As filed with the Securities and Exchange Commission on November 10, 2016
File No. 001-37794
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 5
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 |
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.
On October 24, 2016, Hilton Grand Vacations Inc. issued one share of its common stock, par value $0.01 per share, to Park Hotels & Resorts Inc. in connection with the contribution by Park Hotels & Resorts Inc. of all shares of common stock of Hilton Resorts Corporation owned by Park Hotels & Resorts Inc. to Hilton Grand Vacations Inc. The issuance of such share of common stock was not registered under the Securities Act, because the share was issued 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.* | |
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. 2017 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 | Registration Rights Agreement, dated as of October 24, 2016, among Hilton Grand Vacations Inc. and the other parties thereto. | |
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.** |
Exhibit No. |
Description |
|
10.12 | Form of Hilton Grand Vacations Inc. 2017 Stock Plan for Non-Employee Directors. | |
10.13 | Form of Hilton Resorts Corporation 2017 Executive Deferred Compensation Plan. | |
10.14 | Offer Letter, dated July 6, 2016, with James E. Mikolaichik.** | |
10.15 | Amendment No. 5 to Receivables Loan Agreement, effective as of October 4, 2016, 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.** | |
10.16 | Form of License Agreement, by and among Hilton Worldwide Holdings Inc. and Hilton Grand Vacations Inc.** | |
10.17 | Registration Rights Agreement, dated as of October 24, 2016, among Hilton Grand Vacations Inc. and HNA Tourism Group Co., Ltd. | |
10.18 | Stockholders Agreement, dated as of October 24, 2016, among Hilton Grand Vacations Inc., HNA Tourism Group Co., Ltd. and, solely for purposes of Section 4.3 thereof, HNA Group Co., Ltd. | |
10.19 | Form of Stockholders Agreement among Hilton Grand Vacations Inc. and the other parties thereto. | |
10.20 | Indenture, dated as of October 24, 2016, by and among Hilton Grand Vacations Borrower LLC, Hilton Grand Vacations Borrower Inc., the guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee.* | |
10.21 | Form of Senior Note due 2024 (included in Exhibit 10.20).* | |
21.1 | Subsidiaries of Hilton Grand Vacations Inc. | |
99.1 | Preliminary Information Statement, dated November 10, 2016. | |
99.2 | Section 13(r) Disclosure.** | |
99.3 | Form of Notice of Internet Availability of Information Statement Materials. |
* | To be filed by amendment. |
** | Previously filed. |
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: November 10, 2016
Exhibit 10.4
HILTON GRAND VACATIONS INC.
2017 OMNIBUS INCENTIVE PLAN
1. Purpose . The purpose of the Hilton Grand Vacations Inc. 2017 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.
(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
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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 , 2016.
(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) and (ii) 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. 2017 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, limited liability company or any comparable foreign entity (A) the sole general partner (or functional equivalent thereof) or the managing general partner (or functional equivalent thereof) 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 10,000,000 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 5,000,000 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 5,000,000 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 $15,000,000; and (vi) no more than 500,000 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%
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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.
(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
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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).
(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).
(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
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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. 2017 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
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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.
(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,
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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.
(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).
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,
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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 or a Subsidiary.
(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
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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.
(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
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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 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
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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.
(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 10.5
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement is effective as of (this Agreement) and is between Hilton Grand Vacations Inc., a Delaware corporation (the Company), and the undersigned director/officer of the Company (Indemnitee).
Background
The Company believes that, in order to attract and retain highly competent persons to serve as directors or in other capacities, including as officers, it must provide such persons with adequate protection through indemnification against the risks of claims and actions against them arising out of their services to and activities on behalf of the Company.
The Company desires and has requested Indemnitee to serve as a director and/or officer of the Company and, in order to induce the Indemnitee to serve in such capacity, the Company is willing to grant the Indemnitee the indemnification provided for herein. Indemnitee is willing to so serve on the basis that such indemnification be provided.
The parties by this Agreement desire to set forth their agreement regarding indemnification and the advancement of expenses.
In consideration of Indemnitees service to the Company and the covenants and agreements set forth below, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows.
Section 1. Indemnification.
To the fullest extent permitted by the General Corporation Law of the State of Delaware (the DGCL ):
(a) The Company shall indemnify Indemnitee if Indemnitee was or is made or is threatened to be made a party to, or is otherwise involved in, as a witness or otherwise, any threatened, pending or completed action, suit or proceeding (brought in the right of the Company or otherwise), whether civil, criminal, administrative or investigative and whether formal or informal, including appeals, by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, fiduciary, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in any such capacity.
(b) The indemnification provided by this Section 1 shall be from and against all loss and liability suffered and expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding, including any appeals.
Section 2. Advance Payment of Expenses. To the fullest extent permitted by the DGCL, expenses (including attorneys fees) incurred by Indemnitee in appearing at, participating in or defending any action, suit or proceeding or in connection with an enforcement action as
contemplated by Section 3(e), shall be paid by the Company in advance of the final disposition of such action, suit or proceeding within 30 days after receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time. The Indemnitee hereby undertakes to repay any amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled under this Agreement to be indemnified by the Company in respect thereof. No other form of undertaking shall be required of Indemnitee other than the execution of this Agreement. This Section 2 shall be subject to Section 3(b) and shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 6.
Section 3. Procedure for Indemnification, Notification and Defense of Claim.
(a) Promptly after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company hereunder, notify the Company in writing of the commencement thereof. The failure to promptly notify the Company of the commencement of the action, suit or proceeding, or of Indemnitees request for indemnification, will not relieve the Company from any liability that it may have to Indemnitee hereunder, except to the extent the Company is actually and materially prejudiced in its defense of such action, suit or proceeding as a result of such failure. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request therefor including such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to enable the Company to determine whether and to what extent Indemnitee is entitled to indemnification.
(b) With respect to any action, suit or proceeding of which the Company is so notified as provided in this Agreement, the Company shall, subject to the last two sentences of this paragraph, be entitled to assume the defense of such action, suit or proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery to Indemnitee of written notice of its election to do so. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any subsequently-incurred fees of separate counsel engaged by Indemnitee with respect to the same action, suit or proceeding unless the employment of separate counsel by Indemnitee has been previously authorized in writing by the Company. Notwithstanding the foregoing, if Indemnitee, based on the advice of his or her counsel, shall have reasonably concluded (with written notice being given to the Company setting forth the basis for such conclusion) that, in the conduct of any such defense, there is or is reasonably likely to be a conflict of interest or position between the Company and Indemnitee with respect to a significant issue, then the Company will not be entitled, without the written consent of Indemnitee, to assume such defense. In addition, the Company will not be entitled, without the written consent of Indemnitee, to assume the defense of any claim brought by or in the right of the Company.
(c) To the fullest extent permitted by the DGCL, the Companys assumption of the defense of an action, suit or proceeding in accordance with paragraph (b) above will constitute an irrevocable acknowledgement by the Company that any loss and liability suffered by Indemnitee and expenses (including attorneys fees), judgments, fines and amounts paid in settlement by or for the account of Indemnitee incurred in connection therewith are indemnifiable by the Company under Section 1 of this Agreement.
(d) The determination whether to grant Indemnitees indemnification request shall be made promptly and in any event within 30 days following the Companys receipt of a request for indemnification in accordance with Section 3(a). If the Company determines that
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Indemnitee is entitled to such indemnification or, as contemplated by paragraph (c) above, the Company has acknowledged such entitlement, the Company will make payment to Indemnitee of the indemnifiable amount within such 30 day period. If the Company is not deemed to have so acknowledged such entitlement or the Companys determination of whether to grant Indemnitees indemnification request shall not have been made within such 30 day period, the requisite determination of entitlement to indemnification shall, subject to Section 6, nonetheless be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitees statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under the DGCL.
(e) In the event that (i) the Company determines in accordance with this Section 3 that Indemnitee is not entitled to indemnification under this Agreement, (ii) the Company denies a request for indemnification, in whole or in part, or fails to respond or make a determination of entitlement to indemnification within 30 days following receipt of a request for indemnification as described above, (iii) payment of indemnification is not made within such 30 day period, (iv) advancement of expenses is not timely made in accordance with Section 2, or (v) the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, Indemnitee shall be entitled to an adjudication in any court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. Indemnitees expenses (including attorneys fees) incurred in connection with successfully establishing Indemnitees right to indemnification or advancement of expenses, in whole or in part, in any such proceeding or otherwise shall also be indemnified by the Company to the fullest extent permitted by the DGCL.
(f) Indemnitee shall be presumed to be entitled to indemnification and advancement of expenses under this Agreement upon submission of a request therefor in accordance with Section 2 or Section 3 of this Agreement, as the case may be. The Company shall have the burden of proof in overcoming such presumption, and such presumption shall be used as a basis for a determination of entitlement to indemnification and advancement of expenses unless the Company overcomes such presumption by clear and convincing evidence.
Section 4. Insurance and Subrogation.
(a) The Company shall use its reasonable best efforts to purchase and maintain a policy or policies of insurance with reputable insurance companies with A.M. Best ratings of A or better, Fitch ratings of BBBq or better, Moodys ratings of Baa2 or better or Standard & Poors ratings of BBBpi or better, providing Indemnitee with coverage for any liability asserted against, and incurred by, Indemnitee or on Indemnitees behalf by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, fiduciary, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or arising out of Indemnitees status as such, whether or not the Company would have the power to indemnify Indemnitee against such liability under the provisions of this Agreement. Such insurance policies shall have coverage terms and policy limits at least as favorable to Indemnitee as the insurance coverage provided to any other director or officer of the Company. If the Company has such insurance in effect at the time the Company
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receives from Indemnitee any notice of the commencement of an action, suit or proceeding, the Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy.
(b) Subject to Section 9(b), in the event of any payment by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee with respect to any insurance policy. Indemnitee shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights in accordance with the terms of such insurance policy. The Company shall pay or reimburse all expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.
(c) Subject to Section 9(b), the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder (including, but not limited to, judgments, fines and amounts paid in settlement, and ERISA excise taxes or penalties) if and to the extent that Indemnitee has otherwise actually received such payment under this Agreement or any insurance policy, contract, agreement or otherwise.
Section 5. Certain Definitions . For purposes of this Agreement, the following definitions shall apply:
(a) The term action, suit or proceeding shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed claim, action, suit, arbitration, alternative dispute mechanism or proceeding, whether civil, criminal, administrative or investigative.
(b) The term by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be broadly construed and shall include, without limitation, any actual or alleged act or omission to act.
(c) The term expenses shall be broadly construed and shall include, without limitation, all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys fees and related disbursements, appeal bonds, other out-of-pocket costs and reasonable compensation for time spent by Indemnitee for which Indemnitee is not otherwise compensated by the Company or any third party), actually and reasonably incurred by Indemnitee in connection with either the investigation, defense or appeal of an action, suit or proceeding or establishing or enforcing a right to indemnification under this Agreement or otherwise incurred in connection with a claim that is indemnifiable hereunder.
(d) The term judgments, fines and amounts paid in settlement shall be broadly construed and shall include, without limitation, all direct and indirect payments of any type or nature whatsoever, as well as any penalties or excise taxes assessed on a person with respect to an employee benefit plan).
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Section 6. Limitation on Indemnification . Notwithstanding any other provision herein to the contrary, the Company shall not be obligated pursuant to this Agreement:
(a) Claims Initiated by Indemnitee . To indemnify or advance expenses to Indemnitee with respect to an action, suit or proceeding (or part thereof), however denominated, initiated by Indemnitee, other than (i) an action, suit or proceeding brought to establish or enforce a right to indemnification or advancement of expenses under this Agreement (which shall be governed by the provisions of Section 6(b) of this Agreement) and (ii) an action, suit or proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Company, it being understood and agreed that such authorization or consent shall not be unreasonably withheld in connection with any compulsory counterclaim brought by Indemnitee in response to an action, suit or proceeding otherwise indemnifiable under this agreement.
(b) Action for Indemnification . To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, unless Indemnitee is successful in such action, suit or proceeding in establishing Indemnitees right, in whole or in part, to indemnification or advancement of expenses hereunder (in which case such indemnification or advancement shall be to the fullest extent permitted by the DGCL), or unless and to the extent that the court in such action, suit or proceeding shall determine that, despite Indemnitees failure to establish their right to indemnification, Indemnitee is entitled to indemnity for such expenses; provided, however, that nothing in this Section 6(b) is intended to limit the Companys obligations with respect to the advancement of expenses to Indemnitee in connection with any such action, suit or proceeding instituted by Indemnitee to enforce or interpret this Agreement, as provided in Section 2 hereof.
(c) Section 16(b) Matters . To indemnify Indemnitee on account of any suit in which judgment is rendered against Indemnitee for disgorgement of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended.
(d) Fraud or Willful Misconduct . To indemnify Indemnitee on account of conduct by Indemnitee where such conduct has been determined by a final (not interlocutory) judgment or other adjudication of a court or arbitration or administrative body of competent jurisdiction as to which there is no further right or option of appeal or the time within which an appeal must be filed has expired without such filing to have been knowingly fraudulent or constitute willful misconduct.
(e) Prohibited by Law . To indemnify Indemnitee in any circumstance where such indemnification has been determined by a final (not interlocutory) judgment or other adjudication of a court or arbitration or administrative body of competent jurisdiction as to which there is no further right or option of appeal or the time within which an appeal must be filed has expired without such filing to be prohibited by law.
Section 7. Certain Settlement Provisions. The Company shall have no obligation to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action, suit or proceeding without the Companys prior written consent. The Company shall not settle any action, suit or proceeding in any manner that would impose any fine or other obligation on Indemnitee without Indemnitees prior written consent. Neither the Company nor Indemnitee will unreasonably withhold his, her, its or their consent to any proposed settlement.
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Section 8. Savings Clause. If any provision or provisions (or portion thereof) of this Agreement shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee if Indemnitee was or is made or is threatened to be made a party or is otherwise involved in any threatened, pending or completed action, suit or proceeding (brought in the right of the Company or otherwise), whether civil, criminal, administrative or investigative and whether formal or informal, including appeals, by reason of the fact that Indemnitee is or was or has agreed to serve as a director, officer, employee or agent of the Company, or while serving as a director or officer of the Company, is or was serving or has agreed to serve at the request of the Company as a director, officer, employee or agent (which, for purposes hereof, shall include a trustee, partner or manager or similar capacity) of another corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise, or by reason of any action alleged to have been taken or omitted in such capacity, from and against all loss and liability suffered and expenses (including attorneys fees), judgments, fines and amounts paid in settlement reasonably incurred by or on behalf of Indemnitee in connection with such action, suit or proceeding, including any appeals, to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated.
Section 9. Contribution/Jointly Indemnifiable Claims.
(a) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for herein is held by a court of competent jurisdiction to be unavailable to Indemnitee in whole or in part, it is agreed that, in such event, the Company shall, to the fullest extent permitted by the DGCL, contribute to the payment of all of Indemnitees loss and liability suffered and expenses (including attorneys fees), judgments, fines and amounts paid in settlement reasonably incurred by or on behalf of Indemnitee in connection with any action, suit or proceeding, including any appeals, in an amount that is just and equitable in the circumstances; provided, that, without limiting the generality of the foregoing, such contribution shall not be required where such holding by the court is due to any limitation on indemnification set forth in Section 4(c), 6 (other than clause (e)) or 7 hereof.
(b) Given that certain jointly indemnifiable claims may arise due to the service of the Indemnitee as a director and/or officer of the Company at the request of the Indemnitee-related entities, the Company acknowledges and agrees that the Company shall be fully and primarily responsible for the payment to the Indemnitee in respect of indemnification or advancement of expenses in connection with any such jointly indemnifiable claim, pursuant to and in accordance with the terms of this Agreement, irrespective of any right of recovery the Indemnitee may have from the Indemnitee-related entities. Under no circumstance shall the Company be entitled to any right of subrogation against or contribution by the Indemnitee-related entities and no right of advancement, indemnification or recovery the Indemnitee may have from the Indemnitee-related entities shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Company hereunder. In the event that any of the Indemnitee-related entities shall make any payment to the Indemnitee in respect of indemnification or advancement of expenses with respect to any jointly indemnifiable claim, the Indemnitee-related entity making such payment shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against the Company, and Indemnitee shall execute all papers reasonably required and shall do all things that may be reasonably necessary to secure such rights, including the execution of such documents as may be necessary to enable the Indemnitee-related entities effectively to bring suit to enforce such rights. The Company and Indemnitee agree that each of the Indemnitee-related entities shall be third-party beneficiaries with respect to this Section 9(b), entitled to enforce this Section 9(b) as though each such Indemnitee-related entity were a party to this Agreement. For purposes of this Section 9(b), the following terms shall have the following meanings:
(i) The term Indemnitee-related entities means any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than the Company or any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise Indemnitee has agreed, on behalf of the Company or at the Companys request, to serve as a director, officer, employee or agent and which service is covered by the indemnity described in this Agreement) from whom an Indemnitee may be entitled to indemnification or advancement of expenses with respect to which, in whole or in part, the Company may also have an indemnification or advancement obligation (other than as a result of obligations under an insurance policy).
(ii) The term jointly indemnifiable claims shall be broadly construed and shall include, without limitation, any action, suit or proceeding for which the Indemnitee shall be entitled to indemnification or advancement of expenses from both the Indemnitee-related entities and the Company pursuant to the DGCL, any agreement or the certificate of incorporation, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or comparable organizational documents of the Company or the Indemnitee-related entities, as applicable.
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Section 10. Form and Delivery of Communications . All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand, upon receipt by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier, one day after deposit with such courier and with written verification of receipt or (d) sent by email or facsimile transmission, with receipt of oral confirmation that such transmission has been received. Notice to the Company shall be directed to Charles R. Corbin, Jr., General Counsel, by email at Charles.Corbin@hilton.com or by telephone at (703) 883-5735. Notice to Indemnitee shall be directed to Indemnitees contact information on file with the Companys Corporate Secretary or its Human Resources Department.
Section 11. Nonexclusivity . The provisions for indemnification and advancement of expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, in any court in which a proceeding is brought, other agreements or otherwise, and Indemnitees rights hereunder shall inure to the benefit of the heirs, executors and administrators of Indemnitee. No amendment or alteration of the Companys Certificate of Incorporation or Bylaws or any other agreement shall adversely affect the rights provided to Indemnitee under this Agreement.
Section 12. No Construction as Employment Agreement . Nothing contained herein shall be construed as giving Indemnitee any right to be retained as a director of the Company or in the employ of the Company. For the avoidance of doubt, the indemnification and advancement of expenses provided under this Agreement shall continue as to the Indemnitee even though he may have ceased to be a director, officer, employee or agent of the Company.
Section 13. Interpretation of Agreement . It is understood that the parties hereto intend this Agreement to be interpreted and enforced so as to provide indemnification to Indemnitee to the fullest extent now or hereafter permitted by the DGCL.
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Section 14. Entire Agreement . This Agreement and the documents expressly referred to herein constitute the entire agreement between the parties hereto with respect to the matters covered hereby, and any other prior or contemporaneous oral or written understandings or agreements with respect to the matters covered hereby are expressly superseded by this Agreement.
Section 15. Modification and Waiver . No supplement, modification, waiver or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. For the avoidance of doubt, this Agreement may not be terminated by the Company without Indemnitees prior written consent.
Section 16. Successor and Assigns . All of the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and their respective successors, assigns, heirs, executors, administrators and legal representatives. The Company shall require and cause any direct or indirect successor (whether by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of such Indemnitor, by written agreement in form and substance reasonably satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.
Section 17. Service of Process and Venue . The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the Delaware Court), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808 as its agent in the State of Delaware as such partys agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 18. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. If a court of competent jurisdiction shall make a final determination that the provisions of the law of any state other than Delaware govern indemnification by the Company of Indemnitee, then the indemnification provided under this Agreement shall in all instances be enforceable to the fullest extent permitted under such law, notwithstanding any provision of this Agreement to the contrary.
Section 19. Counterparts. 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, notwithstanding that both parties are not signatories to the original or same counterpart.
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Section 20. Headings. The section and subsection headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
[ Signature Page Follows ]
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This Indemnification Agreement has been duly executed and delivered to be effective as of the date stated above.
HILTON GRAND VACATIONS INC. | INDEMNITEE | |||||
By: |
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Name: | Name: | |||||
Title: | Title: |
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Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
by and between
HILTON GRAND VACATIONS INC.
and
THE OTHER PARTIES HERETO
Dated as of October 24, 2016
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS |
1 | |||||
SECTION 1.1 |
Certain Definitions | 1 | ||||
SECTION 1.2 |
Other Definitional Provisions; Interpretation | 5 | ||||
ARTICLE II. REGISTRATION RIGHTS |
5 | |||||
SECTION 2.1 |
Piggyback Rights | 5 | ||||
SECTION 2.2 |
Demand Registration | 8 | ||||
SECTION 2.3 |
Registration Procedures | 10 | ||||
SECTION 2.4 |
Other Registration-Related Matters | 13 | ||||
ARTICLE III. INDEMNIFICATION |
16 | |||||
SECTION 3.1 |
Indemnification by the Company | 16 | ||||
SECTION 3.2 |
Indemnification by the Holders and Underwriters | 16 | ||||
SECTION 3.3 |
Notices of Claims, Etc | 17 | ||||
SECTION 3.4 |
Contribution | 17 | ||||
SECTION 3.5 |
Other Indemnification | 18 | ||||
SECTION 3.6 |
Non-Exclusivity | 18 | ||||
ARTICLE IV. OTHER |
18 | |||||
SECTION 4.1 |
Notices | 18 | ||||
SECTION 4.2 |
Assignment | 20 | ||||
SECTION 4.3 |
Amendments; Waiver | 20 | ||||
SECTION 4.4 |
Third Parties | 20 | ||||
SECTION 4.5 |
Governing Law | 20 | ||||
SECTION 4.6 |
Jurisdiction | 20 | ||||
SECTION 4.7 |
MUTUAL WAIVER OF JURY TRIAL | 20 | ||||
SECTION 4.8 |
Specific Performance | 21 | ||||
SECTION 4.9 |
Entire Agreement | 21 | ||||
SECTION 4.10 |
Severability | 21 | ||||
SECTION 4.11 |
Counterparts | 21 | ||||
SECTION 4.12 |
Effectiveness | 21 | ||||
SECTION 4.13 |
Confidentiality | 21 |
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement ) is dated as of October 24, 2016 and is by and between Hilton Grand Vacations Inc. (the Company ) and Blackstone (as defined below).
RECITALS
WHEREAS, Hilton Worldwide Holdings Inc. ( Hilton ) intends to distribute its entire interest in the Company by way of a dividend of all outstanding shares of the Companys Common Stock (as defined below) owned by Hilton to holders of Hilton common stock; and
WHEREAS, Hilton and Blackstone are parties to a Registration Rights Agreement dated as of December 17, 2013, which is being amended and restated of even herewith, relating to the registration of shares of Hilton common stock.
NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1 Certain Definitions . As used in this Agreement:
Adverse Disclosure means public disclosure of material, non-public information that, in the Board of Directors good faith judgment, after consultation with outside counsel to the Company, (i) would be required to be made in any registration statement or report filed with the SEC by the Company so that such registration statement or report would not be materially misleading and such material, non-public information would not be required to be made at such time but for the filing of such registration statement or report, and (ii) the Company has a bona fide business purpose for not disclosing publicly.
Advice has the meaning set forth in Section 2.4(b).
Affiliate has the meaning ascribed thereto in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof.
Agreement has the meaning set forth in the preamble.
Blackstone means the entities listed on the signature pages hereto under the heading Blackstone Parties.
Blackstone Entities means the entities comprising Blackstone, their respective Affiliates and the successors and permitted assigns of such entities and their respective Affiliates.
Board means the board of directors of the Company.
Business Day means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York, New York are authorized or required by law to close.
Common Stock means the shares of common stock, par value $0.01 per share, of the Company, and any other capital stock of the Company into which such common stock is reclassified or reconstituted.
Company has the meaning set forth in the preamble.
Control (including its correlative meanings, Controlled by and under common Control with ) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.
Demand Party has the meaning set forth in Section 2.2(a).
Demand Suspension has the meaning set forth in Section 2.2(a)(ii)(y).
Distribution Date means the date on which the distribution to holders of record of shares of Hilton common stock of the HGV Common Stock owned by Hilton is effectuated.
Effective Date means the Distribution Date.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
FINRA means the Financial Industry Regulatory Authority, Inc.
Governmental Authority means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
HNA Registration Rights Agreement means that certain Registration Rights Agreement, dated as of the date hereof, between the Company and HNA, but not any amendments thereto.
HNA Holder means the holders of securities entitled to registration rights under the HNA Registration Rights Agreement.
Holder means each entity comprising Blackstone that is a holder of Registrable Securities or Securities exercisable, exchangeable or convertible into Registrable Securities or any Transferee of such Person to whom registration rights are assigned pursuant to Section 4.2.
Indemnified Party and Indemnified Parties have the meanings set forth in Section 3.1.
Law means any statute, law, regulation, ordinance, rule, injunction, order, decree, governmental approval, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority.
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Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, a cooperative, an unincorporated organization, or other form of business organization, whether or not regarded as a legal entity under applicable Law, or any Governmental Authority or any department, agency or political subdivision thereof.
Public Offering means a public offering of equity securities of the Company or any successor thereto or any Subsidiary of the Company pursuant to a registration statement declared effective under the Securities Act.
Registrable Securities means all shares of Common Stock and any Securities into which the Common Stock may be converted or exchanged pursuant to any merger, consolidation, sale of all or any part of its assets, corporate conversion or other extraordinary transaction of the Company held by a Holder (whether now held or hereafter acquired, and including any such Securities received by a Holder upon the conversion or exchange of, or pursuant to such a transaction with respect to, other Securities held by such Holder). As to any Registrable Securities, such Securities will cease to be Registrable Securities when:
(a) | a registration statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective registration statement; |
(b) | such Registrable Securities shall have been sold pursuant to Rule 144 or 145 (or any similar provision then in effect) under the Securities Act; |
(c) | such Registrable Securities may be sold pursuant to Rule 144 or 145 (or any similar provision then in effect) without limitation thereunder on volume or manner of sale, unless such Registrable Securities are held by a Holder that beneficially owns 5% or more of the then outstanding shares of Common Stock; or |
(d) | such Registrable Securities cease to be outstanding. |
Registration Expenses means any and all expenses incurred in connection with the performance of or compliance with this Agreement, including:
(a) | all SEC, stock exchange, or FINRA registration and filing fees (including, if applicable, the fees and expenses of any qualified independent underwriter, as such term is defined in Rule 5121 of FINRA, and of its counsel); |
(b) | all fees and expenses of complying with securities or blue sky Laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities); |
(c) | all printing, messenger and delivery expenses; |
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(d) | all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange or FINRA and all rating agency fees; |
(e) | the reasonable fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or cold comfort letters required by or incident to such performance and compliance; |
(f) | any fees and disbursements of underwriters customarily paid by the issuers of Securities, including liability insurance if the Company so desires or if the underwriters so require, and the reasonable fees and expenses of any special experts retained by the Company in connection with the requested registration, but excluding underwriting discounts and commissions and transfer taxes, if any; |
(g) | the reasonable fees and out-of-pocket expenses of not more than one law firm (as selected by the Holders of a majority of the Registrable Securities included in such registration) incurred by all the Holders in connection with the registration; |
(h) | the costs and expenses of the Company relating to analyst and investor presentations or any road show undertaken in connection with the registration and/or marketing of the Registrable Securities; and |
(i) | any other fees and disbursements customarily paid by the issuers of securities. |
SEC means the U.S. Securities and Exchange Commission or any successor agency.
Securities means capital stock, limited partnership interests, limited liability company interests, beneficial interests, warrants, options, notes, bonds, debentures, and other securities, equity interests, ownership interests and similar obligations of every kind and nature of any Person.
Securities Act means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which: (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, representatives or trustees thereof 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; or (ii) if a limited liability company, partnership, association or other business entity, a majority of the total voting power of stock (or equivalent ownership interest) of the limited liability company, partnership, association or other business entity is at the time owned or Controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or Control the managing director or general partner of such limited liability company, partnership, association or other business entity.
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Transfer (including its correlative meanings, Transferor , Transferee and Transferred ) shall mean, with respect to any security, directly or indirectly, to sell, contract to sell, give, assign, hypothecate, pledge, encumber, grant a security interest in, offer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any economic, voting or other rights in or to such security. When used as a noun, Transfer shall have such correlative meaning as the context may require.
SECTION 1.2 Other Definitional Provisions; Interpretation.
(a) The words hereof, herein, and hereunder and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The word including and words of similar import when used in this Agreement mean including, without limitation, unless otherwise specified. References in this Agreement to a designated Article or Section refer to an Article or Section of this Agreement unless otherwise specified and references to clauses without a cross-reference to a Section or subsection are references to clauses within the same Section or, if more specific, subsection. The word extent in the phrase to the extent means the degree to which a subject or other thing extends and such phrase shall not mean simply if. References to day means a calendar day unless otherwise indicated as a Business Day.
(b) The headings in this Agreement are included for convenience of reference only and do not limit or otherwise affect the meaning or interpretation of this Agreement.
(c) The meanings given to terms defined herein are equally applicable to both the singular and plural forms of such terms.
(d) When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period is excluded. If the last day of such period is a non-Business Day, the period in question ends on the next succeeding Business Day.
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.1 Piggyback Rights.
(a) If at any time the Company proposes to register Securities for public sale (whether proposed to be offered for sale by the Company or by any other Person) under the Securities Act (other than a registration on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes) in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, other than for an underwritten secondary offering initiated by the HNA Holder under the HNA Registration Rights Agreement, it shall, at each such time, give prompt written notice (which notice shall be given not less than ten (10) Business Days prior to the filing by the Company with the SEC of any registration
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statement with respect thereto and shall specify the intended method or methods of disposition and the number of Securities proposed to be registered) to each Holder of its intention to do so and of such Holders rights under this Section 2.1, provided , no such notice need be given of any underwritten offering if the managing underwriter advises the Company in writing (a copy of which shall be provided to each Holder) that, in its opinion, the inclusion of Registrable Securities would be likely to have an adverse impact on the price, timing or distribution of the Securities offered in such offering. Upon the written request of any Holder made within five (5) Business Days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder), the Company shall use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Holders have so requested to be registered; provided that: (i) any Holder shall have the right to withdraw such Holders request for inclusion of any of such Holders Registrable Securities in any registration statement pursuant to this Section 2.1(a) by giving written notice to the Company of such withdrawal, provided , that, in the case of any underwritten offering, written notice of such withdrawal must be given to the Company prior to the time at which the offering price or underwriters discount is determined with the managing underwriter or underwriters; (ii) if, at any time after giving written notice of its intention to register any Securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with the proposed registration of the Securities to be sold by it, the Company may, at its election, give written notice of such determination to the Holders and, thereupon, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith) without prejudice to the rights of the Demand Party to request that such registration be effected as a registration under Section 2.2(a); and (iii) subject to clause (i), if such registration involves an underwritten offering, each Holder of Registrable Securities requesting to be included in the registration must, upon the written request of the Company, sell its Registrable Securities to the underwriters on the same terms and conditions as apply to the other Securities being sold through underwriters under such registration, with, in the case of a combined primary and secondary offering, only such differences, including any with respect to representations and warranties, indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings.
(b) Expenses . The Company shall pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.1.
(c) Priority in Piggyback Registrations . If a registration pursuant to this Section 2.1 involves an underwritten offering and the managing underwriter advises the Company in writing (a copy of which shall be provided to each Holder) that, in its opinion, the number of Registrable Securities and other Securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the Securities offered in such offering, then the Company shall include in such registration: (i) first, the Securities the Company proposes to sell for its own account; and (ii) second, such number of Securities requested to be included in such registration which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, which number of Securities shall be allocated (A) until the date that is the second anniversary of the Effective Date, (x) first, to the holders of Registrable
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Securities requested to be included in such registration pursuant to Section 2.1(a), on the basis of the relative number of Securities requested to be included in such registration by each such holder and (y) second, pro rata among all other holders of Securities entitled to include Securities in such registration and that submitted a proper request for inclusion in such registration, on the basis of the relative number of Securities requested to be included in such registration by each such holder and (B) after the date that is the second anniversary of the Effective Date, pro rata among the holders of Registrable Securities requested to be included in such registration pursuant to Section 2.1(a) and all other holders of Securities entitled to include Securities in such registration that submitted a proper request for inclusion in such registration, on the basis of the relative number of Securities requested to be included in such registration by each such holder. Any other selling holders of the Companys Securities will be included in an underwritten offering only with the consent of holders holding a majority of the shares being sold in such offering.
(d) Excluded Transactions . The Company shall not be obligated to effect any registration of Registrable Securities under this Section 2.1 incidental to the registration of any of its Securities in connection with:
(i) a registration statement filed to cover issuances under employee benefits plans or dividend reinvestment plans;
(ii) any registration statement relating solely to the acquisition or merger after the date hereof by the Company or any of its Subsidiaries of or with any other businesses, assets or properties;
(iii) any registration statement covering securities other than shares of the same class as those held by Holders (even if such securities are convertible into, or exchangeable or exercisable for, shares that are registered as part of such offering or
(iv) any registration related solely to an exchange by the Company of its own securities.
(e) Plan of Distribution, Underwriters and Counsel . If a registration pursuant to this Section 2.1 involves an underwritten offering that is initiated by selling holders, the holders that initiated such underwritten offering (by action of the holders of a majority of the Securities requested to be registered thereby) shall have the right to (i) determine the plan of distribution, (ii) select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter (provided that such investment banker or bankers and managers shall be reasonably satisfactory to the Company) and (iii) select counsel for the selling holders. If a registration pursuant to this Section 2.1 involves an underwritten offering that is initiated by the Company, the Company shall have the right to (i) determine the plan of distribution and (ii) select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter; and the holders of a majority of the Securities requested to be registered thereby by selling holders (by action of the holders of a majority of the Securities requested to be registered thereby by such selling holders) shall have the right to select counsel for the selling holders.
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(f) Shelf Takedowns . In connection with any shelf takedown (whether pursuant to Section 2.2(f) or at the initiative of the Company), other than in the case of an underwritten secondary offering initiated by the HNA Holder under the HNA Registration Rights Agreement, the Holders may exercise piggyback rights in the manner described in this Agreement to have included in such takedown Registrable Securities held by them that are registered on such shelf registration statement, provided , that in the case of any shelf takedown for an underwritten offering, at the initiative of the Company, the ten (10) Business Day period in Section 2.1(a) shall be reduced to seven (7) Business Days.
SECTION 2.2 Demand Registration.
(a) General . Upon the written request of any Blackstone Entity (the Demand Party ) requesting that the Company effect the registration under the Securities Act of Registrable Securities and specifying the amount and intended method of disposition thereof (including, but not limited to, an underwritten public offering), the Company shall (i) promptly give written notice of such requested registration to the other Holders and other holders of Securities entitled to notice of such registration, if any, and (ii) as expeditiously as possible, use its reasonable best efforts to file a registration statement to effect the registration under the Securities Act of:
(i) such Registrable Securities which the Company has been so requested to register by the Demand Party in accordance with the intended method of disposition thereof; and
(ii) the Registrable Securities of other Holders which the Company has been requested to register by written request given to the Company within five (5) Business Days after the giving of such written notice by the Company.
Notwithstanding the foregoing, the Company shall not be obligated to file a registration statement relating to any registration request under this Section 2.2(a):
(x) within a period of one hundred eighty (180) days (or such lesser period as the managing underwriters in an underwritten offering may permit) after the effective date of any other registration statement relating to any registration request under this Section 2.2(a) or relating to any registration referred to in Section 2.1; provided, that if greater than 50% of the Registrable Securities requested to be registered pursuant to Section 2.1 or Section 2.2(a) by the Blackstone Entities taken as a whole are excluded from the applicable registration pursuant to Section 2.1(c) or Section 2.2(e), Blackstone shall have the right, with respect to such excluded Registrable Securities, to request one (1) additional registration pursuant to Section 2.2(a) within such period of one hundred eighty (180) days; provided further, that such request shall not be made within ninety (90) days after the effective date of the registration statement from which such Registrable Securities were excluded; or
(y) if, in the good faith judgment of a majority of the disinterested members of the Board, the filing, initial effectiveness or continued use of the registration statement would be adverse to the Company because (i) such action would require the
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Company to make an Adverse Disclosure or (ii) the Board of Directors of the Company has determined in good faith that the registration or sale of the Registrable Securities would be reasonably expected to materially and adversely affect a planned bona fide financing of the Company that is reasonably likely to be promptly initiated by the Company, then the Company may delay the filing (but not the preparation of) or initial effectiveness of, or suspend use of, the registration statement (a Demand Suspension ); provided, however, that the Company shall not be permitted to exercise more than two Demand Suspensions during any twelve-(12) month period for more than an aggregate of ninety (90) days; and provided, further, that in the event of a Demand Suspension, such Demand Suspension shall terminate at such time as the Company would no longer be required to make any Adverse Disclosure or any such planned financing has been abandoned or completed.
(b) Form . Each registration statement prepared at the request of a Demand Party shall be effected on such form as reasonably requested by the Demand Party, including by a shelf registration pursuant to Rule 415 under the Securities Act on a Form S-3 (or any successor rule or form thereto) if so requested by the Demand Party and if the Company is then eligible to effect a shelf registration and use such form for such disposition.
(c) Expenses . The Company shall pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2.
(d) Plan of Distribution, Underwriters and Counsel . If a requested registration pursuant to this Section 2.2 involves an underwritten offering, the Demand Party shall have the right to (i) determine the plan of distribution, (ii) select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter (provided that such investment banker or bankers and managers shall be reasonably satisfactory to the Company) and (iii) select counsel for the selling Holders.
(e) Priority in Demand Registrations . If a requested registration pursuant to this Section 2.2 involves an underwritten offering and the managing underwriter advises the Company in writing (a copy of which shall be provided to each Holder) that, in its opinion, the number of Securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the Securities offered in such offering, then the number of such Registrable Securities to be included in such registration shall be allocated pro rata among (1) Registrable Securities held by the Demand Party, and (2) the Registrable Securities held by other Holders that have requested that their Registrable Securities be sold pursuant to Section 2.1(a), if any, on the basis of the relative number of securities requested to be included in such registration by the Demand Party and each such other Holder. Any other selling holders of the Companys Securities will be included in an underwritten offering only with the consent of Holders holding a majority of the shares being sold in such offering.
(f) Shelf Takedowns . Upon the written request of the Demand Party at any time and from time to time, the Company shall facilitate in the manner described in this Agreement a takedown of the Demand Partys Registrable Securities off of an effective shelf registration statement. Upon the written request of the Demand Party, the Company shall file
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and seek the effectiveness of a post-effective amendment to an existing shelf registration statement in order to register up to the number of the Demand Partys Registrable Securities previously taken down off of such shelf by the Demand Party and not yet reloaded onto such shelf registration statement.
(g) Additional Rights . The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or grant any additional registration rights to any Person or with respect to any securities that are not Registrable Securities that adversely affects the priorities of the Holders pursuant to Sections 2.1(c) or 2.2(e) of this Agreement.
(h) Number of Demands . The Holders shall be entitled to a maximum of six (6) demand registrations (including shelf takedowns) for an underwritten offering pursuant to Section 2.2(a); provided a registration (or shelf takedown) shall not count for this purpose until, in the case of a registration statement, the registration statement has been declared effective by the SEC and, in the case of a shelf takedown, the prospectus supplement for such offering has been filed with the SEC.
