As filed with the Securities and Exchange Commission on November 23, 2016
File No. 001-37794
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 6
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 | ☒ (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). |
Exhibit No. |
Description |
|
10.11 | Omnibus Amendment No. 4 to Receivables Loan Agreement and Amendment No. 2 to Sale and Contribution Agreement, effective as of August 18, 2016, among Hilton Grand Vacations Trust I LLC, as borrower, Wells Fargo Bank, National Association, as paying agent and securities intermediary, the financial institutions signatory thereto, as managing agents, the financial institutions signatory thereto as committed lenders and Deutsche Bank Securities, Inc., as administrative agent.** | |
10.12 | Form of 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 | Form of Stockholders Agreement by and among Hilton Worldwide Holdings Inc., Hilton Grand Vacations Inc. and the other parties thereto. | |
10.21 | 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. | |
10.22 | Form of 6.125% Senior Note due 2024 (included in Exhibit 10.21). | |
10.23 | Form of Supplemental Indenture, 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. | |
21.1 | Subsidiaries of Hilton Grand Vacations Inc.** | |
99.1 | Preliminary Information Statement, dated November 23, 2016. | |
99.2 | Section 13(r) Disclosure.** | |
99.3 | Form of Notice of Internet Availability of Information Statement Materials.** |
** | 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 23, 2016
Exhibit 2.1
FORM OF DISTRIBUTION AGREEMENT
by and among
HILTON WORLDWIDE HOLDINGS INC.
PARK HOTELS & RESORTS INC.,
HILTON GRAND VACATIONS INC.,
and
HILTON DOMESTIC OPERATING COMPANY INC.
Dated as of , 2016
TABLE OF CONTENTS
Page | ||||
ARTICLE I DEFINITIONS AND INTERPRETATION |
2 | |||
Section 1.1. General |
2 | |||
Section 1.2. References; Interpretation |
27 | |||
ARTICLE II THE SEPARATION |
28 | |||
Section 2.1. General |
28 | |||
Section 2.2. Restructuring: Transfer of Assets; Assumption of Liabilities |
28 | |||
Section 2.3. Intercompany Accounts |
29 | |||
Section 2.4. Limitation of Liability |
29 | |||
Section 2.5. Transfers Not Effected at or Prior to the Effective Time; Transfers Deemed Effective as of the Effective Time |
29 | |||
Section 2.6. Conveyancing and Assumption Instruments |
31 | |||
Section 2.7. Further Assurances |
31 | |||
Section 2.8. Guarantees; Letters of Credit |
32 | |||
Section 2.9. Return of Assets and Payments |
33 | |||
Section 2.10. Disclaimer of Representations and Warranties |
34 | |||
ARTICLE III CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTIONS |
35 | |||
Section 3.1. Certificates of Incorporation; By-laws |
35 | |||
Section 3.2. Directors |
35 | |||
Section 3.3. Officers |
35 | |||
Section 3.4. Resignations and Removals |
35 | |||
Section 3.5. Dividends |
36 | |||
ARTICLE IV EFFECTING THE DISTRIBUTION; CONDITIONS TO THE DISTRIBUTION |
36 | |||
Section 4.1. Stock Dividends to HLT Stockholders |
36 | |||
Section 4.2. Actions in Connection with the Distribution |
37 | |||
Section 4.3. Sole Discretion of HLT |
37 | |||
Section 4.4. Conditions to the Distribution |
38 | |||
ARTICLE V CERTAIN COVENANTS |
39 | |||
Section 5.1. Intellectual Property |
39 | |||
Section 5.2. Administration of Specified Shared Expenses |
39 | |||
Section 5.3. Cooperation |
39 | |||
Section 5.4. Periodic Meetings |
40 | |||
Section 5.5. No Solicit; No Hire |
40 | |||
ARTICLE VI SHARED CONTINGENT LIABILITIES |
41 | |||
Section 6.1. Shared Contingent Liabilities |
41 | |||
Section 6.2. Management of Shared Contingent Liabilities |
42 | |||
Section 6.3. Access to Information; Certain Services; Expenses |
43 | |||
Section 6.4. Notice Relating to Shared Contingent Liabilities; Disputes |
44 | |||
Section 6.5. Cooperation with Governmental Entity |
44 | |||
Section 6.6. Default |
44 |
i
ARTICLE VII INDEMNIFICATION |
45 | |||
Section 7.1. Release of Pre-Distribution Claims |
45 | |||
Section 7.2. Indemnification by HLT |
46 | |||
Section 7.3. Indemnification by PK |
46 | |||
Section 7.4. Indemnification by HGV |
47 | |||
Section 7.5. Procedures for Indemnification |
47 | |||
Section 7.6. Cooperation in Defense and Settlement |
49 | |||
Section 7.7. Indemnification Payments |
50 | |||
Section 7.8. Indemnification Obligations Net of Insurance Proceeds and Other Amounts |
50 | |||
Section 7.9. Additional Matters; Survival of Indemnities |
50 | |||
ARTICLE VIII PRESERVATION OF RECORDS; ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE |
51 | |||
Section 8.1. Preservation of Corporate Records |
51 | |||
Section 8.2. Financial Statements and Accounting |
52 | |||
Section 8.3. Provision of Corporate Records |
53 | |||
Section 8.4. Witness Services |
54 | |||
Section 8.5. Reimbursement |
54 | |||
Section 8.6. Confidentiality |
54 | |||
Section 8.7. Privilege Matters |
55 | |||
Section 8.8. Ownership of Information |
57 | |||
Section 8.9. Other Agreements |
57 | |||
ARTICLE IX DISPUTE RESOLUTION |
58 | |||
Section 9.1. Negotiation |
58 | |||
Section 9.2. Mediation |
58 | |||
Section 9.3. Consent to Jurisdiction |
58 | |||
Section 9.4. Waiver of Jury Trial |
58 | |||
Section 9.5. Confidentiality |
58 | |||
Section 9.6. Continuity of Performance |
58 | |||
Section 9.7. Ancillary Agreements |
58 | |||
ARTICLE X INSURANCE |
59 | |||
Section 10.1. Policies and Rights Included Within Assets |
59 | |||
Section 10.2. Post-Effective Time Claims |
59 | |||
Section 10.3. Administration; Other Matters |
60 | |||
Section 10.4. Agreement for Waiver of Conflict and Shared Defense |
61 | |||
Section 10.5. Agreement for Waiver of Conflict and Insurance Litigation and/or Recovery Efforts |
61 | |||
Section 10.6. Directors and Officers Liability Insurance; Fiduciary Liability Insurance; Employment Practices Liability Insurance |
61 | |||
Section 10.7. No Coverage for Post-Effective Occurrences |
61 | |||
Section 10.8. Cooperation |
61 | |||
Section 10.9. Excluded Policies |
61 | |||
Section 10.10. HLT as General Agent and Attorney-In-Fact |
61 | |||
Section 10.11. Additional Premiums, Return Premiums and Pro Rata Cancellation Premium Credits |
62 |
ii
ARTICLE XI MISCELLANEOUS |
62 | |||
Section 11.1. Complete Agreement; Construction |
62 | |||
Section 11.2. Ancillary Agreements |
62 | |||
Section 11.3. Counterparts |
62 | |||
Section 11.4. Survival of Agreements |
62 | |||
Section 11.5. Expenses |
62 | |||
Section 11.6. Notices |
63 | |||
Section 11.7. Consents |
64 | |||
Section 11.8. Assignment |
64 | |||
Section 11.9. Successors and Assigns |
64 | |||
Section 11.10. Termination and Amendment |
64 | |||
Section 11.11. Payment Terms |
64 | |||
Section 11.12. No Circumvention |
65 | |||
Section 11.13. Subsidiaries |
65 | |||
Section 11.14. Third Party Beneficiaries |
65 | |||
Section 11.15. Title and Headings |
65 | |||
Section 11.16. Exhibits and Schedules |
65 | |||
Section 11.17. Governing Law |
65 | |||
Section 11.18. Severability |
65 | |||
Section 11.19. Force Majeure |
66 | |||
Section 11.20. Interpretation |
66 | |||
Section 11.21. No Duplication; No Double Recovery |
66 | |||
Section 11.22. Tax Treatment of Payments |
66 | |||
Section 11.23. No Waiver |
66 | |||
Section 11.24. No Admission of Liability |
67 |
iii
List of Schedules |
||
Schedule 1.1(20) |
Continuing Arrangements | |
Schedule 1.1(48) |
HLT Disclosure Sections | |
Schedule 1.1(50)(ii) |
HLT Retained Entities | |
Schedule 1.1(50)(iii) |
HLT Owned Real Property | |
Schedule 1.1(50)(iv) |
HLT Retained Leases | |
Schedule 1.1(50)(viii) |
Certain HLT Registered Intellectual Property | |
Schedule 1.1(50)(xiv) |
Specified HLT Assets | |
Schedule 1.1(51) |
HLT Retained Business | |
Schedule 1.1(53)(iv) |
Specified HLT Retained Liabilities | |
Schedule 1.1(53)(viii) |
Sold, Transferred or Discontinued HLT Operations | |
Schedule 1.1(53)(xii) |
HLT Retained Litigation and Disputes | |
Schedule 1.1(76)(ii) |
Certain Specified Ownership Assets | |
Schedule 1.1(76)(iii) |
Ownership Entities | |
Schedule 1.1(76)(iv) |
Ownership Owned Real Property | |
Schedule 1.1(76)(v) |
Ownership Leased Property | |
Schedule 1.1(76)(ix) |
Certain Ownership Registered Intellectual Property | |
Schedule 1.1(77) |
Ownership Hotel Properties | |
Schedule 1.1(80)(iv) |
Specified Ownership Liabilities | |
Schedule 1.1(80)(viii) |
Sold, Transferred or Discontinued Ownership Operations | |
Schedule 1.1(80)(xii) |
Ownership Litigation and Disputes | |
Schedule 1.1(97) |
Shared Contingent Liabilities | |
Schedule 1.1(98) |
Specified Shared Expenses | |
Schedule 1.1(106)(ii) |
Certain Specified Timeshare Assets | |
Schedule 1.1(106)(iii) |
Timeshare Entities | |
Schedule 1.1(106)(iv) |
Timeshare Owned Real Property | |
Schedule 1.1(106)(v) |
Timeshare Leased Property | |
Schedule 1.1(106)(ix) |
Certain Timeshare Registered Intellectual Property | |
Schedule 1.1(107) |
Timeshare Properties | |
Schedule 1.1(110)(iv) |
Specified Timeshare Liabilities | |
Schedule 1.1(110)(viii) |
Sold, Transferred, or Discontinued Timeshare Operations | |
Schedule 1.1(110)(xii) |
Timeshare Litigation and Disputes | |
Schedule 2.8(b) |
Ownership and Timeshare Liabilities where HLT is to Remain as Guarantor | |
Schedule 2.8(b)(i) |
Certain HLT Guarantees | |
Schedule 2.8(b)(ii) |
Certain Ownership Guarantees | |
Schedule 2.8(b)(iii) |
Certain Timeshare Guarantees | |
Schedule 3.2(a) |
HLT Directors | |
Schedule 3.3(a) |
HLT Officers | |
Schedule 7.2 |
Procedures for Indemnification of HLT by PK | |
Schedule 7.3 |
Procedures for Indemnification of PK by HLT | |
Schedule 8.1(a) |
Document Retention Policies | |
Schedule 8.2(c) |
2016 Draft Report Date | |
Schedule 8.4 |
Witness Services | |
Schedule 10.1 |
Company Insurance Policies | |
Schedule 10.9 |
Excluded Policies | |
Schedule 11.5 |
Separation Expenses | |
List of Annexes |
||
Annex I |
Plan of Reorganization |
iv
List of Exhibits |
||
Exhibit A |
Employee Matters Agreement | |
Exhibit B |
License Agreement | |
Exhibit C |
Tax Matters Agreement | |
Exhibit D |
Transition Services Agreement | |
Exhibit E |
Waiver Letter |
v
Index of Other Defined Terms
Defined Term |
Section |
|
Agreement Disputes |
Section 9.1 | |
Annual Reports |
Section 8.2(c) | |
Audited Party |
Section 8.2(b) | |
Board |
Recitals | |
Code |
Recitals | |
CPR |
Section 9.2 | |
Dispute Notice |
Section 9.1 | |
Escrow Account |
Section 7.9(c) | |
Expense Amount |
Section 7.9(c) | |
Expense Amount Accountants Letter |
Section 7.9(c) | |
Expense Amount Tax Opinion |
Section 7.9(c) | |
Guaranty Release |
Section 2.8(c) | |
HGV |
Preamble | |
HLT |
Preamble | |
PK |
Preamble | |
Indemnifying Party |
Section 7.5(a) | |
Indemnitee |
Section 7.5(a) | |
Indemnity Payment |
Section 7.8(a) | |
Internal Control Audit and Management Assessments |
Section 8.2(a) | |
Managing Party |
Section 6.2(a) | |
Mediation Period |
Section 9.2 | |
Other Parties Auditors |
Section 8.2(b) | |
Party |
Preamble | |
Privilege |
Section 8.7(a) | |
Privileged Information |
Section 8.7(a) | |
REIT Qualification Ruling |
Section 7.9(c) | |
Release Document |
Section 7.9(c) | |
Separation Expenses |
Section 11.5 | |
Third Party Claim |
Section 7.5(b) | |
Third Party Proceeds |
Section 7.8(a) |
vi
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (this Agreement ), dated as of , by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Park Hotels & Resorts Inc., a Delaware corporation ( PK ) and Hilton Grand Vacations Inc., a Delaware corporation ( HGV ) and for purposes of Sections 7.2 and 7.3, Hilton Domestic Operating Company Inc. ( OpCo ), a subsidiary of HLT. Each of HLT, PK and HGV is sometimes referred to herein as a Party and, collectively, as the Parties . Capitalized terms used and not defined herein shall have the meaning set forth in Section 1.1 .
W I T N E S S E T H:
WHEREAS, HLT, acting through its direct and indirect Subsidiaries, currently conducts a number of businesses, including (i) the HLT Retained Business, (ii) the Ownership Business and (iii) the Timeshare Business;
WHEREAS, the Board of Directors of HLT (the Board ) has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business, which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business, which shall be owned and conducted, directly or indirectly, by PK (which will elect to be a REIT), and (iii) the Timeshare Business, which shall be owned and conducted, directly or indirectly, by HGV;
WHEREAS, in order to effect such separation, the Board has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders (i) to enter into a series of transactions after giving effect to which (A) HLT and/or one or more of its Subsidiaries will, collectively, own all of the HLT Retained Assets and assume (or retain) all of the HLT Retained Liabilities (as defined herein), (B) PK and/or one or more of its Subsidiaries will, collectively, own all of the Ownership Assets and assume (or retain) all of the Ownership Liabilities, and (C) HGV and/or one or more of its Subsidiaries will, collectively, own all of the Timeshare Assets and assume (or retain) all of the Timeshare Liabilities (such transactions as described in Annex I hereto and, as they may be amended or modified from time to time, collectively, the Plan of Reorganization ) and (ii) for HLT to distribute to the holders of the HLT Common Stock (as defined herein), on a pro rata basis (in each case without consideration being paid by such stockholders), (A) all of the outstanding shares of common stock, par value $0.01 per share, of PK (the PK Common Stock ) and (B) all of the outstanding shares of common stock, par value $0.01 per share, of HGV (the HGV Common Stock );
WHEREAS, each of HLT, PK and HGV has determined that it is necessary and desirable, on or prior to the Effective Time, to allocate and transfer to the applicable Party or its Subsidiaries those Assets, and to allocate and assign to the applicable Party or its Subsidiaries responsibility for those Liabilities, in respect of the activities of the applicable Businesses of such entities;
WHEREAS, it is the intention of the Parties that (i) each of the contributions by PK of Assets to, and the assumption of Liabilities by, OpCo (such contribution, the OpCo Contribution ) and HGV together with the corresponding distribution by PK of all of the outstanding shares of common stock, par value $0.01 per share, of OpCo and the HGV Common Stock, respectively, qualifies as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the Code ) (each such distribution, an Internal Distribution and together, the Internal Distributions ) and (ii) each of the distributions by HLT of all of the PK Common Stock and HGV Common Stock qualifies as a tax-free distribution within the meaning of Section 355 of the Code;
1
WHEREAS, each of HLT, PK and HGV has determined that it is necessary and desirable to set forth the principal corporate transactions required to effect the Plan of Reorganization and each Distribution and to set forth other agreements that will govern certain other matters following the Effective Time.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. General . As used in this Agreement, the following terms shall have the following meanings:
(1) Action shall mean any demand, action, claim, suit, countersuit, arbitration, inquiry, subpoena, case, litigation, proceeding or investigation (whether civil, criminal, administrative or investigative) by or before any court or grand jury, any Governmental Entity or any arbitration or mediation tribunal.
(2) Affiliate shall mean, when used with respect to any Person, another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For the purposes of this definition, control, when used with respect to any Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by Contract or otherwise. It is expressly agreed that no Party or member of any Partys Group shall be deemed to be an Affiliate of another Party or member of such other Partys Group by reason of having one or more directors in common or by reason of having been under common control of HLT or HLTs stockholders prior to or, in case of HLTs stockholders, after, the Effective Time.
(3) Ancillary Agreements shall mean all of the written Contracts, instruments, assignments, licenses, guarantees, indemnities or other arrangements (other than this Agreement) entered into in connection with the transactions contemplated hereby, including the Transition Services Agreement, the Employee Matters Agreement, the Tax Matters Agreement, the License Agreement, the IP Assignments and the Managing and Franchise Agreements (the Transition Services Agreement, the Employee Matters Agreement, the Tax Matters Agreement, the License Agreement, the IP Assignments and the Managing and Franchise Agreements, collectively, the Specified Ancillary Agreements ).
(4) Applicable HGV Percentage shall mean nine percent (9%).
(5) Applicable HLT Percentage shall mean sixty-five percent (65%).
(6) Applicable Percentage shall mean (i) as to HLT, the Applicable HLT Percentage, (ii) as to PK, the Applicable PK Percentage and (iii) as to HGV, the Applicable HGV Percentage.
(7) Applicable PK Percentage shall mean twenty-six percent (26%).
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(8) Asset Transferors shall mean the entities transferring Assets to a Managing and Franchising Asset Transferee, an Ownership Asset Transferee or a Timeshare Asset Transferee in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(9) Assets shall mean assets, properties, claims, Intellectual Property and other rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible, intangible or contingent. Except as otherwise expressly provided for in the Employee Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes shall not be treated as Assets.
(10) Assume shall have the meaning set forth in Section 2.2(b ) ; and the terms Assumed and Assumption shall have their correlative meanings.
(11) Blackstone shall mean The Blackstone Group L.P., a Delaware limited partnership.
(12) Business shall mean the HLT Retained Business, the Ownership Business or the Timeshare Business, as applicable.
(13) Business Day means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by Law to be closed in New York City.
(14) Business Entity shall mean any corporation, partnership, limited liability company, joint venture or other entity which may legally hold title to Assets.
(15) Claims Administration shall mean the processing of claims made under the Company Policies, including the reporting of losses or claims to insurance carriers (including as a result of reports provided to HLT by PK or HGV), management and defense of claims, the settlement of claims and providing for appropriate releases upon settlement of claims.
(16) Commission shall mean the United States Securities and Exchange Commission.
(17) Company Policies shall mean all Policies, current or past (to the extent any such past Policy still provides for benefits), which are or at any time were maintained by or on behalf of or for the benefit or protection of HLT or any of its predecessors which relate to the HLT Retained Business, the Ownership Business or the Timeshare Business, or current or past directors, officers, employees or agents of any of the foregoing Businesses.
(18) Confidential Information shall mean all non-public, confidential or proprietary Information of or concerning (a) a Party, its Group and/or its Subsidiaries or their past, current or future activities, businesses, finances, assets, liabilities or operations or (b) any third party who has provided Information to a Party, its Group and/or its Subsidiaries in confidence, except for any Information that is (i) in the public domain or available to the public through no fault of the receiving Party or its Subsidiaries or their authorized recipients of the Information, (ii) lawfully acquired after the Effective Time by such Party or its Subsidiaries from other sources not known to be subject to confidentiality obligations with respect to such Information or (iii) independently developed by the receiving Party after the Effective Time without reference to any Confidential Information.
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(19) Consents shall mean any consents, waivers or approvals from, or notification requirements to, any Person other than a Governmental Entity.
(20) Continuing Arrangements shall mean those arrangements set forth on Schedule 1.1(20) and such other commercial arrangements among the Parties (or their respective Groups) that are intended to survive and continue following the Effective Time as expressly set forth in the Transition Services Agreement; provided , however , that for the avoidance of doubt, Continuing Arrangements shall not apply to Third Party Agreements.
(21) Continuing Directors shall mean, as of any date of determination, any member of the board of directors of HLT, PK or HGV, as applicable, who (i) was a member of such Partys board of directors at the Effective Time; or (ii) was nominated for election, elected or appointed to such Partys board of directors with the approval of a majority of the Continuing Directors who were members of such Partys board of directors at the time of such nomination, election or appointment (either by a specific vote or by approval by such directors of the proxy statement of such Party in which such member was named as a nominee for election as a director).
(22) Contract shall mean any agreement, contract, subcontract, obligation, binding understanding, note, indenture, guarantee, instrument, option, lease, promise, arrangement, release, warranty, license, sublicense, insurance policy, benefit plan, purchase order or legally binding commitment or undertaking of any nature (whether written or oral and whether express or implied).
(23) Conveyancing and Assumption Instruments shall mean, collectively, the various Contracts, resolutions and other documents heretofore entered into and to be entered into to effect the Transfer of Assets and the Assumption of Liabilities in the manner contemplated by this Agreement and the Plan of Reorganization, or otherwise relating to, arising out of or resulting from the transactions contemplated by this Agreement, in such form or forms as the applicable Parties thereto agree.
(24) Customer Information shall mean all information and data in recorded form, whether written, electronic, computerized or digital or stored in any other media, relating to past, current or prospective customers or clients and their activities, experiences and transactions.
(25) Disclosure Documents shall mean any registration statement (including any registration statement on Form 10) or other document filed with the Commission by or on behalf of any Party or any of its controlled Affiliates, and also includes any information statement, prospectus, offering memorandum, offering circular or similar disclosure document, whether or not filed with the Commission or any other Governmental Entity, which offers for sale or registers the Transfer or distribution of any security of such Party or any of its controlled Affiliates.
(26) Distribution shall mean, collectively, the PK Distribution and the HGV Distribution.
(27) Distribution Agent shall mean Wells Fargo Bank, N.A.
(28) Distribution Date shall mean the date on which HLT distributes all of the issued and outstanding shares of PK Common Stock and HGV Common Stock to the holders of HLT Common Stock.
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(29) Distribution Record Date shall mean such date as may be determined by HLTs Board as the record date for the Distribution.
(30) Effective Time shall mean 5:00 p.m., New York time, on the Distribution Date (or such other time as may be agreed to in writing by the Parties).
(31) Employee Matters Agreement shall mean the Employee Matters Agreement by and among HLT, PK, HGV and OpCo, in substantially the form attached hereto as Exhibit A .
(32) Environmental Laws shall mean all Laws relating to pollution, protection of the environment, or protection against harmful or deleterious substances.
(33) Excluded Policies shall mean the Policies listed on Schedule 10.9 .
(34) Final Determination shall have the meaning set forth in the Tax Matters Agreement.
(35) Financing Arrangements shall the financing arrangements described in the PK Information Statement (including the Unaudited Pro Forma Combined Consolidated Financial Statements included therein) and the HGV Information Statement (including the Unaudited Pro Forma Combined Consolidated Financial Statements included therein).
(36) Force Majeure shall mean, with respect to a Party, an event beyond the control of such Party (or any Person acting on its behalf), which by its nature could not have been foreseen by such Party (or such Person), or, if it could have been foreseen, was unavoidable, and includes acts of God, storms, floods, riots, labor unrest, pandemics, nuclear incidents, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) or armed hostilities or other national or international calamity or one or more acts of terrorism or failure of energy sources or distribution facilities.
(37) Governmental Approvals shall mean any notices or reports to be submitted to, or other registrations or filings to be made with, or any consents, approvals, licenses, permits or authorizations to be obtained from, any Governmental Entity.
(38) Governmental Entity shall mean any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission, department, board, bureau or court, whether domestic, foreign or multinational, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any executive official thereof.
(39) Group shall mean (i) with respect to HLT, the HLT Group, (ii) with respect to PK, the PK Group and (iii) with respect to HGV, the HGV Group.
(40) HGV Balance Sheet shall mean the pro forma balance sheet of the HGV Group, including the notes thereto, as of September 30, 2016, as filed with the HGV Form 10.
(41) HGV Common Stock shall have the meaning set forth in the recitals hereto.
(42) HGV Distribution shall mean the distribution on the Distribution Date to holders of record of shares of HLT Common Stock as of the Distribution Record Date of the HGV Common Stock owned by HLT, such distribution to be on the basis of one (1) share of HGV Common Stock for every ten (10) outstanding shares of HLT Common Stock (or such other basis as shall have been approved by the Board and set forth in the HGV Information Statement).
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(43) HGV Form 10 shall mean the registration statement on Form 10 (Registration No. 001-37794) filed by HGV with the Commission under the Securities Exchange Act of 1934, as amended, in connection with the HGV Distribution, including any amendment or supplement thereto.
(44) HGV Group shall mean HGV and each Person that is a direct or indirect Subsidiary of HGV immediately after the Effective Time, and each Person that becomes a Subsidiary of HGV after the Effective Time, and shall include the Timeshare Entities.
(45) HGV Information Statement shall mean the Information Statement attached as an exhibit to the HGV Form 10 to be sent to the holders of shares of HLT Common Stock in connection with the HGV Distribution, including any amendment or supplement thereto.
(46) HGV Offering Memorandum shall mean any offering memorandum or offering circular distributed to potential investors in connection with any private offering of debt securities by HGV, or its subsidiaries, as the case may be, in connection with the Financing Arrangements.
(47) HLT Common Stock shall mean the issued and outstanding shares of common stock of HLT, par value $0.01 per share.
(48) HLT Disclosure Sections shall mean the sections of the PK Form 10, the HGV Form 10, the PK Offering Memorandum or the HGV Offering Memorandum, identified on Schedule 1.1(48 ) .
(49) HLT Group shall mean HLT and each Person that is a direct or indirect Subsidiary of HLT immediately after the Effective Time, and each Person that becomes a Subsidiary of HLT after the Effective Time, and shall include the HLT Retained Entities.
(50) HLT Retained Assets shall mean any and all Assets that are owned, leased or licensed, at or prior to the Effective Time, by HLT and/or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) and that are not Ownership Assets or Timeshare Assets, including:
(i) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have been or are to remain with HLT or any other member of the HLT Group;
(ii) the ownership interests in those Business Entities set forth on Schedule 1.1(50)(ii) (such entities, together with HLT, the HLT Retained Entities ) and all Assets of the HLT Retained Entities;
(iii) all rights, title and interest in and to the owned real property set forth on Schedule 1.1(50)(iii) (the HLT Owned Real Property ), including all land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
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(iv) all right, title and interest in, to and under the leases or subleases of the real property set forth on Schedule 1.1(50)(iv) (the HLT Retained Leases ), including, to the extent provided for in any HLT Retained Lease, any land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
(v) to the extent not provided in clauses (iii) and (iv) of this definition, all fixtures, machinery, equipment, apparatuses, computer hardware and other electronic data processing equipment, information technology and communications equipment, tools, instruments, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, and other tangible personal property, in each case located at any of the HLT Owned Real Property or the locations subject to the HLT Retained Leases, except for laptop computers and related desktop equipment, cellular phones and other mobile computing devices in each case primarily used by PK Employees (as defined in the Employee Matters Agreement) or HGV Employees (as defined in the Employee Matters Agreement), which shall be retained by such PK Employees and HGV Employees in accordance with the terms of the Transition Services Agreement;
(vi) all inventories, including products, goods, materials, parts, raw materials, work in process and supplies;
(vii) all HLT Retained Contracts and any rights or claims arising thereunder;
(viii) all Intellectual Property, including the registrations and applications set forth on Schedule 1.1(50)(viii ) , except for Intellectual Property listed on Schedules 1.1(76)(ix) or 1.1(106)(ix ) , subject, as applicable, to the applicable License Agreement;
(ix) all licenses, permits, approvals and authorizations which have been issued by any Governmental Entity;
(x) Information as follows, subject to any express exceptions in Article VIII :
(a) Sole ownership and all originals and copies of all (i) Information used exclusively in the HLT Retained Business and all Intellectual Property incorporated therein (provided that counsel for PK and HGV may retain a copy of any of same to the extent (A) it is already in possession of PK and HGV, as applicable and (B) such retention is required by applicable Law) and (ii) Loyalty Program Data;
(b) the original of all Information (other than Loyalty Program Data) that was used but not exclusively used in the HLT Retained Business and is in the possession or control of HLT as of the Distribution Date; provided that to the extent that (x) prior to the Distribution Date, PK has used such Information in the Ownership Business (or, following the Distribution Date, PK reasonably requires the use of such Information in the Ownership Business as conducted as of the Distribution Date) or (y) prior to the Distribution Date, HGV has used such Information in the Timeshare Business (or, following the Distribution Date, HGV reasonably requires the use of such Information in the Timeshare Business as conducted as of the Distribution Date), PK and/or HGV, as applicable, shall (1) be deemed an equal co-owner with HLT of the Intellectual Property in such Information and each co-owning Party shall have the right to (and to allow others
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to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (2) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained in the ordinary course of business at the time of such request, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information; and
(c) a copy of all Information (other than Loyalty Program Data) that was used but not exclusively used in the HLT Retained Business, and is in the possession or control of PK or HGV but not HLT as of the Distribution Date; provided that HLT shall (i) be deemed an equal co-owner with the possessing or controlling Party of the Intellectual Property in such Information and have the right to (and to allow others to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (ii) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained in the ordinary course of business at the time of such request, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information;
(xi) all deposits, prepaid expenses, letters of credit and performance and surety bonds;
(xii) all bonds, notes, debentures or other debt securities issued by any Person and held by any member of the HLT Group, all loans, advances or other extensions of credit or capital contributions to any Person on the books of any member of the HLT Group and all other investments in securities of any Person held by any member of the HLT Group;
(xiii) subject to Article X , any rights of any member of the HLT Group under any Company Policies, including any rights thereunder arising after the Effective Time in respect of any Company Policies that are occurrence policies and all rights in the nature of insurance, indemnification or contribution;
(xiv) the Assets set forth on Schedule 1.1(50)(xiv ) ; and
(xv) any claims, counterclaims, setoffs, rights of recoupment, equity rights or defenses, whether known or unknown, that HLT and/or any of its Subsidiaries may have with respect to any HLT Retained Assets and HLT Retained Liabilities.
Notwithstanding the foregoing, the HLT Retained Assets shall not include any Assets that are expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the PK Group or the HGV Group, as the case may be, including any Assets (A) specified in clauses (i) through (xv) of the definition of Ownership Assets or (B) specified in clauses (i) through (xv) of the definition of Timeshare Assets.
(51) HLT Retained Business shall mean the businesses conducted through the management of the day-to-day operations of Hilton-branded hotels, the ownership, development, franchising and promotion of the Hilton brands and the leasing or ownership of certain Hilton-branded hotels by HLT or any of its Subsidiaries (or other Business Entities in which HLT or any
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of its Subsidiaries has an ownership interest) prior to the Effective Time, including, for the avoidance of doubt, the businesses of (i) the management, franchising, leasing or ownership of the hotel and resort properties set forth on Schedule 1.1(51 ) , (ii) any other division, Subsidiary, line of business or investment managed or operated by HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) prior to the Effective Time, including the businesses conducted through the ownership and operation of the hotel management and franchising business of HLT prior to the Effective Time, unless such other division, Subsidiary, line of business or investment is included in the definitions of Ownership Business or Timeshare Business, and (iii) those business entities acquired or established by or for HLT or any other member of the HLT Group after the Effective Time. For the avoidance of doubt, the HLT Retained Business with respect to any of the properties set forth on Schedule 1.1(77) shall be deemed to be limited to the business activities performed by the applicable member of the HLT Group engaged as the manager or franchisor with respect to such property pursuant to the applicable Managing and Franchising Agreement entered into following the Distribution Date.
(52) HLT Retained Contracts shall mean any Contracts to which HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) is a party as of the date hereof, becomes a party prior to the Effective Time or by which it or any of its Subsidiaries (or such other Business Entities) or any of their respective Assets is bound as of the date hereof or becomes bound prior to the Effective Time, whether or not in writing, except for any such Contract or part thereof that is an Ownership Contract or a Timeshare Contract, including:
(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the HLT Group;
(ii) any Contract that relates primarily to the HLT Retained Business, including any Contract providing for the acquisition or disposition of a HLT Retained Entity or any HLT Retained Assets;
(iii) any Contract that represents or underlies any HLT Retained Assets or HLT Retained Liabilities;
(iv) any Contract or part thereof that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b ) ) or any of the Ancillary Agreements to be assigned to or retained by any member of the HLT Group; and
(v) any guarantee, indemnity, representation or warranty of or in favor of any member of the HLT Group.
(53) HLT Retained Liabilities shall mean any and all Liabilities of HLT and/or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) that are not Ownership Liabilities or Timeshare Liabilities, including:
(i) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from: (a) the operation or conduct of the HLT Retained Business, as conducted at any time prior to, at or after (except as otherwise provided in Managing and Franchise Agreements) the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons
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authority) of the HLT Group); (b) the operation or conduct of any business conducted by any member of the HLT Group at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the HLT Group); or (c) any HLT Retained Assets, whether arising prior to, on or after the Effective Time;
(ii) any Liabilities to the extent relating to, arising out of or resulting from, the HLT Retained Contracts;
(iii) the Applicable HLT Percentage of any Shared Contingent Liability;
(iv) the liabilities set forth on Schedule 1.1(53)(iv ) (the Specified HLT Retained Liabilities );
(v) any Liabilities assumed or retained by the HLT Group pursuant to this Agreement or the Ancillary Agreements;
(vi) any Liabilities arising prior to, at or after the Effective Time for any infringement by the HLT Retained Business of the Intellectual Property of any other Person or breach by the HLT Retained Business of any Contract relating to Intellectual Property;
(vii) all Liabilities arising prior to, at or after the Effective Time to the extent resulting from any (A) violation prior to the Effective Time of any Environmental Laws by the HLT Group, any HLT Discontinued Operation or the conduct of the HLT Retained Business, (B) use, treatment, or disposal prior to the Effective Time of Materials of Environmental Concern by or on behalf of the HLT Group, any HLT Discontinued Operation or in the conduct of the HLT Retained Business or (C) presence of Materials of Environmental Concern at, or release of Materials of Environmental Concern from, any HLT Retained Assets or any HLT Discontinued Operation; provided that Liabilities of the type described in this subsection (vi) relating to real estate that is an Ownership Asset or a Timeshare Asset pursuant to this Agreement, shall not be HLT Retained Liabilities but shall instead be, respectively, Ownership Liabilities and Timeshare Liabilities;
(viii) any Liabilities relating to, arising out of or resulting from, any division, Subsidiary, line of business or investment managed or operated by HLT or any of its Subsidiaries at any time prior to the Effective Time and sold, transferred or otherwise discontinued prior to the Effective Time, including the divisions, Subsidiaries, lines of business or investments set forth on Schedule 1.1(53)(viii ) , unless such division, Subsidiary, line of business or investment is an Ownership Discontinued Operation or a Timeshare Discontinued Operation (each such division, Subsidiary, line of business or investment, an HLT Discontinued Operation );
(ix) any Liabilities relating primarily to, arising primarily out of or resulting primarily from, the operation or conduct of the HLT Retained Business by any Business Entity that is an Ownership Entity or a Timeshare Entity under this Agreement but has conducted the HLT Retained Business at any time prior to the Effective Time;
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(x) any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, the HLT Disclosure Sections;
(xi) Specified Shared Expenses to the extent provided in Section 5.2 ;
(xii) any Liabilities relating to, arising out of or resulting from the claims, proceedings, litigation and disputes listed on Schedule 1.1(53)(xii ) ; and
(xiii) any Liabilities relating primarily to, arising primarily out of or resulting primarily from, a workers compensation claim brought by or on behalf of an employee employed at any time in the HLT Retained Business or any HLT Discontinued Operation, except in the case where such employee was employed in either the Ownership Business or any Ownership Discontinued Operation or the Timeshare Business or any Timeshare Discontinued Operation subsequent to such employees final employment in the HLT Retained Business or HLT Discontinued Operations in which case the Liability shall be retained by PK or HGV, respectively.
