shall cause another member or members of the HGV Group to, at the request of HLT, execute all Owners Letters and take all other actions necessary to HLTs and/or HGVs compliance with any collective bargaining agreement or other labor agreement identified on Schedule 13(a) or Schedule 13(c).
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(d) EU Directive . Notwithstanding anything to the contrary in this Section 13, in countries in which the European Union Acquired Rights Directive applies, collective bargaining agreements and any other agreements with employee representatives shall continue to apply after the Distribution Date to the extent and in the manner provided for by local Law.
14. TRANSITION SERVICES . Each of HLT, PK and HGV and the members of their respective Groups shall provide such transition services as required by the Transition Services Agreement.
15. ACCESS TO INFORMATION AND DATA EXCHANGE . (a) Provision of Corporate Records . (i) Consistent with Section 8.3 of the Distribution Agreement, upon the prior written request by PK or HGV for specific and identified agreements, documents, books, records or files including, without limitation, computer files, microfiche, tape recordings and photographs (collectively, Records ), relating to or affecting PK or HGV, as applicable, HLT shall arrange, as soon as reasonably practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the Party making the request has a reasonable need for such originals) in the possession of HLT or any of its Subsidiaries.
(ii) After the Distribution Date, upon the prior written request by HLT or PK for specific and identified Records relating to or affecting HLT or PK, as applicable, HGV shall arrange, as soon as practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the Party making the request has a need for such originals) in the possession of HGV or any of its Subsidiaries.
(iii) After the Distribution Date, upon the prior written request by HLT or HGV for specific and identified Records relating to or affecting HLT or HGV, as applicable, PK shall arrange, as soon as practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the Party making the request has a need for such originals) in the possession of PK or any of its Subsidiaries.
(b) Access to Information . (i) From and after the Distribution Date and consistent with Section 8.3 of the Distribution Agreement, each of HLT, PK and HGV shall afford to the other and its authorized accountants, counsel and other designated representatives reasonable access during normal business hours, subject to the appropriate restrictions for classified, privileged or confidential information, to the personnel, properties, books and Records of such Party and its Subsidiaries insofar as such access is reasonably required by the other Party.
(ii) Without limiting the generality of the foregoing clause (i), except as otherwise provided by applicable Law, each Party shall furnish, or shall cause to be furnished to the other Parties, a list of all benefit plan participants and employee data or information in its possession which is necessary for such other Parties to maintain and implement any benefit plan or arrangement covered by this Agreement, or to comply with the provisions of this Agreement, and which is not otherwise readily available to such other Party.
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(c) Reimbursement; Other Matters. (i) Except to the extent otherwise specifically identified by the Distribution Agreement or any Ancillary Agreement, a Party providing Records or access to information to the other Party under this Section 15 shall be entitled to receive from the recipient, upon the presentation of invoices therefore, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such Records or access to information.
(ii) The Parties shall comply with those document retention policies, cost sharing arrangements, expense reimbursement procedures and request procedures as shall be established and agreed to in writing by their respective authorized officers on or prior to the Distribution Date in respect of Records and related matters.
(d) Confidentiality . Each of HLT, PK and HGV shall, or shall cause another member or members of the HLT Group, the PK Group, and the HGV Group to, not use or permit the use of (without the prior written consent of the other) and shall hold, and shall cause its consultants and advisors to hold, in strict confidence, all information concerning the other Parties in its possession, its custody or under its control (except to the extent that (A) such information has been in the public domain through no fault of such Party, (B) such information has been later lawfully acquired from other sources by such Party, (C) the Distribution Agreement, this Agreement or any other Ancillary Agreement or any other agreement entered into pursuant hereto permits the use or disclosure of such information, or (D) as may be required under the USA Patriot Act) to the extent such information (x) relates to the period up to the Plan Effective Time, (y) relates to the Distribution Agreement or any Ancillary Agreement or (z) is obtained in the course of performing services for the other Party pursuant to the Distribution Agreement or any Ancillary Agreement, and each Party shall not (without the prior written consent of the other) otherwise release or disclose such information to any other Person, except such Partys auditors and attorneys, unless compelled to disclose such information by judicial or administrative process or unless such disclosure is required by Law and such Party has used commercially reasonable efforts to consult with the other affected Party or Parties prior to such disclosure. To the extent that a Party is compelled by judicial or administrative process to disclose such information under circumstances in which any evidentiary privilege would be available, such Party agrees to assert such privilege in good faith prior to making such disclosure. Each of the Parties agrees to consult with each relevant other Party in connection with any such judicial or administrative process, including, without limitation, in determining whether any privilege is available, and further agrees to allow each such relevant Party and its counsel to participate in any hearing or other proceeding (including, without limitation, any appeal of an initial order to disclose) in respect of such disclosure and assertion of privilege. Notwithstanding anything to the contrary contained herein, each Party shall be entitled to use information disclosed pursuant to this Agreement to the extent reasonably necessary for the administration of its employee benefit plans in accordance with applicable Law.
(e) Audit Rights with Respect to Information Provided . Each of the Parties and their duly authorized representatives shall have the right to conduct reasonable audits with respect to all information provided to it by the other Party. The Parties shall cooperate to determine the procedures and guidelines for conducting audits under this Section 15(e), which shall require reasonable advance notice by the auditing Party. The auditing Party shall have the right to make copies of any records at its expense, subject to applicable Law.
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16. NOTICES; COOPERATION . Notwithstanding anything in this Agreement to the contrary, all actions contemplated herein with respect to benefit plans which are to be consummated pursuant to this Agreement shall be subject to such notices to, and/or approvals by, the Internal Revenue Service (or other Governmental Entity) as are required or deemed appropriate by such benefit plans sponsor. Each of HLT, PK and HGV agrees to use its commercially reasonable efforts to cause all such notices and/or approvals to be filed or obtained, as the case may be, in a timely fashion. Each Party shall reasonably cooperate with the other Parties with respect to any Governmental Approvals, employee notices or any other actions reasonably necessary to maintain and implement the employee benefit arrangements covered by this Agreement.
17. FURTHER ASSURANCES . From time to time, as and when reasonably requested by any other Party, each Party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other Party may reasonably deem necessary or desirable to effect the purposes of this Agreement and the transactions contemplated hereunder.
18. INDEMNIFICATION . (a) Indemnification by HLT . Except as otherwise specifically set forth in this Agreement or in Article VII of the Distribution Agreement, following the Plan Effective Time, HLT shall, and shall cause the other members of the HLT Group to, indemnify, defend and hold harmless the Ownership Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable Losses of the Ownership Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (i) any HLT Plan, (ii) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from the operation or conduct of any US DB Plan, UK DB Plan or Terminated Hilton DB Plan or any individual identified as an HLT Employee (and any new Employees employed by any member of the HLT Group after the Distribution Date), and (iii) the breach by HLT of any provision of this Agreement. In furtherance of the foregoing, HLT and OpCo shall be jointly and severally liable to any of the Ownership Indemnitees for any and all Indemnifiable Losses of the Ownership Indemnitees arising out of, by reason of or otherwise in connection with the foregoing.
(b) Indemnification by PK . Except as otherwise specifically set forth in this Agreement or in Article VII of the Distribution Agreement, following the Plan Effective Time, PK shall, and shall cause the other members of the PK Group to, indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable Losses of the Management and Franchising Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (i) any PK Plan, (ii) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from the operation or conduct of any Plan sponsored or maintained by any member of the PK Group prior to the Distribution Date primarily for the benefit of PK Employees and Former PK Employees or any individual identified as a PK Employee, or (iii) the breach by PK of any provision of this Agreement. In furtherance of the foregoing, any and all payments by PK or any other members of the PK Group in respect of Indemnifiable Losses of the Managing and Franchising Indemnitees arising out of, by reason of or otherwise in connection with the foregoing shall be made directly to OpCo or one of its Subsidiaries.
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(c) Indemnification by HGV . Except as otherwise specifically set forth in this Agreement or in Article VII of the Distribution Agreement, following the Plan Effective Time, HGV shall, and shall cause the other members of the HGV Group to, indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Ownership Indemnitees from and against any and all Indemnifiable Losses of the Managing and Franchising Indemnitees and the Ownership Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (i) any HGV Plan, (ii) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from the operation or conduct of any Plan sponsored or maintained by Vacations prior to the Distribution Date or any individual identified as a HGV Employee, or (iii) the breach by HGV of any provision of this Agreement.
(d) Limitations on Indemnification Obligations . (i) The amount that any Party (an Indemnifying Party ) is or may be required to pay to any other Person (an Indemnitee ) pursuant to paragraphs (a), (b) or (c) of this Section 18, as applicable, shall be reduced (retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered by or on behalf of such Indemnitee in respect of the related Indemnifiable Loss. If an Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds or other amounts in respect of such Indemnifiable Loss, then such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other amounts actually received, up to the aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement in respect of such Indemnifiable Loss.
(ii) An Indemnifying Party shall not be required to indemnify or pay an Indemnitee pursuant to paragraphs (a), (b) or (c) of this Section 18, as applicable, for any Indemnifiable Losses relating to or associated with any Plan of the Indemnifying Party arising out of, by reason of or otherwise in connection with any act or failure to act on the part of such Indemnitee (including for this purpose any Subsidiaries, businesses or operations which become associated with the Indemnitee by virtue of or in connection with the Distribution) with respect to or in connection with such Plan, including, without limitation, any such act or failure to act in connection with the administration by the Indemnitee of such Plan.
(e) Survival of Indemnities . The obligations of HLT, PK and HGV under this Section 18 shall survive the sale or other Transfer by any of them of any assets or businesses or the assignment by any of them of any Liabilities, with respect to any Indemnifiable Loss of the other related to such assets, businesses or Liabilities.
(f) REIT Status Considerations . The principles of Section 7.9(c) of the Distribution Agreement shall apply to indemnification payments due under this Agreement.
19. DISPUTE RESOLUTION . In the event of an Action arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or otherwise arising out of, or in any way related to this Agreement, including, without limitation, any Action based on contract, tort, statute or constitution, the relevant Parties shall adhere to the dispute resolution procedures as described in the Distribution Agreement.
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20. PAYROLL REPORTING AND TAX WITHHOLDING . (a) Form W-2 Reporting . The Parties agree to use commercially reasonable efforts to follow the alternate procedure for United States employment tax withholding as provided in Section 5 of Rev. Proc. 2004-53, I.R.B. 2004-35.
(b) Garnishments, Tax Levies, Child Support orders and Wage Assignments . With respect to Employees with garnishments, tax levies, child support orders and wage assignments in effect with Hilton as of the Cut-Off Date, PK and HGV, as the successor employers to each such PK Employee and HGV Employee, as applicable, shall, or shall cause another member of the PK Group or the HGV Group, as applicable, to honor such payroll deduction authorizations and shall continue to make payroll deductions and payments to the authorized payee, as specified by the court or governmental order which was filed with Hilton. HLT shall, or shall cause another member of the HLT Group to provide each of PK and HGV with a list of the PK Employees and HGV Employees who have garnishments, tax levies, child support orders and wage assignments in effect as of the Cut-Off Date.
(c) Authorization for Payroll Deductions . Unless otherwise prohibited by this Agreement, another Ancillary Agreement, a Plan document or applicable Law, with respect to Employees with authorizations for payroll deductions and direct deposits in effect with Hilton as of the Cut-Off Date, PK and HGV, as the successor employers, shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to honor such payroll deduction authorizations relating to each PK Employee and HGV Employee, as applicable, and shall not require that such PK Employee or HGV Employee, as applicable, submit a new authorization to the extent that the type of deduction by PK or HGV, as applicable, does not differ from that made by Hilton.
21. MISCELLANEOUS . (a) Complete Agreement; Construction . This Agreement, including any schedules hereto and the Distribution Agreement, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement, this Agreement shall control unless specifically stated otherwise in this Agreement. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any other Ancillary Agreement, this Agreement shall control unless specifically stated otherwise in this Agreement.
(b) Data Privacy . The Parties agree that any applicable data privacy Laws and any other obligations of the HLT Group, PK Group and the HGV Group to maintain the confidentiality of any employee information or information held by any Plan in accordance with applicable Law shall govern the disclosure of employee information among the Parties under this Agreement. The Parties agree to use commercially reasonable efforts to have in place appropriate technical and organizational security measures to protect the personal data of the HLT Employees, PK Employees and HGV Employees.
(c) Ancillary Agreements . Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by any other Ancillary Agreement.
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(d) Counterparts . This Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.
(e) Survival of Agreements . Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Plan Effective Time and remain in full force and effect in accordance with their applicable terms.
(f) Expenses . All out-of-pocket fees and expenses incurred, or to be incurred and directly related to the transactions contemplated hereby shall be paid as described in Section 11.5 of the Distribution Agreement.
(g) Notices . All notices, requests, claims, demands and other communications under this Agreement shall be made as described in Section 11.6 of the Distribution Agreement.
(h) Consents . Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party (and its Group).
(i) Assignment . This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Parties (not to be unreasonably withheld or delayed), and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, this Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a Party so long as the resulting, surviving or transferee Business Entity assumes all the obligations of the relevant Party by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Parties. No assignment permitted by this Section 21(i) shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
(j) Successors and Assigns . The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.
(k) Termination and Amendment . This Agreement may be terminated, amended, or modified and the Distribution may be amended, modified or abandoned at any time prior to the Effective Time by and in the sole discretion of HLT without the approval of PK, HGV or the stockholders of HLT. In the event of such termination, no Party shall have any Liability of any kind to any other Party or any other Person. After the Effective Time, this Agreement may not be terminated, modified or amended except by an agreement in writing signed by HLT, PK and HGV.
(l) Payment Terms . Except as expressly provided to the contrary in this Agreement or the Transition Services Agreement, any amount to be paid or reimbursed by any Party (and/or a member of such Partys Group), on the one hand, to any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand, under this Agreement
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shall be paid or reimbursed hereunder within sixty (60) days after presentation of an invoice or a written demand therefor and setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount. Except as expressly provided to the contrary in this Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within sixty (60) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to LIBOR, from time to time in effect, calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment. Except as expressly provided to the contrary in this Agreement, a Party (or any member of a Partys Group) may direct that any payment owed such Party (or member of such Partys Group) hereunder be paid directly to a member of the same Group.
(m) No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Partys Group to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement (including adversely affecting the rights or ability of any Party to successfully pursue indemnification or payment pursuant to Section 18).
(n) Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party at and after the Plan Effective Time, to the extent such Subsidiary remains a Subsidiary of the applicable Party.
(o) Third Party Beneficiaries . Except as provided in Section 18 relating to Indemnitees, this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
(p) Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
(q) Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflict of law principles that would result in the applicable of Laws of a different jurisdiction.
(r) Consent to Jurisdiction . Subject to the provisions of Article IX of the Distribution Agreement, each of the Parties irrevocably submits to the exclusive jurisdiction of (i) the Court of Chancery of the State of Delaware and any appeals court thereof, or (ii) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the State of Delaware and any appeals court thereof (the courts referred to in clauses (i) and (ii), the Delaware Courts ), for the purposes of any Action to compel arbitration or for provisional relief in aid of arbitration in accordance with Article IX of the Distribution Agreement or to prevent irreparable harm, and to the non-exclusive jurisdiction of the Delaware Courts for the enforcement of any award issued thereunder. Each of the Parties
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further agrees that service of any process, summons, notice or document by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any Action in the Delaware Courts with respect to any matters to which it has submitted to jurisdiction in this Section 21(r). Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any Action arising out of this Agreement or the transactions contemplated hereby in the Delaware Courts, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action brought in any such court has been brought in an inconvenient forum.
(s) Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 21(S).
(t) Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
(u) Force Majeure . No Party (or any Person acting on its behalf) shall have any Liability for failure to fulfill any obligation (other than a payment obligation) under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (i) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (ii) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
(v) Interpretation . The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
(w) No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances.
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(x) No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
(y) No Admission of Liability . The allocation of Assets and Liabilities herein is solely for the purpose of allocating such Assets and Liabilities among the HLT Group, the PK Group and the HGV Group and is not intended as an admission of liability or responsibility for any alleged Liabilities vis-a-vis any third party, including with respect to the Liabilities of any non-wholly owned Subsidiary of HLT, PK or HGV.
(z) Effect if Distribution Does Not Occur . If the Distribution does not occur, then all actions that are, under this Agreement, to be take or occur effective as of the Distribution, or otherwise in connection with the Distribution, shall not be taken or occur except to the extent specifically agreed by the Parties.
(aa) Relationship of Parties . Nothing in this Agreement shall be deemed or construed by the Parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the Parties, it being understood and agreed that no provision contained herein, and no act of the Parties, shall be deemed to create any relationship between the Parties other than the relationship set forth herein.
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. | ||
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PARK HOTELS & RESORTS INC. | ||
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HILTON GRAND VACATIONS INC. | ||
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HILTON DOMESTIC OPERATING COMPANY INC. (solely for purposes of Section 18) | ||
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Exhibit 10.3
FORM OF MASTER TRANSITION SERVICES AGREEMENT
This Master Transition Services Agreement (this Agreement ) is entered into as of , 2016, by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Park Hotels & Resorts Inc., a Delaware corporation ( PK ) and Hilton Grand Vacations Inc., a Delaware corporation ( HGV ). Each of HLT, PK and HGV is sometimes referred to herein as a Party and collectively as the Parties . Capitalized terms used herein and not otherwise defined herein have the meanings given to such terms in the Distribution Agreement, entered into on the date hereof, by and among HLT, PK, HGV and Hilton Domestic Operating Company Inc. (as such may be amended from time to time, the Distribution Agreement ).
W I T N E S S E T H :
WHEREAS, the Board of Directors of HLT has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate, pursuant to and in accordance with the Distribution Agreement, HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business, which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business, which shall be owned and conducted, directly or indirectly, by PK (which will elect to be a REIT), and (iii) the Timeshare Business, which shall be owned and conducted, directly or indirectly, by HGV; and
WHEREAS, in order to provide for an orderly transition under the Distribution Agreement, each of HLT, PK and HGV desires to provide to the other certain services for specified periods following the Distribution Date, all in accordance with and subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the Parties contained herein, the Parties agree as follows:
1. Services Provided .
(a) With respect to each Service (as defined in Section 1(b) ), the Party required to provide such Service is the Service Provider and the other Party is the Service Recipient . In performing the Services, Service Provider and each of its Affiliates shall use commercially reasonable efforts to provide, or to ensure that any Third Party Provider (as defined in Section 1(b) ) shall provide, the Services in the same manner, within the same amount of time and at the same level of service (including, as applicable, with respect to type, scope, frequency, quality and quantity), with the same degree of reasonable skill and care and with the same level of security and control as provided and used in providing the Services during the twelve (12) month period prior to the Distribution Date (excluding any actions taken in contemplation of the Distribution); provided , however , that Service Provider shall not be obligated to provide services that are more extensive in type, scope, frequency, quality or quantity than similar or comparable services provided by Service Provider to Service Recipient during the twelve (12) month period prior to the Distribution Date. Notwithstanding anything herein to the contrary, the Services are to be provided in a manner that does not disparately treat Service Recipient (or its Subsidiaries or its or their personnel or business) as compared to Service Providers treatment of itself (or its Affiliates or its or their personnel or business) in connection with the provision of a Self-Service (as defined in Section 2(a)(v) ).
(b) During the period commencing on the Distribution Date and ending on the date that is two (2) years from the date hereof, unless an earlier or later date is otherwise specified for a Service on Schedule A-1 or Schedule A-2 hereto (for each such Service, such end date being herein referred to as the Termination Date , with Schedule A-1 and Schedule A-2 being herein referred to as the Services Schedules ), Service Provider shall provide, or shall cause one or more of its Affiliates or a contractor, subcontractor, vendor or other third-party service provider (each, a Third Party Provider ) to provide, upon the terms and subject to the conditions set forth herein, the services described on the Services Schedules (the Services ); provided , Service Provider shall obtain the consent of Service Recipient (not to be unreasonably withheld, delayed or conditioned) in the event any such Service is to be provided by a Third Party Provider or Affiliate if such Services were not provided by such Third Party Provider or Affiliate to Service Recipient during the twelve (12) month period prior to the Distribution Date; provided further , Service Provider shall remain primarily responsible for the performance by any such Affiliate or Third Party Provider of its obligations hereunder. Irrespective of whether Service Provider, an Affiliate or a Third Party Provider is providing a Service, Service Recipient may direct that any such Service be provided directly to Service Recipient or any other member of such Partys Group.
(c) Each Service provided hereunder shall be terminated on its applicable Termination Date, unless otherwise terminated earlier by Service Recipient pursuant to Section 11 . Service Provider shall be under no obligation to provide a Service to Service Recipient after the Termination Date applicable to such Service, except to the extent otherwise agreed in writing by Service Provider and Service Recipient.
(d) Limitations on Services .
(i) Notwithstanding anything to the contrary contained herein or in the Services Schedules, Service Provider shall have no obligation under this Agreement to: (1) operate the business of Service Recipient or any members of its Group or any portion thereof; (2) advance funds; (3) provide any Service to the extent that the provision of such Service would require Service Provider to violate any applicable Law, third-party confidentiality, contractual obligations or fiduciary responsibilities; (4) provide any Service to the extent Service Recipient has breached (or through its actions or omissions has caused the Service Provider to be in breach of or default under) any applicable obligations under, or requirements of, any contract or arrangement with any Third Party Provider ( Third Party Provider Use Requirements ) engaged with respect to such Service ( provided that Service Recipient shall first be permitted to attempt to cure such breach or default within thirty (30) days from receipt of notice thereof if such breach or default is capable of being cured); (5) implement processes, plans or initiatives developed, acquired or utilized by Service Recipient after the Distribution Date except as otherwise agreed; (6) perform or cause to be performed any of the Services for the benefit of any third party; (7) render any Service in a particular location that would necessitate that Service Provider obtain any permits or regulatory approvals, or qualify to do business, in any location or jurisdiction other than the locations and jurisdictions where
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Service Provider does business or conducted business as of the date hereof; or (8) purchase, lease or license any physical assets or equipment, expand its facilities or incur long-term capital expenses.
(ii) All employees and representatives of Service Provider, members of its Group and its Affiliates shall be deemed for all purposes to be employees or representatives of Service Provider, members of its Group or such Affiliates, as applicable. In performing the Services, such employees and representatives shall be under the direction, control and supervision of Service Provider, members of its Group or the applicable Affiliate thereof, and Service Provider, members of its Group and its Affiliates shall have the sole right to exercise all authority with respect to the employment (including termination of employment), assignment and compensation of such employees and representatives.
2. Consideration .
(a) Costs and Fees .
(i) For each Service, Service Recipient shall pay (in accordance with Section 2(b) ) Service Provider an amount equal to the Market Rate (as defined in Section 2(a)(i)(1) ).
(1) The Market Rate for each Service shall be an amount equal to the sum of: (A) the rate as set forth on the applicable Services Schedule (which rate reflects the Parties good faith estimate as to the cost of such Service to the Service Provider plus an additional amount that the Parties acknowledge is fair and adequate consideration for the work expected to be performed by personnel of Service Provider in connection with such Service, including coordinating or managing Third Party Providers); provided that if a Services Schedule is silent regarding such rate, the amount under this subsection (A) shall be equal to Service Providers allocated costs (including salary, wages and benefits, but excluding severance costs that are the responsibility of Service Recipient pursuant to Section 2(a)(ii) ) for any of its (or its Affiliates) employees involved in providing Services; plus (B) any reasonable out-of-pocket costs and expenses incurred in connection with retaining Third Party Providers or pursuing any warranty or indemnity against a Third Party Provider in accordance with Section 3(c) ; plus (C) fees incurred in connection with any Third Party Consent or Alternative Method, which shall be borne equally by Service Recipient and Service Provider; plus (D) any sales, transfer, goods, services, value added, gross receipts or similar taxes, fees, charges or assessments (including any such taxes that are required to be withheld); provided that the Parties agree to use commercially reasonable efforts to minimize any such tax with respect to the Services; plus (E) other reasonable miscellaneous out-of-pocket costs and expenses; provided , however , that any such expenses exceeding $ per month for each Service (other than routine business travel and related expenses) shall require advance approval of Service Recipient.
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(2) Any costs and expenses provided for on a Services Schedule shall be subject to an increase of % per annum beginning on January 1, 2018, in order to adjust for inflation.
(3) Service Provider shall notify Service Recipient of any event that may reasonably be expected to increase the Market Rate by more than %.
(ii) Subject to the terms of this Section 2(a)(ii) , Service Provider shall use commercially reasonable efforts to retain its workforce required to provide the Services and, consistent with its severance policies then in effect, if any, may make severance payments to its employees. Service Provider shall be responsible for Service Providers actual severance costs incurred as a result of terminating an employee who is primarily engaged in providing a Service in connection with the termination of such Service, provided that to the extent such severance costs are in excess of the amount of the severance costs that would have been paid by Service Provider if such employee had been terminated on the Distribution Date, the Service Recipient shall be reponsible for the amount of such excess severance costs; provided that any such employees employment was actually terminated and such individual is not rehired by Service Provider or any of its Affiliates for at least ninety (90) days following such termination. Notwithstanding the foregoing, if a former employee of Service Provider (who was (a) primarily engaged in providing a Service and (b) terminated by Service Provider within six (6) months of such individual having engaged in any activities with respect to providing such Service) is hired by another Party within twelve (12) months of the termination of such individuals employment with Service Provider, such other Party shall be responsible for (and shall indemnify Service Provider with respect to) all of the actual services costs incurred by Service Recipient with respect to such individual. Service Provider shall prepare and deliver, within thirty (30) days following the end of each quarterly period ending each March 31, June 30, September 30 and December 31 (it being understood that the first such period shall be shorter than one quarter), to Service Recipient an invoice setting forth the amount of severance costs to be paid by Service Recipient in accordance with the foregoing provisions of this Section 2(a)(ii) , which invoice Service Recipient shall pay pursuant to the terms of Section 2(b) .
(iii) Unless the Parties otherwise agree in writing, (i) where Services are provided in a country outside of the United States by a Person located in the same country, amounts shall be invoiced and paid in the local currency of the Person providing the Services and (ii) if payments are to be made between Persons not within the same country, such amounts shall be invoiced and paid in U.S. Dollars. To the extent necessary, local currency conversion on any such invoice shall be based on Service Providers internal exchange rate for the then-current month, based upon the average for such month, as calculated consistently with how such local currency conversion was calculated in the twelve (12) month period prior to the Distribution Date.
(iv) All charges based on a monthly or other time basis will be pro-rated based on actual calendar days elapsed during the period of service.
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(v) With respect to any service that a Service Provider provides or causes an Affiliate to provide to itself or its Affiliates that is the same or substantially similar to a Service provided to Service Recipient or its Subsidiaries hereunder (such service, a Self-Service ), if Service Provider determines to no longer provide such Self-Service to itself or its Affiliates, Service Provider shall notify Service Recipient of such termination no later than the number of days prior to such termination as is provided in Section 11(b) for terminating the corresponding Service. If Service Provider terminates a Self-Service prior to the end of the Termination Date applicable for the corresponding Service, the Market Rate of such Service following any such termination and up to but not including the Termination Date shall be calculated as if Service Provider had not terminated such Self-Service. Notwithstanding the foregoing, Service Provider shall continue to provide the Service in accordance with the provisions of this Agreement, unless such Service is otherwise terminated pursuant to Section 11 , and Service Provider shall not be permitted to terminate any Self-Service prior to the Termination Date for the applicable Service if such termination would adversely affect the level of service, security or control of such Service or the scope or content thereof required pursuant to Sections 1(a) and 4(a ).
(b) Invoices and Payment .
(i) Service Provider shall invoice Service Recipient for the amounts owed hereunder in arrears on a calendar monthly basis or, in the case of Section 2(a)(ii) , as provided therein, and shall provide reasonable documentation supporting such amounts owed pursuant to Section 2(a) , except to the extent such amounts are set forth on the Services Schedules. Service Recipient shall pay the amount of such invoice by electronic transfer of immediately available funds not later than forty-five (45) days after the date of such invoice. Neither Party nor any of its respective Subsidiaries shall have a right of set-off against the other Party or its Subsidiaries, except in connection with any amounts billed hereunder. In the event Service Recipient does not pay Service Provider in accordance with the terms hereof (i) all amounts so payable and past due shall accrue interest from the 31 st day after the date of the invoice to the receipt of payment at a rate per annum equal to five percent (5%) (the Interest Rate ) until such amounts, together with all accrued and unpaid interest thereon, are paid in full, and (ii) Service Recipient shall pay, as additional fees, all reasonable out-of-pocket costs and expenses incurred by Service Provider in attempting to collect and collecting amounts due under this Section 2 , including all reasonable attorneys fees and expenses.
(ii) In the event that Service Recipient in good faith disputes an invoice submitted by Service Provider, Service Recipient may withhold payment of any amount subject to the dispute; provided , however , that (x) Service Recipient shall continue to pay all undisputed amounts in accordance with the terms hereof, (y) Service Recipient shall notify Service Provider, in writing, of any disputed amounts and the reason for any dispute by the due date for payment of the invoice containing any disputed charges and (z) in the event any dispute is resolved in Service Providers favor, any amount that Service Recipient should have paid shall be deemed to have accrued interest at the Interest Rate from the date such payment should have been made. In the event of a dispute regarding the amount of any invoice, the Parties shall use all reasonable efforts to resolve such dispute within thirty (30) days after Service Recipient provides written
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notification of such dispute to Service Provider. Each Party shall provide full supporting documentation concerning any disputed amount or invoice within twenty (20) days after written notification of the dispute. Unpaid fees that are under good faith dispute shall not be considered a basis for default hereunder. To the extent that a dispute regarding the amount of any invoice cannot be resolved pursuant to this Section 2(b)(ii) , the dispute resolution procedures set forth in Section 9 herein shall apply.
(c) Migration and Integration; Disconnection and Disintegration .
(i) Service Recipient shall be responsible for planning, preparing and integrating the transition of the provision of each of the Services to its own internal organization or other third-party service providers, and shall use commercially reasonable efforts to prepare, within one hundred and twenty (120) days after the Distribution Date ( Migration Planning Period ), a plan in order to transition off each Service by the end of the term for such Service ( Migration Plan ); provided , however , that Service Recipient will not be deemed to have violated its obligations with respect to preparation of the Migration Plan if Service Recipient (i) fails to complete the Migration Plan within the Migration Planning Period, (ii) has been working, and thereafter continues to work, in good faith and without undue delay to expeditiously prepare the Migration Plan and (iii) completes the Migration Plan no later than one hundred and fifty (150) days after the Distribution Date. At Service Recipients request, Service Provider shall reasonably assist, and shall use commercially reasonable efforts to cause any Third Party Provider to reasonably assist, Service Recipient in connection with the implementation of Service Recipients transition plan, which may include consulting and training and providing reasonable access to data and other information and to Service Providers employees, but which shall take into account the need to minimize the cost of such migration and the disruption to the ongoing business activities of Service Provider and its Affiliates and shall not unduly burden or interfere with Service Providers business and operations ( provided that , for the avoidance of doubt, such services shall not include any services that, in Service Providers commercially reasonable opinion, do not primarily effect the separation of Service Recipient from the Services).
(ii) In furtherance of the foregoing, Service Recipient shall use commercially reasonable efforts to make or obtain any approvals, permits and licenses and implement any systems as may be necessary for it to perform the Services independently in each country and applicable jurisdiction as soon as practicable following the Distribution Date.
(iii) Notwithstanding anything to the contrary contained herein (but subject to Section 2(a)(ii) ), in the Distribution Agreement or in any Ancillary Agreement, Service Recipient shall bear all costs or expenses associated with integrating the Services with the Information, facilities, personnel and assets of Service Recipient and shall reimburse Service Provider for any costs or expenses incurred by Service Provider which are to be borne by Service Recipient pursuant to this Section 2(c) .
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3. Cooperation .
(a) It is understood that it will require significant efforts by the Parties to implement this Agreement and ensure performance hereunder. The Parties shall: (i) cooperate with and provide such information and documentation to the other Party as is reasonably necessary for Service Provider to perform the Services and for Service Recipient to meet its obligations under the Agreement; (ii) notify the other Party of any changes to operating environments or key personnel to the extent related to the provision of the Services; (iii) provide timely decisions, approvals and acceptances required to perform the obligations hereunder in a timely and efficient manner; and (iv) perform such other duties and tasks as may be reasonably required to permit Service Provider to perform the Services or for Service Recipient to meet its obligations under the Agreement, including (A) cooperating in obtaining any Third Party Consents necessary to facilitate Service Providers ability to provide the Services and (B) upon thirty (30) days prior written notice by Service Provider, conducting such testing as may be reasonably required by Service Provider in connection with any updates or changes to the applicable systems or processes involved in providing a Service. Service Provider shall not be deemed to be in breach of its obligations to provide or make available any Service to the extent that Service Recipient has not provided information and access to appropriate personnel that is reasonably necessary for the performance of such Service.
(b) Upon Service Recipients written request and without prejudice to Service Recipients direct rights against a Third Party Provider, Service Provider shall use commercially reasonable efforts to request any warranty or indemnity under any contract Service Provider or its Subsidiaries may have with a Third Party Provider with respect to any Service provided to Service Recipient by such Third Party Provider.
(c) Service Provider and Service Recipient shall use commercially reasonable efforts to obtain in a cost effective manner any necessary waivers, permits, license, consents or similar approvals with respect to agreements with third parties in order for Service Provider to provide the Services directly or indirectly (any such waiver, permit, consent, license or similar approval, a Third Party Consent ). If a Third Party Consent cannot be obtained on reasonable terms or after using commercially reasonable efforts, such Parties will use commercially reasonable efforts to arrange for an alternative method of obtaining any such Service on Service Recipients behalf in a cost effective manner ( Alternative Method ), which may include Service Provider providing such Service itself. If there is any Third Party Consent which was not required as of the date hereof but will subsequently be required before the Termination Date for a particular Service, Service Provider shall identify in writing to Service Recipient such Third Party Consent within sixty (60) days of the date hereof.
(d) The Parties shall use the fiscal month, quarter and year ends as set forth in Schedule B in connection with the provision and receipt of applicable Services hereunder, for so long as such Services are being provided.
(e) In connection with the provision of Services hereunder, except as provided pursuant to Section 2(a)(iii) for local currency conversion for invoices, the Parties shall use the same methodology to determine the appropriate foreign exchange conversion rate as used in the twelve (12) month period prior to the Distribution Date, which may be determined or based upon the average for the month or other applicable period or the spot rate at the end of such month or period or otherwise.
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4. Performance Standard; Reports; Personnel .
(a) Except as otherwise provided in the Services Schedule and Section 1(a) herein, nothing in this Agreement shall require or be interpreted to require Service Provider to provide a Service to Service Recipient beyond the scope and content of such Service as provided by Service Provider to the HLT Retained Business, Ownership Business or Timeshare Business, as the case may be, during the twelve (12) month period prior to the Distribution Date, excluding any actions taken in contemplation of the Distribution.
(b) Service Provider shall not make changes in the manner of providing a Service unless (i) Service Provider is making similar changes in a service being performed for itself or its Subsidiaries, (ii) such changes are immaterial and do not adversely affect the level of service, security or control of such Service or the scope or content thereof required pursuant to Sections 1(a) and 4(a ) above, (iii) such changes are required by Service Provider or Service Recipient pursuant to applicable Law (including changes required by Service Provider or Service Recipient in connection with the provision of the Services to the other Party) or (iv) Service Recipient provides its prior written consent (which shall not be unreasonably withheld, conditioned or delayed) to such changes (in each case, for the avoidance of doubt, with the costs of any such change to be included in the calculation of the Market Rate). In the event Service Provider determines to change the location of delivery of any Service, Service Provider shall provide Service Recipient with thirty (30) days prior written notice. All Services shall be performed in compliance with applicable Law, including all applicable U.S. and non-U.S. laws and regulations relating to export controls, sanctions, and imports, including without limitation those regulations maintained by the U.S. Department of the Treasurys Office of Foreign Assets Control and the U.S. Department of Commerce, Bureau of Industry and Security.
(c) In performing the Services, Service Provider shall use its commercially reasonable efforts to prepare and furnish to Service Recipient reports concerning the Services with such reports to contain substantially the same data, in substantially the same format, and prepared and delivered on substantially the same timetable, as reports prepared during the twelve (12) month period prior to the Distribution Date (excluding any reports solely prepared in contemplation of the Distribution), except as may be otherwise required by Service Recipient or Service Provider pursuant to applicable Law. Upon Service Recipients written request for modifications to the reporting and data transfer practices reasonably required to assist Service Recipient in transitioning off the Service, Service Provider shall cooperate and consult in good faith with Service Recipient to make such modifications; provided that if Service Provider reasonably determines in its sole discretion that any such modification may cause Service Provider to be in breach of its obligations to the other Party hereunder (including as a result of breaching its obligations as a Service Provider to the other Party as Service Recipient), then Service Provider shall not be under any obligation to make such modifications.
(d) Service Provider shall use commercially reasonable efforts consistent with past practice to make available such personnel as may be required to provide the Services. Service Provider shall have the right to designate which personnel it will assign to perform the Services. Service Provider also shall have the right to remove and replace any such personnel at any time or designate any of its Subsidiaries or a Third Party Provider (subject to Section 1(a) herein) at any time to perform the Services; provided , however , that Service Provider shall use
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its commercially reasonable efforts consistent with past practice to limit the disruption to Service Recipient in the transition of the Services to different personnel. Subject to and consistent with Section 2(a)(ii) , Service Provider shall have no obligation to retain any individual employee or any Third Party Provider or to employ additional personnel in order to provide a particular Service.
(e) In the event Service Recipient or any of its Subsidiaries hires away an employee of Service Provider or its Subsidiaries, and such employee was providing Services to Service Recipient and will not continue to provide such Service, Service Provider shall have the option, in its sole discretion (in addition to any other remedies available to it under the Distribution Agreement or otherwise), upon ten (10) Business Days written notice to Service Recipient to reduce its obligations with respect to such Service (with a proportionate reduction in the applicable Market Rate) effective on the date of such employees termination of employment with Service Provider. Any provision of Service thereafter pursuant to such a reduction in Service Providers obligations shall be deemed to be consistent with Service Providers obligations under this Agreement, so long as Service Provider satisfies the other obligations contained in this Section 4 with respect to such Service. Notwithstanding the foregoing, nothing in this Section 4(e) shall be deemed to modify, amend or waive the non-solicitation and no-hire restrictions set forth in Section 5.1 of the Distribution Agreement.
(f) Each Party agrees that it shall take appropriate action by instruction of or agreement with its personnel (including any Third Party Provider) to ensure that all such personnel performing or otherwise involved with Services shall be bound by and comply with all of the terms and conditions of this Agreement.
(g) In the event Service Provider has received a notice of default or breach in the performance of a Service hereunder (including as a result of substantial errors in the performance of such Service), it will use its commercially reasonable efforts to cure such default or breach. In the event Service Provider is unable to cure such default within thirty (30) days from receipt of notice thereof, in addition to the rights available under Section 11 , there shall be an adjustment to the Market Rate to reflect the costs to Service Recipient associated with such default, breach or error, including any reasonable out-of-pocket costs and expenses incurred by Service Recipient in retaining any Third Party Provider to provide such Service or in providing such Service itself.
(h) Each Party shall notify the applicable other Party as promptly as practicable after becoming aware of any breach of this Agreement committed by either it or the applicable other Party. Service Provider shall notify Service Recipient of any event that may reasonably be expected to materially impact a Service provided hereunder, which may include a Termination Notice (as defined in Section 11(b) ) provided by the other Party as Service Recipient hereunder or a notice of termination of a Self-Service, issued pursuant and in accordance with, Section 2(a)(v) .
(i) In the event of any conflict, as reasonably determined by Service Provider in its sole discretion, between requests for modification or termination of Services made by the two other Parties and each properly delivered hereunder, Service Provider shall determine which request it received first and, subject to the other terms and conditions of this Agreement, make such modifications or terminations pursuant to the request that was first received before making any modifications or terminations pursuant to any requests received afterwards.
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5. New Services .
If, after the date hereof and on or prior to August 31, 2017, or, with respect to Services provided in connection with any Transfer that, pursuant to Section 2.5 of the Distribution Agreement, is not consummated at or prior to the Effective Time, one hundred (100) days following the actual date of such Transfer (notwithstanding that under Section 2.5(c) of the Distribution Agreement such Transfer may be deemed to have occurred on the Effective Time) the Parties determine that a service required by Service Recipient and provided by Service Provider or one of its Subsidiaries prior to the Distribution Date was omitted from the Services Schedules, Service Recipient may request that Service Provider perform such service ( New Service ) in addition to the Services being provided hereunder. Service Provider shall promptly begin performing any New Service consistent with past practice upon a timely written request from Service Recipient (which request may be in the form of email) including (i) a description of the work Service Recipient anticipates being performed by Service Provider in connection with such New Service and (ii) a schedule for commencing and completing such New Service, and Service Provider and Service Recipient shall enter into good faith negotiations to agree to an amendment to the Services Schedules providing for such New Service; provided that if no agreement for an Additional Service Schedule Amendment has been reached in writing in thirty (30) days, such New Service shall be deemed to have a Termination Date of two (2) years from the date hereof, with the Market Rate as provided for in Section 2(a)(i) , calculated as if the amendment to the Services Schedule for such New Service were silent regarding costs and expenses (such amendment or deemed amendment pursuant to the foregoing proviso, an Additional Service Schedule Amendment ). Any New Service shall be considered a Service hereunder and the Services Schedules shall incorporate, and be deemed to be duly amended by, such Additional Service Schedule Amendment.
6. Intellectual Property; IT Security .
(a) Except as provided in the Services Schedules, the Market Rate shall include the allocable portion of any amounts that are required to be paid by Service Provider to any third party licensors of software that is used by Service Provider in connection with the provision of any Services hereunder, including (i) license, right-to-use and royalty fees and (ii) any amounts required to obtain the consent of such licensors to allow Service Provider to provide any of the Services hereunder. Service Recipient agrees to comply and cause its Subsidiaries to comply with the terms of any license or other agreement of Service Provider or any of its Subsidiaries relating to software that is provided to Service Recipient and is used in connection with the provision of any Services hereunder, including as specified in the Third Party Provider Use Requirements; provided that in the event that Service Provider enters into new software licenses after the Distribution Date, Service Recipient shall have the prior opportunity to review and confirm its ability to comply therewith, which it shall do in good faith. In the event that Service Recipient provides notice of its inability to comply therewith, Service Provider may at its sole discretion discontinue its provision of any Services under such new software licenses effective after thirty (30) days notice of the same, and Service Recipient shall indemnify Service Provider for any claims by third parties arising out of or in connection with Service Recipients
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noncompliance or violation of such software licenses; provided that, for the avoidance of doubt, Service Recipients delivery of such notice will not affect Service Recipients obligation to comply with all Third Party Provider Use Requirements applicable to Services already in use by Service Recipient. Subject to the foregoing, Service Provider shall use commercially reasonable efforts to obtain any consent that may be required from such licensors in order to provide any of the Services hereunder and the Parties shall cooperate to identify any material licenses or consents necessary for such provision and shall use commercially reasonable efforts to minimize the costs associated therewith.
(b) If the receipt or provision of any Service hereunder requires the use by a Party of the patents, know-how, trade secrets, methods and processes (excluding Customer Information and Loyalty Program Information) of the other Party, then, subject to applicable restrictions contained in Service Providers contracts with Third Party Providers, such Party and its Subsidiaries shall have the non-exclusive, royalty-free, non-sublicensable (except as required for its and its Subsidiaries receipt or provision of Services) right and license to use such Intellectual Property for the sole purpose of, and only to the extent necessary for, the receipt or provision of such Services hereunder, pursuant to the terms and conditions of this Agreement. Upon the Termination Date applicable to such Service, or the earlier termination of any Services in accordance with Section 11 , the license herein to the applicable Intellectual Property will terminate, and the applicable Service Recipient and/or Service Provider shall cease all use of the Intellectual Property licensed hereunder. The applicable Service Recipient and/or Service Provider acknowledges that it will acquire no right, title or interest (including any license rights or rights of use) in any firmware or software, and the licenses therefor which are held by the applicable Service Provider and/or Service Recipient, by reason of the provision of the Services provided hereunder, except to the extent that any such license rights or rights of use are provided for in a written agreement signed by Service Provider and Service Recipient. Nothing in this Section 6(b) shall be deemed to limit, modify or terminate any License Agreement between the Parties.
(c) Subject to the limited licenses granted in Section 6(b) , each Party shall exclusively own any Intellectual Property that it creates, develops or invents in connection with the provision of any Services hereunder.
(d) While using or accessing any computers, systems, software, networks, information technology or related infrastructure or equipment (including any data stored thereon or transmitted thereby) ( Systems ) of the other Party (whether or not a Service), each Party shall and shall cause each of its Subsidiaries to, adhere in all respects to the other Partys controlled processes, policies and procedures (including any of the foregoing with respect to Confidential Information, data, communications and system privacy, operation, security and proper use) as in effect on the Distribution Date or as communicated to such Party from time to time in writing.
(e) Service Provider and Service Recipient shall each maintain reasonable, current security measures (i) to prevent unauthorized access to its systems and (ii) with respect to all data contained in its facilities, networks and systems and used in connection with the Services. Such measures shall in no event be less stringent than those used to safeguard such Partys own property, or industry standard security measures used by companies of a similar
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size. Such measures shall include, where appropriate, use of updated firewalls, virus screening software, logon identification and passwords, encryption, intrusion detection systems, logging of incidents, periodic reporting, and prompt application of current security patches, virus definitions and other updates. Service Recipient shall not install any new equipment, software or technology or modify the setup of any existing equipment, software or technology that is, or will be, connected to Service Providers facilities, networks or systems without the prior consent of Service Provider.
(f) Service Provider may suspend Service Recipients access (if any) to the information technology or communications systems used by Service Recipient following advance written notice to the extent practicable if, in Service Providers reasonable opinion (i) the integrity, security or performance of its systems, or any data stored on them, is being or is likely to be jeopardized by the activities of Service Recipient, or (ii) continued access to those information technology or communications systems by Service Recipient would expose Service Provider to liability. Service Recipient shall take appropriate corrective actions and if such actions fully resolve the matter (as determined by Service Provider in its sole discretion), Service Provider shall restore such access to Service Recipient.
(g) Each Party reserves the right to terminate all Services that provide access to such Partys information technology or communications systems, in its sole discretion and without limitation or termination liability, if Service Recipient or Service Provider, as applicable, remains in breach of this Section 6 five (5) Business Days after receipt of notice of such breach. Service Provider and Service Recipient acknowledge that the security measures used by the other as of the date of this Agreement are in compliance with this Section 6.
(h) Each party will comply with all applicable privacy and other Laws and regulations relating to protection, collection, use, and distribution of information (including Customer Information) received by a Party in connection with the Services that can be associated with or traced to any individual, including an individuals name, address, telephone number, e-mail address, credit card information, social security number, or other similar specific factual information, regardless of the media on which such information is stored (e.g., on paper or electronically), and which includes certain of such information that is generated, collected, stored or obtained as part of this Agreement, including transactional and other data pertaining to users ( Personally Identifiable Information ). In no event may a Party sell or transfer Personally Identifiable Information to third parties other than its Affiliates, or otherwise provide third parties other than its Affiliates with access thereto, except (i) as may be allowed pursuant to other written agreements between the Parties, or (ii) in the case of Service Provider, with any of its Third Party Providers assisting Service Provider with the performance of the Services hereunder. If there is a suspected or actual breach of security involving Personally Identifiable Information, responsible Party will notify the other Partys privacy counsel within twenty four (24) hours of a management-level associate becoming aware of such occurrence.
(i) Those Third Party Providers (and their personnel) of Service Recipient and Service Provider (or their respective Affiliates) having access to the other Partys Systems may be required by Service Provider or Service Recipient, as the case may be, to enter into a customary non-disclosure agreement in connection with, and as a condition to, such access.
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7. Records .
Service Provider shall use commercially reasonable efforts to provide to Service Recipient, taking into consideration the financial reporting, internal controls and other public company requirements of Service Recipient, all information and records reasonably required to maintain full and accurate books relating to the provision of Services whether prior to or after the Distribution Date. Upon reasonable notice and reasonable request from Service Recipient, and at Service Recipients cost, Service Provider shall (a) make available for inspection and copying by Service Recipients agents or representatives such information, books and records relating to the Services during reasonable business hours and (b) certify that the controls in effect prior to the Distribution Date continue to be in effect, or if Service Provider is aware of any instances where such controls are not so in effect, in lieu of certification for such instances, provide a list of such instances and descriptions of the change in such controls thereof.
8. Force Majeure; Reduction of Services .
No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible. Notwithstanding the foregoing, Service Recipient shall be entitled to terminate Services so affected by a Force Majeure upon fifteen (15) days prior written notice in respect of any such delay or failure resulting from any such Force Majeure without any penalty or obligation to pay for Services not performed; provided that, for the avoidance of doubt, Service Recipient shall remain responsible for any severance costs for any such Services to the extent set forth in Section 2(a)(ii).
9. TSA Managers; Steering Committee; Dispute Resolution .
(a) Each Party shall nominate in writing one representative to act as the primary contact with respect to the provision and receipt of Services (a TSA Manager ), with the initial TSA Managers as listed on Schedule C . Each Party may, at its discretion, from time to time select another individual to serve in these capacities during the term of this Agreement; provided , however , each Party shall notify the other Party promptly (and in any event within five (5) Business Days) of any change in an individual serving in this capacity, setting forth the name and contact information of the replacement, and stating that such replacement is authorized to act for such Party in accordance with this Section 9(a) . The TSA Managers shall meet regularly or as needed.
(b) A steering committee (the Steering Committee ) of the TSA Managers, a finance executive from each Party (the Finance Officers ) and corporate counsel from each Party (the Legal Officers ) will have overall responsibility for oversight, administration and issue resolution relating to the performance and migration of Services under this Agreement. The Finance Officers will liaise with the TSA Managers and the Legal Officers to suggest modifications to Services or their costs (as necessary). The Legal Officers will adjust the schedule of Services to reflect changes in scope (as necessary).
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(c) The TSA Managers shall meet as expeditiously as possible to resolve any dispute hereunder, and, notwithstanding anything in Article IX (Dispute Resolution) of the Distribution Agreement to the contrary, in the event any dispute is not so resolved within thirty (30) days, a TSA Manager may provide written notice of such dispute to the Chief Financial Officer of each Party (or such other executive as designated by the Chief Executive Officer of such Party), who shall attempt within a period of fifteen (15) days following the end of such previous thirty (30) day period to conclusively resolve any such issue, and in the event the dispute remains unresolved following such fifteen (15) day period, either Party may submit the dispute to mediation in accordance with Section 9.2 (Mediation) of the Distribution Agreement ( provided that , for the avoidance of doubt, the twenty-one (21) day waiting period referenced therein shall be inapplicable), and if any dispute remains unresolved after the Mediation Period (as defined in the Distribution Agreement), such dispute shall be determined, at the request of either Party, by arbitration in accordance with Section 9.3 (Arbitration) of the Distribution Agreement and the other applicable provisions of Article IX (Dispute Resolution) of the Distribution Agreement. Each Party may treat an act of any other Partys TSA Manager or Chief Financial Officer (or such other executive as designated by the Chief Executive Officer of such other Party), in each case that is consistent with the provisions of this Agreement, as being authorized by such other Party to resolve such dispute without inquiring behind such act or ascertaining whether such TSA Manager or Chief Financial Officer (or such other executive as designated by the Chief Executive Officer of such other Party) had authority to so act; provided , however , that none of the TSA Managers or Chief Financial Officer or other executives so designated shall have authority to amend this Agreement, except as otherwise provided pursuant to Section 17 .
(d) In the event of any dispute between the Parties regarding a Service, prior to the applicable Termination Date, Service Provider shall not discontinue the supply of any such Service, unless so provided for in a settlement agreement between the Parties or arbitral determination pursuant to and in accordance with Section 9(c) herein and Article IX of the Distribution Agreement or as requested by Service Recipient pursuant to a Termination Notice.
10. Disclaimer; Limited Liability .
(a) Service Recipient acknowledges that Service Provider is not in the business of providing the Services and that the Services being provided pursuant to this Agreement are provided as an accommodation to Service Recipient. Other than in the event of Service Providers fraud, gross negligence or willful misconduct, Service Provider will not be liable for any error or omission in rendering Services under this Agreement, or for any defect in Services so rendered; provided that if there is a substantial error in any of the Services, Service Provider shall use commercially reasonable efforts to attempt to correct the error, or if Service Provider is unable to so correct such error, to provide an adjustment to the Market Rate for such Service in reasonable proportion to that which the error bears to the Service provided for such month, which adjustment may, pursuant to Section 2(a)(i)(1) , include any reasonable out-of-pocket costs and expenses incurred by Service Recipient in retaining a Third Party Provider to provide such Service or in providing such service itself. Other than in the event of Service
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Providers fraud, gross negligence or willful misconduct, and other than for the Market Rate, severance costs owed under Section 2(a)(ii) and other amounts expressly owed hereunder, Service Provider will not be liable for any damages, fines, penalties, deficiencies, losses, liabilities (including settlements and judgments) and expenses (including interest, court costs, reasonable fees and expenses of attorneys, accountants or other experts and professionals or other reasonable fees and expenses of litigation or other proceedings or of any claim, default or assessment) ( Losses ) arising out of a breach of Service Providers obligations in connection with the Services provided under this Agreement. Service Provider agrees to indemnify, defend and hold harmless Service Recipient and its Affiliates and their respective directors, officers, employees and agents as a result of the fraud, gross negligence or willful misconduct of Service Provider or its Affiliates or any of their respective directors, officers, employees or agents. Service Recipient agrees to indemnify, defend and hold harmless Service Provider and its Affiliates and their respective directors, officers, employees and agents from any Loss resulting from Service Recipients breach of any Third Party Provider Use Requirements.
(b) NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESSED OR IMPLIED (INCLUDING WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, ACCURACY, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION), ARE MADE BY SERVICE PROVIDER OR ANY OF ITS AFFILIATES WITH RESPECT TO THE PROVISION OF SERVICES UNDER THIS AGREEMENT AND, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL SUCH REPRESENTATIONS OR WARRANTIES ARE HEREBY WAIVED AND DISCLAIMED. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, UNDER NO CIRCUMSTANCES, INCLUDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY REMEDY, SHALL SERVICE PROVIDER BE LIABLE FOR, INCLUDING BUT NOT LIMITED TO, ANY LOST PROFITS, BUSINESS INTERRUPTIONS, CUSTOMER CLAIMS, REMITTANCES, COLLECTIONS, INVOICES, PENALTIES, INTEREST OR SPECIAL, INCIDENTAL, PUNITIVE, CONSEQUENTIAL OR EXEMPLARY DAMAGES CAUSED BY THE PERFORMANCE OF, ANY DELAY IN THE PERFORMING, FAILURE TO PERFORM OR DEFECTS IN THE PERFORMANCE OF, THE SERVICES CONTEMPLATED TO BE PERFORMED BY SERVICE PROVIDER PURSUANT TO THIS AGREEMENT, REGARDLESS OF WHETHER A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. Term and Service Termination Dates .
(a) This Agreement (other than Sections 9 , 10 , 11 and 13 ) shall terminate upon the last of the Termination Dates in respect of all Services to be provided hereunder; provided that the rights of the Parties in respect of any claims that have accrued prior to such termination shall survive such termination.
(b) For each Service, the service period during which Service Provider is obligated to provide such Service to Service Recipient ends as of the Termination Date set forth on the applicable Services Schedule. The Parties agree to cooperate if necessary to adjust the applicable Termination Date to end on a date that is the end of a calendar or fiscal month, as deemed appropriate. Service Recipient may terminate any Service prior to its Termination Date
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by providing to Service Provider written notice of termination, which shall be deemed irrevocable upon delivery (a Termination Notice ), not less than sixty (60) days before the date of such earlier termination except as otherwise specified in the Services Schedules; provided that if the Services Schedules indicate that any Service is dependent on one or more other Services, then each such Service must be terminated together; provided further that any termination may be on a location by location basis if so indicated on the Services Schedules. In the event a Service is terminated prior to its Termination Date pursuant to Service Recipients Termination Notice, Service Recipient shall reimburse Service Provider for any out-of-pocket costs incurred by Service Provider through the date of receipt of any Termination Notice in expectation that such Service would be provided until the applicable Termination Date (subject to Service Provider exercising commercially reasonable efforts to mitigate such costs). Notwithstanding the foregoing, upon the receipt of a Termination Notice, if Service Provider is unable to transition the applicable Service to Service Recipient or its designee in a commercially reasonable manner which does not unduly disrupt the Service on the requested termination date, Service Provider shall use commercially reasonable efforts consistent with past practice to transition such Service as soon as possible, and any resulting third party out-of-pocket costs to Service Recipient shall be paid by Service Recipient.
(c) In the event either Party defaults in the performance of any of its obligations under this Agreement, and if such default is not excused and not cured within thirty (30) days after written notice from the other Party specifying such default, then the non-defaulting Party may at any time thereafter terminate, at its option, any such Service that is the subject of such default by giving five (5) days prior written notice; provided that if no such termination notice is given within fifteen (15) days after the end of the thirty (30) day cure period, then the non-defaulting Party waives all rights to terminate such Service with respect to such default; provided further , that such fifteen (15) day period referred to in the immediately foregoing proviso shall be extended if (x) the Parties dispute whether there has been a default hereunder or (y) agree that there has been a default hereunder and have a dispute related to such default, and in either case are attempting to resolve such dispute pursuant to Section 9(c) until ten (10) days after there has been a final determination pursuant to the procedures in Section 9(c) .
(d) Any Service can be terminated prior to the Distribution Date, with no fee, penalty or ongoing obligation, if Service Recipient provides a Termination Notice to Service Provider (which may be via email) at least ten (10) Business Days prior to the Distribution Date; provided , however , that Service Recipient shall reimburse Service Provider for any out-of-pocket costs incurred by Service Provider through the date of receipt of any Termination Notice received prior to the Distribution Date (subject to Service Provider exercising commercially reasonable efforts to mitigate such costs).
12. Independent Contractor .
The Parties hereto understand and agree that this Agreement does not make either of them an agent or legal representative of the other for any purpose whatsoever. No Party is granted, by this Agreement or otherwise, any right or authority to assume or create any obligation or responsibilities, express or implied, on behalf of or in the name of any other Party, or to bind any other Party in any manner whatsoever. The Parties expressly acknowledge (i) that
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Service Provider is an independent contractor with respect to Service Recipient in all respects, including the provision of the Services, and (ii) that the Parties are not partners, joint venturers, employees or agents of or with each other.
13. Confidentiality .
(a) Any Confidential Information of the Parties shall be subject to Section 8.6 of the Distribution Agreement. With respect to any information disclosed by one Party to another Party for the purpose of this Agreement or otherwise accessible to such other Party during the performance hereunder, including any Customer Information ( Confidential Information ), the Party receiving such Confidential Information agrees that it will use the same skill and care as set forth in Section 1(a) to prevent the disclosure or accessibility to others of the disclosing Partys Confidential Information and will use such Confidential Information only for the purposes of this Agreement, the Distribution Agreement and the Ancillary Agreements. The receiving Party and its employees, representatives and agents (including any Third Party Provider) (collectively, the Recipient Parties ) shall only disclose and permit access to Confidential Information of the other Parties to such Recipient Parties who have a need to know such Confidential Information for the purposes of this Agreement, the Distribution Agreement or the Ancillary Agreements and who are informed of the obligation to hold such Confidential Information confidential and in respect of whose failure to comply with such obligations, the applicable Party will be responsible. For Confidential Information provided with respect to any Service, the obligations of the Recipient Parties pursuant to this Section 13 shall expire on the date that is five (5) years from the termination of such Service. Each Party shall provide prompt written notice of any breach of the obligations under this Section 13 by such Party or its Recipient Parties and shall use commercially reasonable efforts to assist the other Party in remedying any such breach.
(b) Specifically excluded from the definition of Confidential Information is any and all information that:
(i) is independently developed by the Recipient Parties after the Effective Time without reference to any Confidential Information;
(ii) is or comes to be in the public domain or available to the public through no fault of the Recipient Parties of the Confidential Information; or
(iii) is lawfully acquired after the Effective Time by the Recipient Parties from other sources not known to be subject to confidentiality obligations with respect to such Confidential Information.
(c) If the Recipient Party is required to disclose Confidential Information by Law, process or regulation, to the extent legally permissible, such Recipient Party shall promptly notify the disclosing Party, reasonably cooperate with the disclosing Party to the extent it may seek to limit such disclosure and, insofar as a protective order or waiver from the disclosing Party is not obtained, only disclose such Confidential Information that is required to be disclosed.
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(d) In connection with any permitted disclosure of this Agreement to any third party, each Party shall redact the portions of the Services Schedules that are not relevant to such third partys inquiry.
(e) It is further understood and agreed that money damages may not be a sufficient remedy for any breach of this Section 13 and that each Party shall be entitled to seek equitable relief, including injunction and specific performance, as remedy for any such breach in any court of competent jurisdiction, without posting bond or other security. Such remedies shall not be deemed to be the exclusive remedies for a breach, but shall be in addition to all other remedies herein described available at law or equity.
14. Audit Rights .
(a) Audits by Service Provider . Upon notice from Service Provider, Service Recipient shall use commercially reasonable efforts to provide Service Provider, its auditors (including internal audit staff and external auditors), inspectors, regulators and other reasonably designated representatives as Service Provider may from time to time designate in writing (collectively, the Service Provider Auditors ) with access to, at reasonable times, any Service Recipient facility or part of a facility at which Service Recipient is using the Services, Service Recipient personnel, and data and records relating to the Services for purposes of verifying compliance with this Agreement. Service Provider audits may include security reviews (including Service Recipients completion of security-related questionnaires) of the Services and Service Recipients systems, including reasonable use of automated scanning tools such as network scanners, port scanners, and web inspection tools. Service Recipient will provide any assistance that Service Provider Auditors may reasonably require with respect to such audits. Upon notice from Service Recipient, Service Provider shall provide Service Recipient and its auditors with access to, at reasonable times, books and records relating to the Services or this Agreement in order for Service Recipient to comply with applicable Laws.
(b) Audits by Service Recipient . Service Recipient shall have the right, upon at least thirty (30) days written notice to Service Provider, and in a manner to avoid unreasonable interruption to Service Providers business, to perform audit procedures over Service Providers internal controls and procedures for the Services provided by Service Provider under this Agreement; provided that, such audit right shall exist solely to the extent required by Service Recipients external auditors to ensure Service Recipients compliance with the Sarbanes-Oxley Act of 2002, to determine if Service Recipients financial statements conform to Generally Accepted Accounting Principles (GAAP), to verify third-party expenses or to the extent required by any Governmental Authority; provided , further , that such audit right shall not grant Service Recipient the right to perform audit activities with respect to any Third Party Provider engaged in the provision of the Services. Service Provider shall use commercially reasonable efforts to provide Service Recipient and its auditors with appropriate space, furnishings, and telephone, facsimile and photocopy equipment as Service Recipient or its auditors may reasonably require to perform such audit procedures. Service Provider shall consider in good faith, but shall not be obligated to make, changes to its controls and procedures to address any findings of such audits. Service Recipient shall pay or reimburse all of Service Providers incremental costs arising from all such audit-related activities, provision of space, furnishings and equipment, and analysis and implementation, if any, of any potential changes in Service Providers controls or procedures described in this Section 14(b) .
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15. Beneficiary of Services; No Third Party Beneficiaries.
This Agreement is for the sole benefit of the Parties hereto, and nothing expressed or implied shall give or be construed to give any Person any legal or equitable rights hereunder, whether as a third-party beneficiary or otherwise. Each Party agrees, and each Party in its capacity as a Service Recipient represents and warrants, that the Services shall be provided solely to, and shall be used solely by, Service Recipient and its Subsidiaries. Service Recipient shall not resell or provide the Services to any other Person, or permit the use of the Services by any Person other than Service Recipient and its Subsidiaries.
16. Entire Agreement .
This Agreement, together with the Distribution Agreement and the other Ancillary Agreements, constitutes the entire agreement of the Parties with respect to the subject matter hereof, and supersedes all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter hereof. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement or any other Ancillary Agreement, the Parties agree that this Agreement shall govern. The Parties agree that, in the event of an express conflict between the terms of this Agreement and a Services Schedule, the terms of the Services Schedule shall govern as it relates to the Services to which such terms and conditions apply.
17. Amendment; Waiver .
This Agreement and the Services Schedules may be amended, and any provision of this Agreement may be waived, only if such amendment or waiver is in writing and signed, in the case of an amendment, by each of the Parties, or in the case of a waiver, by the Party against whom the waiver is effective. No failure or delay by either Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
18. Notices .
All notices, requests, claims, demands and other communications to any Party hereunder shall be in writing (including telecopy, electronic transmission or similar writing) and shall be given as follows:
if to HLT:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 883-6188
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if to PK:
Park Hotels & Resorts Inc.
McLean, Virginia 22102
Attn: General Counsel
Facsimile:
if to HGV:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, Florida 32835
Attn: General Counsel
Facsimile:
or to such other address or telecopy number and with such other copies, as such Party may hereafter specify for the purpose of notice to the other Parties. All notices, requests, claims, demands and other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 18 ).
19. Non-Assignability .
Neither this Agreement nor any of the rights, interests or obligations of either Party hereunder may be assigned or transferred by any such Party without the prior written consent of the other Party (not to be unreasonably withheld, delayed or conditioned), and any purported assignment, without such prior written consent shall be null and void. Notwithstanding the foregoing, (a) any Party may assign or transfer all its rights hereunder without such consent to an acquirer in connection with a sale of all or substantially all of its assets or other similar change in control of such Party and (b) Service Provider may assign any or all of its rights or obligations arising under this Agreement to any of its Affiliates that is reasonably capable of providing the Services ( provided , however , that Service Provider shall remain primarily responsible for its obligations under this Agreement notwithstanding any such assignment).
20. Further Assurances .
From time to time after the date hereof, without further consideration, each Party shall use commercially reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things reasonably proper or advisable under applicable Law, and execute and deliver such documents as may be required or appropriate to carry out the provisions of this Agreement and to consummate, perform and make effective the transition contemplated hereby.
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21. Definitions and Rules of Construction .
(a) Defined terms used in this Agreement have the meanings ascribed to them by definition in this Agreement or in the Distribution Agreement.
(b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
(c) Whenever the words include, including, or includes appear in this Agreement, they shall be read to be followed by the words without limitation or words having similar import.
(d) As used in this Agreement, the plural shall include the singular and the singular shall include the plural.
(e) All references to $ herein shall be references to U.S. Dollars.
22. Counterparts; Effectiveness .
This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 22 , provided that receipt of copies of such counterparts is confirmed. This Agreement shall become effective when each Party has received a counterpart hereof signed by the other Party hereto.
23. Section Headings .
The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
24. Severability .
If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect, and the Parties shall negotiate in good faith to replace such illegal, void or unenforceable provision with a provision that corresponds as closely as possible to the intentions of the Parties as expressed by such illegal, void, or unenforceable provision.
25. Governing Law .
This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
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PARK HOTELS & RESORTS INC. | ||
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HILTON GRAND VACATIONS INC. | ||
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[Transition Services Agreement]
Exhibit 10.4
FORM OF HILTON GRAND VACATIONS INC.
2016 OMNIBUS INCENTIVE PLAN
1. Purpose. The purpose of the Hilton Grand Vacations Inc. 2016 Omnibus Incentive Plan is to provide a means through which the Company and the other members of the Company Group may attract and retain key personnel and to provide a means whereby officers, employees, consultants and advisors of the Company and the other members of the Company Group can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company Group and aligning their interests with those of the Companys stockholders.
2. Definitions. The following definitions shall be applicable throughout the Plan.
(a) Absolute Share Limit has the meaning given to such term in Section 5(b) of the Plan.
(b) Adjustment Event has the meaning given to such term in Section 12(a) of the Plan.
(c) Affiliate means any Person that directly or indirectly controls, is controlled by or is under common control with the Company. The term control (including, with correlative meaning, the terms controlled by and under common control with), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(d) Award means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Other Equity-Based Award, Other Cash-Based Award and Performance Compensation Award granted under the Plan.
(e) Award Agreement means the document or documents by which each Award (other than an Other Cash-Based Award) is evidenced, which may be in written or electronic form.
(f) Board means the Board of Directors of the Company.
(g) Cause means, in the case of a particular Award, unless the applicable Award Agreement states otherwise, a good faith determination of the Committee or its designee that (i) there is cause to terminate a Participants employment or service, as defined in and in accordance with any employment or consulting agreement between the Participant and any member of the Company Group or an Affiliate in effect at the time of such termination or (ii) in the absence of any such employment or consulting agreement (or the absence of any definition of Cause contained therein), any of the following has occurred with respect to a Participant: (A) such Participant has failed to reasonably perform his or her duties to the Service Recipient,
or has failed to follow the lawful instructions of the Board or his or her direct superiors, in each case other than as a result of his or her incapacity due to physical or mental illness or injury, in a manner that could reasonably be expected to result in harm (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate, following notice by the Company Group or such Affiliate of such failure, (B) such Participant has engaged or is about to engage in conduct harmful (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate, (C) such Participant has been convicted of, or pled guilty or no contest to, a felony or any crime involving as a material element fraud or dishonesty, (D) the willful misconduct or gross neglect of such Participant that could reasonably be expected to result in harm (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate, (E) the willful violation by such Participant of the written policies of the Service Recipient or any applicable written policies of any member of the Company Group that could reasonably be expected to result in harm (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate; (F) such Participants fraud or misappropriation, embezzlement or misuse of funds or property belonging to the Company Group or an Affiliate (other than good faith expense account disputes); (G) such Participants act of personal dishonesty which involves personal profit in connection with such Participants employment or service with the Company Group or an Affiliate, or (H) the willful breach by such Participant of fiduciary duty owed to the Service Recipient.
(h) Change in Control means:
(i) the acquisition (whether by purchase, merger, consolidation, combination or other similar transaction) by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of more than 30% (on a fully diluted basis) of either (A) the then outstanding shares of Common Stock, taking into account as outstanding for this purpose such Common Stock issuable upon the exercise of options or warrants, the conversion of convertible stock or debt, and the exercise of any similar right to acquire such Common Stock; or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (clauses (A) and (B), the Outstanding Company Voting Securities ); provided, however , that for purposes of this Plan, the following acquisitions shall not constitute a Change in Control: (I) any acquisition by the Company or any Affiliate; (II) any acquisition by any employee benefit plan sponsored or maintained by the Company or any Affiliate; (III) in respect of an Award held by a particular Participant, any acquisition by the Participant or any group of Persons including the Participant (or any entity controlled by the Participant or any group of Persons including the Participant); or (IV) any acquisition in one transaction or a series of related transactions, by any Person directly from The Blackstone Group L.P. and/or its Affiliates;
(ii) during any period of twenty-four (24) months, individuals who, at the beginning of such period, constitute the Board (the Incumbent Directors ) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the Effective Date, whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such
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nomination) shall be an Incumbent Director; provided, however , that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-12 of Regulation 14A promulgated under the Exchange Act, with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director;
(iii) the sale, transfer or other disposition of all or substantially all of the business or assets of the Company Group (taken as a whole) to any Person that is not an Affiliate of the Company; or
(iv) the consummation of a reorganization, recapitalization, merger, consolidation, or other similar transaction involving the Company (a Business Combination ), unless immediately following such Business Combination, 50% or more of the total voting power of the entity resulting from such Business Combination (or, if applicable, the ultimate parent entity that directly or indirectly has beneficial ownership of sufficient voting securities eligible to elect a majority of the board of directors (or the analogous governing body) of such resulting entity) is held by the holders of the Outstanding Company Voting Securities immediately prior to such Business Combination.
(i) Code means the Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(j) Committee means the Compensation Committee of the Board or any properly delegated subcommittee thereof or, if no such Compensation Committee or subcommittee thereof exists, the Board.
(k) Common Stock means the common stock of the Company, par value $0.01 per share (and any stock or other securities into which such Common Stock may be converted or into which it may be exchanged).
(l) Company means Hilton Grand Vacations Inc., a Delaware corporation, and any successor thereto.
(m) Company Group means, collectively, the Company and its Subsidiaries.
(n) Date of Grant means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.
(o) Designated Foreign Subsidiaries means all members of the Company Group that are organized under the laws of any jurisdiction or country other than the United States of America that may be designated by the Board or the Committee from time to time.
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(p) Detrimental Activity means any of the following: (i) unauthorized disclosure of any confidential or proprietary information of any member of the Company Group; (ii) any activity that would be grounds to terminate the Participants employment or service with the Service Recipient for Cause; or (iii) a material breach by the Participant of any restrictive covenant by which such Participant is bound, including, without limitation, any covenant not to compete or not to solicit, in any agreement with any member of the Company Group.
(q) Disability means, unless in the case of a particular Award the applicable Award Agreement states otherwise, the Company or an Affiliate having cause to terminate a Participants employment or service on account of disability, as defined in any then-existing employment, consulting or other similar agreement between the Participant and the Company or an Affiliate or, in the absence of such an employment, consulting or other similar agreement (or the absence of any definition of Disability contained therein), a condition entitling the Participant to receive benefits under a long-term disability plan of the Company or an Affiliate, or, in the absence of such a plan, the complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which a Participant was employed or served when such disability commenced. Any determination of whether Disability exists shall be made by the Committee (or its designee) in its sole discretion.
(r) Effective Date means , 20 .
(s) Eligible Person means any (i) individual employed by any member of the Company Group; provided, however , that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; or (ii) consultant or advisor to any member of the Company Group who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act, who, in the case of each of clauses (i) through (iii) above has entered into an Award Agreement or who has received written notification from the Committee or its designee that they have been selected to participate in the Plan.
(t) Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(u) Exercise Price has the meaning given to such term in Section 7(b) of the Plan.
(v) Fair Market Value means, on a given date, (i) if the Common Stock is listed on a national securities exchange, the closing sales price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee in good faith to be the fair market value of the Common Stock.
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(w) GAAP has the meaning given to such term in Section 7(d) of the Plan.
(x) Incentive Stock Option means an Option which is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in the Plan.
(y) Indemnifiable Person has the meaning given to such term in Section 4(e) of the Plan.
(z) Minimum Vesting Condition means, with respect to any Award, that vesting of (or lapsing of restrictions on) such Award does not occur earlier than the first anniversary of the Date of Grant (or the date of commencement of employment or service, in the case of a grant made in connection with a Participants commencement of employment or service), other than (i) in connection with a Change in Control, or (ii) as a result of a Participants death or Disability.
(aa) Negative Discretion means the discretion authorized by the Plan to be applied by the Committee to eliminate or reduce the size of an Award that is designated as a Performance Compensation Award consistent with Section 162(m) of the Code.
(bb) Nonqualified Stock Option means an Option which is not designated by the Committee as an Incentive Stock Option.
(cc) Option means an Award granted under Section 7 of the Plan.
(dd) Option Period has the meaning given to such term in Section 7(c)(i) of the Plan.
(ee) Other Cash-Based Award means an Award that is not a Stock Appreciation Right or Restricted Stock Unit granted under Section 10 of the Plan that is denominated and/or payable in cash.
(ff) Other Equity-Based Award means an Award that is not an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit or Performance Compensation Award, that is granted under Section 10 of the Plan and is (i) payable by delivery of Common Stock, and/or (ii) measured by reference to the value of Common Stock.
(gg) Participant means an Eligible Person who has been selected by the Committee to participate in the Plan and to receive an Award pursuant to the Plan.
(hh) Performance Compensation Award means any Award designated by the Committee as a Performance Compensation Award pursuant to Section 11 of the Plan.
(ii) Performance Criteria means the criterion or criteria that the Committee shall select for purposes of establishing the Performance Goals for a Performance Period with respect to any Performance Compensation Award under the Plan.
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(jj) Performance Formula means, for a Performance Period, the one or more objective formulae applied against the relevant Performance Goal to determine, with regard to the Performance Compensation Award of a particular Participant, whether all, some portion but less than all, or none of the Performance Compensation Award has been earned for the Performance Period.
(kk) Performance Goals means, for a Performance Period, the one or more goals established by the Committee for the Performance Period based upon the Performance Criteria.
(ll) Performance Period means the one or more periods of time of not less than 12 months, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participants right to, and the payment of, a Performance Compensation Award.
(mm) Person means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
(nn) Plan means this Hilton Grand Vacations Inc. 2016 Omnibus Incentive Plan, as it may be amended and restated from time to time.
(oo) Qualifying Director means a person who is (i) with respect to actions intended to obtain an exemption from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 under the Exchange Act, a non-employee director within the meaning of Rule 16b-3 under the Exchange Act; and (ii) with respect to actions intended to obtain the exception for performance-based compensation under 162(m) of the Code, an outside director within the meaning of Section 162(m) of the Code.
(pp) Restricted Period means the period of time determined by the Committee during which an Award is subject to restrictions, including vesting conditions.
(qq) Restricted Stock means Common Stock, subject to certain specified restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan.
(rr) Restricted Stock Unit means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions (which may include, without limitation, a requirement that the Participant remain continuously employed or provide continuous services for a specified period of time), granted under Section 9 of the Plan.
(ss) SAR Period has the meaning given to such term in Section 8(c) of the Plan.
(tt) Securities Act means the Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
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(uu) Service Recipient means, with respect to a Participant holding a given Award, the member of the Company Group by which the original recipient of such Award is, or following a Termination was most recently, principally employed or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable.
(vv) Stock Appreciation Right or SAR means an Award granted under Section 8 of the Plan.
(ww) Strike Price has the meaning given to such term in Section 8(b) of the Plan.
(xx) Subsidiary means, with respect to any specified Person:
(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of such entitys voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(ii) any partnership (or any comparable foreign entity) (A) the sole general partner (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (B) the only general partners (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
(yy) Substitute Award has the meaning given to such term in Section 5(e) of the Plan.
(zz) Sub-Plans means any sub-plan to the Plan that has been adopted by the Board or the Committee for the purpose of permitting the offering of Awards to employees of certain Designated Foreign Subsidiaries or otherwise outside the United States of America, with each such sub-plan designed to comply with local laws applicable to offerings in such foreign jurisdictions. Although any Sub-Plan may be designated a separate and independent plan from the Plan in order to comply with applicable local laws, the Absolute Share Limit and the other limits specified in Section 5(b) shall apply in the aggregate to the Plan and any Sub-Plan adopted hereunder.
(aaa) Termination means the termination of a Participants employment or service, as applicable, with the Service Recipient for any reason (including death or Disability).
3. Effective Date; Duration. The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth (10 th ) anniversary of the Effective Date; provided, however , that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards.
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4. Administration.
(a) The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan) or necessary to obtain the exception for performance-based compensation under Section 162(m) of the Code, as applicable, it is intended that each member of the Committee shall, at the time such member takes any action with respect to an Award under the Plan that is intended to qualify for the exemptions provided by Rule 16b-3 promulgated under the Exchange Act or to qualify as performance-based compensation under Section 162(m) of the Code, as applicable, be a Qualifying Director. However, the fact that a Committee member shall fail to qualify as a Qualifying Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
(b) Subject to the provisions of the Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan, to (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of shares of Common Stock to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled in, or exercised for, cash, shares of Common Stock, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of Common Stock, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the Plan; (ix) adopt Sub-Plans; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c) 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. Any such allocation or delegation may be revoked by the Committee at any time. Without limiting the generality of the foregoing, the Committee may delegate to one or more officers of any member of the Company Group, the authority to act on behalf of the Committee with respect to any matter, right, obligation, or election which is the responsibility of, or which is allocated to, the Committee herein, and which may be so delegated as a matter of law, except with respect to grants of Awards to persons (i) who are subject to Section 16 of the Exchange Act, or (ii) who are, or could reasonably be expected to be, covered employees for purposes of Section 162(m) of the Code.
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(d) Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any Award or any Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including, without limitation, any member of the Company Group, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) No member of the Board, the Committee or any employee or agent of any member of the Company Group (each such Person, an Indemnifiable Person ) shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award hereunder (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken or determination made with respect to the Plan or any Award hereunder and against and from any and all amounts paid by such Indemnifiable Person with the Companys approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, and the Company shall advance to such Indemnifiable Person any such expenses promptly upon written request (which request shall include an undertaking by the Indemnifiable Person to repay the amount of such advance if it shall ultimately be determined, as provided below, that the Indemnifiable Person is not entitled to be indemnified); provided , that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Companys choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts, omissions or determinations of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Persons fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the organizational documents of any member of the Company Group. The foregoing right of indemnification shall not be exclusive of or otherwise supersede any other rights of indemnification to which such Indemnifiable Persons may be entitled under the organizational documents of any member of the Company Group, as a matter of law, under an individual indemnification agreement or contract or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold such Indemnifiable Persons harmless.
(f) Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. Any such actions by the Board shall be subject to the applicable rules of the securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
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5. Grant of Awards; Shares Subject to the Plan; Limitations.
(a) The Committee may, from time to time, grant Awards to one or more Eligible Persons.
(b) Awards granted under the Plan shall be subject to the following limitations: (i) subject to Section 12 of the Plan, no more than shares of Common Stock (the Absolute Share Limit ) shall be available for Awards under the Plan; (ii) subject to Section 12 of the Plan, grants of Options or SARs under the Plan in respect of no more than shares of Common Stock may be made to any individual Participant during any single fiscal year of the Company (for this purpose, if a SAR is granted in tandem with an Option (such that the SAR expires with respect to the number of shares of Common Stock for which the Option is exercised), only the shares underlying the Option shall count against this limitation); (iii) subject to Section 12 of the Plan, no more than the number of shares of Common Stock equal to the Absolute Share Limit may be issued in the aggregate pursuant to the exercise of Incentive Stock Options granted under the Plan; (iv) subject to Section 12 of the Plan, no more than shares of Common Stock may be issued in respect of Performance Compensation Awards denominated in shares of Common Stock granted pursuant to Section 11 of the Plan to any individual Participant for a single fiscal year during a Performance Period (or with respect to each single fiscal year in the event a Performance Period extends beyond a single fiscal year), or in the event such share-denominated Performance Compensation Award is paid in cash, other securities, other Awards or other property, no more than the Fair Market Value of such shares of Common Stock on the last day of the Performance Period to which such Award relates; (v) the maximum amount that can be paid to any individual Participant for a single fiscal year during a Performance Period (or with respect to each single fiscal year in the event a Performance Period extends beyond a single fiscal year) pursuant to a Performance Compensation Award denominated in cash (described in Section 11(a) of the Plan) shall be $ ; and (vi) no more than shares of Common Stock may be granted pursuant to Awards which do not satisfy the Minimum Vesting Condition (the Minimum Vesting Condition Limit ).
(c) Other than with respect to Substitute Awards, to the extent that an Award expires or is canceled, forfeited or terminated without issuance to the Participant of the full number of shares of Common Stock to which the Award related, the unissued shares will again be available for grant under the Plan. Shares of Common Stock shall be deemed to have been issued in settlement of Awards if the Fair Market Value equivalent of such shares is paid in cash; provided , however , that no shares shall be deemed to have been issued in settlement of a SAR or Restricted Stock Unit that only provides for settlement in cash and settles only in cash or in respect of any Other Cash-Based Award. In no event shall (i) shares tendered or withheld on the exercise of Options or other Award for the payment of the exercise or purchase price or withholding taxes, (ii) shares not issued upon the settlement of a SAR that settles in shares of Common Stock (or could settle in shares of Common Stock), or (iii) shares purchased on the open market with cash proceeds from the exercise of Options, again become available for other Awards under the Plan.
(d) Shares of Common Stock issued by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase or a combination of the foregoing.
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(e) Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by the Company or with which the Company combines ( Substitute Awards ). Substitute Awards shall not be counted against the Absolute Share Limit or the Minimum Vesting Condition Limit; provided , that Substitute Awards issued in connection with the assumption of, or in substitution for, outstanding options intended to qualify as incentive stock options within the meaning of Section 422 of the Code shall be counted against the aggregate number of shares of Common Stock available for Awards of Incentive Stock Options under the Plan. Subject to applicable stock exchange requirements, available shares under a stockholder-approved plan of an entity directly or indirectly acquired by the Company or with which the Company combines (as appropriately adjusted to reflect the acquisition or combination transaction) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock available for issuance under the Plan. Shares of Common Stock subject to Awards granted to Participants in connection with the adoption of the Plan or in substitution for awards of Hilton Worldwide Holdings, Inc. shall not be counted against the Minimum Vesting Condition Limit.
6. Eligibility. Participation in the Plan shall be limited to Eligible Persons.
7. Options.
(a) General . Each Option granted under the Plan shall be evidenced by an Award Agreement, which agreement need not be the same for each Participant. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Incentive Stock Options shall be granted only to Eligible Persons who are employees of a member of the Company Group, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to, and comply with, such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan.
(b) Exercise Price . Except as otherwise provided by the Committee in the case of Substitute Awards, the exercise price ( Exercise Price ) per share of Common Stock for each Option shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant); provided, however, that in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns stock representing more than 10% of the voting power of all classes of stock of any member of the Company Group, the Exercise Price per share shall be no less than 110% of the Fair Market Value per share on the Date of Grant.
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(c) Vesting and Expiration; Termination .
(i) Options shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee. Grants of Options that are settled in shares of Common Stock shall comply with the Minimum Vesting Condition; provided that the Minimum Vesting Condition need not be applied to such grants that, when taken together with other Awards not subject to the Minimum Vesting Condition, comprise Awards with respect to a number of shares of Common Stock that does not exceed, in the aggregate, the Minimum Vesting Condition Limit. Options shall expire upon a date determined by the Committee, not to exceed ten (10) years from the Date of Grant (the Option Period ); provided , that if the Option Period (other than in the case of an Incentive Stock Option) would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the Option Period shall be automatically extended until the thirtieth (30 th ) day following the expiration of such prohibition. Notwithstanding the foregoing, in no event shall the Option Period exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns stock representing more than 10% of the voting power of all classes of stock of any member of the Company Group.
(ii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of (A) a Participants Termination by the Service Recipient other than for Cause; or (B) a Participants Termination by the Service Recipient due to death or Disability, in each case within 12 months following a Change in Control, each outstanding Option granted to such Participant shall become fully vested and immediately exercisable as of the date of such Termination; provided , that in the event the vesting or exercisability of any Option would otherwise be subject to the achievement of performance conditions, the portion of any such Option that shall become fully vested and immediately exercisable shall be based on (x) actual performance through the date of termination as determined by the Committee, or (y) if the Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance as determined by the Committee, in each case prorated based on the time elapsed from the date of grant to the date of Termination.
(iii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of (A) a Participants Termination by the Service Recipient for Cause, all outstanding Options granted to such Participant shall immediately terminate and expire; (B) a Participants Termination due to death or Disability, after taking into account any accelerated vesting under the above clause (ii), each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for one (1) year thereafter (but in no event beyond the expiration of the Option Period); and (C) a Participants Termination for any other reason each outstanding unvested Option granted to such Participant shall immediately terminate and expire, and each outstanding vested Option shall remain exercisable for ninety (90) days thereafter (but in no event beyond the expiration of the Option Period).
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(d) Method of Exercise and Form of Payment . No shares of Common Stock shall be issued pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any Federal, state, local and non-U.S. income, employment and any other applicable taxes required to be withheld. Options which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company (or telephonic instructions to the extent provided by the Committee) in accordance with the terms of the Option accompanied by payment of the Exercise Price. The Exercise Price shall be payable: (i) in cash, check, cash equivalent and/or shares of Common Stock valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of shares of Common Stock in lieu of actual issuance of such shares to the Company); provided , that such shares of Common Stock are not subject to any pledge or other security interest and have been held by the Participant for any period of time as established from time to time by the Committee in order to avoid adverse accounting treatment applying generally accepted accounting principles ( GAAP ); or (ii) 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 Exercise Price; (B) if there is a public market for the shares of Common Stock at such time, by means of a broker-assisted cashless exercise pursuant to which the Company is delivered (including telephonically to the extent permitted by the Committee) a copy of irrevocable instructions to a stockbroker to sell the shares of Common Stock otherwise issuable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price; or (C) a net exercise procedure effected by withholding the minimum number of shares of Common Stock otherwise issuable in respect of an Option that are needed to pay the Exercise Price. Any fractional shares of Common Stock shall be settled in cash.
(e) Notification upon Disqualifying Disposition of an Incentive Stock Option . Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date the Participant makes a disqualifying disposition of any Common Stock acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Common Stock before the later of (i) the date that is two (2) years after the Date of Grant of the Incentive Stock Option, or (ii) the date that is one (1) year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession, as agent for the applicable Participant, of any Common Stock acquired pursuant to the exercise of an Incentive Stock Option until the end of the period described in the preceding sentence, subject to complying with any instructions from such Participant as to the sale of such Common Stock.
(f) Compliance With Laws, etc . Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner which the Committee determines would violate the Sarbanes-Oxley Act of 2002, as it may be amended from time to time, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission 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.
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8. Stock Appreciation Rights.
(a) General . Each SAR granted under the Plan shall be evidenced by an Award Agreement. Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option.
(b) Strike Price . Except as otherwise provided by the Committee in the case of Substitute Awards, the strike price ( Strike Price ) per share of Common Stock for each SAR shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant). Notwithstanding the foregoing, a SAR granted in tandem with (or in substitution for) an Option previously granted shall have a Strike Price equal to the Exercise Price of the corresponding Option.
(c) Vesting and Expiration; Termination .
(i) A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee. Grants of SARs that are settled in shares of Common Stock shall comply with the Minimum Vesting Condition; provided that the Minimum Vesting Condition need not be applied to such grants that, when taken together with other Awards not subject to the Minimum Vesting Condition, comprise Awards with respect to a number of shares of Common Stock that does not exceed, in the aggregate, the Minimum Vesting Condition Limit. SARs shall expire upon a date determined by the Committee, not to exceed ten (10) years from the Date of Grant (the SAR Period ); provided , that if the SAR Period would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the SAR Period shall be automatically extended until the 30th day following the expiration of such prohibition.
(ii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of (A) a Participants Termination by the Service Recipient other than for Cause; or (B) a Participants Termination by the Service Recipient due to death or Disability, in each case within 12 months following a Change in Control, outstanding SARs granted to such Participant shall become fully vested and immediately exercisable as of the date of such Termination; provided , that in the event the vesting or exercisability of any SARs would otherwise be subject to the achievement of performance conditions, the portion of any such SAR that shall become fully vested and immediately exercisable shall be based on (x) actual performance through the date of termination as determined by the Committee, or (y) if the Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance as determined by the Committee, in each case prorated based on the time elapsed from the date of grant to the date of Termination.
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(iii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of (A) a Participants Termination by the Service Recipient for Cause, all outstanding SARs granted to such Participant shall immediately terminate and expire; (B) a Participants Termination due to death or Disability, after taking into account any accelerated vesting under the above clause (ii), each outstanding unvested SAR granted to such Participant shall immediately terminate and expire, and each outstanding vested SAR shall remain exercisable for one (1) year thereafter (but in no event beyond the expiration of the SAR Period); and (C) a Participants Termination for any other reason each outstanding unvested SAR granted to such Participant shall immediately terminate and expire, and each outstanding vested SAR shall remain exercisable for ninety (90) days thereafter (but in no event beyond the expiration of the SAR Period).
(d) Method of Exercise . SARs which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded.
(e) Payment . Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that is being exercised multiplied by the excess of the Fair Market Value of one (1) share of Common Stock on the exercise date over the Strike Price, less an amount equal to any Federal, state, local and non-U.S. income, employment and any other applicable taxes required to be withheld. The Company shall pay such amount in cash, in shares of Common Stock valued at Fair Market Value, or any combination thereof, as determined by the Committee. Any fractional shares of Common Stock shall be settled in cash.
9. Restricted Stock and Restricted Stock Units.
(a) General . Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each Restricted Stock and Restricted Stock Unit so granted shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Stock Certificates and Book-Entry; Escrow or Similar Arrangement . Upon the grant of Restricted Stock, the Committee shall cause a stock certificate registered in the name of the Participant to be issued or shall cause share(s) of Common Stock to be registered in the name of the Participant and held in book-entry form subject to the Companys directions and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than issued to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable; and (ii) the appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute and deliver (in a manner permitted under Section 14(a) of the
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Plan or as otherwise determined by the Committee) an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank stock power within the amount of time specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder as to shares of Restricted Stock, including, without limitation, the right to vote such Restricted Stock; provided , that if the lapsing of restrictions with respect to any grant of Restricted Stock is contingent on satisfaction of performance conditions (other than, or in addition to, the passage of time), any dividends payable on such shares of Restricted Stock shall be held by the Company and delivered (without interest) to the Participant within fifteen (15) days following the date on which the restrictions on such Restricted Stock lapse (and the right to any such accumulated dividends shall be forfeited upon the forfeiture of the Restricted Stock to which such dividends relate). To the extent shares of Restricted Stock are forfeited, any stock certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company. A Participant shall have no rights or privileges as a stockholder as to Restricted Stock Units.
(c) Vesting; Termination .
(i) Subject to the Minimum Vesting Condition, Restricted Stock and Restricted Stock Units shall vest, and any applicable Restricted Period shall lapse, in such manner and on such date or dates or upon such event or events as determined by the Committee. Grants of Restricted Stock and Restricted Stock Units that are settled in shares of Common Stock shall comply with the Minimum Vesting Condition; provided that the Minimum Vesting Condition need not be applied to such grants that, when taken together with other Awards not subject to the Minimum Vesting Condition, comprise Awards with respect to a number of shares of Common Stock that does not exceed, in the aggregate, the Minimum Vesting Condition Limit.
(ii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of (A) a Participants Termination by the Company other than for Cause, or (B) a Participants Termination due to death or Disability, in each case within 12 months following a Change in Control, outstanding Restricted Stock and Restricted Stock Units granted to such Participant shall become fully vested and the restrictions thereon shall immediately lapse as of the date of such Termination; provided , that in the event the vesting or lapse of restrictions of any Restricted Stock or Restricted Stock Units would otherwise be subject to the achievement of performance conditions, the portion of any such Restricted Stock or Restricted Stock Units that shall become fully vested and free from such restrictions shall be based on (x) actual performance through the date of termination as determined by the Committee, or (y) if the Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance as determined by the Committee, in each case prorated based on the time elapsed from the date of grant to the date of Termination.
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(d) Issuance of Restricted Stock and Settlement of Restricted Stock Units .
(i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall issue to the Participant, or the Participants beneficiary, without charge, the stock certificate (or, if applicable, a notice evidencing a book-entry notation) evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, in the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value (on the date of distribution) equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends.
(ii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall issue to the Participant or the Participants beneficiary, without charge, one (1) share of Common Stock (or other securities or other property, as applicable) for each such outstanding Restricted Stock Unit; provided, however , that the Committee may, in its sole discretion, elect to (A) pay cash or part cash and part shares of Common Stock in lieu of issuing only shares of Common Stock in respect of such Restricted Stock Units; or (B) defer the issuance of shares of Common Stock (or cash or part cash and part shares of Common Stock, as the case may be) beyond the expiration of the Restricted Period if such extension would not cause adverse tax consequences under Section 409A of the Code. If a cash payment is made in lieu of issuing shares of Common Stock in respect of such Restricted Stock Units, the amount of such payment shall be equal to the Fair Market Value per share of the Common Stock as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units. To the extent provided in an Award Agreement or otherwise, upon the payment by the Company of dividends on shares of Common Stock, the holder of outstanding Restricted Stock Units shall be entitled to be credited with dividend equivalent payments in cash (unless, the Committee, in its sole discretion, elects to credit such payments in shares of Common Stock or additional Restricted Stock Units having a Fair Market Value equal to the amount of such dividend), and interest may, in 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 accumulated dividend equivalents (and earnings or interest thereon, if applicable) shall be payable at the same time as the underlying Restricted Stock Units are settled following the date on which the Restricted Period lapses with respect to such Restricted Stock Units, and, if such Restricted Stock Units are forfeited, the Participant shall have no right to such dividend equivalent payments (or earnings or interest thereon, if applicable).