SECTION 2.3 Registration Procedures . If and whenever the Company is required to file a registration statement with respect to, or to use its reasonable best efforts to effect or cause the registration of, any Registrable Securities under the Securities Act as provided in this Agreement, the Company shall as expeditiously as possible:
(a) promptly prepare and file with the SEC a registration statement on an appropriate form with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective; provided , however , that the Company may discontinue any registration of Securities which it has initiated for its own account at any time prior to the effective date of the registration statement relating thereto (and, in such event, the Company shall pay the Registration Expenses incurred in connection therewith); and provided , further , that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company shall (i) furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel, (ii) fairly consider such reasonable changes in any such documents prior to or after the filing thereof as the counsel to the sellers of Registrable Securities being sold may request, and (iii) make such of the representatives of the Company as shall be reasonably requested by the sellers of the Registrable Securities being sold available for discussion of such documents;
(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period not in excess of two (2) years (which period shall not be applicable in the case of a shelf registration effected pursuant to a request under Section 2.2(b)) and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company shall (i)
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furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel, (ii) fairly consider such reasonable changes in any such documents prior to or after the filing thereof as the counsel to the sellers of Registrable Securities being sold may request, and (iii) make such of the representatives of the Company as shall be reasonably requested by the sellers of the Registrable Securities being sold available for discussion of such documents;
(c) furnish to each seller of such Registrable Securities and the underwriters of the securities being registered such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits filed therewith, including any documents incorporated by reference), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller or the sale of such securities by such underwriters (it being understood that, subject to the requirements of the Securities Act and applicable state securities laws, the Company consents to the use of the prospectus and any amendment or supplement thereto by each seller and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment or supplement is a part);
(d) use its reasonable best efforts to register or qualify such Registrable Securities covered by such registration in such jurisdictions as each seller shall reasonably request and to keep each such registration or qualification (or exemption therefrom) effective during the period in which the registration statement is required to be kept effective, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller;
(e) use its reasonable best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities;
(f) promptly notify each seller and any underwriter of any such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the Companys becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller, as promptly as practicable thereafter prepare and furnish to such seller and any underwriter a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;
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(g) comply with all applicable rules and regulations of the SEC, and make available to its Security holders, as soon as reasonably practicable (but not more than eighteen (18) months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act;
(h) (i) list such Registrable Securities on any securities exchange on which other Securities of the Company are then listed if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; and (ii) provide a transfer agent registrar and CUSIP number for such Registrable Securities covered by such registration statement not later than the effective date of such registration statement;
(i) enter into such customary agreements (including an underwriting agreement in customary form), which may include indemnification provisions in favor of underwriters and other Persons in addition to, or in substitution for the indemnification provisions hereof, and take such other actions as sellers of a majority of such Registrable Securities or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;
(j) if requested by the managing underwriter(s) of an underwritten offering or if reasonably requested by the seller or sellers of a majority of such Registrable Securities, use reasonable best efforts to obtain a cold comfort letter or letters from the Companys independent public accountants addressed to the underwriters or seller or sellers in customary form and covering matters of the type customarily covered by cold comfort letters;
(k) make available for inspection by any seller of such Registrable Securities covered by such registration statement and by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, at reasonable times and in a reasonable manner, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Companys officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act that is customary for a participant in a registered securities offering;
(l) notify counsel for the Holders of Registrable Securities included in such registration statement and the managing underwriter or agent, immediately, and confirm the notice in writing: (i) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment to any prospectus shall have been filed; (ii) of the receipt of any comments from the SEC; (iii) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information; and (iv) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes;
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(m) provide each Holder of Registrable Securities included in such registration statement reasonable opportunity to comment on the registration statement, any post-effective amendments to the registration statement, any supplement to the prospectus or any amendment to any prospectus;
(n) make every reasonable effort to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment;
(o) if requested by the managing underwriter or agent or any Holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such Holder reasonably requests to be included therein, including, with respect to the number of Registrable Securities being sold by such Holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment;
(p) cooperate with the Holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Securities to be sold under the registration statement, and enable such Securities to be in such denominations and registered in such names as the managing underwriter or agent, if any, or the Holders may request;
(q) use its reasonable best efforts to make available the executive officers of the Company to participate with the Holders of Registrable Securities and any underwriters in any road shows that may be reasonably requested by the Holders in connection with distribution of Registrable Securities;
(r) obtain for delivery to the underwriter an opinion or opinions from counsel for the Company in customary form and in form, substance and scope reasonably satisfactory to such Holders, underwriters or agents and their counsel; and
(s) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA.
SECTION 2.4 Other Registration-Related Matters.
(a) The Company may require any Person that is Transferring Securities in a Public Offering pursuant to Section 2.1 or Section 2.2 to furnish to the Company in writing such information regarding such Person and pertinent to the disclosure requirements relating to the registration and the distribution of the Registrable Securities which are included in such Public Offering as the Company may from time to time reasonably request in writing and the Company shall not be required to include the Securities of such Person in such Public Offering if such information is not provided to the Company.
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(b) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.3(f), it will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until its receipt of the copies of the amended or supplemented prospectus contemplated by Section 2.3(f) or until it is advised in writing (the Advice ) by the Company that the use of the prospectus may be resumed and, if so directed by the Company, each Holder will deliver to the Company or destroy (at the Companys expense) all copies, other than permanent file copies then in its possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company gives any such notice, the period for which the Company shall be required to keep the registration statement effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.3(f) to and including the date when each seller of Registrable Securities covered by such registration statement has received the copies of the supplemented or amended prospectus contemplated by Section 2.3(f) or the Advice. The Company shall use its reasonable best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable.
(c) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.3(l)(iv), it will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until the lifting of such stop order, other order or suspension or the termination of such proceedings and, if so directed by the Company, each Holder will deliver to the Company or destroy (at the Companys expense) all copies, other than permanent file copies then in its possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company gives any such notice, the period for which the Company shall be required to keep the registration statement effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.3(l)(iv) to and including the date when such stop order, other order or suspension is lifted or such proceedings are terminated.
(d) (i) Each Holder will, in connection with a Public Offering of the Companys equity Securities (whether for the Companys account or for the account of any Holder or Holders, any HNA Holder or HNA Holders, or any or all of them), upon the request of the Company or of the underwriters managing any underwritten offering of the Companys Securities, agree in writing not to effect any sale, disposition or distribution of Registrable Securities (other than those included in the Public Offering) without the prior written consent of the managing underwriter for such period of time commencing seven (7) days before and ending ninety (90) days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration; provided that the Company shall cause all directors and officers of the Company, and all other Persons with registration rights with respect to the Companys Securities (whether or not pursuant to this Agreement) (other than those that are parties to the HNA Registration Rights Agreement) to enter into agreements similar to those contained in this Section 2.4(d)(i) (without regard to this proviso), subject to exceptions for gifts, sales pursuant to pre-existing Rule 10b5-1 plans and other customary exclusions agreed to by such managing
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underwriter; and (ii) the Company and its Subsidiaries shall, in connection with an underwritten Public Offering of the Companys Securities in respect of which Registrable Securities are included, upon the request of the underwriters managing such offering, agree in writing not to effect any sale, disposition or distribution of equity Securities of the Company (other than those included in such Public Offering, offered pursuant to Section 2.2(f), offered on Form S-8, issuable upon conversion of Securities or upon the exercise of options, or the grant of options in the ordinary course of business pursuant to then-existing management equity plans or equity-based employee benefit plans, in each case outstanding on the date a notice is given by the Company pursuant to Section 2.1(a) or a request is made pursuant to Section 2.2(a), as the case may be, or agreed to by such managing underwriter) without the prior written consent of the managing underwriter, for such period of time commencing seven (7) days before and ending ninety (90) days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration.
(e) With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of Securities of the Company to the public without registration after such time as a public market exists for Registrable Securities, the Company agrees:
(i) to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its Securities to the public;
(ii) to use its commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(iii) so long as a Holder owns any Registrable Securities, to furnish to such Holder promptly upon request: (A) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its Securities to the public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (B) a copy of the most recent annual or quarterly report of the Company; and (C) such other reports and documents of the Company as such Holder may reasonably request in availing itself or himself of any rule or regulation of the SEC allowing such Holder to sell any such Securities without registration.
(f) Each of the parties hereto agrees that the registration rights provided to the Holders herein are not intended to, and shall not be deemed to, override or limit any other restrictions on Transfer to which any such Holder may otherwise be subject.
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ARTICLE III.
INDEMNIFICATION
SECTION 3.1 Indemnification by the Company . In the event of any registration of any Securities of the Company under the Securities Act pursuant to Section 2.1 or Section 2.2, the Company hereby indemnifies and agrees to hold harmless, to the fullest extent permitted by Law, each Holder who sells Registrable Securities covered by such registration statement, each Affiliate of such Holder and their respective directors, officers, employees, partners and equityholders (and the directors, officers, employees, Affiliates and controlling Persons of any of the foregoing), each other Person who participates as an underwriter in the offering or sale of such Securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act (each, and Indemnified Party and collectively, the Indemnified Parties ), against any and all losses, claims, damages or liabilities, joint or several, and reasonable and documented expenses to which such Indemnified Party may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon: (a) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or any other such disclosure document (including reports and other documents filed under the Exchange Act and any document incorporated by reference therein) or related document or report; (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of a prospectus, in the light of the circumstances when they were made; or (c) any violation or alleged violation by the Company or any of its Subsidiaries of any federal, state, foreign or common law rule or regulation applicable to the Company or any of its Subsidiaries and relating to action or inaction in connection with any such registration, disclosure document or related document or report, and the Company shall reimburse such Indemnified Party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, in any such preliminary, final or summary prospectus, or any amendment or supplement thereto in reliance upon and in conformity with written information with respect to such Indemnified Party furnished to the Company by such Indemnified Party expressly for use in the preparation thereof. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any Indemnified Party and will survive the Transfer of such Securities by such Holder or any termination of this Agreement.
SECTION 3.2 Indemnification by the Holders and Underwriters . The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Section 2.1 or Section 2.2, that the Company shall have received an undertaking reasonably satisfactory to it from the Holder of such Registrable Securities or any prospective underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.1) the Company, all other Holders or any prospective underwriter,
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as the case may be, and any of their respective Affiliates, directors, officers and controlling Persons, with respect to any untrue statement in or omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such untrue statement or omission was made in reliance upon and in conformity with written information with respect to such Holder or underwriter furnished to the Company by such Holder or underwriter expressly for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders, or any of their respective Affiliates, directors, officers or controlling Persons and will survive the Transfer of such Securities by such Holder. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.
SECTION 3.3 Notices of Claims, Etc . Promptly after receipt by an Indemnified Party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article III, such Indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of the Indemnified Party to give notice as provided herein will not relieve the indemnifying party of its obligations under Section 3.1 or Section 3.2, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, unless in such Indemnified Partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel selected by the Holders of at least a majority of the Registrable Securities included in the relevant registration, and after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the indemnifying party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. If, in such Indemnified Partys reasonable judgment, having common counsel would result in a conflict of interest between the interests of such indemnified and indemnifying parties, then such Indemnified Party may employ separate counsel reasonably acceptable to the indemnifying party to represent or defend such Indemnified Party in such action, it being understood, however, that the indemnifying party will not be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such Indemnified Parties (and not more than one separate firm of local counsel at any time for all such Indemnified Parties) in such action. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation.
SECTION 3.4 Contribution . If the indemnification provided for hereunder from the indemnifying party is unavailable to an Indemnified Party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein for reasons other than those described in the proviso in the first sentence of Section 3.1, then the indemnifying party, in lieu of
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indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and Indemnified Parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and Indemnified Parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or Indemnified Parties, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party under this Section 3.4 as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such contribution obligation. Any obligation of Holders to contribute pursuant to this Section 3.4 shall be several in proportion to the amount of Registrable Securities registered by them and not joint.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under Section 3.1, the indemnifying parties shall indemnify each Indemnified Party to the full extent provided in Section 3.1 without regard to the relative fault of said indemnifying party or Indemnified Party or any other equitable consideration provided for in this Section 3.4.
SECTION 3.5 Other Indemnification . Indemnification similar to that specified in this Article III (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of Securities under any Law or with any Governmental Authority other than as required by the Securities Act.
SECTION 3.6 Non-Exclusivity . The obligations of the parties under this Article III will be in addition to any liability which any party may otherwise have to any other party.
ARTICLE IV.
OTHER
SECTION 4.1 Notices . Any notice, request, instruction or other document to be given hereunder by any party hereto to another party hereto shall be in writing and shall be deemed given (a) when delivered personally , (b) one (1) Business Day after being sent by internationally recognized overnight courier, or (c) if transmitted by facsimile, if confirmed within 24 hours thereafter by a signed original sent in the manner provided in clause (a) or (b) to
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parties at the following addresses (or at such other address for a party as shall be specified by prior written notice from such party):
if to the Company:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, FL 32835
Attention: General Counsel
Fax: (407) 722-3637
with a copy (not constituting notice) to:
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Mark G. Borden
Jay E. Bothwick
Fax: (617) 526-5000
if to Blackstone:
The Blackstone Group L.P.
345 Park Avenue
New York, NY 10154
Attention: Tyler S. Henritze
Fax: (212) 583-5191
with an additional copy (not constituting notice) to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Brian M. Stadler
Christopher R. May
Fax: (212) 455-2502
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SECTION 4.2 Assignment . Neither the Company nor any Holder shall assign all or any part of this Agreement without the prior written consent of the Company and Blackstone; provided, however, that any Blackstone Entity may assign its rights and obligations under this Agreement in whole or in party in connection with a Transfer of Registrable Securities with a then fair market value of at least $100 million or to any of its affiliates, provided, such Transferee or assignee executes and delivers to the Company a counterpart to this Agreement whereby it agrees to be bound by the terms of the Agreement. Except as otherwise provided herein, this Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns.
SECTION 4.3 Amendments; Waiver . This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the Company and the Holders holding a majority of the Registrable Securities subject to this Agreement; provided that no such amendment, supplement or other modification shall adversely affect the economic interests of any Holder hereunder disproportionately to other Holders without the written consent of such Holder. No waiver by any party hereto of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach.
SECTION 4.4 Third Parties . This Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto.
SECTION 4.5 Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware.
SECTION 4.6 Jurisdiction . The Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware) shall have exclusive jurisdiction over the parties with respect to any dispute or controversy between them arising under or in connection with this agreement and, by execution and delivery of this agreement, each of the parties to this Agreement submits to the exclusive jurisdiction of those courts, including but not limited to the in personam and subject matter jurisdiction of those courts, waives any objections to such jurisdiction on the grounds of venue or forum non conveniens , the absence of in personam or subject matter jurisdiction and any similar grounds, consents to service of process by mail (in accordance with the notice provisions of this Agreement) or any other manner permitted by Law, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.
SECTION 4.7 MUTUAL WAIVER OF JURY TRIAL . THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT.
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SECTION 4.8 Specific Performance . Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the non-breaching party would be irreparably harmed and could not be made whole by monetary damages. Each party accordingly agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and that the parties, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of this Agreement.
SECTION 4.9 Entire Agreement . This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement supersedes all other prior agreements and understandings between the parties with respect to such subject matter, including the Original Agreement.
SECTION 4.10 Severability . If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by Law.
SECTION 4.11 Counterparts . This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same instrument.
SECTION 4.12 Effectiveness . This Agreement shall become effective automatically on the Effective Date, without further action by any party. Until the Effective Date (if any), this Agreement shall be of no force or effect and shall create no rights or obligations on the part of any party hereto.
SECTION 4.13 Confidentiality . Each Holder agrees that all material non-public information provided pursuant to or in accordance with the terms of this Agreement shall be kept confidential by the person to whom such information is provided, until such time as such information becomes public other than through violation of this provision. Notwithstanding the foregoing, any party may disclose the information (i) if required to do so by any law, rule, regulation, order, decree or subpoena of any governmental agency or authority or court, (ii) that (A) is or becomes available to such party on a non-confidential basis from a source other than the Company or its representatives (which source was not to such partys knowledge prohibited from disclosing such information to such party by a legal, contractual or fiduciary obligation owed to the Company), (B) is already in such partys possession (not including information furnished by or on behalf of the Company), and (C) is independently developed or acquired by such party without reference to, or use of, any material non-public information and without violating this Section 4.13 and (iii) to its representatives who have a need to know such information in connection with the transactions contemplated by this Agreement, provided that such party shall remain liable for any breach of this Section 4.13 by its representatives.
[ Remainder of Page Intentionally Left Blank ]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.
COMPANY: | ||
HILTON GRAND VACATIONS INC. | ||
By: |
/s/ Mark Wang |
|
Name: | Mark Wang | |
Title: | President and Chief Executive Officer |
[Signature Page to BX-HGV Registration Rights Agreement]
BLACKSTONE PARTIES: | ||
HLT HOLDCO II LLC | ||
By: |
/s/ Tyler S. Henritze |
|
Name: | Tyler S. Henritze | |
Title: | Vice President, Secretary and Senior | |
Managing Director | ||
HLT HOLDCO III LLC | ||
By: |
/s/ Tyler S. Henritze |
|
Name: | Tyler S. Henritze | |
Title: | Vice President, Secretary and Senior | |
Managing Director | ||
HLT BREH VI HOLDCO LLC | ||
By: |
/s/ Tyler S. Henritze |
|
Name: | Tyler S. Henritze | |
Title: | Vice President, Secretary and Senior | |
Managing Director | ||
HLT BREP VI.TE.2 HOLDCO LLC | ||
By: |
/s/ Tyler S. Henritze |
|
Name: | Tyler S. Henritze | |
Title: | Vice President, Secretary and Senior | |
Managing Director | ||
HLT BREH INTL II HOLDCO LLC | ||
By: |
/s/ Tyler S. Henritze |
|
Name: | Tyler S. Henritze | |
Title: | Vice President, Secretary and Senior | |
Managing Director |
[Signature Page to BX-HGV Registration Rights Agreement]
HLT A23 BREH VI HOLDCO LLC | ||
By: |
/s/ Tyler S. Henritze |
|
Name: | Tyler S. Henritze | |
Title: | Vice President, Secretary and Senior | |
Managing Director | ||
HLT A23 HOLDCO LLC | ||
By: |
/s/ Tyler S. Henritze |
|
Name: | Tyler S. Henritze | |
Title: | Vice President, Secretary and Senior | |
Managing Director |
[Signature Page to BX-HGV Registration Rights Agreement]
Exhibit 10.12
FORM OF HILTON GRAND VACATIONS INC.
2017 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose . The purpose of the Hilton Grand Vacations Inc. 2017 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 2017 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 , 2016.
(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).
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(bb) Plan means this Hilton Grand Vacations Inc. 2017 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, limited liability company or any comparable foreign entity (A) the sole general partner (or functional equivalent thereof) or the managing general partner (or functional equivalent thereof) 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 325,000 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. 2017 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
14
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.
(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 or a Subsidiary.
(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.
(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
16
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.
18
(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.
19
(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
20
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.
21
Exhibit 10.13
FORM OF HILTON RESORTS CORPORATION
2017 EXECUTIVE DEFERRED COMPENSATION PLAN
(Effective as of )
HILTON RESORTS CORPORATION
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 |
12 | ||||
Section 6.5 |
Permissible Distribution Event |
13 | ||||
Section 6.6 |
Payment by Trust |
13 | ||||
Section 6.7 |
Inability to Locate Participant |
13 | ||||
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 |
14 | ||||
Section 9.3 |
Authority |
15 |
i
ARTICLE X ADMINISTRATION |
15 | |||||
Section 10.1 |
Administrator |
15 | ||||
Section 10.2 |
Administrator Action |
15 | ||||
Section 10.3 |
Powers and Duties of the Administrator |
16 | ||||
Section 10.4 |
Construction and Interpretation |
16 | ||||
Section 10.5 |
Information |
17 | ||||
Section 10.6 |
Compensation, Expenses and Indemnity |
17 | ||||
Section 10.7 |
Quarterly Statements |
17 | ||||
ARTICLE XI MISCELLANEOUS |
17 | |||||
Section 11.1 |
Unsecured General Creditor |
17 | ||||
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 |
18 | ||||
Section 11.6 |
Receipt or Release |
18 | ||||
Section 11.7 |
Payments on Behalf of Persons Under Incapacity |
19 | ||||
Section 11.8 |
Headings |
19 |
ii
HILTON RESORTS CORPORATION
2017 EXECUTIVE DEFERRED COMPENSATION PLAN
WHEREAS, Hilton Resorts Corporation 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 Resorts Corporation 2017 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, the Separation 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
1
representative of the Participants estate (which shall include either the Participants probate 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 2017 Omnibus Incentive Plan, as amended from time to time, which also constitutes a change in control event 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 Resorts Corporation, any successor corporation and each corporation which is a member of a controlled group of corporations (within the meaning of Section 414(b) or (c) of the Code) of which Hilton Resorts Corporation 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, the Separation Distribution Option, and/or as otherwise specified under this Plan.
2
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.
3
In-Service Distribution Option shall mean the Distribution Option pursuant to which benefits are payable in accordance with Article VI.
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.
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 Resorts Corporation 2017 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 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).
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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.
(e) All deferral elections under the Plan shall be made in accordance with Section 409A.
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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 either of (A) the third Plan Year following the Plan Year in which the Compensation Deferral is made or (B) the Plan Year in which any such amount will become vested. 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 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.
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(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.
(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.
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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) If a Participant has not incurred a Separation from Service as of the date an In-Service Distribution Account is to be distributed, and the Participants In-Service Distribution Account exceeds $25,000 (applied on an Account by Account basis), 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.
(c) If the Participant incurs a Separation from Service after distribution has commenced in accordance with this Section 6.1(c) 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.
(d) 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.
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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 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
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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.
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.
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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 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
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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.
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.
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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(a) and (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.
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
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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.
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.
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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.
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.
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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.
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IN WITNESS WHEREOF, the Company has caused this document to be executed by its duly authorized officer to be effective on this , 2017.
HILTON RESORTS CORPORATION | ||
By: |
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Its: |
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Exhibit 10.17
REGISTRATION RIGHTS AGREEMENT
by and between
HILTON GRAND VACATIONS INC.
and
HNA TOURISM GROUP CO., LTD.
Dated as of October 24, 2016
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS | 1 | |||
Section 1.1 Certain Definitions |
1 | |||
Section 1.2 Other Definitional Provisions; Interpretation |
4 | |||
ARTICLE II. REGISTRATION RIGHTS | 5 | |||
Section 2.1 Piggyback Rights |
5 | |||
Section 2.2 Demand Registration |
7 | |||
Section 2.3 Registration Procedures |
8 | |||
Section 2.4 Other Registration-Related Matters |
11 | |||
ARTICLE III. INDEMNIFICATION |
13 | |||
Section 3.1 Indemnification by the Company |
13 | |||
Section 3.2 Indemnification by the Holders and Underwriters |
13 | |||
Section 3.3 Notices of Claims, Etc |
14 | |||
Section 3.4 Contribution |
14 | |||
Section 3.5 Other Indemnification |
15 | |||
Section 3.6 Non-Exclusivity |
15 | |||
ARTICLE IV. REPRESENTATIONS AND WARRANTIES |
15 | |||
Section 4.1 Representations and Warranties of the Company |
15 | |||
Section 4.2 Representations and Warranties of HNA |
15 | |||
ARTICLE V. OTHER |
16 | |||
Section 5.1 Notices |
16 | |||
Section 5.2 Assignment |
17 | |||
Section 5.3 Amendments; Waiver |
17 | |||
Section 5.4 Third Parties |
17 | |||
Section 5.5 Governing Law |
17 | |||
Section 5.6 Jurisdiction |
17 | |||
Section 5.7 MUTUAL WAIVER OF JURY TRIAL |
18 | |||
Section 5.8 Specific Performance |
18 | |||
Section 5.9 Entire Agreement |
18 | |||
Section 5.10 Severability |
18 | |||
Section 5.11 Counterparts |
18 | |||
Section 5.12 Effectiveness |
18 | |||
Section 5.13 Confidentiality |
18 |
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this Agreement ) is dated as of October 24, 2016 and is by and between Hilton Grand Vacations Inc. (the Company ) and HNA Tourism Group Co., Ltd., a PRC company ( HNA ).
RECITALS
WHEREAS, HNA and Blackstone (as defined below) have, as of the date hereof, entered into the Stock Purchase Agreement (as defined below), pursuant to which, among other things, HNA has agreed to purchase from Blackstone, and Blackstone has agreed to sell to HNA, shares of the common stock of Hilton Worldwide Holdings Inc., a Delaware corporation ( Hilton ), subject to the terms and conditions set forth in the Stock Purchase Agreement;
WHEREAS, Hilton intends to distribute its entire interest in the Company by way of a dividend of all outstanding shares of the Companys Common Stock owned by Hilton to holders of Hilton common stock;
WHEREAS, the Company is entering into this Agreement as a condition to HNAs willingness to enter into the Stock Purchase Agreement;
WHEREAS, concurrently with the execution of this Agreement, the Company and HNA are entering into the Stockholders Agreement (as defined below);
WHEREAS, the Company is entering into this Agreement in consideration of, and as a condition and inducement to, HNAs willingness to enter into the Stockholders Agreement; and
WHEREAS, in connection with the transactions contemplated by the Stock Purchase Agreement, the Company and HNA wish to define certain registration rights granted to HNA on the terms and conditions set out in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1 Certain Definitions . As used in this Agreement:
Advice has the meaning set forth in Section 2.4(b).
Adverse Disclosure means public disclosure of material, non-public information that, in the Board of Directors good faith judgment, after consultation with outside counsel to the Company, (i) would be required to be made in any Registration Statement or report filed with the SEC by the Company so that such Registration Statement or report would not be materially misleading and such material, non-public information would not be required to be made at such time but for the filing of such Registration Statement or report, and (ii) the Company has a bona fide business purpose for not disclosing publicly.
Affiliate means any entity of which HNA owns, directly or indirectly, at least a majority of the voting interests.
Agreement has the meaning set forth in the preamble.
Blackstone means HLT Holdco II LLC, HLT Holdco III LLC, HLT BREH VI Holdco LLC, HLT BREP VI.2 Holdco LLC, HLT BREH INTL II Holdco LLC, HLT A23 BREH VI Holdco LLC, and HLT A23 Holdco LLC.
BX Holder means the holders of securities entitled to registration rights under the Existing Registration Rights Agreement.
Board means the board of directors of the Company.
Business Day means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York, New York and Beijing, PRC are authorized or required by law to close.
Company has the meaning set forth in the preamble.
Common Stock means the shares of common stock, par value $0.01 per share, of the Company, and any other capital stock of the Company into which such common stock is reclassified or reconstituted.
Control (including its correlative meanings, Controlled by and under common Control with ) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.
Demand Party has the meaning set forth in Section 2.2(a).
Distribution Date means the date on which the distribution to holders of record of shares of Hilton common stock of the HGV Common Stock owned by Hilton is effectuated.
Effective Date means the date on which the Closing (as defined in the Stock Purchase Agreement) occurs or, if the Distribution Date occurs after the date of such Closing, the Distribution Date.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Existing Registration Rights Agreement means that certain Registration Rights Agreement, of even date herewith, by and among the Company and Blackstone, but not any further amendments thereto.
FINRA means the Financial Industry Regulatory Authority, Inc.
Governmental Authority means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
HNA Entities means HNA, its Affiliates and the successors and permitted assigns of HNA and their respective Affiliates.
Holder means HNA or any Transferee of such Person to whom registration rights are assigned pursuant to Section 5.2, in each case that is a holder of Registrable Securities or Securities exercisable, exchangeable or convertible into Registrable Securities.
Indemnified Party and Indemnified Parties have the meanings set forth in Section 3.1.
Law means any statute, law, regulation, ordinance, rule, injunction, order, decree, governmental approval, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority.
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Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, a cooperative, an unincorporated organization, or other form of business organization, whether or not regarded as a legal entity under applicable Law, or any Governmental Authority or any department, agency or political subdivision thereof.
PRC means the Peoples Republic of China.
Public Offering means a public offering of equity securities of the Company or any successor thereto or any Subsidiary of the Company pursuant to a registration statement declared effective under the Securities Act.
Registrable Securities means all shares of Common Stock and any Securities into which the Common Stock may be converted or exchanged pursuant to any merger, consolidation, sale of all or any part of its assets, corporate conversion or other extraordinary transaction of the Company held by a Holder (whether now held or hereafter acquired, and including any such Securities received by a Holder upon the conversion or exchange of, or pursuant to such a transaction with respect to, other Securities held by such Holder). As to any Registrable Securities, such Securities will cease to be Registrable Securities when:
(a) | a registration statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of pursuant to such effective registration statement; |
(b) | such Registrable Securities shall have been sold pursuant to Rule 144 or 145 (or any similar provision then in effect) under the Securities Act; |
(c) | such Registrable Securities may be sold pursuant to Rule 144 or 145 (or any similar provision then in effect) without limitation thereunder on volume or manner of sale, unless such Registrable Securities are held by a Holder that beneficially owns 5% or more of the then outstanding shares of Common Stock; or |
(d) | such Registrable Securities cease to be outstanding. |
Registration Expenses means any and all expenses incurred in connection with the performance of or compliance with this Agreement, including:
(a) | all SEC, stock exchange, or FINRA registration and filing fees (including, if applicable, the fees and expenses of any qualified independent underwriter, as such term is defined in Rule 5121 of FINRA, and of its counsel); |
(b) | all fees and expenses of complying with securities or blue sky Laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities); |
(c) | all printing, messenger and delivery expenses; |
(d) | all fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange or FINRA and all rating agency fees; |
(e) | the reasonable fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits and/or cold comfort letters required by or incident to such performance and compliance; |
(f) | any fees and disbursements of underwriters customarily paid by the issuers of Securities, including liability insurance if the Company so desires or if the underwriters so require, and the reasonable fees and expenses of any special experts retained by the Company in connection with the requested registration, but excluding underwriting discounts and commissions and transfer taxes, if any; |
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(g) | the reasonable fees and out-of-pocket expenses of not more than one law firm (as selected by the Holders of a majority of the Registrable Securities included in such registration) incurred by all the Holders in connection with the registration; |
(h) | the costs and expenses of the Company relating to analyst and investor presentations or any road show undertaken in connection with the registration and/or marketing of the Registrable Securities; and |
(i) | any other fees and disbursements customarily paid by the issuers of securities. |
SEC means the U.S. Securities and Exchange Commission or any successor agency.
Securities means capital stock, limited partnership interests, limited liability company interests, beneficial interests, warrants, options, notes, bonds, debentures, and other securities, equity interests, ownership interests and similar obligations of every kind and nature of any Person.
Securities Act means the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Stockholders Agreement means that certain Stockholders Agreement, dated as of the date hereof, by and between the Company and HNA.
Stock Purchase Agreement means that certain Stock Purchase Agreement, dated as of the date hereof, among HNA and Blackstone.
Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which: (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, representatives or trustees thereof 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; or (ii) if a limited liability company, partnership, association or other business entity, a majority of the total voting power of stock (or equivalent ownership interest) of the limited liability company, partnership, association or other business entity is at the time owned or Controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or Control the managing director or general partner of such limited liability company, partnership, association or other business entity.
Transfer (including its correlative meanings, Transferor , Transferee and Transferred ) shall mean, with respect to any security, directly or indirectly, to sell, contract to sell, give, assign, hypothecate, pledge, encumber, grant a security interest in, offer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any economic, voting or other rights in or to such security. When used as a noun, Transfer shall have such correlative meaning as the context may require.
SECTION 1.2 Other Definitional Provisions; Interpretation .
(a) The words hereof, herein, and hereunder and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The word including and words of similar import when used in this Agreement mean including, without limitation, unless otherwise specified. References in this Agreement to a designated Article or Section refer to an Article or
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Section of this Agreement unless otherwise specified and references to clauses without a cross-reference to a Section or subsection are references to clauses within the same Section or, if more specific, subsection. The word extent in the phrase to the extent means the degree to which a subject or other thing extends and such phrase shall not mean simply if. References to day means a calendar day unless otherwise indicated as a Business Day.
(b) The headings in this Agreement are included for convenience of reference only and do not limit or otherwise affect the meaning or interpretation of this Agreement.
(c) The meanings given to terms defined herein are equally applicable to both the singular and plural forms of such terms.
(d) When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period is excluded. If the last day of such period is a non-Business Day, the period in question ends on the next succeeding Business Day.
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.1 Piggyback Rights .
(a) Subject to Section 4.1 of the Stockholders Agreement (as it may be amended or waived), if after the second (2 nd ) anniversary of the Effective Date (or earlier if the Company agrees to waive the two-year transfer restriction under the Stockholders Agreement), the Company proposes to register Securities for public sale (whether proposed to be offered for sale by the Company or by any other Person) under the Securities Act (other than a registration on Form S-4 or S-8, or any successor or other forms promulgated for similar purposes) in a manner which would permit registration of Registrable Securities for sale to the public under the Securities Act, it shall, at each such time, other than in the case of an underwritten secondary offering initiated by a BX Holder, give prompt written notice (which notice shall be given not less than ten (10) Business Days prior to the filing by the Company with the SEC of any registration statement with respect thereto and shall specify the intended method or methods of disposition and the number of Securities proposed to be registered) to each Holder of its intention to do so and of such Holders rights under this Section 2.1, provided , no such notice need be given of any underwritten offering if the managing underwriter advises the Company in writing (a copy of which shall be provided to each Holder) that, in its opinion, the inclusion of Registrable Securities would be likely to have an adverse impact on the price, timing or distribution of the Securities offered in such offering. Upon the written request of any Holder made within five (5) Business days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such Holder), the Company shall use its reasonable best efforts to effect the registration under the Securities Act of all Registrable Securities which the Holders have so requested to be registered; provided that: (i) any Holder shall have the right to withdraw such Holders request for inclusion of any of such Holders Registrable Securities in any registration statement pursuant to this Section 2.1(a) by giving written notice to the Company of such withdrawal, provided , that, in the case of any underwritten offering, written notice of such withdrawal must be given to the Company prior to the time at which the offering price or underwriters discount is determined with the managing underwriter or underwriters; (ii) if, at any time after giving written notice of its intention to register any Securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to proceed with the proposed registration of the Securities to be sold by it, the Company may, at its election, give written notice of such determination to the Holders and, thereupon, the Company shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses incurred in connection therewith) without prejudice to the rights of the Demand Party to request that such registration be effected as a registration under Section 2.2(a); and (iii) subject to clause (i), if such registration involves an underwritten offering, each Holder of Registrable Securities requesting to be included in the registration must, upon the written request of the Company, sell its Registrable Securities to the underwriters on the same terms and conditions as apply to the other Securities being sold through underwriters under such registration, with, in the case of a combined primary and secondary offering, only such differences, including any with respect to representations and warranties, indemnification and liability insurance, as may be customary or appropriate in combined primary and secondary offerings.
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(b) Expenses . The Company shall pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.1.
(c) Priority in Piggyback Registrations . If a registration pursuant to this Section 2.1 involves an underwritten offering and the managing underwriter advises the Company in writing (a copy of which shall be provided to each Holder) that, in its opinion, the number of Registrable Securities and other Securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the Securities offered in such offering, then the Company shall include in such registration: (i) first, the Securities the Company proposes to sell for its own account; and (ii) second, such number of Securities requested to be included in such registration which, in the opinion of such managing underwriter, can be sold without having the adverse effect referred to above, which number of Securities shall be allocated (A) until the date that is the second anniversary of the Effective Date, (x) first, to the holders of shares requested to be included in such registration by BX Holders pursuant to Section 2.1(a) of the Existing Registration Rights Agreement, and (y) second, pro rata among all other holders of Registrable Securities (if the two-year transfer restriction referred to in Section 2.1(a) has been waived by the Company) and other Securities entitled to include Securities in such registration and that submitted a proper request for inclusion in such registration, on the basis of the relative number of Securities requested to be included in such registration by each such holder and (B) after the date that is the second anniversary of the Effective Date, pro rata among the holders of Registrable Securities requested to be included in such registration pursuant to Section 2.1(a) and all other holders of Securities entitled to include Securities in such registration that submitted a proper request for inclusion in such registration, on the basis of the relative number of Securities requested to be included in such registration by each such holder. Any other selling holders of the Companys Securities will be included in an underwritten offering only with the consent of holders holding a majority of the shares being sold in such offering.
(d) Excluded Transactions . The Company shall not be obligated to effect any registration of Registrable Securities under this Section 2.1 incidental to the registration of any of its Securities in connection with:
(i) a registration statement filed to cover issuances under employee benefits plans or dividend reinvestment plans;
(ii) any registration statement relating solely to the acquisition or merger after the date hereof by the Company or any of its Subsidiaries of or with any other businesses, assets or properties;
(iii) any registration statement covering securities other than shares of the same class as those held by Holders (even if such securities are convertible into, or exchangeable or exercisable for, shares that are registered as part of such offering); or
(iv) any registration related solely to an exchange by the Company of its own securities.
(e) Plan of Distribution, Underwriters and Counsel . If a registration pursuant to this Section 2.1 involves an underwritten offering that is initiated by selling holders, the holders that initiated such underwritten offering (by action of the holders of a majority of the Securities requested to be registered thereby) shall have the right to (i) determine the plan of distribution, (ii) select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter (provided that such investment banker or bankers and managers shall be reasonably satisfactory to the Company) and (iii) select counsel for the selling holders. If a registration pursuant to this Section 2.1 involves an underwritten offering that is initiated by the Company, the Company shall have the right to (i) determine the plan of distribution and (ii) select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter; and the holders of a majority of the Securities requested to be registered thereby by selling holders (by action of the holders of a majority of the Securities requested to be registered thereby by such selling holders) shall have the right to select counsel for the selling holders.
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(f) Shelf Takedowns . In connection with any shelf takedown (whether pursuant to Section 2.2(f) or at the initiative of the Company) after the second (2 nd ) anniversary of the Effective Date (or earlier if the Company agrees to waive the two-year transfer restriction under the Stockholders Agreement), other than in the case of an underwritten secondary offering initiated by a BX Holder, the Holders may exercise piggyback rights in the manner described in this Agreement to have included in such takedown Registrable Securities held by them that are registered on such shelf registration statement, provided , that in the case of any shelf takedown for an underwritten offering, at the initiative of the Company, the ten (10) Business Day period in Section 2.1(a) shall be reduced to seven (7) Business Days.
SECTION 2.2 Demand Registration .
(a) General . Subject to Section 4.1 of the Stockholders Agreement (as it may be amended or waived), after the second (2 nd ) anniversary of the Effective Date (or earlier if the Company agrees to waive the two-year transfer restriction under the Stockholders Agreement), upon the written request of any HNA Entity (the Demand Party ) requesting that the Company effect the registration under the Securities Act of Registrable Securities and specifying the amount and intended method of disposition thereof (including, but not limited to, an underwritten public offering), the Company shall (i) promptly give written notice of such requested registration to the other Holders and other holders of Securities entitled to notice of such registration, if any, and (ii) as expeditiously as possible, use its reasonable best efforts to file a registration statement to effect the registration under the Securities Act of:
(i) such Registrable Securities which the Company has been so requested to register by the Demand Party in accordance with the intended method of disposition thereof; and
(ii) the Registrable Securities of other Holders which the Company has been requested to register by written request given to the Company within five (5) Business Days after the giving of such written notice by the Company.
Notwithstanding the foregoing, the Company shall not be obligated to file a registration statement relating to any registration request under this Section 2.2(a):
(x) within a period of one hundred eighty (180) days (or such lesser period as the managing underwriters in an underwritten offering may permit) after the effective date of any other registration statement relating to any registration request under this Section 2.2(a) or relating to any registration referred to in Section 2.1; provided, that if greater than 50% of the Registrable Securities requested to be registered pursuant to Section 2.1 or Section 2.2(a) by the HNA Entities taken as a whole are excluded from the applicable registration pursuant to Section 2.1(c) or Section 2.2(e), HNA shall have the right, with respect to such excluded Registrable Securities, to request one (1) additional registration pursuant to Section 2.2(a) within such period of one hundred eighty (180) days; provided further, that such request shall not be made within ninety (90) days after the effective date of the registration statement from which such Registrable Securities were excluded; or
(y) if, in the good faith judgment of a majority of the disinterested members of the Board, the filing, initial effectiveness or continued use of the registration statement would be adverse to the Company because (i) such action would require the Company to make an Adverse Disclosure or (ii) the Board of Directors of the Company has determined in good faith that the registration or sale of the Registrable Securities would be reasonably expected to materially and adversely affect a planned bona fide financing of the Company that is reasonably likely to be promptly initiated by the Company, then the Company may delay the filing (but not the preparation of) or initial effectiveness of, or suspend use of, the registration statement (a Demand Suspension); provided, however, that the Company shall not be permitted to exercise more than two (2) Demand Suspensions during any twelve-(12) month period for more than an aggregate of ninety (90) days; and provided, further, that in the event of a Demand Suspension, such Demand Suspension shall terminate at such time as the Company would no longer be required to make any Adverse Disclosure or any such planned financing has been abandoned or completed.
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(b) Form . Each registration statement prepared at the request of a Demand Party shall be effected on such form as reasonably requested by the Demand Party, including by a shelf registration pursuant to Rule 415 under the Securities Act on a Form S-3 (or any successor rule or form thereto) if so requested by the Demand Party and if the Company is then eligible to effect a shelf registration and use such form for such disposition.
(c) Expenses . The Company shall pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2.
(d) Plan of Distribution, Underwriters and Counsel . If a requested registration pursuant to this Section 2.2 involves an underwritten offering, the Demand Party shall have the right to (i) determine the plan of distribution, (ii) select the investment banker or bankers and managers to administer the offering, including the lead managing underwriter (provided that such investment banker or bankers and managers shall be reasonably satisfactory to the Company) and (iii) select counsel for the selling Holders.