Notwithstanding the foregoing, the HLT Retained Liabilities shall not include any Liabilities that are (A) expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be Assumed by any member of the PK Group or the HGV Group, as the case may be, including any Liabilities specified (1) in clauses (i) through (xiii) of the definition of Ownership Liabilities or (2) in clauses (i) through (xiii) of the definition of Timeshare Liabilities or (B) expressly discharged pursuant to Section 2.3 of this Agreement.
For the avoidance of doubt, no Liability shall be a HLT Retained Liability solely as a result of (x) HLT being named as party to or in any Action relating to any Ownership Liability or Timeshare Liability due to HLTs status as the remaining and legacy Business Entity or (y) its status as the former direct or indirect stockholder of any Business Entity.
(54) Income Taxes shall have the meaning set forth in the Tax Matters Agreement.
(55) Indebtedness shall mean, with respect to any Person, (i) the principal value, prepayment and redemption premiums and penalties (if any), unpaid fees and other monetary obligations in respect of any indebtedness for borrowed money, whether short term or long term, including all obligations evidenced by bonds, debentures, notes, other debt securities or similar instruments, (ii) any indebtedness arising under any capital leases (excluding, for the avoidance of doubt, any real estate leases), whether short term or long term, (iii) all liabilities secured by any lien on any assets of such Person, (iv) all liabilities under any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, hedging arrangement or other similar agreement designed to protect such Person against fluctuations in interest rates, (v) all interest bearing indebtedness for the deferred purchase price of property or services, (vi) all liabilities under any letters of credit, performance bonds, bankers acceptances or similar obligations, (vii) all interest, prepayment or breakage costs, fees and other expenses owed with respect to indebtedness described in the foregoing clauses (i) through (vi), and (viii) without duplication, all guarantees of indebtedness referred to in the foregoing clauses (i) through (vii).
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(56) Indemnifiable Loss and Indemnifiable Losses shall mean any and all Liabilities, deficiencies, obligations, penalties, judgments, settlements, claims, payments, fines, administrative penalties, interest and Taxes (including the costs and expenses of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the reasonable costs and expenses of attorneys, accountants, consultants and other professionals fees and expenses incurred in the investigation or defense thereof or the enforcement of rights hereunder), excluding special, consequential, reputational, indirect or punitive damages (other than special, consequential, indirect, reputational and/or punitive damages awarded by a court of competent jurisdiction in connection with a Third Party Claim (and, in such a case, only to the extent awarded in such Third Party Claim)).
(57) Information shall mean information and data in recorded form, whether written, electronic, computerized or digital or stored in any other media, including (i) books and records, whether accounting, legal or otherwise, ledgers, studies, reports, surveys, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, marketing plans, communications, correspondence, materials, product literature, artwork, files, documents, policies, procedures and manuals, research and analyses of any nature, including operational, technical or legal; (ii) financial and business information, including earnings reports and forecasts, macro-economic reports and forecasts, all cost information, sales and pricing data, business plans, market evaluations, surveys and credit-related information; and (iii) Customer Information.
(58) Insurance Proceeds shall mean those monies (i) received by an insured from an insurance carrier or (ii) paid by an insurance carrier on behalf of an insured, in either case net of any applicable deductible or retention.
(59) Insured Claims shall mean those Liabilities that, individually or in the aggregate, are covered within the terms and conditions of any of the Company Policies, whether or not subject to deductibles, co-insurance, uncollectability or retrospectively rated premium adjustments, but only to the extent that such Liabilities are within applicable Company Policy limits, including aggregates.
(60) Intellectual Property shall mean all worldwide intellectual property, proprietary and industrial property rights of any kind, including all (i) patents, patent applications, inventions and invention disclosures and utility models, (ii) trademarks, service marks, corporate names, trade names, domain names, social and mobile media identifiers, logos, slogans, designs, trade dress and other designations of source or origin, together with the goodwill symbolized by any of the foregoing ( Trademarks ), (iii) copyrights and copyrighted works, including software, code, compilations and documentation, website and mobile media content, photography, graphics and advertising materials, (iv) technology, trade secrets, know-how, processes, formulae, models, methodologies, discoveries, techniques, designs, specifications, drawings, and (v) all registrations, applications, continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, renewals, extensions and foreign counterparts thereof.
(61) IP Assignments shall mean the short-form assignment documents executed for the purpose of recording the transfer of Intellectual Property applications and registrations with the United States Patent and Trademark Office, the United States Copyright Officer or any other applicable office in any applicable foreign jurisdiction.
(62) IRS Ruling shall mean that certain IRS private letter ruling delivered to HLT and addressing, among other things, certain issues relevant to the tax-free treatment of the Distribution.
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(63) Law shall mean any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, income tax treaty, order, requirement or rule of law (including common law) or other binding directives of any Governmental Entity.
(64) Liabilities shall mean any and all Indebtedness, losses, damages, liabilities, costs, expenses, interest and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, reserved or unreserved, or determined or determinable, including those arising under any Law, claim, demand, Action, whether asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity and those arising under any Contract or any fines, damages or equitable relief which may be imposed and including all costs and expenses related thereto. Except as otherwise expressly provided for in the Employee Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes shall not be treated as Liabilities.
(65) LIBOR shall mean an interest rate per annum equal to the applicable three-month London Interbank Offer Rate for deposits in United States dollars published in The Wall Street Journal .
(66) License Agreement shall mean the License Agreement by and between HLT and HGV, in substantially the form attached hereto as Exhibit B .
(67) Loyalty Program Data shall have the meaning set forth in the License Agreement.
(68) Managing and Franchise Agreements shall mean the Management Agreements and Franchise Agreements by and among certain subsidiaries of PK, on the one hand, and certain subsidiaries of HLT, on the other hand.
(69) Managing and Franchising Asset Transferee shall mean the HLT Retained Entities to which HLT Retained Assets shall be or have been transferred by an Asset Transferor in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(70) Managing and Franchising Indemnitees shall mean each member of the HLT Group and each of their respective Affiliates from and after the Effective Time and each member of the HLT Groups and such Affiliates respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.
(71) Materials of Environmental Concern shall mean any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, molds, and radioactivity; any substance classified or regulated as hazardous or toxic (or words of similar meaning); and any other substances regulated pursuant to or that could give rise to liability under any applicable Environmental Law.
(72) Nonqualifying Income shall mean any amount that is treated as gross income for purposes of Section 856 of the Code and which is not Qualifying Income.
(73) NYSE shall mean the New York Stock Exchange.
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(74) OpCo Contribution shall have the meaning set forth in the recitals hereto.
(75) Ownership Asset Transferees shall mean the Ownership Entities to which Ownership Assets shall be or have been Transferred by an Asset Transferor in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(76) Ownership Assets shall mean any and all Assets that are owned, leased or licensed at or prior to the Effective Time, by HLT and/or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest), relating primarily to, used primarily in, or arising primarily from, the Ownership Business, and shall include:
(i) any and all Assets reflected on the PK Balance Sheet or the accounting records supporting such balance sheet and any Assets acquired by or for PK or any member of the PK Group subsequent to the date of the PK Balance Sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on the PK Balance Sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of the PK Balance Sheet;
(ii) the Assets set forth on Schedule 1.1(76)(ii) and any and all other Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have been or are to be Transferred to PK or any other member of the PK Group;
(iii) the ownership interests in those Business Entities set forth on Schedule 1.1(76)(iii) (such entities, together with PK, the Ownership Entities ), and all Assets of the Ownership Entities relating primarily to, used primarily in, or arising primarily from the Ownership Business;
(iv) all rights, title and interest in and to the owned real property set forth on Schedule 1.1(76)(iv) (the PK Owned Real Property ), including all land and land improvements, structures, buildings and building improvements, other improvements, fixtures and appurtenances located thereon;
(v) all right, title and interest in, to and under the leases or subleases of the real property set forth on Schedule 1.1(76)(v) (the Ownership Leases ), including, to the extent provided for in the Ownership Leases, any land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
(vi) to the extent not provided in clauses (iv) and (v) of this definition, all fixtures, machinery, equipment, apparatuses, computer hardware and other electronic data processing equipment, information technology and communications equipment, tools, instruments, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, special and general tools, test devices, molds, tooling, dies, prototypes and models and other tangible personal property in each case located at any of the PK Owned Real Property or the locations subject to the Ownership Leases;
(vii) all inventories, including products, goods, materials, parts, raw materials, work-in-process and supplies, relating primarily to, used primarily in, or arising primarily from, the Ownership Business;
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(viii) all Ownership Contracts and any rights or claims arising thereunder;
(ix) all Intellectual Property set forth on Schedule 1.1(76)(ix ) , subject, as applicable, to the Managing and Franchise Agreements;
(x) all licenses, permits, approvals and authorizations which have been issued by any Governmental Entity and which relate primarily to, are used primarily in, or arise primarily from, the Ownership Business;
(xi) Information as follows, subject to any express exceptions in Article VIII :
(a) sole ownership and all originals and copies of all Information (other than Loyalty Program Data) used exclusively in the Ownership Business and all Intellectual Property incorporated therein (provided that counsel for HLT and HGV may retain a copy of any of same to the extent (A) it is already in possession of HLT and HGV, as applicable, and (B) such retention is required by applicable Law);
(b) the original of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Ownership Business and is in the possession or control of PK as of the Distribution Date; provided that to the extent that (x) prior to the Distribution Date, HLT has used such Information in the HLT Retained Business (or, following the Distribution Date, HLT reasonably requires the use of such Information in the HLT Retained Business as conducted as of the Distribution Date) or (y) HGV has used such Information in the Timeshare Business (or, following the Distribution Date, HGV reasonably requires the use of such Information in the Timeshare Business as conducted as of the Distribution Date), HLT and/or HGV, as applicable, shall (1) be deemed an equal co-owner with PK of the Intellectual Property in such Information and each co-owning Party shall have the right to (and to allow others to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (2) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained at the time of the request, if such Party does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information; and
(c) a copy of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Ownership Business, and is in the possession or control of HLT or HGV but not PK as of the Distribution Date; provided that PK shall (i) be deemed an equal co-owner with the possessing or controlling Party of the Intellectual Property in such Information and have the right to (and to allow others to) use and disclose such Information without an accounting to (or consent of) the other co-owning Party and (ii) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained at the time of the request, if PK does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information;
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(xii) all deposits, prepaid expenses, letters of credit and performance and surety bonds relating primarily to, used primarily in, or arising primarily from, the Ownership Business;
(xiii) all bonds, notes, debentures or other debt securities issued by any Person and held by any member of the PK Group, all loans, advances or other extensions of credit or capital contributions to any Person on the books of any member of the PK Group and all other investments in securities of any Person held by any member of the PK Group;
(xiv) subject to Article X , any rights of any member of the PK Group under any Company Policies, including any rights thereunder arising after the Effective Time in respect of any Company Policies that are occurrence policies and all rights in the nature of insurance, indemnification or contribution; provided , that ownership of the Company Policies shall remain with the HLT Group; and
(xv) any claims, counterclaims, setoffs, rights of recoupment, equity rights or defenses, whether known or unknown, that HLT and/or any of its Subsidiaries may have with respect to any Ownership Assets or Ownership Liabilities.
Notwithstanding the foregoing, the Ownership Assets shall not include any Assets that are expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the HLT Group or the HGV Group, as the case may be, including any Assets (A) specified in clauses (i) through (xv) of the definition of HLT Retained Assets, or (B) specified in clauses (i) through (xv) of the definition of Timeshare Assets.
(77) Ownership Business shall mean (A) the businesses conducted through the ownership, asset management (as opposed to hotel management), acquisition, development, refurbishment, redevelopment and sale of, and the provision of other services relating to hotel properties owned or leased by HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) prior to the Effective Time, including, for the avoidance of doubt, the businesses of (i) the acquisition, development, refurbishment, redevelopment and sale of, and the provision of other services relating to the hotel properties set forth on Schedule 1.1(77 ) , (ii) any other division, Subsidiary, line of business or investment of HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) managed or operated prior to the Effective Time by any Ownership Entity, unless such other division, Subsidiary, line of business or investment is a HLT Retained Entity, a HLT Retained Asset, a Timeshare Entity or a Timeshare Asset, and (iii) those business entities acquired or established by or for PK or any other member of the PK Group after the Effective Time, (B) the management of the day-to-day operations of the four hotel properties owned by PK and specified as such on Schedule 1.1(77) and (C) the management and operation of commercial laundry facilities servicing hotels, located in Portage, Indiana, Piscataway, New Jersey and Portland, Oregon.
(78) Ownership Contracts shall mean the following Contracts to which HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) is a party as of the date hereof or becomes a party prior to the Effective Time, whether or not in writing, except for any such Contract or part thereof (a) that is expressly contemplated not to be Transferred by any member of the HLT Group or the HGV Group to the PK Group or (b) that is expressly contemplated to be Transferred to (or remain with) any member of the HLT Group or the HGV Group, in each case, pursuant to any provision of this Agreement or any Specified Ancillary Agreement:
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(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the PK Group; provided that if such Contract was entered into by Hilton Worldwide Inc. (now known as Park Hotels & Resorts Inc.), such fact shall not, by itself, result in the determination that such Contract is an Ownership Contract;
(ii) any Contract that relates primarily to the Ownership Business, including (x) any Contract providing for the acquisition or disposition of an Ownership Entity or Ownership Assets and (y) any Contract that was entered into after the Effective Time and for which a quotation, proposal, or bid was pending as of the date hereof
(iii) any Contract that represents or underlies any Ownership Assets or Ownership Liabilities;
(iv) any Contract or part thereof that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b ) ) or any of the Ancillary Agreements to be assigned to or retained by any member of the PK Group; and
(v) any guarantee, indemnity, representation or warranty of or in favor of any member of the PK Group.
(79) Ownership Indemnitees shall mean each member of the PK Group and each of their respective Affiliates from and after the Effective Time and each member of the PK Groups and such respective Affiliates respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.
(80) Ownership Liabilities shall mean any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from: (a) the operation or conduct of the Ownership Business, as conducted at any time prior to, on or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the PK Group); (b) the operation or conduct of any business conducted by any member of the PK Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the PK Group); or (c) any Ownership Assets, whether arising prior to, on or after the Effective Time, including:
(i) any and all Liabilities reflected on the PK Balance Sheet or the accounting records supporting such balance sheet and any Liabilities incurred by or for PK or any member of the PK Group subsequent to the date of the PK Balance Sheet which, had they been so incurred on or before such date, would have been reflected on the PK Balance Sheet if prepared on a consistent basis, subject to any discharge of any of such Liabilities subsequent to the date of the PK Balance Sheet;
(ii) any Liabilities to the extent relating to, arising out of or resulting from, the Ownership Contracts;
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(iii) the Applicable PK Percentage of any Shared Contingent Liability;
(iv) the liabilities set forth on Schedule 1.1(80)(iv) (the Specified Ownership Liabilities );
(v) any Liabilities assumed or retained by the PK Group pursuant to this Agreement or the Ancillary Agreements;
(vi) any Liabilities arising prior to, at or after the Effective Time for any infringement by the Ownership Business of the Intellectual Property of any other Person or breach by the Ownership Business of any Contract relating to Intellectual Property;
(vii) all Liabilities arising prior to, at or after the Effective Time to the extent resulting from any (A) violation prior to the Effective Time of any Environmental Laws by the PK Group, any Ownership Discontinued Operation or the conduct of the Ownership Business, (B) use, treatment, or disposal prior to the Effective Time of Materials of Environmental Concern by or on behalf of the PK Group, any Ownership Discontinued Operation or in the conduct of the Ownership Business or (C) presence of Materials of Environmental Concern at, or release of Materials of Environmental Concern from, any Ownership Assets or any Ownership Discontinued Operation; provided that Liabilities of the type described in this subsection (vii) relating to real estate that is a HLT Retained Asset or a Timeshare Asset pursuant to this Agreement, shall not be Ownership Liabilities but shall instead be, respectively, HLT Retained Liabilities and Timeshare Liabilities;
(viii) any Liabilities relating to, arising out of or resulting from, any division, Subsidiary, line of business or investment of HLT or any of its Subsidiaries managed or operated at any time prior to the Effective Time by the Ownership Entities and sold, transferred or otherwise discontinued prior to the Effective Time, including the divisions, Subsidiaries, lines of business or investments set forth on Schedule 1.1(80)(viii ) , unless such division, Subsidiary, line of business or investment is listed on Schedule 1.1(53)(viii) or Schedule 1.1(110)(viii) (each such division, Subsidiary, line of business or investment, an Ownership Discontinued Operation );
(ix) any Liabilities relating primarily to, arising primarily out of or resulting primarily from, the operation or conduct of the Ownership Business by any Business Entity that is a HLT Retained Entity or a Timeshare Entity under this Agreement but has conducted the Ownership Business at any time prior to the Effective Time;
(x) any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated in the PK Form 10 or in any PK Offering Memorandum, or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, the PK Form 10, any PK Offering Memorandum and any other Disclosure Documents filed by PK in connection with the Distribution or as contemplated by this Agreement, other than with respect to the HLT Disclosure Sections;
(xi) Specified Shared Expenses to the extent provided in Section 5.2 ;
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(xii) any Liabilities relating to, arising out of or resulting from the claims, proceedings, litigation and disputes listed on Schedule 1.1(80)(xii ) ; and
(xiii) any Liabilities relating primarily to, arising primarily out of or resulting primarily from, a workers compensation claim brought by or on behalf of an employee employed at any time in the Ownership Business or any Ownership Discontinued Operation, except in the case where such employee was employed in either the Timeshare Business or any Timeshare Discontinued Operation or the HLT Retained Business or any HLT Discontinued Operation subsequent to such employees final employment in the Ownership Business or Ownership Discontinued Operations, as applicable, in which case the Liability shall be retained by HGV or HLT, respectively.
Notwithstanding the foregoing, the Ownership Liabilities shall not include any Liabilities that are expressly (A) contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be Assumed by any member of the HLT Group or the HGV Group, as the case may be, including any Liabilities specified (1) in the definition of HLT Retained Liabilities, including clauses (i) through (xiii) thereof, or (2) in clauses (i) through (xiii) of the definition of Timeshare Liabilities, or (B) discharged pursuant to Section 2.3 of this Agreement.
For the avoidance of doubt, no Liability shall be an Ownership Liability solely as a result of (x) PK being named as party to or in any Action relating to any HLT Retained Liability or Timeshare Liability or (y) PKs status as the former direct or indirect stockholder or equityholder of any member of the HLT Group or HGV Group.
(81) Person shall mean any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership or other organization or entity, whether incorporated or unincorporated, or any Governmental Entity.
(82) PK Balance Sheet shall mean the pro forma balance sheet of the PK Group, including the notes thereto, as of September 30, 2016, included in the PK Form 10.
(83) PK Common Stock shall have the meaning set forth in the recitals hereto.
(84) PK Distribution shall mean the distribution on the Distribution Date to holders of record of shares of HLT Common Stock as of the Distribution Record Date of the PK Common Stock owned by HLT, such distribution to be on the basis of one (1) share of PK Common Stock for every five (5) outstanding shares of HLT Common Stock (or such other basis as shall have been approved by the Board and set forth in the PK Information Statement).
(85) PK Form 10 shall mean the registration statement on Form 10 (Registration No. 001-37795) filed by PK with the Commission under the Securities Exchange Act of 1934, as amended, in connection with the PK Distribution, including any amendment or supplement thereto.
(86) PK Group shall mean PK and each Person that is a direct or indirect Subsidiary of PK immediately after the Effective Time, and each Person that becomes a Subsidiary of PK after the Effective Time, and shall include the Ownership Entities.
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(87) PK Information Statement shall mean the Information Statement attached as an exhibit to the PK Form 10 to be sent to the holders of shares of HLT Common Stock in connection with the PK Distribution, including any amendment or supplement thereto.
(88) PK Offering Memorandum shall mean any offering memorandum or offering circular distributed to potential investors in connection with any private offering of debt securities by PK, or its Subsidiaries, as the case may be, in connection with the Financing Arrangements.
(89) Plan of Reorganization shall have the meaning set forth in the recitals.
(90) Policies shall mean all insurance policies and insurance contracts of any kind including bonds (other than policies or contracts related to employee benefit plans) currently in place for HLT programs, together with the rights, benefits and privileges thereunder.
(91) Protected REIT shall mean any entity that (i) has elected to be taxed as a REIT and (ii) either (A) is an Indemnitee or (B) owns a direct or indirect equity interest in any Indemnitee and is treated for purposes of Section 856 of the Code as owning all or a portion of the assets of such Indemnitee or as receiving all or a portion of the Indemnitees income.
(92) Qualifying Income shall mean gross income that is described in Section 856(c)(3) of the Code.
(93) Records shall mean any Contracts, documents, books, records or files.
(94) REIT shall mean a real estate investment trust, as defined under the Code.
(95) REIT Requirements shall mean the requirements imposed on REITs pursuant to Sections 856 through and including 860 of the Code.
(96) Security Interest shall mean any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-entry, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever, excluding restrictions on transfer under securities Laws.
(97) Shared Contingent Liabilities shall mean any of the Liabilities set forth on Schedule 1.1(97 ) .
(98) Specified Shared Expenses shall mean any costs and expenses relating to the items or categories set forth on Schedule 1.1(98) that shall be shared in the manner specified in Section 5.2 .
(99) Subsidiary shall mean with respect to any Person (i) a corporation, fifty percent (50%) or more of the voting or capital stock of which is, as of the time in question, directly or indirectly owned by such Person and (ii) any other Person in which such first Person, directly or indirectly, owns fifty percent (50%) or more of the equity or economic interest thereof or has the power to elect or direct the election of fifty percent (50%) or more of the members of the governing body of such second Person.
(100) Tax shall have the meaning set forth in the Tax Matters Agreement.
(101) Tax Contest shall have the meaning in the definition of Audit as set forth in the Tax Matters Agreement.
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(102) Tax Matters Agreement shall mean the Tax Matters Agreement by and among HLT, PK, HGV and OpCo, in substantially the form attached hereto as Exhibit C .
(103) Tax Return shall have the meaning set forth in the Tax Matters Agreement.
(104) Third Party Agreements shall mean any of the following Contracts, arrangements, course of dealings or understandings:
(i) any agreements, arrangements, commitments or understandings to which any Person other than the Parties and their respective Groups is a party (it being understood that to the extent that the rights and obligations of the Parties and the members of their respective Groups under any such Contracts constitute Timeshare Assets or Timeshare Liabilities, Ownership Assets or Ownership Liabilities or HLT Retained Assets or HLT Retained Liabilities, such Contracts shall be assigned or retained pursuant to Article II ); and
(ii) any agreements, arrangements, commitments or understandings to which any non-wholly owned Subsidiary of HLT, PK or HGV, as the case may be, is a party.
(105) Timeshare Asset Transferee shall mean the Timeshare Entities to which Timeshare Assets shall be or have been transferred by an Asset Transferor in order to consummate the transactions contemplated hereby or by the Plan of Reorganization.
(106) Timeshare Assets shall mean any and all Assets that are owned, leased or licensed, at or prior to the Effective Time, by HLT and/or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest), relating primarily to, used primarily in, or arising primarily from, the Timeshare Business, and shall include:
(i) any and all Assets reflected on the HGV Balance Sheet or the accounting records supporting such balance sheet and any Assets acquired by or for HGV or any member of the HGV Group subsequent to the date of the HGV Balance Sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on the HGV Balance Sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of the HGV Balance Sheet;
(ii) the Assets set forth on Schedule 1.1(106)(ii) and any and all other Assets that are expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have been or are to be Transferred to HGV or any other member of the HGV Group;
(iii) the ownership interests in those Business Entities set forth on Schedule 1.1(106)(iii) (such entities, together with HGV, the Timeshare Entities )and all Assets of the Timeshare Entities relating primarily to, used primarily in, or arising primarily from the Timeshare Business;
(iv) all rights, title and interest in and to the owned real property set forth on Schedule 1.1(106)(iv) (the Timeshare Owned Real Property ), including all land and land improvements, structures, buildings and building improvements, other improvements and appurtenances located thereon;
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(v) all rights, title and interest in, and to and under the leases or subleases of the real property set forth on Schedule 1.1(106)(v) (the Timeshare Leases ) including, to the extent provided for in the Timeshare Leases, any land and land improvements, structures, buildings and building improvements, other improvements and appurtenances;
(vi) to the extent not provided in clauses (iv) and (v) of this definition, all fixtures, machinery, equipment, apparatuses, computer hardware and other electronic data processing equipment, information technology and communications equipment, tools, instruments, furniture, office equipment, automobiles, trucks, aircraft and other transportation equipment, special and general tools, test devices, molds, tooling, dies, prototypes and models and other tangible personal property, in each case located at any of the Timeshare Owned Real Property or the locations subject to the Timeshare Leases;
(vii) all inventories, including products, goods, materials, parts, raw materials, work-in-process and supplies, relating primarily to, used primarily in, or arising primarily from, the Timeshare Business;
(viii) all Timeshare Contracts and any rights or claims arising thereunder;
(ix) all Intellectual Property set forth on Schedule 1.1(106)(ix ) , subject, as applicable, to the applicable License Agreement;
(x) all licenses, permits, approvals and authorizations which have been issued by any Governmental Entity and which relate primarily to, are used primarily in, or arise primarily from, the Timeshare Business;
(xi) Information as follows, subject to any express exceptions in Article VIII :
(a) sole ownership and all originals and copies of all Information (other than Loyalty Program Data) used exclusively in the Timeshare Business and all Intellectual Property incorporated therein (provided that counsel for PK and HLT may retain a copy of any of same to the extent (A) it is already in possession of PK and HLT, as applicable, and (B) such retention is required by applicable Law);
(b) the original of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Timeshare Business and is in the possession or control of HGV as of the Distribution Date; provided that to the extent that (x) prior to the Distribution Date, HLT has used such Information in the HLT Retained Business (or following the Distribution Date HLT reasonably requires the use of such Information in the HLT Retained Business as conducted as of the Distribution Date) or (y) PK has used such Information in the Ownership Business (or following the Distribution Date PK reasonably requires the use of such Information in the Ownership Business as conducted as of the Distribution Date), HLT and/or PK, as applicable, shall (1) be deemed an equal co-owner with HGV of the Intellectual Property in such Information and each co-owning Party shall have the right to (and to allow others to) use and disclose such Information without an accounting to the other co-owning Party and (2) subject to Section 8.5, have the right to retain or receive a copy of such Information in
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the media in which it was maintained at the time of such request in the ordinary course of business prior to the Distribution Date, if such Party does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information; and
(c) a copy of all Information (other than Loyalty Program Data) that was used but not exclusively used in the Timeshare Business, and is in the possession or control of HLT or PK but not HGV as of the Distribution Date provided that HGV shall (i) be deemed an equal co-owner with the possessing or controlling Party of the Intellectual Property in such Information and have the right to (and to allow others to) use and disclose such Information without an accounting to the other co-owning Party and (ii) subject to Section 8.5 , have the right to retain or receive a copy of such Information in the media in which it was maintained at the time of such request, if HGV does not already have possession or control of such a copy as of the Distribution Date, provided that such copies of such Information shall remain subject to all applicable Laws, privacy policies and other agreements with third parties regarding such Information;
(xii) all deposits, prepaid expenses, letters of credit and performance and surety bonds relating primarily to, used primarily in, or arising primarily from, the Timeshare Business;
(xiii) all bonds, notes, debentures or other debt securities issued by any Person and held by any member of the HGV Group, all loans, advances or other extensions of credit or capital contributions to any Person on the books of any member of the HGV Group and all other investments in securities of any Person held by any member of the HGV Group;
(xiv) subject to Article X , any rights of any member of the HGV Group under any Company Policies, including any rights thereunder arising after the Effective Time in respect of any Company Policies that are occurrence policies and all rights in the nature of insurance, indemnification or contribution; provided that ownership of the Company Policies shall remain with the HLT Group; and
(xv) any claims, counterclaims, setoffs, rights of recoupment, equity rights or defenses, whether known or unknown, that HLT and/or any of its Subsidiaries may have with respect to any Timeshare Assets and Timeshare Liabilities.
Notwithstanding the foregoing, the Timeshare Assets shall not include any Assets that are expressly contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by or Transferred to any member of the PK Group or the HLT Group, as the case may be, including any Assets (A) specified in clauses (i) through (xv) of the definition of Ownership Assets or (B) specified in clauses (i) through (xv) of the definition of HLT Retained Assets.
(107) Timeshare Business shall mean the businesses conducted through the ownership, development, redevelopment and management of, the sale and financing of interests in, and the servicing of receivables with respect to, timeshare properties by HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership
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interest) prior to the Effective Time, including, for the avoidance of doubt, the businesses of (i) the ownership, development, redevelopment and management of, the sale and financing of interests in, and the servicing of receivables with respect to, the timeshare properties set forth on Schedule 1.1(107) hereto, (ii) any other division, Subsidiary, line of business or investment of HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) managed or operated prior to the Effective Time by any Timeshare Entity, unless such other division, Subsidiary, line of business or investment is an Ownership Entity, an Ownership Asset, a HLT Retained Entity or a HLT Retained Asset and (iii) those business entities acquired or established by or for HGV or any other member of the HGV Group after the Effective Time.
(108) Timeshare Contracts shall mean the following Contracts to which HLT or any of its Subsidiaries (or other Business Entities in which HLT or any of its Subsidiaries has an ownership interest) is a party as of the date hereof or becomes a party prior to the Effective Time, whether or not in writing, except for any such Contract or part thereof (i) that is expressly contemplated not to be Transferred by any member of the HLT Group or the PK Group to the HGV Group or (ii) that is expressly contemplated to be Transferred to (or remain with) any member of the HLT Group or the PK Group, in each case, pursuant to any provision of this Agreement or any Specified Ancillary Agreement:
(i) any Contract entered into in the name of, or expressly on behalf of, any division, business unit or member of the HGV Group;
(ii) any Contract that relates primarily to the Timeshare Business, including any (x) Contract providing for the acquisition or disposition of a Timeshare Entity or Timeshare Assets or (y) Contract that was awarded after the Effective Date and for which the quotation, proposal, or bid was pending as of the date hereof;
(iii) any Contract that relates primarily to the Timeshare Business that was awarded after the Effective Date and for which the quotation, proposal, or bid was pending as of the date hereof;
(iv) any Contract that represents or underlies any Timeshare Assets or Timeshare Liabilities;
(v) any Contract or part thereof that is otherwise expressly contemplated pursuant to this Agreement (including pursuant to Section 2.2(b ) ) or any of the Ancillary Agreements to be assigned to any member of the HGV Group; and
(vi) any guarantee, indemnity, representation or warranty of or in favor of any member of the HGV Group.
(109) Timeshare Indemnitees shall mean each member of the HGV Group and each of their respective Affiliates from and after the Effective Time and each member of the HGV Groups and such respective Affiliates respective directors, officers, employees and agents and each of the heirs, executors, successors and assigns of any of the foregoing.
(110) Timeshare Liabilities shall mean any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from: (a) the operation or conduct of the Timeshare Business, as conducted at any time prior to, at or after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer,
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employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the HGV Group); (b) the operation or conduct of any business conducted by any member of the HGV Group at any time after the Effective Time (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Persons authority) of the HGV Group); or (c) any Timeshare Assets, whether arising prior to, at or after the Effective Time, including:
(i) any and all Liabilities reflected on the HGV Balance Sheet or the accounting records supporting such balance sheet and any Liabilities incurred by or for HGV or any member of the HGV Group subsequent to the date of the HGV Balance Sheet which, had they been so incurred on or before such date, would have been reflected on the HGV Balance Sheet if prepared on a consistent basis, subject to any discharge of any of such Liabilities subsequent to the date of the HGV Balance Sheet;
(ii) any Liabilities to the extent relating to, arising out of or resulting from, the Timeshare Contracts;
(iii) the Applicable HGV Percentage of any Shared Contingent Liability;
(iv) The liabilities set forth on Schedule 1.1(110)(iv) (the Specified Timeshare Liabilities );
(v) any Liabilities assumed or retained by the HGV Group pursuant to this Agreement or the Ancillary Agreements;
(vi) any Liabilities arising prior to, at or after the Effective Time for any infringement by the Timeshare Business of the Intellectual Property of any other Person or breach by the Timeshare Business of any Contract relating to Intellectual Property;
(vii) all Liabilities arising prior to, at or after the Effective Time to the extent resulting from any (A) violation prior to the Effective Time of any Environmental Laws by the HGV Group, any Timeshare Discontinued Operation or the conduct of the Timeshare Business, (B) use, treatment, or disposal prior to the Effective Time of Materials of Environmental Concern by or on behalf of the HGV Group, any Timeshare Discontinued Operation or in the conduct of the Timeshare Business or (C) presence of Materials of Environmental Concern at, or release of Materials of Environmental Concern from, any Timeshare Assets or any Timeshare Discontinued Operation; provided that Liabilities of the type described in this subsection (vii) relating to real estate that is an Ownership Asset or a HLT Retained Asset pursuant to this Agreement, shall not be Timeshare Liabilities but shall instead be, respectively, Ownership Liabilities and HLT Retained Liabilities;
(viii) any Liabilities relating to, arising out of or resulting from, any division, Subsidiary, line of business or investment of HLT or any of its Subsidiaries managed or operated at any time prior to the Effective Time by the Timeshare Entities and sold, transferred or otherwise discontinued prior to the Effective Time, including the divisions, Subsidiaries, lines of business or investments set forth on Schedule 1.1(110)(viii ) , unless such division, Subsidiary, line of business or investment is listed on Schedule 1.1(53)(ix) or Schedule 1.1(80)(viii) (each such division, Subsidiary, line of business or investment, a Timeshare Discontinued Operation );
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(ix) any Liabilities relating primarily to, arising primarily out of or resulting primarily from, the operation or conduct of the Timeshare Business by any Business Entity that is a HLT Retained Entity or an Ownership Entity under this Agreement but has conducted the Timeshare Business at any time prior to the Effective Time;
(x) any Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated in the HGV Form 10 or in any HGV Offering Memorandum, or necessary to make the statements therein not misleading, with respect to all information contained in, or incorporated by reference into, the HGV Form 10, any HGV Offering Memorandum and any other Disclosure Documents filed by HGV in connection with the Distribution or as contemplated by this Agreement, other than with respect to the HLT Disclosure Sections;
(xi) Specified Shared Expenses to the extent provided in Section 5.2 ; and
(xii) any Liabilities relating to, arising out of or resulting from the claims, proceedings, litigation and disputes listed on Schedule 1.1(110)(xii ) ; and
(xiii) Any Liabilities relating primarily to, arising primarily out of or resulting primarily from, a workers compensation claim brought by or on behalf of an employee employed at any time in the Timeshare Business or any Timeshare Discontinued Operation, except in the case where such employee was employed in either the Ownership Business or any Ownership Discontinued Operation or the HLT Retained Business or any HLT Discontinued Operation subsequent to such employees final employment in the Timeshare Business or Timeshare Discontinued Operations, as applicable, in which case the Liability shall be retained by PK or HLT, respectively.