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(e) Legends on Restricted Stock . Each certificate, if any, or book entry representing Restricted Stock awarded under the Plan, if any, shall bear a legend or book entry notation substantially in the form of the following, in addition to any other information the Company deems appropriate, until the lapse of all restrictions with respect to such shares of Common Stock:
TRANSFER OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY IS RESTRICTED PURSUANT TO THE TERMS OF THE HILTON GRAND VACATIONS INC. 2016 OMNIBUS INCENTIVE PLAN AND A RESTRICTED STOCK AWARD AGREEMENT BETWEEN HILTON GRAND VACATIONS INC. AND PARTICIPANT. A COPY OF SUCH PLAN AND AWARD AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF HILTON GRAND VACATIONS INC.
10. Other Equity-Based Awards and Other Cash-Based Awards . The Committee may grant Other Equity-Based Awards and Other Cash-Based Awards under the Plan to Eligible Persons, alone or in tandem with other Awards, in such amounts and dependent on such conditions as the Committee shall from time to time in its sole discretion determine. Each Other Equity-Based Award granted under the Plan shall be evidenced by an Award Agreement and each Other Cash-Based Award granted under the Plan shall be evidenced in such form as the Committee may determine from time to time. Each Other Equity-Based Award or Other Cash-Based Award, as applicable, so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement or other form evidencing such Award, including, without limitation, those set forth in Section 14(a) of the Plan. Grants of Other Equity-Based Awards that are settled in shares of Common Stock shall comply with the Minimum Vesting Condition; provided that the Minimum Vesting Condition need not be applied to such grants that, when taken together with other Awards not subject to the Minimum Vesting Condition, comprise Awards with respect to a number of shares of Common Stock that does not exceed the Minimum Vesting Condition Limit.
11. Performance Compensation Awards.
(a) General . The Committee shall have the authority, at or before the time of grant of any Award, to designate such Award as a Performance Compensation Award intended to qualify as performance-based compensation under Section 162(m) of the Code. Notwithstanding anything in the Plan to the contrary, if the Company determines that a Participant who has been granted an Award designated as a Performance Compensation Award is not (or is no longer) a covered employee (within the meaning of Section 162(m) of the Code), the terms and conditions of such Award may be modified without regard to any restrictions or limitations set forth in this Section 11 (but subject otherwise to the provisions of Section 13 of the Plan).
(b) Discretion of Committee with Respect to Performance Compensation Awards . With regard to a particular Performance Period, the Committee shall have sole discretion to select the length of such Performance Period, the type(s) of Performance Compensation Awards to be issued, the Performance Criteria that will be used to establish the Performance Goal(s), the kind(s) and/or level(s) of the Performance Goal(s) that is (are) to apply and the Performance Formula(e). Within the first ninety (90) days of a Performance Period (or, within any other maximum period allowed under Section 162(m) of the Code), the Committee shall, with regard to the Performance Compensation Awards to be issued for such Performance Period, exercise its discretion with respect to each of the matters enumerated in the immediately preceding sentence and record the same in writing.
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(c) Performance Criteria . The Performance Criteria that will be used to establish the Performance Goal(s) may be based on the attainment of specific levels of performance of the Company (and/or one or more members of the Company Group, divisions or operational and/or business units, product lines, brands, business segments, administrative departments, or any combination of the foregoing) and shall be limited to the following, which may be determined in accordance with GAAP or on a non-GAAP basis: (i) net earnings or net income (before or after taxes); (ii) basic or diluted earnings per share (before or after taxes); (iii) net revenue or net revenue growth; (iv) gross revenue or gross revenue growth, gross profit or gross profit growth; (v) net operating profit (before or after taxes); (vi) return measures (including, but not limited to, return on investment, assets, capital, employed capital, invested capital, equity, or sales); (vii) 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; (viii) earnings before or after interest, taxes, depreciation and/or amortization (including EBIT and EBITDA); (ix) gross or net operating margins; (x) productivity ratios; (xi) share price (including, but not limited to, growth measures and total stockholder return); (xii) expense targets or cost reduction goals, general and administrative expense savings; (xiii) operating efficiency; (xiv) objective measures of customer satisfaction; (xv) working capital targets; (xvi) measures of economic value added or other value creation metrics; (xvii) inventory control; (xviii) enterprise value; (xix) sales; (xx) stockholder return; (xxi) competitive market metrics; (xxii) employee retention; (xxiii) timely completion of new product rollouts; (xxiv) timely opening of new facilities; (xxv) objective measures of personal targets, goals or completion of projects (including but not limited to succession and hiring projects, completion of specific acquisitions, dispositions, reorganizations or other corporate transactions or capital-raising transactions, expansions of specific business operations and meeting divisional or project budgets); (xxvi) system-wide revenues; (xxvii) franchise and/or royalty income; (xxviii) comparisons of continuing operations to other operations; (xxix) market share; (xxx) cost of capital, debt leverage year-end cash position or book value; (xxxi) strategic objectives, development of new product lines and related revenue, sales and margin targets; (xxxii) franchisee growth and retention, co-branding or international operation; (xxxiii) management fee or licensing fee growth; (xxxiv) capital expenditures; (xxxv) guest satisfaction; (xxxvi) RevPAR (revenue per available room); or (xxxvii) 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 the performance of the Company and/or one or more members of the Company Group as a whole or any divisions or operational and/or business units, product lines, brands, business segments or administrative departments of the Company and/or one or more members of the Company Group 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. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of Performance Goals pursuant to the Performance Criteria specified in this paragraph. To the extent required under Section 162(m) of the Code, the Committee shall, within the first ninety (90) days of a Performance Period (or, within any other maximum period allowed under Section 162(m) of the Code), define in an objective fashion the manner of calculating the Performance Criteria it selects to use for such Performance Period.
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(d) Modification of Performance Goal(s) . In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Criteria without obtaining stockholder approval of such alterations, the Committee shall have sole discretion to make such alterations without obtaining stockholder approval. Unless otherwise determined by the Committee at the time a Performance Compensation Award is granted, the Committee shall, during the first ninety (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 in order to appropriately reflect the following events: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) acquisitions or divestitures; (vi) any other specific, unusual or nonrecurring events, or objectively determinable category thereof; (vii) foreign exchange gains and losses or fluctuation in currency exchange rates; (viii) discontinued operations and nonrecurring charges; (ix) a change in the Companys fiscal year; (x) accruals for payments to be made in respect of the Plan or other specific compensation arrangements; and (xi) any other event described in Section 12.
(e) Payment of Performance Compensation Awards .
(i) Condition to Receipt of Payment . Unless otherwise provided in the applicable Award Agreement or otherwise determined by the Committee, a Participant must be employed by the Company on the last day of a Performance Period to be eligible for payment in respect of a Performance Compensation Award for such Performance Period.
(ii) Limitation . Unless otherwise provided in the applicable Award Agreement or otherwise determined by the Committee, a Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that (A) the Performance Goals for such period are achieved, and (B) all or some portion of such Participants Performance Compensation Award has been earned for the Performance Period based on the application of the Performance Formula to such achieved Performance Goals; provided, however , that in the event of (x) a Participants Termination by the Company other than for Cause, or (y) a Participants Termination due to death or Disability, in each case, within twelve (12) months following a Change in Control, the Participant shall receive payment in respect of a Performance Compensation Award based on (1) actual performance through the date of Termination as determined by the Committee, or (2) if the Committee determines that measurement of actual performance cannot be reasonably assessed, the assumed achievement of target performance as determined by the Committee (but not to the extent that application of
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this clause (2) would cause Section 162(m) of the Code to result in the loss of the deduction of the compensation payable in respect of such Performance Compensation Award for any Participant reasonably expected to be a covered employee within the meaning of Section 162(m) of the Code), in each case, prorated based on the time elapsed from the Date of Grant to the date of Termination.
(iii) Certification . Following the completion of a Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Goals for the Performance Period have been achieved and, if so, calculate and certify in writing that amount of the Performance Compensation Awards earned for the period based upon the Performance Formula. The Committee shall then determine the amount of each Participants Performance Compensation Award actually payable for the Performance Period and, in so doing, may apply Negative Discretion.
(iv) Use of Negative Discretion . In determining the actual amount of an individual Participants Performance Compensation Award for a Performance Period, the Committee may reduce or eliminate the amount of such Performance Compensation Award earned under the Performance Formula in the Performance Period through the use of Negative Discretion. Unless otherwise provided in the applicable Award Agreement or otherwise determined by the Committee, the Committee shall 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 Section 5 of the Plan.
(f) Timing of Award Payments . Unless otherwise provided in the applicable Award Agreement or otherwise determined by the Committee, Performance Compensation Awards granted for a Performance Period shall be paid to Participants as soon as administratively practicable following completion of the certifications required by this Section 11. Any Performance Compensation Award that has been deferred shall not (between the date as of which the Award is deferred and the payment date) increase (i) with respect to a Performance Compensation Award that is payable in cash, by a measuring factor for each fiscal year greater than a reasonable rate of interest set by the Committee; or (ii) with respect to a Performance Compensation Award that is payable in shares of Common Stock, by an amount greater than the appreciation of a share of Common Stock from the date such Award is deferred to the payment date. Any Performance Compensation Award that is deferred and is otherwise payable in shares of Common Stock shall be credited (during the period between the date as of which the Award is deferred and the payment date) with dividend equivalents (in a manner consistent with the methodology set forth in the last sentence of Section 9(d)(ii) of the Plan).
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12. Changes in Capital Structure and Similar Events. Notwithstanding any other provision in this Plan to the contrary, the following provisions shall apply to all Awards granted hereunder (other than Other Cash-Based Awards):
(a) General . In the event of (i) 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 shares of Common Stock or other securities of the Company, issuance of warrants or other rights to acquire shares of Common Stock or other securities of the Company, or other similar corporate transaction or event that affects the shares of Common Stock (including a Change in Control); or (ii) unusual or nonrecurring events affecting the Company, including changes in applicable rules, rulings, regulations or other requirements, that the Committee determines, in its sole discretion, could result in substantial dilution or enlargement of the rights intended to be granted to, or available for, Participants (any event in (i) or (ii), an Adjustment Event ), the Committee shall, in respect of any such Adjustment Event, make such proportionate substitution or adjustment, if any, as it deems equitable, to any or all of (A) the Absolute Share Limit, or any other limit applicable under the Plan with respect to the number of Awards which may be granted hereunder; (B) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) which may be issued in respect of Awards or with respect to which Awards may be granted under the Plan or any Sub-Plan; and (C) the terms of any outstanding Award, including, without limitation, (I) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate; (II) the Exercise Price or Strike Price with respect to any Award; or (III) any applicable performance measures (including, without limitation, Performance Criteria and Performance Goals); provided , that in the case of any equity restructuring (within the meaning of the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring.
(b) Adjustment Events . Without limiting the foregoing, except as may otherwise be provided in an Award Agreement, in connection with any Adjustment Event, the Committee may, in its sole discretion, provide for any one or more of the following:
(i) substitution or assumption of Awards (or awards of an acquiring company), acceleration of the vesting of, exercisability of, lapse of restrictions on, or termination of, Awards, or establishment of a period of time (which shall not be required to be more than ten (10) days) for Participants to exercise outstanding Awards prior to the occurrence of such event (and any such Award not so exercised shall terminate upon the occurrence of such event);
(ii) cancellation of any one or more outstanding Awards and payment to the holders of such Awards that are vested as of such cancellation (including, without limitation, any Awards that would vest as a result of the occurrence of such event but for such cancellation or for which vesting is accelerated by the Committee in connection with such event pursuant to clause (i) above), the value of such Awards, if any, as determined by the Committee (which value, 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 an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares of Common Stock subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR (it being understood that, in such event, any Option or SAR having a per
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share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor), or, in the case of Restricted Stock, Restricted Stock Units or Other Equity-Based Awards that are not vested as of such cancellation, a cash payment or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Restricted Stock, Restricted Stock Units or Other Equity-Based Awards prior to cancellation, or the underlying shares in respect thereof; and
(iii) subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, conversion or replacement of any Award that is not vested as of the occurrence of such event into or with the right to receive a payment, based on the value of the Award (as determined consistent with clause (ii) above), which is subject to continued vesting on the same basis as the vesting requirements applicable to such converted or replaced Award.
Payments to holders pursuant to clauses (ii) or (iii) above shall be made in cash or, in the sole discretion of the Committee, in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Common Stock covered by the Award at such time (less any applicable Exercise Price or Strike Price).
(c) Other Requirements . Prior to any payment or adjustment contemplated under this Section 12, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participants Awards; (ii) bear such Participants pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Common Stock, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code; and (iii) deliver customary transfer documentation as reasonably determined by the Committee.
(d) Fractional Shares . Any adjustment provided under this Section 12 may provide for the elimination of any fractional share that might otherwise become subject to an Award.
(e) Binding Effect . Any adjustment, substitution, determination of value or other action taken by the Committee under this Section 12 shall be conclusive and binding for all purposes.
13. Amendments and Termination.
(a) Amendment and Termination of the Plan . The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided , that no such amendment, alteration, suspension, discontinuance or termination shall be made without stockholder approval if (i) such approval is necessary to comply with any regulatory requirement applicable to the Plan (including, without limitation, as necessary to comply with any rules or regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company may be listed or quoted) or for changes in GAAP to new
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accounting standards; (ii) it would materially increase the number of securities which may be issued under the Plan (except for increases pursuant to Section 5 or 12 of the Plan); or (iii) it would materially modify the requirements for participation in the 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 theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. Notwithstanding the foregoing, no amendment shall be made to the last proviso of Section 13(b) of the Plan without stockholder approval.
(b) Amendment of Award Agreements . The Committee may, to the extent consistent with the terms of the Plan and any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively (including after a Participants Termination); provided , that, other than pursuant to Section 12, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; provided, further , that in no event shall any such amendment alter the Minimum Vesting Condition.
(c) No Repricing . Notwithstanding anything in the Plan to the contrary, without stockholder approval, except as otherwise permitted under Section 12 of the Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the Strike Price of any SAR; (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR (with a lower Exercise Price or Strike Price, as the case may be) or other Award or cash payment that is greater than the intrinsic value (if any) of the cancelled Option or SAR; and (iii) 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 the securities of the Company are listed or quoted.
14. General.
(a) Award Agreements . Each Award (other than an Other Cash-Based Award) under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant to whom such Award was granted and shall specify the terms and conditions of the Award and any rules applicable thereto, including, without limitation, the effect on such Award of the death, Disability or Termination of a Participant, or of such other events as may be determined by the Committee. For purposes of the Plan, an Award Agreement may be in any such form (written or electronic) as determined by the Committee (including, without limitation, a Board or Committee resolution, an employment agreement, a notice, a certificate or a letter) evidencing the Award. The Committee need not require an Award Agreement to be signed by the Participant or a duly authorized representative of the Company.
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(b) Nontransferability . Each Award shall be exercisable only by such Participant to whom such Award was granted during the Participants lifetime, or, if permissible under applicable law, by the Participants legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant (unless such transfer is specifically required pursuant to a domestic relations order or by applicable law) other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against any member of the Company Group; provided, that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(c) Dividends and Dividend Equivalents . The Committee may, in its sole discretion, provide a Participant as part of an Award with dividends, dividend equivalents, or similar payments in respect of Awards, payable in cash, shares of Common Stock, other securities, other Awards or other property, on a current or deferred basis, on such terms and conditions as may be determined by the Committee in its sole discretion, including, without limitation, payment directly to the Participant, withholding of such amounts by the Company subject to vesting of the Award or reinvestment in additional shares of Common Stock, Restricted Stock or other Awards; provided , that no dividends, dividend equivalents or other similar payments shall be payable in respect of outstanding (i) Options or SARs; or (ii) unearned Performance Compensation Awards or other unearned Awards subject to performance conditions (other than, or in addition to, the passage of time) (although dividends, dividend equivalents or other similar payments may be accumulated in respect of unearned Awards and paid within fifteen (15) days after such Awards are earned and become payable or distributable).
(d) Tax Withholding .
(i) A Participant shall be required to pay to the Company or one or more of its Subsidiaries, as applicable, an amount in cash (by check or wire transfer) equal to the aggregate amount of any income, employment and/or other applicable taxes that are statutorily required to be withheld in respect of an Award. Alternatively, the Company or any of its Subsidiaries may elect, in its sole discretion, to satisfy this requirement by withholding such amount from any cash compensation or other cash amounts owing to a Participant.
(ii) Without limiting the foregoing, the Committee may (but is not obligated to), in its sole discretion, permit or require a Participant to satisfy, all or any portion of the minimum income, employment and/or other applicable taxes that are statutorily required to be withheld with respect to an Award by (A) the delivery of shares of Common Stock (which are not subject to any pledge or other security interest) that have been both held by the Participant and vested for any period of time as established from time to time by the Committee in order to avoid adverse accounting treatment under GAAP) having an aggregate Fair Market Value equal to such minimum statutorily required withholding liability (or portion thereof); or (B) having the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, the Participant upon the grant, exercise, vesting or settlement of the Award, as applicable, a number of shares of Common Stock with an aggregate Fair Market Value equal to an amount, subject to clause (iii) below, not in excess of such minimum statutorily required withholding liability (or portion thereof).
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(iii) The Committee, subject to its having considered the applicable accounting impact of any such determination, has full discretion to allow Participants to satisfy, in whole or in part, any additional income, employment and/or other applicable taxes payable by them with respect to an Award by electing to have the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, a Participant upon the grant, exercise, vesting or settlement of the Award, as applicable, shares of Common Stock having an aggregate Fair Market Value that is greater than the applicable minimum required statutory withholding liability (but such withholding may in no event be in excess of the maximum statutory withholding amount(s) in a Participants relevant tax jurisdictions).
(e) Data Protection . By participating in the Plan or accepting any rights granted under it, each Participant consents to the collection and processing of personal data relating to the Participant so that the Company and its Affiliates can fulfill their obligations and exercise their rights under the Plan and generally administer and manage the Plan. This data will include, but may not be limited to, data about participation in the Plan and shares offered or received, purchased, or sold under the Plan from time to time and other appropriate financial and other data (such as the date on which the Awards were granted) about the Participant and the Participants participation in the Plan.
(f) No Claim to Awards; No Rights to Continued Employment; Waiver . No employee of any member of the Company Group, or other Person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committees determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of the Service Recipient or any other member of the Company Group, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Service Recipient or any other member of the Company Group may at any time dismiss a Participant from employment or discontinue any consulting relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award Agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award Agreement, except to the extent of any provision to the contrary in any written employment contract or other agreement between the Service Recipient and/or any member of the Company Group and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
(g) International Participants . With respect to Participants who reside or work outside of the United States of America and who are not (and who are not expected to be) covered employees within the meaning of Section 162(m) of the Code, the Committee may, in its sole discretion, amend the terms of the Plan and create or amend Sub-Plans or amend outstanding Awards with respect to such Participants in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant or any member of the Company Group.
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(h) Designation and Change of Beneficiary . Each Participant may file with the Committee a written designation of one or more Persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon the Participants death. A Participant may, from time to time, revoke or change the Participants beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however , that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participants death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be the Participants spouse or, if the Participant is unmarried at the time of death, the Participants estate.
(i) Termination . Except as otherwise provided in an Award Agreement, unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence (including, without limitation, a call to active duty for military service through a Reserve or National Guard unit) nor a transfer from employment or service with one Service Recipient to employment or service with another Service Recipient (or vice-versa) shall be considered a Termination; and (ii) if a Participant undergoes a Termination of employment, but such Participant continues to provide services to the Company Group in a non-employee capacity, such change in status shall not be considered a Termination for purposes of the Plan. Further, unless otherwise determined by the Committee, in the event that any Service Recipient ceases to be a member of the Company Group (by reason of sale, divestiture, spin-off or other similar transaction), unless a Participants employment or service is transferred to another entity that would constitute a Service Recipient immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction.
(j) No Rights as a Stockholder . Except as otherwise specifically provided in the Plan or any Award Agreement, no Person shall be entitled to the privileges of ownership in respect of shares of Common Stock which are subject to Awards hereunder until such shares have been issued or delivered to such Person.
(k) Government and Other Regulations .
(i) The obligation of the Company to settle Awards in shares of Common Stock or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any shares of Common Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel (if the Company has requested such an opinion), satisfactory to the Company, that such shares
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may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Committee shall have the authority to provide that all shares of Common Stock or other securities of any member of the Company Group issued under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement, the Federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted and any other applicable Federal, state, local or non-U.S. laws, rules, regulations and other requirements, and, without limiting the generality of Section 9 of the Plan, the Committee may cause a legend or legends to be put on certificates representing shares of Common Stock or other securities of any member of the Company Group issued under the Plan to make appropriate reference to such restrictions or may cause such Common Stock or other securities of any member of the Company Group issued under the Plan in book-entry form to be held subject to the Companys instructions or subject to appropriate stop-transfer orders. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that the Committee, in its sole discretion, deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Companys acquisition of shares of Common Stock from the public markets, the Companys issuance of Common Stock to the Participant, the Participants acquisition of Common Stock from the Company and/or the Participants sale of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, (A) pay to the Participant an amount equal to the excess of (I) the aggregate Fair Market Value of the shares of Common Stock subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or issued, as applicable); over (II) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of issuance of shares of Common Stock (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof, or (B) in the case of Restricted Stock, Restricted Stock Units or Other Equity-Based Awards, provide the Participant with a cash payment or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Restricted Stock, Restricted Stock Units or Other Equity-Based Awards, or the underlying shares in respect thereof.
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(l) No Section 83(b) Elections Without Consent of Company . No election under Section 83(b) of the Code or under a similar provision of law may be made unless expressly permitted by the terms of the applicable Award Agreement or by action of the Committee in writing prior to the making of such election. If a Participant, in connection with the acquisition of shares of Common Stock under the Plan or otherwise, is expressly permitted to make such election and the Participant makes the election, the Participant shall notify the Company of such election within ten (10) days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to Section 83(b) of the Code or other applicable provision.
(m) Payments to Persons Other Than Participants . If the Committee shall find that any Person to whom any amount is payable under the Plan is unable to care for the Participants affairs because of illness or accident, or is a minor, or has died, then any payment due to such Person or the Participants estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to the Participants spouse, child, relative, an institution maintaining or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(n) Nonexclusivity of the Plan . Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of equity-based awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
(o) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between any member of the Company Group, on the one hand, and a Participant or other Person, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be obligated to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other service providers under general law.
(p) Reliance on Reports . Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of any member of the Company Group and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself or herself.
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(q) Relationship to Other Benefits . No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan or as required by applicable law.
(r) Governing Law . The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and performed wholly within the State of Delaware, without giving effect to the conflict of laws provisions thereof. EACH PARTICIPANT WHO ACCEPTS AN AWARD IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION, OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH PARTICIPANT IN RESPECT OF THE PARTICIPANTS RIGHTS OR OBLIGATIONS HEREUNDER.
(s) Severability . If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(t) Obligations Binding on Successors . The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(u) Section 409A of the Code .
(i) Notwithstanding any provision of the Plan to the contrary, it is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of such Participant in connection with the Plan (including any taxes and penalties under Section 409A of the Code), and neither the Service Recipient nor any other member of the Company Group shall have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties. With respect to any Award that is considered deferred compensation subject to Section 409A of the Code, references in the Plan to termination of employment (and substantially similar phrases) shall mean separation from service within the meaning of Section 409A of the Code. For purposes of Section 409A of the Code, each of the payments that may be made in respect of any Award granted under the Plan is designated as separate payments.
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(ii) Notwithstanding anything in the Plan to the contrary, if a Participant is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Awards that are deferred compensation subject to Section 409A of the Code and which would otherwise be payable upon the Participants separation from service (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six (6) months after the date of such Participants separation from service or, if earlier, the date of the Participants death. Following any applicable six (6) month delay, all such delayed payments will be paid in a single lump sum on the earliest date permitted under Section 409A of the Code that is also a business day.
(iii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, in the event that the timing of payments in respect of any Award (that would otherwise be considered deferred compensation subject to Section 409A of the Code) would be accelerated upon the occurrence of (A) a Change in Control, no such acceleration shall be permitted unless the event giving rise to the Change in Control satisfies the definition of a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation pursuant to Section 409A of the Code; or (B) a Disability, no such acceleration shall be permitted unless the Disability also satisfies the definition of Disability pursuant to Section 409A of the Code.
(v) Clawback/Repayment . All Awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (i) any clawback, forfeiture or other similar policy adopted by the Board or the Committee and as in effect from time to time; and (ii) applicable law. Further, to the extent that the Participant receives any amount in excess of the amount that the Participant should otherwise 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), the Participant shall be required to repay any such excess amount to the Company.
(w) Detrimental Activity . Notwithstanding anything to the contrary contained herein, if a Participant has engaged in any Detrimental Activity, as determined by the Committee, the Committee may, in its sole discretion, provide for one or more of the following:
(i) cancellation of any or all of such Participants outstanding Awards; or
(ii) forfeiture by the Participant of any gain realized on the vesting or exercise of Awards, and to repay any such gain to promptly to the Company.
(x) Right of Offset . The Company will have the right to offset against its obligation to deliver shares of Common Stock (or other property or cash) under the Plan or any Award Agreement any outstanding amounts (including, without limitation, travel and entertainment or advance account balances, loans, repayment obligations under any Awards, or amounts repayable to the Company pursuant to tax equalization, housing, automobile or other employee programs) that the Participant then owes to any member of the Company Group and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. Notwithstanding the foregoing, if an Award is deferred compensation subject to Section 409A of the Code, the Committee will have no right to offset against its obligation to deliver shares of Common Stock (or other property or cash) under the Plan or any Award Agreement if such offset could subject the Participant to the additional tax imposed under Section 409A of the Code in respect of an outstanding Award.
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(y) Expenses; Titles and Headings . The expenses of administering the Plan shall be borne by the Company Group. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
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Exhibit 10.11
EXECUTION COPY
OMNIBUS AMENDMENT NO. 4 TO
RECEIVABLES LOAN AGREEMENT
AMENDMENT NO. 2 TO
SALE AND CONTRIBUTION AGREEMENT
This OMNIBUS AMENDMENT NO. 4 TO RECEIVABLES LOAN AGREEMENT AND AMENDMENT NO. 2 TO SALE AND CONTRIBUTION AGREEMENT, effective as of August 18, 2016 (this Amendment ), is executed by and among HILTON GRAND VACATIONS TRUST I LLC, a Delaware limited liability company (together with its successors and assigns, the Borrower ), HILTON RESORTS CORPORATION, a Delaware corporation (the Seller ), WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Paying Agent and Securities Intermediary, the financial institutions signatory hereto as Managing Agents, the financial institutions signatory hereto as Committed Lenders and DEUTSCHE BANK SECURITIES, INC., as Administrative Agent. Capitalized terms used, but not otherwise defined herein, shall have the meanings ascribed thereto in the Receivables Loan Agreement (defined below).
WITNESSETH:
WHEREAS, the Borrower, the Managing Agents party thereto, the Administrative Agent, Wells Fargo Bank National Association, as Securities Intermediary and Paying Agent, the Conduit Lenders party thereto, and the Committed Lenders party thereto are parties to that certain Receivables Loan Agreement dated as of May 9, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Receivables Loan Agreement ); and
WHEREAS, the Borrower and Seller are party to that certain Sale and Contribution Agreement, dated as of May 9, 2013 (as amended, restated, supplemented or otherwise modified from time to time, the Sale and Contribution Agreement ); and
WHEREAS, as provided herein, the parties hereto have agreed to amend certain provisions of the Receivables Loan Agreement and the Sale and Contribution Agreement, each as further described below;
NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1.
Amendment to the Receivables Loan Agreement
. Effective as of the date hereof (the
Effective Date
),
and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the Receivables Loan Agreement is hereby amended as set forth in Exhibit A to this Amendment, with text marked in
underline
indicating additions to the Receivables Loan Agreement and with text marked in
strikethrough
indicating deletions to the Receivables Loan Agreement.
SECTION 2. Amendment to the Sale and Contribution Agreement . Effective as of the Effective Date, and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, clause (A) of Section 2.7(c)(i) of the Sale and Contribution Agreement is amended and restated in its entirety as follows:
(A) reconvey and retransfer the related Timeshare Property in satisfaction of such Transferred Timeshare Loan and simultaneously purchase a new Timeshare Property or a new timeshare interest in a resort managed by the Seller or an Affiliate thereof other than a Resort with the proceeds of a new timeshare loan or.
SECTION 3. Conditions Precedent . This Amendment shall become effective on the Effective Date upon the satisfaction of each of the following conditions precedent:
3.1 The Administrative Agent shall have received counterparts of this Amendment executed by each of the parties hereto.
3.2 (i) The Administrative Agent shall have received executed counterparts of that certain Amended and Restated Fee Letter, dated as of the date hereof, among the Administrative Agent, the Managing Agents, the Committed Lenders and the Borrower, from each of the parties thereto and (ii) the Borrower shall have paid all fees required to be paid by it on the date hereof under the foregoing fee letter.
3.3 The Administrative Agent, the Managing Agents and the Lenders shall have received an opinion of counsel to the Borrower, in form and substance reasonably satisfactory to the Managing Agents and subject to customary assumptions, qualifications and limitations, to the effect that the Borrower is not an investment company within the meaning of and subject to regulation under the Investment Company Act in reliance on Rule 3(c)(5) of the Investment Company Act.
SECTION 4. Representations, Warranties and Confirmations . The Borrower hereby represents and warrants that:
4.1 It has the power and is duly authorized, including by all limited liability company action on its part, to execute and deliver this Amendment.
4.2 This Amendment has been duly and validly executed and delivered by it.
4.3 This Amendment and the Sale and Contribution Agreement and Receivables Loan Agreement as amended hereby, constitute legal, valid and binding obligations of the Borrower and are enforceable against the Borrower in accordance with their terms.
4.4 Immediately prior, and after giving all effect, to this Amendment, the covenants, representations and warranties of the Borrower set forth in the Receivables Loan Agreement are true and correct in all material respects as of the date hereof (except to the extent such representations or warranties relate solely to an earlier date and then as of such date).
4.5 Immediately prior, and after giving all effect, to this Amendment, no event, condition or circumstance has occurred and is continuing which constitutes a Servicer Termination Event, Unmatured Servicer Termination Event, Default or Event of Default.
SECTION 5. Delivery of Executed Amendment . The Borrower covenants and agrees that it will deliver an executed copy of this Amendment to the Servicer, the Paying Agent, the Backup Servicer and the Custodian promptly following the effectiveness hereof.
SECTION 6. Entire Agreement . The parties hereto hereby agree that this Amendment constitutes the entire agreement concerning the subject matter hereof and supersedes any and all written and/or oral prior agreements, negotiations, correspondence, understandings and communications.
SECTION 7. Effectiveness of Amendment . Except as expressly amended by the terms of this Amendment, all terms and conditions of the Sale and Contribution Agreement or the Receivables Loan
2
Agreement, as applicable, shall remain in full force and effect and are hereby ratified and confirmed. This Amendment shall not operate as a consent, waiver, amendment or other modification of any other term or condition set forth in the Sale and Contribution Agreement or the Receivables Loan Agreement or any right, power or remedy of the Administrative Agent or any Managing Agent or Lender under the Sale and Contribution Agreement or the Receivables Loan Agreement, except as expressly modified hereby. Upon the effectiveness of this Amendment, each reference in the Sale and Contribution Agreement or the Receivables Loan Agreement to this Agreement, this Sale and Contribution Agreement or this Receivables Loan Agreement or words of like import shall mean and be references to the Sale and Contribution Agreement or the Receivables Loan Agreement, as applicable, as amended hereby, and each reference in any other Facility Document to the Sale and Contribution Agreement or Receivables Loan Agreement or to any terms defined in the Sale and Contribution Agreement or Receivables Loan Agreement which are modified hereby shall mean and be references to the Sale and Contribution Agreement or Receivables Loan Agreement, as applicable, or to such terms as modified hereby.
SECTION 8. GOVERNING LAW . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK .
SECTION 9. Binding Effect . This Amendment shall be binding upon and shall be enforceable by parties hereto and their respective successors and permitted assigns.
SECTION 10. Headings . The Section headings herein are for convenience only and will not affect the construction hereof.
SECTION 11. Novation . This Amendment does not constitute a novation or termination of the Sale and Contribution Agreement or Receivables Loan Agreement or any Facility Document and all obligations thereunder are in all respects continuing with only the terms thereof being modified as provided herein.
SECTION 12. Counterparts . This Amendment may be executed in any number of counterparts, each of which so executed will be deemed to be an original, but all such counterparts will together constitute but one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by facsimile or by electronic mail in a .pdf file shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 13. Fees, Costs and Expenses . The Borrower agrees to pay on demand all reasonable fees and out-of-pocket expenses of Sidley Austin LLP, counsel for the Administrative Agent, incurred in connection with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered in connection herewith.
Signature Pages Follow
3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective authorized officers as of the date first above written.
HILTON GRAND VACATIONS TRUST I LLC, | ||
as Borrower | ||
By: |
/s/ Owen Wilcox |
|
Name: | Owen Wilcox | |
Title: | Assistant Secretary | |
HILTON RESORTS CORPORATION, | ||
as Seller | ||
By: |
/s/ Owen Wilcox |
|
Name: | Owen Wilcox | |
Title: | Assistant Secretary |
Signature Page to Omnibus Amendment No. 4 to Receivables Loan Agreement
and Amendment No. 2 to Sale and Contribution Agreement
DEUTSCHE BANK SECURITIES, INC., | ||
as Administrative Agent | ||
By: |
/s/ Robert Sheldon |
|
Name: | Robert Sheldon | |
Title: | Managing Director | |
By: |
/s/ Rob Sannicandro |
|
Name: | Rob Sannicandro | |
Title: | Director | |
DEUTSCHE BANK AG, NEW YORK BRANCH | ||
as a Committed Lender and a Managing Agent | ||
By: |
/s/ Robert Sheldon |
|
Name: | Robert Sheldon | |
Title: | Managing Director | |
By: |
/s/ Rob Sannicandro |
|
Name: | Rob Sannicandro | |
Title: | Director |
Signature Page to Omnibus Amendment No. 4 to Receivables Loan Agreement
and Amendment No. 2 to Sale and Contribution Agreement
BANK OF AMERICA, N.A., | ||
as a Committed Lender and a Managing Agent | ||
By: |
/s/ Elizabeth C. Picoll |
|
Name: | Elizabeth C. Picoll | |
Title: | Vice President |
Signature Page to Omnibus Amendment No. 4 to Receivables Loan Agreement
and Amendment No. 2 to Sale and Contribution Agreement
EXHIBIT A
CONFORMED RECEIVABLES LOAN AGREEMENT
Attached
CONFORMED COPY
Amendment No. 1 dated as of July 25, 2013
Omnibus Amendment No. 2 dated as of October 25, 2013
Amendment No. 3 dated as of December 5, 2014
Amendment No. 4 dated as of August 18, 2016
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 |
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SECTION 1.03. Computation of Time Periods |
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SECTION 1.04. Acknowledgement and Consent to Bail-In of EEA Financial Institutions |
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ARTICLE II AMOUNTS AND TERMS OF THE LOANS |
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SECTION 2.01. The Loans |
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SECTION 2.02. Borrowing Procedures |
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SECTION 2.03. Reductions and Increases to the Facility Limit |
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SECTION 2.04. Interest and Unused Fees |
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SECTION 2.05. Principal Payments |
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SECTION 2.06. Application of Collections |
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SECTION 2.07. Extension of Commitment Termination Date |
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SECTION 2.08. Payments and Computations, Etc. |
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SECTION 2.09. Interest Protection |
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SECTION 2.10. Increased Capital |
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SECTION 2.11. Funding Losses |
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SECTION 2.12. Taxes |
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SECTION 2.13. Security Interest |
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SECTION 2.14. Refinancings |
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SECTION 2.15. Release of Lien |
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SECTION 2.16. The Collection Account |
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SECTION 2.17. The Paying Agent |
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SECTION 2.18. Defaulting Committed Lenders |
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SECTION 2.19. Replacement of Lender Group |
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ARTICLE III CONDITIONS PRECEDENT |
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SECTION 3.01. Conditions Precedent to Effectiveness |
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SECTION 3.02. Conditions Precedent to All Borrowings |
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. Conditions Precedent to All Borrowings |
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SECTION 3.03. Conditions to Funding a Delayed Funding Amount |
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ARTICLE IV REPRESENTATIONS AND WARRANTIES |
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SECTION 4.01. Representations and Warranties of the Borrower |
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ARTICLE V COVENANTS |
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SECTION 5.01. Affirmative Covenants of the Borrower |
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SECTION 5.02. Reporting Requirements of the Borrower |
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SECTION 5.03. Covenants of the Borrower Relating to Hedging |
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SECTION 5.04. Negative Covenants of the Borrower |
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SECTION 5.05. Special Covenants Regarding
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ARTICLE VI SERVICING |
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SECTION 6.01. Servicing Agreement |
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i
ARTICLE VII EVENTS OF DEFAULT |
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SECTION 7.01. Events of Default |
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SECTION 7.02. Right to Cure |
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SECTION 7.03. Remedies |
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SECTION 7.04. Appointment as Attorney in Fact |
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SECTION 7.05. Performance of Borrowers Obligations |
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SECTION 7.06. Powers Coupled with an Interest |
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ARTICLE VIII INDEMNIFICATION |
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SECTION 8.01. Indemnities by the Borrower |
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SECTION 8.02. Limited Liability of Parties |
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ARTICLE IX THE AGENTS |
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SECTION 9.01. Authorization and Action |
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SECTION 9.02. Agents Reliance, Etc. |
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SECTION 9.03. Agents and Affiliates |
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SECTION 9.04. Lenders Loan Decision |
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SECTION 9.05. Delegation of Duties |
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SECTION 9.06. Indemnification |
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SECTION 9.07. Successor Agents |
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ARTICLE X MISCELLANEOUS |
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SECTION 10.01. Amendments, Etc. |
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SECTION 10.02. Notices, Etc. |
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SECTION 10.03. Assignability |
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SECTION 10.04. Additional Lender Groups |
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SECTION 10.05. Consent to Jurisdiction |
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SECTION 10.06. WAIVER OF JURY TRIAL |
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SECTION 10.07. Right of Setoff |
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SECTION 10.08. Ratable Payments |
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SECTION 10.09. Limitation of Liability |
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SECTION 10.10. Costs, Expenses and Taxes |
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SECTION 10.11. No Proceedings |
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SECTION 10.12. Confidentiality |
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SECTION 10.13. No Waiver; Remedies |
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SECTION 10.14. GOVERNING LAW |
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SECTION 10.15. Execution in Counterparts |
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SECTION 10.16. Integration; Binding Effect; Survival of Termination |
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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, on any day, (a) for any Lender in the Lender Group for which BANA is the Managing Agent, the applicable LIBO Rate in effect on such day for such Lender or (b) for any other Lender, an interest rate per annum obtained by dividing (i) the applicable LIBO Rate in effect on such day for such Lender by (ii) a percentage equal to 100% minus the LIBO Rate Reserve Percentage for such day.
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, the sum of the Commitments then in effect.
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 such day; 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.
2
Amendment No.
2
4
Effective Date
means
October 25
August 18
,
2013
2016
.
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 Cross Default Amount means, on any date of determination, $50,000,000; provided, however , that if the Seller enters into the Seller Credit Agreement, on and after the Seller Credit Agreement Effective Date, the Applicable Cross Default Amount shall be the dollar threshold set forth in the Seller Credit Agreement above which a failure on the part of the Seller to pay Indebtedness or the acceleration of Indebtedness of the Seller would constitute an event of default thereunder.
Applicable Judgment Default Amount means, on any date of determination, $25,000,000; provided, however , that if the Seller enters into the Seller Credit Agreement, on and after the Seller Credit Agreement Effective Date, the Applicable Judgment Default Amount shall be the dollar threshold set forth in the Seller Credit Agreement above which a failure to pay, discharge or stay a judgment against the Seller would constitute an event of default thereunder.
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.
3
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.
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.
Bail-In Action means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
Bail-In Legislation means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
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.
4
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.
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.
5
Change of Control means :
Change of Control
means
(a) Hilton
Worldwide
(a)
on any date prior to the Spin-Off Effective Date, (i)
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
ii
) the Seller shall cease to own directly 100% of the issued and outstanding Equity Interests of the Borrower, (
c
iii
) 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
iv
) 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
.
; or
(b) on the Spin-Off Effective Date or any date thereafter, (i) any Person or group (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 as amended, other than any combination of the Investors and/or any group including any Permitted Holders, shall have acquired beneficial ownership of more than 35% on a fully diluted basis of the voting rights represented by the Equity Interests of HGVI and the Permitted Holders shall own, directly or indirectly, less than such Person or group on a fully diluted basis of the voting rights represented by the Equity Interests of HGVI, (ii) HGVI shall cease to own directly 100% of the issued and outstanding Equity Interests of the Seller, or (c) the Seller shall cease to own directly 100% of the issued and outstanding Equity Interests of the Borrower .
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.
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 | % |
6
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
Amendment No. 4 Effective Date
, 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.
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
December
5
August
17
,
2016
2018
, 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.
7
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.
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.
8
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).
CRR means Regulation No 575/2013 of the European Parliament and of the Council as published in the Official Journal of the European Union on 27 June 2013 as amended from time to time and as implemented by the Member States of the European Union, together with the Corrigendum to Regulation 575/2013.
Credit Policy
means the credit policies and
practices of the Seller as in effect on the
date
hereof
Amendment No. 4 Effective Date
, 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.
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.
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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 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.
Delayed Funding Amount has the meaning specified in Section 2.02(e).
Delayed Funding Date has the meaning specified in Section 2.02(e).
Delayed Funding Representation has the meaning specified in Section 2.02(e).
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.
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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.
Designated Delayed Funding Amount has the meaning set forth in Section 2.02(e).
Designated Delay Funding Lender has the meaning specified in Section 2.02(e).
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.
EEA Financial Institution means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
EEA Member Country means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
EEA Resolution Authority means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
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
11
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.
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.
EU Bail-In Legislation Schedule means the ER Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
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.
12
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
(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;
13
(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;
(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.
14
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.
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
Amended and Restated
Fee Letter dated as of the
Closing
Amendment No. 4 Effective
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.
15
Foreign Obligor means an Obligor that is not a Domestic Obligor.
Funding Delay Notice has the meaning specified in Section 2.02(e).
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.
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.
16
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.
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.
HGVI means Hilton Grand Vacations Inc., a Delaware corporation.
Hilton Entity has the meaning set forth in Section 5.01(g).
Holdings means Hilton Worldwide Holdings Inc., a Delaware corporation.
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.
Increase
Timeshare Loans
means Timeshare Loans for which the Transfer Date is the
Amendment No.
2
Effective
Date.
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 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
17
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 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.
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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.
Investment Company Act means the Investment Company Act of 1940, as amended.
Investors means one or more investment funds, investment partnerships or managed accounts controlled or managed by The Blackstone Group L.P. or one of its Affiliates (other than any portfolio operating companies).
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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.
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 (a) with respect to any Loan funded or maintained by a Lender in the Lender Group for which BANA is the Managing Agent, for any day, the one-month Eurodollar Rate for deposits in Dollars as reported on Reuters Screen
LIBOR01 Page or any other page that may replace such page from time to time for the purpose of displaying offered rates of leading banks for London interbank deposits in United States dollars, as of 11:00 a.m. (London time) on such date, or if
such day is not a Business Day, then the immediately preceding Business Day (or if not so reported, then as determined by BANA from another recognized source for interbank quotation), in each case, changing when and as such rate changes or (b) with
respect to any Loan funded or maintained by a Lender in any other Lender Group 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
(x) if the rate referred to in this clause (b) 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
,
(y) 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
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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 and (z) in the event that the rate appearing on such page or as so determined by the Administrative Agent shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement .
LIBO Rate Reserve Percentage means, for any day on which Interest is computed by reference to the LIBO Rate, the reserve percentage applicable on such day 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 average of such percentages) 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). The LIBO Rate Reserve Percentage shall be adjusted automatically on and as of the effective date of any change in any reserve percentage..
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.
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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.
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 Over Sixty-Day 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.
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Management Stockholders means the members of management of HGVI or any of its Subsidiaries who are investors in HGVI.
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.
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.
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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).
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.
Original Borrowing Date has the meaning specified in Section 2.02(e).
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.
Parent means, (a) prior to the Spin-Off Effective Date, Holdings and (b) on or after the Spin-Off Effective Date, HGVI.
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.
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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 Holders means each of (x) the Investors and (y) the Management Stockholders.
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;
(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
25
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.
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.
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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.
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.
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.
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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.
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 Non-Delayed Funding Amount means, with respect to a Designated Delay Funding Lender and an Original Borrowing Date, an amount equal to the excess, if any, of (a) an amount
28
equal to 20% of such Designated Delay Funding Lenders Commitment as of such Original Borrowing Date over (b) the sum, with respect to such Designated Delay Funding Lender, of all Designated Delayed Funding Amounts funded by such Designated Delay Funding Lender on the Original Borrowing Dates for such Designated Delayed Funding Amounts during the 35 days preceding such Original Borrowing Date and with respect to which the related Delayed Funding Dates shall not have occurred on or prior to such Original Borrowing Date.
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.
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.
Retained Interest means a material net economic interest of not less than the percentage thereof required under the Retention Requirements as measured at the relevant time against the aggregate Timeshare Loan Balances of all Pledged Timeshare Loans .
Retention Requirements means each of: (a) Article 405 of the CRR, together with (i) the Commission Delegated Regulation (EU) 625/2014 of 13 March 2014 and any regulatory technical standards, implementing technical standards or related documents published by the European Banking Authority, European Central Bank (or any other successor or replacement agency or authority) and any delegated regulations of the European Commission; and (ii) to the extent informing the interpretation of Article 405 of the CRR, the guidelines and related documents previously published in relation to the preceding European Union risk retention legislation by the European Banking Authority (and/or its predecessor, the Committee of European Banking Supervisors ); and (b) in relation to the foregoing, any implementing laws or regulations in force in any Member State of the European Union.
29
S&P
means
Standard & Poors
S&P Global
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.
Seller Affiliated Manager means any wholly-owned Subsidiary of the Seller that manages a Resort or Resort Association.
Seller Credit Agreement means the revolving credit agreement entered into by HGVI and/or the Seller and a syndicate of lenders, including one or more of the Committed Lenders, in connection with the Spin-Off Transaction, pursuant to which the lenders party thereto commit to make revolving loans to the Seller, as in effect on date on which such revolving credit agreement first becomes effective and without giving effect to any amendment, restatement, supplement or other modification thereto or any replacement thereof after such date.
Seller Credit Agreement Effective Date means the date on which the Seller Credit Agreement becomes effective in accordance with its terms.
Seller Financial Covenants means the requirement that the Seller maintain, as of the last day of each Fiscal Quarter:
(a)
prior to the Spin-Off
Effective Date,
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;
30
(b) an Interest Coverage Ratio of at least 3.0 to 1.00; and
(c) Consolidated Tangible Net Worth of at least
$400,000,000
.
;
provided, however
that, on and after the Seller Credit Agreement Effective Date, the Seller Financial Covenants shall mean the requirement that the Seller
comply with each covenant contained in the Seller Credit Agreement
that is
expressed in terms of (i) a minimum or maximum amount in or derived from HGVIs or the Sellers
financial statements, (ii) a minimum or maximum ratio between any such amounts described in clause (i) above or (iii) any other financial or finance related test
as the same may
relate to the assets, liabilities, revenue or expenses of HGVI and/or the Seller.
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.
Spin-Off Effective Date means the date on which the Spin-Off Transaction is consummated.
Spin-Off Transaction means, collectively, the transactions which upon consummation thereof will result in (a) HGVI holding, directly or indirectly, all or substantially all of Holdings timeshare business, (b) the Seller being a wholly-owned Subsidiary of HGVI and (c) the stockholders of Holdings holding all of the shares of common stock of HGVI.
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
.
;
provided, however
, that, if one or more Pledged Timeshare Loans are being substituted for one or more Qualified Substitute Timeshare
Loans being transferred to the Borrower by the Seller pursuant to Section 2.7 of the Sale and Contribution Agreement on a Substitution Date, the Substitution Shortfall Amount for such Timeshare Loans shall be the amount, if any, by which (i) the
aggregate Timeshare Loan Balances of such Pledged Timeshare Loans exceeds (ii) the aggregate Timeshare Loan Balances of such Qualified Substitute Timeshare Loans, in each case, as of the last day of the Collection Period immediately preceding such
Substitution 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.
32
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 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) |
33
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.
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,
1.00
1.30
%
per annum and (y) after the Commitment Termination Date,
1.50
1.80
% per annum.
Volcker Rule means Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and the regulations thereunder (12 C.F.R. Part 248), as issued by the Board of Governors of the Federal Reserve System.
34
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.
Write-Down and Conversion Powers means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
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 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.
SECTION 1.04. Acknowledgement and Consent to Bail-In of EEA Financial Institutions . Notwithstanding anything to the contrary in any Facility Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Facility Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b) the effects of any Bail-in Action on any such liability, including, if applicable;
(i) a reduction in full or in part or cancellation of any such liability;
35
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Facility Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
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.
(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
36
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 (except as set forth in Section 2.02(e) following delivery of a Funding Delay Notice). 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.
(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
37
Conduit Lender in a Lender Group, any Loan requested by the Borrower in such Borrowing Request (except as set forth in Section 2.02(e) following delivery of a Funding Delay Notice) 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 (except as set forth in Section 2.02(e) following delivery of a Funding Delay Notice) 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 (except as set forth in Section 2.02(e) following delivery of a Funding Delay Notice), 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).
(e) Funding Delay Option .
(i) Any Committed Lender shall have the right to deliver to the Borrower a written representation and warranty (a Delayed Funding Representation ) to the effect that (x) it has incurred and is incurring charges relating to the liquidity coverage ratio under Basel III Regulations on such Committed Lenders Loans or Commitment and (y) it is seeking or has obtained a delayed funding option in transactions similar to the transactions contemplated hereby. After delivery of a Delayed Funding Representation to the Borrower, a Committed Lender shall be a Designated Delay Funding Lender .
(ii) A Designated Delay Funding Lender may, after the Borrower delivers a Borrowing Request requesting a proposed Borrowing pursuant to Section 2.02(a)(i), prior to (x) if such Borrowing Request is delivered more than two Business Days prior to the proposed Borrowing Date, 5:00 p.m. (New York City time) on the second Business Day prior to the proposed Borrowing Date, or (y) if such Borrowing Request is delivered on the second Business Day prior to the proposed Borrowing Date, (A) 5:00 p.m. (New York City time) on the same day as the Borrowers delivery of such Borrowing Request, if such Borrowing Request is delivered by the Administrative Agent to the Managing Agents prior to 2:00 p.m. (New York City time) on such day or (B) otherwise 10:00 a.m. (New York City time) on the Business Day following the Borrowers delivery of such Borrowing Request, deliver to the Borrower and the Administrative Agent a notice (a Funding Delay Notice ) designating all or a portion of its Pro Rata Share of
38
the Loan requested in such Borrowing Request as being subject to delayed funding (such amount, the Designated Delayed Funding Amount ) and, if such Designated Delayed Funding Amount is greater than the Required Non-Delayed Funding Amount with respect to such Designated Delay Funding Lender and the proposed Borrowing Date, specifying the portion thereof, which may not be greater than the amount by which such Designated Delayed Funding Amount exceeds such Required Non-Delayed Funding Amount (the Delayed Funding Amount ), that it is electing to fund on a date (the date of such funding, the Delayed Funding Date ) that is on or before the thirty-fifth (35th) day following the proposed Borrowing Date (the Original Borrowing Date ) (or if such day is not a Business Day, then on the next succeeding Business Day) rather than on the Original Borrowing Date. By delivery of a Funding Delay Notice, a Designated Delay Funding Lender shall be deemed to represent and warrant that the certifications previously provided to the Borrower by such Designated Delay Funding Lender are true as of the date of the delivery of such Funding Delay Notice.
(iii) If a Designated Delay Funding Lender timely delivers a Funding Delay Notice with respect to a Delayed Funding Amount, the Committed Lender shall not be required to fund, on the Original Borrowing Date therefor, such Delayed Funding Amount, but shall be required to advance to the Borrower the Delayed Funding Amount on or before the Delayed Funding Date in accordance with Section 2.02(e)(iv). Such Designated Delay Funding Lender shall provide the Borrower with at least three Business Days prior written notice of the Business Day on which it will fund such Delayed Funding Amount. The Borrower may (x) cancel and rescind the Borrowing Request in its entirety upon delivery of such Funding Delay Notice by delivering notice thereof to the Administrative Agent prior to the close of business on the Business Day immediately prior to the Original Borrowing Date or (y) reduce the amount of additional Loans and/or additional Timeshare Loans to be added to the Borrowing Base on the Original Borrowing Date by delivering to the Administrative Agent on or prior to the Original Borrowing Date an updated Borrowing Request, and the actual funding of the Non-Delayed Funding Amount shall take place on the Business Day following the delivery of such updated Borrowing Request.
(iv) Each Designated Delay Funding Lender agrees by delivering a Funding Delay Notice specifying a Delayed Funding Amount that, notwithstanding any statement to the contrary in Section 2.01, if the conditions to any Borrowing described in Sections 3.02(a) through 3.02(d) are satisfied on the Original Borrowing Date in respect of such Delayed Funding Amount and the conditions described in Section 3.03 in respect of such Delayed Funding Amount are satisfied on the related Delayed Funding Date, there shall be no other conditions whatsoever to its obligation to fund such Delayed Funding Amount on the related Delayed Funding Date irrespective of whether the Amortization Date shall have occurred prior to such Delayed Funding Date. If the Borrower is required to add additional Timeshare Loans to the Borrowing Base on the related Delayed Funding Date in order to satisfy such conditions, it shall deliver to the Administrative Agent an updated Borrowing Request at least one Business Day prior to such Delayed Funding Date. A Designated Delay Funding Lender (or the Conduit Lender in its Lender Group) funding a Delayed Funding Amount on a Delayed Funding Date shall remit such Delayed Funding Amount to the account of its 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, such 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 such Designated Delay Funding Lender (or the Conduit Lender in its Lender Group) no later than 1:30 p.m. (New York City time).
(v) For the avoidance of doubt, a Delayed Funding Amount when extended shall be a Loan for all purposes of this Agreement. As between the Conduit Lender and the Committed Lender, the Conduit Lender reserves the right in its sole discretion to fund any Loan on any Original Borrowing Date or any Delayed Funding Date.
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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 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.
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(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 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).
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(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;
(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.
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(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 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.
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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
Amendment No.
4
Effective Date
, 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
Amendment No. 4 Effective Date
, (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
Amendment No. 4 Effective Date
, 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.
(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
Amendment No. 4 Effective Date
or (y) the requirements of,
whether such compliance is commenced prior to or after the
date
hereof
Amendment No. 4 Effective Date
, 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
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(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
Amendment No. 4 Effective Date
, 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 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).
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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.
(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,
46
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 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.
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(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.
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;
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(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 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;
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(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 pursuant to Section 2.05(b) 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.
(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 pursuant to Section 2.05(b) , (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).
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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.
(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;
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(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.
(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
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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.
(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;
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(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.
(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
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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.
(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.
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(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 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.
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(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.
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)
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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, (iv) any Committed Lender becomes a Defaulting Committed Lender or becomes the subject of a Bail-In Action or (v) any Designated Delay Funding Lender delivers a Funding Delay Notice,, 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 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 . Conditions Precedent to All Borrowings. Each Borrowing (including the Initial Borrowing) made by the Lenders to the Borrower (except as set forth in Section 2.02(e)(iv)), 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;
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(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
(other than
deliveries required in connection
with the
Increase Timeshare Loans which shall be made no later than the date that is 90 days after the Amendment No. 2 Effective Date)
;
(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.
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.
SECTION 3.03. Conditions to Funding a Delayed Funding Amount . The funding of any Delayed Funding Amount is subject to the conditions (and each funding shall evidence the Borrowers representation and warranty that clauses (a) through (e) of this Section 3.03 have been satisfied as of the related Delayed Funding Date) that:
(a) the Amortization Date has not occurred by reason of any action taken by the Borrower under clause (iii) of the definition thereof;
(b) 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 the funding of such Delayed Funding Amount;
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(c) no Borrowing Base Deficiency shall exist before the funding of such Delayed Funding Amount and, after giving pro forma effect to the funding of such Delayed Funding Amount, any concurrent Transfer of Timeshare Loans to the Borrower with the proceeds of the funding of such Delayed Funding Amount and/or any concurrent release of Pledged Timeshare Loans on such date pursuant to Section 2.15, no Borrowing Base Deficiency shall exist;
(d) if any Timeshare Loans are being Transferred to the Borrower on such Delayed Funding Date, 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
(e) if such date occurs during a Hedging Period, the Borrower shall be in compliance with Section 5.03.
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
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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 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 Obligor Notes (or an original lost note affidavit and indemnity from the Seller) 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
(other than a receipt to be delivered
in connection with the
Increase Timeshare Loans
which the
Borrower shall have
received no later than the date that is 90 days after the
Amendment No.
2
Effective Date
).
(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.
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(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.
(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.
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(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.
(w) Investment Company Act; Volcker Rule. The Borrower (i) is not a covered fund under the Volcker Rule and (ii) is not an investment company within the meaning of the Investment Company Act and the Borrower has not relied exclusively on either or both of Sections 3(c)(1) or 3(c)(7) of the Investment Company Act for an exception from registration.
(x) Certain LCR Matters. The Borrower has not issued (i) any obligations that constitute asset-backed commercial paper, (ii) securities required to be registered under the Securities Act of 1933, as amended or that may be offered for sale under Rule 144A of the Securities and Exchange Commission thereunder, or (iii) any other debt obligations or equity interests other than (A) debt obligations substantially similar to the obligations of the Borrower under this Agreement that are (1) issued to banks or asset-backed commercial paper conduits in privately negotiated transactions, and (2) subject to transfer restrictions substantially similar to the transfer restrictions set forth in Section 10.03 of this Agreement and (B) Equity Interests of the Borrower issued to the Seller. The Borrowers assets and liabilities are consolidated with the assets and liabilities of the Seller for purposes of GAAP.
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
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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 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
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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 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;
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(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].
(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
67
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, 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.
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(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;
(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.
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(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 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
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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 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.
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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.
(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.
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(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.
(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.
(q) Certain LCR Matters. Issue (i) any obligations that constitute asset-backed commercial paper, (ii) securities required to be registered under the Securities Act of 1933, as amended or that may be offered for sale under Rule 144A of the Securities and Exchange Commission thereunder, or (iii) any other debt obligations or equity interests other than (A) debt obligations substantially similar to the obligations of the Borrower under this Agreement that are (1) issued to banks or asset-backed commercial paper conduits in privately negotiated transactions, and (2) subject to transfer restrictions substantially similar to the transfer restrictions set forth in Section 10.03 of this Agreement and (B) Equity Interests of the Borrower issued to the Seller.
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SECTION 5.05.
Special Covenants Regarding
Retention
. The Seller
CRD Compliance
, in its capacity as sole member
of the Borrower
,
represents
that
and undertakes
,
on
to
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
Administrative
Agent and each
holding company of any
Lender
or any
Managing Agent
that is required to comply with the
requirements
of Article
122
a, unless each such Managing Agent shall otherwise consent in writing
Retention Requirements, that,
until the
Borrower Obligations have been paid in
full
, it shall
:
(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
);
(a) h old and will retain ownership of 100% of the Equity Interests in the Borrower directly or indirectly through one or more consolidated wholly-owned Subsidiaries;
(b) o n an ongoing basis hold and maintain the Retained Interest directly or indirectly through its ownership of 100% of the Equity Interests in the Borrower ;
(c)
(b)
not sell or subject the
Minimum
Retained
Membership
Interest to any hedge, credit risk mitigation or
any
short
position
that is
not permitted under Article 122a
positions in a manner that
would be contrary to the Retention Requirements
;
(d)
(c)
for the purpose of
each Monthly Report
,
confirm to the Servicer that it continues to comply with subsections (a)
and
,
(b)
and (c)
above;
(i) in each Monthly Report as of the date of such Monthly Report;
(ii) i n the event of a material change in the anticipated value of the Pledged Timeshare Loans or the risk characteristics of the Pledged Timeshare Loans , if reasonably requested by the Administrative Agent; and
(iii) u pon the occurrence of any Event of Default at the request of the Administrative Agent;
(e)
(d)
provide notice promptly to each such
Managing Agent
Lender
in the event it has breached subsections (a)
or
,
(b)
or (c)
above;
(f)
(e)
notify each such
Managing Agent
Lender
of any change to the form of retention of the Retained Interest; and
(g)
(f)
provide all information which any such
Managing Agent
Lender
reasonably requests in order for such
Managing Agent
Lender
to comply with its obligations under
Article
122a
the Retention Requirements
.
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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
the Applicable Cross Default Amount
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
the Applicable Judgment Default Amount 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 definition of 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
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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.
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.
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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.
(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;
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(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;
(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
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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.
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
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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.
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;
(x) 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, 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.
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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.
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(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 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
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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 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
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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.
(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
determined by the Seller to be
required by applicable law
,
(including filing a copy of this Agreement and the other Facility Documents
(other than
the
Fee Letter) as exhibits to filings required to be made
with the
Securities and Exchange Commission),
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, or claiming to have, 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: |
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Name: | ||
Title: | ||
Solely as to Section 5.05: | ||
HILTON RESORTS CORPORATION | ||
By: |
|
|
Name: | ||
Title: |
Signature Page to Receivables Loan Agreement
DEUTSCHE BANK SECURITIES, INC., | ||
as Administrative Agent | ||
By: |
|
|
Name: | ||
Title: | ||
By: |
|
|
Name: | ||
Title: | ||
|
||
DEUTSCHE BANK AG, NEW YORK BRANCH, | ||
as a Managing Agent and a Committed Lender | ||
By: |
|
|
Name: | ||
Title: | ||
By: |
|
|
Name: | ||
Title: |
Signature Page to Receivables Loan Agreement
BANK OF AMERICA, N.A., | ||
as a Managing Agent and a Committed Lender | ||
By: | ||
|
||
Name: | ||
Title: |
Signature Page to Receivables Loan Agreement
WELLS FARGO BANK, NATIONAL ASSOCIATION | ||
as Paying Agent and Securities Intermediary | ||
By: |
|
|
Name: | ||
Title: |
Signature Page to Receivables Loan Agreement
Exhibit 10.13
FORM OF HILTON GRAND VACATIONS INC.
2016 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of the Hilton Grand Vacations Inc. 2016 Stock Plan for Non-Employee Directors is to provide a means through which the Company and the other members of the Company Group may attract and retain members of the board of directors of the Company and to provide a means whereby members of the board of directors of the Company can acquire and maintain an equity interest in the Company, thereby strengthening their commitment to the welfare of the Company Group and aligning their interests with those of the Companys stockholders.
2. Definitions. The following definitions shall be applicable throughout the Plan.
(a) Absolute Share Limit has the meaning given to such term in Section 5(b) of the Plan.
(b) Adjustment Event has the meaning given to such term in Section 11(a) of the Plan.
(c) Affiliate means any Person that directly or indirectly controls, is controlled by or is under common control with the Company. The term control (including, with correlative meaning, the terms controlled by and under common control with), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(d) Award means, individually or collectively, any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, and Other Equity-Based Award.
(e) Award Agreement means the document or documents by which each Award is evidenced, which may be in written or electronic form.
(f) Board means the Board of Directors of the Company.
(g) Cause means, in the case of a particular Award, unless the applicable Award Agreement states otherwise, a good faith determination of the Committee or its designee that (i) there is cause to terminate a Participants service as a non-employee director of the Board, as defined in and in accordance with any consulting or other agreement between the Participant and any member of the Company Group or an Affiliate in effect at the time of such termination or (ii) in the absence of any such agreement (or the absence of any definition of Cause contained therein), any of the following has occurred with respect to a Participant: (A) such Participant has failed to reasonably perform his or her duties to any member of the Company Group, or has failed to follow the lawful instructions of the Board, in each case other than as a result of his or her incapacity due to physical or mental illness or injury, in a manner that could reasonably be expected to result in harm (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate, following notice by the Company Group or
such Affiliate of such failure, (B) such Participant has engaged or is about to engage in conduct harmful (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate, (C) such Participant has been convicted of, or pled guilty or no contest to, a felony or any crime involving as a material element fraud or dishonesty, (D) the willful misconduct or gross neglect of such Participant that could reasonably be expected to result in harm (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate, (E) the willful violation by such Participant of the written policies of any member of the Company Group or any applicable written policies of any member of the Company Group that could reasonably be expected to result in harm (whether financially, reputationally or otherwise) to any member of the Company Group or an Affiliate; (F) such Participants fraud or misappropriation, embezzlement or misuse of funds or property belonging to the Company Group or an Affiliate (other than good faith expense account disputes); (G) such Participants act of personal dishonesty which involves personal profit in connection with such Participants service as a non-employee director of the Board, or (H) the willful breach by such Participant of fiduciary duty owed to any member of the Company Group.
(h) Change in Control shall have the meaning set forth in the Companys 2016 Omnibus Incentive Plan (as amended, modified, or supplemented from time to time).
(i) Code means the Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(j) Committee means the Board or any properly delegated subcommittee thereof.
(k) Common Stock means the common stock of the Company, par value $0.01 per share (and any stock or other securities into which such Common Stock may be converted or into which it may be exchanged).
(l) Company means Hilton Grand Vacations Inc., a Delaware corporation, and any successor thereto.
(m) Company Group means, collectively, the Company and its Subsidiaries.
(n) Date of Grant means the date on which the granting of an Award is authorized, or such other date as may be specified in such authorization.
(o) Disability means, unless in the case of a particular Award the applicable Award Agreement states otherwise, the Company or an Affiliate having cause to terminate a Participants service on account of disability, as defined in any then-existing consulting or other similar agreement between the Participant and the Company or an Affiliate or, in the absence of such an agreement (or the absence of any definition of Disability contained therein), the complete and permanent inability by reason of illness or accident to perform the duties of the occupation at which a Participant was employed or served when such disability commenced. Any determination of whether Disability exists shall be made by the Committee (or its designee) in its sole discretion.
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(p) Effective Date means , 20 .
(q) Eligible Director means a member of the Board, elected or appointed, who is not also an employee of the Company or any of its Subsidiaries or Affiliates. An individual who is elected to the Board at an annual meeting of the shareholders of the Company shall be deemed to be a member of the Board as of the date of such meeting.
(r) Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(s) Exercise Price has the meaning given to such term in Section 7(b) of the Plan.
(t) Fair Market Value means, on a given date, (i) if the Common Stock is listed on a national securities exchange, the closing sales price of the Common Stock reported on the primary exchange on which the Common Stock is listed and traded on such date, or, if there are no such sales on that date, then on the last preceding date on which such sales were reported; (ii) if the Common Stock is not listed on any national securities exchange but is quoted in an inter-dealer quotation system on a last sale basis, the average between the closing bid price and ask price reported on such date, or, if there is no such sale on that date, then on the last preceding date on which a sale was reported; or (iii) if the Common Stock is not listed on a national securities exchange or quoted in an inter-dealer quotation system on a last sale basis, the amount determined by the Committee in good faith to be the fair market value of the Common Stock.
(u) GAAP has the meaning given to such term in Section 7(d) of the Plan.
(v) Indemnifiable Person has the meaning given to such term in Section 4(e) of the Plan.
(w) Option means an Award granted under Section 7 of the Plan.
(x) Option Period has the meaning given to such term in Section 7(c)(i) of the Plan.
(y) Other Equity-Based Award means an Award that is not an Option, Stock Appreciation Right, share of Restricted Stock, or Restricted Stock Unit, that is granted under Section 10 of the Plan and is (i) payable by delivery of Common Stock, and/or (ii) measured by reference to the value of Common Stock.
(z) Participant means an Eligible Director who accepts an Award pursuant to the Plan.
(aa) Person means any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act).
3
(bb) Plan means this Hilton Grand Vacations Inc. 2016 Stock Plan for Non-Employee Directors, as it may be amended and restated from time to time.
(cc) Qualifying Director means a person who is, with respect to actions intended to obtain an exemption from Section 16(b) of the Exchange Act pursuant to Rule 16b-3 under the Exchange Act, a non-employee director within the meaning of Rule 16b-3 under the Exchange Act.
(dd) Restricted Period means the period of time determined by the Committee during which an Award is subject to restrictions, including vesting conditions.
(ee) Restricted Stock means Common Stock, subject to certain specified restrictions (which may include, without limitation, a requirement that the Participant provide continuous services as a non-employee director of the Board for a specified period of time), granted under Section 9 of the Plan.
(ff) Restricted Stock Unit means an unfunded and unsecured promise to deliver shares of Common Stock, cash, other securities or other property, subject to certain restrictions (which may include, without limitation, a requirement that the Participant provide continuous services as a non-employee director of the Board for a specified period of time), granted under Section 9 of the Plan.
(gg) SAR Period has the meaning given to such term in Section 8(c) of the Plan.
(hh) Securities Act means the Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of (or rule promulgated under) the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(ii) Stock Appreciation Right or SAR means an Award granted under Section 8 of the Plan.
(jj) Strike Price has the meaning given to such term in Section 8(b) of the Plan.
(kk) Subsidiary means, with respect to any specified Person:
(i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of such entitys voting securities (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders agreement that effectively transfers voting power) is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
(ii) any partnership (or any comparable foreign entity) (A) the sole general partner (or functional equivalent thereof) or the managing general partner of which is such Person or Subsidiary of such Person or (B) the only general partners (or functional equivalents thereof) of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).
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(ll) Termination means the cessation of a Participants service as a member of the Board for any reason.
3. Effective Date; Duration. The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth (10 th ) anniversary of the Effective Date; provided, however , that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards.
4. Administration.
(a) The Committee shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan), it is intended that each member of the Committee shall, at the time such member takes any action with respect to an Award under the Plan that is intended to qualify for the exemptions provided by Rule 16b-3 promulgated under the Exchange Act be a Qualifying Director. However, the fact that a Committee member shall fail to qualify as a Qualifying Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
(b) Subject to the provisions of the Plan and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan to (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of shares of Common Stock to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled in, or exercised for, cash, shares of Common Stock, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, shares of Common Stock, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c) 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. Any such allocation or delegation may be revoked by the Committee at any time.
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(d) Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan, any Award or any Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all Persons, including, without limitation, any member of the Company Group, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(e) No member of the Board, the Committee or any employee or agent of any member of the Company Group (each such Person, an Indemnifiable Person ) shall be liable for any action taken or omitted to be taken or any determination made with respect to the Plan or any Award hereunder (unless constituting fraud or a willful criminal act or omission). Each Indemnifiable Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense (including attorneys fees) that may be imposed upon or incurred by such Indemnifiable Person in connection with or resulting from any action, suit or proceeding to which such Indemnifiable Person may be a party or in which such Indemnifiable Person may be involved by reason of any action taken or omitted to be taken or determination made with respect to the Plan or any Award hereunder and against and from any and all amounts paid by such Indemnifiable Person with the Companys approval, in settlement thereof, or paid by such Indemnifiable Person in satisfaction of any judgment in any such action, suit or proceeding against such Indemnifiable Person, and the Company shall advance to such Indemnifiable Person any such expenses promptly upon written request (which request shall include an undertaking by the Indemnifiable Person to repay the amount of such advance if it shall ultimately be determined, as provided below, that the Indemnifiable Person is not entitled to be indemnified); provided , that the Company shall have the right, at its own expense, to assume and defend any such action, suit or proceeding and once the Company gives notice of its intent to assume the defense, the Company shall have sole control over such defense with counsel of the Companys choice. The foregoing right of indemnification shall not be available to an Indemnifiable Person to the extent that a final judgment or other final adjudication (in either case not subject to further appeal) binding upon such Indemnifiable Person determines that the acts, omissions or determinations of such Indemnifiable Person giving rise to the indemnification claim resulted from such Indemnifiable Persons fraud or willful criminal act or omission or that such right of indemnification is otherwise prohibited by law or by the organizational documents of any member of the Company Group. The foregoing right of indemnification shall not be exclusive of or otherwise supersede any other rights of indemnification to which such Indemnifiable Persons may be entitled under the organizational documents of any member of the Company Group, as a matter of law, under an individual indemnification agreement or contract or otherwise, or any other power that the Company may have to indemnify such Indemnifiable Persons or hold such Indemnifiable Persons harmless.
(f) Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. Any such actions by the Board shall be subject to the applicable rules of the securities exchange or inter-dealer quotation system on which the Common Stock is listed or quoted. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
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5. Grant of Awards; Shares Subject to the Plan; Limitations.
(a) The Committee may, from time to time, grant Awards to one or more Eligible Directors.
(b) Awards granted under the Plan shall be subject to the following limitations: (i) subject to Section 11 of the Plan, no more than shares of Common Stock (the Absolute Share Limit ) shall be available for Awards under the Plan; and (ii) the maximum number of shares of Common Stock subject to Awards granted during a single fiscal year to any Participant, taken together with any cash fees paid during the fiscal year to such Participant in respect of service as a member of the Board, shall not exceed $1,000,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes).
(c) To the extent that an Award expires or is canceled, forfeited or terminated without issuance to the Participant of the full number of shares of Common Stock to which the Award related, the unissued shares will again be available for grant under the Plan. Shares of Common Stock shall be deemed to have been issued in settlement of Awards if the Fair Market Value equivalent of such shares is paid in cash; provided , however , that no shares shall be deemed to have been issued in settlement of a SAR or Restricted Stock Unit that only provides for settlement in cash and settles only in cash. In no event shall (i) shares tendered or withheld on the exercise of Options or other Award for the payment of the exercise or purchase price, (ii) shares not issued upon the settlement of a SAR that settles in shares of Common Stock (or could settle in shares of Common Stock), or (iii) shares purchased on the open market with cash proceeds from the exercise of Options, again become available for other Awards under the Plan.
(d) Shares of Common Stock issued by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase or a combination of the foregoing.
6. Eligibility. Participation in the Plan shall be limited to Eligible Directors.
7. Options.
(a) General . Each Option granted under the Plan shall be evidenced by an Award Agreement, which agreement need not be the same for each Participant. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options granted under the Plan shall be nonqualified stock options.
(b) Exercise Price . The exercise price ( Exercise Price ) per share of Common Stock for each Option shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant).
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(c) Vesting and Expiration; Termination .
(i) Options shall vest and become exercisable in such manner and on such date or dates or upon such event or events as determined by the Committee. Options shall expire upon a date determined by the Committee, not to exceed ten (10) years from the Date of Grant (the Option Period ); provided , that if the Option Period would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the Option Period shall be automatically extended until the thirtieth (30 th ) day following the expiration of such prohibition.
(ii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of a Participants Termination due to death or Disability, each outstanding Option granted to such Participant shall become fully vested and immediately exercisable as of the date of such Termination.
(iii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, (A) in the event of a Participants Termination by any member of the Company Group for Cause, all outstanding Options granted to such Participant shall immediately terminate and expire, and (B) in the event of a Participants Termination due to death or Disability, after taking into account any accelerated vesting under the above clause (ii), each outstanding vested Option shall remain exercisable for one (1) year thereafter (but in no event beyond the expiration of the Option Period).
(d) Method of Exercise and Form of Payment . No shares of Common Stock shall be issued pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any Federal, state, local and non-U.S. income, employment and any other applicable taxes required to be withheld. Options which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company (or telephonic instructions to the extent provided by the Committee) in accordance with the terms of the Option accompanied by payment of the Exercise Price. The Exercise Price shall be payable: (i) in cash, check, cash equivalent and/or shares of Common Stock valued at the Fair Market Value at the time the Option is exercised (including, pursuant to procedures approved by the Committee, by means of attestation of ownership of a sufficient number of shares of Common Stock in lieu of actual issuance of such shares to the Company); provided , that such shares of Common Stock are not subject to any pledge or other security interest and have been held by the Participant for any period of time as established from time to time by the Committee in order to avoid adverse accounting treatment applying generally accepted accounting principles ( GAAP ); or (ii) 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 Exercise Price; (B) if there is a public market for the shares of Common Stock at such time, by means of a broker-assisted cashless exercise pursuant to which the Company is delivered (including telephonically to the extent permitted by the Committee) a copy of irrevocable instructions to a stockbroker to sell the shares of Common Stock otherwise issuable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price; or (C) a net exercise procedure effected by withholding the minimum number of shares of Common Stock otherwise issuable in respect of an Option that are needed to pay the Exercise Price. Any fractional shares of Common Stock shall be settled in cash.
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(e) Compliance With Laws, etc . Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner which the Committee determines would violate the Sarbanes-Oxley Act of 2002, as it may be amended from time to time, or any other applicable law or the applicable rules and regulations of the Securities and Exchange Commission 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.
8. Stock Appreciation Rights.
(a) General . Each SAR granted under the Plan shall be evidenced by an Award Agreement. Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award SARs to Eligible Directors independent of any Option.
(b) Strike Price . The strike price ( Strike Price ) per share of Common Stock for each SAR shall not be less than 100% of the Fair Market Value of such share (determined as of the Date of Grant). Notwithstanding the foregoing, a SAR granted in tandem with (or in substitution for) an Option previously granted shall have a Strike Price equal to the Exercise Price of the corresponding Option.
(c) Vesting and Expiration; Termination .
(i) A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable in such a manner and on such date or dates or upon such event or events as determined by the Committee. SARs shall expire upon a date determined by the Committee, not to exceed ten (10) years from the Date of Grant (the SAR Period ); provided , that if the SAR Period would expire at a time when trading in the shares of Common Stock is prohibited by the Companys insider trading policy (or Company-imposed blackout period), then the SAR Period shall be automatically extended until the 30th day following the expiration of such prohibition.
(ii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, in the event of a Participants Termination due to death or Disability, outstanding SARs granted to such Participant shall become fully vested and immediately exercisable as of the date of such Termination.
(iii) Unless otherwise provided by the Committee, whether in an Award Agreement or otherwise, (A) in the event of a Participants Termination by any member of the Company Group for Cause, all outstanding SARs granted to such Participant shall immediately terminate and expire, and (B) in the event of a Participants Termination due to death or Disability, each outstanding vested SAR granted to such Participant shall remain exercisable for one (1) year thereafter (but in no event beyond the expiration of the SAR Period).
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(d) Method of Exercise . SARs which have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded.
(e) Payment . Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that is being exercised multiplied by the excess of the Fair Market Value of one (1) share of Common Stock on the exercise date over the Strike Price, less an amount equal to any Federal, state, local and non-U.S. income, employment and any other applicable taxes required to be withheld. The Company shall pay such amount in cash, in shares of Common Stock valued at Fair Market Value, or any combination thereof, as determined by the Committee. Any fractional shares of Common Stock shall be settled in cash.
9. Restricted Stock and Restricted Stock Units.
(a) General . Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each Restricted Stock and Restricted Stock Unit so granted shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Stock Certificates and Book-Entry; Escrow or Similar Arrangement . Upon the grant of Restricted Stock, the Committee shall cause a stock certificate registered in the name of the Participant to be issued or shall cause share(s) of Common Stock to be registered in the name of the Participant and held in book-entry form subject to the Companys directions and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than issued to the Participant pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable; and (ii) the appropriate stock power (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute and deliver (in a manner permitted under Section 13(a) of the Plan or as otherwise determined by the Committee) an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and blank stock power within the amount of time specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, a Participant generally shall have the rights and privileges of a stockholder as to shares of Restricted Stock, including, without limitation, the right to vote such Restricted Stock. To the extent shares of Restricted Stock are forfeited, any stock certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company. A Participant shall have no rights or privileges as a stockholder as to Restricted Stock Units.
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(c) Vesting; Termination . Restricted Stock and Restricted Stock Units shall vest, and any applicable Restricted Period shall lapse, in such manner and on such date or dates or upon such event or events as determined by the Committee.
(d) Issuance of Restricted Stock and Settlement of Restricted Stock Units .
(i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall issue to the Participant, or the Participants beneficiary, without charge, the stock certificate (or, if applicable, a notice evidencing a book-entry notation) evidencing the shares of Restricted Stock which have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, in the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value (on the date of distribution) equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends.
(ii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall issue to the Participant or the Participants beneficiary, without charge, one (1) share of Common Stock (or other securities or other property, as applicable) for each such outstanding Restricted Stock Unit; provided, however , that the Committee may, in its sole discretion, elect to (A) pay cash or part cash and part shares of Common Stock in lieu of issuing only shares of Common Stock in respect of such Restricted Stock Units; or (B) defer the issuance of shares of Common Stock (or cash or part cash and part shares of Common Stock, as the case may be) beyond the expiration of the Restricted Period if such extension would not cause adverse tax consequences under Section 409A of the Code. If a cash payment is made in lieu of issuing shares of Common Stock in respect of such Restricted Stock Units, the amount of such payment shall be equal to the Fair Market Value per share of the Common Stock as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units. To the extent provided in an Award Agreement or otherwise, upon the payment by the Company of dividends on shares of Common Stock, the holder of outstanding Restricted Stock Units shall be entitled to be credited with dividend equivalent payments in cash (unless, the Committee, in its sole discretion, elects to credit such payments in shares of Common Stock or additional Restricted Stock Units having a Fair Market Value equal to the amount of such dividend), and interest may, in 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 accumulated dividend equivalents (and earnings or interest thereon, if applicable) shall be payable at the same time as the underlying Restricted Stock Units are settled following the date on which the Restricted Period lapses with respect to such Restricted Stock Units, and, if such Restricted Stock Units are forfeited, the Participant shall have no right to such dividend equivalent payments (or earnings or interest thereon, if applicable).
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(e) Legends on Restricted Stock . Each certificate, if any, or book entry representing Restricted Stock awarded under the Plan, if any, shall bear a legend or book entry notation substantially in the form of the following, in addition to any other information the Company deems appropriate, until the lapse of all restrictions with respect to such shares of Common Stock:
TRANSFER OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY IS RESTRICTED PURSUANT TO THE TERMS OF THE HILTON GRAND VACATIONS INC. 2016 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS AND A RESTRICTED STOCK AWARD AGREEMENT BETWEEN HILTON GRAND VACATIONS INC. AND PARTICIPANT. A COPY OF SUCH PLAN AND AWARD AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF HILTON GRAND VACATIONS INC.
10. Other Equity-Based Awards . The Committee may grant Other Equity-Based Awards under the Plan to Eligible Directors, alone or in tandem with other Awards, in such amounts and dependent on such conditions as the Committee shall from time to time in its sole discretion determine. Each Other Equity-Based Award granted under the Plan shall be evidenced by an Award Agreement. Each Other Equity-Based Award so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement or other form evidencing such Award, including, without limitation, those set forth in Section 13(a) of the Plan.
11. Changes in Capital Structure and Similar Events. Notwithstanding any other provision in this Plan to the contrary, the following provisions shall apply to all Awards granted hereunder:
(a) General . In the event of (i) 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 shares of Common Stock or other securities of the Company, issuance of warrants or other rights to acquire shares of Common Stock or other securities of the Company, or other similar corporate transaction or event that affects the shares of Common Stock (including a Change in Control); or (ii) unusual or nonrecurring events affecting the Company, including changes in applicable rules, rulings, regulations or other requirements, that the Committee determines, in its sole discretion, could result in substantial dilution or enlargement of the rights intended to be granted to, or available for, Participants (any event in (i) or (ii), an Adjustment Event ), the Committee shall, in respect of any such Adjustment Event, make such proportionate substitution or adjustment, if any, as it deems equitable, to any or all of (A) the Absolute Share Limit, or any other limit applicable under the Plan with respect to the number of Awards which may be granted hereunder; (B) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) which may be issued in respect of Awards or with respect to which Awards may be granted under the Plan; and (C) the
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terms of any outstanding Award, including, without limitation, (I) the number of shares of Common Stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding Awards or to which outstanding Awards relate; or (II) the Exercise Price or Strike Price with respect to any Award; provided , that in the case of any equity restructuring (within the meaning of the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto)), the Committee shall make an equitable or proportionate adjustment to outstanding Awards to reflect such equity restructuring.
(b) Adjustment Events . Without limiting the foregoing, except as may otherwise be provided in an Award Agreement, in connection with any Adjustment Event, the Committee may, in its sole discretion, provide for any one or more of the following:
(i) substitution or assumption of Awards (or awards of an acquiring company), acceleration of the vesting of, exercisability of, lapse of restrictions on, or termination of, Awards, or establishment of a period of time (which shall not be required to be more than ten (10) days) for Participants to exercise outstanding Awards prior to the occurrence of such event (and any such Award not so exercised shall terminate upon the occurrence of such event);
(ii) cancellation of any one or more outstanding Awards and payment to the holders of such Awards that are vested as of such cancellation (including, without limitation, any Awards that would vest as a result of the occurrence of such event but for such cancellation or for which vesting is accelerated by the Committee in connection with such event pursuant to clause (i) above), the value of such Awards, if any, as determined by the Committee (which value, 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 an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the shares of Common Stock subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR (it being understood that, in such event, any Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a share of Common Stock subject thereto may be canceled and terminated without any payment or consideration therefor), or, in the case of Restricted Stock, Restricted Stock Units or Other Equity-Based Awards that are not vested as of such cancellation, a cash payment or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Restricted Stock, Restricted Stock Units or Other Equity-Based Awards prior to cancellation, or the underlying shares in respect thereof; and
(iii) subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, conversion or replacement of any Award that is not vested as of the occurrence of such event into or with the right to receive a payment, based on the value of the Award (as determined consistent with clause (ii) above), which is subject to continued vesting on the same basis as the vesting requirements applicable to such converted or replaced Award.
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Payments to holders pursuant to clauses (ii) or (iii) above shall be made in cash or, in the sole discretion of the Committee, in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Common Stock covered by the Award at such time (less any applicable Exercise Price or Strike Price).
(c) Other Requirements . Prior to any payment or adjustment contemplated under this Section 11, the Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participants Awards; (ii) bear such Participants pro rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Common Stock, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code; and (iii) deliver customary transfer documentation as reasonably determined by the Committee.
(d) Fractional Shares . Any adjustment provided under this Section 11 may provide for the elimination of any fractional share that might otherwise become subject to an Award.
(e) Binding Effect . Any adjustment, substitution, determination of value or other action taken by the Committee under this Section 11 shall be conclusive and binding for all purposes.
12. Amendments and Termination.
(a) Amendment and Termination of the Plan . The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided , that no such amendment, alteration, suspension, discontinuance or termination shall be made without stockholder approval if (i) such approval is necessary to comply with any regulatory requirement applicable to the Plan (including, without limitation, as necessary to comply with any rules or regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company may be listed or quoted) or for changes in GAAP to new accounting standards; (ii) it would materially increase the number of securities which may be issued under the Plan (except for increases pursuant to Section 5 or 11 of the Plan); or (iii) it would materially modify the requirements for participation in the 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 theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary. Notwithstanding the foregoing, no amendment shall be made to the last proviso of Section 12(b) of the Plan without stockholder approval.
(b) Amendment of Award Agreements . The Committee may, to the extent consistent with the terms of the Plan and any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively (including after a Participants Termination); provided , that, other than pursuant to Section 11, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant.
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(c) No Repricing . Notwithstanding anything in the Plan to the contrary, without stockholder approval, except as otherwise permitted under Section 11 of the Plan, (i) no amendment or modification may reduce the Exercise Price of any Option or the Strike Price of any SAR; (ii) the Committee may not cancel any outstanding Option or SAR and replace it with a new Option or SAR (with a lower Exercise Price or Strike Price, as the case may be) or other Award or cash payment that is greater than the intrinsic value (if any) of the cancelled Option or SAR; and (iii) 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 the securities of the Company are listed or quoted.
13. General.
(a) Award Agreements . Each Award under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant to whom such Award was granted and shall specify the terms and conditions of the Award and any rules applicable thereto, including, without limitation, the effect on such Award of a Termination of a Participant, or of such other events as may be determined by the Committee. For purposes of the Plan, an Award Agreement may be in any such form (written or electronic) as determined by the Committee (including, without limitation, a Board or Committee resolution, a notice, a certificate or a letter) evidencing the Award. The Committee need not require an Award Agreement to be signed by the Participant or a duly authorized representative of the Company.
(b) Nontransferability . Each Award shall be exercisable only by such Participant to whom such Award was granted during the Participants lifetime, or, if permissible under applicable law, by the Participants legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant (unless such transfer is specifically required pursuant to a domestic relations order or by applicable law) other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against any member of the Company Group; provided , that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(c) Dividends and Dividend Equivalents . The Committee may, in its sole discretion, provide a Participant as part of an Award with dividends, dividend equivalents, or similar payments in respect of Awards, payable in cash, shares of Common Stock, other securities, other Awards or other property, on a current or deferred basis, on such terms and conditions as may be determined by the Committee in its sole discretion, including, without limitation, payment directly to the Participant, withholding of such amounts by the Company subject to vesting of the Award or reinvestment in additional shares of Common Stock, Restricted Stock or other Awards; provided , that no dividends, dividend equivalents or other similar payments shall be payable in respect of outstanding Options or SARs.
15
(d) Tax Withholding .
(i) A Participant shall be required to pay to the Company or one or more of its Subsidiaries, as applicable, an amount in cash (by check or wire transfer) equal to the aggregate amount of any income, employment and/or other applicable taxes that are statutorily required to be withheld in respect of an Award. Alternatively, the Company or any of its Subsidiaries may elect, in its sole discretion, to satisfy this requirement by withholding such amount from any cash compensation or other cash amounts owing to a Participant.
(ii) Without limiting the foregoing, the Committee may (but is not obligated to), in its sole discretion, permit or require a Participant to satisfy, all or any portion of the minimum income, employment and/or other applicable taxes that are statutorily required to be withheld with respect to an Award by (A) the delivery of shares of Common Stock (which are not subject to any pledge or other security interest) that have been both held by the Participant and vested for any period of time as established from time to time by the Committee in order to avoid adverse accounting treatment under GAAP) having an aggregate Fair Market Value equal to such minimum statutorily required withholding liability (or portion thereof); or (B) having the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, the Participant upon the grant, exercise, vesting or settlement of the Award, as applicable, a number of shares of Common Stock with an aggregate Fair Market Value equal to an amount, subject to clause (iii) below, not in excess of such minimum statutorily required withholding liability (or portion thereof).
(iii) The Committee, subject to its having considered the applicable accounting impact of any such determination, has full discretion to allow Participants to satisfy, in whole or in part, any additional income, employment and/or other applicable taxes payable by them with respect to an Award by electing to have the Company withhold from the shares of Common Stock otherwise issuable or deliverable to, or that would otherwise be retained by, a Participant upon the grant, exercise, vesting or settlement of the Award, as applicable, shares of Common Stock having an aggregate Fair Market Value that is greater than the applicable minimum required statutory withholding liability (but such withholding may in no event be in excess of the maximum statutory withholding amount(s) in a Participants relevant tax jurisdictions).
(e) Data Protection . By participating in the Plan or accepting any rights granted under it, each Participant consents to the collection and processing of personal data relating to the Participant so that the Company and its Affiliates can fulfill their obligations and exercise their rights under the Plan and generally administer and manage the Plan. This data will include, but may not be limited to, data about participation in the Plan and shares offered or received, purchased, or sold under the Plan from time to time and other appropriate financial and other data (such as the date on which the Awards were granted) about the Participant and the Participants participation in the Plan.
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(f) No Claim to Awards; No Rights to Continued Service; Waiver . No employee of any member of the Company Group, member of the Board, or other Person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committees determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the employ or service of any other member of the Company Group, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Participants service as a member of the Board may be terminated free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award Agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award Agreement, except to the extent of any provision to the contrary in any written services contract or other agreement between any member of the Company Group and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
(g) Designation and Change of Beneficiary . Each Participant may file with the Committee a written designation of one or more Persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon the Participants death. A Participant may, from time to time, revoke or change the Participants beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however , that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participants death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be the Participants spouse or, if the Participant is unmarried at the time of death, the Participants estate.
(h) Termination . Except as otherwise provided in an Award Agreement, if a Participant undergoes a Termination of service as a member of the Board, but such Participant continues to provide services to the Company Group in a non-employee capacity, such change in status shall not be considered a Termination for purposes of the Plan.
(i) No Rights as a Stockholder . Except as otherwise specifically provided in the Plan or any Award Agreement, no Person shall be entitled to the privileges of ownership in respect of shares of Common Stock which are subject to Awards hereunder until such shares have been issued or delivered to such Person.
(j) Government and Other Regulations .
(i) The obligation of the Company to settle Awards in shares of Common Stock or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling,
17
any shares of Common Stock pursuant to an Award unless such shares have been properly registered for sale pursuant to the Securities Act with the Securities and Exchange Commission or unless the Company has received an opinion of counsel (if the Company has requested such an opinion), satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act any of the shares of Common Stock to be offered or sold under the Plan. The Committee shall have the authority to provide that all shares of Common Stock or other securities of any member of the Company Group issued under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement, the Federal securities laws, or the rules, regulations and other requirements of the Securities and Exchange Commission, any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or quoted and any other applicable Federal, state, local or non-U.S. laws, rules, regulations and other requirements, and, without limiting the generality of Section 9 of the Plan, the Committee may cause a legend or legends to be put on certificates representing shares of Common Stock or other securities of any member of the Company Group issued under the Plan to make appropriate reference to such restrictions or may cause such Common Stock or other securities of any member of the Company Group issued under the Plan in book-entry form to be held subject to the Companys instructions or subject to appropriate stop-transfer orders. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that the Committee, in its sole discretion, deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(ii) The Committee may cancel an Award or any portion thereof if it determines, in its sole discretion, that legal or contractual restrictions and/or blockage and/or other market considerations would make the Companys acquisition of shares of Common Stock from the public markets, the Companys issuance of Common Stock to the Participant, the Participants acquisition of Common Stock from the Company and/or the Participants sale of Common Stock to the public markets, illegal, impracticable or inadvisable. If the Committee determines to cancel all or any portion of an Award in accordance with the foregoing, the Company shall, subject to any limitations or reductions as may be necessary to comply with Section 409A of the Code, (A) pay to the Participant an amount equal to the excess of (I) the aggregate Fair Market Value of the shares of Common Stock subject to such Award or portion thereof canceled (determined as of the applicable exercise date, or the date that the shares would have been vested or issued, as applicable); over (II) the aggregate Exercise Price or Strike Price (in the case of an Option or SAR, respectively) or any amount payable as a condition of issuance of shares of Common Stock (in the case of any other Award). Such amount shall be delivered to the Participant as soon as practicable following the cancellation of such Award or portion thereof, or (B) in the case of Restricted Stock, Restricted Stock Units or Other Equity-Based Awards, provide the Participant with a cash payment or equity subject to deferred vesting and delivery consistent with the vesting restrictions applicable to such Restricted Stock, Restricted Stock Units or Other Equity-Based Awards, or the underlying shares in respect thereof.
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(k) No Section 83(b) Elections Without Consent of Company . No election under Section 83(b) of the Code or under a similar provision of law may be made unless expressly permitted by the terms of the applicable Award Agreement or by action of the Committee in writing prior to the making of such election. If a Participant, in connection with the acquisition of shares of Common Stock under the Plan or otherwise, is expressly permitted to make such election and the Participant makes the election, the Participant shall notify the Company of such election within ten (10) days of filing notice of the election with the Internal Revenue Service or other governmental authority, in addition to any filing and notification required pursuant to Section 83(b) of the Code or other applicable provision.
(l) Payments to Persons Other Than Participants . If the Committee shall find that any Person to whom any amount is payable under the Plan is unable to care for the Participants affairs because of illness or accident, or is a minor, or has died, then any payment due to such Person or the Participants estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to the Participants spouse, child, relative, an institution maintaining or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(m) Nonexclusivity of the Plan . Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of equity-based awards otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
(n) No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between any member of the Company Group, on the one hand, and a Participant or other Person, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be obligated to maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other service providers under general law.
(o) Reliance on Reports . Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of any member of the Company Group and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself or herself.