(e) Priority in Demand Registrations . If a requested registration pursuant to this Section 2.2 involves an underwritten offering and the managing underwriter advises the Company in writing (a copy of which shall be provided to each Holder) that, in its opinion, the number of Securities requested to be included in such registration exceeds the number which can be sold in such offering, so as to be likely to have an adverse effect on the price, timing or distribution of the Securities offered in such offering, then the number of such Registrable Securities to be included in such registration shall be allocated pro rata among (1) Registrable Securities held by the Demand Party, and (2) the Registrable Securities held by the other Holders that have requested that their Registrable Securities be sold pursuant to Section 2.1(a), if any, on the basis of the relative number of securities requested to be included in such registration by the Demand Party and each such other Holder. Any other selling holders of the Companys Securities will be included in an underwritten offering only with the consent of holders holding a majority of the shares being sold in such offering.
(f) Shelf Takedowns . Upon the written request of the Demand Party at any time and from time to time, the Company shall facilitate in the manner described in this Agreement a takedown of the Demand Partys Registrable Securities off of an effective shelf registration statement. Upon the written request of the Demand Party, the Company shall file and seek the effectiveness of a post-effective amendment to an existing shelf registration statement in order to register up to the number of the Demand Partys Registrable Securities previously taken down off of such shelf by the Demand Party and not yet reloaded onto such shelf registration statement.
(g) Additional Rights . The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or grant any additional registration rights to any Person or with respect to any securities that are not Registrable Securities that adversely affects the priorities of the Holders pursuant to Sections 2.1(c) or 2.2(e) of this Agreement.
(h) Number of Demands . The Holders shall be entitled to a maximum of six (6) demand registrations (including shelf takedowns) for an underwritten offering pursuant to Section 2.2(a); provided a registration (or shelf takedown) shall not count for this purpose until, in the case of a registration statement, the registration statement has been declared effective by the SEC and, in the case of a shelf takedown, the prospectus supplement for such offering has been filed with the SEC.
SECTION 2.3 Registration Procedures . If and whenever the Company is required to file a registration statement with respect to, or to use its reasonable best efforts to effect or cause the registration of, any Registrable Securities under the Securities Act as provided in this Agreement, the Company shall as expeditiously as possible:
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(a) promptly prepare and file with the SEC a registration statement on an appropriate form with respect to such Registrable Securities and use its reasonable best efforts to cause such registration statement to become effective; provided , however , that the Company may discontinue any registration of Securities which it has initiated for its own account at any time prior to the effective date of the registration statement relating thereto (and, in such event, the Company shall pay the Registration Expenses incurred in connection therewith); and provided , further , that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company shall (i) furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel, (ii) fairly consider such reasonable changes in any such documents prior to or after the filing thereof as the counsel to the sellers of Registrable Securities being sold may request, and (iii) make such of the representatives of the Company as shall be reasonably requested by the sellers of the Registrable Securities being sold available for discussion of such documents;
(b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period not in excess of two (2) years (which period shall not be applicable in the case of a shelf registration effected pursuant to a request under Section 2.2(b)) and to comply with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Company shall (i) furnish to counsel for the sellers of Registrable Securities covered by such registration statement copies of all documents proposed to be filed, which documents will be subject to the review of such counsel, (ii) fairly consider such reasonable changes in any such documents prior to or after the filing thereof as the counsel to the sellers of Registrable Securities being sold may request, and (iii) make such of the representatives of the Company as shall be reasonably requested by the sellers of the Registrable Securities being sold available for discussion of such documents;
(c) furnish to each seller of such Registrable Securities and the underwriters of the securities being registered such number of copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits filed therewith, including any documents incorporated by reference), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and summary prospectus), in conformity with the requirements of the Securities Act, and such other documents as such seller or underwriters may reasonably request in order to facilitate the disposition of the Registrable Securities by such seller or the sale of such securities by such underwriters (it being understood that, subject to the requirements of the Securities Act and applicable state securities laws, the Company consents to the use of the prospectus and any amendment or supplement thereto by each seller and the underwriters in connection with the offering and sale of the Registrable Securities covered by the registration statement of which such prospectus, amendment or supplement is a part);
(d) use its reasonable best efforts to register or qualify such Registrable Securities covered by such registration in such jurisdictions as each seller shall reasonably request and to keep each such registration or qualification (or exemption therefrom) effective during the period in which the registration statement is required to be kept effective, and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller;
(e) use its reasonable best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities;
(f) promptly notify each seller and any underwriter of any such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the Companys becoming aware that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such seller, as promptly as practicable thereafter prepare and furnish to such seller
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and any underwriter a reasonable number of copies of an amended or supplemental prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;
(g) comply with all applicable rules and regulations of the SEC, and make available to its Security holders, as soon as reasonably practicable (but not more than eighteen (18) months) after the effective date of the registration statement, an earnings statement which shall satisfy the provisions of Section 11(a) of the Securities Act;
(h) (i) list such Registrable Securities on any securities exchange on which other Securities of the Company are then listed if such Registrable Securities are not already so listed and if such listing is then permitted under the rules of such exchange; and (ii) provide a transfer agent registrar and CUSIP number for such Registrable Securities covered by such registration statement not later than the effective date of such registration statement;
(i) enter into such customary agreements (including an underwriting agreement in customary form), which may include indemnification provisions in favor of underwriters and other Persons in addition to, or in substitution for the indemnification provisions hereof, and take such other actions as sellers of a majority of such Registrable Securities or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities;
(j) if requested by the managing underwriter(s) of an underwritten offering or if reasonably requested by the seller or sellers of a majority of such Registrable Securities, use reasonable best efforts to obtain a cold comfort letter or letters from the Companys independent public accountants addressed to the underwriters or seller or sellers in customary form and covering matters of the type customarily covered by cold comfort letters;
(k) subject to the execution and delivery of confidentiality agreements in form and substance reasonably satisfactory to the Company, make available for inspection by any seller of such Registrable Securities covered by such registration statement and by any underwriter participating in any disposition to be effected pursuant to such registration statement and by any attorney, accountant or other agent retained by any such seller or any such underwriter, at reasonable times and in a reasonable manner, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Companys officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act that is customary for a participant in a registered securities offering;
(l) notify counsel for the Holders of Registrable Securities included in such registration statement and the managing underwriter or agent, immediately, and confirm the notice in writing: (i) when the registration statement, or any post-effective amendment to the registration statement, shall have become effective, or any supplement to the prospectus or any amendment to any prospectus shall have been filed; (ii) of the receipt of any comments from the SEC; (iii) of any request of the SEC to amend the registration statement or amend or supplement the prospectus or for additional information; and (iv) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the registration statement for offering or sale in any jurisdiction, or of the institution or threatening of any proceedings for any of such purposes;
(m) provide each Holder of Registrable Securities included in such registration statement reasonable opportunity to comment on the registration statement, any post-effective amendments to the registration statement, any supplement to the prospectus or any amendment to any prospectus;
(n) make every reasonable effort to prevent the issuance of any stop order suspending the effectiveness of the registration statement or of any order preventing or suspending the use of any preliminary prospectus and, if any such order is issued, to obtain the withdrawal of any such order at the earliest possible moment;
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(o) if requested by the managing underwriter or agent or any Holder of Registrable Securities covered by the registration statement, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or agent or such Holder reasonably requests to be included therein, including, with respect to the number of Registrable Securities being sold by such Holder to such underwriter or agent, the purchase price being paid therefor by such underwriter or agent and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after being notified of the matters incorporated in such prospectus supplement or post-effective amendment;
(p) cooperate with the Holders of Registrable Securities covered by the registration statement and the managing underwriter or agent, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Securities to be sold under the registration statement, and enable such Securities to be in such denominations and registered in such names as the managing underwriter or agent, if any, or the Holders may request;
(q) use its reasonable best efforts to make available the executive officers of the Company to participate with the Holders of Registrable Securities and any underwriters in any road shows that may be reasonably requested by the Holders in connection with distribution of Registrable Securities;
(r) obtain for delivery to the underwriter an opinion or opinions from counsel for the Company in customary form and in form, substance and scope reasonably satisfactory to such Holders, underwriters or agents and their counsel; and
(s) cooperate with each seller of Registrable Securities and each underwriter or agent participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA.
SECTION 2.4 Other Registration-Related Matters .
(a) The Company may require any Person that is Transferring Securities in a Public Offering pursuant to Section 2.1 or Section 2.2 to furnish to the Company in writing such information regarding such Person and pertinent to the disclosure requirements relating to the registration and the distribution of the Registrable Securities which are included in such Public Offering as the Company may from time to time reasonably request in writing and the Company shall not be required to include the Securities of such Person in such Public Offering if such information is not provided to the Company.
(b) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.3(f), it will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until its receipt of the copies of the amended or supplemented prospectus contemplated by Section 2.3(f) or until it is advised in writing (the Advice ) by the Company that the use of the prospectus may be resumed and, if so directed by the Company, each Holder will deliver to the Company or destroy (at the Companys expense) all copies, other than permanent file copies then in its possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company gives any such notice, the period for which the Company shall be required to keep the registration statement effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.3(f) to and including the date when each seller of Registrable Securities covered by such registration statement has received the copies of the supplemented or amended prospectus contemplated by Section 2.3(f) or the Advice. The Company shall use its reasonable best efforts and take such actions as are reasonably necessary to render the Advice as promptly as practicable.
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(c) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.3(l)(iv), it will forthwith discontinue disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until the lifting of such stop order, other order or suspension or the termination of such proceedings and, if so directed by the Company, each Holder will deliver to the Company or destroy (at the Companys expense) all copies, other than permanent file copies then in its possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. In the event the Company gives any such notice, the period for which the Company shall be required to keep the registration statement effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 2.3(l)(iv) to and including the date when such stop order, other order or suspension is lifted or such proceedings are terminated.
(d) (i) Each Holder will, in connection with a Public Offering of the Companys equity Securities (whether for the Companys account or for the account of any Holder or Holders, any BX Holder or BX Holders, or any or all of them), upon the request of the Company or of the underwriters managing any underwritten offering of the Companys Securities, agree in writing not to effect any sale, disposition or distribution of Registrable Securities (other than those included in the Public Offering) without the prior written consent of the managing underwriter for such period of time commencing seven (7) days before and ending ninety (90) days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration; provided that the Company shall cause all directors and officers of the Company, and all other Persons with registration rights with respect to the Companys Securities (whether or not pursuant to this Agreement) (other than those that are parties to the Existing Registration Rights Agreement) to enter into agreements similar to those contained in this Section 2.4(d)(i) (without regard to this proviso), subject to exceptions for gifts, sales pursuant to pre-existing Rule 10b5-1 plans and other customary exclusions agreed to by such managing underwriter; and (ii) the Company and its Subsidiaries shall, in connection with an underwritten Public Offering of the Companys Securities in respect of which Registrable Securities are included, upon the request of the underwriters managing such offering, agree in writing not to effect any sale, disposition or distribution of equity Securities of the Company (other than those included in such Public Offering, offered pursuant to Section 2.2(f), offered on Form S-8, issuable upon conversion of Securities or upon the exercise of options, or the grant of options in the ordinary course of business pursuant to then-existing management equity plans or equity-based employee benefit plans, in each case outstanding on the date a notice is given by the Company pursuant to Section 2.1(a) or a request is made pursuant to Section 2.2(a), as the case may be, or agreed to by such managing underwriter) without the prior written consent of the managing underwriter, for such period of time commencing seven (7) days before and ending ninety (90) days (or such earlier date as the managing underwriter shall agree) after the effective date of such registration.
(e) With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of Securities of the Company to the public without registration after such time as a public market exists for Registrable Securities, the Company agrees:
(i) to make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its Securities to the public;
(ii) to use its commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and
(iii) so long as a Holder owns any Registrable Securities, to furnish to such Holder promptly upon request: (A) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its Securities to the public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (B) a copy of the most recent annual or quarterly report of the Company; and (C) such other reports and documents of the Company as such Holder may reasonably request in availing itself or himself of any rule or regulation of the SEC allowing such Holder to sell any such Securities without registration.
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(f) Each of the parties hereto agrees that the registration rights provided to the Holders herein are not intended to, and shall not be deemed to, override or limit any other restrictions on Transfer to which any such Holder may otherwise be subject.
ARTICLE III.
INDEMNIFICATION
SECTION 3.1 Indemnification by the Company . In the event of any registration of any Securities of the Company under the Securities Act pursuant to Section 2.1 or Section 2.2, the Company hereby indemnifies and agrees to hold harmless, to the fullest extent permitted by Law, each Holder who sells Registrable Securities covered by such registration statement, each Affiliate of such Holder and their respective directors, officers, employees, partners and equityholders (and the directors, officers, employees, Affiliates and controlling Persons of any of the foregoing), each other Person who participates as an underwriter in the offering or sale of such Securities and each other Person, if any, who controls such Holder or any such underwriter within the meaning of the Securities Act (each, and Indemnified Party and collectively, the Indemnified Parties ), against any and all losses, claims, damages or liabilities, joint or several, and reasonable and documented expenses to which such Indemnified Party may become subject under the Securities Act, common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof, whether or not such Indemnified Party is a party thereto) arise out of or are based upon: (a) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Securities were registered under the Securities Act, any preliminary, final or summary prospectus contained therein, or any amendment or supplement thereto, or any document incorporated by reference therein, or any other such disclosure document (including reports and other documents filed under the Exchange Act and any document incorporated by reference therein) or related document or report; (b) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of a prospectus, in the light of the circumstances when they were made; or (c) any violation or alleged violation by the Company or any of its Subsidiaries of any federal, state, foreign or common law rule or regulation applicable to the Company or any of its Subsidiaries and relating to action or inaction in connection with any such registration, disclosure document or related document or report, and the Company shall reimburse such Indemnified Party for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable to any Indemnified Party in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, in any such preliminary, final or summary prospectus, or any amendment or supplement thereto in reliance upon and in conformity with written information with respect to such Indemnified Party furnished to the Company by such Indemnified Party expressly for use in the preparation thereof. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any Indemnified Party and will survive the Transfer of such Securities by such Holder or any termination of this Agreement.
SECTION 3.2 Indemnification by the Holders and Underwriters . The Company may require, as a condition to including any Registrable Securities in any registration statement filed in accordance with Section 2.1 or Section 2.2, that the Company shall have received an undertaking reasonably satisfactory to it from the Holder of such Registrable Securities or any prospective underwriter to indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 3.1) the Company, all other Holders or any prospective underwriter, as the case may be, and any of their respective Affiliates, directors, officers and controlling Persons, with respect to any untrue statement in or omission from such registration statement, any preliminary, final or summary prospectus contained therein, or any amendment or supplement, if such untrue statement or omission was made in reliance upon and in conformity with written information with respect to such Holder or underwriter furnished to the Company by such Holder or underwriter expressly for use in the preparation of such registration statement, preliminary, final or summary prospectus or amendment or supplement, or a document incorporated by reference into any of the foregoing. Such indemnity will remain in full force and effect regardless of any investigation made by or on behalf of the Company or any of the Holders, or any of their respective Affiliates, directors, officers or controlling Persons and will survive the Transfer of such Securities by such Holder. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.
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SECTION 3.3 Notices of Claims, Etc . Promptly after receipt by an Indemnified Party hereunder of written notice of the commencement of any action or proceeding with respect to which a claim for indemnification may be made pursuant to this Article III, such Indemnified Party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action; provided that the failure of the Indemnified Party to give notice as provided herein will not relieve the indemnifying party of its obligations under Section 3.1 or Section 3.2, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, unless in such Indemnified Partys reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel selected by the Holders of at least a majority of the Registrable Securities included in the relevant registration, and after notice from the indemnifying party to such Indemnified Party of its election so to assume the defense thereof, the indemnifying party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. If, in such Indemnified Partys reasonable judgment, having common counsel would result in a conflict of interest between the interests of such indemnified and indemnifying parties, then such Indemnified Party may employ separate counsel reasonably acceptable to the indemnifying party to represent or defend such Indemnified Party in such action, it being understood, however, that the indemnifying party will not be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time for all such Indemnified Parties (and not more than one separate firm of local counsel at any time for all such Indemnified Parties) in such action. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation.
SECTION 3.4 Contribution . If the indemnification provided for hereunder from the indemnifying party is unavailable to an Indemnified Party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to herein for reasons other than those described in the proviso in the first sentence of Section 3.1, then the indemnifying party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and Indemnified Parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and Indemnified Parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or Indemnified Parties, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party under this Section 3.4 as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. In no event shall the liability of any selling Holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds actually received by such Holder upon the sale of the Registrable Securities giving rise to such contribution obligation. Any obligation of Holders to contribute pursuant to this Section 3.4 shall be several in proportion to the amount of Registrable Securities registered by them and not joint.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 3.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under Section 3.1, the indemnifying parties shall indemnify each Indemnified Party to the full extent provided in Section 3.1 without regard to the relative fault of said indemnifying party or Indemnified Party or any other equitable consideration provided for in this Section 3.4.
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SECTION 3.5 Other Indemnification . Indemnification similar to that specified in this Article III (with appropriate modifications) shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of Securities under any Law or with any Governmental Authority other than as required by the Securities Act.
SECTION 3.6 Non-Exclusivity . The obligations of the parties under this Article III will be in addition to any liability which any party may otherwise have to any other party.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 Representations and Warranties of the Company . The Company hereby represents and warrants to HNA as follows as of the Effective Date:
(a) The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations under the Agreement.
(b) The execution and delivery by the Company of this Agreement and the performance of the obligations of the Company under this Agreement do not and will not conflict with or violate any provision of, or require the consent or approval of any Person (except for any such consents or approvals which have been obtained) under, (x) applicable Law, (y) the organizational documents of the Company or (z) any contract or agreement to which the Company is a party.
(c) The execution and delivery by the Company of this Agreement and the performance of the obligations of the Company under this Agreement have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by HNA, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors rights and to general principles of equity.
(d) Other than the Existing Registration Rights Agreement, the Company is not party to any agreement, arrangement or understanding whereby any Person, other than as set forth herein, has any outstanding registration rights with respect to any securities of the Company.
SECTION 4.2 Representations and Warranties of HNA . HNA hereby represents and warrants to the Company as follows as of the Effective Date:
(a) HNA is duly organized and validly existing under the laws of the PRC. HNA has all requisite power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement.
(b) The execution and delivery by HNA of this Agreement and the performance by HNA of its obligations under this Agreement do not and will not conflict with or violate any provision of, or require the consent or approval of any Person (except for any such consents or approvals which have been obtained) under, (x) applicable Law, (y) its organizational documents or (z) any contract or agreement to which it is a party.
(c) The execution and delivery by HNA of this Agreement and the performance by HNA of its obligations under this Agreement have been duly authorized by all necessary corporate or other analogous action on its part. This Agreement has been duly executed and delivered by HNA and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of HNA, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors rights and to general principles of equity.
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ARTICLE V.
OTHER
SECTION 5.1 Notices . Any notice, request, instruction or other document to be given hereunder by any party hereto to another party hereto shall be in writing and shall be deemed given (a) when delivered personally, (b) one (1) Business Day after being sent by internationally recognized overnight courier, or (c) if transmitted by facsimile or sent by electronic mail transmission, if confirmed within 24 hours thereafter by a signed original sent in the manner provided in clause (a) or (b) to parties at the following addresses (or at such other address for a party as shall be specified by prior written notice from such party):
if to the Company:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, FL 32835
Attention: General Counsel
Fax: (407) 722-3637
with a copy (not constituting notice) to:
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: | Mark G. Borden | |
Jay E. Bothwick | ||
Fax: (617) 526-5000 | ||
Email: | mark.borden@wilmerhale.com | |
jay.bothwick@wilmerhale.com |
if to HNA:
HNA Tourism Group Co., Ltd.
No. 29, Haixiu Road
Haikou, 570203 Hainan Province
Peoples Republic of China
Attention: |
Liang Du | |
Xun Wang | ||
Fax: |
+86 898 6887 6656 / +86 898 6887 5382 | |
Email: |
duliang@hnair.com | |
wang-xun@hnair.com |
with a copy (not constituting notice) to:
Weil, Gotshal & Manges LLP
29/F, Alexandra House
18 Chater Road
Central, Hong Kong
Attention: |
Akiko Mikumo |
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Charles Ching | ||
Fax: |
+852 3015 9354 | |
Email: |
akiko.mikumo@weil.com | |
charles.ching@weil.com |
and
Fangda Partners
27/F, North Tower, Beijing Kerry Centre
1 Guanghua Road, Chaoyang District
Beijing 100020
Peoples Republic of China
Attention: |
Fei Qiao |
|
Fax: |
+86 10 5769 5788 |
|
Email: |
fei.qiao@fangdalaw.com |
SECTION 5.2 Assignment . Neither the Company nor any Holder shall assign all or any part of this Agreement without the prior written consent of the Company and HNA; provided , however , that any Holder may assign its rights and obligations under this Agreement in whole or in part to any HNA Entity to which Registrable Securities are transferred pursuant to, and subject to the conditions set forth in, the Stockholders Agreement, provided , such assignee executes and delivers to the Company a counterpart to this Agreement whereby it agrees to be bound by the terms of the Agreement. Except as otherwise provided herein, this Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns.
SECTION 5.3 Amendments; Waiver . This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the Company and the Holders holding a majority of the Registrable Securities subject to this Agreement; provided that no such amendment, supplement or other modification shall adversely affect the economic interests of any Holder hereunder disproportionately to other Holders without the written consent of such Holder. No waiver by any party hereto of any of the provisions hereof will be effective unless explicitly set forth in writing and executed by the party so waiving. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, will be deemed to constitute a waiver by the party taking such action of compliance with any covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement will not operate or be construed as a waiver of any subsequent breach.
SECTION 5.4 Third Parties . This Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto.
SECTION 5.5 Governing Law . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware.
SECTION 5.6 Jurisdiction . The Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware) shall have exclusive jurisdiction over the parties with respect to any dispute or controversy between them arising under or in connection with this agreement and, by execution and delivery of this agreement, each of the parties to this Agreement submits to the exclusive jurisdiction of those courts, including but not limited to the in personam and subject matter jurisdiction of those courts, waives any objections to such jurisdiction on the grounds of venue or forum non conveniens , the absence of in personam or subject matter jurisdiction and any similar grounds, consents to service of process by mail (in accordance with the notice provisions of this Agreement) or any other manner permitted by Law, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement.
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SECTION 5.7 MUTUAL WAIVER OF JURY TRIAL . THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT.
SECTION 5.8 Specific Performance . Each of the parties hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the non-breaching party would be irreparably harmed and could not be made whole by monetary damages. Each party accordingly agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and that the parties, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of this Agreement.
SECTION 5.9 Entire Agreement . This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. There are no agreements, representations, warranties, covenants or undertakings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement supersedes all other prior agreements and understandings between the parties with respect to such subject matter.
SECTION 5.10 Severability . If one or more of the provisions, paragraphs, words, clauses, phrases or sentences contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision, paragraph, word, clause, phrase or sentence in every other respect and of the remaining provisions, paragraphs, words, clauses, phrases or sentences hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by Law.
SECTION 5.11 Counterparts . This Agreement may be executed in any number of counterparts, each of which will be deemed to be an original and all of which together will be deemed to be one and the same instrument.
SECTION 5.12 Effectiveness . This Agreement shall become effective automatically on the Effective Date, without further action by any party. Until the Effective Date (if any), this Agreement shall be of no force or effect and shall create no rights or obligations on the part of any party hereto.
SECTION 5.13 Confidentiality . Each Holder agrees that all material non-public information provided pursuant to or in accordance with the terms of this Agreement shall be kept confidential by the person to whom such information is provided, until such time as such information becomes public other than through violation of this provision. Notwithstanding the foregoing, any party may disclose the information (i) if required to do so by any law, rule, regulation, order, decree or subpoena of any governmental agency or authority or court, (ii) that (A) is or becomes available to such party on a non-confidential basis from a source other than the Company or its representatives (which source was not to such partys knowledge prohibited from disclosing such information to such party by a legal, contractual or fiduciary obligation owed to the Company), (B) is already in such partys possession (not including information furnished by or on behalf of the Company), and (C) is independently developed or acquired by such party without reference to, or use of, any material non-public information and without violating this Section 5.13 and (iii) to its representatives who have a need to know such information in connection with the transactions contemplated by this Agreement, provided that such party shall remain liable for any breach of this Section 5.13 by its representatives.
[ Remainder of Page Intentionally Left Blank ]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first written above.
COMPANY: |
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HILTON GRAND VACATIONS INC. |
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By: |
/s/ Mark Wang |
|
Name: | Mark Wang | |
Title: | President and Chief Executive Officer |
[Signature Page to HNA-HGV Registration Rights Agreement]
HNA: |
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HNA TOURISM GROUP CO., LTD. |
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By: |
/s/ Ling Zang |
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Name: | Ling Zang | |
Title: | Chairman of the Board |
[Signature Page to HNA-HGV Registration Rights Agreement]
Exhibit 10.18
HILTON GRAND VACATIONS INC.
STOCKHOLDERS AGREEMENT
DATED AS OF OCTOBER 24, 2016
TABLE OF CONTENTS
Page | ||||||
ARTICLE I |
INTRODUCTORY MATTERS |
1 | ||||
1.1 |
Defined Terms | 1 | ||||
1.2 |
Construction | 10 | ||||
ARTICLE II |
CORPORATE GOVERNANCE MATTERS |
10 | ||||
2.1 |
Composition of the Board |
10 | ||||
2.2 |
Size of the Board |
12 | ||||
2.3 |
Committees |
12 | ||||
2.4 |
Qualification of HNA Designees |
13 | ||||
2.5 |
Service on Specified Boards |
14 | ||||
2.6 |
Participation of HNA Designees in Certain Matters; Acquisition Proposals |
14 | ||||
2.7 |
Resignations |
15 | ||||
2.8 |
Other HNA Investments |
16 | ||||
ARTICLE III |
VOTING MATTERS |
16 | ||||
3.1 |
Voting in an Uncontested Election |
16 | ||||
3.2 |
Voting in a Contested Election |
16 | ||||
3.3 |
Voting with respect to Certain Acquisitions |
17 | ||||
3.4 |
Voting with respect to Other Matters |
17 | ||||
3.5 |
Quorum |
18 | ||||
ARTICLE IV |
ADDITIONAL COVENANTS |
18 | ||||
4.1 |
Transfer Restrictions |
18 | ||||
4.2 |
Right of First Refusal |
20 | ||||
4.3 |
Standstill |
22 | ||||
4.4 |
Corporate Opportunities; Section 203 |
25 | ||||
4.5 |
Issuer Agreement |
25 | ||||
4.6 |
Cooperation |
25 | ||||
4.7 |
Tender of Shares in Certain Acquisitions |
25 | ||||
4.8 |
Public Announcements |
25 | ||||
4.9 |
Device Restrictions |
25 | ||||
ARTICLE V |
REPRESENTATIONS AND WARRANTIES |
26 | ||||
5.1 |
Representations and Warranties of the Company |
26 | ||||
5.2 |
Representations and Warranties of HNA |
27 | ||||
5.3 |
No Other Representations or Warranties |
27 |
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ARTICLE VI |
GENERAL PROVISIONS |
28 | ||||
6.1 |
Termination |
28 | ||||
6.2 |
Notices |
28 | ||||
6.3 |
Amendment; Waiver |
29 | ||||
6.4 |
Further Assurances |
29 | ||||
6.5 |
Assignment |
30 | ||||
6.6 |
Third Parties |
30 | ||||
6.7 |
Governing Law |
30 | ||||
6.8 |
Jurisdiction; Waiver of Jury Trial |
30 | ||||
6.9 |
Specific Performance |
30 | ||||
6.10 |
Entire Agreement |
31 | ||||
6.11 |
Severability |
31 | ||||
6.12 |
Table of Contents, Headings and Captions |
31 | ||||
6.13 |
Counterparts |
31 | ||||
6.14 |
Effectiveness of this Agreement |
31 |
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STOCKHOLDERS AGREEMENT
This Stockholders Agreement, dated as of October 24, 2016, by and among Hilton Grand Vacations Inc., a Delaware corporation (the Company ), HNA Tourism Group Co., Ltd., a PRC company ( HNA ), and, solely for purposes of Section 4.3, HNA Group Co., Ltd., a PRC company ( HNA Group ).
BACKGROUND:
WHEREAS, HNA and Blackstone (as defined below), as of the date hereof, have entered into the Stock Purchase Agreement (as defined below), pursuant to which, among other things, HNA has agreed to purchase from Blackstone, and Blackstone has agreed to sell to HNA, shares of Hilton Common Stock (as defined below), subject to the terms and conditions set forth in the Stock Purchase Agreement;
WHEREAS, Hilton Worldwide Holdings, Inc., a Delaware corporation ( Hilton ), intends to distribute, by way of a dividend, all outstanding shares of Common Stock (as defined below) and Park Common Stock (as defined below) owned by Hilton to holders of Hilton Common Stock (the Spinoff );
WHEREAS, the Company is entering into this Agreement as a condition to HNAs willingness to enter into the Stock Purchase Agreement;
WHEREAS, concurrently with the execution of this Agreement, the Company and HNA are entering into a Registration Rights Agreement, dated as of the date hereof, providing for certain registration rights which the Company is granting to HNA;
WHEREAS, in connection with the transactions contemplated by the Stock Purchase Agreement, the Company and HNA wish to set forth certain understandings between such parties, including with respect to certain governance matters; and
WHEREAS, the Company and HNA wish the rights and obligations set forth herein to become automatically effective upon the Effective Date (as defined below).
NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:
ARTICLE I
INTRODUCTORY MATTERS
1.1 Defined Terms . In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters:
5% Stockholder means, in connection with a proposed Transfer of Equity Securities of the Company, any Person or Group that has filed a Statement of Beneficial Ownership Report on
Schedule 13D or Schedule 13G with the SEC which reports such Persons or Groups Beneficial Ownership of five percent (5%) or more of the total outstanding Common Stock at the time of such proposed Transfer.
Acquisition means any transaction or series of transactions involving: (i) (a) any acquisition (whether direct or indirect, including by way of merger, share exchange, consolidation, business combination or other similar transaction) or purchase from the Company or any of its Subsidiaries that would result in any Person or Group Beneficially Owning more than fifty percent (50%) of the total outstanding Equity Securities of the Company or any of its Subsidiaries (measured by voting power or economic interest), or (b) any tender offer, exchange offer or other secondary acquisition that would result in any Person or Group Beneficially Owning more than fifty percent (50%) of the total outstanding Equity Securities of the Company or any of its Subsidiaries (measured by voting power or economic interest), or (c) any merger, consolidation, share exchange, business combination or similar transaction involving the Company or any of its Subsidiaries that would result in the stockholders of the Company immediately preceding such transaction Beneficially Owning less than fifty percent (50%) of the total outstanding Equity Securities in the surviving or resulting entity of such transaction (measured by voting power or economic interest); or (ii) any sale or lease or exchange, transfer, license or disposition of a business, deposits or assets that constitute more than fifty percent (50%) of the consolidated assets, business, revenues, net income, assets or deposits of the Company and its Subsidiaries.
Acquisition Notice has the meaning set forth in Section 2.6(a).
Acquisition Proposal means any proposal, offer, inquiry, indication of interest or expression of intent (whether binding or non-binding, and whether communicated to the Company, the Board or publicly announced to the Companys stockholders or otherwise) by any Person or Group relating to an Acquisition.
Adjusted Ownership Percentage has the meaning set forth in Section 4.3(c).
Affiliate has the meaning set forth in Rule 12b-2 promulgated under the Exchange Act.
Affiliated HNA Designee means any Qualified HNA Designee that is not an Independent HNA Designee.
Aggregate Reference Prices means the sum of the Reference Price of Hilton Common Stock, the Reference Price of Common Stock and the Reference Price of Park Common Stock.
Agreement means this Stockholders Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms hereof.
Beneficially Own (including its correlative meanings, Beneficial Owner and Beneficial Ownership ) has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.
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Blackstone means HLT Holdco II LLC, HLT Holdco III LLC, HLT BREH VI Holdco LLC, HLT BREP VI.2 Holdco LLC, HLT BREH Intl II Holdco LLC, HLT A23 BREH VI Holdco LLC, and HLT A23 Holdco LLC.
Board means the board of directors of the Company.
Business Day means a day other than a Saturday, Sunday, holiday or other day on which commercial banks in New York, New York, Hong Kong and Beijing, PRC are authorized or required by Law to close.
Closing has the meaning set forth in the Stock Purchase Agreement.
Closing Date means the date on which the Closing occurs.
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning set forth in the Preamble.
Common Stock means the shares of common stock, $0.01 par value per share, of the Company, and any other capital stock of the Company into which such common stock is reclassified or reconstituted and any other common stock of the Company.
Contested Election means any election of Directors to the Board in which one or more Persons nominated by the Board or the Nominating and Corporate Governance Committee is opposed by one or more Persons not nominated by the Board or the Nominating and Corporate Governance Committee, or any proposal to remove one or more Directors from the Board that will be voted on by the stockholders of the Company.
Control (including its correlative meanings, Controlled and Controlled by ) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.
Controlled Affiliate means, with respect to HNA, any Affiliate of HNA that is controlled by HNA, including any direct or indirect Subsidiary of HNA.
Designee Qualifications has the meaning set forth in Section 2.4(a)(vi).
Director means any director of the Company.
Director Confidentiality Agreement means a Confidentiality Agreement, substantially in the form attached as Exhibit A to this Agreement (as it may be modified from time to time by the Nominating and Corporate Governance Committee), which the Company will require each Director that is not an employee of the Company to execute as a condition to such Directors election or nomination for election and any subsequent nomination for election as a Director.
Disposition means any Transfer, including through issuance of an interest in any HNA Entity.
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Distributions means the distributions by Hilton, on the Distribution Date, to its stockholders of the Common Stock and the Park Common Stock owned by Hilton.
Distribution Date means the date on which the distributions to holders of record of shares of Hilton Common Stock of the Common Stock and the Park Common Stock owned by Hilton are effectuated.
Effective Date means the Closing Date (provided the Closing occurs prior to October 31, 2017), provided that, if the Distribution Date has not occurred prior to the Closing Date, the Effective Date shall be the Distribution Date.
Equity Securities means any and all (i) shares, interests, participations or other equivalents (however designated) of capital stock or other Voting Securities of a corporation, any and all equivalent or analogous ownership (or profit) or voting interests in a Person (other than a corporation), (ii) securities convertible into or exchangeable for shares, interests, participations or other equivalents (however designated) of capital stock or Voting Securities of (or other ownership or profit or voting interests in) such Person, and (iii) any and all warrants, rights or options to purchase any of the foregoing, whether voting or nonvoting, and, in each case, whether or not such shares, interests, participations, equivalents, securities, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination.
Exchange shall mean the New York Stock Exchange LLC or any other exchange on which the Common Stock is listed.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Governmental Authority means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
Group has the meaning assigned to it in Section 13(d)(3) of the Exchange Act and Rule 13d-5 thereunder.
Hilton has the meaning set forth in the Preamble.
Hilton Common Stock means shares of common stock, $0.01 par value per share, of Hilton.
HNA has the meaning set forth in the Preamble.
HNA Acquisition means any Acquisition in which an HNA Entity is the acquiror.
HNA Designee has the meaning set forth in Section 2.1(b).
HNA Designator means HNA.
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HNA Entities means HNA Group, HNA and each of their respective Controlled Affiliates.
HNA Group has the meaning set forth in the Preamble.
HNA Hospitality Business means the businesses of HNA Entities directly involved in owning, operating, managing, franchising or branding hotel and/or lodging properties.
HNA Permitted Transferee has the meaning set forth in Section 4.1(b)(iii).
HNA Parties means (i) HNA, and (ii) any HNA Permitted Transferee that becomes a party to this Agreement by executing a joinder agreement substantially in the form attached as Exhibit B to this Agreement.
HNA Standstill Commitment means a written commitment to the Company by HNA Group and HNA, on behalf of themselves and all other HNA Entities, not to, directly or indirectly, (i) make any Acquisition Proposal within the Standstill Commitment Period, or (ii) request any waiver of the restriction set forth in clause (i) of this definition prior to the date that is six (6) months after the termination of discussions regarding the Acquisition Proposal described in the Acquisition Notice in respect of which HNA is providing such HNA Standstill Commitment and any Related Acquisition Proposal.
Hong Kong means the Hong Kong Special Administrative Region of the PRC.
Independent HNA Designee means a Qualified HNA Designee that (A) at no time during the two (2) year period prior to his or her election or appointment to the Board, nor during his or her service as a Director, has been or is an employee, director, officer of, or consultant to, any of the HNA Entities, or has received or is receiving compensation from any of the HNA Entities, and (B) qualifies as an independent director under the rules of the Exchange and any guidelines adopted by the Board or the Nominating and Corporate Governance Committee that are applicable to all Directors, as determined in good faith by the Nominating and Corporate Governance Committee.
In Parallel means one or more Dispositions by an HNA Entity if and only if such Dispositions (i) result in the Disposition of proportionate or almost proportionate amounts of Common Stock, Park Common Stock and Hilton Common Stock (e.g., a sale by an HNA Entity of five percent (5%) of its Common Stock would require a sale by an HNA Entity of five percent (5%) of its Park Common Stock and five percent (5%) of its Hilton Common Stock), (ii) commenced at the same time and as part of the same plan, (iii) completed within a single taxable year of such HNA Entity, and (iv) all in the same form of transaction, for example, all in the form of a sale or all in the form of a distribution. The determination of whether one or more Dispositions by an HNA Entity are In Parallel shall be made taking into account only those shares of Common Stock, Park Common Stock and Hilton Common Stock owned by such HNA Entity on the Distribution Date. For the avoidance of doubt, one or more Dispositions shall not fail to meet the requirements of clause (i) of this definition solely because such Dispositions include, in addition to a proportionate or almost proportionate amount of Park Common Stock owned on the Distribution Date, an amount of Park Common Stock received in any distribution made by Park in order to comply with the requirements of Section 857(a)(2)(B) of the Code.
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Issuance Notice has the meaning set forth in Section 4.2(a).
Law means any statute, law (including common law), regulation, ordinance, rule, injunction, order, decree, governmental approval, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority.
Market Price means, as of any date, the last reported trading price of the Common Stock as of the end of regular trading hours on the Exchange on such date or, if the Common Stock is not listed on an Exchange, the fair market value per share of the Common Stock as determined in good faith by the Board as of such date.
New Issuance has the meaning set forth in Section 4.2(a).
New Issuance Closing has the meaning set forth in Section 4.2(c).
New Securities means (A) any shares of Common Stock, other than any shares of Common Stock that are: (i) issued to employees, officers or directors of, or consultants to, the Company or any of its Affiliates pursuant to any plan or arrangement approved by the Board (or a committee thereof); (ii) issued as consideration for the acquisition by the Company (or any of its Affiliates) of any business, assets or property of any third party, by merger, sale of assets, sale of stock or otherwise; (iii) issued upon conversion or exercise of convertible securities, options, warrants or other similar securities; or (iv) securities distributed or set aside ratably to all holders of Common Stock on a per share equivalent basis, or (B) any preferred or debt securities that are convertible into or exchangeable for shares of Common Stock.
Nominating and Corporate Governance Committee means the nominating and corporate governance committee of the Board, or another committee performing the functions of nominating or selecting Persons for election or appointment to the Board.
Non-Votes has the meaning set forth in Section 3.3.
Other Specified Matter means (a) any amendment to the Companys certificate of incorporation or by-laws that adversely affects HNA or any other HNA Party disproportionally as compared to other stockholders of the Company, or (b) any issuance of Common Stock representing twenty percent (20%) or more of the Companys total outstanding shares of Common Stock (other than as non-cash consideration in an acquisition of the business, assets or property of a third party or parties) at a price per share below the Market Price on the last Business Day prior to the date on which shareholders of the Company vote on such issuance.
Permitted Transfer has the meaning set forth in Section 4.1(b).
Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, a cooperative, an unincorporated organization, or other form of business organization, whether or not regarded as a legal entity under applicable Law, or any Governmental Authority or any department, agency or political subdivision thereof.
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Per Security Offering Price has the meaning set forth in Section 4.2(a).
Park means Park Hotels & Resorts Inc., a Delaware corporation.
Park Common Stock means shares of common stock, $0.01 par value per share, of Park.
PRC means the Peoples Republic of China.
Private Placement has the meaning set forth in Section 4.2(a).
Pro Rata Portion has the meaning set forth in Section 4.2(a).
Qualified HNA Designee means any HNA Designee that meets the Designee Qualifications.
Reference Factor means the Reference Price of Common Stock divided by the Aggregate Reference Prices.