Notwithstanding the foregoing, the Timeshare Liabilities shall not include any Liabilities that are expressly (A) contemplated by this Agreement or by any Specified Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be Assumed by any member of the PK Group or the HLT Group, as the case may be, including any Liabilities specified (1) in clauses (i) through (xiii) of the definition of Ownership Liabilities or (2) in the definition of HLT Retained Liabilities, including clauses (i) through (xiii) thereof, or (B) discharged pursuant to Section 2.3 of this Agreement.
For the avoidance of doubt, no Liability shall be a Timeshare Liability solely as a result of (x) HGV being named as party to or in any Action relating to any HLT Retained Liability or Ownership Liability, or (y) HGVs status as the former direct or indirect stockholder or equityholder of any member of the HLT Group or PK Group.
(111) Transfer shall have the meaning set forth in Section 2.2(b ) ; and the term Transferred shall have its correlative meaning.
(112) Transition Services Agreement shall mean the Master Transition Services Agreement by and among HLT, PK and HGV, in substantially the form attached hereto as Exhibit D .
(113) Waiver Letter shall mean that letter agreement from Blackstone to each of PK and Hogan Lovells US LLP in the form attached as Exhibit E hereto.
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Section 1.2. References; Interpretation . References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words include, includes and including when used in this Agreement shall be deemed to be followed by the phrase without limitation. Unless the context otherwise requires, references in this Agreement to Articles, Sections, Annexes, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement. Unless the context otherwise requires, the words hereof, hereby and herein and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. The words written request when used in this Agreement shall include email. In the event of any inconsistency or conflict which may arise in the application or interpretation of any of the definitions set forth in Section 1.1 , for the purpose of determining what is and is not included in such definitions, any item explicitly included on a Schedule referred to in any such definition shall take priority over any provision of the text thereof.
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ARTICLE II
THE SEPARATION
Section 2.1. Genera l. Subject to the terms and conditions of this Agreement, the Parties shall use, and shall cause their respective Affiliates to use, their respective commercially reasonable efforts to consummate the transactions contemplated hereby, including as set forth in the Plan of Reorganization, a portion of which may have already been implemented prior to the date hereof. It is the intent of the Parties that, after consummation of the transactions contemplated hereby HLT shall have been restructured, to the extent necessary, such that following the consummation of such restructuring, subject to Section 2.5 and Section 2.6 , (i) HLT shall, directly or indirectly, own the equity interests of all of the HLT Retained Entities (other than HLT), all of HLTs and its controlled Affiliates rights, title and interest in and to the HLT Retained Assets shall be owned or held by the HLT Group, the HLT Retained Business shall be conducted by the HLT Group and all of the HLT Retained Liabilities shall be Assumed directly or indirectly by (or remain with) the HLT Group, (ii) PK shall, directly or indirectly, own the equity interests of all of the Ownership Entities (other than PK), all of HLTs and its controlled Affiliates rights, title and interest in and to the Ownership Assets shall be owned or held by the PK Group, the Ownership Business shall be conducted by the PK Group and all of the Ownership Liabilities shall be Assumed directly or indirectly by (or remain with) the PK Group, and (iii) HGV shall, directly or indirectly, own the equity interests of all of the Timeshare Entities (other than HGV), all of HLTs and its controlled Affiliates rights, title and interest in and to the Timeshare Assets shall be owned or held by the HGV Group, the Timeshare Business shall be conducted by the HGV Group and all of the Timeshare Liabilities shall be Assumed directly or indirectly by (or remain with) the HGV Group.
Section 2.2. Restructuring: Transfer of Assets; Assumption of Liabilities .
(a) Restructuring of Entities . Prior to the Effective Time, to the extent not already completed, HLT and its controlled Affiliates will use commercially reasonable efforts to take such steps (which may include the transfer of shares or other equity interests, the formation of new entities and/or the declaration of dividends) as may be necessary or desirable to effect the Plan of Reorganization (and any additional steps that may have been omitted from (or are otherwise required in order to effect) the Plan of Reorganization) in order to cause (i) HLT to, directly or indirectly, own the HLT Retained Entities (other than HLT), (ii) PK to, directly or indirectly, own the Ownership Entities (other than PK) and (iii) HGV to, directly or indirectly, own the Timeshare Entities (other than HGV). In the event such steps are not able to be completed by the Effective Time, the Parties shall use commercially reasonable efforts to effect other actions following the Effective Time in accordance with, and subject to the limitations of, Sections 2.5 and 2.6 to cause the result set forth above.
(b) Transfer of Other Assets and Assumption of Liabilities . Prior to the Effective Time, except as otherwise specifically set forth in any Specified Ancillary Agreement and without duplication of the obligations set forth in Section 2.2(a ) , pursuant to the Conveyancing and Assumption Instruments: (x) HLT shall use commercially reasonable efforts to cause the applicable Asset Transferors to, transfer, contribute, distribute, assign and/or convey or cause to be transferred, contributed, distributed, assigned and/or conveyed ( Transfer ) to (A) the respective Managing and Franchising Asset Transferees, all of the applicable Asset Transferors right, title and interest in and to the HLT Retained Assets, (B) PK and/or the respective Ownership Asset Transferees, all of its and the applicable Asset Transferors right, title and interest in and to the Ownership Assets and (C) HGV and/or the respective Timeshare Asset Transferees, all of its and the applicable Asset Transferors right, title and interest in and to the Timeshare Assets and (y) (i) HLT shall use commercially reasonable efforts to cause a member of the HLT Group to accept, assume (or, as applicable, retain) and perform, discharge and fulfill, in accordance with their respective terms ( Assume ), all of the HLT Retained Liabilities, (ii) PK shall, or shall cause a member of
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the PK Group to, Assume all of the Ownership Liabilities and (iii) HGV shall, or shall cause a member of the HGV Group to, Assume all of the Timeshare Liabilities, in each case, regardless of (I) when or where such Liabilities arose or arise, (II) whether the facts upon which they are based occurred prior to, on or subsequent to the Effective Time, (III) where or against whom such Liabilities are asserted or determined or (IV) whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the HLT Group, the PK Group or the HGV Group, as the case may be, or any of their past or present respective directors, officers, employees, agents, Subsidiaries or Affiliates. In the event and to the extent any such Transfers and Assumptions are not completed by the Effective Time, the Parties shall use commercially reasonable efforts to effect such Transfers and Assumptions following the Effective Time in accordance with, and subject to the limitations of, Sections 2.5, 2.6, 2.7 and 2.8 ).
(c) Consents . The Parties shall use their commercially reasonable efforts to obtain the required Consents or Governmental Approvals to Transfer any Assets, Contracts, licenses, permits and/or authorizations issued by any Governmental Entity or parts thereof as contemplated by this Agreement prior to the Effective Time, or, pursuant to Section 2.5, following the Effective Time. Nothing herein shall be deemed to require the Transfer of any Assets or the Assumption of any Liabilities which by operation of Law cannot be Transferred or Assumed; provided , however , that the Parties shall cooperate and use their commercially reasonable efforts to seek to obtain, in accordance with applicable Law, any required Consents or Governmental Approvals for the Transfer of all Assets and Assumption of all Liabilities to the fullest extent permitted by applicable Law contemplated to be Transferred and Assumed pursuant to this Article II .
Section 2.3. Intercompany Accounts . Except as set forth in Section 7.1(b) and to the extent not otherwise settled, capitalized or otherwise eliminated pursuant to any Ancillary Agreement, all (i) intercompany receivables, payables and loans (other than receivables, payables and loans otherwise specifically provided for under this Agreement, under any Ancillary Agreement or under any Continuing Arrangements as set forth on Schedule 1.1(20 ), and other than payables created or required hereby or by any Ancillary Agreement or any Continuing Arrangements or trade payables arising in the ordinary course of business), if any, and (ii) intercompany balances, including in respect of any cash balances, any cash balances representing deposited checks or drafts or any cash held in any centralized cash management system (A) between any member of the HLT Group, on the one hand, and any member of the PK Group or the HGV Group, on the other hand or (B) between any member of the PK Group, on the one hand, and any member of the HGV Group, on the other hand, in each case, which exist and are reflected in the accounting records of the relevant Parties immediately prior to the Effective Time, shall be settled or capitalized, in each case as of the Effective Time, as may be agreed prior to the Effective Time by HLT, PK and/or HGV, and their respective Subsidiaries, as applicable. Each of the Parties shall, and shall cause their respective Subsidiaries to, take all actions and do all things reasonably necessary on its part, or such Subsidiaries part, under applicable Law or contractual obligations to consummate and make effective the transactions contemplated by such agreement or agreements in respect of such settlements or capitalizations.
Section 2.4. Limitation of Liability . No Party shall have any Liability to any other Party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate.
Section 2.5. Transfers Not Effected at or Prior to the Effective Time; Transfers Deemed Effective as of the Effective Time .
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(a) To the extent that any Transfer of Assets (including any entity) or Assumption of Liabilities contemplated by this Article II shall not have been consummated at or prior to the Effective Time, the Parties shall use commercially reasonable efforts to effect such Transfers as promptly following the Effective Time as shall be practicable. Nothing herein shall be deemed to require the Transfer of any Assets or the Assumption of any Liabilities which by their terms or operation of Law cannot be Transferred; provided , however , that the Parties and their respective Subsidiaries shall cooperate and use commercially reasonable efforts to seek to obtain, in accordance with applicable Law, any necessary Consents or Governmental Approvals for the Transfer of all Assets and Assumption of all Liabilities to the fullest extent permitted by applicable Law contemplated to be Transferred and Assumed pursuant to this Article II .
(b) In the event that any such Transfer of Assets (including any entity) or Assumption of Liabilities has not been consummated, from and after the Effective Time (i) the Party retaining such Asset shall thereafter hold such Asset in trust for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and (ii) the Party intended to Assume such Liability shall, or shall cause the applicable member of its Group to (A) pay or reimburse the Party retaining such Liability for all amounts paid or incurred by such Party (applicable member of its Group) in connection with the retention of such Liability or (B) perform any non-monetary Liabilities in the place of the Party retaining such Liability to the extent such performance is practicable, permitted under applicable Law and does not result in a breach or default (or give rise to any termination rights, penalties or other remedies for the benefit of any counterparty) under any applicable Contract. To the extent the foregoing applies to any Contracts to be assigned for which any necessary Consents or Governmental Approvals are not received prior to the Effective Time, the treatment of such Contracts shall, for the avoidance of doubt, be subject to Section 2.7 , to the extent applicable. In addition, the Party retaining such Asset or Liability shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Asset or Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the Party to which such Asset is to be Transferred or by the Party Assuming such Liability in order to place such Party, insofar as reasonably possible, in the same position as if such Asset or Liability had been Transferred or Assumed as contemplated hereby and so that all of the benefits and burdens relating to such Asset or Liability, including possession, use, risk of loss, potential for gain, and dominion, control and command over such Asset or Liability, are to inure from and after the Effective Time to the member or members of the HLT Group, the HGV Group or the PK Group entitled to the receipt of such Asset or required to Assume such Liability. In furtherance of the foregoing, the Parties agree that, as of the Effective Time, subject to Section 2.2(c ) , to the extent permitted by applicable Law, each Party shall be deemed to have acquired complete and sole beneficial ownership over all of the Assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have Assumed in accordance with the terms of this Agreement all of the Liabilities, and all duties, obligations and responsibilities incident thereto, which such Party is entitled to acquire or required to Assume pursuant to the terms of this Agreement.
(c) If and when the Consents, Governmental Approvals and/or conditions, the absence or non-satisfaction of which caused the deferral of Transfer of any Asset or deferral of the Assumption of any Liability pursuant to Section 2.5(a ) , are obtained or satisfied, the Transfer, assignment, Assumption or novation of the applicable Asset or Liability shall be effected in accordance with and subject to the terms of this Agreement (including Section 2.2 ) and/or the applicable Ancillary Agreement, and shall, to the extent possible without the imposition of any substantial cost on any Party, be deemed to be effective as of the Effective Time.
(d) Any costs and expenses incurred after the Effective Time and on or prior to the second anniversary of the Distribution Date to effect any Transfer of Assets (including any entity) or Assumption of Liabilities shall be shared equally between the Parties to which such Transfer of Assets or Assumption of Liabilities relates. Following the second anniversary of the Distribution Date, (i) the Party retaining any Asset (including any entity) contemplated by this Agreement to be Transferred to another Party shall
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not be obligated to expend any money to Transfer such Asset to such other Party unless the necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Party entitled to such Asset and (ii) the Party required to assume any Liability contemplated by this Agreement to be Assumed by such Party shall not be obligated to expend any money to Assume such Liability unless the necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Party seeking to be relieved of such Liability. Other than costs and expenses incurred and reimbursed in accordance with the foregoing, nothing in this Section 2.5(d) shall require any member of any Group to incur any material obligation or grant any material concession for the benefit of any member of any other Group in order to effect any transaction contemplated by Section 2.2 or Section 2.5 .
(e) With respect to Assets and Liabilities described in Section 2.5(a ) , each of HLT, PK and HGV shall, and shall cause the members of its respective Group to, (i) treat for all Income Tax purposes (A) the deferred Assets as assets having been Transferred to and owned by the Party entitled to such Assets not later than the Effective Time (or the time of the Internal Distribution of OpCo common stock in the case of Assets intended to be part of the OpCo Contribution) and (B) the deferred Liabilities as liabilities having been Assumed and owned by the Person intended to be subject to such Liabilities not later than the Effective Time (or the time of the Internal Distribution of OpCo common stock in the case of Assets intended to be part of the OpCo Contribution) and (ii) neither report nor take any Income Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by a change in applicable Tax Law, good faith resolution of a Tax Contest relating to Income Taxes or a Final Determination).
Section 2.6. Conveyancing and Assumption Instruments . In connection with, and in furtherance of, the Transfers of Assets and the Assumptions of Liabilities contemplated by this Agreement, the Parties shall execute or cause to be executed, on or after the date hereof by the appropriate entities to the extent not executed prior to the date hereof (but subject to Section 2.5), any Conveyancing and Assumption Instruments necessary to evidence the valid Transfer to the applicable Party or member of such Partys Group of all right, title and interest in and to its accepted Assets and the valid and effective Assumption by the applicable Party of its Assumed Liabilities for Transfers and Assumptions to be effected pursuant to the Laws of one of the states of the United States or, if not appropriate for a given Transfer or Assumption, and for Transfers or Assumptions to be effected pursuant to non-U.S. Laws, in such form as the Parties shall reasonably agree, including the Transfer of real property by mutually acceptable conveyance deeds as may be appropriate and in form and substance as may be required by the jurisdiction in which the real property is located. The Transfer of capital stock shall be effected by means of executed stock powers and notation on the stock record books of the corporation or other legal entities involved, or by such other means as may be required in any non-U.S. jurisdiction to Transfer title to stock and, only to the extent required by applicable Law, by notation on public registries.
Section 2.7. Further Assurances .
(a) In addition to and without limiting the actions specifically provided for elsewhere in this Agreement, including Section 2.5 , each of the Parties shall cooperate with each other and use (and shall cause its respective Subsidiaries and Affiliates to use) commercially reasonable efforts, at and after the Effective Time, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary on its part under applicable Law or contractual obligations to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, at and after the Effective Time, each Party shall cooperate with the other Parties, and, subject to Section 2.5 , from and after the Effective Time, to execute and deliver, or use commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of Transfer or title, and to make all filings with, and to obtain all Consents and/or
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Governmental Approvals, any permit, license, Contract, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by any other Party from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the Transfers of the applicable Assets and the assignment and Assumption of the applicable Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each Party shall, subject to Section 2.5, take such other actions as may be reasonably necessary to vest in such other Party such title and such rights as possessed by the transferring Party to the Assets allocated to such other Party under this Agreement or any of the Ancillary Agreements, free and clear of any Security Interest, if and to the extent it is practicable to do so.
(c) At or prior to the Effective Time, each of HLT, PK and HGV shall enter into, and/or (where applicable) shall cause a member or members of their respective Group to enter into, the Specified Ancillary Agreements and shall, subject to Section 2.5 , use commercially reasonable efforts to enter into any other Ancillary Agreements and any other Contracts in respect of the Distributions reasonably necessary or appropriate in connection with the transactions contemplated hereby and thereby ( provided , however , that for the avoidance of doubt the Managing and Franchising Agreements shall not become effective until after the Distributions).
Section 2.8. Guarantees; Letters of Credit .
(a) Except as otherwise set forth in Section 2.8(b ) , any member of the HLT Group, the PK Group or the HGV Group, as applicable (an Existing Guarantor ), shall remain as the guarantor or obligor under any guarantee and/or letter of credit by such Existing Guarantor in favor of any member of another Group (a Guaranteed Party ) to which it is a party, and the applicable Guaranteed Party shall indemnify and hold harmless the Existing Guarantor for any Indemnifiable Loss arising from or relating thereto (in accordance with the provisions of Article VII ).
(b) With respect to those guarantees and/or letters of credit set forth on Schedule 2.8(b ) , (i) HLT shall (with the reasonable cooperation of the applicable member of the HGV Group or PK Group) use its commercially reasonable efforts to have any member of the HGV Group and/or the PK Group removed as guarantor of or obligor for any HLT Retained Liability to the fullest extent permitted by applicable Law, including in respect of those guarantees set forth on Schedule 2.8(b)(i ) , to the extent that they relate to HLT Retained Liabilities, (ii) PK shall (with the reasonable cooperation of the applicable member of the HLT Group or HGV Group) use commercially reasonable efforts to have any member of the HLT Group and/or the HGV Group removed as guarantor of or obligor for any Ownership Liability to the fullest extent permitted by applicable Law, including in respect of those guarantees set forth on Schedule 2.8(b)(ii ) , to the extent that they relate to Ownership Liabilities and (iii) HGV shall (with the reasonable cooperation of the applicable member of the HLT Group or PK Group) use commercially reasonably efforts to have any member of the HLT Group and/or the PK Group removed as guarantor of or obligor for any Timeshare Liability, to the fullest extent permitted by applicable Law, including in respect of those guarantees set forth on Schedule 2.8(b)(iii ) , to the extent that they relate to Timeshare Liabilities.
(c) To the extent required to obtain a release from a guaranty (a Guaranty Release ) in accordance with Section 2.8(b ) :
(i) of any member of the HLT Group, PK and/or HGV shall, as applicable, execute a guaranty agreement substantially in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which PK or HGV, as the case may be, would be reasonably unable to comply or (B) which would be reasonably expected to be breached;
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(ii) of any member of the PK Group, HLT and/or HGV shall, as applicable, execute a guaranty agreement substantially in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which HLT or HGV, as the case may be, would be reasonably unable to comply or (B) which would be reasonably expected to be breached; and
(iii) of any member of the HGV Group, HLT and/or PK, shall, as applicable, execute a guaranty agreement substantially in the form of the existing guaranty or such other form as is agreed to by the relevant parties to such guaranty agreement, except to the extent that such existing guaranty contains representations, covenants or other terms or provisions either (A) with which HLT or PK, as the case may be, would be reasonably unable to comply or (B) which would be reasonably expected to be breached.
(d) If HLT, PK or HGV is unable to obtain, or to cause to be obtained, any such required removal as set forth in clauses (b) and (c) of this Section 2.8 , (i) the relevant member of the HLT Group, PK Group or HGV Group, as applicable, that has assumed the underlying Liability with respect to such guaranty shall indemnify and hold harmless the guarantor or obligor for any Indemnifiable Loss arising from or relating thereto (in accordance with the provisions of Article VII ) and shall or shall cause one of its Subsidiaries to, as agent or subcontractor for such guarantor or obligor, pay, perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor thereunder and (ii) each of HLT, PK and HGV, on behalf of themselves and the members of their respective Groups, agree not to renew or extend the term of, increase its obligations under, or Transfer to a third party, any loan, guarantee, lease, contract or other obligation for which another Party or member of such Partys Group is or may be liable without the prior written consent of such other Party, unless all obligations of such other Party and the other members of such Partys Group with respect thereto are thereupon terminated by documentation reasonably satisfactory in form and substance to such Party; provided , however , with respect to leases, in the event a Guaranty Release is not obtained and the relevant beneficiary wishes to extend the term of such guaranteed lease, then such beneficiary shall have the option of extending the term if it provides such security as is reasonably satisfactory to the guarantor under such guaranteed lease.
Section 2.9. Return of Assets and Payments .
(a) In the event that, at any time from and after the Effective Time, any Party (or any member of its Group) discovers that it or one of the members of its Group is the owner of, receives or otherwise comes to possess or benefit from any Asset (including the receipt of payments made pursuant to Contracts and proceeds from accounts receivable with respect to such Asset) or is liable for any Liability that is otherwise allocated to any Person that is a member of one of the other Groups pursuant to this Agreement or any Ancillary Agreement (except in the case of any acquisition of Assets or assumption of Liabilities from the other Party for value subsequent to the Effective Time), such Party shall promptly Transfer, or cause to be Transferred, such Asset or Liability to the Person so entitled thereto (and the applicable Party shall cause such entitled Person to accept such Asset or Assume such Liability) for no further consideration. Prior to any such transfer, such Asset shall be held in accordance with the other provisions of Section 2.5 .
(b) After the Effective Time, each Party (or any member of its Group) may receive mail, packages and other communications properly belonging to another Party (or any member of its Group). Accordingly, at all times after the Effective Time, each Party is hereby authorized to receive and open all
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mail, packages and other communications received by such Party that belongs to such other Party, and to the extent that they do not relate to the business of the receiving Party, the receiving Party shall promptly deliver such mail, packages or other communications (or, in case the same also relates to the business of the receiving Party or another Party, copies thereof) to such other Party as provided for in Section 11.6 . The provisions of this Section 2.9(b) are not intended to, and shall not, be deemed to constitute an authorization by any Party to permit the other to accept service of process on its behalf and no Party is or shall be deemed to be the agent of any other Party for service of process purposes.
(c) As between any two Parties (and the members of their respective Group) all payments and reimbursements received after the Effective Time by any Party (or member of its Group) that relate to a Business, Asset or Liability of another Party (or member of its Group), shall be held by such Party in trust for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and, promptly upon receipt by such Party of any such payment or reimbursement, such Party shall pay or shall cause the applicable member of its Group to pay over to the Party entitled thereto the amount of such payment or reimbursement without right of set-off.
Section 2.10. Disclaimer of Representations and Warranties . EACH OF HLT (ON BEHALF OF ITSELF AND EACH MEMBER OF THE HLT GROUP), PK (ON BEHALF OF ITSELF AND EACH MEMBER OF THE PK GROUP), AND HGV (ON BEHALF OF ITSELF AND EACH MEMBER OF THE HGV GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT OR IN ANY CONTINUING ARRANGEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENTS OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES OR LIABILITIES CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS, RESTRICTIONS ON TRANSFER, ENCUMBRANCE OR LIEN, NON-INFRINGEMENT, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY CONTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN AS IS, WHERE IS BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST, RESTRICTIONS ON TRANSFER, ENCUMBRANCE OR LIEN AND (II) ANY NECESSARY CONSENTS OR GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.
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ARTICLE III
CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTIONS
Section 3.1. Certificates of Incorporation; By-laws .
(a) PK . On or prior to the Distribution Date, all necessary actions shall be taken to adopt the form of amended and restated certificate of incorporation and form of amended and restated by-laws filed by PK with the Commission as exhibits to the PK Form 10, to be effective as of the Effective Time.
(b) HGV . On or prior to the Distribution Date, all necessary actions shall be taken to adopt the form of amended and restated certificate of incorporation and form of amended and restated by-laws filed by HGV with the Commission as exhibits to the HGV Form 10, to be effective as of the Effective Time.
Section 3.2. Directors .
(a) HLT . On or prior to the Distribution Date, HLT shall take all necessary actions, including procuring the resignations of the directors named on Schedule 3.2(a ) , such that, at the Effective Time, its Board shall include the individuals named on Schedule 3.2(a ) .
(b) PK . On or prior to the Distribution Date, HLT shall take all necessary action to cause the Board of Directors of PK to include, at the Effective Time, the individuals identified in the PK Information Statement as directors of PK.
(c) HGV . On or prior to the Distribution Date, HLT shall take all necessary action to cause the Board of Directors of HGV to include, at the Effective Time, the individuals identified in the HGV Information Statement as directors of HGV.
Section 3.3. Officers .
(a) HLT . On or prior to the Distribution Date, HLT shall take all necessary actions, including procuring the resignations of its officers, such that at the Effective Time its officers shall be the individuals named on Schedule 3.3(a ) .
(b) PK . On or prior to the Distribution Date, HLT shall take all necessary action to cause the individuals identified as such in the PK Information Statement to be officers of PK as of the Effective Time.
(c) HGV . On or prior to the Distribution Date, HLT shall take all necessary action to cause the individuals identified as such in the HGV Information Statement to be officers of HGV as of the Effective Time.
Section 3.4. Resignations and Removals .
(a) PK . On or prior to the Distribution Date or as soon thereafter as practicable, (i) HLT shall cause all of its employees and any employees of its Subsidiaries (excluding any employees of any member of the PK Group) to resign or be removed, effective as of the Effective Time, from all positions as officers or directors of any member of the PK Group in which they serve, and (ii) PK shall cause all of its employees and any employees of its Subsidiaries to resign, effective as of the Effective Time, from all positions as officers or directors of any members of the HLT Group or the HGV Group in which they serve.
(b) HGV . On or prior to the Distribution Date or as soon thereafter as practicable, (i) HLT shall cause all of its employees and any employees of its Subsidiaries (excluding any employees of any member of the HGV Group) to resign or be removed, effective as of the Effective Time, from all positions as officers or directors of any member of the HGV Group in which they serve, and (ii) HGV shall cause all of its employees and any employees of its Subsidiaries to resign, effective as of the Effective Time, from all positions as officers or directors of any members of the HLT Group or the PK Group in which they serve.
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(c) No Person shall be required by any Party to resign from any position or office with another Party if such Person is disclosed in the applicable Information Statement as the Person who is to hold such position or office following the applicable Distribution.
Section 3.5. Dividends . Prior to the Distribution Date, PK will declare and pay a cash dividend to HLT (or another member of the HLT Group) in an amount to be mutually agreed by HLT and PK. Prior to the Distribution Date, HGV will declare and pay a cash dividend to HLT (or another member of the HLT Group) in an amount to be mutually agreed by HLT and HGV.
ARTICLE IV
EFFECTING THE DISTRIBUTION; CONDITIONS TO THE DISTRIBUTION
Section 4.1. Stock Dividends to HLT Stockholders .
(a) PK . On the Distribution Date, HLT shall cause the Distribution Agent to distribute all of the outstanding shares of PK Common Stock then owned by HLT to holders of HLT Common Stock on the Distribution Record Date, and to credit the appropriate number of such shares of PK Common Stock to book entry accounts for each such holder or designated transferee or transferees of such holder of PK Common Stock. For stockholders of HLT who own HLT Common Stock through a broker or other nominee, their shares of HLT Common Stock shall be credited to their respective accounts by such broker or nominee. Unless otherwise provided for in the Employee Matters Agreement, each holder of HLT Common Stock on the Distribution Record Date (or such holders designated transferee or transferees) shall be entitled to receive in the PK Distribution one (1) share of PK Common Stock, or such other number of shares of PK Common Stock as shall have been approved by the Board and set forth in the PK Information Statement, for every five (5) shares of HLT Common Stock held by such stockholder; provided that notwithstanding anything herein to the contrary, HLT shall not distribute any fractional shares of PK Common Stock and instead HLT shall cause the Distribution Agent to aggregate fractional shares to which holders of HLT Common Stock would otherwise be entitled into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder of HLT Common Stock who would otherwise have been entitled to receive a fractional share in the PK Distribution. No action by any such stockholder shall be necessary for such stockholder (or such stockholders designated transferee or transferees) to receive the applicable number of shares (and, if applicable, cash in lieu of any fractional shares) of PK Common Stock such stockholder is entitled to in the PK Distribution.
(b) HGV . On the Distribution Date, HLT shall cause the Distribution Agent to distribute all of the outstanding shares of HGV Common Stock then owned by HLT to holders of HLT Common Stock on the Distribution Record Date, and to credit the appropriate number of such shares of HGV Common Stock to book entry accounts for each such holder or designated transferee or transferees of such holder of HGV Common Stock. For stockholders of HLT who own HLT Common Stock through a broker or other nominee, their shares of HGV Common Stock shall be credited to their respective accounts by such broker or nominee. Unless otherwise provided for in the Employee Matters Agreement, each holder of HLT Common Stock on the Distribution Record Date (or such holders designated transferee or transferees) shall be entitled to receive in the HGV Distribution one (1) share of HGV Common Stock, or such other number of shares of HGV Common Stock as shall have been approved by the Board and set forth in the HGV Information Statement, for every ten (10) shares of HLT Common Stock held by such
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stockholder; provided that notwithstanding anything herein to the contrary, HLT shall not distribute any fractional shares of HGV Common Stock and instead HLT shall cause the Distribution Agent to aggregate fractional shares to which holders of HLT Common Stock would otherwise be entitled into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds from the sales pro rata to each holder of HLT Common Stock who would otherwise have been entitled to receive a fractional share in the HGV Distribution. No action by any such stockholder shall be necessary for such stockholder (or such stockholders designated transferee or transferees) to receive the applicable number of shares (and, if applicable, cash in lieu of any fractional shares) of HGV Common Stock such stockholder is entitled to in the HGV Distribution.
Section 4.2. Actions in Connection with the Distribution .
(a) Prior to the Distribution Date, each of PK and HGV shall file such amendments and supplements to their respective Form 10s as HLT may reasonably request, and such amendments as may be necessary in order to cause the same to become and remain effective as required by Law, including filing such amendments and supplements to their respective Form 10s as may be required by the Commission or federal, state or foreign securities Laws. Each of PK and HGV shall mail to the holders of HLT Common Stock, at such time on or prior to the Distribution Date as HLT shall determine, a Notice of Internet Availability of Information Statement Materials, as well as any other information concerning PK or HGV, as applicable, their business, operations and management, the Plan of Reorganization, the PK Distribution or HGV Distribution, as applicable, and such other matters as HLT shall reasonably determine are necessary and as may be required by Law. Promptly after receiving a request from HLT, to the extent requested, each of PK and HGV shall prepare and, in accordance with applicable Law, file with the Commission any such documentation that HLT reasonably determines is necessary or desirable to effectuate the applicable Distribution, and HLT, PK and HGV shall each use commercially reasonable efforts to obtain all necessary approvals from the Commission with respect thereto as soon as practicable.
(b) Each of PK and HGV shall use commercially reasonable efforts in preparing, filing with the Commission and causing to become effective, as soon as reasonably practicable (but in any case prior to the Effective Time), effective registration statements or amendments thereof which are required in connection with the establishment of, or amendments to, any employee benefit plans of such Party.
(c) To the extent not already approved and effective, each of PK and HGV shall use commercially reasonable efforts to have approved and made effective, the respective application for the original listing of the PK Common Stock and HGV Common Stock, as applicable, to be distributed in the applicable Distribution on the NYSE, subject to official notice of distribution.
(d) Each Party shall provide all cooperation reasonably requested by the other Parties that is necessary or desirable in connection with the Financing Arrangements.
(e) Nothing in this Section 4.2 shall be deemed to shift or otherwise impose Liability for any portion of such Form 10s or Information Statements to HLT.
Section 4.3. Sole Discretion of HLT . HLT shall, in its sole and absolute discretion, determine the Distribution Date, the Effective Time and all other terms of the Distribution, including the form, structure and terms of any transactions and/or offerings to effect the Distribution and the timing of and conditions to the consummation thereof. In addition, HLT may, in accordance with Section 11.10, at any time and from time to time until the completion of the Distribution decide to abandon the PK Distribution and/or the HGV Distribution or modify or change the terms of the PK Distribution and/or the HGV Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution. Without limiting the foregoing, HLT shall have the right not to complete the Distribution if, at any time prior to the Effective Time, the Board shall have determined, in its sole discretion, that the Distribution is not in the best interests of HLT or its stockholders.
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Section 4.4. Conditions to the Distribution . Subject to Section 4.3 , the following are conditions to the consummation of the Distribution. The conditions are for the sole benefit of HLT and shall not give rise to or create any duty on the part of HLT or the Board to waive or not waive any such condition.
(a) The applicable Form 10 shall have been declared effective by the Commission, no stop order suspending the effectiveness thereof shall be in effect, no proceedings for such purpose shall be pending before or threatened by the Commission, and the applicable Information Statement (or applicable Notice of Internet Availability of Information Statement Materials) shall have been mailed to the holders of HLT Common Stock;
(b) With respect to the (i) PK Distribution, the PK Common Stock to be delivered in the PK Distribution shall have been approved for listing on the NYSE, subject to official notice of distribution and (ii) HGV Distribution, the HGV Common Stock to be delivered in the HGV Distribution shall have been approved for listing on the NYSE, subject to official notice of distribution;
(c) Prior to the Distribution Date, HLT shall have obtained an opinion from Simpson Thacher & Bartlett LLP, its tax counsel, in form and substance satisfactory to HLT (in its sole discretion), to the effect that the Distribution will qualify as a tax-free distribution under Section 355 of the Code;
(d) On or prior to the Distribution Date, Blackstone shall have delivered the Waiver Letter to PK;
(e) Prior to the Distribution Date, with respect to the PK Distribution, PK shall have obtained an opinion from Hogan Lovells US LLP, in form and substance reasonably satisfactory to PK, to the effect that, commencing with PKs taxable year ending December 31, 2017, PK should have been organized in conformity with the requirements for qualification as a REIT under the Code, and its proposed method of operation should enable it to meet the requirements for qualification and taxation as a REIT;
(f) The IRS Ruling shall not have been revoked or modified in any material respect;
(g) Prior to the Distribution Date, the Board shall have obtained opinions from a nationally recognized valuation firm, in form and substance satisfactory to HLT, with respect to the capital adequacy and solvency of each of HLT, PK and HGV after giving effect to the Distribution;
(h) Any material Governmental Approvals and other Consents necessary to consummate the applicable Distribution or any portion thereof shall have been obtained and be in full force and effect, it being understood that, for the avoidance of doubt, the Governmental Approvals and Consents contemplated by Section 2.5 shall not be deemed necessary to consummate any Distribution;
(i) No order, injunction or decree issued by any Governmental Entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of all or any portion of the applicable Distribution shall be pending, threatened, issued or in effect, and no other event outside the control of HLT shall have occurred or failed to occur that prevents the consummation of all or any portion of the applicable Distribution;
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(j) No other events or developments shall have occurred or failed to occur prior to the Distribution Date that, in the judgment of the Board, would result in the Distribution having a material adverse effect on HLT or its stockholders;
(k) The Financing Arrangements described in the applicable Information Statements as having occurred prior to the Distribution shall have been consummated on or prior to the Distribution;
(l) The Plan of Reorganization shall have been completed, except for such steps as HLT in its sole discretion shall have determined may be completed after the Effective Time;
(m) The actions and events set forth in Sections 3.1 , 3.2 and 3.3 shall have occurred;
(n) The Board shall have approved the Distribution, which approval may be given or withheld at its absolute and sole discretion;
(o) Each Specified Ancillary Agreement shall have been executed by each party thereto.
ARTICLE V
CERTAIN COVENANTS
Section 5.1. Intellectual Property . Each Party shall not use or exploit the Intellectual Property of the other Parties after the Effective Time, except (i) as permitted in the Ancillary Agreements, (ii) as required by applicable Law, (iii) as permitted by the fair use or similar doctrines or defenses, or (iv) for neutral, non-trademark use of the other Parties Trademarks to describe the history of each Partys respective business. Subject to the terms and conditions herein, effective as of the Distribution Date, HLT grants to the Subsidiaries of PK a non-exclusive, non-sublicensable, non-assignable license to continue to use, maintain and renew any corporate or trade name (and related registrations) that (i) contain any Trademarks owned by HLT or its Subsidiaries as of the Distribution Date and (ii) are used as of the Distribution Date as corporate or trade names by Subsidiaries of PK that, as of the Distribution Date, exist and are in good standing. The above license does not give PK and its Subsidiaries the right to (a) file for new registrations containing any Trademarks owned by HLT or its Subsidiaries, (b) use any Trademarks owned by HLT or its Subsidiaries as the corporate, trade or other name of any entity not in existence and good standing as of the Distribution Date, (c) represent to any Person that PK or any of its Subsidiaries is affiliated with or doing business as HLT or an Affiliate thereof or (d) make trademark use of any Trademark owned by HLT or its Subsidiaries or apply to register or register any such Trademarks (as any type of Trademark) or use such Trademarks in any manner other than as set forth above.