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(p) Governing Law . The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and performed wholly within the State of Delaware, without giving effect to the conflict of laws provisions thereof. EACH PARTICIPANT WHO ACCEPTS AN AWARD IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION, OR OTHER PROCEEDING INSTITUTED BY OR AGAINST SUCH PARTICIPANT IN RESPECT OF THE PARTICIPANTS RIGHTS OR OBLIGATIONS HEREUNDER.
(q) Severability . If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, Person or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(r) Obligations Binding on Successors . The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(s) Section 409A of the Code .
(i) Notwithstanding any provision of the Plan to the contrary, it is intended that the provisions of the Plan comply with Section 409A of the Code, and all provisions of the Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A of the Code. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect of such Participant in connection with the Plan (including any taxes and penalties under Section 409A of the Code), and no member of the Company Group shall have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties. With respect to any Award that is considered deferred compensation subject to Section 409A of the Code, references in the Plan to termination of employment or termination of service (and substantially similar phrases) shall mean separation from service within the meaning of Section 409A of the Code. For purposes of Section 409A of the Code, each of the payments that may be made in respect of any Award granted under the Plan is designated as separate payments.
(ii) Notwithstanding anything in the Plan to the contrary, if a Participant is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Awards that are deferred compensation subject to Section 409A of the Code and which would otherwise be payable upon the Participants
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separation from service (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six (6) months after the date of such Participants separation from service or, if earlier, the date of the Participants death. Following any applicable six (6) month delay, all such delayed payments will be paid in a single lump sum on the earliest date permitted under Section 409A of the Code that is also a business day.
(iii) Unless otherwise provided by the Committee in an Award Agreement or otherwise, in the event that the timing of payments in respect of any Award (that would otherwise be considered deferred compensation subject to Section 409A of the Code) would be accelerated upon the occurrence of a Change in Control, no such acceleration shall be permitted unless the event giving rise to the Change in Control satisfies the definition of a change in the ownership or effective control of a corporation, or a change in the ownership of a substantial portion of the assets of a corporation pursuant to Section 409A of the Code.
(t) Clawback/Repayment . All Awards shall be subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (i) any clawback, forfeiture or other similar policy adopted by the Board or the Committee and as in effect from time to time; and (ii) applicable law. Further, to the extent that the Participant receives any amount in excess of the amount that the Participant should otherwise 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), the Participant shall be required to repay any such excess amount to the Company.
(u) Right of Offset . The Company will have the right to offset against its obligation to deliver shares of Common Stock (or other property or cash) under the Plan or any Award Agreement any outstanding amounts that the Participant then owes to any member of the Company Group and any amounts the Committee otherwise deems appropriate pursuant to any tax equalization policy or agreement. Notwithstanding the foregoing, if an Award is deferred compensation subject to Section 409A of the Code, the Committee will have no right to offset against its obligation to deliver shares of Common Stock (or other property or cash) under the Plan or any Award Agreement if such offset could subject the Participant to the additional tax imposed under Section 409A of the Code in respect of an outstanding Award.
(v) Expenses; Titles and Headings . The expenses of administering the Plan shall be borne by the Company Group. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
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Exhibit 10.14
FORM OF HILTON GRAND VACATIONS INC.
2016 EXECUTIVE DEFERRED COMPENSATION PLAN
(Effective as of )
HILTON GRAND VACATIONS INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
TABLE OF CONTENTS
ARTICLE I TITLE AND DEFINITIONS | 1 | |||||
Section 1.1 |
Title |
1 | ||||
Section 1.2 |
Definitions |
1 | ||||
ARTICLE II PARTICIPATION | 5 | |||||
ARTICLE III DEFERRAL ELECTIONS | 5 | |||||
Section 3.1 |
Elections to Defer Compensation |
5 | ||||
Section 3.2 |
Distribution Elections |
7 | ||||
Section 3.3 |
Investment Elections |
8 | ||||
Section 3.4 |
Subsequent Elections |
9 | ||||
ARTICLE IV DISTRIBUTION OPTION ACCOUNTS | 9 | |||||
Section 4.1 |
Compensation Deferrals |
9 | ||||
Section 4.2 |
Company Contribution |
10 | ||||
Section 4.3 |
Investment Return |
10 | ||||
ARTICLE V VESTING | 10 | |||||
Section 5.1 |
Compensation Deferral |
10 | ||||
Section 5.2 |
Company Contribution |
10 | ||||
ARTICLE VI DISTRIBUTIONS | 11 | |||||
Section 6.1 |
Form and Timing of Distribution |
11 | ||||
Section 6.2 |
Small Benefit Cashout |
12 | ||||
Section 6.3 |
Payout |
12 | ||||
Section 6.4 |
Financial Hardship of Participant |
13 | ||||
Section 6.5 |
Permissible Distribution Event |
13 | ||||
Section 6.6 |
Payment by Trust |
13 | ||||
Section 6.7 |
Inability to Locate Participant |
14 | ||||
ARTICLE VII CHANGE IN CONTROL | 14 | |||||
ARTICLE VIII DEATH BENEFITS | 14 | |||||
ARTICLE IX CLAIMS PROCEDURES | 14 | |||||
Section 9.1 |
Claims |
14 | ||||
Section 9.2 |
Appeal |
15 |
i
Section 9.3 |
Authority |
15 | ||||
ARTICLE X ADMINISTRATION | 15 | |||||
Section 10.1 |
Administrator |
15 | ||||
Section 10.2 |
Administrator Action |
16 | ||||
Section 10.3 |
Powers and Duties of the Administrator |
16 | ||||
Section 10.4 |
Construction and Interpretation |
17 | ||||
Section 10.5 |
Information |
17 | ||||
Section 10.6 |
Compensation, Expenses and Indemnity |
17 | ||||
Section 10.7 |
Quarterly Statements |
17 | ||||
ARTICLE XI MISCELLANEOUS | 18 | |||||
Section 11.1 |
Unsecured General Creditor |
18 | ||||
Section 11.2 |
Restriction Against Assignment |
18 | ||||
Section 11.3 |
Withholding |
18 | ||||
Section 11.4 |
Amendment, Modification, Suspension or Termination |
18 | ||||
Section 11.5 |
Governing Law |
19 | ||||
Section 11.6 |
Receipt or Release |
19 | ||||
Section 11.7 |
Payments on Behalf of Persons Under Incapacity |
19 | ||||
Section 11.8 |
Headings |
19 |
ii
HILTON GRAND VACATIONS INC.
2016 EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Hilton Grand Vacations Inc. hereby establishes a deferred compensation plan (the Plan), effective as of the Effective Date, for deferrals with respect to Compensation to be earned or to be otherwise paid on or after the Effective Date, to provide supplemental retirement income benefits for a select group of management and highly compensated employees through deferrals of base salary and bonus compensation and, to the extent applicable, Company contributions; and
WHEREAS, as of the Effective Date, the account balances of certain participants in the Prior Plan were transferred to an Account under this Plan (the Transferred Balances). The Transferred Balances are balances deferred by HGV Employees under the Prior Plan, and the time and form of payment of the Transferred Balances shall be the same under this Plan as under the Prior Plan.
NOW, THEREFORE, the Plan is hereby established, on the terms and conditions hereinafter set forth:
ARTICLE I
TITLE AND DEFINITIONS
Section 1.1 Title .
This Plan shall be known as the Hilton Grand Vacations Inc. 2016 Executive Deferred Compensation Plan.
Section 1.2 Definitions .
Whenever the following words and phrases are used in this Plan, with the first letter capitalized, they shall have the meanings specified below.
Administrator shall mean the Person or Persons appointed by the Committee to administer the Plan in accordance with Article X, or such Person or Persons delegate.
Base Salary Deferral shall mean that portion of Base Salary as to which an Eligible Employee has made an irrevocable election to defer receipt of until the date specified under the In-Service Distribution Option and/or as otherwise specified under this Plan.
Beneficiary or Beneficiaries shall mean the Person or Persons, including a trustee, personal representative or other fiduciary, last designated in writing by a Participant in accordance with procedures established by the Administrator to receive all of the benefits specified hereunder in the event of the Participants death. No Beneficiary designation shall become effective until it is filed with the Administrator. If there is no Beneficiary designation in effect, or if there is no surviving designated Beneficiary, then the Participants surviving spouse shall be the Beneficiary. If there is no surviving spouse to receive any benefits payable in accordance with the preceding sentence, the duly appointed and currently acting personal representative of the Participants estate (which shall include either the Participants probate
1
estate or living trust) shall be the Beneficiary. In any case where there is no such personal representative of the Participants estate duly appointed and acting in that capacity within 90 days after the Participants death (or such extended period as the Administrator determines is reasonably necessary to allow such personal representative to be appointed, but not to exceed 180 days after the Participants death), then Beneficiary shall mean the Person or Persons who can verify by affidavit or court order to the satisfaction of the Administrator that they are legally entitled to receive the benefits specified hereunder. In the event any amount is payable under the Plan to a minor, payment shall not be made to the minor, but instead be paid (i) to that Persons living parent(s) to act as custodian, (ii) if that Persons parents are then divorced, and one parent is the sole custodial parent, to such custodial parent, or (iii) if no parent of that Person is then living, to a custodian selected by the Administrator to hold the funds for the minor under the Uniform Transfers or Gifts to Minors Act in effect in the jurisdiction in which the minor resides. If no parent is living and the Administrator decides not to select another custodian to hold the funds for the minor, then payment shall be made to the duly appointed and currently acting guardian of the estate for the minor or, if no guardian of the estate for the minor is duly appointed and currently acting within 60 days after the date the amount becomes payable, payment shall be deposited with the court having jurisdiction over the estate of the minor.
Bonus Compensation Deferral shall mean that portion of Bonus Compensation as to which an Eligible Employee has made an irrevocable election to defer receipt of until the date specified under the In-Service Distribution Option and/or as otherwise specified under this Plan.
Change in Control shall mean a Change in Control under the Companys 2016 Omnibus Incentive Plan, as amended from time to time, which also constitutes a Change in Control under Section 409A.
Code shall mean the Internal Revenue Code of 1986, as amended.
Committee shall mean the Compensation Committee of the Board of Directors of the Company, or if no such committee exists, the full Board of Directors of the Company.
Company shall mean Hilton Grand Vacations Inc., any successor corporation and each corporation which is a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) of which Hilton Grand Vacations Inc. is a component member.
Company Contribution shall equal the amount described in Section 4.2, if any.
Compensation shall mean the total salary paid to the Eligible Employee, including cash bonuses, in a Plan Year. An Eligible Employees Compensation shall consist of the Eligible Employees Base Salary as in effect from time to time during a Plan Year and the Eligible Employees Bonus Compensation which shall equal the amount of any cash incentive to be paid to an Eligible Employee under an incentive plan maintained by the Company and any other cash bonus of any kind.
Compensation Deferral means that portion of Compensation as to which a Participant has made an irrevocable election to defer receipt until the date specified under the In-Service Distribution Option and/or as otherwise specified under this Plan.
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Disabled or Disability shall mean that a Participant is disabled due to sickness or injury which qualifies the Participant for disability payments under the Companys long term disability plan. A Participant shall be considered totally and permanently disabled on the date the Participant qualifies for such long term disability payments.
Distribution Option shall mean the two distribution options which are available under the Plan, consisting of the Separation Distribution Option and the In-Service Distribution Option.
Distribution Option Account or Accounts shall mean, with respect to a Participant, the Separation Distribution Account and/or the In-Service Distribution Account(s) established on the books of account of the Company, pursuant to Article IV, for each Participant.
Effective Date shall mean the Distribution Date as defined in the Distribution Agreement by and among Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc., and the Company, dated as of .
Eligible Employee shall mean (i) officers of the Company at the Vice President level or higher, or (ii) Highly Compensated Employees who are selected by the Administrator to participate in the Plan pursuant to Article II.
Enrollment Agreement shall mean the authorization form which an Eligible Employee files with the Administrator to participate in the Plan and, with respect to the Plan Year in which the Effective Date occurs, the authorization form as in effect under the Prior Plan.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.
Fund or Funds shall mean one or more of the investments selected by the Administrator pursuant to Section 3.3(a).
HGV Employees shall mean (i) any individual designated as an HGV Employee in the Employee Matters Agreement by and between Hilton Worldwide Holdings Inc., Park Hotels & Resorts Inc., and the Company, dated as of , and (ii) any individual who is an Eligible Employee and who commences employment with the Company upon or following the date hereof.
Highly Compensated Employee shall mean an employee of the Company who the Administrator, in its discretion, anticipates will receive Compensation in excess of the salary limitation contained in Section 401(a)(17) of the Code for the applicable Plan Year or who the Administrator otherwise determines to be a highly compensated employee or member of a select group of management within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
In-Service Distribution Account or Accounts shall mean the Account(s) maintained for a Participant to which Compensation Deferrals and Company Contributions are credited pursuant to the In-Service Distribution Option.
In-Service Distribution Option shall mean the Distribution Option pursuant to which benefits are payable in accordance with Article VI.
3
Investment Return shall mean, for each Fund, an amount equal to the net investment performance of such Fund on a given day, as determined by the Administrator.
Key Employee shall be defined in accordance with Section 416(i) of the Code without regard to Section 416(i)(5) of the Code and shall generally mean (i) officers of the Company having annual compensation greater than $170,000 (adjusted for inflation and limited to 50 employees), (ii) five percent owners, and (iii) one percent owners having annual compensation from the Company greater than $150,000, all as determined by the Administrator in a manner consistent with the regulations issued under Section 409A.
Participant shall mean any Eligible Employee who elects to defer Compensation in accordance with Section 3.1.
Person shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust (charitable or non-charitable), unincorporated organization, or other form of business entity.
Plan shall mean the Hilton Grand Vacations Inc. 2016 Executive Deferred Compensation Plan set forth herein, in effect as of the Effective Date, or as amended from time to time.
Plan Year shall mean the 12 consecutive month period beginning on a January 1.
Prior Plan shall mean the Hilton Hotels 2005 Executive Deferred Compensation Plan, as amended.
Retirement shall mean a Participants Separation from Service (for reasons other than death) on or after the combination of the Participants age and Years of Vesting Service equals at least 55.
Section 409A means Section 409A of the Code and the treasury regulations promulgated thereunder.
Separation Date shall mean the date a Participant incurs a Separation from Service.
Separation Distribution Account shall mean the Account maintained for a Participant to which Compensation Deferrals and Company Contributions are credited pursuant to the Separation Distribution Option.
Separation Distribution Option shall mean the Distribution Option pursuant to which benefits are payable in accordance with Article VI.
Separation from Service shall mean a Participants separation from service with the Company within the meaning of Section 409A.
Unforeseeable Financial Emergency shall mean: (i) a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participants spouse, beneficiary, or a dependent (as defined in Code Section 152(a)) of the Participant, loss of the
4
Participants property due to casualty, the imminent foreclosure of or eviction from the Participants primary residence, the need to pay medical expenses (including nonrefundable deductibles) or prescription drug medications, the need to pay for funeral expenses of a spouse, beneficiary, or dependent, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant; or (ii) such other definition of unforeseeable emergency within the meaning of Code Section 409A(a)(2)(B)(ii).
Year of Vesting Service shall mean a Year of Vesting Service as determined for purposes of the 401(k) defined contribution savings plan in which such Participant participates or most recently participated.
ARTICLE II
PARTICIPATION
Except as otherwise expressly provided for herein, prior to December 31 of each Plan Year, the Administrator shall designate which Highly Compensated Employees shall become Eligible Employees for the following Plan Year. An Eligible Employee designated as a Participant shall thereafter, unless otherwise determined by the Administrator, be eligible to make a Compensation Deferral for each Plan Year. Participation in the Plan shall be made conditional upon an Eligible Employees acknowledgement, in writing or by making a deferral election under the Plan, that all decisions and determinations of the Administrator shall be final and binding on the Participant, the Participants beneficiaries and any other Person having or claiming an interest under the Plan.
As of the Effective Date, each HGV Employee with respect to whom a Transferred Balance is transferred to the Plan shall become a Participant in the Plan.
ARTICLE III
DEFERRAL ELECTIONS
Section 3.1 Elections to Defer Compensation .
(a) Each Eligible Employee may elect to make a Compensation Deferral by filing with the Administrator an election that conforms to the requirements set forth in this Article III, on an Enrollment Agreement provided by the Administrator, no later than December 31 of the Plan Year preceding the Plan Year for which the Compensation is to be earned and specifying whether the Participant elects a Base Salary Deferral or a Bonus Compensation Deferral or a combination, the Distribution Option Accounts to which such amounts will be credited, the form and timing of distribution and such other information as the Administrator shall require; provided, however, that for the Plan Year in which the Effective Date occurs, a deferral election under the Prior Plan shall be treated as a deferral election under this Section 3.1(a) and be given continuing effect under this Plan after the Effective Date for the remainder of such Plan Year.
(i) Notwithstanding (a) above, if an Eligible Employees Bonus Compensation is performance-based compensation as contemplated by Section 409A, the Administrator may allow the Eligible Employee to elect to defer all or a portion of such Eligible Employees Bonus Compensation for a Plan Year at a time determined by the Administrator, which may be no less than six months before the end of the applicable Plan Year in which such Bonus Compensation is to be earned.
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(ii) The Eligible Employee shall elect to allocate such Eligible Employees Compensation Deferrals (and any Company Contributions that may be credited with respect thereto) between the Distribution Options in whole percentage increments; provided that one hundred percent (100%) of such Deferrals (and Company Contributions) may be allocated to one or the other of the Distribution Options.
(iii) The Administrator may establish minimum or maximum amounts that may be deferred under this Section and may change such standards from time to time. Any such limits shall be communicated by the Administrator to the Participants prior to the commencement of a Plan Year. No Participant may have more than one Separation Distribution Account.
(b) Notwithstanding anything herein to the contrary, no Eligible Employee shall be permitted to defer Compensation which the Administrator reasonably determines is required to pay the Eligible Employees portion of payroll and other taxes and contributions towards benefits (including, but not limited to, medical, life, dental and disability) provided to the Eligible Employee and such Eligible Employees dependents.
(c) Any Compensation Deferral made under Section 3.1(a) above shall remain in effect and be irrevocable, notwithstanding any change in a Participants Compensation, for the entire Plan Year for which it is effective. A new Compensation Deferral election must be made for each Plan Year during which a Participant wishes to defer Compensation. If a Participant elects to allocate all or a portion of such Participants Compensation Deferrals to an In-Service Distribution Account, that election will remain effective only for the Plan Year to which the Enrollment Agreement relates. If the Participant does not elect an in-service distribution date for deferrals to the In-Service Distribution Account in a subsequent Plan Year, such deferrals shall automatically be allocated to the Participants Separation Distribution Account. Compensation Deferral elections shall be made on an Enrollment Agreement filed with the Administrator by December 31 of a Plan Year (or such earlier date as may be designated by the Administrator) to make a Compensation Deferral for Compensation to be earned on or after January 1 of the immediately following Plan Year.
(d) The Administrator may, in its discretion, permit Eligible Employees who first become Eligible Employees after the beginning of a Plan Year, including Eligible Employees who become Eligible Employees because they are promoted or hired by the Company on or after January 1 of a Plan Year to a position which has been designated by the Administrator as an Eligible Employee, to enroll in the Plan for that Plan Year by filing a completed and fully executed Enrollment Agreement as soon as practicable following the date the Employee is notified that of such Employees eligibility but, in any event, within 30 days after such date. Notwithstanding the foregoing, however, any Enrollment Agreement executed by an Eligible Employee, pursuant to this Section, to make a Compensation Deferral shall apply only to Compensation earned by the Eligible Employee after the date on which such Enrollment Agreement is filed.
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(e) All deferral elections under the Plan shall be made in accordance with Section 409A.
Section 3.2 Distribution Elections .
Subject to Section 3.4, in the Enrollment Agreement, each Eligible Employee shall select the form and the timing of payment with respect to the Eligible Employees Compensation Deferral. An Eligible Employees deferral election under this Article III shall not be effective unless and until the Eligible Employee makes the required distribution elections under this Section 3.2. Each Eligible Employee shall make the following form and timing of payment elections:
(a) Retirement . An Eligible Employee shall elect the form of payment in which amounts credited to the Eligible Employees Distribution Option Accounts shall be paid where (i) the Eligible Employees Separation Date occurs on or after eligibility for Retirement and (ii) the amount to be distributed from all of the Eligible Employees Distribution Option Accounts exceeds $100,000 (taking into account all deferrals made to all of the Eligible Employees Distribution Option Accounts). The Eligible Employee may elect a lump sum, or quarterly, semi-annual or annual installments payable over 5, 10, 15 or 20 years. This form of payment election shall apply to all Compensation Deferrals credited on behalf of the Eligible Employee to such Eligible Employees Separation Distribution Account in any Plan Year in which the Eligible Employee makes Compensation Deferrals under this Plan, subject to change only in accordance with Section 3.4 below. In the event the amount to be distributed from a Participants Distribution Option Accounts upon a Separation from Service after eligibility for Retirement does not exceed $100,000 (taking into account all deferrals made to all of the Eligible Employees Distribution Option Accounts) as determined under Section 6.2, the Participants Distribution Option Accounts shall be paid in a lump sum in accordance with Section 6.2 without regard to the Participants actual form of payment election.
(b) In-Service Distribution . An Eligible Employee shall elect (i) the form of payment in which amounts credited to the Eligible Employees In-Service Distribution Account, if applicable, shall be paid where the amount to be distributed exceeds $25,000 and (ii) the Plan Year in which such payment shall commence; provided that the Plan Year selected in (ii) may not be prior to the third Plan Year following the Plan Year in which the Compensation Deferral is made, except as permitted under Section 3.6. The Eligible Employee may elect a lump sum, or quarterly, semi-annual or annual installments payable over 2, 3, 4 or 5 years. This election shall apply only to the Compensation Deferrals credited on behalf of the Eligible Employee to the In-Service Distribution Account created pursuant to the Enrollment Form to which such Compensation Deferrals relate, except to the extent changed pursuant to a subsequent election in accordance with Section 3.4 below. In the event the amount to be distributed from a Participants In-Service Distribution Account does not exceed $25,000 as of the applicable distribution date, the Participants In-Service Distribution Account shall be paid in a lump sum in accordance with Section 6.2 without regard to the Participants actual form of payment election(s). If a Participant incurs a Separation from Service prior to the in-service distribution date elected by the Participant with respect to the Participants In-Service Distribution Account, the Participants distribution election with respect to such In-Service Distribution Account shall become invalid and distribution shall instead be made in accordance with the Participants elections under Section 3.2(a), 3.2(c) or 3.4, as applicable.
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(c) Separation from Service .
An Eligible Employee shall elect the form of payment in which amounts credited to the Eligible Employees Separation Distribution Account, if applicable, shall be paid where (i) the Eligible Employees Separation Date occurs prior to eligibility for Retirement, and (ii) the amount to be distributed from all of the Eligible Employees Distribution Option Accounts exceeds $100,000 (taking into account all deferrals made to all of the Eligible Employees Distribution Option Accounts). The Eligible Employee may elect a lump sum or annual installments payable over 5 years. This election shall apply to all Compensation Deferrals credited on behalf of the Eligible Employee to such Eligible Employees Separation Distribution Account in any Plan Year in which Compensation Deferrals are made under this Plan, subject to change only in accordance with Section 3.4 below. In the event the amount to be distributed from a Participants Distribution Option Accounts upon a Separation from Service before eligibility for Retirement does not exceed $100,000 (taking into account all deferrals made to all of the Eligible Employees Distribution Option Accounts) as determined under Section 6.2, the Participants Distribution Option Accounts shall be paid in a lump sum in accordance with Section 6.2 without regard to the Participants actual form of payment election.
Section 3.3 Investment Elections .
(a) At the time of making the deferral elections described in Section 3.1 and the distribution elections described in Section 3.2, the Participant shall designate, in a manner prescribed by the Administrator, which Funds the Participants Accounts will be deemed to be invested in for purposes of determining the Investment Return to be credited to those Accounts. The Funds shall be as selected by the Administrator from time to time and the Administrator may add, change, or delete Funds at any time. In making the designation pursuant to this Section 3.3, the Participant may specify that all or any whole percentage of the Participants Accounts be deemed to be invested in one or more of the Funds. A Participant may change the designation made under this Section 3.3, in a manner prescribed by the Administrator, on any business day. Such change shall be effective as soon as administratively feasible after it is received.
(b) If a Participant fails to elect a type of Fund under this Section 3.3, he or she shall be deemed to have elected the Fund designated by the Administrator.
(c) Although the Participant may designate the Funds according to Section 3.3(a) above, the Administrator shall select, from time to time, in its sole discretion, for each of the Funds described in Section 3.3(a) above, a commercially available mutual fund or contract or an investment fund established with and administered by an investment manager selected by the Administrator. The Investment Return of each such commercially available mutual fund, contract or investment fund shall be used to determine the amount of earnings to be credited to Participants Accounts under Article IV although nothing set forth in this Plan shall require an actual investment of monies in any such mutual fund or in any other Fund designated as a deemed investment vehicle for Compensation Deferrals.
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Section 3.4 Subsequent Elections .
The Administrator may establish rules allowing a Participant to make a subsequent election to postpone payment of Compensation Deferrals under the Participants In-Service Distribution Account(s) and/or such Participants Separation Distribution Account, in accordance with the rules in this Section 3.4; provided that any such subsequent election shall be made in accordance with the requirements of Section 409A and that no subsequent election may result in an impermissible acceleration of payment as described in Section 409A. The following rules shall apply to subsequent elections under the Plan:
(a) With respect to Compensation Deferrals under an In-Service Distribution Account, a Participant may make a subsequent election to defer the payment to a later Plan Year or to change the form of payment applicable to such In-Service Distribution Account; provided that (i) the subsequent election must be made at least 12 months prior to the January in which the first scheduled payment was to occur, (ii) the subsequent election may not take effect until at least 12 months after the date on which the election is made, and (iii) except with respect to an election related to payment upon an Unforeseeable Financial Emergency, the first payment with respect to which such election is made must be deferred for a period of not less than five years from the date such payment would otherwise have been made.
(b) A Participant may make a subsequent election to change the form or time at which Compensation Deferrals credited to a Participants Separation Distribution Account will be paid; provided that (i) the subsequent election may not take effect until at least 12 months after the date on which the election is made, and (ii) except with respect to an election related to payment upon an Unforeseeable Financial Emergency or death, the first payment with respect to which such election is made must be deferred for a period of five years from the date such payment would have otherwise have been made. Participants shall be permitted to make only one subsequent election to change the form or time of payment of their Separation Distribution Account.
ARTICLE IV
DISTRIBUTION OPTION ACCOUNTS
Section 4.1 Compensation Deferrals .
(a) The Administrator shall establish and maintain separate Distribution Option Accounts with respect to a Participant. A Participants Distribution Option Accounts may consist of a Separation Distribution Account and/or one or more In-Service Distribution Account(s), as elected by the Participant. Each Participants Distribution Option Accounts shall be further divided into separate subaccounts (subaccounts), each of which corresponds to a Fund elected by the Participant pursuant to Section 3.3(a).
(b) As soon as practicable after the end of each calendar month, the Administrator shall credit the subaccounts of the Participants Distribution Option Account with an amount equal to the Base Salary and/or Bonus Compensation that would otherwise have been earned for such calendar month in accordance with the Distribution Option irrevocably elected by the Participant in the Enrollment Agreement and in accordance with the Participants
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investment elections under Section 3.3(a). Any amount once taken into account as Base Salary and/or Bonus Compensation for purposes of this Plan shall not be taken into account thereafter. The Participants Distribution Option Accounts shall be reduced by the amount of payments made by the Company to the Participant or the Participants Beneficiary pursuant to this Plan.
(c) Transferred Balances . As of the Effective Date, a Participants account balances, if any, under the Prior Plan shall be transferred to this Plan as follows:
(i) A Transferred Balance attributable to amounts credited to the Participant under the Prior Plan shall be transferred to the Participants Account under this Plan, and credited to a Separation Distribution Account and/or In-Service Distribution Account (or other subaccount), as previously credited under the Prior Plan. Following the transfer of a Transferred Balance, the Company shall be responsible under this Plan for the payment of all Transferred Balances.
(ii) The Participants investment elections with respect to any Transferred Balance shall be mapped to the available investment options as directed by the Administrator.
Section 4.2 Company Contribution .
From time-to-time and in its sole discretion, the Committee may provide that Company Contributions be credited to some or all Participants, according to the terms and conditions determined by the Committee.
Section 4.3 Investment Return .
Each subaccount of a Participants Distribution Option Account shall, as of each business day, be credited with earnings and debited with losses in an amount equal to that determined by multiplying the balance credited to such subaccount as of the previous day by the Investment Return for the corresponding Fund pursuant to Section 3.3(a).
ARTICLE V
VESTING
Section 5.1 Compensation Deferral .
A Participants Compensation Deferral credited to the Participants Distribution Option Account shall be 100% vested at all times.
Section 5.2 Company Contribution .
(a) Unless otherwise specified by the Committee, Company Contributions credited to a Participants Distribution Option Account, if any, will vest and become non-forfeitable in the following increments: (i) 25% upon the Participants completion of two Years of Vesting Service; (ii) an additional 25% (50% total) upon completion of three Years of Vesting Service; (iii) an additional 25% (75% total) upon completion of four Years of Vesting Service; and (iv) the Distribution Option Account balance shall be fully vested and nonforfeitable in its entirety on and after the Participants completion of five Years of Vesting Service.
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(b) Notwithstanding Section 5.2(a) above, a Participants Distribution Option Account balance shall be fully vested and nonforfeitable in its entirety should: (i) the Participant die while providing service to the Company, (ii) the Participant become Disabled while providing service to the Company, or (iii) there occur a Change in Control.
(c) When a Participant incurs a Separation Date, the portion of the Company Contribution credited to such Participants Distribution Option Account which is not vested shall immediately be forever forfeited to the Company, and the Company shall have no obligation to the Participant (or Beneficiary) with respect to such forfeited amount.
ARTICLE VI
DISTRIBUTIONS
Section 6.1 Form and Timing of Distribution .
(a) Subject to Section 6.2, in the case of a Participant whose Separation Date occurs on or after eligibility for Retirement and the vested portion of the Participants Separation Distribution Account exceeds $100,000 (taking into account all deferrals made to the Participants Separation Distribution Account), the Participants Separation Distribution Account shall be distributed in the form elected by the Participant pursuant to Sections 3.2 and 3.4, as applicable, and shall be paid, or commence to be paid, within 30 days following the end of the twelfth full calendar month after the Participant has a Separation from Service, unless payment is deferred pursuant to Section 3.4.
(b) Subject to Section 6.2 and to clauses (i) and (ii) below, in the case of a Participant who has not incurred a Separation from Service and the vested portion of a Participants In-Service Distribution Account exceeds $25,000 (applied on an Account by Account basis), the vested portion of the Participants In-Service Distribution Account shall be paid to the Participant within 30 days following the date elected by the Participant pursuant to Sections 3.2 and 3.4, as applicable; provided that if the amount to be distributed does not exceed $25,000, distribution shall be made in a lump sum in accordance with Section 6.2.
(i) If the Participants Account is not fully vested in accordance with Article V when the In-Service Distribution Account is to be paid, the non-vested portion at the date of first payment will automatically be transferred to the Participants Separation Distribution Account.
(ii) If the Participant incurs a Separation from Service after distribution has commenced in accordance with this Section 6.1(b) but prior to the date on which the Participants In-Service Distribution Account(s) is fully distributed, distribution of the remaining amounts held in the Participants In-Service Distribution Account(s) shall continue to be distributed in accordance with the Participants election for such Participants In-Service Distribution Account.
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(c) In the case of a Participant whose Separation Date occurs prior to the earliest date on which the Participant is eligible for Retirement, other than by reason of death, and the vested portion of the Participants Distribution Option Accounts exceeds $100,000 (taking into account all deferrals made to the Participants Distribution Option Accounts), the vested portion of a Participants Distribution Option Accounts shall be distributed in the form elected by the Participant pursuant to Sections 3.2 and 3.4, as applicable, and shall be paid or commence to be paid within 30 days following the end of the twelfth full calendar month after the Participant has a Separation from Service, unless payment is deferred pursuant to Section 3.4. Any unvested portion of any Distribution Option Account shall be forfeited in accordance with Section 5.2.
Section 6.2 Small Benefit Cashout .
(a) Notwithstanding any provision of the Plan or election by a Participant to the contrary, in the event the value of the vested portion of a Participants Separation Distribution Account does not exceed $100,000 (taking into account all deferrals made to the Eligible Employees Separation Distribution Account) as of the date the Participants Account becomes distributable in accordance with the terms of the Plan, then the vested portion of the Participants Account shall be paid in a lump sum within 30 days following the date the Participants Account becomes distributable. For purposes of the foregoing, the Participants Account shall be valued as of the last business day of the month following the month in which the Participants Separation Date occurs. If the value at such time does not exceed $100,000, the Participants Account shall be distributed in a lump sum within 30 days thereafter.
(b) Notwithstanding any provision of the Plan or election by a Participant to the contrary, in the event the value of the vested portion of a Participants In-Service Distribution Account does not exceed $25,000 (applied on an Account by Account basis) as of the date the Participants Account becomes distributable, then the vested portion of the Participants Account shall be paid in a lump sum within 30 days following the date the Participants Account becomes distributable.
Section 6.3 Payout .
(a) Unless otherwise specified in Section 6.1 or Section 6.2 hereof, any lump sum benefit payable under this Article VI shall be paid in January of the Plan Year elected by the Participant pursuant to Sections 3.2(b) and 3.4, as applicable, in an amount equal to the vested value of the portion of such Distribution Option Account being distributed as of the business day the Funds are deemed to be liquidated to make the payment.
(b) Installment payments, if any, payable under this Article VI shall commence in January of the Plan Year elected by the Participant pursuant to Sections 3.2(b) and 3.4, as applicable, or otherwise at the time specified for payment under Sections 6.1(a) or 6.1(c), as applicable, in an amount equal to (i) the vested value of such portion of such Distribution Option Account being distributed as of the business day the Funds are deemed to be liquidated to make the payment, divided by (ii) the number of installment payments elected by the Participant in the applicable Enrollment Agreement with respect to an In-Service Distribution Account or in the distribution election form filed pursuant to Section 3.2 or 4.2(d) with respect to the
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Separation Distribution Account. The remaining installments shall be paid in an amount equal to (x) the vested value of such portion of the Distribution Option Account being distributed as of the business day the Funds are deemed to be liquidated to make the payment divided by (y) the number of installments remaining.
Section 6.4 Financial Hardship of Participant .
(a) At any time prior to commencement of payment pursuant to this Article VI, a Participant may request payment to the Participant of all or a portion of the amounts that the Participant has deferred under the Plan. The decision to approve or deny such a request shall be in the absolute discretion of the Administrator. However, such a request shall be approved only upon a finding that the Participant has suffered an Unforeseeable Financial Emergency, and then only in an amount necessary to eliminate such Unforeseeable Financial Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). In the event such a request is approved, payment of all or a portion of the amounts previously deferred by the Participant, with credited interest, to the extent approved by the Administrator, shall be made as soon as practicable to the Participant. Amounts otherwise payable to a Participant hereunder shall be adjusted (as determined by the Administrator in its absolute discretion) to take into account such Unforeseeable Financial Emergency payment. The Administrator shall administer hardship distribution requests consistently with Section 409A.
(b) If a Participant elects to take an Unforeseeable Financial Emergency distribution prior to June 30 of any Plan Year, the Participants deferral election shall be cancelled for the Plan Year in which the distribution occurs with respect to all Base Salary and Bonus Compensation not yet earned. If a Participant elects to take an Unforeseeable Financial Emergency distribution on or after June 30 of any Plan Year, the Participants deferral election shall be cancelled for the Plan Year in which such distribution occurs with respect to all salary and bonuses not yet earned, and the Participant shall be suspended from participation in the Plan for the following Plan Year. If the Participant wishes to commence making a Compensation Deferral after the period during which the Participants deferral election is cancelled pursuant to this Section 6.4(b), the Participant may make a new deferral election in accordance with the requirements of Section 3.1.
Section 6.5 Permissible Distribution Event .
Notwithstanding any provision of the Plan to the contrary, no distributions shall be made except upon a specified date or event as permitted pursuant to Section 409A.
Section 6.6 Payment by Trust .
The Company may cause the payment of benefits under this Plan to be made in whole or in part by the trustee of a trust designated by the Committee (the Trust). The Administrator may direct the Trustee to pay the Participants or Beneficiarys benefit at the time and in the amount described herein. In the event the amounts allocated to the Participant under the Trust are not sufficient to provide the full amount of benefit payable to the Participant, the Company shall pay the remainder of such benefit.
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Section 6.7 Inability to Locate Participant .
In the event that the Administrator is unable to locate a Participant or Beneficiary within two years following the date the Participant was to commence receiving payment, the entire amount allocated to the Participants Deferral Account and Company Contribution Account shall be forfeited. If, after such forfeiture, the Participant or Beneficiary later claims such benefit, such benefit shall be reinstated without interest or earnings from the date payment was to commence pursuant to the Participants elections under Sections 3.2 and 3.4, as applicable.
ARTICLE VII
CHANGE IN CONTROL
In the event of a Change in Control, all Participants shall receive a distribution of 100% of the Participants Distribution Option Accounts at the time of the distribution. Such distribution shall be made in a lump sum within 30 days following the date the Change in Control is consummated, in an amount equal to the value of such Distribution Option Accounts as of the business day the Funds are deemed to be liquidated to make the payment.
ARTICLE VIII
DEATH BENEFITS
Upon the death of a Participant before the Participants Distribution Option Account(s) has been paid in full (either in a lump sum or installment payments), the Participants Beneficiary shall receive the balance of the Participants vested Account as of the date of death, as adjusted by subsequent gains or losses prior to distribution, in the form of a lump sum payment as soon as reasonably practicable following the date of the Participants death (but in no event after December 31 of the calendar year following the calendar year in which death occurs).
ARTICLE IX
CLAIMS PROCEDURES
Section 9.1 Claims .
A Participant or, following the Participants death, a Beneficiary (collectively referred to in this section as Claimant) may submit a claim for benefits under the Plan. Any claim for benefits under this Plan shall be made in writing to the Administrator. If such claim for benefits is wholly or partially denied, the Administrator shall, within 90 days after receipt of the claim, notify the Claimant of the denial of the claim unless special circumstances require an extension of time for processing the claim, which extension shall not exceed 180 days from receipt of the claim. If such extension is required, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90-day period and shall indicate the special circumstances requiring an extension of time and the date by which the Administrator expects to render a final decision. A notice of denial shall be in writing, shall be written in a manner calculated to be understood by the Claimant, and shall contain the specific reason or reasons for
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denial of the claim, a specific reference to the pertinent Plan provisions upon which the denial is based, a description of the additional material or information (if any) necessary to perfect the claim, together with an explanation of why such material or information is necessary, and an explanation of the claims review procedure set forth below, including a statement of the Claimants right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on review.
Section 9.2 Appeal .
Within 60 days after the receipt by a Claimant of a written notice of denial of a claim, the Claimant may file a written request with the Administrator that it conduct a full and fair review of the denial of the claim for benefits. The Claimant, or duly authorized representative, shall receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Claimants claim for benefits. The Claimant, or duly authorized representative may also submit written comments, documents, records and other information relating to the claim for benefits, and the review will take into account such items whether or not they were considered in the initial benefit determination.
The Administrator shall deliver to the Claimant, or authorized representative, a written decision on the claim within 60 days after the receipt of the request for review, except that if there are special circumstances that require an extension of time, the 60-day period may be extended to 120 days. If such extension is required, written notice shall be furnished to the Claimant, or authorized representative, prior to the termination of the initial 60-day period and shall indicate the special circumstances requiring an extension of time and the date by which the final decision will be rendered. The decision shall be written in a manner calculated to be understood by the Claimant, include the specific reason or reasons for the decision, include a statement that the Claimant is entitled to receive upon request and free of charge, access to and copies of all documents and other information relevant to the claim, contain a specific reference to the pertinent Plan provisions upon which the decision is based, and include a statement describing any voluntary appeal procedures offered by the Plan and a statement of the Claimants right to bring an action under section 502(a) of ERISA.
Section 9.3 Authority .
The Administrator, in determining claims for benefits, shall have the complete discretion to review and determine related factual questions, to construe the terms of the Plan, and to bind the Company with respect to the Plan.
ARTICLE X
ADMINISTRATION
Section 10.1 Administrator .
The Plan shall be administered by the Administrator. The Administrator shall be appointed by, and serve at the pleasure of, the Committee, provided that if no Administrator is designated, the Plan shall be administered by the Committee. The number of members comprising the Administrator shall be determined by the Committee which may from time to time vary the number of members. A member of the Administrator may resign by delivering a written notice of resignation to the Committee. The Committee may remove any member by delivering a certified copy of its resolution of removal to such member. Vacancies in the membership of the Administrator shall be filled promptly by the Committee.
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Section 10.2 Administrator Action .
The Administrator shall act at meetings by affirmative vote of a majority of the members of the Administrator. Any action permitted to be taken at a meeting may be taken without a meeting if, prior to such action, a written consent to the action is signed by all members of the Administrator and such written consent is filed with the minutes of the proceedings of the Administrator. A member of the Administrator shall not vote or act upon any matter which relates solely to such member as a Participant. Any member or members of the Administrator may execute any certificate or other written direction on behalf of the Administrator.
Section 10.3 Powers and Duties of the Administrator .
(a) The Administrator, on behalf of the Participants and their Beneficiaries, shall enforce the Plan in accordance with its terms, shall be charged with the general administration of the Plan, and shall have all powers necessary to accomplish its purposes, including, but not by way of limitation, the following:
(i) To select the mutual funds, contracts or investment funds to be the Funds in accordance with Section 3.3(b) hereof;
(ii) To construe and interpret the terms and provisions of this Plan; reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan; and to make factual determinations;
(iii) To compute and certify to the amount and kinds of benefits payable to Participants and their Beneficiaries;
(iv) To maintain all records that may be necessary for the administration of the Plan;
(v) To provide for the disclosure of all information and the filing or provision of all reports and statements to Participants, Beneficiaries or governmental agencies as shall be required by law;
(vi) To make and publish such rules for the regulation of the Plan and procedures for the administration of the Plan as are not inconsistent with the terms hereof; and
(vii) To appoint a plan administrator or any other agent, and to delegate to them such powers and duties in connection with the administration of the Plan as the Administrator may from time to time prescribe.
(viii) On behalf of the Company, to select those Highly Compensated Employees who shall be Eligible Employees.
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Section 10.4 Construction and Interpretation .
(a) The Administrator shall have full discretion to construe and interpret the terms and provisions of this Plan, which interpretation or construction shall be final and binding on all parties, including but not limited to, the Company and any Participant or Beneficiary. The Administrator shall administer such terms and provisions in a uniform and nondiscriminatory manner and in full accordance with any and all laws applicable to the Plan.
(b) Nothing contained in the Plan shall be construed to prevent the Company from taking any action which is deemed by it to be appropriate or in its best interest. No Participant, Beneficiary, or other Person shall have any claim against the Company as a result of such action. Any decisions, actions or interpretations to be made under the Plan by the Company or the Committee, or the Administrator acting on behalf of the Company, shall be made in its respective sole discretion, not as a fiduciary, need not be uniformly applied to similarly situated individuals and shall be final, binding and conclusive on all Persons interested in the Plan.
Section 10.5 Information .
To enable the Administrator to perform its functions, the Company shall supply full and timely information to the Administrator on all matters relating to the Compensation of all Participants, their death, Disability, or other cause of termination, and such other pertinent facts as the Administrator may require.
Section 10.6 Compensation, Expenses and Indemnity .
(a) The Administrator is authorized at the expense of the Company to employ such legal counsel as it may deem advisable to assist in the performance of its duties hereunder. Expenses and fees in connection with the administration of the Plan shall be paid by the Company.
(b) To the extent permitted by applicable state law, the Company shall indemnify and save harmless the Administrator and each member thereof, the Committee and any delegate of the Administrator who is an employee of the Company against any and all expenses, liabilities and claims, including legal fees to defend against such liabilities and claims arising out of their discharge in good faith of responsibilities under or incident to the Plan, other than expenses and liabilities arising out of willful misconduct. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement or otherwise, as such indemnities are permitted under state law.
Section 10.7 Quarterly Statements .
Under procedures established by the Administrator, a Participant shall receive a statement with respect to such Participants Accounts on a quarterly basis as of each March 31, June 30, September 30 and December 31.
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ARTICLE XI
MISCELLANEOUS
Section 11.1 Unsecured General Creditor .
Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property or assets of the Company. No assets of the Company shall be held under any trust, or held in any way as collateral security for the fulfilling of the obligations of the Company under this Plan. Any and all of the Companys assets shall be, and remain, the general unpledged, unrestricted assets of the Company. The Companys obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured general creditors.
Section 11.2 Restriction Against Assignment .
The Company shall pay all amounts payable hereunder only to the Persons designated by the Plan and not to any other Persons. No part of a Participants Accounts shall be liable for the debts, contracts, or engagements of any Participant, the Participants Beneficiary, or successors in interest, nor shall a Participants Accounts be subject to execution by levy, attachment, or garnishment or by any other legal or equitable proceeding, nor shall any such Person have any right to alienate, anticipate, commute, pledge, encumber, or assign any benefits or payments hereunder in any manner whatsoever. If any Participant, Beneficiary or successor in interest is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any distribution or payment from the Plan, voluntarily or involuntarily, the Administrator, in its discretion, may cancel such distribution or payment (or any part thereof) to or for the benefit of such Participant, Beneficiary or successor in interest in such mariner as the Administrator shall direct.
Section 11.3 Withholding .
There shall be deducted from each payment made under the Plan or any other compensation payable to the Participant (or Beneficiary) all taxes which are required to be withheld by the Company in respect to such payment or this Plan. The Company shall have the right to reduce any payment (or compensation) by the amount of cash sufficient to provide the amount of said taxes.
Section 11.4 Amendment, Modification, Suspension or Termination .
The Committee or the Board of Directors of the Company may at any time, or from time to time, in its sole discretion amend or terminate the Plan in any manner that the Committee or the Board of Directors of the Company deems appropriate, including amending or terminating outstanding deferral elections, if necessary or appropriate to comply with changes to applicable law, without the consent of any Participant; provided, however, that no amendment shall reduce any benefits accrued under the terms of the Plan as of the date of amendment. In the event the Committee or the Board of Directors of the Company acts to terminate and liquidate the Plan in accordance with Treasury regulations Section 1.409A-3(j)(4)(ix), distribution to Participant shall be made in accordance with Article 6, unless otherwise required in order to comply with Section 409A.
18
Section 11.5 Governing Law .
This Plan shall be construed, governed and administered in accordance with the laws of the State of Delaware (including its statute of limitations and all substantive and procedural law, and without regard to its conflict of laws provisions), except as to matters of federal law.
Section 11.6 Receipt or Release .
Any payment to a Participant or the Participants Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Administrator, the Company and the Trustee. The Administrator may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect.
Section 11.7 Payments on Behalf of Persons Under Incapacity .
In the event that any amount becomes payable under the Plan to a Person who, in the sole judgement of the Committee, is considered by reason of physical or mental condition to be unable to give a valid receipt therefore, the Administrator may direct that such payment be made to any Person found by the Administrator, in its sole judgement, to have assumed the care of such Person. Any payment made pursuant to such determination shall constitute a full release and discharge of the Administrator and the Company.
Section 11.8 Headings .
Headings and subheadings in this Plan are inserted for convenience of reference only and are not to be considered in the construction of the provisions hereof.
19
IN WITNESS WHEREOF, the Company has caused this document to be executed by its duly authorized officer to be effective on this , 2016.
HILTON GRAND VACATIONS INC. | ||
By: |
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Its: |
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Exhibit 10.15
July 6, 2016
Mr. James Mikolaichik
[address]
Dear Jim:
As you know, the Board of Directors of Hilton Worldwide Holdings Inc. (HWHI) has announced its intent to spin off Hilton Grand Vacations Inc., its timeshare business, into a standalone public company (collectively with its subsidiaries, referred to as HGV) that will be based in Orlando, Florida. This spin-off transaction (the Spin-off) is expected to occur in .
As the expected Chief Executive Officer of HGV, I am pleased to offer you the position of Chief Financial Officer of HGV, subject to the terms and conditions contained in this offer letter. In this role, you will be reporting to me. This is a full-time position and you will be expected to devote your full business time and attention to the performance of your duties in this role.
Employment Start Date. Your first day of work in the role of Chief Financial Officer will be considered your Employment Start Date for purposes of determining future seniority and benefits eligibility. We have planned for your Employment Start Date to be on or about August 1, 2016. Your employment will be for no set duration. Your legal employer will be Hilton Resorts Corporation, HGVs employer entity (HRC), and based in Orlando, Florida. We do not anticipate that this will change as a result of the Spin-off.
Base Salary. Your starting annual base salary in your role as Chief Financial Officer will be $450,000, paid bi-weekly ($17,307.69 for each pay period worked), less applicable taxes and withholdings. You will continue to be paid this annual base salary in your role as Chief Financial Officer of HGV for periods after the effective date of the Spin-off (the Spin-off Date), until changed pursuant to a review. Your salary will be subject to annual review.
Annual Cash Incentive Plan. Subject to the terms of the current Hilton Annual Incentive Plan (the Hilton Plan), for 2016 you will be entitled to receive a performance incentive bonus (the 2016 Incentive Bonus) equal to 100% of your annual base salary, less applicable withholding, provided you remain employed with HGV through December 31, 2016. This represents the target bonus amount for someone in your role under the terms of the current Hilton Plan, with no proration for the partial year of service. This 2016 Incentive Bonus payment will be paid to you no later than March 15, 2017, provided you remain employed through and including the payment date (except as expressly provided for below).
For 2017 and subsequent years, you will be eligible to participate in HGVs annual bonus incentive plan (each, an HGV Bonus Plan) at a level commensurate with your position as an executive with HGV. Your participation in the HGV Bonus Plan does not constitute a promise of payment. Your actual incentive payout will depend on HGVs financial performance and managements assessment of your individual performance, and will be subject to the terms and conditions of the HGV Bonus Plan. Eligibility for participation in the HGV Bonus Plan will be subject to annual review.
Sign-On Bonus. You will receive a sign-on bonus of $300,000, less applicable taxes and withholdings (the Sign-on Bonus). Of this bonus, $10,000 is in consideration of COBRA expenses that you may incur in connection with your transition to employment with HGV. This Sign-on Bonus will be paid to you in the first payroll cycle that occurs thirty (30) days after your Employment Start Date. In the event that, within twenty-four (24) months of your Employment Start Date, you voluntarily terminate your employment for any reason (except as expressly provided for below) or your employment is terminated for Cause by HGV, you will be required to repay to HGV the full amount of the paid Sign-on Bonus within thirty (30) days of the date of your termination.
For purposes of this offer letter, Cause shall be defined to include, but not be limited to (i) conviction of, or plea of nolo contendere to, a felony or crime involving moral turpitude; (ii) fraud on or misappropriation of any funds or property of HGV, any affiliate, customer or vendor; (iii) personal dishonesty, incompetence, willful misconduct, willful violation of any law, rule or regulation (other than minor traffic violations or similar offenses), or breach of fiduciary duty which involves personal profit; (iv) willful misconduct or negligence in connection with your duties or willful failure or refusal to perform your responsibilities in the best interests of HGV; (v) chronic use of alcohol, drugs or other similar substances which adversely affects your work performance; (vi) violation of any material company rule, regulation, procedure or policy; or (vii) breach of any provision of any employment, non-disclosure, non-competition, non-solicitation or other similar agreement executed by you for the benefit of HGV or of any material HGV policy, all as determined by the Board of Directors of HGV or its designee, which determination will be conclusive.
Sign-On LTI Award. In addition, HGVs management team will recommend that, subsequent to the Spin-off, as an initial sign-on incentive, the Compensation Committee of the Board of Directors of HGV grant you a Long-Term Incentive award with an aggregate grant date value equal to $800,000 , which will be based on the closing price of HGVs common stock as of the grant date (determined in accordance with HGVs Stock Granting Policy then in effect). The aggregate grant date value will be awarded in the form of restricted stock units (RSUs). The RSUs will be subject to the terms and conditions of the HGV Omnibus Stock Incentive Plan (LTI Plan) to be adopted by the Board of Directors of HGV subsequent to the Spin-off, and the applicable RSU award agreement. One-third of the RSUs will vest and become non-forfeitable on each of the first three anniversaries of your Employment Start Date, provided in each case that you remain continuously employed by HGV through each applicable vesting date. Following the vesting of the RSUs, you will receive one share of HGV common stock for each vested RSU (subject to tax withholding).
Other Long-Term Incentive Programs. Subject to approval by the Compensation Committee of the Board of Directors of HGV, you will eligible to participate in an executive Long-Term Incentive (LTI) Program to be adopted by HGV following the Spin-off, in accordance with terms and conditions established by HGVs Board of Directors, including any applicable vesting period. HGVs management team will recommend that, for 2017, the Compensation Committee of the Board of Directors of HGV grant you a Long-Term Incentive award with an aggregate grant date value equal to $675,000, which will be based on the closing price of HGVs common stock as of the grant date (determined in accordance with the HGV Stock Granting Policy then in effect). All annual grants will be subject to any applicable taxes and withholding.
Severance Benefits. Beginning on your Employment Start Date, you will be eligible for severance benefits under the Hilton Executive Severance Plan (the Severance Plan) at the level applicable to current Executive Vice Presidents of Hilton, upon an eligible termination of employment in accordance with the terms of the Severance Plan. Following the Spin-off, you will continue to be eligible to receive severance benefits in accordance with the Severance Plan, on the same terms as if you continued to be eligible to participate in the Severance Plan until a qualifying termination of employment, until the earlier of (a) such time as HGV adopts a severance benefit plan applicable to employees holding your title or position providing for severance benefits that are substantially similar, in the aggregate, to those provided under the Severance Plan (the HGV Severance Plan), and (b) December 31, 2017.
In the event that the Spin-off does not occur by December 31, 2017, you will have the option to voluntarily terminate your employment upon one months written notice and that termination will be treated as a resignation for Good Reason (as defined under the Severance Plan). In that event, if you resign for Good Reason, you will (1) be permitted to retain your Sign-on Bonus without regard to repayment, (2) remain entitled to receive your 2016 Incentive Bonus, and (3) be entitled to severance benefits in accordance with the Severance Plan or HGV Severance Plan, as applicable. In order to resign for Good Reason, you must provide written notice of such resignation prior to February 15, 2018 (or, if earlier, prior to the Spin-off Date if it occurs after December 31, 2017).
Health & Welfare Benefits . Hilton provides a comprehensive package of benefits, including medical and prescription drug coverage, dental coverage, vision coverage, life insurance, short- and long-term disability insurance and other offerings. If you are a full-time team member as defined by Hiltons health and welfare benefits plan, you will be eligible to participate in the plans once you have completed 90 days of employment with
HGV. Enrollment must take place within the first 90 days of your employment with HGV for you to be eligible. Late enrollment (outside the initial 90-day period of your employment) will not be accepted. If you have questions related to your enrollment, please contact Hiltons HR Service Center at 1-877-442-4772.
Hilton 401(k) Savings Plan. You may participate in a Hilton-sponsored 401(k) savings plan, normally after your first 90 days of employment. HGV may match a portion of your contributions in accordance with the applicable plan provisions. Eligibility requirements and conditions of enrollment and coverage are subject to change and are set forth in the applicable plan documents. You may contact a local Human Resources representative for more information.
Deferred Compensation . Following the Spin-off, you will be eligible to participate in a deferred compensation plan sponsored by HGV, subject to the applicable plans terms and conditions.
Relocation. Relocation benefits to your permanent location will be offered in accordance with the Plan A of the Hilton Relocation Plan, which includes home sale and marketing assistance, home finding assistance, temporary living, home purchase assistance, reimbursement of relocation expenses, and moving of your household goods, provided that, notwithstanding the terms of Plan A of the Hilton Relocation Plan, HGV has agreed to reimburse you for eligible home sale expenses for a home valued at up to $1,000,000. You will also receive Weichert Mobilitys VIP services, which will provide you and your family with heightened personal assistance during the process of relocating and adjusting to the new location. The amounts reimbursed are not subject to a right to liquidation or exchange for another benefit. All reimbursements will be paid by Hilton or HGV , as applicable, no later than December 31 st of the year following the year the expense was incurred.
Paid Time Off. HGV provides a generous program of paid time away from work, including paid time off (PTO) and paid holidays. You will accrue up to twenty (20) days of PTO in your first year of employment, increasing to up to twenty-five (25) PTO days after completing one full year of employment, and higher PTO accrual levels with extended periods of service. HGV also offers ten (10) paid holidays.
Business Travel and Employee Travel Program. You will travel in connection with your employment. HGV will reimburse you for reasonable business expenses incurred in connection with your employment, upon presentation of documentation in accordance with Hilton or HGVs applicable expense reimbursement policies for senior management.
While employed, you will be eligible for complimentary and discounted room rates while travelling on personal travel, based on availability and in accordance with the Hilton discount travel program terms.
Contingent Offer. Your employment offer is contingent on presenting appropriate documentation verifying authorization to work in the United States.
Hiltons and HGVs benefit offerings and other terms and conditions of employment are subject to change or termination, with or without notice, before, in connection with, or following the Spin-off. In the event of differences between any documents relating to compensation and benefits, the terms of the applicable plan document will control.
This offer letter supersedes any previous verbal or written offer that you may have received. This offer letter does not constitute an employment contract. If you accept this offer and join the HGV team, you will be an at-will employee, which means that either HGV or you may terminate the employment relationship at any time, for any reason, with or without cause. As a condition of your employment, you will be required to sign a Mutual Agreement to Arbitrate Claims.
We ask that, as you consider this offer, you take special note that HGV expects its employees to hold themselves to the highest ethical standards. This expectation is exemplified by our corporate value of integrity and our corporate Code of Conduct, to which you will be introduced in orientation. In that context, please observe that neither Hilton nor HGV hire people for the purpose of acquiring their former employers trade secrets, confidential information or proprietary information. By accepting this offer, you acknowledge that you have returned or will return all property, including documents, memoranda, software or other material, containing information belonging to your current or former employer before starting your employment with HGV. You
further agree you will not bring such materials to our premises or otherwise use any such material in performing work for HGV. In addition, you must advise us about any restrictive covenants that might apply to you during your employment with HGV. With acceptance, you confirm that you are free to perform work for HGV without breaching any other agreement(s) to which you are or may be bound.
Please call Barbara Hollkamp, SVP, Human Resources at 407-722-3248 with any questions you might have after reviewing the terms of our offer. You may keep a copy of this document for your records.
We have confidence that you can make a great contribution to our team during these exciting times at Hilton.
Sincerely,
/s/ Mark Wang
Mark Wang,
EVP & President, HGV
**********************************************************************************
I acknowledge receipt and acceptance of the offer of employment in this letter. By my signature below, I accept all terms and conditions set forth above. In addition, I acknowledge and agree that, subject to the successful outcome of HGVs background investigation process and confirmation of my eligibility to work in the United States, I will be employed on an at-will basis and that any change to that status may only be made through an agreement in writing signed by HGV. In addition, my employment is contingent on the condition that I execute a Mutual Agreement to Arbitrate Claims, which should be executed in conjunction with your acceptance of this employment offer.
Accepted: |
/s/ James Mikolaichik |
|
James Mikolaichik | ||
Date: | July 7, 2016 |
Exhibit 99.1
, 2016
Dear Hilton Worldwide Holdings Inc. Stockholder:
I am pleased to inform you that the board of directors of Hilton Worldwide Holdings Inc. (Hilton Parent and, together with its consolidated subsidiaries, Hilton) approved a plan to enhance long-term stockholder value by separating Hilton into three independent, publicly traded companies. Under the plan, Hilton Parent will execute tax-free spin-offs of Park Hotels & Resorts Inc. (Park Parent and, together with its consolidated subsidiaries, Park Hotels & Resorts), which will hold a portfolio of Hiltons owned and leased hotels and resorts, and Hilton Grand Vacations Inc. (HGV Parent and, together with its consolidated subsidiaries, Hilton Grand Vacations), which will own and operate Hiltons timeshare business. Upon completion of the spin-offs, Hilton Parent stockholders will own 100% of the outstanding shares of common stock of each of Park Parent and HGV Parent, and will continue to own 100% of the outstanding shares of common stock of Hilton Parent. Park Parent will be a leading lodging real estate investment trust with a diverse portfolio of iconic and market-leading hotels and resorts with significant underlying real estate value, and Hilton Grand Vacations will be a rapidly growing timeshare company that markets and sells vacation ownership intervals and manages resorts in top destinations. Hilton Parent will retain its core management and franchise business and continue to trade on the New York Stock Exchange as a leading global hospitality company.
We believe that this separation is in the best interests of Hilton Parent, its stockholders and other constituents, as it will result in three pure-play companies, enabling dedicated management teams to fully activate their respective businesses, take advantage of both organic and inorganic growth opportunities, and align their structures and capital allocation strategies with a dedicated investor base.
The spin-offs will be completed by way of a pro rata distribution of Park Parent and HGV Parent common stock to our stockholders of record as of 5:00 p.m., Eastern time, on , 2016, the spin-off record date. Each Hilton Parent stockholder will receive one share of Park Parent common stock for every shares of Hilton Parent common stock and one share of HGV Parent common stock for every shares of Hilton Parent common stock, in each case, held by such stockholder on the record date. The distribution of these shares will be made in book-entry form, which means that no physical share certificates will be issued. The transaction is subject to certain customary conditions. Stockholder approval of the distributions is not required, and you are not required to take any action to receive your shares of Park Parent and HGV Parent common stock. Immediately following the spin-offs, you will own common stock in Hilton Parent, Park Parent and HGV Parent. The common stock of Hilton Parent will continue to trade on the New York Stock Exchange under the symbol HLT. Both Park Parent and HGV Parent intend to have their common stock listed on the New York Stock Exchange under the symbols PK and HGV, respectively. We expect the spin-offs to be tax-free to the stockholders of Hilton Parent, except to the extent of cash received in lieu of fractional shares. The spin-offs are conditioned on, among other things, the ruling received by Hilton Parent from the Internal Revenue Service regarding certain U.S. federal income tax aspects of the spin-offs remaining in effect as of the distribution date, and the receipt of an opinion of our tax counsel confirming that the spin-offs should qualify as tax-free distributions under Section 355 of the Internal Revenue Code of 1986, as amended.
We have prepared the enclosed information statements, which describe the spin-offs in detail and contain important information about each of Park Hotels & Resorts and Hilton Grand Vacations, including historical financial statements. We are mailing to all Hilton Parent stockholders a notice with instructions informing holders how to access the information statements online. We urge you to read the information statements carefully.
We want to thank you for your continued support of Hilton, and we look forward to your support of all three companies in the future.
Sincerely,
Christopher J. Nassetta
President and Chief Executive Officer
Hilton Worldwide Holdings Inc.
, 2016
Dear Hilton Grand Vacations Inc. Stockholder:
It is our pleasure to welcome you as a stockholder of our company, Hilton Grand Vacations Inc. (HGV Parent and, together with its consolidated subsidiaries, Hilton Grand Vacations). Following the distribution of all of the outstanding shares of HGV Parent common stock by Hilton Worldwide Holdings Inc. (Hilton Parent), Hilton Grand Vacations will be a rapidly growing timeshare company that markets and sells vacation ownership intervals and manages resorts in iconic leisure and urban destinations.
As an independent, publicly traded company, we will be better positioned to allocate capital and pursue a sales strategy that will maximize earnings growth, free cash flow production and returns on invested capital, all of which will drive overall value to our stockholders. In addition, we believe our management team will be able to respond more quickly and effectively to acquisition and market opportunities as well as execute our business and growth strategies.
We expect to have HGV Parent common stock listed on the New York Stock Exchange under the symbol HGV in connection with the distribution of HGV Parent common stock by Hilton Parent.
We invite you to learn more about HGV Parent by reviewing the enclosed information statement. We look forward to our future as an independent, publicly traded company and to your support as a holder of HGV Parent common stock.
Sincerely,
Mark D. Wang
President and Chief Executive Officer
Hilton Grand Vacations Inc.
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 2016
INFORMATION STATEMENT
Hilton Grand Vacations Inc.
Common Stock
(par value $0.01 per share)
This information statement is being sent to you in connection with the separation of Hilton Grand Vacations Inc. (HGV Parent and, together with its consolidated subsidiaries, Hilton Grand Vacations or HGV) from Hilton Worldwide Holdings Inc. (Hilton Parent and, together with its consolidated subsidiaries, Hilton), following which HGV Parent will be an independent, publicly traded company. As part of the separation, Hilton will undergo an internal reorganization, after which it will complete the separation by distributing all of the outstanding shares of HGV Parent common stock on a pro rata basis to the holders of Hilton Parent common stock. We refer to this pro rata distribution as the distribution and we refer to the separation, including the internal reorganization and distribution, as the spin-off. We expect that the spin-off will be tax-free to Hilton Parent stockholders for U.S. federal income tax purposes, except to the extent of cash received in lieu of fractional shares. Each Hilton Parent stockholder will receive one share of HGV Parent common stock for every shares of Hilton Parent common stock held by such stockholder on , 2016, the record date. The distribution of shares will be made in book-entry form only. Hilton Parent will not distribute any fractional shares of HGV Parent common stock. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder who would otherwise have been entitled to receive a fractional share in the spin-off. The distribution will be effective as of , Eastern time, on , 2016. Immediately after the distribution becomes effective, we will be an independent, publicly traded company.
No vote or other action of Hilton Parent stockholders is required in connection with the spin-off. We are not asking you for a proxy and you should not send us a proxy . Hilton Parent stockholders will not be required to pay any consideration for the shares of HGV Parent common stock they receive in the spin-off, and they will not be required to surrender or exchange shares of their Hilton Parent common stock or take any other action in connection with the spin-off.
All of the outstanding shares of HGV Parent common stock are currently owned, directly or indirectly, by Hilton Parent. Accordingly, there is no current trading market for HGV Parent common stock. We expect, however, that a limited trading market for HGV Parent common stock, commonly known as a when-issued trading market, will develop at least two trading days prior to the record date for the distribution, and we expect regular-way trading of HGV Parent common stock will begin the first trading day after the distribution date. We intend to list HGV Parent common stock on the New York Stock Exchange (NYSE) under the ticker symbol HGV.
In reviewing this information statement, you should carefully consider the matters described in Risk Factors beginning on page 27 of this information statement.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.
This information statement is not an offer to sell, or a solicitation of an offer to buy, any securities.
The date of this information statement is , 2016.
A Notice of Internet Availability of Information Statement Materials containing instructions describing how to access this Information Statement was first mailed to Hilton Parent stockholders on or about , 2016.
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F-1 |
Unless otherwise indicated or the context otherwise requires, references herein to:
| Hilton Grand Vacations, HGV, we, our, us, the Company and our company refer (1) prior to the consummation of our internal reorganization described under The Spin-OffManner of Effecting the Spin-OffInternal Reorganization, to Hilton Resorts Corporation and its consolidated subsidiaries and (2) after such internal reorganization to Hilton Grand Vacations Inc. and its consolidated subsidiaries, which shall include HRC; |
| HGV Parent refer only to Hilton Grand Vacations Inc., exclusive of its subsidiaries; |
| HRC refer to Hilton Resorts Corporation and its consolidated subsidiaries; |
| Hilton refer to Hilton Worldwide Holdings Inc. and its consolidated subsidiaries, and references to Hilton Parent or Parent refer only to Hilton Worldwide Holdings Inc., exclusive of its subsidiaries; and |
| Park Hotels & Resorts refer to Park Hotels & Resorts Inc. and its consolidated subsidiaries, and references to Park Parent refer only to Park Hotels & Resorts Inc., exclusive of its subsidiaries; |
in each case giving effect to the spin-off, including the internal reorganization and distribution.
Additionally, unless otherwise indicated or the context otherwise requires, all information in this information statement gives effect to the effectiveness of our amended and restated certificate of incorporation and bylaws, the forms of which are filed as exhibits to the registration statement of which this information statement forms a part.
FINANCIAL STATEMENT PRESENTATION
This information statement includes certain historical consolidated financial and other data for HRC. HRC will be considered our predecessor for financial reporting purposes. Hilton Grand Vacations Inc. is the registrant under the registration statement of which this information statement forms a part and will be the financial reporting entity following the consummation of the spin-off. The historical consolidated financial information of HRC as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013 has been derived from the audited consolidated financial statements of HRC included elsewhere in this information statement. The historical consolidated financial information of HRC as of December 31, 2013, 2012 and 2011 and for the years ended December 31, 2012 and 2011 has been derived from the unaudited consolidated financial statements of HRC that are not included in this information statement. The historical consolidated financial information of HRC as of June 30, 2016 and for the six months ended June 30, 2016 and 2015 has been derived from the unaudited condensed consolidated financial statements of HRC that are included in this information statement. The unaudited consolidated financial statements of HRC have been prepared on the same basis as the audited consolidated financial statements of HRC 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. Our historical results are not necessarily indicative of the results expected for any future period.
This information statement also includes an unaudited pro forma consolidated balance sheet as of June 30, 2016 and unaudited pro forma consolidated statements of operations for the six months ended June 30, 2016 and year ended December 31, 2015, which present our combined financial position and results of operations to give pro forma effect to the spin-off, including the internal reorganization and distribution and the other transactions described under Unaudited Pro Forma Consolidated Financial Statements. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are 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 our selected historical consolidated financial information and unaudited pro forma consolidated financial statements and the accompanying notes in conjunction with, and each is qualified in their entirety by reference to, the consolidated historical financial statements and related notes included elsewhere in this information statement and the financial and other information appearing elsewhere in this information statement, including information contained in Risk Factors, Capitalization and Managements Discussion and Analysis of Financial Condition and Results of Operations.
Other than the inception balance sheet, the financial statements of Hilton Grand Vacations Inc. have not been included in this information statement as it is a newly incorporated entity and has no business transactions or activities to date. In connection with the internal reorganization, Hilton Grand Vacations Inc. will become the parent of HRC.
INDUSTRY AND MARKET DATA
Certain industry and market data included in this information statement have been obtained from third-party sources that we believe to be reliable, including the American Resort Development Association (ARDA). Market estimates are calculated by using independent industry publications and other publicly available information in conjunction with our assumptions about our markets. While we are not aware of any misstatements regarding any industry, market or similar data presented herein and we have not independently verified such information, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the headings Special Note About Forward-Looking Statements and Risk Factors in this information statement.
i
CERTAIN DEFINED TERMS
Except where the context suggests otherwise, we define certain terms in this information statement as follows:
| capital-efficient inventory refers to our fee-for-service and just-in-time VOI inventory; |
| Club refers to Hilton Grand Vacations Club, our points-based vacation exchange program; |
| contract sales represents the total amount of VOI products under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales is not a recognized term under generally accepted accounting principles in the United States (U.S. GAAP), and should not be considered in isolation or as an alternative to timeshare sales, net, or any other comparable operating measure derived in accordance with U.S. GAAP. For a reconciliation of contract sales to sales of VOIs, net, which we believe is the most closely comparable U.S. GAAP financial measure, see Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of OperationsReal Estate; |
| developed inventory refers to VOI inventory sourced from projects developed by HGV; |
| fee-for-service refers to VOI inventory we sell and manage on behalf of third-party developers; |
| just-in-time refers to VOI inventory sourced in transactions that are designed to closely correlate the timing of the acquisition with our sale of that inventory to purchasers; |
| owned inventory refers to our developed and just-in-time VOI inventory; and |
| VOIs refers to vacation ownership intervals. |
ii
This summary highlights information contained in this information statement and provides an overview of our company, our separation from Hilton and the distribution of HGV Parent common stock by Hilton Parent to its stockholders. For a more complete understanding of our business and the spin-off, you should read this entire information statement carefully, particularly the discussion set forth under Risk Factors and our audited historical consolidated financial statements, our unaudited pro forma consolidated financial statements and the respective notes to those statements included in this information statement.
Hilton Grand Vacations
Hilton Grand Vacations (HGV) is a rapidly growing timeshare company that markets and sells vacation ownership intervals (VOIs), manages resorts in top leisure and urban destinations, and operates a points-based vacation club. Our 46 resorts, representing 7,576 units, are located in iconic vacation destinations such as the Hawaiian Islands, New York City, Orlando and Las Vegas, and feature spacious, condominium-style accommodations with superior amenities and quality service. Through Hilton Grand Vacations Club (the Club), our approximately 260,000 members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 12 industry-leading brands across more than 4,600 hotels, as well as numerous experiential vacation options, such as cruises and guided tours.
Our compelling VOI product allows customers to advance purchase a lifetime of vacations. Because our VOI owners generally purchase only the vacation time they intend to use each year, they are able to efficiently split the full cost of owning and maintaining a vacation residence with other owners. Our customers also benefit from the high-quality amenities and service at our Hilton-branded resorts. Furthermore, our points-based platform offers members tremendous flexibility, enabling us to more effectively adapt to their changing vacation needs over time. Building on the strength of that platform, we continuously seek new ways to add value to our Club membership, including enhanced product offerings, greater geographic distribution, broader exchange networks and further technological innovation, all of which drive better, more personalized vacation experiences and guest satisfaction.
As innovators in the timeshare business, we have successfully transformed from a highly capital-intensive business to a capital-efficient model by pursuing an inventory strategy focused on fee-for-service and just-in-time inventory acquisition.
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Inventory Sources as a Percentage of 2015 Contract Sales
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Fee-for-service refers to VOI inventory we sell and manage on behalf of third-party developers.
Just-in-time refers to VOI inventory primarily sourced in transactions that are designed to closely correlate the timing of the acquisition with our sale of that inventory to purchasers.
Developed refers to VOI inventory sourced from projects developed by HGV. |
Fee-for-service sales require virtually no capital investment on our part and provide us the flexibility to invest capital selectively. In 2015, our fee-for-service transactions represented 58% of contract sales, up from 0% in 2009. Based on our 2015 sales pace, we have access to more than six years of future inventory, with capital efficient arrangements representing approximately 85% of that supply. This visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering new markets.
The strength of our platform, coupled with what we believe is the industrys most capital-efficient inventory sourcing model, has led to:
| Robust sales growth over the course of the cycle with contract sales increasing at a compound annual growth rate (CAGR) of 7.9% from 2007 to 2015, outperforming the industry, which experienced a decline of 2.6% over the same period; |
| Strong net owner growth with Club membership increasing at a 9% CAGR over the last four years to total approximately 260,000 members as of June 30, 2016; |
| Approximately 60% of our contract sales in the last five years coming from new owners; |
| Dramatically reduced capital requirements with inventory investment decreasing from an annual average of $405 million during 2007 and 2008 to $96 million during 2014 and 2015; |
| Significant cash flow from operations of over $1 billion from 2011 to 2015; |
| Strong segment Adjusted EBITDA margin of 35.5% in 2015, up 510 basis points since 2011; |
| Meaningfully improved return on invested capital from 2011 to 2015 by 28.8 percentage points to 41.3% in 2015; and |
| Total revenues of $1.5 billion, net income of $174 million and Adjusted EBITDA of $373 million for the year ended December 31, 2015, representing impressive growth of 46%, 139% and 75%, respectively since 2011. |
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After the spin-off, we expect to further capitalize on our competitive advantages as we fully activate our business, benefiting from a dedicated management team and independent capital resources. Over time, we plan to target a 50/50 mix between fee-for-service and owned sales as we believe this mix will optimize earnings growth, free cash flow production and returns on invested capital. We also will maintain an exclusive, long-term relationship with Hilton, through which our Club members will continue to have access to Hiltons award-winning guest loyalty program and global portfolio of hotels, and we will continue to benefit from the strength and scale of Hiltons robust commercial services platform. We expect to collaborate with Hilton and other third-parties on timeshare development opportunities in new and existing locations and across chain scale segments.
See SummarySummary Historical and Unaudited Pro Forma Consolidated Financial Data for our definitions of contract sales, Adjusted EBITDA and return on invested capital and for reconciliations to measures calculated in accordance with GAAP.
The Timeshare Industry
The timeshare industry, also known as the vacation ownership industry, is one of the fastest-growing segments of the global travel and tourism sector. Annual timeshare sales in the United States increased over 800% between 1984 and 2015 to $8.6 billion. This growth was driven primarily by increased interest from established developers, owners and managers, particularly globally recognized lodging and entertainment companies, product evolution and geographic expansion. At inception, timeshare products were largely limited to a fixed or floating week, whereby a customer would purchase rights to use the same property each year, typically at the same time each year. The industry has since evolved to better meet consumer demands, offering more flexible products, such as membership in multi-property vacation networks. Additionally, product locations have expanded beyond traditional resort markets to include urban and international destinations.
The timeshare industry remains well-positioned for continued growth given favorable macroeconomic and secular trends. Economists forecast healthy consumer spending trends, while data released by the Commerce Department suggests a shift in spending patterns as consumers spend more on experiences and less on retail. Furthermore, timeshare sales in 2015 remained approximately 19% below the industry peak of $10.6 billion in 2007, suggesting continued growth potential during this stage of the current lodging cycle. We expect new product supply to attract new customers and stimulate incremental purchases from existing customers. Additionally, we expect an expanding middle class and rising growth in global tourism to bode well for the long-term health of the timeshare industry, while industry fragmentation should support continued consolidation activity.
Our Competitive Strengths
We believe the following competitive strengths position us as a leader and innovator in the timeshare industry.
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Exceptional Vacation Offerings. Our upscale resort collection features spacious, studio to three-bedroom condominium-style accommodations in high-demand destinations such as New York City, Orlando, the Hawaiian Islands and Las Vegas. We offer superior amenities such as full kitchens, in-unit washers and dryers, spas and kids clubs along with beach-front locations and the quality service that is synonymous with the Hilton name. We keep our properties modern through diligent use of reserves funded by homeowners associations (HOAs), which are deployed to update our properties on average every five years, resulting in consistent high property and service ratings. In addition, purchasers of our VOIs are enrolled in our flexible, points-based Hilton Grand Vacations Club exchange program, giving each member an annual allotment of Club points representing their owned interest and offering an attractive value proposition. Members have the ability to use their points for a |
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variety of vacation options, including a priority reservation period at their home resort where their VOI is deeded, stays at any Hilton Grand Vacations resort, conversion to Hilton HHonors points, access to RCIs vacation exchange network and exchanges for experiential travel alternatives. |
| Large and Growing Loyal Member Base. We have a loyal base of approximately 260,000 members, which has more than doubled since 2007, growing at a CAGR of nearly 9%. Yet, we continue to see tremendous growth opportunities across regions and demographics. Approximately 74% of our members were located in the United States, 20% in Japan and 6% in other international locations as of June 30, 2016. Based on information available to us, Millennials and Generation Xers made up nearly half of our first time buyers in the U.S. in 2015 and represent a growing and attractive demographic. Approximately 60% of our contract sales in the last five years were to new members, which benefits future sales given that for every dollar of initial VOI purchases by new members, we expect those members will on average purchase approximately another dollar of additional VOI product over the lifetime of their membership. We continuously strive to enhance Club value and our approximately 7,500 employees are committed to providing our members with exceptional service and cultivating member loyalty. |
| High-quality Customers . We consider our customer base to be among the highest quality in the industry, with our U.S. members having an average annual income level of greater than $100,000, meaningfully above the national average, a high percentage of home ownership and a frequent traveler profile. Additionally, our customers had a weighted average FICO score of 745 for new loan originations to U.S. and Canadian borrowers over the past three years, making them attractive purchasers. Our members creditworthiness is further demonstrated by low levels of HOA maintenance fee delinquencies, which averaged only 2.5% since 2011 compared to an annual range of 8% to 12% for the industry from 2011 to 2015. Additionally, our consumer loan portfolio has experienced low default rates of approximately 3% over the last several years. |
| Long-term Recurring Revenue Streams. Our platform drives highly predictable, long-term recurring revenue streams through annual Club membership dues and exchange fees and from our management agreements with HOAs. Further, unlike traditional revenue-based hotel-management fees, our management fees are generally unaffected by changes in rental rate or occupancy, making them less susceptible to market downturns. Since our inception in 1992, no management agreement at any of our developed or fee-for-service properties has been terminated or lapsed. As a result of these recurring revenue streams, our resort operations and club management segment Adjusted EBITDA represented 43% of our total Adjusted EBITDA in 2015. |
| Highly Effective Marketing and Sales Model. Our data-driven, affinity-based marketing approach combined with our scaled and disciplined sales process has delivered consistent sales and new member growth over the past five years. By conducting our marketing and sales activities in large markets with high levels of inbound tourism, we are able to generate year-round tour flow, making it more cost effective to reach potential new members and therefore increasing margins. The efficiency of our sales and marketing is demonstrated by our real estate margin percentage of 27.5% in 2015. In addition, our targeted direct marketing enables us to reach customers who already have an affinity with Hilton and meet our high financial standards. As a result of our marketing expertise and our relationship with Hilton, our tour flow increased at a CAGR of 10.4% between 2007 and 2015. Importantly, we have the ability to scale our model by cross-marketing and cross-selling our resorts as well as employing effective hiring practices, proprietary training and advanced technology platforms. In Japan, for example, we have successfully sold our products in Hawaii using our off-site sales model, resulting in a Japanese member base of approximately 52,500 as of June 30, 2016. Our track record of contract sales growth even during the 2008 to 2010 market downturn demonstrates the effectiveness of our distribution model and sales execution. |
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| Capital-efficient Business Model. We are an industry leader in capital-efficient VOI sales, which represented 78% of our contract sales in 2015. Of these sales, fee-for-service represented 58% and just-in-time represented 20%. Since our first fee-for-service project in 2010, we have entered into 10 fee-for-service deals, which have contributed approximately 160,000 VOIs to our total supply. Our capital requirements have reduced dramatically as a result, producing strong cash flow and higher returns on invested capital. As we transitioned from capital-intensive real estate development to a more capital-efficient business model, our inventory investment decreased from an annual average of $405 million during 2007 and 2008 to $96 million during 2014 and 2015. In addition, we generated cash flow from operations of over $1 billion between 2011 and 2015. Further, our relationships with some of the largest and most sophisticated real estate investors in the world, including Blackstone, Goldman Sachs, Centerbridge and Strand Capital Group, have given us access to a wide range of capital partners and the credibility to execute deals in diverse markets. As a result of our efforts, all inventory sources are projected to supply us with access to more than six years of future inventory based on our 2015 sales pace, with capital efficient arrangements representing approximately 85% of that supply. |
| Exclusive, Long-term Relationship with Hilton. Our relationship with Hilton connects us with a portfolio of globally recognized, market-leading hospitality brands and a superior exchange network and gives us exclusive access to a large and growing base of loyal customers and a powerful network of commercial services. With a nearly 100-year pedigree in the hospitality industry, Hilton is one of the largest and fastest growing hospitality companies in the world, with over 4,600 properties in 104 countries and territories as of June 30, 2016. Our long-term license agreement with Hilton will give us the exclusive right to market, sell and rent VOI inventory and manage resorts under the Hilton Grand Vacations brand. In 2015, 93% of Club points redeemed were used within the Hilton system by members to stay at the home resort where their VOI is deeded, exchange within our Club or convert their Club points to HHonors points for hotel stays. We believe this loyalty to the Hilton system demonstrates high member satisfaction, attracts new Club members and rental guests, and lowers our customer acquisition costs. Furthermore, our products should command a higher price point given the strength of Hiltons brand portfolio and reputation for exceptional service and quality. We believe our relationship with Hilton and access to its formidable platform are significant competitive advantages that position us for strong future growth. |
| Experienced and Execution-focused Management Team. Our experienced management team is headed by Mark D. Wang, our President and Chief Executive Officer, who has led Hiltons global timeshare operations since 2008, including our successful transition to a capital-efficient business model. Mr. Wang has 35 years of experience in the timeshare industry, and our executive officers have an average of years in the timeshare and hospitality industries. With this experience, our management team has created a lean and nimble organizational structure, which allows us to respond quickly and effectively to opportunities and dynamic market conditions. By fostering a culture with a strong focus on execution and operational effectiveness, management empowers our employees to respond to our members and guests needs and provide each of them with a unique and memorable experience. |
Our Business and Growth Strategies
Our goal is to create long-term value by delivering a lifetime of exceptional vacation experiences to our loyal and growing membership base and leveraging our capital-efficient business model to drive strong returns on invested capital, free cash flow and bottom-line growth. The following are key elements of our strategy to accomplish this goal:
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Grow Vacation Sales. We intend to continue growing contract sales by pursuing a balanced mix of sales to new and existing members. We expect to drive growth by enhancing the value of Club |
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membership and expanding our highly effective sales distribution model within and outside of our existing markets. As part of this strategy, we will continue to pursue opportunities in large urban and resort markets with strong inherent demand such as Washington, D.C. and Maui, Hawaii. Over time, we intend to continue expanding our marketing and sales operations in Japan and explore opportunities for in-market product offerings to those customers. We already have experienced strong growth in Japan, with an increase of 130% in contract sales from 2007 to 2015, and believe we can leverage our success to further expand in Japan and across select Asian markets. We also will pursue growth opportunities by exploring additional development opportunities within the Hilton portfolio and expanding our marketing partnerships. |
| Grow Our Member Base. We have experienced 23 consecutive years of net owner growth. As part of our strategy to grow our member base, we will continue to use our relationship with Hilton to target new, brand-loyal members. The Hilton HHonors loyalty program represents a cost-effective source of member growth. We also will leverage new and existing marketing relationships and continue our successful local marketing programs. Our focus on enhancing Club value also will enable us to acquire new members by expanding the demographics of our member base. Our increased marketing efforts have resulted in member demographics shifting to younger generations, with an increase in Millennial and Generation X first time buyers in the U.S. to nearly half of our first time buyers in 2015, both of which represent a large and attractive future member base. Net owner growth supports strong future sales growth, as a significant portion of our member base buys additional VOI products, which expands our predictable, recurring fee-based resort and Club management business. |
| Continue to Enhance Member Experiences. We are continuously seeking new ways to add value to our Club membership, including expanding our vacation options and destinations, in-market and travel-related discounts, travel exchange partners and providing access to a growing network of new Hilton-branded hotels and resorts. We also intend to expand the technology options available to members, including our new website, mobile application and digital keys, which allow members and guests to skip the front desk and access their room via smartphone. Our employees also are an important part of the vacation experiences of our members and will continue to enhance these experiences by providing our signature high-quality customer service. We believe the dedicated service of our employees, vacation experiences and Club value we offer our members foster loyalty and generate significant repeat business through our most cost-effective marketing channel. |
| Optimize Our Sales Mix of Capital-efficient Inventory. We believe that optimizing our mix of capital-efficient and owned inventory sales will drive premium top line growth, cash flow generation and returns on invested capital. Over time, we will target a 50/50 sales mix of owned and fee-for-service inventory. We also intend to take advantage of our robust deal pipeline fueled by existing and new relationships with third-party developers for a full range of fee-for-service and just-in-time projects. We will maintain a disciplined approach to capital allocation, while strategically pursuing acquisitions and development of owned inventory in key markets. |
| Pursue Opportunistic Business Ventures. Despite recent consolidation, the timeshare industry remains fragmented. We will continue to evaluate market opportunities and consider strategic acquisitions that meet our high product and service standards. This could include corporate and property acquisitions to expand our inventory options and distribution capabilities. We also intend to use our relationship with Hilton and third-party developers as well as our innovative platform and industry experience to create new products and additional efficiencies. For example, we intend to continue collaborating with Hilton on timeshare development opportunities at new and existing hotel properties and explore growth opportunities along the Hilton brand spectrum. |
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Capital Allocation and Financial Policy
We plan to: pursue a disciplined capital allocation policy; invest capital selectively to source high-quality inventory in key, strategic markets; and finance the development and purchase of new VOI inventory through modest leverage and securitization of our timeshare financing receivables. We expect to target an investment grade credit rating and return capital to stockholders through dividends and stock buybacks over time.
Our History
Our history dates to 1992 with Hiltons joint venture with Grand Vacations. In 1996, Hilton Grand Vacations became a wholly owned subsidiary of Hilton Parent. During the ensuing years we expanded our operations and established a track record of innovation in our industry. Unlike the broader timeshare industry, which experienced a contraction in 2008 and 2009 as a result of the overall economic recession, we were able to grow contract sales during the industry downturn and have continued to deliver contract sales growth in each period since, driven by our continued focus on marketing and sales activities, our strong development margins, large-market distribution model, synergies with Hilton, commitment to new owner transactions and lean organizational structure. Key events in our history are illustrated in the following timeline:
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Summary Risk Factors
There are a number of risks related to our business and the spin-off and related transactions, including:
| we are subject to the business, financial and operating risks inherent to the timeshare 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; |
| we do not own the Hilton brands and our business will be materially harmed if we breach our license agreement with Hilton or it is terminated; |
| our business depends on the quality and reputation of the Hilton brands and affiliation with the Hilton HHonors loyalty program; |
| our dependence on development activities exposes us to project cost and completion risks; |
| a decline in developed or acquired VOI inventory or our failure to enter into and maintain fee-for-service agreements may have an adverse effect on our business or results of operations; |
| we operate in a highly competitive industry; |
| we manage a concentration of properties in particular geographic areas, which exposes our business to the effects of regional events and occurrences; |
| if maintenance fees at our resorts are required to be increased, our product could become less attractive and our business could be harmed; |
| the expiration, termination or renegotiation of our management agreements could adversely affect our cash flows, revenues and profits; |
| our 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 our ability to pay our debts and could divert our cash flow from operations for debt payments; |
| we may be responsible for U.S. federal income tax liabilities that relate to the distribution; |
| we do not have a recent operating history as an independent company and our historical financial information does not predict our future results; |
| we may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off; |
| we may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements related to the spin-off; and |
| upon consummation of the spin-off, approximately % of the voting power in HGV Parent will be controlled by investment funds associated with or designated by The Blackstone Group L.P. and its affiliates (Blackstone), and their interests may conflict with ours or yours in the future. |
These and other risks related to our business and the spin-off are discussed in greater detail under the heading Risk Factors in this information statement. You should read and consider all of these risks carefully.
Hilton Grand Vacations Inc. was incorporated in the State of Delaware on May 2, 2016. Our headquarters are located at 6355 MetroWest Boulevard, Suite 180, Orlando, Florida 32835. Our telephone number is (407) 722-3100.
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The Spin-Off
Overview
On February 26, 2016, Hilton Parent announced its intention to implement the spin-off of HGV and Park Hotels & Resorts from Hilton, following which HGV Parent and Park Parent will be independent, publicly traded companies.
Before our spin-off from Hilton, we will enter into a Distribution Agreement and several other agreements with Hilton Parent and Park Parent related to the spin-off. These agreements will govern the relationship among us, Hilton and Park Hotels & Resorts after completion of the spin-off and provide for the allocation among us, Hilton and Park Hotels & Resorts of various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). These agreements also will include arrangements with respect to transitional services to be provided by Hilton to HGV and Park Hotels & Resorts. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-Off.
The distribution of HGV Parent common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. In addition, Hilton has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of Hilton Parent determines, in its sole discretion, that the spin-off is not then in the best interests of Hilton or its stockholders or other constituents, that a sale or other alternative is in the best interests of Hilton or its stockholders or other constituents, or that market conditions or other circumstances are such that it is not advisable at that time to separate HGV from Hilton. See The Spin-OffConditions to the Spin-Off.
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Organizational Structure
The simplified diagrams below (which omit certain wholly owned intermediate holding companies) depict the organizational structure of Hilton, Park Hotels & Resorts and Hilton Grand Vacations before and after giving effect to the spin-offs.
Current Hilton Organizational Structure
Organizational Structure Following the Spin-Offs
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Financing Transactions
Subject to market conditions, we expect to complete one or more financing transactions on or prior to the completion of the spin-off. As a result of these financing transactions, upon consummation of the spin-off we expect to have total indebtedness of between $400 million and $500 million, excluding between $400 million and $450 million expected to be outstanding under our non-recourse timeshare financing receivables credit facility (the Timeshare Facility) and between $250 million and $300 million of our non-recourse notes backed by timeshare financing receivables (the Securitized Debt) expected to be outstanding. Included in our expected outstanding Timeshare Facility balance is an intended expansion of the capacity and borrowing of up to an additional $250 million to $300 million, which proceeds will be used to distribute cash to Hilton Parent. After giving effect to the foregoing financing transactions, upon consummation of the spin-off, we expect to have between $1.05 billion and $1.25 billion of total recourse and non-recourse indebtedness outstanding. We have not yet identified the specific sources of funds and there can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. The financing transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See The Spin-OffFinancing Transactions and Description of Certain Indebtedness.
Questions and Answers About the Spin-Off
The following provides only a summary of the terms of the spin-off. For a more detailed description of the matters described below, see The Spin-Off.