Reference Period means the period of ten (10) consecutive trading days commencing on the later of (i) the Closing Date and (ii) the thirty-first (31 st ) trading day following the first trading day on which the shares of Common Stock, Hilton Common Stock and Park Common Stock are each listed and eligible for regular way trading on the Exchange.
Reference Price shall mean an amount equal to the Per Share Purchase Price (as defined in the Stock Purchase Agreement), as it may be adjusted pursuant to the terms of the Stock Purchase Agreement, multiplied by the Reference Factor.
Reference Price of Common Stock means the volume weighted average sale prices of the Common Stock reported on Bloomberg over the Reference Period multiplied by the number of shares of Common Stock that are issued as a dividend in relation to one share of Hilton Common Stock in the Spinoff (and as adjusted for any other stock dividend of Common Stock for which the ex-dividend date occurs during the Reference Period).
Reference Price of Hilton Common Stock means the volume weighted average sale prices of the Hilton Common Stock reported on Bloomberg over the Reference Period.
Reference Price of Park Common Stock means the volume weighted average sale prices of the Park Common Stock reported on Bloomberg over the Reference Period multiplied by the number of shares of Park Common Stock that are issued as a dividend in relation to one share of Hilton Common Stock in the Spinoff (and as adjusted for any other stock dividend of Park Common Stock for which the ex-dividend date occurs during the Reference Period).
Related Acquisition Proposal has the meaning set forth in Section 2.6(b).
Restricted Entities means timeshare or vacation ownership companies engaged in the business of marketing, selling or financing vacation ownership interests or timeshare intervals or managing or operating timeshare resorts that, in each case, compete with the Company and are
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listed on Exhibit C to this Agreement, as such list may be updated by the Company from time to time once every twelve (12) months but in no event shall such list contain more than nine (9) such companies.
Restricted Period means the period commencing on the Closing Date and ending on the second anniversary of the Closing Date.
SEC means the U.S. Securities and Exchange Commission or any successor agency.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Specified Acquisition means an Acquisition pursuant to a definitive agreement entered into, within the two (2) year period following the Closing Date in which both (i) Common Stock is exchanged for or converted into the right to receive (a) solely cash or (b) a mixture of cash and stock of a Person other than an HNA Entity in which the value of the cash portion of the aggregate consideration is sixty percent (60%) or more of the value of the aggregate consideration, and (ii) the value of the consideration to be received per share of Common Stock is equal to or less than the Reference Price. For all purposes of this definition, the per share value of any stock to be received as consideration shall be deemed to be equal to the final trading price of such stock on the last trading day prior to the execution of the definitive agreement providing for the Acquisition.
Specified Board means the board of directors of Park and Hilton.
Spinoff has the meaning set forth in the Preamble.
Standstill Commitment Period means, in the event an HNA Standstill Commitment is delivered to the Company pursuant to Section 2.6 following the Companys delivery of an Acquisition Notice to HNA, the period commencing upon the delivery of such Acquisition Notice to HNA and ending upon the first to occur of (i) twelve (12) months after the termination of discussions regarding the Acquisition Proposal described in such Acquisition Notice and any Related Acquisition Proposal, and (ii) the public announcement of a definitive agreement with respect to an Acquisition entered into between the Company and any Person other than an HNA Entity.
Stock Acquisition means any acquisition (whether direct or indirect, including by way of merger, share exchange, consolidation, business combination or other similar transaction) by the Company of any entity or assets pursuant to which the Company issues shares of Common Stock or securities that are convertible into or exchangeable for shares of Common Stock as consideration.
Stock Purchase Agreement means that certain Stock Purchase Agreement, dated as of the date hereof, among HNA, Blackstone and others.
Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which: (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of
8
any contingency) to vote in the election of directors, representatives or trustees thereof 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; or (ii) if a limited liability company, partnership, association or other business entity, a majority of the total voting power of stock (or equivalent ownership interest) of the limited liability company, partnership, association or other business entity is at the time owned or Controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to own, control or have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or Control the managing director or member, or general partner, of such limited liability company, partnership, association or other business entity.
Total Number of Directors means the total number of authorized Directors comprising the entire Board.
Transfer (including its correlative meaning, Transferred ) shall mean, with respect to any Equity Security, directly or indirectly, by operation of Law, contract or otherwise, (i) to sell, contract to sell, give, assign, hypothecate, pledge, encumber, grant a security interest in, offer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any economic, voting or other rights in or to such Equity Security, (ii) to engage in any hedging, swap, forward contract or other transaction that is designed to or which reasonably could be expected to lead to or result in a sale or disposition of Beneficial Ownership of, or pecuniary interest in, such Equity Security, including any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to such Equity Security, or (iii) to enter into a short sale of, or trade in, derivative securities representing the right to vote or economic benefits of, such Equity Security. When used as a noun, Transfer shall have such correlative meaning as the context may require.
Uncontested Election means any election of Directors to the Board other than a Contested Election.
Unqualified Device Opinion means, with respect to a Disposition, an unqualified will opinion of any of Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, or PricewaterhouseCoopers LLP, or any law firm of nationally recognized standing, addressed to and in form and substance reasonably satisfactory to Hilton, without substantive qualifications, to the effect that such Disposition will not cause any of the Distributions to be considered to be used principally as a device for the distribution of earnings and profits within the meaning of Section 355(a)(1)(B) of the Code, taking into account the facts and circumstances as they exist at that time, including the existence of prior dispositions, if any, and any planned or intended transactions as of such time.
Voting Percentage Limit means the number of Voting Securities Beneficially Owned by HNA Entities equal to fifteen percent (15%) of the Voting Securities entitled to vote at the applicable meeting of stockholders of the Company as disclosed in the proxy or information statement for such meeting or in a tender offer or exchange offer, fifteen percent (15%) of the shares of Common Stock outstanding immediately prior to the expiration of the offer.
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Voting Securities means shares of Common Stock and any other securities of the Company entitled to vote generally in the election of Directors.
1.2 Construction . The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Unless the context otherwise requires: (a) or is disjunctive but not exclusive, (b) words in the singular include the plural, and in the plural include the singular, (c) the words hereof, herein, and hereunder and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, (d) the word including and words of similar import when used in this Agreement mean including, without limitation, unless otherwise specified, (e) the word extent in the phrase to the extent means the degree to which a subject or other thing extends and such phrase shall not mean simply if, (f) references to day means a calendar day unless otherwise indicated as a Business Day, and (g) references to $ means U.S. dollars, the lawful currency of the United States of America. Section references are to this Agreement unless otherwise specified and references to clauses without a cross-reference to a Section or subsection are references to clauses within the same Section or, if more specific, subsection. When calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period is excluded. If the last day of such period is a non-Business Day, the period in question ends on the next succeeding Business Day.
ARTICLE II
CORPORATE GOVERNANCE MATTERS
2.1 Composition of the Board .
(a) From and after the Effective Date, subject to the terms and conditions of this Article II, the HNA Designator shall have the right (but not the obligation) to designate, and the individuals nominated for election as Directors by or at the direction of the Board or a duly-authorized committee thereof shall include, two (2) individuals that meet the Designee Qualifications to serve as Directors; provided , that, if the Total Number of Directors is thirteen (13) or more, then the HNA Designator shall be entitled to designate one (1) additional individual that meets the Designee Qualifications for each three (3) Directors in excess of ten (10) Directors. For clarity: if and when the Total Number of Directors is at least thirteen (13) but less than sixteen (16), the HNA Designator shall be entitled to designate three (3) Directors; if and when the Total Number of Directors is at least sixteen (16) but less than nineteen (19), the HNA Designator shall be entitled to designate four (4) Directors; etc. For the avoidance of doubt, if the Total Number of Directors is increased to thirteen (13) or more and then subsequently reduced, the number of individuals that the HNA Designator is entitled to designate pursuant to this Section 2.1(a) shall be reduced to the number of individuals that the HNA Designator would otherwise be entitled to designate pursuant to the first sentence of this Section 2.1(a); provided , that such number of designees
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shall increase in accordance with the first sentence of this Section 2.1(a) if the Total Number of Directors is thereafter increased to thirteen (13) or more. Notwithstanding the foregoing provisions of this Section 2.1(a), but subject to the proviso set forth in Section 2.7, the number of individuals that the HNA Designator is entitled to designate to serve as Directors pursuant to this Section 2.1(a) shall be reduced to: (i) two (2) Directors if, at any time, the HNA Entities, in the aggregate, Beneficially Own at least fifteen percent (15%) but less than twenty percent (20%) of the total number of shares of Common Stock outstanding; (ii) one (1) Director if, at any time, the HNA Entities, in the aggregate, Beneficially Own at least five percent (5%) but less than fifteen percent (15%) of the total number of shares of Common Stock outstanding; and (iii) no Directors if, at any time, the HNA Entities, in the aggregate, Beneficially Own less than five percent (5%) of the total number of shares of Common Stock outstanding. Not more than one HNA Designee at any time may be an Affiliated HNA Designee, and any other HNA Designee shall be an Independent HNA Designee.
(b) If at any time the HNA Designator has designated fewer than the total number of individuals that the HNA Designator is then entitled to designate pursuant to Section 2.1(a), the HNA Designator shall have the right (but not the obligation) to designate such number of additional individuals who meet the Designee Qualifications that the HNA Designator is entitled to so designate, in which case, any individuals nominated by or at the direction of the Board or any duly-authorized committee thereof for election as Directors to fill any vacancy or newly created directorships on the Board shall include such designees, and the Company shall use its best efforts to (x) effect the election of such additional designees, whether by increasing the size of the Board or otherwise, and (y) cause the election of such additional designees to fill any such newly-created vacancies or to fill any other existing vacancies. Each such individual whom the HNA Designator shall actually designate pursuant to this Section 2.1 and who qualifies to serve and is thereafter elected as a Director shall be referred to herein as a HNA Designee .
(c) In the event that a vacancy is created at any time by the death, disability, retirement, removal or resignation of any HNA Designee, any individual nominated or appointed by or at the direction of the Board or any duly-authorized committee thereof to fill such vacancy shall be, and the Company shall use its reasonable best efforts to cause such vacancy to be filled by, a new designee of the HNA Designator who meets the Designee Qualifications, and the Company and the Board shall take, to the fullest extent permitted by Law, at any time and from time to time, all actions necessary to accomplish the same as soon as possible following such designation.
(d) The Company and the Board shall take all action necessary to cause two (2) individuals designated by the HNA Designator who meet the Designee Qualifications to be appointed to the Board immediately on the Effective Date; provided , however , that if the Effective Date occurs after mailing of the Companys proxy statement relating to its annual meeting of stockholders for 2017 but prior to such annual meeting, such appointment shall occur immediately after such annual meeting.
(e) For any designation pursuant to this Section 2.1 that occurs after the Effective Date in connection with an election of Directors by the stockholders of the Company, the HNA Designator shall identify its designees by written notice to the Company
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no less than ninety (90) days prior to the date of the meeting of stockholders of the Company called for the purpose of electing Directors. So long as an individual designated by the HNA Designator pursuant to this Section 2.1 meets the Designee Qualifications, the Company shall, to the fullest extent permitted by Law, include such individual in the slate of nominees recommended by the Board at any meeting of stockholders called for the purpose of electing Directors, and use its reasonable best efforts to cause the election of such individual to the Board, including nominating such individual to be elected as a Director as provided herein, recommending such individuals election and soliciting proxies or consents in favor thereof.
(f) The Company shall at all times provide each HNA Designee (in his or her capacity as a member of the Board) with the same rights to indemnification and exculpation that it provides to other Directors.
2.2 Size of the Board . Without prejudice to the HNA Designators rights pursuant to Section 2.1, the consent of the HNA Designator shall not be required to increase or decrease the Total Number of Directors.
2.3 Committees .
(a) Each Independent HNA Designee serving as a Director on the Board shall be entitled to serve on at least one (1) committee of the Board (to the extent that an Independent HNA Designee elects to serve on such committee and subject to such Independent HNA Designee meeting the applicable eligibility requirements for membership on such committee mandated by applicable Law, the rules of the Exchange or the charter of such committee), as a full member with the same voting and other privileges as other members of such committee. The committee(s) on which any Independent HNA Designee serves shall be determined by the Nominating and Corporate Governance Committee.
(b) Until no HNA Designee serves as a Director on the Board (and the HNA Designator either no longer has any rights under this Article II to designate any HNA Designee to serve on the Board or irrevocably waives any such rights), the Company shall not amend the certificate of incorporation, bylaws or any other organizational documents of the Company, or the charter or other governing documents of any committee of the Board, in any manner that adversely and disparately affects the right of any Independent HNA Designee to be a member of any such committee (except as otherwise required by Law or the rules of the Exchange).
(c) Each HNA Designee may attend, upon the request of such HNA Designee and on a non-voting basis, any meetings of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee or other standing committee of the Board that may be established, except when such attendance would present an actual or potential conflict of interest for such HNA Designee in the good faith opinion of the applicable committee.
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2.4 Qualification of HNA Designees .
(a) Each HNA Designee shall, at the time of his or her nomination or appointment as a Director and at all times thereafter until such individual ceases to serve as a Director:
(i) meet and comply with any and all policies, procedures, processes, codes, rules, standards and guidelines of the Company applicable to all non-employee Board members, including the Companys code of business conduct and ethics, securities trading policies and corporate governance guidelines;
(ii) not be involved in any of the events enumerated in Item 2(d) or Item 2(e) of Schedule 13D under the Exchange Act or Item 401(f) of Regulation S-K under the Securities Act;
(iii) not be subject to any order, decree or judgment of any Governmental Authority prohibiting service as a director of any public company;
(iv) not be an employee, officer, or director of, or consultant to, or be receiving any compensation or benefits from, any Restricted Entity (unless otherwise agreed to by the Nominating and Corporate Governance Committee);
(v) not have been an employee, director, or officer of, or consultant to, any HNA Hospitality Business, received compensation from any HNA Hospitality Business, or have had any direct management oversight of any HNA Hospitality Business, within the two (2) year period prior to his or her nomination or appointment as Director (unless otherwise agreed to by the Nominating and Corporate Governance Committee); and
(vi) if such HNA Designee is an Independent HNA Designee, meets the criteria set forth in the definition of Independent HNA Designee in Article I (the requirements set forth in this Section 2.4(a), Section 2.4(b) and Section 2.4(c) being referred to, collectively, as the Designee Qualifications ).
(b) As a condition to an HNA Designees election or nomination for election and any subsequent nomination for election as a Director, such HNA Designee shall have executed and delivered to the Company a Director Confidentiality Agreement.
(c) Each HNA Designee, as a condition to his or her initial appointment or election to the Board and any re-nomination for election to the Board, must be willing to be interviewed by the Nominating and Corporate Governance Committee on the same basis as any other new candidate for appointment or election to the Board and must be reasonably satisfactory to the Nominating and Corporate Governance Committee acting in good faith. HNA, in its capacity as a stockholder of the Company on behalf of itself and other HNA Entities, and each HNA Designee, shall deliver such questionnaires and otherwise provide such information as are reasonably requested by the Company in connection with assessing qualification, independence and other criteria applicable to Directors, or required to be or customarily provided by directors, candidates for director, and their Affiliates and representatives for inclusion in a proxy statement or other filing required by applicable Law and the rules of the Exchange, in each case to substantially the same extent requested or required of other candidates for appointment or election to the Board after the date hereof.
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2.5 Service on Specified Boards . The HNA Designator shall not designate any individual pursuant to Section 2.1 who, at the time of such designation, is a member or has been nominated to serve as a member of a Specified Board. If an HNA Designee becomes a member of a Specified Board, the HNA Designator shall use its best efforts to cause such HNA Designee to promptly tender to the Board his or her resignation as a Director.
2.6 Participation of HNA Designees in Certain Matters; Acquisition Proposals .
(a) The Company shall promptly provide HNA with written notice (an Acquisition Notice ) of any written bona fide Acquisition Proposal that is received by or presented to the Board, and such Acquisition Notice need not specify the identity of the potential acquirer or any other terms of such Acquisition Proposal. From delivery of an Acquisition Notice to HNA until HNA delivers an HNA Standstill Commitment to the Company or the expiration of the ten (10) Business Day period contemplated by Section 2.6(b), the Company shall provide HNA with prior written notice of any meeting of the Board (or a committee thereof) scheduled to discuss, consider or vote upon such Acquisition Proposal at least twenty-four (24) hours before such meeting is convened.
(b) If (i) an Acquisition Notice has been delivered to HNA and, within ten (10) Business Days thereafter, an HNA Standstill Commitment is delivered to the Company, and (ii) any Acquisition Proposal previously made by an HNA Entity has been withdrawn, then the Affiliated HNA Designee shall be entitled, after but not before such HNA Standstill Commitment has been delivered to the Company, to participate in all discussions, consideration and voting by the Board regarding, and shall be entitled to receive any materials provided to the Board relating to, the Acquisition Proposal described in such Acquisition Notice, revisions to such Acquisition Proposal and any other Acquisition Proposal solicited by or on behalf of the Board in connection with the consideration of such Acquisition Proposal or made by a third party in response to such Acquisition Proposal (collectively, the Related Acquisition Proposals ). If an HNA Standstill Commitment is not delivered to the Company within such ten (10) Business Day period, the Affiliated HNA Designee shall not be entitled to participate in any discussions, consideration or voting by the Board regarding, and shall not be entitled to receive any materials provided to the Board relating to, any such Acquisition Proposal or the Related Acquisition Proposals.
(c) Notwithstanding anything to the contrary in Section 2.6(b), the Affiliated HNA Designee shall not be entitled to participate in any discussions, consideration or voting by the Board regarding, and shall not be entitled to receive any Board (or committee) materials relating to, any transaction or matter that, in the good faith determination of the Board (other than the Affiliated HNA Designee), presents an actual or potential conflict of interest for such Affiliated HNA Designee, including, without limitation, any Acquisition Proposal involving an HNA Entity.
(d) Each Independent HNA Designee shall be permitted to participate in all discussions, consideration and voting by the Board regarding, and shall be entitled to receive
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any Board materials relating to, any Acquisition Proposal, except when such attendance or receipt of materials would present an actual or potential conflict of interest for such Independent HNA Designee in the good faith determination of the Board (other than the Affiliated HNA Designee and such Independent HNA Designee).
(e) If the Board establishes a committee of the Board to consider any Acquisition Proposal, one (1) HNA Designee, as determined by the HNA Designator, shall be entitled to be a member of such committee; provided , that such HNA Designee may be the Affiliated HNA Designee only if (i) an HNA Standstill Commitment has been delivered by HNA to the Company in accordance with Section 2.6(b), and (ii) any Acquisition Proposal previously made by an HNA Entity has been withdrawn.
2.7 Resignations . Notwithstanding anything to the contrary in this Agreement:
(a) if, at any time, the HNA Entities, in the aggregate, Beneficially Own at least fifteen percent (15%) but less than twenty percent (20%) of the total number of shares of Common Stock outstanding and there are then more than two (2) HNA Designees on the Board, if requested by the Nominating and Corporate Governance Committee, the HNA Designator shall use its best efforts to cause one (1) or more HNA Designees selected by it to promptly tender his or her resignation from the Board and any applicable committee of the Board such that there are not more than two (2) HNA Designees serving on the Board;
(b) if, at any time, the HNA Entities, in the aggregate, Beneficially Own at least five percent (5%) but less than fifteen percent (15%) of the total number of shares of Common Stock outstanding, if requested by the Nominating and Corporate Governance Committee, the HNA Designator shall use its best efforts to cause one (1) or more HNA Designees to promptly tender his or her resignation from the Board and any applicable committee of the Board such that there is not more than one (1) HNA Designee serving on the Board; and
(c) if, at any time, the HNA Entities, in the aggregate, Beneficially Own less than five percent (5%) of the total number of shares of Common Stock outstanding, if requested by the Nominating and Corporate Governance Committee, the HNA Designator shall use its best efforts to cause each HNA Designee to promptly tender his or her resignation from the Board and any applicable committee of the Board such that there are no HNA Designees serving on the Board;
provided , however , that notwithstanding Section 2.1 and the foregoing provisions of this Section 2.7, if the closing of an issuance of Equity Securities of the Company or a Stock Acquisition causes the HNA Entities Beneficial Ownership of shares of Common Stock, as a percentage of the total number of shares of Common Stock outstanding, to decline below a percentage specified in this Section 2.7 such that the HNA Designator would be required by this Section 2.7 to use its best efforts to cause any HNA Designee to promptly tender his or her resignation from the Board, then (A) the HNA Designator shall not be required to use its best efforts to cause such HNA Designee to promptly tender his or her resignation from the Board, and (B) the Company and the Board shall not seek or take any action to remove such HNA Designee from the Board, in each case unless in the twelve (12) month period
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following the date of the closing of such issuance of Equity Securities of the Company or Stock Acquisition, as the case may be, the HNA Entities have not made purchases of Common Stock in open market transactions, as permitted by Section 4.3(c), such that the HNA Entities Beneficial Ownership of shares of Common Stock, as a percentage of the total number of shares of Common Stock outstanding, exceeds the applicable percentage specified in this Section 2.7; provided , further , that if the Company has imposed any blackout period or periods that restrict the HNA Entities ability to purchase shares of Common Stock for more than sixty (60) days in the aggregate during such twelve (12) month period, such twelve (12) month period shall be extended by the number of days of such blackout period or periods in excess of sixty (60) days. If the HNA Designator is required to use its best efforts to cause an HNA Designee to tender his or her resignation from the Board and such HNA Designee does not promptly tender his or her resignation from the Board, such HNA Designee shall not thereafter be entitled to participate as a member of any committee of the Board pursuant to this Agreement.
2.8 Other HNA Investments . For the avoidance of doubt, no investment by any HNA Entity in any Person, including any Restricted Entity, shall limit the rights of the HNA Designator pursuant to this Article II.
ARTICLE III
VOTING MATTERS
3.1 Voting in an Uncontested Election . At any meeting of stockholders of the Company involving an Uncontested Election (or if action is taken by written consent of stockholders of the Company in lieu of a meeting in respect of an Uncontested Election), the HNA Parties shall vote, or cause to be voted (including, if applicable, by written consent), all Voting Securities Beneficially Owned by HNA Entities, at their sole discretion either (i) affirmatively in favor of the election of each Person nominated to serve as a Director by the Board or the Nominating and Corporate Governance Committee, or (ii) in the same proportion as the Voting Securities not Beneficially Owned by HNA Entities are voted (including, if applicable, by written consent) affirmatively for, or to withhold authority with respect to, the election of each Person nominated to serve as a Director by the Board or the Nominating and Corporate Governance Committee (it being understood that the HNA Parties must elect to vote as contemplated by subclause (i) or (ii) of this Section 3.1 and cannot elect not to vote or to vote in any other manner).
3.2 Voting in a Contested Election . At any meeting of stockholders of the Company involving a Contested Election (or if action is taken by written consent of stockholders in lieu of a meeting in respect of a Contested Election), the HNA Parties shall vote, or cause to be voted (including, if applicable, by written consent), all Voting Securities Beneficially Owned by HNA Entities in the same proportion as the Voting Securities not Beneficially Owned by HNA Entities are voted affirmatively for, or to withhold authority with respect to, the election of each Person nominated to serve as a Director by the Board or the Nominating and Corporate Governance Committee (or, as applicable, the removal of any Director).
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3.3 Voting with respect to Certain Acquisitions . At any meeting of stockholders of the Company at which an Acquisition (other than a Specified Acquisition or an HNA Acquisition) that has been approved and recommended (and such recommendation has not been withdrawn) by the Board (and any other related matter the approval of which is required to consummate such Acquisition) is submitted to a vote of the stockholders of the Company (or if action is taken with respect to such matter(s) by written consent of stockholders of the Company in lieu of a meeting), the HNA Parties shall vote or cause to be voted (including by abstaining or, if applicable, taking action by written consent) all Voting Securities Beneficially Owned by HNA Entities in excess of the Voting Percentage Limit in the same proportion as the Voting Securities not Beneficially Owned by HNA Entities are voted (including by written consent) for or against, or abstain with respect to, such Acquisition (and such related matter(s)). Solely for purposes of this Section 3.3, in determining the proportion in which Voting Securities not Beneficially Owned by HNA Entities are voted with respect to an Acquisition or related matter to which this Section 3.3 applies, fifty percent (50%) of all Non-Votes (as defined in the following sentence) shall be taken into account as votes against such Acquisition or related matter and fifty percent (50%) of all Non-Votes shall not be taken into account in such determination. Non -Votes , with respect to an Acquisition or related matter to which this Section 3.3 applies, means all broker non-votes and all Voting Securities that are not present or represented at the applicable stockholder meeting (or, if applicable, written consent) or are not voted for or against, or abstain with respect to, such Acquisition or related matter. The HNA Parties shall be free to vote or cause to be voted (including by abstaining or, if applicable, taking action by written consent), in their sole discretion, all Voting Securities Beneficially Owned by HNA Entities up to and including the Voting Percentage Limit for or against, or to abstain from voting on, any Acquisition (and any related matters). Nothing contained in this Section 3.3 shall restrict in any manner the voting (including by written consent) of all Voting Securities Beneficially Owned by HNA Entities at any meeting of stockholders of the Company at which a Specified Acquisition or an HNA Acquisition is submitted to a vote of the stockholders of the Company (or, if applicable, any action taken by written consent of the stockholders of the Company in lieu of a meeting) and the HNA Parties shall be free to vote (including by written consent), at their sole discretion, all Voting Securities Beneficially Owned by HNA Entities against any Specified Acquisition and for any HNA Acquisition.
3.4 Voting with respect to Other Matters . At any meeting of stockholders of the Company at which any matter, other than an Other Specified Matter or a matter that is subject to Section 3.1, Section 3.2 or Section 3.3, is submitted to a vote of the stockholders of the Company (or if action is taken with respect thereto by written consent of stockholders in lieu of a meeting), the HNA Parties shall vote or cause to be voted (including by abstaining or, if applicable, taking action by written consent) all Voting Securities Beneficially Owned by HNA Entities in excess of the Voting Percentage Limit in the same proportion as the Voting Securities not Beneficially Owned by HNA Entities are voted (including by written consent) for or against, or abstain with respect to, each such matter. Each HNA Party shall be free to vote or cause to be voted (including by abstaining or, if applicable, taking action by written consent), in their sole discretion, all Voting Securities Beneficially Owned by HNA Entities up to and including the Voting Percentage Limit for or against, or to abstain from voting on, each such matter.
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3.5 Quorum . At each meeting of stockholders, the HNA Entities shall cause all of the Voting Securities Beneficially Owned by HNA Entities to be present in person or by proxy for quorum purposes.
ARTICLE IV
ADDITIONAL COVENANTS
4.1 Transfer Restrictions .
(a) During the Restricted Period, no HNA Party shall Transfer any shares of Common Stock, other than pursuant to a Permitted Transfer.
(b) Permitted Transfer means:
(i) a Transfer that has been approved in advance by a majority of the disinterested members of the Board or a duly-authorized committee thereof;
(ii) a Transfer to another HNA Party;
(iii) a Transfer to any HNA Entity that is not a Restricted Entity and not an HNA Party (any such HNA Entity, an HNA Permitted Transferee ), if such HNA Permitted Transferee shall have agreed in writing to be bound to the same extent as HNA by the obligations of this Agreement by executing a joinder agreement substantially in the form attached as Exhibit B to this Agreement;
(iv) a Transfer in connection with any Acquisition approved by the Board or a duly-authorized committee thereof (including if the Board or such committee (A) recommends that the Companys stockholders tender in response to a tender or exchange offer that, if consummated, would constitute an Acquisition, or (B) does not recommend that the Companys stockholders reject any such tender or exchange offer within the ten (10) Business Day period specified in Rule 14e-2(a) under the Exchange Act);
(v) a Transfer that constitutes a tender into a tender or exchange offer commenced by the Company or any of its Affiliates; or
(vi) a Transfer in connection with any bona fide mortgage, encumbrance or pledge to a financial institution in connection with any bona fide loan or debt transaction or enforcement thereunder.
(c) Following the Restricted Period, each HNA Party shall be free to Transfer any shares of Common Stock; provided , that (i) with respect to any Transfer other than a Permitted Transfer or an underwritten public offering or a block trade, the HNA Parties shall not Transfer more than 4.9% of the total number of outstanding shares of Common Stock to any Person or Group, or any shares of Common Stock to any Restricted Entity or any Person or Group who is known to such HNA Party (or to the broker in an ordinary course brokerage transaction) to be a 5% Stockholder or to be a Person or Group that would become the Beneficial Owner of five percent (5%) or more of the total outstanding Common Stock as a
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result of the Transfer, (ii) with respect to any Transfer, other than a Permitted Transfer, that is an underwritten public offering or a block trade, such HNA Party shall instruct the managing underwriter(s) or broker(s) not to Transfer more than 4.9% of the total number of outstanding shares of Common Stock to any Person or Group or any shares of Common Stock to a 5% Stockholder (unless the identity of the Person purchasing the shares of Common Stock is not known to the managing underwriter(s) or broker(s)) and (iii) with respect to a Transfer, other than a Permitted Transfer, that is a block trade, such HNA Party shall instruct the broker(s) not to Transfer any shares of Common Stock to a Restricted Entity (unless the identity of the Person purchasing the shares of Common Stock is not known to such HNA Party or broker(s)). For purposes of this Section 4.1(c), the total number of shares of Common Stock outstanding at any time shall be the number specified in the most recent SEC filing of the Company disclosing the total number of shares of Common Stock outstanding.
(d) Any Transfer or attempted Transfer of Equity Securities of the Company in violation of this Section 4.1 shall, to the fullest extent permitted by applicable Law, be null and void ab initio , and the Company shall not, and shall instruct its transfer agent and other third parties not to, record or recognize any such purported transaction on the books of the Company.
(e) Following any Transfer by an HNA Party contemplated by Section 4.1(b)(vi), HNA shall (i) promptly notify the Company in writing upon receipt of any notice of acceleration or foreclosure from a financial institution under the applicable loan or debt transaction, and (ii) reimburse any reasonable costs and expenses incurred by the Company in connection with (x) the establishment of such mortgage, encumbrance or pledge or (y) any Transfer of shares of Common Stock to such financial institution in connection with such event of acceleration or foreclosure.
(f) The Company shall use reasonable efforts to have the shares of Common Stock purchased pursuant to the Stock Purchase Agreement (x) registered directly on the books and records of the transfer agent in the name of the applicable HNA Party and maintained in book entries or (y) while any such shares of Common Stock are subject to any mortgage, encumbrance or pledge to a financial institution pursuant to Section 4.1(b)(vi), registered in the name of the Depository Trust Company or its nominee maintained in the form of book entries on the books of The Depository Trust Company, and allowed to be settled through The Depository Trust Companys regular book entry settlement services free of restrictive legends, stop transfer limitations and/or other notations. Without limiting the generality of the foregoing, any shares of Common Stock that cease to be subject to any mortgage, encumbrance or pledge to a financial institution shall be registered directly on the books and records of the transfer agent in the name of the applicable HNA Party. Any certificates for shares of Common Stock held by an HNA Party as of the date of the Effective Date that are not subject to any mortgage, encumbrance or pledge to a financial institution pursuant to Section 4.1(b)(vi) shall bear a legend or legends (and appropriate comparable notations or other arrangements will be made with respect to shares maintained in the form of book entries) referencing restrictions on transfer of such shares under the Securities Act and under this Agreement which legend shall state in substance:
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THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THE EXCHANGE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT (1) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT RELATING TO SUCH SECURITIES UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE STATE SECURITIES LAWS AND THE SECURITIES LAWS OF OTHER JURISDICTIONS.
THESE SECURITIES ARE SUBJECT TO TRANSFER AND OTHER RESTRICTIONS SET FORTH IN THE STOCKHOLDERS AGREEMENT, DATED AS OF OCTOBER 24, 2016, AMONG HILTON GRAND VACATIONS INC., HNA TOURISM GROUP CO., LTD. AND, SOLELY FOR PURPOSES OF SECTION 4.3 THEREOF, HNA GROUP CO., LTD., AS AMENDED FROM TIME TO TIME, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY.
Notwithstanding the foregoing, upon the request of the applicable HNA Party, (i) in connection with any Transfer of Common Stock Transferred in accordance with the terms of this Agreement, the Company shall promptly cause the second paragraph of the legend (or notation) to be removed upon such Transfer if such restrictions would not be applicable following such Transfer, (ii) following receipt by the Company of an opinion of counsel reasonably satisfactory to the Company to the effect that such legend (or notation) is no longer required under the Securities Act and applicable state securities Laws, the Company shall promptly cause the first paragraph of the legend (or notation) to be removed from any Common Stock to be Transferred in accordance with the terms of this Agreement, and (iii) to the extent the first and second paragraph of the legend (or notation) would be removed pursuant to this paragraph in connection with any Transfer of Common Stock, the Company shall use reasonable efforts to cause such Common Stock to be registered in the name of The Depository Trust Companys nominee; provided , however , that any Transfer effected by a financial institution pursuant to any mortgage, encumbrance or pledge with respect to Common Stock shall be governed by the terms of any applicable Issuer Agreement among the Company, the applicable financial institution and any custodian party thereto in substantially the form attached hereto as Exhibit E .
4.2 Right of First Refusal .
(a) If the Company, at any time or from time to time following the Effective Date, proposes to issue (a New Issuance ) any New Securities, for cash in an offering that is not an underwritten public offering or an offering pursuant to Rule 144A (or a successor rule) under the Securities Act (any such offering, a Private Placement ), the Company shall provide HNA with written notice (an Issuance Notice ) of such New Issuance at least ten (10) Business Days prior to the issuance of such New Securities. The Issuance Notice shall set forth the material terms and conditions of the New Issuance, including (i) the proposed number of New Securities if known or, if not known, an estimate thereof, (ii) a description of the New Securities and proposed manner of sale, (iii) the purchase price per New Security (or conversion price or premium in the event of an offering of convertible debt) (the Per
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Security Offering Price ) if known or, if not known, an estimate thereof, and (iv) the proposed issuance date if known or, if not known, an estimate thereof. HNA shall be entitled to purchase (either directly or through any other HNA Parties or any of HNAs Controlled Affiliates that are HNA Permitted Transferees), at the Per Security Offering Price and on the other terms and conditions specified in the Issuance Notice, up to the number of such New Securities that would result in the percentage of the total number of outstanding shares of Common Stock that is Beneficially Owned in the aggregate by all HNA Entities immediately following such New Issuance being equal to the percentage of the total number of outstanding shares of Common Stock that was Beneficially Owned in the aggregate by all HNA Entities immediately prior to such New Issuance, provided that for this purpose such percentage shall not exceed twenty-five percent (25%) (such percentage, the Pro Rata Portion ). Notwithstanding the foregoing, the number of New Securities that HNA (directly or through any other HNA Parties or their Controlled Affiliates that are HNA Permitted Transferees) shall be entitled to purchase pursuant to this Section 4.2 with respect to any New Issuance shall be limited to the maximum amount that may be issued by the Company to HNA (directly or through any other HNA Parties or their Controlled Affiliates that are HNA Permitted Transferees) without requiring approval of such issuance by the stockholders of the Company under the rules of the Exchange, as determined in good faith by the Company (which such determination shall be binding on the parties).
(b) HNA may exercise its rights under this Section 4.2 by delivering written notice of its election to purchase (either directly or through any other HNA Parties or any of HNAs Controlled Affiliates that are HNA Permitted Transferees) such New Securities to the Company within five (5) Business Days after receipt of the Issuance Notice, which notice shall specify the number of New Securities requested to be purchased by HNA. Delivery of such notice shall constitute a binding commitment of HNA to purchase (either directly or through any other HNA Parties or any of HNAs Controlled Affiliates that are HNA Permitted Transferees) the amount of New Securities so specified at the Per Security Offering Price and on the terms and conditions specified in the Issuance Notice. If, at the termination of such five (5) Business Day period, HNA has not exercised its right to purchase any such New Securities, HNA shall be deemed to have waived its rights under this Section 4.2 with respect to, and only with respect to, the purchase of the New Securities specified in the applicable Issuance Notice.
(c) The closing of any sale of New Securities to HNA, any other HNA Parties or any of HNAs Controlled Affiliates that are HNA Permitted Transferees pursuant to this Section 4.2 shall take place concurrently with the consummation of the sale of the New Securities on the terms set forth in the Issuance Notice to all other Persons purchasing such New Securities (the New Issuance Closing ).
(d) If the Company issues, at the New Issuance Closing, less than all of the New Securities described in the Issuance Notice, then the number of New Securities that HNA (and any other HNA Parties and any of HNAs Controlled Affiliates that are HNA Permitted Transferees) shall be entitled to purchase in connection with such New Issuance pursuant to this Section 4.2 shall be reduced proportionately and HNAs notice delivered pursuant to Section 4.2(b) shall be deemed amended to reflect such reduction. If the number of New Securities is reduced as contemplated by this Section 4.2(d), the Company shall not issue or sell the remainder of the New Securities described in the Issuance Notice without again complying with the provisions of this Section 4.2.
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(e) If the New Issuance Closing (other than any over-allotment closing) does not occur within ninety (90) days after the date of the Issuance Notice, the Company shall not issue or sell the New Securities described in the Issuance Notice without again complying with the provisions of this Section 4.2.
(f) HNA (or any other HNA Parties or any of HNAs Controlled Affiliates that are HNA Permitted Transferees) shall, prior to the closing of any Private Placement in which any of them has elected to purchase New Securities pursuant to this Section 4.2, execute and deliver all such documents and instruments as are customarily required in connection with such an offering, including, without limitation, customary investment representations and representations as to its status as the type of offeree to whom a private sale may be made pursuant to the Securities Act, and any failure to deliver or enter into any such documents and instruments at or prior to such closing shall constitute a waiver of the right of first refusal set forth in this Section 4.2 with respect to such New Issuance.
4.3 Standstill .
(a) Subject to Section 4.3(b) and Section 4.3(c), on and after the Effective Date, HNA Group and the HNA Parties shall not, shall cause their respective Affiliates not to, and shall cause the representatives of HNA Group, the HNA Parties and their respective Affiliates acting at their direction not to, in any manner, directly or indirectly, to, without the prior written consent of, or waiver by, the Company:
(i) acquire, offer to acquire or agree to acquire, by purchase or otherwise, Beneficial Ownership of any Equity Securities of the Company (including any rights, options or other derivative securities or contracts or instruments to acquire such ownership that derives its value (in whole or in part) from such Equity Securities (whether currently, upon lapse of time, following the satisfaction of any conditions, upon the occurrence of any event or any combinations of the foregoing)) other than: (A) as a result of any stock split, stock dividend or distribution, subdivision, reorganization, reclassification or similar capital transaction involving Equity Securities of the Company; (B) discussions or negotiations to acquire a beneficial interest in any Equity Securities of the Company from Blackstone or any of its Affiliates, provided , that HNA Group, any HNA Party or any of their respective Affiliates, as applicable, has, prior to initiating such discussions or negotiations, notified the Board in writing of its intention to initiate such discussions or negotiations; provided further that, for the avoidance of doubt, none of HNA Group, the HNA Parties or any of their respective Affiliates shall, directly or indirectly, acquire a beneficial interest in any Equity Securities of the Company from Blackstone or any of its Affiliates without the prior written consent of the Company, (C) pursuant to Section 4.1(b)(ii), Section 4.1(b)(iii), Section 4.2 or Section 4.3(c) or (D) a Transfer between HNA Parties; provided , that no HNA Party shall be in breach of this Section 4.3(a)(i) as a result of the acquisition by any HNA Designee of any Equity Securities of the Company pursuant to (x) the grant or vesting of any equity compensation awards granted by the Company to any HNA Designee, or (y) the exercise of any stock options, restricted stock units, or similar awards relating to any Equity Securities of the Company granted by the Company to any HNA Designee;
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(ii) make any public announcement or public offer with respect to any merger, business combination, recapitalization, reorganization or other similar extraordinary transaction involving the Company or any of its Subsidiaries (unless such transaction is approved or affirmatively recommended by the Board);
(iii) make, knowingly encourage or in any way participate in, any solicitation of proxies (as such terms are used in the proxy rules of the SEC promulgated pursuant to Section 14 of the Exchange Act) to vote any Voting Securities, or seek to advise or influence any Person with respect to the voting of, any Voting Securities (other than, in each case, in a manner that is not inconsistent with the Boards recommendation in connection with a matter);
(iv) seek election to, or seek to place a representative on, the Board or removal of any member of the Board or otherwise act, alone or in concert with others, to seek representation or to control or influence the management, the Board or policies of the Company (other than (A) with respect to the election or removal of an HNA Designee or (B) to vote in accordance with the requirements of Article III);
(v) call, or seek to call, a meeting of the stockholders of the Company or initiate any stockholder proposal for action by stockholders of the Company;
(vi) form, join or in any way participate in a Group with respect to Equity Securities (other than a Group consisting solely of HNA Parties);
(vii) otherwise act, alone or in concert with others, to seek to control or influence the management or the policies of the Company (for the avoidance of doubt, excluding any such act in their capacity as a commercial counterparty, customer, supplier, industry participant or the like);
(viii) advise or knowingly assist or encourage or enter into any discussions, negotiations, agreements or arrangements with any other Persons in connection with any of the foregoing activities;
(ix) publicly disclose any intention, plan or arrangement inconsistent with any of the foregoing activities;
(x) arrange, or in any way provide, directly or indirectly, any financing for the purchase by any Person or Group of any Equity Securities or assets of the Company, other than financing for (A) the purchase of assets then being offered for sale by the Company, (B) the Transfer of any shares of Common Stock to an HNA Party or an HNA Permitted Transferee, (C) purchases of any Equity Securities of the Company by an HNA Entity that are permitted by this Agreement and (D) an HNA Acquisition.