Section 5.2. Administration of Specified Shared Expenses . HLT shall be responsible for administering each Specified Shared Expense. Each Party shall be responsible for payment of its Applicable Percentage of any Specified Shared Expense, except with respect to certain Specified Shared Expenses otherwise allocated among the Parties as set forth on Schedule 1.1(98 ). HLT shall invoice each of PK and HGV on a quarterly basis, and PK and HGV shall each promptly following invoice reimburse HLT for its allocable share of such Specified Shared Expenses. In addition, HLT shall, in connection with each invoice, provide a quarterly estimated budget (for informational and planning purposes only) to PK and HGV of Specified Shared Expenses for the following quarter.
Section 5.3. Cooperation . From and after the Effective Time and subject to compliance with the other provisions of this Agreement (including Section 8.6 ) and the Ancillary Agreements, each Party shall, and shall cause each of its respective Affiliates and employees to, (i) provide reasonable cooperation and assistance to each other Party (and any member of their respective Groups) in connection with the completion of the Plan of Reorganization (including assisting in the preparation of the
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Distributions), the Distributions and the other matters contemplated by this Agreement and the Ancillary Agreements, (ii) provide knowledge transfer regarding its applicable Business or HLTs historical business at the reasonable request of another Party, (iii) reasonably assist each other Party in the orderly and efficient transition in becoming an independent company to the extent set forth in the Transition Services Agreement and (iv) reasonably assist each other Party to which such Party is providing or has provided services, as applicable, pursuant to the Transition Services Agreement, in connection with requests for information from, audits or other examinations of, such other Party by a Governmental Entity; in each case, except as set forth in Section 2.5 , as may otherwise be agreed to by the Parties in writing or as contemplated by the immediately following sentence, at no additional cost to the Party requesting such assistance other than for the actual out-of-pocket costs (which shall not include the costs of salaries and benefits of employees of such Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing) incurred by any such Party, if applicable. If an employee of one Party is requested to dedicate a significant portion or his or her working time to a project requested by another Party, the Parties agree that (x) during the term of the Transition Services Agreement, such services shall be provided in accordance with the terms of the Transition Services Agreement and (y) after the term of the Transition Services Agreement, such services shall be provided based on the allocated employment cost (including overhead) of such employee. In furtherance of, and without limiting, the foregoing, each Party shall make reasonably available those employees with particular knowledge of any function or service of which another Party was not allocated the employees, agents or consultants involved in such function or service in connection with the Plan of Reorganization (including, employee benefits functions, risk management, etc.) and the Distributions.
Section 5.4. Periodic Meetings . Unless otherwise agreed to by the Parties, at least once during each fiscal quarter during the two (2) year period following the Distribution Date, the Parties shall hold a meeting for the purpose of sharing Information related to this Agreement, any Shared Contingent Liabilities or the preparation of any Partys financial statements. Each Party shall designate between one (1) and three (3) persons as its standing representatives for such meetings. The Managing Party shall be responsible for scheduling such meeting at reasonably consistent and convenient times and on no less than thirty (30) days notice. The Parties standing representatives and others may participate in such meetings in person or other medium by which all participants may hear each other.
Section 5.5. No Solicit; No Hire .
(a) None of HLT, PK or HGV or any member of their respective Groups shall, from the Effective Time through and including the date set forth on Schedule 5.5 , without the prior written consent of the applicable Party, directly or indirectly, recruit, solicit, hire or retain any person who is an employee specified on Schedule 5.5 of any other Party or its Subsidiaries as of the Effective Time or induce, or attempt to induce, any such employee to terminate his or her employment with, or otherwise cease his or her relationship with, any other Party or its Subsidiaries; provided , however , that (i) nothing in this Section 5.5 shall be deemed to prohibit any general solicitation for employment through advertisements and search firms not specifically directed at employees of such other applicable Party or, except with respect to employees defined as CEOs and Directly Reporting Employees on Schedule 5.5 , any hiring as a result thereof, and (ii) the prohibitions of this Section 5.5 shall not apply (A) with respect to employees who have been terminated by a Party and (B) following a Change in Control of HLT, PK or HGV, as applicable, with respect to the employees of such Party. The Parties agree that irreparable damage may occur in the event that the provisions of this Section 5.5 were not performed in accordance with their specific terms. Accordingly, it is hereby agreed that the Parties shall be entitled to an injunction or injunctions to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. In respect of countries whose local Laws declare as invalid or unenforceable
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or prohibit any agreement between employers not to hire Employees (as defined in the Employee Matters Agreement) of the other, the Parties shall not have an agreement not to hire Employees of the other but agree not to actively solicit the services of each others Employees for such period on and after the Effective Time as specified in this Section 5.5 .
(b) For purposes of this Agreement, Change in Control shall mean, with respect to any of HLT, PK or HGV, the occurrence of any one of the following after the Effective Time: (i) the direct or indirect Transfer (other than by way of merger, amalgamation, arrangement or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of HLT, PK or HGV, as applicable, and those of such Partys Subsidiaries, taken as a whole, to one or more Persons, other than to such Party or one of such Partys Subsidiaries; (ii) the first day on which a majority of the members of the board of directors of HLT, PK or HGV, as applicable, is not composed of Continuing Directors; (iii) the consummation of any transaction including any merger, amalgamation, arrangement or consolidation the result of which is that any Person becomes the beneficial owner, directly or indirectly, of more than 50% of the voting stock of HLT, PK or HGV, as applicable; (iv) any of HLT, PK or HGV, as applicable, consolidate with, or merge with or into, any Person, or any Person consolidates with, or merges with or into, any of HLT, PK or HGV, in any such event pursuant to a transaction in which any of the outstanding voting stock of HLT, PK or HGV, as applicable, or of such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the shares of such Partys voting stock outstanding immediately prior to such transaction constitute, or are converted into or exchanged for, a majority of the voting stock of the surviving Person immediately after giving effect to such transaction; or (v) the adoption of a plan relating to the liquidation or dissolution (other than a liquidation into a newly formed holding company) of HLT, PK or HGV, as applicable. Notwithstanding the foregoing, a transaction described in clause (iii) above will not be deemed to involve a Change in Control if (a) HLT, PK or HGV, as applicable, becomes a direct or indirect wholly owned subsidiary of a holding company (which shall include a parent company) and (b)(A) the direct or indirect holders of the voting stock of such holding company immediately following that transaction are substantially the same as, and hold in substantially the same proportions as, the holders of such Partys voting stock immediately prior to that transaction or (B) immediately following that transaction no Person (other than a holding company satisfying the requirements of this sentence) is the beneficial owner, directly or indirectly of more than 50% of the then outstanding voting stock, measured by voting power, of such holding company. Following any such transaction referred to in the foregoing sentence, references in this definition to HLT, PK or HGV, as applicable, shall be deemed to refer to such holding company. For the purposes of this definition, person and beneficial owner have the meanings used in Section 13(d) of the Securities Exchange Act of 1934.
ARTICLE VI
SHARED CONTINGENT LIABILITIES
Section 6.1. Shared Contingent Liabilities . From and after the Effective Time, except as otherwise expressly set forth in this Article VI or the Tax Matters Agreement (with respect to Taxes) and without limiting the indemnification provisions of Article VII , HLT, PK and HGV shall each be responsible for (i) its Applicable Percentage of any Shared Contingent Liabilities pursuant to and in accordance with the relevant provisions of Article VII and, without duplication, (ii) its Applicable Percentage of any Specified Shared Expenses related to or arising out of any Shared Contingent Liability. Any amounts owed in respect of any Shared Contingent Liabilities other than Specified Shared Expenses (which are addressed pursuant to Section 5.2 ) shall be remitted promptly after the Party entitled to such amount provides an invoice (including reasonable supporting Information with respect thereto and a calculation of the amounts owed by each Party based on such Partys Applicable Percentage) to the Party
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or Parties owing such amount and such costs and expenses shall be included in the calculation of the amount of the applicable Shared Contingent Liability in determining the reimbursement obligations of the other Parties with respect thereto; provided , however , that if so directed by the Party providing the invoice, in lieu of remitting amounts directly to the Party providing the invoice, the owing Party shall remit the owed amount directly to the appropriate third party or parties or to an account established by the invoicing Party for the benefit of the Parties, in which case each Party shall contribute its Applicable Percentage of such amount to such account for the benefit of the Parties. It shall not be a defense to any obligation by any Party to pay any amounts, whether pursuant to this Article VI or in respect of Indemnifiable Losses pursuant to Article VII , in respect of any Shared Contingent Liability that (i) such Party was not consulted in the defense or management thereof, (ii) that such Partys views or opinions as to the conduct of such defense were not accepted or adopted, (iii) that such Party does not approve of the quality or manner of the defense thereof or (iv) that such Shared Contingent Liability was incurred by reason of a settlement rather than by a judgment or other determination of Liability.
Section 6.2. Management of Shared Contingent Liabilities .
(a) Managing Party shall initially mean HLT ; provided , however , another Party may become the Managing Party with respect to any Shared Contingent Liabilities or other matters set forth in this Agreement upon the prior written agreement of each of the Parties.
(b) Except as provided in the Tax Matters Agreement (with respect to management of Tax Contests), the Managing Party shall, on behalf of the other Parties, have sole and exclusive authority to, and shall actively and diligently, commence, prosecute, manage, control, conduct or defend (or assume or conduct the defense of) or otherwise determine all matters whatsoever (including, as applicable, litigation strategy and choice of legal counsel or other professionals) with respect to, on behalf of the other Parties, any Action or Third Party Claim with respect to a Shared Contingent Liability (including with respect to those Shared Contingent Liabilities set forth on Schedule 1.1(97 ) ). The Managing Party shall use its commercially reasonable efforts to promptly notify the other Parties in the event that it receives notice of any Shared Contingent Liability including any claim or demand relating thereto; provided , that the failure to provide such notice shall not give rise to any rights on the part of the other Parties against the Managing Party or affect any other provision of this Section 6.2 , except to the extent any Party is actually and materially prejudiced thereby in a manner different from any other Party. No Party other than the Managing Party shall consent to the entry of any judgment or enter into any settlement with respect to any Shared Contingent Liability without the prior written consent of the Managing Party and the other Party. Any settlement by the Managing Party shall be subject to without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed.
(c) The Managing Party shall on a quarterly basis, or if a material development occurs as soon as reasonably practicable thereafter, inform the other Parties of the status of and developments relating to any matter involving a Shared Contingent Liability and provide copies of any material document, notices or other materials related to such matters; provided , that the failure to provide any such information shall not be a basis for liability of the Managing Party except and solely to the extent the receiving Party shall have been actually and materially prejudiced thereby in a manner different than any other Party. Each Party shall cooperate fully with the Managing Party in its management of any of such Shared Contingent Liability and shall take such actions in connection therewith that the Managing Party reasonably requests (including providing access to such Partys Records and other Information and employees as set forth in Section 6.3 ).
(d) In the event of any dispute as to whether any Liability is a Shared Contingent Liability as set forth in Section 6.4(b ) , the Managing Party may, but shall not be obligated to, commence prosecution or other assertion of such claim or right pending resolution of such dispute. In the event that the
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Managing Party commences any such prosecution or assertion and, upon resolution of the dispute (pursuant to Article IX or otherwise), it is determined that such Liability is not a Shared Contingent Liability and that such Liability belongs to another Party, pursuant to the provisions of this Agreement or any Ancillary Agreement, the Managing Party shall cease the prosecution or assertion of such right or claim and the applicable Parties shall cooperate to transfer the control thereof to the applicable other Party. In such event, the applicable other Party shall promptly reimburse the Managing Party (or any other Party who has fronted costs and expenses) for all out-of-pocket costs and expenses incurred to such date in connection with the prosecution or assertion of such claim or right (which shall not include the costs of salaries and benefits of employees of the Managing Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing).
Section 6.3. Access to Information; Certain Services; Expenses .
(a) Access to Information and Employees by the Managing Party . Unless otherwise prohibited by Law, in connection with the management and disposition of any Shared Contingent Liability, each of the Parties shall make readily available to and afford to the Managing Party and its authorized accountants, counsel and other designated representatives reasonable access, subject to appropriate restrictions for classified Information, Confidential Information or Privileged Information, to the employees, properties, Records and other Information of such Party and the members of such Partys Group insofar as such access relates to the relevant Shared Contingent Liability; it being understood by the Parties that such access as well as any services provided pursuant to Section 6.3(b) below may require a significant time commitment on the part of such Partys employees and that any such commitment shall not otherwise limit any of the rights or obligations set forth in this Article VI ; it also being understood that such access and such services provided shall not unreasonably interfere with any of such Partys employees normal functions. Nothing in this Section 6.3(a) shall require any Party to violate any agreement with any third party regarding the confidentiality of confidential and proprietary information relating to that third party or its business; provided , however , that in the event that a Party is required to disclose any such Information, such Party shall use commercially reasonable efforts to seek to obtain such third partys written consent to the disclosure of such Information.
(b) Certain Services . Each of HLT, PK and HGV shall make available to the others, upon reasonable written request, its and its Subsidiaries officers, directors, employees, counsel and agents to assist in the management (including, if applicable, as witnesses in any Action) of any Shared Contingent Liabilities to the extent that such Persons may reasonably be required in connection with the prosecution, defense or day-to-day management of any Shared Contingent Liability. In respect of the foregoing, Schedule 1.1(97) sets forth certain identified Shared Contingent Liabilities and identifies (but does not limit) those employees and agents who shall assist the Managing Party in its management of such Shared Contingent Liabilities.
(c) Costs and Expenses Relating to Access by the Managing Party . Except as otherwise provided in any Ancillary Agreement, the provision of access and other services pursuant to this Section 6.3 (including by the Managing Party) shall be borne by the Party providing such access and services (other than for actual out-of-pocket costs and expenses, which shall constitute Specified Shared Expenses) and shall be shared by the other Parties accordingly.
(d) Other Specified Shared Expenses . The Managing Party (and the Party or Parties providing assistance to the Managing Party pursuant to Section 6.3(b ) ) shall be entitled, upon presentation of reasonable supporting documentation thereof, to reimbursement by the other Parties (in accordance with their Applicable Percentages) of any out-of-pocket costs and expenses (which shall include, in the case of the Managing Party, the pro rata portion of the costs of salaries and benefits of such employees
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with respect to whom at least 50% of their professional time over a period of one month or greater is dedicated to the management or defense of such Shared Contingent Liability) related to or arising out of defending or managing any such Shared Contingent Liability from PK and HGV, as applicable, from time to time when invoiced, but no more frequently than quarterly, in advance of a final determination or resolution of any Action related to a Shared Contingent Liability. Specified Shared Expenses in respect of Shared Contingent Liabilities shall also include the reasonable out-of-pocket costs and expenses of defending, managing or providing assistance to the Managing Party pursuant to Section 6.3(b) with respect to any Third Party Claim that is a Shared Contingent Liability, which shall include any amounts with respect to a bond, prepayment or similar security or obligation required (or determined to be advisable by the Managing Party) to be posted by the Managing Party in respect of any claim and shall not include the costs of salaries and benefits of employees or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing).
Section 6.4. Notice Relating to Shared Contingent Liabilities; Disputes .
(a) In the event that any Party or any member of such Partys Group or any of their respective Affiliates, becomes aware of (i) any Liability that may be a Shared Contingent Liability, (ii) any matter or occurrence that has given or could give rise to a Shared Contingent Liability or (iii) any matter that is material and is reasonably relevant to the Managing Partys ongoing or future management, prosecution, defense and/or administration of any Shared Contingent Liability, such Party shall promptly (but in any event within thirty (30) days of becoming aware, unless, by its nature the subject matter of such notice would reasonably require earlier notice) notify each of the Managing Party and the other Party of any such matter (setting forth in reasonable detail the subject matter thereof); provided , however , that no Party shall be liable for the failure to provide such notice except and solely to the extent the Managing Party and the other Party shall have been actually prejudiced as a result of such failure in a manner different than any other Party.
(b) In the event that any Party disagrees whether a claim, obligation or Liability is a Shared Contingent Liability or whether such claim, obligation or Liability is a Liability allocated to one of the Parties pursuant to this Agreement or any Ancillary Agreement, then such matter shall be resolved pursuant to and in accordance with the dispute resolution provisions set forth in Article IX .
Section 6.5. Cooperation with Governmental Entity . If, in connection with any Shared Contingent Liability, a Party is required by Law to respond to and/or cooperate with a Governmental Entity, such Party shall be entitled to cooperate and respond to such Governmental Entity after, to the extent practicable under the specific circumstances, consultation with the Managing Party with respect to such Shared Contingent Liability; provided , that to the extent such consultation was not practicable such Party shall promptly inform the Managing Party of such cooperation and/or response to the Governmental Entity and the subject matter thereof. In the event that any Party is requested or required by any Governmental Entity in connection with any Shared Contingent Liability pursuant to written or oral question or request for Information or documents in any legal or administrative proceeding, review, interrogatory, subpoena, investigation, demand, or similar process, such Party shall notify the Managing Party promptly of the request or requirement and such Partys response thereto, and shall use commercially reasonable efforts to consult with the Managing Party with respect to the nature of such Partys response to the extent practicable and not in violation of any attorney-client Privilege or legal process.
Section 6.6. Default . In the event that one or more of the Parties defaults in any full or partial payment in respect of any Shared Contingent Liability (as provided in this Article VI and in Article VII ), including the payment of the costs and expenses of the Managing Party, then each non-defaulting Party
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(including HLT) shall be required to pay its relative Applicable Percentage of the amount in default; provided , however , that any such payment by a non-defaulting Party shall in no way release the defaulting Party from its obligations to pay its obligations in respect of such Shared Contingent Liability (both for past and future obligations) and any non-defaulting Party may exercise any available legal remedies available against such defaulting Party.
ARTICLE VII
INDEMNIFICATION
Section 7.1. Release of Pre-Distribution Claims .
(a) Except (i) as provided in Section 7.1(b ) , (ii) as may be otherwise expressly provided in this Agreement or in any Ancillary Agreement and (iii) for any matter for which any Party is entitled to indemnification pursuant to this Article VII , each Party (A) for itself and each member of its respective Group, their respective Affiliates as of the Effective Time and all Persons who at any time prior to the Effective Time were directors, officers, agents or employees of any member of their Group (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, does hereby remise, release and forever discharge the other Parties and the other members of such other Parties Group, their respective Affiliates and all Persons who at any time prior to the Effective Time were stockholders, directors, officers, agents or employees of any member of such other Parties (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at Law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Effective Time, including in connection with the Plan of Reorganization and all other activities to implement the Plan of Reorganization and the Distributions and any of the other transactions contemplated hereunder and under the Ancillary Agreements and (B) in any event will not, and will cause its respective Subsidiaries not to, bring any Action or claim against any member of the other Groups in respect of any such Liabilities.
(b) Nothing contained in Section 7.1(a) shall impair or otherwise affect any right of any Party and, as applicable, a member of such Partys Group, to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings contemplated in this Agreement or in any Ancillary Agreement to continue in effect after the Effective Time. In addition, nothing contained in Section 7.1(a) shall release any Person from:
(i) any Liability Assumed, Transferred or allocated to a Party or a member of such Partys Group pursuant to or contemplated by, or any other Liability of any member of such Group under, this Agreement or any Ancillary Agreement including (A) with respect to any Shared Contingent Liability, (B) with respect to HLT, any HLT Retained Liability, (C) with respect to PK, any Ownership Liability and (D) with respect to HGV, any Timeshare Liability;
(ii) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by a member of one Group or its Affiliates at the request or on behalf of a member of another Group;
(iii) any Liability provided in or resulting from any other Contract or understanding that is entered into after the Effective Time between any Party (and/or a member of such Partys or Parties Group), on the one hand, and any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand;
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(iv) any Liability with respect to any Continuing Arrangements set forth on Schedule 1.1(20 ) ; and
(v) any Liability that the Parties may have with respect to indemnification pursuant to this Agreement or otherwise for claims brought against the Parties by other Persons, which Liability shall be governed by the provisions of this Agreement and, in particular, this Article VII and, if applicable, the appropriate provisions of the Ancillary Agreements.
In addition, nothing contained in Section 7.1(a) shall release HLT from indemnifying any director, officer or employee of PK and HGV who was a director, officer or employee of HLT or any of its Affiliates prior to the Effective Time or the Distribution Date, as the case may be, to the extent such director, officer or employee is or becomes a named defendant in any Action with respect to which he or she was entitled to such indemnification pursuant to then existing obligations.
(c) Each Party shall not, and shall not permit any member of its Group to, make any claim, demand or offset, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against any other Party or any member of any other Partys Group, or any other Person released pursuant to Section 7.1(a ) , with respect to any Liabilities released pursuant to Section 7.1(a ) .
(d) It is the intent of each Party, by virtue of the provisions of this Section 7.1 , to provide, to the fullest extent permitted by applicable Law, for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed at or before the Effective Time, whether known or unknown, between or among any Party (and/or a member of such Partys Group), on the one hand, and any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members at or before the Effective Time), except as specifically set forth in Sections 7.1(a) and 7.1(b ) . At any time, at the reasonable request of any other Party, each Party shall cause each member of its respective Group and, to the extent practicable, each other Person on whose behalf it released Liabilities pursuant to this Section 7.1 to execute and deliver releases, to the fullest extent permitted by applicable Law, reflecting the provisions hereof.
Section 7.2. Indemnification by HLT . Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Effective Time, HLT shall and shall cause the other members of the HLT Group to indemnify, defend and hold harmless the Ownership Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable Losses of the Ownership Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (a) the HLT Retained Liabilities or alleged HLT Retained Liabilities or (b) any breach by HLT of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder. In furtherance of the foregoing, HLT and OpCo shall be jointly and severally liable to any of the Ownership Indemnitees for any and all Indemnifiable Losses of the Ownership Indemnitees arising out of, by reason of or otherwise in connection with the foregoing.
Section 7.3. Indemnification by PK . Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Effective Time, PK shall and shall cause the other members of the PK Group to indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable
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Losses of the Managing and Franchising Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (a) the Ownership Liabilities or alleged Ownership Liabilities or (b) any breach by PK of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder. In furtherance of the foregoing, any and all payments by PK or any other members of the PK Group in respect of Indemnifiable Losses of the Managing and Franchising Indemnitees arising out of, by reason of or otherwise in connection with the foregoing shall be made directly to OpCo or one or more of its Subsidiaries.
Section 7.4. Indemnification by HGV . Except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Effective Time, HGV shall and shall cause the other members of the HGV Group to indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Ownership Indemnitees from and against any and all Indemnifiable Losses of the Managing and Franchising Indemnitees and the Ownership Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (a) the Timeshare Liabilities or alleged Timeshare Liabilities or (b) any breach by HGV of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder.
Section 7.5. Procedures for Indemnification .
(a) Other than with respect to Third Party Claims, which shall be governed by Section 7.5(b ) , and Shared Contingent Liabilities, which shall be governed by Section 6.4 , each Managing and Franchising Indemnitee, Ownership Indemnitee and Timeshare Indemnitee (each, an Indemnitee ) shall notify in writing, with respect to any matter that such Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement or any Ancillary Agreement, the Party which is or may be required pursuant to this Article VII or pursuant to any Ancillary Agreement to make such indemnification (the Indemnifying Party ), within thirty (30) days of such determination, stating the amount of the Indemnifiable Loss claimed, if known, and method of computation thereof, and referring to the provisions of this Agreement in respect of which such right of indemnification is claimed by such Indemnitee or arises; provided , however , that the failure to provide such written notice shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure. Each such Indemnitee shall provide the applicable Indemnifying Party with reasonable access, upon reasonable prior written notice and during normal business hours, in a manner so as not to unreasonably interfere in any material respect with the normal business operations of such Indemnitee, to its books and records, properties and personnel relating to the claim the Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement or any Ancillary Agreement.
(b) Third Party Claims . If a claim or demand is made against an Indemnitee by any Person who is not a party to this Agreement (a Third Party Claim ) as to which such Indemnitee is or may be entitled to indemnification pursuant to this Agreement or any Ancillary Agreement, such Indemnitee shall notify the Indemnifying Party in writing, and in reasonable detail, of the Third Party Claim promptly (and in any event within thirty (30) days) after receipt by such Indemnitee of written notice of the Third Party Claim; provided , however , that the failure to provide notice of any such Third Party Claim pursuant to this or the preceding sentence shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure. If any Party shall receive notice or otherwise learn of the assertion of a Third Party Claim which may reasonably be determined to be a Shared Contingent Liability, such Party, as appropriate, shall give the Managing Party written notice thereof within thirty (30) days after such Person becomes aware of such Third Party Claim subject to and in compliance with Section 6.4 ; provided , however , that if the first
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notice is a lawsuit or other notice documentation requiring a timely response, such notice documentation shall be delivered immediately (and in any event within five (5) Business Days). Thereafter, the Indemnitee shall deliver to the Indemnifying Party (and, if applicable, to the Managing Party), promptly (and in any event within five (5) Business Days) after the Indemnitees receipt thereof, copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third Party Claim.
(c) Other than in the case of (i) a Shared Contingent Liability (the defense of which shall be assumed and controlled by the Managing Party) or (ii) Taxes addressed in the Tax Matters Agreement, an Indemnifying Party shall be entitled to participate in the defense of any Third Party Claim and, if it so chooses, to assume the defense thereof, at such Indemnifying Partys own cost and expense and by such Indemnifying Partys own counsel, that is reasonably acceptable (provided that insurer-appointed counsel shall be automatically deemed acceptable) to the applicable Indemnitees, within thirty (30) days of the receipt of such notice from such Indemnitees; provided , however , that the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim to the extent such Third Party Claim (x) is an allegation of a criminal violation or (y) seeks injunctive relief against the Indemnitee but shall have the right to employ separate counsel to participate in (but not control) the defense, compromise or settlement thereof at its own expense. In connection with the Indemnifying Partys defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, at its own expense and, in any event, shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Partys expense, all witnesses, pertinent Information, materials and information in such Indemnitees possession or under such Indemnitees control relating thereto as are reasonably required by the Indemnifying Party; provided , however , that in the event of a conflict of interest between the Indemnifying Party and the applicable Indemnitee(s), such Indemnitee(s) shall be entitled to retain, at the Indemnifying Partys expense, separate counsel as required by the applicable rules of professional conduct with respect to such matter; provided , further , that if (A) the Third Party Claim is not a Shared Contingent Liability and (B) the Indemnifying Party has assumed the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions to such defense or to its liability therefor, then, in any such case, the reasonable fees and expenses of one separate counsel for all Indemnitees shall be borne by the Indemnifying Party.
(d) Notwithstanding any assumption of defense of a Third Party Claim by an Indemnifying Party in accordance with Section 7.5(c ) , in the event that in the course of defending such Third Party Claim the Indemnifying Party or another Party shall become aware that the subject matter of such Third Party Claim relates to a Liability of another Party and not to a Liability of such Indemnifying Party, then the Indemnifying Party shall, subject to the prior written consent of the other Party to which such Liability belongs, use commercially reasonable efforts to transfer the defense of such claim to such other Party, and shall thereafter cooperate fully with such other Party in such defense and make available to such other Party, at such Partys expense, all witnesses, pertinent Information, materials and information in such Indemnifying Partys possession or under such Indemnifying Partys control relating to such Third Party Claim as are reasonably required by such other Party.
(e) Other than in the case of a Shared Contingent Liability, if an Indemnifying Party fails for any reason to assume responsibility for defending a Third Party Claim within the time specified, such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying Party. However, the Indemnifying Party shall, subject to the prior written consent of the other Party to which such Liability belongs, use commercially reasonable efforts to transfer the defense of such claim to such other Party, and shall thereafter cooperate fully with such other Party in such defense and make available to such other Party, at such Partys expense, all witnesses, pertinent Information, materials and information in such Indemnifying Partys possession or under such Indemnifying Partys control relating
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to such Third Party Claim as are reasonably required by such other Party. If the Indemnitee is conducting the defense against any such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnitee in such defense and make available to the Indemnitee, at the Indemnitees expense, all witnesses, pertinent Information, and material in such Indemnifying Partys possession or under such Indemnifying Partys control relating thereto as are reasonably required by the Indemnitee.
(f) No Indemnitee may settle or compromise any Third Party Claim (with any Shared Contingent Liability governed by Article VI ) without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
(g) In the case of a Third Party Claim (including in respect of a Shared Contingent Liability), no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third Party Claim without the prior written consent of the Indemnitee (not to be unreasonably withheld or delayed) if the effect thereof is to permit any injunction, declaratory judgment, other order or other non-monetary relief, to be entered, directly or indirectly, against any Indemnitee; it being understood that in the case of a Third Party Claim that is a Shared Contingent Liability, the Managing Party shall be subject to the same requirement to seek the consent of the other Parties in connection with any such judgment or settlement.
(h) Notwithstanding anything to the contrary in this Article VII , subject to Article VI, the Managing Party shall, on behalf of the other Parties, have sole and exclusive authority to, and shall actively and diligently, commence, prosecute, manage, control, conduct or defend (or assume or conduct the defense of) or otherwise determine all matters whatsoever (including, as applicable, litigation strategy and choice of legal counsel or other professionals) with respect to any Action or Third Party Claim with respect to a Shared Contingent Liability.
(i) Except as otherwise set forth in Section 5.5 , Article VI and Section 8.6 , or as set forth in any Ancillary Agreement, absent fraud or willful misconduct by an Indemnifying Party, the indemnification provisions of this Article VII shall be the sole and exclusive remedy of an Indemnitee for any monetary or compensatory damages or losses resulting from any breach of this Agreement and each Indemnitee expressly waives and relinquishes any and all rights, claims or remedies such Person may have with respect to the foregoing other than under this Article VII against any Indemnifying Party. For the avoidance of doubt, all disputes in respect of this Article VII shall be resolved in accordance with Article IX .
Section 7.6. Cooperation in Defense and Settlement .
(a) With respect to any Third Party Claim that is not a Shared Contingent Liability and that implicates two or more Parties in any material respect due to the allocation of Liabilities, responsibilities for management of defense and related indemnities pursuant to this Agreement or any of the Ancillary Agreements, the applicable Parties agree to use commercially reasonable efforts to cooperate fully and maintain a joint defense (in a manner that will preserve for all Parties any Privilege with respect thereto). The Party that is not responsible for managing the defense of any such Third Party Claim shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if necessary or helpful, retain counsel to assist in the defense of such claims.
(b) Each of HLT, PK and HGV agrees that at all times from and after the Effective Time, if an Action is commenced by a third party naming two (2) or more Parties (or any member of such Parties respective Groups) as defendants and with respect to which one or more named Parties (or any member of such Partys respective Group) is a nominal defendant and/or such Action is otherwise not a Liability allocated to such named Party under this Agreement or any Ancillary Agreement, then the other Party or Parties shall use commercially reasonable efforts to cause such nominal defendant to be removed from such Action, as soon as reasonably practicable.
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Section 7.7. Indemnification Payments . Indemnification required by this Article VII shall be made by periodic payments of the amount of Indemnifiable Losses in a timely fashion during the course of the investigation or defense, as and when bills are received or an Indemnifiable Loss incurred.
Section 7.8. Indemnification Obligations Net of Insurance Proceeds and Other Amounts .
(a) Any Indemnifiable Loss subject to indemnification pursuant to this Article VII including, for the avoidance of doubt, in respect of any Shared Contingent Liability, shall be calculated (i) net of Insurance Proceeds that actually reduce the amount of the Indemnifiable Loss, (ii) net of any proceeds received by the Indemnitee from any third party for indemnification for such Liability that actually reduce the amount of the Indemnifiable Loss ( Third Party Proceeds ) and (iii) net of any Tax benefits actually realized in accordance with, and subject to, the principles set forth or referred to in Section 7.3 of the Tax Matters Agreement, and increased in accordance with, and subject to, the principles set forth in Section 7.3 of the Tax Matters Agreement. Accordingly, the amount which any Indemnifying Party is required to pay pursuant to this Article VII to any Indemnitee pursuant to this Article VII shall be reduced by any Insurance Proceeds or Third Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee in respect of the related Indemnifiable Loss. If an Indemnitee receives a payment required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Loss (an Indemnity Payment ) and subsequently receives Insurance Proceeds or Third Party Proceeds, then the Indemnitee shall pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or Third Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.
(b) The Parties acknowledge that the indemnification provisions hereof do not relieve any insurer who would otherwise be obligated to pay any claim to pay such claim. In furtherance of the foregoing, the Indemnitee shall use commercially reasonable efforts to seek to collect or recover any Insurance Proceeds and any Third Party Proceeds (other than Insurance Proceeds under an arrangement where future premiums are adjusted to reflect prior claims in excess of prior premiums or Insurance Proceeds under the Excluded Policies) to which the Indemnitee is entitled in connection with any Indemnifiable Loss for which the Indemnitee seeks indemnification pursuant to this Article VII ; provided , that the Indemnitees inability to collect or recover any such Insurance Proceeds or Third Party Proceeds (despite having used commercially reasonable efforts) shall not limit the Indemnifying Partys obligations hereunder.
Section 7.9. Additional Matters; Survival of Indemnities .
(a) The indemnity agreements contained in this Article VII shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee; (ii) the knowledge by the Indemnitee of Indemnifiable Losses for which it might be entitled to indemnification hereunder; and (iii) any termination of this Agreement following the Effective Time.
(b) The rights and obligations of each Party and their respective Indemnitees under this Article VII shall survive the sale or other Transfer by any Party or its respective Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities, with respect to any Indemnifiable Loss of any Indemnitee related to such Assets, businesses or Liabilities.
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(c) Notwithstanding anything to the contrary in this Agreement, in the event that counsel or independent accountants for a Protected REIT determine that there exists a material risk that any indemnification payments due under this Agreement would be treated as Nonqualifying Income upon the payment of such amounts to the relevant Indemnitee, the amount paid to the Indemnitee pursuant to this Agreement in any tax year shall not exceed the maximum amount that can be paid to the Indemnitee in such year without causing the Protected REIT to fail to meet the REIT Requirements for any tax year, determined as if the payment of such amount were Nonqualifying Income as determined by such counsel or independent accountants to the Protected REIT. If the amount payable for any tax year pursuant to the preceding sentence is less than the amount which the relevant Indemnifying Party would otherwise be obligated to pay to the relevant Indemnitee pursuant to this Agreement (the Expense Amount ), then: (1) the Indemnifying Party shall place the Expense Amount into an escrow account (the Escrow Account ) using an escrow agent and agreement reasonably acceptable to the Indemnitee (which shall include that (y) the amount in the Escrow Account shall be treated as the property of the Indemnifying Party, unless it is released from such Escrow Account to the Indemnitee, and (z) all income earned upon the amount in the Escrow Account shall be treated as the property of the Indemnifying Party and reported, as and to the extent required by applicable Law, by the escrow agent to the Internal Revenue Service ( IRS ), or any other taxing authority, on IRS Form 1099 or 1042S (or other appropriate form) as income earned by the Indemnifying Party whether or not said income has been distributed during such taxable year) and shall not release any portion thereof to the Indemnitee, and the Indemnitee shall not be entitled to any such amount, unless and until the Indemnitee delivers to the Indemnifying Party, at the sole option of the relevant Protected REIT, (i) an opinion (an Expense Amount Tax Opinion ) of the Protected REITs tax counsel to the effect that such amount, if and to the extent paid, would not constitute Nonqualifying Income, (ii) a letter (an Expense Amount Accountants Letter ) from the Protected REITs independent accountants indicating the maximum portion of the Expense Amount that can be paid at that time to the Indemnitee without causing the Protected REIT to fail to meet the REIT Requirements for any relevant taxable year, or (iii) a private letter ruling issued by the IRS to the Protected REIT indicating that the receipt of any Expense Amount hereunder will not cause the Protected REIT to fail to satisfy the REIT Requirements (a REIT Qualification Ruling and, collectively with an Expense Amount Tax Opinion and an Expense Amount Accountants Letter, a Release Document ); (2) pending the delivery of a Release Document by the Indemnitee to the Indemnifying Party, the Indemnitee shall have the right, but not the obligation, to borrow the Expense Amount from the Escrow Account pursuant to a loan agreement reasonably acceptable to the Indemnitee that (i) requires the Indemnifying Party to lend the Indemnitee immediately available cash proceeds in an amount equal to the Expense Amount, and (ii) provides for (A) a commercially reasonable interest rate and commercially reasonable covenants, taking into account the credit standing and profile of the Indemnitee or any guarantor of the Indemnitee, including the Protected REIT, at the time of such loan, and (B) a fifteen (15) year maturity with no periodic amortization; and (3) the Indemnitee shall bear all costs and expenses with respect to the escrow as contemplated by clauses (1) and (2) in this Section 7.9(c ) .