Q: | What is the spin-off? |
A: | The spin-off is the series of transactions by which HGV will separate from Hilton. To complete the spin-off, Hilton Parent will distribute to its stockholders all of the outstanding shares of HGV Parent common stock. We refer to this as the distribution. Following the spin-off, HGV will be a separate company from Hilton, and Hilton will not retain any ownership interest in HGV. |
Q: | What will I receive in the spin-off? |
A: | As a holder of Hilton Parent common stock, you will retain your Hilton Parent shares and will receive one share of HGV Parent common stock for every shares of Hilton Parent common stock you own as of the record date. You also will receive one share of common stock of Park Parent for every shares of Hilton Parent common stock you own as of the record date in connection with the spin-off of that company. The number of shares of Hilton Parent common stock you own and your proportionate interest in Hilton Parent will not change as a result of the spin-off. See The Spin-Off. |
Q: | What is HGV Parent? |
A: | HGV Parent is a rapidly growing timeshare company that markets and sells vacation ownership intervals and manages resorts in top destinations. HGV Parent is currently a subsidiary of Hilton Parent whose shares will be distributed to Hilton Parent stockholders when the spin-off is completed. After the spin-off is completed, HGV Parent will be an independent, publicly traded company. |
Q: | Why is the separation of HGV Parent structured as a spin-off? |
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Hilton Parent intends to implement the spin-off of (i) its timeshare business, which we refer to as Hiltons Timeshare business, and (ii) a portfolio of 69 owned and leased hotel and resort properties, with nearly 36,000 rooms, comprising a substantial portion of Hiltons ownership business, and certain related assets and operations, which we refer to collectively as the Separated Real Estate business. Hilton determined, |
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and continues to believe, that a spin-off is the most efficient way to accomplish a separation of the Timeshare business from Hilton for various reasons, including: (i) a spin-off would be a tax-free distribution of HGV Parent common stock to Hilton Parent stockholders; (ii) a spin-off offers a higher degree of certainty of completion in a timely manner, lessening disruption to current business operations; and (iii) a spin-off provides greater assurance that decisions regarding HGVs capital structure support future financial stability. After consideration of strategic alternatives, Hilton believes that a tax-free spin-off will enhance the long-term value of both Hilton and HGV. See The Spin-OffReasons for the Spin-Off. |
Q: | Can Hilton decide to cancel the distribution of the HGV Parent common stock even if all the conditions have been met? |
A: | Yes. The distribution of HGV Parent common stock is subject to the satisfaction or waiver of certain conditions. See The Spin-OffConditions to the Spin-Off. Hilton has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of Hilton Parent determines, in its sole discretion, that the spinoff is not then in the best interests of Hilton or its stockholders or other constituents, that a sale or other alternative is in the best interests of Hilton or its stockholders or other constituents, or that market conditions or other circumstances are such that it is not advisable at that time to separate HGV from Hilton. |
Q: | What is being distributed in the spin-off? |
A: | Approximately million shares of HGV Parent common stock will be distributed in the spin-off, based on the number of shares of Hilton Parent common stock expected to be outstanding as of , 2016, the record date, and assuming a distribution ratio of one-to- . The actual number of shares of HGV Parent common stock to be distributed will be calculated on the record date. The shares of HGV Parent common stock to be distributed by Hilton Parent will constitute all of the issued and outstanding shares of HGV Parent common stock immediately prior to the distribution. See Description of Capital StockCommon Stock. |
Q: | W hen is the record date for the distribution? |
A: | The record date is , 2016. |
Q: | When will the distribution occur? |
A: | The distribution date of the spin-off is , 2016. We expect that it will take the distribution agent, acting on behalf of Hilton Parent, up to two weeks after the distribution date to fully distribute the shares of HGV Parent common stock to Hilton Parent stockholders. |
Q: | What do I have to do to participate in the spin-off? |
A: | Nothing. You are not required to take any action, although we urge you to read this entire document carefully. No stockholder approval of the distribution is required or sought. You are not being asked for a proxy. No action is required on your part to receive your shares of HGV Parent common stock. You will neither be required to pay anything for the new shares nor be required to surrender any shares of Hilton Parent common stock to participate in the spin-off. |
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Q: | How will stock options, time-vesting restricted stock units, and performance-vesting restricted stock units and restricted shares held by Hilton Grand Vacation employees be affected as a result of the spin-off? |
A: | At the time of the distribution, subject to approval of the board of directors of Hilton Parent, in general, it is expected that all outstanding Hilton Parent equity-based compensation awards, whether vested or unvested, and which are held by any individual who is employed by us as of the separation will convert into awards that will settle in shares of Hilton Grand Vacations common stock following the spin-off, and performance-vesting awards will generally be converted into time-vesting awards based upon a performance level to be determined by the Hilton Parent Compensation Committee prior to the separation. For more information on the treatment of equity-based compensation awards in the spin-off, see The Spin-OffTreatment of Outstanding Equity Awards. |
Q: | How will fractional shares be treated in the spin-off? |
A: | Fractional shares of HGV Parent common stock will not be distributed. Fractional shares of HGV Parent common stock to which Hilton Parent stockholders of record would otherwise be entitled will be aggregated and sold in the public market by the distribution agent at prevailing market prices. The distribution agent, in its sole discretion, will determine when, how and through which broker-dealers, provided that such broker-dealers are not affiliates of Hilton Parent or HGV Parent, and at what prices to sell these shares. The aggregate net cash proceeds of the sales will be distributed ratably to those stockholders who would otherwise have received fractional shares of HGV Parent common stock. See The Spin-OffTreatment of Fractional Shares for a more detailed explanation. Receipt by a stockholder of proceeds from these sales in lieu of a fractional share generally will result in a taxable gain or loss to those stockholders for U.S. federal income tax purposes. Each stockholder entitled to receive cash proceeds from these shares should consult his, her or its own tax advisor as to such stockholders particular circumstances. We describe the material U.S. federal income tax consequences of the distribution in more detail under The Spin-OffMaterial U.S. Federal Income Tax Consequences of the Spin-Off. |
Q: | Why has Hilton determined to undertake the spin-off? |
A: | Hilton Parents board of directors has determined that the spin-off is in the best interests of Hilton Parent, its stockholders and other constituents because the spin-off will provide the following key benefits: |
| Direct and Differentiated Access to Capital Resources to Pursue Tailored Growth Strategies. Following the spin-off, HGV will be better positioned to target a 50/50 mix between fee-for-service and owned VOI inventory sales by opportunistically allocating capital toward owned inventory. We believe that optimizing our sales mix will enable us to maximize earnings growth, free cash flow production and returns on invested capital. As a company focused solely on the timeshare business with direct access to capital and independent financial resources, we believe we will be able to execute our business and growth strategies to drive overall value to our stockholders. Similarly, as a company focused on hotel management and franchising, Hilton Parent expects to benefit from alignment with a dedicated investor base, resulting in enhanced and more efficient access to capital to pursue a growth strategy best suited for its core, capital-light fee business. |
| Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities. Hiltons management and franchising and timeshare businesses exhibit different financial and operating characteristics and appeal to different types of investors with different investment goals and risk profiles. Finding investors who want to invest in the businesses together is more challenging than finding investors for each business individually. After the spin-off, investors should be better able to evaluate the financial performance of each company, as well as its strategy within the context of its particular market, thereby enhancing the likelihood that each company will achieve an appropriate market valuation. |
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| Dedicated Management Team with Enhanced Strategic Focus . Following the spin-off, Hiltons management and franchising and timeshare businesses will no longer compete for the attention and resources of a single management team and will benefit from dedicated management teams focused on designing and implementing tailored strategies to achieve the distinct goals and opportunities of each business. Moreover, free from constraints that arise from being part of a larger hospitality company, HGVs dedicated management team will be able to respond more quickly and effectively to acquisition and market opportunities as well as execute its business and growth strategies. |
| Improved Management Incentive Tools . We expect to use equity-based and other incentive awards to compensate current and future employees. In multi-business companies such as Hilton, it is difficult to structure incentives that reward employees in a manner directly related to the performance of their respective business units. By granting awards linked to the performance of a pure-play business, the compensation arrangements of each company should provide enhanced incentives for employee performance and improve the ability of each company to attract, retain and motivate qualified personnel. |
Q: | What are the U.S. federal income tax consequences of the spin-off? |
A: | Hilton Parent has received a ruling (IRS Ruling) from the Internal Revenue Service (IRS) regarding certain U.S. federal income tax aspects of the spin-off. The spin-off is conditioned on the IRS Ruling remaining in effect as of the distribution date. In addition, the spin-off is conditioned on the receipt of an opinion of Simpson Thacher & Bartlett LLP, Hilton Parents tax counsel (Spin-off Tax Counsel), confirming tax-free treatment under Section 355 of the Code of the distributions. Although Hilton Parent has no current intention to do so, such conditions are solely for the benefit of Hilton Parent and its stockholders and may be waived by Hilton Parent in its sole discretion. The material U.S. federal income tax consequences of the distribution are described in more detail under The Spin-OffMaterial U.S. Federal Income Tax Consequences of the Spin-Off. |
Q: | Will the HGV Parent common stock be listed on a stock exchange? |
A: | Yes. Although there is not currently a public market for HGV Parent common stock, before completion of the spin-off, HGV Parent will apply to list its common stock on the NYSE under the symbol HGV. It is anticipated that trading of HGV Parent common stock will commence on a when-issued basis at least two trading days prior to the record date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. When-issued trades generally settle within four trading days after the distribution date. On the first trading day following the distribution date, any when-issued trading with respect to HGV Parent common stock will end, and regular-way trading will begin. Regular-way trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full trading day following the date of the transaction. See Trading Market. |
Q: | Will my shares of Hilton Parent common stock continue to trade? |
A: | Yes. Hilton Parent common stock will continue to be listed and trade on the NYSE under the symbol HLT. |
Q: | If I sell, on or before the distribution date, shares of Hilton Parent common stock that I held on the record date, am I still entitled to receive shares of HGV Parent common stock distributable with respect to the shares of Hilton Parent common stock I sold? |
A: |
Beginning on or shortly before the record date and continuing through the distribution date for the spin-off, Hilton Parent common stock will begin to trade in two markets on the New York Stock Exchange: a regular-way market and an ex-distribution market. If you hold shares of Hilton Parent common stock as |
14
of the record date for the distribution and choose to sell those shares in the regular-way market after the record date for the distribution and on or before the distribution date, you also will be selling the right to receive the shares of HGV Parent common stock in connection with the spin-off. However, if you hold shares of Hilton Parent common stock as of the record date for the distribution and choose to sell those shares in the ex-distribution market after the record date for the distribution and on or before the distribution date, you will still receive the shares of HGV Parent common stock in the spin-off. |
Q: | Will the spin-off affect the trading price of my Hilton Parent stock? |
A: | Yes. The trading price of shares of Hilton Parent common stock immediately following the distribution is expected to be lower than immediately prior to the distribution because its trading price will no longer reflect the value of the Timeshare business and Separated Real Estate business. However, we cannot predict the price at which the Hilton Parent shares will trade following the spin-off. |
Q: | What financing transactions will be undertaken in connection with the spin-off? |
A: | Subject to market conditions, we expect to complete one or more financing transactions on or prior to the completion of the spin-off. As a result of these financing transactions, upon consummation of the spin-off we expect to have total indebtedness of between $400 million and $500 million, excluding between $400 million and $450 million expected to be outstanding under the non-recourse Timeshare Facility and between $250 million and $300 million of non-recourse Securitized Debt expected to be outstanding. Included in our expected outstanding Timeshare Facility balance is an intended expansion of the capacity and borrowing of up to an additional $250 million to $300 million, which proceeds will be used to distribute cash to Hilton Parent. After giving effect to the foregoing financing transactions, upon consummation of the spin-off, we expect to have between $1.05 billion and $1.25 billion of total recourse and non-recourse indebtedness outstanding. We have not yet identified the specific sources of funds and there can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. The financing transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See The Spin-OffFinancing Transactions and Description of Certain Indebtedness. |
Q: | What is the estimated cash amount that Hilton Grand Vacations will contribute to Hilton Parent? |
A: | Hilton Grand Vacations will contribute approximately $ million to $ million in cash to Hilton Parent from proceeds of financing transactions expected to be completed on or prior to completion of the spin-off. |
Q: | Who will comprise the senior management team and board of directors of HGV Parent after the spin-off? |
A: | The executive officers following the spin-off will include Mark D. Wang, President and Chief Executive Officer, who will also serve as a director; James E. Mikolaichik, Chief Financial Officer; Michael D. Brown, Chief Operating Officer; David C. Hayes, Chief Marketing Officer; Charles R. Corbin, Jr., General Counsel; and Stan R. Soroka, Chief Customer Officer. We are in the process of identifying additional individuals who will serve as members of our board of directors or as our executive officers following the spin-off. See Management for information on our executive officers and board of directors. |
Q: | What will the relationship be between Hilton and HGV after the spin-off? |
A: |
Following the spin-off, HGV Parent will be an independent, publicly traded company, and Hilton Parent will have no continuing stock ownership interest in HGV Parent. HGV Parent will have entered into a Distribution Agreement with Hilton Parent and Park Parent and will enter into several other agreements for the purpose of allocating among Hilton Parent, HGV Parent and Park Parent various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and |
15
liabilities). These agreements also will govern HGVs relationship with Hilton and Park Hotels & Resorts following the spin-off and will provide arrangements for employee matters, tax matters, intellectual property matters, insurance matters and other specified liabilities, rights and obligations attributable to periods before and, in some cases, after the spin-off. These agreements also will include arrangements with respect to transitional services to be provided by Hilton to HGV and Park Hotels & Resorts. The Distribution Agreement will provide, in general, that HGV will indemnify Hilton against any and all liabilities arising out of HGVs business as constituted in connection with the spin-off and any other liabilities and obligations assumed by HGV, and that Hilton will indemnify HGV against any and all liabilities arising out of the businesses of Hilton as constituted in connection with the spin-off and any other liabilities and obligations assumed by Hilton. In addition, HGV Parent and Hilton will enter into a long-term license agreement with Hilton will give HGV the exclusive right to market, sell and rent VOI inventory and manage resorts under the Hilton Grand Vacations brand. |
Q: | What will HGV Parents dividend policy be after the spin-off? |
A: | Although we expect to return capital to stockholders through dividends or otherwise in the future, 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. See Dividend Policy. |
Q: | What are the anti-takeover effects of the spin-off? |
A: | Some provisions of the amended and restated certificate of incorporation and bylaws of HGV Parent, Delaware law and possibly the agreements governing HGV Parents new debt, as each will be in effect immediately following the spin-off, may have the effect of making more difficult an acquisition of control of HGV in a transaction not approved by HGVs board of directors. See Description of Capital StockAnti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law. In addition, under the Tax Matters Agreement, HGV Parent will agree, subject to certain terms, conditions and exceptions, not to enter into any transaction for a period of two years following the distribution involving an acquisition (including issuance) of HGV Parent common stock or certain other transactions that could cause the distribution to be taxable to Hilton Parent. The parties also will agree to indemnify each other for any tax resulting from any transaction to the extent a partys actions caused such tax liability, whether or not the indemnified party consented to such transaction or the indemnifying party was otherwise permitted to enter into such transaction under the Tax Matters Agreement, and for all or a portion of any tax liabilities resulting from the distribution under certain other circumstances. Generally, Hilton Parent will recognize a taxable gain on the distribution if there are (or have been) one or more acquisitions (including issuances) of HGV Parent capital stock representing 50 percent or more of HGV Parents stock, measured by vote or value, and the acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any such acquisition of HGV Parent common stock within two years before or after the distribution (with exceptions, including public trading by less-than-5% stockholders and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted. Moreover, under the Stockholders Agreement, HGV Parent will agree to restrict certain issuances and repurchases of its stock to manage the aggregate shift in ownership of HGV Parents stock as a result of such acquisitions. As a result, HGVs obligations may discourage, delay or prevent a change of control of HGV. |
Q: | What are the risks associated with the spin-off? |
A: | There are a number of risks associated with the spin-off and ownership of HGV Parent common stock. These risks are discussed under Risk Factors. |
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Q: | Where can I get more information? |
A. | If you have any questions relating to the mechanics of the distribution, you should contact the distribution agent at: |
Wells Fargo Shareowner Services
P.O. Box 64874
St. Paul, MN 55164-0874
Toll Free Number: 800-468-9716
Before completion of the spin-off, if you have any questions relating to the spin-off, you should contact Hilton Parent at:
Hilton Worldwide Holdings Inc.
Investor Relations
Phone: 703-883-5476
Email: ir@hilton.com
www.hiltonworldwide.com
After completion of the spin-off, if you have any questions relating to HGV, you should contact HGV Parent at:
Hilton Grand Vacations Inc.
Investor Relations
Phone: 407-722-3327
Email: rlafleur@hgvc.com
www.hiltongrandvacations.com
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Summary of the Spin-Off
Distributing Company |
Hilton Worldwide Holdings Inc., a Delaware corporation. After the distribution, Hilton Parent will not own any shares of HGV Parent common stock. |
Distributed Company |
Hilton Grand Vacations Inc., a Delaware corporation and a wholly owned subsidiary of Hilton Parent. After the spin-off, HGV Parent will be an independent, publicly traded company. |
Distributed Securities |
All of the outstanding shares of HGV Parent common stock owned by Hilton Parent, which will be 100 percent of the HGV Parent common stock issued and outstanding immediately prior to the distribution. |
Record Date |
The record date for the distribution is , 2016. |
Distribution Date |
The distribution date is , 2016. |
Internal Reorganization |
As part of the spin-off, Hilton will undergo an internal reorganization, which we refer to as the internal reorganization, pursuant to which, among other things and subject to limited exceptions: |
| all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Timeshare business will be retained by or transferred to us or our subsidiaries; |
| all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Separated Real Estate business will be retained by or transferred to Park Parent or its subsidiaries; and |
| all other assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) of Hilton will be retained by or transferred to Hilton Parent or its subsidiaries (other than us, Park Parent or our respective subsidiaries). |
In particular, following the internal reorganization, Hilton Grand Vacations will own HRC, the legal entity that currently owns and operates the entirety of Hilton Parents Timeshare business, which has historically operated as a distinct operating segment. See the financial statements of HRC included in this information statement for additional details on the historical assets, liabilities and obligations of the Timeshare business. |
After completion of the spin-off: |
| we will be an independent, publicly traded company (NYSE : HGV), and will own and operate Hiltons timeshare business; |
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| Park Parent will be an independent, self-administered, publicly traded company (NYSE : PK), and will hold a portfolio of Hiltons real estate assets and certain other assets and operations as described herein; and |
| Hilton will continue to be an independent, publicly traded company (NYSE: HLT) and continue to own and operate its management and franchising business and will continue to hold certain real estate assets not transferred to Park Hotels & Resorts as part of the spin-off. |
See The Spin-OffManner of Effecting the Spin-OffInternal Reorganization. |
Distribution Ratio |
Each holder of Hilton Parent common stock will receive one share of HGV Parent common stock for every shares of Hilton Parent common stock held at 5:00 p.m., Eastern time, on , 2016. |
Immediately following the spin-off, HGV Parent expects to have approximately record holders of shares of common stock and approximately million shares of common stock outstanding, based on the number of stockholders and outstanding shares of Hilton Parent common stock on , 2016 and the distribution ratio. The figures exclude shares of Hilton Parent common stock held directly or indirectly by Hilton Parent, if any. The actual number of shares to be distributed will be determined on the record date and will reflect any repurchases of shares of Hilton Parent common stock and issuances of shares of Hilton Parent common stock in respect of awards under Hilton Parent equity-based incentive plans between the date the Hilton Parent board of directors declares the dividend for the distribution and the record date for the distribution. |
The Distribution |
On the distribution date, Hilton Parent will release the shares of HGV Parent common stock to the distribution agent to distribute to Hilton Parent stockholders. The distribution of shares will be made in book-entry form only, which means that no physical share certificates will be issued. It is expected that it will take the distribution agent up to two weeks to issue shares of HGV Parent common stock to you or to your bank or brokerage firm electronically on your behalf by way of direct registration in book-entry form. Trading of our shares will not be affected during that time. You will not be required to make any payment, surrender or exchange your shares of Hilton Parent common stock or take any other action to receive your shares of HGV Parent common stock. |
Fractional Shares |
The distribution agent will not distribute any fractional shares of HGV Parent common stock to Hilton Parent stockholders. Fractional shares of HGV Parent common stock to which Hilton Parent stockholders of record would otherwise be entitled will be aggregated and sold in the public market by the distribution agent. The aggregate |
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net cash proceeds of the sales will be distributed ratably to those stockholders who would otherwise have received fractional shares of HGV Parent common stock. Receipt of the proceeds from these sales generally will result in a taxable gain or loss to those stockholders for U.S. federal income tax purposes. Each stockholder entitled to receive cash proceeds from these shares should consult his, her or its own tax advisor as to such stockholders particular circumstances. The material U.S. federal income tax consequences of the distribution are described in more detail under The Spin-OffMaterial U.S. Federal Income Tax Consequences of the Spin-Off. |
Conditions to the Spin-Off |
Completion of the spin-off is subject to the satisfaction or waiver by Hilton Parent of the following conditions: |
| the final approval by the board of directors of Hilton Parent of the spin-off and all related transactions and the determination of the record date, which approval may be given or withheld at its absolute and sole discretion; |
| our Registration Statement on Form 10, of which this information statement forms a part, shall have been declared effective by the Securities and Exchange Commission (the SEC), no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this information statement, or a notice of internet availability thereof, shall have been mailed to the Hilton Parent stockholders; |
| HGV Parent common stock shall have been approved for listing on the NYSE, subject to official notice of distribution; |
| Hilton Parent shall have obtained an opinion from Spin-off Tax Counsel, in form and substance satisfactory to Hilton Parent, to the effect that the spin-off should qualify as a tax-free distribution under Section 355 of the Code; |
| the IRS Ruling shall not have been revoked or modified in any material respect; |
| prior to the distribution date, the Hilton Parent board of directors shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to Hilton, with respect to the capital adequacy and solvency of each of Hilton, HGV and Park Hotels & Resorts after giving effect to the spin-off; |
| any material governmental approvals and other consents necessary to consummate the spin-off shall have been received; |
| no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the spin-off shall be pending, threatened, issued or in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the spin-off; |
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| no other events or developments shall have occurred or failed to occur that, in the judgment of the board of directors of Hilton Parent, would result in the distribution having a material adverse effect on Hilton or its stockholders; |
| the internal reorganization shall have been completed, except for such steps as Hilton Parent in its sole discretion shall have determined may be completed after the distribution date; |
| all necessary actions shall have been taken to cause the board of directors of HGV Parent to consist of the individuals identified in this information statement as directors of HGV Parent; |
| all necessary actions shall have been taken to cause the officers of HGV to be the individuals identified as such in this information statement; |
| all necessary actions shall have been taken to adopt the forms of amended and restated certificate of incorporation and bylaws filed by HGV Parent with the SEC as exhibits to the Registration Statement on Form 10, of which this information statement forms a part; and |
| each of the Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Transition Services Agreement and the other ancillary agreements shall have been executed by each party. |
Completion of the spin-off of Park Hotels & Resorts will be subject to similar conditions as those listed above. |
The fulfillment of the foregoing conditions will not create any obligation on the part of Hilton to effect the spin-off. We are not aware of any material federal, foreign or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations, approval for listing on the NYSE and the declaration of effectiveness of the Registration Statement on Form 10, of which this information statement forms a part, by the SEC, in connection with the distribution. Hilton has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of Hilton Parent determines, in its sole discretion, that the spin-off is not then in the best interests of Hilton or its stockholders or other constituents, that a sale or other alternative is in the best interests of Hilton or its stockholders or other constituents or that it is not advisable for HGV to separate from Hilton at that time. For more information, see The Spin-OffConditions to the Spin-Off. |
Trading Market and Symbol |
We intend to list HGV Parent common stock on the NYSE under the ticker symbol HGV. We anticipate that, at least two trading days prior to the record date, trading of shares of HGV Parent common stock will begin on a when-issued basis and will continue up to and |
21
including the distribution date, and we expect regular-way trading of HGV Parent common stock will begin the first trading day after the distribution date. We also anticipate that, at least two trading days prior to the record date, there will be two markets in Hilton Parent common stock: (i) a regular-way market on which shares of Hilton Parent common stock will trade with an entitlement for the purchaser of Hilton Parent common stock to shares of HGV Parent common stock to be distributed pursuant to the distribution; and (ii) an ex-distribution market on which shares of Hilton Parent common stock will trade without an entitlement for the purchaser of Hilton Parent common stock to shares of HGV Parent common stock. For more information, see Trading Market. |
Tax Consequences of the Spin-Off |
Hilton Parent has received the IRS Ruling regarding certain U.S. federal income tax aspects of the spin-off. The spin-off is conditioned upon, among other things, the IRS Ruling remaining in effect as of the distribution date. In addition, the spin-off is conditioned on the receipt of an opinion of Spin-off Tax Counsel confirming the tax-free treatment of the spin-off. See The Spin-OffMaterial U.S. Federal Income Tax Consequences of the Spin-Off. |
Each stockholder is urged to consult his, her or its tax advisor as to the specific tax consequences of the spin-off to such stockholder, including the effect of any state, local or non-U.S. tax laws and of changes in applicable tax laws. |
Relationship with Hilton after the Spin-Off |
We will enter into a Distribution Agreement and several other agreements with Hilton Parent and Park Parent related to the spin-off. These agreements will govern the relationship among us, Hilton and Park Hotels & Resorts after completion of the spin-off and provide for the allocation among us, Hilton and Park Hotels & Resorts of various assets, liabilities, rights and obligations (including employee benefits, intellectual property, insurance and tax-related assets and liabilities). The Distribution Agreement will provide for the allocation of assets and liabilities among Hilton, HGV and Park Hotels & Resorts and will establish the rights and obligations between and among the parties following the distribution. We intend to enter into one or more Transition Services Agreements with Hilton Parent pursuant to which certain services will be provided on an interim basis following the distribution. We also intend to enter into an Employee Matters Agreement that will set forth the agreements among us, Park Hotels & Resorts and Hilton concerning certain employee, compensation and benefit-related matters. Further, we intend to enter into a Tax Matters Agreement with Hilton Parent and Park Parent regarding the sharing of taxes incurred before and after completion of the spin-off, certain indemnification rights with respect to tax matters and certain restrictions on our conduct following the distribution intended to preserve the tax-free status of the spin-off. In addition, our long-term license agreement with Hilton will give us the exclusive right to |
22
market, sell and rent VOI inventory and manage resorts under the Hilton Grand Vacations brand. We describe these arrangements in greater detail under Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-Off, and describe some of the risks of these arrangements under Risk FactorsRisks Related to the Spin-Off. |
Dividend Policy |
Although we expect to return capital to stockholders through dividends or otherwise in the future, 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. See Dividend Policy. |
Financing Transactions |
Subject to market conditions, we expect to complete one or more financing transactions on or prior to the completion of the spin-off. As a result of these financing transactions, upon consummation of the spin-off we expect to have total indebtedness of between $400 million and $500 million, excluding between $400 million and $450 million expected to be outstanding under the non-recourse Timeshare Facility and between $250 million and $300 million of non-recourse Securitized Debt expected to be outstanding. Included in our expected outstanding Timeshare Facility balance is an intended expansion of the capacity and borrowing of up to an additional $250 million to $300 million, which proceeds will be used to distribute cash to Hilton Parent. After giving effect to the foregoing financing transactions, upon consummation of the spin-off, we expect to have between $1.05 billion and $1.25 billion of total recourse and non-recourse indebtedness outstanding. We have not yet identified the specific sources of funds and there can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. The financing transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See The Spin-OffFinancing Transactions and Description of Certain Indebtedness. |
Transfer Agent |
Wells Fargo Bank, N.A. |
Risk Factors |
We face both general and specific risks and uncertainties relating to our business, our relationship with Hilton and our being an independent, publicly traded company. We also are subject to risks relating to the spin-off. You should carefully read the risk factors set forth in the section entitled Risk Factors in this information statement. |
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Summary Historical and Unaudited Pro Forma Consolidated Financial Data
We derived the summary statement of operations data for the years ended December 31, 2015, 2014 and 2013 and the summary balance sheet data as of December 31, 2015 and 2014 from our audited consolidated financial statements included elsewhere in this information statement. We derived the summary statement of operations data for the six months ended June 30, 2016 and 2015 and the summary balance sheet data as of June 30, 2016 from our unaudited condensed consolidated financial statements included elsewhere in this information statement. We derived the summary balance sheet data as of June 30, 2015 and December 31, 2013 from our unaudited consolidated financial statements that are not included in this information statement. 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. 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 spin-off and related transactions described under Unaudited Pro Forma Consolidated Financial Statements. 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. The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and we believe such assumptions are reasonable under the circumstances.
This summary financial data is not indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from Hilton. For example, our historical consolidated financial statements include allocations of expenses for certain functions and services provided by Hilton. These costs may not be representative of the future costs we will incur, either positively or negatively, as an independent, public company. Our historical consolidated financial statements also include allocations of debt, and related balances, related to debt entered into by Hilton, which was secured by our assets.
The summary historical financial data below should be read together with the consolidated financial statements and related notes thereto, as well as Selected Historical Consolidated Financial Data, Unaudited Pro Forma Consolidated Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations, Description of Certain Indebtedness and the other financial information included elsewhere in this information statement.
Pro Forma | ||||||||||||||||||||||||||||
Six Months
Ended June 30, 2016 |
Year Ended
December 31, 2015 |
Six Months
Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||||||||||
Summary Statement of Operations Data: |
||||||||||||||||||||||||||||
Total revenues |
$ | $ | $ | 761 | $ | 721 | $ | 1,475 | $ | 1,317 | $ | 1,224 | ||||||||||||||||
Total expenses |
588 | 582 | 1,154 | 1,004 | 975 | |||||||||||||||||||||||
Net income |
95 | 74 | 174 | 167 | 128 |
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Pro Forma | ||||||||||||||||||||||||||||
June 30,
2016 |
December 31,
2015 |
June 30, | December 31, | |||||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||||||||||
Summary Balance Sheet Data: |
||||||||||||||||||||||||||||
Cash |
$ | $ | $ | 3 | $ | 2 | $ | 4 | $ | 2 | $ | 2 | ||||||||||||||||
Restricted cash |
72 | 88 | 75 | 62 | 61 | |||||||||||||||||||||||
Securitized timeshare financing receivables |
294 | 405 | 350 | 468 | 221 | |||||||||||||||||||||||
Unsecuritized timeshare financing receivables |
687 | 533 | 626 | 460 | 681 | |||||||||||||||||||||||
Total assets |
1,837 | 1,706 | 1,724 | 1,621 | 1,568 | |||||||||||||||||||||||
Total non-recourse debt |
445 | 559 | 502 | 625 | 670 | |||||||||||||||||||||||
Total liabilities (1) |
1,821 | 1,928 | 1,830 | 1,994 | 2,103 |
(1) | Includes allocated Parent debt of $635 million and $683 million as of June 30, 2016 and 2015, respectively, and $634 million, $719 million and $828 million as of December 31, 2015, 2014 and 2013, respectively. |
Six Months Ended
June 30, |
Year Ended
December 31, |
|||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Other Financial Data: |
||||||||||||||||||||
Contract sales (1) |
$ | 554 | $ | 526 | $ | 1,068 | $ | 905 | $ | 829 | ||||||||||
EBITDA (2) |
190 | 157 | 356 | 349 | 289 | |||||||||||||||
Adjusted EBITDA (2) |
205 | 169 | 373 | 353 | 306 | |||||||||||||||
Real estate sales and financing segment Adjusted EBITDA |
171 | 145 | 329 | 305 | 294 | |||||||||||||||
Resort operations and club management segment Adjusted EBITDA |
97 | 79 | 162 | 144 | 104 | |||||||||||||||
Segment Adjusted EBITDA margin (3) |
37.6 | % | 33.1 | % | 35.5 | % | 36.7 | % | 35.0 | % | ||||||||||
ROIC (4) |
41.3 | % | 47.7 | % | 29.5 | % |
(1) | Contract sales represent the total amount of vacation ownership interest products under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales is not a recognized term under generally accepted accounting principles in the United States (U.S. GAAP), and should not be considered in isolation or as an alternative to sales of VOIs, net or any other comparable operating measure derived in accordance with U.S. GAAP. For a reconciliation of contract sales to sales of VOIs, net, which we believe is the most closely comparable U.S. GAAP financial measure, see Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of OperationsReal Estate. |
(2) | EBITDA is defined by us as net income before 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 EBITDA further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs; (vi) share-based compensation expenses; (vii) severance, relocation and other expenses; and (viii) other items. EBITDA and Adjusted EBITDA are not recognized terms under 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. For further discussion on EBITDA and Adjusted EBITDA see Managements Discussion and Analysis of Financial Condition and Results of OperationsKey Business and Financial Metrics and Terms Used by ManagementEBITDA and Adjusted EBITDA. For a reconciliation of EBITDA and Adjusted EBITDA to net income, which we believe is the most closely comparable U.S. GAAP financial measure, see Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of OperationsSegment Results. |
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(3) | Segment Adjusted EBITDA margin is defined as total segment Adjusted EBITDA as a percentage of total segment revenues. Segment Adjusted EBITDA margin is not a recognized term under U.S. GAAP and should not be considered as an alternative measure of financial performance derived in accordance with U.S. GAAP. The following table provides the calculation of segment Adjusted EBITDA margin: |
(4) | We define return on invested capital (ROIC) as Adjusted EBITDA less non-recourse debt interest expense and depreciation and amortization (Adjusted EBIT), divided by average invested capital. Invested capital includes allocated Parent debt, deferred revenues, deferred income tax liabilities and total Parent deficit. ROIC and Adjusted EBIT are not recognized terms under U.S. GAAP and should not be considered as alternatives to other measures of financial performance or liquidity derived in accordance with U.S. GAAP. ROIC should not be considered as a measure of our stockholders return on investment. In addition, our definition of ROIC may not be comparable to similarly titled measures of other companies. We believe ROIC is a meaningful performance metric for investors and analysts because it measures how effectively we use capital to generate profits. The following table provides the calculation of ROIC: |
As of and for the Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Adjusted EBITDA |
$ | 373 | $ | 353 | $ | 306 | ||||||
Less: |
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Non-recourse debt interest expense |
13 | 15 | 7 | |||||||||
Depreciation and amortization |
22 | 18 | 16 | |||||||||
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Adjusted EBIT |
$ | 338 | $ | 320 | $ | 283 | ||||||
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Allocated Parent debt |
$ | 634 | $ | 719 | $ | 828 | ||||||
Deferred revenues |
103 | 100 | 112 | |||||||||
Deferred income tax liabilities |
287 | 272 | 218 | |||||||||
Total Parent deficit |
(106 | ) | (373 | ) | (535 | ) | ||||||
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Invested capital |
$ | 918 | $ | 718 | $ | 623 | ||||||
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Average invested capital (a) |
$ | 818 | $ | 671 | $ | 960 | ||||||
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ROIC |
41.3 | % | 47.7 | % | 29.5 | % | ||||||
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(a) | Represents the average of the invested capital as of the year end presented and the invested capital as of the end of the immediate preceding year. |
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Owning our common stock involves a high degree of risk. You should consider carefully the following risk factors and all other information contained in this information statement. If any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, occur, our business, liquidity, financial condition and results of operations could be materially and adversely affected. If this were to happen, the market price of our common stock could decline significantly, and you could lose all or a part of the value of your ownership in our common stock. Some statements in this information statement, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section in this information statement entitled Forward-Looking Statements.
Risks Related to Our Business and Industry
We are subject to the business, financial and operating risks inherent to the timeshare 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 timeshare industry, including:
| significant competition from other timeshare businesses and hospitality providers in the markets in which we operate; |
| market and/or consumer perception of timeshare companies and the industry in general; |
| changes in operating costs, including energy, food, employee compensation and benefits and insurance; |
| increases in costs due to inflation or otherwise, including increases in our operating costs, that may not be fully offset by price and fee increases in our business; |
| changes in taxes 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; |
| 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; |
| increases in the use of third-party and competitor internet services to book hotel reservations, secure short-term lodging accommodations and market vacation rental properties; |
| the availability and cost of capital necessary for us and third-party developers with whom we do business to fund investments, capital expenditures and service debt obligations; |
| our ability to securitize the receivables that we originate in connection with VOI sales; |
| delays in or cancellations of planned or future development or refurbishment projects; |
| the financial condition of third-party developers with whom we do business; |
| relationships with third-party developers, our Club members and HOAs; |
| changes in desirability of geographic regions of our resorts and affiliated resorts, geographic concentration of our operations and shortages of desirable locations for development; |
| changes in the supply and demand for our products and services; |
| private resales of VOIs and the sale of VOIs in the secondary market; and |
| unlawful or deceptive third-party VOI resale or vacation package sales schemes. |
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Any of these factors could increase our costs or limit or reduce the prices we are able to charge for our products and services or otherwise affect our ability to maintain existing properties, develop new properties or source VOI supply from third parties. As a result, any of these factors can 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.
Macroeconomic and other factors beyond our control can reduce demand for our products and services, including demand for timeshare properties. These factors include, but are not limited to:
| changes in general economic conditions, including low consumer confidence, unemployment levels and 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, violence or terrorist activities or threats and heightened travel security measures instituted in response to these events; |
| the financial and general business condition of the travel industry; |
| statements, actions or interventions by governmental officials related to travel and the resulting negative public perception of such travel; |
| conditions that negatively shape public perception of travel, including travel-related accidents and outbreaks of pandemic or contagious diseases, such as Ebola, avian flu, severe acute respiratory syndrome (SARS), H1N1 (swine flu) and the Zika virus; |
| cyber-attacks; |
| climate change or availability of natural resources; |
| natural or manmade disasters, such as earthquakes, windstorms, tornadoes, hurricanes, typhoons, tsunamis, volcanic eruptions, floods, drought, fires, oil spills and nuclear incidents; |
| changes in the desirability of particular locations or travel patterns of customers; and |
| organized labor activities, which could cause a diversion of business from resorts involved in labor negotiations and loss of business generally for the resorts we manage as a result of certain labor tactics. |
Any one or more of these factors can adversely affect, and from time to time have adversely affected, individual resorts, particular regions and 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 products and services provided by the timeshare industry 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 products and services provided by the timeshare industry 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 affect our business by decreasing the revenues we are able to generate from our VOI sales, financing activities and Club and resort operations. 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 products and services decreases, our business operations and financial performance may be adversely affected.
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We do not own the Hilton brands and our business will be materially harmed if we breach our license agreement with Hilton or it is terminated.
In connection with the spin-off, Hilton will retain ownership of the Hilton-branded trademarks, tradenames and certain related intellectual property used in the operation of our business. We will enter into a license agreement with Hilton granting us the right to use the Hilton-branded trademarks, trade names and related intellectual property in our business for the term of the agreement. If we breach our obligations under the license agreement, Hilton may be entitled to terminate the license agreement or terminate our rights to use the Hilton brands and other Hilton intellectual property at properties that do not meet applicable standards and policies, or to exercise other remedies, any of which could have a material adverse effect on the results of our operations.
The termination of the license agreement or exercise of other remedies would materially harm our business and results of operations and impair our ability to market and sell our products and maintain our competitive position. For example, if we are not able to rely on the strength of the Hilton brands to attract prospective members and guests in the marketplace, our revenue and profits would decline and our marketing and sales expenses would increase. If we are not able to use Hiltons marketing databases and direct booking channels to reach potential members and guests, including www.hilton.com as a channel through which to rent available inventory, our member growth would be adversely affected and our revenue would materially decline, and it is uncertain whether we would be able to replace the revenue associated with those channels.
Even if the license agreement remains in effect, the termination of our rights to use the licensed marks (as described below) at properties that fail to meet applicable standards and policies, or any deterioration of quality or reputation of the Hilton brands (even deterioration not leading to termination of our rights under the license agreement), could also harm our reputation and impair our ability to market and sell our products at the subject properties, which could materially harm our business.
In addition, if license agreement terms relating to the Hilton HHonors loyalty program also terminate, we would not be able to offer Hilton HHonors points to our members and guests. This would adversely affect our ability to sell our products, offer the flexibility associated with our Club membership and sustain our collection performance on our timeshare financing receivables portfolio. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffLicense Agreement.
We will rely on Hilton to consent to our use of its trademarks at new properties we manage in the future.
Under the terms of our license agreement with Hilton, we will be required to obtain Hiltons consent to use its trademarks in circumstances specified in the agreement. Hilton may reject a proposed project in certain circumstances. Any requirements to obtain Hiltons consent to our expansion plans, or the need to identify and secure alternative expansion opportunities because Hilton does not allow us to use its trademarks with proposed new projects, may delay implementation of our expansion plans, cause us to incur additional expense or reduce the financial viability of our projects. Further, if Hilton does not permit us to use its trademarks in connection with our expansion plans, our ability to expand our Hilton-branded timeshare business would cease and our ability to remain competitive may be materially adversely affected.
Our business depends on the quality and reputation of the Hilton brands and affiliation with the Hilton HHonors loyalty program.
Currently, all of our products and services are offered under the Hilton brand names and affiliated with Hiltons HHonors loyalty program, and we intend to continue to develop and offer products and services under the Hilton brands and affiliated with the Hilton HHonors loyalty program in the future. The concentration of our products and services under these brands and program may expose us to risks of brand or program deterioration, or reputational decline, that are greater than if our portfolio were more diverse. Furthermore, as we are not the owner of the Hilton brands or the Hilton HHonors loyalty program, changes to these brands and program or our
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access to them, including our ability to buy points to offer to our members and potential members, could negatively affect our business. Any failure by Hilton to protect the trademarks, tradenames and intellectual property that we license from it could reduce the value of the Hilton brands and also harm our business. If these brands or program deteriorate or materially change in an adverse manner, or the reputation of these brands or program declines, our market share, reputation, business, financial condition or results of operations could be materially adversely affected.
Our dependence on development activities exposes us to project cost and completion risks.
We secure VOI inventory in part by developing new timeshare properties and new phases of existing timeshare properties. Our ongoing involvement in the development of inventory presents a number of risks, including:
| future weakness in the capital markets limiting our ability to raise capital for completion of projects or for development of future properties; |
| construction costs, to the extent they escalate faster than the pace at which we can increase the price of VOIs, adversely affecting our margins; |
| construction delays, zoning and other local, state or federal governmental approvals, cost overruns, lender financial defaults, or natural or man-made disasters, such as earthquakes, tsunamis, hurricanes, floods, fires, volcanic eruptions and oil spills, increasing overall project costs, affecting timing of project completion or resulting in project cancellations; |
| any liability or alleged liability or resultant delays associated with latent defects in design or construction of projects we have developed or that we construct in the future adversely affecting our business, financial condition and reputation; |
| failure by third-party contractors to perform for any reason, exposing us to operational, reputational and financial harm; and |
| the existence of any title defects in properties we acquire. |
We also source inventory from third-party developers that are exposed to such risks, and the occurrence of any of these risks could have a material adverse effect on our access to the inventory sourced from these developers.
A decline in developed or acquired VOI inventory or our failure to enter into and maintain fee-for-service agreements may have an adverse effect on our business or results of operations.
In addition to VOI supply that we develop or acquire, we source VOIs through fee-for-service agreements with third-party developers. If we fail to develop timeshare properties, acquire inventory or are unsuccessful in entering into new agreements with third-party developers, we may experience a decline in VOI supply, which could result in a decrease in our revenues. 78 percent of our contract sales were from capital-efficient sources for the year ended December 31, 2015. As part of our strategy to optimize our sales mix of capital-efficient inventory, we will continue to acquire inventory and enter into additional fee-for-service agreements to source inventory. These arrangements may expose us to additional risk as we will not control development activities or timing of development completion. If third parties with whom we enter into agreements are not able to fulfill their obligations to us, the inventory we expect to acquire or market and sell on their behalf may not be available on time or at all, or may not otherwise be within agreed-upon specifications. If our counterparties do not perform as expected and we do not have access to the expected inventory or obtain access to inventory from alternative sources on a timely basis, our ability to achieve sales goals may be adversely affected.
In addition, a decline in VOI supply could result in a decrease of financing revenues that are generated by VOI purchases and fee and rental revenues that are generated by our resort and club management services.
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We operate in a highly competitive industry.
The timeshare industry is highly competitive. The Hilton brands we use compete with the timeshare brands affiliated with major hotel chains in national and international venues, as well as more generally with other vacation options such as cruises and the vacation rental options (e.g., hotels, resorts and condominium rentals) generally offered by the lodging and travel industry.
We also compete with other timeshare developers for sales of VOIs based principally on location, quality of accommodations, price, service levels and amenities, financing terms, quality of service, terms of property use, reservation systems, flexibility for VOI owners to exchange into time at other timeshare properties or other travel rewards, including access to hotel loyalty programs, as well as brand name recognition and reputation. A number of our competitors are significantly larger with potentially greater access to capital resources and broader marketing, sales and distribution capabilities than we have. We also compete with numerous other smaller owners and operators of timeshare resorts, as well as home and apartment sharing services that market available privately owned residential properties that can be rented on a nightly, weekly or monthly basis. In addition, we compete with national and independent timeshare resale companies and members reselling existing VOIs, which could reduce demand or prices for sales of new VOIs. We also compete with other timeshare management companies in the management of resorts on behalf of owners on the basis of quality, cost, types of services offered and relationship. There is also significant competition for talent at all levels within the industry, in particular for sales and management.
We also compete for property acquisitions and partnerships with entities that have similar investment objectives as we do. This competition could limit the number of, or negatively affect the cost of, suitable investment opportunities available to us.
Recent and potential future consolidation in the highly fragmented timeshare industry may increase competition. For example, Interval Leisure Group, Inc., which operates the Interval International exchange program, acquired Hyatt Residence Club in October 2014 and in May 2016 acquired the timeshare operations of Starwood Hotels & Resorts Worldwide, Inc. (which includes the Westin and Sheraton brands), to be known as Vistana Signature Experiences, Inc. Diamond Resorts International, Inc. completed the acquisition of the timeshare business of Gold Key Resorts in October 2015, completed the acquisition of the timeshare business of Intrawest Resort Club Group in January 2016 and recently announced it was initiating a process to explore a wide range of strategic alternatives. Consolidation may create competitors that enjoy significant advantages resulting from, among other things, a lower cost of, and greater access to, capital and enhanced operating efficiencies.
Our ability to remain competitive and to attract and retain members depends on our success in distinguishing the quality and value of our products and services from those offered by others. If we cannot compete successfully in these areas or if our marketing and sales efforts are not successful and we are unable to convert customers to a sufficient number of sales, this could negatively affect our operating margins and our ability to recover the expense of our marketing programs and grow our business, diminish our market share and reduce our earnings.
The sale of VOIs in the secondary market by existing members could cause our sales revenues and profits to decline.
Existing members have offered, and are expected to continue to offer, their VOIs for sale on the secondary market. The prices at which these intervals are sold are typically less than the prices at which we would sell the intervals. As a result, these sales create additional pricing pressure on our sale of VOIs, which could cause our sales revenues and profits to decline. In addition, if the secondary market for VOIs becomes more organized or financing for such resales becomes more available, our ability to sell VOIs could be adversely affected and/or the resulting availability of VOIs (particularly where the VOIs are available for sale at lower prices than the prices at
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which we would sell them) could adversely affect our sales revenues. Further, unlawful or deceptive third-party VOI resale or vacation package sales schemes could damage the reputation of the industry, our reputation and brand value or affect our ability to collect management fees, which may adversely affect our sales revenues and results of operations.
Development of a viable secondary market may also cause the volume of VOI inventory that we are able to repurchase to decline, which could adversely affect our development margin, as we utilize this low-cost inventory source to supplement our inventory needs and help manage our cost of vacation ownership products.
Our business is regulated under a wide variety of laws, regulations and policies, and failure to comply with these regulations could adversely affect our business.
Our business is subject to extensive regulation, and any failure to comply with applicable laws and regulations could have a material adverse effect on our business. Our real estate development activities, for example, are subject to laws and regulations typically applicable to real estate development, subdivision and construction activities, such as laws relating to zoning, entitlement, permitting, land use restrictions, environmental regulation, title transfers, title insurance, taxation and eminent domain. Laws in some jurisdictions also impose liability on property developers for construction defects discovered or repairs made by future owners of property developed by the developer. In addition, the sales of VOIs must be registered with governmental authorities in most jurisdictions in which we do business. The preparation of VOI registrations requires time and cost, and in many jurisdictions the exact date of registration approval cannot be accurately predicted. Various laws also govern our lending activities and our resort management activities, including the laws described in BusinessGovernment Regulation.
A number of laws govern our marketing and sales activities, such as timeshare and land sales acts, fair housing statutes, anti-fraud laws, sweepstakes laws, real estate licensing laws, telemarketing laws, home solicitation sales laws, tour operator laws, seller of travel laws, securities laws, consumer privacy laws and consumer protection laws. In addition, laws in many jurisdictions in which we sell VOIs grant the purchaser of a VOI the right to cancel a purchase contract during a specified rescission period.
In recent years, telemarketing legislation has significantly increased the costs associated with telemarketing. We have implemented procedures that we believe will help reduce the possibility of violating such laws, but such procedures may not be effective in ensuring regulatory compliance. In March 2016, we reached a settlement with the New York Attorney General relating to charges that we made unsolicited telemarketing calls to New York residents who had signed up for the National Do Not Call Registry. We agreed to pay a settlement in the amount of $250,500 and may continue to place some calls to consumers with whom Hilton already does business, subject to the conditions of the settlement. However, because our relationship with Hilton will be changing, it may be more difficult for us to utilize customer information we obtain from Hilton in the future for marketing purposes.
Under the Americans with Disabilities Act of 1990 and the Accessibility Guidelines promulgated thereunder, which we refer to collectively as the ADA, all public accommodations must meet various federal requirements related to access and use by disabled persons. Compliance with ADAs requirements could require removal of access barriers, and non-compliance could result in the U.S. government imposing fines or in private litigants winning damages. Our properties also are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. Furthermore, various laws govern our resort management activities, including laws and regulations regarding community association management, public lodging, food and beverage services, liquor licensing, labor, employment, health care, health and safety, accessibility, discrimination, immigration, gaming and the environment (including climate change).
Our lending activities are also subject to a number of laws and regulations, including laws and regulations related to consumer loans, retail installment contracts, mortgage lending, fair debt collection and credit reporting practices, consumer collection practices, contacting debtors by telephone, mortgage disclosure, lender licenses and money laundering.
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We may not be successful in maintaining compliance with all laws, regulations and policies to which we are currently subject, and such compliance could be expensive and time consuming. We do not know whether existing requirements will change or whether compliance with future requirements would require significant unanticipated expenditures that would affect our cash flow and results of operations. Failure to comply with current or future applicable laws, regulations and policies could have a material adverse effect on our business. For example, if we do not comply with applicable laws, regulations and policies, governmental authorities in the jurisdictions where the violations occurred may revoke or refuse to renew licenses or registrations we must have to operate our business. Failure to comply with applicable laws, regulations and policies could also render sales contracts for our products void or voidable, subject us to fines or other sanctions and increase our exposure to litigation.
We may experience financial and operational risks in connection with acquisitions and other opportunistic business ventures.
We will consider strategic acquisitions to expand our inventory options and distribution capabilities; however, we may be unable to identify attractive acquisition candidates or complete transactions on favorable terms. Future acquisitions could result in potentially dilutive issuances of equity securities and/or the assumption of contingent liabilities. These acquisitions may also be structured in such a way that we will be assuming unknown or undisclosed liabilities or obligations. Moreover, we may be unable to efficiently integrate acquisitions, management attention and other resources may be diverted away from other potentially more profitable areas of our business and in some cases these acquisitions may turn out to be less compatible with our growth strategy than originally anticipated. The occurrence of any of these events could adversely affect our business, financial condition and results of operations.
As part of our business strategy, we also intend to continue collaborating with Hilton on timeshare development opportunities at new and existing hotel properties and explore growth opportunities along the Hilton brand spectrum, as well as expand our marketing partnerships and travel exchange partners. However, we may be unable to successfully enter into these arrangements on favorable terms or launch related products and services, or such products and services may not gain acceptance among our members or be profitable. The failure to develop and execute any such initiatives on a cost-effective basis could have an adverse effect on our business, financial condition and results of operations.
In addition, our ability to engage in acquisitions may be limited by restrictions on our ability to raise additional equity capital. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffTax Matters Agreement, and Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffStockholder Agreement.
Disagreements with VOI owners, HOAs and other third parties may result in litigation and/or loss of management contracts.
The nature of our responsibilities in managing timeshare properties may from time to time give rise to disagreements with VOI owners and HOAs. To develop and maintain positive relations with current and potential owners and HOAs, we seek to resolve any disagreements but may not always be able to do so. Failure to resolve such disagreements may result in litigation. Further, disagreements with HOAs could also result in the loss of management contracts, a significant loss of which could negatively affect our profits or limit our ability to operate our business, and our ongoing ability to generate sales from our existing member base may be adversely affected.
In the normal course of our business, we are involved in various legal proceedings and in the future we could become the subject of claims by current or former members, persons to whom we market our products, third-party developers, guests who use our properties, our employees or contractors, our investors or regulators.
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The outcome of these proceedings cannot be predicted. If any such litigation results in a significant adverse judgment, settlement or court order, we could suffer significant losses, our profits could be reduced, our reputation could be harmed and our future ability to operate our business could be constrained.
We manage a concentration of properties in particular geographic areas, which exposes our business to the effects of regional events and occurrences.
A significant number, approximately 80 percent, of the resorts we manage are concentrated in Florida, Hawaii, Nevada, New York and South Carolina and are, therefore, particularly susceptible to adverse economic developments in those areas. These economic developments include regional economic downturns, significant increases in the number of our competitors products in these markets and potentially higher labor, real estate, tax or other costs in the geographic markets in which we are concentrated. In addition, the properties we manage are subject to the effects of adverse acts of natural or manmade disasters, including earthquakes, windstorms, tornadoes, hurricanes, typhoons, tsunamis, volcanic eruptions, floods, drought, fires, oil spills and nuclear incidents. Depending on the severity of these disasters, the damage could require closure of all or substantially all of these properties in one or more markets for a period of time while the necessary repairs and renovations, as applicable, are undertaken. In addition, we cannot guarantee that the amount of insurance maintained for these properties from time to time would entirely cover damages caused by any such event.
Fear of exposure to pandemic or contagious diseases, such as Ebola, avian flu, SARs, swine flu and the Zika virus, or natural or manmade disasters, may also deter travelers from scheduling vacations or cause them to cancel vacation plans to the markets in which the properties we manage are concentrated. Actual or threatened war, political conditions or civil unrest, violence or terrorist activities or threats and heightened travel security measures instituted in response to these events, could also interrupt or deter vacation plans to our key markets.
As a result of this geographic concentration of properties, we face a greater risk of a negative effect on our revenues in the event these areas are more severely affected by adverse economic and competitive conditions, extreme weather, manmade disasters or pandemic or contagious diseases.
Our operations outside of the United States make us susceptible to the risks of doing business internationally, which could lower our revenues, increase our costs, reduce our profits or disrupt our business.
We currently offer timeshare properties located in the United States, the United Kingdom and Italy. We also market both our international and U.S. properties in Europe and the Asia Pacific region, primarily in Japan and South Korea. In addition, as part of our business strategy, we intend to continue the expansion of our operations in Japan as well as explore further expansion opportunities in Asia. International operations expose us to a number of additional challenges and risks, including the following:
| 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 Hilton brands as American brands; |
| 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 effect of various anti-corruption and other laws; |
| 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; |
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| the ability to comply with or effect 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 regarding, and enforcement of, contract and intellectual property rights; |
| forced nationalization of resort properties by local, state or national governments; and |
| the difficulties involved in managing an organization doing business in different countries. |
These factors may adversely affect the revenues from international markets. While these factors and the effect 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. Moreover, our experience operating internationally is limited to certain markets, which may result in greater inefficiencies in navigating the risks of operating internationally should we expand our international operations into other countries and territories, and could result in greater effects on our business than would be experienced by a company with greater international experience.
Our insurance policies may not cover all potential losses.
We maintain insurance coverage for liability, property, business interruption and other risks with respect to business operations. While we expect to have comprehensive property and liability insurance policies with coverage features and insured limits that we believe are customary, market forces beyond our control may limit the scope of the insurance coverage we can obtain or our ability to obtain coverage at reasonable rates. The cost of our insurance may increase and our coverage levels may decrease, which may affect our ability to maintain customary insurance coverage and deductibles at acceptable costs. There is a limit as well as various sub-limits on the amount of insurance proceeds we will receive in excess of applicable deductibles. If an insurable event occurs that affects more than one of our properties, the claims from each affected property may be considered together per policy provisions to determine whether the per occurrence limit, annual aggregate limit or sub-limits, depending on the type of claim, have been reached. If the limits or sub-limits are exceeded, each affected property may only receive a proportional share of the amount of insurance proceeds provided for under the policy. Further, certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, terrorist acts, such as biological or chemical terrorism, political risks, some environmental hazards and/or natural or manmade disasters, may be outside the general coverage limits of our policy, subject to large deductibles, deemed uninsurable or too cost-prohibitive to justify insuring against. In addition, in the event of a substantial loss, the insurance coverage we carry may not be sufficient to pay the full market value or replacement cost of the affected resort or in some cases may not provide a recovery for any part of a loss. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future marketing, sales or revenue opportunities from the property. Further, we could remain obligated under guarantees or other financial obligations related to the property despite the loss of product inventory, and our members could be required to contribute toward deductibles to help cover losses.
Failure of HOA boards to levy sufficient fees, or the failure of members to pay those fees, could lead to inadequate funds to maintain or improve the properties we manage.
Owners of our VOIs and those we sell on behalf of third-party developers must pay maintenance fees levied by HOA boards, which include reserve amounts for capital replacements and refurbishments. These maintenance fees are used to maintain and refurbish the timeshare properties and to keep the properties in compliance with applicable Hilton standards and policies. If HOA boards do not levy sufficient maintenance fees, including capital reserves required by applicable law, or manage their reserves appropriately, or if members do not pay their maintenance fees, the timeshare properties could fall into disrepair and fail to comply with applicable standards and policies and/or state regulators could impose requirements, obligations and penalties. A decline in the quality or standards of the resorts we manage would negatively affect our ability to attract new members and
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maintain member satisfaction. In addition, if a resort fails to comply with applicable standards and policies, Hilton could terminate our rights under the license agreement to use its trademarks at the non-compliant resort, which could result in the loss of management fees, and could decrease member satisfaction and impair our ability to market and sell our products at the non-compliant locations.
If maintenance fees at our resorts are required to be increased, our product could become less attractive and our business could be harmed.
The maintenance fees that are levied by HOA boards on VOI owners may increase as the costs to maintain and refurbish the timeshare properties and to keep the properties in compliance with Hilton brand standards increase. Increased maintenance fees could make our products less desirable, which could have a negative effect on VOI sales. Further, if our maintenance fees increase substantially year over year or are not competitive with other VOI providers, we may not be able to attract new members or retain existing members.
If purchasers default on the loans that we provide to finance their VOI purchases, our revenues, cash flows and profits could be reduced.
Providing secured financing to some purchasers of VOIs subjects us to the risk of purchaser default. As of December 31, 2015, our consumer loan portfolio had a balance of approximately $1,082 million and experienced default rates of 2.84 percent, 3.22 percent and 2.99 percent for the years ended December 31, 2015, 2014 and 2013, respectively. If a purchaser defaults under the financing that we provide, we could be forced to write off the loan and reclaim ownership of the VOI. 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 VOI 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 VOI. 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, our revenues and profits could be reduced.
If default rates increase beyond current projections and result in higher than expected foreclosure activity, our results of operations could be adversely affected. In addition, the transactions in which we have securitized timeshare financing receivables in the capital markets contain certain portfolio performance requirements related to default, delinquency and recovery rates, which, if not met, would result in loss or disruption of cash flow until portfolio performance sufficiently improves to satisfy the requirements. In addition, we may not be able to resell foreclosed intervals in a timely manner or for an attractive price.
If the default rates or other credit metrics underlying our timeshare financing receivables deteriorate, our timeshare financing receivable securitization program could be adversely affected.
Our timeshare financing receivable securitization program could be adversely affected if a particular timeshare financing receivables pool fails to meet certain performance ratios, which could occur if the default rate or other credit metrics of the underlying timeshare financing receivables deteriorate. In addition, if we offer timeshare financings to our customers with terms longer than those generally offered in the industry, we may not be able to securitize those timeshare financing receivables. Our ability to sell securities backed by our timeshare financing receivables depends on the continued ability and willingness of capital market participants to invest in such securities. Asset-backed securities issued in our timeshare financing receivable securitization program could be downgraded by credit agencies in the future. If a downgrade occurs, our ability to complete other securitization transactions on acceptable terms or at all could be jeopardized, and we could be forced to rely on other potentially more expensive and less attractive funding sources, to the extent available. Similarly, if other operators of vacation ownership products were to experience significant financial difficulties, or if the timeshare industry as a whole were to contract, we could experience difficulty in securing funding on acceptable terms. The occurrence of any of the foregoing would decrease our profitability and might require us to adjust our business
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operations, including by reducing or suspending our provision of financing to purchasers of VOIs. Sales of VOIs may decline if we reduce or suspend the provision of financing to purchasers, which may adversely affect our cash flows, revenues and profits.
A failure to keep pace with developments in technology could impair our operations, competitive position or reputation.
Our business model and competitive conditions in the timeshare industry demand the use of sophisticated technology and systems, including those used for our marketing, sales, reservation, inventory management and property management systems, and technologies we make available to our members and more generally to support our business. We must refine, update and/or replace these technologies and systems with more advanced systems on a regular basis. If we cannot do so as quickly as our competitors or within budgeted costs and time frames, our business could suffer. We also may not achieve the benefits that we anticipate from any new technology or system, and a failure to do so could result in higher than anticipated costs or could harm our operating results.
In addition, the proliferation and global reach of social media continues to expand rapidly and could cause us to suffer reputational harm. The continuing evolution of social media presents new challenges and requires us to keep pace with new developments, technology and trends. Negative posts or comments about us, the properties we manage or the Hilton brands we use on any social networking or user-generated review website, including travel and/or vacation property websites, could affect consumer opinions of us and our products, and we cannot guarantee that we will timely or adequately redress such instances.
Failure to maintain the integrity of internal or customer data could result in faulty business decisions or operational inefficiencies, damage our reputation and/or subject us to costs, fines or lawsuits.
We collect and retain large volumes of customer data, including credit card numbers and other personally identifiable information in various information systems and those of our service providers. We also maintain personally identifiable information of our employees. The integrity and protection of this customer and employee data is critical to us. We could make faulty decisions if that data is inaccurate or incomplete. Customers and employees also have a high expectation that we and our service providers will adequately protect their personal information. The regulatory environment surrounding information, security and privacy is also increasingly demanding, in both the United States and other jurisdictions in which we operate.
Our systems may be unable to satisfy changing regulatory requirements and customer and employee expectations, or may require significant additional investments or time to do so. We depend upon the secure transmission of information over public networks. Our information systems and records, including those we maintain with our service providers, may be subject to security breaches, unauthorized access by hackers, cyber-attacks, which are rapidly evolving and becoming increasingly sophisticated, system failures, viruses, operator error or malfeasance or inadvertent releases of data. For instance, security breaches could result in the dissemination of member and guest credit card information, which could lead to affected members and guests experiencing fraudulent charges. In some cases it may be difficult to anticipate or immediately detect such incidents and the damage caused thereby. A significant theft, loss or fraudulent use of customer, employee or company data maintained by us or by a service provider could adversely affect our reputation and could result in remedial and other expenses, fines or litigation.
A breach in the security of our information systems or those of our service providers could lead to an interruption in the operation of our systems, potentially resulting in operational inefficiencies and a loss of profits.
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Changes in privacy law could adversely affect our ability to market our products effectively.
We rely on a variety of direct marketing techniques, including telemarketing, email and social media marketing and postal mailings, and we are subject to various laws and regulations in the United States and internationally that govern marketing and advertising practices. Adoption of new state or federal laws regulating marketing and solicitation, or international data protection laws that govern these activities, or changes to existing laws, such as the Telemarketing Sales Rule, the Telephone Consumer Protection Act and the CAN-SPAM Act of 2003, 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 affect the amount and timing of our VOI sales. We also obtain access to potential members and guests from travel service providers or other companies, including Hilton, and we market to some individuals on these lists directly or through other companies marketing materials. If access to these lists were prohibited or otherwise restricted, including access to Hilton HHonors loyalty program member information, our ability to access potential members and guests and introduce them to our products could be significantly impaired. Additionally, because our relationship with Hilton will be changing, it may be more difficult for us to utilize customer information we obtain from Hilton in the future.
The growth of our business and the execution of our business strategies depend on the services of our management team and our employees.
We believe that our future growth depends, in part, on the continued services of our management team and our ability to attract and retain key officers and other highly qualified personnel. Competition for such personnel is intense. There can be no assurance that we will be successful in retaining and attracting management and other highly qualified personnel. The loss of any members of our management team could adversely affect our strategic, member and guest relationships and impede our ability to execute our business strategies.
In addition, insufficient numbers of talented employees at our properties could constrain our ability to maintain our current levels of business, or expand our business. We compete with other companies both within and outside of our industry for talented personnel across a diverse array of operating disciplines. If we cannot recruit, train, develop or retain sufficient numbers of talented employees, we could experience increased employee turnover, decreased member and guest satisfaction, low morale, inefficiency or internal control failures, which could materially reduce our profits.
Third-party reservation channels may negatively affect our bookings for room rental revenues.
Some stays at the properties we manage are booked through third-party internet travel intermediaries, such as expedia.com, orbitz.com and booking.com, as well as lesser-known and/or newly emerging online travel service providers. As the percentage of internet bookings increases, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us. Moreover, some of these internet travel intermediaries are attempting to commoditize lodging by increasing the importance of price and general indicators of quality (such as three-star property) at the expense of brand identification. These intermediaries also generally employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. Additionally, consumers can book stays at the properties we manage through other distribution channels, including travel agents, travel membership associations and meeting procurement firms. Over time, consumers may develop loyalties to these third-party reservation systems rather than to our booking channels. Although we expect to derive most of our business from traditional channels and our websites (and those of Hilton Parent), our business and profitability could be adversely affected if customer loyalties change significantly, diverting bookings away from our distribution channels.
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Our real estate investments subject us to numerous risks.
We are subject to the risks that generally relate to investments in, and development of, real property. A variety of factors affect income from properties and real estate values, including laws and regulations, insurance, interest rate levels and the availability of financing. Our license agreement, or other agreements, with Hilton may require us to incur unexpected costs required to cause our properties to comply with applicable standards and policies. When interest rates increase, the cost of acquiring, developing, expanding or renovating real property increases and real property values may decrease as the number of potential buyers decrease, and in recent years our financial results have benefited from low interest rates. Similarly, as financing becomes less available, it becomes more difficult both to acquire and develop real property. Many costs of real estate investments, such as real estate taxes, insurance premiums, maintenance costs and certain operating costs, are generally more fixed than variable and as a result are not reduced even when a property is not fully sold or occupied. If any of these risks were realized, they could have a material adverse effect on our results of operations or financial condition.
U.S. or foreign 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 U.S. federal, state and local and foreign 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 real property 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.
The U.S. Congress, some U.S. states and various countries 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 the properties we manage or result in significant additional expense and operating restrictions on us. The cost of such legislation, regulation or new interpretations would depend upon the specific requirements enacted and cannot be determined at this time.
Our ability to source VOI inventory and finance VOI sales may be impaired if we or the third-party developers with whom we do business are unable to access capital when necessary.
The availability of funds for new investments, primarily developing, acquiring or repurchasing VOI inventory, depends in part on liquidity factors and capital markets over which we can exert little, if any, control. Instability in the financial markets and any resulting contraction of available liquidity and leverage could constrain the capital markets for investments in timeshare products. In addition, we intend to access the securitization markets to securitize our timeshare financing receivables. Any future deterioration in the financial markets could preclude, delay or increase the cost to us of future securitizations. Such deterioration could also affect our ability to complete the financing transactions we expect to undertake in connection with the spin-off on terms favorable to us, or at all. We also require the issuance of surety bonds in connection with our real estate development and VOI sales activity. The availability, terms and conditions and pricing of our bonding capacity is
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dependent on, among other things, continued financial strength and stability of the insurance company affiliates providing the bonding capacity, general availability of such capacity and our corporate credit rating. If bonding capacity is unavailable, or alternatively, if the terms and conditions and pricing of such bonding capacity are unacceptable to us, our business could be negatively affected. Instability in the financial markets could also affect the timing and volume of any securitizations we undertake, as well as the financial terms of such securitizations. Any indebtedness we incur, including indebtedness under these facilities, may adversely affect our ability to obtain any additional financing necessary to develop or acquire additional VOI inventory or make other investments in our business, or to repurchase VOIs on the secondary market. Furthermore, volatility in the financial markets, due to tightening of underwriting standards by lenders and credit rating agencies, among other things, could result in less availability of credit and increased costs for what is available, and we may find it difficult, costly or impossible to obtain financing on attractive terms. If the overall cost of borrowing increases, either by increases in the index rates or by increases in lender spreads, the increased costs would likely reduce future cash flow available for distribution, affecting our growth and development plans.
We have and will continue to enter into fee-for-service agreements with third-party developers to source inventory. These agreements enable us to generate fees from the marketing and sales services we provide, Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. If these developers are not able to obtain or maintain financing necessary for their operations, we may not be able to enter into these arrangements, which would limit opportunities for growth and reduce our revenues.
Changes to accounting rules or regulations may adversely affect our reported 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 require retrospective application and affect our reporting of transactions completed before the change is effective, and future changes to accounting rules or regulations may adversely affect our reported financial condition and results of operations. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere in this information statement for a summary of accounting standards issued but not yet adopted.
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 losses that could adversely affect our results of operations.
Our total assets include intangible assets with finite useful lives and long-lived assets, principally property and equipment and VOI inventory. We evaluate our 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. We carry our VOI inventory at the lower of cost or estimated fair value, less costs to sell. If the estimates or assumptions used in our evaluation of impairment or fair value change, we may be required to record impairment losses on certain of these assets. If these impairment losses are significant, our results of operations would be adversely affected.
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 and local levels in the United States 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. Changes in the non-income tax rates to which we are subject could also have an adverse effect on the maintenance fees charged to our members, which could result in materially lower sales and higher operating costs.
We are subject to ongoing and periodic tax audits and disputes in U.S. federal and various state, local and foreign jurisdictions. An unfavorable outcome from any tax audit could result in higher tax costs, penalties and interest, thereby adversely affecting our financial condition or results of operations.
The expiration, termination or renegotiation of our management agreements could adversely affect our cash flows, revenues and profits.
We enter into management agreements with the HOAs of the VOI owners for the timeshare resorts developed by us or by third parties with whom we have entered into fee-for-service agreements. Our management agreements generally provide for a cost-plus management fee equal to 10 percent to 15 percent of the costs to operate the applicable resort. We also receive revenues that represent reimbursement for the costs incurred to perform our services, principally related to personnel providing on-site services. The original term of our management agreements is typically governed by state timeshare laws and ranges from three to five years, and many of these agreements renew automatically for one- to three-year periods unless either party provides advance notice of termination before the expiration of the term. Although none of the management agreements relating to our developed or fee-for-service properties have been terminated or lapsed since our inception, any of these agreements may expire at the end of its then-current term (following notice by a party of non-renewal) or be terminated, or the contract terms may be renegotiated in a manner adverse to us. If a management agreement is terminated or not renewed on favorable terms, our cash flows, revenues and profits could be adversely affected.
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 United States are subject to a number of laws and regulations, including restrictions imposed by the Foreign Corrupt Practices Act (FCPA), as well as trade sanctions administered by the Office of Foreign Assets Control (OFAC). The FCPA is intended to prohibit bribery of foreign officials and requires us to keep books and records that accurately and fairly reflect our transactions. 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. Although we have policies in place designed to comply with applicable sanctions, rules and regulations, it is possible that the timeshare properties we own or manage in the countries and territories in which we operate may provide services to or receive funds from persons subject to sanctions. 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 and territories 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 timeshare and other properties, including the termination of ownership and management rights. In addition, in certain circumstances, the actions of parties affiliated with us (including Hilton, third-party developers, and our and their respective employees 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.
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In August 2012, Congress enacted the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRSHRA), which expands the scope of U.S. sanctions against Iran and Syria. In particular, Section 219 of the ITRSHRA amended the Exchange Act of 1934, as amended (the Exchange Act), to require SEC-reporting companies 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. 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 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 may engage in activities that would require disclosure pursuant to Section 219 of ITRSHRA. 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. Hilton Parent and other affiliates of Blackstone have in the past and may in the future be required to make disclosures pursuant to ITRSHRA, including the activities discussed in the disclosures included on Exhibit 99.2 to the registration statement of which this information statement forms a part, which disclosures are hereby incorporated by reference herein. 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 the Hilton brands we use and have a negative effect on our results of operations.
Risks Related to Our Indebtedness
Our 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 our ability to pay our debts and could divert our cash flow from operations for debt payments.
As of December 31, 2015, our total indebtedness (including allocated Parent debt) was $1.1 billion, including $506 million of non-recourse debt, and the contractual debt maturities of our long-term debt and non-recourse debt for the years ending December 31, 2016, 2017 and 2018, respectively, were $111 million, $215 million and $48 million. In connection with the spin-off, we expect to incur additional indebtedness. 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, dividends to stockholders and to 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; |
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| 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. |
For additional discussion on our indebtedness and allocated Parent debt, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesAllocated Parent Debt and Non-recourse Debt and Note 10: Allocated Parent Debt and Non-recourse Debt in our audited consolidated financial statements included elsewhere in this information statement.
Certain of our debt agreements will impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.
We expect that the debt agreements we enter into in connection with the financing transactions will impose significant operating and financial restrictions on us. These restrictions may 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 us; |
| designate restricted subsidiaries as unrestricted subsidiaries; and |
| transfer or sell assets. |
As a result of these restrictions, we are 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 other future indebtedness we may incur could include more restrictive covenants. We may not be able to maintain compliance with these covenants in the future and, if we fail to do so, we may not 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 financial condition and results of operations 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, to fund planned capital expenditures and to pay dividends to our stockholders 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
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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. Finally, our ability to raise additional equity capital may be restricted because the issuance of our stock may cause the spin-off to be a taxable event for Hilton Parent under Section 355(e) of the Code, and under the Tax Matters Agreement, we could be required to indemnify Hilton Parent or Park Parent for that tax and certain covenants may restrict issuances of our stock during the two-year period following the spin-off. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffTax Matters Agreement.
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, including secured debt, in the future. Although we expect that the agreements that will govern substantially all of our indebtedness will contain restrictions on the incurrence of additional indebtedness and entering into certain types of other transactions, these restrictions will be subject to a number of qualifications and exceptions. Additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will 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 three risk factors would increase.
Risks Related to the Spin-Off
We may be responsible for U.S. federal income tax liabilities that relate to the distribution.
Unless waived by Hilton Parent, the completion of the spin-off is conditioned upon the absence of any withdrawal, invalidation or modification of the IRS Ruling in an adverse manner prior to the effective time of the spin-off. Although the IRS Ruling generally will be binding on the IRS, the continued validity of the IRS Ruling will be based upon and subject to the accuracy of factual statements and representations made to the IRS by Hilton Parent. In addition, there is a risk that the IRS could promulgate new administrative guidance prior to the spin-off that could adversely impact the tax-free treatment of the spin-off (even taking into account the receipt of the IRS Ruling). As a result of the IRSs general ruling policy with respect to transactions under Section 355 of the Code, the IRS Ruling is limited to specified aspects of the spin-off under Section 355 of the Code and will not represent a determination by the IRS that all of the requirements necessary to obtain tax-free treatment to holders of Hilton Parents common stock and to Hilton Parent have been satisfied. Moreover, if any statement or representation upon which the IRS Ruling is based is incorrect or untrue in any material respect, or if the facts upon which the IRS Ruling is based are materially different from the facts that prevail at the time of the spin-off, the IRS Ruling could be invalidated.
In addition, the spin-off is conditioned on the receipt of an opinion of Spin-off Tax Counsel to the effect that the distributions of HGV Parent and Park Parent common stock should qualify as tax-free distributions under Section 355 of the Code. An opinion of Spin-off Tax Counsel is not binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the spin-off that are different from the conclusions reached in the opinion. The opinion will be based on certain factual statements and representations, which, if incomplete or untrue in any material respect, could alter Spin-off Tax Counsels conclusions.
Hilton Parent is not aware of any facts or circumstances that would cause any such factual statements or representations in the IRS Ruling or the opinion of Spin-off Tax Counsel to be incomplete or untrue or cause the facts on which the IRS Ruling and legal opinion are based to be materially different from the facts at the time of the spin-off.
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If all or a portion of the spin-off does not qualify as a tax-free transaction for any reason, including because any of the factual statements or representations in the IRS Ruling or the legal opinion are incomplete or untrue, because the facts upon which the IRS Ruling is based are materially different from the facts at the time of the spin-off or because one or more sales of our common stock, Hilton Parent common stock or Park Parent common stock by our respective stockholders, including Blackstone, after the spin-off cause the spin-off not to qualify as a tax-free transaction, Park Parent would recognize a substantial gain attributable to the management and franchising business and/or the Timeshare business for U.S. federal income tax purposes and Hilton Parent may recognize a substantial gain attributable to the Separated Real Estate business and/or Timeshare business for U.S. federal income tax purposes. In such case, under U.S. Treasury regulations, each member of the Hilton consolidated group at the time of the spin-off (including us and our subsidiaries) would be jointly and severally liable for the resulting entire amount of any U.S. federal income tax liability. Additionally, if the distribution of HGV Parent common stock and/or the distribution of Park Parent common stock do not qualify as tax-free under Section 355 of the Code, Hilton Parent stockholders will be treated as having received a taxable dividend to the extent of Hilton Parents current and accumulated earnings and profits and then would have a tax-free basis recovery up to the amount of their tax basis in their shares and then would have taxable gain from the sale or exchange of the shares to the extent of any excess.
Even if the spin-off otherwise qualifies as a tax-free transaction for U.S. federal income tax purposes, the distribution will be taxable to Park Parent and/or Hilton Parent (but not to Hilton Parent stockholders) pursuant to Section 355(e) of the Code if there are (or have been) one or more acquisitions (including issuances) of our stock, the stock of Park Parent or the stock of Hilton Parent, representing 50 percent or more, measured by vote or value, of the stock of any such corporation and the acquisition or acquisitions are deemed to be part of a plan or series of related transactions that include the distribution. Any acquisition of our common stock within two years before or after the distribution (with exceptions, including public trading by less-than-5% stockholders and certain compensatory stock issuances) generally will be presumed to be part of such a plan unless that presumption is rebutted. The resulting tax liability would be substantial, and under U.S. Treasury regulations, each member of the Hilton consolidated group at the time of the spin-off (including us and our subsidiaries) would be jointly and severally liable for the resulting U.S. federal income tax liability.
We will agree not to enter into certain transactions that could cause any portion of the spin-off to be taxable to Hilton Parent, including under Section 355(e) of the Code. Pursuant to the Tax Matters Agreement, we also will agree to indemnify Hilton Parent and Park Parent for any tax liabilities resulting from such transactions or other actions we take, and Hilton Parent and Park Parent will agree to indemnify us for any tax liabilities resulting from transactions entered into by Hilton Parent or Park Parent. These obligations may discourage, delay or prevent a change of control of our company. For additional detail, see Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffTax Matters Agreement.
We may be unable to take certain actions after the spin-off because such actions could jeopardize the tax-free status of the spin-off, and such restrictions could be significant.
To preserve the tax-free treatment of the spin-off, for the initial two-year period following the spin-off, we are prohibited, except in limited circumstances, from taking or failing to take certain actions that would prevent the spin-off and related transactions from being tax-free, including: (1) entering into any transaction pursuant to which our stock would be acquired, whether by merger or otherwise; (2) issuing any equity securities or securities that could possibly be converted into our equity securities; or (3) repurchasing our equity securities.
These restrictions may limit our ability to issue equity and to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. In addition, if we take, or fail to take, actions that prevent the spin-off and related transactions from being tax-free, we could be liable for the adverse tax consequences resulting from such actions. For a more detailed description, see Certain Relationships and Related Party TransactionsTax Matters Agreement and Certain Relationships and Related Party TransactionsStockholders Agreement.
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The spin-off and related transactions may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.
The spin-off could be challenged under various state and federal fraudulent conveyance laws. An unpaid creditor or an entity vested with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that Hilton Parent did not receive fair consideration or reasonably equivalent value in the spin-off, and that the spin-off left Hilton Parent insolvent or with unreasonably small capital or that Hilton Parent intended or believed it would incur debts beyond its ability to pay such debts as they mature. If a court were to agree with such a plaintiff, then such court could void the spin-off as a fraudulent transfer and could impose a number of different remedies, including without limitation, returning our assets or your shares in our company to Hilton Parent or providing Hilton Parent with a claim for money damages against us in an amount equal to the difference between the consideration received by Hilton Parent and the fair market value of our company at the time of the spin-off.
The measure of insolvency for purposes of the fraudulent conveyance laws may vary depending on which jurisdictions law is applied. Generally, however, an entity would be considered insolvent if the fair saleable value of its assets is less than the amount of its liabilities (including the probable amount of contingent liabilities), and such entity would be considered to have unreasonably small capital if it lacked adequate capital to conduct its business in the ordinary course and pay its liabilities as they become due. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that Hilton Parent were solvent at the time of or after giving effect to the spin-off, including the distribution of our common stock.
We could be required to assume responsibility for obligations allocated to Hilton Parent or Park Parent under the Distribution Agreement.
Under the Distribution Agreement and related ancillary agreements, from and after the spin-off, each of Hilton Parent, HGV Parent and Park Parent will be generally responsible for the debts, liabilities and other obligations related to the business or businesses which they own and operate following the consummation of the spin-off. Although we do not expect to be liable for any obligations that are not allocated to us under the Distribution Agreement, a court could disregard the allocation agreed to among the parties, and require that we assume responsibility for obligations allocated to Hilton Parent or Park Parent (for example, tax and/or environmental liabilities), particularly if Hilton Parent or Park Parent were to refuse or were unable to pay or perform the allocated obligations. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffDistribution Agreement.
In addition, losses in respect of certain shared contingent liabilities, which generally are not specifically attributable to any of the Timeshare business, the Separated Real Estate business or the retained business of Hilton, will be apportioned among the parties according to fixed percentages set forth in the Distribution Agreement. Subject to certain limitations and exceptions, Hilton will generally be vested with the exclusive management and control of all matters pertaining to any such shared contingent liabilities, including the prosecution of any claim and the conduct of any defense. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent Related to the Spin-OffDistribution Agreement.
We do not have a recent operating history as an independent company and our historical financial information does not predict our future results.
The historical financial information we have included in this information statement has been derived from the consolidated financial statements of Hilton Parent and does not necessarily reflect what our financial position, results of operations and cash flows would have been as a separate, stand-alone entity during the periods presented. Hilton Parent did not account for us, and we were not operated, as a single stand-alone entity for the periods presented. The costs and expenses reflected in our historical financial statements include an allocation for certain corporate functions historically provided by Hilton Parent. These allocations were based on what we and Hilton Parent considered to be reasonable reflections of the historical utilization levels of these services required
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in support of our business. The historical information does not necessarily indicate what our results of operations, financial position, cash flows or costs and expenses will be in the future. Our pro forma adjustments reflect changes that may occur in our funding and operations as a result of the separation. However, there can be no assurances that these adjustments will reflect our costs as a publicly traded, stand-alone company. For additional information, see Managements Discussion and Analysis of Financial Condition and Results of Operations, Selected Historical Consolidated Financial Data, Unaudited Pro Forma Consolidated Financial Statements and the notes to those statements included elsewhere in this information statement.
We may incur greater costs as an independent company than we did when we were part of Hilton.
As part of Hilton, we can take advantage of its size and purchasing power in procuring certain goods and services such as insurance and health care benefits, and technology such as computer software licenses. We also rely on Hilton to provide various corporate functions. After the spin-off, as a separate, independent entity, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable to us as those we obtained prior to the distribution. We may also incur costs for functions previously performed by Hilton that are higher than the amounts reflected in our historical financial statements, which could cause our profitability to decrease.
Our ability to meet our capital needs may be harmed by the loss of financial support from Hilton.
The loss of financial support from Hilton could harm our ability to meet our capital needs. Hilton can currently provide certain capital that may be needed in excess of the amounts generated by our operating activities and historically has provided financing to us at rates that we believe are not representative of the cost of financing that we will incur as a stand-alone company. After the spin-off, we expect to obtain any funds needed in excess of the amounts generated by our operating activities through the capital markets or bank financing, and not from Hilton. However, given the smaller relative size of our company, as compared to Hilton after the spin-off, we may incur higher debt servicing and other costs relating to new indebtedness than we would have otherwise incurred as a part of Hilton. As a stand-alone company, the cost of our financing also will depend on other factors such as our performance and financial market conditions generally. Further, we cannot guarantee you that we will be able to obtain capital market financing or credit on favorable terms, or at all, in the future. We cannot assure you that our ability to meet our capital needs, including servicing our own debt, will not be harmed by the loss of financial support from Hilton.
We may be unable to achieve some or all of the benefits that we expect to achieve from the spin-off.
As discussed under The Spin-OffReasons for the Spin-Off, we and Hilton believe that a tax-free spin-off will enhance our long-term value. However, by separating from Hilton, we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of Hilton. In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent company in the time we expect, if at all.
Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the distribution, and failure to achieve and maintain effective internal controls could have a material adverse effect on our business and the price of our common stock.
Our financial results previously were included within the consolidated results of Hilton Parent, and we believe that our financial reporting and internal controls were appropriate for a subsidiary of a public company. However, we were not directly subject to the reporting and other requirements of the Exchange Act. As a result of the distribution, we will be directly subject to reporting and other obligations under the Exchange Act. Beginning with our Annual Report on Form 10-K for the year ending December 31, 2017, we will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) which will require annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm as to whether we maintained, in all material respects,
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effective internal controls over financial reporting as of the last day of the year. These reporting and other obligations may place significant demands on our management, administrative and operational resources, including accounting systems and resources.
The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal controls over financial reporting. To comply with these requirements, we may need to upgrade our systems; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. We expect to incur additional annual expenses for the purpose of addressing these requirements, and those expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems, information technology systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies under the Exchange Act could be impaired.
If, during periods we are required to assess the effectiveness of our internal controls, we are unable to conclude that we have effective internal controls over financial reporting or our independent public accounting firm is unwilling or unable to provide us with an unqualified report on the effectiveness of our internal controls as required by Section 404 of the Sarbanes-Oxley Act, we may be unable to report our financial information on a timely basis, investors may lose confidence in our operating results, the price of our common stock could decline and we may be subject to litigation or regulatory enforcement actions, which would require additional financial and management resources. This could have a material adverse effect on our business and lead to a decline in the price of our common stock.
Following the spin-off, we will be dependent on Hilton Parent to provide certain services pursuant to the Transition Services Agreement.
Currently, we rely on Hilton Parent to provide certain corporate and administrative services such as certain information technology, financial and human resource services. We expect to develop the capability to provide all such services internally at HGV. However, to the extent that we are unable to develop such capabilities prior to the separation, we will rely on Hilton Parent to continue to provide certain services for a period of time pursuant to a Transition Services Agreement that we intend to enter in connection with the spin-off. If Hilton Parent is unable or unwilling to provide such services pursuant to the Transition Services Agreement, or if the agreement is terminated prior to the end of its term, we may be unable to provide such services ourselves or we may have to incur additional expenditures to obtain such services from another provider.
We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements related to the spin-off.
We expect that the agreements related to the spin-off, including the Distribution Agreement, Employee Matters Agreement, Tax Matters Agreement, Transition Services Agreement and any other agreements, will be negotiated in the context of our separation from Hilton while we are still part of Hilton. Accordingly, these agreements may not reflect terms that would have resulted from arms-length negotiations among unaffiliated third parties. The terms of the agreements being negotiated in the context of our separation are related to, among other things, allocations of assets and liabilities, rights and indemnification and other obligations among Hilton Parent, Park Parent and us. To the extent that certain terms of those agreements provide for rights and obligations that could have been procured from third parties, we may have received better terms from third parties because third parties may have competed with each other to win our business. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-Off.
The spin-off may not be completed on the terms or timeline currently contemplated, if at all.
We are actively engaged in planning for the spin-off. We expect to incur expenses in connection with the spin-off and any delays in the anticipated completion of the distribution may increase these expenses. Unanticipated developments could delay or negatively affect the distribution, including those related to the filing
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and effectiveness of appropriate filings with the SEC, the listing of our common stock on a trading market, obtaining the tax opinion regarding the tax-free nature of the spin-off and receiving any required regulatory approvals. In addition, Hilton Parents board of directors may, in its absolute and sole discretion, decide at any time prior to the consummation of the spin-off not to proceed with the spin-off. Therefore, we cannot assure that the spin-off will be completed. Until the consummation of the spin-off, Hilton Parents board of directors will have the sole and absolute discretion to determine and change the terms of the spin-off, including the establishment of the record date and distribution date.
Risks Related to Ownership of Our Common Stock
Upon consummation of the spin-off, approximately % of the voting power in HGV Parent will be controlled by Blackstone and its affiliates and their interests may conflict with ours or yours in the future.
Immediately following the spin-off, Blackstone and its affiliates will beneficially own approximately % of our common stock, although less than a majority of the total voting power. We expect that members of our initial board of directors will be Blackstone employees. Accordingly, for so long as Blackstone and its affiliates retain significant ownership of us, Blackstone 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 Blackstone and its affiliates continue to own a significant percentage of our stock, Blackstone may 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.
Blackstone 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, Blackstone and its affiliates may engage in activities where their interests conflict with our interests or those of our stockholders. For example, all of the timeshare properties that we manage as of the date of this information statement utilize certain Hilton-branded trademarks and Hilton trade names and related intellectual property. Blackstone and its affiliates own a significant portion of the outstanding stock of Hilton Parent and have significant influence with respect to the management, business plans and policies of Hilton. In addition, Blackstone and its affiliates may pursue ventures that compete directly or indirectly with us. Moreover, affiliates of Blackstone may directly and indirectly own interests in timeshare property developers or others with whom we may engage in the future, may compete with us for investment opportunities and may enter into other transactions with us that could result in their having interests that could conflict with ours. Our amended and restated certificate of incorporation will provide that none of Blackstone, 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 or her 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. Blackstone also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may be unavailable 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.
Our board of directors may change significant corporate policies without stockholder approval.
Our financing, borrowing and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, will be determined by our board of directors. These policies may be amended or revised at any time and from time to time at the discretion of our board of directors without a vote of our stockholders. In addition, our board of directors may change our policies with respect to conflicts of interest provided that such changes are consistent with applicable legal requirements. A change in these policies could have an adverse effect on our financial condition, our results of operations, our cash flow, the per share trading price of our common stock and our ability to satisfy our debt service obligations and to pay dividends to our stockholders.
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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 bylaws 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 Blackstone and its affiliates cease to beneficially own at least 40 percent 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 our 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 percent or more of all the outstanding shares of our capital stock entitled to vote; and |
| 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.
There is no existing market for our common stock and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price and trading volume of our common stock may fluctuate widely.
There is no current trading market for our common stock. Our common stock distributed in the spin-off will be trading publicly for the first time. We expect that a limited trading market for HGV Parent common stock, commonly known as a when-issued trading market, will develop at least two trading days prior to the record date for the distribution, and we expect regular-way trading of HGV Parent common stock will begin the first trading day after the distribution date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the spin-off or be sustained in the future. The lack of an active trading market may make it more difficult for you to sell your shares and could lead to our share price being depressed or more volatile.
For many reasons, including the risks identified in this information statement, the market price of our common stock following the spin-off may be more volatile than the market price of Hilton Parent common stock before the spin-off. These factors may result in short-term or long-term negative pressure on the value of our common stock.
We cannot predict the prices at which our common stock may trade after the spin-off. The market price of our common stock may fluctuate significantly, depending upon many factors, some of which may be beyond our control, including, but not limited to:
| a shift in our investor base; |
| our quarterly or annual earnings, or those of comparable companies; |
| actual or anticipated fluctuations in our operating results; |
| our ability to obtain financing as needed; |
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| changes in laws and regulations affecting our business; |
| changes in accounting standards, policies, guidance, interpretations or principles; |
| announcements by us or our competitors of significant investments, acquisitions or dispositions; |
| the failure of securities analysts to cover our common stock after the spin-off; |
| changes in earnings estimates by securities analysts or our ability to meet those estimates; |
| the operating performance and stock price of comparable companies; |
| overall market fluctuations; |
| a decline in the real estate markets; and |
| general economic conditions and other external factors. |
Future issuances of common stock by us, and the availability for resale of shares held by Blackstone and its affiliates, may cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, could substantially decrease the market price of our common stock. Upon consummation of the spin-off, substantially all of the outstanding shares of our common stock will be available for resale in the public market. The market price of our common stock could drop significantly if the holders of these shares sell them or are perceived by the market as intending to sell them. In addition, Blackstone will pledge substantially all of the shares of our common stock held by it pursuant to a margin loan agreement and any foreclosure upon those shares could result in sales of a substantial number of shares of our common stock in the public market, which could substantially decrease the market price of our common stock.
Pursuant to a registration rights agreement that we will enter into in connection with the spin-off as described under Certain Relationships and Related Party TransactionsRegistration Rights Agreement, we will grant Blackstone an unlimited number of demand registrations and customary piggyback registration rights. In addition, none of the shares outstanding upon consummation of the spin-off, including those held by Blackstone and its affiliates, will be restricted securities within the meaning of Rule 144 under the Securities Act of 1933, as amended (the Securities Act), and will be freely tradable subject to certain restrictions in the case of shares held by persons deemed to be our affiliates. Accordingly, the market price of our stock could decline if Blackstone or its affiliates exercise their registration rights, sell their shares in the open market or otherwise or are perceived by the market as intending to sell them.
Upon consummation of the spin-off, we expect to have an aggregate of shares of common stock issuable upon vesting or exercise of outstanding options and an aggregate of shares of common stock available for future issuance under our Omnibus Incentive Plan. We will file a registration statement 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. Accordingly, shares registered under such registration statements will be available for sale in the open market.
We have no current plans to pay cash dividends on our common stock, and our indebtedness could limit our ability to pay dividends in the future.
Although we expect to return capital to stockholders through dividends or otherwise in the future, 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 the indebtedness we expect to incur in connection with the spin-off and may be limited by covenants of other indebtedness we or our subsidiaries incur in the future.
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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This information statement contains forward-looking statements including in the sections entitled Summary, Risk Factors, The Spin-Off, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business, that are based on our managements beliefs and assumptions and on information currently available to our management. Forward-looking statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, the benefits resulting from our separation from Hilton, the effects of competition and the effects of future legislation or regulations and other non-historical statements. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words outlook, believes, expects, potential, continues, may, will, should, could, seeks, approximately, projects, predicts, intends, plans, estimates, anticipates or the negative version of these words or other comparable words.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements in this information statement. We do not have any intention or obligation to update forward-looking statements after we distribute this information statement.
The risk factors discussed in Risk Factors could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in forward-looking statements.
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Background
On February 26, 2016, Hilton Parent announced its intention to implement the spin-off of HGV and Park Hotels & Resorts from Hilton, following which HGV Parent and Park Parent will be independent, publicly traded companies. As part of the spin-off, Hilton will effect an internal reorganization to properly align the appropriate businesses within each of HGV, Park Hotels & Resorts and Hilton. We refer to such reorganization as the internal reorganization.
To complete the spin-off, Hilton Parent will, following the internal reorganization, distribute to its stockholders all of the outstanding shares of our common stock and the common stock of HGV Parent. The distribution will occur on the distribution date, which is expected to be , 2016. Each holder of Hilton Parent common stock will receive one share of our common stock for every shares of Hilton Parent common stock held at 5:00 p.m., Eastern time, on , 2016, the record date. After completion of the spin-off:
| we will be an independent, publicly traded company (NYSE: HGV), and will own and operate Hiltons timeshare business; |
| Park Parent will be an independent, self-administered, publicly traded company (NYSE: PK), and will hold a portfolio of Hiltons real estate assets and certain other assets and operations as described herein; and |
| Hilton will continue to be an independent, publicly traded company (NYSE: HLT) and continue to own and operate its management and franchising business and will continue to hold certain real estate assets not transferred to Park Hotels & Resorts as part of the spin-off. |
Each holder of Hilton Parent common stock will continue to hold his, her or its shares in Hilton Parent. No vote of Hilton Parent stockholders is required or is being sought in connection with the spin-off, including the internal reorganization, and Hilton Parent stockholders will not have any appraisal rights in connection with the spin-off.
The distribution of our common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. In addition, Hilton has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of Hilton Parent determines, in its sole discretion, that the spin-off is not then in the best interests of Hilton or its stockholders or other constituents, that a sale or other alternative is in the best interests of Hilton or its stockholders or other constituents or that it is not advisable for us to separate from Hilton at that time. See Conditions to the Spin-Off.
Reasons for the Spin-Off
Hilton Parents board of directors has determined that the spin-off is in the best interests of Hilton Parent and its stockholders because the spin-off will provide the following key benefits:
| Direct and Differentiated Access to Capital Resources to Pursue Tailored Growth Strategies. Following the spin-off, HGV will be better positioned to target a 50/50 mix between fee-for-service and owned VOI inventory sales by opportunistically allocating capital toward owned inventory. We believe that optimizing our sales mix will enable us to maximize earnings growth, free cash flow production and returns on invested capital. As a company focused solely on the timeshare business with direct access to capital and independent financial resources, we believe we will be able to execute our business and growth strategies to drive overall value to our stockholders. Similarly, as a company focused on hotel management and franchising, Hilton Parent expects to benefit from alignment with a dedicated investor base, resulting in enhanced and more efficient access to capital to pursue a growth strategy best suited for its core, capital-light fee business. |
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| Enhanced Investor Choices by Offering Investment Opportunities in Separate Entities. Hiltons management and franchising and timeshare businesses exhibit different financial and operating characteristics and appeal to different types of investors with different investment goals and risk profiles. Finding investors who want to invest in the businesses together is more challenging than finding investors for each business individually. After the spin-off, investors should be better able to evaluate the financial performance of each company, as well as its strategy within the context of its particular market, thereby enhancing the likelihood that each company will achieve an appropriate market valuation. |
| Dedicated Management Team with Enhanced Strategic Focus . Following the spin-off, Hiltons management and franchising and timeshare businesses will no longer compete for the attention and resources of a single management team and will benefit from dedicated management teams focused on designing and implementing tailored strategies to achieve the distinct goals and opportunities of each business. Moreover, free from constraints that arise from being part of a larger hospitality company, HGVs dedicated management team will be able to respond more quickly and effectively to acquisition and market opportunities as well as execute its business and growth strategies. |
| Improved Management Incentive Tools . We expect to use equity-based and other incentive awards to compensate current and future employees. In multi-business companies such as Hilton, it is difficult to structure incentives that reward employees in a manner directly related to the performance of their respective business units. By granting awards linked to the performance of a pure-play business, the compensation arrangements of each company should provide enhanced incentives for employee performance and improve the ability of each company to attract, retain and motivate qualified personnel. |
Manner of Effecting the Spin-Off
The general terms and conditions relating to the spin-off will be set forth in a Distribution Agreement among us, Hilton Parent and Park Parent.