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(xi) take any action that HNA Group or an HNA Party knows, or would reasonably be expected to know, would require the Company to make a public announcement regarding the possibility of an Acquisition; or
(xii) contest the validity of this Section 4.3(a) or initiate or participate in any judicial proceeding to amend, waive, terminate or seek a release of the restrictions contained herein,
it being understood and agreed that (A) without prejudice to Section 2.6, this Section 4.3 shall not limit (x) the activities of any HNA Designee taken in good faith in his or her capacity as a Director or (y) the participation of any HNA Designee in any Board (or committee of the Board, as applicable) discussions, deliberations, negotiations or determinations, and (B) HNA and HNA Group shall be responsible for any breach of this Section 4.3 caused by any action taken by any HNA Entity or by a representative of an HNA Entity acting at the direction of any HNA Entity.
(b) Notwithstanding anything to the contrary in Section 4.3(a), on and after the date hereof, other than during any Standstill Commitment Period, no HNA Party shall be prohibited or restricted from: (i) initiating and engaging in private discussions with, and/or making and submitting to, the Company and/or the Board a non-public, confidential Acquisition Proposal so long as such HNA Party does not know, and would not be reasonably expected to know, that such actions would be reasonably likely to require HNA, the Company or any other Person to make a public announcement regarding such Acquisition Proposal; or (ii) from and after a public announcement of a definitive agreement with respect to an Acquisition entered into between the Company and any Person other than an HNA Entity and until the earlier of (A) the closing of such Acquisition and (B) ninety (90) days after the termination of such definitive agreement, notwithstanding any HNA Standstill Commitment or anything to the contrary in this Agreement, making and submitting to the Company, the Board, and/or the Companys stockholders, an alternative Acquisition Proposal on a publicly disclosed and announced basis for all outstanding shares of Common Stock, which, if a tender or exchange offer, shall be on the same terms for all such shares and include a non-waivable condition that a majority of outstanding shares of Common Stock not Beneficially Owned by any HNA Entity are tendered into such offer, or (subject to Sections 3.3, 4.3(a)(i) and 4.7) taking any other action, whether or not otherwise restricted by Section 4.3(a) in connection with evaluating, making, submitting, negotiating, effectuating or implementing any such alternative Acquisition Proposal (or any amendment, supplement or modification thereto), including actively soliciting stockholders of the Company not to vote in favor of or to vote against such Acquisition by a Person other than an HNA Entity.
(c) Notwithstanding anything to the contrary in Section 4.3(a), HNA may (directly or through any other HNA Parties or any of their respective Controlled Affiliates that are HNA Permitted Transferees), at any time and from time to time, purchase shares of Common Stock in open market transactions in an amount that, when aggregated with the number of shares of Common Stock then Beneficially Owned by all HNA Entities, would not then exceed a percentage of the shares of Common Stock outstanding at such time equal to the lower of (i) twenty-five percent (25%) and (ii) the Adjusted Ownership Percentage (as defined in the following sentence). The Adjusted Ownership Percentage shall initially be equal to twenty-five (25%) and, upon each Transfer of shares of Common Stock by an HNA
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Entity that (A) is to a Person other than another HNA Entity and (B) occurs when the percentage of the total number of outstanding shares of Common Stock that is Beneficially Owned, in the aggregate, by all HNA Entities is less than or equal to twenty-five (25%) or causes such percentage to be less than twenty-five (25%), shall be reduced to equal the percentage of the total number of outstanding shares of Common Stock that is Beneficially Owned, in the aggregate, by all HNA Entities immediately following such Transfer. For purposes of this Section 4.3(c), the total number of shares of Common Stock outstanding at any time shall be the number specified in the latest of (i) the most recent SEC filing of the Company disclosing the total number of shares of Common Stock outstanding or (ii) a written notice from the Company, which will be provided to HNA as soon as reasonably practicable upon a written request therefor from HNA following any New Issuance or Stock Acquisition.
4.4 Corporate Opportunities ; Section 203 . On or before the Effective Date, the Company shall amend its certificate of incorporation as set forth in Exhibit D to this Agreement.
4.5 Issuer Agreement . At the Closing, the Company shall duly execute and deliver to HNA the issuer agreement substantially in the form attached as Exhibit E to this Agreement.
4.6 Cooperation . Following the Effective Date, the Company and HNA shall, from time to time, engage in good faith discussions regarding strategic cooperation that may be mutually beneficial to such parties.
4.7 Tender of Shares in Certain Acquisitions . If, at any time when (i) HNA Entities Beneficially Own Voting Securities in excess of the Voting Percentage Limit, and (ii) any Acquisition (other than a Specified Acquisition) by a Person other than an HNA Entity is to be effected by means of a tender or exchange offer that has been approved and recommended (and such recommendation has not been withdrawn) by the Board, the HNA Parties shall tender into such offer, prior to any expiration thereof (as such offer may be extended from time to time), all the shares of Common Stock Beneficially Owned by HNA Entities in excess of the Voting Percentage Limit in the same proportion as the shares of Common Stock not Beneficially Owned by HNA Entities are so tendered. Such tender by the HNA Parties shall be made within twelve (12) hours of notification from any depositary for such tender or exchange offer of the percentage of Voting Securities Beneficially Owned by holders other than HNA Entities then received by such depositary. The HNA Parties shall be free, in their sole discretion, to tender or not tender into such offer, any and all shares of Common Stock Beneficially Owned by HNA Entities up to and including the Voting Percentage Limit.
4.8 Public Announcements . The initial press release with respect to this Agreement shall be a joint press release to be reasonably agreed upon by HNA and the Company. Thereafter, HNA and the Company shall consult with each other before issuing any press release, or other public announcement with respect to this Agreement or the matters contemplated hereby and, except in respect of any such press release or other public announcement as may be required by applicable Law or any applicable rule of any securities exchange or association, shall not issue any such press release or other public announcement prior to such consultation.
4.9 Device Restrictions .
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(a) Subject to Section 4.9(b) and Section 4.9(c), if the Closing occurs prior to the Distribution Date, without limiting any other provisions of this Agreement, during the period commencing on the Distribution Date and ending on the second anniversary of the Distribution Date, the HNA Entities shall not directly or indirectly engage in any Disposition of Common Stock, Park Common Stock or Hilton Common Stock.
(b) Notwithstanding Section 4.9(a), subject to Section 4.1, if the Closing occurs prior to the Distribution Date, (i) one or more Dispositions of Common Stock, Park Common Stock or Hilton Common Stock shall be permitted if such Dispositions are In Parallel and (ii) a Disposition of Common Stock, Park Common Stock or Hilton Common Stock shall be permitted if the HNA Entities provide an Unqualified Device Opinion with respect to such Disposition to Hilton. The Company shall reasonably cooperate with the HNA Entities in obtaining any Unqualified Device Opinion, including making reasonable representations required in connection with any such opinion and making available to the HNA Entities information necessary in connection with any such opinion (including making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder).
(c) Section 4.9(a) shall not apply to any Disposition of Common Stock, Park Common Stock or Hilton Common Stock by the HNA Entities resulting from a Transfer in connection with any bona fide mortgage, encumbrance or pledge to a financial institution or in connection with any bona fide loan or debt transaction or enforcement thereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Company . The Company hereby represents and warrants to HNA as follows as of the Effective Date:
(a) The Company is a corporation, duly incorporated, validly existing and in good standing under the Laws of the State of Delaware. The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations under the Agreement.
(b) The execution and delivery by the Company of this Agreement and the performance of the obligations of the Company under this Agreement do not and will not conflict with or violate any provision of, or require the consent or approval of any Person (except for any such consents or approvals which have been obtained) under, (x) applicable Law, (y) the organizational documents of the Company, or (z) any contract or agreement to which the Company is a party.
(c) The execution and delivery by the Company of this Agreement and the performance of the obligations of the Company under this Agreement have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by HNA, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors rights and to general principles of equity.
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(d) The Board (or a duly authorized committee thereof) has taken all action necessary, in compliance with applicable Law, to render inapplicable to HNA and, to the fullest extent permitted by Law, any other HNA Party the restrictions on business combinations set forth in Section 203 of the Delaware General Corporation Law. Other than Section 203 of the Delaware General Corporation Law, no business combination, moratorium, control share, fair price, takeover or interested stockholder Law is applicable to the Stock Purchase Agreement or the transactions contemplated thereby.
5.2 Representations and Warranties of HNA . HNA hereby represents and warrants to the Company as follows as of the Effective Date:
(a) HNA is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization. HNA has all requisite power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement.
(b) The execution and delivery by HNA of this Agreement and the performance by HNA of its obligations under this Agreement do not and will not conflict with or violate any provision of, or require the consent or approval of any Person (except for any such consents or approvals which have been obtained) under, (x) applicable Law, (y) its organizational documents, or (z) any contract or agreement to which it is a party.
(c) The execution and delivery by HNA of this Agreement and the performance by HNA of its obligations under this Agreement have been duly authorized by all necessary corporate or other analogous action on its part. This Agreement has been duly executed and delivered by HNA and, assuming the due authorization, execution and delivery by the Company, constitutes a legal, valid and binding obligation of HNA, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency and other Laws of general applicability relating to or affecting creditors rights and to general principles of equity.
5.3 No Other Representations or Warranties . Each of HNA and the Company hereby acknowledges and agrees that (a) except for the express representations and warranties set forth in this Article V, neither party hereto nor any Person acting on its behalf is making any representation or warranty of any kind, express or implied, in connection with the negotiation, execution or performance of this Agreement or the Stock Purchase Agreement or the transactions contemplated hereby and thereby, and (b) neither party hereto has relied on the accuracy or completeness of any information furnished by the other party hereto or any Person acting on its behalf in connection with the negotiation, execution or performance of this Agreement or the Stock Purchase Agreement or the transactions contemplated hereby and thereby.
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ARTICLE VI
GENERAL PROVISIONS
6.1 Termination . Unless otherwise specified herein, this Agreement shall automatically terminate on the date that the HNA Parties, in the aggregate, Beneficially Own less than five percent (5%) of the total number of shares of Common Stock outstanding as of such date; provided , that Section 2.7 and Section 4.1(f) shall survive the termination of this Agreement indefinitely.
6.2 Notices . Any notice, designation, request, request for consent or consent provided for in this Agreement shall be in writing and shall be deemed given (a) when delivered personally, (b) two (2) Business Day after being sent by internationally recognized overnight courier, or (c) if transmitted by facsimile or sent by electronic mail transmission and confirmed within 24 hours thereafter by a signed original sent in the manner provided in clause (a) or (b) to the parties at the following addresses (or at such other address for a party as shall be specified by prior written notice from such party):
if to the Company:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, FL 32835
USA
Attention: | General Counsel | |
Fax: | +1 (407) 722-3637 |
with a copy (not constituting notice) to:
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
USA
Attention: | Mark G. Borden | |
Jay E. Bothwick | ||
Fax: | +1 (617) 526-5000 | |
Email: | mark.borden@wilmerhale.com | |
jay.bothwick@wilmerhale.com |
if to HNA:
HNA Tourism Group Co., Ltd.
No. 29, Haixiu Road
Haikou, 570203 Hainan Province
Peoples Republic of China
Attention: |
Liang Du Xun Wang |
|
Fax: | +86 898 6887 6656/ +86 898 6887 5382 | |
Email: | duliang@hnair.com | |
wang-xun@hnair.com |
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with a copy (not constituting notice) to:
Weil, Gotshal & Manges LLP
29/F Alexandra House
18 Chater Road
Central, Hong Kong
Attention: | Akiko Mikumo | |
Charles Ching | ||
Fax: | +852 3015 9354 | |
Email: | akiko.mikumo@weil.com | |
charles.ching@weil.com |
and:
Fangda Partners
27/F, North Tower, Beijing Kerry Centre
1 Guanghua Road, Chaoyang District
Beijing 100020
Peoples Republic of China
Attention: | Fei Qiao | |
Fax: | +86 10 5769 5788 | |
Email: | fei.qiao@fangdalaw.com |
6.3 Amendment; Waiver . This Agreement may be amended, supplemented or otherwise modified, and the observance of any term hereof may be waived, only by a written instrument executed by (i) the Company and (ii) the HNA Designator. Neither the failure nor delay on the part of any party hereto to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver. Any amendment, supplement or modification to this Agreement and any waiver of any term hereof effected in accordance with this Section 6.3 shall be binding on each party hereto and all of such partys successors and permitted assigns, whether or not such party, successor or permitted assign entered into or approved such amendment, supplement or modification.
6.4 Further Assurances . Each party hereto shall sign such further documents and do and perform and cause to be done such further acts and things as any other party hereto may reasonably request to the extent necessary to carry out the intent and accomplish the purposes of this Agreement.
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6.5 Assignment . This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned, except by any HNA Party to any HNA Permitted Transferee that has executed a joinder agreement substantially in the form attached as Exhibit B to this Agreement, without the express prior written consent of the other parties hereto, and any attempted assignment, without such consent, will be null and void.
6.6 Third Parties . This Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto; provided , that HNA shall be liable for any losses, costs, expenses, damages, claims and other liabilities (including reasonable attorneys fees) incurred by Park or any of its Affiliates arising, directly or indirectly, from or in connection with any breach by any HNA Entity of Section 4.9 of this Agreement.
6.7 Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without regard to principles of conflicts of Laws thereof.
6.8 Jurisdiction; Waiver of Jury Trial . In any judicial proceeding involving any dispute, controversy or claim between the parties hereto arising out of or relating to this Agreement, each of the parties hereto, by execution and delivery of this Agreement, unconditionally accepts and consents to the exclusive jurisdiction and venue of the Delaware Court of Chancery and any state appellate court to which orders and judgments thereof may be appealed within the State of Delaware (or, if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware), including but not limited to the in personam and subject matter jurisdiction of those courts, or if jurisdiction over the matter is vested exclusively in federal courts, the United States District Court for the District of Delaware, and the appellate courts to which orders and judgments thereof may be appealed, waives any objections to such jurisdiction on the grounds of venue or forum non conveniens , the absence of in personam or subject matter jurisdiction and any similar grounds or any other manner permitted by Law, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. In any such judicial proceeding, the parties agree that in addition to any method for the service of process permitted or required by such courts, to the fullest extent permitted by Law, service of process may be made by delivery provided pursuant to the directions in Section 6.2. EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
6.9 Specific Performance . Each party hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the other parties hereto would be irreparably harmed and could not be made whole by monetary damages. Each party accordingly agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and agrees that the parties, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to specific performance of this Agreement without the posting of bond.
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6.10 Entire Agreement . This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. There are no agreements, representations, warranties, covenants or understandings with respect to the subject matter hereof other than those expressly set forth herein. This Agreement supersedes all other prior agreements and understandings between the parties with respect to such subject matter.
6.11 Severability . If any provision of this Agreement, or the application of such provision to any Person or circumstance or in any jurisdiction, shall be held to be invalid or unenforceable to any extent, (i) the remainder of this Agreement shall not be affected thereby, and each other provision hereof shall be valid and enforceable to the fullest extent permitted by Law, (ii) as to such Person or circumstance or in such jurisdiction such provision shall be reformed to be valid and enforceable to the fullest extent permitted by Law and (iii) the application of such provision to other Persons or circumstances or in other jurisdictions shall not be affected thereby.
6.12 Table of Contents, Headings and Captions . The table of contents, headings, subheadings and captions contained in this Agreement are included for convenience of reference only, and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof.
6.13 Counterparts . This Agreement and any amendment hereto may be signed in any number of separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Agreement (or amendment, as applicable).
6.14 Effectiveness of this Agreement . This Agreement shall become automatically effective upon the Effective Date, without the requirement of any further action by any Person, and until the Effective Date (if any), this Agreement shall be of no force or effect and shall create no rights or obligations on the part of any party hereto.
[ Remainder Of Page Intentionally Left Blank ]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
HILTON GRAND VACATIONS INC. |
||
By: |
/s/ Mark Wang |
|
Name: | Mark Wang | |
Title: | President and Chief Executive Officer | |
HNA TOURISM GROUP CO., LTD. | ||
By: |
/s/ Ling Zang |
|
Name: | Ling Zang | |
Title: | Chairman of the Board | |
HNA GROUP CO., LTD. | ||
(solely for purposes of Section 4.3) | ||
By: |
/s/ Xiangdong Tan |
|
Name: | Xiangdong Tan | |
Title: | Vice Chairman & Chief Executive Officer |
[Signature Page to Stockholders Agreement]
EXHIBIT A
FORM OF DIRECTOR CONFIDENTIALITY AGREEMENT
EXHIBIT B
FORM OF JOINDER AGREEMENT
This Joinder Agreement (this Joinder Agreement ) is made as of the date written below by the undersigned (the Joining Party ) in accordance with the Stockholders Agreement, dated as of October 24, 2016 (the Stockholders Agreement ), by and among Hilton Grand Vacations Inc., HNA Tourism Group Co., Ltd. and, solely for purposes of Section 4.3 thereof, HNA Group Co., Ltd. Capitalized terms used, but not defined, herein shall have the meaning ascribed to such terms in the Stockholders Agreement.
WHEREAS, on the date hereof, the Joining Party is acquiring shares of Common Stock from [●] (the Transferred Shares ); and
WHEREAS, the Stockholders Agreement requires the Joining Party, as a condition to becoming a holder of the Transferred Shares, to agree in writing to be bound by the terms of the Stockholders Agreement, and the Joining Party agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder Agreement hereby agree as follows:
1. Agreement to be Bound . The Joining Party hereby acknowledges, agrees and confirms that, by its execution of this Joinder Agreement, the Joining Party shall be deemed to be a party to the Stockholders Agreement and an HNA Party as if it had executed the Stockholders Agreement as of the date hereof. The Joining Party hereby ratifies, and agrees to be bound by, all of the terms, provisions and conditions contained in the Stockholders Agreement, in each case as of the date hereof. The Joining Party hereby represents and warrants to the Company that, as of the date hereof, it is an HNA Permitted Transferee.
2. Notice . For purposes of Section 6.2 of the Stockholders Agreement, the Joining Partys address is:
[●]
[●]
[●]
Attention: [●]
Fax: [●]
with a copy (not constituting notice) to:
[●]
[●]
[●]
Attention: [●]
Fax: [●]
3. Headings and Captions . The headings and captions contained in this Joinder Agreement are included for convenience of reference only, and in no way define, limit or describe the scope of this Joinder Agreement or the intent of any provision hereof.
4. Counterparts . This Joinder Agreement may be signed in any number of separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Joinder Agreement (or amendment, as applicable).
5. Governing Law . This Joinder Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without regard to principles of conflicts of Laws thereof.
[Remainder Of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned has executed this Joinder Agreement as of the date written below.
Date: [●]
[NAME OF JOINING PARTY] | ||
By: |
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|
Name: |
[●] |
|
Title: |
[●] |
ACCEPTED AND AGREED: | ||
HILTON GRAND VACATIONS INC. | ||
By: |
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Name: |
[●] |
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Title: |
[●] |
EXHIBIT C
RESTRICTED ENTITIES
| Marriott Vacations Worldwide Corporation |
| Interval Leisure Group, Inc. (and its following Subsidiaries: Vistana Signature Experiences, Inc. and Hyatt Vacation Ownership, Inc.) |
| Wyndham Vacation Ownership, Inc. |
| Disney Vacation Development, Inc. |
| Orange Lake Country Club, Inc. (and its following Subsidiary: SilverLeaf Resorts, Inc.) |
| Bluegreen Vacations Unlimited, Inc. |
| Diamond Resorts International, Inc. |
| Mori Trust Co., Ltd. |
| Minor Hotel Group Limited |
EXHIBIT D
AMENDMENTS TO CERTIFICATE OF INCORPORATION
EXHIBIT E
ISSUER AGREEMENT
Exhibit 10.19
STOCKHOLDERS AGREEMENT
DATED AS OF
AMONG
HILTON GRAND VACATIONS INC.
AND
THE OTHER PARTIES HERETO
Table of Contents
Page | ||||||
ARTICLE I. INTRODUCTORY MATTERS |
1 | |||||
1.1 |
Defined Terms | 1 | ||||
1.2 |
Construction | 3 | ||||
ARTICLE II. CORPORATE GOVERNANCE MATTERS |
3 | |||||
2.1 |
Election of Directors | 3 | ||||
ARTICLE III. INFORMATION; VCOC |
5 | |||||
3.1 |
Books and Records; Access | 5 | ||||
3.2 |
Certain Reports | 5 | ||||
3.3 |
VCOC | 5 | ||||
ARTICLE IV. GENERAL PROVISIONS |
7 | |||||
4.1 |
Termination | 7 | ||||
4.2 |
Notices | 8 | ||||
4.3 |
Amendment; Waiver | 8 | ||||
4.4 |
Further Assurances | 9 | ||||
4.5 |
Assignment | 9 | ||||
4.6 |
Third Parties | 9 | ||||
4.7 |
Governing Law | 9 | ||||
4.8 |
Jurisdiction; Waiver of Jury Trial | 9 | ||||
4.9 |
Specific Performance | 9 | ||||
4.10 |
Entire Agreement | 10 | ||||
4.11 |
Severability | 10 | ||||
4.12 |
Table of Contents, Headings and Captions | 10 | ||||
4.13 |
Grant of Consent | 10 | ||||
4.14 |
Counterparts | 10 | ||||
4.15 |
Effectiveness | 10 | ||||
4.16 |
No Recourse | 10 |
i
STOCKHOLDERS AGREEMENT
This Stockholders Agreement is entered into as of by and among Hilton Grand Vacations Inc., a Delaware corporation (the Company ), and each of the other parties identified on the signature pages hereto (the Investor Parties ).
BACKGROUND:
WHEREAS, Hilton Worldwide Holdings Inc. ( Hilton ) has distributed its entire interest in the Company by way of a dividend of all outstanding shares of the Companys Common Stock (as defined below) owned by Hilton to holders of Hilton Common Stock (as defined below).
NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
INTRODUCTORY MATTERS
1.1 Defined Terms . In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein with initial capital letters:
Affiliate has the meaning set forth in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof.
Agreement means this Stockholders Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms hereof.
Beneficially Own has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.
Blackstone Designee has the meaning set forth in Section 2.1(b).
Blackstone Designator means the Blackstone Party, or any group of Blackstone Parties collectively, then holding of record a majority of Common Stock held of record by all Blackstone Parties.
Blackstone Entities means the entities comprising the Blackstone Parties and their Affiliates.
Blackstone Parties means the entities listed on the signature pages hereto under the heading Blackstone Parties and any other Blackstone Entities that may from time to time become parties hereto.
Board means the board of directors of the Company.
Business Day means a day other than a Saturday, Sunday, federal or New York State holiday or other day on which commercial banks in New York City are authorized or required by law to close.
Company has the meaning set forth in the Preamble.
Common Stock means the shares of common stock, par value $0.01 per share, of the Company, and any other stock of the Company into which outstanding shares of such stock is reclassified or reconstituted and any other common stock of the Company.
Control (including its correlative meanings, Controlled by and under common Control with ) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.
Director means any director of the Company.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.
Governmental Authority means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
Hilton Common Stock means the shares of common stock, par value $0.01 per share, of Hilton, and any other stock of Hilton into which outstanding shares of such stock is reclassified or reconstituted and any other common stock of Hilton.
Investor Parties has the meaning set forth in the Preamble.
IPO means the initial public offering of Hilton.
Law means any statute, law, regulation, ordinance, rule, injunction, order, decree, governmental approval, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority.
Person means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, or other form of business organization, whether or not regarded as a legal entity under applicable Law, or any Governmental Authority or any department, agency or political subdivision thereof.
Plan Asset Regulation has the meaning set forth in Section 3.3.
Pre-IPO Owners means the Blackstone Entities and the other Persons who held Hilton Common Stock at the time of the IPO and any Affiliate thereof that shall become a holder of any Hilton Common Stock.
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Subsidiary means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which: (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, representatives or trustees thereof 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; or (ii) if a limited liability company, partnership, association or other business entity, a majority of the total voting power of stock (or equivalent ownership interest) of the limited liability company, partnership, association or other business entity is at the time owned or Controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or Control the managing member, managing director or other governing body or general partner of such limited liability company, partnership, association or other business entity.
Total Number of Directors means the total number of directors comprising the Board.
Transfer (including its correlative meanings, Transferor , Transferee and Transferred ) shall mean, with respect to any security, directly or indirectly, to sell, contract to sell, give, assign, hypothecate, pledge, encumber, grant a security interest in, offer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any economic, voting or other rights in or to such security. When used as a noun, Transfer shall have such correlative meaning as the context may require.
VCOC Investor has the meaning set forth in Section 3.3.
1.2 Construction . The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Unless the context otherwise requires: (a) or is disjunctive but not exclusive, (b) words in the singular include the plural, and in the plural include the singular, and (c) the words hereof , herein , and hereunder and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified.
ARTICLE II.
CORPORATE GOVERNANCE MATTERS
2.1 Election of Directors .
(a) Following the Closing Date, the Blackstone Designator shall have the right, but not the obligation, to designate, and the individuals nominated for election as Directors by or at the direction of the Board or a duly-authorized committee thereof shall include, a
3
number of individuals such that, upon the election of each such individual, and each other individual nominated by or at the direction of the Board or a duly-authorized committee of the Board, as a Director and taking into account any Director continuing to serve as such without the need for re-election, the number of Blackstone Designees (as defined below) serving as Directors of the Company will be equal to: (i) if the Pre-IPO Owners collectively Beneficially Own 50% or more of the total Common Stock as of the record date for such meeting, 50% of the Total Number of Directors, rounded down to the nearest whole number; (ii) if the Pre-IPO Owners collectively Beneficially Own at least 40% (but less than 50%) of the total Common Stock as of the record date for such meeting, 40% of the Total Number of Directors, rounded down to the nearest whole number; (iii) if the Pre-IPO Owners collectively Beneficially Own at least 30% (but less than 40%) of the total Common Stock as of the record date for such meeting, 30% of the Total Number of Directors, rounded down to the nearest whole number; (iv) if the Pre-IPO Owners collectively Beneficially Own at least 20% (but less than 30%) of the total Common Stock as of the record date for such meeting, either (A) 20% of the Total Number of Directors, rounded down to the nearest whole number, if the Total Number of Directors is 10 or greater, or (B) the lowest whole number that is greater than 20% of the Total Number of Directors if the Total Number of Directors is less than 10; and (v) if the Pre-IPO Owners collectively Beneficially Own at least 5% (but less than 20%) of the total Common Stock as of the record date for such meeting, the lowest whole number that is greater than 10% of the Total Number of Directors.
(b) If at any time the Blackstone Designator has designated fewer than the total number of individuals that the Blackstone Designator is then entitled to designate pursuant to Section 2.1(a), the Blackstone Designator shall have the right to designate such additional individuals which it is entitled to so designate, in which case, any individuals nominated by or at the direction of the Board or any duly-authorized committee thereof for election as Directors to fill any vacancy on the Board shall include such designees, and the Company shall use its best efforts to (x) effect the election of such additional designees, whether by increasing the size of the Board or otherwise, and (y) cause the election of such additional designees to fill any such newly-created vacancies or to fill any other existing vacancies. Each such individual whom the Blackstone Designator shall actually designate pursuant to this Section 2.1 and who is thereafter elected and qualifies to serve as a Director shall be referred to herein as a Blackstone Designee .
(c) In the event that a vacancy is created at any time by the death, disability, retirement or resignation of any Blackstone Designee, any individual nominated by or at the direction of the Board or any duly-authorized committee thereof to fill such vacancy shall be, and the Company shall use its best efforts to cause such vacancy to be filled, as soon as possible, by a new designee of the Blackstone Designator, and the Company shall take, to the fullest extent permitted by law, at any time and from time to time, all actions necessary to accomplish the same.
(d) The Company shall, to the fullest extent permitted by law, include in the slate of nominees recommended by the Board at any meeting of stockholders called for the purpose of electing directors, the persons designated pursuant to this Section 2.1 and use its reasonable best efforts to cause the election of each such designee to the Board, including nominating each such individual to be elected as a Director as provided herein, recommending such individuals election and soliciting proxies or consents in favor thereof.
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ARTICLE III.
INFORMATION; VCOC
3.1 Books and Records; Access . The Company shall, and shall cause its Subsidiaries to, permit the Blackstone Entities and their respective designated representatives, at reasonable times and upon reasonable prior notice to the Company, to review the books and records of the Company or any of such Subsidiaries and to discuss the affairs, finances and condition of the Company or any of such Subsidiaries with the officers of the Company or any such Subsidiary; provided , however , that the Company shall not be required to disclose any privileged information of the Company so long as the Company has used commercially reasonable efforts to enter into an arrangement pursuant to which it may provide such information to the Blackstone Entities without the loss of any such privilege.
3.2 Certain Reports . The Company shall deliver or cause to be delivered to the Blackstone Entities, at their request:
(a) to the extent otherwise prepared by the Company, operating and capital expenditure budgets and periodic information packages relating to the operations and cash flows of the Company and its Subsidiaries; and
(b) to the extent otherwise prepared by the Company, such other reports and information as may be reasonably requested by the Blackstone Entities; provided , however , that the Company shall not be required to disclose any privileged information of the Company so long as the Company has used commercially reasonable efforts to enter into an arrangement pursuant to which it may provide such information to the Blackstone Entities without the loss of any such privilege.
3.3 VCOC . With respect to each Blackstone Entity that is intended to qualify its direct or indirect investment in the Company as a venture capital investment as defined in the Department of Labor regulations codified at 29 CFR Section 2510.3-101 (the Plan Asset Regulation ) (each, a VCOC Investor ), for so long as the VCOC Investor, directly or through one or more subsidiaries, continues to hold any shares of Common Stock (or other securities of the Company into which such shares of Common Stock may be converted or for which such shares of Common Stock may be exchanged), without limitation or prejudice of any the rights provided to the Blackstone Entities hereunder, the Company shall, with respect to each such VCOC Investor:
(a) provide each VCOC Investor or its designated representative with:
(i) upon reasonable notice and at mutually convenient times, the right to visit and inspect any of the offices and properties of the Company and its Subsidiaries and inspect and copy the books and records of the Company and its Subsidiaries;
5
(ii) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, consolidated balance sheets of the Company and its Subsidiaries as of the end of such period, and consolidated statements of income and cash flows of the Company and its Subsidiaries for the period then ended prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis, except as otherwise noted therein, and subject to the absence of footnotes and to year-end adjustments;
(iii) as soon as available and in any event within 120 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such year, and consolidated statements of income and cash flows of the Company and its Subsidiaries for the year then ended prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis, except as otherwise noted therein, together with an auditors report thereon of a firm of established national reputation;
(iv) to the extent the Company is required by law or pursuant to the terms of any outstanding indebtedness of the Company to prepare such reports, any annual reports, quarterly reports and other periodic reports pursuant to Section 13 or 15(d) of the Exchange Act, actually prepared by the Company as soon as available; and
(v) upon written request by the VCOC Investor, copies of all materials provided to the Board, subject to appropriate protections with respect to confidentiality and preservation of attorney-client privilege;
provided , that , in each case, if the Company makes the information described in clauses (ii), (iii) and (iv) of this clause (a) available through public filings on the EDGAR System or any successor or replacement system of the U.S. Securities and Exchange Commission, the delivery of such information shall be deemed satisfied;
(b) make appropriate officers and/or Directors of the Company available, and cause the officers and directors of its Subsidiaries to be made available, periodically and at such times as reasonably requested by each VCOC Investor, upon reasonable notice and at mutually convenient times, for consultation with such VCOC Investor or its designated representative with respect to matters relating to the business and affairs of the Company and its Subsidiaries;
(c) to the extent that the VCOC Investor requests to receive such information and rights, and to the extent consistent with applicable law, rule, regulation or listing standards (and with respect to events which require public disclosure, only following the Companys public disclosure thereof through applicable securities law filings or otherwise), inform each VCOC Investor or its designated representative in advance with respect to any significant corporate actions, and to provide (or cause to be provided) each VCOC Investor or its designated representative with the right to consult with the Company and its Subsidiaries with respect to such actions should the VCOC Investor elect to do so, provided however, that this right to
6
consult must be exercised within five (5) days after the Company informs the VCOC Investor of the proposed corporate action and provided further that the Company shall be under no obligation to provide the VCOC Investor with any material non-public information with respect to such corporate action; and
(d) provide each VCOC Investor or its designated representative with such other rights of consultation which the VCOC Investors counsel may determine in writing to be reasonably necessary under applicable legal authorities promulgated after the date hereof to qualify its investment in the Company as a venture capital investment for purposes of the Plan Asset Regulation, provided that the parties agree that any such rights of consultation shall be of a nature consistent with those granted above and nothing in this Agreement shall be deemed to require the Company to grant to the VCOC Investor any additional rights with respect to the governance or management of the Company.
The Company agrees to consider, in good faith, the recommendations of each VCOC Investor or its designated representative in connection with the matters on which it is consulted as described above in this Section 3.3, recognizing that the ultimate discretion with respect to all such matters shall be retained by the Company.
In the event a VCOC Investor or any of its Affiliates Transfers all or any portion of their investment in the Company to an Affiliated entity that is intended to qualify as a venture capital operating company (as defined in the Plan Asset Regulation), such Transferee shall be afforded the same rights with respect to the Company afforded to the VCOC Investor hereunder and shall be treated, for such purposes, as a third party beneficiary hereunder.
In the event that the Company ceases to qualify as an operating company (as defined in the first sentence of 2510.3-101(c)(1) of the Plan Asset Regulation), or the investment in the Company by a VCOC Investor does not qualify as a venture capital investment as defined in the Plan Asset Regulation, then the Company and each Blackstone Entity will cooperate in good faith to take all reasonable actions necessary, subject to applicable law, to preserve the VCOC status of each VCOC Investor or the qualification of the investment as a venture capital investment, it being understood that such reasonable actions shall not require a VCOC Investor to purchase or sell any investments.
ARTICLE IV.
GENERAL PROVISIONS
4.1 Termination . Except for Section 3.3, this Agreement shall terminate on the earlier to occur of (i) such time as the Blackstone Designator is no longer entitled to designate a Director pursuant to Section 2.1(a) and (ii) the delivery of a written notice by the Blackstone Designator to the Company requesting that this Agreement terminate. The VCOC Investors shall advise the Company when they collectively first cease to beneficially own any of the Companys Common Stock or other securities of the Company into which such shares of Common Stock may be converted or for which such shares of Common Stock may be exchanged, whereupon Section 3.3 hereof shall terminate.
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4.2 Notices . Any notice, designation, request, request for consent or consent provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient at the address indicated on the Companys records, or at such address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. Notices and other such documents will be deemed to have been given or made hereunder when sent by facsimile (receipt confirmed) delivered personally, five (5) days after deposit in the U.S. mail and one (1) day after deposit with a reputable overnight courier service.
The Companys address is:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, FL 32835
Attention: General Counsel
Fax: (407) 722-3637
with a copy (not constituting notice) to:
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Mark G. Borden
Jay E. Bothwick
Fax: (617) 526-5000
The Blackstone Entities address is:
The Blackstone Group L.P.
345 Park Avenue
New York, NY 10154
Attention: Tyler Henritze
Fax: (212) 583-5191
with a copy (not constituting notice) to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017
Attention: Brian M. Stadler
Christopher R. May
Fax: (212) 455-2502
4.3 Amendment; Waiver . This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the Company and the other parties hereto. Neither the failure nor delay on the part of any party hereto to exercise any right,
8
remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
4.4 Further Assurances . The parties hereto will sign such further documents, cause such meetings to be held, resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things necessary, proper or advisable in order to give full effect to this Agreement and every provision hereof. To the fullest extent permitted by law, the Company shall not directly or indirectly take any action that is intended to, or would reasonably be expected to result in, Blackstone or any Blackstone Entity being deprived of the rights contemplated by this Agreement.
4.5 Assignment . This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned without the express prior written consent of the other parties hereto, and any attempted assignment, without such consents, will be null and void; provided, however, that, without the prior written consent of the Company, a Blackstone Party may assign this Agreement to an Affiliate that becomes a party hereto.
4.6 Third Parties . Except as provided for in Article II and Section 3.3 with respect to any Blackstone Entity, this Agreement does not create any rights, claims or benefits inuring to any person that is not a party hereto nor create or establish any third party beneficiary hereto.
4.7 Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws thereof.
4.8 Jurisdiction; Waiver of Jury Trial . In any judicial proceeding involving any dispute, controversy or claim arising out of or relating to this Agreement, each of the parties unconditionally accepts the jurisdiction and venue of the courts of the State of Delaware or if jurisdiction over the matter is vested exclusively in federal courts, the United States District Court for the District of Delaware, and the appellate courts to which orders and judgments thereof may be appealed. In any such judicial proceeding, the parties agree that in addition to any method for the service of process permitted or required by such courts, to the fullest extent permitted by law, service of process may be made by delivery provided pursuant to the directions in Section 4.2. EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
4.9 Specific Performance . Each party hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the other parties hereto would be irreparably harmed and could not be made whole by monetary damages. Each party accordingly
9
agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and agrees that the parties, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to specific performance of this Agreement without the posting of bond.
4.10 Entire Agreement . This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. There are no agreements, representations, warranties, covenants or understandings with respect to the subject matter hereof or thereof other than those expressly set forth herein and therein. This Agreement supersedes all other prior agreements and understandings between the parties with respect to such subject matter.
4.11 Severability . If any provision of this Agreement, or the application of such provision to any Person or circumstance or in any jurisdiction, shall be held to be invalid or unenforceable to any extent, (i) the remainder of this Agreement shall not be affected thereby, and each other provision hereof shall be valid and enforceable to the fullest extent permitted by law, (ii) as to such Person or circumstance or in such jurisdiction such provision shall be reformed to be valid and enforceable to the fullest extent permitted by law and (iii) the application of such provision to other Persons or circumstances or in other jurisdictions shall not be affected thereby.
4.12 Table of Contents, Headings and Captions . The table of contents, headings, subheadings and captions contained in this Agreement are included for convenience of reference only, and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof.
4.13 Grant of Consent . Any vote, consent or approval of, or designation by, or other action of, the Blackstone Designator hereunder shall be effective if notice of such vote, consent, approval, designation or action is provided in accordance with Section 4.2 by the Blackstone Party or Parties holding of record a majority of the Common Stock then held of record by Blackstone Parties as of the latest date any such notice is so provided.
4.14 Counterparts . This Agreement and any amendment hereto may be signed in any number of separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Agreement (or amendment, as applicable).
4.15 Effectiveness . This Agreement shall become effective upon the Closing Date.
4.16 No Recourse . This Agreement may only be enforced against, and any claims or cause of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement may only be made against the entities that are expressly identified as parties hereto and no past, present or future Affiliate, director, officer, employee, incorporator, member, manager, partner, stockholder, agent, attorney or representative of any party hereto shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim based on, in respect of, or by reason of, the transactions contemplated hereby.
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[ Remainder Of Page Intentionally Left Blank ]
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IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement on the day and year first above written.