ARTICLE VIII
PRESERVATION OF RECORDS; ACCESS TO INFORMATION; CONFIDENTIALITY; PRIVILEGE
Section 8.1. Preservation of Corporate Records
(a) The Parties shall comply with those document retention policies as shall be set forth on Schedule 8.1(a) hereto or otherwise established and agreed to in writing by their respective authorized officers at or prior to the Effective Time in respect of Records and related matters.
(b) Notwithstanding anything to the contrary herein and other than with respect to Tax Records (in which event the provisions of the Tax Matters Agreement shall govern), if on or before the sixth (6th) anniversary of the Distribution Date HLT (or any Affiliate of HLT) wishes to destroy any Records that were in existence as of the Effective Date, then HLT shall (or shall cause such Affiliate to)
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give sixty (60) days prior written notice, including a reasonable description of the Records it wishes to destroy, to the other Parties and (to the extent permitted by applicable Law) each other Party shall have the right at its option and expense, upon prior written notice given within such sixty (60) day period to the other two Parties, to take possession or make copies of such Records within thirty (30) days after the date such notice is given by such Party to the other Parties, it being understood that in the event both other Parties wish to take possession of such Records, such Parties shall (i) agree on which Party shall be entitled to retain such Records and (ii) share equally the reasonable costs incurred by the other non-destroying Party in making copy of such Records within such thirty (30) day period.
Section 8.2. Financial Statements and Accounting . Each Party agrees to provide the following assistance and reasonable access to its properties, Records, other Information and personnel set forth in this Section 8.2 , (i) at any time, with the consent of the other applicable Party (not to be unreasonably withheld or delayed) for reasonable business purposes relating to financial reporting and other regulatory obligations (including disclosure obligations) or other obligations to Governmental Entities; (ii) from the Effective Time until the later of (a) March 31, 2019 and (b) completion of each Partys audit for the fiscal year ending December 31, 2016, in connection with the preparation and audit of each Partys financial statements for the fiscal years ended December 31, 2016 and 2017 (including financial statements for any interim periods), the printing, filing and public dissemination of such financial statements and the audit of each Partys internal controls over financial reporting and managements assessment thereof and managements assessment of each Partys disclosure controls and procedures, if required; (iii) in the event that any Party changes its independent auditors within three (3) years following the Distribution Date, then such Party may request reasonable access on the terms set forth in this Section 8.2 for a period of up to one hundred and eighty (180) days from such change; and (iv) to the extent reasonably necessary to respond (and for the limited purpose of responding) to any written request or official comment from a Governmental Entity, such as in connection with responding to a comment letter from the Commission. Without limiting the foregoing, each Party agrees as follows:
(a) Financial Statements . Each Party shall provide reasonable access to the other Party in accordance with the timing set forth on Schedule 8.2(a) to all Information reasonably required to meet its schedule for the preparation, printing, filing, and public dissemination of its quarterly and annual financial statements and for managements assessment of the effectiveness of its disclosure controls and procedures and its internal controls over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K and, to the extent applicable to such Party, its auditors audit of its internal controls over financial reporting and managements assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the Commissions and the Public Company Accounting Oversight Boards rules and auditing standards thereunder, if required (such assessments and audit being referred to as the Internal Control Audit and Management Assessments ). Without limiting the generality of the foregoing, each Party shall provide all required financial and other Information with respect to itself and its Subsidiaries to its auditors in a sufficient and reasonable time and in sufficient detail to permit its auditors to take all steps and perform all reviews necessary to provide sufficient assistance, if requested, to each other Partys auditors with respect to Information to be included or contained in such other Partys annual financial statements and to permit such other Partys auditors and management to complete the Internal Control Audit and Management Assessments, for 2016 and 2017.
(b) Access to Personnel and Records . Except to the extent otherwise contemplated by the Ancillary Agreements, each Party shall authorize its respective auditors to make reasonably available to each other Partys auditors (each such other Partys auditors, collectively, the Other Parties Auditors ) both the personnel who performed or are performing the annual audits of such audited Party (each such Party with respect to its own audit, the Audited Party ) and work papers related to the annual audits of such Audited Party (subject to the execution of any reasonable and customary access letters that such Audited Partys auditors may require in connection with the review of such work papers by such Other
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Parties Auditors), in all cases within a reasonable time prior to such Audited Partys auditors opinion date, so that the Other Parties Auditors are able to perform the procedures they reasonably consider necessary to take responsibility for the work of the Audited Partys auditors as it relates to their auditors report on such other Partys financial statements, all within sufficient time to enable such other Party to meet its timetable for the printing, filing and public dissemination of its annual financial statements. Each Party shall make reasonably available to the other Parties and to such Other Parties Auditors and management its personnel and Records and other Information in a reasonable time prior to the Other Parties Auditors opinion date and other Parties managements assessment date so that the Other Parties Auditors and other Parties management are able to perform the procedures they reasonably consider necessary to conduct the Internal Control Audit and Management Assessments for 2016 and 2017.
(c) Annual Reports . Each Party shall deliver to the other Parties a reasonably complete draft of the first report on Form 10-K to be filed with the Commission (or otherwise) that includes its respective financial statements (in the form expected to be covered by the audit report of such Partys independent auditors) for the year ended December 31, 2016 (such reports, collectively, the Annual Reports ), on or prior to the time set forth on Schedule 8.2(c ); provided , however , that each Party may continue to revise its respective Annual Report prior to the filing thereof, which changes shall be delivered to the other Parties as soon as reasonably practicable. Each Party shall notify the other Parties, as soon as reasonably practicable after becoming aware thereof, of any material accounting differences between the financial statements to be included in such Partys Annual Report and the historical audited and unaudited financial statements included, as applicable, in the PK Form 10 or the HGV Form 10 or the Form 8-K to be filed by HLT with the Commission on or about the time of the Distribution. If any such differences are notified by any Party, the Parties shall confer and/or meet as soon as reasonably practicable thereafter, and in any event prior to the filing of any Annual Report, to consult with each other in respect of such differences and the effects thereof on the Parties Annual Reports.
(d) Nothing in this Article VIII shall require any Party to violate any agreement with any third party regarding the confidentiality of confidential and proprietary Information relating to that third party or its business; provided , however , that in the event that a Party is required under this Section 8.2 to disclose any such Information, such Party shall use commercially reasonable efforts to seek to obtain such third partys written consent to the disclosure of such Information.
Section 8.3. Provision of Corporate Records . Other than in circumstances in which indemnification is sought pursuant to Article VII (in which event the provisions of such Article shall govern) or for matters related to provision of Tax Records (in which event the provisions of the Tax Matters Agreement shall govern) and without limiting the applicable provisions of Article VI , and subject to appropriate restrictions for classified Information, Privileged Information or Confidential Information:
(a) after the Effective Time, upon the prior written request by PK or HGV for specific and identified Information which relates to (x) PK or HGV or the conduct of the Ownership Business or the Timeshare Business, as the case may be, prior to the Effective Time or (y) any Ancillary Agreement to which HLT and one or more of PK and/or HGV are parties, as applicable, HLT shall provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if the Party making the request is the owner of such originals or has a reasonable need for such originals) in the possession or control of HLT or any of its Affiliates or Subsidiaries;
(b) after the Effective Time, upon the prior written request by HLT or HGV for specific and identified Information which relates to (x) HLT or HGV or the conduct of the HLT Retained Business or Timeshare Business, as the case may be, prior to the Effective Time or (y) any Ancillary Agreement to which PK and one or more of HLT and/or HGV are parties, as applicable, PK shall provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if the Party making the request is the owner of such originals or has a reasonable need for such originals) in the possession or control of PK or any of its Subsidiaries; and
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(c) after the Effective Time, upon the prior written request by HLT or PK for specific and identified Information which relates to (x) HLT or PK or the conduct of the HLT Retained Business or Ownership Business, as the case may be, prior to the Effective Time or (y) any Ancillary Agreement to which HGV and one or more of HLT and/or PK are parties, as applicable, HGV shall provide, as soon as reasonably practicable following the receipt of such request, appropriate copies of such Information (or the originals thereof if the Party making the request is the owner of such originals or has a reasonable need for such originals) in the possession or control of HGV or any of its Subsidiaries;
provided that, to the extent any originals (other than originals that are owned by the requesting Party) are delivered to any requesting Party pursuant to this Agreement or the Ancillary Agreements, such Party shall, at its own expense, return them to the Party having provided such originals within a reasonable time after the need to retain such originals has ceased.
Section 8.4. Witness Services . Except in the event any Parties are opposing one another in an Action, in which case normal discovery rules shall apply, at all times from and after the Effective Time, each of HLT, PK and HGV shall use its commercially reasonable efforts (including as described on Schedule 8.4 ) to make available to the others, upon reasonable written request, its and its Subsidiaries former (to the extent practicable), current (to the extent practicable) and future directors, officers, employees, other personnel and agents of such Party as witnesses and any Records or other Information within its control or which it otherwise has the ability to make available (other than materials covered by any Privilege) to the extent that such Persons (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or Records or other Information may reasonably be required to testify, in the case of Persons, or be provided, in the case of Records or Information, in connection with the prosecution or defense of any Action in which the requesting Party may from time to time be involved (except for claims, demands or Actions between members of each Group). A Party providing a witness to the other Party under this Section 8.4 shall be entitled to receive from the recipient of such witness services, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and benefits of employees who are witnesses or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service as witnesses), as may be reasonably incurred and properly paid under applicable Law.
Section 8.5. Reimbursement . Except to the extent otherwise contemplated by this Agreement (including Section 6.3 ) or any Ancillary Agreement, a Party providing Information or access to Information to the other Party under this Article VIII shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and benefits of employees of such Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing), as may be reasonably incurred in providing such Information or access to such Information.
Section 8.6. Confidentiality
(a) Except with the prior written consent of the Party to whom the Confidential Information relates (which consent may be withheld in such Partys sole and absolute discretion), each Party shall, and shall cause each of its respective Subsidiaries and the Recipients of such Party and its respective Subsidiaries to (i) hold in strict confidence and (ii) not disclose or, unless otherwise permitted by this
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Agreement or any Ancillary Agreement, use any and all Confidential Information (as defined herein) concerning or belonging to the other Parties; provided , that each Party and its Subsidiaries may disclose Confidential Information (A) to its and their respective officers, employees, agents, auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors ( Recipients ) who have a need to know such Information and are informed of the obligation to hold such Information confidential and in respect of whose failure to comply with such obligations, the applicable Party will be responsible, (B) if any Party or any of its respective Subsidiaries is required or compelled to disclose any such Confidential Information by judicial or administrative process or by other applicable Law or stock exchange rule, (C) as required in connection with any Action by one Party against any other Party, (D) as necessary to permit a Party to prepare and disclose its financial statements, Tax Returns or other required disclosures, (E) as necessary for a Party to enforce its rights or perform its obligations under this Agreementor any Ancillary Agreement (including as necessary to obtain consents from third parties to any of the transactions contemplated hereby), (F) to Governmental Entities in accordance with applicable procurement regulations and contract requirements or (G) to other Persons in connection with their evaluation of, and negotiating and consummating, a potential strategic transaction, to the extent reasonably necessary in connection therewith, provided an appropriate and customary confidentiality agreement has been entered into with the Person receiving such Confidential Information. If any disclosure requirement for Confidential Information arises pursuant to clause (B), (C), (D), (E) or (F) above, each Party, as applicable, shall promptly notify (to the fullest extent permissible by Law) the Party to whom the Confidential Information relates of the existence of such disclosure requirement and shall provide such affected Party a reasonable opportunity to seek an appropriate protective order or other remedy, and reasonably cooperate with such affected Party at the affected Partys expense in obtaining such order or remedy. In the event that such appropriate protective order or other remedy is not obtained, the Party which faces the disclosure requirement shall furnish only that portion of the Confidential Information that is required to be disclosed and shall reasonably cooperate with such affected Party with any steps take by such affected Party to ensure that confidential treatment is accorded such Confidential Information. Notwithstanding the foregoing, any Confidential Information of or concerning one or more other Parties, its or their Groups and/or Subsidiaries, to the extent such information is comingled and inseparable from Confidential Information concerning one or more other Parties, its or their Groups and/or Subsidiaries, shall not be the Confidential Information of any such Party, and all concerned Parties may use or disclose it without the consent of any other Party.
(b) The Parties agree that irreparable damage may occur in the event that the provisions of this Section 8.6 were not performed in accordance with their specific terms. Accordingly, it is hereby agreed that the Parties shall be entitled to seek an injunction or injunctions to enforce specifically the terms and provisions hereof, without posting bond or other security, in any court of competent jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity.
(c) For the avoidance of doubt, the disclosure and sharing of Privileged Information shall be governed by Section 8.7 and not by this Section 8.6 . The provisions of this Section 8.6 shall survive any expiration or termination of this Agreement.
Section 8.7. Privilege Matters .
(a) Pre-Separation Services . The Parties recognize that legal and other professional services that have been and will be provided prior to the Effective Time have been and will be rendered for the collective benefit of each of the members of the HLT Group, the PK Group and the HGV Group, and that each of the members of the HLT Group, the PK Group and the HGV Group should be deemed to be the client with respect to such pre-separation services for the purposes of asserting all privileges, immunities, or other protections from disclosure which may be asserted under applicable Law, including attorney-client privilege, business strategy privilege, joint defense privilege, common interest privilege, and
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protection under the work-product doctrine ( Privilege ). The Parties shall have a shared Privilege with respect to all Information subject to Privilege ( Privileged Information ) which relates to such pre-separation services. For the avoidance of doubt, Privileged Information within the scope of this Section 8.7 includes, but is not limited to, services rendered by legal counsel retained or employed by any Party (or any member of such Partys respective Group), including outside counsel and in-house counsel.
(b) Post-Separation Services . The Parties recognize that legal and other professional services will be provided following the Effective Time to each of HLT, PK and HGV. The Parties further recognize that certain of such post-separation services will be rendered solely for the benefit of HLT, PK or HGV, as the case may be, while other such post-separation services may be rendered with respect to claims, proceedings, litigation, disputes or other matters which involve two or more of HLT, PK or HGV. With respect to such post-separation services and related Privileged Information, the Parties agree as follows:
(i) All Privileged Information relating to any claims, proceedings, litigation, disputes or other matters which involve two or more of HLT, PK or HGV shall be subject to a shared Privilege among the Parties involved in the claims, proceedings, litigation, disputes or other matters at issue;
(ii) Except as otherwise provided in Section 8.7(b)(i ) , Privileged Information relating to post-separation services provided solely to one of HLT, PK or HGV shall not be deemed shared between the Parties, provided , that the foregoing shall not be construed or interpreted to restrict the right or authority of two or more Parties (x) to enter into any further agreement, not otherwise inconsistent with the terms of this Agreement, concerning the sharing of Privileged Information or (y) otherwise to share Privileged Information without waiving any Privilege which could be asserted under applicable Law; and
(iii) Each of HLT, PK or HGV shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with Privileged Information which relates solely to the HLT Retained Business, Ownership Business or Timeshare Business, as applicable, whether or not the Privileged Information is in the possession of or under the control of HLT, PK or HGV, as applicable, or the other Parties (or their respective Affiliates).
(c) The Parties agree as follows regarding all Privileged Information with respect to which the Parties shall have a shared Privilege under Section 8.7(a) or (b ) :
(i) Subject to Section 8.7(c)(iii) and (iv ) , no Party may waive any Privilege which could be asserted under any applicable Law, and in which any other Party has a shared Privilege, without the consent of the other Party, which shall not be unreasonably withheld or delayed. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within ten (10) Business Days after written notice by the requesting Party to the Party whose consent is sought;
(ii) If a dispute arises between or among the Parties or their respective Subsidiaries regarding whether a Privilege should be waived to protect or advance the interest of any Party, each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other Parties, and shall not unreasonably withhold consent to any request for waiver by another Party. Each Party specifically agrees that it shall not withhold consent to waive for any purpose except to protect its own legitimate interests;
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(iii) If, within ten (10) Business Days of receipt by the requesting Party of written objection, the Parties have not succeeded in negotiating a resolution to any dispute regarding whether a Privilege should be waived, and the requesting Party determines that a Privilege should nonetheless be waived to protect or advance its interest, the requesting Party shall provide the objecting Party ten (10) Business Days written notice prior to effecting such waiver. Each Party specifically agrees that failure within ten (10) Business Days of receipt of such notice to commence proceedings in a court of competent jurisdiction to enjoin such disclosure under applicable Law shall be deemed full and effective consent to such disclosure; and
(iv) In the event of any litigation or dispute between or among any of the Parties, or any members of their respective Groups, either such Party may waive a Privilege in which the other Party or member of such Group has a shared Privilege, without obtaining the consent of the other Party; provided , that such waiver of a shared Privilege shall be effective only as to the use of Privileged Information with respect to the litigation or dispute between the relevant Parties and/or the applicable members of their respective Groups, and shall not operate as a waiver of the shared Privilege with respect to third parties.
(d) The transfer of all Information pursuant to this Agreement is made in reliance on the agreement of HLT, PK or HGV as set forth in Sections 8.6 and this Section 8.7 , to maintain the confidentiality of Privileged Information and to assert and maintain any applicable Privilege. The access to Information being granted pursuant to Sections 6.3 , 7.6 , 8.2 and 8.3 hereof, the agreement to provide witnesses and individuals pursuant to Sections 6.3 , 7.6 and 8.4 hereof, the furnishing of notices and documents and other cooperative efforts contemplated by Sections 6.5 and 7.6 hereof, and the transfer of Privileged Information between and among the Parties and their respective Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any Privilege that has been or may be asserted under this Agreement or otherwise.
(e) Notwithstanding any provision to the contrary in this Section 8.7 , the Party responsible under the Tax Matters Agreement for controlling a Tax Contest shall have the authority to disclose or not disclose, in its sole discretion, any and all Privileged Information to (i) any Taxing Authority (as defined in the Tax Matters Agreement) conducting a Tax Contest or (ii) to third parties in connection with connection with the defense of a Tax Contest, including expert witnesses, accountants and other advisors, potential witnesses and other parties whose assistance is deemed, in the sole discretion of such Party, to be necessary or beneficial to representing the interests of the Parties hereunder.
Section 8.8. Ownership of Information . Any Information owned by one Party or any of its Subsidiaries that is provided to a requesting Party pursuant to this Article VIII shall be deemed to remain the property of the providing Party (except to the extent set forth in the definitions of HLT Retained Assets, Ownership Assets and Timeshare Assets). Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.
Section 8.9. Other Agreements . The rights and obligations granted under this Article VIII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement.
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ARTICLE IX
DISPUTE RESOLUTION
Section 9.1. Negotiation . In the event of a dispute arising out of or in connection with this Agreement (including its interpretation, performance or validity) (collectively, Agreement Disputes ), the general counsels of the relevant Parties (or such other individuals designated thereby) shall negotiate for a maximum of 21 days (or a mutually-agreed extension) (such period of days, the Negotiation Period) from the time of receipt by a Party of written notice of such Agreement Dispute . The relevant Parties shall not assert the defenses of statute of limitations and laches for any delays arising due to the procedures in Sections 9.1 or 9.2.
Section 9.2. Mediation . If the Parties have not timely resolved the Agreement Dispute under Section 9.1, the Parties agree to submit the Agreement Dispute to mediation no later than 10 days following the end of the Negotiation Period, with such mediation to be conducted in accordance with the Mediation Procedure of the International Institute for Conflict Prevention and Resolution ( CPR ). The Parties to the Agreement Dispute agree to bear equally the CPR and mediators costs . The Parties agree to participate in good faith in the mediation for a maximum of 14 days (or a mutually agreed extension). If the Parties have not timely resolved the Agreement Dispute pursuant to this Section 9.2, either Party may then bring an action in accordance with Sections 9.3 and 9.4 herein.
Section 9.3. Consent to Jurisdiction . Each Party irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware or (b) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the State of Delaware, to resolve any Agreement Dispute that is not resolved pursuant to Sections 9.1 or 9.2. Any judgment of such court may be enforced by any court of competent jurisdiction. Further, notwithstanding Sections 9.1 and 9.2, either Party may apply to the above courts set forth in Section 9.3(a) & 9.3(b) above for a temporary restraining order or similar emergency relief during the process set forth in Sections 9.1 and 9.2. Each of the Parties agrees that service by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any of the above Actions and irrevocably and unconditionally waives any objection to the laying of venue of any Action in accordance with this Section 9.3. Nothing in this Section 9.3 shall limit or restrict the Parties from agreeing to arbitrate any Agreement Dispute pursuant to mutually-agreed procedures.
Section 9.4. Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING ANY AGREEMENT DISPUTE.
Section 9.5. Confidentiality. All information and communications between the Parties relating to an Agreement Dispute and/or under the procedures in Sections 9.1 and 9.2, shall be considered Confidential Information under Section 8.6 herein.
Section 9.6. Continuity of Performance . Unless otherwise agreed in writing, the Parties shall continue to perform under this Agreement during the course of dispute resolution under this Article IX with respect to all matters not subject thereto.
Section 9.7. Ancillary Agreements . The provisions of this Article IX (including Section 8.6 as referenced herein) and Section 11.17 ( Governing Law ) shall also apply, mutatis mutandis, to any dispute arising out of or in connection with any Ancillary Agreement (including its interpretation, performance or validity) that does not contain its own dispute resolution provisions. For clarity, for any Ancillary Agreement that contains its own dispute resolution provisions, such provisions shall govern and be interpreted without reference to or incorporation of this Agreement, unless and to the extent such Ancillary Agreement expressly incorporates provisions of this Agreement by reference.
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ARTICLE X
INSURANCE
Section 10.1. Policies and Rights Included Within Assets . (a) The HLT Retained Assets shall include any and all rights of a first named insured under Company Policies where HLT is a first named insured, subject to the terms of such Company Policies and any limitations or obligations of HLT contemplated by this Article X , specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred prior to the Effective Time by any party in or in connection with the conduct of the HLT Retained Business or, to the extent any claim is made against HLT or any of its Subsidiaries, the conduct of the Ownership Business or the Timeshare Business, and which claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Company Policies; provided , however , that nothing in this Section 10.1 shall be deemed to constitute (or to reflect) an assignment of such Policies by HLT.
(b) The Ownership Assets shall include any and all rights of an insured party under each of the Company Policies, subject to Sections 10.9 and 10.10 and to the terms of such Company Policies and any limitations or obligations of PK contemplated by this Article X or Schedule 10.1 , specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred prior to the Effective Time by any party in or in connection with the conduct of the Ownership Business or, to the extent any claim is made against PK or any of its Subsidiaries, the conduct of the HLT Retained Business or the Timeshare Business, and which claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Company Policies; provided , however , that nothing in this clause shall be deemed to constitute (or to reflect) an assignment of such Company Policies, or any of them, to PK.
(c) The Timeshare Assets shall include any and all rights of an insured party under each of the Company Policies, subject to Sections 10.9 and 10.10 and to the terms of such Company Policies and any limitations or obligations of HGV contemplated by this Article X or Schedule 10.1 , specifically including rights of indemnity and the right to be defended by or at the expense of the insurer, with respect to all claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses incurred or claimed to have been incurred prior to the Effective Time by any party in or in connection with the conduct of the Timeshare Business or, to the extent any claim is made against HGV or any of its Subsidiaries, the conduct of the HLT Retained Business or the Ownership Business, and which claims, suits, actions, proceedings, injuries, losses, liabilities, damages and expenses may arise out of an insured or insurable occurrence under one or more of such Company Policies; provided , however , that nothing in this clause shall be deemed to constitute (or to reflect) an assignment of such Company Policies, or any of them, to HGV.
Section 10.2. Post-Effective Time Claims .
(a) If, subsequent to the Effective Time, any Person shall assert a claim against PK or any of its Subsidiaries (including where PK or its Subsidiaries are joint defendants with other Persons) with respect to any claim, suit, action, proceeding, injury, loss, liability, damage or expense incurred or claimed to have been incurred prior to the Effective Time in or in connection with the conduct of the Ownership Business or, to the extent any claim is made against PK or any of its Subsidiaries (including where PK or its Subsidiaries are joint defendants with other persons), the conduct of the HLT Retained Business or the Timeshare Business, and which claim, suit, action, proceeding, injury, loss, liability,
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damage or expense may arise out of an insured or insurable occurrence under one or more of the Company Policies, HLT shall act on behalf of all insured parties to assert and manage all claims and to collect any related Insurance Proceeds on behalf of all insured parties under such Company Policy. PK, as an additionally insured party, shall have any and all rights of an additionally insured party under such Company Policy including asserting claims and with respect to such asserted claim, be entitled to rights of indemnity and the right to be defended by or at the expense of the insurer and the right to any applicable Insurance Proceeds thereunder; provided , however , that nothing in this Section 10.2(a) shall be deemed to constitute (or to reflect) an assignment of the Company Policies, or any of them, to PK nor be deemed to override existing policy terms and conditions.
(b) If, subsequent to the Effective Time, any person shall assert a claim against HGV or any of its Subsidiaries (including where HGV or its Subsidiaries are joint defendants with other persons) with respect to any claim, suit, action, proceeding, injury, loss, liability, damage or expense incurred or claimed to have been incurred prior to the Effective Time in or in connection with the conduct of the Timeshare Business or, to the extent any claim is made against HGV or any of its Subsidiaries (including where HGV or its Subsidiaries are joint defendants with other persons), the conduct of the HLT Retained Business or the Ownership Business, and which claim, suit, action, proceeding, injury, loss, liability, damage or expense may arise out of an insured or insurable occurrence under one or more of the Company Policies, HLT shall act on behalf of all insured parties to assert and manage all claims and to collect any related Insurance Proceeds on behalf of all insured parties under such Company Policy. HGV, as an additionally insured party shall have any and all rights of an additionally insured party under such Company Policy including asserting claims and with respect to such asserted claim, be entitled to rights of indemnity and the right to be defended by or at the expense of the insurer and the right to any applicable Insurance Proceeds thereunder; provided , however , that nothing in this Section 10.2(b) shall be deemed to constitute (or to reflect) an assignment of the Company Policies, or any of them, to HGV nor deemed to override existing policy terms and conditions.
Section 10.3. Administration; Other Matters .
(a) Administration . Subject to Section 10.10 , from and after the Effective Time, HLT shall be responsible for Claims Administration under Company Policies with respect to all Insured Claims. Each of PK and HGV shall provide prompt notice to HLT of any claims submitted by them or by their respective Subsidiaries under the Company Policies. Each Party shall be responsible for any amounts of its respective Insured Claims under Company Policies that fall below applicable deductibles or self-insured retentions, and shall be responsible for obtaining or reviewing the appropriateness of releases upon settlement of its respective Insured Claims under Company Policies. HLT shall have the sole right to change any Company Policies; provided that such change may not adversely and disproportionately affect PK or HGV as compared to HLT, without the consent of the adversely and disproportionately affected Party (not to be unreasonably withheld or delayed). HLT may, with the consent of the other Parties (not to be unreasonably withheld or delayed), commute or otherwise terminate any Company Policies.
(b) Liability Limitation . HLT, PK and HGV shall not be liable to one another for claims not reimbursed by insurers for any reason not within the control of HLT, PK or HGV, as the case may be, including coinsurance provisions, deductibles, quota share deductibles, exhaustion of aggregates, self-insured retentions, bankruptcy or insolvency of an insurance carrier, Company Policy limitations or restrictions, any coverage disputes, any failure to timely claim by HLT, PK or HGV or any defect in such claim or its processing.
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(c) Maximization of Insurance Proceeds . Each Party agrees to use commercially reasonable efforts to maximize available coverage under those Company Policies applicable to it, and to take all commercially reasonable steps to recover from all other responsible parties in respect of an Insured Claim, including, as may be applicable, pursuing recoveries under other insurance policies available to such Party.
Section 10.4. Agreement for Waiver of Conflict and Shared Defense . In the event that Insured Claims of more than one Party exist relating to the same occurrence, the relevant Parties shall jointly defend and waive any conflict of interest to the extent necessary to the conduct of the joint defense. Nothing in this Section 10.4 shall be construed to limit or otherwise alter in any way the obligations of the Parties, including those created by this Agreement, by operation of law or otherwise.
Section 10.5. Agreement for Waiver of Conflict and Insurance Litigation and/or Recovery Efforts . In the event of any Action by any Party (or all of the Parties) to recover or obtain insurance proceeds, or to defend against any Action by an insurance carrier to deny any Policy benefits, all Parties may join in any such Action and be represented by joint counsel and all Parties shall waive any conflict of interest to the extent necessary to conduct any such Action. Nothing in this Section 10.5 shall be construed to limit or otherwise alter in any way the obligations of the Parties, including those created by this Agreement, by operation of Law, or otherwise.
Section 10.6. Directors and Officers Liability Insurance; Fiduciary Liability Insurance; Employment Practices Liability Insurance . HLT agrees that, from and after the Distribution Date to the sixth ( 6 th ) anniversary of the Effective Time, it will maintain in full force and effect the Company Policies identified as Directors & Officers Liability Insurance, Excess Directors & Officers Liability Insurance, Fiduciary Liability Insurance and Employment Practices Liability Insurance on Schedule 10.1 (or, through the purchase of extended discovery, the full benefits and coverage of such Company Policies) and shall not amend the terms of such Policies in a manner materially adverse to any persons covered by such insurance unless it is commercially impossible or unreasonable to maintain such Company Policies as they currently exist due to insurance market conditions. The provisions of this Section 10.6 are intended for the benefit of, and shall be enforceable by, each of the persons covered by those Company Policies referenced in the preceding sentence.
Section 10.7. No Coverage for Post-Effective Occurrences . Each of PK and HGV, on behalf of itself and its Subsidiaries, acknowledges and agrees that it will have no coverage under the Company Policies for acts or events that occur after the Effective Time, except as provided for in any Ancillary Agreements including under the Managing and Franchise Agreements pursuant to which HLT (or another member of the HLT Group) makes available to PK (or another member of the PK Group) coverage under certain Company Policies to the extent provided for in the applicable Managing and Franchise Agreement.
Section 10.8. Cooperation . The Parties agree to use their commercially reasonable efforts to cooperate with respect to the various insurance matters contemplated by this Agreement (including in connection with Company Policies where HLT is an additional or first named insured).
Section 10.9. Excluded Policies . Each of PK and HGV, on behalf of itself and its Subsidiaries, disclaims any rights that it otherwise may have under the Excluded Policies and agrees not to submit any claim or to pursue any recovery under any Excluded Policy, it being understood that the Excluded Policies are for the sole benefit of HLT and/or other parties.
Section 10.10. HLT as General Agent and Attorney-In-Fact . Notwithstanding anything to the contrary contained herein, HLT remains the owner and holder of all rights and claims in and to the Company Policies (except with respect to Company Policies made available to PK pursuant to an Ancillary Agreement as set forth in Section 10.7). Should the provisions of Sections 10.1 and 10.2 as
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they pertain to PK and/or HGV be challenged and/or fail their purpose, HLT shall act as agent and attorney-in-fact for PK and HGV and thereby effectuate, on behalf of PK and HGV, the provisions of Sections 10.2(a) and 10.2(b) of this Agreement, provided that, PK or HGV, as the case may be, shall pay HLTs reasonable out-of-pocket costs relating thereto.
Section 10.11. Additional Premiums, Return Premiums and Pro Rata Cancellation Premium Credits . If additional premiums are payable, or return premiums are receivable, on any Company Policies after the Effective Time as a result of an insurance carriers retrospective audit of insured exposure, each of HLT, PK and HGV shall be responsible for its respective share of any such additional premiums, and shall be entitled to receive its respective share of any such return premiums, that are attributable to a change in its or its Subsidiaries insured exposure. If cancellation premium credits are received after the Effective Time in connection with the cancellation of any Company Policies, each of HLT, PK and HGV shall be entitled to receive its Applicable Percentage of such cancellation premium credits.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Complete Agreement; Construction . This Agreement, including the Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. In the event and to the extent that there shall be a conflict between the provisions of (a) this Agreement and the provisions of any Specified Ancillary Agreement or Continuing Arrangement, such Specified Ancillary Agreement or Continuing Arrangement shall control and (b) this Agreement and any Ancillary Agreement which is not a Specified Ancillary Agreement, this Agreement shall control unless specifically stated otherwise in such Ancillary Agreement. Except as expressly set forth in this Agreement or any Ancillary Agreement: (i) all matters relating to Taxes and Tax Returns of the Parties and their respective Subsidiaries shall be governed exclusively by the Tax Matters Agreement; and (ii) for the avoidance of doubt, in the event of any conflict between this Agreement or any Ancillary Agreement, on the one hand, and the Tax Matters Agreement, on the other hand, with respect to such matters, the terms and conditions of the Tax Matters Agreement shall govern.
Section 11.2. Ancillary Agreements . Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements.
Section 11.3. Counterparts . This Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.
Section 11.4. Survival of Agreements . Except as otherwise contemplated by this Agreement or any Ancillary Agreement, all covenants and agreements of the Parties contained in this Agreement and each Ancillary Agreement shall survive the Effective Time and remain in full force and effect in accordance with their applicable terms.
Section 11.5. Expenses . Except as otherwise provided (a) in this Agreement (including (i) with respect to costs and expenses incurred after the Effective Time, responsibility for which is allocated pursuant to Section 2.5 , (ii) with respect to Specified Shared Expenses, responsibility for which is allocated pursuant to Section 5.2 , (iii) with respect to Shared Contingent Liabilities, responsibility for
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which is allocated pursuant to Article VI , (iv) with respect to fees and expenses incurred in the preservation of records and access to information, responsibility for which is allocated pursuant to Section 8.1 , Section 8.4 or Section 8.5 , or (v) with respect to fees and expenses incurred in connection with dispute resolution, responsibility for which is allocated pursuant to Article IX ) or (b) in any Ancillary Agreement, the Parties agree that all out-of-pocket fees and expenses incurred, or to be incurred and directly related to the Plan of Reorganization, the Distributions and the transactions contemplated hereby (including third party professional fees, fees and expenses incurred in connection with the execution and delivery of this Agreement and such other third party fees and expenses incurred on a non-recurring basis directly as a result of the Plan of Reorganization and the Distributions, including expenses set forth on Schedule 11.5 , and excluding the costs of salaries and benefits of employees or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees employer regardless of the employees service with respect to the foregoing) (collectively, Separation Expenses ) shall (A) to the extent set forth on Schedule 11.5 , be paid by HLT and (B) otherwise, be paid by the Party incurring such expenses. For the avoidance of doubt, except as expressly set forth in this Agreement or any Ancillary Agreements, each Party shall be responsible for its own internal fees (and reimburse any other Party to the extent such Party has paid such costs and expenses on behalf of the responsible Party), costs and expenses (e.g., salaries of personnel working in its respective Business) incurred following the Distribution Date in connection with the Plan of Reorganization and the Distributions, including any costs and expenses relating to such Partys (or any member of its Groups) Disclosure Documents filed following the Distribution Date in connection with the Plan of Reorganization and the Distributions (including, printing, mailing and filing fees) or any costs and expenses incurred following the Distribution Date with the continued listing of such Partys common stock on the NYSE following the Distribution.