Internal Reorganization
As part of the spin-off, Hilton will undergo an internal reorganization, which we refer to as the internal reorganization, pursuant to which, among other things and subject to limited exceptions: (i) all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Timeshare business will be retained by or transferred to us or our subsidiaries; (ii) all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Separated Real Estate business will be retained by or transferred to Park Parent or its subsidiaries; (iii) all other assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) of Hilton will be retained by or transferred to Hilton Parent or its subsidiaries (other than us, Park Parent or our respective subsidiaries); and (iv) Park Parent will distribute all of the stock of HGV Parent and Hilton Domestic Operating Company Inc. to Hilton Worldwide Finance LLC, a subsidiary of Hilton Parent, in distributions intended to qualify as tax-free under Section 355 of the Code. In particular, following the internal reorganization, Hilton Grand Vacations will own HRC, the legal entity that currently owns and operates the entirety of Hilton Parents Timeshare business, which has historically operated as a distinct operating segment. See the financial statements of HRC included in this information statement for additional details on the historical assets, liabilities and obligations of the Timeshare business.
Distribution of Shares of Our Common Stock
Under the Distribution Agreement, the distribution will be effective as of , Eastern time, on , 2016, the distribution date. As a result of the spin-off, on the distribution date, each holder of Hilton Parent common stock will receive one share of our common stock for every shares of Hilton Parent common stock that he, she or it owns as of 5:00 p.m. Eastern time, on , 2016, the record date. The actual number of shares to be distributed will be determined based on the number of shares of Hilton Parent common stock expected to be outstanding as of the record date and will be reduced to the extent that cash
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payments are to be made in lieu of the issuance of fractional shares of HGV Parent. The actual number of shares of HGV Parent common stock to be distributed will be calculated on the record date. The shares of HGV Parent common stock to be distributed by Hilton Parent will constitute all of the issued and outstanding shares of HGV Parent common stock immediately prior to the distribution.
On the distribution date, Hilton Parent will release the shares of our common stock to our distribution agent to distribute to Hilton Parent stockholders. For most Hilton Parent stockholders, our distribution agent will credit their shares of our common stock to book-entry accounts established to hold their shares of our common stock. Our distribution agent will send these stockholders a statement reflecting their ownership of our common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are issued. For stockholders who own Hilton Parent common stock through a broker or other nominee, their shares of our common stock will be credited to these stockholders accounts by the broker or other nominee. It may take the distribution agent up to two weeks to issue shares of our common stock to Hilton Parent stockholders or to their bank or brokerage firm electronically by way of direct registration in book-entry form. Trading of our stock will not be affected by this delay in issuance by the distribution agent. As further discussed below, we will not issue fractional shares of our common stock in the distribution.
Hilton Parent stockholders will not be required to make any payment or surrender or exchange their shares of Hilton Parent common stock or take any other action to receive their shares of our common stock. No vote of Hilton Parent stockholders is required or sought in connection with the spin-off, including the internal reorganization, and Hilton Parent stockholders have no appraisal rights in connection with the spin-off.
Transaction Costs
One-time costs related to the spin-offs of Park Hotels & Resorts and Hilton Grand Vacations are expected to be approximately $450 million, consisting of approximately $250 million of estimated transaction costs, including debt issuance costs, legal, accounting and capital markets fees and expenses, certain tax and other costs relating to the internal reorganization, and approximately $200 million for the acceleration of taxes associated with certain cancellation of debt income related to the financing transactions. Pursuant to the Distribution Agreement, these costs and expenses are to be borne by .
Organizational Structure
The simplified diagrams below (which omit certain wholly owned intermediate holding companies) depict the organizational structure of Hilton, Park Hotels & Resorts and Hilton Grand Vacations before and after giving effect to the spin-offs.
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Current Hilton Organizational Structure
Organizational Structure Following the Spin-Offs
Treatment of Outstanding Equity Awards
It is expected that, with respect to Hilton Parent equity-based awards outstanding under the Hilton Worldwide Holdings Inc. Omnibus Incentive Plan (the Hilton Parent Incentive Plan) on the distribution date held by current and former employees (the Hilton Parent Employees) or non-employee directors of Hilton Parent as of the separation, the number of Hilton Parent shares subject to such awards will be adjusted to reflect the distribution and any reverse stock split of shares of Hilton Parent effected in connection with the separation, but will otherwise remain outstanding and subject to unchanged terms and conditions. Awards held by any individual who is employed by Hilton Grand Vacations as of the separation (each, an HGV Employee) will be converted into awards that will settle in shares of HGV Parent common stock and adjusted in a manner intended to preserve the intrinsic value of the award.
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Stock Options. It is expected that each outstanding option to purchase shares of Hilton Parent common stock held by a HGV Employee on the distribution date, whether vested or unvested, will be converted into an option to purchase shares of HGV Parent common stock, without any changes to the original terms and conditions of such Hilton Parent stock option, except for appropriate adjustments to the number of shares subject to the option and the exercise price payable per share in order to preserve its intrinsic value immediately following the separation. Hilton Parent stock options held by Hilton Parent Employees will be adjusted with respect to the number of shares subject to each such option and the exercise price payable per share in order to preserve the intrinsic value immediately following the separation.
Time-Vesting Restricted Stock Units. It is expected that outstanding restricted stock units (RSUs) that will settle in shares of Hilton Parent common stock held by HGV Employees on the distribution date and that are subject to time-based vesting will be converted into RSUs that will settle in HGV Parent common stock, without any changes to the original terms and conditions of such Hilton Parent RSUs, except for appropriate adjustments to the number of shares subject to such RSUs in order to preserve their value immediately following the separation. As discussed above, it is not expected that any changes will be made with respect to RSUs held by Hilton Parent Employees other than appropriate adjustments to the number of Hilton Parent shares subject to the RSUs in order to preserve the value of the award immediately following the separation.
Performance-Vesting Restricted Stock Units and Restricted Shares. It is expected that the applicable performance period for each of the currently outstanding performance-vesting restricted stock units (PSUs) and performance-vesting restricted stock (Performance Shares) that will be settled in shares of Hilton Parent common stock that were granted in 2014, which performance period was originally scheduled to end on December 31, 2016, will instead be deemed to end as of a date prior to the record date for the distribution. The Hilton Parent Compensation Committee will determine and certify the extent to which such awards have vested based on actual performance through such earlier date. Such PSUs and Performance Shares will then vest and be settled in shares of Hilton Parent common stock prior to the separation.
It is expected that outstanding PSUs and Performance Shares that will settle in shares of Hilton Parent common stock that were granted in 2015 and 2016 and are held by Hilton Parent Employees and HGV Employees on the distribution date will be converted into time-vesting RSUs or restricted shares that will settle in shares of Hilton Parent or HGV Parent common stock, as applicable, based on a performance level to be determined by the Hilton Parent Compensation Committee prior to the distribution date. The number of shares of Hilton Parent or HGV Parent common stock, as applicable, subject to each award will be adjusted in order to preserve the value of the award immediately following the separation (the Converted PSUs or Converted Performance Shares). Subject to each such holders continued employment through the applicable vesting date, the Converted PSUs and Converted Performance Shares will vest on the date that the performance period applicable to the Converted PSUs or Converted Performance Shares, as applicable, prior to their conversion would have otherwise ended and settle in shares of either Hilton Parent or HGV Parent common stock, as applicable.
Director-Held Time-Vesting Restricted Stock Units. It is expected that outstanding unvested time-vesting RSUs that will settle in shares of Hilton Parent common stock that are held by non-employee directors will vest and be settled as of a date prior to the record date of the distribution, and such non-employee directors will receive shares of HGV Parent and Park Parent common stock in connection with the distribution on the same terms as other holders of Hilton Parent common stock.
Continued Vesting. It is expected that the service-vesting requirements in effect for each equity-based award will remain unchanged in connection with the separation, and HGV Employees will be given credit for service prior to the separation with Hilton Parent and continued service with HGV Parent after the separation.
Treatment of Fractional Shares
The distribution agent will not distribute any fractional shares of our common stock to Hilton Parent stockholders. Instead, as soon as practicable on or after the distribution date, the distribution agent will aggregate
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fractional shares of our common stock to which Hilton Parent stockholders of record would otherwise be entitled into whole shares, sell them in the open market at the prevailing market prices and then distribute the aggregate net sale proceeds ratably to Hilton Parent stockholders who would otherwise have been entitled to receive fractional shares of our common stock. The amount of this payment will depend on the prices at which the distribution agent sells the aggregated fractional shares of our common stock in the open market shortly after the distribution date and will be reduced by any amount required to be withheld for tax purposes and any brokerage fees and other expenses incurred in connection with these sales of fractional shares. Receipt of the proceeds from these sales generally will result in a taxable gain or loss to those Hilton Parent stockholders. Each stockholder entitled to receive cash proceeds from these shares should consult his, her or its own tax advisor as to the stockholders particular circumstances. The tax consequences of the distribution are described in more detail under Material U.S. Federal Income Tax Consequences of the Spin-Off.
Material U.S. Federal Income Tax Consequences of the Spin-Off
The following is a summary of the material U.S. federal income tax consequences to the holders of shares of Hilton Parent common stock in connection with the spin-off. This summary is based on the Code, the Treasury regulations promulgated thereunder, and judicial and administrative interpretations thereof, all as in effect as of the date of this information statement and all of which are subject to differing interpretations and may change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below. This summary assumes that the spin-off will be consummated in accordance with the Distribution Agreement and as described in this information statement.
Except as specifically described below, this summary is limited to holders of shares of Hilton Parent common stock that are U.S. Holders, as defined immediately below. For purposes of this summary, a U.S. Holder is a beneficial owner of Hilton Parent common stock that is, for U.S. federal income tax purposes:
| an individual who is a citizen or a resident of the United States; |
| a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or 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 (1) with respect to which a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have the authority to control all of its substantial decisions, or (2) that has a valid election is in place under applicable Treasury regulations to be treated as a U.S. person. |
This summary does not discuss all tax considerations that may be relevant to stockholders in light of their particular circumstances, nor does it address the consequences to stockholders subject to special treatment under the U.S. federal income tax laws, such as:
| persons acting as nominees or otherwise not as beneficial owners; |
| dealers or traders in securities or currencies; |
| broker-dealers |
| traders in securities that elect to use the mark to market method of accounting; |
| tax-exempt entities; |
| cooperatives; |
| banks, trusts, financial institutions or insurance companies; |
| persons who acquired shares of Hilton Parent common stock pursuant to the exercise of employee stock options or otherwise as compensation; |
| stockholders who own, or are deemed to own, at least 10% or more, by voting power or value, of Hilton Parent equity; |
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| holders owning Hilton Parent common stock as part of a position in a straddle or as part of a hedging, conversion, constructive sale, synthetic security, integrated investment, or other risk reduction transaction for U.S. federal income tax purposes; |
| regulated investment companies; |
| REITs; |
| former citizens or former long-term residents of the United States; |
| holders who are subject to the alternative minimum tax; |
| pass-through entities (such as entities treated as partnerships for U.S. federal income tax purposes); or |
| persons that own Hilton Parent common stock through partnerships or other pass-through entities. |
This summary does not address the U.S. federal income tax consequences to Hilton Parent stockholders who do not hold shares of Hilton Parent common stock as a capital asset. Moreover, this summary does not address any state, local, or foreign tax consequences or any estate or gift tax consequences or tax consequences other than U.S. federal income tax consequences.
If a partnership (or any other entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Hilton Parent common stock, the tax treatment of a partner in that partnership generally will depend on the status of the partner and the activities of the partnership. Such a partner or partnership is urged to consult its tax advisor as to the tax consequences of the spin-off.
YOU ARE URGED TO CONSULT WITH YOUR TAX ADVISOR AS TO THE SPECIFIC U.S. FEDERAL, STATE AND LOCAL, AND NON-U.S. TAX CONSEQUENCES OF THE SPIN-OFF IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES AND THE EFFECT OF POSSIBLE CHANGES IN LAW THAT MIGHT AFFECT THE TAX CONSEQUENCES DESCRIBED IN THIS INFORMATION STATEMENT.
Treatment of the Spin-Off
Hilton has received the IRS Ruling on certain specific issues relevant to the qualification of the spin-off as tax-free under Section 355 of the Code, based on certain facts and representations set forth in its request for the IRS Ruling. The IRS Ruling does not address all of the requirements for tax-free treatment of the spin-off, and Hilton Parent expects to receive an opinion from Spin-off Tax Counsel to the effect that the distributions of HGV Parent and Park Parent common stock should qualify as tax-free distributions under Section 355 of the Code. An opinion from tax counsel is not binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the spin-off that are different from the conclusions reached in the opinion. The opinion will be based on certain factual statements and representations, which, if incomplete or untrue in any material respect, could alter the Spin-off Tax Counsels conclusions.
Assuming the distributions of our common stock and Park Parent common stock qualifies as tax-free under Section 355 of the Code, for U.S. federal income tax purposes:
| no gain or loss will be recognized by Hilton Parent as a result of the spin-off; |
| no gain or loss will be recognized by, or be includible in the income of, a holder of Hilton Parent common stock solely as a result of the receipt of our common stock in the spin-off; |
| the aggregate tax basis of the shares of Hilton Parent common stock, shares of Park Parent common stock and shares of our common stock, including any fractional share deemed received, in the hands of each Hilton Parent stockholder immediately after the spin-off will be the same as the aggregate tax basis of the shares of Hilton Parent common stock held by such holder immediately before the spin-off, allocated between the shares of Hilton Parent common stock, shares of Park Parent common stock and shares of our common stock, including any fractional share deemed received, in proportion to their relative fair market values immediately following the spin-off; |
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| the holding period with respect to shares of our common stock received by Hilton Parent stockholders will include the holding period of their shares of Hilton Parent common stock, provided that such shares of Hilton Parent common stock are held as capital assets immediately following the spin-off; and |
| a holder of Hilton Parent common stock who receives cash in lieu of a fractional share of our common stock in the spin-off will recognize capital gain or loss measured by the difference between the tax basis of the fractional share deemed to be received, as determined above, and the amount of cash received. |
Hilton Parent stockholders that have acquired different blocks of Hilton Parent common stock at different times or at different prices are urged to consult their tax advisors regarding the allocation of their aggregate adjusted basis among, and their holding period of, our common stock, Park Parent common stock and Hilton Parent common stock.
Although a private letter ruling from the IRS is generally binding on the IRS, the IRS Ruling will be based on certain facts and representations and undertakings, from Hilton Parent, Park Parent and us that certain necessary conditions to obtain tax-free treatment under the Code have been satisfied. Furthermore, as a result of the IRSs general ruling policy with respect to distributions under Section 355 of the Code, the IRS will only rule on significant issues relevant to the tax-free treatment of such a distribution. Accordingly, the spin-off is conditioned upon the receipt by Hilton Parent of an opinion from Spin-off Tax Counsel, in which such Spin-off Tax Counsel is expected to conclude that the distributions of HGV Parent and Park Parent common stock should qualify as tax-free under Section 355 of the Code.
The opinion will rely on the IRS Ruling as to matters covered by such ruling. The opinion will be based on, among other things, current law and certain assumptions and representations as to factual matters made by Hilton Parent, Park Parent and us. Any change in currently applicable law, which may or may not be retroactive, or the failure of any factual representation or assumption to be true, correct and complete in all material respects, could adversely affect the conclusions reached by Spin-off Tax Counsel in the opinion. The opinion will not be binding on the IRS or the courts, and the IRS or the courts may not agree with the opinion. The opinion will be expressed as of the date issued and will not cover subsequent periods. As a result, the opinion is not expected to be issued until after the date of this information statement. The opinion will represent Spin-off Tax Counsels best legal judgment based on current law and is not binding on the IRS or any court. We cannot assure you that the IRS will agree with the conclusions expected to be set forth in the opinion, and it is possible that the IRS or another tax authority could adopt a position contrary to one or all of those conclusions and that a court could sustain that contrary position. If any of the facts, representations, assumptions, or undertakings described or made in connection with the IRS Ruling or the opinion are not correct, are incomplete or have been violated, the IRS Ruling could be revoked retroactively or modified by the IRS, and our ability to rely on the opinion could be jeopardized. We are not aware of any facts or circumstances, however, that would cause these facts, representations or assumptions to be untrue or incomplete, or that would cause any of these undertakings to fail to be complied with, in any material respect.
If, notwithstanding the conclusions included in the IRS Ruling and the opinion, it is ultimately determined that the distribution of HGV Parent common stock, the distribution of Park Parent common stock and/or certain internal reorganization transactions and distributions do not qualify as tax-free for U.S. federal income tax purposes, then Park Parent could recognize taxable gain or loss in an amount equal to the difference, if any, of the fair market value of the shares of our common stock and/or shares of certain entities holding the management and franchising business, in each case held by Park Parent over its tax basis in such shares. Hilton Parent may recognize incremental gain, if any, equal to the excess of the fair market value of the shares of Park Parent common stock held by Hilton Parent over its tax basis in such shares. In addition, if the distribution of HGV Parent common stock and/or the distribution of Park Parent common stock do not qualify as tax-free under Section 355 of the Code, each Hilton Parent stockholder that receives shares of Park Parent common stock and shares of our common stock in the spin-off would be treated as receiving a distribution in an amount equal to the fair market value of Park Parent common stock and/or the fair market value of our common stock that was
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distributed to the stockholder, which would generally be taxed as a dividend to the extent of the stockholders pro rata share of Hilton Parents current and accumulated earnings and profits, including Hilton Parents taxable gain, if any, on the spin-off, then treated as a non-taxable return of capital to the extent of the stockholders basis in the Hilton Parent stock and thereafter treated as capital gain from the sale or exchange of Hilton Parent stock. Additionally, certain U.S. Holders that are individuals, estates or trusts would be required to pay an additional 3.8% tax on net investment income, (or, in the case of an estate or trust, on undistributed net investment income) which includes, among other things, any amounts treated as a dividend on or gain from the sale or exchange of Hilton Parent stock. U.S. Holders should consult their own tax advisors regarding this tax on net investment income.
Even if the spin-off otherwise qualifies for tax-free treatment under Section 355 of the Code, the spin-off may result in corporate level taxable gain to Hilton Parent and/or Park Parent under Section 355(e) of the Code if 50% or more, by vote or value, of Hilton Parents stock, Park Parents stock or our stock is treated as acquired or issued as part of a plan or series of related transactions that includes the spin-off (including as a result of transactions occurring before the spin-off). If an acquisition or issuance of Hiltons stock, Park Parents stock or our stock triggers the application of Section 355(e) of the Code, Hilton Parent and/or Park Parent would recognize taxable gain as described above, but the distribution would generally be tax-free to each of Hilton Parents stockholders, as described above.
Treasury regulations require each U.S. Holder that owns at least 5% of the total outstanding common stock of Hilton Parent to attach to their U.S. federal income tax returns for the year in which the spin-off occurs a statement setting forth certain information with respect to the transaction. U.S. Holders are urged to consult their tax advisors to determine whether they are required to provide the foregoing statement and the contents thereof.
Cash in Lieu of Fractional Shares
No fractional shares of our common stock will be distributed to Hilton Parent stockholders in connection with the spin-off. All such fractional shares resulting from the spin-off will be aggregated and sold by the transfer agent, and the proceeds, if any, less any brokerage commissions or other fees, will be distributed to Hilton Parent stockholders in accordance with their fractional interest in the aggregate number of shares sold. A holder that receives cash in lieu of a fractional share of our common stock as a part of the spin-off generally will recognize capital gain or loss measured by the difference between the cash received for such fractional share and the holders tax basis in the fractional share determined as described above. Any such capital gain or loss will be long-term capital gain or loss if a Hilton Parent stockholder held such stock for more than one year at the completion of the spin-off. Long-term capital gains generally are subject to preferential rates of U.S. federal income tax for certain non-corporate U.S. Holders (including individuals). The deductibility of capital losses is subject to significant limitations.
Results of the Spin-Off
After the spin-off, we will be an independent, publicly traded company. Immediately following the spin-off, we expect to have approximately record holders of shares of our common stock and approximately shares of our common stock outstanding, based on the number of stockholders and outstanding shares of Hilton Parent common stock on , 2016 and the distribution ratio. The figures exclude shares of Hilton Parent common stock held directly or indirectly by Hilton Parent, if any. The actual number of shares to be distributed will be determined on the record date and will reflect any repurchases of shares of Hilton Parent common stock and issuances of shares of Hilton Parent common stock in respect of awards under Hilton Parent equity-based incentive plans between the date the Hilton Parent board of directors declares the dividend for the distribution and the record date for the distribution.
For information regarding equity awards settleable in shares of our common stock that will be outstanding after the distribution, see Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffEmployee Matters Agreement and Management.
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Before the spin-off, we will enter into several agreements with Hilton Parent and Park Parent to effect the spin-off and provide a framework for our relationship with Hilton and Park Hotels & Resorts after the spin-off. These agreements will govern the relationship among us, Hilton and Park Hotels & Resorts after completion of the spin-off and provide for the allocation among us, Park Hotels & Resorts and Hilton of the assets, liabilities, rights and obligations of Hilton. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-Off.
Trading Prior to the Distribution Date
It is anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be a when-issued market in our common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for shares of our common stock that will be distributed to Hilton Parent stockholders on the distribution date. Any Hilton Parent stockholder who owns shares of Hilton Parent common stock at 5:00 p.m., Eastern time, on the record date will be entitled to shares of our common stock distributed in the spin-off. Hilton Parent stockholders may trade this entitlement to shares of our common stock, without the shares of Hilton Parent common stock they own, on the when-issued market. On the first trading day following the distribution date, we expect when-issued trading with respect to our common stock will end and regular-way trading will begin. See Trading Market.
Following the distribution date, we expect shares of our common stock to be listed on the NYSE under the ticker symbol HGV. We will announce the when-issued ticker symbol when and if it becomes available.
It is also anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in Hilton Parent common stock: a regular-way market and; an ex-distribution market. Shares of Hilton Parent common stock that trade on the regular-way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock distributed pursuant to the distribution. Therefore, if shares of Hilton Parent common stock are sold in the regular-way market up to and including the distribution date, the selling stockholders right to receive shares of our common stock in the distribution will be sold as well. However, if Hilton Parent stockholders own shares of Hilton Parent common stock as of 5:00 p.m., Eastern time, on the record date and sell those shares on the ex-distribution market up to and including the distribution date, the selling stockholders will still receive the shares of our common stock that they would otherwise receive pursuant to the distribution. See Trading Market.
Financing Transactions
In connection with the spin-off, Hilton, HGV and Park Hotels & Resorts will undertake a number of financing transactions. As a result of these financing transactions, upon consummation of the spin-off we expect to have total indebtedness of between $400 million and $500 million, excluding between $400 million and $450 million expected to be outstanding under the non-recourse Timeshare Facility and between $250 million and $300 million of non-recourse Securitized Debt expected to be outstanding. Included in our expected outstanding Timeshare Facility balance is an intended expansion of the capacity and borrowing of up to an additional $250 million to $300 million, which proceeds will be used to distribute cash to Hilton Parent. After giving effect to the foregoing financing transactions, upon consummation of the spin-off, we expect to have between $1.05 billion and $1.25 billion of total recourse and non-recourse indebtedness outstanding. We have not yet identified the specific sources of funds and there can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. The financing transactions undertaken in connection with the spin-off will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See Description of Certain Indebtedness.
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Conditions to the Spin-Off
We expect that the spin-off will be effective as of 5:31 p.m., Eastern time, on , 2016, the distribution date, provided that the following conditions shall have been satisfied or waived by Hilton:
| the final approval by the board of directors of Hilton Parent of the spin-off and all related transactions and the determination of the record date, which approval may be given or withheld at its absolute and sole discretion; |
| our Registration Statement on Form 10, of which this information statement forms a part, shall have been declared effective by the SEC, no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the SEC, and this information statement, or a notice of internet availability thereof, shall have been mailed to the Hilton Parent stockholders; |
| HGV Parent common stock shall have been approved for listing on the NYSE, subject to official notice of distribution; |
| Hilton Parent shall have obtained an opinion from Spin-off Tax Counsel, in form and substance satisfactory to Hilton Parent, to the effect that the distributions of HGV Parent common stock and Park Parent common stock should qualify as tax-free distributions under Section 355 of the Code; |
| the IRS Ruling shall not have been revoked or modified in any material respect; |
| prior to the distribution date, the Hilton Parent board of directors shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to Hilton, with respect to the capital adequacy and solvency of each of Hilton, HGV and Park Hotels & Resorts after giving effect to the spin-off; |
| any material governmental approvals and other consents necessary to consummate the spin-off shall have been received; |
| no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the spin-off shall be pending, threatened, issued or in effect, and no other event shall have occurred or failed to occur that prevents the consummation of all or any portion of the spin-off; |
| no other events or developments shall have occurred or failed to occur that, in the judgment of the board of directors of Hilton Parent, would result in the distribution having a material adverse effect on Hilton or its stockholders; |
| the internal reorganization shall have been completed, except for such steps as Hilton Parent in its sole discretion shall have determined may be completed after the distribution date; |
| all necessary actions shall have been taken to cause the board of directors of HGV Parent to consist of the individuals identified in this information statement as directors of HGV Parent; |
| all necessary actions shall have been taken to cause the officers of HGV to be the individuals identified as such in this information statement; |
| all necessary actions shall have been taken to adopt the forms of amended and restated certificate of incorporation and bylaws filed by HGV Parent with the SEC as exhibits to the Registration Statement on Form 10, of which this information statement forms a part; and |
| each of the Distribution Agreement, the Tax Matters Agreement, the Employee Matters Agreement and the Transition Services Agreement shall have been executed by each party. |
Completion of the spin-off of Park Hotels & Resorts will be subject to similar conditions as those listed above. The fulfillment of the foregoing conditions will not create any obligation on the part of Hilton to effect the spin-off. We are not aware of any material federal, foreign or state regulatory requirements that must be complied with or any material approvals that must be obtained, other than compliance with SEC rules and regulations, approval for listing on the NYSE and the declaration of effectiveness of the Registration Statement
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on Form 10, of which this information statement forms a part, by the SEC, in connection with the distribution. Hilton has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of Hilton Parent determines, in its sole discretion, that the spin-off is not then in the best interests of Hilton or its stockholders or other constituents, that a sale or other alternative is in the best interests of Hilton or its stockholders or other constituents or that it is not advisable for HGV to separate from Hilton at that time. In the event the board of directors of Hilton Parent determines to waive a material condition to the distribution, modify a material term of the distribution or not to proceed with the spin-off, Hilton intends to promptly issue a press release or other public announcement and file a Current Report on Form 8-K to report such event.
Reasons for Furnishing this Information Statement
This information statement is being furnished solely to provide information to Hilton Parent stockholders that are entitled to receive shares of our common stock in the spin-off. This information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities or any securities of Hilton. We believe that the information in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date and neither Hilton nor we undertake any obligation to update the information except in the normal course of our respective public disclosure obligations.
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Market for Our Common Stock
There is currently no public market for our common stock and an active trading market may not develop or may not be sustained. We anticipate that trading of our common stock will commence on a when-issued basis at least two trading days prior to the record date and continue through the distribution date. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. When-issued trades generally settle within four trading days after the distribution date. If you own shares of Hilton Parent common stock as of 5:00 p.m., Eastern time on the record date, you will be entitled to shares of our common stock distributed pursuant to the spin-off. You may trade this entitlement to shares of our common stock, without the shares of Hilton Parent common stock you own, on the when-issued market. On the first trading day following the distribution date, any when-issued trading with respect to our common stock will end and regular-way trading will begin. We intend to list our common stock on the NYSE under the ticker symbol HGV. We will announce our when-issued trading symbol when and if it becomes available.
It is also anticipated that, at least two trading days prior to the record date and continuing up to and including the distribution date, there will be two markets in Hilton Parent common stock: (i) a regular-way market; and (ii) an ex-distribution market. Shares of Hilton Parent common stock that trade on the regular-way market will trade with an entitlement to shares of our common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock distributed pursuant to the distribution. Therefore, if you sell shares of Hilton Parent common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of our common stock in the distribution. However, if you own shares of Hilton Parent common stock as of 5:00 p.m., Eastern time, on the record date and sell those shares on the ex-distribution market up to and including the distribution date, you will still receive the shares of our common stock that you would otherwise receive pursuant to the distribution.
We cannot predict the prices at which our common stock may trade before the spin-off on a when-issued basis or after the spin-off. Those prices will be determined by the marketplace. Prices at which trading in our common stock occurs may fluctuate significantly. Those prices may be influenced by many factors, including anticipated or actual fluctuations in our operating results or those of other companies in our industry, investor perception of our company and the timeshare industry, market fluctuations and general economic conditions. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the performance of many stocks and that have often been unrelated or disproportionate to the operating performance of these companies. These are just some factors that may adversely affect the market price of our common stock. See Risk FactorsRisks Related to Ownership of Our Common Stock for further discussion of risks relating to the trading prices of our common stock.
Transferability of Shares of Our Common Stock
On , 2016, Hilton Parent had approximately million shares of its common stock issued and outstanding. Based on this number, we expect that upon completion of the spin-off, we will have approximately million shares of common stock issued and outstanding. The shares of our common stock that you will receive in the distribution will be freely transferable, unless you are considered an affiliate of ours under Rule 144 under the Securities Act. Persons who can be considered our affiliates after the spin-off generally include individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by, or are under common control with, us, and may include certain of our officers and directors. As of the distribution date, we estimate that our directors and officers will beneficially own in the aggregate less than percent of our shares. In addition, individuals who are affiliates of Hilton Parent on the distribution date may be deemed to be affiliates of ours. Our affiliates may sell shares of our common stock received in the distribution only:
| under a registration statement that the SEC has declared effective under the Securities Act; or |
| under an exemption from registration under the Securities Act, such as the exemption afforded by Rule 144. |
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In general, under Rule 144 as currently in effect, an affiliate will be entitled to sell, within any three-month period commencing 90 days after the date that the registration statement of which this information statement is a part is declared effective, a number of shares of our common stock that does not exceed the greater of:
| 1.0 percent of our common stock then outstanding; or |
| the average weekly trading volume of our common stock on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Sales under Rule 144 are also subject to restrictions relating to manner of sale and the availability of current public information about us.
In the future, we may adopt new equity-based compensation plans and issue stock-based awards. We currently expect to file a registration statement under the Securities Act to register shares to be issued under these equity plans. Shares issued pursuant to awards after the effective date of that registration statement, other than shares issued to affiliates, generally will be freely tradable without further registration under the Securities Act.
Except for our common stock distributed in the distribution and employee-based equity awards, none of our equity securities will be outstanding immediately after the spin-off.
As of the date of this information statement, Blackstone entities have pledged, hypothecated or granted security interests in substantially all of the shares of Hilton Parent common stock held by them pursuant to a margin loan agreement with customary default provisions. We anticipate that shares of our common stock received by Blackstone in the spin-off in respect of such pledged Hilton Parent shares would similarly be subject to the lien of such margin loan agreement. Accordingly, in the event of a default under the margin loan agreement, the secured parties may foreclose upon any and all shares of common stock pledged to them and may seek recourse against the borrower.
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Although we expect to return capital to stockholders through dividends or otherwise in the future, 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.
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The following table sets forth our cash and capitalization as of June 30, 2016 on a historical basis and on a pro forma basis to give effect to the spin-off and the related transactions, as if they occurred on June 30, 2016. Explanation of the pro forma adjustments made to the historical consolidated financial statements can be found under Unaudited Pro Forma Consolidated Financial Statements. The following table should be reviewed in conjunction with Unaudited Pro Forma Consolidated Financial Statements, Managements Discussion and Analysis of Financial Condition and Results of Operations and our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this information statement.
June 30, 2016 | ||||||||
($ in millions) | Actual | Pro Forma (1) | ||||||
Cash |
$ | 3 | $ | |||||
Restricted cash |
72 | |||||||
|
|
|
|
|||||
Total |
$ | 75 | $ | |||||
|
|
|
|
|||||
Debt: |
||||||||
Allocated Parent debt |
$ | 635 | $ | |||||
Timeshare Facility |
150 | |||||||
Securitized Debt |
298 | |||||||
|
|
|
|
|||||
Total debt |
1,083 | |||||||
Equity: |
||||||||
Common stock, $0.01 par value; shares authorized, shares issued and outstanding, pro forma |
| |||||||
Additional paid-in capital |
| |||||||
Parent equity |
16 | |||||||
|
|
|
|
|||||
Total equity |
16 | |||||||
|
|
|
|
|||||
Total capitalization |
$ | 1,099 | $ | |||||
|
|
|
|
(1) | See Unaudited Pro Forma Consolidated Financial Statements. |
68
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the years ended December 31, 2015, 2014 and 2013 and the selected historical consolidated balance sheet data as of December 31, 2015 and 2014 are derived from our audited consolidated financial statements included elsewhere in this information statement. The selected historical consolidated statement of operations data for the years ended December 31, 2012 and 2011 and the selected historical consolidated balance sheet data as of December 31, 2013, 2012 and 2011 are derived from our unaudited consolidated financial statements that are not included in this information statement. The selected condensed consolidated statement of operations data for the six months ended June 30, 2016 and 2015 and the selected condensed consolidated balance sheet data as of June 30, 2016 are derived from our unaudited condensed consolidated financial statements included elsewhere in this information statement. 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.
This selected financial data is not necessarily indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we been operating as an independent, publicly traded company during the periods presented, including changes that will occur in our operations and capitalization as a result of the spin-off from Hilton. For example, our historical consolidated financial statements include allocations of expenses for certain functions and services provided by Hilton. These costs may not be representative of the future costs we will incur, either positively or negatively, as an independent, public company. Our historical consolidated financial statements also include allocations of debt, and related balances, related to debt entered into by Hilton, which was secured by our assets.
The selected consolidated financial data below should be read together with the audited consolidated financial statements, including the notes thereto, and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this information statement.
Six Months
Ended June 30, |
Year Ended December 31, | |||||||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||||||||
Total revenues |
$ | 761 | $ | 721 | $ | 1,475 | $ | 1,317 | $ | 1,224 | $ | 1,172 | $ | 1,007 | ||||||||||||||
Total expenses |
588 | 582 | 1,154 | 1,004 | 975 | 924 | 829 | |||||||||||||||||||||
Net income |
95 | 74 | 174 | 167 | 128 | 118 | 73 |
June 30, | December 31, | |||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||||||
Securitized timeshare financing receivables |
$ | 294 | $ | 350 | $ | 468 | $ | 221 | $ | | $ | | ||||||||||||
Unsecuritized timeshare financing receivables |
687 | 626 | 460 | 681 | 891 | 827 | ||||||||||||||||||
Total assets |
1,837 | 1,724 | 1,621 | 1,568 | 1,532 | 1,562 | ||||||||||||||||||
Total non-recourse debt |
445 | 502 | 625 | 670 | | | ||||||||||||||||||
Total liabilities (1) |
1,821 | 1,830 | 1,994 | 2,103 | 2,038 | 1,993 |
(1) | Includes allocated Parent debt of $635 million as of June 30, 2016 and $634 million, $719 million, $828 million, $1,496 million and $1,542 million as of December 31, 2015, 2014, 2013, 2012 and 2011, respectively. |
69
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statement of operations as of June 30, 2016 and for the six months ended June 30, 2016 and year ended December 31, 2015 have been prepared to reflect the spin-off and related transactions if they had occurred on June 30, 2016 for the unaudited pro forma consolidated balance sheet and January 1, 2015 for the unaudited pro forma consolidated statement of operations.
The unaudited pro forma adjustments are based on preliminary estimates, accounting judgments and currently available information and assumptions that management believes are reasonable. The unaudited pro forma consolidated financial statements should be read in conjunction with the sections entitled Business, Selected Historical Consolidated Financial Data and Managements Discussion and Analysis of Financial Condition and Results of Operations, as well as our financial statements, which are included elsewhere in this information statement.
Our historical consolidated financial statements include allocations of certain expenses from Hilton, including expenses for costs related to functions such as executive office, finance and other administrative support. These costs may not be representative, either positively or negatively, of the future costs we will incur as an independent, public company. Effective with the spin-off, we will assume responsibility for all of these functions and related costs. Certain of these activities will continue to be performed by Hilton under transition service agreements for a limited period of time. We will incur incremental costs as an independent public company, including costs to replace services previously provided by Hilton, as well as other stand-alone costs. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and, therefore, are not included as adjustments within the unaudited pro forma consolidated financial statements.
We currently estimate that the separation costs we will incur during our transition to being a stand-alone public company will range from approximately $ million to $ million. We have not adjusted the accompanying unaudited pro forma consolidated statement of operations for these estimated separation costs as the costs are not expected to have an ongoing effect on our operating results. We anticipate that substantially all of these costs will be incurred within months of the distribution. These costs relate to the following:
| finance, tax and other professional costs pertaining to the spin-off and establishing us as a stand-alone public company; |
| compensation, such as modifications to certain bonus awards, upon completion of the spin-off; |
| recruiting and relocation costs associated with hiring key senior management personnel new to our company; |
| costs to separate our information systems from Hilton; and |
| other separation costs. |
Due to the scope and complexity of these activities, the amount of these costs could increase or decrease materially and the timing of incurrence could change.
The unaudited pro forma consolidated financial statements have been prepared for illustrative purposes only and are not necessarily indicative of our financial position or results of operations had the transactions described above for which we are giving pro forma effect actually occurred on the dates or for the periods indicated, nor is such unaudited pro forma financial information indicative of the results to be expected for any future period. A number of factors may affect our results. See Risk Factors and Special Note About Forward-Looking Statements.
70
Hilton Resorts Corporation
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 2016
(in millions)
Pro Forma Adjustments (1) | ||||||||||||||||||||||||
Historical |
Financing
Transactions |
Spin-Off
Adjustments |
Pro Forma | |||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Cash |
$ | 3 | $ | (a) | $ | $ | ||||||||||||||||||
Restricted cash |
72 | (a) | ||||||||||||||||||||||
Accounts receivable, net of allowance for doubtful accounts |
117 | |||||||||||||||||||||||
Timeshare financing receivables, net |
981 | |||||||||||||||||||||||
Inventory |
430 | |||||||||||||||||||||||
Property and equipment, net |
112 | |||||||||||||||||||||||
Intangible assets, net |
71 | |||||||||||||||||||||||
Other assets |
51 | (a) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
TOTAL ASSETS |
$ | 1,837 | $ | $ | $ | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Accounts payable, accrued expenses and other |
$ | 215 | $ | $ | ||||||||||||||||||||
Advance deposits |
102 | |||||||||||||||||||||||
Allocated Parent debt |
635 | (a) | ||||||||||||||||||||||
Non-recourse debt |
445 | (a) | ||||||||||||||||||||||
Deferred revenues |
123 | |||||||||||||||||||||||
Deferred income tax liabilities |
301 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total liabilities |
1,821 | |||||||||||||||||||||||
Equity: |
||||||||||||||||||||||||
Common stock, $0.01 par value |
| |||||||||||||||||||||||
Additional paid-in capital |
| |||||||||||||||||||||||
Parent equity |
16 | (a) | (d) | |||||||||||||||||||||
(e) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total equity |
16 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 1,837 | $ | $ | $ | |||||||||||||||||||
|
|
|
|
|
|
|
|
(1) | For details of the adjustments referenced, see Note 4: Pro Forma Adjustments . |
See notes to unaudited pro forma consolidated financial statements.
71
Hilton Resorts Corporation
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2016
(in millions, except per share data)
Pro Forma Adjustments (1) | ||||||||||||||||||||||||
Historical |
Financing
Transaction |
Spin-Off
Adjustments |
Pro Forma | |||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Sales of VOIs, net |
$ | 229 | $ | $ | $ | |||||||||||||||||||
Sales, marketing, brand and other fees |
246 | |||||||||||||||||||||||
Financing |
66 | |||||||||||||||||||||||
Club and resort management |
65 | |||||||||||||||||||||||
Rental and ancillary services |
94 | |||||||||||||||||||||||
Cost reimbursements |
61 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total revenues |
761 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Expenses |
||||||||||||||||||||||||
Cost of VOI sales |
66 | |||||||||||||||||||||||
Sales and marketing |
286 | |||||||||||||||||||||||
Financing |
16 | (a) | ||||||||||||||||||||||
Club and resort management |
16 | |||||||||||||||||||||||
Rental and ancillary services |
56 | |||||||||||||||||||||||
General and administrative |
37 | (c) | ||||||||||||||||||||||
Depreciation and amortization |
11 | |||||||||||||||||||||||
License fee expense |
39 | (b) | ||||||||||||||||||||||
Cost reimbursements |
61 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total expenses |
588 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gain on foreign currency transactions |
1 | |||||||||||||||||||||||
Allocated Parent interest expense |
(13 | ) | (a) | |||||||||||||||||||||
Other loss, net |
(1 | ) | ||||||||||||||||||||||
Interest expense |
| (a) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Income before income taxes |
160 | |||||||||||||||||||||||
Income tax expense |
(65 | ) | (a) | (e) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income |
$ | 95 | $ | $ | $ | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per share: |
||||||||||||||||||||||||
Basic |
N/A | N/A | $ | (f) | $ | |||||||||||||||||||
|
|
|||||||||||||||||||||||
Diluted |
N/A | N/A | $ | (g) | $ | |||||||||||||||||||
|
|
|||||||||||||||||||||||
Weighted average shares outstanding: |
||||||||||||||||||||||||
Basic |
N/A | N/A | (f) | |||||||||||||||||||||
|
|
|||||||||||||||||||||||
Diluted |
N/A | N/A | (g) | |||||||||||||||||||||
|
|
(1) | For details of the adjustments referenced, see Note 4: Pro Forma Adjustments . |
See notes to unaudited pro forma consolidated financial statements.
72
Hilton Resorts Corporation
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2015
(in millions, except per share data)
Pro Forma Adjustments (1) | ||||||||||||||||||||||||
Historical |
Financing
Transactions |
Spin-Off
Adjustments |
Pro
Forma |
|||||||||||||||||||||
Revenues |
||||||||||||||||||||||||
Sales of VOIs, net |
$ | 492 | $ | $ | $ | |||||||||||||||||||
Sales, marketing, brand and other fees |
457 | |||||||||||||||||||||||
Financing |
127 | |||||||||||||||||||||||
Club and resort management |
125 | |||||||||||||||||||||||
Rental and ancillary services |
164 | |||||||||||||||||||||||
Cost reimbursements |
110 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total revenues |
1,475 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Expenses |
||||||||||||||||||||||||
Cost of VOI sales |
173 | |||||||||||||||||||||||
Sales and marketing |
541 | |||||||||||||||||||||||
Financing |
32 | (a | ) | |||||||||||||||||||||
Club and resort management |
32 | |||||||||||||||||||||||
Rental and ancillary services |
113 | |||||||||||||||||||||||
General and administrative |
57 | (c | ) | |||||||||||||||||||||
Depreciation and amortization |
22 | |||||||||||||||||||||||
License fee expense |
74 | (b | ) | |||||||||||||||||||||
Cost reimbursements |
110 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Total expenses |
1,154 | |||||||||||||||||||||||
Allocated Parent interest expense |
(29 | ) | (a | ) | ||||||||||||||||||||
Interest expense |
| (a | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Income before income taxes |
292 | |||||||||||||||||||||||
Income tax expense |
(118 | ) | (a | ) | (e | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income |
$ | 174 | $ | $ | $ | |||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per share: |
||||||||||||||||||||||||
Basic |
N/A | N/A | $ | (f | ) | $ | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Diluted |
N/A | N/A | $ | (g | ) | $ | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Weighted average shares outstanding: |
||||||||||||||||||||||||
Basic |
N/A | N/A | (f | ) | ||||||||||||||||||||
|
|
|||||||||||||||||||||||
Diluted |
N/A | N/A | (g | ) | ||||||||||||||||||||
|
|
(1) | For details of the adjustments referenced, see Note 4: Pro Forma Adjustments . |
See notes to unaudited pro forma consolidated financial statements.
73
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Pro Forma Presentation
On February 26, 2016, Hilton Worldwide Holdings Inc. (Parent, together with its consolidated subsidiaries, Hilton) announced a plan to spin-off Hiltons timeshare business to stockholders as a separate, publicly traded company. The spin-off transaction, which is expected to be tax-free to Hilton stockholders, will be effected through a pro rata distribution of our stock to existing Hilton stockholders. Immediately following completion of the spin-off, Hilton stockholders will own 100 percent of the outstanding shares of our common stock. After the spin-off, we will operate as an independent, publicly traded company. Unless otherwise indicated or except where the context otherwise requires, references to we, us or our refer to Hilton Grand Vacations Inc. after giving effect to the transfer of the assets and liabilities from Hilton.
The unaudited pro forma financial statements are based on our historical consolidated financial statements, which are included elsewhere in this information statement, and have been prepared to reflect the spin-off and related transactions.
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 the spin-off and related transactions and the appropriate information is known and factually supportable. Pro forma adjustments reflected in the unaudited pro forma consolidated statement of operations are expected to have a continuing effect on us. As a result, the unaudited pro forma consolidated statement of operations excludes gains and losses related to the transactions described in Note 2: Financing Transactions below that will not have a continuing effect on us, although these items are reflected in the unaudited pro forma consolidated balance sheet.
Note 2: Financing Transactions
Subject to market conditions, we expect to complete one or more financing transactions on or prior to the completion of the spin-off. As a result of these financing transactions, upon consummation of the spin-off we expect to have total indebtedness of between $400 million and $500 million, excluding between $400 million and $450 million expected to be outstanding under the non-recourse Timeshare Facility and between $250 million and $300 million of non-recourse Securitized Debt expected to be outstanding. Included in our expected outstanding Timeshare Facility balance is an intended expansion of the capacity and borrowing of up to an additional $250 million to $300 million, which proceeds will be used to distribute cash to Hilton Parent. After giving effect to the foregoing financing transactions, upon consummation of the spin-off, we expect to have between $1.05 billion and $1.25 billion of total recourse and non-recourse indebtedness outstanding. We have not yet identified the specific sources of funds and there can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all.
Note 3: Spin-Off Adjustments
We intend to enter into a license agreement with Hilton pursuant to which Hilton will grant us the exclusive right to use certain Hilton-branded trademarks, trade names and related intellectual property in our business for the term of the agreement. We will pay royalties to Hilton under the agreement that are equal to five percent of our contract sales, as well as five percent of certain other revenues earned in association with the Licensed Marks (as defined in the license agreement), as well as specified additional fees, including in regard to our participation in the Hilton HHonors program (see Certain Relationships and Related Party TransactionsAgreements between Hilton Parent and Park Parent Related to the Spin-OffLicense Agreement for additional discussion of the license agreement).
As a stand-alone public company, we expect to incur incremental expenses for the services previously provided by Hilton as well as for additional public company expenses that did not apply to us historically. We estimate these incremental expenses to be $ million and $ million, respectively, for the six months ended June 30, 2016 and the year ended December 31, 2015. These incremental costs were determined principally based on various agreements we intend to enter into with Hilton prior to completing this offering to cover the services that Hilton will be providing to us. See Certain Relationships and Related Party Transactions.
74
Note 4: Pro Forma Adjustments
Adjustments included under the heading Pro Forma AdjustmentsFinancing Transactions represent the following:
(a) | Reflects the adjustment to our historical debt and related balances and interest expense to give net effect to certain financing transactions that we anticipate will be completed on or prior to the completion of the spin-off. |
Also reflects the adjustment to historical income tax expense to give effect to the change in interest expense from the pro forma financing transactions that result in changes to income before income taxes. The provision for income taxes is based on the estimated statutory tax rate of %.
A 0.125% change in the weighted average interest rate on our total pro forma indebtedness would change our pro forma annual interest expense by approximately $ million
Adjustments included under the heading Pro Forma AdjustmentsSpin-Off Adjustments represent the following:
(b) | Reflects the change in fee expense related to the license agreement we will enter into with Hilton upon completion of the spin-off pursuant to which Hilton and its affiliates will provide to us exclusive rights for an agreed upon charge and which are anticipated to be on different terms from the existing license agreement reflected in our historical financial statements. |
(c) | Reflects the incremental expense related to general and administrative expenses of $ million and $ million, respectively, for the six months ended June 30, 2016 and the year ended December 31, 2015, which include the employment of our executive officers, finance outsourcing fees and external audit fees, and the removal of non-recurring separation expenses included in our historical financial statements of $ million and $ million, respectively, for the six months ended June 30, 2016 and the year ended December 31, 2015. |
(d) | Reflects the pro forma recapitalization of our equity. As of the distribution date, Parent deficit will be redesignated as our stockholders equity and will be allocated between common stock and additional paid-in capital based on the number of shares of our common stock outstanding at the distribution date. Hilton stockholders will receive shares based on a distribution ratio of shares of our common stock for each share of Hilton common stock outstanding as of the record date for the distribution. |
(e) | Reflects the associated income tax benefit (expense) for all of the adjustments noted above. The income tax provision was based on the estimated statutory tax rate of %. |
(f) | The number of shares of our common stock used to compute basic earnings per share for the six months ended June 30, 2016 and the year ended December 31, 2015 is based on the number of shares of Hilton common stock outstanding on June 30, 2016, assuming a distribution ratio of shares of our common stock for each share of Hilton common stock outstanding. The number of Hilton shares used to determine the assumed distribution reflects Hilton shares outstanding as of the balance sheet date, which is the most current information as of the date of that financial statement. |
(g) | The number of shares of our common stock used to compute diluted earnings per share for the six months ended June 30, 2016 and the year ended December 31, 2015 is based on the number of basic shares of our common stock as described in note (d) above, plus incremental shares of Hilton common stock that may be issued in connection with awards granted prior to the distribution under Hiltons equity plan in which our employees participate based on the distribution ratio noted above in (d). While the actual dilutive effect will depend on various factors, we believe the estimate yields a reasonable approximation of the dilutive effect of Hiltons equity plan. |
We will incur additional incremental costs as an independent public company, not reflected in this adjustment, including costs to replace services previously provided by Hilton, as well as other stand-alone costs. Due to the scope and complexity of these activities, the amount and timing of these incremental costs could vary and, therefore, are not included as adjustments within the unaudited pro forma consolidated financial statements.
75
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 Summary Summary Historical and Unaudited Pro Forma Consolidated Financial Data, Selected Historical Consolidated Financial Data and our consolidated financial statements and related notes that appear elsewhere in this information statement. 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 information statement, particularly in Risk Factors.
Overview
Our Business
We market and sell VOIs, manage vacation resorts in top leisure and urban destinations, and operate a point-based vacation club. As of June 30, 2016, we had 46 resorts, representing 7,576 units, and approximately 260,000 Hilton Grand Vacations Club (the Club) members. Club members have the flexibility to exchange their Club points for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 12 industry-leading brands across more than 4,600 properties, as well as numerous experiential vacation options, such as cruises and guided tours.
Upon completion of the spin-off, we will enter into agreements with Hilton and other third parties, including a license agreement to use the Hilton Grand Vacations brand, that have either not existed historically, or that may be on different terms than the terms of the arrangement or agreements that existed prior to the spin-off. The consolidated financial statements do not reflect the effect of these new or revised agreements and our historical expenses, including corporate and other expense and management fee expense, may not be reflective of our consolidated results of operations, financial position and cash flows had we been a stand-alone company during the periods discussed in our Results of Operations section. For a more detailed description of the spin-off, see The Spin-Off.
We operate our business across two segments: (1) real estate sales and financing; and (2) resort operations and club management.
Real Estate Sales and Financing
Our primary product is the marketing and selling of fee-simple VOIs deeded in perpetuity, developed either by us or by third parties. This ownership interest is an interest in real estate generally equivalent to one week annually, at the timeshare resort where the VOI was purchased. Traditionally, timeshare operators have funded 100 percent of the investment necessary to acquire land and construct timeshare properties. In 2010, we began sourcing VOIs through fee-for-service agreements with third-party developers and have successfully transformed from a capital-intensive business to one that is highly capital-efficient. These agreements enable us to generate fees from the sales and marketing of the VOIs and Club memberships and from the management of the timeshare properties without requiring us to fund acquisition and construction costs. Sales of owned inventory generally result in greater Adjusted EBITDA contributions, while fee-for-service sales require less initial investment and allow us to accelerate our sales growth. Both sales of owned inventory and fee-for-service sales generate long-term, predictable fee streams, by adding to the Club membership base and properties under management, that generate strong returns on invested capital.
We originate loans for members purchasing our developed and acquired inventory and generate interest income. Our loans are collateralized by the underlying VOIs and are generally structured as 10-year, fully-amortizing loans that bear a fixed interest rate typically ranging from 9 percent to 18 percent per annum.
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The interest rate on our loans is determined by the amount of the down payment, the borrowers credit profile and the loan term. The weighted average FICO score for new loans to U.S. and Canadian borrowers at the time of origination were as follows:
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||||
Weighted average FICO score |
741 | 744 | 743 | 747 | 747 |
Prepayment is permitted without penalty. When a member defaults, we ultimately return their VOI to inventory for resale and that member no longer participates in our Club. We typically return interests that we reacquire through foreclosure to inventory. Historical default rates, which represent annual defaults as a percentage of each years beginning gross timeshare financing receivables balance, were as follows:
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Historical default rates (1) |
2.84 | % | 3.22 | % | 2.99 | % |
(1) | A loan is considered to be in default if it is equal to or greater than 121 days past due as of the prior month end. |
Some of our loans have been pledged as collateral in our securitization transactions, which have in the past and may in the future provide funding for our activities. In these securitization transactions, various classes of debt securities that the special purpose entities issue are generally collateralized by a single pool of assets, which consist of timeshare financing receivables that we service and cash deposits. For additional information see Note 4: Timeshare Financing Receivables in our audited consolidated financial statements included elsewhere in this information statement.
In addition, we earn fees from servicing our own portfolio and the loans provided by third-party developers of our fee-for-service projects to purchasers of their VOIs.
Resort Operations and Club Management
We enter into a management agreement with the HOA of the VOI owners for timeshare resorts developed by us or a third party. Each of the HOAs is governed by a board of directors comprising owner and developer representatives that are charged with ensuring the resorts are well-maintained and financially stable. Our management services include day-to-day operations of the resorts, maintenance of the resorts, preparation of reports, budgets and projections and employee training and oversight. Our HOA management agreements provide for a cost-plus management fee, which means we generally earn a fee equal to 10 percent to 15 percent of the costs to operate the applicable resort. The fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and our management fees generally are unaffected by changes in rental rate or occupancy. We are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services. The original term of our management agreements typically ranges from three to five years and the agreements are subject to periodic renewal for one- to three-year periods. Many of these agreements renew automatically unless either party provides advance notice of termination before the expiration of the term. Retaining our company as the manager of our resorts and those of third-party developers entitles the HOA to continue to identify the property as a Hilton Grand Vacations property and gives members access to our Club.
We also manage and operate the points-based Hilton Grand Vacations Club and Hilton Club exchange programs, which provide exclusive exchange, leisure travel and reservation services to our Club members. When an owner purchases a VOI, he or she is automatically enrolled in a club and given an annual allotment of points
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that allow the member to exchange his or her annual usage rights in the VOI that they own for a number of vacation and travel options. The Hilton Club operates for owners of VOIs at the Hilton New York, but whose members also enjoy exchange benefits with the Hilton Grand Vacations Club. In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system.
We rent unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through our club programs. We earn a fee from rentals of third-party inventory. Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties.
Principal Components of and Factors Affecting Our Results of Operations
Principal Components of Revenues
| Sales of VOIs, net represents revenue recognized from the sale of owned VOIs. |
| Sales, marketing, brand and other fees represents sales commissions, brand fees and other fees earned on the sale of VOIs through fee-for-service agreements with third-party developers. The sales commissions and brand fees are based on the total sales price of the VOI. Also included in Sales, marketing, brand and other fees are revenues from marketing and incentive programs, including redemption of Club Bonus Points and prepaid vacation packages, excluding stays at Hilton Grand Vacations properties, which are included in Rental and ancillary services . |
| Financing represents revenue from the financing of sales of our owned intervals, which includes interest income and fees from servicing loans. We also earn fees from servicing the loans provided by third-party developers to purchasers of their VOIs. |
| Club and resort management represents revenues from Club activation fees, annual dues and transaction fees from member exchanges. Club and resort management also includes recurring management fees under our agreements with HOAs for day-to-day-management services, including housekeeping services, operation of a reservation system, maintenance, and certain accounting and administrative services for HOAs, generally based on a percentage of costs to operate the resorts. |
| Rental and ancillary services represents revenues from transient rentals of unoccupied vacation ownership units and revenues recognized from the utilization of Club points and vacation packages when points and packages are redeemed for rental stays at one of our resorts. We also earn fees from the rental of inventory owned by third parties. Ancillary revenues include food and beverage, retail, spa offerings and other guest services provided to resort guests. |
| Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer. The corresponding expenses are presented as Cost reimbursements expense in our consolidated statements of operations resulting in no effect on net income. |
Factors Affecting Revenues
|
Relationships with developers . In recent years, we have entered into fee-for-service agreements to sell VOIs on behalf of third-party developers. We expect the sales of VOIs developed by third parties and resort operations and club management to comprise a growing percentage of our revenue, and revenues derived from the sale of developed VOIs to comprise a smaller percentage of our 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. The success and sustainability of our capital efficient business model depends on our ability to maintain good relationships with third-party developers. 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 strong relationships |
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with our third-party developers and are committed to the continued growth and development of these relationships. These relationships exist with a diverse group of developers and are not significantly concentrated with any particular third party. |
| Consumer demand and global economic conditions . Consumer demand for our products and services may be affected by 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 subject and have subjected our revenues to significant volatility. |
| Interest rates . We generate interest income from consumer loans we originate and declines in interest rates may cause us to lower our interest rates on our originated loans, which would adversely affect our income generated on future loans. |
| Competition. We compete with other hotel and resort timeshare operators for sales of VOIs based principally on location, quality of accommodations, price, service levels and amenities, financing terms, quality of service, terms of property use, reservation systems and flexibility for VOI owners to exchange into time at other timeshare properties or other travel rewards. In addition, we compete based on brand name recognition and reputation. Our primary competitors in the timeshare space include Marriott Vacations Worldwide, Wyndham Vacation Ownership, Vistana Signature Experiences, Disney Vacation Club, Hyatt Vacation Ownership, Holiday Inn Club Vacations, Bluegreen Vacations and Diamond Resorts International. |
Principal Components of Expenses
| Cost of VOI sales represents the costs attributable to the sales of owned VOIs recognized, as well as charges incurred related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects. |
| Sales and marketing represents costs incurred to sell and market VOIs, including costs incurred relating to marketing and incentive programs, costs for tours, rental expense and wages and sales commissions. |
| Financing represents consumer financing interest expense related to our Securitized Debt and Timeshare Facility, amortization of the related deferred loan costs and other expenses incurred in providing consumer financing and servicing loans. |
| Club and resort management represents costs incurred to manage resorts and the Club, including payroll and related costs and other administrative costs. |
| Rental and ancillary services includes: payroll and related costs; costs incurred from participating in the Hilton HHonors loyalty program; retail, food and beverages costs; housekeeping; and maintenance fees on unsold inventory. |
| General and administrative consists primarily of compensation expense for our corporate staff and personnel supporting our business segments, professional fees (including consulting, audit and legal fees), administrative and related expenses. General and administrative also includes costs for services provided to us by Hilton, as well as certain indirect general and administrative costs allocated to us by Hilton, as discussed in Note 2: Basis of Presentation and Summary of Significant Accounting Policies and Note 16: Related Party Transactions in our audited consolidated financial statements included elsewhere in this information statement. See Unaudited Pro Forma Consolidated Financial Statements and the accompanying notes for discussion of the incremental expense related to general and administrative expenses we expect to incur upon completion of the spin-off. |
| Depreciation and amortization are non-cash expenses that primarily consist of amortization of our management agreement intangible and capitalized software, as well as depreciation of fixed assets such as buildings and leasehold improvements and furniture and equipment at our sales centers and corporate offices. |
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| License fee expense represents the royalty fee paid to Hilton under a license agreement for the exclusive right to use the Hilton Grand Vacations mark, which is based on a percentage of gross revenues. See Unaudited Pro Forma Consolidated Financial Statements and the accompanying notes for discussion of the change in expenses related to the license agreements we will enter into with Hilton upon completion of the spin-off. |
| Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer. The corresponding revenues are presented as Cost reimbursements revenue in our consolidated statements of operations resulting in no effect on net income. |
Factors Affecting Expenses
| Costs of VOI sales. In periods where there is increased demand for VOIs, we may incur increased costs to acquire inventory in the short-term, which can have an adverse effect on our net cash flow, margins and profits. Additionally, as we encourage owners to upgrade into other products, we incur expenses when owners upgrade from an interval in a project we developed into fee-for-service projects, on which we earn fees. In periods where more upgrades are occurring and we are not generating increased sales volume on unsold supply, we could see an adverse effect on our net cash flow, margins and profits. |
| Sales and marketing expense . A significant portion of our costs relates to selling and marketing of our VOIs. In periods of decreased demand for VOIs, we may be unable to reduce our sales and marketing expenses quickly enough to prevent a deterioration of our profit margins on our real estate operations. |
| Rental and ancillary services expense . Many of the expenses associated with operating timeshare resorts are relatively fixed. These expenses include personnel costs, rent, property taxes, insurance and utilities. We pay a portion of these costs through maintenance fees of unsold intervals and by subsidizing the costs of HOAs not covered by maintenance fees collected. If we are unable to decrease these costs significantly or rapidly when demand for our unit rentals decreases, the resulting decline in our revenues can have an adverse effect on our net cash flow, margins and profits. |
| Interest rates . Increases in interest rates would increase the consumer financing interest expense we pay on the Timeshare Facility and could adversely affect our financing operations in future securitization or other debt transactions, affecting net cash flow, margins and profits. |
Other Items
| Seasonality. We experience modest seasonality in VOI sales at certain of our resorts, with increased revenue during traditional vacation periods for those locations. |
| Regulation. Our business activities are highly regulated. We are subject to a wide variety of complex international, national, federal, state and local laws, regulations and policies in jurisdictions in which we operate. These laws, regulations and policies primarily affect four areas of our business: real estate development activities; marketing and sales activities; lending activities; and resort management activities. We seek to actively participate in the determination of new laws or other regulations affecting the timeshare industry. For further detail of these regulations see Risk Factors and BusinessGovernment Regulation included elsewhere in this information statement. |
Key Business and Financial Metrics and Terms Used by Management
Real Estate Sales Metrics
|
Contract sales Represents the total amount of VOI products under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales is not a recognized term under U.S. GAAP and should not be considered in isolation or |
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as an alternative to Sales of VOIs, net or any other comparable operating measure derived in accordance with U.S. GAAP. Contract sales differ from revenues from the Sales of VOIs, net that we report in our consolidated statements of operations due to the requirements for revenue recognition as described in Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere in this information statement, as well as adjustments for incentives and other administrative fee revenues. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. |
| Sales revenue Represents sale of VOIs, net and commissions and brand fees earned from the sale of fee-for-service intervals. |
| Real estate margin Represents sales revenue less the cost of VOI sales and sales and marketing costs, net of marketing revenue. Real estate margin percentage is calculated by dividing real estate margin by sales revenue. We consider this to be an important operating measure because it measures the efficiency of our sales and marketing spending and management of inventory costs. |
| Tour flow Represents the number of sales presentations given at our sales centers during the period. |
| Volume per guest (VPG) Represents the sales attributable to tours at our sales locations and is calculated by dividing Contract sales, excluding telesales, by tour flow. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with closing rate. |
Club and Resort Management and Rental Metrics
| Transient rate Represents the total rental room revenue for transient guests divided by total number of transient room nights sold in a given period and excludes room rentals associated with marketing programs, owner usage and the redemption of Club Bonus Points. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere in this information statement for further discussion on Club Bonus Points. |
| Resort occupancy Represents the utilization of the resorts available capacity. |
EBITDA and Adjusted EBITDA
EBITDA, presented herein, is a financial measure that is not recognized under U.S. GAAP that reflects net income before interest expense, a provision for income taxes and depreciation and amortization. Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs; (vi) share-based and certain other compensation expenses; (vii) severance, relocation and other expenses; and (viii) other items.
EBITDA and Adjusted EBITDA are not recognized terms under 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 net income (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 effect 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
Six Months Ended June 30, 2016 Compared with the Six Months Ended June 30, 2015
Segment Results
We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 12: Business Segments in our unaudited condensed consolidated financial statements included elsewhere in this information statement. 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 and Terms Used by ManagementEBITDA and Adjusted EBITDA. The following tables set forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts, including net income, our most comparable U.S. GAAP financial measure:
Six Months Ended June 30, | 2016 vs 2015 Variance | |||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Revenues: |
||||||||||||||||
Real estate sales and financing |
$ | 542 | $ | 527 | $ | 15 | 2.8 | % | ||||||||
Resort operations and club management |
170 | 150 | 20 | 13.3 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Segment revenues |
712 | 677 | 35 | 5.2 | ||||||||||||
Cost reimbursements |
61 | 55 | 6 | 10.9 | ||||||||||||
Intersegment eliminations (1) |
(12 | ) | (11 | ) | (1 | ) | 9.1 | |||||||||
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|
|
|
|
|||||||||||
Total revenues |
$ | 761 | $ | 721 | $ | 40 | 5.5 | |||||||||
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|
|
|
(1) | Refer to Note 12: Business Segments in our unaudited condensed consolidated financial statements included elsewhere in this information statement for details on the intersegment eliminations. |
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Six Months Ended June 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Adjusted EBITDA: |
||||||||||||||||
Real estate sales and financing (2) |
$ | 171 | $ | 145 | $ | 26 | 17.9 | % | ||||||||
Resort operations and club management (2) |
97 | 79 | 18 | 22.8 | ||||||||||||
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|
|
|
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Segment Adjusted EBITDA |
268 | 224 | 44 | 19.6 | ||||||||||||
Less: |
||||||||||||||||
General and administrative (3) |
24 | 19 | 5 | 26.3 | ||||||||||||
License fee expense |
39 | 36 | 3 | 8.3 | ||||||||||||
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|
|
|
|
|||||||||||
Adjusted EBITDA |
205 | 169 | 36 | 21.3 | ||||||||||||
Other loss, net |
(1 | ) | | (1 | ) | NM | (1) | |||||||||
Gain on foreign currency transactions |
1 | | 1 | NM | (1) | |||||||||||
Share-based compensation expense |
(5 | ) | (9 | ) | 4 | (44.4 | ) | |||||||||
Other adjustment items |
(10 | ) | (3 | ) | (7 | ) | 233.3 | |||||||||
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|
|
|
|
|||||||||||
EBITDA |
190 | 157 | 33 | 21.0 | ||||||||||||
Non-recourse debt interest expense |
(6 | ) | (7 | ) | 1 | (14.3 | ) | |||||||||
Allocated Parent interest expense |
(13 | ) | (15 | ) | 2 | (13.3 | ) | |||||||||
Income tax expense |
(65 | ) | (50 | ) | (15 | ) | 30.0 | |||||||||
Depreciation and amortization |
(11 | ) | (11 | ) | | | ||||||||||
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|
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Net income |
$95 | $ | 74 | $ | 21 | 28.4 | ||||||||||
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|
(1) | Fluctuation in terms of percentage change is not meaningful. |
(2) | Includes intersegment eliminations. Refer to our table presenting revenues by reportable segment above for additional discussion. |
(3) | Excludes share-based compensation and other adjustment items. |
Real Estate Sales and Financing
Real estate sales and financing segment revenues increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily as a result of a $9 million increase in sales revenue due to an increase in commissions and brand fees. Additionally, marketing revenues and financing revenues increased $2 million and $4 million, respectively. Real estate sales and financing segment Adjusted EBITDA increased primarily as a result of a $38 million decrease in cost of VOI sales due to a reduction in the cost of reacquiring inventory from existing owners upgrading into fee-for-service projects and a $12 million increase in sales, marketing, brand and other fees revenue, partially offset by a $26 million increase in sales and marketing expense.
Refer to Real Estate and Financing for further discussion on the revenues and expenses of the real estate sales and financing segment.
Resort Operations and Club Management
Resort operations and club management segment revenues and segment Adjusted EBITDA increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily as a result of a $7 million increase in Club management revenue, a $4 million increase in resort management revenue and an $8 million increase in rental and ancillary services revenues, while overall expenses remained flat.
Refer to Club and Resort Management and Rental and Ancillary Services for further discussion on the revenues and expenses of the resort operations and club management segment.
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Real Estate
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions, except VPG) | 2016 | 2015 | $ | % | ||||||||||||
Contract sales |
$ | 554 | $ | 526 | $ | 28 | 5.3 | % | ||||||||
Less adjustments: |
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Fee-for-service sales (1) |
331 | 321 | 10 | 3.1 | ||||||||||||
Loan loss provision |
23 | 17 | 6 | 35.3 | ||||||||||||
Reportability and other (2) |
(29 | ) | (42 | ) | 13 | (31.0 | ) | |||||||||
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Sales of VOIs, net |
$ | 229 | $ | 230 | (1 | ) | (0.4 | ) | ||||||||
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Tour flow |
149,715 | 139,149 | 10,566 | 7.6 | ||||||||||||
VPG |
$ | 3,493 | $ | 3,575 | $ | (82) | (2.3 | ) |
(1) | Represents contract sales from fee-for-service properties on which we earn commissions and brand fees. |
(2) | Includes adjustments for revenue recognition, including percentage-of-completion deferrals and amounts in rescission, and sales incentives, as well as expenses related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects. |
Contract sales increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily as a result of an increase in tour flow and telesales, partially offset by a decline in VPG. VPG decreased due to a 3.3 percent decrease in average transaction price primarily due to high sales volume during the six months ended June 30, 2015 in a high priced fee-for-service project that launched in December 2014, partially offset by a 0.25 percentage point increase in close rate in 2016 compared to the prior year.
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Sales of VOIs, net |
$ | 229 | $ | 230 | $ | (1) | (0.4 | )% | ||||||||
Sales, marketing, brand and other fees |
246 | 234 | 12 | 5.1 | ||||||||||||
Less: |
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Marketing revenue and other fees |
55 | 53 | 2 | 3.8 | ||||||||||||
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Sales revenue |
420 | 411 | 9 | 2.2 | ||||||||||||
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Less: |
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Cost of VOI sales |
66 | 104 | (38 | ) | (36.5 | ) | ||||||||||
Sales and marketing expense, net (1) |
231 | 207 | 24 | 11.6 | ||||||||||||
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Real estate margin |
$ | 123 | $ | 100 | 23 | 23.0 | ||||||||||
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Real estate margin percentage |
29.3 | % | 24.3 | % |
(1) | Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers. |
Sales revenue increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily as a result of a $10 million increase in commissions and brand fees due to the launch of a new fee-for-service product in late 2015 that resulted in high sales volume during the six months ended June 30, 2016.
Real estate margin and real estate margin percentage increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 as result of increased sales revenue and decreased cost of VOI sales, due to a decline in existing owners upgrading into fee-for-service projects, partially offset by higher sales and marketing expense.
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Financing
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Interest income |
$ | 60 | $ | 57 | $ | 3 | 5.3 | % | ||||||||
Other financing revenue |
6 | 5 | 1 | 20.0 | ||||||||||||
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Financing revenue |
66 | 62 | 4 | 6.5 | ||||||||||||
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Consumer financing interest expense |
6 | 7 | (1 | ) | (14.3 | ) | ||||||||||
Other financing expense |
|
10 |
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9 |
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1 |
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11.1 |
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Financing expense |
|
16 |
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16 |
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Financing margin |
$ |
50 |
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$ |
46 |
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$ |
4 |
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8.7 |
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Financing margin percentage |
75.8 | % | 74.2 | % |
Financing revenue and margin increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily due to an increase in the loan portfolio and a marginal increase in weighted average interest rates.
Club and Resort Management
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Club management revenue |
$ | 39 | $ | 32 | $ | 7 | 21.9 | % | ||||||||
Resort management revenue |
26 | 22 | 4 | 18.2 | ||||||||||||
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Club and resort management revenues |
65 | 54 | 11 | 20.4 | ||||||||||||
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Club management expense |
10 | 9 | 1 | 11.1 | ||||||||||||
Resort management expense |
6 | 6 | | | ||||||||||||
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Club and resort management expenses |
16 | 15 | 1 | 6.7 | ||||||||||||
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Club and resort management margin |
$ | 49 | $ | 39 | $ | 10 | 25.6 | |||||||||
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Club and resort management margin percentage |
75.4 | % | 72.2 | % |
Club and resort management revenues increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily as a result of an increase in Club management revenue due to an increase in net Club members, as well as an increase in transaction volume. Additionally, resort management revenue increased primarily as a result of an 11 percent increase in units open and under management.
Club and resort management margin increased primarily as a result of an increase in Club and resort management revenues.
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Rental and Ancillary Services
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Rental revenues |
$ | 81 | $ | 74 | $ | 7 | 9.5 | % | ||||||||
Ancillary services revenues |
13 | 12 | 1 | 8.3 | ||||||||||||
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Rental and ancillary services revenues |
94 | 86 | 8 | 9.3 | ||||||||||||
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Rental expenses |
44 | 44 | | | ||||||||||||
Ancillary services expense |
12 | 11 | 1 | 9.1 | ||||||||||||
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Rental and ancillary services expenses |
56 | 55 | 1 | 1.8 | ||||||||||||
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Rental and ancillary services margin |
$ | 38 | $ | 31 | $ | 7 | 22.6 | |||||||||
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Rental and ancillary services margin percentage |
40.4 | % | 36.0 | % |
Rental and ancillary services revenues increased for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, primarily as a result of an increase in revenues received on transient room rentals and nonrecurring business interruption insurance proceeds of $2 million. Additionally, ancillary services revenues increased due to higher food and beverage sales to our resort guests. Rental and ancillary services margin increased primarily as a result of the increase in rental and ancillary services revenues.
Other Operating Expenses
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Unallocated general and administrative |
$ | 27 | $ | 20 | $ | 7 | 35.0 | % | ||||||||
Allocated general and administrative |
10 | 10 | | | ||||||||||||
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General and administrative |
$37 | $30 | $7 | 23.3 | ||||||||||||
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The increase in general and administrative expenses for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily as a result of spin-off transaction related expenses during the six months ended June 30, 2016.
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Depreciation and amortization |
$ | 11 | $ | 11 | $ | | | % | ||||||||
License fee expense |
39 | 36 | 3 | 8.3 |
The increase in license fee expense was as a result of the increase in revenues.
Non-Operating Expenses
Six Months Ended June 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Allocated Parent interest expense |
$ | 13 | $ | 15 | $ | (2 | ) | (13.3 | )% | |||||||
Income tax expense |
65 | 50 | 15 | 30.0 |
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The Allocated Parent interest expense included in our condensed consolidated statements of operations relates to the Hilton debt allocated to us. See Note 8: Allocated Parent Debt and Non-recourse Debt in our unaudited condensed consolidated financial statements included elsewhere in this information statement for further discussion. The decrease in allocated Parent interest expense for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was as a result of a $49 million decrease in the allocated Parent debt balance due to debt prepayments.
The increase in income tax expense was primarily as a result of improvements in our operations resulting in an increase in income before taxes.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014 and Year Ended December 31, 2014 Compared with the Year Ended December 31, 2013
Segment Results
We evaluate our business segment operating performance using segment Adjusted EBITDA, as described in Note 17: Business Segments in our audited consolidated financial statements included elsewhere in this information statement. For a discussion of our definition of EBITDA and Adjusted EBITDA, how management uses it to manage our business and material limitations on its usefulness, refer to Key Business and Financial Metrics and Terms Used by ManagementEBITDA and Adjusted EBITDA. The following tables set forth revenues and Adjusted EBITDA by segment, reconciled to consolidated amounts, including net income, our most comparable U.S. GAAP financial measure:
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Revenues: |
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Real estate sales and financing |
$ | 1,078 | $ | 942 | $ | 898 | $ | 136 | 14.4 | % | $ | 44 | 4.9 | % | ||||||||||||||
Resort operations and club management |
307 | 283 | 239 | 24 | 8.5 | 44 | 18.4 | |||||||||||||||||||||
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Segment revenues |
1,385 | 1,225 | 1,137 | 160 | 13.1 | 88 | 7.7 | |||||||||||||||||||||
Cost reimbursements |
110 | 107 | 99 | 3 | 2.8 | 8 | 8.1 | |||||||||||||||||||||
Intersegment eliminations (1) |
(20 | ) | (15 | ) | (12 | ) | (5 | ) | 33.3 | (3 | ) | 25.0 | ||||||||||||||||
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Total revenues |
$ | 1,475 | $ | 1,317 | $ | 1,224 | $ | 158 | 12.0 | $ | 93 | 7.6 | ||||||||||||||||
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(1) | Refer to Note 17: Business Segments in our audited consolidated financial statements included elsewhere in this information statement for details on the intersegment eliminations. |
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Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Adjusted EBITDA: |
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Real estate sales and financing (2) |
$ | 329 | $ | 305 | $ | 294 | $ | 24 | 7.9 | % | $ | 11 | 3.7 | % | ||||||||||||||
Resort operations and club management (2) |
162 | 144 | 104 | 18 | 12.5 | 40 | 38.5 | |||||||||||||||||||||
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Segment Adjusted EBITDA |
491 | 449 | 398 | 42 | 9.4 | 51 | 12.8 | |||||||||||||||||||||
Less: |
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General and administrative (3) |
44 | 34 | 36 | 10 | 29.4 | (2 | ) | (5.6 | ) | |||||||||||||||||||
License fee expense |
74 | 62 | 56 | 12 | 19.4 | 6 | 10.7 | |||||||||||||||||||||
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Adjusted EBITDA |
373 | 353 | 306 | 20 | 5.7 | 47 | 15.4 | |||||||||||||||||||||
Gain on debt extinguishment |
| | 22 | | NM | (1) | (22 | ) | NM | (1) | ||||||||||||||||||
Other gain, net |
| 5 | | (5 | ) | NM | (1) | 5 | NM | (1) | ||||||||||||||||||
Loss on foreign currency transactions |
| (2 | ) | (5 | ) | 2 | NM | (1) | 3 | (60.0 | ) | |||||||||||||||||
Share-based compensation expense |
(13 | ) | (4 | ) | (22 | ) | (9 | ) | NM | (1) | 18 | (81.8 | ) | |||||||||||||||
Other adjustment items |
(4 | ) | (3 | ) | (12 | ) | (1 | ) | 33.3 | 9 | (75.0 | ) | ||||||||||||||||
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EBITDA |
356 | 349 | 289 | 7 | 2.0 | 60 | 20.8 | |||||||||||||||||||||
Non-recourse debt interest expense |
(13 | ) | (15 | ) | (7 | ) | 2 | (13.3 | ) | (8 | ) | NM | (1) | |||||||||||||||
Allocated Parent interest expense |
(29 | ) | (36 | ) | (48 | ) | 7 | (19.4 | ) | 12 | (25.0 | ) | ||||||||||||||||
Income tax expense |
(118 | ) | (113 | ) | (90 | ) | (5 | ) | 4.4 | (23 | ) | 25.6 | ||||||||||||||||
Depreciation and amortization |
(22 | ) | (18 | ) | (16 | ) | (4 | ) | 22.2 | (2 | ) | 12.5 | ||||||||||||||||
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Net income |
$ | 174 | $ | 167 | $ | 128 | $ | 7 | 4.2 | $ | 39 | 30.5 | ||||||||||||||||
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(1) | Fluctuation in terms of percentage change is not meaningful. |
(2) | Includes intersegment eliminations. Refer to our table presenting revenues by reportable segment above for additional discussion. |
(3) | Excludes share-based compensation and other adjustment items. |
Real Estate Sales and Financing
Real estate sales and financing segment revenues increased for the year ended December 31, 2015 compared to 2014 primarily as a result of a $131 million increase in sales revenue. The increase in sales revenue was primarily due to a $159 million increase in commissions and brand fees, partially offset by a $28 million decrease in sales of VOIs, net. Real estate sales and financing segment Adjusted EBITDA increased primarily as a result of the $157 million increase in sales, marketing, brand and other fees revenue, partially offset by the $28 million decrease in sales of VOIs, net and increases in sales and marketing expense and cost of VOI sales of $62 million and $47 million, respectively.
Real estate sales and financing segment revenues increased for the year ended December 31, 2014 from 2013 primarily as a result of a $40 million increase in real estate revenue. The increase in real estate revenue was primarily due to a $41 million increase in commissions and brand fees and a $24 million increase in marketing revenue, partially offset by a $26 million decrease in sales of VOIs, net. Real estate sales and financing segment Adjusted EBITDA increased primarily as a result of the increase in sales, marketing, brand and other fees revenue offset by the increase in sales and marketing expense of $29 million.
Refer to Real Estate and Financing for further discussion on the revenues and expenses of the real estate sales and financing segment.
88
Resort Operations and Club Management
Resort operations and club management segment revenues increased for the year ended December 31, 2015 compared to 2014 primarily as a result of a $9 million increase in Club management revenue, $4 million increase in resort management revenue and a $6 million increase in rental revenue. Resort operations and club management segment Adjusted EBITDA increased primarily due to the increases in Club and resort management revenues and rental and ancillary services revenues of $13 million and $7 million, respectively, partially offset by increases of $3 million each in Club and resort management expenses and rental and ancillary services expenses.
Resort operations and club management segment revenues increased for the year ended December 31, 2014 compared to 2013 primarily as a result of an $11 million increase in Club management revenue, $9 million increase in resort management revenue and a $21 million increase in rental revenue. Resort operations and club management segment Adjusted EBITDA increased primarily as a result of the increases in Club and resort management revenues and rental and ancillary services revenues of $20 million and $21 million, respectively, partially offset by increases in Club and resort management expenses and rental and ancillary services expenses of $2 million and $3 million, respectively.
Refer to Club and Resort Management and Rental and Ancillary Services for further discussion on the revenues and expenses of the resort operations and club management segment.
Real Estate
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions, except VPG) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Contract sales |
$ | 1,068 | $ | 905 | $ | 829 | $ | 163 | 18.0 | % | $ | 76 | 9.2 | % | ||||||||||||||
Less adjustments: |
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Fee-for-service sales (2) |
611 | 351 | 258 | 260 | 74.1 | 93 | 36.0 | |||||||||||||||||||||
Loan loss provision |
39 | 35 | 24 | 4 | 11.4 | 11 | 45.8 | |||||||||||||||||||||
Reportability and other (3) |
(74 | ) | (1 | ) | 1 | (73 | ) | NM | (1) | (2 | ) | NM | (1) | |||||||||||||||
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Sales of VOIs, net |
$ | 492 | $ | 520 | $ | 546 | (28 | ) | (5.4 | ) | (26 | ) | (4.8 | ) | ||||||||||||||
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Tour flow |
287,855 | 261,853 | 246,407 | 26,002 | 9.9 | 15,446 | 6.3 | |||||||||||||||||||||
VPG |
$ | 3,508 | $ | 3,292 | $ | 3,221 | $ | 216 | 6.6 | $ | 71 | 2.2 |
(1) | Fluctuation in terms of percentage change is not meaningful. |
(2) | Represents contract sales from fee-for-service properties on which we earn commissions and brand fees. |
(3) | Includes adjustments for revenue recognition, including percentage-of-completion deferrals and amounts in rescission, and sales incentives, as well as expenses related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects. |
Contract sales increased for the years ended December 31, 2015 and 2014, compared to the respective prior periods, primarily as a result of increases in tour flow and VPG. In 2015, the VPG increase was a result of a 1.06 percentage point increase in close rate attributable to an increase in existing owner tours, as the close rate for owners is generally higher than first-time buyers, and a 0.3 percent increase in average transaction price. The VPG increase in 2014 was a result of a 0.3 percentage point increase in close rate and a 0.4 percent increase in average transaction price.
89
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Sales of VOIs, net |
$ | 492 | $ | 520 | $ | 546 | $ | (28 | ) | (5.4 | )% | $ | (26 | ) | (4.8 | )% | ||||||||||||
Sales, marketing, brand and other fees |
457 | 300 | 234 | 157 | 52.3 | 66 | 28.2 | |||||||||||||||||||||
Less: |
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Marketing revenue and other fees |
108 | 110 | 85 | (2 | ) | (1.8 | ) | 25 | 29.4 | |||||||||||||||||||
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Sales revenue |
841 | 710 | 695 | 131 | 18.5 | 15 | 2.2 | |||||||||||||||||||||
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Less: |
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Cost of VOI sales |
173 | 126 | 128 | 47 | 37.3 | (2 | ) | (1.6 | ) | |||||||||||||||||||
Sales and marketing expense, net (1) |
437 | 379 | 371 | 58 | 15.3 | 8 | 2.2 | |||||||||||||||||||||
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Real estate margin |
$ | 231 | $ | 205 | $ | 196 | 26 | 12.7 | 9 | 4.6 | ||||||||||||||||||
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Real estate margin percentage |
27.5 | % | 28.9 | % | 28.2 | % |
(1) | Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers. |
Sales revenue increased for the years ended December 31, 2015 and 2014, compared to the respective prior periods, primarily as a result of increases in commissions and brand fees due to increases in fee-for-service sales of 74 percent and 36 percent, respectively, partially offset by declining sales of VOIs, net.
Sales of VOIs, net decreased for the years ended December 31, 2015 and 2014, compared to the respective prior periods, primarily as a result of the shift in sales mix toward fee-for-service interval sales, aligned to our capital-efficient strategy. We have increased our percentage of fee-for-service sales compared to that of sales of developed or acquired inventory over the last three years, resulting in decreases to sales of VOIs, net and increases in sales, marketing, brand and other fees revenue.
Real estate margin increased for the years ended 2015 and 2014 as a result of the increases in sales revenue. However, real estate margin percentage declined for the year ended December 31, 2015 compared to 2014 due to the lower margin on fee-for-service sales and the higher cost of VOI sales related to the cost of reacquiring inventory that we have developed from existing owners upgrading into fee-for-service projects.
Financing
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Interest income |
$ | 117 | $ | 115 | $ | 112 | $ | 2 | 1.7 | % | $ | 3 | 2.7 | % | ||||||||||||||
Other financing revenue |
10 | 6 | 5 | 4 | 66.7 | 1 | 20.0 | |||||||||||||||||||||
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Financing revenue |
127 | 121 | 117 | 6 | 5.0 | 4 | 3.4 | |||||||||||||||||||||
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Consumer financing interest expense |
13 | 15 | 7 | (2 | ) | (13.3 | ) | 8 | NM | (1) | ||||||||||||||||||
Other financing expense |
19 | 18 | 15 | 1 | 5.6 | 3 | 20.0 | |||||||||||||||||||||
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Financing expense |
32 | 33 | 22 | (1 | ) | (3.0 | ) | 11 | 50.0 | |||||||||||||||||||
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Financing margin |
$ | 95 | $ | 88 | $ | 95 | $ | 7 | 8.0 | $ | (7 | ) | (7.4 | ) | ||||||||||||||
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Financing margin percentage |
74.8 | % | 72.7 | % | 81.2 | % |
(1) | Fluctuation in terms of percentage change is not meaningful. |
Financing revenue increased for the year ended December 31, 2015 compared to 2014 primarily as a result of an increase of $4 million in fees generated from servicing the loans provided by third-party developers to
90
purchasers of their VOIs, consistent with the increase in fee-for-service sales. Additionally, interest income increased resulting from a higher outstanding timeshare financing receivables balance. For the year ended December 31, 2014, financing revenue increased compared to 2013 primarily as a result of an increase in interest income from a higher outstanding timeshare financing receivables balance in 2014 than 2013.
Financing margin increased for the year ended December 31, 2015 compared to 2014 primarily as a result of the increase in revenue and no additional securitization transactions occurring in 2015. For the year ended December 31, 2014, financing margin decreased compared to 2013 primarily as a result of the increase in consumer financing interest expense due to a full year of interest expense recognized in 2014 from the Timeshare Facility and the Securitized Debt issued in 2013, as they were entered into in May 2013 and August 2013, respectively, as well as interest expense from the securitization transaction that occurred in June 2014.
Club and Resort Management
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Club management revenue |
$ | 78 | $ | 69 | $ | 58 | $ | 9 | 13.0 | % | $ | 11 | 19.0 | % | ||||||||||||||
Resort management revenue |
47 | 43 | 34 | 4 | 9.3 | 9 | 26.5 | |||||||||||||||||||||
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Club and resort management revenues |
125 | 112 | 92 | 13 | 11.6 | 20 | 21.7 | |||||||||||||||||||||
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Club management expense |
20 | 18 | 16 | 2 | 11.1 | 2 | 12.5 | |||||||||||||||||||||
Resort management expense |
12 | 11 | 11 | 1 | 9.1 | | | |||||||||||||||||||||
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Club and resort management expenses |
32 | 29 | 27 | 3 | 10.3 | 2 | 7.4 | |||||||||||||||||||||
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Club and resort management margin |
$ | 93 | $ | 83 | $ | 65 | $ | 10 | 12.0 | $ | 18 | 27.7 | ||||||||||||||||
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Club and resort management margin percentage |
74.4 | % | 74.1 | % | 70.7 | % |
Club and resort management revenues increased for the years ended December 31, 2015 and 2014, compared to the respective prior periods, primarily as a result of increases in Club management revenue due to increases in net Club members, of 20,200 and 17,500, respectively, as well as increases in transaction volume per Club member. Additionally, resort management revenue increased for the years ended December 31, 2015 and 2014, compared to the respective prior periods, primarily as a result of increases in units open and under management of 5 percent and 3 percent, respectively, as well as an increase in management services provided.
Club and resort management margin increased year over year primarily as a result of increases in net Club members, partially offset by slight increases in Club and resort management expenses.
Rental and Ancillary Services
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Rental revenues |
$ | 140 | $ | 134 | $ | 113 | $ | 6 | 4.5 | % | $ | 21 | 18.6 | % | ||||||||||||||
Ancillary services revenues |
24 | 23 | 23 | 1 | 4.3 | | | |||||||||||||||||||||
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Rental and ancillary services revenues |
164 | 157 | 136 | 7 | 4.5 | 21 | 15.4 | |||||||||||||||||||||
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Rental expenses |
91 | 87 | 84 | 4 | 4.6 | 3 | 3.6 | |||||||||||||||||||||
Ancillary services expense |
22 | 23 | 23 | (1 | ) | (4.3 | ) | | | |||||||||||||||||||
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Rental and ancillary services expenses |
113 | 110 | 107 | 3 | 2.7 | 3 | 2.8 | |||||||||||||||||||||
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Rental and ancillary services margin |
$ | 51 | $ | 47 | $ | 29 | $ | 4 | 8.5 | $ | 18 | 62.1 | ||||||||||||||||
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Rental and ancillary services margin percentage |
31.1 | % | 29.9 | % | 21.3 | % |
91
Rental and ancillary services revenues increased for the year ended December 31, 2015 compared to 2014 primarily as a result of the increase in rental revenues from increases in occupancy generated from the redemption of prepaid marketing packages and a 3 percent increase in transient rate, partially offset by a 5 percent reduction in transient room nights rented. Rental and ancillary services revenues increased for the year ended December 31, 2014 compared to 2013 primarily as a result of the increase in rental revenues from an 11 percent increase in transient rate.
Rental and ancillary services margin increased for the year ended December 31, 2015 compared to 2014 primarily as a result of the increase in rental revenues, partially offset by the increase in rental expenses primarily associated with the cost of participating in loyalty and partner programs. Rental and ancillary services margin increased for the year ended December 31, 2014 compared to 2013 primarily as a result of the increase in rental revenues, partially offset by increase in rental expenses primarily due to the increase in maintenance fees.
Other Operating Expenses
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Unallocated general and administrative |
$ | 44 | $ | 32 | $ | 32 | $ | 12 | 37.5 | % | $ | | | % | ||||||||||||||
Allocated general and administrative |
13 | 8 | 38 | 5 | 62.5 | (30 | ) | (78.9 | ) | |||||||||||||||||||
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General and administrative |
$ | 57 | $ | 40 | $ | 70 | $ | 17 | 42.5 | $ | (30 | ) | (42.9 | ) | ||||||||||||||
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The increase in unallocated general and administrative expenses for the year ended December 31, 2015 compared to 2014 was primarily as a result of a $3 million increase in share-based compensation expense and increases in salaries and wages. Allocated general and administrative expenses increased primarily as a result of an increase of $3 million in share-based compensation expense related to the executive compensation plan in place prior to Hiltons initial public offering (IPO) as the remaining shares fully vested in 2015.
General and administrative expenses for the year ended December 31, 2014 decreased compared to 2013 as a result of a decrease in allocated general and administrative primarily from a $20 million decrease in share-based compensation expense due to a plan modification that occurred in conjunction with Hiltons IPO in 2013, which resulted in the immediate accelerated vesting of a portion of the awards.
The increases in depreciation and amortization expense year over year were primarily as a result of capitalized software costs placed into service each year. The increases in license fee expense year over year were as a result of increases in revenues during those periods.
Non-Operating Expenses
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Allocated Parent interest expense |
$ | 29 | $ | 36 | $ | 48 | $ | (7 | ) | (19.4 | )% | $ | (12 | ) | (25.0 | )% | ||||||||||||
Gain on debt extinguishment |
| | 22 | | | (22 | ) | (100.0 | ) | |||||||||||||||||||
Other gain, net |
| 5 | | (5 | ) | (100.0 | ) | 5 | NM | (1) | ||||||||||||||||||
Loss on foreign currency transactions |
| 2 | 5 | (2 | ) | (100.0 | ) | (3 | ) | (60.0 | ) | |||||||||||||||||
Income tax expense |
118 | 113 | 90 | 5 | 4.4 | 23 | 25.6 |
(1) | Fluctuation in terms of percentage change is not meaningful. |
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The Allocated Parent interest expense included in our consolidated statements of operations relates to the Hilton debt allocated to us. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies and Note 10: Allocated Parent Debt and Non-recourse Debt in our audited consolidated financial statements included elsewhere in this information statement for further discussion. The decreases in allocated Parent interest expense year over year were as a result of decreases in allocated Parent debt due to prepayments of $87 million and $112 million applied to our portion of allocated Parent debt during the years ended December 31, 2015 and 2014, respectively. The gain on debt extinguishment during the year ended December 31, 2013 related to Hiltons debt refinancing, of which a portion was allocated to us.
Other gain, net during the year ended December 31, 2014 related to a gain recognized from the sale of two land parcels.
Loss on foreign currency transactions during the years ended December 31, 2014 and 2013 primarily related to certain of our timeshare financing receivables denominated in Japanese yen.
The increases of income tax expenses year over year were primarily as a result of improvements in our operations resulting in increases in income before taxes.
Liquidity and Capital Resources
Overview
As of June 30, 2016, we had total cash of $75 million, including $72 million of restricted cash. The majority of our restricted cash balance relates to escrowed cash from our sales of our VOIs.
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating expenses and other expenditures, including payroll and related benefits, legal costs, operating costs associated with the operation of our resorts and sales centers, interest and scheduled principal payments on our outstanding indebtedness and capital expenditures for renovations and maintenance at our offices and sales centers. Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities, purchase commitments and costs associated with potential acquisitions and development projects.
We finance our business activities primarily with existing cash, cash generated from our operations and through securitizations of our timeshare financing receivables. We believe that this cash will be adequate to meet anticipated requirements for operating expenses and other expenditures, including payroll and related benefits, legal costs and capital expenditures for the foreseeable future. The objectives of our cash management policy are to maintain the availability of liquidity, minimize operational costs, make debt payments and fund future acquisitions and development projects. Further, we have an investment policy that is focused on the preservation of capital and maximizing the return on new and existing investments.
Historically, any net cash generated by our business has been transferred to Hilton, where it has been centrally managed. Transfers of cash to and from Hilton have been reflected as a component of Total Parent deficit in our consolidated balance sheets and Net transfers to Parent in our consolidated statements of cash flows. Until the spin-off is completed, we will continue to be part of Hiltons centralized treasury management function.
We expect to complete one or more financing transactions on or prior to the completion of the spin-off. See Description of Certain Indebtedness.