COMPANY: | ||
HILTON GRAND VACATIONS INC. | ||
By: |
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|
Name: | ||
Title: |
[ Signature Page to BX-HGV Stockholders Agreement ]
BLACKSTONE PARTIES: | ||
[BLACKSTONE PARTIES] | ||
By: |
|
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Name: | ||
Title: |
[ Signature Page to BX-HGV Stockholders Agreement ]
Exhibit 21.1
LIST OF SUBSIDIARIES
Name |
Jurisdiction of Incorporation or Organization |
|
48th Street Holding LLC | Delaware | |
Grand Vacations Realty, LLC | Delaware | |
Grand Vacations Services, LLC | Delaware | |
Grand Vacations Title, LLC | Delaware | |
HGV Depositor LLC | Delaware | |
Hilton Grand Vacations Borrower Inc. | Delaware | |
Hilton Grand Vacations Borrower LLC | Delaware | |
Hilton Grand Vacations Club, LLC | Delaware | |
Hilton Grand Vacations Company, LLC | Delaware | |
Hilton Grand Vacations Financing, LLC | Delaware | |
Hilton Grand Vacations Italy S.R.L. | Italy | |
Hilton Grand Vacations Japan, LLC | Japan | |
Hilton Grand Vacations Management, LLC | Nevada | |
Hilton Grand Vacations Parent LLC | Delaware | |
Hilton Grand Vacations Trust I LLC | Delaware | |
Hilton Grand Vacations Trust 2013-A | Delaware | |
Hilton Grand Vacations Trust 2014-A | Delaware | |
Hilton Grand Vacations UK Limited | United Kingdom | |
Hilton Kingsland 1, LLC | Delaware | |
Hilton Resorts Corporation | Delaware | |
Hilton Resorts Marketing Corp. | Delaware | |
Hilton Resorts Marketing Korea, LLC | Republic of Korea | |
Hilton Travel, LLC | Delaware | |
HRC Islander LLC | Delaware | |
WBW CHP LLC | Hawaii |
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 five shares of Hilton Parent common stock and one share of HGV Parent common stock for every ten 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 will 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 NOVEMBER 10, 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 ten 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 5:00 p.m., Eastern time, on , . 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 28 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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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 September 30, 2016 and for the nine months ended September 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 September 30, 2016 and unaudited pro forma consolidated statements of operations for the nine months ended September 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.
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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. |
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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 7,592 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 265,000 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 4,700 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 265,000 members as of September 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 265,000 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 75% of our members were located in the United States, 20% in Japan and 5% in other international locations as of September 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 7,800 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 53,500 as of September 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 4,700 properties in 104 countries and territories as of September 30, 2016. Our long-term license agreement with Hilton will give us the exclusive right to market, sell and lease 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 29 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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HNA Group Strategic Investment
On October 24, 2016, Hilton Parent, The Blackstone Group L.P. and its affiliates (Blackstone) and HNA Tourism Group Co., Ltd. (HNA) announced that affiliates of Blackstone agreed to sell to HNA 247,500,000 shares of common stock of Hilton Parent, representing approximately 25% of the outstanding shares of common stock of Hilton Parent, pursuant to a stock purchase agreement between HNA and Blackstone (the Sale). The Sale is expected to close, subject to customary closing conditions (including receipt of regulatory approvals in the United States, China and certain other countries), in the first quarter of 2017. If the Sale closes after the spin-off record date, the Sale also will include the shares of common stock of HGV Parent and Park Parent received by Blackstone with respect to the shares of common stock of Hilton Parent being sold to HNA.
In connection with the Sale, HGV Parent entered into a stockholders agreement and a registration rights agreement with HNA, which will become effective upon the later to occur of (i) the closing of the Sale and (ii) the consummation of the spin-off. HGV Parent also entered into a registration rights agreement with Blackstone (which will become effective upon the consummation of the spin-off) and HGV Parent further intends to enter into a stockholders agreement with Blackstone at the consummation of the spin-off which will be substantially the same as Blackstones stockholders agreement with Hilton Parent. See Certain Relationships and Related Party TransactionsStockholders Agreements and Certain Relationships and Related Party TransactionsRegistration Rights Agreements for more detailed descriptions of these agreements.
On November 9, 2016, Hilton Parent announced that certain selling stockholders affiliated with Blackstone have commenced a secondary offering of 55,000,000 shares of common stock of Hilton Parent (the Secondary Offering). In this information statement, unless otherwise indicated or the context otherwise requires, information with respect to the anticipated beneficial ownership of our common stock by Blackstone assumes the completion of the Secondary Offering prior to the record date of the spin-off.
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; |
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| 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 40% of the voting power in HGV Parent will be controlled by Blackstone and upon consummation of the Sale, 25% of the voting power in HGV Parent will be controlled by HNA and approximately 15% will be controlled by Blackstone, and their respective 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 recourse indebtedness of approximately $500 million, excluding $450 million expected to be outstanding under our non-recourse 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 non-recourse Timeshare Facility balance is an intended borrowing of an additional $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 $1.22 billion of total recourse and non-recourse indebtedness outstanding. There can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. 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 ten 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 five 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? |
A: |
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, 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 |
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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 99 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-ten. 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 , . 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. |
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 |
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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, |
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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 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 |
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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 recourse indebtedness of approximately $500 million, excluding $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 non-recourse Timeshare Facility balance is an intended borrowing of an additional $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 $1.22 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 up to approximately $500 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 liabilities). These agreements also will govern HGVs relationship with Hilton and Park Hotels & Resorts |
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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 , . |
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 ten 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 27 record holders of shares of common stock and approximately 99 million shares of common stock outstanding, based on the number of stockholders and outstanding shares of Hilton Parent common stock on November 8, 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 will 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 including the distribution date, and we expect regular-way trading |
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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 market, sell and rent VOI inventory and manage resorts under the |
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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 recourse indebtedness of approximately $500 million, excluding $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 non-recourse Timeshare Facility balance is an intended borrowing of an additional $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 $1.22 billion of total recourse and non-recourse indebtedness outstanding. There can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. 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 nine months ended September 30, 2016 and 2015 and the summary balance sheet data as of September 30, 2016 from our unaudited condensed consolidated financial statements included elsewhere in this information statement. We derived the summary balance sheet data as of September 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 | ||||||||||||||||||||||||||||
Nine Months
Ended September 30, 2016 |
Year Ended
December 31, 2015 |
Nine Months
Ended September 30, |
Year Ended December 31, | |||||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||||||||||
Summary Statement of Operations Data: |
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Total revenues |
$ | 1,168 | $ | 1,475 | $ | 1,168 | $ | 1,094 | $ | 1,475 | $ | 1,317 | $ | 1,224 | ||||||||||||||
Total expenses |
912 | 1,167 | 921 | 863 | 1,154 | 1,004 | 975 | |||||||||||||||||||||
Net income |
136 | 167 | 130 | 125 | 174 | 167 | 128 |
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Pro Forma | ||||||||||||||||||||||||
September 30,
2016 |
September 30, | December 31, | ||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||||||
Summary Balance Sheet Data: |
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Cash |
$ | 48 | $ | 7 | $ | 2 | $ | 4 | $ | 2 | $ | 2 | ||||||||||||
Restricted cash |
90 | 90 | 86 | 75 | 62 | 61 | ||||||||||||||||||
Securitized timeshare financing receivables |
268 | 268 | 377 | 350 | 468 | 221 | ||||||||||||||||||
Unsecuritized timeshare financing receivables |
724 | 724 | 574 | 626 | 460 | 681 | ||||||||||||||||||
Total assets |
2,143 | 1,859 | 1,706 | 1,724 | 1,621 | 1,568 | ||||||||||||||||||
Non-recourse debt (1) |
717 | 417 | 530 | 502 | 625 | 670 | ||||||||||||||||||
Debt (1) (2) |
492 | 743 | 644 | 634 | 719 | 828 | ||||||||||||||||||
Total liabilities (1) (2) |
2,024 | 1,907 | 1,856 | 1,830 | 1,994 | 2,103 |
(1) | All periods presented reflect the adoption of Accounting Standards Updated No. 2015-03 and No. 2015-15. |
(2) | Includes allocated Parent debt of $743 million and $644 million as of September 30, 2016 and 2015, respectively, and $634 million, $719 million and $828 million as of December 31, 2015, 2014 and 2013, respectively. |
Nine Months Ended
September 30, |
Year Ended
December 31, |
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($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Other Financial Data: |
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Contract sales (1) |
$ | 863 | $ | 794 | $ | 1,068 | $ | 905 | $ | 829 | ||||||||||
EBITDA (2) |
274 | 257 | 356 | 349 | 289 | |||||||||||||||
Adjusted EBITDA (2) |
301 | 270 | 373 | 353 | 306 | |||||||||||||||
Real estate sales and financing segment Adjusted EBITDA |
259 | 236 | 329 | 305 | 294 | |||||||||||||||
Resort operations and club management segment Adjusted EBITDA |
139 | 119 | 162 | 144 | 104 | |||||||||||||||
Segment Adjusted EBITDA margin (3) |
36.4 | % | 34.5 | % | 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: |
Nine Months Ended
September 30, |
Year Ended December 31, | |||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Real estate sales and financing revenues |
$ | 843 | $ | 803 | $ | 1,078 | $ | 942 | $ | 898 | ||||||||||
Resort operations and club management revenues |
251 | 225 | 307 | 283 | 239 | |||||||||||||||
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Total segment revenues |
$ | 1,094 | $ | 1,028 | $ | 1,385 | $ | 1,225 | $ | 1,137 | ||||||||||
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Real estate sales and financing segment Adjusted EBITDA |
$ | 259 | $ | 236 | $ | 329 | $ | 305 | $ | 294 | ||||||||||
Resort operations and club management segment Adjusted EBITDA |
139 | 119 | 162 | 144 | 104 | |||||||||||||||
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Total segment Adjusted EBITDA |
$ | 398 | $ | 355 | $ | 491 | $ | 449 | $ | 398 | ||||||||||
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Segment Adjusted EBITDA margin |
36.4 | % | 34.5 | % | 35.5 | % | 36.7 | % | 35.0 | % | ||||||||||
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(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 corporate-level advertising channels to reach potential members and guests, including www.hilton.com as a channel through which to market 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 or not caused by us), 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 because maintenance fees are not paid or otherwise, 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 September 30, 2016, on a pro forma basis after giving effect to the spin-off and the financing transactions described in Unaudited Pro Forma Consolidated Financial Statements, our total indebtedness would have been approximately $1.22 billion. 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 impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.
The debt agreements that govern our outstanding indebtedness impose, and we expect the credit agreement that will govern our new senior secured credit facilities 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. |
In addition, we expect that the credit agreement that will govern our new senior secured credit facilities
will contain certain affirmative covenants that will require us to be in compliance with certain leverage and financial ratios.
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.
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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 control. In particular, compliance with state and local laws applicable to our business, including those relating to deeds, title transfers and certain other regulations applicable to sales of VOIs, may at times delay or hinder our ability to access cash flows generated by our VOI sales. If we are unable to generate and access 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 will 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.
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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.
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.
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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.
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 determined on or prior to the date on which the Distribution Agreement is entered (Shared Contingent Liabilities). The percentage of Shared Contingent Liabilities for which we are responsible will be fixed in a manner that is intended to approximate our estimated enterprise value on the distribution date relative to the estimated enterprise values of Park Hotels & Resorts and Hilton. 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.
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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 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.
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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, 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
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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 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 40% of the voting power in HGV Parent will be controlled by Blackstone and its affiliates and, upon consummation of the Sale, 25% of the voting power in HGV Parent will be controlled by HNA and approximately 15% will be controlled by Blackstone and their respective interests may conflict with ours or yours in the future.
Immediately following the spin-off, Blackstone and its affiliates will beneficially own approximately 40% of our common stock, although less than a majority of the total voting power and, upon consummation of the Sale, 25% of the voting power in HGV Parent will be controlled by HNA and approximately 15% will be controlled by Blackstone. We expect that one member of our initial board of directors will be a Blackstone employee and upon consummation of the Sale our board of directors will include designees of HNA. Accordingly, for so long as Blackstone, HNA and their respective affiliates retain significant ownership of us, Blackstone and HNA 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, HNA and their respective affiliates continue to own a significant percentage of our stock, Blackstone or HNA 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, HNA and their respective 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, HNA and their respective 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, HNA and their respective affiliates may pursue ventures that compete directly or indirectly with us. Moreover, affiliates of Blackstone or HNA 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
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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. Upon consummation of the Sale, we will amend and restate our charter to include a similar provision with respect to HNA. Blackstone or HNA 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 or HNA may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their respective investments, 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.
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.
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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; |
| 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.
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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 Agreements, we will grant Blackstone an unlimited number of demand registrations and customary piggyback registration rights. In addition, in connection with the Sale, HGV Parent entered into a registration rights agreement with HNA that will be effective upon the closing of the Sale. The HNA registration rights agreement provides that, beginning two years after the closing of the Sale, HNA will have customary demand and piggyback registration rights. See Certain Relationships and Related Party TransactionsRegistration Rights Agreements for additional information. 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.
In connection with the spin-off, we expect to adopt an Omnibus Incentive Plan, under which an aggregate of 10,000,000 shares of common stock will be available for future issuance. Equity-based awards that are outstanding under the Hilton Parent Incentive Plan on the distribution date and held by HGV Employees will be converted into awards that will be exercisable for or settleable in shares of HGV Parent common stock, and the number of shares available for future issuance under the Omnibus Incentive Plan includes approximately 1,175,000 shares of HGV Parent common stock which would be issuable under such converted awards. The number of shares subject to such converted awards is calculated based on assumed adjustments to Hilton Parent using the closing price of Hilton Parent stock as of November 8, 2016 and a hypothetical price of HGV Parent stock, assuming that all performance-vesting awards vest at target performance levels. The actual number of shares of HGV Parent common stock subject to converted awards may differ from the assumed amounts presented herein. In addition, in connection with the spin-off, we expect to adopt a Non-Employee Director Stock Plan, under which an aggregate of 325,000 shares of HGV Parent common stock will be available for future issuance. See The Spin-OffTreatment of Outstanding Equity Awards. 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 and Non-Employee Director Stock 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 , . Each holder of Hilton Parent common stock will receive one share of our common stock for every ten 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 5:00 p.m., Eastern time, on , , 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 ten 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 payments are to be made in lieu
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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 $140 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 Hilton.
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 the same general 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 an HGV Employee on the distribution date, whether vested or unvested, will be converted into an option to purchase shares of HGV Parent common stock, on the same general terms and conditions as the Hilton Parent stock option, with 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, on the same general terms and conditions of as the Hilton Parent RSUs, with 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 outstanding performance-vesting restricted stock units (PSUs) granted with respect to shares of Hilton Parent common stock in 2014, which are held by HGV Employees on the distribution date will be converted into an award of PSUs that will settle in shares of HGV Parent based on the actual performance level achieved by Hilton Parent during the performance period applicable to such awards, which will end on December 31, 2016. It is not expected that any changes will be made with respect to PSUs held by Hilton Parent Employees other than appropriate adjustments to the number of Hilton Parent shares subject to the PSUs in order to preserve the value of the award immediately following the separation. The Hilton Parent Compensation Committee will determine and certify the extent to which such awards have vested based on actual performance through such date. Such PSUs will then vest and be settled in shares of Hilton Parent common stock or HGV Parent common stock, as applicable, following the separation.
It is expected that outstanding PSUs and performance-vesting restricted stock (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 common stock or HGV Parent common stock, as applicable, assuming target-level performance. The number of shares of Hilton Parent common stock 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 common stock or HGV Parent common stock, as applicable.
Director-Held Time-Vesting Restricted Stock Units. 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 in accordance with their terms, 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.
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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 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; |
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| 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; |
| 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 will 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; |
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| 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; |
| 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 will 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.
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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 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.
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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 27 record holders of shares of our common stock and approximately 99 million shares of our common stock outstanding, based on the number of stockholders and outstanding shares of Hilton Parent common stock on November 8, 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.
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.
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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 recourse indebtedness of approximately $500 million, excluding $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 non-recourse Timeshare Facility balance is an intended borrowing of up to an additional $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 $1.22 billion of total recourse and non-recourse indebtedness outstanding. There can be no assurances that any such financing transactions will be completed in the timeframe or size indicated or at all. See Description of Certain Indebtedness.
Conditions to the Spin-Off
We expect that the spin-off will be effective as of 5:00 p.m., Eastern time, on , , 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 will 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; |
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| 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 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 November 8, 2016, Hilton Parent had approximately 990 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 99 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 one 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. |
In connection with the Sale, HGV entered into a registration rights agreement with HNA, which will become effective upon the later to occur of (i) the closing of the Sale and (ii) the consummation of the spin-off. HGV also entered into a registration rights agreement with Blackstone. See Certain Relationships and Related Party TransactionsRegistration Rights Agreements for additional information.
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 September 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 September 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.
September 30, 2016 | ||||||||
($ in millions) | Historical | Pro Forma (1) | ||||||
Cash |
$ | 7 | $ | 48 | ||||
Restricted cash |
90 | 90 | ||||||
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Total |
$ | 97 | $ | 138 | ||||
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Debt: |
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Allocated Hilton Parent debt |
$ | 743 | $ | | ||||
Debt (2) |
| 500 | ||||||
Non-recourse debt (2) |
420 | 720 | ||||||
|
|
|
|
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Total debt |
1,163 | 1,220 | ||||||
Equity: |
||||||||
Common stock, $0.01 par value; 3,000 million shares authorized, 99 million shares issued and 99 million shares outstanding, pro forma |
| 1 | ||||||
Paid in capital |
| 118 | ||||||
Parent deficit |
(48 | ) | | |||||
|
|
|
|
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Total equity (deficit) |
(48 | ) | 119 | |||||
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|
|
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Total capitalization |
$ | 1,115 | $ | 1,339 | ||||
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|
|
(1) | See Unaudited Pro Forma Consolidated Financial Statements. |
(2) | Amounts are not presented net of unamortized deferred financing costs. |
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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 nine months ended September 30, 2016 and 2015 and the selected condensed consolidated balance sheet data as of September 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.
Nine Months
Ended September 30, |
Year Ended December 31, | |||||||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||||||||||
Total revenues |
$ | 1,168 | $ | 1,094 | $ | 1,475 | $ | 1,317 | $ | 1,224 | $ | 1,172 | $ | 1,007 | ||||||||||||||
Total expenses |
921 | 863 | 1,154 | 1,004 | 975 | 924 | 829 | |||||||||||||||||||||
Net income |
130 | 125 | 174 | 167 | 128 | 118 | 73 |
September 30, | December 31, | |||||||||||||||||||||||
($ in millions) | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||
Balance Sheet Data: |
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Securitized timeshare financing receivables |
$ | 268 | $ | 350 | $ | 468 | $ | 221 | $ | | $ | | ||||||||||||
Unsecuritized timeshare financing receivables |
724 | 626 | 460 | 681 | 891 | 827 | ||||||||||||||||||
Total assets |
1,859 | 1,724 | 1,621 | 1,568 | 1,532 | 1,562 | ||||||||||||||||||
Total non-recourse debt |
417 | 502 | 625 | 670 | | | ||||||||||||||||||
Total liabilities (1) |
1,907 | 1,830 | 1,994 | 2,103 | 2,038 | 1,993 |
(1) | Includes allocated Parent debt of $743 million as of September 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. |
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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statements of operations present the historical consolidated financial statements of Hilton Resorts Corporation, adjusted to give effect to the financing transactions and the other Spin-Off Transactions as described under The Spin-Off Transactions. The unaudited pro forma consolidated balance sheet as of September 30, 2016 and unaudited pro forma consolidated statements of operations for the nine months ended September 30, 2016 and year ended December 31, 2015 have been prepared to reflect the spin-off and related transactions as if they had occurred on September 30, 2016 for the unaudited pro forma consolidated balance sheet and January 1, 2015 for the unaudited pro forma consolidated statements 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 consolidated financial statements, condensed consolidated financial statements and accompanying notes, 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 $25 million to $30 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 24 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.
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Hilton Resorts Corporation
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2016
(in millions)
Historical |
Pro Forma
Adjustments (1) |
Pro
Forma |
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ASSETS |
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Cash |
$ | 7 | $ | 41 | (a) | $ | 48 | |||||||
Restricted cash |
90 | | 90 | |||||||||||
Accounts receivable, net of allowance for doubtful accounts |
117 | | 117 | |||||||||||
Timeshare financing receivables, net |
992 | | 992 | |||||||||||
Inventory |
482 | 54 | (b) | 536 | ||||||||||
Property and equipment, net |
55 | 189 | (c) | 244 | ||||||||||
Intangible assets, net |
71 | | 71 | |||||||||||
Other assets |
45 | | 45 | |||||||||||
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|
|
|
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TOTAL ASSETS |
$ | 1,859 | $ | 284 | $ | 2,143 | ||||||||
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|
|
|||||||||
LIABILITIES AND EQUITY |
||||||||||||||
Accounts payable, accrued expenses and other |
$ | 221 | $ | | $ | 221 | ||||||||
Advanced deposits |
102 | | 102 | |||||||||||
Allocated Parent debt |
743 | (743 | ) | (d) | | |||||||||
Debt |
| 492 | (d) | 492 | ||||||||||
Non-recourse debt |
417 | 300 | (d) | 717 | ||||||||||
Deferred revenues |
113 | | 113 | |||||||||||
Deferred income tax liabilities |
311 | 68 | (b)(c) | 379 | ||||||||||
|
|
|
|
|
|
|||||||||
Total liabilities |
1,907 | 117 | 2,024 | |||||||||||
Equity: |
||||||||||||||
Common stock, $0.01 par value |
| 1 | (g) | 1 | ||||||||||
Stockholders equity |
| 118 | (g) | 118 | ||||||||||
Parent deficit |
(48 | ) | 48 | (g) | | |||||||||
|
|
|
|
|
|
|||||||||
Total equity (deficit) |
(48 | ) | 167 | 119 | ||||||||||
|
|
|
|
|
|
|||||||||
TOTAL LIABILITIES AND EQUITY |
$ | 1,859 | $ | 284 | $ | 2,143 | ||||||||
|
|
|
|
|
|
(1) | For details of the adjustments referenced, see Note 3: Pro Forma Adjustments . |
See notes to unaudited pro forma consolidated financial statements.
73
Hilton Resorts Corporation
Unaudited Pro Forma Consolidated Statement of Operations
For the Nine Months Ended September 30, 2016
(in millions, except per share data)
Historical |
Pro Forma
Adjustments (1) |
Pro Forma | ||||||||||||||
Revenues |
||||||||||||||||
Sales of VOIs, net |
$ | 359 | $ | | $ | 359 | ||||||||||
Sales, marketing, brand and other fees |
382 | | 382 | |||||||||||||
Financing |
100 | | 100 | |||||||||||||
Club and resort management |
98 | | 98 | |||||||||||||
Rental and ancillary services |
135 | | 135 | |||||||||||||
Cost reimbursements |
94 | | 94 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total revenues |
1,168 | | 1,168 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Expenses |
||||||||||||||||
Cost of VOI sales |
110 | | 110 | |||||||||||||
Sales and marketing |
443 | | 443 | |||||||||||||
Financing |
24 | 4 | (e) | 28 | ||||||||||||
Club and resort management |
25 | | 25 | |||||||||||||
Rental and ancillary services |
86 | | 86 | |||||||||||||
General and administrative |
61 | (18 | ) | (h) | 43 | |||||||||||
Depreciation and amortization |
17 | 5 | (c) | 22 | ||||||||||||
License fee expense |
61 | | 61 | |||||||||||||
Cost reimbursements |
94 | | 94 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total expenses |
921 | (9 | ) | 912 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Gain on foreign currency transactions |
2 | | 2 | |||||||||||||
Allocated Parent interest expense |
(20 | ) | 20 | (d) | | |||||||||||
Other loss, net |
(1 | ) | | (1 | ) | |||||||||||
Interest expense |
| (20 | ) | (d) | (20 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Income before income taxes |
228 | 9 | 237 | |||||||||||||
Income tax expense |
(98 | ) | (3 | ) | (f) | (101 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Net income |
$ | 130 | $ | 6 | $ | 136 | ||||||||||
|
|
|
|
|
|
|||||||||||
Pro forma earnings per share: |
||||||||||||||||
Basic and diluted |
(i | ) | $ | 1.37 | ||||||||||||
|
|
|||||||||||||||
Pro forma shares outstanding: |
||||||||||||||||
Basic and diluted |
(i | ) | 99 | |||||||||||||
|
|
(1) | For details of the adjustments referenced, see Note 3: Pro Forma Adjustments . |
See notes to unaudited pro forma consolidated financial statements.
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Hilton Resorts Corporation
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2015
(in millions, except per share data)
Historical |
Pro Forma
Adjustments (1) |
Pro
Forma |
||||||||||||||
Revenues |
||||||||||||||||
Sales of VOIs, net |
$ | 492 | $ | | $ | 492 | ||||||||||
Sales, marketing, brand and other fees |
457 | | 457 | |||||||||||||
Financing |
127 | | 127 | |||||||||||||
Club and resort management |
125 | | 125 | |||||||||||||
Rental and ancillary services |
164 | | 164 | |||||||||||||
Cost reimbursements |
110 | | 110 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total revenues |
1,475 | | 1,475 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Expenses |
||||||||||||||||
Cost of VOI sales |
173 | | 173 | |||||||||||||
Sales and marketing |
541 | | 541 | |||||||||||||
Financing |
32 | 6 | (e | ) | 38 | |||||||||||
Club and resort management |
32 | | 32 | |||||||||||||
Rental and ancillary services |
113 | | 113 | |||||||||||||
General and administrative |
57 | | (h | ) | 57 | |||||||||||
Depreciation and amortization |
22 | 7 | (c | ) | 29 | |||||||||||
License fee expense |
74 | | 74 | |||||||||||||
Cost reimbursements |
110 | | 110 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Total expenses |
1,154 | 13 | 1,167 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Allocated Parent interest expense |
(29 | ) | 29 | (d | ) | | ||||||||||
Other loss, net |
| | | |||||||||||||
Interest expense |
| (27 | ) | (d | ) | (27 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Income before income taxes |
292 | (11 | ) | 281 | ||||||||||||
Income tax expense |
(118 | ) | 4 | (f | ) | (114 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Net income |
$ | 174 | $ | (7 | ) | $ | 167 | |||||||||
|
|
|
|
|
|
|||||||||||
Pro forma earnings per share: |
||||||||||||||||
Basic and diluted |
(i | ) | $ | 1.69 | ||||||||||||
|
|
|||||||||||||||
Pro forma shares outstanding: |
||||||||||||||||
Basic and diluted |
(i | ) | 99 | |||||||||||||
|
|
(1) | For details of the adjustments referenced, see Note 3: Pro Forma Adjustments . |
See notes to unaudited pro forma consolidated financial statements.
75
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.
In connection with the spin-off, among other things, we intend to consummate the financing transactions as described in more detail in Note 2: The Spin-Off Transactions , below.
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: The Spin-Off 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: The Spin-Off Transactions
The Spin-Off
Prior to the spin-off, Hilton will undergo an internal reorganization including the transfer to us of certain assets and related deferred tax liabilities for future conversion to vacation ownership units:
| Hilton New York $11 million assets and $3 million deferred tax liabilities; |
| Hilton Waikoloa Village $178 million of assets and $49 million deferred tax liabilities; and |
| Land parcel $54 million land parcel adjacent to Hilton Waikoloa Village and $16 million deferred tax liabilities. |
The Hilton New York and Hilton Waikoloa Village assets will be subject to an arrangement with Park Hotels & Resorts whereby Park Hotels & Resorts will retain the right to occupy and operate the assets as a hotel until the conversion to vacation ownership units.
Upon completion of the spin-off, we will 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 owned and fee-for-service timeshare interval sales, as well as five percent of certain other revenues earned in association with operating our business using certain Hilton trademarks licensed from Hilton under 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-Off-License Agreement for additional discussion of the license agreement).
76
Financing Transactions
In connection with the spin-off, we expect to complete certain 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 recourse indebtedness of approximately $500 million, excluding $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 non-recourse Timeshare Facility balance is an intended borrowing of an additional $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 $1.22 billion of total recourse and non-recourse indebtedness outstanding.
Note 3: Pro Forma Adjustments
(a) | After the spin-off, we will no longer be party to Hiltons cash management program, discussed further in Note 16: Related Party Transactions to the consolidated financial statements included elsewhere in this information statement. The available cash amount upon consummation of the financing transactions will depend on the timing of the closings of the various financing transactions and our cash generation between September 30, 2016 and the closing dates of such financing transactions. We expect to enter into one or more transactions with Parent prior to the consummation of the spin-off such that we will have aggregate cash and restricted cash balances within the range of $125 million to $150 million as of the distribution date. The $138 million pro forma cash and restricted cash aggregate balance reflects the mid-point estimate that we expect to have at the distribution date. To the extent that our aggregate cash and restricted cash balances, immediately prior to the distribution, exceed $125 million to $150 million, we expect to effect distributions or other transactions that would result in a net transfer from us to Parent of such excess amount. To the extent that our aggregate cash and restricted cash balances immediately prior to the distribution are less than $125 million to $150 million, we expect that Parent would make an equity contribution to us in the amount of such shortfall. |
(b) | Reflects the net book value of the land parcel adjacent to Hilton Waikoloa Village to be transferred to us from an entity under common control as part of Hilton Parents internal reorganization prior to the spin. See Note 2: The Spin-Off Transactions for additional discussion. |
(c) | Reflects the net book value and related depreciation expense of certain assets at the Hilton New York and the Hilton Waikoloa Village to be transferred to us from an entity under common control as part of Hilton Parents internal reorganization prior to the spin. The land has a net book value of $64 million. The depreciable assets have a net book value of $125 million and a weighted average remaining useful life of 29 years. See Note 2: The Spin-Off Transactions for additional discussion. |
(d) | Reflects the adjustment to our historical debt and related balances and interest expense to give net effect to the following financing transactions as discussed in Note 2: The Spin-Off Transactions above: |
($ in millions) | Historical |
Pro Forma
Adjustments |
Pro Forma (1) | |||||||||
Senior Secured Credit Facility |
$ | | $ | 197 | $ | 197 | ||||||
Senior Notes due 2024 (2) |
| 295 | 295 | |||||||||
Allocated Parent debt |
743 | (743 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Total Recourse debt |
743 | (251 | ) | 492 | ||||||||
|
|
|
|
|
|
|||||||
Timeshare Facility |
$ | 150 | $ | 300 | $ | 450 | ||||||
Securitized debt |
270 | | 270 | |||||||||
|
|
|
|
|
|
|||||||
Total Non-recourse debt |
420 | 300 | 720 | |||||||||
|
|
|
|
|
|
|||||||
Total Debt |
1,163 | 49 | 1,212 | |||||||||
|
|
|
|
|
|
(1) | Net of expected deferred financing costs. |
(2) |
On October 24, 2016 we issued $300 million aggregate principal amount of Senior Notes due 2024, which were acquired by Park Hotels & Resorts as part of the internal reorganization. Pursuant to a cashless debt |
77
exchange, Park Hotels & Resorts intends to exchange such senior notes with certain holders of indebtedness under their $450 million mortgage loan secured by their Bonnet Creek Resort to acquire and cancel a like amount of indebtedness. |
Pro forma interest expense reflects an assumed weighted average annual interest rate of 4.97% on the Senior Notes due 2024 and the Senior Secured Credit Facility. Additionally, pro forma interest expense includes amortization expense on debt issuance costs incurred in connection with these financing transactions as well as approximately $1 million in fees related to an undrawn line of credit. 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 less than $1 million.
(e) | Reflects the adjustment to our historical, non-recourse debt interest expense expected to be outstanding under the non-recourse Timeshare Facility with an assumed annual interest rate of 1.73%. |
(f) | 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 38.3%. |
(g) | Reflects Hilton Grand Vacations Inc.s issuance of one share of its common stock, par value $0.01 per share, to Park Hotels & Resorts Inc. in exchange for all of Hilton Resorts Corporations shares of common stock owned by Park Hotels & Resorts and the pro forma recapitalization of our equity, including a net-impact pro forma increase of $167 million. As of the distribution date, Parent equity will be re-designated as our Stockholders equity and will be allocated between Common stock and Stockholders equity based on the number of shares of our common stock outstanding at the distribution date. |
(h) | Reflects the removal of non-recurring, spin-off related transaction costs of $18 million and less than $1 million for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively. |
(i) | Reflects the number of shares of our common stock used to compute the pro forma basic and diluted earnings per share for the nine months ended September 30, 2016 and year ended December 31, 2015, respectively, assuming a distribution ratio of one share of our common stock for every ten shares 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. |
78
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 September 30, 2016, we had 46 resorts, representing 7,592 units, and approximately 265,000 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 4,700 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.
79
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:
Nine Months Ended September 30, | Year Ended December 31, | |||||||||||||||||||
2016 | 2015 | 2015 | 2014 | 2013 | ||||||||||||||||
Weighted average FICO score |
736 | 736 | 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, special purpose entities are established to issue various classes of debt securities which are generally collateralized by a single pool of assets, consisting 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
80
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 |
81
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. See Unaudited Pro Forma Consolidated Financial Statements and the accompanying notes for discussion of the incremental expense related to financing expenses we expect to incur upon completion of the spin-off. |
| 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. |
82
| 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 |
83
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.
84
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
Nine Months Ended September 30, 2016 Compared with the Nine Months Ended September 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:
Nine Months Ended September 30, | 2016 vs 2015 Variance | |||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Revenues: |
||||||||||||||||
Real estate sales and financing |
$ | 843 | $ | 803 | $ | 40 | 5.0 | % | ||||||||
Resort operations and club management |
251 | 225 | 26 | 11.6 | ||||||||||||
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|
|
|||||||||||
Segment revenues |
1,094 | 1,028 | 66 | 6.4 | ||||||||||||
Cost reimbursements |
94 | 82 | 12 | 14.6 | ||||||||||||
Intersegment eliminations (1) |
(20 | ) | (16 | ) | (4 | ) | 25.0 | |||||||||
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|
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Total revenues |
$ | 1,168 | $ | 1,094 | $ | 74 | 6.8 | |||||||||
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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. |
85
Nine Months Ended September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Adjusted EBITDA: |
||||||||||||||||
Real estate sales and financing (2) |
$ | 259 | $ | 236 | $ | 23 | 9.7 | % | ||||||||
Resort operations and club management (2) |
139 | 119 | 20 | 16.8 | ||||||||||||
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|
|
|||||||||||
Segment Adjusted EBITDA |
398 | 355 | 43 | 12.1 | ||||||||||||
Less: |
||||||||||||||||
General and administrative (3) |
36 | 30 | 6 | 20.0 | ||||||||||||
License fee expense |
61 | 55 | 6 | 10.9 | ||||||||||||
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|
|
|
|
|||||||||||
Adjusted EBITDA |
301 | 270 | 31 | 11.5 | ||||||||||||
Other loss, net |
(1 | ) | | (1 | ) | NM | (1) | |||||||||
Gain on foreign currency transactions |
2 | | 2 | NM | (1) | |||||||||||
Share-based compensation expense |
(7 | ) | (11 | ) | 4 | (36.4 | ) | |||||||||
Other adjustment items (4) |
(21 | ) | (2 | ) | (19 | ) | NM | (1) | ||||||||
|
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|
|
|
|
|||||||||||
EBITDA |
274 | 257 | 17 | 6.6 | ||||||||||||
Non-recourse debt interest expense |
(9 | ) | (10 | ) | 1 | (10.0 | ) | |||||||||
Allocated Parent interest expense |
(20 | ) | (22 | ) | 2 | (9.1 | ) | |||||||||
Income tax expense |
(98 | ) | (84 | ) | (14 | ) | 16.7 | |||||||||
Depreciation and amortization |
(17 | ) | (16 | ) | (1 | ) | 6.3 | |||||||||
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|
|||||||||||
Net income |
$ | 130 | $ | 125 | $ | 5 | 4.0 | |||||||||
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|
|
(1) | Fluctuation in terms of percentage change is not meaningful. |
(2) | Includes intersegment eliminations and other adjustments. |
(3) | Excludes share-based compensation and other adjustment items. |
(4) | For the nine months ended September 30, 2016, amounts include $18 million of costs associated with the spin-off transaction. |
Real Estate Sales and Financing
Real estate sales and financing segment revenues increased for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 primarily as a result of a $26 million increase in sales revenue due to an increase in commissions and brand fees. Additionally, marketing revenues and financing revenues increased $8 million and $5 million, respectively. Real estate sales and financing segment Adjusted EBITDA increased primarily as a result of the increase in revenues associated with Real estate sales and financing segment and a $34 million decrease in cost of VOI sales, partially offset by a $48 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 nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 primarily as a result of a $10 million increase in Club management revenue, a $3 million increase in resort management revenue and an $10 million increase in rental and ancillary services revenues, partially offset by a $5 million increase in overall expenses for the segment.
Refer to Club and Resort Management and Rental and Ancillary Services for further discussion on the revenues and expenses of the resort operations and club management segment.
86
Real Estate
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions, except VPG) | 2016 | 2015 | $ | % | ||||||||||||
Contract sales |
$ | 863 | $ | 794 | $ | 69 | 8.7 | % | ||||||||
Less adjustments: |
||||||||||||||||
Fee-for-service sales (1) |
514 | 472 | 42 | 8.9 | ||||||||||||
Loan loss provision |
37 | 29 | 8 | 27.6 | ||||||||||||
Reportability and other (2) |
(47 | ) | (62 | ) | 15 | (24.2 | ) | |||||||||
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|
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Sales of VOIs, net |
$ | 359 | $ | 355 | 4 | 1.1 | ||||||||||
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|
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Tour flow |
228,911 | 214,722 | 14,189 | 6.6 | ||||||||||||
VPG |
$ | 3,558 | $ | 3,495 | $ | 63 | 1.8 |
(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 nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily as a result of an increase in tour flow, telesales and VPG. VPG increased due to a 0.46 percentage point increase in close rate in 2016 compared to the prior year, partially offset by a 1.2 percent decrease in average transaction price primarily due to greater sales volume during the prior year in a high priced fee-for-service project that launched in December 2014.
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Sales of VOIs, net |
$ | 359 | $ | 355 | $ | 4 | 1.1 | % | ||||||||
Sales, marketing, brand and other fees |
382 | 352 | 30 | 8.5 | ||||||||||||
Less: |
||||||||||||||||
Marketing revenue and other fees |
87 | 79 | 8 | 10.1 | ||||||||||||
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|
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Sales revenue |
654 | 628 | 26 | 4.1 | ||||||||||||
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|
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Less: |
||||||||||||||||
Cost of VOI sales |
110 | 144 | (34 | ) | (23.6 | ) | ||||||||||
Sales and marketing expense, net (1) |
356 | 321 | 35 | 10.9 | ||||||||||||
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Real estate margin |
$ | 188 | $ | 163 | 25 | 15.3 | ||||||||||
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|
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Real estate margin percentage |
28.7 | % | 26.0 | % |
(1) | Includes revenue recognized through our marketing programs for existing owners and prospective first-time buyers. |
Sales revenue increased for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily as a result of a $22 million increase in commissions and brand fees due to the launch of two new fee-for-service products, one in late 2015 and one in early 2016, that resulted in higher sales volume during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.
Real estate margin and real estate margin percentage increased for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 as result of increased sales revenue and decreased cost of VOI sales, due to a decline in existing owners upgrading into fee-for-service projects, partially offset by higher sales and marketing expense based on increased contract sales volume.
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Financing
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Interest income |
$ | 91 | $ | 87 | $ | 4 | 4.6 | % | ||||||||
Other financing revenue |
9 | 8 | 1 | 12.5 | ||||||||||||
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Financing revenue |
100 | 95 | 5 | 5.3 | ||||||||||||
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Non-recourse debt interest expense |
9 | 10 | (1 | ) | (10.0 | ) | ||||||||||
Other financing expense |
|
15
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|
14 |
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|
1 |
|
|
7.1
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Financing expense |
|
24
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24
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Financing margin |
$ |
76 |
|
$ |
71 |
|
$ |
5 |
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|
7.0
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Financing margin percentage |
76.0 | % | 74.7 | % |
Financing revenue and margin increased for the nine months ended September 30, 2016 compared to nine months ended September 30, 2015, primarily due to an increase in the loan portfolio, a stable interest rate environment and no additional securitizations for the nine months ended September 30, 2016.
Club and Resort Management
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Club management revenue |
$ | 60 | $ | 50 | $ | 10 | 20.0 | % | ||||||||
Resort management revenue |
38 | 35 | 3 | 8.6 | ||||||||||||
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Club and resort management revenues |
98 | 85 | 13 | 15.3 | ||||||||||||
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|||||||||||
Club management expense |
15 | 14 | 1 | 7.1 | ||||||||||||
Resort management expense |
10 | 9 | 1 | 11.1 | ||||||||||||
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Club and resort management expenses |
25 | 23 | 2 | 8.7 | ||||||||||||
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Club and resort management margin |
$ | 73 | $ | 62 | $ | 11 | 17.7 | |||||||||
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|
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Club and resort management margin percentage |
74.5 | % | 72.9 | % |
Club and resort management revenues increased for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, 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 7.2 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.