Section 11.6. Notices . All notices, requests, claims, demands and other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 11.6 ):
To HLT or Hilton Domestic Operating Company Inc.:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 883-6188
To PK:
Park Hotels & Resorts Inc.
1600 Tysons Blvd., Suite 1000
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 893-1057
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To HGV:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, Florida 32835
Attn: General Counsel
Facsimile: (407) 722-3776
Section 11.7. Consents . Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party (and its Group).
Section 11.8. Assignment . This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other Parties (not to be unreasonably withheld or delayed), and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, this Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a Party hereto so long as the resulting, surviving or transferee Business Entity assumes all the obligations of the relevant party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other parties to this Agreement. No assignment permitted by this Section 11.8 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
Section 11.9. Successors and Assigns . The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.
Section 11.10. Termination and Amendment . Prior to the Effective Time, this Agreement (including Article VII hereof) may be terminated, modified or amended and the Distribution may be amended, modified or abandoned by and in the sole discretion of HLT upon written notice to PK and HGV but without the approval of PK, HGV or the stockholders of HLT. In the event of such termination, no Party shall have any liability of any kind to any other Party or any other Person. Following the Effective Time, this Agreement may not be terminated, modified or amended except by an agreement in writing signed by HLT, PK and HGV.
Section 11.11. Payment Terms .
(a) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount to be paid or reimbursed by any Party (and/or a member of such Partys Group), on the one hand, to any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand, under this Agreement shall be paid or reimbursed hereunder within forty-five (45) days after presentation of an invoice or a written demand therefor and setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount.
(b) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within forty-five (45) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to LIBOR, from time to time in effect, calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.
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(c) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, a Party (or any member of a Partys Group) may direct that any payment owed such Party (or member of such Partys Group) hereunder or under any Ancillary Agreement be paid directly to another member of the same Group.
Section 11.12. No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Partys Group to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement or any Ancillary Agreement (including adversely affecting the rights or ability of any Party to successfully pursue indemnification or payment pursuant to Articles VI and VII ).
Section 11.13. Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be Assumed or otherwise performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party at and after the Effective Time, to the extent such Subsidiary remains a Subsidiary of the applicable Party.
Section 11.14. Third Party Beneficiaries . Except (i) as provided in Article VII relating to Indemnitees and for the release under Section 7.1 of any Person provided therein, (ii) as provided in Section 10.6 relating to the directors, officers, employees, fiduciaries or agents provided therein and (iii) as specifically provided in any Ancillary Agreement, this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 11.15. Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
Section 11.16. Exhibits and Schedules .
(a) The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. Nothing in the Exhibits or Schedules constitutes an admission of any liability or obligation of any member of the HLT Group, PK Group or HGV Group or any of their respective Affiliates to any third party, nor, with respect to any third party, an admission against the interests of any member of the HLT Group, PK Group or HGV Group or any of their respective Affiliates. The inclusion of any item or liability or category of item or liability on any Exhibit or Schedule is made solely for purposes of allocating potential liabilities among the Parties and shall not be deemed as or construed to be an admission that any such liability exists.
(b) Subject to the prior written consent of the other Parties (not to be unreasonably withheld or delayed), each Party shall be entitled to update the Schedules from and after the date hereof until the Effective Time.
Section 11.17. Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.
Section 11.18. Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
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Section 11.19. Force Majeure . No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement or, unless otherwise expressly provided therein, any Ancillary Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
Section 11.20. Interpretation . The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
Section 11.21. No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances (including with respect to the rights, entitlements, obligations and recoveries that may arise out of one or more of the following Sections: Article VI ; Section 7.2 ; Section 7.3 ; Section 7.4 ; and Section 7.5 ).
Section 11.22. Tax Treatment of Payments . Unless otherwise required by a Final Determination, this Agreement or the Tax Matters Agreement or otherwise agreed to among the Parties, for U.S. federal Tax purposes, any payment made pursuant to this Agreement (other than any payment of interest pursuant to Section 11.11 ) by: (i) PK to OpCo shall be treated for all Tax purposes as a tax-free contribution by PK to OpCo with respect to its stock occurring immediately before the Internal Distribution of OpCo common stock; (ii) HGV to HLT shall be treated for all Tax purposes as a distribution by HGV to HLT with respect to its stock occurring after HGV is directly owned by HLT and immediately before the HGV Distribution; (iii) OpCo to PK shall be treated for all Tax purposes as a distribution by OpCo to PK with respect to stock of OpCo occurring immediately before the Internal Distribution of OpCo common stock; (iv) HLT to PK shall be treated for all Tax purposes as a tax-free contribution by HLT to PK with respect to its stock occurring immediately before the PK Distribution; (v) HLT to HGV shall be treated for all Tax purposes as a tax-free contribution by HLT to HGV with respect to its stock occurring after HGV is directly owned by HLT and immediately before the HGV Distribution; (vi) PK to HGV shall be treated for all Tax purposes as a tax-free contribution by PK to HGV with respect to its stock occurring immediately before the Internal Distribution of HGV Common Stock; (vii) HGV to PK shall be treated for all Tax purposes as a distribution by HGV to PK with respect to its stock occurring immediately before the Internal Distribution of HGV Common Stock; and in each case, none of the Parties shall take any position inconsistent with such treatment. In the event that a Taxing Authority (as defined in the Tax Matters Agreement) asserts that a Partys treatment of a payment pursuant to this Agreement should be other than as required pursuant to this Agreement (ignoring any potential inconsistent or adverse Final Determination), such Party shall use its commercially reasonable efforts to contest such challenge.
Section 11.23. No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder or under the other Ancillary Agreements shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
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Section 11.24. No Admission of Liability . The allocation of Assets and Liabilities herein (including on the Schedules hereto) is solely for the purpose of allocating such Assets and Liabilities among HLT, PK and HGV and is not intended as an admission of liability or responsibility for any alleged Liabilities vis-a-vis any third party, including with respect to the Liabilities of any non-wholly owned subsidiary of HLT, PK or HGV.
[ Signature Page Follows ]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. | ||
By: | ||
Name: Title: |
||
PARK HOTELS & RESORTS INC. | ||
By: | ||
Name: Title: |
||
HILTON GRAND VACATIONS INC. | ||
By: | ||
Name: Title: |
||
HILTON DOMESTIC OPERATING COMPANY INC. | ||
By: | ||
Name: Title: |
[Distribution Agreement]
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HILTON GRAND VACATIONS INC.
The present name of the corporation is Hilton Grand Vacations Inc. (the Corporation ). The Corporation was incorporated under the name Hilton Grand Vacations Inc. by the filing of the original certificate of incorporation (the Original Certificate of Incorporation ) with the Secretary of State of the State of Delaware on May 2, 2016. This Amended and Restated Certificate of Incorporation of the Corporation, which amends, restates and integrates the provisions of the Original Certificate of Incorporation, was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware and by the written consent of the stockholders in accordance with Section 228 of the General Corporation Law of the State of Delaware. The Original Certificate of Incorporation of the Corporation is hereby amended and restated to read in its entirety as follows:
ARTICLE I
Section 1.1. Name . The name of the Corporation is Hilton Grand Vacations Inc.
ARTICLE II
Section 2.1. Address . The registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, New Castle County, Delaware 19808; and the name of the Corporations registered agent at such address is Corporation Service Company.
ARTICLE III
Section 3.1. Purpose . The purpose of the Corporation is to engage in any lawful act or activity, either directly or indirectly through subsidiaries of the Corporation, for which corporations may now or hereafter be organized under the General Corporation Law of the State of Delaware (the DGCL ).
ARTICLE IV
Section 4.1. Capitalization . The total number of shares of all classes of stock that the Corporation is authorized to issue is 3,300,000,000 shares, consisting of (i) 3,000,000,000 shares of Common Stock, par value $0.01 per share ( Common Stock ) and (ii) 300,000,000 shares of Preferred Stock, par value $0.01 per share ( Preferred Stock ). The number of authorized shares of any of the Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote thereon irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no vote of the holders of any of the Common Stock or Preferred Stock
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voting separately as a class shall be required therefor, unless a vote of any such holder is required pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock).
Upon this Amended and Restated Certificate of Incorporation becoming effective pursuant to the DGCL (the Effective Time ), each share of Common Stock of the Corporation issued immediately prior to the Effective Time will be reclassified into a number of issued, fully paid and nonassessable shares of Common Stock equal to the number of shares of common stock, par value $0.01 per share, of Hilton Worldwide Holdings Inc. issued and outstanding at 5:00 p.m. (Eastern Time) on December 15, 2016 divided by one thousand ten (1,010), without any action required on the part of the Corporation or the holders of such Common Stock. No fractional shares of Common Stock will be issued to any holder in connection with the reclassification of shares of Common Stock provided herein. In lieu of fractional shares, holders of such Common Stock will receive a cash payment equal to the fair value of such fractional shares, as determined in good faith by the Board (as defined below). From and after the Effective Time, stock certificates representing the Common Stock issued immediately prior to the Effective Time, if any, shall represent the number of whole shares of Common Stock into which such Common Stock shall have been reclassified pursuant to this Amended and Restated Certificate of Incorporation.
Section 4.2. Preferred Stock .
(A) The Board of Directors of the Corporation (the Board ) is hereby expressly authorized, by resolution or resolutions, at any time and from time to time, to provide, out of the unissued shares of Preferred Stock, for one or more series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers (if any) of the shares of such series, and the powers, preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series and to cause to be filed with the Secretary of State of the State of Delaware a certificate of designations with respect thereto. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.
(B) Except as otherwise required by law, holders of a series of Preferred Stock, as such, shall be entitled only to such voting rights, if any, as shall expressly be granted thereto by this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to such series of Preferred Stock).
Section 4.3. Common Stock .
(A) Voting Rights . Each holder of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by such holder on all matters on which stockholders generally are entitled to vote; provided, however, that to the fullest extent permitted by law, holders of Common Stock, as such, shall have no voting power with respect to, and shall not be entitled to vote on, any amendment to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock)
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that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or pursuant to the DGCL.
(B) Dividends and Distributions . Subject to applicable law and the rights, if any, of the holders of any outstanding series of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Common Stock with respect to the payment of dividends and other distributions in cash, property of the Corporation or shares of stock of the Corporation, such dividends and other distributions may be declared and paid on the Common Stock out of the assets of the Corporation that are by law available therefor at such times and in such amounts as the Board in its discretion shall determine.
(C) Liquidation, Dissolution or Winding Up . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation and subject to the rights, if any, of the holders of Preferred Stock or any class or series of stock having a preference over or the right to participate with the Common Stock as to distributions upon dissolution or liquidation or winding up, the holders of all outstanding shares of Common Stock shall be entitled to receive the remaining assets of the Corporation available for distribution ratably in proportion to the number of shares held by each such stockholder.
ARTICLE V
Section 5.1. By-Laws . In furtherance and not in limitation of the powers conferred by the DGCL, the Board is expressly authorized to make, amend, alter, change, add to or repeal the by-laws of the Corporation (as the same may be amended and/or restated from time to time, the Bylaws) without the assent or vote of the stockholders in any manner not inconsistent with the laws of the State of Delaware or this Amended and Restated Certificate of Incorporation. The affirmative vote of the holders of at least 80% of the voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for the stockholders to make, amend, alter, change, add to or repeal any provision of the Bylaws.
ARTICLE VI
Section 6.1. Board of Directors .
(A) Except as otherwise provided in this Amended and Restated Certificate of Incorporation or the DGCL, the business and affairs of the Corporation shall be managed by or under the direction of the Board, with the exact number of directors to be determined from time to time exclusively by resolution adopted by the Board.
(B) Whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal and other features of such directorships shall be governed by
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the terms of this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) applicable thereto. Notwithstanding Section 6.1(A), the number of directors that may be elected by the holders of any such series of Preferred Stock shall be in addition to the number fixed pursuant to Section 6.1(A) hereof.
(C) Directors of the Corporation need not be elected by written ballot unless the Bylaws shall so provide. Except as otherwise provided in this Amended and Restated Certificate of Incorporation (including any certificate of designations relating to any series of Preferred Stock) or the Bylaws (as either may be amended and/or restated from time to time), directors of the Corporation shall be elected at each annual meeting of the stockholders and shall serve until the next annual meeting of the stockholders and until their successors are duly elected and qualified.
ARTICLE VII
Section 7.1. Meetings of Stockholders . For so long as the stockholders affiliated with The Blackstone Group L.P. (collectively, the Blackstone Stockholders ) party to the Stockholders Agreement, dated on or about the date hereof (as amended or supplemented from time to time the Blackstone Stockholders Agreement ), among the Corporation and the stockholders from time to time party thereto, collectively continue to beneficially own at least 40% of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, any action required or permitted to be taken by the holders of stock of the Corporation may be effected by written consent without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be 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 entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or to an officer or agent of the Corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporations registered office shall be made by hand or by certified or registered mail, return receipt requested. From and after the date on which the Blackstone Stockholders collectively cease to beneficially own at least 40% of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, any action required or permitted to be taken by the holders of stock of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders unless such action is recommended by all directors of the Corporation then in office; provided , however , that, to the extent expressly permitted by the certificate(s) of designation relating to one or more series of Preferred Stock, any action required or permitted to be taken by the holders of such series of Preferred Stock, voting separately as a series or separately as a class with one or more other such series, 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, shall be signed by the holders of outstanding shares of the relevant class or series 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 entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or to an officer or
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agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporations registered office shall be by hand or by certified or registered mail, return receipt requested. Except as otherwise required by law and subject to the rights of the holders of any series of Preferred Stock, special meetings of the stockholders of the Corporation for any purpose or purposes may be called at any time only by or at the direction of the Board, the Chairman of the Board or the Chief Executive Officer of the Corporation or upon the request of holders of stock of the Corporation entitling the holders thereof to not less than a majority of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, or for so long as the Blackstone Stockholders and their affiliates continue to beneficially own at least 40% of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, the Blackstone Stockholders. For so long as the Blackstone Stockholders continue to beneficially own at least 40% of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, the Blackstone Stockholders consent is required for any amendment to Section 7.1 hereof.
ARTICLE VIII
Section 8.1. Limitation on Liability of Directors . No director of the Corporation will have any personal liability to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or hereafter may be amended. Neither the amendment nor the repeal of this Article VIII shall eliminate or reduce the effect thereof in respect of any state of facts existing or act or omission occurring, or any cause of action, suit or claim that, but for this Article VIII, would accrue or arise, prior to such amendment or repeal.
ARTICLE IX
Section 9.1. Business Combinations . The Corporation hereby elects not to be governed by Section 203 of the DGCL until such time as there is no Blackstone Stockholder, which, together with its affiliates, continues to beneficially own at least 5% of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, whereupon the Corporation shall immediately and automatically, without further action on the part of the Corporation or any holder of stock of the Corporation, become governed by Section 203 of the DGCL.
ARTICLE X
Section 10.1. Certain Acknowledgment . In recognition and anticipation that (i) certain directors, principals, officers, employees and/or other representatives of investment funds or vehicles affiliated with The Blackstone Group L.P. ( Blackstone ) and its Affiliates (as defined below) may serve as directors, officers or agents of the Corporation, (ii) Blackstone and its Affiliates may now engage and may continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the
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Corporation, directly or indirectly, may engage, and (iii) members of the Board who are not employees of the Corporation ( Non-Employee Directors ) and their respective Affiliates may now engage and may continue to engage in the same or similar activities or related lines of business as those in which the Corporation, directly or indirectly, may engage and/or other business activities that overlap with or compete with those in which the Corporation, directly or indirectly, may engage, the provisions of this Article X are set forth to regulate and define the conduct of certain affairs of the Corporation with respect to certain classes or categories of business opportunities as they may involve any of Blackstone, the Non-Employee Directors or their respective Affiliates and the powers, rights, duties and liabilities of the Corporation and its directors, officers and stockholders in connection therewith.
Section 10.2. Competition and Corporate Opportunities; Renouncement . None of (i) Blackstone or any of its Affiliates or (ii) any Non-Employee Director (including any Non-Employee Director who serves as an officer of the Corporation in both his or her director and officer capacities) or his or her Affiliates (the Persons (as defined below) identified in (i) and (ii) above being referred to, collectively, as Identified Persons and, individually, as an Identified Person) shall, to the fullest extent permitted by law, have any duty to refrain from directly or indirectly (1) engaging in the same or similar business activities or lines of business in which the Corporation or any of its Affiliates now engages or proposes to engage or (2) otherwise competing with the Corporation or any of its Affiliates, and, to the fullest extent permitted by law, no Identified Person shall be liable to the Corporation or its stockholders or to any Affiliate of the Corporation for breach of any fiduciary duty solely by reason of the fact that such Identified Person engages in any such activities. To the fullest extent permitted by law, the Corporation hereby renounces any interest or expectancy in, or right to be offered an opportunity to participate in, any business opportunity which may be a corporate opportunity for an Identified Person and the Corporation or any of its Affiliates, except as provided in Section 10.3 hereof. Subject to said Section 10.3, in the event that any Identified Person acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself, herself or himself and the Corporation or any of its Affiliates, such Identified Person shall, to the fullest extent permitted by law, have no duty to communicate or offer such transaction or other business opportunity to the Corporation or any of its Affiliates and, to the fullest extent permitted by law, shall not be liable to the Corporation or its stockholders or to any Affiliate of the Corporation for breach of any fiduciary duty as a stockholder, director or officer of the Corporation solely by reason of the fact that such Identified Person pursues or acquires such corporate opportunity for itself, herself or himself, or offers or directs such corporate opportunity to another Person.
Section 10.3. Allocation of Corporate Opportunities . The Corporation does not renounce its interest in any corporate opportunity offered to any Non-Employee Director (including any Non-Employee Director who serves as an officer of this Corporation) if such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of the Corporation, and the provisions of Section 10.2 hereof shall not apply to any such corporate opportunity.
Section 10.4. Certain Matters Deemed Not Corporate Opportunities . In addition to and notwithstanding the foregoing provisions of this Article X, a corporate opportunity shall not be deemed to be a potential corporate opportunity for the Corporation if it is a business
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opportunity that (i) the Corporation is neither financially or legally able, nor contractually permitted to undertake, (ii) from its nature, is not in the line of the Corporations business or is of no practical advantage to the Corporation or (iii) is one in which the Corporation has no interest or reasonable expectancy.
Section 10.5. Certain Definitions . For purposes of this Article X, (i) Affiliate shall mean (a) in respect of Blackstone, any Person that, directly or indirectly, is controlled by Blackstone, controls Blackstone or is under common control with Blackstone and shall include any principal, member, director, partner, stockholder, officer, employee or other representative of any of the foregoing (other than the Corporation and any entity that is controlled by the Corporation), (b) in respect of a Non-Employee Director, any Person that, directly or indirectly, is controlled by such Non-Employee Director (other than the Corporation and any entity that is controlled by the Corporation) and (c) in respect of the Corporation, any Person that, directly or indirectly, is controlled by the Corporation; and (ii) Person shall mean any individual, corporation, general or limited partnership, limited liability company, joint venture, trust, association or any other entity.
Section 10.6. Notice of this Article . To the fullest extent permitted by law, any Person purchasing or otherwise acquiring any interest in any shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article X.
ARTICLE XI
Section 11.1. Severability . If any provision or provisions of this Amended and Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Amended and Restated Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and the provisions of this Amended and Restated Certificate of Incorporation (including, without limitation, each such portion of any paragraph of this Amended and Restated Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to permit the Corporation to protect its directors, officers, employees and agents from personal liability to the fullest extent permitted by law.
ARTICLE XII
Section 12.1. Forum . Unless the Corporation consents in writing 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 (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of the Corporation to the Corporation or the Corporations stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or this Amended and Restated Certificate of Incorporation or the
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Bylaws (as either may be amended and/or restated from time to time) or (iv) any action asserting a claim governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article XII.
This Amended and Restated Certificate of Incorporation shall become effective at [a.m./p.m.] (Eastern Time) on , 201 .
* * *
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IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by , its this day of , 201 .
[Signature page Amended and Restated Certificate of Incorporation]
Exhibit 3.2
AMENDED AND RESTATED
BY-LAWS
OF
HILTON GRAND VACATIONS INC.
ARTICLE I.
STOCKHOLDERS
Section 1 . The annual meeting of the stockholders of Hilton Grand Vacations Inc. (the Corporation) for the purpose of electing directors and for the transaction of such other business as may properly be brought before the meeting shall be held on such date, and at such time and place, if any, within or without the State of Delaware as may be designated from time to time by the Board of Directors of the Corporation (the Board). The Corporation may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled.
Section 2 . Except as otherwise required by law or the certificate of incorporation of the Corporation, and subject to the rights of the holders of one or more series of Preferred Stock (as defined in the certificate of incorporation of the Corporation), special meetings of the stockholders of the Corporation may be called only by or at the direction of the Board, the Chairman of the Board or the Chief Executive Officer of the Corporation or upon the request of holders of stock of the Corporation entitling the holders thereof to not less than a majority of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, or for so long as the Blackstone Stockholders (as defined in the certificate of incorporation of the Corporation) and their affiliates continue to beneficially own at least 40% of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, the Blackstone Stockholders. The Corporation may postpone, reschedule or cancel any special meeting of stockholders previously scheduled.
Section 3 . Except as otherwise provided by law, the certificate of incorporation of the Corporation or these By-Laws, notice of the date, time, place (if any), the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes of the meeting of stockholders shall be given not more than sixty (60), nor less than ten (10), days before the date of the meeting, to each stockholder entitled to vote at the meeting as of the record date for determining stockholders entitled to notice of the meeting at such address as appears on the records of the Corporation.
Section 4 . The holders of a majority in voting power of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided herein, by statute or by the certificate of incorporation of the Corporation; but if at any meeting of stockholders there shall be less than a quorum present, the chairman of the meeting or, by a majority in voting power thereof, the stockholders present may, to the extent permitted by law, adjourn the meeting from time to time without further notice other than announcement at the meeting of the date, time and place, if any, of the adjourned meeting, until a quorum shall be present or represented. Notwithstanding the foregoing, except as otherwise provided by the certificate of incorporation of the Corporation, where a separate vote by a class or series or classes or series is required, a majority in voting power of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. Notice need not be given of any adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix a new record date for notice of such adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such adjourned meeting.
Section 5 . The Chairman of the Board, or in the Chairmans absence or at the Chairmans direction, the Chief Executive Officer, or in the Chief Executive Officers absence or at the Chief Executive Officers direction, any officer of the Corporation shall call all meetings of the stockholders to order and shall act as chairman of any such meetings. The Secretary of the Corporation or, in such officers absence, an Assistant Secretary shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting shall appoint a secretary of the meeting. The Board may adopt such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Unless otherwise determined by the Board prior to the meeting, the chairman of the meeting shall determine the order of business and shall have the authority in his or her discretion to regulate the conduct of any such meeting, including, without limitation, convening the meeting and adjourning the meeting (whether or not a quorum is present), announcing the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote, imposing restrictions on the persons (other than stockholders of record of the Corporation or their duly appointed proxies) who may attend any such meeting, establishing procedures for the transaction of business at the meeting (including the dismissal of business not properly presented), maintaining order at the meeting and safety of those present, restricting entry to the meeting after the time fixed for commencement thereof and limiting the circumstances in which any person may make a statement or ask questions at any meeting of stockholders.
Section 6 . At all meetings of stockholders, any stockholder entitled to vote thereat shall be entitled to vote in person or by proxy, but no proxy shall be voted after three years from its date, unless such proxy provides for a longer period. Without limiting the manner in which a stockholder may authorize another person or persons to act for the stockholder as proxy pursuant to the General Corporation Law of the State of Delaware (the DGCL), the following shall constitute a valid means by which a stockholder may grant such authority: (i) a stockholder may execute a writing authorizing another person or persons to act for the stockholder as proxy, and execution of the writing may be accomplished by the stockholder or the stockholders authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature; or (ii) a stockholder may authorize another person or persons to act for the stockholder as proxy by transmitting or authorizing by means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such means of electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder. If it is determined that such electronic transmissions are valid, the inspector or inspectors of stockholder votes or, if there are no such inspectors, such other persons making that determination shall specify the information upon which they relied.
A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the Corporation a revocation of the proxy or a new proxy bearing a later date.
Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to the first paragraph of this Section 6 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
Proxies shall be filed with the secretary of the meeting prior to or at the commencement of the meeting to which they relate.
Section 7 . When a quorum is present at any meeting, the vote of the holders of a majority of the votes cast shall decide any question brought before such meeting, unless the question is one upon which by express provision of the certificate of incorporation of the Corporation, these By-Laws or the DGCL a different vote is required, in which case such express provision shall govern and control the decision of such question. Notwithstanding the foregoing, where a separate vote by a class or series or classes or series is required and a quorum is present, the affirmative vote of a majority of the votes cast by shares of such class or series or classes or series shall be the act of such class or series or classes or series, unless the question is one upon which by express provision of the certificate of incorporation of the Corporation, these By-Laws or the DGCL a different vote is required, in which case such express provision shall govern and control the decision of such question.
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Section 8 . (A) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however , that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith at the adjourned meeting.
(B) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) days prior to such other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.
Section 9 . At any time when the certificate of incorporation of the Corporation permits action by one or more classes or series of stockholders of the Corporation to be taken by written consent, the provisions of this section shall apply. All consents properly delivered in accordance with the certificate of incorporation of the Corporation, and the DGCL shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the Corporation as required by the DGCL, written consents signed by the holders of a sufficient number of shares to take such corporate action are so delivered to the Corporation in accordance with the applicable provisions of the DGCL. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for notice of such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation as provided in the applicable provisions of the DGCL. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting thereof. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporations registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.
Section 10 . The officer who has charge of the stock ledger of the Corporation shall prepare and make at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting ( provided, however , if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth (10th) day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of
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shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting; or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.
Section 11 . The Board, in advance of all meetings of the stockholders, may (and, if required by law, shall) appoint one or more inspectors of stockholder votes, who may be employees or agents of the Corporation or stockholders or their proxies, but who shall not be directors of the Corporation or candidates for election as directors. In the event that the Board fails to so appoint one or more inspectors of stockholder votes or, in the event that one or more inspectors of stockholder votes previously designated by the Board fails to appear or act at the meeting of stockholders, the chairman of the meeting may appoint one or more inspectors of stockholder votes to fill such vacancy or vacancies. Inspectors of stockholder votes appointed to act at any meeting of the stockholders, before entering upon the discharge of their duties, shall take and sign an oath to faithfully execute the duties of inspector of stockholder votes with strict impartiality and according to the best of their ability and the oath so taken shall be subscribed by them. Inspectors of stockholder votes shall take all actions required under the applicable provisions of the DGCL and any other applicable law, rule or regulation.
Section 12 . (A) Annual Meetings of Stockholders . (1) Nominations of persons for election to the Board and the proposal of other business to be considered by the stockholders may be made at an annual meeting of stockholders only (a) as provided in the Blackstone Stockholders Agreement (as defined in the certificate of incorporation of the Corporation), (b) pursuant to the Corporations notice of meeting (or any supplement thereto) delivered pursuant to Article I, Section 3 of these By-Laws, (c) by or at the direction of the Board or any authorized committee thereof or (d) by any stockholder of the Corporation who is entitled to vote on such election or such other business at the meeting, who complied with the notice procedures set forth in subparagraphs (2) and (3) of this paragraph (A) of this By-Law and who was a stockholder of record at the time such notice is delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, and, in the case of business other than nominations of persons for election to the Board, such other business must constitute a proper matter for stockholder action. To be timely, a stockholders notice shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the preceding years annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than twenty (20) days, or delayed by more than seventy (70) days, from the anniversary date of the previous years meeting, or if no annual meeting was held in the preceding year (including for the Corporations first annual meeting of stockholders after shares of its Common Stock (as defined in the certificate of incorporation of the Corporation) are first publicly traded), notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred and twentieth (120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or, if later, the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. For purposes of the application of Rule 14a-4(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act) (or any successor provision), the date for notice specified in this paragraph (A)(2) shall be the earlier of the date calculated as hereinbefore provided or the date specified in paragraph (c)(1) of Rule 14a-4.
Such stockholders notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder, including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business
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that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these By-Laws, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporations books and records, and of such beneficial owner, (ii) the class or series and number of shares of capital stock of the Corporation which are owned directly or indirectly, beneficially and of record by such stockholder and such beneficial owner, (iii) a representation that the stockholder is a holder of record of the stock of the Corporation at the time of the giving of the notice, will be entitled to vote at such meeting and will appear in person or by proxy at the meeting to propose such business or nomination, (iv) a representation whether the stockholder or the beneficial owner, if any, will be or is part of a group which will (A) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the voting power of the Corporations outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (B) otherwise solicit proxies or votes from stockholders in support of such proposal or nomination, (v) a certification regarding whether such stockholder and beneficial owner, if any, have complied with all applicable federal, state and other legal requirements in connection with the stockholders and/or beneficial owners acquisition of shares of capital stock or other securities of the Corporation and/or the stockholders and/or beneficial owners acts or omissions as a stockholder of the Corporation and (vi) any other information relating to such stockholder and beneficial owner, if any, required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder; (d) a description of any agreement, arrangement or understanding with respect to the nomination or proposal and/or the voting of shares of any class or series of stock of the Corporation between or among the stockholder giving the notice, the beneficial owner, if any, on whose behalf the nomination or proposal is made, any of their respective affiliates or associates and/or any others acting in concert with any of the foregoing (collectively, proponent persons); and (e) a description of any agreement, arrangement or understanding (including without limitation any contract to purchase or sell, acquisition or grant of any option, right or warrant to purchase or sell, swap or other instrument) to which any proponent person is a party, the intent or effect of which may be (i) to transfer to or from any proponent person, in whole or in part, any of the economic consequences of ownership of any security of the Corporation, (ii) to increase or decrease the voting power of any proponent person with respect to shares of any class or series of stock of the Corporation and/or (iii) to provide any proponent person, directly or indirectly, with the opportunity to profit or share in any profit derived from, or to otherwise benefit economically from, any increase or decrease in the value of any security of the Corporation. A stockholder providing notice of a proposed nomination for election to the Board or other business proposed to be brought before a meeting (whether given pursuant to this paragraph (A)(2) or paragraph (B) of this By-Law) shall update and supplement such notice from time to time to the extent necessary so that the information provided or required to be provided in such notice shall be true and correct as of the record date for determining stockholders entitled to notice of the meeting and as of the date that is fifteen (15) days prior to the meeting or any adjournment or postponement thereof provided that if the record date for determining the stockholders entitled to vote at the meeting is less than fifteen (15) days prior to the meeting or any adjournment or postponement thereof, the information shall be supplemented and updated as of such later date. Any such update and supplement shall be delivered in writing to the Secretary of the Corporation at the principal executive offices of the Corporation not later than five (5) days after the record date for determining stockholders entitled to notice of the meeting (in the case of any update or supplement required to be made as of the record date for determining stockholders entitled to notice of the meeting), not later than ten (10) days prior to the date for the meeting or any adjournment or postponement thereof (in the case of any update or supplement required to be made as of fifteen (15) days prior to the meeting or any adjournment or postponement thereof) and not later than five (5) days after the record date for determining the stockholders entitled to vote at the meeting, but no later than the day prior to the meeting or any adjournment or postponement thereof (in the case of any update and supplement required to be made as of a date less than fifteen (15) days prior the date of the meeting or any adjournment or postponement thereof). The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation and to determine the independence of such director under the Exchange Act and rules and regulations thereunder and applicable stock exchange rules.
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(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board is increased, effective after the time period for which nominations would otherwise be due under paragraph (A)(2) of this By-Law, and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board made by the Corporation at least one hundred (100) days prior to the first anniversary of the preceding years annual meeting, a stockholders notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which a public announcement of such increase is first made by the Corporation; provided that, if no such announcement is made at least ten (10) days before the meeting, then no such notice shall be required.
(B) Special Meetings of Stockholders . Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations notice of meeting pursuant to Article I, Section 3 of these By-Laws. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the Blackstone Stockholders Agreement, (ii) pursuant to the Corporations notice of meeting or (iii)(a) by or at the direction of the Board or a committee thereof (or stockholders pursuant to Article I, Section 2 of these By-Laws and Article VII of the certificate of incorporation of the Corporation) or (b) provided that the Board (or stockholders pursuant to Article I, Section 2 of these By-Laws and Article VII of the certificate of incorporation of the Corporation) has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is entitled to vote on such election at the meeting, who complies with the notice procedures set forth in this By-Law and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. The proposals by stockholders of other business to be conducted at a special meeting of stockholders may be made only in accordance with Article I, Section 2 of these By-Laws and Article VII of the certificate of incorporation of the Corporation. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporations notice of meeting if the stockholders notice as required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting.
(C) General . (1) Only persons who are nominated in accordance with the procedures set forth in this By-Law or the Blackstone Stockholders Agreement shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the certificate of incorporation of the Corporation or these By-Laws, the chairman of the meeting shall, in addition to making any other determination that may be appropriate for the conduct of the meeting, have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these By-Laws and, if any proposed nomination or business is not in compliance with these By-Laws, to declare that such defective proposal or nomination shall be disregarded or that such proposed business shall not be transacted.
Notwithstanding the foregoing provisions of this Section 12, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or business, such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 12, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.
(2) For purposes of this By-Law, public announcement shall mean disclosure (a) in a press release released by the Corporation, provided such press release is released by the Corporation following its customary procedures, is reported by the Dow Jones News Service, Associated Press or comparable national news service, or is generally available on internet news sites, (b) in a document publicly filed or furnished by the Corporation with the Securities
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and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act or (c) otherwise disseminated in a manner constituting public disclosure under Regulation FD promulgated by the Securities and Exchange Commission.
(3) For purposes of this By-Law, no adjournment or postponement or notice of adjournment or postponement of any meeting shall be deemed to constitute a new notice of such meeting for purposes of this Section 12, and in order for any notification required to be delivered by a stockholder pursuant to this Section 12 to be timely, such notification must be delivered within the periods set forth above with respect to the originally scheduled meeting.
(4) Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law; provided however, that, to the fullest extent permitted by law, any references in these By-Laws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this By-Law (including paragraphs (A)(1)(c) and (B) hereof), and compliance with paragraphs (A)(1)(c) and (B) of this By-Law shall be the exclusive means for a stockholder to make nominations or submit other business. Nothing in this By-Law shall apply to the right, if any, of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the certificate of incorporation of the Corporation.
ARTICLE II.
BOARD OF DIRECTORS
Section 1 . The Board shall consist, subject to the certificate of incorporation of the Corporation, of such number of directors as shall from time to time be fixed exclusively by resolution adopted by the Board. Directors shall (except as hereinafter provided for the filling of vacancies and newly created directorships and except as otherwise expressly provided in the certificate of incorporation of the Corporation) be elected by the holders of a plurality of the votes cast by the holders of shares present in person or represented by proxy at the meeting and entitled to vote on the election of such directors. A majority of the total number of directors then in office (but not less than one-third of the number of directors constituting the entire Board) shall constitute a quorum for the transaction of business. Except as otherwise provided by law, these By-Laws or by the certificate of incorporation of the Corporation, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board. Directors need not be stockholders.
Section 2 . Subject to the certificate of incorporation of the Corporation and the Blackstone Stockholders Agreement, unless otherwise required by the DGCL or Article II, Section 4 of these By-Laws, any newly created directorship on the Board that results from an increase in the number of directors and any vacancy occurring in the Board (whether by death, resignation, removal, retirement, disqualification or otherwise) shall be filled only by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director.