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Sources and Uses of Our Cash
The following table summarizes our net cash flows and key metrics related to our liquidity:
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
||||||||||||||||||||||||||
($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Net cash provided by (used in): |
||||||||||||||||||||||||||||
Operating activities |
$ | 131 | $ | 213 | $ | 196 | $ | (82 | ) | (38.5 | )% | $ | 17 | 8.7 | % | |||||||||||||
Investing activities |
(18 | ) | (11 | ) | (17 | ) | 7 | 63.6 | 6 | (35.3 | ) | |||||||||||||||||
Financing activities |
(111 | ) | (202 | ) | (178 | ) | 91 | (45.0 | ) | (24 | ) | 13.5 |
Operating Activities
Cash flow from operating activities is primarily generated from (1) sales and financing of VOIs and (2) net cash generated from managing our resorts and the Club and providing related ancillary services. Outflows primarily include spending for the acquisition of inventory, development of new phases of existing resorts and funding our working capital needs. Our cash flows from operations generally vary due to the following factors related to the sale of our VOIs: timing of the closing and release of any related funds from escrow; the degree to which our owners finance their purchase and our owners repayment of timeshare financing receivables; the timing of management and sales and marketing services provided; and cash outlays for VOI inventory acquisition and development. Additionally, cash flow from operations will also vary depending upon our sales mix of VOIs; we generally receive more cash from the sale of an owned VOI as compared to that from a fee-for-service sale.
As a measure of our capital efficiency, we compare the cash outflow from our VOI inventory spending to the cost of VOI sales. Given the level of VOI inventory on hand, as well as the capital efficiency resulting from our capital-efficient transactions, our spending for VOI inventory remained below the amount of VOI inventory costs for each of the years ended December 31, 2015, 2014 and 2013 and for the six months ended June 30, 2015. The following is a summary of our VOI inventory spending less cost of VOI sales:
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
VOI inventory spending |
$ | (32 | ) | $ | (31 | ) | $ | (93 | ) | $ | (98 | ) | $ | (100 | ) | |||||
Cost of VOI sales |
46 | 67 | 114 | 119 | 122 | |||||||||||||||
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|
|
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VOI inventory spending less than cost of VOI sales |
$ | 14 | $ | 36 | $ | 21 | $ | 21 | $ | 22 | ||||||||||
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The $56 million increase in net cash provided by operating activities during the six months ended June 30, 2016 compared to the six months ended June 30, 2015, was primarily a result of improved operating results in both segments, a release of $34 million of restricted cash associated with the completion of a resort phase and by decreased uses of cash for other working capital requirements.
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The $82 million decrease in net cash provided by operating activities during the year ended December 31, 2015 compared to the year ended December 31, 2014 was primarily as a result of the shift in product mix to more fee-for-service sales and less sales of owned VOIs. Additionally, there was a $27 million increase in net issuances of timeshare financing receivables primarily due to a decrease in collections, and a $21 million increase in escrow deposits, offset by improved operating results in each of our business segments.
The $17 million increase in net cash provided by operating activities during the year ended December 31, 2014, compared to the year ended December 31, 2013 was attributable to improved operating results in each of our business segments, offset by a $23 million increase in net issuances timeshare financing receivables.
Investing Activities
Our net cash used in investing activities was as follows:
Six Months Ended June 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Capital expenditures for property and equipment |
$ | (14 | ) | $ | (8 | ) | $ | (6 | ) | 75.0 | % | |||||
Software capitalization costs |
(3 | ) | (2 | ) | (1 | ) | 50.0 | |||||||||
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Net cash used in investing activities |
$ | (17 | ) | $ | (10 | ) | $ | (7 | ) | 70.0 | ||||||
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|
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Capital expenditures for property and equipment |
$ | (12 | ) | $ | (12 | ) | $ | (9 | ) | $ | | | % | $ | (3 | ) | 33.3 | % | ||||||||||
Proceeds from asset dispositions |
| 6 | | (6 | ) | NM | (1) | 6 | NM | (1) | ||||||||||||||||||
Software capitalization costs |
(6 | ) | (5 | ) | (8 | ) | (1 | ) | 20.0 | 3 | (37.5 | ) | ||||||||||||||||
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Net cash used in investing activities |
$ | (18 | ) | $ | (11 | ) | $ | (17 | ) | $ | 7 | 63.6 | $ | (6 | ) | (35.3 | ) | |||||||||||
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(1) | Fluctuation in terms of percentage not meaningful. |
Our capital expenditures include spending related to technology and buildings and leasehold improvements used to support sales and marketing locations, resort operations and corporate activities. We believe the maintenance and renovations of our existing assets are necessary to stay competitive in the markets in which we operate.
Financing Activities
Our net cash used in financing activities was as follows:
Six Months Ended June 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Repayment of non-recourse debt |
$ | (58 | ) | $ | (68 | ) | $ | 10 | (14.7 | )% | ||||||
Change in restricted cash |
| 4 | (4 | ) | (100.0 | ) | ||||||||||
Allocated Parent debt activity |
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|
|
(36
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)
|
36 | NM | (1) | |||||||
Net transfers from (to) Parent |
|
(15
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)
|
77 |
|
(92
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)
|
(119.5 | ) | |||||||
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|
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Net cash used in financing activities |
$ | (73 | ) | $ | (23 | ) | $ | (50 | ) | 217.4 | ||||||
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(1) | Fluctuation in terms of percentage change is not meaningful. |
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Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Issuance of non-recourse debt |
$ | | $ | 350 | $ | 950 | $ | (350 | ) | (100.0 | )% | $ | (600 | ) | (63.2 | )% | ||||||||||||
Repayment of non-recourse debt |
(125 | ) | (391 | ) | (278 | ) | 266 | (68.0 | ) | (113 | ) | 40.6 | ||||||||||||||||
Debt issuance costs |
| (6 | ) | (6 | ) | 6 | (100.0 | ) | | | ||||||||||||||||||
Change in restricted cash |
8 | (4 | ) | (20 | ) | 12 | NM | (1) | 16 | (80.0 | ) | |||||||||||||||||
Allocated Parent debt activity |
(87 | ) | (112 | ) | (667 | ) | 25 | (22.3 | ) | 555 | (83.2 | ) | ||||||||||||||||
Net transfers from (to) Parent |
95 | (39 | ) | (157 | ) | 134 | NM | (1) | 118 | (75.2 | ) | |||||||||||||||||
Distribution to Parent |
(2 | ) | | | (2 | ) | NM | (1) | | NM | (1) | |||||||||||||||||
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Net cash used in financing activities |
$ | (111 | ) | $ | (202 | ) | $ | (178 | ) | $ | 91 | (45.0 | ) | $ | (24 | ) | 13.5 | |||||||||||
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(1) | Fluctuation in terms of percentage change is not meaningful. |
The $50 million increase in net cash used in financing activities for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily attributable to higher net transfers to Parent, partially offset by a decrease in allocated Parent debt activity for the voluntary prepayment of our Term Loan.
The change in net cash used in financing activities for the years ended December 31, 2015, 2014 and 2013 was primarily related to allocated Parent debt activity, net transfers to (from) Parent and the issuance and repayment of our non-recourse debt. In 2013, we entered into the Timeshare Facility under which we had total borrowings of $700 million. We also issued $250 million in Securitized Debt and used the proceeds to pay down the outstanding borrowings of the Timeshare Facility. In 2014, we issued $350 million of Securitized Debt and a majority of the proceeds were used to pay down the Timeshare Facility borrowings. The principal payments received from customers on our securitized timeshare financing receivables are used to pay down our Securitized Debt in the month following receipt.
Allocated Parent Debt and Non-recourse Debt
The Allocated Parent debt in our consolidated balance sheets represents Hilton debt, net of related deferred loan costs, allocated to our stand-alone financial statements as discussed in Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere in this information statement. See Note 11: Related Party Transactions in our unaudited condensed consolidated financial statements and Note 16: Related Party Transactions in our audited consolidated financial statements included elsewhere in this information statement for detail on net Parent transfers.
As of June 30, 2016 and December 31, 2015, our total indebtedness, net of deferred financing costs, was approximately $1,080 million and $1,136 million, respectively, including $445 million and $502 million, respectively, of non-recourse debt. See Note 8: Allocated Parent Debt and Non-recourse Debt in our unaudited condensed consolidated financial statements included elsewhere in this information statement for further discussion on our total indebtedness and debt repayments.
The obligations of the allocated debt are unconditionally and irrevocably guaranteed by us, excluding our subsidiaries that are prohibited from providing guarantees as a result of the agreements governing our Timeshare Facility and/or our Securitized Debt and our foreign subsidiaries.
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Contractual Obligations
The following table summarizes our significant contractual obligations as of December 31, 2015:
Payments Due by Period | ||||||||||||||||||||
($ in millions) | Total |
Less Than 1
Year |
1-3 Years | 3-5 Years |
More Than 5
Years |
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Allocated Parent debt (1) |
$ | 778 | $ | 27 | $ | 52 | $ | 523 | $ | 176 | ||||||||||
Non-recourse debt (1) |
541 | 123 | 277 | 75 | 66 | |||||||||||||||
Operating leases |
34 | 11 | 11 | 8 | 4 | |||||||||||||||
Purchase commitments |
206 | 16 | 8 | 182 | | |||||||||||||||
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Total contractual obligations |
$ | 1,559 | $ | 177 | $ | 348 | $ | 788 | $ | 246 | ||||||||||
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(1) | Includes principal, as well as estimated interest payments. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 0.36 percent as of December 31, 2015. |
As of June 30, 2016, our contractual obligations have not materially changed from the fiscal year ended December 31, 2015.
The following table summarizes our significant contractual obligations as of December 31, 2015, after giving effect to the pro forma financing transactions described in Unaudited Pro Forma Consolidated Financial Statements and the accompanying notes:
Payments Due by Period | ||||||||||||||||||||
Total |
Less Than 1
Year |
1-3 Years | 3-5 Years |
More Than 5
Years |
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(in millions) | ||||||||||||||||||||
Debt (1) |
$ | $ | $ | $ | $ | |||||||||||||||
Operating leases |
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Purchase commitments |
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Total contractual obligations |
$ | $ | $ | $ | $ | |||||||||||||||
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(1) | Includes principal, as well as estimated interest payments. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 0.36 percent as of December 31, 2015. |
Off-Balance Sheet Arrangements
Our off-balance sheet arrangements as of December 31, 2015, consisted of $206 million of certain commitments with developers whereby we have committed to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. The ultimate amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances, see Note 18: Commitments and Contingencies in our audited consolidated financial statements included elsewhere in this information statement for additional information.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated 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 information statement, the following accounting policies are critical because they involve a higher degree of judgment, and the estimates required to be made are based on assumptions that are inherently uncertain. As a result, these accounting policies could materially affect our financial position, results of operations and related
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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 effect on our financial position or results of operations.
Revenue Recognition
Our revenue recognition associated with sales of VOIs requires significant estimates. Revenue is generally recognized after the period of cancellation with refund has expired, the buyer has demonstrated a sufficient level of initial and continuing investment, and the receivables are deemed collectible. We determine the portion of revenues to recognize for VOI sales using the percentage-of-completion method, which requires judgments and estimates, including the total estimated costs of the project. Changes in projections of the costs could lead to adjustments to the percentage-of-completion status of a project, which may result in differences in the timing and amount of revenues and profits recognized from the projects.
Inventory and Cost of Sales
We use the relative sales value method of costing our VOI sales and relieving inventory, which requires us to make estimates subject to significant uncertainty. The estimates include future sales prices and volume, provisions for loan losses on financed sales of VOIs, sales incentives, projected future cost and volume of recoveries, including inventory reacquired from our upgrade programs. We aggregate these factors to calculate total net cost of sales of VOIs as a percentage of net sales of VOIs and apply this ratio to allocate the cost of sales to recognized sales of VOIs. The effect of changes in these estimates over the life of a project are recognized on a retrospective basis through corresponding adjustments to inventory and cost of sales in the period in which the estimates are revised.
Due to the application of the retrospective adjustments, small changes in any of our estimates, including changes in our development and sales strategies could have a material effect 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 fair value less cost to sell. In addition, we continually assess our VOI inventory and, if necessary, impose pricing adjustments to modify sales pace.
Allowance for Loan Losses
The allowance for loan losses is related to the receivables generated by our financing of VOI sales, which are secured by the underlying timeshare properties. We determine our timeshare financing receivables 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 financing receivables. 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.
Changes in the estimates used in developing our default rates could result in a material change to our allowance. A 0.5 percentage point increase to our default rates used in the allowance calculation would increase our allowance for loan losses by approximately $7 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
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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 benefit (expense), 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 affect our consolidated financial statements.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in interest rates, currency exchange rates and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through pricing policies that may take into account currency exchange rates, and historically through Hilton entering into derivative arrangements on our behalf. We will continue to evaluate our exposure to fluctuations in interest rates and foreign currency rates and how to manage such exposure in the future when we are separated from Hilton.
Interest Rate Risk
We are exposed to interest rate risk on our variable-rate debt on our Timeshare Facility, which is without recourse to us. The interest rate is based on one-month LIBOR and we are most vulnerable to changes in this rate.
We intend to securitize timeshare financing receivables in the asset-backed financing market on a regular basis. We expect to secure fixed rate funding to match our fixed rate timeshare financing receivables. However, if we have floating rate debt in the future, we will monitor the interest rate risk and evaluate opportunities to mitigate such risk through the use of derivative instruments.
To the extent we assume variable rate indebtedness in the future, any increase in interest rates beyond amounts covered under any corresponding derivative financial instruments, particularly if sustained, could have an adverse effect on our net income, cash flows and financial position. We cannot assure that any hedging transactions we enter into will adequately mitigate the adverse effects of interest rate increases or that counterparties in those transactions will honor their obligations.
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The following table sets forth the contractual maturities, average interest rates and the total fair values as of December 31, 2015 for our financial instruments that are materially affected by interest rate risk:
Maturities by Period | ||||||||||||||||||||||||||||||||||||
($ in millions) |
Average
Interest Rate |
2016 | 2017 | 2018 | 2019 | 2020 |
There-
after |
Face
Value |
Fair
Value |
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Assets: |
||||||||||||||||||||||||||||||||||||
Securitized timeshare financing receivables |
12.10 | % | $ | 58 | $ | 59 | $ | 59 | $ | 55 | $ | 50 | $ | 86 | $ | 367 | $ | 367 | ||||||||||||||||||
Unsecuritized timeshare financing receivables |
11.40 | 83 | 70 | 72 | 74 | 75 | 341 | 715 | 713 | |||||||||||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||||||
Allocated Parent debt |
4.06 | | | | | 474 | 168 | 642 | 649 | |||||||||||||||||||||||||||
Non-recourse debt |
1.76 | 111 | 215 | 48 | 38 | 29 | 65 | 506 | 506 |
Foreign Currency Exchange Rate Risk
Though the majority of our operations are conducted in United States dollar (U.S. dollar), we are exposed to earnings and cash flow volatility associated with changes in foreign currency exchange rates. Our principal exposure results from our timeshare financing receivables denominated in Japanese yen, the value of which could change materially in reference to our reporting currency, the U.S. dollar. A 10 percent increase in the foreign exchange rate of Japanese yen to U.S. dollar would increase our gross timeshare financing receivables by less than $1 million.
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The timeshare industry, also known as the vacation ownership industry, is one of the fastest growing segments of the global travel and tourism sector. Typically, by purchasing a VOI, the purchaser acquires either a fee simple interest in a property equivalent to annual usage rights at the owners home resort, or an annual allotment of points that can be redeemed in exchange for stays at properties included in the timeshare companys multi-resort vacation network or for other vacation options available through the companys exchange program. According to a 2015 survey commissioned by ARDA International Foundation (AIF), 69% of resorts responding had some form of points-based product, which was also the most common product type at resorts in active sales. Vacation ownership products generally offer alternatives that allow vacationers to choose the product that best suits their lifestyle and travel preferences, including location, size of accommodation and time of year. Relative to hotel rooms, vacation ownership units typically offer more spacious floor plans and residential features, such as living rooms, fully equipped kitchens and dining areas. Owners of VOIs also benefit from a cost structure that does not fluctuate on a daily basis. Compared to owning a vacation home in its entirety, key advantages of vacation ownership products typically include a lower up-front acquisition cost, lower annual expenses, resort-style features and services, and often an established infrastructure to exchange usage rights for stays across multiple locations.
According to the Owners ReportShared Vacation Ownership, 2014 edition, prepared by HSR Associated for AIF, approximately nine million families (8% of U.S. households) own a vacation ownership product. The typical timeshare customer places value on long-term vacation savings, resort location and certainty of quality accommodations. Owners of VOIs enjoy having a home away from home and spending time with family, while having the benefits of resort-like amenities and services without the additional costs and inconvenience associated with the ownership of a second home. Timeshare customers also value the flexibility provided by todays vacation exchange programs and remain owners because of the options available through these programs. Average annual timeshare resort occupancy rose to approximately 80% in 2015, compared to approximately 66% occupancy at U.S. hotels, which we believe is attributable to owners traveling more and being less likely to cancel their travel plans. The majority of VOI owners are above the age of 50, with 78% being married or in a committed relationship and 34% having children living at home. The median household income of owners is $89,500, with 90% owning their own home and 67% being college graduates. However, todays VOI owners are increasingly younger and more diverse. New owners are nearly 12 years younger than all VOI owners as a group, with 39% between the ages of 35 and 49 and 30% under the age of 35, and 42% of new owners are African American or Hispanic. Todays VOI owners are also savvy consumers, with 75% having some form of interaction with vacation ownership before buying and 35% attending multiple sales presentations.
Timeshare Sales Since 1974
Source: AIF, State of the Vacation Timeshare IndustryShared Vacation Ownership, 2016 edition.
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Vacation ownership sales in the United States increased by over 800% between 1984 and 2015. This growth is mostly due to the expansion of established timeshare developers as well as the entrance into this market of well-known lodging and entertainment companies, such as Hilton, Four Seasons Hotels & Resorts, Hyatt Hotels, Marriott International, Starwood Hotels & Resorts, The Walt Disney Company and Wyndham Worldwide, which have stabilized the industry. The industrys growth can also be attributed to the evolution of VOIs from a fixed- or floating-week product, which provides annual usage rights at the same property every year, to membership in multi-resort vacation networks, which offer a more flexible vacation experience.
The U.S. timeshare industry experienced a contraction in 2008 and 2009 as a result of the overall economic recession, during which time developers generally managed their businesses at lower tour flow and sales levels by removing less efficient sales channels, closing underperforming sales centers, cutting inventory spending and curtailing development activity, thus also reducing their need for liquidity. However, increasing demand for timeshare ownership and several macroeconomic trends suggest the industry remains well-positioned for strong future growth. While the volume of timeshare sales reached $10.6 billion in 2007, sales were only $8.6 billion in 2015. Although the sales volume has been on a strong growth trajectory since 2009, sales remain below peak levels. In addition, there is also growing interest in expansion to markets outside of Florida, Hawaii, Las Vegas, Orlando and Arizona, where timeshare resorts have traditionally been concentrated. Further areas of expansion include international markets such as Asia and Latin America, as well as urban areas that are already popular vacation destinations.
The evolution of the timeshare product and consumer demands, together with the expansion of established developers and entry of large lodging and entertainment companies, have created high barriers to entry. Barriers to entry include acquisition and development capital requirements, size of vacation networks, sales and marketing infrastructure and costs, and access to securitization, equity and debt capital markets. Many companies in the industry also enjoy a competitive advantage based on their size and scale. In addition, the industry, which remains somewhat fragmented, is also currently experiencing consolidation activity, which has been an attractive strategy to acquire new owners that serve as a source of additional sales, generate more predictable property management revenues, take over existing loan portfolios and drive economies of scale.
Companies in the industry are typically engaged in resort development and inventory sourcing, marketing and sales, financing activities and resort operations. Timeshare companies are increasingly looking to source inventory through transactions that minimize the capital investment traditionally required to increase their inventory pipeline for future sales. Timeshare companies have also sought to minimize product cost by sourcing inventory through buyback programs in which inventory is repurchased in the secondary market, or by recovering inventory as a result of owner maintenance fee or loan defaults. While buyback programs and recoveries result in higher margins, overdependence on these methods of sourcing can front-load revenues at the expense of future growth and have a negative effect on net owner growth.
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HGV is a rapidly growing timeshare company that markets and sells VOIs, manages resorts in top leisure and urban destinations, and operates a points-based vacation club. Our 46 resorts, representing 7,576 units, are located in iconic vacation destinations such as the Hawaiian Islands, New York City, Orlando and Las Vegas, and feature spacious, condominium-style accommodations with superior amenities and quality service. Through the Club, our approximately 260,000 members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 12 industry-leading brands across more than 4,600 hotels, as well as numerous experiential vacation options, such as cruises and guided tours.
Our compelling VOI product allows customers to advance purchase a lifetime of vacations. Because our VOI owners generally purchase only the vacation time they intend to use each year, they are able to efficiently split the full cost of owning and maintaining a vacation residence with other owners. Our customers also benefit from the high-quality amenities and service at our Hilton-branded resorts. Furthermore, our points-based platform offers members tremendous flexibility, enabling us to more effectively adapt to their changing vacation needs over time. Building on the strength of that platform, we continuously seek new ways to add value to our Club membership, including enhanced product offerings, greater geographic distribution, broader exchange networks and further technological innovation, all of which drive better, more personalized vacation experiences and guest satisfaction.
As innovators in the timeshare business, we have successfully transformed from a highly capital-intensive business to a capital-efficient model by pursuing an inventory strategy focused on fee-for-service and just-in-time inventory acquisition.
Inventory Sources as a Percentage of 2015 Contract Sales
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Fee-for-service refers to VOI inventory we sell and manage on behalf of third-party developers.
Just-in-time refers to VOI inventory primarily sourced in transactions that are designed to closely correlate the timing of the acquisition with our sale of that inventory to purchasers.
Developed refers to VOI inventory sourced from projects developed by HGV. |
Fee-for-service sales require virtually no capital investment on our part and provide us the flexibility to invest capital selectively. In 2015, our fee-for-service transactions represented 58% of contract sales, up from 0% in 2009. Based on our 2015 sales pace, we have access to more than six years of future inventory, with capital efficient arrangements representing approximately 85% of that supply. This visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering new markets.
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The strength of our platform, coupled with what we believe is the industrys most capital-efficient inventory sourcing model, has led to:
| Robust sales growth over the course of the cycle with contract sales increasing at a CAGR of 7.9% from 2007 to 2015, outperforming the industry, which experienced a decline of 2.6% over the same period; |
| Strong net owner growth with Club membership increasing at a 9% CAGR over the last four years to total approximately 260,000 members as of June 30, 2016; |
| Approximately 60% of our contract sales in the last five years coming from new owners; |
| Dramatically reduced capital requirements with inventory investment decreasing from an annual average of $405 million during 2007 and 2008 to $96 million during 2014 and 2015; |
| Significant cash flow from operations of over $1 billion from 2011 to 2015; |
| Strong segment Adjusted EBITDA margin of 35.5% in 2015, up 510 basis points since 2011; |
| Meaningfully improved return on invested capital from 2011 to 2015 by 28.8 percentage points to 41.3% in 2015; and |
| Total revenues of $1.5 billion, net income of $174 million and Adjusted EBITDA of $373 million for the year ended December 31, 2015, representing impressive growth of 46%, 139% and 75%, respectively since 2011. |
After the spin-off, we expect to further capitalize on our competitive advantages as we fully activate our business, benefiting from a dedicated management team and independent capital resources. Over time, we plan to target a 50/50 mix between fee-for-service and owned sales as we believe this mix will optimize earnings growth, free cash flow production and returns on invested capital. We also will maintain an exclusive, long-term relationship with Hilton, through which our Club members will continue to have access to Hiltons award-winning guest loyalty program and global portfolio of hotels, and we will continue to benefit from the strength and scale of Hiltons robust commercial services platform. We expect to collaborate with Hilton and other third-parties on timeshare development opportunities in new and existing locations and across chain scale segments.
See SummarySummary Historical and Unaudited Pro Forma Consolidated Financial Data for our definitions of contract sales, Adjusted EBITDA and return on invested capital and for reconciliations to measures calculated in accordance with GAAP.
Our Competitive Strengths
We believe the following competitive strengths position us as a leader and innovator in the timeshare industry.
| Exceptional Vacation Offerings. Our upscale resort collection features spacious, studio to three-bedroom condominium-style accommodations in high-demand destinations such as New York City, Orlando, the Hawaiian Islands and Las Vegas. We offer superior amenities such as full kitchens, in-unit washers and dryers, spas and kids clubs along with beach-front locations and the quality service that is synonymous with the Hilton name. We keep our properties modern through diligent use of reserves funded by HOAs, which are deployed to update our properties on average every five years, resulting in consistent high property and service ratings. In addition, purchasers of our VOIs are enrolled in our flexible, points-based Hilton Grand Vacations Club exchange program, giving each member an annual allotment of Club points representing their owned interest and offering an attractive value proposition. Members have the ability to use their points for a variety of vacation options, including a priority reservation period at their home resort where their VOI is deeded, stays at any Hilton Grand Vacations resort, conversion to Hilton HHonors points, access to RCIs vacation exchange network and exchanges for experiential travel alternatives. |
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| Large and Growing Loyal Member Base. We have a loyal base of approximately 260,000 members, which has more than doubled since 2007, growing at a CAGR of nearly 9%. Yet, we continue to see tremendous growth opportunities across regions and demographics. Approximately 74% of our members were located in the United States, 20% in Japan and 6% in other international locations as of June 30, 2016. Based on information available to us, Millennials and Generation Xers made up nearly half of our first time buyers in the U.S. in 2015 and represent a growing and attractive demographic. Approximately 60% of our contract sales in the last five years were to new members, which benefits future sales given that for every dollar of initial VOI purchases by new members, we expect those members will on average purchase approximately another dollar of additional VOI product over the lifetime of their membership. We continuously strive to enhance Club value and our approximately 7,500 employees are committed to providing our members with exceptional service and cultivating member loyalty. |
| High-quality Customers . We consider our customer base to be among the highest quality in the industry, with our U.S. members having an average annual income level of greater than $100,000, meaningfully above the national average, a high percentage of home ownership and a frequent traveler profile. Additionally, our customers had a weighted average FICO score of 745 for new loan originations to U.S. and Canadian borrowers over the past three years, making them attractive purchasers. Our members creditworthiness is further demonstrated by low levels of HOA maintenance fee delinquencies, which averaged only 2.5% since 2011 compared to an annual range of 8% to 12% for the industry from 2011 to 2015. Additionally, our consumer loan portfolio has experienced low default rates of approximately 3% over the last several years. |
| Long-term Recurring Revenue Streams. Our platform drives highly predictable, long-term recurring revenue streams through annual Club membership dues and exchange fees and from our management agreements with HOAs. Further, unlike traditional revenue-based hotel-management fees, our management fees are generally unaffected by changes in rental rate or occupancy, making them less susceptible to market downturns. Since our inception in 1992, no management agreement at any of our developed or fee-for-service properties has been terminated or lapsed. As a result of these recurring revenue streams, our resort operations and club management segment Adjusted EBITDA represented 43% of our total Adjusted EBITDA in 2015. |
| Highly Effective Marketing and Sales Model. Our data-driven, affinity-based marketing approach combined with our scaled and disciplined sales process has delivered consistent sales and new member growth over the past five years. By conducting our marketing and sales activities in large markets with high levels of inbound tourism, we are able to generate year-round tour flow, making it more cost effective to reach potential new members and therefore increasing margins. The efficiency of our sales and marketing is demonstrated by our real estate margin percentage of 27.5% in 2015. In addition, our targeted direct marketing enables us to reach customers who already have an affinity with Hilton and meet our high financial standards. As a result of our marketing expertise and our relationship with Hilton, our tour flow increased at a CAGR of 10.4% between 2007 and 2015. Importantly, we have the ability to scale our model by cross-marketing and cross-selling our resorts as well as employing effective hiring practices, proprietary training and advanced technology platforms. In Japan, for example, we have successfully sold our products in Hawaii using our off-site sales model, resulting in a Japanese member base of approximately 52,500 as of June 30, 2016. Our track record of contract sales growth even during the 2008 to 2010 market downturn demonstrates the effectiveness of our distribution model and sales execution. |
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Capital-efficient Business Model. We are an industry leader in capital-efficient VOI sales, which represented 78% of our contract sales in 2015. Of these sales, fee-for-service represented 58% and just-in-time represented 20%. Since our first fee-for-service project in 2010, we have entered into 10 fee-for-service deals, which have contributed approximately 160,000 VOIs to our total supply. Our capital requirements have reduced dramatically as a result, producing strong cash flow and higher returns on invested capital. As we transitioned from capital-intensive real estate development to a more capital- |
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efficient business model, our inventory investment decreased from an annual average of $405 million during 2007 and 2008 to $96 million during 2014 and 2015. In addition, we generated cash flow from operations of over $1 billion between 2011 and 2015. Further, our relationships with some of the largest and most sophisticated real estate investors in the world, including Blackstone, Goldman Sachs, Centerbridge and Strand Capital Group, have given us access to a wide range of capital partners and the credibility to execute deals in diverse markets. As a result of our efforts, all inventory sources are projected to supply us with access to more than six years of future inventory based on our 2015 sales pace, with capital efficient arrangements representing approximately 85% of that supply. |
| Exclusive, Long-term Relationship with Hilton. Our relationship with Hilton connects us with a portfolio of globally recognized, market-leading hospitality brands and a superior exchange network and gives us exclusive access to a large and growing base of loyal customers and a powerful network of commercial services. With a nearly 100-year pedigree in the hospitality industry, Hilton is one of the largest and fastest growing hospitality companies in the world, with over 4,600 properties in 104 countries and territories as of June 30, 2016. Our long-term license agreement with Hilton will give us the exclusive right to market, sell and rent VOI inventory and manage resorts under the Hilton Grand Vacations brand. In 2015, 93% of Club points redeemed were used within the Hilton system by members to stay at the home resort where their VOI is deeded, exchange within our Club or convert their Club points to HHonors points for hotel stays. We believe this loyalty to the Hilton system demonstrates high member satisfaction, attracts new Club members and rental guests, and lowers our customer acquisition costs. Furthermore, our products should command a higher price point given the strength of Hiltons brand portfolio and reputation for exceptional service and quality. We believe our relationship with Hilton and access to its formidable platform are significant competitive advantages that position us for strong future growth. |
| Experienced and Execution-focused Management Team. Our experienced management team is headed by Mark D. Wang, our President and Chief Executive Officer, who has led Hiltons global timeshare operations since 2008, including our successful transition to a capital-efficient business model. Mr. Wang has 35 years of experience in the timeshare industry, and our executive officers have an average of years in the timeshare and hospitality industries. With this experience, our management team has created a lean and nimble organizational structure, which allows us to respond quickly and effectively to opportunities and dynamic market conditions. By fostering a culture with a strong focus on execution and operational effectiveness, management empowers our employees to respond to our members and guests needs and provide each of them with a unique and memorable experience. |
Our Business and Growth Strategies
Our goal is to create long-term value by delivering a lifetime of exceptional vacation experiences to our loyal and growing membership base and leveraging our capital-efficient business model to drive strong returns on invested capital, free cash flow and bottom-line growth. The following are key elements of our strategy to accomplish this goal:
| Grow Vacation Sales. We intend to continue growing contract sales by pursuing a balanced mix of sales to new and existing members. We expect to drive growth by enhancing the value of Club membership and expanding our highly effective sales distribution model within and outside of our existing markets. As part of this strategy, we will continue to pursue opportunities in large urban and resort markets with strong inherent demand such as Washington, D.C. and Maui, Hawaii. Over time, we intend to continue expanding our marketing and sales operations in Japan and explore opportunities for in-market product offerings to those customers. We already have experienced strong growth in Japan, with an increase of 130% in contract sales from 2007 to 2015, and believe we can leverage our success to further expand in Japan and across select Asian markets. We also will pursue growth opportunities by exploring additional development opportunities within the Hilton portfolio and expanding our marketing partnerships. |
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| Grow Our Member Base. We have experienced 23 consecutive years of net owner growth. As part of our strategy to grow our member base, we will continue to use our relationship with Hilton to target new, brand-loyal members. The Hilton HHonors loyalty program represents a cost-effective source of member growth. We also will leverage new and existing marketing relationships and continue our successful local marketing programs. Our focus on enhancing Club value also will enable us to acquire new members by expanding the demographics of our member base. Our increased marketing efforts have resulted in member demographics shifting to younger generations, with an increase in Millennial and Generation X first time buyers in the U.S. to nearly half of our first time buyers in 2015, both of which represent a large and attractive future member base. Net owner growth supports strong future sales growth, as a significant portion of our member base buys additional VOI products, which expands our predictable, recurring fee-based resort and Club management business. |
| Continue to Enhance Member Experiences. We are continuously seeking new ways to add value to our Club membership, including expanding our vacation options and destinations, in-market and travel-related discounts, travel exchange partners and providing access to a growing network of new Hilton-branded hotels and resorts. We also intend to expand the technology options available to members, including our new website, mobile application and digital keys, which allow members and guests to skip the front desk and access their room via smartphone. Our employees also are an important part of the vacation experiences of our members and will continue to enhance these experiences by providing our signature high-quality customer service. We believe the dedicated service of our employees, vacation experiences and Club value we offer our members foster loyalty and generate significant repeat business through our most cost-effective marketing channel. |
| Optimize Our Sales Mix of Capital-efficient Inventory. We believe that optimizing our mix of capital-efficient and owned inventory sales will drive premium top line growth, cash flow generation and returns on invested capital. Over time, we will target a 50/50 sales mix of owned and fee-for-service inventory. We also intend to take advantage of our robust deal pipeline fueled by existing and new relationships with third-party developers for a full range of fee-for-service and just-in-time projects. We will maintain a disciplined approach to capital allocation, while strategically pursuing acquisitions and development of owned inventory in key markets. |
| Pursue Opportunistic Business Ventures. Despite recent consolidation, the timeshare industry remains fragmented. We will continue to evaluate market opportunities and consider strategic acquisitions that meet our high product and service standards. This could include corporate and property acquisitions to expand our inventory options and distribution capabilities. We also intend to use our relationship with Hilton and third-party developers as well as our innovative platform and industry experience to create new products and additional efficiencies. For example, we intend to continue collaborating with Hilton on timeshare development opportunities at new and existing hotel properties and explore growth opportunities along the Hilton brand spectrum. |
Capital Allocation and Financial Policy
We plan to: pursue a disciplined capital allocation policy; invest capital selectively to source high-quality inventory in key, strategic markets; and finance the development and purchase of new VOI inventory through modest leverage and securitization of our timeshare financing receivables. We expect to target an investment grade credit rating and return capital to stockholders through dividends and stock buybacks over time.
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Our History
Our history dates to 1992 with Hiltons joint venture with Grand Vacations. In 1996, Hilton Grand Vacations became a wholly owned subsidiary of Hilton Parent. During the ensuing years we expanded our operations and established a track record of innovation in our industry. Unlike the broader timeshare industry, which experienced a contraction in 2008 and 2009 as a result of the overall economic recession, we were able to grow contract sales during the industry downturn and have continued to deliver contract sales growth in each period since, driven by our continued focus on marketing and sales activities, our strong development margins, large-market distribution model, synergies with Hilton, commitment to new owner transactions and lean organizational structure. Key events in our history are illustrated in the following timeline:
Our Businesses
We operate our business across two segments: (1) real estate sales and financing; and (2) resort operations and club management. For more information regarding our segments, see Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 17: Business Segments in our audited consolidated financial statements included elsewhere in this information statement.
Our real estate sales and financing segment generates revenue from:
| VOI Sales We sell HGV-owned inventory and through our fee-for-service agreements, we sell VOIs on behalf of third-party developers using the Hilton Grand Vacations brand in exchange for sales, marketing and brand fees. Under these agreements, we earn commission fees based on a percentage of total interval sales. See Inventory and Development Activities and Marketing and Sales Activities below for further information. |
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| Financing We provide consumer financing, which includes interest income generated from the origination of consumer loans to members to finance their purchase of VOIs owned by us and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs. See Financing Activities below for information regarding our consumer financing activities. |
Our resort operations and club management segment generates revenue from:
| Resort Management Our resort management services primarily consist of operating properties under management agreements for the benefit of HOAs of VOI owners at both our resorts and those owned by third parties. Our management agreements with HOAs provide for a cost-plus management fee, which means we generally earn a fee equal to 10% to 15% of the costs to operate the applicable resort. We also earn revenue from retail and spa outlets at our timeshare properties. See Resort and Club Management Activities below for information regarding our resort management activities. |
| Club Management We manage the Hilton Grand Vacations Club and the Hilton Club, receiving activation fees, annual dues and transaction fees from member exchanges for other vacation products. |
| Rental of Available Inventory We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges through our Club programs. This allows us to utilize otherwise unoccupied inventory to generate additional revenues. We also earn fee revenue from the rental of inventory owned by third parties. See Resort and Club Management Activities below for further information. |
Our Products
Our primary products are fee-simple VOIs deeded in perpetuity, developed or acquired by us or by third parties. This ownership interest is an interest in real estate equivalent to annual usage rights, generally for one week, at the timeshare property where the VOI is purchased. 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. Most resorts feature studio to three-bedroom condominium-style accommodations and amenities such as full kitchens, in-unit washers and dryers, spas and kids clubs. Our timeshare properties are relatively concentrated in significant tourist markets, including Florida, Hawaii, Nevada, New York and South Carolina.
In addition, VOI purchasers are enrolled in our flexible, points-based Hilton Grand Vacations Club exchange program. This gives a member an annual allotment of Club points based on the value of the owned interest. Club points can be used for a priority reservation period at the home resort where a members VOI is deeded, and exchanged for a variety of vacation options, including stays at any Hilton Grand Vacations resort, conversion to Hilton HHonors points for stays at the more than 4,600 Hilton-branded hotels and resorts, reservations for experiential travel such as cruises and guided tours, and stays at approximately 4,300 resorts included in the RCI vacation exchange network. Our members also have the flexibility to choose when they will take advantage of their annual usage rights and have the option to split their time over the year. All members pay activation fees, annual dues and certain transaction fees depending on their exchange of Club points.
Inventory and Development Activities
We secure VOI inventory by developing or acquiring resorts in strategic markets, building additional phases at our existing resorts, re-acquiring inventory in the open market and sourcing inventory from third-party developers through fee-for-service and just-in-time transactions.
Our development activities involving the acquisition of real estate are followed by construction or renovation to create individual vacation ownership units. The development and construction of the units require a large upfront investment of capital and can take several years to complete in the case of a ground-up project. This investment cannot be recovered until the individual VOIs are sold to purchasers, and while we generally begin
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sales prior to the opening of a newly constructed timeshare project, selling all of the intervals of a timeshare development can take several years. Traditionally, timeshare operators have funded 100% of the investment necessary to acquire land and construct timeshare properties.
In 2010, we began sourcing VOIs through fee-for-service agreements with third-party developers. These agreements enable us to generate fees from the marketing and sale of Hilton-branded VOIs and Club memberships and from the management of the timeshare properties without requiring us to fund up-front acquisition and construction costs or incur unsold inventory maintenance costs. The capital investment we make in connection with these projects is typically limited to the cost of constructing our on-site sales centers. In just-in-time transactions, we acquire and sell inventory in transactions that are designed to closely correlate the timing of our acquisition of inventory with our sale of that inventory to purchasers. We refer to fee-for-service transactions and just-in-time sales as capital-efficient transactions. Over time, these capital-efficient transactions have evolved from sourcing inventory from distressed properties to sourcing from new construction projects. In 2015, capital-efficient transactions generated 78% of our contract sales, with 58% from fee-for-service transactions. Our fee-for-service sales generally improve returns on invested capital and liquidity, while sales of owned inventory typically result in a greater contribution to the profitability of our real estate sales and financing segment. To maximize both returns on invested capital and earnings growth, we plan to sell a balanced mix of fee-for-service and owned inventory.
Owners can generally offer their VOIs for resale on the secondary market, which can create pricing pressure on the sale of developer inventory. Given the structure of our products, owners who purchase VOIs on the secondary market will also become Club members and will be responsible for paying annual Club fees, annual maintenance fees, property taxes and any assessments that are levied by the relevant HOA. While we do not have the obligation to repurchase intervals previously sold, most of our VOIs provide us with a right of first refusal on secondary market sales. We monitor sales that occur in the secondary market and exercise our right of first refusal in certain cases.
Marketing and Sales Activities
Our marketing and sales activities are based on targeted direct marketing and a highly personalized sales approach. We use targeted direct marketing to reach potential members who are identified as having the financial ability to pay for our products and who have an affinity with Hilton and are frequent leisure travelers.
We sell our vacation ownership products under the Hilton Grand Vacations brand primarily through our distribution network of both in-market and off-site sales centers. Our products are currently marketed for sale throughout the United States and the Asia-Pacific region. We operate sales distribution centers in major markets and popular leisure destinations with year-round demand and a history of being a friendly environment for vacation ownership. Our eight sales distribution centers are located in Las Vegas, Myrtle Beach, New York, Orlando, Park City, Oahu, Waikoloa and Japan.
Our Hilton Grand Vacations sales tours are designed to provide potential members with an overview of our company and our products, as well as a customized presentation to explain how our products can meet their vacationing needs. Our sales centers use proprietary sales technology to deliver a highly transparent and customized sales approach. Consumers place a great deal of trust in the Hilton brand and we believe that preserving that trust is essential. We hire our sales associates using an assessment-based, candidate screening system, which is a proprietary tool we use to uphold our selection criteria. Once hired, we emphasize training, professionalism and product knowledge, and our sales associates receive significant product and sales training before interacting with potential members. Most U.S.-based sales associates are licensed real estate agents and a real estate broker is involved with each sales center. We manage our sales associates consistency of presentation and professionalism using a variety of sales tools and technology and through a post-presentation survey of our tour guests that measures many aspects of each guests interaction with us. We do not tolerate sales activities that are not consistent with our focus on treating members and guests with the highest degree of respect.
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Financing Activities
We originate loans for members purchasing our owned inventory who qualify according to our credit criteria. We generate interest income from the spread between the revenue generated on loans originated less our costs to fund and service those loans. We also earn fee revenue from servicing our own portfolio and the loans provided by third-party developers of our fee-for-service projects to purchasers of their VOIs.
We offer a wide array of financing options to members purchasing our VOIs. Our loans are collateralized by the underlying VOIs and are generally structured as ten-year, fully-amortizing loans that bear a fixed interest rate typically ranging from 9% to 18% per annum. In 2015, 64% of our sales were to customers who financed part of their purchase. The interest rate on our loans is determined by the amount of the down payment, the borrowers credit profile and the loan term. Prepayment is permitted without penalty.
As loan payments are made, the nature of these fully amortizing loans establishes an increasing level of owner financial commitment in their purchase which reduces the likelihood of default. When a member defaults, we ultimately return their VOI to inventory for resale, and that member no longer participates in our network.
We have a timeshare warehouse facility and periodically securitize timeshare financing receivables we originate in connection with the sale of VOIs to monetize receivables and achieve an efficient return on capital and manage our working capital needs.
Timeshare Financing Receivables Origination
In underwriting each loan, we obtain a credit application and review the application for completeness. We require a minimum down payment of 10% of the purchase price on all sales of VOIs. For U.S. and Canadian purchasers seeking financing, which represented 77% of the individuals we provided financing to over the last three years, we apply the credit evaluation score methodology developed by the Fair Isaac Corporation (FICO) to credit files compiled and maintained by Experian and Equifax. Higher credit scores equate to lower credit risk and lower credit scores equate to higher credit risk. Over the last three years, the weighted average FICO score for new loans to U.S. and Canadian borrowers at the time of origination was 745 (out of a maximum potential score of 850). For non-North American purchasers seeking financing, consisting principally of purchasers in Japan, we generally observe that these borrowers have experienced default rates comparable to U.S. and Canadian borrowers within the 725 to 774 FICO score band.
Our underwriting standards are influenced by the changing economic and financial market conditions. We have the ability to modify our down payment requirements and credit thresholds in the face of stronger or weaker market conditions. Our underwriting standards have resulted in a strong, well-seasoned consumer loan portfolio. As of June 30, 2016, our portfolio had a balance of approximately $1,093 million with over 53,000 loans and exhibited the following characteristics:
Weighted Average Original Length of Loan: 9.8 years
Weighted Average Remaining Length of Loan: 7.7 years
Delinquency (over 30 days past due not in default): 1.90%
Liquidity
We intend to finance our working capital needs in part by borrowing against timeshare financing receivables. In general, we will seek to use the majority of our financed VOI sales as collateral to borrow against the Timeshare Facility and subsequently transfer those loans into a term securitization after the loans have seasoned and an appropriately sized portfolio has been assembled. We target securitizations that range in size from $200 million to $400 million and we expect the timing of future securitizations will depend on our anticipated sales volume and capital needs. The strong performance of our outstanding loan securitizations
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demonstrates that loans originated by us are well regarded for their performance in the securitization market. In the future, we expect to regularly access the term securitization market, replenishing capacity on our Timeshare Facility in the process.
Loan Portfolio Servicing
We have a skilled, integrated consumer finance team. This team is responsible for payment processing and loan servicing, collections and default recovery and portfolio reporting and analytics. Accounts more than 30 days past due are deemed delinquent. We reserve for all loans based on our static pool method. A loan that is more than 120 days past due is reserved at 100% the following month and is delivered to the loss mitigation team that will make arrangements for any remaining outstanding payments or recommend recovery through a deed-in-lieu of foreclosure or foreclosure. In the deed-in-lieu of foreclosure process, the member deeds the VOI back to us. For domestic owners, this process varies from state to state and typically takes approximately 60 to 120 days, after which time we are able to resell the foreclosed VOI.
We monitor numerous metrics including collection rates, defaults and bankruptcies. Our consumer finance team also is responsible for selecting and processing loans pledged or to be pledged in our securitizations and preparing monthly servicing reports.
Resort and Club Management Activities
Resort Management
Prior to the initiation of VOI sales at a timeshare resort developed by us or by a third party with whom we have entered into a fee-for-service agreement, we enter into a management agreement with the relevant HOA. Each of the HOAs is governed by a board of directors comprising owner or developer representatives that are charged with ensuring the resorts are well-maintained and financially stable. Our services include day-to-day operations of the resorts, maintenance of the resorts, preparation of reports, budgets and projections and employee training and oversight. Our HOA management agreements provide for a cost-plus management fee, which means we generally earn a fee equal to 10% to 15% of the costs to operate the applicable resort. As a result, the fees we earn are highly predictable due to the relatively fixed nature of resort operating expenses and, unlike traditional revenue-based hotel management fees, our management fees generally are unaffected by changes in rental rate or occupancy. Further, because maintenance fees are paid annually by owners, our management fees are recurring and less volatile than hotel management fees. We also are reimbursed for the costs incurred to perform our services, principally related to personnel providing on-site services. The original term of our management agreements is typically governed by state timeshare laws and ranges from three to five years. The agreements generally are subject to automatic renewal for one- to three-year periods unless either party provides advance notice of termination before the expiration of the term. Retaining our company as the manager of our resorts and those of third-party developers entitles the HOA to continue to identify the property as a Hilton Grand Vacations property and gives members access to our Club. Since our inception in 1992, none of the management agreements relating to our developed or fee-for-service properties have been terminated or lapsed.
To fund resort operations, owners are assessed an annual maintenance fee, which includes our management fee. In 2015, HOAs collected approximately $303 million in maintenance fees, including our applicable management fees. Because these funds are collected early in the year, we have substantial visibility and reliability of collection. These fees represent each owners allocable share of the management fee and the costs of operating and maintaining the resorts, which generally includes personnel, property taxes, insurance, a capital asset reserve to fund refurbishment and other related costs. If a VOI owner defaults on payment of its maintenance fees and there is no lien against the mortgage note, the HOA has the right to recover the defaulting owners VOI. As a service to HOAs at our owned resorts, subject to our inventory needs, we have the ability to reduce the bad debt expense at the HOAs by assuming the defaulted owners obligations in exchange for an agreed purchase price. We are then able to resell those VOIs through our normal distribution channels.
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A portion of the annual maintenance fees collected from owners each year is set aside for property renovations. The renovations funded by these fees enable HOAs to keep properties modern, which helps the properties consistently receive the highest quality assurance scores across the Hilton portfolio of brands. HOAs engage an independent consulting firm to compile a reserve study. Typically, HOAs budget the reserve study to target property renovations on a six- and 12-year cycle. HOAs generally replace soft goods every six years and hard goods every 12 years. These reserves also benefit our members by limiting the risk of special assessments and steep increases in maintenance fees due to deferred capital expenditures.
Club Management
We also manage and operate the points-based Hilton Grand Vacations Club and Hilton Club exchange programs, which provided exclusive exchange, leisure travel and reservation services to approximately 260,000 members as of June 30, 2016. When an owner purchases a VOI, he or she is enrolled in the Club and allotted a number of points that represent his or her ownership interest and allow the member to exchange his or her annual usage rights for a number of vacation and travel options available through the club. The Hilton Club operates for VOI owners at the Hilton New York, but whose members also enjoy exchange benefits with the Hilton Grand Vacations Club. In addition to an annual membership fee, club members pay incremental fees depending on the type of exchange they choose within the club system.
Rental of Available Inventory
We rent unsold owned and fee-for-service VOI inventory and inventory made available due to ownership exchanges through our Club programs. By using Hiltons websites and other direct booking channels to rent available inventory, we are able to reach potential new members that may already have an affinity for and loyalty to the Hilton portfolio of brands and introduce them to our products. Inventory rentals allow us to utilize otherwise unoccupied inventory to generate additional revenues. We earn a fee from rentals of third-party inventory.
Properties
Timeshare Properties
As of June 30, 2016, we had 46 resorts, representing 7,576 units. We owned 29% of all unsold units, representing 724 of the 2,534 unsold units, at these resorts. We also own, manage or lease fitness, spa and sports facilities, undeveloped and partially developed land and other common area assets at some of our resorts, including resort lobbies and food and beverage outlets.
As of June 30, 2016, our resorts included the following locations and units:
Property Name |
Ownership (1) | Location | Units | |||||||||
Hilton Grand Vacations (U.S.) |
||||||||||||
HGVClub at SeaWorld Orlando |
Developed | Orlando, FL | 516 | |||||||||
HGVClub at Tuscany Village |
Developed | Orlando, FL | 440 | |||||||||
Parc Soleil by HGVClub |
Developed | Orlando, FL | 312 | |||||||||
Las Palmeras, a Hilton Grand Vacations Club |
Fee-for-service (2) | Orlando, FL | 226 | |||||||||
HGVClub at McAlpinOcean Plaza |
Developed | Miami Beach, FL | 52 | |||||||||
HGVClub at the Flamingo |
Developed | Las Vegas, NV | 200 | |||||||||
HGVClub on Paradise |
Developed | Las Vegas, NV | 232 | |||||||||
HGVClub on the Boulevard |
Developed | Las Vegas, NV | 714 | |||||||||
HGVClub at Trump International Hotel Las Vegas (3) |
Developed | Las Vegas, NV | 205 | |||||||||
Elara, a Hilton Grand Vacations Club |
Fee-for-service | Las Vegas, NV | 1,200 | |||||||||
HGVClub at Hilton Hawaiian VillageThe Lagoon Tower |
Developed | Honolulu, HI | 236 | |||||||||
HGVClub at Hilton Hawaiian VillageThe Kalia Tower |
Developed | Honolulu, HI | 72 |
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Property Name |
Ownership (1) | Location | Units | |||||||||
Grand Waikikian by HGVClub |
Developed | Honolulu, HI | 331 | |||||||||
Hokulani Waikiki by HGVClub (3) |
Developed | Honolulu, HI | 143 | |||||||||
Kohala Suites by HGVClub |
Developed | Waikoloa, HI | 120 | |||||||||
Kings Land by HGVClub |
Developed | Waikoloa, HI | 435 | |||||||||
The Bay Club at Waikoloa Beach Resort |
Collection | Waikoloa, HI | 172 | |||||||||
The Hilton ClubNew York |
Developed | New York, NY | 127 | |||||||||
West 57th Street by Hilton Club |
Developed | New York, NY | 166 | |||||||||
The District by Hilton Club |
Developed | Washington, DC | 108 | |||||||||
HGVClub at Anderson Ocean Club |
Fee-for-service | Myrtle Beach, SC | 172 | |||||||||
Ocean 22 by Hilton Grand Vacations Club |
Fee-for-service | Myrtle Beach, SC | 220 | |||||||||
Sunrise Lodge, a Hilton Grand Vacations Club |
Fee-for-service | Park City, UT | 83 | |||||||||
Valdoro Mountain Lodge |
Collection | Breckenridge, CO | 70 | |||||||||
HGVClub at MarBrisa (3) |
Fee-for-service | Carlsbad, CA | 164 | |||||||||
The Cottages at South Seas Island Resort |
Collection | Captiva, FL | 14 | |||||||||
Harbourview Villas at South Seas Island Resort |
Collection | Captiva, FL | 10 | |||||||||
Plantation Bay Villas at South Seas Island Resort |
Collection | Captiva, FL | 4 | |||||||||
Plantation Beach Club at South Seas Island Resort |
Collection | Captiva, FL | 56 | |||||||||
Plantation House at South Seas Island Resort |
Collection | Captiva, FL | 12 | |||||||||
South Seas Club at South Seas Island Resort |
Collection | Captiva, FL | 24 | |||||||||
Casa Ybel Resort |
Collection | Sanibel, FL | 74 | |||||||||
Hurricane House Resort |
Collection | Sanibel, FL | 15 | |||||||||
Sanibel Cottages Resort |
Collection | Sanibel, FL | 28 | |||||||||
Tortuga Beach Club Resort |
Collection | Sanibel, FL | 54 | |||||||||
Seawatch On-the-Beach Resort |
Collection | Ft. Myers Beach, FL | 42 | |||||||||
The Charter Club of Marco Beach |
Collection | Marco Island, FL | 80 | |||||||||
Eagles Nest Beach Resort |
Collection | Marco Island, FL | 96 | |||||||||
Club Regency of Marco Island |
Collection | Marco Island, FL | 32 | |||||||||
The Surf Club of Marco |
Collection | Marco Island, FL | 44 | |||||||||
Plantation Beach Club at Indian River Plantation Resort |
Collection | Hutchinson Island, FL | 30 | |||||||||
Hilton International Grand Vacations (non-U.S.) |
||||||||||||
HGVClub at Coylumbridge |
Developed | Scotland | 61 | |||||||||
HGVClub at Craigendarroch Suites |
Developed | Scotland | 32 | |||||||||
HGVClub at Craigendarroch Lodge |
Developed | Scotland | 99 | |||||||||
HGVClub at Dunkeld |
Developed | Scotland | 22 | |||||||||
HGVClub at Borgo alle Vigne |
Fee-for-service | Italy | 31 |
(1) | Fee-for-service and collection properties are properties that were funded and constructed by a third-party developer. Collection properties are properties that were contributed by a third party during Hiltons joint venture with Grand Vacations. A developed property is a property that was funded and constructed by Hilton Grand Vacations. Hilton Grand Vacations also manages the operation of the developed properties. |
(2) | We will acquire 20 units at this property as part of a just-in-time arrangement. |
(3) | Property sub-managed by a third party. |
Prior to the completion of the spin-off, we also expect to acquire approximately 600 rooms and 25 rooms in the Hilton Waikoloa Village and the Hilton New York Midtown, respectively, that are currently included in the Park Parent portfolio.
Corporate Headquarters and Sales Distribution Centers
Our corporate headquarters are located at 6355 MetroWest Boulevard, Suite 180, Orlando, Florida 32835, and consist of approximately 97,000 square feet of leased space. The lease for this property initially expires on
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November 30, 2021 with options to renew for two additional five-year periods. Our eight sales distribution centers are located in Las Vegas, Myrtle Beach, New York, Orlando, Park City, Oahu, Waikoloa and Japan. We also have corporate offices and a call center located in Orlando, Florida.
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.
Competition
The timeshare industry has historically been highly competitive and comprised a number of national and regional companies that develop, finance and operate timeshare properties.
Our timeshare business competes with other timeshare developers for sales of VOIs based principally on location, quality of accommodations, price, service levels and amenities, financing terms, quality of service, terms of property use, reservation systems, flexibility for members to exchange into time at other timeshare properties or other travel rewards, including access to hotel loyalty programs, as well as brand name recognition and reputation. We also compete for property acquisitions and partnerships with entities that have similar investment objectives as we do. There is also significant competition for talent at all levels within the industry, in particular for sales and management. Our primary competitors in the timeshare space include Marriott Vacations Worldwide, Wyndham Vacation Ownership, Vistana Signature Experiences, Disney Vacation Club, Hyatt Vacation Ownership, Holiday Inn Club Vacations, Bluegreen Vacations and Diamond Resorts International.
In addition, our timeshare business competes with other entities engaged in the leisure and vacation industry, including resorts, hotels, cruises and other accommodation alternatives, such as condominium and single family home rentals. We also compete with home and apartment sharing services that operate websites that market available privately owned residential properties that can be rented on a nightly, weekly or monthly basis. In certain markets, we compete with established independent timeshare operators, and it is possible that other potential competitors may develop properties near our current resort locations. In addition, we face competition from other timeshare management companies in the management of resorts on behalf of owners on the basis of quality, cost, types of services offered and relationship.
Recent and potential future consolidation in the highly fragmented timeshare industry may increase competition. For example, Interval Leisure Group, Inc., which operates the Interval International exchange program, acquired Hyatt Residence Club in October 2014 and in May 2016 acquired the timeshare operations of Starwood Hotels & Resorts Worldwide, Inc. (which includes the use of Westin and Sheraton brands for timeshare purposes), to be known as Vistana Signature Experiences, Inc. Diamond Resorts International, Inc. completed the acquisition of the timeshare business of Gold Key Resorts in October 2015, completed the acquisition of the timeshare business of Intrawest Resort Club Group in January 2016 and recently announced it was initiating a process to explore a wide range of strategic alternatives. Consolidation may create competitors that enjoy significant advantages resulting from, among other things, a lower cost of, and greater access to, capital and enhanced operating efficiencies.
We generally do not face competition in our consumer financing business to finance sales of our VOIs. We do face competition from financial institutions providing other forms of consumer credit, which may lead to full or partial prepayment of our timeshare financing receivables.
Seasonality and Cyclicality
We experience modest seasonality in timeshare sales at certain of our resorts, with stronger revenue generation during traditional vacation periods for those locations. Our business is moderately cyclical as the demand for VOIs is affected by the availability and cost of financing for purchases of VOIs, as well as general economic conditions and the relative health of the travel industry and housing market.
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Intellectual Property
In connection with the spin-off, we will enter into a license agreement with Hilton granting us the right to use certain Hilton-branded trademarks, trade names and related intellectual property in our business for the term of the agreement. We expect that the license agreement will provide us with, among other things, the exclusive license to design, build, manage and maintain existing and future timeshare resorts under the Hilton Grand Vacations brand throughout the world. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-OffLicense Agreement for more information. In the competitive industry in which we operate, trademarks, service marks, trade names, logos and patents are very important to the marketing and sales of our products. We believe that the licensed marks and related intellectual property have come to represent the highest standards of quality, service and value to our members, guests, employees and those with whom we have business relationships. We have applied and will continue to apply to register our trademarks in markets in which we conduct business. We will enforce our rights against the unauthorized use of our intellectual property by third parties and otherwise protect our intellectual property through strategies and in jurisdictions we deem appropriate.
Government Regulation
Our business is subject to various international, national, federal, state and local laws, regulations and policies in jurisdictions in which we operate. Some laws, regulations and policies impact multiple areas of our business, such as securities, anti-discrimination, anti-fraud, data protection and security and anti-corruption and bribery laws and regulations or government economic sanctions, including applicable regulations under the U.S. Treasurys Office of Foreign Asset Control and the U.S. Foreign Corrupt Practices Act (FCPA). The FCPA and similar anti-corruption and bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or generating business. Other laws, regulations and policies primarily affect one of our areas of business: real estate development activities; marketing and sales activities; financial services activities; and resort management activities.
Real Estate Development Regulation
Our real estate development activities are regulated under a number of different timeshare, condominium and land sales disclosure statutes in many jurisdictions. We are generally subject to laws and regulations typically applicable to real estate development, subdivision and construction activities, such as laws relating to zoning, land use restrictions, environmental regulation, accessibility, title transfers, title insurance and taxation. In the United States, these include the Fair Housing Act and the ADA. In addition, we are subject to laws in some jurisdictions that impose liability on property developers for construction defects discovered or repairs made by future owners of property developed by the developer.
Marketing and Sales Regulation
Our marketing and sales activities are highly regulated. In addition to regulations implementing laws enacted specifically for the timeshare industry, a wide variety of laws and regulations govern our marketing and sales activities, including regulations implementing the USA PATRIOT Act, Foreign Investment In Real Property Tax Act, the Federal Interstate Land Sales Full Disclosure Act and fair housing statutes, U.S. Federal Trade Commission (FTC) and state Little FTC Act and other regulations governing unfair, deceptive or abusive acts or practices including unfair or deceptive trade practices and unfair competition, state attorney general regulations, anti-fraud laws, prize, gift and sweepstakes laws, real estate, title agency or insurance and other licensing or registration laws and regulations, anti-money laundering, consumer information privacy and security, breach notification, information sharing and telemarketing laws, home solicitation sales laws, tour operator laws, lodging certificate and seller of travel laws, securities laws, and other consumer protection laws.
We must obtain the approval of numerous governmental authorities for our marketing and sales activities. Changes in circumstances or applicable law may necessitate the application for or modification of existing
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approvals. In addition, many jurisdictions, including many jurisdictions in the United States, require that we file detailed registration or offering statements with regulatory authorities disclosing information regarding our VOIs, such as information concerning the intervals being offered, the project, resort or program to which the intervals relate, applicable timeshare plans, evidence of title, details regarding our business, the purchasers rights and obligations with respect to such intervals, and a description of the manner in which we intend to offer and advertise such intervals.
When we sell VOIs, local law grants the purchaser of a VOI the right to cancel a purchase contract during a specified rescission period following the later of the date the contract was signed or the date the purchaser received the last of the documents required to be provided by us.
In recent years, regulators in many jurisdictions have increased regulations and enforcement actions related to telemarketing operations, including requiring adherence to the federal Telephone Consumer Protection Act and do not call legislation. These measures have significantly increased the costs associated with telemarketing, in particular with respect to telemarketing to mobile numbers. While we continue to be subject to telemarketing risks and potential liability, we believe that our exposure to adverse effects from telemarketing legislation and enforcement is mitigated in some instances by the use of permission-based marketing in which we obtain permission to contact prospective purchasers in the future. We have also implemented procedures to comply with federal and state do not call regulations including subscribing to the federal do not call registry and certain state do not call registries as well as maintaining an internal do not call list.
Lending Regulation
Our lending activities are subject to a number of laws and regulations including those of applicable supervisory agencies such as, in the United States, the Consumer Financial Protection Bureau, the FTC, and the Financial Crimes Enforcement Network. These laws and regulations, some of which contain exceptions applicable to the timeshare industry, may include, among others, the Real Estate Settlement Procedures Act and Regulation X, the Truth In Lending Act and Regulation Z, the Federal Trade Commission Act, the Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Fair Housing Act and implementing regulations, the Fair Debt Collection Practices Act, the Electronic Funds Transfer Act and Regulation E, unfair, deceptive or abusive acts or practices regulations and The Credit Practices rules, the USA PATRIOT Act, the Right to Financial Privacy Act, the Gramm-Leach-Bliley Act, the Servicemembers Civil Relief Act and the Bank Secrecy Act. Our lending activities are also subject to the laws and regulations of other jurisdictions, including, among others, laws and regulations related to consumer loans, retail installment contracts, mortgage lending, fair debt collection and credit reporting practices, consumer debt collection practices, mortgage disclosure, lender or mortgage loan originator licensing and registration and anti-money laundering.
Resort Management Regulation
Our resort management activities are subject to laws and regulations regarding community association management, public lodging, food and beverage services, liquor licensing, labor, employment, health care, health and safety, accessibility, discrimination, immigration, gaming and the environment (including climate change). In addition, many jurisdictions in which we manage our resorts have statutory provisions that limit the duration of the initial and renewal terms of our management agreements for HOAs.
Environmental Matters
We are subject to certain requirements and potential liabilities under various U.S. federal, state and local and foreign environmental, health and safety laws and regulations and incur costs in complying with such requirements. The costs of complying with these requirements are generally covered by the HOAs that operate the affected resort property and are our responsibility for assets owned by us. 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
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face personal injury, property damage, fines or other claims by third parties concerning environmental compliance or contamination. 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, and some of our future properties may 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 pursuant to our management, construction or renovation 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 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 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 flows.
Employees
For more than 20 years, we have served guests on a global scale, with varied backgrounds and lifestyles, and developed people strategies that cultivate an inclusive work environment, including a Diversity and Inclusion Council and Team Member Resource Groups. Our talent management strategy includes ensuring that our employees feel motivated, valued and appreciated for their contributions with authentic recognition programs such as Catch Me at My Best, Daily Dividends, Team Member Appreciation Week and International Housekeeping Week. Our ongoing training and development opportunities give our employees access to more than 2,500 learning programs, delivered in a variety of mediums to fit unique learning styles and schedules within the nonstop nature of our business. As of December 31, 2015, approximately 6,650 people were employed at our timeshare and corporate locations around the world.
We pride ourselves on being an employer of choice, having won numerous awards that include:
| ARDA ACE Community Service Award in 2016; |
| ARDA ACE Employer of the Year in 2013; |
| top 100 places to work, Orlando Sentinel , from 2011 to 2015; |
| best places to work, Perspective Magazine , for 2012, 2014 and 2016; and |
| Southern Nevada Human Resources Associations Best Places to Work in Southern Nevada ® award for 2014 and 2015. |
As of December 31, 2015, approximately 11% of our employees were 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 ordinary 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 privacy claims. Most occurrences involving liability, claims of negligence and employees are covered by insurance with solvent insurance carriers. For those matters not
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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 or our ability to run our business as currently conducted.
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Directors and Executive Officers
The following table sets forth the names, ages and positions as of the date of this information statement of our expected directors and executive officers following the spin-off. We are in the process of identifying additional individuals who will serve as members of our board of directors or as our executive officers following the spin-off.
Name |
Age |
Position |
||||
Mark D. Wang |
59 | President and Chief Executive Officer and Director | ||||
James E. Mikolaichik |
45 | Chief Financial Officer | ||||
Michael D. Brown |
46 | Chief Operating Officer | ||||
David C. Hayes |
54 | Chief Marketing Officer | ||||
Charles R. Corbin, Jr. |
60 | General Counsel | ||||
Stan R. Soroka |
57 | Chief Customer Officer | ||||
Barbara L. Hollkamp |
63 | Chief Human Resources Officer |
Mark D. Wang will be President and Chief Executive Officer and a Director of HGV. Mr. Wang has served as Executive Vice President and President, Hilton Grand Vacations for Hilton Parent since March 2008 and oversees all of Hilton Parents global timeshare operations. Mr. Wang was appointed to this role after serving as Head of HGV Asia. He first joined the company in 1999 as Managing Director of Hawaii and Asia Pacific and has held a series of senior management positions within HGV. During Mr. Wangs time as President of HGV, he also served on Hilton Parents executive committee as Executive Vice President and held a dual role as President of Global Sales for the hotel division from 2013 to 2014. He also led Hilton Parents Asia-Pacific Islander Team Member Resource Group. While leading HGV, the division has experienced eight years of consecutive growth while transforming the business to a capital efficient model. With 35 years of industry experience, Mr. Wang has earned a reputation as an innovator who brought new, highly effective sales and marketing techniques to the industry. In 1987 he introduced the U.S. vacation ownership product to the Japanese market. Prior to joining HGV, Mr. Wang co-founded three independent timeshare companies, where he served as President and Chief Operating Officer of each. Mr. Wang serves on the American Resort Development Associations (ARDA) Board of Directors and Executive Committee, previously served as Vice Chairperson for ARDA Hawaii, and is ARDAs Chair-Elect for 2017.
James E. Mikolaichik will serve as Chief Financial Officer for HGV. Previously, Mr. Mikolaichik served as the Chief Financial Officer of Manning & Napier Inc. from 2011 through 2016. Mr. Mikolaichik also served as Executive Vice President and Head of Strategy of Old Mutual Asset Management from 2008 through 2011 and as its Chief Risk Officer from 2004 through 2008. Mr. Mikolaichik also served, in various capacities, at Deloitte & Touche LLP providing consulting, financial advisory, auditing and accounting services from 1993 through 2004. Mr. Mikolaichik earned a bachelors degree from Susquehanna University in 1993 and an M.B.A. from Columbia University in 2001.
Michael D. Brown serves as Chief Operating Officer for HGV. In this role, he is responsible for sales, strategic planning and development and asset operations. Mr. Brown joined HGV in 2008 as Executive Vice President, Sales and Marketing Mainland USA & Europe, before being appointed to his current position in 2014 and has previously also supported the financial management of the Company. Mr. Brown also leads key company initiatives, notably serving as inaugural Executive Champion of the HGV Diversity & Inclusion Council, as well as serving on Hilton Parents Global Benefits Administrative Committee and Enterprise Risk Committee. Prior to joining HGV, Mr. Brown held senior leadership roles in marketing and sales, development, operations, and finance during his 16-year tenure with Marriott International and Marriott Vacation Club International. He also has extensive international experience, having worked overseas for more than 10 years in the United Kingdom, France, and the Bahamas. Mr. Brown currently serves as a member of ARDAs
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International Foundation Board of Trustees and is Chair-Elect of ARDAs Meetings Committee. Mr. Brown earned a bachelor of science degree in commerce from the McIntire School of Commerce at the University of Virginia.
David C. Hayes has served as Chief Marketing Officer for HGV since February 2015. Mr. Hayes is responsible for leading global marketing strategy and initiatives for the HGV enterprise, including prospect generation, Asia Sales, and key mainland U.S. distribution center operations. He is also responsible for business development for both the U.S. mainland and APAC regions. Mr. Hayes joined HGV in 2005 and has more than 25 years experience in the timeshare industry. He previously served as Senior Vice President of Call Center Operations for Cendant Timeshare Resort Group, as well as Vice President of Marketing for Sunterra Corporation. Mr. Hayes extensive career also includes high-level marketing roles with Marriott Vacation Club International, Europe; Bristol-Myers Squibb Consumer Products Group, Europe Middle East and Africa; and Vistana Resorts (now Starwood Vacation Club). Mr. Hayes holds bachelors and masters degrees from Boston University and has achieved various Oxford and Cambridge board A and O levels from the Downside School in Somerset, England.
Charles R. Corbin , Jr . will serve as the General Counsel for HGV. Mr. Corbin has served most recently as Assistant General Counsel and Senior Vice President of Hilton Parent since March 2013. Mr. Corbin joined Hilton Parent as Vice President and Global Head of Dispute Resolution in 2010. He previously served in various high-level legal roles, including Vice President and Assistant General Counsel at Sunrise Senior Living and Group Vice President at the Mills Corporation. Mr. Corbin holds a bachelors degree in English with highest honors from The Citadel and a juris doctorate from the University of Dayton School of Law.
Stan R. Soroka has served as Chief Customer Officer for HGV since January 2015. In this capacity, Mr. Soroka is responsible for all of resort operations and the HGV Club program, as well as brand standards for HGVs resorts and the overall HGV organization. Prior to being appointed to his current role, Mr. Soroka served as Area Vice PresidentFlorida and Hilton Grand Vacations Resort Operations for Hilton Parent since May 2010. In this dual capacity, he oversaw hotel operations for Hilton, Doubletree, Embassy Suites and Waldorf Astoria properties throughout Florida, as well as the Conrad Miami. His responsibilities also included oversight of timeshare resort operation functions for HGVs developed properties in Las Vegas, New York, Orlando and South Beach, Miami. A second generation hotelier, Mr. Soroka has more than 34 years of experience successfully operating renowned hotels and resorts. Prior to joining Hilton Parent in 2005, he served as Managing Director of El Conquistador Resort and Las Casitas Village in Puerto Rico and previously held leadership roles at Oakbrook Hotels and Vail Resorts Management, in addition to H.B.E. Hotels and Resorts. Mr. Soroka began his hospitality career with Hyatt in the stewarding department, quickly moving up the food and beverage ranks before transitioning to front office operations and management. Mr. Soroka earned a bachelor of science degree in Hospitality Management from the Conrad N. Hilton College of Hotel and Restaurant Management at the University of Houston.
Barbara L. Hollkamp serves as Chief Human Resources Officer for HGV, an appointment she received in August 2016 after having served in a dual role as Senior Vice President of Human Resources for Hilton Parent and HGV. In her role, Mrs. Hollkamp is responsible for overseeing teams of highly experienced human resources professionals who provide strategic business partnerships and consultative talent services across the global business. Her oversight also includes talent management, compensation, benefits, recruitment, succession planning, learning and development, and general HR shared services. Mrs. Hollkamp joined Hilton Parent in June 2004 as Vice President before being appointed a Senior Vice President of Human Resources for Hilton Parent. Her professional experience spans more than 30 years and is highlighted by strategic human resources management, organizational development, leadership development, and culture management. Mrs. Hollkamp earned a bachelors degree in organizational behavior from Rollins College in Florida.
There are no family relationships among any of our directors or executive officers.
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Our Corporate Governance
Our corporate governance will be structured in a manner that we believe will closely align our interests with those of our stockholders. Following the spin-off, we anticipate that our corporate governance will include the following notable features:
| our board of directors will not be classified and each of our directors will be subject to re-election annually, and we will not classify our board of directors in the future without the approval of our stockholders; |
| under our amended and restated bylaws and our corporate governance guidelines, directors 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; |
| our independent directors will meet regularly in executive sessions; |
| we will 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 Following the Spin-Off
Upon completion of the spin-off, our amended and restated certificate of incorporation 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. Each director will serve until our next annual meeting and until his or her successor is duly elected and qualified or until the directors earlier death, resignation or removal.
We are in the process of identifying additional individuals who will become directors following the spin-off.
Committees of the Board of Directors
Following the spin-off, our board of directors will have an audit committee, a compensation committee and a nominating and corporate governance committee, each of which will have the composition and responsibilities described below and whose members will satisfy the applicable independence standards of the SEC and the NYSE within the transition periods provided under the rules and regulations of the NYSE. The charter of each such standing committee will be posted on our website in connection with the spin-off. 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 the spin-off we expect our audit committee will consist of , and , with serving as chair. The audit committee will have responsibility for, among other things, assisting the board of directors in reviewing: our financial reporting and other internal control processes; our financial statements; the independent auditors qualifications and independence; the performance of our internal audit function and independent auditors; and our compliance with applicable legal and regulatory requirements. The responsibilities of our audit committee, which are anticipated to be substantially the same as the responsibilities of Hilton Parents audit committee, will be more fully described in our audit committee charter. The board of directors has determined that , and are independent as defined under the rules and regulations of the SEC and the NYSE applicable to board members generally and audit committee members specifically. The board of directors has also determined that , and are financially literate within the meaning of the rules and regulations of the NYSE and that qualifies as an audit committee financial expert as defined under applicable SEC rules and regulations.
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Compensation Committee
Upon completion of the spin-off we expect our compensation committee will consist of , and , with serving as chair. The compensation committee will have responsibility for, among other things, overseeing: the goals, objectives, compensation and benefits of our executive officers and directors; our overall compensation structure, policies and programs; and our compliance with applicable legal and regulatory requirements. The responsibilities of our compensation committee, which are anticipated to be substantially the same as the responsibilities of Hilton Parents compensation committee, will be more fully described in our compensation committee charter. The board of directors has determined that , and are independent as defined under the rules and regulations of the SEC and the NYSE applicable to board members generally and compensation committee members specifically.
Nominating and Corporate Governance Committee
Upon completion of the spin-off we expect our nominating and corporate governance committee will consist of , and , with serving as chair. The nominating and corporate governance committee will have responsibility for, among other things: identifying and recommending to the board of directors candidates for election to our board of directors; reviewing the composition of the board of directors and its committees; developing and recommending to the board of directors corporate governance guidelines that are applicable to us; and overseeing board of directors evaluations. The responsibilities of our nominating and corporate governance committee, which are anticipated to be substantially the same as the responsibilities of Hilton Parents compensation committee, will be more fully described in our nominating and corporate governance committee charter. The board of directors has determined that , and are independent as defined under the rules and regulations of the NYSE.
Compensation Committee Interlocks and Insider Participation
We expect that none of the members of our compensation committee will have at any time been one of our executive officers or employees. We expect that none of our executive officers will currently serve, or will have 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.
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EXECUTIVE AND DIRECTOR COMPENSATION
Executive Compensation
Compensation Discussion and Analysis
We are currently a wholly owned subsidiary of Hilton Parent. Therefore, the historical compensation described below was determined primarily by the compensation committee of Hilton Parents board of directors (the Hilton Parent Compensation Committee) and members of Hilton Parents management. This Compensation Discussion and Analysis focuses primarily on the compensation programs and decisions of Hilton Parent with respect to 2015 and also describes the ways in which we anticipate that our compensation philosophy and programs will differ from that of Hilton Parent after we become a separate public company. As explained under The Spin-OffReasons for the Spin-Off, by granting awards linked to the performance of a pure-play business, our compensation arrangements should provide enhanced incentives for employee performance and improve our ability to attract, retain and motivate qualified personnel. In connection with the spin-off, we intend to form our own compensation committee (the HGV Compensation Committee) that will be responsible for our executive compensation programs, which may differ from the compensation programs in place at Hilton Parent during 2015.
This section provides compensation information regarding our principal executive officer and our three next highest compensated executive officers based on such persons 2015 compensation with Hilton Parent (collectively, the NEOs). We did not have our own principal financial officer during 2015. The following historical compensation information is intended to give context for our anticipated pay practices for our NEOs, which are based on Hilton Parents historic pay practices for its NEOs, including Mr. Wang who was an NEO and an executive officer at Hilton Parent in 2015. Our pay practices, however, are being developed and may be revised to fit with our pay philosophy and, therefore, the forms and amounts of compensation reported below are not necessarily indicative of the compensation our NEOs will receive following the spin-off. We have not yet made any determinations with respect to specific compensation of our NEOs following the spin-off.
HGV NEOs |
Historic Title at Hilton Parent |
|
Mark D. Wang President and Chief Executive Officer |
Executive Vice President and President, Hilton Grand Vacations | |
Michael D. Brown Chief Operating Officer |
Senior Vice President and Chief Operating Officer, Hilton Grand Vacations | |
David C. Hayes Chief Marketing Officer |
Senior Vice President and Chief Marketing Officer, Hilton Grand Vacations | |
Stan R. Soroka Chief Customer Officer |
Senior Vice President Hilton Grand Vacations Resort and Brand Services |
In connection with the spin-off, Mr. James E. Mikolaichik has entered into an offer letter pursuant to which he will serve, commencing on August 17, 2016, as Chief Financial Officer of Hilton Grand Vacations at Hilton Parent and will continue to serve as our CFO following the spin-off. Mr. Mikolaichik, as our Chief Financial Officer, will be a named executive officer for fiscal 2016. For additional information regarding Mr. Mikolaichiks compensation arrangements, see Actions Taken in Anticipation of the Spin-off).
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Executive Compensation Framework
Historically. Following is an overview of key aspects of Hilton Parents pay philosophy, design and process.
Overall Compensation Philosophy |
Hilton Parents goal is to provide programs that:
Deliver competitive levels of compensation to attract, retain and motivate highly qualified executives
Foster a strong relationship between stockholder value and executive compensation by having a significant portion of compensation composed of equity-based incentive awards
Emphasize performance-based compensation contingent upon achieving corporate and business area performance goals
Promote Hilton Parents core values of H ospitality, I ntegrity, L eadership, T eamwork, O wnership and N ow by individuals working at Hilton Parents owned, leased, managed, timeshare and corporate locations whose performance and responsibilities directly affect the results of Hilton Parents operations |
|
Compensation Program Design |
Hilton Parents programs are designed to:
Provide three main components: base salary, short-term cash incentive and long-term equity incentive awards, each designed to be consistent with its compensation philosophy
Create competitive compensation packages that cultivate long-term value creation without taking unnecessary risks
Combine both short-term and long-term compensation to promote retention and create a pay-for-performance environment
Emphasize at-risk pay over fixed pay, yet create a positive work environment that rewards long-term achievements
Motivate and reward for successfully executing Hilton Parents business strategy
Avoid rigid categorical guidelines or formulas in setting the level and mix of compensation |
|
Compensation Process |
In reviewing and establishing pay, Hilton Parent:
Evaluates pay annually, or more frequently as circumstances merit
Considers the following factors when setting compensation levels:
Compensation of executives serving in similar positions at peer companies
Individual knowledge, experience and capabilities of the executive
The executives scope of responsibility, authority and accountability
The level of pay relative to Hilton Parents other executives |
Going Forward. Following the spin-off, we expect to establish a similar executive compensation philosophy, design and process with respect to our named executive officers. We expect that our compensation objectives will be to provide a program designed to be competitive, emphasize performance-based compensation, promote our core values and foster alignment with our stockholders interests.
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Making Compensation Decisions
Historically. The Hilton Parent Compensation Committee, Hilton Parents management and Hilton Parents compensation consultant have each had a role regarding the compensation of its executive officers.
Role of the Compensation Committee
The Hilton Parent Compensation Committee oversees and approves key aspects of Hilton Parents executive compensation, including its CEOs and other executive officers salaries, performance goals and payouts under the annual cash incentive plan, the size and structure of long-term incentive awards and any executive perquisites or other benefits. While the Hilton Parent Compensation Committee reviews and approves the specific elements of compensation of Hilton Parents executive officers, including its NEOs, Hilton Parents board has supervisory responsibility for executive compensation matters generally. The Hilton Parent Compensation Committee approves performance goals designed to align executive pay with Hilton Parents performance and stockholder interests and also seeks to provide competitive pay opportunities tied to performance and designed to retain talent, maximize stockholder value and mitigate material risk. In implementing Hilton Parents executive compensation program, the Hilton Parent Compensation Committee considers many factors, including the cyclical nature of the hospitality business, the advice of its compensation consultant, internal pay equity among executives and the alignment of Hilton Parents total pay opportunity and pay outcomes with performance and with competitive market data. Although the Hilton Parent Compensation Committee has overseen the compensation programs applicable to those serving as Senior Vice Presidents, including Messrs. Brown, Hayes and Soroka who served as Senior Vice Presidents at Hilton Parents Hilton Grand Vacations segment (the Timeshare Segment), specific decisions regarding these individuals compensation were made by members of Hilton Parents management as described below.
Role of Hilton Parents Management
Hilton Parents CEO and Chief Human Resources Officer work closely with the Hilton Parent Compensation Committee in managing Hilton Parents executive compensation program and attend meetings of the Hilton Parent Compensation Committee. Hilton Parents CEO makes recommendations to the Hilton Parent Compensation Committee, regarding compensation for executive officers other than himself. As to Messrs. Brown, Hayes and Soroka, Hilton Parents CEO and Chief Human Resources Officer worked closely with the President of the Timeshare Segment, Mr. Wang, in setting and approving their base salaries, goals under the cash incentive plans, the amount of their long-term incentive awards and any executive perquisites or other benefits.
Role of the Hilton Parent Compensation Committee Consultant
Exequity LLP (Exequity) has served as the Hilton Parent Compensation Committee independent compensation consultant since 2012. Exequity reports to and is instructed in its duties by the Hilton Parent Compensation Committee and carries out its responsibilities in coordination with Hilton Parents Human Resources department. In 2015, Exequitys services to the Hilton Parent Compensation Committee included, among other things, providing perspective on current trends and developments in executive and director compensation, as well as analysis of benchmarking data and confirmation of Hilton Parents peer group composition.
Exequity provides research, data analyses, survey information and analysis, incentive design expertise and other analyses related to compensation levels and design. Exequity also updates the Hilton Parent Compensation Committee on trends and developments related to executive compensation practices, advises on the composition of Hilton Parents peer group (as described below) and provides its views to the Hilton Parent Compensation Committee on best practices when evaluating executive pay programs and policies. In 2015, it performed no other services for Hilton Parent. The Hilton Parent Compensation Committee evaluated whether any of the work provided by Exequity during 2015 raised any conflicts of interest and determined that it did not.
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Going Forward. Following the spin-off, it is expected that the HGV Compensation Committee will have a role regarding our executives compensation similar to that of the Hilton Parent Compensation Committee with respect to Hilton Parents executives. The HGV Compensation Committee may also retain a compensation consultant, in which event, we expect that the nature and scope of the compensation consultants engagement will be similar to that of Hilton Parents compensation consultant. We also expect that members of our management will assist the HGV Compensation Committee with our executive compensation programs in a manner similar to the way in which Hilton Parents management assists the Hilton Parent Compensation Committee.
Assessing Competitive Practice Through Peer Group Comparisons
Executive Compensation Peer Group
Historically. To gain a general understanding of current compensation practices applicable to Hilton Parents executive officers and other senior executives, the Hilton Parent Compensation Committee reviews pay of executives serving in similar positions at peer companies. The external market data reviewed for 2015 included peer group proxy data, broad industry-comparative compensation surveys and data provided by peer group companies that participate in Equilars Annual Executive Compensation Survey.
In initially setting the peer group, the Hilton Parent Compensation Committee considered: industries that attract and retain similar talent; annual revenue; EBITDA (defined as earnings before interest expense, taxes and depreciation and amortization); market capitalization; brand recognition; global presence; and number of employees. It also considered the peer companies performance such as: revenue growth; net income growth; growth of earnings per share; return on equity; and total stockholder return. The Hilton Parent Compensation Committee annually reviews the composition of Hilton Parents peer group. Hilton Parents 2015 peer group consisted of 18 hospitality, restaurant, travel and global consumer brand companies that have a corporate structure and global presence comparable to Hilton Parent. Hilton Parent is positioned near the median of the peer group based on annual revenue and market capitalization.
In February 2015, information about the peer companies listed in the table below (the Hilton Parent 2015 peer group) was reviewed when determining Messrs. Wangs, Browns, Hayes and Sorokas 2015 base salaries, short-term cash incentive targets and long-term incentive targets.
Hilton Parent 2015 Executive Compensation Peer Group Companies
Hospitality & Restaurants |
Travel |
Global Consumer Brands |
||
Host Hotels & Resorts, Inc. | Avis Budget Group, Inc. | FedEx Corporation | ||
Hyatt Hotels Corporation | Las Vegas Sands Corp. | General Mills, Inc. | ||
Marriott International, Inc. | MGM Resorts International | Kellogg Company | ||
Starwood Hotels & Resorts Worldwide, Inc. | United Continental Holdings, Inc. | Nike, Inc. | ||
Wyndham Worldwide Corporation | Wynn Resorts, Limited | Starbucks Corporation | ||
Darden Restaurants, Inc. | The Walt Disney Company | |||
McDonalds Corporation |
In August 2015, the Hilton Parent Compensation Committee adjusted the peer group to be used for future compensation decisions by removing The Walt Disney Company and adding Carnival Corporation, Royal Caribbean Cruises and Yum! Brands. The Hilton Parent Compensation Committee selected the additional peers due to their similar size and, for Carnival Corporation and Royal Caribbean Cruises, because they are travel industry peers. Yum! Brands was selected because it is a global, multi-brand franchiser. Hilton Parents new peer group consists of 20 hospitality, restaurant, travel and global consumer brand companies.
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Going Forward. Following the spin-off, the HGV Compensation Committee may establish a peer group for the purpose of comparing the overall, and the individual elements of, compensation of our named executive officers to those of executives serving in similar capacities at our peer companies. However, the companies included in our peer group may differ from those identified above.
2015 Executive Compensation Design and Decisions
Historically. In determining the pay design and pay levels for executives in 2015, a number of factors were considered when determining base salaries, short-term cash incentive targets and long-term incentive targets, including: the level of compensation of those serving in similar positions at the Hilton Parent 2015 peer group companies; individual factors such as knowledge, experience and capabilities of the executive; the level of the executives pay relative to other Hilton Parent executives; the executives position within the corporate organization; and the scope of the executives responsibility, authority and accountability. In determining final pay outcomes, both Hilton Parents overall performance and business area performance were evaluated.
Compensation Components
Following is an overview of Hilton Parents 2015 executive compensation program:
Compensation Element |
Form |
Objectives |
||
Base Salary Fixed, short-term |
Cash |
Attract and retain high-quality executives to drive Hilton Parents success
Align with external competitive level and internal parity for each role, responsibility and experience |
||
Annual and Quarterly Incentive At-risk, short-term |
Cash |
Reward for Hilton Parents overall and business unit results
Align actual pay-out based on achievement of Hilton Parents overall and business area performance goals |
||
Long-Term Incentive At-risk, medium to long-term |
Equity, including: Performance Shares (60%) RSUs (20%) Stock Options (20%) |
Reward for future company performance; align with interests of Hilton Parents stockholders; retain executives through vesting over multi-year periods
Emphasize use of performance shares with a 3-year performance period based on Relative TSR, as defined below (50% of award) and EBITDA CAGR, as defined below (50% of award)
Vest RSUs pro rata over 2 or 3 years
Vest stock options pro rata over 3 years, with a 10-year expiration from the date of grant |
Going Forward . It is expected that the HGV Compensation Committee will conduct a thorough review of the current Hilton Parent executive compensation program and adopt a program with objectives, principles and approaches that appropriately reflect our business needs and strategy.
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Base Salary
Historically. Hilton Parent believes 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 executive receives, Hilton Parent looks to the executives current compensation, tenure, any change in the executives position or responsibilities and the complexity and scope of the executives position as compared to those of other executives within the organization and in similar positions at companies in the Hilton Parent peer group. Base salaries are periodically reviewed and may be adjusted from time to time pursuant to such review.
In February 2015, the base salaries for Messrs. Wang, Brown, Hayes and Soroka were increased by approximately 3% to $669,500, $360,500, $324,450 and $319,300, respectively. The size of the increase was determined based on competitive market practices, increases for those serving at a similar level within Hilton Parent and the level of base salaries of executives serving in a similar role and with comparable responsibilities at companies within the Hilton Parent 2015 peer group.
Going Forward. It is expected that the HGV Compensation Committee will adopt similar principles and approaches with respect to our named executive officers base salaries.
Annual and Quarterly Cash Incentive Compensation
Annual Cash Incentive Plan
Historically. Hilton Parents annual cash incentive plan rewards the participants for their contributions toward specific annual, short-term financial and operational goals that are tied to the overall company strategy. It is designed to motivate the participants to focus on strategic business results and initiatives and reward them for results and achievements with respect to their business units or function.
Hilton Parents annual cash incentive plan provides an annual cash incentive award opportunity based on both corporate and business area performance objectives. In establishing the business area goals, Hilton Parents CEO works with senior management to establish business priorities at the beginning of each performance period. These business priorities are used to create the performance objectives, and each objective is given a specific weighting based on its scope, importance and strategic relevance. The weighting for each objective is expressed as a percentage of the participants total award opportunity under the annual cash incentive plan. The Hilton Parent Compensation Committee then reviews and approves the objectives recommended for each of its NEOs, including Mr. Wang. The Hilton Parent CEO, Chief Human Resources Officer and Mr. Wang reviewed and approved the objectives recommended for each of Messrs. Brown, Hayes and Soroka.
Each participants target annual cash incentive opportunity is expressed as a percentage of his or her base salary in effect at fiscal year-end. Threshold, target and maximum annual incentive opportunities are approved annually based on peer group benchmark data and the scope and impact the participant has on Hilton Parents overall results. For 2015, the threshold, target and maximum payout levels for Messrs. Wang, Brown, Hayes and Soroka were as set forth in the table below, which payout levels remained the same as for 2014.
Name |
Threshold | Target | Maximum | |||
Mark D. Wang |
50% | 100% | 150% | |||
Michael D. Brown |
30% | 60% | 90% | |||
David C. Hayes |
30% | 60% | 90% | |||
Stan R. Soroka |
15% | 30% | 45% |
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2015 Performance Objectives
Hilton Parents 2015 annual cash incentive plan was based on a combination of corporate and business area objectives, and the weighting of each objective was allocated to drive business results within each participants area of responsibility. The primary corporate objective was based on Hilton Parents consolidated Adjusted EBITDA (as defined below). Business area objectives were both quantitative and qualitative in nature, based on financial, operational and strategic objectives specific to each individual and the function for which they are responsible. New for 2015, business area objectives included leadership results, tying awards directly to employee engagement. The leadership score was calculated based on responses from each business area to questions on leadership, engagement and trust in Hilton Parents employee engagement survey.
Messrs. Wangs, Browns, Hayes and Sorokas annual cash incentive components, weightings and key performance measures for the 2015 fiscal year were as follows:
(1) | Adjusted EBITDA and Timeshare Segment Adjusted EBITDA are calculated as set forth in Note 23: Business Segments of Hilton Parents consolidated financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the Hilton Parent Form 10-K). |
(2) | Due to Mr. Wangs role as President of the Timeshare Segment, his objectives also included a Timeshare Segment Adjusted EBITDA component. |
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2015 Performance Results
At the beginning of the fiscal year following the performance period, each corporate and business area goal is assessed and rated based on the level of achievement. As to Hilton Parents NEOs, including Mr. Wang, Hilton Parents Finance department and Human Resources department review the achievement of each performance objective against the predetermined objectives with Hilton Parents CEO. Hilton Parents CEO then reviews these results with the Hilton Parent Compensation Committee and recommends payout amounts under the annual cash incentive plan for each of Hilton Parents NEOs, other than himself. The Hilton Parent Compensation Committee then reviews and assesses each NEOs achievement towards his or her goals and determines and approves an achievement factor used to calculate the actual annual cash incentive award payable to each Hilton Parent NEO. As to Messrs. Brown, Hayes and Soroka, Hilton Parents Finance department and Mr. Wang reviewed the achievement levels and calculated the cash incentive award payable.
For the year ended December 31, 2015, the financial component of the award would be paid at 100% of target if Hilton Parents consolidated Adjusted EBITDA was $2,824 million and, with respect to 30% of Mr. Wangs total award opportunity, if Hilton Parents Timeshare Segment Adjusted EBITDA was $339 million. Participants were eligible to receive a threshold payout percentage, defined as 50% of the target award with respect to the financial component, if actual performance was 90% of target financial performance and were eligible to receive the maximum payout percentage, defined as 150% of the target award with respect to the financial component, if actual performance met or exceeded 110% of target financial performance. 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, 2015, Hilton Parents consolidated Adjusted EBITDA was $2,879 million, or 102.0% of the target financial performance, resulting in a payout percentage of 109.8% of the target annual cash incentive with respect to the company-wide financial component. For the year ended December 31, 2015, Hilton Parents Timeshare Segment Adjusted EBITDA was $352 million, or 103.8% of the target financial performance, resulting in a payout percentage of 118.9% of the target annual cash incentive with respect to 30% of Mr. Wangs total award opportunity.
Hilton Parents actual annual cash incentive awards are calculated by multiplying the participants actual base salary by his or her target award potential, which are then adjusted by an achievement factor based on the combined achievement of the corporate component and the business area performance objectives. For the year ended December 31, 2015, Messrs. Wangs, Browns, Hayes and Sorokas target cash incentive opportunity and cash incentive award earned (as reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table) were as follows:
Name |
2015
Year-End Base Salary |
Target Annual
Cash Incentive Opportunity as a Percent of Base Salary |
Target
Annual Cash Incentive Opportunity |
Achievement
Factor as a Percent of Target Award* |
2015 Amount
Earned under Annual Cash Incentive Plan |
|||||||||||||||
Mark D. Wang |
$ | 669,500 | 100 | % | $ | 669,500 | 116.1 | % | $ | 777,427 | ||||||||||
Michael D. Brown |
360,500 | 60 | 216,300 | 114.0 | 246,539 | |||||||||||||||
David C. Hayes |
324,450 | 60 | 194,670 | 104.7 | 203,878 | |||||||||||||||
Stan R. Soroka |
319,300 | 30 | 95,790 | 119.4 | 114,402 |
* | Percentage has been rounded. |
Going Forward . In connection with the spin-off, we expect to adopt an annual cash incentive plan with terms to be determined by the HGV Compensation Committee. We expect this plan will be designed to reflect measures, targets and goals commensurate with our business and industry.