88
Rental and Ancillary Services
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Rental revenues |
$ | 116 | $ | 107 | $ | 9 | 8.4 | % | ||||||||
Ancillary services revenues |
19 | 18 | 1 | 5.6 | ||||||||||||
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|
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Rental and ancillary services revenues |
135 | 125 | 10 | 8.0 | ||||||||||||
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|
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Rental expenses |
67 | 66 | 1 | 1.5 | ||||||||||||
Ancillary services expense |
19 | 17 | 2 | 11.8 | ||||||||||||
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|
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Rental and ancillary services expenses |
86 | 83 | 3 | 3.6 | ||||||||||||
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Rental and ancillary services margin |
$ | 49 | $ | 42 | $ | 7 | 16.7 | |||||||||
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|
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Rental and ancillary services margin percentage |
36.3 | % | 33.6 | % |
Rental and ancillary services revenues increased for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, primarily as a result of an increase in revenues received on transient room rentals and recovery from the settlement of an insurance claim of $2 million. Additionally, ancillary services revenues increased due to higher food and beverage sales to our resort guests. Rental and ancillary services margin increased primarily as a result of the increase in rental and ancillary services revenues.
Other Operating Expenses
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Unallocated general and administrative |
$ | 44 | $ | 30 | $ | 14 | 46.7 | % | ||||||||
Allocated general and administrative |
17 | 11 | 6 | 54.5 | ||||||||||||
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General and administrative |
$ | 61 | $ | 41 | $ | 20 | 48.8 | |||||||||
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The increase in general and administrative expenses for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was primarily as a result of $15 million incremental expenses related to the spin-off transaction.
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Depreciation and amortization |
$ | 17 | $ | 16 | $ | 1 | 6.3 | % | ||||||||
License fee expense |
61 | 55 | 6 | 10.9 |
The increase in license fee expense was as a result of the increase in revenues.
Non-Operating Expenses
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Allocated Parent interest expense |
$ | 20 | $ | 22 | $ | (2 | ) | (9.1 | )% | |||||||
Income tax expense |
98 | 84 | 14 | 16.7 |
89
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. Allocated Parent interest expense for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 decreased as a result of prepayments of certain allocated Parent debt, partially offset by an increase in interest expense related to Hiltons new debt issuances in August 2016.
The increase in income tax expense was primarily as a result of improvements in our operations resulting in an increase in income before taxes. Further, income tax expense increased as a result of a higher annual effective tax rate expected to be applied for the full year. Our annual effective tax rate was higher primarily because no tax benefit was recognized for certain transaction costs relating to the spin-off transaction that are not tax deductible.
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 |
||||||||||||||||||||||||||
($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Revenues: |
||||||||||||||||||||||||||||
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. |
90
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
||||||||||||||||||||||||||
($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Adjusted EBITDA: |
||||||||||||||||||||||||||||
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: |
||||||||||||||||||||||||||||
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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|
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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.
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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.
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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 | $ | % | $ | % | |||||||||||||||||||||
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 $4 million in fees generated from servicing the loans provided by third-party developers to
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purchasers of their VOIs, consistent with the increase in fee-for-service sales. Additionally, interest income increased resulting from a higher outstanding timeshare financing receivables balance. For the year ended December 31, 2014, financing revenue increased compared to 2013 primarily as a result of an increase in interest income from a higher outstanding timeshare financing receivables balance in 2014 than 2013.
Financing margin increased for the year ended December 31, 2015 compared to 2014 primarily as a result of the increase in revenue and no additional securitization transactions occurring in 2015. For the year ended December 31, 2014, financing margin decreased compared to 2013 primarily as a result of the increase in consumer financing interest expense due to a full year of interest expense recognized in 2014 from the Timeshare Facility and the Securitized Debt issued in 2013, as they were entered into in May 2013 and August 2013, respectively, as well as interest expense from the securitization transaction that occurred in June 2014.
Club and Resort Management
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ 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 | % |
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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 September 30, 2016, we had total cash of $97 million, including $90 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 and Unaudited Pro Forma Consolidated Financial Statements.
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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:
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Net cash provided by (used in): |
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Operating activities |
$ | 116 | $ | 82 | $ | 34 | 41.5 | % | ||||||||
Investing activities |
(21 | ) | (13 | ) | (8 | ) | 61.5 | |||||||||
Financing activities |
(92 | ) | (69 | ) | (23 | ) | 33.3 |
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
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($ in millions) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Net cash provided by (used in): |
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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 on developed inventory to the comparable cost of VOI sales on developed inventory. 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 the nine months ended September 30, 2016 and 2015, and for each of the years ended December 31, 2015, 2014 and 2013. The following is a summary of our VOI inventory spending less cost of VOI sales:
Nine Months Ended
September 30, |
Year Ended December 31, | |||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
VOI inventory spending (1) |
$ | (62 | ) | $ | (70 | ) | $ | (93 | ) | $ | (98 | ) | $ | (100 | ) | |||||
Cost of VOI sales (1) |
77 | 94 | 114 | 119 | 122 | |||||||||||||||
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VOI inventory spending less cost of VOI sales |
$ | 15 | $ | 24 | $ | 21 | $ | 21 | $ | 22 | ||||||||||
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(1) | Excludes the following: (1) VOI inventory spending and associated cost of VOI sales related to the cost of reacquiring inventory that we have developed from existing owners upgrading into fee-for-service projects; (2) non-cash asset transfers from Hilton; and (3) non-cash inventory accruals. |
The $34 million increase in net cash provided by operating activities during the nine months ended September 30, 2016 compared to the nine months ended September 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 $23 million increase in net issuances timeshare financing receivables.
Investing Activities
Our net cash used in investing activities was as follows:
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
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($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Capital expenditures for property and equipment |
$ | (16 | ) | $ | (10 | ) | $ | (6 | ) | 60.0 | % | |||||
Software capitalization costs |
(5 | ) | (3 | ) | (2 | ) | 66.7 | |||||||||
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Net cash used in investing activities |
$ | (21 | ) | $ | (13 | ) | $ | (8 | ) | 61.5 | ||||||
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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 change is 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:
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ in millions) | 2016 | 2015 | $ | % | ||||||||||||
Repayment of non-recourse debt |
$ | (85 | ) | $ | (97 | ) | $ | 12 | (12.4 | )% | ||||||
Change in restricted cash |
2 | 6 | (4 | ) | (66.7 | ) | ||||||||||
Allocated Parent debt activity |
|
111
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|
|
(76
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)
|
187 | NM | (1) | |||||||
Debt issuance costs |
(6 | ) | | (6 | ) | NM | (1) | |||||||||
Net transfers from (to) Parent |
|
(114
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)
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98 |
|
(212
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)
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NM | (1) | |||||||
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Net cash used in financing activities |
$ | (92 | ) | $ | (69 | ) | $ | (23 | ) | 33.3 | ||||||
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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 $23 million increase in net cash used in financing activities for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 was primarily attributable to higher net transfers to Parent, partially offset by an increase in allocated Parent debt issuance activity.
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 September 30, 2016 and December 31, 2015, our total indebtedness, net of deferred financing costs, was approximately $1,160 million and $1,136 million, respectively, including $417 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 |
|||||||||||||||
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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|
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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 September 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 |
||||||||||||||||
($ in millions) | ||||||||||||||||||||
Debt (1) |
$ | 684 | $ | 36 | $ | 70 | $ | 219 | $ | 359 | ||||||||||
Non-recourse debt |
852 | 130 | 581 | 75 | 66 | |||||||||||||||
Operating leases |
34 | 11 | 11 | 8 | 4 | |||||||||||||||
Purchase commitments |
206 | 16 | 8 | 182 | | |||||||||||||||
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Total contractual obligations |
$ | 1,776 | $ | 193 | $ | 670 | $ | 484 | $ | 429 | ||||||||||
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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 |
|||||||||||||||||||||||||||
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 7,592 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 265,000 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 4,700 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
|
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 265,000 members as of September 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 265,000 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 75% of our members were located in the United States, 20% in Japan and 5% in other international locations as of September 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 7,800 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 53,500 as of September 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 4,700 properties in 104 countries and territories as of September 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 29 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 4,700 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 September 30, 2016, our portfolio had a balance of approximately $1,108 million with over 54,000 loans and exhibited the following characteristics:
Weighted Average Original Length of Loan: 9.9 years
Weighted Average Remaining Length of Loan: 7.7 years
Delinquency (over 30 days past due not in default): 1.78%
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 265,000 members as of September 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 September 30, 2016, we had 46 resorts, representing 7,592 units. We owned 33% of all unsold units, representing 1,063 of the 3,190 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 September 30, 2016, our resorts included the following locations and units:
Property Name |
Ownership (1) | Location | Units | |||||||||
Hilton Grand Vacations (U.S.) |
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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 | 180 | |||||||||
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.) |
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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 subject to Hiltons consent in certain circumstances. 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 and logos 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.
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 | ||||
Brenda J. Bacon |
66 |
Director |
||||
Kenneth A. Caplan |
43 |
Director |
||||
David W. Johnson |
55 |
Director |
||||
Mark H. Lazarus |
53 |
Director |
||||
Pamela H. Patsley |
59 |
Director |
||||
Leonard A. Potter |
55 |
Chairman of the Board |
||||
Paul W. Whetsell |
66 |
Director |
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.
Mr. Wangs knowledge of and extensive experience in various senior leadership roles in the timeshare industry will provide our board of directors valuable industry-specific knowledge and expertise. In addition, Mr. Wangs current role as our President and Chief Executive Officer will bring management perspective to board deliberations and provide valuable information about the status of our day-to-day operations.
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.
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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 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
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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.
Brenda J. Bacon will be a Director of HGV. Ms. Bacon has served as the President and Chief Executive Officer of Brandywine Senior Living, Inc., the predecessor of which she co-founded in 1996. Ms. Bacon has held various other positions with Brandywine Senior Living, including President and Chief Operating Officer. Ms. Bacon served as Chief of Management and Planning, a cabinet-level position, under former New Jersey Governor James J. Florio from 1989 to 1993 and, in 1992-1993, Ms. Bacon was on loan to the Presidential Transition Team, as Co-Chair for the transition of the U.S. Department of Health and Human Services, under the administration of President William Jefferson Clinton. Ms. Bacon currently serves on the board of directors of FTI Consulting, Inc. (NYSE: FCN). Ms. Bacon is also Chairman of the Board of Directors of Argentum (formerly the Assisted Living Federation of America). Ms. Bacon received her Bachelors degree from Hampton University and her Master of Business Administration degree from the Wharton School of the University of Pennsylvania.
Ms. Bacons organizational and management skills gained through her experience, including co-founding Brandwine Senior Living, will bring a distinctive approach to the board of directors.
Kenneth A. Caplan will be a Director of HGV. Mr. Caplan joined The Blackstone Group in 1997 and is a Senior Managing Director and Global Chief Investment Officer of Blackstones Real Estate Group. Previously, Mr. Caplan served as the Head of Real Estate Europe at Blackstone. Before joining Blackstone, Mr. Caplan worked for Lazard Frères & Co. Mr. Caplan currently serves on the Board of Trustees of Prep for Prep. Mr. Caplan received his A.B. degree from Harvard College.
Mr. Caplans experience as the Global Chief Investment Officer of Blackstones Real Estate Group provides the board of directors with insights into the real estate industry. Further, Mr. Caplans specific experience in Europe provides the board of directors with additional global experience and perspective.
David W. Johnson will be a Director of HGV. Mr. Johnson has served as President and Chief Executive Officer of Aimbridge Hospitality since April 2003. Prior to joining Aimbridge, Mr. Johnson held senior management positions at Wyndham International, including as President of Wyndham Hotels. Mr. Johnson previously served on the boards of Strategic Hotels & Resorts, Inc. until September 2015 and Gaylord Entertainment Company until October 2012. Mr. Johnson received his Bachelors degree from Northeastern Illinois University.
Mr. Johnsons extensive experience as President and Chief Executive Officer of one of the premier hotel management companies in the United States, as well as his marketing background, will provide our board of directors with valuable insights.
Mark H. Lazarus will be a Director of HGV. Mr. Lazarus has served as Chairman of NBC Broadcasting & Sports since September, 2016. Prior to being named Chairman of NBC Broadcasting & Sports, Chairman, Mr. Lazarus served as Chairman of NBC Universal Sports Group, from May 2011 to September 2016, and prior to that as President of NBC Sports Cable Group. Previously, Mr. Lazarus was the President, of CSE, a sports and entertainment company from 2008 through 2010; and the president of Turner Entertainment Group from 2003 through 2008. Prior to 2003, Mr. Lazarus served in a variety of other roles for Turner Broadcasting and also worked for Backer, Spielvogel, Bates, Inc. and NBC Cable. Mr. Lazarus served on the board of directors of Cincinnati Bell (NYSE: CBB) from 2009 through 2011. Mr. Lazarus currently serves on the board of directors of Compass Diversified Holdings (NYSE: CODI), the Board of Governors of the Boys and Girls Clubs of America,
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and the Board of Directors of the Eastlake Foundation. Mr. Lazarus received his Bachelor of Arts from Vanderbilt University.
Mr. Lazarus extensive experience in the media industry provides our board of directors with an important perspective in the areas of marketing and use of media. In addition, Mr. Lazarus management and leadership experience provides our board of directors with guidance on the skills necessary to lead and properly manage our business.
Pamela H. Patsley will be a Director of HGV. Ms. Patsley has served as Executive Chairman of MoneyGram International, Inc. (NYSE: MGI) since January 2009 and served as Chief Executive Officer from September 2009 to December 2015. Previously, Ms. Patsley served as Senior Executive Vice President of First Data Corporation from 2000 to 2007 and President of First Data International from 2002 to 2007. Ms. Patsley retired from those positions in 2007. From 1991 to 2000, Ms. Patsley served as President and Chief Executive Officer of Paymentech, Inc., prior to its acquisition by First Data. Ms. Patsley also previously served as Chief Financial Officer of First USA, Inc. Ms. Patsley currently serves on the boards of directors of Texas Instruments, Inc. (NASDAQ: TXN), Dr Pepper Snapple Group, Inc. (NYSE: DPS) and Tolleson Wealth Management Inc. and served on the boards of directors of Molson Coors Brewing Company from 1996 to 2009, Pegasus Solutions, Inc. from 2002 to 2006 and Paymentech, Inc. from 1995 to 1999. Ms. Patsley received her Bachelor of Business Administration degree from the University of Missouri.
Ms. Patsley brings to our board of directors her extensive leadership experience as a chairman and chief executive officer, chief financial officer and other executive level positions in public companies, financial acumen and risk management experience developed through her experience in public accounting and her chief executive officer and chief financial officer experience, and extensive public company board experience.
Leonard A. Potter will be the Chairman of the board of directors of HGV. Mr. Potter founded and has served as the President and Chief Investment Officer of Wildcat Capital Management, LLC, a registered investment advisor, since its inception in September 2011. In addition, Mr. Potter has served as the Chief Executive Officer of Infinity Q Capital Management, also a registered investment advisor, since its inception in early 2014. From 2002 through 2009, Mr. Potter was a Managing Director Private Equity at Soros Fund Management LLC (SFM) where, from May 2005 through July 2009, Mr. Potter served as co-head of the Private Equity group and a member of the Private Equity Investment Committee. From 2009 until joining Wildcat, Mr. Potter served as a consultant to SFM and as the Chief Investment Officer of Salt Creek Hospitality, a private acquirer and owner of hospitality related assets that was backed by SFM. From September 1998 until joining SFM, Mr. Potter was a Managing Director of Alpine Consolidated LLC, a private merchant bank, and from April 1996 through September 1998, Mr. Potter founded and served as a Managing Director of Capstone Partners LLC, a private merchant bank. Prior to founding Capstone Partners, Mr. Potter was an attorney specializing in mergers, acquisitions and corporate finance at Morgan, Lewis & Bockius and Willkie Farr & Gallagher. Mr. Potter has served and continues to serve as a director on a number of boards of public and private companies, including Solar Capital Ltd. (NASDAQ: SLRC), Solar Senior Capital Ltd. (NASDAQ: SUNS) and GSV Capital Corporation (NASDAQ: GSVC), and as a member of the Investment Committee of the Board of Trustees of Brandeis University. Mr. Potter received a Bachelor of Arts degree from Brandeis University and a Juris Doctor degree from Fordham University School of Law.
Mr. Potters experience practicing as a corporate lawyer will provide valuable insight to the board of directors on regulatory and risk management issues. In addition, his tenure in private equity and other investments and service as a director of both public and private companies will provide industry-specific knowledge and expertise to our board of directors.
Paul W. Whetsell will be a director of HGV. Mr. Whetsell has served as the Vice Chairman of Loews Hotels Holding Corporation since March 2015, and, prior to his current position with Loews, he had served as its President and Chief Executive Officer since January 2012. Since 2006, Mr. Whetsell has served as the President and Chief Executive Officer of Capstar Hotel Company. From August 1998 until May 2006, Mr. Whetsell served
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as the Chairman and Chief Executive Officer of Meristar Hospitality Corporation, and as the Chairman of Interstate Hotels and Resorts, Inc. (Interstate) from August 1998 until March 2009. From August 1998 until October 2003, he also served as the Chief Executive Officer of Interstate and its predecessor. He also serves on the board of NVR, Inc. (NYSE: NVR) and Boyd Gaming Corporation (NYSE: BYD). Mr. Whetsell currently serves as the Vice Chairman of the Board of Trustees of the Cystic Fibrosis Foundation. Mr. Whetsell was a member of the American Hotel & Lodging Associations Industry Real Estate and Financing Advisory Council, and previously served on the Board of Governors of the National Association of Real Estate Investment Trusts (NAREIT). Mr. Whetsell received his Bachelors degree from Davidson College.
Mr. Whetsell brings to our board of directors his senior leadership experience from being a chief executive officer of a publicly-traded company, his public board service experience, his operational expertise, his real estate experience and his brand marketing expertise.
There are no family relationships among any of our directors or executive officers.
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.
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.
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Audit Committee
Upon completion of the spin-off we expect our audit committee will consist of Brenda J. Bacon, David W. Johnson and Pamela H. Patsley, with Pamela H. Patsley 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 Brenda J. Bacon, David W. Johnson and Pamela H. Patsley 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 Brenda J. Bacon, David W. Johnson and Pamela H. Patsley are financially literate within the meaning of the rules and regulations of the NYSE and that Pamela H. Patsley qualifies as an audit committee financial expert as defined under applicable SEC rules and regulations.
Compensation Committee
Upon completion of the spin-off we expect our compensation committee will consist of David W. Johnson, Mark H. Lazarus and Paul W. Whetsell, with Paul W. Whetsell 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 David W. Johnson, Mark H. Lazarus and Paul W. Whetsell 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 Brenda J. Bacon, Leonard A. Potter and Paul W. Whetsell, with Leonard A. Potter 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 Brenda J. Bacon, Leonard A. Potter and Paul W. Whetsell 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 . Following the spin-off, 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 on our board of directors or committees thereof will receive separate compensation for such service. However, each eligible non-employee director will be entitled to receive annual compensation as follows:
| cash retainer of $75,000 ($120,000 in the case of the chairperson of the board), payable semi-annually; |
| additional cash retainer (payable semi-annually) for serving on committees or as the chairperson of a committee as follows: |
¡ | $10,000 for serving as a member (other than the chairperson) of the audit committee, the compensation committee, and/or the nominating and corporate governance committee; |
¡ | $25,000 for the chairperson of the audit committee; and |
¡ | $10,000 for the chairperson of each of the compensation committee and the nominating and corporate governance committee; and |
| equity award of $125,000 in the form of restricted stock units, which generally vests over three years in equal annual installments from the grant date. |
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All of our directors will be reimbursed for reasonable travel and related expenses associated with attendance at our board or committee meetings. In addition, our independent directors will be reimbursed for reasonable personal lodging costs when they stay at our resorts.
Stock Ownership Policy
We intend to adopt a stock ownership policy effective upon the completion of the spin-off. Each of our non-employee directors will be required to own stock in an amount equal to five times his or her annual cash retainer, provided that a non-employee director who is employed by a stockholder that meets the ownership requirements for a non-employee director shall be exempt from such requirement. For purposes of this requirement, a directors holdings include shares held directly or indirectly, individually or jointly, shares underlying vested options and shares held under a deferral or similar plan. Non-employee directors are expected to meet this ownership requirement within five years of the later of (a) the date on which we make our first broad-based equity incentive grants following the spin-off or (b) the date he or she first becomes subject to this stock ownership policy.
Hilton Grand Vacations Inc. 2017 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 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 10,000,000 (of which 10,000,000 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 5,000,000; |
| With respect to share-based performance compensation awards granted to an individual in a single fiscal year, the maximum number of shares is 5,000,000 (and, if the award is settled in cash, the maximum amount may not exceed the fair market value of 5,000,000 shares on the last day of the performance period); and |
| With respect to cash-based performance compensation awards granted to an individual in a fiscal year, the maximum amount is $15,000,000. |
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.
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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.
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. |
155
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.
Hilton Grand Vacations Inc. 2017 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 325,000, 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.
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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).
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.
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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 expect one of our subsidiaries to adopt a new deferred compensation plan. Pursuant to our Executive Deferred Compensation Plan (EDCP), specified eligible employees, including our NEOs, may defer 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 the Shared Contingent Liabilities will be apportioned among the parties according to fixed percentages set forth in the Distribution Agreement. Each companys respective percentage liability for Shared Contingent Liabilities will be determined on or prior to the date on which the Distribution Agreement is entered. The percentage of Shared Contingent Liabilities for which we are responsible will be fixed in a manner that is intended to approximate our estimated enterprise value on the distribution date relative to the estimated enterprise values of Park Hotels & Resorts and Hilton. Examples of Shared Contingent Liabilities may include uninsured losses arising from actions (including derivative actions) against current or former directors or officers of Hilton or its subsidiaries in respect of acts or omissions occurring prior to the distribution date, or against current or former directors or officers of any of Hilton, Park Hotels & Resorts or us, or any of their respective subsidiaries, arising out of, in connection with, or otherwise relating to, the spin-offs and the distribution, subject to certain exceptions described in the Distribution Agreement. In addition, costs and expenses of, and indemnification obligations to, third party professional advisors arising out of the foregoing actions may also be subject to these provisions. No contingent liability that is or may reasonably be expected to become material to Hilton Grand Vacations is anticipated to become subject to these provisions. 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. Shared Contingent Liabilities generally are not specifically attributable to any of the Timeshare business, the Separated Real Estate business or the retained business of Hilton.
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.
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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 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.
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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 benefit 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 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 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 (or with respect to such partys stock). The parties are expected to share responsibility, in accordance with their enterprise values at the time of the spin-off, 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. |
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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.
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 and other 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 Agreements
HNA Stockholders Agreement
In connection with the Sale, HGV Parent entered into a stockholders agreement with HNA (and with HNA Group Co., Ltd. for purposes of the standstill provision only) that will become effective upon the closing of the Sale; provided that if the distribution date has not occurred prior to the closing of the Sale, the HNA stockholders agreement will become effective upon the distribution date.
Directors. Under the HNA stockholders agreement, for so long as HNA beneficially owns at least 15% of our outstanding common stock, it will have the right to designate two directors to our board of directors, only one of which may be affiliated with HNA (but not its hospitality business) and the other of which must meet the independence standards of the NYSE with respect to our company and not have been, for two years, an employee, director or officer of, or consultant to, HNA or any of its affiliates. Each of HNAs director designees must be reasonably satisfactory to our nominating and corporate governance committee. In addition, so long as HNA owns at least 20% of our outstanding common stock, HNA will have the right to designate an additional independent director to fill each third additional director seat above 10 directors; for example, if we were to increase the size of our board of directors in the future to 13, HNA would have the right to designate an independent director as the 13th member of the board of directors. HNAs right to designate directors declines to one director when HNAs ownership falls below 15% of our outstanding common stock and such right terminates when HNAs ownership falls below 5% of our outstanding common stock, subject to certain exceptions. Each independent designee will be entitled to serve on at least one standing committee of the board of directors, as determined by the nominating and corporate governance committee.
Voting Requirements. The HNA stockholders agreement generally requires HNA to vote all of its shares in excess of 15% of our total outstanding shares in the same proportion as the shares owned by other stockholders are voted on all matters, except as follows: (i) in uncontested elections of directors, HNA is required to vote all of its shares either in favor of the boards nominees or all of its shares in the same proportion as the shares owned by other stockholders are voted; (ii) in contested elections of directors, HNA is required to vote all of its shares in the same proportion as the shares owned by other stockholders are voted; (iii) for two years after the closing of
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the Sale, in third party acquisitions of our company in which both (x) shares of our common stock are exchanged for or are converted into the right to receive (A) solely cash or (B) a mixture of cash and stock of a person other than an HNA entity in which the value of the cash portion of the aggregate consideration is 60% or more of the value of the aggregate consideration and (y) the value of the consideration to be received per share of common stock is less than or equal to a reference price per share of our common stock calculated in accordance with the HNA stockholders agreement, HNA may vote all of its shares as it chooses; (iv) for any acquisition of our company other than an acquisition described in (iii) above or an acquisition by HNA, HNA will vote all of its shares in excess of 15% of our total outstanding shares in proportion to the manner in which non-HNA holders vote their shares; and (v) in the case of any charter or bylaw amendment which adversely affects HNA disproportionally as compared to other stockholders, an issuance of more than 20% of our outstanding shares (other than for an acquisition) at a below-market price, or an acquisition of our company by HNA, HNA may vote all of its shares as it chooses. In a third party tender offer, HNA will be required to tender its shares in excess of 15% of our total outstanding shares in the same proportion as shares held by non-HNA holders are tendered.
Transfer Restrictions and Right of First Refusal. For two years after the closing of the Sale, the HNA stockholders agreement requires HNA to not transfer any shares of the Company unless: such transfer is approved in advance by a majority of the disinterested members of the board of directors or a duly-authorized committee thereof; such transfer is to an HNA affiliate, provided that such HNA affiliate agrees to be bound by the terms of the HNA stockholders agreement; such transfer is in connection with an acquisition approved by the board of directors; such transfer constitutes a tender into a tender or exchange offer commenced by us or any of our affiliates; or such transfer is in connection with a bona fide mortgage, encumbrance or pledge of capital stock to a financial institution in connection with a bona fide loan or debt transaction or enforcement thereunder. After two years, other than in an underwritten public offering, block trade or permitted transfer described above, HNA will not be permitted to transfer more than 4.9% of our total outstanding shares to any person or group, or any shares to certain of our competitors or, to the knowledge of HNA or its broker, a person or group who is a 5% stockholder or who would thereby become a 5% stockholder; in an underwritten public offering or a block trade, other than a permitted transfer described above, HNA will instruct the underwriter or broker not to transfer more than 4.9% of our total outstanding shares to any person or group or any shares to a 5% stockholder (unless the identity of the purchaser is not known to the underwriter or broker); and in a block trade, other than a permitted transfer described above, HNA will instruct its broker not to transfer shares to certain of our competitors (unless the identity of the purchaser is not known to HNA or its broker). In addition, if we propose to issue new equity securities for cash in an offering that is not an underwritten public offering or an offering pursuant to Rule 144A under the Securities Act, HNA will have a right of first refusal over its pro rata portion of such issuance, measured based on HNAs ownership percentage (which shall be capped at 25% for purposes of the right of first refusal) in us at such time.
Standstill. The HNA stockholders agreement requires HNA and its affiliates not to: acquire, offer or agree to acquire, any beneficial interest in us, subject to certain exceptions; make any public announcement or public offer with respect to any merger, business combination or other similar transaction involving us (except when our board of directors recommends or approves such transaction); make or in any way participate in any solicitation of proxies to vote or seek to influence voting of securities in a manner inconsistent with our boards recommendation; seek election or removal of any director other than HNA designees or otherwise act, alone or in concert with others, to control or influence our company; call a meeting of stockholders; participate in a group regarding our equity securities; act, alone or in concert with others, to seek to control or influence our management or policies; knowingly assist or encourage, or enter into any discussions or agreements with any third party, in connection with any of the foregoing; publicly disclose any intention, plan or arrangement inconsistent with the foregoing; provide any financing for a purchase of our equity securities or assets, subject to certain exceptions; or take any actions that HNA knows or would reasonably be expected to know would require us to make a public announcement regarding the possibility of an acquisition. HNA will not be prohibited from: (i) transferring shares of our stock to HNA affiliates; (ii) purchasing shares of our stock pursuant to its right of first refusal over its pro rata portion of newly issued equity securities; (iii) making a non-public, confidential
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acquisition proposal to our board of directors; or (iv) after a public announcement of a definitive agreement for the acquisition of our company by a third party, making a publicly announced alternative acquisition proposal for all of our outstanding shares, which, if a tender or exchange offer, must be on the same terms for all such shares and include a non-waivable condition that a majority of the shares held by non-HNA holders are tendered into such offer. To the extent HNAs ownership percentage falls below 25% of our total outstanding shares (or a lower percentage that results from sales of shares by HNA) as a result of issuances by us, HNA may purchase our shares in the open market so as to maintain its ownership percentage at 25% (or such lower percentage that results from sales of shares by HNA).
Blackstone Stockholders Agreement
We intend to enter into a stockholders agreement with Blackstone that will be substantially the same as Blackstones stockholders agreement currently in effect with Hilton Parent.
Directors. Under the Blackstone stockholders agreement, Blackstone may designate a number of directors equal to: (i) if Blackstone and the other owners of Hilton Parent prior to its December 2013 initial public offering (collectively, pre-IPO owners) beneficially own at least 50% of our outstanding common stock, 50% of the total number of directors comprising our board of directors, rounded down to the nearest whole number; (ii) if the pre-IPO owners beneficially own at least 40% (but less than 50%) of our outstanding common stock, 40% of the total number of directors comprising the board of directors, rounded down to the nearest whole number; (iii) if the pre-IPO owners beneficially own at least 30% (but less than 40%) of our outstanding common stock, 30% of the total number of directors comprising the board of directors, rounded down to the nearest whole number; (iv) if the pre-IPO owners beneficially own at least 20% (but less than 30%) of our outstanding common stock, either (x) 20% of the total number of directors comprising the board of directors, rounded down to the nearest whole number, if the total number of directors is 10 or more or (y) the lowest whole number that is greater than 20% of the total number of directors comprising the board of directors if the total number of directors is less than 10; and (v) if the pre-IPO owners beneficially own at least 5% (but less than 20%) of our outstanding common stock as of the record date for such meeting, the lowest whole number that is greater than 10% of the total number of directors comprising the board of directors. The above-described provisions of the Blackstone stockholders agreement will remain in effect until Blackstone is no longer entitled to nominate a director pursuant to the Blackstone stockholders agreement, unless Blackstone requests that they terminate at an earlier date.
Tax 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 tax stockholders agreement). The tax stockholders agreement will provide for certain covenants that may limit issuances or repurchases of our stock in excess of specified percentages, 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 tax stockholders agreement may limit issuances or repurchases of stock by Hilton Parent in excess of specified percentages.
License Agreement
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.
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In connection with the spin-off, we will enter into a license agreement with Hilton Parent granting us the right to use certain Hilton trademarks and other intellectual property in our business. The license agreement will grant us the exclusive right, for an initial term of 100 years, to use certain Hilton marks and intellectual property in our timeshare business.
Grant of License. Subject to the terms and conditions of the license agreement, Hilton will grant us the right to use the trademarks Hilton Grand Vacations, HGV and Hilton Club (collectively, the Hilton Marks) in connection with the current and future operation of a Hilton-branded vacation ownership business (the Licensed Business). We will also receive a license to or right to use certain other Hilton-owned intellectual property, including promotional content and access to Hiltons reservation system and property management software (collectively with the Hilton Marks, the Hilton IP). We will also have the right to use Hiltons loyalty program data and other customer information (Hilton Data) to promote the Licensed Business and for other internal business purposes, but may not disclose or sell such information to third parties without Hiltons consent.
Exclusivity . Subject to the following two sentences, Hilton will not compete or use the Hilton IP or Hilton Data in the vacation ownership business (or license others to do so) for the first 30 years of the term of the license agreement, and we may extend this exclusivity for additional 10-year terms if we achieve certain revenue targets in the last year of the initial 30-year term or any subsequent renewal term, or make a payment to cover any revenue shortfall, for a maximum of five such payments during any 10-year renewal term. If Hilton merges with or acquires a company that owns a vacation ownership business and a hotel business, Hilton shall use commercially reasonable efforts to allow us to manage the acquired vacation ownership business. If we do not do so, then after such acquisition by Hilton, notwithstanding the foregoing exclusivity, Hilton may use the Hilton IP, Hilton Data and Loyalty Program (but not the Licensed Marks) to allow such acquired vacation ownership business to compete with the Licensed Business for the remainder of the term of the license agreement.
Term. The initial term of the license agreement will expire on December 31, 2116. After the initial term ends, we may continue to use the Hilton IP and Hilton Data on a non-exclusive basis for a tail period of 30 years in connection with products and projects that were using the foregoing rights, or were approved by Hilton for development, when the term ended.
Royalty Fees. We will pay a royalty fee of 5% of gross revenues to Hilton quarterly in arrears, as well as specified additional fees. Gross revenues include our gross sales for the initial sale or re-sale of interests in the Licensed Business (subject to certain HGV Club exceptions), property operations revenue, transient rental revenue and other certain revenues earned. We will also owe Hilton an annual transition fee of $5.0 million for each of the first five years of the term and certain other fees and reimbursements. The license agreement contains customary requirements with respect to our record-keeping and Hiltons audit rights.
Hilton Brand Standards. We will be required to comply with the Hilton brand standards applicable to the Licensed Business. Hilton has inspection and approval rights to monitor our compliance with these standards. Hilton brand standards include: construction and design brand standards; graphic standards for use of the Hilton IP; sales, service and operating standards; and quality assurance and customer satisfaction requirements.
Matters Relating to Our Operations.
Loyalty Program Points . During the term of the license agreement, we will participate in Hiltons loyalty program, currently known as the Hilton HHonors ® program. We can purchase Hilton loyalty program points at cost for the first 20 years of the term, and thereafter at the market rate (with a most favored nation provision, pursuant to which such market rate is no higher than the price paid by strategic partners that purchase a comparable volume of points annually on comparable business terms). All members of Hiltons loyalty program will have the right to redeem loyalty program points at our properties in the Licensed Business, consistent with the tiers and rules of Hiltons current loyalty program. We can convert points associated with our own point-based reservations and exchange system into Hilton loyalty program points through an exchange program at a
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conversion rate to be determined by us. We may not participate in a loyalty program of a Hilton competitor in connection with the Licensed Business.
Conduct of Our Business . We will be required to operate the Licensed Business in strict compliance with all of Hiltons standards and guidelines and all applicable laws. We are responsible for obtaining and maintaining all necessary approvals, permits and licenses required and paying all taxes related to the Licensed Business. We may subcontract or delegate property-level, non-management functions, including housekeeping, security and maintenance, as long as we comply with Hiltons standards and guidelines. Hilton has the right to enter our vacation ownership properties at any time without notice and without additional permission from us in order to verify that we are complying with the license agreement and Hiltons standards and guidelines.
Customer Information and Security . We will be required to comply with Hiltons customer data privacy and security standards and protocols. We will be required to notify Hilton immediately after discovering any actual or attempted circumstances that could compromise the security of our information technology systems. We are required to remedy any such breach at our own expense.
Separate Operations . We will be able to operate vacation ownership properties under other brands (with no royalty due to Hilton) if we do so without using any Hilton IP or Hilton Data and they are otherwise separate operations from the Licensed Business.
Development Rights and Undeveloped Parcels . We will be required to obtain Hiltons consent to develop or operate any additional vacation ownership properties under the Hilton Marks (including on our own undeveloped parcels). Hilton may not unreasonably withhold its approval for these projects as long as they comply with existing law, do not involve a co-investor that is a competitor of Hilton or is of bad moral character, and are not reasonably likely to harm Hilton, the Licensed IP or the Hilton Data. Hilton will have a right of first refusal if we want to sell an undeveloped parcel to a Hilton competitor.
Call Transfer and Other Services . We will enter into an agreement with Hilton that will govern the transfer of calls from Hilton to us. Under this agreement, Hilton will use its reasonable best efforts to transfer calls to us at a level consistent with past practice prior to the spin-off. Hilton will provide the call transfer services at cost for the first 30 years and at market rates thereafter. We will enter into other agreements that will govern other services that Hilton will provide us.
Termination of Corporate Name Rights. Under the license agreement, our right to use the Hilton Marks as a trade, corporate, d/b/a or similar name will automatically terminate if (i) the aggregate number of units of accommodation in our Licensed Business falls below two-thirds of the total number of units of accommodation in our entire vacation ownership business; (ii) we merge with or acquire control of the assets of Marriott International, Inc., Marriott Vacations Worldwide Corporation, Hyatt Hotels Corporation, Wyndham Worldwide Corporation and Interval Leisure Group, Inc. or their respective affiliates and we or they use their brands in any business after such acquisition; or (iii) we become an affiliate of another Hilton competitor.
Termination of Agreement . Hilton will have the right to terminate the license agreement as a whole if, among other things: (i) we file for bankruptcy or cease business operations; (ii) 25% or more of our Hilton-branded vacation ownership properties fail certain performance thresholds or the overall customer satisfaction score for all our Hilton-branded vacation ownership properties falls below a certain threshold level, and we do not promptly cure such failures; (iii) we operate the Licensed Business in a way that has a material adverse effect on Hilton; (iv) we fail to pay certain amounts due to Hilton (and in certain cases, do not promptly cure such failures); (v) we contest Hiltons ownership of the Hilton IP or the Hilton Data; (vi) we merge with, consolidate with or are acquired by a competitor of Hilton; or (vii) we assign the agreement to a non-affiliate without Hiltons consent.
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Termination of License at Individual Properties . Hilton will also have the right to deflag (prevent use of any Hilton IP or Hilton Data at) any property in our Licensed Business in certain circumstances, including if (i) a $10 million or more final judgment is assessed against such property or a foreclosure suit is initiated against such property and not vacated; (ii) an ongoing threat or danger to public health or safety occurs at such property; (iii) such property fails to meet certain quality assurance system performance thresholds; or (iv) such property is not operated in compliance with the license agreement or Hiltons other standards and agreements, and such breaches are not cured in accordance with the license agreement.
Breach and Default; Remedies . If we breach our obligations under the license agreement, Hilton may, in addition to terminating the license agreement, be entitled to (depending on the nature of the breach): seek injunctive relief and/or monetary damages; suspend our access to and terminate our rights to use Licensed IP and/or Hilton Data (other than the Hilton Marks and certain other content); or terminate our rights to use the Licensed IP (including the Hilton Marks) and Hilton Data at specific locations that are not in compliance with performance standards.
After Termination; Liquidated Damages . If the license agreement terminates due to our fault before the end of the term, we will be required to cease use of the Hilton IP and Hilton Data according to a specified schedule. Hilton will have the right to demand liquidated damages based upon its uncollected royalties and fees for the remainder of the term.
Other Matters.
Registration of Hilton Marks . Hilton has registered certain of the Hilton Marks for vacation ownership services in jurisdictions in which we currently operate vacation ownership resorts and residential projects under the Hilton Marks. However, Hilton does not have affirmative trademark rights in the Hilton Marks in relation to every aspect of our business in every country around the world, and we therefore may not be able to use one or more of the Hilton Marks to expand various aspects of our business into one or more new countries. If we want to use a Hilton Mark in a country where it is not registered, we will have to seek Hiltons consent, which will not be withheld if the new trademark would not reasonably be expected to harm or jeopardize the value, validity, reputation or goodwill of the Hilton Marks or subject Hilton to any risk of legal liability.
Restrictions on Acquisitions; Assignment . Unless we obtain Hiltons prior written consent, we may not be able to: (i) merge with or acquire a Hilton competitor or a vacation ownership business that has entered into an operating agreement with a Hilton competitor; (ii) merge with or acquire a vacation ownership business together with a lodging business; or (iii) be acquired or combined with any entity other than an affiliate. We may acquire control of a business that is not a vacation ownership business or a lodging business without Hiltons consent, but we will be required to operate such business as a separate operation that does not use the Hilton IP or Hilton Data unless Hilton consents to such use. Without Hiltons prior consent, we may not assign our rights under the license agreement, except to one our affiliates as part of an internal reorganization for tax or administrative purposes.
Indemnification . We will indemnify, defend and hold harmless Hilton from and against any claim or liability resulting from (i) third-party claims based on (x) our breach of the license agreement; (x) the operation of our vacation ownership properties; (z) any use of the Hilton IP or Hilton Data in violation of the license agreement; or (ii) claims based on any security breach of our systems and/or unauthorized use or disclosure of Hilton Data.
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 Agreements
In connection with the Sale, HGV Parent entered into a registration rights agreement with HNA that will be effective upon the closing of the Sale. The HNA registration rights agreement provides that, beginning two years after the closing of the Sale, HNA will have customary demand and piggyback registration rights. The registration rights agreement also will require HGV Parent to pay certain expenses relating to such registrations and indemnify the registration rights holder against certain liabilities under the Securities Act. HGV Parent has also entered into a registration rights agreement with Blackstone with similar provisions that will become effective upon the consummation of the spin-off.