The Corporations corporate governance guidelines have established procedures with respect to the resignation of any director who does not receive a majority of the votes cast in an election that is not a Contested Election (as defined below). The Board will not nominate any person for service on the Board (other than any person nominated or designated pursuant to the Blackstone Stockholders Agreement) unless such person (a Nominee) has agreed to resign from the Board upon failing to receive a majority of the votes cast in an election that is not a Contested Election, contingent on acceptance of that proffered resignation by the Board in accordance with the policies and procedures adopted by the Board for such purpose. An election of directors is a Contested Election if, as of the tenth (10th) day preceding the date the Corporation first mails its notice of meeting for such meeting to the stockholders of the Corporation, or at any time thereafter, the number of nominees exceeds the number of directors to be elected. If the Board accepts a Nominees resignation, then the Board may fill any resulting vacancy pursuant to Article II, Section 2 of these By-Laws.
Section 3 . Meetings of the Board shall be held at such place, if any, within or without the State of Delaware as may from time to time be fixed by resolution of the Board or as may be specified in the notice of any meeting. Regular meetings of the Board shall be held at such times as may from time to time be fixed by resolution of the Board and special meetings may be held at any time upon the call of the Chairman of the Board or the Chief
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Executive Officer, by oral or written notice, including telegraph, telex or transmission of a telecopy, e-mail or other means of electronic transmission, duly served on or sent and delivered to each director to such directors address, e-mail address or telephone or telecopy number as shown on the books of the Corporation not less than twenty-four (24) hours before the meeting. The notice of any meeting need not specify the purposes thereof. A meeting of the Board may be held without notice immediately after the annual meeting of stockholders at the same place, if any, at which such meeting is held. Notice need not be given of regular meetings of the Board held at times fixed by resolution of the Board.
Section 4 . Notwithstanding the foregoing, whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately as a series or separately as a class with one or more such other series, to elect directors at an annual or special meeting of stockholders, the election, term of office, removal, and other features of such directorships shall be governed by the terms of the certificate of incorporation of the Corporation (including any certificate of designations relating to any series of Preferred Stock) applicable thereto. The number of directors that may be elected by the holders of any such series of Preferred Stock shall be in addition to the total number of directors fixed by the Board pursuant to the certificate of incorporation of the Corporation and these By-Laws. Except as otherwise expressly provided in the terms of such series, the number of directors that may be so elected by the holders of any such series of stock shall be elected for terms expiring at the next annual meeting of stockholders, and vacancies among directors so elected by the separate vote of the holders of any such series of Preferred Stock shall be filled by the affirmative vote of a majority of the remaining directors elected by such series, or, if there are no such remaining directors, by the holders of such series in the same manner in which such series initially elected a director.
Section 5 . If at any meeting for the election of directors, the Corporation has outstanding more than one class of stock, and one or more such classes or series thereof are entitled to vote separately as a class to elect directors, and there shall be a quorum of only one such class or series of stock, that class or series of stock shall be entitled to elect its quota of directors notwithstanding the absence of a quorum of the other class or series of stock.
Section 6 . The Board may from time to time establish one or more committees of the Board to serve at the pleasure of the Board, which shall be composed of such members of the Board and have such duties as the Board shall from time to time determine. Any director may belong to any number of committees of the Board. The Board may also establish such other non-Board committees with such members (whether or not directors) and with such duties as the Board may from time to time determine. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Unless otherwise provided in the certificate of incorporation of the Corporation, these By-Laws or the resolution of the Board designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and may delegate to a subcommittee any or all of the powers and authority of the committee.
Section 7 . Unless otherwise restricted by the certificate of incorporation of the Corporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee.
Section 8 . The members of the Board or any committee thereof may participate in a meeting of such Board or committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such a meeting.
Section 9 . The Board may establish policies for the compensation of directors and for the reimbursement of the expenses of directors, in each case, in connection with services provided by directors to the Corporation.
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ARTICLE III.
OFFICERS
Section 1 . The Board shall elect officers of the Corporation, including a Chief Executive Officer, President and a Secretary. The Board may also from time to time elect such other officers (including, without limitation, a Chief Financial Officer, a Chief Operating Officer, a General Counsel, one or more Vice Presidents, a Treasurer, one or more Assistant Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers) as it may deem proper or may delegate to any elected officer of the Corporation the power to appoint and remove any such other officers and to prescribe their respective terms of office, authorities and duties. Any Vice President may be designated Executive, Senior or Corporate, or may be given such other designation or combination of designations as the Board or the Chief Executive Officer may determine. Any two or more offices may be held by the same person. The Board may also elect or appoint a Chairman of the Board, who may or may not also be an officer of the Corporation. The Board may elect or appoint co-Chairmen of the Board, co-Presidents or co-Chief Executive Officers and, in such case, references in these By-Laws to the Chairman of the Board, the President or the Chief Executive Officer shall refer to either such co-Chairman of the Board, co-President or co-Chief Executive Officer, as the case may be.
Section 2 . All officers of the Corporation elected by the Board shall hold office for such terms as may be determined by the Board or, except with respect to his or her own office, the Chief Executive Officer, or until their respective successors are chosen and qualified or until his or her earlier resignation or removal. Any officer may be removed from office at any time either with or without cause by affirmative vote of a majority of the members of the Board then in office, or, in the case of appointed officers, by any elected officer upon whom such power of removal shall have been conferred by the Board.
Section 3 . Each of the officers of the Corporation elected by the Board or appointed by an officer in accordance with these By-Laws shall have the powers and duties prescribed by law, by these By-Laws or by the Board and, in the case of appointed officers, the powers and duties prescribed by the appointing officer, and, unless otherwise prescribed by these By-Laws or by the Board or such appointing officer, shall have such further powers and duties as ordinarily pertain to that office.
Section 4 . Unless otherwise provided in these By-Laws, in the absence or disability of any officer of the Corporation, the Board or the Chief Executive Officer may, during such period, delegate such officers powers and duties to any other officer or to any director and the person to whom such powers and duties are delegated shall, for the time being, hold such office.
ARTICLE IV.
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
Section 1 . Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a proceeding), by reason of the fact that he or she is or was a director or an officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an indemnitee), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, agent or trustee or in any other capacity while serving as a director, officer, employee, agent or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent permitted by Delaware law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this Article IV with respect to proceedings to enforce rights to indemnification or advancement of expenses or with respect to any compulsory counterclaim brought by such indemnitee, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board.
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Section 2 . In addition to the right to indemnification conferred in Section 1 of this Article IV, an indemnitee shall also have the right to be paid by the Corporation the expenses (including attorneys fees) incurred in appearing at, participating in or defending any such proceeding in advance of its final disposition or in connection with a proceeding brought to establish or enforce a right to indemnification or advancement of expenses under this Article IV (which shall be governed by Section 3 of this Article IV) (hereinafter an advancement of expenses); provided, however, that, if (x) the DGCL requires or (y) in the case of an advance made in a proceeding brought to establish or enforce a right to indemnification or advancement, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer of the Corporation (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made solely upon delivery to the Corporation of an undertaking (hereinafter an undertaking), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a final adjudication) that such indemnitee is not entitled to be indemnified or entitled to advancement of expenses under Section 1 or 2 of this Article IV or otherwise.
Section 3 . If a claim under Section 1 or 2 of this Article IV is not paid in full by the Corporation within (i) sixty (60) days after a written claim for indemnification has been received by the Corporation or (ii) twenty (20) days after a claim for an advancement of expenses has been received by the Corporation, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or to obtain advancement of expenses, as applicable. To the fullest extent permitted by law, if the indemnitee is successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including by its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including by its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article IV or otherwise shall be on the Corporation.
Section 4 . (A) The provision of indemnification to or the advancement of expenses and costs to any indemnitee under this Article IV, or the entitlement of any indemnitee to indemnification or advancement of expenses and costs under this Article IV, shall not limit or restrict in any way the power of the Corporation to indemnify or advance expenses and costs to such indemnitee in any other way permitted by law or be deemed exclusive of, or invalidate, any right to which any indemnitee seeking indemnification or advancement of expenses and costs may be entitled under any law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such indemnitees capacity as an officer, director, employee or agent of the Corporation and as to action in any other capacity.
(B) Given that certain jointly indemnifiable claims (as defined below) may arise due to the service of the indemnitee as a director and/or officer of the Corporation at the request of the indemnitee-related entities (as defined below), the Corporation 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 claims, pursuant to and in accordance with the terms of this Article IV, irrespective of any right of recovery the indemnitee may have from the indemnitee-related entities. Under no circumstance shall the Corporation 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
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shall reduce or otherwise alter the rights of the indemnitee or the obligations of the Corporation under this Article IV. 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 Corporation, and the 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. Each of the indemnitee-related entities shall be third-party beneficiaries with respect to this Section 4(B) of Article IV, entitled to enforce this Section 4(B) of Article IV.
For purposes of this Section 4(B) of Article IV, the following terms shall have the following meanings:
(1) The term indemnitee-related entities means any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than the Corporation or any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise for which the indemnitee has agreed, on behalf of the Corporation or at the Corporations request, to serve as a director, officer, employee or agent and which service is covered by the indemnity described herein) from whom an indemnitee may be entitled to indemnification or advancement of expenses with respect to which, in whole or in part, the Corporation may also have an indemnification or advancement obligation.
(2) 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 Corporation pursuant to applicable law, any agreement, certificate of incorporation, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or comparable organizational documents of the Corporation or the indemnitee-related entities, as applicable.
Section 5 . The rights conferred upon indemnitees in this Article IV shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director or officer and shall inure to the benefit of the indemnitees heirs, executors and administrators. Any amendment, alteration or repeal of this Article IV that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit, eliminate, or impair any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.
Section 6 . The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
Section 7 . The Corporation may, to the extent authorized from time to time by the Board, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article IV with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
ARTICLE V.
CORPORATE BOOKS
The books of the Corporation may be kept inside or outside of the State of Delaware at such place or places as the Board may from time to time determine.
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ARTICLE VI.
CHECKS, NOTES, PROXIES, ETC.
All checks and drafts on the Corporations bank accounts and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be signed by such officer or officers or agent or agents as shall be authorized from time to time by the Board or such officer or officers who may be delegated such authority. Proxies to vote and consents with respect to securities of other corporations or other entities owned by or standing in the name of the Corporation may be executed and delivered from time to time on behalf of the Corporation by the Chairman of the Board, the Chief Executive Officer, or by such officers as the Chairman of the Board, the Chief Executive Officer or the Board may from time to time determine.
ARTICLE VII.
FISCAL YEAR
The fiscal year of the Corporation shall be, unless otherwise determined by resolution of the Board, the calendar year ending on December 31.
ARTICLE VIII.
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the Corporation. In lieu of the corporate seal, when so authorized by the Board or a duly empowered committee thereof, a facsimile thereof may be impressed or affixed or reproduced.
ARTICLE IX.
GENERAL PROVISIONS
Section 1 . Whenever notice is required to be given by law or under any provision of the certificate of incorporation of the Corporation or these By-Laws, notice of any meeting need not be given to any person who shall attend such meeting (except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened), or who shall waive notice thereof, before or after such meeting, in writing (including by electronic transmission).
Section 2 . Section headings in these By-Laws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.
Section 3 . In the event that any provision of these By-Laws is or becomes inconsistent with any provision of the certificate of incorporation of the Corporation or the DGCL, the provision of these By-Laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect.
ARTICLE X.
AMENDMENTS
These By-Laws may be made, amended, altered, changed, added to or repealed as set forth in the certificate of incorporation of the Corporation and these By-laws. Notwithstanding any other provisions of these By-laws, at any time when the Blackstone Stockholders(as defined in the certificate of incorporation of the Corporation) beneficially owns at least 40% of the total voting power of all the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, the consent of the Blackstone Stockholders shall be required in order to amend, alter, change, add to or repeal, in whole or in part, Article I, Section 2, Article I, Section 9, Article I, Section 12(B) or this Article X of these By-Laws or to add any provision inconsistent with such provisions of these By-Laws.
[ Remainder of Page Intentionally Left Blank ]
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Exhibit 10.1
EMPLOYEE MATTERS AGREEMENT
by and among
HILTON WORLDWIDE HOLDINGS INC.,
PARK HOTELS & RESORTS INC.,
HILTON GRAND VACATIONS INC., and
HILTON DOMESTIC OPERATING COMPANY INC.
Dated as of , 2016
Table of Contents
Page | ||||||
1. |
DEFINITIONS |
2 | ||||
2. |
EMPLOYEES |
4 | ||||
3. |
BENEFIT PROGRAM PARTICIPATION |
6 | ||||
4. |
DEFINED BENEFIT PENSION PLANS |
7 | ||||
5. |
DEFINED CONTRIBUTION PENSION PLANS |
10 | ||||
6. |
NON-QUALIFIED RETIREMENT/DEFERRED COMPENSATION PLANS |
14 | ||||
7. |
EMPLOYEE HEALTH AND WELFARE BENEFIT PLANS |
16 | ||||
8. |
SEVERANCE PLANS |
22 | ||||
9. |
PAID TIME OFF |
23 | ||||
10. |
PERQUISITES |
24 | ||||
11. |
CASH BONUS PLANS |
25 | ||||
12. |
EQUITY-BASED AWARDS |
26 | ||||
13. |
COLLECTIVE BARGAINING AGREEMENTS |
28 | ||||
14. |
TRANSITION SERVICES |
29 | ||||
15. |
ACCESS TO INFORMATION AND DATA EXCHANGE |
29 | ||||
16. |
NOTICES; COOPERATION |
31 | ||||
17. |
FURTHER ASSURANCES |
31 | ||||
18. |
INDEMNIFICATION |
31 | ||||
19. |
DISPUTE RESOLUTION |
33 | ||||
20. |
PAYROLL REPORTING AND TAX WITHHOLDING |
33 | ||||
21. |
MISCELLANEOUS |
34 |
i
This EMPLOYEE MATTERS AGREEMENT (this Agreement ), dated as of , 2016, is by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Park Hotels & Resorts Inc., a Delaware corporation ( PK ), Hilton Grand Vacations Inc., a Delaware corporation ( HGV ) and, solely for purposes of Section 18, Hilton Domestic Operating Company Inc., a Delaware corporation and subsidiary of HLT ( OpCo ). Each of HLT, PK, HGV and, solely for purposes of Section 18, OpCo, is sometimes referred to herein as a Party and collectively, as the Parties . Capitalized terms used and not defined herein shall have the meaning set forth in the Distribution Agreement (as defined below) or in Section 1 below.
WHEREAS, HLT, acting through its direct and indirect Subsidiaries, currently conducts a number of businesses, including (i) the HLT Retained Business, (ii) the Ownership Business and (iii) the Timeshare Business;
WHEREAS, the Board of Directors of HLT (the Board ) has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business, which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business, which shall be owned and conducted, directly or indirectly, by PK (which shall elect to be a REIT), and (iii) the Timeshare Business, which shall be owned and conducted, directly or indirectly, by HGV;
WHEREAS, in order to effect such separation, the Board has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders (i) to enter into a series of transactions after giving effect to which (A) HLT and/or one or more of its Subsidiaries shall, collectively, own all of the HLT Retained Assets and Assume all of the HLT Retained Liabilities, (B) PK and/or one or more of its Subsidiaries shall, collectively, own all of the Ownership Assets and Assume all of the Ownership Liabilities, and (C) HGV and/or one or more of its Subsidiaries shall, collectively, own all of the Timeshare Assets and Assume all of the Timeshare Liabilities (such transactions as described in Annex I to the Distribution Agreement and, as they may be amended or modified from time to time, collectively, the Plan of Reorganization ) and (ii) for HLT to distribute to the holders of its common stock, par value $0.01 per share ( HLT Common Stock ), on a pro rata basis (in each case without consideration being paid by such stockholders), (A) all of the outstanding shares of common stock, par value $0.01 per share, of PK (the PK Common Stock ) and (B) all of the outstanding shares of common stock, par value $0.01 per share, of HGV (the HGV Common Stock );
WHEREAS, each of the Parties has executed the distribution agreement, dated as of the date hereof (as it may be amended or modified from time to time, the Distribution Agreement ) to effectuate such Plan of Reorganization; and
WHEREAS, each of the Parties has determined that it is necessary and desirable to allocate and assign responsibility for certain employee, compensation and benefits-related Assets and Liabilities in respect of the activities of the business of such entities on the Distribution Date.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the Parties agree as follows:
1. DEFINITIONS . As used in this Agreement, the following terms shall have the following meanings:
(a) Cut-Off Date shall mean the day immediately preceding the Distribution Date.
(b) Employee shall mean, with respect to any entity, an individual who is considered, according to the payroll and other records of such entity, to be employed by such entity and, for the avoidance of doubt, shall not include a leased employee (as defined in Section 414(n) of the Code), an independent contractor, or other individual performing services with respect to any entity who is not on the payroll of such entity.
(c) ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary or final regulation or other published IRS guidance in force under that provision.
(d) Former Employees shall mean, collectively, any Former HGV Employees, any Former Hilton Employees and any Former PK Employees.
(e) Former HGV Employee shall mean each Employee of Hilton who provided services primarily related to the Timeshare Business and whose employment terminated for any reason prior to the Distribution Date.
(f) Former Hilton Employee shall mean each Employee of Hilton who provided services primarily related to the HLT Retained Business whose employment terminated for any reason prior to the Distribution Date.
(g) Former PK Employee shall mean each Employee of Hilton who provided services primarily related to the Ownership Business and whose employment terminated for any reason prior to the Distribution Date.
(h) HGV Board shall mean the board of directors of HGV.
(i) HGV Plan shall mean each Plan sponsored or maintained by any member of the HGV Group immediately on and after the Plan Effective Time.
(j) HGV Compensation Committee shall mean the compensation committee of the HGV Board.
(k) Hilton shall mean HLT or one of its Subsidiaries immediately prior to the Plan Effective Time.
(l) Hilton Controlled Group shall mean, as of any date of determination prior to the Distribution Date, any trade or business (whether or not incorporated) which is considered a member of a controlled group of organizations within the meaning of Section 414(b), (c), (m), or (o) of the Code that includes HLT or is considered a single employer under common control with HLT under Section 4001(b)(1) of ERISA.
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(m) Hilton Plan shall mean each Plan sponsored or maintained by HLT or one of its Subsidiaries immediately prior to the Plan Effective Time.
(n) HLT Compensation Committee shall mean the compensation committee of the Board.
(o) HLT Plan shall mean each Plan sponsored or maintained by any member of the HLT Group immediately on and after the Plan Effective Time.
(p) Liabilities shall have the same meaning as ascribed to such term in the Distribution Agreement, provided, however that for purposes of this Agreement, Taxes shall be treated as Liabilities.
(q) PK Board shall mean the board of directors of PK.
(r) PK Compensation Committee shall mean the compensation committee of the PK Board.
(s) PK Plan shall mean each Plan sponsored or maintained by any member of the PK Group immediately on and after the Plan Effective Time.
(t) Plan shall mean each plan, policy, program, practice, agreement, or arrangement providing compensation or benefits for any group of Employees or individual Employee, or the dependents or beneficiaries of any such Employee(s), including without limitation, each employee benefit plan (within the meaning of Section 3(3) of ERISA), whether formal or informal or written or unwritten, and including, any means, whether or not legally required, pursuant to which any benefit is provided by an employer to any Employee or the beneficiaries of any such Employee. The term Plan as used in this Agreement does not include any contract, agreement or understanding relating to the settlement of actual or potential employment Action.
(u) Plan Effective Time shall mean 12:01 a.m. on the Distribution Date.
(v) Pre-Existing Hilton Employee shall mean each Employee employed by Hilton prior to the Distribution Date (other than a Former Employee) including each Employee who is absent from work with the HLT Group on the Cut-Off Date by reason of layoff, leave of absence or disability.
(w) Terminated Hilton DB Plans shall mean, collectively, the Terminated Hilton UK DB Plans and the Terminated Hilton US DB Plans.
(x) Terminated Hilton UK DB Plan shall mean each defined benefit pension Plan which was sponsored or maintained by HLT or one of its Subsidiaries prior to the Plan Effective Time and that was made available to certain Pre-Existing Hilton Employees and Former Employees in the United Kingdom, but which, as of the Plan Effective Time, is not a Hilton Plan due to such Plans termination prior to such date.
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(y) Terminated Hilton US DB Plan shall mean each tax-qualified defined benefit pension Plan which was sponsored or maintained by HLT or one of its Subsidiaries prior to the Plan Effective Time and that was made available to certain Pre-Existing Hilton Employees and Former Employees in the United States, but which, as of the Plan Effective Time, is not a Hilton Plan due to such Plans termination prior to such date.
(z) Terminated Japanese DB Plans shall mean each defined benefit pension Plan which was sponsored or maintained by Vacations prior to the Plan Effective Time and that was made available to certain HGV Employees and Former HGV Employees in Japan, but which, as of the Plan Effective Time, is not a Japanese DB Plan due to such Plans termination prior to such date.
(aa) Vacations shall mean HGV or one of its Subsidiaries immediately prior to the Plan Effective Time.
2. EMPLOYEES . (a) Allocation of Employees . The Parties shall take all steps necessary or appropriate so that all of the Employees of HLT and its Subsidiaries as of the Cut-Off Date are allocated among the HLT Retained Business, the Ownership Business and the Timeshare Business as of the Distribution Date in accordance with the principles set forth in this Section 2(a). In making such allocation of Employees of HLT and its Subsidiaries pursuant to Section 2(a)(i) and (ii), the Parties shall share such information regarding the allocation of Employees as is reasonably requested. An Employee, other than a PK Employee (as defined below) or an HGV Employee (as defined below), who is (1) allocated to the HLT Retained Business and (2) employed by a member of the HLT Group as of the Distribution Date is a HLT Employee . An Employee who is (1) allocated to the Ownership Business and (2) employed by a member of the PK Group as of the Distribution Date is a PK Employee . An Employee who is (1) allocated to the Timeshare Business and (2) employed by a member of the HGV Group as of the Distribution Date is an HGV Employee . All Employees of HLT and its Subsidiaries as of the Cut-Off Date shall be allocated as an HLT Employee, a PK Employee or an HGV Employee on the Distribution Date. Except as otherwise expressly provided for herein or in the Distribution Agreement, a member of the HLT Group shall be liable for all Liabilities involving HLT Employees and Former Hilton Employees, a member of the PK Group shall be liable for all Liabilities involving PK Employees and Former PK Employees and a member of the HGV Group shall be liable for all Liabilities involving HGV Employees and Former HGV Employees. Notwithstanding anything in Section 2(a) to the contrary, if the Parties determine after the Distribution Date that an Employee was incorrectly allocated to the Ownership Business, the Timeshare Business or the HLT Retained Business (or was incorrectly employed by a member of the PK Group, the HGV Group or the HLT Group as of the Distribution Date), the Parties shall correct such matter as appropriate and such correction shall be effective as of the Distribution Date.
(i) In making the allocation provided for in this Section 2(a), and subject to clause (ii) below, the Parties shall allocate each Employee whose employment duties prior to the Distribution Date relate exclusively to the Ownership Business to a member of the PK Group and the Timeshare Business to a member of the HGV Group. The Parties shall allocate all other Employees in a mutually agreeable manner that, to the extent possible, takes into account the Employees expertise, experience and existing positions and duties and does not
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unreasonably disrupt the HLT Retained Business, the Ownership Business or the Timeshare Business and maximizes the ability of each of the HLT Retained Business, the Ownership Business and the Timeshare Business to manage and operate their respective businesses on and after the Distribution Date, taking into account the respective needs of such businesses as established by past practice, to the extent applicable.
(ii) The Parties each agree that, between the date hereof and the Distribution Date, Employees shall not be transferred among the HLT Retained Business, the Ownership Business and the Timeshare Business except (A) as necessary to effectuate the second sentence of clause (i) of this Section 2(a), (B) in the ordinary course of business, consistent with past practice, or (C) in accordance with the procedures described in the next sentence. The Parties agree that, between the date hereof and the Distribution Date, the senior human resources executives of each Party shall consult with one another in connection with the transfer of any Employee whose duties relate primarily to the HLT Retained Business, the Ownership Business or the Timeshare Business, as the case may be, and whose supervisor objects to the transfer. Consent by the transferee Party to any such transfer shall not be required.
(b) Leaves of Absence . Employees who are on an approved leave of absence as of the Distribution Date shall be treated as HLT Employees, PK Employees or HGV Employees, as the case may be, notwithstanding such leave of absence and each Party shall continue to apply the same leave of absence policy applicable to such inactive Employees as of such date until such inactive Employee returns to active employment with the HLT Group, the PK Group or the HGV Group, as the case may be.
(c) Subsequent Transfers of Employment . To the extent that the employment of any individual transfers among the HLT Group, the PK Group and the HGV Group following the Distribution Date but on or prior to December 31, 2017, the Parties shall use their reasonable efforts to effect the provisions of this Agreement with respect to the compensation and benefits of any such individual on and after the date of such transfer, it being understood that (i) it may not be possible to replicate the effect of such provisions under such circumstances and (ii) none of the Parties shall be bound by the provisions of this Section 2(c) to Assume any Liabilities or Transfer any Assets. Notwithstanding the foregoing, for compensation subject to the provisions of Section 409A of the Code, any such subsequent transfer, regardless of whether prior to, on or after December 31, 2017, shall be a separation from service from the applicable employer for purposes of such compensation, and the consequences of such separation from service shall be determined in accordance with the terms of the applicable Plan.
(d) No Creation/Acceleration of Benefits . Except as otherwise expressly provided for herein, no provision of, or event arising under, this Agreement, the Distribution Agreement or any of the Ancillary Agreements shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any Pre-Existing Hilton Employee, Former Employee or other future, present or former Employee of any member of the HLT Group, the PK Group or the HGV Group.
(e) At-Will Status . Nothing in this Agreement shall create any obligation on the part of any member of the HLT Group, the PK Group or the HGV Group to continue the employment of any Employee or permit the return from a leave of absence of any Employee following the date of this Agreement or the Distribution Date (except as required by applicable Law) or change the employment status of any Employee from at-will, to the extent such Employee was an at-will employee under applicable Law.
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3. BENEFIT PROGRAM PARTICIPATION . (a) Except as otherwise expressly provided for herein with respect to a particular Plan or otherwise provided for under applicable Law, all Employees who will become PK Employees and HGV Employees as of the Distribution Date shall cease active participation in all Hilton Plans no later than 11:59 p.m. on the Cut-Off Date (or such other time as may be required pursuant to applicable local Law).
(b) Recognition of Prior Service; No Duplication of Benefits . Except as otherwise expressly provided for under the terms of an HLT Plan, a PK Plan or an HGV Plan, each of HLT, PK and HGV shall, or shall cause another member or members of their respective Groups to, recognize each HLT Employees, PK Employees and HGV Employees, as the case may be, service with Hilton for purposes of determining such Employees eligibility, vested status, benefit levels and benefit accruals under each applicable HLT Plan, PK Plan and HGV Plan, as the case may be, and, in each case, to the extent required under applicable local Law or, in the event there is no applicable local Law, to the same extent such service would be credited under the corresponding Hilton Plan, as applicable, or if none, as required by the applicable Plan terms. Notwithstanding the foregoing, for purposes of any Plans subject to any federal, state or local Laws of the United States, hours of service performed outside of the United States are not required to be credited for purposes of eligibility under any such HLT Plan, PK Plan or HGV Plan that is a welfare plan (within the meaning of Section 3(1) of ERISA), to the extent permitted by applicable Law. In addition, to the extent it would result in a duplication of benefits or duplication of service credit under one or more Plans sponsored or maintained by any member of the HLT Group, the PK Group or the HGV Group, as applicable, service credit shall not be awarded for purposes of retirement, severance, paid time off or any other Plan sponsored or maintained by any member of the HLT Group, the PK Group or the HGV Group, if the HLT Employee, PK Employee or HGV Employee, as the case may be, is compensated or otherwise eligible for a benefit, as applicable, on account of such service under a Hilton Plan as in effect on the Cut-Off Date. Notwithstanding the foregoing and for the avoidance of doubt, service credit shall be awarded for purposes of eligibility for any HLT Plan that is subject to any federal, state or local Laws of the United States (as adopted by any member of the PK Group or the HGV Group through no later than December 31, 2017), even if such award results in duplication of service credit.
(c) Amendment and Termination . Nothing in this Agreement shall be construed or interpreted to restrict the right or authority of any member of the HLT Group, the PK Group or the HGV Group, as applicable, to amend or terminate any HLT Plan, PK Plan or HGV Plan, or any Plan that is newly adopted or implemented in accordance with the terms hereof after the Distribution Date, as applicable, effective as of a date on and after the Distribution Date, to the extent permitted by applicable Law.
(d) Non-Termination of Employment . Any Pre-Existing Hilton Employee who, on the Distribution Date, is employed by a member of the HLT Group, the PK Group or the HGV Group shall not be deemed either to have terminated employment, incurred a separation from service or severance from employment, or to be in retirement status under any HLT Plan,
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PK Plan or HGV Plan solely as a result of the Distribution or related transactions except to the extent required by applicable Law or the applicable Plan terms. Except to the extent required by applicable Law or the applicable Plan terms, any Pre-Existing Hilton Employee who, on the Distribution Date, is employed by a member of the HLT Group, the PK Group or the HGV Group shall not, solely as a result of the Distribution or related transactions, be eligible to receive payment of, or exercise any portability rights in respect of, such Employees vested benefit or retirement allowance under any HLT Plan, PK Plan or HGV Plan; provided that each HLT Employee, PK Employee and HGV Employee shall receive credit for their service with Hilton prior to the Distribution Date from a member of the HLT Group, the PK Group or the HGV Group, as applicable, as provided for in this Section 3.
(e) No Change in Control . The Parties acknowledge and agree that neither the consummation of the Distribution nor any transaction in connection with the Distribution shall be deemed a change of control, a change in control or term of similar import for purposes of any Hilton Plan, HLT Plan, PK Plan or HGV Plan.
(f) Fiduciary Matters . The Parties acknowledge that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release the other Parties for any Liabilities caused by the failure to satisfy any such responsibility.
(g) Consent of Third Parties . If any provision of this Agreement is dependent on the consent of any third party and such consent is withheld, the Parties shall use commercially reasonable efforts to implement the applicable provision of this Agreement to the full extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, the Parties shall negotiate in good faith to implement the provision in a mutually satisfactory manner.
4. DEFINED BENEFIT PENSION PLANS . (a) US Tax-Qualified DB Plans . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members or members of the HLT Group to, Assume (i) each tax-qualified defined benefit pension Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 4(a)(i) (such Plans, the US DB Plans ), (ii) all Liabilities associated with the US DB Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether incurred prior to, on or after the Plan Effective Time, (iii) all Assets and Liabilities related to any Terminated Hilton US DB Plans, and (iv) all Assets and accrued benefits associated with the US DB Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no
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member of the PK Group or the HGV Group shall have any Liabilities related to any US DB Plans or any Terminated Hilton US DB Plans. For the avoidance of doubt, no member of the HLT Group is Assuming any Assets or Liabilities related to non-Hilton participating employers under the US DB Plans.
(b) Non-US DB Plans .
(i) HLT Group . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein, HLT shall, or shall cause another member or members or members of the HLT Group to, Assume (w) each defined benefit pension plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date, including without limitation, the Plans listed on Schedule 4(b)(i), and any legally enforceable agreements or guarantees given by Hilton to support such plans (collectively, the Non-US DB Plans ), (x) all Liabilities associated with the Non-US DB Plans related to HLT Employees and Former Hilton Employees, and, solely with respect to the Hilton UK Pension Plan (the UK DB Plan ), Liabilities relating to benefits built up by any HLT Employees, Former Employees, PK Employees, and HGV Employees, in each case, while employed by Hilton, whether incurred prior to, on or after the Plan Effective Time, (y) all Assets and Liabilities related to any Terminated Hilton UK DB Plans, and (z) all Assets and accrued benefits associated with the Non-US DB Plans related to HLT Employees and Former Hilton Employees and, solely with respect to the UK DB Plans, Assets related to and accrued benefits built up by any HLT Employees, Former Employees, PK Employees, and HGV Employees while employed by Hilton, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise expressly provided for herein, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under the Non-US DB Plans, HLT Employees or Former Employees under any Terminated Hilton UK DB Plan or, solely with respect to the UK DB Plan, HLT Employees, Former Employees, PK Employees, or HGV Employees.
(ii) PK Group .
(A) Establishment of New Non-US DB Plans/Transfer of Assets and Liabilities . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume (x) a portion of each Non-US DB Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become PK Employees at PK properties based outside of the United States, including, without limitation, the Plans listed on Schedule 4(b)(ii)(A), but excluding the UK DB Plan (such Plans, the Non-US PK DB Plans ), (y) all Liabilities associated with the Non-US PK DB Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits related to PK Employees and Former PK Employees associated with the Non-US PK DB Plans, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to the Non-US PK DB Plans.
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(B) UK Life Assurance Plans . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to (x) establish, adopt and implement a new life assurance Plan to provide life assurance benefits to PK Employees employed in the United Kingdom on substantially similar terms, in all material respects, to the terms on which the PK Employees employed in the United Kingdom were provided with life assurance benefits as of the Cut-Off Date, and, if any member of the PK Group provides life assurance benefits to any new Employees employed by a member of the PK Group in the United Kingdom after the Distribution Date, it shall be through the same Plan and on the same terms as for PK Employees, and (y) Assume all Liabilities associated with such Plan related to PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date who are provided with life assurance benefits).
(C) UK DB Plan Mitigation Arrangements . As a result of ceasing to participate in the UK DB Plan, following the Distribution Date, PK shall, or shall cause another member or members of the PK Group to pay, on a monthly basis, in arrears, to or in respect of each PK Employee who was an Active Deferred Member (as defined in the UK DB Plan) participating in the UK DB Plan immediately before the Distribution Date, in respect of each calendar month in which such PK Employee is employed by a member of the PK Group, either (x) a contribution to the defined contribution pension scheme that such PK Employee is a member of and provided under Section 5(b)(ii)(A), based on a fixed percentage (the Mitigation Percentage ) of such PK Employees basic salary as communicated to such PK Employee before the Distribution Date, or (y) a cash salary supplement in an amount equal to the product of (I) the Mitigation Percentage and (II) such PK Employees basic salary. These payments shall be paid on such terms, including as to duration, as are communicated to such PK Employees before the Distribution Date, and subject to any ability of PK or any other member or members of the PK Group to change the affected PK Employees contractual terms where permitted by applicable Law following the Distribution Date. These payments are to be provided as mitigation to such PK Employee for the loss of the salary linkage feature provided under the UK DB Plan prior to the Distribution Date.
(iii) HGV Group .
(A) Establishment of New Non-US DB Plans/Transfer of Assets and Liabilities . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume (x) each defined benefit pension plan sponsored or maintained by Vacations as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in Japan who become HGV Employees at HGV properties based in Japan (such Plans, the Japanese DB Plans ), all Liabilities associated with the Japanese DB Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets and accrued benefits associated with the Japanese DB Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (y) (I) a portion of each other Non-US DB Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become HGV Employees based outside the United States, including, without limitation, the Plans listed on Schedule 4(b)(iii)(A), but excluding the UK DB Plan (such Plans, the Non-US HGV DB Plans ), (II) all Liabilities associated with the Non-US HGV DB Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (III) all Assets and accrued benefits related to HGV Employees and Former HGV Employees associated with the Non-US HGV DB Plans, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to the Japanese DB Plans and the Non-US HGV DB Plans.
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(B) UK Life Assurance Plans . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to (x) establish, adopt and implement a new life assurance Plan to provide life assurance benefits to HGV Employees employed in the United Kingdom on substantially similar terms, in all material respects, to the terms on which the HGV Employees employed in the United Kingdom were provided with life assurance benefits as of the Cut-Off Date, and, if any member of the HGV Group provides life assurance benefits to any new Employees employed by a member of the HGV Group in the United Kingdom after the Distribution Date, it shall be through the same Plan and on the same terms as for HGV Employees, and (y) Assume all Liabilities associated with such Plan related to HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date who are provided with life assurance benefits).