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Quarterly Cash Incentive Plan
Historically. In addition to its annual cash incentive plan, Hilton Parent provides a quarterly cash incentive compensation plan for those employed as Senior Vice Presidents in the Timeshare Segment. Messrs. Brown, Hayes and Soroka participated in this quarterly cash incentive plan. Similar to the annual cash incentive plan, Hilton Parents quarterly cash incentive plan provides a cash incentive award opportunity based on financial objectives and business area objectives but that are specific to the Timeshare Segment. Quarterly objectives are set at the beginning of the year, and each objective is given a specific weighting expressed as a percentage of the participants total award opportunity under the quarterly cash incentive plan. Each participants quarterly cash incentive opportunity is expressed as a percentage of his or her base salary with threshold, target and maximum payout levels approved by Hilton Parents CEO, Chief Human Resources Officer and Mr. Wang. For 2015, the payout levels for Messrs. Brown and Hayes were 93.75% (33.75% as to Mr. Soroka) at threshold, 125% (45% as to Mr. Soroka) at target and 187.50% (67.50% as to Mr. Soroka) at maximum.
2015 Performance Objectives
Hilton Parents 2015 quarterly cash incentive plan was based on a combination of financial objectives and business area objectives weighted to drive business results within the Timeshare Segment. The primary financial objective was based on Timeshare Segment Adjusted EBITDA (calculated as set forth in Note 23: Business Segments of the Hilton Parent Form 10-K). Business area objectives were both quantitative and qualitative in nature, based on financial, operational and strategic objectives specific to each individual and the function for which he or she is responsible. As to Messrs. Brown, Hayes and Soroka, such objectives included forecasting accuracy, EBITDA margin and sales and marketing contributions for the specific function or region. Each of Messrs. Browns, Hayes and Sorokas quarterly cash incentive award was weighted with 25% based on Timeshare Segment Adjusted EBITDA and 75% based on business area objectives.
2015 Performance Results
Following each quarterly performance period, the financial and business area goals are assessed and rated based on the level of achievement. The Timeshare Segment Adjusted EBITDA component of each of Messrs. Browns, Hayes and Sorokas quarterly award would be paid at the threshold payout percentage (defined as 75% of the target award) if actual performance was 90% of target financial performance, at the target payout percentage (defined as 100% of the target award) if actual performance was 100% of target financial performance and at the maximum payout percentage (defined as 150% of the target award) if actual performance met or exceeded 110% of target financial performance. For actual performance between the specified threshold, target and maximum levels, the resulting payout percentage would be adjusted on a linear basis. The annualized target Timeshare Segment Adjusted EBITDA was set at $339 million, and the annualized actual achievement was $352 million, resulting in an annual payout percentage of approximately 118.9% of the target incentive with respect to 25% of Messrs. Browns, Hayes and Sorokas total award opportunity.
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The actual quarterly cash incentive awards are calculated by multiplying the participants base salary by his or her target award potential, which are then adjusted by an achievement factor based on the combined achievement of the financial component and the business area performance objectives. Messrs. Browns, Hayes and Sorokas aggregate target cash incentive opportunity and aggregate cash incentive award earned in 2015 based on actual achievement (as reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table) under the quarterly cash incentive plan were as follows:
Name |
2015
Base Salary |
Target
Cash Incentive Opportunity as a Percent of Base Salary |
Aggregate Target
Cash Incentive Opportunity (1) |
Aggregate Amount
Earned as a Percent of Target Award* |
2015 Aggregate
Amount Earned under Quarterly Cash Incentive Plan |
|||||||||||||||
Michael D. Brown |
$ | 360,500 | 125 | % | $ | 450,625 | 114.4 | % | $ | 515,395 | ||||||||||
David C. Hayes |
324,450 | 125 | 405,563 | 133.6 | 541,931 | |||||||||||||||
Stan R. Soroka |
319,300 | 45 | 143,685 | 134.0 | 192,533 |
* | Percentage has been rounded. |
(1) | Amount represents the sum of the target incentive opportunity for each of the quarterly performance periods during 2015. |
Going Forward . The HGV Compensation Committee intends to review the quarterly cash incentive plan and determine if a similar plan is appropriate for our named executive officers.
Long-Term Incentive Awards
Historically. Hilton Parents long-term incentive award plan is designed to reward for future company performance, align with the interests of its stockholders and retain executives. These goals are further described under Compensation Components.
Long-term incentive compensation is awarded under Hilton Parents 2013 Omnibus Incentive Plan (the Hilton Parent Incentive Plan) and provides an opportunity for its executive officers, including its NEOs, and other key employees, including Messrs. Brown, Hayes and Soroka, to increase their ownership interest in Hilton Parent through grants of equity-based awards. Under the Hilton Parent Incentive Plan, equity-based awards may be awarded in the form of stock options, stock appreciation rights, restricted stock, RSUs, performance shares and other stock-based awards.
Each of Hilton Parents NEOs target long-term incentive opportunity is approved annually by the Hilton Parent Compensation Committee based on peer group benchmark data and the scope and impact the executive has on Hilton Parents overall results. Each of Messrs. Browns, Hayes and Sorokas target long-term incentive opportunity was approved by Hilton Parents CEO, Chief Human Resources Officer and Mr. Wang.
In 2015, the target pay levels for Messrs. Wang, Brown, Hayes and Soroka were increased by approximately 3% to $1,854,000, $324,450, $292,005 and $287,370, respectively and, as to Mr. Soroka, excludes the value of his special RSU retention award described below. The size of the increase was made to reward these individuals for their performance and to align their compensation with those having similar roles at companies in the Hilton Parent 2015 peer group. The foregoing dollar values differ from the figures reported in the Summary Compensation Table and the Grants of Plan-Based Awards Table because the values for performance shares included in the foregoing amounts were calculated by multiplying the closing price of Hilton Parents common stock on the grant date by the number of shares granted.
In 2015, long-term incentive awards granted in connection with Hilton Parents annual equity grant program were granted at 100% of target based on the mix and weighting set forth in the chart below. The Hilton Parent Compensation Committee has designed a blended equity portfolio for its senior executives, granting a combination
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of performance shares, RSUs and stock options. The largest portion of the total equity award generally takes the form of performance shares where the number of shares that may be earned is tied to Hilton Parents financial and stock price performance at the end of a three-year period.
Award Type |
Weighting |
Vesting (2) |
Value Tied To |
|||
Performance Shares |
60% of total award | Vest at the end of a 3-year period in an amount based on the level of performance achieved |
Stock price where 50% of the performance shares awarded are earned based on Hilton Parents TSR relative to a peer groups TSR (as defined below)
Stock price where 50% of the performance shares awarded are earned based on EBITDA CAGR (as defined below) |
|||
Restricted Stock Units (1) |
20% of total award | Vest over 2 years in equal annual installments | Stock price | |||
Stock Options |
20% of total award | Vest over 3 years in equal annual installments; expires in 10 years | Stock price appreciation |
(1) | Holders of unvested RSUs are entitled to accrue dividend equivalent payments either in cash or, at the sole discretion of the Hilton Parent Compensation Committee, in shares of Hilton Parents common stock having a fair market value as of the settlement date equal to the amount of such dividends, with such dividend equivalents payable following vesting (or forfeited to the extent the underlying RSUs are forfeited). |
(2) | See The Spin-OffTreatment of Outstanding Equity Awards for a description of the treatment of outstanding Hilton Parent equity-based awards in connection with the spin-off. |
In addition to the long-term incentive awards granted under Hilton Parents annual equity grant program, Mr. Soroka received a special retention award of 5,031 RSUs in connection with his promotion and increased role and responsibilities. These RSUs vest in three equal annual installments beginning on the first anniversary of the grant date but otherwise have the same terms as those granted as part of the annual equity grant program.
Beginning with equity awards granted in 2015, the Hilton Parent Compensation Committee also determined that each award type will be eligible to continue to vest for a specified period following the executives retirement. Retirement is defined as a voluntary termination of employment after having reached age 55 and achieved at least ten years of service with Hilton Parent, provided that the grant was made at least six months prior to the executives retirement. Awards that remain outstanding and eligible to vest following an executives retirement are subject to forfeiture if the executive violates specified restrictive covenants agreed to with Hilton Parent and described below.
Performance Shares
Hilton Parents performance shares are intended to focus its executives on the long-term performance of Hilton Parent and its performance relative to a TSR peer group. The performance shares vest at the end of a three-year performance period and are divided into two tranches:
| 50% are based on the level of achievement of Hilton Parents total stockholder return (TSR) relative to the TSR of members of the peer company group defined below (Relative TSR). |
| 50% are based on the compound annual growth rate of Hilton Parents Adjusted EBITDA (EBITDA CAGR as defined in the award agreement) over that three-year period by measuring the growth of Hilton Parents Adjusted EBITDA at the end of the performance period to that for the fiscal year immediately prior to the beginning of the performance period. |
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The Hilton Parent Compensation Committee determined that Relative TSR and EBITDA CAGR are appropriate vesting measures for the performance shares. The Hilton Parent Compensation Committee believes that these measures appropriately align management with Hilton Parents stockholders, incentivize management to achieve Hilton Parents long-term strategy and focus management on growing Hilton Parents Adjusted EBITDA which, in turn, allows it to reinvest in its business and expand its global footprint. Beginning in the first quarter of 2015, Hilton Parent modified its definition of Adjusted EBITDA to align with managements view of allocating resources and assessing the performance of its segments and to facilitate comparisons with its competitors. Therefore, the performance shares granted in 2015 that vest based on EBITDA CAGR are based on the new definition of Adjusted EBITDA, whereas the performance shares granted in 2014 that vest based on EBITDA CAGR are based on the definition reported in Hilton Parents 2014 SEC filings.
The performance period generally begins on January 1 of the fiscal year in which the performance shares are granted and ends on December 31 of the third year thereafter. The performance shares granted in 2015 have a performance period that began on January 1, 2015 and ends on December 31, 2017. Following the three-year performance period, the Hilton Parent Compensation Committee will determine the achievement levels under each of the Relative TSR and EBITDA CAGR performance measures and the number of performance shares earned under these measures.
The total number of performance shares that vest based on each of Relative TSR and EBITDA CAGR is based on the percentages shown in the table below. For actual performance between the specified threshold, target, above target and maximum levels, the resulting payout percentage will be adjusted on a linear basis. In addition, if Hilton Parents TSR is negative over the performance period, the percentage of the award earned under the Relative TSR measure cannot exceed 100%.
Performance Metric
|
Level of Achievement | |||||||||||||
Below
Threshold |
Threshold | Target |
Above
Target |
Maximum |
Cap (if applicable) |
|||||||||
Relative TSR (50%) |
Performance Metric Achieved |
< 25th
percentile |
25th
percentile |
50th
percentile |
75th
percentile |
> 90th
percentile and above |
Capped at 100% if TSR is negative over performance period | |||||||
Percentage of Award Earned | 0% | 50% | 100% | 150% | 200% | |||||||||
EBITDA CAGR (50%) |
Performance Metric Achieved | < 5% | 5% | 9% | n/a |
13% and
above |
n/a | |||||||
Percentage of Award Earned | 0% | 50% | 100% | n/a | 200% |
The peer group used to determine achievement under the Relative TSR measure is distinct from the peer group used to evaluate and set compensation levels discussed under Assessing Competitive Practice Through Peer Group Comparisons. At the time of the 2015 grants, the Hilton Parent Compensation Committee determined to include the following peer companies in the Relative TSR peer group in order to more directly compare its financial and stock performance to companies in its industry.
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Hilton Parent 2015 Relative TSR Peer Group Companies
Hospitality |
REITs |
Leisure |
||
Carnival Corporation |
Chesapeake Lodging Trust |
Churchill Downs Incorporated |
||
Choice Hotels International, Inc. |
DiamondRock Hospitality Company |
Penn National Gaming, Inc. |
||
Hyatt Hotels Corporation |
Host Hotels & Resorts, Inc. |
Vail Resorts, Inc. |
||
Marriott International, Inc. |
Hospitality Properties Trust |
Wynn Resorts, Limited |
||
Royal Caribbean Cruises Ltd. |
LaSalle Hotel Properties |
|||
Starwood Hotels & Resorts Worldwide, Inc. |
Pebblebrook Hotel Trust |
|||
Wyndham Worldwide Corporation |
RLJ Lodging Trust |
|||
Ryman Hospitality Properties, Inc. |
Treatment of Long-Term Incentive Awards Upon Termination, Change in Control or Retirement
Each equity-based award is subject to restrictive covenants related to post-employment non-solicitation and non-competition covenants for 12 months following any termination of employment and indefinite covenants covering trade secrets, confidentiality and non-disparagement. Under the award agreements, if there is a restrictive covenant violation or Hilton Parent determines after termination that grounds for a termination for cause existed, the executive will be required to pay Hilton Parent an amount equal to the after-tax proceeds received upon the sale or disposition of the equity award and any shares issued in respect thereof. Further, each of these executives equity-based awards is subject to Hilton Parents Clawback Policy, which is described below. Additional provisions are outlined in the table below.
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(1) | Prorated based on the number of days in the performance period that have elapsed prior to termination. |
(2) | Options do not remain exercisable later than the original expiration date. |
(3) | Upon termination for cause all vested and unvested options terminate. |
(4) | Upon a violation of specified restrictive covenants, all vested and unvested options terminate, and all other unvested awards are forfeited. |
Going Forward . It is expected that the HGV Compensation Committee will review Hilton Parents long-term incentive awards program and determine the appropriate structure and mix of awards appropriate for our named executive officers. We expect to deliver multiple forms of long-term incentive awards similar to Hilton Parent. However, the form, type and mix of awards and the measures used to determine our long-term performance may differ.
Other Benefits and Perquisites
Historically. Hilton Parents executives, including its NEOs, are eligible for benefits including 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 its NEOs participate in these plans on the same basis as all other employees.
Hilton Parent provides limited perquisites to its NEOs when determined to be necessary and appropriate. Hilton Parent provides its NEOs with the opportunity for an annual physical examination. Hilton Parent also provides its NEOs complimentary rooms, food and beverage, and on-site services while on personal travel at Hilton Parent-branded hotels. The travel-related benefits are consistent with Hilton Parents peers in the hospitality industry and offered to encourage the NEOs to visit and evaluate Hilton Parents properties. Hilton Parent provides its CEO with a life insurance benefit for his family and the associated taxes. In addition, given its wide geographic footprint, Hilton Parents CEO has use of Hilton Parents aircraft for both business and personal travel, which the Hilton Parent Compensation Committee believes allows its CEO to work more efficiently and safely. The cost of these benefits is a small percentage of Hilton Parents overall compensation package. Hilton Parent believes that these benefits and perquisites are competitive in its industry and consistent with its overall compensation philosophy. The value of our NEOs perquisites and other personal benefits are reflected in the All Other Compensation column of the Summary Compensation Table and the accompanying footnote.
Going Forward . The HGV Compensation Committee will review these benefits and perquisites in connection with the spin-off and determine what is appropriate for our named executive officers.
Retirement Savings Benefits
Historically. Hilton Parent maintains a tax-qualified 401(k) plan, under which it matches 100% of employee contributions up to 3% of eligible compensation and 50% of employee contributions on the next 2% of eligible compensation. In addition to the 401(k) plan, Hilton Parent also offers its NEOs and other senior management the opportunity to supplement their retirement and other tax-deferred savings through Hilton Parents Executive Deferred Compensation Plan (the Hilton Parent EDCP).
Pursuant to the Hilton Parent EDCP, specified eligible employees 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 Hilton Parent 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.
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Investment gains or losses in the funds are credited to the participants accounts daily, net of investment option related expenses. The Hilton Parent EDCP does not provide any above-market returns or preferential earnings to participants, and the deferrals and their earnings are always 100% vested.
Hilton Parents 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, five years in the case of termination and five 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.
Going Forward . The HGV Compensation Committee will review these retirement savings plans in connection with the spin-off and determine what is appropriate for our named executive officers.
Severance Plan
Historically. The Hilton Parent Compensation Committee believes that a carefully structured severance program is necessary to attract and retain talent. Hilton Parents severance plan covering Messrs. Wang, Brown, Hayes and Soroka (the Hilton Parent Severance Plan) allowed these executives to focus their attention and energy on making objective business decisions that are in the best interest of Hilton Parents stockholders. In addition, the Hilton Parent Compensation Committee believes that the interests of its 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.
Under the terms of the Hilton Parent Severance Plan, if an eligible employee is terminated by Hilton Parent without cause, or if the eligible employee terminates his or her employment for good reason (each, a qualifying termination), then, subject to the eligible employees execution and non-revocation of a release of claims against Hilton Parent, continued compliance with restrictive covenants related to post-employment non-solicitation and non-compete covenants for one year following termination, and indefinite covenants covering confidentiality and non-disparagement, he or she will be eligible to receive a severance payment in an amount determined based on the employees position and a multiple of the employees then-current base salary and annual target bonuses under the annual and quarterly cash incentive plans. Under the terms of the Hilton Parent Severance Plan, Mr. Wang would have been eligible to receive a severance payment in an amount equal to 2.0 times his then-current base salary and annual target bonus under the annual cash incentive plan, and each of Messrs. Wang, Brown, Hayes and Soroka would have been eligible to receive a severance payment equal to 1.0 times, the sum of his then-current base salary and annual target bonuses under the annual and quarterly cash incentive plans, paid in a lump sum. In addition, upon a qualifying termination, each of Messrs. Brown, Hayes and Soroka would have been entitled to certain continued health and welfare benefits, as described below under Potential Payments Upon Termination or Change in Control.
Under the terms of the Hilton Parent Severance Plan, each of Messrs. Wang, Brown, Hayes and Soroka would have also been entitled to the same level of severance upon a qualifying termination in connection with a change in control except that severance may be reduced if doing so would result in the executive receiving more on a net after-tax basis in connection with any applicable golden parachute excise taxes under Internal Revenue Code Section 4999.
In addition to the Hilton Parent Severance Plan, any compensation and benefits to be paid or provided in connection with a separation would have been determined at the discretion of Hilton Parent and could be based on the executive, his or her position, the nature of the separation and the respective executives compliance with specified post-termination restrictive covenants.
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Going Forward. It is expected that the HGV Compensation Committee will adopt and implement a severance plan providing benefits commensurate with our business and industry and that each of our named executive officers will participate in this plan. The specific terms of such severance plan have not yet been determined.
Key Executive Compensation Practices
Historically. Hilton Parent follows key executive compensation practices that promote good governance and serve the interests of its stockholders, as summarized below.
What Hilton Parent Does:
| Emphasizes long-term performance Hilton Parents long-term incentive program is designed to focus executives on stockholder value and emphasize achievement of strategic objectives over the next several years. |
| Engages an independent compensation consultant Hilton Parents Compensation Committee consultant does not provide any other services to Hilton Parent. |
| Applies a double trigger vesting in the event of a change in control In the event of a change in control of Hilton Parent, cash severance benefits and accelerated vesting of stock options and RSUs are payable only upon a double trigger where the executives employment is terminated in connection with a change in control. |
| Provides limited perquisites Hilton Parents NEOs receive perquisites consistent with industry practices and participate in the same company-wide plans and programs offered to all of Hilton Parents eligible employees. |
| Applies a clawback policy The Hilton Parent Compensation Committee has discretion to recover incentive compensation paid or awarded based on financial results impacted by fraud or misconduct. |
| Establishes maximum payout caps The Hilton Parent Compensation Committee sets maximum amounts that may be payable for its cash incentive compensation and long-term performance awards. |
What Hilton Parent Does Not Do:
| Allow pledging, hedging or short-sale transactions Per Hilton Parents Insider Trading Policy, all covered persons are prohibited from purchasing Hilton Parent securities on margin or pledging Hilton Parent securities as collateral. Further, Hilton Parent does not permit short sales or the purchase or sale of derivative instruments based on Hilton Parents securities. |
| Reprice or buyout underwater stock options The Hilton Parent Incentive Plan does not permit the repricing or substitution of underwater stock options except with stockholder approval. The Hilton Parent Incentive Plan also does not permit the grant of underwater stock options, except in connection with certain corporate transactions. |
| Pay dividends or dividend equivalents on unvested performance shares or RSUs No payment of dividends or dividend equivalents, unless and until the underlying performance shares and RSUs vest. |
Going Forward. It is expected that the HGV Compensation Committee will adopt compensation practices similar to Hilton Parents in these respects and that such practices will operate similarly to promote good governance.
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Ownership Policy
Historically. Hilton Parent has adopted an executive stock ownership policy for its NEOs. Each of its NEOs is expected to own shares of Hilton Parents common stock in the following amounts within five years from the later of February 19, 2014 and the date he or she first becomes subject to the stock ownership policy:
| Chief Executive Officer5 times base salary |
| All other members of the executive management team3 times base salary |
Under this requirement, executives may not dispose of any shares of Hilton Parent they acquire, including, but not limited to, any shares of vested restricted stock, any shares underlying vested restricted stock units, net of taxes, or any shares acquired upon the exercise of any stock options, net of taxes and payment of any exercise price, in each case, received from grants made until the ownership requirements are satisfied. This restriction does not apply to any shares of Hilton Parents common stock received by the executive in exchange for his or her equity held prior to Hilton Parents IPO.
Going Forward . It is expected that the HGV Compensation Committee will establish similar stock ownership guidelines for our executives that are consistent with general marketplace practices. Specific guidelines have not yet been determined.
Clawback Policy
Historically. Hilton Parent has adopted a clawback policy for its incentive compensation. The Hilton Parent Compensation Committee determined that it may be appropriate to recover annual and/or long-term incentive compensation in specified situations. If the Hilton Parent Compensation Committee determines that incentive compensation of its current and former officers subject to reporting under Section 16 of the Exchange Act or any other employee designated by the Hilton Parent Compensation Committee was overpaid, in whole or in part, as a result of a restatement of the reported financial results of Hilton Parent or any of its segments due to material non-compliance with financial reporting requirements (unless due to a change in accounting policy or applicable law) caused or contributed to by such employees fraud, willful misconduct or gross negligence, the Hilton Parent Compensation Committee will review the incentive compensation paid, granted, vested or accrued based on the prior inaccurate results and determine whether to seek recovery of any excess incentive compensation paid or earned as a result of such inaccurate results.
Going Forward . It is expected that the HGV Compensation Committee will consider and develop a similar policy with respect to recoupment of incentive-based compensation. Any such policy, however, may need to be reviewed and updated for compliance and consistency with any final rules issued by the SEC and/or the stock exchange implementing the clawback provisions set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Stock Award Granting Policy
Historically. Hilton Parents annual grant of equity-based awards to its NEOs is made on the date of the first regularly scheduled board meeting of the calendar year (typically held in the first quarter). In addition to annual awards, other grants may be awarded at other times: (1) to attract new hires; (2) to recognize employees for special achievements or for retention purposes; (3) to new employees as a result of the acquisition of another company; or (4) as may be desirable and prudent in other special circumstances. The exercise price of stock options is the closing market price of Hilton Parents common stock on the date of grant. Hilton Parent monitors and periodically reviews its equity grant policies to ensure compliance with plan rules and applicable law. Hilton Parent does not have a program, plan or practice to time its equity grants in coordination with the release of material, non-public information.
Going Forward . It is expected that the HGV Compensation Committee will establish a similar policy with respect to the timing of grants of equity-based awards.
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Risk Considerations
Historically. The Hilton Parent Compensation Committee believes that the design and objectives of its executive compensation program provides an appropriate balance of incentives for executives and avoid inappropriate risks. In this regard, its executive compensation program includes, among other things, the following design features:
| Balances fixed versus at-risk compensation; |
| Balances short-term cash and long-term equity incentive compensation; |
| Provides that at-risk compensation is based on a variety of qualitative and quantitative performance goals, including Hilton Parents stock price, Hilton Parents overall financial performance and the performance of specific business area goals; |
| Caps the executives incentive compensation opportunities; |
| Provides the Hilton Parent Compensation Committee with discretion to reduce the annual incentive amount awarded; |
| Requires stock ownership levels; |
| Provides for a clawback of the executives compensation in specified circumstances; and |
| Prohibits pledging and hedging of Hilton Parent stock. |
Going Forward . It is expected that the HGV Compensation Committee will design its compensation program similar to that of Hilton Parent in these respects, and that such program will be structured to operate so as to provide an appropriate balance of incentives for our executives and avoid unnecessary or excessive risks.
Compliance with IRS Code Section 162(m)
Section 162(m) of the Internal Revenue Code limits a companys federal income tax deduction for any compensation in excess of $1 million paid to the companys NEOs except for the companys chief financial officer. However, this provision does not apply to certain performance-based compensation as long as specified requirements are met.
Historically. Hilton Parent expects 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 transition period that may extend until the first annual stockholders meeting that occurs after the close of the third calendar year following the calendar year in which Hilton Parents IPO occurred, unless the transition period is terminated earlier under the Section 162(m) post-offering transition rules. At such time as Hilton Parent is subject to the deduction limitations of Section 162(m), Hilton Parent expects that the Hilton Parent Compensation Committee will take the deductibility limitations of Section 162(m) into account in its compensation decisions. The Hilton Parent Compensation Committee may, however, 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. In 2015, the Hilton Parent Compensation Committee decided to grant to its NEOs performance shares in the form of restricted stock instead of RSUs to allow Hilton Parent to take advantage of federal income tax deductions under the IPO transition rules.
Going Forward . Following the spin-off, we may be eligible 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 transition period that may extend until the first annual stockholders meeting that occurs in the calendar year following the calendar year in which the spin-off occurs, unless the transition period is terminated earlier under the Section 162(m) transition rules. At such time as we become subject to the deduction limitations of Section 162(m), it is expected that the HGV Compensation Committee will establish an appropriate policy and practice with respect to compliance with Section 162(m) of the Internal Revenue Code.
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Actions Taken in Anticipation of the Spin-off
Key Elements of Expected CFO Compensation
Pursuant to his offer letter, Mr. Mikolaichik is entitled to receive an initial annual base salary of $450,000, subject to annual review, and an annual cash incentive award. For 2016, Mr. Mikolaichik will be entitled to receive an annual cash incentive award under Hilton Parents annual cash incentive plan equal to 100% of his annualized base salary, subject to his continued employment through the payment date. Beginning in 2017 and thereafter, Mr. Mikolaichik will be eligible to participate in our annual cash incentive plan at a level commensurate with his position and will be entitled to receive an annual cash incentive award based on our financial performance and his individual performance. Beginning in 2017, Mr. Mikolaichik will also be eligible to participate in our long-term incentive program in accordance with the terms adopted by the HGV Compensation Committee and, subject to the approval of the HGV Compensation Committee, we expect to grant him a 2017 annual long-term equity-based incentive award under the HGV Omnibus Incentive Plan, having a target value of $675,000 (based on the closing price of our common stock on the grant date).
In addition to the foregoing, Mr. Mikolaichik will be entitled to receive a sign-on cash bonus award of $300,000, which is subject to repayment if, within 24 months of his start date, he voluntarily terminates his employment for any reason (other than in connection with a resignation for Good Reason as described below) or is terminated by us for Cause (as defined in his offer letter). In addition, following the spin-off, and subject to the approval by the HGV Compensation Committee, we expect to grant Mr. Mikolaichik a sign-on equity-based incentive award consisting of restricted stock units, having a target value of $800,000 (based on the closing price of our common stock on the grant date). The restricted stock units will vest in three equal annual installments beginning on the first anniversary of Mr. Mikolaichiks start date, subject to his continued employment through each vesting date.
Mr. Mikolaichik is also entitled to participate in all employee benefit plans, programs and arrangements (including the Hilton Parent 401(k) plan and relocation plan) made available to our other executive officers.
Prior to the spin-off, Mr. Mikolaichik will be eligible for severance benefits under the Hilton Parent Severance Plan, the terms of which are described above under Severance Plan. Under such plan, and subject to its terms, Mr. Mikolaichik will be eligible to receive a severance payment amount equal to 2.0 times the sum of his annual base salary and annual target bonus at the time of termination, paid in a lump sum. In addition, upon a qualifying termination, Mr. Mikolaichik will be entitled to certain continued health and welfare benefits as described below under Potential Payments Upon Termination or Change in Control. Following the spin-off, Mr. Mikolaichik will continue to be eligible to receive severance benefits in accordance with the Hilton Parent Severance Plan upon a qualifying termination of employment until the earlier of (a) such time as we adopt a severance benefit plan and (b) December 31, 2017. In the event that the spin-off does not occur by December 31, 2017, Mr. Mikolaichik may resign for Good Reason (as defined in the Hilton Parent Severance Plan) and would be permitted to retain his sign-on bonus, entitled to receive his 2016 annual cash incentive award and entitled to receive severance benefits in accordance with the Hilton Parent Severance Plan or HGV Severance Plan, as applicable.
Treatment of Outstanding Equity Awards
In connection with the spin-off, the Hilton Parent Compensation Committee has determined to adjust specified terms of the equity-based awards outstanding under the Hilton Parent Incentive Plan. See The Spin-OffTreatment of Outstanding Equity Awards.
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Summary Compensation Table
The following table presents summary information regarding the total compensation awarded to, earned by, or paid to our NEOs for the fiscal years indicated.
Name |
Year | Salary (1) | Bonus |
Stock
Awards (2) |
Option
Awards (2) |
Non-Equity
Incentive Plan Compensation (3) |
Change in
Pension Value and Nonqualified Deferred Compensation Earnings |
All Other
Compensation (4) |
Total | |||||||||||||||||||||||||||
Mark D. Wang |
2015 | $ | 691,500 | $ | | $ | 1,594,971 | $ | 370,796 | $ | 777,427 | $ | | $ | 10,600 | $ | 3,445,294 | |||||||||||||||||||
President and Chief Executive Officer (formerly Hilton Parents Executive Vice President and President, Hilton Grand Vacations) |
2014 | 623,654 | | 1,490,884 | 359,997 | 810,352 | | 11,409 | 3,296,296 | |||||||||||||||||||||||||||
2013 | 513,000 | 15,754 | | | 484,246 | | 11,204 | 1,024,204 | ||||||||||||||||||||||||||||
Michael D. Brown |
2015 | 372,346 | | 279,115 | 64,888 | 761,934 | | 10,600 | 1,488,883 | |||||||||||||||||||||||||||
Chief Operating Officer (formerly Hilton Parents Senior Vice President and Chief Operating Officer, Hilton Grand Vacations) |
||||||||||||||||||||||||||||||||||||
David C. Hayes |
2015 | 335,112 | | 251,183 | 58,394 | 745,809 | | 34,600 | 1,425,098 | |||||||||||||||||||||||||||
Chief Marketing Officer (formerly Hilton Parents Senior Vice President and Chief Marketing Officer, Hilton Grand Vacations) |
||||||||||||||||||||||||||||||||||||
Stan R. Soroka |
2015 | 299,627 | | 385,373 | 57,472 | 306,935 | | 10,600 | 1,060,007 | |||||||||||||||||||||||||||
Chief Customer Officer (formerly Hilton Parents Senior Vice President Hilton Grand Vacations Resort and Brand Services) |
(1) | Amounts in this column reflect the salary earned during the fiscal year, whether paid or deferred under Hilton Parents employee benefit plans. |
(2) | Represents the aggregate grant date fair value of the awards computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, using the assumptions discussed in Note 15: Share-Based Compensation of the audited consolidated financial statements included in this information statement. |
Of the performance shares granted, 50% vest according to EBITDA CAGR and 50% vest according to Relative TSR. The grant date fair value of the shares that vest according to EBITDA CAGR was computed in accordance with FASB ASC Topic 718 based upon the probable outcome of the performance conditions as of the grant date. Assuming the highest level of performance is achieved, the aggregate grant date fair value of the EBITDA CAGR awards would be: Mr. Wang$1,112,404, Mr. Brown$194,692, Mr. Hayes$175,194 and Mr. Soroka$172,448.
As the shares that vest according to Relative TSR are subject to market conditions as defined under FASB ASC Topic 718 and are not subject to performance conditions as defined under FASB ASC Topic 718, they have no maximum grant date fair value that differs from the grant date fair value presented in the table.
(3) | Includes actual amounts paid under Hilton Parents annual cash incentive plan and, as to Messrs. Brown, Hayes and Soroka, also includes actual amounts paid under Hilton Parents quarterly cash incentive plan. |
(4) | All Other Compensation for 2015 represents Hilton Parents 401(k) matching contributions of $10,600 and, for Mr. Hayes, $24,000 for personal travel. |
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2015 Grants of Plan-Based Awards
The following table sets forth information concerning Hilton Parents grants of plan-based awards made to our NEOs during the fiscal year ended December 31, 2015.
Estimated Future Payouts
Under Non-Equity Incentive Plan Awards (1) |
Estimated Future Payouts
Under Equity Incentive Plan Awards (2) |
All
Other Stock Awards: Number or Shares of Stock or Units (#) |
All Other
Option Awards: Number of Securities Underlying Options (#) |
Exercise
or Base Price of Option Awards ($/sh) |
Grant
Date Fair Value of Stock and Option Awards (3) ($) |
|||||||||||||||||||||||||||||||||||||||||
Name |
Award Type |
Grant
Date |
Threshold
($) |
Target
($) |
Maximum
($) |
Threshold
(#) |
Target
(#) |
Maximum
(#) |
||||||||||||||||||||||||||||||||||||||
Mark D. Wang |
Annual Cash Incentive | | $ | 16,738 | $ | 669,500 | $ | 1,004,250 | | | | | | | | |||||||||||||||||||||||||||||||
Performance Shares |
2/10/15 | | | | 20,255 | 40,509 | 81,018 | | | | $ | 1,224,179 | ||||||||||||||||||||||||||||||||||
RSUs |
2/10/15 | | | | | | | 13,503 | | | $ | 370,792 | ||||||||||||||||||||||||||||||||||
Stock Options |
2/10/15 | | | | | | | | 44,195 | $ | 27.46 | $ | 370,796 | |||||||||||||||||||||||||||||||||
Michael D. Brown |
Annual Cash Incentive | | $ | 10,815 | $ | 216,300 | $ | 324,450 | | | | | | | | |||||||||||||||||||||||||||||||
Quarterly Cash Incentive |
| $ | 33,797 | $ | 450,625 | $ | 675,938 | | | | | | | | ||||||||||||||||||||||||||||||||
Performance Shares |
2/10/15 | | | | 3,545 | 7,089 | 14,178 | | | | $ | 214,227 | ||||||||||||||||||||||||||||||||||
RSUs |
2/10/15 | | | | | | | 2,363 | | | $ | 64,888 | ||||||||||||||||||||||||||||||||||
Stock Options |
2/10/15 | | | | | | | | 7,734 | $ | 27.46 | $ | 64,888 | |||||||||||||||||||||||||||||||||
David C. Hayes |
Annual Cash Incentive | | $ | 9,734 | $ | 194,670 | $ | 292,005 | | | | | | | | |||||||||||||||||||||||||||||||
Quarterly Cash Incentive |
| $ | 30,417 | $ | 405,563 | $ | 608,344 | | | | | | | | ||||||||||||||||||||||||||||||||
Performance Shares |
2/10/15 | | | | 3,190 | 6,380 | 12,760 | | | | $ | 192,803 | ||||||||||||||||||||||||||||||||||
RSUs |
2/10/15 | | | | | | | 2,126 | | | $ | 58,380 | ||||||||||||||||||||||||||||||||||
Stock Options |
2/10/15 | | | | | | | | 6,960 | $ | 27.46 | $ | 58,394 | |||||||||||||||||||||||||||||||||
Stan R. Soroka |
Annual Cash Incentive | | $ | 4,790 | $ | 95,790 | $ | 143,685 | | | | | | | | |||||||||||||||||||||||||||||||
Quarterly Cash Incentive |
| $ | 10,776 | $ | 143,685 | $ | 215,528 | | | | | | | | ||||||||||||||||||||||||||||||||
Performance Shares |
2/10/15 | | | | 3,140 | 6,279 | 12,558 | | | | $ | 189,748 | ||||||||||||||||||||||||||||||||||
RSUs |
2/10/15 | | | | | | | 2,093 | | | $ | 57,474 | ||||||||||||||||||||||||||||||||||
RSUs (4) |
2/10/15 | | | | | | | 5,031 | | | $ | 138,151 | ||||||||||||||||||||||||||||||||||
Stock Options |
2/10/15 | | | | | | | | 6,850 | $ | 27.46 | $ | 57,472 |
(1) | Reflects the possible payouts of cash incentive compensation under Hilton Parents annual cash incentive plan and quarterly cash incentive plan. Amounts reported in the Threshold column assume that there is no payout under the EBITDA component of the incentive plans, that the NEO only earns the minimum payout for the one business area performance objective that has been assigned the lowest weighting and, as to the quarterly cash incentive plan, that the one business area performance objective that has been assigned the lowest weighting was achieved in each of the quarterly performance periods during 2015. The actual amounts earned are reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. |
(2) | As described in further detail under 2015 Executive Compensation Design and DecisionsLong-Term Incentive Awards, Hilton Parents performance shares granted in 2015 have a three-year performance period ending December 31, 2017 and vest, as to 50% of the awards, based on Relative TSR and, as to 50% of the award, based on EBITDA CAGR. Threshold assumes that 50% of the total performance shares awarded vest, and maximum assumes that 200% of the total performance shares awarded vest. |
(3) | Represents the grant date fair value of the awards computed in accordance with FASB ASC Topic 718, using the assumptions discussed in Note 15: Share-Based Compensation of the audited consolidated financial statements included in this information statement. The stock options have an exercise price per share equal to the closing price of Hilton Parents common stock as reported on the NYSE on the date of grant. |
The grant date fair value of the performance shares that vest according to EBITDA CAGR was computed in accordance with FASB ASC Topic 718 based upon the probable outcome of the performance conditions as of the grant date and was determined to be for each of Messrs. Wang, Brown, Hayes and Soroka, $556,202, $97,346, $87,597 and $86,224, respectively. The grant date fair value of the performance shares that vest based on Relative TSR was determined to be for each of Messrs. Wang, Brown, Hayes and Soroka, $667,977, $116,881, $105,206 and $103,524.
(4) | Represents a retention award as described under 2015 Compensation Design and DecisionsLong-Term Incentive Awards. |
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Outstanding Equity Awards at 2015 Fiscal Year-End
The following table sets forth information regarding outstanding equity awards made by Hilton Parent and held by our NEOs as of December 31, 2015. See The Spin-OffTreatment of Outstanding Equity Awards for a description of the treatment of outstanding Hilton Parent equity-based awards in connection with the spin-off.
Number of
Securities Underlying Unexercised Options Exercisable |
Number
of
Securities Underlying Unexercised Options Unexercisable (1)(2) |
Option
Exercise Price |
Option
Expiration Date |
Number of
Shares or Units of Stock That Have Not Vested (2)(3) |
Market Value of
Shares or Units of Stock That Have Not Vested (4) |
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (2)(5) |
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (4)(5) |
|||||||||||||||||||||||||||||
Name |
Grant
Date |
|||||||||||||||||||||||||||||||||||
Mark D. Wang |
2/19/14 | 15,672 | 31,821 | $ | 21.53 | 2/19/24 | 8,360 | (a) | $ | 178,904 | 75,243 | $ | 1,610,200 | |||||||||||||||||||||||
2/10/15 | | 44,195 | 27.46 | 2/10/25 | 13,503 | (a) | 288,964 | 60,764 | 1,300,350 | |||||||||||||||||||||||||||
Michael D. Brown |
2/19/14 | 2,742 | 5,569 | 21.53 | 2/19/24 | 1,463 | (a) | 31,308 | 13,167 | 281,774 | ||||||||||||||||||||||||||
2/10/15 | | 7,734 | 27.46 | 2/10/25 | 2,363 | (a) | 50,568 | 10,634 | 227,568 | |||||||||||||||||||||||||||
David C. Hayes |
2/19/14 | 2,468 | 5,012 | 21.53 | 2/19/24 | 1,317 | (a) | 28,184 | 11,850 | 253,590 | ||||||||||||||||||||||||||
2/10/15 | | 6,960 | 27.46 | 2/10/25 | 2,126 | (a) | 45,496 | 9,570 | 204,798 | |||||||||||||||||||||||||||
Stan R. Soroka |
2/19/14 | | | | | 2,223 | (b) | 47,572 | | | ||||||||||||||||||||||||||
2/19/14 | | | | | 4,594 | (c) | 98,312 | | | |||||||||||||||||||||||||||
2/10/15 | | 6,850 | 27.46 | 2/10/25 | 2,093 | (a) | 44,790 | 9,419 | 201,567 | |||||||||||||||||||||||||||
2/10/15 | | | | | 5,031 | (c) | 107,663 | | |
(1) | Stock options vest in three equal annual installments beginning on the first anniversary of the grant date. |
(2) | For additional information on vesting upon specified termination events or a change in control, see 2015 Executive Compensation Design and DecisionsLong-Term Incentive Awards and Potential Payments Upon Termination or Change in Control. |
(3) | The RSUs denoted as (a) vest in two equal annual installments beginning on the first anniversary of the grant date, the RSUs denoted as (b) vest 80% on the first anniversary of the grant date and 20% on the second anniversary of the grant date and the RSUs denoted as (c) vest in three equal annual installments beginning on the first anniversary of the grant date. |
(4) | Amounts reported are based on the closing price of Hilton Parents common stock on the NYSE as of December 31, 2015 ($21.40) multiplied by the number of outstanding shares. |
(5) | Performance shares vest according to EBITDA CAGR and Relative TSR at the end of a three-year performance period. In the table above, the number and market value of shares that vest based on EBITDA CAGR reflect maximum performance, because Hilton Parents actual performance during the performance periods that have elapsed through December 31, 2015 was between target and maximum, and target performance for shares that vest based on Relative TSR, because Hilton Parents actual performance during the performance periods that have elapsed through December 31, 2015 was between threshold and target. The actual number of shares that will be distributed with respect to the 2014 and 2015 performance shares is not yet determinable. |
2015 Option Exercises and Stock Vested
The following table provides information regarding Hilton Parent shares that vested during 2015 for our NEOs.
Option Awards | Stock Awards | |||||||||||||||
Name |
Number of Shares
Acquired on Exercise |
Value Realized
on Exercise |
Number of Shares
Acquired on Vesting (1) |
Value Realized
on Vesting (2) |
||||||||||||
Mark D. Wang |
| | 152,195 | $ | 4,480,139 | |||||||||||
Michael D. Brown |
| | 1,463 | 41,476 | ||||||||||||
David C. Hayes |
| | 1,316 | 37,309 | ||||||||||||
Stan R. Soroka |
| | 11,151 | 316,131 |
(1) | Includes shares received from the vesting of RSUs and, as to Mr. Wang, also includes the vesting of restricted stock. |
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The restricted stock included in the table above for Mr. Wang relates to equity held prior to Hilton Parents IPO that vested on the date Blackstone owned less than 50% of Hilton Parents common stock. Prior to Hilton Parents IPO, the long-term incentive compensation awarded to Hilton Parents NEOs primarily consisted of the opportunity to make investments in the profit interests of Hilton Parents prior ownership entity. In connection with the IPO, Hilton Parents executive officers, including its NEOs, surrendered their outstanding units in exchange for shares of Hilton Parent restricted stock. The shares of restricted stock received in this exchange were subject to the following vesting: (a) 40% vested as of Hilton Parents IPO pricing date on December 11, 2013, (b) 40% vested on December 11, 2014 and (c) 20% vested on the date Blackstone owned less than 50% of Hilton Parents common stock, contingent upon the executives continued employment through that date. On May 14, 2015, Hilton Parent consummated a secondary offering that resulted in Blackstone owning less than 50% of Hilton Parents common stock.
(2) | Amounts reported are based on the closing price of Hilton Parents common stock on the NYSE on the vesting date. |
2015 Nonqualified Deferred Compensation
Hilton Parent offers to its executives, including all of its NEOs, the opportunity to participate in Hilton Parents EDCP. The table below provides information as of December 31, 2015 for our NEOs who participated in the plan in 2015.
Name |
Executive
Contributions in Last FY (1) |
Registrant
Contributions in Last FY |
Aggregate
Earnings in Last FY (2) |
Aggregate
Withdrawals/ Distributions |
Aggregate
Balance at Last FYE (3) |
|||||||||||||||
Mark D. Wang |
$ | 103,193 | $ | | $ | 8,606 | $ | | $ | 1,191,534 | ||||||||||
Michael D. Brown |
| | | | | |||||||||||||||
David C. Hayes |
388,467 | | 34,387 | | 2,589,328 | |||||||||||||||
Stan R. Soroka |
| | | | |
(1) | The amount in this column is included in the Salary column for 2015 in the Summary Compensation Table. |
(2) | Amounts in this column are not reported as compensation for fiscal year 2015 in the Summary Compensation Table since they do not reflect above-market or preferential earnings. Deferrals may be allocated among investment options that generally mirror the investment options available under Hilton Parents 401(k) plan. Of the available investment options, the one-year rate of return during 2015 ranged from -12.91% to 10.85%. |
(3) | Of the total in this column listed for Mr. Wang, $199,614 was previously reported in the Summary Compensation Table. |
Potential Payments Upon Termination or Change in Control
The following table describes the potential payments and benefits that would have been payable to Messrs. Wang, Brown, Hayes and Soroka under Hilton Parents existing plans, assuming (1) a termination of employment and/or (2) a change in control (CIC) occurred, in each case, on December 31, 2015. 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. Distributions of plan balances that would be made are set forth in the 2015 Nonqualified Deferred Compensation table above.
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 amount paid to Messrs. Wang, Brown, Hayes and Soroka upon a termination or CIC may have varied significantly from the amounts included herein. Factors that could have affected these amounts include the timing
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during the year of any such event, the continued availability of benefit policies at similar prices and the type of termination event that occurs.
Name |
Qualifying
Termination (1) |
CIC Without
Termination |
Qualifying
Termination Within 12 Months Following CIC |
Death or
Disability (6) |
||||||||||||
Mark D. Wang |
||||||||||||||||
Cash Severance (1) |
$ | 2,678,000 | $ | | $ | 2,678,000 | $ | 669,500 | ||||||||
Equity Awards (2) |
| 1,124,273 | 1,592,141 | 1,471,560 | ||||||||||||
Continuation of Benefits (3) |
13,815 | | 13,815 | | ||||||||||||
Outplacement Services (4) |
50,000 | | 50,000 | | ||||||||||||
Other Benefit (5) |
139,050 | | 139,050 | 139,050 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Value of Benefits |
$ | 2,880,865 | $ | 1,124,273 | $ | 4,473,006 | $ | 2,280,110 | ||||||||
Michael D. Brown |
||||||||||||||||
Cash Severance (1) |
$ | 1,027,425 | $ | | $ | 1,027,425 | $ | 666,925 | ||||||||
Equity Awards (2) |
| 196,744 | 278,620 | 257,517 | ||||||||||||
Continuation of Benefits (3) |
13,582 | | 13,582 | | ||||||||||||
Outplacement Services (4) |
25,000 | | 25,000 | | ||||||||||||
Other Benefit (5) |
34,663 | | 34,663 | 34,663 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Value of Benefits |
$ | 1,100,670 | $ | 196,744 | $ | 1,379,290 | $ | 959,105 | ||||||||
David C. Hayes |
||||||||||||||||
Cash Severance (1) |
$ | 924,683 | $ | | $ | 924,683 | $ | 600,233 | ||||||||
Equity Awards (2) |
| 177,063 | 250,743 | 231,753 | ||||||||||||
Continuation of Benefits (3) |
18,474 | | 18,474 | | ||||||||||||
Outplacement Services (4) |
25,000 | | 25,000 | | ||||||||||||
Other Benefit (5) |
23,855 | | 23,855 | 23,855 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Value of Benefits |
$ | 992,012 | $ | 177,063 | $ | 1,242,755 | $ | 855,841 | ||||||||
Stan R. Soroka |
||||||||||||||||
Cash Severance (1) |
$ | 558,775 | $ | | $ | 558,775 | $ | 239,475 | ||||||||
Equity Awards (2) |
| 52,359 | 350,696 | 343,087 | ||||||||||||
Continuation of Benefits (3) |
16,762 | | 16,762 | | ||||||||||||
Outplacement Services (4) |
25,000 | | 25,000 | | ||||||||||||
Other Benefit (5) |
29,663 | | 29,663 | 29,663 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Value of Benefits |
$ | 630,200 | $ | 52,359 | $ | 980,896 | $ | 612,225 |
(1) | For purposes of the table above, a qualifying termination means (x) under the Hilton Parent Severance Plan, a termination of employment either by Hilton Parent without cause or by the executive for good reason, each as defined in the Hilton Parent Severance Plan, and (y) under the Hilton Parent Incentive Plan, a termination by Hilton Parent without cause as defined in the Hilton Parent Incentive Plan. An executive is not deemed to have experienced a qualifying termination as a result of (a) his or her death or disability or (b) solely as a result of a change in control. |
Under the Hilton Parent Severance Plan, whether or not in connection with a change in control, each NEO would have been entitled to receive a cash severance amount equal to one times (two times in the case of Mr. Wang) the sum of the executives base salary and annual cash incentive award under the annual cash incentive plan and, as to Messrs. Brown, Hayes and Soroka, also includes the aggregate annual incentive award under the quarterly cash incentive plan, in each case, payable at target and in effect as of the date of termination.
If the employment of the NEO was terminated due to death or disability, he would have been entitled to receive a prorated bonus. Amounts reported under Death or Disability for each NEO reflect each NEOs target annual bonus under the annual cash incentive plan for the year ended December 31, 2015.
(2) | Amounts represent the value of the acceleration of any unvested performance shares, RSUs and stock options, assuming the acceleration occurred on December 31, 2015 and based on the closing price of Hilton Parents common stock on the NYSE as of December 31, 2015 ($21.40). |
|
Performance shares: If the NEOs employment terminates as a result of death or disability, a prorated portion of the performance shares would immediately vest at target levels. Upon a change in control, a |
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prorated portion of the performance shares will immediately vest based on actual performance through the most recently completed fiscal quarter, or, if performance is unable to be calculated, at target. In the table above, amounts upon a change in control reflect a prorated number of performance shares and are based on actual performance as of December 31, 2015, which was (x) between threshold and target performance as to the shares that vest based on Relative TSR and (y) between target and maximum performance as to the shares that vest based on EBITDA CAGR. Performance shares are prorated based on the number of days in the performance period prior to the termination events described above. |
| RSUs: If the NEOs employment is terminated without cause within 12 months following a change in control or due to his death or disability, all unvested RSUs would immediately vest. |
| Stock options: If the NEOs employment is terminated without cause within 12 months following a change in control or due to his death or disability, all unvested options would immediately vest and become exercisable. In the table above, amounts reported reflect the spread, or the difference between the exercise price and the closing price of Hilton Parents stock on the NYSE as of December 31, 2015. |
(3) | Under the Hilton Parent Severance Plan, upon a qualifying termination, each NEO would be entitled to continued healthcare coverage in an amount equal to the excess of the cost of the coverage over the amount that he would have had to pay if he remained employed for 12 months following the date of termination. In addition, Mr. Wang would have been entitled to receive a cash payment equal to the premiums required to continue his life insurance coverage for 12 months following the termination. Amounts reported assume 2015 rates. |
(4) | Under the Hilton Parent Severance Plan, upon a qualifying termination, each NEO would be entitled to outplacement services for a period of 12 months following the date of termination. Amounts in the table above assume that the cost to Hilton Parent for these outplacement services would be $25,000 ($50,000 in the case of Mr. Wang). |
(5) | Amounts shown represent accrued but unused vacation days. |
(6) | In the event of death of an NEO, in addition to amounts reported in the table above, he would receive benefits from third-party payors under Hilton Parents employer-paid premium life insurance plans. All of Hilton Parents executives are eligible to receive one times their regular annual eligible wages at death. Therefore, if such benefits were triggered for the NEOs on December 31, 2015 under Hilton Parents life insurance plans, the legally designated beneficiary(ies) would have received the following amounts: Mr. Wang$2,500,000; Mr. Brown$1,626,000; Mr. Hayes$1,245,000; and Mr. Soroka$445,000. |
Director Compensation
Following the spin-off, neither our employees nor those affiliated with Blackstone who serve as directors on our board of directors will receive separate compensation for his or her service as a director on our board of directors or on committees thereof. However, we expect to establish compensation practices for our eligible non-employee directors that will be aligned with creating and sustaining equityholder value whereby such directors will receive customary compensation, including cash and share-based compensation, for their service as members of our board of directors and its committees. We expect that all members of our board of directors will be reimbursed for reasonable out-of-pocket expenses incurred in connection with such service. In addition, we expect that our independent directors will be reimbursed for reasonable personal lodging costs when they stay at our resorts.
Hilton Grand Vacations Inc. 2016 Omnibus Incentive Plan
In connection with the spin-off, we intend to adopt a new omnibus incentive plan (the Omnibus Incentive Plan), as a means to attract and retain key personnel, and to provide a means for key personnel to receive shares and other forms of incentive compensation. The Omnibus Incentive Plan will be administered by the compensation committee of our board of directors (the Board), or any other committee designated by the
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Board (the Committee). The Committee will have the sole authority to administer the Omnibus Incentive Plan, including determining the terms and conditions of all awards, and the authority to interpret any provision of the Omnibus Incentive Plan or any award agreement, and to make any other determinations necessary or desirable for the administration of the Omnibus Incentive Plan.
Shares Subject to the Omnibus Incentive Plan
The total number of shares of common stock that may be issued under the Omnibus Incentive Plan is (of which may be granted as incentive stock options). The Omnibus Incentive Plan also contains limits on the size of awards to individuals in a single fiscal year, as follows:
| The maximum number of shares that may be granted as options or stock appreciation rights to one person in a fiscal year is ; |
| With respect to share-based performance compensation awards granted to an individual in a single fiscal year, the maximum number of shares is (and, if the award is settled in cash, the maximum amount may not exceed the fair market value of shares on the last day of the performance period); and |
| With respect to cash-based performance awards granted to an individual in a fiscal year, the maximum amount is $ . |
In general, if awards are forfeited, settled in cash, or otherwise settled without delivery of shares, the undelivered shares will again be available for grant under the Omnibus Incentive Plan (unless stockholder approval would be required under any stock exchange rules). In connection with an acquisition of or combination with another entity, we may grant substitute awards under the Omnibus Incentive Plan, which will not be counted against the limits described above (other than any substitute awards granted in the form of incentive stock options). The Omnibus Incentive Plan will expire on the tenth anniversary of its effective date, although awards granted prior to that date may continue after that date. Stock options and stock appreciation rights granted under the Omnibus Incentive Plan will expire on the date determined by the Committee, which will not be later than the tenth anniversary of the date of grant.
Types of Awards
We may grant stock options, stock appreciation rights, restricted stock units, restricted shares, and other cash and stock-based awards under the Omnibus Incentive Plan on such terms as may be determined by the Committee consistent with the terms of the Omnibus Incentive Plan. Unless otherwise specified by the Committee, if a participants employment is terminated by us without cause or due to death or disability during the 12-month period following a Change in Control (as defined in the Omnibus Incentive Plan), all outstanding time-vesting stock-based awards will become fully vested as of that date, and all outstanding performance-vesting awards will vest based on actual performance through the date of termination (unless actual performance cannot be reasonably assessed, in which case performance-vesting awards will vest at target). The Committee may also provide for the payment of dividends, dividend equivalents, or similar payments in respect of awards, on such terms and conditions determined by the Committee.
The exercise price applicable to stock options and stock appreciation rights must be at least equal to the fair market value of our stock on the date of grant (other than in the case of substitute awards granted in connection with an acquisition or business combination), and stock options and stock appreciation rights may not be repriced or replaced with new awards without stockholder consent.
The Committee may designate any award as a performance compensation award intended to qualify as performance-based compensation under Section 162(m) of the Code. The performance criteria, performance levels, and performance periods will be established by the Committee in its sole discretion, except that eligible performance criteria are limited to those set forth in the Omnibus Incentive Plan, and performance criteria must be established and may only be modified in accordance with Section 162(m) of the Code and the terms of the Omnibus Incentive Plan.
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Awards granted under the Omnibus Incentive Plan are not transferable or assignable by a participant other than by will or by the laws of descent and distribution (unless specifically required pursuant to a domestic relations order or by applicable law).
Effect of Certain Events on Omnibus Incentive Plan and Awards
In the event of a Change in Control (as defined in the Omnibus Incentive Plan) or a dividend, stock split, merger, or other corporate transaction affecting our shares, if the Committee, in its sole discretion, determines an adjustment is necessary or appropriate (such event, an adjustment event), the Committee must make any such adjustments in such manner as it deems equitable, including adjustments to:
| any limit to the number of shares that may be granted under the Omnibus Incentive Plan; |
| the number and kind (if applicable) of shares of common stock or other of our securities that may be issued in respect of awards under the Omnibus Incentive Plan; and |
| the terms of any outstanding award, including (i) the number and kind of shares of common stock or other of our securities subject to outstanding awards, (ii) the applicable exercise or strike price, or (iii) any applicable performance measures. |
In addition, except as may otherwise be provided in an award agreement, in connection with an adjustment event, the Committee may, in its sole discretion, provide for any one or more of the following:
| substitution, assumption, accelerated vesting or exercisability, or termination of, or lapse of restrictions on, awards, or providing for a period of exercisability prior to the occurrence of such event; |
| cancellation of outstanding awards and the payment of the value of such awards, if any, to holders of any such awards, as determined by the Committee; and |
| conversion or replacement of any unvested awards as of the occurrence of such event, into awards subject to continued vesting on the same terms as those applicable to the award prior to conversion or replacement. |
Amendment and Termination of Omnibus Incentive Plan or Awards
The Board may amend or terminate the Omnibus Incentive Plan or any portion thereof at any time in its discretion. The Committee may also amend, terminate, or waive any conditions or rights under any particular award, both prospectively and retroactively, to the extent consistent with the terms of any applicable award agreement. Any amendment, alteration, suspension, discontinuance or termination of the Omnibus Incentive Plan or any award that would materially and adversely affect the rights of any participant or any holder or beneficiary of any award will not be effective without such individuals consent.
However, we will need to receive stockholder approval in the event that any such amendment or termination would materially (i) modify the eligibility requirements for participation in the Omnibus Incentive Plan, or (ii) increase the number of securities that can be issued under the Omnibus Incentive Plan (with exceptions for certain adjustments laid out in the Omnibus Incentive Plan), or to the extent that stockholder approval is required for the amendment or termination by any regulatory or accounting rules.
Clawback/Repayment
All awards are subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with both applicable law, as well as any clawback-related policy adopted by the Board or the Committee. If a participant engages in activity that is detrimental to us (including a material breach of any restrictive covenant or confidentiality obligation), the Committee may provide for the cancellation of any or all of such participants outstanding awards, and/or the forfeiture of any gain realized on the vesting or exercise of awards, and prompt repayment to us of any such gain. In the event that any participant receives an amount in excess of that which he or she should otherwise have received under the terms of such award for any reason, he or she will be required to repay to us any such excess amount.
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Hilton Grand Vacations Inc. 2016 Stock Plan for Non-Employee Directors
In connection with the spin-off, we intend to adopt a new non-employee director stock plan (the Non-Employee Director Stock Plan), as a means to attract and retain non-employee directors (Non-Employee Directors) to serve as members of our Board, and to provide a means for Non-Employee Directors to receive shares and other forms of incentive compensation.
The Non-Employee Director Stock Plan will be administered by the Committee. The Committee will have the authority to administer the Non-Employee Director Stock Plan, including determining the terms and conditions of all awards, and the authority to interpret any provision of the Non-Employee Director Stock Plan or any award agreement, and to make any other determinations necessary or desirable for the administration of the Non-Employee Director Stock Plan.
Shares Subject to the Non-Employee Director Stock Plan
The total number of shares of common stock that may be issued under the Non-Employee Director Stock Plan is , and the maximum number of shares of common stock that may be granted to a Non-Employee Director, together with any cash fees paid to such Non-Employee Director, during a single fiscal year may not exceed $1,000,000 in value.
In general, if awards are forfeited, settled in cash, or otherwise settled without delivery of shares, the undelivered shares will again be available for grant under the Non-Employee Director Stock Plan (unless stockholder approval would be required under any stock exchange rules). The Non-Employee Director Stock Plan will expire on the tenth anniversary of its effective date, although awards granted prior to that date may continue after that date. Stock options and stock appreciation rights granted under the Non-Employee Director Stock Plan will expire on the date determined by the Committee, which will not be later than the tenth anniversary of the date of grant.
Types of Awards
We may grant non-qualified stock options, stock appreciation rights, restricted stock units, restricted shares, and other stock-based awards under the Non-Employee Director Stock Plan consistent with the terms of the Non-Employee Director Stock Plan. In the event of a termination of a Non-Employee Directors service for Cause (as defined in the Non-Employee Director Stock Plan), all outstanding vested and unvested stock options and stock appreciation rights will immediately expire. With respect to stock options and stock appreciation rights only, in the event of a termination due to death or Disability (as defined in the Non-Employee Director Stock Plan), all such awards will immediately become fully vested and exercisable, and remain as such for one year following such termination (but in no event longer than the end of the ten year period following the grant date of the award). The Committee may also provide for the payment of dividends, dividend equivalents, or similar payments in respect of awards, on such terms and conditions determined by the Committee.
The exercise price applicable to stock options and stock appreciation rights must be at least equal to the fair market value of our stock on the date of grant (other than in the case of substitute awards granted in connection with an acquisition or business combination), and stock options and stock appreciation rights may not be repriced or replaced with new awards without shareholder approval.
Awards granted under the Non-Employee Director Stock Plan are not transferable or assignable by a participant other than by will or by the laws of descent and distribution (unless specifically required pursuant to a domestic relations order or by applicable law).
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Effect of Certain Events on Non-Employee Director Stock Plan and Awards
In the event of a Change in Control or a dividend, stock split, merger, or other corporate transaction affecting our shares, if the Committee, in its sole discretion, determines an adjustment is necessary or appropriate (such event, an adjustment event), the Committee must make any such adjustments in such manner as it deems equitable, including adjustments to:
| any limit to the number of shares that may be granted under the Non-Employee Director Stock Plan; |
| the number and kind (if applicable) of shares of common stock or other of our securities that may be issued in respect of awards under the Non-Employee Director Stock Plan; and |
| the terms of any outstanding award, including (i) the number and kind of shares of common stock or other of our securities subject to outstanding awards, or (ii) the applicable exercise or strike price. |
In addition, except as may otherwise be provided in an award agreement, in connection with an adjustment event, the Committee may, in its sole discretion, provide for any one or more of the following:
| substitution, assumption, accelerated vesting or exercisability, or termination of, or lapse of restrictions on, awards, or providing for a period of exercisability prior to the occurrence of such event; |
| cancellation of outstanding awards and the payment of the value of such awards, if any, to holders of any such awards, as determined by the Committee; and |
| conversion or replacement of any unvested awards as of the occurrence of such event, into awards subject to continued vesting on the same terms as those applicable to the award prior to conversion or replacement. |
Amendment and Termination of Non-Employee Director Stock Plan or Awards
The Board may amend or terminate the Non-Employee Director Stock Plan or any portion thereof at any time in its discretion. The Committee may also amend, terminate, or waive any conditions or rights under any particular award, both prospectively and retroactively, to the extent consistent with the terms of any applicable award agreement. Any amendment, alteration, suspension, discontinuance or termination of the Non-Employee Director Stock Plan or any award that would materially and adversely affect the rights of any participant or any holder or beneficiary of any award will not be effective without such individuals consent.
However, we will need to receive stockholder approval in the event that any such amendment or termination would materially (i) modify the eligibility requirements for participation in the Non-Employee Director Stock Plan, or (ii) increase the number of securities that can be issued under the Non-Employee Director Stock Plan (with exceptions for certain adjustments laid out in the Non-Employee Director Stock Plan), or to the extent that stockholder approval is required for the amendment or termination by any regulatory or accounting rules.
Clawback/Repayment
All awards are subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with both applicable law, as well as any clawback-related policy adopted by the Board or the Committee. In the event that any Non-Employee Director receives an amount in excess of that which he or she should otherwise have received under the terms of such award for any reason, he or she will be required to repay to us any such excess amount.
Non-Qualified Deferred Compensation
In connection with the spin-off, we intend to adopt a new deferred compensation plan. Pursuant to our Executive Deferred Compensation Plan (EDCP), specified eligible employees, including our NEOs, may defer
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up to 100% of such employees annual salary and bonus. Deferral elections are made by eligible employees in each calendar year preceding the year compensation is otherwise payable. Contributions to the EDCP will consist of participants elective deferral contributions, and discretionary employer contributions as credited to certain participants accounts from time to time in the Boards discretion. Eligible employees are permitted to make individual investment elections in notional funds selected by the plan administrator that will determine the rate of return on their deferral amounts. Participants may change their investment elections at any time, in accordance with the procedures adopted by the plan administrator. The EDCP does not provide any above-market returns or preferential earnings to participants, and the deferrals and their earnings are always 100% vested.
Generally, account balances will be distributed in accordance with the deferral election made by the participant. The participant must make two payout elections, one in the case of termination and one in the case of retirement. Participants may also 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. 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 (as defined in the Omnibus Incentive Plan), 100% of the value of the eligible employees deferred compensation account will be distributed.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreements with Hilton Parent and Park Parent Related to the Spin-Off
This section of the information statement summarizes material agreements between us and Hilton Parent (and, in certain cases, Park Parent and certain affiliates of Blackstone) that will govern the ongoing relationships between the two companies after the spin-off and are intended to provide for an orderly transition to our status as an independent, publicly traded company. Additional or modified agreements, arrangements and transactions, which would be negotiated at arms length, may be entered into between us and Hilton Parent after the spin-off. These summaries are qualified in their entirety by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement.
Following the spin-off, we and Hilton will operate independently, and neither will have any ownership interest in the other. To govern certain ongoing relationships between us and Hilton after the spin-off and to provide mechanisms for an orderly transition, we, Hilton Parent and Park Parent intend to enter into agreements pursuant to which certain services and rights will be provided for following the spin-off, and we, Hilton Parent and Park Parent will indemnify each other against certain liabilities arising from our respective businesses. The following is a summary of the terms of the material agreements we expect to enter into with Hilton Parent and Park Parent.
Distribution Agreement
We intend to enter into a Distribution Agreement with Hilton Parent and Park Parent prior to the distribution of our shares of common stock to Hilton Parent stockholders. The Distribution Agreement will set forth our agreements with Hilton and Park Hotels & Resorts regarding the principal actions to be taken in connection with our spin-off from Hilton. It also will set forth other agreements that govern certain aspects of our relationship with Hilton and Park Hotels & Resorts following the spin-off.
Transfer of Assets and Assumption of Liabilities . The Distribution Agreement will provide for certain transfers of assets and assumptions of liabilities by each of Hilton, HGV and Park Hotels & Resorts. The Distribution Agreement also will provide for the settlement or extinguishment of certain liabilities and other obligations among Hilton, HGV and Park Hotels & Resorts. See Unaudited Pro Forma Consolidated Financial Statements. In particular, the Distribution Agreement will provide that, subject to the terms and conditions contained in the Distribution Agreement:
| all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Timeshare business will be retained by or transferred to us or our subsidiaries; |
| all of the assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) associated with the Separated Real Estate business will be retained by or transferred to Park Parent or its subsidiaries; |
| all other assets and liabilities (including whether accrued, contingent or otherwise, and subject to certain exceptions) of Hilton will be retained by or transferred to Hilton Parent or its subsidiaries (other than us, Park Parent or our respective subsidiaries); |
| liabilities (including whether accrued, contingent or otherwise) related to, arising out of or resulting from businesses of Hilton that were previously terminated or divested will be allocated among the parties to the extent formerly owned or managed by or associated with such parties or their respective businesses; |
| each of HGV and Park Hotels & Resorts will assume or retain any liabilities (including under applicable federal and state securities laws) relating to, arising out of or resulting from the Form 10 registering its common stock to be distributed by Hilton Parent in the spin-off and from any disclosure documents that offer for sale securities in transactions related to the spin-off, subject to exceptions for certain information for which Hilton Parent will retain liability; and |
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| except as otherwise provided in the Distribution Agreement or any ancillary agreement, we will be responsible for any costs or expenses incurred by us following the distribution in connection with the transactions contemplated by the Distribution Agreement, including costs and expenses relating to legal counsel, financial advisors and accounting advisory work related to the distribution. |
In addition, notwithstanding the allocation described above, we, Park Hotels & Resorts and Hilton will agree that losses related to certain contingent liabilities (and related costs and expenses), which generally are not specifically attributable to any of the Timeshare business, the Separated Real Estate business or the retained business of Hilton (Shared Contingent Liabilities), will be apportioned among the parties according to fixed percentages set forth in the Distribution Agreement. Subject to certain limitations and exceptions, Hilton shall generally be vested with the exclusive management and control of all matters pertaining to any such Shared Contingent Liabilities, including the prosecution of any claim and the conduct of any defense.
Further Assurances . To the extent that any transfers of assets or assumptions of liabilities contemplated by the Distribution Agreement have not been consummated on or prior to the date of the distribution, the parties will agree to cooperate with each other and use commercially reasonable efforts to effect such transfers or assumptions as promptly as practicable following the date of the distribution. In addition, each of the parties will agree to cooperate with each other and use commercially reasonable efforts to take or to cause to be taken all actions, and to do, or to cause to be done, all things reasonably necessary under applicable law or contractual obligations to consummate and make effective the transactions contemplated by the Distribution Agreement and the ancillary agreements.
Representations and Warranties . In general, neither we, Park Hotels & Resorts nor Hilton will make any representations or warranties regarding any assets or liabilities transferred or assumed, any consents or approvals that may be required in connection with such transfers or assumptions, the value or freedom from any lien or other security interest of any assets transferred, the absence of any defenses relating to any claim of either party or the legal sufficiency of any conveyance documents, or any other matters. Except as expressly set forth in the Distribution Agreement or in any ancillary agreement, all assets will be transferred on an as is, where is basis.
The Distribution . The Distribution Agreement will govern the rights and obligations of the parties regarding the proposed distribution and certain actions that must occur prior to the proposed distribution, such as the election of officers and directors and the adoption of our amended and restated certificate of incorporation and bylaws. Prior to the distribution, we will issue or transfer shares of our common stock to Hilton Parent in a share split, dividend or otherwise, to the extent necessary to ensure that Hilton Parent shall hold the necessary number of shares of our common stock required to be distributed in the distribution. Hilton Parent will cause the distribution agent to distribute to Hilton Parent stockholders that hold shares of Hilton Parent common stock as of the applicable record date all the issued and outstanding shares of our common stock. Hilton Parent will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the distribution and, to the extent it determines to so proceed, to determine the date of the distribution.
Conditions . The Distribution Agreement will provide that the distribution is subject to several conditions that must be considered satisfied or waived by Hilton Parent in its sole discretion. For further information regarding these conditions, see The Spin-Off Conditions to the Spin-Off. Hilton Parent may, in its sole discretion, determine the distribution date and the terms of the distribution and may at any time prior to the completion of the distribution decide to abandon or modify the distribution.
Termination . The Distribution Agreement will provide that it may be terminated by Hilton Parent at any time in its sole discretion prior to the date of the distribution.
Release of Claims and Indemnification . We, Park Hotels & Resorts and Hilton will agree to broad releases pursuant to which we will each release the others and certain related persons specified in the Distribution Agreement from any claims against any of them that arise out of or relate to acts or events occurring or failing to
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occur or alleged to occur or to have failed to occur or any conditions existing or alleged to have existed at or prior to the time of the distribution. These releases will be subject to certain exceptions set forth in the Distribution Agreement and the ancillary agreements.
The Distribution Agreement will provide for cross-indemnities that, except as otherwise provided in the Distribution Agreement, are principally designed to place financial responsibility for the obligations and liabilities of our business with us, financial responsibility for the obligations and liabilities of the business of Park Hotels & Resorts with Park Hotels & Resorts and financial responsibility for the obligations and liabilities of Hiltons business with Hilton. Specifically, each party will, and will cause its subsidiaries and affiliates to, indemnify, defend and hold harmless each other party, its affiliates and subsidiaries and each of its officers, directors, employees and agents for any losses arising out of or otherwise in connection with:
| the liabilities or alleged liabilities each such party assumed or retained pursuant to the Distribution Agreement; and |
| any breach by such party of the Distribution Agreement or any ancillary agreement unless such ancillary agreement expressly provides for separate indemnification therein, in which case any such indemnification claims will be made thereunder. |
The amount of each partys indemnification obligations will be subject to reduction by any insurance proceeds received by the party being indemnified and by any proceeds received from a third party for indemnification for such liability. The Distribution Agreement also will specify procedures with respect to claims subject to indemnification and related matters. Indemnification with respect to taxes will be governed solely by the Tax Matters Agreement.
Insurance . Following the spin-off, we generally will be responsible for obtaining and maintaining our own insurance coverage.
Dispute Resolution . In the event of any dispute arising out of the Distribution Agreement, the general counsels of the disputing parties, and/or such other representatives as such parties designate, will negotiate to resolve any disputes among such parties. If the disputing parties are unable to resolve the dispute in this manner within a specified period of time, as set for in the Distribution Agreement, then unless agreed otherwise by such parties, the disputing parties will submit the dispute to mediation for an additional specified period of time, as set forth in the Distribution Agreement. If the disputing parties are unable to resolve the dispute in this manner, the dispute will be resolved through binding arbitration.
Other Matters Governed by the Distribution Agreement . Other matters governed by the Distribution Agreement will include access to financial and other information, intellectual property, confidentiality, access to and provision of records and treatment of outstanding guarantees and similar credit support.
Employee Matters Agreement
We intend to enter into an Employee Matters Agreement with Hilton Parent and Park Parent that will govern the respective rights, responsibilities and obligations of Hilton, Park Hotels & Resorts and us after the spin-off with respect to transferred employees, defined benefit pension plans, defined contribution plans, non-qualified retirement plans, employee health and welfare benefit plans, incentive plans, equity-based awards, collective bargaining agreements and other employment, compensation and benefits-related matters. The Employee Matters Agreement will provide for, among other things, the allocation and treatment of assets and liabilities arising out of incentive plans, retirement plans and employee health and welfare benefit plans in which our employees participated prior to the spin-off, and continued participation in, certain of Hiltons compensation and benefit plans for a specified period of time following the spin-off. Generally, other than with respect to certain specified compensation and benefit plans and liabilities, we will assume or retain sponsorship of, and the liabilities relating to, compensation and benefits plans and employee-related liabilities relating to our current and former employees. The Employee Matters Agreement also will provide that outstanding Hilton Parent equity-based
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awards will be equitably adjusted or converted, as applicable, in connection with the spin-off. After the spin-off, our employees will no longer actively participate in Hiltons compensation and benefit plans or programs (other than specified compensation and benefit plans), and we will establish plans or programs for our employees as described in the Employee Matters Agreement. We also will establish or maintain plans and programs outside of the United States as may be required under applicable law or pursuant to the Employee Matters Agreement.
Tax Matters Agreement
We intend to enter into a Tax Matters Agreement with Hilton Parent and Park Parent that will govern the respective rights, responsibilities and obligations of Hilton Parent, Park Parent and us after the spin-off with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns. Although binding between the parties, the Tax Matters Agreement will not be binding on the IRS. As a subsidiary of Hilton Parent, we have (and will continue to have following the spin-off) several liability with Hilton Parent to the IRS for the consolidated U.S. federal income taxes of the Hilton Parent consolidated group relating to the taxable periods in which we were part of that group. However, the Tax Matters Agreement will specify the portion, if any, of this tax liability for which we will bear responsibility, and Hilton Parent and Park Parent will agree to indemnify us against any amounts for which we are not responsible. The Tax Matters Agreement also will provide special rules for allocating tax liabilities in the event that the spin-off is not tax-free. In general, under the Tax Matters Agreement, each party is expected to be responsible for any taxes imposed on Hilton Parent that arise from the failure of the spin-off and certain related transactions to qualify as a tax-free transaction for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code, as applicable, and certain other relevant provisions of the Code, to the extent that the failure to qualify is attributable to actions taken by such party. The parties are expected to share responsibility, in accordance with their enterprise values, for any such taxes imposed on Hilton Parent that are not attributable to actions taken by a party.
The Tax Matters Agreement also will provide for certain covenants that may restrict our ability to issue equity and pursue strategic or other transactions that otherwise could maximize the value of our business, including:
| for two years after the spin-off, engaging in any transaction involving the acquisition of shares of HGV Parent stock or in certain issuances of shares of HGV Parent stock; |
| for two years after the spin-off, merging or consolidating with any other person or dissolving or liquidating in whole or in part; |
| for two years after the spin-off, selling or otherwise disposing of, or allowing the sale or other disposition of, more than 35% of our consolidated gross or net assets; or |
| for two years after the spin-off, repurchasing our shares, except in certain circumstances. |
Each of these covenants may discourage or delay a change of control that you may consider favorable. However, these restrictions are generally inapplicable in the event that the IRS has granted a favorable ruling to Hilton Parent, Park Parent or us or in the event that Hilton Parent, Park Parent or we have received an opinion from a tax advisor that we can take such actions without adversely affecting the tax-free status of the spin-off and related transactions.
Transition Services Agreement
We intend to enter into a Transition Services Agreement with Hilton Parent under which Hilton Parent or one of its affiliates will provide us with certain services for a limited time to help ensure an orderly transition following the distribution.
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We anticipate that the services that Hilton will agree to provide us under the Transition Services Agreement may include certain finance, information technology, human resources and compensation, facilities, legal and compliance, external relations and communications, and public company services. We will pay Hilton Parent for any such services utilized at agreed amounts as set forth in the Transition Services Agreement. In addition, for a term set forth in the Transition Services Agreement, we and Hilton Parent may mutually agree on additional services to be provided by Hilton to us that were provided to us by Hilton prior to the distribution but were omitted from the Transition Services Agreement at pricing based on market rates that are reasonably agreed by the parties.
Stockholders Agreement
We intend to enter into a Stockholders Agreement with Hilton Parent and certain entities affiliated with Blackstone intended to preserve the tax-free status of the distributions. The Stockholders Agreement will provide for certain covenants that may restrict certain issuances or repurchases of our stock, dispositions of our common stock by Blackstone, and transfers of interests in certain Blackstone entities that directly or indirectly own our common stock or the common stock of Hilton Parent or Park Parent. Additionally, the Stockholders Agreement may restrict issuances or repurchases of stock by Hilton Parent.
License Agreement
In connection with the spin-off, we will enter into a license agreement with Hilton granting us the right to use certain Hilton-branded trademarks, trade names and related intellectual property in our business. The license agreement will have a term of 100 years, and we will pay royalties to Hilton under the agreement that are equal to five percent of our contract sales, as well as five percent of certain other revenues earned in association with the Licensed Marks (as defined in the license agreement), as well as specified additional fees, including in regard to our participation in the Hilton HHonors program. In addition, we will be required to reimburse Hilton for specified certain costs, such as marketing campaigns in which we participate.
We expect the license agreement will provide us with, among other things, the exclusive license to design, build, manage and maintain existing and future timeshare resorts under the Hilton Grand Vacations brand throughout the world. We generally will be required to comply with standards and policies applicable to each of the Hilton brands or trademarks we use. Hilton will have specified inspection and approval rights to monitor our compliance with these standards. In addition, we will be required to comply with Hiltons customer data privacy and security policies.
The license agreement will also grant us the right to offer our members the ability to exchange their Club points into Hilton HHonors points for stays at any of the Hilton properties or for other HHonors rewards. We will also have the right to offer our rental guests HHonors points for stays at the resorts we manage.
The license agreement will provide both parties with customary termination rights for specified events of default, including for material breaches that are not cured and insolvency events. In addition, Hilton will have specified additional termination rights, including if we merge with, consolidate with or by acquired by a competitor of Hilton.
Under our existing license arrangement with Hilton, we license the Hilton Grand Vacations brand and pay Hilton an annual fee based on a percentage of revenue for rights to operate under this brand. For the years ended December 31, 2015, 2014 and 2013, we paid Hilton license fees of $74 million, $62 million and $56 million, respectively. Under our current HHonors program arrangement with Hilton, we purchase Hilton HHonors points from Hilton based on an estimated cost per point for the costs of future club exchanges. For the years ended December 31, 2015, 2014 and 2013, we paid Hilton $56 million, $48 million and $57 million, respectively.
Hotel Conversions and Other Hotel Transactions
In November 2015, we made a $2 million distribution to Hilton in connection with a future conversion of a portion of one of Hiltons wholly owned hotel properties to a timeshare property.
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In October 2014, a wholly owned subsidiary of Hilton transferred certain floors of the Hilton New York to us for conversion to vacation ownership units in phases for sale as deeded fee simple interests in perpetuity. The wholly owned subsidiary of Hilton retained exclusive rights to occupy and operate these floors pursuant to a license that expires in part on June 30, 2016 and on December 31, 2016 as to the remainder.
In April 2014, in connection with a sale of certain land and easement rights for a timeshare project, we transferred $14 million of development costs capitalized in inventory to a wholly owned subsidiary of Hilton.
We pay rental fees and fees for other amenities to certain Hilton wholly owned hotels. During the years ended December 31, 2015, 2014 and 2013, we paid fees of $25 million, $28 million and $26 million, respectively.
Registration Rights Agreement
In connection with its initial public offering, Hilton Parent entered into a registration rights agreement with Blackstone. As required by that agreement, 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 will 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.
Indemnification Agreements
We intend to enter into indemnification agreements with our directors and executive officers that will be effective upon completion of the spin-off. These agreements will require us to indemnify these individuals to the fullest extent permitted by Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Products and Services
From time to time, we may purchase products and services from entities affiliated with or owned by Blackstone. We regularly negotiate arrangements with third-party providers to secure competitive pricing and timely delivery of goods and services. In certain negotiated instances, these arrangements may permit resorts that we own and/or manage to elect whether or not to contract with such third-party providers on the terms we negotiated.
Other Relationships
In April 2014, we entered into a fee-for-service agreement with an affiliate of Blackstone to sell VOIs at a property for which we earn commissions. During the years ended December 31, 2015 and 2014, we earned commissions of $137 million and $25 million, respectively.
Upon consummation of the spin-off, we anticipate that T. Rowe Price Associates, Inc. may be a beneficial holder of more than 5 percent of our outstanding common stock upon based on a Schedule 13G that it filed with the SEC on February 12, 2016 reporting its ownership of Hilton Parent. T. Rowe Price Retirement Plan Services, Inc. provides recordkeeping and management services for three of Hilton Parents retirement savings plans and received in 2015, in the aggregate, approximately $6.4 million for investment management services and approximately $1.0 million for recordkeeping services in connection with the three plans. We anticipate that T. Rowe Price Retirement Plan Services, Inc. may provide recordkeeping and management services for HGV Parents retirement savings plans following the spin-off.
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In June 2016, in connection with a timeshare project, we acquired certain floors, including legal title thereto, at the Embassy Suites Washington, D.C. from a wholly owned subsidiary of Hilton Parent that will become a subsidiary of Park Parent upon consummation of the spin-off. The net book value of these assets was approximately $33 million, which included approximately $7 million of related deferred tax liabilities. No cash consideration was paid for this transfer. See Note 11: Related Party Transactions of the accompanying unaudited condensed consolidated financial statements for further information.
Statement of Policy Regarding Transactions with Related Persons
Prior to the consummation of the spin-off, 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 will require 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 percent of our common stock, including Blackstone) 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 (expected to be the audit committee). 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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DESCRIPTION OF CERTAIN INDEBTEDNESS
From and after the spin-off, each of Hilton, HGV and Park Hotels & Resorts will, in general, each be responsible for the debts, liabilities, rights and obligations related to the business or businesses that it owns and operates following consummation of the spin-off. See Certain Relationships and Related Party TransactionsAgreements with Hilton Parent and Park Parent Related to the Spin-Off.
Financing Transactions in Connection with the Spin-Off
Subject to market conditions, we expect to complete one or more financing transactions on or prior to the completion of the spin-off. As a result of these financing transactions, upon consummation of the spin-off we expect to have total indebtedness of between $400 million and $500 million, excluding between $400 million and $450 million expected to be outstanding under the non-recourse Timeshare Facility and between $250 million and $300 million of non-recourse Securitized Debt expected to be outstanding. Included in our expected outstanding Timeshare Facility balance is an intended expansion of the capacity and borrowing of up to an additional $250 million to $300 million, which proceeds will be used to distribute cash to Hilton Parent. After giving effect to the foregoing financing transactions, upon consummation of the spin-off, we expect to have between $1.05 billion and $1.25 billion of total recourse and non-recourse indebtedness outstanding. We have not yet identified the specific sources of funds and there can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. The financing transactions will be described in greater detail in a subsequent amendment to the registration statement of which this information statement forms a part. See The Spin-OffFinancing Transactions.
Timeshare Facility
Hilton Grand Vacations Trust I LLC, our wholly owned subsidiary, is party to a loan agreement dated as of May 9, 2013 with Wells Fargo Bank, National Association, as securities intermediary and paying agent 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 loan agreement, as amended, we are permitted to borrow up to a maximum amount of $450 million. 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 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 percent 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 or daily one-month LIBOR plus a usage fee. The usage fee is 1.30 percent per annum, increasing to 1.80 percent per annum after the end of the commitment term. Interest is payable monthly. The commitment term ends on August 17, 2018, 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. The borrower acquires the timeshare loans from HRC pursuant to a sale and contribution agreement, which contains customary representations, warranties and covenants from HRC. 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.
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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.
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.
Securitized Debt
On August 8, 2013, HGV Depositor LLC, our wholly owned subsidiary (the Depositor), offered $250 million in aggregate principal amount of 2.28 percent notes backed by timeshare loans (the 2013-A asset-backed notes) issued by Hilton Grand Vacations Trust 2013-A, a Delaware statutory trust (the 2013-A Trust), in a private transaction that was not subject to the registration requirements of the Securities Act. The 2013-A 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 2013-A asset-backed notes are backed by a pledge of assets of the 2013-A 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 2013-A asset-backed notes bear interest at a fixed rate of 2.28 percent per annum and have a stated maturity of January 25, 2026. The 2013-A asset-backed notes are non-recourse obligations of the 2013-A Trust and are payable solely from the pool of timeshare loans and related assets owned by the 2013-A Trust. A portion of the net proceeds from the 2013-A asset-backed notes were used to repay a portion of the Timeshare Facility.
On June 18, 2014, the Depositor offered $303.6 million in aggregate principal amount of 1.77 percent class A asset-backed notes and $46.4 million in aggregate principal amount of 2.07 percent class B asset-backed notes, in each case backed by timeshare loans (the 2014-A asset-backed notes) issued by Hilton Grand Vacations Trust 2014-A, a Delaware statutory trust (the 2014-A Trust), in a private transaction that was not subject to the registration requirements of the Securities Act. The 2014-A asset-backed notes were sold pursuant to a note purchase agreement dated June 10, 2014, by and among HRC, the Depositor, and Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as initial purchasers. The 2014-A asset-backed notes are backed by a pledge of assets of the 2014-A 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 2014-A asset-backed notes bear interest at a fixed rate of 1.77 percent per annum, in the case of the class A asset-backed notes, and 2.07 percent per annum, in the case of the class B asset-backed notes, and have a stated maturity of November 25, 2026. The 2014-A asset-backed notes are non-recourse obligations of the 2014-A Trust and are payable solely from the pool of timeshare loans and related assets owned by the 2014-A Trust. A portion of the net proceeds from the 2014-A asset-backed notes were used to repay a portion of the Timeshare Facility.
The 2013-A asset-backed notes and the 2014-A asset-backed notes were each issued pursuant to a separate indenture, which includes customary representations, warranties and covenants. The 2013-A Trust and the 2014-A Trust (the Trusts) were each established by the Depositor pursuant to a separate amended and restated trust agreement, which includes customary representations, warranties and covenants. The timeshare loans owned by the Trusts were acquired from HRC pursuant to purchase agreements, which contain customary representations, warranties and covenants from HRC, and are being serviced by Grand Vacations Services LLC, our wholly owned subsidiary (the Servicer), pursuant to separate servicing agreements, which contain customary
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representations, warranties and covenants. The Servicer performs certain servicing and administrative functions with respect to the timeshare loans and is entitled to receive monthly fees from the Trusts for servicing the timeshare loans. HRC has guaranteed the performance of the Servicers obligations under the servicing agreements pursuant to performance guaranties. HRC acts as the administrator of the 2013-A Trust and the 2014-A Trust under separate administration agreements, which include customary representations, warranties and covenants.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this information statement, all of the outstanding shares of our common stock are indirectly beneficially owned by Hilton Parent. After the spin-off, Hilton will not own any shares of our common stock.
The following tables provide information with respect to the anticipated beneficial ownership of our common stock by:
| each of our stockholders who we believe (based on the assumptions described below) will beneficially own more than 5% of our outstanding common stock; |
| each of our directors following the spin-off; |
| each of the individuals we expect to be our named executive officers with respect to 2016; and |
| all of our directors and executive officers following the spin-off as a group. |
To the extent our directors and executive officers own Hilton Parent common stock at the record date of the spin-off, they will participate in the distribution on the same terms as other holders of Hilton Parent common stock.
Except as otherwise noted in the footnotes below, each person or entity identified in the tables below has sole voting and investment power with respect to the securities owned by such person or entity. Beneficial ownership is determined in accordance with the rules of the SEC. Unless otherwise indicated, the address of each named person is c/o 7930 Jones Branch Drive, Suite 1100, McLean, Virginia 22102.
Immediately following the spin-off, we estimate that approximately million shares of our common stock will be issued and outstanding, based on the number of shares of Hilton Parent common stock expected to be outstanding as of the record date and based on the distribution ratio. The actual number of shares of our common stock outstanding following the spin-off will be determined on , 2016, the record date.
* | Represents less than 1%. |
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(1) | Based on Hilton Parent common stock beneficially owned by Blackstone as reported in a Schedule 13G/A filed on February 16, 2016, reflecting 383,603,683 shares of Hilton Parent common stock directly held by HLT Holdco III LLC, 14,032,755 shares of Hilton Parent common stock directly held by HLT Holdco II LLC, 39,738,987 shares of Hilton Parent common stock directly held by HLT BREP VI.TE.2 Holdco LLC, 1,397,649 shares of Hilton Parent common stock directly held by HLT BREH VI Holdco LLC, 235,542 shares of Hilton Parent common stock directly held by HLT BREH Intl II Holdco LLC, 13,700,470 shares of Hilton Parent common stock directly held by HLT A23 Holdco LLC and 82,238 shares of Hilton Parent common stock directly held by HLT A23 BREH VI Holdco LLC (together, the Blackstone Funds). The sole member of HLT Holdco III LLC is HLT Holdco II LLC. The sole member of HLT Holdco II LLC is HLT Holdco LLC. |
The sole member of HLT Holdco 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 sole member of each of BREA VI L.L.C. and BMA V L.L.C. is Blackstone Holdings III L.P.
The sole member of HLT A23 Holdco LLC is Blackstone A23 Holdings LLC. The managing members of Blackstone A23 Holdings LLC are Blackstone Real Estate Partners VI L.P. and Blackstone Capital Partners V L.P. The managing member of HLT A23 BREH VI Holdco LLC is Blackstone Real Estate Holdings VI L.P.
The sole member of HLT BREH Intl II Holdco LLC is HLT BREH Intl II Holdings Holdco LLC. The controlling member of HLT BREH Intl II Holdings Holdco LLC is Blackstone Real Estate Holdings International II-Q L.P. The general partner of Blackstone Real Estate Holdings International II-Q L.P. is BREP International II-Q GP L.P. The general partner of BREP International II-Q GP L.P. is BREP International II-Q GP L.L.C. The sole member of BREP International II-Q GP L.L.C. is Blackstone Holdings III L.P.
The sole member of HLT BREP VI.TE.2 Holdco LLC is Blackstone Real Estate Partners VI.TE.2 L.P. The general partner of Blackstone Real Estate Partners VI.TE.2 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 BREA VI L.L.C. is Blackstone Holdings III L.P.
The sole member of HLT BREH VI Holdco LLC is HLT BREH VI Holdings Holdco LLC. The controlling member of HLT BREH VI Holdings Holdco LLC is Blackstone Real Estate Holdings VI L.P. The general partner of Blackstone Real Estate Holdings VI L.P. is BREP VI Side-by-Side GP L.L.C. The sole member of BREP VI Side-by-Side GP 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, Stephen A. Schwarzman. Each of such Blackstone entities (other than each of the Blackstone Funds to the extent they directly hold securities reported herein) and Mr. Schwarzman may be deemed to beneficially own the shares beneficially owned by the Blackstone Funds directly or indirectly controlled by it or him, but each disclaims beneficial ownership of such shares. Also reflects 636,939 shares of Hilton Parent common stock held directly by a foundation over which Mr. Schwarzman may be deemed to have investment and voting power, based on information provided to Hilton Parent on July 29, 2016. 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.
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As of the date of this information statement, Blackstone entities have pledged, hypothecated or granted security interests in substantially all of the shares of Hilton Parent common stock held by them pursuant to a margin loan agreement with customary default provisions. We anticipate that shares of our common stock received by Blackstone in the spin-off in respect of such pledged Hilton Parent shares would similarly be subject to the lien of such margin loan agreement. Accordingly, in the event of a default under the margin loan agreement, the secured parties may foreclose upon any and all shares of common stock pledged to them and may seek recourse against the borrower.
(2) | Based on Hilton Parent common stock beneficially owned by T. Rowe Price Associates, Inc., as reported in a Schedule 13G filed on February 12, 2016, reflecting T. Rowe Price Associates, Inc. has sole voting power over 21,512,813 shares of Hilton Parent common stock and sole dispositive power over 64,713,738 shares of Hilton Parent common stock. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202. |
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The following description of certain terms of our common stock as it will be in effect upon completion of the spin-off is a summary and is qualified in its entirety by reference to our amended and restated certificate of incorporation and bylaws, as they will be in effect upon completion of the spin-off, forms of which are filed as exhibits to the registration statement of which this information statement forms a part, and by the General Corporation Law of the State of Delaware (the DGCL). See Where You Can Find More Information.
Under Description of Capital Stock, we, us, our and our company refer to HGV Parent and not to any of its subsidiaries.
General
Our purpose is to engage in any lawful act or activity for which corporations may now or hereafter be organized under the DGCL. Our authorized capital stock consists 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 elected by our stockholders generally. 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 our 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 spin-off 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 at the time of the completion of the spin-off. 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; |
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| the redemption or repurchase 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; |
| 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 rights of 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 effect 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 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 our chief executive officer, 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, or, for so long as Blackstone and its affiliates continue to beneficially own at least 40 percent of the total voting power of all the then outstanding shares of our stock entitled to vote generally in the election of directors, Blackstone. For so long as Blackstone and its affiliates continue to beneficially own at least 40 percent of the total voting power of all the then outstanding shares of stock of the Company entitled to vote generally in the election of directors, Blackstones consent is required for any amendment to this provision of our amended and restated bylaws.
To the extent permitted under applicable law, we may conduct meetings by remote communications, including by webcast.
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Anti-Takeover Effects of Our Certificate of Incorporation and 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 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 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 specified by our bylaws about the stockholder, its affiliates and any proposed business or nominee for election as a director, including information about the economic interest of the stockholder, its affiliates and any proposed nominee in us. 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 provide for certain procedures with respect to the resignation of any director who does not receive a majority of the votes cast in an uncontested election. 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 amended and restated 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 percent 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 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 or are 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 certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation provides that from and after the date on which Blackstone and its affiliates cease to beneficially own at least 40 percent of the total
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voting power of all the then outstanding shares of our stock entitled to vote generally in the election of directors, 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. For so long as Blackstone and its affiliates continue to beneficially own at least 40 percent of the total voting power of all the then outstanding shares of the Company entitled to vote generally in the election of directors, Blackstones consent is required for any amendment to this provision of our amended and restated certificate of incorporation.
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 Blackstone and its affiliates cease to beneficially own at least 5 percent of the then outstanding shares of our common stock, we will automatically become subject to Section 203 of the DGCL. In general, Section 203 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 percent 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 percent 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 percent 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.