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,
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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.
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 or a duly authorized committee of our board of directors (expected to be the audit committee). 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). If we become aware of an existing related party transaction that has not been approved under this policy, the transaction will be referred to our board of directors or a duly authorized committee of our board of directors (expected to be the audit committee), which will evaluate all options available, including ratification, revision or termination of such transaction. 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.
Our policy will also contain a standing approval for transactions with and payments to or from Hilton Parent or Park Parent pursuant to agreements that are in effect at the time of the spin-off and certain transactions with or related to Blackstone, including, without limitation: (1) transactions in which Blackstone may have a direct or indirect material interest entered into or in effect at the effective time of the spin-off; and (2) the purchase or sale of products or services involving a Blackstone portfolio company, provided that (a) the appropriate officers reasonably believe the transaction to be on market terms, (b) the subject products or services are of a type generally made available to other customers of the subject Blackstone portfolio company, and (c) the aggregate value involved in such purchase or sale is expected to be less than $10 million over five years.
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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 recourse indebtedness of approximately $500 million, excluding $450 million expected to be outstanding under our non-recourse Timeshare Facility and between $250 million and $300 million of our non-recourse Securitized Debt expected to be outstanding. Included in our expected outstanding Timeshare Facility balance is an intended borrowing of an additional $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 $1.22 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.
Senior Secured Credit Facilities
Prior to the consummation of the spin-off, we expect to enter into senior secured credit facilities with Deutsche Bank AG New York Branch, as administrative agent, collateral agent, swing line lender and L/C issuer, Deutsche Bank Securities Inc. and certain other financial institutions, as joint lead arrangers and joint bookrunners and the other agents and lenders from time to time party thereto (the Senior Secured Credit Facilities).
The Senior Secured Credit Facilities are expected to consist of:
| a $200 million senior secured term loan facility (the Term Loans), which will mature five years from the closing date of the Senior Secured Credit Facilities (the Closing Date); and |
| a $200 million senior secured revolving credit facility (the Revolving Credit Facility), $30 million of which will be available in the form of letters of credit, which will mature five years from the Closing Date. |
Hilton Grand Vacations Borrower LLC (which is referred to throughout this section as HGV Borrower) will be the borrower under the Senior Secured Credit Facilities. The Revolving Credit Facility is expected to include borrowing capacity available for letters of credit and for short-term borrowings referred to as the swing line borrowings. In addition, we expect that the Senior Secured Credit Facilities will also provide HGV Borrower with the option to raise incremental credit facilities (including an uncommitted incremental facility that provides HGV Borrower the option to increase the amount available under the Term Loans and/or the Revolving Credit Facility by an aggregate of up to $300 million, subject to additional increases upon satisfaction of certain leverage-based tests), refinance the loans with debt incurred outside the credit agreement and extend the maturity date of the Revolving Credit Facility and Term Loans, subject to certain limitations. We also expect the Senior Secured Credit Facilities to include the terms described below.
Interest Rate and Fees
Borrowings under each of the Senior Secured Credit Facilities will bear interest, at HGV Borrowers option, at a rate equal to a margin over either (a) a base rate determined by reference to the highest of (1) the
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administrative agents prime lending rate, (2) the federal funds effective rate plus 0.500% and (3) the LIBOR rate for a one-month interest period plus 1.00% or (b) a LIBOR rate determined by reference to the Reuters LIBOR rate for the interest period relevant to such borrowing. The margins for the Senior Secured Credit Facilities which have not yet been determined will be subject to step downs or step ups upon the achievement of specified total net leverage ratios. The Senior Secured Credit Facilities will be subject to a LIBOR floor of 0%.
In addition to paying interest on outstanding principal under the Senior Secured Credit Facilities, HGV Borrower will be required to pay a commitment fee to the lenders under the Revolving Credit Facility in respect of the unutilized commitments thereunder. The commitment fee rate, which has not yet been determined, will be subject to step downs and step ups upon the achievement of specified total net leverage ratios. HGV Borrower will also be required to pay customary letter of credit fees.
Prepayments
The Senior Secured Credit Facilities will require us to prepay outstanding Term Loans, subject to certain exceptions, with:
| 100% of the net cash proceeds (including insurance and condemnation proceeds) of all non-ordinary course asset sales or other dispositions of property by HGV Borrower and its restricted subsidiaries, subject to de minimis thresholds, if those net cash proceeds are not reinvested in assets to be used in HGV Borrowers business or to make certain other permitted investments (a) within 12 months of the receipt of such net cash proceeds or (b) if HGV Borrower commits to reinvest such net cash proceeds within 12 months of the receipt thereof, within 180 days of the date of such commitment (although in connection with any such prepayment, HGV Borrower may also repay other first lien debt to the extent it is so required); and |
| 100% of the net proceeds of any incurrence of debt by HGV Borrower or any of its restricted subsidiaries, other than debt permitted to be incurred or issued under the Senior Secured Credit Facilities. |
Notwithstanding any of the foregoing, each lender of the Term Loans will have the right to reject its pro rata share of mandatory prepayments described above, in which case we may retain the amounts so rejected.
The foregoing mandatory prepayments will be applied pro rata to installments of the Term Loans as directed by HGV Borrower.
HGV Borrower will have the ability to voluntarily repay outstanding loans at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans.
Amortization
HGV Borrower will be required to repay the Term Loans on the last business day of each fiscal quarter, commencing with the first full fiscal quarter following the Closing Date and continuing until the fiscal quarter ending immediately prior to the maturity date, in installments in an aggregate principal amount equal to 1.25% of the original principal amount of the Term Loans. The remaining amount of the Term Loans will be payable on the applicable maturity date with respect to the Term Loans.
Guarantees and Collateral
The obligations under the Senior Secured Credit Facilities will be unconditionally and irrevocably guaranteed by each of HGV Parent, Hilton Grand Vacations Parent LLC, a subsidiary of HGV Parent (HGV Intermediate Parent), any subsidiary of HGV Parent that directly or indirectly owns 100% of the issued and outstanding equity interests of HGV Borrower, and, subject to certain exceptions, each of HGV Borrowers existing and future material restricted domestic wholly owned subsidiaries (each, a Subsidiary Guarantor and
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collectively with HGV Parent, HGV Intermediate Parent and HGV Borrower (other than in respect of its own obligations), the Guarantors). In addition, the Senior Secured Credit Facilities will be collateralized by first priority or equivalent security interests in (i) all the capital stock of, or other equity interests in, HGV Borrower and each of HGV Borrowers and the Subsidiary Guarantors material direct or indirect wholly owned restricted domestic subsidiaries and 65% of the capital stock of, or other equity interests in, each of HGV Borrowers or any Subsidiary Guarantors direct wholly owned first-tier restricted foreign subsidiaries, and (ii) certain tangible and intangible assets of HGV Borrower and those of the Subsidiary Guarantors (subject to certain exceptions and qualifications).
Certain Covenants and Events of Default
The Senior Secured Credit Facilities will contain a number of significant affirmative and negative covenants and customary events of default. Such covenants, among other things, limit or restrict, subject to certain exceptions, the ability of HGV Borrower and its restricted subsidiaries to:
| incur additional indebtedness, make guarantees and enter into hedging arrangements; |
| create liens on assets; |
| enter into sale and leaseback transactions; |
| engage in mergers or consolidations; |
| sell assets; |
| make fundamental changes; |
| pay dividends and distributions or repurchase capital stock; |
| make investments, loans and advances, including acquisitions; |
| engage in certain transactions with affiliates; |
| make changes in the nature of their business; and |
| make prepayments of subordinated debt. |
HGV Borrower and its restricted subsidiaries will also be required to maintain a maximum first lien net leverage ratio and a minimum interest coverage ratio, in each case at levels to be agreed.
During the period in which the loans under the Senior Secured Credit Facilities have both a rating equal to or higher than Baa3 (or the equivalent) according to Moodys Investors Service, Inc. and BBB- (or the equivalent) according to Standard & Poors, a division of The McGraw-Hill Companies, Inc., and no event of default has occurred and is continuing, the restrictions in the Senior Secured Credit Facilities regarding incurring additional indebtedness, dividends and distributions or repurchases of capital stock and transactions with affiliates will not apply to HGV Borrower and its restricted subsidiaries during such period.
The Senior Secured Credit Facilities will also contain certain customary representations and warranties, affirmative covenants and events of default. If an event of default occurs, the lenders under the Senior Secured Credit Facilities will be entitled to take various actions, including the acceleration of amounts due under the Senior Secured Credit Facilities and all actions permitted to be taken by a secured creditor.
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
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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.
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.
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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 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.
Senior Notes due 2024
On October 24, 2016 (the Original Issue Date), HGV Borrower and Hilton Grand Vacations Borrower Inc. (the Co-Issuer and, together with HGV Borrower, the Issuers), each a wholly-owned subsidiary of HGV Parent, issued $300 million aggregate principal amount of their Senior Notes due 2024 (the Notes) under an Indenture, dated as of October 24, 2016 (the Indenture), by and among the Issuers, the guarantors party thereto and Wilmington Trust, National Association, as trustee (in such capacity, the Trustee). The Notes were issued to Park Parent in exchange for all of the stock of HRC and other timeshare business assets in a transaction exempt from registration under the Securities Act. The Notes are the Issuers senior unsecured obligations, ranking equally in right of payment with all of their existing and future senior indebtedness and senior in right of payment to all of their existing and future subordinated indebtedness. The Notes are guaranteed, on a senior unsecured basis, by HGV Parent and HGV Intermediate Parent LLC, as parent guarantors, and each of HGV Borrowers existing and future wholly owned subsidiaries (other than the Co-Issuer) to the extent such entities guarantee indebtedness under the Senior Secured Credit Facilities or certain other indebtedness of HGV Borrower or any guarantor.
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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 table provides 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. |
The following table does not include information with respect to HNA, which although it is not expected to be a stockholder as of the date of the spin-off, would upon consummation of the Sale beneficially own approximately 25% of our outstanding common stock.
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 Hilton Grand Vacations Inc., 6355 Metrowest Boulevard, Suite 180, Orlando, Florida 32835.
Immediately following the spin-off, we estimate that approximately 99 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.
Name of Beneficial Owner |
Shares of Common Stock
Beneficially Owned |
Percent of Class | ||||||
5% Stockholders: |
||||||||
Blackstone (1)(2) |
39,842,826 | 40.3 | % | |||||
T. Rowe Price Associates, Inc. (3) |
6,471,373 | 6.5 | ||||||
Directors and Executive Officers: |
||||||||
Mark D. Wang |
101,128 | (4)(11) | * | |||||
James E. Mikolaichik |
| | ||||||
Michael D. Brown |
22,753 | (5)(11) | * | |||||
David C. Hayes |
11,218 | (6)(11) | * | |||||
Stan R. Soroka |
2,779 | (7)(11) | * | |||||
Brenda J. Bacon (8) |
| | ||||||
Kenneth A. Caplan (8) |
| | ||||||
David W. Johnson (8) |
| | ||||||
Mark H. Lazarus (8) |
| | ||||||
Pamela H. Patsley (8) |
| |
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* | Represents less than 1%. |
(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 managing 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 sole member of HLT A23 BREH VI Holdco LLC is HLT BREH VI-A Holdings Holdco LLC. The sole member of HLT BREH VI-A Holdings 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 HLT BREP VI.TE.2 Holdings Holdco LLC. The sole member of HLT BREP VI.TE.2 Holdings 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
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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.
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) | Assumes the completion of the Secondary Offering prior to the record date of the spin-off. |
(3) | 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. |
(4) | Includes 16,688 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(5) | Includes 2,920 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(6) | Includes 2,628 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(7) | Includes 1,473 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(8) | Does not reflect shares of common stock underlying equity awards that we expect will be made to our eligible non-employee directors (other than the directors affiliated with Blackstone) following the spin-off. See ManagementDirector Compensation. |
(9) | Includes an aggregate of 28,700 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(10) | The shares underlying options and restricted stock units reflected herein is based on assumed adjustments to Hilton Parent equity-based awards expected to be outstanding under the Hilton Parent Incentive Plan on the distribution date using the closing price of Hilton Parent stock as of November 8, 2016 and a hypothetical price of HGV Parent stock. Such Hilton Parent awards will be converted into awards that will settle in or be exercisable for shares of HGV Parent common stock and adjusted in a manner intended to preserve the intrinsic value of the award. The actual number of shares of HGV Parent subject to awards to be received on conversion of awards of Hilton Parent may differ from the assumed amounts presented herein. See The Spin-OffTreatment of Outstanding Equity Awards. |
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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 3,000,000,000 shares of common stock, par value $0.01 per share, and 300,000,000 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. Upon the consummation of the Sale, we will amend and restate our charter to remove all provisions referencing Blackstones ownership of at least 40 percent of the total voting power of the then outstanding shares of our stock entitled to vote generally in the election of directors because Blackstone will then own less than 40 percent of
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such shares of our stock. This amended and restated charter will have been approved prior to the spin-off by the board of directors of HGV Parent and its sole stockholder, and following the spin-off no further board, stockholder or other corporate action will be required to approve the amended and restated charter to be adopted in connection with the Sale.
To the extent permitted under applicable law, we may conduct meetings by remote communications, including by webcast.
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.
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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 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. Upon the consummation of the Sale, we will amend and restate our charter to remove all provisions referencing Blackstones ownership of at least 40 percent of the total voting power of the then outstanding shares of our stock entitled to vote generally in the election of directors because Blackstone will then own less than 40 percent of such shares of our stock. This amended and restated charter will have been approved prior to the spin-off by the board of directors of HGV Parent and its sole stockholder, and following the spin-off no further board, stockholder or other corporate action will be required to approve the amended and restated charter to be adopted in connection with the Sale.
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 (or, following the Sale, either Blackstone and its affiliates or HNA) 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. |
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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.
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
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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. Upon the consummation of the Sale, we will amend and restate our charter to contain a similar provision with respect to HNA. This amended and restated charter will have been approved prior to the spin-off by the board of directors of HGV Parent and its sole stockholder, and following the spin-off no further board, stockholder or other corporate action will be required to approve the amended and restated charter to be adopted in connection with the Sale.
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
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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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Unaudited Balance Sheets 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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Unaudited Condensed Consolidated Financial Statements of Hilton Resorts Corporation |
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Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015 |
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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
BALANCE SHEETS
September 30,
2016 |
June 1,
2016 |
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(unaudited) | ||||||||
ASSETS |
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Cash |
$ | 1 | $ | 1 | ||||
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TOTAL ASSETS |
$ | 1 | $ | 1 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Commitments and contingencies |
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Equity: |
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Common stock, par value $0.01 per share, 1,000 shares authorized, 100 issued and outstanding |
$ | 1 | $ | 1 | ||||
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Total stockholders equity |
1 | 1 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 1 | $ | 1 | ||||
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See notes to balance sheets.
F-5
NOTES TO BALANCE SHEET
(Unaudited)
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.
Note 4: Subsequent Events
In October 2016, the Corporation issued one share of its Common Stock to Park Hotels & Resorts Inc. in exchange for all shares of Hilton Resorts Corporation common stock.
F-6
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-7
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-8
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-9
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-10
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-11
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, and the receipt of an opinion of our tax advisors confirming that the spin-off will qualify as a tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as amended; 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-12
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-13
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-14
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-15
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-16
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-17
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-18
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-19
| 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-20
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-21
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-22
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-23
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-24
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 $25 million as of December 31, 2015 and 2014, respectively, were included in Restricted cash in our consolidated balance sheets.
F-25
Debt Maturities
The contractual maturities of our allocated Parent debt and non-recourse debt as of December 31, 2015 were as follows:
($ 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: |
||||||||||||
Timeshare financing receivables |
976 | | 1,080 | |||||||||
Liabilities: |
||||||||||||
Allocated Parent debt |
634 | 175 | 474 | |||||||||
Non-recourse debt |
502 | | 506 |
F-26
December 31, 2014 | ||||||||||||
Carrying
Amount |
Hierarchy Level | |||||||||||
($ in millions) | Level 1 | Level 3 | ||||||||||
Assets: |
||||||||||||
Timeshare financing receivables |
928 | | 1,021 | |||||||||
Liabilities: |
||||||||||||
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 |
|||
Year |
||||
2016 |
$ | 11 | ||
2017 |
6 | |||
2018 |
5 | |||
2019 |
4 | |||
2020 |
4 | |||
Thereafter |
4 | |||
|
|
|||
Total minimum rent payments |
$ | 34 | ||
|
|
F-27
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 | |||||||||
|
|
|
|
|
|
|||||||
$ | 17 | $ | 15 | $ | 12 | |||||||
|
|
|
|
|
|
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 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 292 | $ | 280 | $ | 218 | ||||||
|
|
|
|
|
|
The components of our provision for income taxes were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Current: |
||||||||||||
Federal |
$ | 85 | $ | 64 | $ | 50 | ||||||
State |
7 | 6 | 5 | |||||||||
Foreign |
6 | 6 | 2 | |||||||||
|
|
|
|
|
|
|||||||
Total current |
98 | 76 | 57 | |||||||||
|
|
|
|
|
|
|||||||
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-28
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-29
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-30
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 $22 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Note 16: Related Party Transactions
Hilton Worldwide Holdings Inc.
We have a number of existing arrangements whereby Hilton and others have provided services to us. In connection with the spin-off, we will enter into agreements with Hilton and others that have either not existed historically, or that may be on different terms than the terms of the arrangement or agreements that existed prior to the spin-off. These consolidated financial statements do not reflect the effect of these new and/or revised agreements.
Cash Management
Hilton uses a centralized approach for cash management. The majority of our cash is transferred to Hilton daily, and Hilton funds our operating and investing activities as needed. Accordingly, the cash and cash equivalents held by Hilton at the corporate level were not allocated to us for any of the periods presented. We reflect transfers of cash to and from Hiltons cash management system as a component of Total Parent deficit in our consolidated balance sheets.
F-31
Net Parent Transfers
The components of Net transfers from (to) Parent in the consolidated statements of parent deficit were as follows:
Year Ended December 31, | ||||||||||||
($ 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-32
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-33
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 $1 million for each of the years ended December 31, 2015, 2014 and 2013. |
F-34
The following table presents segment Adjusted EBITDA for our reportable segments reconciled to net income:
Year Ended December 31, | ||||||||||||
($ 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-35
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-36
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
September 30,
2016 |
December 31,
2015 |
|||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Cash |
$ | 7 | $ | 4 | ||||
Restricted cash |
90 | 75 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $4 and $2 |
117 | 89 | ||||||
Timeshare financing receivables, net |
992 | 976 | ||||||
Inventory |
482 | 412 | ||||||
Property and equipment, net |
55 | 51 | ||||||
Intangible assets, net |
71 | 74 | ||||||
Other assets |
45 | 43 | ||||||
|
|
|
|
|||||
TOTAL ASSETS (variable interest entities$282 and $368) |
$ | 1,859 | $ | 1,724 | ||||
|
|
|
|
|||||
LIABILITIES AND PARENT DEFICIT |
||||||||
Accounts payable, accrued expenses and other |
$ | 221 | $ | 208 | ||||
Advanced deposits |
102 | 96 | ||||||
Allocated Parent debt |
743 | 634 | ||||||
Non-recourse debt |
417 | 502 | ||||||
Deferred revenues |
113 | 103 | ||||||
Deferred income tax liabilities |
311 | 287 | ||||||
|
|
|
|
|||||
Total liabilities (variable interest entities$269 and $352) |
1,907 | 1,830 | ||||||
Commitments and contingenciessee Note 13 |
||||||||
Parent Deficit |
||||||||
|
|
|
|
|||||
Total Parent Deficit |
(48 | ) | (106 | ) | ||||
|
|
|
|
|||||
TOTAL LIABILITIES AND PARENT DEFICIT |
$ | 1,859 | $ | 1,724 | ||||
|
|
|
|
See notes to condensed consolidated financial statements.
F-37
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in millions)
Nine Months Ended
September 30, |
||||||||
2016 | 2015 | |||||||
Revenues |
||||||||
Sales of VOIs, net |
$ | 359 | $ | 355 | ||||
Sales, marketing, brand and other fees |
382 | 352 | ||||||
Financing |
100 | 95 | ||||||
Club and resort management |
98 | 85 | ||||||
Rental and ancillary services |
135 | 125 | ||||||
Cost reimbursements |
94 | 82 | ||||||
|
|
|
|
|||||
Total revenues |
1,168 | 1,094 | ||||||
|
|
|
|
|||||
Expenses |
||||||||
Cost of VOI sales |
110 | 144 | ||||||
Sales and marketing |
443 | 395 | ||||||
Financing |
24 | 24 | ||||||
Club and resort management |
25 | 23 | ||||||
Rental and ancillary services |
86 | 83 | ||||||
General and administrative |
61 | 41 | ||||||
Depreciation and amortization |
17 | 16 | ||||||
License fee expense |
61 | 55 | ||||||
Cost reimbursements |
94 | 82 | ||||||
|
|
|
|
|||||
Total expenses |
921 | 863 | ||||||
|
|
|
|
|||||
Gain on foreign currency transactions |
2 | | ||||||
Allocated Parent interest expense |
(20 | ) | (22 | ) | ||||
Other loss, net |
(1 | ) | | |||||
|
|
|
|
|||||
Income before income taxes |
228 | 209 | ||||||
Income tax expense |
(98 | ) | (84 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 130 | $ | 125 | ||||
|
|
|
|
See notes to condensed consolidated financial statements
F-38
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in millions)
Nine Months Ended September | ||||||||
2016 | 2015 | |||||||
Operating Activities |
||||||||
Net income |
$ | 130 | $ | 125 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
17 | 16 | ||||||
Amortization of deferred financing costs |
3 | 4 | ||||||
Provision for loan losses |
37 | 29 | ||||||
Other loss, net |
1 | | ||||||
Gain on foreign currency transactions |
(2 | ) | | |||||
Deferred income taxes |
12 | (3 | ) | |||||
Net changes in assets and liabilities: |
||||||||
Restricted cash |
(17 | ) | (30 | ) | ||||
Accounts receivable, net |
(28 | ) | (7 | ) | ||||
Timeshare financing receivables |
(52 | ) | (54 | ) | ||||
Inventory |
(10 | ) | (30 | ) | ||||
Other assets |
(7 | ) | (3 | ) | ||||
Accounts payable, accrued expenses and other |
17 | 13 | ||||||
Advanced deposits |
6 | | ||||||
Deferred revenues |
10 | 22 | ||||||
Other |
(1 | ) | | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
116 | 82 | ||||||
|
|
|
|
|||||
Investing Activities |
||||||||
Capital expenditures for property and equipment |
(16 | ) | (10 | ) | ||||
Capitalized software costs |
(5 | ) | (3 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(21 | ) | (13 | ) | ||||
|
|
|
|
|||||
Financing Activities |
||||||||
Repayment of non-recourse debt |
(85 | ) | (97 | ) | ||||
Change in restricted cash |
2 | 6 | ||||||
Allocated Parent debt activity |
111 | (76 | ) | |||||
Debt issuance costs |
(6 | ) | | |||||
Net transfers from (to) Parent |
(114 | ) | 98 | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(92 | ) | (69 | ) | ||||
|
|
|
|
|||||
Net increase in cash |
3 | | ||||||
|
|
|
|
|||||
Cash, beginning of period |
4 | 2 | ||||||
|
|
|
|
|||||
Cash, end of period |
$ | 7 | $ | 2 | ||||
|
|
|
|
|||||
Supplemental Disclosures |
||||||||
Non-cash financing activities: |
||||||||
Net transfer of inventory from Parent |
$ | 42 | $ | |
See notes to condensed consolidated financial statements.
F-39
CONDENSED CONSOLIDATED STATEMENTS OF PARENT DEFICIT
(unaudited, in millions)
Total Parent
Deficit |
||||
Balance as of December 31, 2015 |
$ | (106 | ) | |
Net income |
130 | |||
Net transfers to Parent |
(114 | ) | ||
Capital contribution from Parent |
42 | |||
|
|
|||
Balance as of September 30, 2016 |
$ | (48 | ) | |
|
|
|||
Total Parent
Deficit |
||||
Balance as of December 31, 2014 |
$ | (373 | ) | |
Net income |
125 | |||
Net transfers from Parent |
98 | |||
|
|
|||
Balance as of September 30, 2015 |
$ | (150 | ) | |
|
|
See notes to condensed consolidated financial statements.
F-40
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 September 30, 2016, we managed 46 timeshare properties comprising 7,592 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-41
Note 3: Restricted Cash
Restricted cash was as follows:
($ in millions) |
September 30,
2016 |
December 31,
2015 |
||||||
Escrow deposits on VOI sales |
$ | 75 | $ | 58 | ||||
Reserves related to non-recourse debt (1) |
15 | 17 | ||||||
|
|
|
|
|||||
$ | 90 | $ | 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 September 30, 2016 and December 31, 2015, we had $164 million and $163 million, respectively, of gross timeshare financing receivables securing a revolving non-recourse timeshare financing receivables credit facility (the Timeshare Facility). We recognize interest income on our timeshare financing receivables as earned. We record an estimate of uncollectibility as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.
Timeshare financing receivables were as follows:
September 30, 2016 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Timeshare financing receivables |
$ | 279 | $ | 829 | $ | 1,108 | ||||||
Less: allowance for loan loss |
(11 | ) | (105 | ) | (116 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 268 | $ | 724 | $ | 992 | |||||||
|
|
|
|
|
|
|||||||
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 September 30, 2016, our timeshare financing receivables had interest rates ranging from 5.15 percent to 20.50 percent, a weighted average interest rate of 11.94 percent, a weighted average remaining term of 7.7 years and maturities through 2028. Our timeshare financing receivables as of September 30, 2016 mature as follows:
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Year |
||||||||||||
2016 (remaining) |
$ | 13 | $ | 31 | $ | 44 | ||||||
2017 |
51 | 76 | 127 | |||||||||
2018 |
50 | 81 | 131 | |||||||||
2019 |
47 | 84 | 131 | |||||||||
2020 |
43 | 88 | 131 | |||||||||
Thereafter |
75 | 469 | 544 | |||||||||
|
|
|
|
|
|
|||||||
279 | 829 | 1,108 | ||||||||||
Less: allowance for loan loss |
(11 | ) | (105 | ) | (116 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 268 | $ | 724 | $ | 992 | |||||||
|
|
|
|
|
|
F-42
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) |
September 30,
2016 |
December 31,
2015 |
||||||
FICO score |
||||||||
700+ |
$ | 693 | $ | 663 | ||||
600-699 |
206 | 191 | ||||||
<600 |
28 | 28 | ||||||
No score (1) |
181 | 200 | ||||||
|
|
|
|
|||||
$ | 1,108 | $ | 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 September 30, 2016 and December 31, 2015, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $35 million and $33 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance:
September 30, 2016 | ||||||||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Current |
$ | 272 | $ | 788 | $ | 1,060 | ||||||
31 - 90 days past due |
4 | 9 | 13 | |||||||||
91 - 120 days past due |
2 | 2 | 4 | |||||||||
121 days and greater past due |
1 | 30 | 31 | |||||||||
|
|
|
|
|
|
|||||||
$ | 279 | $ | 829 | $ | 1,108 | |||||||
|
|
|
|
|
|
|||||||
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-43
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 |
| (27 | ) | (27 | ) | |||||||
Provision for loan losses (1) |
(6 | ) | 43 | 37 | ||||||||
|
|
|
|
|
|
|||||||
Balance as of September 30, 2016 |
$ | 11 | $ | 105 | $ | 116 | ||||||
|
|
|
|
|
|
|||||||
($ in millions) | Securitized | Unsecuritized | Total | |||||||||
Balance as of December 31, 2014 |
$ | 28 | $ | 68 | $ | 96 | ||||||
Write-offs |
| (23 | ) | (23 | ) | |||||||
Provision for loan losses (1) |
(9 | ) | 38 | 29 | ||||||||
|
|
|
|
|
|
|||||||
Balance as of September 30, 2015 |
$ | 19 | $ | 83 | $ | 102 | ||||||
|
|
|
|
|
|
(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) |
September 30,
2016 |
December 31,
2015 |
||||||
Completed unsold VOIs |
$ | 252 | $ | 111 | ||||
Construction in process |
25 | 101 | ||||||
Land, infrastructure and other |
205 | 200 | ||||||
|
|
|
|
|||||
$ | 482 | $ | 412 | |||||
|
|
|
|
The cost of sales true-ups relating to VOI products for the nine months ended September 30, 2016 and 2015 resulted in an increase to the carrying values of inventory of $8 million and $10 million, respectively. For the nine months ended September 30, 2016 and 2015, we incurred expenses of $42 million and $58 million, respectively, recorded in Cost of VOI sales, related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects.
In 2016, Hilton Parent transferred certain hotel assets to us for conversion to vacation ownership units. See Note 11: Related Party Transaction for further discussion.
Note 6: Property and Equipment
Property and equipment and related depreciation expense were as follows:
($ in millions) |
September 30,
2016 |
December 31,
2015 |
||||||
Buildings and leasehold improvements |
$ | 67 | $ | 54 | ||||
Furniture and equipment |
36 | 32 | ||||||
Construction-in-progress |
4 | 9 | ||||||
|
|
|
|
|||||
107 | 95 | |||||||
Accumulated depreciation |
(52 | ) | (44 | ) | ||||
|
|
|
|
|||||
$ | 55 | $ | 51 | |||||
|
|
|
|
Depreciation expense on property and equipment was $8 million and $7 million for the nine months ended September 30, 2016 and 2015, respectively.
F-44
Note 7: Consolidated Variable Interest Entities
As of September 30, 2016 and December 31, 2015, we consolidated two variable interest entities (VIEs) that issued debt securitized by our timeshare financing receivables (the Securitized Debt), which is without recourse to us. We are the primary beneficiaries of these VIEs as we have the power to direct the activities that most significantly affect their economic performance. We are also the servicer of these timeshare financing receivables and we are required to replace timeshare financing receivables that are in default at their outstanding principal amounts. Additionally, we have the obligation to absorb their losses and the right to receive benefits that could be significant to them. The assets of our VIEs are only available to settle the obligations of the respective entities. Our condensed consolidated balance sheets included the assets and liabilities of these entities, which primarily consisted of the following:
($ in millions) |
September 30,
2016 |
December 31,
2015 |
||||||
Restricted cash |
$ | 11 | $ | 13 | ||||
Timeshare financing receivables, net |
268 | 350 | ||||||
Non-recourse debt (1) |
267 | 352 |
(1) | Net of deferred financing costs. |
During the nine months ended September 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 September 30, 2016, were as follows:
($ in millions) |
September 30,
2016 |
December 31,
2015 |
||||||
Senior secured term loan with a rate of 3.50%, due 2020 |
$ | 112 | $ | 474 | ||||
Senior secured term loan with a rate of 3.10%, due 2023 (1) |
361 | | ||||||
Senior Notes with a rate of 5.625%, due 2021 |
168 | 168 | ||||||
Senior Notes with a rate of 4.25%, due 2024 (2) |
113 | | ||||||
|
|
|
|
|||||
754 | 642 | |||||||
Less: unamortized deferred financing costs and discount |
(11 | ) | (8 | ) | ||||
|
|
|
|
|||||
$ | 743 | $ | 634 | |||||
|
|
|
|
(1) | Hilton Worldwides senior secured credit facility (the Senior Secured Credit Facility) consists of a $1.0 billion senior secured revolving credit facility (the Revolving Credit Facility) and a senior secured term loan facility (the Term Loans). In August 2016, Hilton Worldwide amended the Term Loans pursuant to which $3.2 billion of outstanding Term Loans were converted into a new tranche of Term Loans due October 2023, with interest of LIBOR plus 2.50 percent. We were allocated a portion of this amended loan. |
(2) | In August 2016, Hilton Worldwide issued $1.0 billion aggregate principal amount of 4.25% senior notes due 2024 (the 2024 Senior Notes) and incurred $20 million of debt issuance costs. We were allocated a portion of these Senior Notes. |
F-45
Non-recourse Debt
Non-recourse debt balances, and associated interest rates as of September 30, 2016, were as follows:
($ in millions) |
September 30,
2016 |
December 31,
2015 |
||||||
Timeshare Facility with a rate of 1.83%, due 2019 |
$ | 150 | $ | 150 | ||||
Securitized Debt with an average rate of 1.97%, due 2026 |
270 | 356 | ||||||
|
|
|
|
|||||
420 | 506 | |||||||
Less: unamortized deferred financing costs |
(3 | ) | (4 | ) | ||||
|
|
|
|
|||||
417 | 502 | |||||||
|
|
|
|
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. In August 2016, we amended the terms of the Timeshare Facility to, among other things, increase the borrowing capacity from $300 million to $450 million, allowing us to borrow up to the maximum amount until August 2018 and requiring all amounts borrowed to be repaid in August 2019. As a result of the modification, we incurred $3 million in debt issuance costs recognized in other non-current assets.
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 September 30, 2016 and December 31, 2015 were $15 million and $17 million, respectively, and were included in Restricted cash in our condensed consolidated balance sheets.
Debt Maturities
The contractual maturities of our allocated Parent debt and non-recourse debt as of September 30, 2016 were as follows:
($ in millions) |
Allocated
Parent Debt |
Non-recourse
Debt |
Total | |||||||||
Year |
||||||||||||
2016 (remaining) |
$ | | $ | 23 | $ | 23 | ||||||
2017 |
| 74 | 74 | |||||||||
2018 |
| 51 | 51 | |||||||||
2019 |
| 186 | 186 | |||||||||
2020 |
112 | 47 | 159 | |||||||||
Thereafter |
642 | 39 | 681 | |||||||||
|
|
|
|
|
|
|||||||
$ | 754 | $ | 420 | $ | 1,174 | |||||||
|
|
|
|
|
|
Note 9: Fair Value Measurements
The carrying amounts and estimated fair values of our financial assets and liabilities were as follows:
September 30, 2016 | ||||||||||||
Carrying
Amount |
Hierarchy Level | |||||||||||
($ in millions) | Level 1 | Level 3 | ||||||||||
Assets: |
||||||||||||
Timeshare financing receivables (1) |
$ | 992 | $ | | $ | 1,110 | ||||||
Liabilities: |
||||||||||||
Allocated Parent debt (2) |
743 | 173 | 583 | |||||||||
Non-recourse debt (2) |
417 | | 420 |
F-46
December 31, 2015 | ||||||||||||
Carrying
Amount |
Hierarchy Level | |||||||||||
($ in millions) | Level 1 | Level 3 | ||||||||||
Assets: |
||||||||||||
Timeshare financing receivables (1) |
$ | 976 | $ | | $ | 1,080 | ||||||
Liabilities: |
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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 September 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.
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. For each of the nine month periods ended September 30, 2016 and 2015, Hilton paid $82 million of income tax liabilities related to us, which is reflected in our condensed consolidated financial statements as a decrease to Parent deficit.
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Note 11: Related Party Transactions
Net Parent Transfers
The components of Net transfers from (to) Parent in the condensed consolidated statements of parent equity (deficit) were as follows:
Nine Months Ended September 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Cash pooling and general financing activities |
$ | (233 | ) | $ | (17 | ) | ||
Corporate allocations |
37 | 33 | ||||||
Income taxes |
82 | 82 | ||||||
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Net transfers from (to) Parent |
$ | (114 | ) | $ | 98 | |||
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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 nine months ended September 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 $9 million capital contribution from Hilton related to the transfer.
Note 12: Business Segments
We operate our business through the following two segments:
| Real estate sales and financing We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs. |
| Resort operations and club management We manage the Club, receiving activation fees, annual dues and transaction fees from member exchanges for other vacation products. We earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club program. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties. |
The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense, taxes and depreciation and amortization (EBITDA). We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs; (vi) share-based compensation expense; (vii) severance and other expenses; and (viii) other items.
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The following table presents revenues for our reportable segments reconciled to condensed consolidated amounts:
Nine Months Ended September 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Revenues: |
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Real estate sales and financing (1) |
$ | 843 | $ | 803 | ||||
Resort operations and club management (2) |
251 | 225 | ||||||
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Total segment revenues |
1,094 | 1,028 | ||||||
Cost reimbursements |
94 | 82 | ||||||
Intersegment eliminations (1)(2) |
(20 | ) | (16 | ) | ||||
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Total revenues |
$ | 1,168 | $ | 1,094 | ||||
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(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 and $1 million for the nine months ended September 30, 2016 and 2015, respectively. |
(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 $18 million and $15 million for the nine months ended September 30, 2016 and 2015, respectively. |
The following table presents Adjusted EBITDA for our reportable segments reconciled to net income:
Nine Months Ended September 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Adjusted EBITDA: |
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Real estate sales and financing (1) |
$ | 259 | $ | 236 | ||||
Resort operations and club management (1) |
139 | 119 | ||||||
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Segment Adjusted EBITDA |
398 | 355 | ||||||
General and administrative |
(61 | ) | (41 | ) | ||||
Depreciation and amortization |
(17 | ) | (16 | ) | ||||
License fee expense |
(61 | ) | (55 | ) | ||||
Other loss, net |
(1 | ) | | |||||
Gain on foreign currency transactions |
2 | | ||||||
Allocated Parent interest expense |
(20 | ) | (22 | ) | ||||
Income tax expense |
(98 | ) | (84 | ) | ||||
Non-recourse debt interest expense |
(9 | ) | (10 | ) | ||||
Other adjustment items |
(3 | ) | (2 | ) | ||||
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Net income |
$ | 130 | $ | 125 | ||||
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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 September 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 nine months ended September 30, 2016 and 2015, we purchased $11 million and $17 million, respectively, of VOI
F-49
inventory as required under our commitments. As of September 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 September 30, 2016 will not have a material effect on our condensed consolidated results of operations, financial position or cash flows.
Note 14: Subsequent Events
Asset Transfers
In October 2016, we entered into an agreement with Park Hotels and Resorts Inc., an entity under the common control of Hilton Parent, to transfer to us the legal title and related deferred tax liabilities associated with 25 rooms at the Hilton New York and 600 rooms at the Hilton Waikoloa Village for future conversion to vacation ownership units. The net book value of the related assets and deferred tax liabilities was approximately $189 million and $52 million, respectively.
In October 2016, Hilton Parent transferred to us the legal title and related deferred tax liability associated with a vacant land parcel. The book value and deferred tax liability was approximately $54 million and $16 million, respectively.
Sale of Unregistered Securities
In October 2016, Hilton Grand Vacations Inc. issued one share of its common stock, par value $0.01 per share, to Park Hotels & Resorts Inc. in exchange for all of our shares of common stock owned by Park Hotels & Resorts.
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Exhibit 99.3
Important Notice Regarding the Availability of Materials
HILTON WORLDWIDE HOLDINGS INC.
HILTON WORLDWIDE HOLDINGS INC. 7930 JONES BRANCH DRIVE, SUITE 1100 MCLEAN, VA 22102 |
You are receiving this communication because you hold common stock in Hilton Worldwide Holdings Inc. (Hilton). Hilton has released informational materials regarding the spin-offs of Park Hotels & Resorts Inc. (Park) and its consolidated subsidiaries and Hilton Grand Vacations Inc. (HGV) and its consolidated subsidiaries from Hilton that are now available for your review. This notice provides instructions on how to access Hilton Worldwide Holdings Inc. materials for informational purposes only. | |||
To effect the spin-offs, Hilton will distribute on a pro rata basis to its stockholders all of the issued and outstanding shares of Park and HGV common stock held by it. Immediately following the distribution, which will be effective as of the date and time referenced in the Information Statements that Park and HGV have prepared in connection with the spin-offs, Park and HGV will be independent, publicly traded companies. Hilton is not soliciting proxy or consent authority in connection with the spin-offs. |
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The Hilton materials consist of the Information Statements, plus any supplements, that Park and HGV have prepared in connection with the spin-offs. You may view the Hilton materials online at www.materialnotice.com and easily request a paper or e-mail copy (see reverse side). To facilitate timely delivery, please make your request for a paper copy by five business days prior to the distribution date referenced in the Information Statements.
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See the reverse side for instructions on how to access materials.
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How to Access the Materials
Materials Available to VIEW or RECEIVE: |
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FORMS 10 | ||
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Have the information that is printed in the box marked by the arrow
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following page) and visit: www.materialnotice.com. | ||
How to Request and Receive a PAPER or E-MAIL Copy: |
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If you want to receive a paper or e-mail copy of these materials, you must request one. There is NO charge for |
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requesting a copy. Please choose one of the following methods to make your request: | ||
1) BY INTERNET : www. materialnotice .com |
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HILTON WORLDWIDE HOLDINGS INC.
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