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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 provides that unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on behalf of our company, (ii) action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of our company to our company or our companys stockholders, (iii) action asserting a claim against our company or any director or officer of our company arising pursuant to any provision of the DGCL, 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.
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, to the maximum extent permitted from time to time by Delaware law, renounces 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 provides 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, himself or herself or its, his or her 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 does 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.
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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 to the corporation or its stockholders 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 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 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.
There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought.
Indemnification Agreements
We intend to enter into an indemnification agreement with each of our directors and executive officers as described in Certain Relationships and Related Person TransactionsIndemnification Agreements. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors or executive officers, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
Transfer Agent and Registrar
We intend for the transfer agent and registrar for our common stock to be Wells Fargo Bank, N.A.
Listing
Following the spin-off, we expect to have our common stock listed on the NYSE under the ticker symbol HGV.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form 10 with the SEC with respect to the shares of common stock that Hilton Parent stockholders will receive in the distribution. This information statement does not contain all of the information contained in the Registration Statement on Form 10 and the exhibits and schedules to the Registration Statement on Form 10. Some items are omitted in accordance with the rules and regulations of the SEC. For additional information relating to us and the spin-off, reference is made to the Registration Statement on Form 10 and the exhibits to the Registration Statement on Form 10, which are on file at the offices of the SEC. Statements contained in this information statement as to the contents of any contract or other document referred to are not necessarily complete and in each instance, if the contract or document is filed as an exhibit, reference is made to the copy of the contract or other documents filed as an exhibit to the Registration Statement on Form 10. Each statement is qualified in all respects by the relevant reference.
You may inspect and copy the Registration Statement on Form 10 and the exhibits to the Registration Statement on Form 10 that we have filed with the SEC at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information on the Public Reference Room. In addition, the SEC maintains an Internet site at www.sec.gov , from which you can electronically access the Registration Statement on Form 10, including the exhibits and schedules to the Registration Statement on Form 10.
Our Internet site and the information contained on that site, or connected to that site, are not incorporated into the information statement or the Registration Statement on Form 10.
As a result of the distribution, we will be required to comply with the full informational requirements of the Exchange Act. We will fulfill our obligations with respect to these requirements by filing periodic reports and other information with the SEC.
We plan to make available, free of charge, on our Internet site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, reports filed pursuant to Section 16 of the Exchange Act and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC.
You should rely only on the information contained in this information statement or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement.
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Audited Balance Sheet of Hilton Grand Vacations Inc. |
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Audited Consolidated Financial Statements of Hilton Resorts Corporation |
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Consolidated Balance Sheets as of December 31, 2015 and 2014 |
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Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 |
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Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 |
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Consolidated Statements of Parent Deficit for the years ended December 31, 2015, 2014 and 2013 |
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F-10 | ||||
Unaudited Condensed Consolidated Financial Statements of Hilton Resorts Corporation |
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Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 |
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Condensed Consolidated Statements of Operations for the six months ended June 30, 2016 and 2015 |
F-36 | |||
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 |
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F-38 | ||||
F-39 |
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Hilton Worldwide Holdings Inc.
We have audited the accompanying balance sheet of Hilton Grand Vacations Inc. (the Company) as of June 1, 2016. This balance sheet is the responsibility of the Companys management. Our responsibility is to express an opinion on this balance sheet based on our audit.
We conducted our audit 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 balance sheet is free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, and evaluating the overall presentation of the balance sheet. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Hilton Grand Vacations Inc. at June 1, 2016, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Certified Public Accountants
Miami, Florida
June 1, 2016
F-2
HILTON GRAND VACATIONS INC.
See notes to balance sheet.
F-3
HILTON GRAND VACATIONS INC.
Note 1: Organization
Hilton Grand Vacations Inc. (the Corporation) was incorporated as a Delaware corporation on May 2, 2016. Pursuant to a reorganization, the Corporation will become a holding corporation whose assets are expected to include all of the outstanding equity interest of Hilton Resorts Corporation. The Corporation will, through Hilton Resorts Corporation and its subsidiaries, continue to conduct the business now conducted by such entities.
Note 2: Summary of Significant Accounting Policies
The balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America. Separate statements of operations, changes in stockholders equity and cash flows have not been presented in the financial statements because there have been no activities in this entity during the period from May 2, 2016 (date of inception) and June 1, 2016.
Note 3: Stockholders Equity
The Corporation is authorized to issue 1,000 shares of common stock, par value $0.01 per share (Common Stock). Under the Corporations certificate of incorporation in effect as of June 1, 2016, all shares of Common Stock are identical. The Corporation has issued 100 shares of Common Stock in exchange for $1.00, all of which were held by Park Hotels & Resorts Inc. at June 1, 2016.
F-4
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Hilton Worldwide Holdings Inc.
We have audited the accompanying consolidated balance sheets of Hilton Resorts Corporation as of December 31, 2015 and 2014, and the related consolidated statements of operations, statements of Parent deficit and statements of cash flows for each of the three years in the period ended December 31, 2015. 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 Resorts Corporation at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Certified Public Accountants
Miami, Florida
June 1, 2016
F-5
HILTON RESORTS CORPORATION
(in millions)
December 31, | ||||||||
2015 | 2014 | |||||||
ASSETS |
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Cash |
$ | 4 | $ | 2 | ||||
Restricted cash |
75 | 62 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $2 and $1 |
89 | 83 | ||||||
Timeshare financing receivables, net |
976 | 928 | ||||||
Inventory |
412 | 370 | ||||||
Property and equipment, net |
51 | 47 | ||||||
Intangible assets, net |
74 | 80 | ||||||
Other assets |
43 | 49 | ||||||
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TOTAL ASSETS (variable interest entities$368 and $495) |
$ | 1,724 | $ | 1,621 | ||||
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LIABILITIES AND PARENT DEFICIT |
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Accounts payable, accrued expenses and other |
$ | 208 | $ | 181 | ||||
Advance deposits |
96 | 97 | ||||||
Allocated Parent debt |
634 | 719 | ||||||
Non-recourse debt |
502 | 625 | ||||||
Deferred revenues |
103 | 100 | ||||||
Deferred income tax liabilities |
287 | 272 | ||||||
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Total liabilities (variable interest entities$352 and $476) |
1,830 | 1,994 | ||||||
Commitments and contingenciessee Note 18 |
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Parent Deficit: |
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Total Parent deficit |
(106 | ) | (373 | ) | ||||
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TOTAL LIABILITIES AND PARENT DEFICIT |
$ | 1,724 | $ | 1,621 | ||||
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See notes to consolidated financial statements.
F-6
HILTON RESORTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions)
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Revenues |
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Sales of VOIs, net |
$ | 492 | $ | 520 | $ | 546 | ||||||
Sales, marketing, brand and other fees |
457 | 300 | 234 | |||||||||
Financing |
127 | 121 | 117 | |||||||||
Club and resort management |
125 | 112 | 92 | |||||||||
Rental and ancillary services |
164 | 157 | 136 | |||||||||
Cost reimbursements |
110 | 107 | 99 | |||||||||
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Total revenues |
1,475 | 1,317 | 1,224 | |||||||||
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Expenses |
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Cost of VOI sales |
173 | 126 | 128 | |||||||||
Sales and marketing |
541 | 479 | 450 | |||||||||
Financing |
32 | 33 | 22 | |||||||||
Club and resort management |
32 | 29 | 27 | |||||||||
Rental and ancillary services |
113 | 110 | 107 | |||||||||
General and administrative |
57 | 40 | 70 | |||||||||
Depreciation and amortization |
22 | 18 | 16 | |||||||||
License fee expense |
74 | 62 | 56 | |||||||||
Cost reimbursements |
110 | 107 | 99 | |||||||||
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Total expenses |
1,154 | 1,004 | 975 | |||||||||
Allocated Parent interest expense |
(29 | ) | (36 | ) | (48 | ) | ||||||
Gain on debt extinguishment |
| | 22 | |||||||||
Other gain, net |
| 5 | | |||||||||
Loss on foreign currency transactions |
| (2 | ) | (5 | ) | |||||||
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Income before income taxes |
292 | 280 | 218 | |||||||||
Income tax expense |
(118 | ) | (113 | ) | (90 | ) | ||||||
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Net income |
$ | 174 | $ | 167 | $ | 128 | ||||||
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See notes to consolidated financial statements.
F-7
HILTON RESORTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Year Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Operating Activities |
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Net income |
$ | 174 | $ | 167 | $ | 128 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
22 | 18 | 16 | |||||||||
Amortization of deferred financing costs |
5 | 7 | 4 | |||||||||
Provision for loan losses |
39 | 35 | 24 | |||||||||
Gain on debt extinguishment |
| | (22 | ) | ||||||||
Other gain, net |
| (5 | ) | | ||||||||
Loss on foreign currency transactions |
| 2 | 5 | |||||||||
Deferred income taxes |
20 | 37 | 33 | |||||||||
Net changes in assets and liabilities: |
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Restricted cash |
(21 | ) | 3 | 19 | ||||||||
Accounts receivables, net |
(6 | ) | (17 | ) | (35 | ) | ||||||
Timeshare financing receivables |
(88 | ) | (61 | ) | (38 | ) | ||||||
Inventory |
(38 | ) | 51 | 17 | ||||||||
Purchase of hotel from Parent for future conversion to inventory |
| (22 | ) | | ||||||||
Other assets |
2 | (6 | ) | 2 | ||||||||
Accounts payable, accrued expenses and other |
18 | (6 | ) | 22 | ||||||||
Advance deposits |
(1 | ) | 6 | 19 | ||||||||
Deferred revenues |
3 | (12 | ) | (11 | ) | |||||||
Other |
2 | 16 | 13 | |||||||||
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Net cash provided by operating activities |
131 | 213 | 196 | |||||||||
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Investing Activities |
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Capital expenditures for property and equipment |
(12 | ) | (12 | ) | (9 | ) | ||||||
Proceeds from asset dispositions |
| 6 | | |||||||||
Capitalized software costs |
(6 | ) | (5 | ) | (8 | ) | ||||||
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Net cash used in investing activities |
(18 | ) | (11 | ) | (17 | ) | ||||||
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Financing Activities |
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Issuance of non-recourse debt |
| 350 | 950 | |||||||||
Repayment of non-recourse debt |
(125 | ) | (391 | ) | (278 | ) | ||||||
Debt issuance costs |
| (6 | ) | (6 | ) | |||||||
Change in restricted cash |
8 | (4 | ) | (20 | ) | |||||||
Allocated Parent debt activity |
(87 | ) | (112 | ) | (667 | ) | ||||||
Net transfers from (to) Parent |
95 | (39 | ) | (157 | ) | |||||||
Distribution to Parent |
(2 | ) | | | ||||||||
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Net cash used in financing activities |
(111 | ) | (202 | ) | (178 | ) | ||||||
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Net increase in cash |
2 | | 1 | |||||||||
Cash, beginning of period |
2 | 2 | 1 | |||||||||
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Cash, end of period |
$ | 4 | $ | 2 | $ | 2 | ||||||
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Supplemental Disclosures |
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Cash paid during the year: |
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Interest, net of amounts capitalized |
$ | 37 | $ | 44 | $ | 45 | ||||||
Non-cash financing activities: |
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Transfer of inventory to Parent |
$ | | $ | (14 | ) | $ | | |||||
Transfer of inventory from Parent |
| 48 | |
See notes to consolidated financial statements.
F-8
HILTON RESORTS CORPORATION
CONSOLIDATED STATEMENTS OF PARENT DEFICIT
(in millions)
Total Parent
Deficit |
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Balance as of December 31, 2012 |
$ | (506 | ) | |
Net income |
128 | |||
Net transfers to Parent |
(157 | ) | ||
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Balance as of December 31, 2013 |
(535 | ) | ||
Net income |
167 | |||
Net transfers to Parent |
(39 | ) | ||
Capital contribution from Parent |
48 | |||
Distribution to Parent |
(14 | ) | ||
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Balance as of December 31, 2014 |
(373 | ) | ||
Net income |
174 | |||
Net transfers from Parent |
95 | |||
Distribution to Parent |
(2 | ) | ||
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Balance as of December 31, 2015 |
$ | (106 | ) | |
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See notes to consolidated financial statements.
F-9
HILTON RESORTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization
Our Business
Hilton Resorts Corporation (together with its subsidiaries, we, us, our or the Company) is a Delaware corporation formed on November 18, 1991. We are a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand. Our operations primarily consist of: selling vacation ownership intervals (VOIs) for us and third parties; operating our resorts; financing and servicing loans provided to consumers for their timeshare purchases; and managing our Hilton Grand Vacations Club exchange program (the Club). As of December 31, 2015, we had 45 timeshare properties comprising 7,151 units located in the United States (U.S.) and Europe.
Our Spin-Off from Hilton Worldwide Holdings Inc.
On February 26, 2016, Hilton Worldwide Holdings Inc. (Parent, together with its consolidated subsidiaries, Hilton) announced a plan to spin-off its timeshare business to stockholders as a separate, publicly traded company. The spin-off transaction, which is expected to be tax-free to Hilton stockholders, will be effected through a pro rata distribution of our Parent entitys stock to existing Hilton stockholders. Immediately following completion of the spin-off, Hilton stockholders will own 100 percent of the outstanding shares of our Parent entitys common stock. After the spin-off, we will operate as an independent, publicly traded company.
The spin-off is conditioned on, among other things: final approval of the transaction by Hiltons board of directors; execution of a Distribution Agreement and each ancillary agreement contemplated by such Distribution Agreement; the ruling received by Hilton from the Internal Revenue Service regarding certain U.S. federal income tax aspects of the spin-off remaining in effect as of the distribution date; completion of an internal reorganization; Hilton Resorts Corporations Parent entitys registration statement on Form 10 being declared effective by the Securities and Exchange Commission; and acceptance of our Parent entitys common stock for listing on a national securities exchange.
Note 2: Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
Principles of Consolidation
The consolidated financial statements presented herein have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Hilton. The consolidated financial statements include 100 percent of our assets, liabilities, revenues, expenses and cash flows and all entities in which we have a controlling financial interest.
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 interests. If the entity is considered to be a variable interest entity (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 otherwise have a controlling financial interest.
All material intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements reflect our financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (GAAP).
F-10
Parent deficit is shown in lieu of stockholders equity in the consolidated financial statements. All of our significant transactions with Hilton have been included in these consolidated financial statements. The net effect of the settlement of these intercompany transactions has been included in the consolidated statements of cash flows as a financing activity within Net transfers from (to) Parent and is also reflected in our consolidated balance sheets within Total Parent deficit . Total Parent deficit in our consolidated balance sheets represents Hiltons historical investment in us, our accumulated net earnings after taxes and the net effect of the transactions with and allocations from Hilton.
Use of Estimates
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.
Allocations
Our consolidated financial statements include certain indirect general and administrative costs allocated to us by Hilton for certain functions and services including, but not limited to, executive office, finance and other administrative support primarily on the basis of financial and operating metrics that Hilton has historically used to allocate resources and evaluate performance against its strategic objectives. Both we and Hilton consider the basis on which expenses have been allocated to be a reasonable reflection of the utilization of services provided to or the benefit received by us during the periods presented. These costs were included in General, administrative and other in our consolidated statements of operations.
Hilton allocated certain debt balances, related deferred loan costs, and interest expense based on our portion of guaranteed assets. Additionally, Hilton allocated a gain from debt extinguishment pertaining to Hiltons debt refinancing in 2013, based on our allocated proceeds as a percentage of total debt paydowns. All allocated debt balances, related deferred loan costs, interest expense and gain on debt extinguishment balances were included in our consolidated financial statements.
Summary of Significant Accounting Policies
Revenue Recognition
| Sales of VOIs, net Revenue from a deeded VOI sale is recognized when the customer has executed a binding sales contract, a minimum 10 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. In addition, before we recognize any revenues, the purchaser must have met the initial and continuing investment criteria. We defer revenue recognition for sales that do not meet these criteria. During periods of construction, revenue from VOI sales is recognized under the percentage-of-completion method, which includes judgments and estimates, including total project costs to complete. Additionally, we record an estimate of uncollectible amounts at the time of a financed sale with a charge to provision for loan loss, which we classify as a reduction of Sales of VOIs, net . |
We account for rental operations of unsold VOIs, including accommodations provided through the use of our vacation sampler programs as incidental operations. Incremental carrying costs in excess of incremental revenues are recognized in the period incurred. Conversely, incremental revenues in excess of incremental carrying costs are recorded as a reduction of Inventory. In all periods presented incremental carrying costs exceeded incremental revenues and all revenues and expenses are recognized in the period earned or incurred.
F-11
We award Club Bonus Points (Bonus Points) to our customers. These points are valid for a maximum of two years and may be used toward reservations at Club resorts, hotel reservations within Hiltons system and VOI interval exchanges with other third-party vacation ownership exchanges. We also take into consideration the fair value of certain incentives, including Bonus Points, provided to the purchaser when assessing the adequacy of the purchasers initial investment, which requires us to make certain estimates and assumptions in deriving the fair value of these incentives. We defer a portion of the VOI sales price as a liability and recognize the corresponding revenue upon the customers redemption of the Bonus Points.
One of our VOI 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.
| Sales, marketing, brand and other fees We sell VOIs through fee-for-service agreements with third-party developers for which we earn sales commissions and other fees. We recognize revenue from commissions on these sales and other fees as intervals are sold and the service requirements of the respective agreements with the developers have been fulfilled. Additionally, we sell prepaid vacation packages and recognize revenue when they are redeemed for stays at properties other than our timeshare resorts; stays using these prepaid packages at Hilton Grand Vacation properties are included in Rental and ancillary services . |
| Financing VOI sales may be made for cash or we may provide financing for sales of our owned intervals. 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 Timeshare Financing Receivables and Allowance for Loan Loss below for further discussion of the policies applicable to our timeshare financing receivables. We also recognize revenue from servicing the loans provided by third-party developers to purchasers of their VOIs over the period services are rendered. |
| Club and resort management We manage the Club, receiving activation fees, annual dues and transaction fees from member exchanges. Each purchaser of a vacation ownership unit is automatically enrolled in the Club, which gives the purchaser an annual allotment of club points that allow the purchaser to exchange the club points for a number of vacation options. Revenue from Club activation fees are deferred and amortized on a straight-line basis over the average inventory holding period. We recognize revenue from annual dues and transaction fees over the period services are rendered. |
We earn recurring management fees under our agreements with homeowners associations (HOAs) and generally recognize these fees over the period services are rendered. We provide day-to-day-management services, including housekeeping services, operation of a reservation system, maintenance, and certain accounting and administrative services for HOAs. We receive compensation for such management services which is generally based on a percentage of costs to operate the resorts.
| Rental and ancillary services We offer rentals of unoccupied vacation ownership units, and recognize rental revenues when occupancy has occurred. We defer advance deposits on rentals until the customers stay. We also recognize rental revenues from the utilization of Bonus Points and prepaid vacation packages when those points and packages are redeemed for rental stays at one of our resorts. We defer the advance payment as a liability and recognize the corresponding revenue upon the customers vacation stay. Ancillary revenues include food and beverage, retail, spa offerings and other guest services. |
| Cost reimbursements Cost reimbursements include direct and indirect costs that HOAs and developers reimburse to us. These costs primarily consist of payroll and payroll related costs for management of the HOAs and other services we provide where we are the employer. We recognize cost reimbursements when we incur the related reimbursable costs. Cost reimbursements are based upon actual expenses with no added margin. |
F-12
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 with respect to these taxes and fees. 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.
Multiple Element Arrangements
When we enter into transactions for the sale of multiple products or services, we evaluate whether the delivered elements have value to the customer on a stand-alone basis, and if the arrangement includes a general right of return relative to the delivered items, we consider whether delivery or performance of the undelivered items is probable and substantially in our control. If these criteria are met, then we account for each deliverable in the transaction separately. We generally recognize revenue for undelivered elements on a straight-line basis over the contractual performance period for time-based elements or upon delivery to the customer.
Restricted Cash
Restricted cash includes advance deposits received on VOI sales that are held in escrow until the contract is closed and cash reserves required by our non-recourse debt agreements. For purposes of our consolidated statements of cash flows, changes in restricted cash caused by changes in lender reserves due to restrictions under our loan agreements are shown as financing activities and the remaining changes in restricted cash, primarily relating to VOI sales, are the result of our normal operations and are reflected as operating activities.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily consists of trade receivables and is reported at the customers outstanding balances, less any 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.
Inventory and Cost of Sales
Inventory includes unsold, completed VOIs; VOIs under construction; and land and infrastructure held for future VOI product development. We carry our inventory at the lower of cost or estimated fair value, less costs to sell, which can result in impairment losses and/or recoveries of previous impairments.
We capitalize costs directly associated with the acquisition, development and construction of a real estate project when it is probable that the project will move forward. We capitalize salary and related costs only to the extent they directly relate to the project. We capitalize interest expense, taxes and insurance costs when activities that are necessary to get the property ready for its intended use are underway. We cease capitalization of costs during prolonged gaps in development when substantially all activities are suspended or when projects are considered substantially complete.
We account for our VOI inventory and cost of VOI sales using the relative sales value method. Also, we do not reduce inventory for the cost of VOI sales related to anticipated credit losses, and accordingly, no adjustment is made when inventory is reacquired upon default of the related receivable. This results in changes in estimates within the relative sales value calculations to be accounted for as real estate inventory true-ups, which we refer to as cost of sales true-ups, and are included in Cost of VOI sales in our consolidated statements of operations to retrospectively adjust the margin previously recognized subject to those estimates.
Property and Equipment
Property and equipment includes building and leasehold improvements and furniture and equipment at our corporate offices, sales centers and management offices. Construction-in-progress primarily relates to leasehold improvements not yet placed in service. Property and equipment are recorded at cost. Costs of improvements that
F-13
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 estimates above, or the lease term.
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, to the extent the net book value is in excess of fair value we recognize an impairment loss. 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.
Timeshare Financing Receivables and Allowance for Loan Loss
Our timeshare financing receivables consist of loans related to our financing of VOI sales that are secured by the underlying timeshare properties. We determine our timeshare financing receivables to be past due based on the contractual terms of the individual mortgage loans. We recognize interest income on our timeshare financing receivables 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 revenue from VOI sales at the time revenue is recognized on a VOI sale.
We evaluate this portfolio collectively, since we hold a large group of homogeneous timeshare financing receivables, 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. We use a technique referred to as static pool analysis as the basis for determining our loan loss reserve requirements on our timeshare financing receivables. For static pool analysis, we use three key dimensions to stratify our portfolio: FICO scores; country of residence; and equity percentage at the time of sale. 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.
We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a note is 91 days past due or is determined to be uncollectible prior to 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 91 days past due as of the month. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit.
F-14
Intangible Assets
Our intangible assets consist of management agreements and certain proprietary technologies with finite lives. We have management agreements that were recorded at their fair value at the time of the completion of a merger on October 24, 2007 where Hilton became a wholly owned subsidiary of an affiliate of The Blackstone Group L.P. (Blackstone). Additionally, we capitalize direct and incremental costs to obtain management agreements and costs incurred to develop internal-use computer software, including costs incurred in connection with development of upgrades or enhancements that result in additional functionality. These capitalized costs are amortized on a straight-line basis over the term of the management agreement or the estimated useful life of the software, respectively. These capitalized costs are included in Intangible assets, net in our consolidated balance sheets.
We review all finite life 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.
Costs Incurred to Sell VOIs
We expense sales and marketing costs we incur to sell VOIs when incurred. Deferred selling and marketing expenses, which are direct selling and marketing costs related either to an unclosed contract or a contract for which 100 percent of revenue has not yet been recognized, were $18 million and $19 million as of December 31, 2015 and 2014, respectively, and were included in Other assets in our consolidated balance sheets.
Fair Value MeasurementsValuation 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 data market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-level hierarchy of inputs is summarized below:
| Level 1Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets; |
| Level 2Valuation 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; and |
| Level 3Valuation is based upon 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.
Currency Translation
The U.S. dollar is our reporting currency and is the functional currency of the majority of our operations. Income and expense accounts are translated at the average exchange rate for the period. Gains and losses from foreign exchange rate changes related to transactions denominated in a currency other than an entitys functional currency or intercompany receivables and payables denominated in a currency other than an entitys functional currency that are not of a long-term investment nature are recognized as Gain (loss) on foreign currency transactions in our consolidated statements of operations.
F-15
Share-Based Compensation Costs
Certain of our employees participate in Hiltons 2013 Omnibus Incentive Plan (the Stock Plan) which compensates eligible employees and directors with restricted stock units (RSUs), nonqualified stock options (options) and performance-vesting restricted stock units and restricted stock (collectively, performance shares). Until consummation of the spin-off, we will continue to participate in the Stock Plan and record compensation expense based on the share-based awards granted to our employees.
| RSUs vest in annual installments over two or three years from the date of grant, subject to the individuals continued employment through the applicable vesting date. Vested RSUs generally will be settled for Hiltons common stock. The grant date fair value is equal to Hiltons closing stock price on the date of grant. |
| Options vest over three years in equal annual installments from the date of grant, subject to the individuals continued employment through the applicable vesting date, and will terminate 10 years from the date of grant or earlier if the individuals service terminates. The exercise price is equal to the closing price of the Hiltons common stock on the date of grant. The grant date fair value is estimated using the Black-Scholes-Merton Model. |
| Performance shares are settled at the end of a three-year performance period and are subject to two different achievement factors based on market and performance conditions. The grant date fair values for performance shares based on market conditions are estimated using the Monte Carlo Simulation and shares based on performance conditions are equal to Hiltons closing stock price on the date of grant. |
We recognize the cost of services received in these share-based payment transactions with employees as services are received and recognize a corresponding decrease in Total Parent deficit in our consolidated balance sheets. 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. Compensation expense is recognized ratably over the requisite service period, including an estimate of forfeitures. The requisite service period is the period during which an employee is required to provide service in exchange for an award. Forfeiture rates are estimated based on historical employee terminations for each grant cycle. Compensation expense 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
Current and deferred income taxes and related tax expense have been determined based on our stand-alone results by applying a separate return methodology, as if the entities were separate taxpayers in the respective jurisdictions.
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
F-16
more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related 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
Adopted Accounting Standards
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-03 (ASU 2015-03), InterestImputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs . This ASU requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset, which is consistent with the presentation of debt discounts or premiums. In August 2015, the FASB issued ASU No. 2015-15 (ASU 2015-15), Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements , which clarifies that absent authoritative guidance in ASU 2015-03 for debt issuance costs related to line-of credit arrangements, the staff of the Securities and Exchange Commission would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. We adopted ASU 2015-03 and 2015-15 retrospectively as of January 1, 2016 and have applied to all periods presented herein.
Accounting Standards Not Yet Adopted
In March 2016, the FASB issued ASU No. 2016-09 (ASU 2016-09), CompensationStock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting . This ASU is intended to simplify several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The provisions of ASU 2016-09 are effective for reporting periods beginning after December 15, 2016; early adoption is permitted. The provisions of this ASU contain different transition guidance for each amendment. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02 (ASU 2016-02), Leases (Topic 842) , which supersedes existing guidance on accounting for leases in Leases (Topic 840). The provisions of ASU 2016-02 are effective for reporting periods beginning after December 15, 2018; early adoption is permitted. The provisions of this ASU are to be applied using a modified retrospective approach. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers (Topic 606) . This ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) , and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Subsequent to ASU 2014-09, the FASB has issued several related ASUs:
| In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients . This ASU provides clarification on assessing collectability, presentation of sales taxes, measurement date for non-cash consideration and completed contracts at transition and provides a practical expedient for contract modifications. |
| In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing . This ASU provides implementation guidance related to identifying performance obligations and licensing. |
F-17
| In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) . This ASU provides implementation guidance for principal versus agent considerations set forth in ASU 2014-09. |
| In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date , which deferred the effective date of ASU 2014-09 for reporting periods beginning after December 15, 2016 to reporting periods beginning after December 15, 2017. |
The provisions of this ASU are to be applied retrospectively or using a modified retrospective approach; early adoption is permitted for reporting periods beginning after December 15, 2016. We are currently evaluating the effect that this ASU will have on our consolidated financial statements and our method of adoption.
Note 3: Restricted Cash
Restricted cash was as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Escrow deposits on VOI sales |
$ | 58 | $ | 37 | ||||
Reserves related to non-recourse debt (1) |
17 | 25 | ||||||
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$ | 75 | $ | 62 | |||||
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(1) | See Note 10: Allocated Parent Debt and Non-recourse Debt for further discussion. |
Note 4: Timeshare Financing Receivables
Timeshare financing receivables were as follows:
December 31, 2015 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Timeshare financing receivables |
$ | 367 | $ | 715 | $ | 1,082 | ||||||
Less: allowance for loan loss |
(17 | ) | (89 | ) | (106 | ) | ||||||
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$ | 350 | $ | 626 | $ | 976 | |||||||
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December 31, 2014 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Timeshare financing receivables |
$ | 496 | $ | 528 | $ | 1,024 | ||||||
Less: allowance for loan loss |
(28 | ) | (68 | ) | (96 | ) | ||||||
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$ | 468 | $ | 460 | $ | 928 | |||||||
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As of December 31, 2015, our timeshare financing receivables had interest rates ranging from 5.15 percent to 20.50 percent, a weighted average interest rate of 11.88 percent, a weighted average remaining term of 7.6 years and maturities through 2026.
In 2014, we completed a securitization of approximately $357 million of gross timeshare financing receivables and issued approximately $304 million of 1.77 percent notes and approximately $46 million of 2.07 percent notes, which have a stated maturity date in November 2026. In 2013, we completed a securitization of approximately $255 million of gross timeshare financing receivables and issued $250 million of 2.28 percent notes that have a stated maturity date in January 2026. The securitization transactions did not qualify as sales and, accordingly, no gain or loss was recognized. The proceeds from both transactions are presented as debt (collectively, the Securitized Debt). See Note 10: Allocated Parent Debt and Non-recourse Debt for further discussion.
F-18
In 2013, we entered into a revolving non-recourse timeshare financing receivables credit facility (the Timeshare Facility) that is secured by certain of our timeshare financing receivables. As of December 31, 2015 and 2014, we had $163 million and $164 million, respectively, of gross timeshare financing receivables secured under our Timeshare Facility.
Our timeshare financing receivables as of December 31, 2015 mature as follows:
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Year |
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2016 |
$ | 58 | $ | 83 | $ | 141 | ||||||
2017 |
59 | 70 | 129 | |||||||||
2018 |
59 | 72 | 131 | |||||||||
2019 |
55 | 74 | 129 | |||||||||
2020 |
50 | 75 | 125 | |||||||||
Thereafter |
86 | 341 | 427 | |||||||||
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367 | 715 | 1,082 | ||||||||||
Less: allowance for loan loss |
(17 | ) | (89 | ) | (106 | ) | ||||||
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$ | 350 | $ | 626 | $ | 976 | |||||||
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Our gross timeshare financing receivables balances by FICO score were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
FICO score |
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700+ |
$ | 663 | $ | 603 | ||||
600-699 |
191 | 177 | ||||||
<600 |
28 | 28 | ||||||
No score (1) |
200 | 216 | ||||||
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$ | 1,082 | $ | 1,024 | |||||
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(1) | Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. |
As of December 31, 2015 and 2014, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $33 million and $31 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance:
December 31, 2015 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Current |
$ | 359 | $ | 677 | $ | 1,036 | ||||||
31 - 90 days past due |
5 | 8 | 13 | |||||||||
91 - 120 days past due |
2 | 3 | 5 | |||||||||
121 days and greater past due |
1 | 27 | 28 | |||||||||
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$ | 367 | $ | 715 | $ | 1,082 | |||||||
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December 31, 2014 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Current |
$ | 489 | $ | 493 | $ | 982 | ||||||
31 - 90 days past due |
4 | 7 | 11 | |||||||||
91 - 120 days past due |
1 | 1 | 2 | |||||||||
121 days and greater past due |
2 | 27 | 29 | |||||||||
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$ | 496 | $ | 528 | $ | 1,024 | |||||||
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F-19
The changes in our allowance for loan loss were as follows:
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Balance as of December 31, 2012 |
$ | | $ | 93 | $ | 93 | ||||||
Write-offs |
| (25 | ) | (25 | ) | |||||||
Securitizations |
15 | (15 | ) | | ||||||||
Provision for loan losses (1) |
(2 | ) | 26 | 24 | ||||||||
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Balance as of December 31, 2013 |
13 | 79 | 92 | |||||||||
Write-offs |
| (31 | ) | (31 | ) | |||||||
Securitizations |
22 | (22 | ) | | ||||||||
Provision for loan losses (1) |
(7 | ) | 42 | 35 | ||||||||
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Balance as of December 31, 2014 |
28 | 68 | 96 | |||||||||
Write-offs |
| (29 | ) | (29 | ) | |||||||
Provision for loan losses (1) |
(11 | ) | 50 | 39 | ||||||||
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Balance as of December 31, 2015 |
$ | 17 | $ | 89 | $ | 106 | ||||||
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(1) | Includes activity related to repurchase of defaulted and upgraded securitized financing receivables, net of incremental provision for loan losses. |
Note 5: Inventory
Inventory was as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Completed unsold VOIs |
$ | 111 | $ | 98 | ||||
Construction in process |
101 | 74 | ||||||
Land, infrastructure and other |
200 | 198 | ||||||
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$ | 412 | $ | 370 | |||||
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The cost of sales true-ups relating to VOI products for the years ended December 31, 2015, 2014 and 2013 resulted in increases to the carrying values of inventory of $19 million, $20 million and $13 million, respectively. Additionally, beginning in 2014, we incurred expenses related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects included in Cost of VOI sales in our consolidated statements of operations. For the years ended December 31, 2015 and 2014, we incurred charges of $67 million and $12 million, respectively.
Note 6: Property and Equipment
Property and equipment and related depreciation expense were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Buildings and leasehold improvements |
$ | 54 | $ | 49 | ||||
Furniture and equipment |
32 | 30 | ||||||
Construction-in-progress |
9 | 6 | ||||||
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95 | 85 | |||||||
Accumulated depreciation |
(44 | ) | (38 | ) | ||||
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$ | 51 | $ | 47 | |||||
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F-20
In 2014, we completed the sale of two land parcels for $6 million, resulting in a gain of $5 million included in Other gain, net in our consolidated statement of operations for the year ended December 31, 2014.
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Depreciation expense |
$ | 10 | $ | 8 | $ | 8 |
Note 7: Consolidated Variable Interest Entities
As of December 31, 2015 and 2014, we consolidated two VIEs that issued the Securitized Debt, which is without recourse to us. We are the primary beneficiaries of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we are required to replace timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our VIEs are only available to settle the obligations of the respective entities. Our consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Restricted cash |
$ | 13 | $ | 20 | ||||
Timeshare financing receivables, net |
350 | 468 | ||||||
Non-recourse debt |
352 | 475 |
During the years ended December 31, 2015, 2014 and 2013, 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: Intangible Assets
Intangible assets and related amortization expense were as follows:
December 31, 2015 | ||||||||||||
($ in millions) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
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Management agreements |
$ | 88 | $ | (28 | ) | $ | 60 | |||||
Capitalized software |
33 | (19 | ) | 14 | ||||||||
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$ | 121 | $ | (47 | ) | $ | 74 | ||||||
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December 31, 2014 | ||||||||||||
($ in millions) |
Gross
Carrying Amount |
Accumulated
Amortization |
Net
Carrying Amount |
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Management agreements |
$ | 88 | $ | (24 | ) | $ | 64 | |||||
Capitalized software |
30 | (14 | ) | 16 | ||||||||
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$ | 118 | $ | (38 | ) | $ | 80 | ||||||
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Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Amortization expense |
$ | 12 | $ | 10 | $ | 8 |
F-21
As of December 31, 2015, we estimated our future amortization expense for our amortizing intangible assets to be as follows:
($ in millions) |
Future
Amortization Expense |
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Year |
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2016 |
$ | 11 | ||
2017 |
9 | |||
2018 |
7 | |||
2019 |
4 | |||
2020 |
4 | |||
Thereafter |
39 | |||
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$ | 74 | |||
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Note 9: Accounts Payable, Accrued Expenses and Other
Accounts payable, accrued expenses and other were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Accrued employee compensation and benefits |
$ | 48 | $ | 39 | ||||
Accounts payable |
13 | 25 | ||||||
Bonus point incentive liability |
44 | 44 | ||||||
Due to Parent |
13 | 15 | ||||||
Other accrued expenses |
90 | 58 | ||||||
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$ | 208 | $ | 181 | |||||
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Other accrued expenses consist of taxes, rent, interest and other accrued balances.
Note 10: Allocated Parent Debt and Non-recourse Debt
Allocated Parent Debt
As discussed in Note 2: Basis of Presentation and Summary of Significant Accounting Policies , a portion of certain Hilton debt, and related deferred loan costs and interest expense balances, were allocated to our stand-alone financial statements, specifically the obligations under a senior secured term loan facility (the Term Loan) and 5.625% senior notes due in 2021 (the Senior Notes).
The Term Loan, which matures on October 25, 2020, was issued with an original issue discount of 0.50 percent. The Term Loan bears interest at variable rates, at our option, which is payable monthly or quarterly depending upon the variable rate that is chosen. Interest on the Senior Notes is payable semi-annually in cash in arrears on April 15 and October 15 of each year.
The obligations of the Term Loan and Senior Notes are unconditionally and irrevocably guaranteed by us, excluding our subsidiaries that are prohibited from providing guarantees as a result of the agreements governing our Timeshare Facility and/or our Securitized Debt and our foreign subsidiaries.
F-22
Allocated Parent debt balances, and associated interest rates as of December 31, 2015, were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Term Loan with a rate of 3.50%, due 2020 |
$ | 474 | $ | 561 | ||||
Senior Notes with a rate of 5.625%, due 2021 |
168 | 168 | ||||||
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642 | 729 | |||||||
Less: unamortized deferred financing costs and discount |
(8 | ) | (10 | ) | ||||
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$ | 634 | $ | 719 | |||||
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Non-recourse Debt
Non-recourse debt balances, and associated interest rates as of December 31, 2015, were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Timeshare Facility with a rate of 1.27%, due 2017 |
$ | 150 | $ | 150 | ||||
Securitized Debt with an average rate of 1.97%, due 2026 |
356 | 481 | ||||||
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$ | 506 | $ | 631 | |||||
Less: unamortized deferred financing costs |
(4 | ) | (6 | ) | ||||
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$ | 502 | $ | 625 | |||||
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In 2013, we entered into a receivables loan agreement that is secured by certain of our timeshare financing receivables, see Note 4: Timeshare Financing Receivables for further discussion. The Timeshare Facility is a non-recourse obligation and is payable solely from the pool of timeshare financing receivables pledged as collateral to the debt and related assets. Under the terms of the loan agreement we are permitted to borrow up to a maximum amount of approximately $300 million until December 2016, after which all amounts borrowed must be paid by December 2017. The Timeshare Facility bears interest at a variable rate based on one-month LIBOR plus 100 basis points, which is payable monthly.
In 2014, we issued approximately $304 million of 1.77 percent notes and $46 million of 2.07 percent notes due November 2026. In 2013, we issued approximately $250 million of 2.28 percent notes due January 2026. The Securitized Debt is backed by a pledge of assets, consisting primarily of a pool of timeshare financing receivables secured by first mortgages or deeds of trust on VOIs, see Note 4: Timeshare Financing Receivables for further discussion. The Securitized Debt is a non-recourse obligation and is payable solely from the pool of financing receivables pledged as collateral to the debt and related assets. A majority of the proceeds from the asset-backed notes were used to reduce the outstanding balance on our Timeshare Facility.
We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties. On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan agreements. The balances in the depository accounts, totaling $17 million and $25 million as of December 31, 2015 and 2014, respectively, were included in Restricted cash in our consolidated balance sheets.
F-23
Debt Maturities
The contractual maturities of our allocated Parent debt and non-recourse debt as of December 31, 2015 were as follows:
($ in millions) |
Allocated
Parent Debt |
Non-recourse
Debt |
Total | |||||||||
Year |
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2016 |
$ | | $ | 111 | $ | 111 | ||||||
2017 |
| 215 | 215 | |||||||||
2018 |
| 48 | 48 | |||||||||
2019 |
| 38 | 38 | |||||||||
2020 |
474 | 29 | 503 | |||||||||
Thereafter |
168 | 65 | 233 | |||||||||
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$ | 642 | $ | 506 | $ | 1,148 | |||||||
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Note 11: Deferred Revenues
Deferred revenues were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Deferred VOI sales |
$ | 53 | $ | 62 | ||||
Marketing incentive programs |
11 | 7 | ||||||
Club activation fees |
37 | 30 | ||||||
Other |
2 | 1 | ||||||
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$ | 103 | $ | 100 | |||||
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Deferred VOI sales include the deferred revenues associated with: the sale of VOI products when they do not meet the criteria for revenue recognition; the sales associated with incomplete phases or buildings that are recognized under the percentage-of-completion method; the sales of unacquired inventory; and deferred sales associated with our long-term lease product with a reversionary interest. Deferred revenues related to marketing incentive programs include the fair value of Bonus Points liabilities where the VOI purchaser has elected to exchange points for future resort stays and the deferral of membership fees in a program that provides members with travel and hotel savings benefits. The membership fees are recognized on a straight-line basis over the term of the agreement. Club activation fees are paid at closing of a VOI purchase, which grants access to our points-based Club. The revenue from these fees are deferred and amortized on a straight-line basis over the average inventory holding period. Deferred revenues do not include prepaid vacation packages or other prepayments for future stays at our resorts, which are included in Advance deposits in our consolidated balance sheets.
Note 12: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:
December 31, 2015 | ||||||||||||
Carrying
Amount |
Hierarchy Level | |||||||||||
($ in millions) | Level 1 | Level 3 | ||||||||||
Assets: |
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Timeshare financing receivables |
976 | | 1,080 | |||||||||
Liabilities: |
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Allocated Parent debt |
634 | 175 | 474 | |||||||||
Non-recourse debt |
502 | | 506 |
F-24
December 31, 2014 | ||||||||||||
Carrying
Amount |
Hierarchy Level | |||||||||||
($ in millions) | Level 1 | Level 3 | ||||||||||
Assets: |
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Timeshare financing receivables |
928 | | 1,021 | |||||||||
Liabilities: |
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Allocated Parent debt |
719 | 176 | 555 | |||||||||
Non-recourse debt |
625 | | 626 |
We believe the carrying amounts of our other financial assets and liabilities approximated fair value as of December 31, 2015 and 2014. 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 values.
The estimated fair values of our timeshare financing receivables were based on the expected future cash flows discounted at weighted-average interest rates of the current portfolio, which reflect the risk of the underlying notes, primarily determined by the credit worthiness of the borrowers.
The estimated fair values of our Level 1 allocated Parent debt were based on prices in active debt markets. The estimated fair values of our Level 3 allocated Parent debt were based on indicative quotes received for similar issuances.
The estimated fair values of our Level 3 non-recourse debt approximated carrying values as the interest rates under the loan agreements either approximated current market rates or there were not significant fluctuations in current market rates to change the fair values of the underlying instruments or were based on indicative quotes received for similar issuances.
Note 13: Leases
We lease sales centers, office space and equipment under operating leases. Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income or rent payments equal to the greater of a minimum rent or contingent rent. Our leases expire at various dates from 2016 through 2021, with varying renewal options.
The future minimum rent payments under non-cancelable leases, due in each of the next five years and thereafter as of December 31, 2015, were as follows:
($ in millions) |
Operating
Leases |
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Year |
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2016 |
$ | 11 | ||
2017 |
6 | |||
2018 |
5 | |||
2019 |
4 | |||
2020 |
4 | |||
Thereafter |
4 | |||
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Total minimum rent payments |
$ | 34 | ||
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F-25
Rent expense for all operating leases was as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Minimum rentals |
$ | 12 | $ | 11 | $ | 11 | ||||||
Contingent rentals |
5 | 4 | 1 | |||||||||
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$ | 17 | $ | 15 | $ | 12 | |||||||
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Note 14: Income Taxes
Our tax provision includes federal, state and foreign income taxes payable. The domestic and foreign components of income before income taxes were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
U.S. income before tax |
$ | 275 | $ | 267 | $ | 208 | ||||||
Foreign income before tax |
17 | 13 | 10 | |||||||||
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Income before income taxes |
$ | 292 | $ | 280 | $ | 218 | ||||||
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The components of our provision for income taxes were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Current: |
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Federal |
$ | 85 | $ | 64 | $ | 50 | ||||||
State |
7 | 6 | 5 | |||||||||
Foreign |
6 | 6 | 2 | |||||||||
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Total current |
98 | 76 | 57 | |||||||||
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|
|
|
|
|||||||
Deferred: |
||||||||||||
Federal |
18 | 34 | 30 | |||||||||
State |
2 | 3 | 3 | |||||||||
|
|
|
|
|
|
|||||||
Total deferred |
20 | 37 | 33 | |||||||||
|
|
|
|
|
|
|||||||
Total provision for income taxes |
$ | 118 | $ | 113 | $ | 90 | ||||||
|
|
|
|
|
|
Reconciliations of our tax provision at the U.S. statutory rate to the provision (benefit) for income taxes were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Statutory U.S. federal income tax provision |
$ | 102 | $ | 98 | $ | 77 | ||||||
State income taxes, net of U.S. federal tax benefit |
9 | 9 | 7 | |||||||||
Foreign income tax expense |
6 | 6 | 5 | |||||||||
U.S. benefit of foreign taxes |
(6 | ) | (6 | ) | (2 | ) | ||||||
Change in deferred tax asset valuation allowance |
| | (3 | ) | ||||||||
Interest on installment sales, net of U.S. federal tax benefit |
7 | 6 | 6 | |||||||||
|
|
|
|
|
|
|||||||
Provision for income taxes |
$ | 118 | $ | 113 | $ | 90 | ||||||
|
|
|
|
|
|
F-26
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, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Deferred income tax assets (1) |
$ | 1 | $ | 4 | ||||
Deferred income tax liabilities |
(287 | ) | (272 | ) | ||||
|
|
|
|
|||||
Net deferred taxes |
$ | (286 | ) | $ | (268 | ) | ||
|
|
|
|
(1) | Included within Other assets in our consolidated balance sheets. |
Deferred income taxes represent the tax effect of the differences between the book and tax bases of assets and liabilities plus carryforward items. The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax liability were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Deferred tax assets: |
||||||||
Compensation |
$ | 7 | $ | 6 | ||||
Other reserves |
45 | 52 | ||||||
|
|
|
|
|||||
Deferred tax assets |
52 | 58 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property and equipment |
(2 | ) | (12 | ) | ||||
Amortizable intangible assets |
(18 | ) | (19 | ) | ||||
Deferred income |
(318 | ) | (295 | ) | ||||
|
|
|
|
|||||
Deferred tax liabilities |
(338 | ) | (326 | ) | ||||
|
|
|
|
|||||
Net deferred taxes |
$ | (286 | ) | $ | (268 | ) | ||
|
|
|
|
We are part of a consolidated U.S. federal income tax return with Hilton and other subsidiaries that are not included in our consolidated financial statements. Income taxes as presented in our consolidated financial statements present current and deferred income taxes of the consolidated federal tax filing attributed to us using the separate return method. The separate return method applies the accounting guidance for income taxes to the financial statements as if we were a separate taxpayer. During the years ended December 31, 2015 and 2014, Hilton paid $92 million and $69 million, respectively, of income tax liabilities related to us, which is reflected in our consolidated financial statements as a decrease to Parent deficit.
Note 15: Share-Based Compensation
Stock Plan
Hilton maintains the Stock Plan for the benefit of its officers, directors and employees. The following disclosures represent the portion of the Stock Plan expenses maintained by Hilton in which our employees participated. All share-based compensation awards granted under the Stock Plan relate to Hilton common stock. As such, all related equity account balances are reflected in Hiltons consolidated statements of stockholders equity and have not been reflected in our consolidated financial statements.
Under the Stock Plan, Hilton awards to certain of our employees RSUs, options and performance shares. We recorded share-based compensation expense for awards granted of $8 million and $3 million for the years ended
F-27
December 31, 2015 and 2014, respectively. There was no share-based compensation expense related to the Stock Plan during the year ended December 31, 2013. The total tax benefit recognized related to this compensation was $3 million and $1 million for the years ended December 31, 2015 and 2014, respectively.
As of December 31, 2015 and 2014, unrecognized compensation costs for unvested awards were approximately $8 million and $7 million, respectively. As of December 31, 2015, we expect to recognize these unrecognized compensation costs over a weighted average period of 1.7 years.
The following table summarizes the activity of our RSUs during the year ended December 31, 2015:
Number of
Shares |
Weighted
Average Grant Date Fair Value |
|||||||
Outstanding, beginning of period |
540,575 | $ | 21.53 | |||||
Granted |
220,260 | 27.46 | ||||||
Vested |
(271,130 | ) | 21.53 | |||||
Forfeited |
(37,172 | ) | 24.44 | |||||
|
|
|||||||
Outstanding, end of period |
452,533 | 24.18 | ||||||
|
|
The following table summarizes the activity of our options during the year ended December 31, 2015:
Number of
Shares |
Weighted
Average Exercise Price per Share |
|||||||
Outstanding, beginning of period |
99,259 | $ | 21.53 | |||||
Granted |
85,405 | 27.46 | ||||||
|
|
|||||||
Outstanding, end of period |
184,664 | 24.27 | ||||||
|
|
|||||||
Exercisable, end of period |
30,400 | 21.53 | ||||||
|
|
The grant date fair value of each of these option grants was $8.39 and $7.58 in 2015 and 2014, respectively, which was determined using the Black-Scholes-Merton option-pricing model with the following assumptions:
Year Ended December 31, | ||||||||
2015 | 2014 | |||||||
Expected volatility (1) |
28.00 | % | 33.00 | % | ||||
Dividend yield (2) |
| % | | % | ||||
Risk-free rate (3) |
1.67 | % | 1.85 | % | ||||
Expected term (in years) (4) |
6.0 | 6.0 |
(1) | Due to limited trading history for Hiltons common stock, Hilton did not have sufficient information available on which to base a reasonable and supportable estimate of the expected volatility of its share price. As a result, Hilton used an average historical volatility of its peer group over a time period consistent with its expected term assumption. Hiltons peer group was determined based upon companies in its industry with similar business models and is consistent with those used to benchmark its executive compensation. |
(2) | At the date of grant Hilton had no plans to pay dividends during the expected term of these options. |
(3) | Based on the yields of U.S. Department of Treasury instruments with similar expected lives. |
(4) | Estimated using the average of the vesting periods and the contractual term of the options. |
F-28
During the year ended December 31, 2015, Hilton granted 59,396 performance shares with a grant date fair value of $32.98, based on a Monte Carlo simulation valuation model, and 59,396 performance shares with a grant date fair value of $27.46. There were 218,628 performance shares outstanding as of December 31, 2015.
Year Ended December 31, | ||||||||
2015 | 2014 | |||||||
Expected volatility (1) |
24.00 | % | 30.00 | % | ||||
Dividend yield (2) |
| % | | % | ||||
Risk-free rate (3) |
1.04 | % | 0.70 | % | ||||
Expected term (in years) (4) |
2.8 | 2.8 |
(1) | Due to limited trading history for Hiltons common stock, Hilton did not have sufficient information available on which to base a reasonable and supportable estimate of the expected volatility of its share price. As a result, Hilton used an average historical volatility of its peer group over a time period consistent with its expected term assumption. Hiltons peer group was determined based upon companies in its industry with similar business models and is consistent with those used to benchmark its executive compensation. |
(2) | At the date of grant Hilton had no plans to pay dividends during the expected term of these performance shares. |
(3) | Based on the yields of U.S. Department of Treasury instruments with similar expected lives. |
(4) | Midpoint of the 30-calendar day period preceding the end of the performance period. |
Hilton Promote Plan
Prior to December 11, 2013, Hilton maintained an executive compensation plan, in which certain of our senior management team participated. In connection with Hiltons initial public offering (IPO) in December 2013, equity awards outstanding under this plan were exchanged for restricted stock, of which 40 percent vested immediately, 40 percent vested one year from the date of the IPO and the remaining 20 percent vested upon Blackstone reducing its ownership interest in Hilton below 50 percent, which occurred in May 2015. We recorded share-based compensation expense under this plan of $5 million, $2 million and $22 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Note 16: Related Party Transactions
Hilton Worldwide Holdings Inc.
We have a number of existing arrangements whereby Hilton and others have provided services to us. In connection with the spin-off, we will enter into agreements with Hilton and others that have either not existed historically, or that may be on different terms than the terms of the arrangement or agreements that existed prior to the spin-off. These consolidated financial statements do not reflect the effect of these new and/or revised agreements.
Cash Management
Hilton uses a centralized approach for cash management. The majority of our cash is transferred to Hilton daily, and Hilton funds our operating and investing activities as needed. Accordingly, the cash and cash equivalents held by Hilton at the corporate level were not allocated to us for any of the periods presented. We reflect transfers of cash to and from Hiltons cash management system as a component of Total Parent deficit in our consolidated balance sheets.
F-29
Net Parent Transfers
The components of Net transfers from (to) Parent in the consolidated statements of parent deficit were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Cash pooling and general financing activities |
$ | (39 | ) | $ | (152 | ) | $ | (296 | ) | |||
Corporate allocations |
42 | 44 | 86 | |||||||||
Income taxes |
92 | 69 | 53 | |||||||||
|
|
|
|
|
|
|||||||
Net transfers from (to) Parent |
$ | 95 | $ | (39 | ) | $ | (157 | ) | ||||
|
|
|
|
|
|
Services Provided by Hilton
Our consolidated financial statements include costs for services provided to us by Hilton including, but not limited to, information technology support, financial services, human resources and other shared services. Historically, these costs were charged to us on a basis determined by Hilton to reflect a reasonable allocation of actual costs incurred to perform the services. During the years ended December 31, 2015, 2014 and 2013, we were charged $11 million, $10 million and $7 million, respectively, included in General, administrative and other in our consolidated statements of operations and as of December 31, 2015 and 2014, we had payables of $1 million included in Accounts payable, accrued expenses and other in our consolidated balance sheets.
Additionally, Hilton allocated indirect general and administrative costs to us for certain functions and services provided to us, including, but not limited to, executive office, finance and other administrative support. Accordingly, we recorded $13 million, $9 million and $38 million for the years ended December 31, 2015, 2014 and 2013, respectively, of Hiltons indirect general and corporate overhead expenses included in General, administrative and other in our consolidated statements of operations.
The allocations may not, however, reflect the expense we would have incurred as an independent, publicly traded company for the periods presented. Actual costs that might have been incurred had we been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions we might have performed ourselves or outsourced and strategic decisions we might have made in areas such as information technology and infrastructure. Following the spin-off, we will perform these functions using our own resources or purchased services from either Hilton or third parties. For an interim period some of these functions will continue to be provided by Hilton under one or more transition services agreements (TSAs). In addition to TSAs, we will enter into a number of commercial agreements with Hilton in connection with the spin-off, many of which are expected to have terms longer than one year.
Insurance
Hilton provides us with insurance coverage for general liability, group health insurance, property, business interruption and other risks with respect to business operations and charges us a fee based on estimates of claims. During each of the years ended December 31, 2015, 2014 and 2013, we were charged $2 million, which was included in our consolidated statements of operations and as of December 31, 2015 and 2014, we had payables of $6 million and $5 million, respectively, included in Accounts payable, accrued expenses and other in our consolidated balance sheets, which included amounts reimbursed to us by HOAs.
Hilton Grand Vacations Brand
We license the Hilton Grand Vacations brand from Hilton and pay them an annual fee based on a percentage of revenue for rights to operate under this brand. After the spin-off, we will continue to license the brand and have the exclusive right to develop, market, sell and manage VOI and related products under the Hilton Grand
F-30
Vacations brand. During the years ended December 31, 2015, 2014 and 2013, we paid license fees of $74 million, $62 million and $56 million, respectively, included in our consolidated statements of operations and as of December 31, 2015 and 2014, we had payables of $6 million and $8 million, respectively, included in Accounts payable, accrued expenses and other in our consolidated balance sheets.
Hotel Conversions and Other Hotel Transactions
In 2015, we made a $2 million distribution to Hilton in connection with a future conversion of a portion of one of Hiltons wholly owned hotel properties to a timeshare property.
In 2014, we entered into a purchase and sale agreement with a wholly owned subsidiary of Hilton for $22 million to transfer certain floors of the Hilton New York to us for conversion to vacation ownership units in phases for sale as deeded fee simple interests in perpetuity. In 2014, certain floors were transferred into our inventory with a net book value of $45 million and as of December 31, 2015 and 2014, we had a $7 million asset, reflected in our consolidated balance sheets as Other assets related to the floors paid but not yet transferred to us. We recognized $30 million as a capital contribution from Hilton for the difference between the cash paid and the net book value of the floors during the year ended December 31, 2014. The wholly owned subsidiary of Hilton reserved exclusive rights to occupy and operate these floors for specific periods of time, which represents a lease arrangement. The lease term on the remaining floors expires on December 31, 2016.
In 2014, in connection with a sale of certain land and easement rights for a timeshare project, we transferred $14 million of development costs capitalized in inventory to a wholly owned subsidiary of Hilton, which was reflected as a Distribution to Parent in our consolidated statements of parent deficit. Additionally, in 2014, our Parent transferred $18 million of land to us related to a timeshare project, which was reflected as a Capital contribution from Parent in our consolidated statements of parent deficit.
We pay rental fees and fees for other amenities to certain Hilton wholly owned hotels. During the years ended December 31, 2015, 2014 and 2013, we paid fees of $25 million, $28 million and $26 million, respectively, included in our consolidated statements of operations.
Hilton HHonors Program
We participate in Hiltons guest loyalty program, Hilton HHonors. Club members can exchange Club points for Hilton HHonors points, which we purchase from Hilton. Hilton maintains and administers the program. We pay Hilton in advance based on an estimated cost per point for the costs of future club exchanges. The associated expense is included in respective operating expenses line item based on the revenue stream in our consolidated statements of operations. For the years ended December 31, 2015, 2014 and 2013, we recorded $56 million, $48 million and $57 million, respectively, of Hilton HHonors expense in our consolidated statements of operations. Our prepaid expenses, included in Other assets in our consolidated balance sheets, include the amount of Hilton HHonors points purchased from Hilton for future redemptions. The prepaid expense is amortized into earnings evenly through the year.
Defined Contribution Plan
Hilton administers and maintains a defined contribution plan for the benefit of Hilton employees meeting certain eligibility requirements who elect to participate in the plan. Contributions are determined based on a specified percentage of salary deferrals by participating employees. We recognized compensation expense for our participating employees totaling $7 million, $6 million and $5 million for the years ended December 31, 2015, 2014 and 2013, respectively, in our consolidated statements of operations.
F-31
The Blackstone Group
As of December 31, 2015, an affiliate of Blackstone beneficially owned approximately 45.9 percent of Hilton stock. Beginning in 2014, we entered into a fee-for-service agreement with an affiliate of Blackstone to sell VOIs at a property for which we earn commissions. During the years ended December 31, 2015 and 2014, we recognized commissions and other fees of $154 million and $30 million, respectively, in our consolidated statements of operations.
Note 17: Business Segments
We operate our business through the following two segments:
| Real estate sales and financing We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs. |
| Resort operations and club management We manage the Club, receiving activation fees, annual dues and transaction fees from member exchanges for other vacation products. We earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club program. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties. |
The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense, taxes and depreciation and amortization (EBITDA). We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs; (vi) share-based and certain other compensation expenses; (vii) severance, relocation and other expenses; and (viii) other items.
The following table presents revenues for our reportable segments reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Revenues: |
||||||||||||
Real estate sales and financing (1) |
$ | 1,078 | $ | 942 | $ | 898 | ||||||
Resort operations and club management (2)(3) |
307 | 283 | 239 | |||||||||
|
|
|
|
|
|
|||||||
Total segment revenues |
1,385 | 1,225 | 1,137 | |||||||||
Cost reimbursements |
110 | 107 | 99 | |||||||||
Intersegment eliminations (1)(2)(3) |
(20 | ) | (15 | ) | (12 | ) | ||||||
|
|
|
|
|
|
|||||||
Total revenues |
$ | 1,475 | $ | 1,317 | $ | 1,224 | ||||||
|
|
|
|
|
|
(1) | Includes charges to the resort operations and club management segment for billing and collection services provided by the real estate sales and financing segment. These charges totaled $2 million, $1 million and $1 million for the years ended December 31, 2015, 2014 and 2013, respectively. |
(2) | Include charges to the real estate sales and financing segment from the resort operations and club management segment for discounted stays at properties resulting from marketing packages. These charges totaled $17 million, $13 million and $10 million for the years ended December 31, 2015, 2014 and 2013, respectively. |
(3) | Include charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units to show prospective buyers. These charges totaled $1 million for each of the years ended December 31, 2015, 2014 and 2013. |
F-32
The following table presents segment Adjusted EBITDA for our reportable segments reconciled to net income:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Adjusted EBITDA: |
||||||||||||
Real estate sales and financing (1) |
$ | 329 | $ | 305 | $ | 294 | ||||||
Resort operations and club management (1) |
162 | 144 | 104 | |||||||||
|
|
|
|
|
|
|||||||
Segment Adjusted EBITDA |
491 | 449 | 398 | |||||||||
General and administrative |
(57 | ) | (40 | ) | (70 | ) | ||||||
Depreciation and amortization |
(22 | ) | (18 | ) | (16 | ) | ||||||
License fee expense |
(74 | ) | (62 | ) | (56 | ) | ||||||
Gain on debt extinguishment |
| | 22 | |||||||||
Other gain, net |
| 5 | | |||||||||
Loss on foreign currency transactions |
| (2 | ) | (5 | ) | |||||||
Allocated Parent interest expense |
(29 | ) | (36 | ) | (48 | ) | ||||||
Income tax expense |
(118 | ) | (113 | ) | (90 | ) | ||||||
Non-recourse debt interest expense |
(13 | ) | (15 | ) | (7 | ) | ||||||
Other adjustment items |
(4 | ) | (1 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 174 | $ | 167 | $ | 128 | ||||||
|
|
|
|
|
|
(1) | Includes intersegment eliminations. Refer to our table presenting revenues by reportable segment above for additional discussion. |
The following table presents total assets for our reportable segments, reconciled to consolidated amounts:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
Real estate sales and financing |
$ | 1,619 | $ | 1,515 | ||||
Resort operations and club management |
74 | 68 | ||||||
|
|
|
|
|||||
Total segment assets |
1,693 | 1,583 | ||||||
Corporate |
31 | 38 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,724 | $ | 1,621 | ||||
|
|
|
|
The following table presents capital expenditures for property and equipment for our reportable segments, reconciled to consolidated amounts:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Real estate sales and financing |
$ | 10 | $ | 10 | $ | 4 | ||||||
Resort operations and club management |
1 | 1 | 2 | |||||||||
|
|
|
|
|
|
|||||||
Total segment capital expenditures for property and equipment |
11 | 11 | 6 | |||||||||
Corporate |
1 | 1 | 3 | |||||||||
|
|
|
|
|
|
|||||||
Total capital expenditures for property and equipment |
$ | 12 | $ | 12 | $ | 9 | ||||||
|
|
|
|
|
|
F-33
Total revenues by country were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
United States |
$ | 1,358 | $ | 1,189 | $ | 1,101 | ||||||
All other |
117 | 128 | 123 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,475 | $ | 1,317 | $ | 1,224 | |||||||
|
|
|
|
|
|
Other than the United States, there were no countries that individually represented more than 10 percent of total revenues for the years ended December 31, 2015, 2014 and 2013.
Property and equipment, net by country were as follows:
December 31, | ||||||||
($ in millions) | 2015 | 2014 | ||||||
United States |
$ | 45 | $ | 40 | ||||
All other |
6 | 7 | ||||||
|
|
|
|
|||||
$ | 51 | $ | 47 | |||||
|
|
|
|
Other than the United States, there were no countries that individually represented over 10 percent of total property and equipment, net as of December 31, 2015 and 2014.
Note 18: Commitments and Contingencies
We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of December 31, 2015, we were committed to purchase approximately $206 million of inventory over a period of four years. The ultimate amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. During the years ended December 31, 2015, 2014 and 2013, we purchased $17 million, $29 million and $35 million, respectively, of VOI inventory as required under our commitments. As of December 31, 2015, our remaining obligation pursuant to these arrangements was expected to be incurred as follows: $16 million in 2016, $8 million in 2017, zero in 2018 and $182 million in 2019.
We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. 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, 2015 will not have a material effect on our consolidated results of operations, financial position or cash flows.
F-34
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
June 30,
2016 |
December 31,
2015 |
|||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Cash |
$ | 3 | $ | 4 | ||||
Restricted cash |
72 | 75 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $2 and $2 |
117 | 89 | ||||||
Timeshare financing receivables, net |
981 | 976 | ||||||
Inventory |
430 | 412 | ||||||
Property and equipment, net |
112 | 51 | ||||||
Intangible assets, net |
71 | 74 | ||||||
Other assets |
51 | 43 | ||||||
|
|
|
|
|||||
TOTAL ASSETS (variable interest entities$310 and $368) |
$ | 1,837 | $ | 1,724 | ||||
|
|
|
|
|||||
LIABILITIES AND PARENT EQUITY (DEFICIT) |
||||||||
Accounts payable, accrued expenses and other |
$ | 215 | $ | 208 | ||||
Advance deposits |
102 | 96 | ||||||
Allocated Parent debt |
635 | 634 | ||||||
Non-recourse debt |
445 | 502 | ||||||
Deferred revenues |
123 | 103 | ||||||
Deferred income tax liabilities |
301 | 287 | ||||||
|
|
|
|
|||||
Total liabilities (variable interest entities$295 and $352) |
1,821 | 1,830 | ||||||
Commitments and contingenciessee Note 13 |
||||||||
Parent Equity (Deficit): |
||||||||
|
|
|
|
|||||
Total Parent Equity (Deficit) |
16 | (106 | ) | |||||
|
|
|
|
|||||
TOTAL LIABILITIES AND PARENT EQUITY (DEFICIT) |
$ | 1,837 | $ | 1,724 | ||||
|
|
|
|
See notes to condensed consolidated financial statements.
F-35
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in millions)
Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Revenues |
||||||||
Sales of VOIs, net |
$ | 229 | $ | 230 | ||||
Sales, marketing, brand and other fees |
246 | 234 | ||||||
Financing |
66 | 62 | ||||||
Club and resort management |
65 | 54 | ||||||
Rental and ancillary services |
94 | 86 | ||||||
Cost reimbursements |
61 | 55 | ||||||
|
|
|
|
|||||
Total revenues |
761 | 721 | ||||||
|
|
|
|
|||||
Expenses |
||||||||
Cost of VOI sales |
66 | 104 | ||||||
Sales and marketing |
286 | 260 | ||||||
Financing |
16 | 16 | ||||||
Club and resort management |
16 | 15 | ||||||
Rental and ancillary services |
56 | 55 | ||||||
General and administrative |
37 | 30 | ||||||
Depreciation and amortization |
11 | 11 | ||||||
License fee expense |
39 | 36 | ||||||
Cost reimbursements |
61 | 55 | ||||||
|
|
|
|
|||||
Total expenses |
588 | 582 | ||||||
|
|
|
|
|||||
Gain on foreign currency transactions |
1 | | ||||||
Allocated Parent interest expense |
(13 | ) | (15 | ) | ||||
Other loss, net |
(1 | ) | | |||||
|
|
|
|
|||||
Income before income taxes |
160 | 124 | ||||||
Income tax expense |
(65 | ) | (50 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 95 | $ | 74 | ||||
|
|
|
|
See notes to condensed consolidated financial statements
F-36
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Operating Activities |
||||||||
Net income |
$ | 95 | $ | 74 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
11 | 11 | ||||||
Amortization of deferred financing costs |
2 | 3 | ||||||
Provision for loan losses |
23 | 17 | ||||||
Other loss, net |
1 | | ||||||
Gain on foreign currency transactions |
(1 | ) | | |||||
Deferred income taxes |
1 | (3 | ) | |||||
Net changes in assets and liabilities: |
||||||||
Restricted cash |
3 | (30 | ) | |||||
Accounts receivable, net |
(28 | ) | (15 | ) | ||||
Timeshare financing receivables |
(27 | ) | (29 | ) | ||||
Inventory |
3 | (28 | ) | |||||
Purchase of assets for future conversion to inventory |
(14 | ) | | |||||
Other assets |
(17 | ) | (12 | ) | ||||
Accounts payable, accrued expenses and other |
11 | 8 | ||||||
Advance deposits |
6 | | ||||||
Deferred revenues |
20 | 36 | ||||||
Other |
| 1 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
89 | 33 | ||||||
|
|
|
|
|||||
Investing Activities |
||||||||
Capital expenditures for property and equipment |
(14 | ) | (8 | ) | ||||
Capitalized software costs |
(3 | ) | (2 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(17 | ) | (10 | ) | ||||
|
|
|
|
|||||
Financing Activities |
||||||||
Repayment of non-recourse debt |
(58 | ) | (68 | ) | ||||
Change in restricted cash |
| 4 | ||||||
Allocated Parent debt activity |
| (36 | ) | |||||
Net transfers from (to) Parent |
(15 | ) | 77 | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(73 | ) | (23 | ) | ||||
|
|
|
|
|||||
Net decrease in cash |
(1 | ) | | |||||
|
|
|
|
|||||
Cash, beginning of period |
4 | 2 | ||||||
|
|
|
|
|||||
Cash, end of period |
$ | 3 | $ | 2 | ||||
|
|
|
|
|||||
Supplemental Disclosures |
||||||||
Non-cash financing activities: |
||||||||
Transfer of inventory from Parent |
$ | 9 | $ | | ||||
Transfer of property and equipment from Parent |
33 | |
See notes to condensed consolidated financial statements.
F-37
CONDENSED CONSOLIDATED STATEMENTS OF PARENT EQUITY (DEFICIT)
(unaudited, in millions)
Total Parent
Equity (Deficit) |
||||
Balance as of December 31, 2015 |
$ | (106 | ) | |
Net income |
95 | |||
Net transfers to Parent |
(15 | ) | ||
Capital contribution from Parent |
42 | |||
|
|
|||
Balance as of June 30, 2016 |
$ | 16 | ||
|
|
|||
Total Parent
Deficit |
||||
Balance as of December 31, 2014 |
$ | (373 | ) | |
Net income |
74 | |||
Net transfers from Parent |
77 | |||
|
|
|||
Balance as of June 30, 2015 |
$ | (222 | ) | |
|
|
See notes to condensed consolidated financial statements.
F-38
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Organization and Basis of Presentation
Hilton Resorts Corporation (together with its subsidiaries, we, us, our or the Company) is a Delaware corporation formed on November 18, 1991. We are a global timeshare company engaged in developing, marketing, selling and managing timeshare resorts primarily under the Hilton Grand Vacations brand. Our operations primarily consist of: selling vacation ownership intervals (VOIs) for us and third parties; operating our resorts; financing and servicing loans provided to consumers for their timeshare purchases; and managing our Hilton Grand Vacations Club exchange program (the Club). As of June 30, 2016, we managed 46 timeshare properties comprising 7,576 units located in the United States (U.S.) and Europe.
On February 26, 2016, Hilton Worldwide Holdings Inc. (Parent, together with its consolidated subsidiaries, Hilton) announced a plan to spin-off its timeshare business to stockholders as a separate, publicly traded company. After the spin-off, we will operate as an independent, publicly traded company.
Basis of Presentation
The condensed consolidated financial statements reflect our historical financial position, results of operations and cash flows as prepared in conformity with U.S. generally accepted accounting principles (U.S. 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 information presented from being misleading, these financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2015, included elsewhere in this information statement.
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.
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. All material intercompany transactions and balances have been eliminated in consolidation.
Our condensed consolidated financial statements represent the financial position and results of operations of entities under common control that have been carved out of Hiltons condensed consolidated financial statements and reflect significant assumptions and allocations. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere within this information statement.
Note 2: Recently Issued Accounting Pronouncements
Accounting Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, (ASU 2016-13), Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss impairment methodology in current U.S. GAAP, with a methodology that reflects expected credit losses. The update is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This update is effective for annual periods beginning after December 15, 2019, with early adoption permitted for annual periods beginning after December 15, 2018. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.
F-39
Note 3: Restricted Cash
Restricted cash was as follows:
($ in millions) |
June 30,
2016 |
December 31,
2015 |
||||||
Escrow deposits on VOI sales |
$ | 55 | $ | 58 | ||||
Reserves related to non-recourse debt (1) |
17 | 17 | ||||||
|
|
|
|
|||||
$ | 72 | $ | 75 | |||||
|
|
|
|
(1) | See Note 8: Allocated Parent Debt and Non-recourse Debt for further discussion. |
Note 4: Timeshare Financing Receivables
Our timeshare financing receivables consist of loans related to our financing of VOI sales that are secured by the underlying timeshare properties. As of June 30, 2016 and December 31, 2015, we had $164 million and $163 million, respectively, of gross timeshare financing receivables securing a revolving non-recourse timeshare financing receivables credit facility (the Timeshare Facility). We recognize interest income on our timeshare financing receivables as earned. We record an estimate of uncollectibility as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.
Timeshare financing receivables were as follows:
June 30, 2016 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Timeshare financing receivables |
$ | 307 | $ | 786 | $ | 1,093 | ||||||
Less: allowance for loan loss |
(13 | ) | (99 | ) | (112 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 294 | $ | 687 | $ | 981 | |||||||
|
|
|
|
|
|
|||||||
December 31, 2015 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Timeshare financing receivables |
$ | 367 | $ | 715 | $ | 1,082 | ||||||
Less: allowance for loan loss |
(17 | ) | (89 | ) | (106 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 350 | $ | 626 | $ | 976 | |||||||
|
|
|
|
|
|
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. As of June 30, 2016, our timeshare financing receivables had interest rates ranging from 5.15 percent to 20.50 percent, a weighted average interest rate of 11.88 percent, a weighted average remaining term of 7.7 years and maturities through 2026. Our timeshare financing receivables as of June 30, 2016 mature as follows:
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Year |
||||||||||||
2016 (remaining) |
$ | 26 | $ | 51 | $ | 77 | ||||||
2017 |
54 | 74 | 128 | |||||||||
2018 |
53 | 78 | 131 | |||||||||
2019 |
50 | 80 | 130 | |||||||||
2020 |
45 | 83 | 128 | |||||||||
Thereafter |
79 | 420 | 499 | |||||||||
|
|
|
|
|
|
|||||||
307 | 786 | 1,093 | ||||||||||
Less: allowance for loan loss |
(13 | ) | (99 | ) | (112 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 294 | $ | 687 | $ | 981 | |||||||
|
|
|
|
|
|
F-40
We evaluate this portfolio collectively, since we hold a large group of homogeneous timeshare financing receivables, 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. We use a technique referred to as static pool analysis as the basis for determining our loan loss reserve requirements on our timeshare financing receivables. For static pool analysis, we use three key dimensions to stratify our portfolio: FICO scores; country of residence; and equity percentage at the time of sale. 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.
Our gross timeshare financing receivables balances by FICO score were as follows:
($ in millions) |
June 30,
2016 |
December 31,
2015 |
||||||
FICO score |
||||||||
700+ |
$ | 681 | $ | 663 | ||||
600-699 |
200 | 191 | ||||||
<600 |
28 | 28 | ||||||
No score (1) |
184 | 200 | ||||||
|
|
|
|
|||||
$ | 1,093 | $ | 1,082 | |||||
|
|
|
|
(1) | Timeshare financing receivables without a FICO score are primarily related to foreign borrowers. |
We apply payments we receive for loans, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a note is 91 days past due or is determined to be uncollectible prior to 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for loans for which we had previously ceased accruing interest once the loan is less than 91 days past due as of the month. We fully reserve for a timeshare financing receivable in the month following the date that the loan is 121 days past due and, subsequently, we write off the uncollectible note against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit. We determine our timeshare financing receivables to be past due based on the contractual terms of the individual mortgage loans.
As of June 30, 2016 and December 31, 2015, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $36 million and $33 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance:
June 30, 2016 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Current |
$ | 300 | $ | 744 | $ | 1,044 | ||||||
31 - 90 days past due |
4 | 9 | 13 | |||||||||
91 - 120 days past due |
1 | 2 | 3 | |||||||||
121 days and greater past due |
2 | 31 | 33 | |||||||||
|
|
|
|
|
|
|||||||
$ | 307 | $ | 786 | $ | 1,093 | |||||||
|
|
|
|
|
|
|||||||
December 31, 2015 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Current |
$ | 359 | $ | 677 | $ | 1,036 | ||||||
31 - 90 days past due |
5 | 8 | 13 | |||||||||
91 - 120 days past due |
2 | 3 | 5 | |||||||||
121 days and greater past due |
1 | 27 | 28 | |||||||||
|
|
|
|
|
|
|||||||
$ | 367 | $ | 715 | $ | 1,082 | |||||||
|
|
|
|
|
|
F-41
The changes in our allowance for loan loss were as follows:
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Balance as of December 31, 2015 |
$ | 17 | $ | 89 | $ | 106 | ||||||
Write-offs |
| (17 | ) | (17 | ) | |||||||
Provision for loan losses (1) |
(4 | ) | 27 | 23 | ||||||||
|
|
|
|
|
|
|||||||
Balance as of June 30, 2016 |
$ | 13 | $ | 99 | $ | 112 | ||||||
|
|
|
|
|
|
|||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Balance as of December 31, 2014 |
$ | 28 | $ | 68 | $ | 96 | ||||||
Write-offs |
| (15 | ) | (15 | ) | |||||||
Provision for loan losses (1) |
(7 | ) | 24 | 17 | ||||||||
|
|
|
|
|
|
|||||||
Balance as of June 30, 2015 |
$ | 21 | $ | 77 | $ | 98 | ||||||
|
|
|
|
|
|
(1) | Includes activity related to repurchase of defaulted and upgraded securitized timeshare financing receivables, net of incremental provision for loan losses. |
Note 5: Inventory
Inventory was as follows:
($ in millions) |
June 30,
2016 |
December 31,
2015 |
||||||
Completed unsold VOIs |
$ | 153 | $ | 111 | ||||
Construction in process |
75 | 101 | ||||||
Land, infrastructure and other |
202 | 200 | ||||||
|
|
|
|
|||||
$ | 430 | $ | 412 | |||||
|
|
|
|
The cost of sales true-ups relating to VOI products for the six months ended June 30, 2016 and 2015 resulted in an increase to the carrying values of inventory of $9 million and $3 million, respectively. For the six months ended June 30, 2016 and 2015, we incurred expenses of $24 million and $44 million, respectively, recorded in Cost of VOI sales , related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.
Note 6: Property and Equipment
Property and equipment and related depreciation expense were as follows:
($ in millions) |
June 30,
2016 |
December 31,
2015 |
||||||
Land |
$ | 23 | $ | | ||||
Buildings and leasehold improvements |
92 | 54 | ||||||
Furniture and equipment |
39 | 32 | ||||||
Construction-in-progress |
7 | 9 | ||||||
|
|
|
|
|||||
161 | 95 | |||||||
Accumulated depreciation |
(49 | ) | (44 | ) | ||||
|
|
|
|
|||||
$ | 112 | $ | 51 | |||||
|
|
|
|
Depreciation expense on property and equipment was $6 million and $5 million for the six months ended June 30, 2016 and 2015, respectively.
F-42
In June 2016, Hilton transferred property and equipment related to certain floors at the Embassy Suites Washington, DC to us for conversion to vacation ownership units. See Note 11: Related Party Transactions for further discussion.
Note 7: Consolidated Variable Interest Entities
As of June 30, 2016 and December 31, 2015, we consolidated two variable interest entities (VIEs) that issued debt securitized by our timeshare financing receivables (the Securitized Debt), which is without recourse to us. We are the primary beneficiaries of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we are required to replace timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our VIEs are only available to settle the obligations of the respective entities. Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:
($ in millions) |
June 30,
2016 |
December 31,
2015 |
||||||
Restricted cash |
$ | 13 | $ | 13 | ||||
Timeshare financing receivables, net |
294 | 350 | ||||||
Non-recourse debt |
295 | 352 |
During the six months ended June 30, 2016 and 2015, 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: Allocated Parent Debt and Non-recourse Debt
Allocated Parent Debt
Allocated Parent debt balances, and associated interest rates as of June 30, 2016, were as follows:
($ in millions) |
June 30,
2016 |
December 31,
2015 |
||||||
Senior secured term loan facility with a rate of 3.50%, due 2020 |
$ | 474 | $ | 474 | ||||
Senior Notes with a rate of 5.625%, due 2021 |
168 | 168 | ||||||
|
|
|
|
|||||
642 | 642 | |||||||
Less: unamortized deferred financing costs and discount |
(7 | ) | (8 | ) | ||||
|
|
|
|
|||||
$ | 635 | $ | 634 | |||||
|
|
|
|
Non-recourse Debt
Non-recourse debt balances, and associated interest rates as of June 30, 2016, were as follows:
($ in millions) |
June 30,
2016 |
December 31,
2015 |
||||||
Timeshare Facility with a rate of 1.44%, due 2017 |
$ | 150 | $ | 150 | ||||
Securitized Debt with an average rate of 1.97%, due 2026 |
298 | 356 | ||||||
|
|
|
|
|||||
448 | 506 | |||||||
Less: unamortized deferred financing costs |
(3 | ) | (4 | ) | ||||
|
|
|
|
|||||
445 | 502 | |||||||
|
|
|
|
F-43
We are required to deposit payments received from customers on the timeshare financing receivables securing the Timeshare Facility and Securitized Debt into depository accounts maintained by third parties. On a monthly basis, the depository accounts are utilized to make required principal, interest and other payments due under the respective loan agreements. The balances in the depository accounts as of June 30, 2016 and December 31, 2015 were $17 million in each period and were included in Restricted cash in our condensed consolidated balance sheets.
Debt Maturities
The contractual maturities of our allocated Parent debt and non-recourse debt as of June 30, 2016 were as follows:
($ in millions) |
Allocated
Parent Debt |
Non-recourse
Debt |
Total | |||||||||
Year |
||||||||||||
2016 (remaining) |
$ | | $ | 48 | $ | 48 | ||||||
2017 |
| 225 | 225 | |||||||||
2018 |
| 52 | 52 | |||||||||
2019 |
| 38 | 38 | |||||||||
2020 |
474 | 28 | 502 | |||||||||
Thereafter |
168 | 57 | 225 | |||||||||
|
|
|
|
|
|
|||||||
$ | 642 | $ | 448 | $ | 1,090 | |||||||
|
|
|
|
|
|
Note 9: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:
June 30, 2016 | ||||||||||||
Carrying
Amount |
Hierarchy Level | |||||||||||
($ in millions) | Level 1 | Level 3 | ||||||||||
Assets: |
||||||||||||
Timeshare financing receivables (1) |
$ | 981 | $ | | $ | 1,092 | ||||||
Liabilities: |
||||||||||||
Allocated Parent debt (2) |
635 | 175 | 474 | |||||||||
Non-recourse debt (2) |
445 | | 448 |
December 31, 2015 | ||||||||||||
Carrying
Amount |
Hierarchy Level | |||||||||||
($ in millions) | Level 1 | Level 3 | ||||||||||
Assets: |
||||||||||||
Timeshare financing receivables (1) |
$ | 976 | $ | | $ | 1,080 | ||||||
Liabilities: |
||||||||||||
Allocated Parent debt (2) |
634 | 175 | 474 | |||||||||
Non-recourse debt (2) |
502 | | 506 |
(1) | Carrying amount includes allowance for loan loss. |
(2) | Carrying amount includes unamortized deferred financing costs and discount. |
We believe the carrying amounts of our other financial assets and liabilities approximated fair value as of June 30, 2016 and December 31, 2015. 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 values.
F-44
The estimated fair values of our timeshare financing receivables were based on the expected future cash flows discounted at weighted-average interest rates of the current portfolio, which reflect the risk of the underlying notes, primarily determined by the credit worthiness of the borrowers.
The estimated fair values of our Level 1 allocated Parent debt were based on prices in active debt markets. The estimated fair values of our Level 3 allocated Parent debt were based on indicative quotes received for similar issuances.
The estimated fair values of our Level 3 non-recourse debt approximated carrying values as the interest rates under the loan agreements either approximated current market rates or there were not significant fluctuations in current market rates to change the fair values of the underlying instruments.
Note 10: Income Taxes
At the end of each quarter we estimate the effective tax rate expected to be applied for the full 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.
We are part of a consolidated U.S. federal income tax return, state tax returns and foreign tax returns with Hilton and other subsidiaries that are not included in our condensed consolidated financial statements. Income taxes as presented in our condensed consolidated financial statements reflect current and deferred income taxes of the consolidated tax filings attributed to us using the separate return method. The separate return method applies the accounting guidance for income taxes to the financial statements as if we were a separate taxpayer. During the six months ended June 30, 2016 and 2015, Hilton paid $60 million and $50 million, respectively, of income tax liabilities related to us, which is reflected in our condensed consolidated financial statements as a decrease to Parent equity (deficit).
Note 11: Related Party Transactions
Net Parent Transfers
The components of Net transfers from (to) Parent in the condensed consolidated statements of parent equity (deficit) were as follows:
Six Months Ended June 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Cash pooling and general financing activities |
$ | (98 | ) | $ | 3 | |||
Corporate allocations |
23 | 24 | ||||||
Income taxes |
60 | 50 | ||||||
|
|
|
|
|||||
Net transfers from (to) Parent |
$ | (15 | ) | $ | 77 | |||
|
|
|
|
Hotel Conversions
In June 2016, Hilton transferred to us $40 million of assets and $7 million of related deferred tax liabilities for certain floors at the Embassy Suites Washington, DC for conversion to vacation ownership units. We recognized a $33 million capital contribution from Hilton for the six months ended June 30, 2016.
In March 2016, Hilton transferred to us $22 million of assets and $6 million of related deferred tax liabilities for certain floors at the Hilton New York, for conversion to vacation ownership units. The net book value of these assets was approximately $15 million. We recognized a $9 million capital contribution from Hilton related to the transfer.
F-45
Note 12: Business Segments
We operate our business through the following two segments:
| Real estate sales and financing We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs. |
| Resort operations and club management We manage the Club, receiving activation fees, annual dues and transaction fees from member exchanges for other vacation products. We earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club program. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties. |
The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense, taxes and depreciation and amortization (EBITDA). We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs; (vi) share-based compensation expense; (vii) severance and other expenses; and (viii) other items.
The following table presents revenues for our reportable segments reconciled to condensed consolidated amounts:
Six Months Ended June 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Revenues: |
||||||||
Real estate sales and financing (1) |
$ | 542 | $ | 527 | ||||
Resort operations and club management (2)(3) |
170 | 150 | ||||||
|
|
|
|
|||||
Total segment revenues |
712 | 677 | ||||||
Cost reimbursements |
61 | 55 | ||||||
Intersegment eliminations (1)(2)(3) |
(12 | ) | (11 | ) | ||||
|
|
|
|
|||||
Total revenues |
$ | 761 | $ | 721 | ||||
|
|
|
|
(1) | Includes charges to the resort operations and club management segment for billing and collection services provided by the real estate sales and financing segment. These charges totaled $1 million for each of the six months ended June 30, 2016 and 2015. |
(2) | Includes charges to the real estate sales and financing segment from the resort operations and club management segment for discounted stays at properties resulting from marketing packages. These charges totaled $11 million and $10 million for the six months ended June 30, 2016 and 2015, respectively. |
(3) | Includes charges to the real estate sales and financing segment from the resort operations and club management segment for the rental of model units to show prospective buyers. These charges totaled less than $1 million in each of the six months ended June 30, 2016 and 2015. |
F-46
The following table presents Adjusted EBITDA for our reportable segments reconciled to net income:
Six Months Ended June 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Adjusted EBITDA: |
||||||||
Real estate sales and financing (1) |
$ | 171 | $ | 145 | ||||
Resort operations and club management (1) |
97 | 79 | ||||||
|
|
|
|
|||||
Segment Adjusted EBITDA |
268 | 224 | ||||||
General and administrative |
(37 | ) | (30 | ) | ||||
Depreciation and amortization |
(11 | ) | (11 | ) | ||||
License fee expense |
(39 | ) | (36 | ) | ||||
Other loss, net |
(1 | ) | | |||||
Gain on foreign currency transactions |
1 | | ||||||
Allocated Parent interest expense |
(13 | ) | (15 | ) | ||||
Income tax expense |
(65 | ) | (50 | ) | ||||
Non-recourse debt interest expense |
(6 | ) | (7 | ) | ||||
Other adjustment items |
(2 | ) | (1 | ) | ||||
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|
|
|
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Net income |
$ | 95 | $ | 74 | ||||
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|
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(1) | Includes intersegment eliminations. Refer to our table presenting revenues by reportable segment above for additional discussion. |
Note 13: Commitments and Contingencies
We have entered into certain arrangements with developers whereby we have committed to purchase vacation ownership units at a future date to be marketed and sold under our Hilton Grand Vacations brand. As of June 30, 2016, we were committed to purchase approximately $195 million of inventory over a period of four years. The ultimate amount and timing of the acquisitions is subject to change pursuant to the terms of the respective arrangements, which could also allow for cancellation in certain circumstances. During the six months ended June 30, 2016 and 2015, we purchased $11 million and $17 million, respectively, of VOI inventory as required under our commitments. As of June 30, 2016, our remaining obligation pursuant to these arrangements was expected to be incurred as follows: $5 million in the remainder of 2016, $8 million in 2017, zero in 2018 and $182 million in 2019.
We are involved in litigation arising from the normal course of business, some of which includes claims for substantial sums. 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, 2016 will not have a material effect on our condensed consolidated results of operations, financial position or cash flows.
F-47
Exhibit 99.2
SECTION 13(r) DISCLOSURE
The disclosures reproduced below were initially included in periodic reports filed with the Securities and Exchange Commission (the SEC) by each of Hilton Worldwide Holdings Inc. (Hilton), NCR Corporation (NCR) and Travelport Worldwide Limited (Travelport Worldwide), each of which may have been considered an affiliate of The Blackstone Group L.P. (Blackstone) as of the end of the period covered by such reports, and, therefore, an affiliate of Hilton Grand Vacations Inc. (the Company), filed the respective disclosures reproduced below with the SEC in accordance with Section 13(r) of the Securities Exchange Act of 1934, as amended. In March 2016, funds affiliated with Blackstone sold their remaining equity interests in Travelport Worldwide and, accordingly, no information for Travelport Worldwide subsequent to the fiscal quarter ended March 31, 2016 is included herein. The Company did not independently verify or participate in the preparation of these disclosures.
Hilton Worldwide Holdings Inc.
Hilton included the following disclosure in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 :
The following activities are disclosed as required by Section 13(r)(1)(D)(iii) of the Securities Exchange Act of 1934, as amended (the Exchange Act).
During the fiscal year ended December 31, 2015, an Iranian governmental delegation stayed at the Transcorp Hilton Abuja for one night. The stays were booked and paid for by the government of Nigeria. The hotel received revenues of approximately $5,320 from these dealings. Net profit to Hilton Worldwide Holdings Inc. (Hilton) from these dealings was approximately $495. Hilton believes that the hotel stays were exempt from the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560, pursuant to the International Emergency Economic Powers Act (IEEPA) and under 31 C.F.R. Section 560.210(d). The Transcorp Hilton Abuja intends to continue engaging in future similar transactions to the extent they remain permissible under applicable laws and regulations.
NCR Corporation
NCR included the following disclosure in its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2016 :
Disclosure Pursuant to Section 13(r)(1)(D)(iii) of the Securities Exchange Act. Pursuant to Section 13(r)(1)(D)(iii) of the Securities Exchange Act of 1934, as amended, we note that, during the period from January 1, 2016 through March 31, 2016, we maintained a bank account and guarantees at the Commercial Bank of Syria (CBS), which was designated as a Specially Designated National pursuant to Executive Order 13382 (EO 13382) on August 10, 2011. This bank account and the guarantees at CBS were maintained in the normal course of business prior to the listing of CBS pursuant to EO 13382. We note that the last known account balance as of March 31, 2016, was approximately $3,468. The bank account did not generate interest from January 1, 2016 through March 31, 2016, and the guarantees did not generate any revenue or profits for the Company. Pursuant to a license granted to the Company by OFAC on January 3, 2013, and subsequent licenses granted on April 29, 2013, July 12, 2013, February 28, 2014, November 12, 2014, and October 24, 2015, the Company has been winding down its past operations in Syria. The Companys current license expires on April 30, 2016. The Company has also
received licenses from OFAC to close the CBS account and terminate any guarantees. The Companys application to renew the license to transact business with CBS, which was submitted to OFAC on May 18, 2015, remains pending. Following the termination of guarantees and the closure of the account, the Company does not intend to engage in any further business activities with CBS.
NCR included the following disclosure in its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2016 :
Disclosure Pursuant to Section 13(r)(1)(D)(iii) of the Securities Exchange Act. Pursuant to Section 13(r)(1)(D)(iii) of the Securities Exchange Act of 1934, as amended, we note that, during the period from April 1, 2016 through April 30, 2016, we continued to maintain a bank account and guarantees at the Commercial Bank of Syria (CBS), which was designated as a Specially Designated National pursuant to Executive Order 13382 (EO 13382) on August 10, 2011. This bank account and the guarantees at CBS were maintained in the normal course of business prior to the listing of CBS pursuant to EO 13382. We note that the last known account balance as of April 30, 2016 was approximately $3,468. The bank account did not generate interest from April 1, 2016 through April 30, 2016, and the guarantees did not generate any revenue or profits for the Company. Pursuant to a license granted to the Company by OFAC on January 3, 2013, and subsequent licenses granted on April 29, 2013, July 12, 2013, February 28, 2014, November 12, 2014, and October 24, 2015, the Company had been engaged in winding down its past operations in Syria. The Companys last such license expired on April 30, 2016. In addition, the Companys application to renew its license to transact business with CBS, which was submitted to OFAC on May 18, 2015, was not acted upon prior to the expiration of the Companys last such license. As a result, and in connection with the license expiration, the Company abandoned its remaining property in Syria, which, including the CBS account, was commercially insignificant, and ended the employment of its final two employees in Syria, who had remained employed by the Company to assist with the execution of the Companys wind-down activities pursuant to authority granted by the OFAC licenses. The Company does not intend to engage in any further business activities with CBS.
Travelport Worldwide Limited
Travelport Worldwide included the following disclosure in its Annual Report on Form 10-K for the fiscal year ended December 31, 2015 :
Iran Sanctions Disclosure
As part of our global business in the travel industry, we provide certain passenger travel related Travel Commerce Platform and Technology Services to Iran Air. We also provide certain Technology Services to Iran Air Tours. All of these services are either exempt from applicable sanctions prohibitions pursuant to a statutory exemption permitting transactions ordinarily incident to travel or, to the extent not otherwise exempt, specifically licensed by the U.S. Office of Foreign Assets Control. Subject to any changes in the exempt/licensed status of such activities, we intend to continue these business activities, which are directly related to and promote the arrangement of travel for individuals.
The gross revenue and net profit attributable to these activities for the year ended December 31, 2015 were approximately $551,000 and $389,000, respectively, and $660,000 and $470,000 for the year ended December 31, 2014, respectively.
2
Travelport Worldwide included the following disclosure in its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2016 :
Trade Sanctions Disclosure
The following activities are disclosed as required by Section 13(r)(1)(D)(iii) of the Exchange Act.
As part of our global business in the travel industry, we provide certain passenger travel related Travel Commerce Platform and Technology Services to Iran Air. We also provide certain Technology Services to Iran Air Tours. All of these services are either exempt from applicable sanctions prohibitions pursuant to a statutory exemption permitting transactions ordinarily incident to travel or, to the extent not otherwise exempt, specifically licensed by the U.S. Office of Foreign Assets Control. Subject to any changes in the exempt/licensed status of such activities, we intend to continue these business activities, which are directly related to and promote the arrangement of travel for individuals.
The gross revenue and net profit attributable to these activities in the quarter ended March 31, 2016 were approximately $156,000 and $109,000, respectively.
3