(C) UK DB Plan Mitigation Arrangements . As a result of ceasing to participate in the UK DB Plan, following the Distribution Date, HGV shall, or shall cause another member or members of the HGV Group to continue to pay, on a monthly basis, in arrears, to or in respect of each HGV Employee who was an Active Deferred Member participating in the UK DB Plan immediately before the Distribution Date, in respect of each calendar month in which such HGV Employee is employed by a member of the HGV Group, either (x) a contribution to the defined contribution pension scheme that such HGV Employee is a member of and provided under Section 5(b)(ii)(A), based on the Mitigation Percentage of such HGV Employees basic salary as communicated to such HGV Employee before the Distribution Date, or (y) a cash salary supplement in an amount equal to the product of (I) the Mitigation Percentage and (II) such HGV Employees basic salary. These payments shall be paid on such terms, including as to duration, as are communicated to such HGV Employees before the Distribution Date, and subject to any ability of HGV or any other member or members of the HGV Group to change the affected HGV Employees contractual terms where permitted by applicable Law following the Distribution Date. These payments are to be provided as mitigation to such HGV Employee for the loss of the salary linkage feature provided under the UK DB Plan prior to the Distribution Date.
5. DEFINED CONTRIBUTION PENSION PLANS . (a) US Tax-Qualified DC Plans .
(i) General . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each tax-qualified defined contribution pension plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 5(a)(i) (such Plans, the US DC Plans ), (y) all Liabilities associated with the US DC Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the US DC Plans related to Former Employees, HLT
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Employees, PK Employees and HGV Employees while such Employees were employed by a member of the Hilton Controlled Group, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under the US DC Plans. For the avoidance of doubt, no member of the HLT Group is Assuming any Assets or Liabilities related to non-Hilton participating employers under the US DC Plans.
(ii) Continued Participation in HW 401(k) Plan . Prior to the Plan Effective Time, each of (x) the Subsidiaries of HLT and (y) PK, HGV and their respective Subsidiaries with Employees who participate in the Hilton Worldwide 401(k) Plan as of the Cut-Off Date (the HW 401(k) Plan ) shall have adopted the HW 401(k) Plan each as a participating employer. Effective as of the Plan Effective Time, each of the applicable members of the PK Group and the HGV Group shall remain as participating employers in the HW 401(k) Plan until no later than December 31, 2017 and, in connection therewith, each of the HLT Group, the PK Group and the HGV Group shall (x) pay their proportional share of the administrative and contribution costs associated with the HW 401(k) Plan during such period and (y) Assume all Liabilities associated with the HW 401(k) Plan related to HLT Employees, Former HLT Employees, PK Employees, Former PK Employees, HGV Employees and Former HGV Employees (and any new Employees employed by any member of the HLT Group, the PK Group or the HGV Group, as applicable, after the Distribution Date), respectively.
(iii) Establishment of New US Tax-Qualified DC Plans/Transfer of Assets and Liabilities . Effective no later than January 1, 2018, each of PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to establish, adopt and administer one or more new defined contribution pension plans that are intended to meet the requirements of Sections 401(a) and 401(k) of the Code and a related trust that is intended to meet the requirements of Section 501(a) of the Code for the benefit of eligible PK Employees and HGV Employees, as applicable, in the United States (or on temporary assignment outside of the United States, if applicable) (and any new Employees employed by any member of the PK Group or HGV Group after the Distribution Date) (collectively, the New 401(k) Plans ), the terms and conditions of which shall be determined by the PK Compensation Committee or the HGV Compensation Committee (or their respective designees), as applicable, taking into account the terms and conditions of the HW 401(k) Plan.
(iv) As soon as practicable following the adoption of each New 401(k) Plan, HLT shall, or shall cause the applicable member of the HLT Group to, cause the trustee of the HW 401(k) Plan to Transfer to the trustee or other funding agent of each New 401(k) Plan the amounts (in cash, securities, other property or a combination thereof, including any promissory notes reflecting outstanding participant loan balances) representing the account balances of all PK Employees, Former PK Employees, HGV Employees and Former HGV Employees (and any new Employees employed by any member of the PK Group or the HGV Group, as applicable, after the Distribution Date) who were participating in the HW 401(k) Plan with said amounts to be established as account balances of such Employees under the applicable New 401(k) Plan. Each such Transfer shall comply with Section 414(l) of the Code and the requirements of ERISA. Each of PK and HGV shall, or shall cause the applicable member of the PK Group or the HGV Group, as applicable, to (x) cause the trustees or other funding agent of
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the applicable New 401(k) Plan to accept the trust-to-trust Transfer from the HW 401(k) Plan, and to credit the accounts of such PK Employees, Former PK Employees, HGV Employees and Former HGV Employees, as applicable (and any new Employees employed by any member of the PK Group and the HGV Group after the Distribution Date, as applicable) under the applicable New 401(k) Plan with the amounts Transferred on their behalf and (y) Assume and be solely responsible for all Liabilities under the applicable New 401(k) Plan relating to the accounts that are so Transferred as of the time of such Transfer. In connection with the trust-to-trust Transfer described above, the Parties agree to cooperate in making any and all appropriate filings required under applicable Law and to take all such action(s) as may be necessary or appropriate to cause such plan-to-plan Transfer to take place as soon as practicable following the adoption of each New 401(k) Plan.
(b) Non-US DC Plans .
(i) HLT Group . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each defined contribution pension plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 5(b)(i) (such Plans, the Non-US DC Plans ), (y) all Liabilities associated with (I) the Non-US DC Plans and (II) the HOGARENTE (the Hotel and Restaurant Association) and the Pensioenfond Horeca & Catering Retirement Plan (such Plans, the Mandatory DC Plans ), in each case, related to HLT Employees and Former Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the Non-US DC Plans, in each case, related to HLT Employees and Former Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under the Non-US DC Plans or the Mandatory DC Plans.
(ii) PK Group .
(A) Establishment of New Plans in the UK . (1) Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, for the purposes of providing defined contribution pension benefits for PK Employees employed in the United Kingdom, adopt and implement one or more new defined contribution pension Plans that have the same terms as to contribution rates and eligibility as the Legal and General Group Pension PlanHilton Worldwide Personal UK Retirement Plan (the UK GPP ) and The Peoples Pension Scheme Hilton Hotels Worldwide Section (the UK Auto-Enrolment Plan ) (the UK GPP and the UK Auto-Enrolment Plan, collectively, the UK DC Plans ).
(2) Following the establishment, adoption and implementation by PK or another member or members of the PK Group of one or more new defined contribution pension Plans as required by clause (1) above, if it would not otherwise automatically happen, PK shall, or shall cause another member or members of the PK Group to, request the trustee of the UK Auto-Enrolment Plan to Transfer all Assets and
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Liabilities of the UK Auto-Enrolment Plan attributable to PK Employees to the applicable new defined contribution pension Plan, subject to the agreement of the new defined contribution pension Plan trustee or provider. Following such Transfer, no member of the HLT Group or the HGV Group shall have any Liabilities relating thereto. In addition, if it would not otherwise automatically be permitted, PK shall, or shall cause another member or members of the PK Group to request that the trustee or provider of the new defined contribution pension Plan accept a Transfer of the Assets and Liabilities in the UK GPP attributable to any PK Employee who wishes to Transfer such Assets and Liabilities to the new defined contribution pension Plan, provided such PK Employee is still an active member of the new defined contribution pension Plan at the date of the Transfer.
(B) Assumption/Establishment of New Plans . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to (x) commence participation in the Mandatory DC Plans and (y) Assume (I) each Non-US DC Plan that is made available as the Cut-Off Date to certain Pre-Existing Hilton Employees as of the Cut-Off Date in South Africa who become PK Employees at PK properties based in South Africa (such Plans, the SA DC Plans ), all Liabilities associated with the SA DC Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets and accrued benefits associated with the SA DC Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time, and (II) (1) a portion of each other Non-US DC Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become PK Employees at PK properties based outside of the United States, including, without limitation, the Plans listed on Schedule 5(b)(ii)(B), but excluding the UK DC Plans (such Plans, PK Required Plans ), (2) all Liabilities associated with the PK Required Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and (3) all Assets and accrued benefits associated with the PK Required Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees or Former PK Employees under the SA DC Plans or the PK Required Plans. The PK Compensation Committee (or its designee) shall establish, adopt and implement one or more new defined contribution pension plans that have substantially similar terms, in all material respects, to the PK Required Plans. Following the adoption of such plans, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets and Liabilities attributable to PK Employees and Former PK Employees under the respective PK Required Plans to each such newly adopted plan. On and after such Transfer, no member of the HLT Group or the HGV Group shall have any Liabilities related thereto. Following commencement of participation in the Mandatory DC Plans, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities associated with such the Mandatory DC Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time.
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(iii) HGV Group .
(A) Assumption/Establishment of New Plans Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume (x) each Non-US DC Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in Japan who become HGV Employees at HGV properties based in Japan (the Japanese DC Plans ), all Liabilities associated with the Japanese DC Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets and accrued benefits associated with the Japanese DC Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time, (y) the defined contribution pension Plans that are made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in the United Kingdom who become HGV Employees at HGV properties based in the United Kingdom and that have the same terms as to contribution rates and eligibility as the UK DC Plans (the Replacement UK DC Plans ), all Liabilities associated with the Replacement UK DC Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets and accrued benefits associated with the Replacement UK DC Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time, and (z) (I) a portion of each other Non-US DC Plan that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become HGV Employees at HGV properties based outside of the United States, including, without limitation, the Plans listed on Schedule 5(b)(iii)(A), (such Plans, excluding the UK DC Plans, the Hilton International Plan (Hilton Retirement Capital Plan section) and the Hilton Worldwide International Retirement Plan, the HGV Required Plans ), (II) all Liabilities associated with the HGV Required Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (III) all Assets and accrued benefits associated with the HGV Required Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees or Former HGV Employees under the Japanese DC Plans or the HGV Required Plans. The HGV Compensation Committee (or its designee) shall establish, adopt and implement one or more new defined contribution pension plans that have substantially similar terms, in all material respects, to the HGV Required Plans, effective as of the Plan Effective Time. Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets and Liabilities attributable to HGV Employees and Former HGV Employees under each applicable HGV Required Plan to each such newly adopted plan. On and after such Transfer, no member of the HLT Group or the PK Group shall have any Liabilities related thereto.
6. NON-QUALIFIED RETIREMENT/DEFERRED COMPENSATION PLANS . (a) General . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each non-qualified retirement and deferred compensation plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 6(a), (such Plans, the Hilton Deferred Compensation Plans ), (y) all Liabilities associated with the Hilton Deferred Compensation Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets (including any associated rabbi trust) and accrued benefits associated with the Hilton Deferred Compensation Plans related to Former Employees, HLT Employees, PK
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Employees and HGV Employees, whether accrued prior to, on or after the Plan Effective Time. Except as otherwise expressly provided for herein, on and after the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to Former Employees, HLT Employees, PK Employees or HGV Employees under the Hilton Deferred Compensation Plans.
(b) New PK and HGV Deferred Compensation Plans/Transfer of Liabilities .
(i) PK Group . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and administer one or more new deferred compensation and/or non-qualified retirement plans for eligible PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date) in the United States. The terms and conditions of one such plan for PK Employees who participated in the Hilton Hotels 2005 Executive Deferred Compensation Plan (the 2005 EDCP ) as of the Cut-Off Date shall be substantially similar, in all material respects, to the 2005 EDCP. Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities related to the 2005 EDCP attributable to PK Employees who participated in the 2005 EDCP as of the Cut-Off Date. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees under the 2005 EDCP and no member of the PK Group shall have any Liabilities related to the HLT Employees and Former Employees under the 2005 EDCP. Any such other plans that are adopted by any member of the PK Group shall be on such terms and conditions as determined by the PK Compensation Committee (or its designee).
(ii) HGV Group . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and administer one or more new deferred compensation and/or non-qualified retirement plans for eligible HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date) in the United States. The terms and conditions of one such plan for HGV Employees who participated in the 2005 EDCP as of the Cut-Off Date shall be substantially similar, in all material respects, to the 2005 EDCP. Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities related to the 2005 EDCP attributable to HGV Employees who participated in the 2005 EDCP as of the Cut-Off Date. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees under the 2005 EDCP and no member of the HGV Group shall have any Liabilities related to the HLT Employees and Former Employees under the 2005 EDCP. Any such other plans that are adopted by any member of the HGV Group shall be on such terms and conditions as determined by the HGV Compensation Committee (or its designee).
(iii) No Separation from Service .
(A) The Parties agree that transfers of employment in connection with the Distribution shall not be treated as separations from service under any Hilton Deferred Compensation Plan, and such employment shall only be considered to terminate for purposes of the applicable Hilton Deferred Compensation Plans or a PK or HGV non-qualified retirement/deferred compensation plan that receives the Liabilities, as applicable, as a result of
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(x) a transfer of employment among the HLT Group, the PK Group and the HGV Group, or (y) a termination of employment with the HLT Group, the PK Group or the HGV Group, as applicable, following the Plan Effective Time. All non-qualified retirement/deferred compensation benefits payable on and after the Plan Effective Time related to HLT Employees, PK Employees and HGV Employees shall be paid under the applicable Hilton Deferred Compensation Plans or a PK or HGV non-qualified retirement/deferred compensation plan that receives the Liabilities, as applicable.
7. EMPLOYEE HEALTH AND WELFARE BENEFIT PLANS . (a) US H&W Plans .
(i) General . Effective as of the Plan Effective Time, except as otherwise expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each health and welfare benefit Plan (other than severance Plans) sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States and Puerto Rico as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 7(a)(i) (the Hilton H&W Plans ), (y) all Liabilities associated with the Hilton H&W Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the Hilton H&W Plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, except as otherwise provided for in Section 7(a)(iii), no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Hilton Employees under the Hilton H&W Plans, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees or Former PK Employees under the Hilton H&W Plans and no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees or Former HGV Employees under the Hilton H&W Plans.
(ii) COBRA . HLT or another member or members of the HLT Group shall be responsible for providing continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (COBRA) ( COBRA Coverage ) under the applicable HLT Plan with respect to qualified beneficiaries whose qualifying event occurred prior to or in conjunction with the Distribution. For qualifying events occurring on and after the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, be responsible for providing COBRA Coverage to qualified beneficiaries whose qualifying event relates to a HLT Employee (and any new Employees employed by any member of the HLT Group after the Distribution Date), PK shall, or shall cause another member or members of the PK Group to, be responsible for providing COBRA Coverage to qualified beneficiaries whose qualifying event relates to a PK Employee (and any new Employees employed by any member of the PK Group after the Distribution Date), and HGV shall, or shall cause another member or members of the HGV Group to, be responsible for providing COBRA Coverage to qualified beneficiaries whose qualifying event relates to a HGV Employee (and any new Employees employed by any member of the HGV Group after the Distribution Date).
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(iii) Continued Participation In Hilton H&W Plans . Subject to the consent of the applicable insurers or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the PK Group and the HGV Group shall remain participating employers in the Hilton H&W Plans until no later than December 31, 2017, but shall cease participating in any cafeteria Plans, salary continuation Plans, health savings accounts, health and dependent care flexible spending accounts, voluntary benefit Plans, commuter benefit Plans and tuition reimbursement Plans, in each case, sponsored or maintained by Hilton as of the Cut-Off Date that are made available to certain Pre-Existing Hilton Employees in the United States as of the Cut-Off Date (such Plans, the Specified H&W Plans ) as of the Plan Effective Time. In connection with such continued participation, each of the HLT Group, the PK Group and the HGV Group shall (x) pay their proportional share of the administrative and contribution costs associated with such Plans during such period and (y) Assume all Liabilities associated with such Plans related to HLT Employees, Former HLT Employees, PK Employees, Former PK Employees, HGV Employees or Former HGV Employees (and any new Employees employed by any member of the HLT Group, the PK Group or the HGV Group, as applicable, after the Distribution Date), respectively. Insurance premiums under the Hilton H&W Plans, including premiums related to COBRA Coverage, shall be paid either (x) directly to the applicable insurer by a member of each of the HLT Group, the PK Group and the HGV Group on behalf of the participating Former Employees, Employees and dependents of each, or (y) directly to the applicable insurer by a member of the HLT Group on behalf of Former Employees, HLT Employees, PK Employees and HGV Employees and their respective dependents with reimbursement of such amounts being made by a member of the PK Group and the HGV Group within the time period required under ERISA. During the period commencing on the Distribution Date and ending no later than December 31, 2017, the HLT Group, the PK Group and the HGV Group shall share proportionally in any credits returned ( e.g., MLR credits, subrogation recoveries, etc.) to any health and welfare benefit Plan sponsored or maintained by any member of the HLT Group in which a member of the PK Group and HGV Group continue to participate on and after the Plan Effective Time.
(iv) New PK and HGV Health and Welfare Benefit Plans .
(A) Effective as of the Plan Effective Time, each of PK and HGV shall, or shall cause another member or members of the PK Group or the HGV Group, as applicable, to, establish, adopt and implement one or more new health and welfare benefit Plans in which eligible PK Employees and HGV Employees (and any new Employees employed by any member of the PK Group and the HGV Group after the Distribution Date) in the United States shall participate, with terms and conditions that are substantially similar, in all material respects, to the terms and conditions of the Specified H&W Plans in which such Employees were participating as of the Cut-Off Date.
(B) Effective no later than January 1, 2018, each of PK and HGV shall, or shall cause another member or members of the PK Group or the HGV Group, as applicable, to, establish, adopt and implement one or more new health and welfare benefit Plans (excluding a Retiree Health Plan and retiree life insurance arrangements) under which PK Employees and HGV Employees (and any new Employees employed by any member of the PK Group and the HGV Group after the Distribution Date) in the United States shall participate, the terms and conditions of which shall be determined by the PK Compensation Committee (or its designee) or the HGV Compensation Committee (or its designee), as applicable, taking into account the terms and conditions of the corresponding Hilton H&W Plan.
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(C) Each of PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to use commercially reasonable efforts to waive all pre-existing condition exclusions and actively-at-work requirements for each health and welfare benefit Plan in which PK Employees and HGV Employees in the United States were participating as of the Cut-Off Date or the effective date of the new Plan, as applicable.
(D) Each of PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to provide credit for expenses incurred by PK Employees and HGV Employees in the United States and their eligible dependents during the portion of the plan year that includes the Distribution Date for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to each such Employee.
(E) For the plan year in which the Distribution Date occurs, flexible spending accounts and health savings accounts of PK Employees and HGV Employees shall be transferred to the corresponding PK or HGV health and welfare benefit Plan, including contribution and payment history.
(b) Non-US H&W Plans .
(i) HLT Group .
(A) General . Effective as of the Plan Effective Time, except as expressly provided for herein or in the Transition Services Agreement, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each health and welfare benefit Plan (including each related insurance policy, trust instrument and other related contract or agreement) sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date, including without limitation, the Plans listed on Schedule 7(b)(i)(A) (such Plans, the Hilton Non-US H&W Plans ), (y) all Liabilities associated with the Hilton Non-US H&W Plans related to HLT Employees, Former Employees, PK Employees and HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (z) all Assets and accrued benefits associated with the Non-US H&W Plans related to HLT Employees, Former Hilton Employees, PK Employees and HGV Employees. On and after the Plan Effective Time, except as expressly provided for herein or in the Transition Services Agreement, no member of the PK Group or the HGV Group shall have any Liabilities related HLT Employees and Former Employees under the Non-US H&W Plans.
(B) Continued Participation in Brazilian H&W Plans/New Brazilian H&W Plans . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, for the purposes of providing health and welfare and/or life insurance benefits for HLT Employees employed in Brazil (and any new Employees employed by any member of the HLT Group in Brazil after the Distribution Date), either (x) to
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establish, adopt or implement one or more new health and welfare and/or life insurance benefit plans that have substantially similar terms, in all material respects, to the Seguro Saude Empresarial, the Seguro Coletivo Empresarial de Assistencia a Saude Na Segmentacao Odontologico and/or the Seguro de Vida Em Groupo, as applicable (each such Plan, a Brazilian H&W Plan ) or (y) subject to consent of the applicable insurer(s) or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the HLT Group shall remain as participating employers in one or more Brazilian H&W Plans until no later than December 31, 2017 and, in connection therewith, each of the HLT Group and the PK Group shall (I) pay their proportional share of the administrative and contribution costs associated with the applicable Brazilian H&W Plan(s) during such period and (II) Assume all Liabilities associated with the applicable Brazilian H&W Plan(s) related to HLT Employees, Former HLT Employees, PK Employees and Former PK Employees (and any new Employees employed by any member of the HLT Group or the PK Group, as applicable, after the Distribution Date), respectively. Effective no later than January 1, 2018, HLT shall, or shall cause another member or members of the HLT Group to, establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to the applicable Brazilian H&W Plan(s).
(ii) PK Group .
(A) Continued Participation in HLT Plans . Subject to consent of the applicable insurers or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the PK Group shall remain as participating employers in the Plans listed on Schedule 7(b)(ii)(A) (each such Plan, a Continued PK H&W Plan ) until no later than December 31, 2017 and, in connection therewith, each of the HLT Group and the PK Group shall (x) pay their proportional share of the administrative and contribution costs associated with each such Continued PK H&W Plan during such period and (y) Assume all Liabilities associated with each such Continued PK H&W Plan related to HLT Employees, Former HLT Employees, PK Employees and Former PK Employees (and any new Employees employed by any member of the HLT Group or the PK Group, as applicable, after the Distribution Date), respectively. Effective no later than January 1, 2018, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to each applicable Continued PK H&W Plan.
(B) Assumption/Establishment of New Plans . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume (I) each health and welfare benefit Plan sponsored or maintained by a member of the PK Group as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in Brazil and South Africa who become PK Employees at PK properties based in Brazil and South Africa (such Plans, collectively, the Brazilian and SA H&W Plans ), all Liabilities associated with the Brazilian and SA H&W Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets (including each related insurance policy, trust instrument and other related contract or agreement) and accrued benefits associated with the Brazilian and SA H&W Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time, and (II) (1) a portion of each other health and welfare benefit Plan
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sponsored or maintained by Hilton as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become PK Employees at PK properties based outside of the United States, including, without limitation, the Plans listed on Schedule 7(b)(ii)(B) (collectively, PK Required H&W Plans ), (2) all Liabilities associated with the PK Required H&W Plans related to PK Employees and Former PK Employees, whether incurred prior to, on or after the Plan Effective Time, and (3) all Assets (other than those held in an insurance policy or those that the PK Employee has the right to elect to retain with the applicable insurer) and accrued benefits associated with the PK Required H&W Plans related to PK Employees and Former PK Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related to PK Employees or Former PK Employees under the Brazilian and SA H&W Plans or the PK Required H&W Plans. The PK Compensation Committee (or its designee) shall establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to the PK Required H&W Plans. Following the adoption of such Plans, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets (other than those held in an insurance policy or those that the PK Employee or Former PK Employee has the right to elect to retain with the applicable insurer) and Liabilities attributable to PK Employees and Former PK Employees under the respective PK Required H&W Plans to each such newly adopted Plan. Following such Transfer, no member of the HLT Group or the HGV Group shall have any Liabilities related thereto.
(C) UK Group Medical Insurance Plan . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to (x) establish, adopt and implement a new group medical insurance Plan to provide group medical insurance benefits to PK Employees employed in the United Kingdom on substantially similar terms, in all material respects, to the terms on which the PK Employees employed in the United Kingdom were provided with group medical insurance benefits as of the Cut-Off Date, and, if any member of the PK Group provides group medical insurance benefits to any new Employees employed by a member of the PK Group in the United Kingdom after the Distribution Date, it shall be through the same Plan and on the same terms as for PK Employees, and (y) Assume all Liabilities associated with such Plan related to PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date who are provided with group medical insurance benefits).
(iii) HGV Group .
(A) Continued Participation in HLT Plans . Subject to consent of the applicable insurers or any other applicable third-parties, as needed, effective as of the Plan Effective Time, each of the applicable members of the HGV Group shall remain as participating employers in the Plans listed on Schedule 7(b)(iii)(A) (each such Plan, a Continued HGV H&W Plan ) until no later than December 31, 2017 and, in connection therewith, each of the HLT Group and the HGV Group shall (x) pay their proportional share of the administrative and contribution costs associated with each such Continued HGV H&W Plan during such period and (y) Assume all Liabilities associated with each such Continued HGV H&W Plan related to HLT Employees or HGV Employees (and any new Employees employed by any member of the HLT Group or the HGV Group, as applicable, after the Distribution Date), respectively. Effective no
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later than January 1, 2018, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to each applicable Continued HGV H&W Plan.
(B) Assumption/Establishment of New Plans . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume (I) each health and welfare benefit Plan sponsored or maintained by a member of the HGV Group as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in Japan who become HGV Employees at HGV properties based in Japan (such Plans, the Japanese H&W Plans ), all Liabilities associated with the Japanese H&W Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets (other than those held in an insurance policy or those that the HGV Employee or Former HGV Employee has the right to elect to retain with the applicable insurer) and accrued benefits associated with the Japanese H&W Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time, (II) the group medical insurance Plan sponsored and maintained by a member of the HGV Group as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees in the United Kingdom who become HGV Employees at HGV properties based in the United Kingdom (such Plan, the HGV UK Group Medical Plan ), all Liabilities associated with the HGV UK Group Medical Plan related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and all Assets (other than those held in an insurance policy or those that the HGV Employee or Former HGV Employee has the right to elect to retain with the applicable insurer) and accrued benefits associated with the HGV UK Group Medical Plan related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time, and (III) (1) a portion of each other health and welfare benefit Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available as of the Cut-Off Date to certain Pre-Existing Hilton Employees outside of the United States who become HGV Employees at HGV properties based outside of the United States (collectively, HGV Required H&W Plans ), (2) all Liabilities associated with the HGV Required H&W Plans related to HGV Employees and Former HGV Employees, whether incurred prior to, on or after the Plan Effective Time, and (3) all Assets (other than those held in an insurance policy or those that the HGV Employee or Former HGV Employee has the right to elect to retain with the applicable insurer) and accrued benefits associated with the HGV Required H&W Plans related to HGV Employees and Former HGV Employees, whether accrued prior to, on or after the Plan Effective Time. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related to HGV Employees or Former HGV Employees under the Japanese H&W Plans or the HGV Required H&W Plans. The HGV Compensation Committee (or its designee) shall establish, adopt and implement one or more new health and welfare benefit Plans that have substantially similar terms, in all material respects, to the HGV Required H&W Plans. Following the adoption of such Plans, HLT shall, or shall cause another member or members of the HLT Group to, Transfer all Assets (other than those held in an insurance policy or those that the HGV Employee or Former HGV Employees has the right to elect to retain with the applicable insurer) and Liabilities attributable to HGV Employees and Former HGV Employees under the respective HGV Required H&W Plans to each such newly adopted Plan. Following such Transfer, no member of the HLT Group or the PK Group shall have any Liabilities related thereto.
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(iv) Credit . To the extent available under local Law, PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to use commercially reasonable efforts to waive all pre-existing condition exclusions and actively-at-work requirements for each Non-US health and welfare benefit Plan in which such PK Employees and HGV Employees were participating as of the Cut-Off Date or the effective date of such new Plan, as applicable.
(A) PK and HGV shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to provide credit for expenses incurred by such PK Employees and HGV Employees and their respective eligible dependents during the portion of the plan year that includes the Distribution Date for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to each such Employee.
(B) For purposes of this Section 7, a claim or Liability is deemed to be incurred (i) with respect to medical, dental, vision and/or prescription drug benefits, upon the rendering of health services giving rise to such claim or Liability; (ii) with respect to life insurance, accidental death and dismemberment and business travel accident insurance, upon the occurrence of the event giving rise to such claim or Liability; (iii) with respect to disability benefits, upon the date of an Employees disability, as determined by the disability benefit insurance carrier or claim administrator, giving rise to such claim or Liability; and (iv) with respect to a period of continuous hospitalization, upon the date of admission to the hospital.
8. SEVERANCE PLANS . (a) US Plans . (i) Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume (x) each severance plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees in the United States (or on temporary assignment outside the United States, if applicable) as of the Cut-Off Date, including, without limitation, the Plans listed on Schedule 8(a)(i) (collectively, the Hilton Severance Plans ), (y) all Liabilities associated with the Hilton Severance Plans related to HLT Employees as of the Plan Effective Time, and (z) all accrued benefits associated with the Hilton Severance Plans related to HLT Employees as of the Plan Effective Time. Effective as of the Plan Effective Time, (I) HLT shall, or shall cause another member or members of the HLT Group to, Assume all Liabilities associated with the Hilton Severance Plans related to Former Hilton Employees, (II) PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities associated with the Hilton Severance Plans related to Former PK Employees, and (III) HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities associated with the Hilton Severance Plans related to Former HGV Employees.
(ii) On or after the Plan Effective Time, PK and/or HGV may establish, adopt and implement one or more new severance Plans in the United States, the terms and conditions of which shall be determined by the PK Compensation Committee (or its designee) and/or the HGV Compensation Committee (or its designee), as applicable.
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(iii) The Parties agree that transfers of employment in connection with the Distribution shall not be treated as terminations of employment under any Hilton Severance Plan and all severance benefits payable on and after the Plan Effective Time related to HLT Employees, PK Employees and HGV Employees (and any new Employees employed by any member of the HLT Group, the PK Group and the HGV Group after the Distribution Date) shall be paid under the applicable Hilton Severance Plan or, upon adoption following the Distribution Date, the new PK Group severance Plan or HGV Group severance Plan, as applicable.
(b) Non-US Plans . HLT, PK and HGV shall, or shall cause another member or members of the HLT Group, the PK Group and the HGV Group, as applicable, to provide severance or end of service benefits ( Non-US Severance ), as applicable, to their respective Employees to the extent required by applicable Law and Assume all such Liabilities related to HLT Employees, PK Employees and HGV Employees, as applicable. Effective as of the Plan Effective Time, (i) HLT shall, or shall cause another member or members of the HLT Group to, Assume all Liabilities associated with Non-US Severance related to Former Hilton Employees, (ii) PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities associated with Non-US Severance related to Former PK Employees, and (iii) HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities associated with Non-US Severance related to Former HGV Employees.
9. PAID TIME OFF . (a) Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume each US and non-US paid time off Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to Pre-Existing Hilton Employees as of the Cut-Off Date who become HLT Employees (such Plans, the Hilton PTO Plans ) and all Liabilities associated with the Hilton PTO Plans related to HLT Employees as of the Plan Effective Time. On and after the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees under the Hilton PTO Plans.
(b) Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and implement one or more new US and non-US paid time off Plans (each such Plan, a PK PTO Plan ), the terms and conditions of which shall be determined by one or more members of the PK Group, taking into account the terms and conditions of the corresponding Hilton PTO Plan. Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities related to PK Employees under the applicable Hilton PTO Plan. On and after the Plan Effective Time, no member of the HLT Group or the HGV Group shall have any Liabilities related thereto.
(c) Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and implement one or more new US and non-US paid time off plans (each such Plan, a HGV PTO Plan ), the terms and conditions of which shall be determined by one or more members of the HGV Group, taking into account the terms and conditions of the corresponding Hilton PTO Plan. Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities related to HGV Employees under the applicable Hilton PTO Plan. On and after the Plan Effective Time, no member of the HLT Group or the PK Group shall have any Liabilities related thereto.
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(d) Unless otherwise required by applicable Law, the Parties agree that transfers of employment in connection with the Distribution shall not be treated as terminations of employment under any Hilton PTO Plan, PK PTO Plan or HGV PTO Plan and all paid time off benefits accrued under any Hilton PTO Plan as of the Plan Effective Time related to HLT Employees, PK Employees and HGV Employees shall remain with the applicable Hilton PTO Plan or transfer to a PK PTO Plan or HGV PTO Plan, as applicable.
(e) To the extent that any member of the HLT Group, PK Group or HGV Group (such member, the Paying Entity ) is required to pay any amounts relating to paid time off benefits associated with HLT Employees, PK Employees or HGV Employees who are not Employees of the Paying Entity as of the Distribution Date in connection with the Distribution, the employing entity agrees to reimburse the Paying Entity for such amounts.
10. PERQUISITES . (a) TMTP/Go Hilton . Effective as of the Plan Effective Time, HGV Employees and PK Employees (and any new Employees employed by any member of the HGV Group and the PK Group after the Distribution Date) shall continue to be eligible to participate in the Go Hilton Program, as amended from time to time in the HLT Groups sole discretion (the Program ), subject to annual review of such participation by the HLT Group and, in the case of HGV Employees (and any new Employees employed by any member of the HGV Group), payment of any annual participation fees assessed by the HLT Group, in its sole discretion, if any. HGV and PK participation in the Program is subject to the terms and conditions of reciprocity agreement(s) between a member of the HLT Group and a member of the HGV Group or the PK Group, as applicable, and reciprocal loading of HGV and PK inventory to be centrally managed by the HLT Go Hilton team. Such participation is intended to qualify as a fringe benefit excludible from gross income of HLT Employees, HGV Employees and PK Employees (and any new Employees employed by any member of the HLT Group, PK Group and the HGV Group after the Distribution Date) under Section 132(a) of the Code. This Agreement and any reciprocity agreement(s) shall each constitute a reciprocal agreement between HLT and HGV and HLT and PK, as applicable, within the meaning of Section 132(i) of the Code and each of HLT, PK and HGV shall, or shall cause another member or members of the HLT Group, the PK Group and the HGV Group to, execute such further documentation as may be required for tax purposes or otherwise necessary to effect such arrangement.
(b) HGV Discount Program . Effective as of the Plan Effective Time, HLT Employees shall be permitted to continue to participate in the discount program offered by the HGV Group with respect to purchases of HGV inventory if so requested in writing by one or more members of the HLT Group and PK Employees shall no longer participate in such discount program.
(c) HLT Non-US Perquisites . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume, establish, adopt and implement, as applicable, one or more new perquisite policies covering HLT Employees (and any new Employees employed by any member of the HLT Group after the Distribution Date) outside of the United States, the terms and conditions of which shall be determined by the HLT Compensation Committee (or its designee), taking into account the terms and conditions of the perquisite policy sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees outside of the United States as of the Cut-Off Date
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(such plans, the Hilton Non-US Perk Plans ). In connection with the foregoing, effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume all Liabilities associated with the Hilton Non-US Perk Plans related to HLT Employees and Former Hilton Employees. Following the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Hilton Employees under the Hilton Non-US Perk Plans.
(d) PK Non-US Perquisites . Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, establish, adopt and implement, as applicable, one or more new perquisite policies covering eligible PK Employees (and any new Employees employed by any member of the PK Group after the Distribution Date) outside of the United States, the terms and conditions of which shall be determined by the PK Compensation Committee (or its designee), taking into account the terms and conditions of the corresponding Hilton Non-US Perk Plan. Effective as of the Plan Effective Time, PK shall, or shall cause another member or members of the PK Group to, Assume all Liabilities associated with the Hilton Non-US Perk Plans related to PK Employees and Former PK Employees.
(e) HGV Non-US Perquisites . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, establish, adopt and implement, as applicable, one or more new perquisite policies covering eligible HGV Employees (and any new Employees employed by any member of the HGV Group after the Distribution Date) outside of the United States, the terms and conditions of which shall be determined by the HGV Compensation Committee (or its designee), taking into account the terms and conditions of the corresponding Hilton Non-US Perk Plan. Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume all Liabilities associated with the Hilton Non-US Perk Plans related to HGV Employees and Former HGV Employees.
11. CASH BONUS PLANS . (a) General . Effective as of the Plan Effective Time, HLT shall, or shall cause another member or members of the HLT Group to, Assume each cash bonus Plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees as of the Cut-Off Date, including, without limitation, the Hilton 2016 corporate and hotel operations (general managers and hotel management) and hotel sales incentive Plans other than the 2016 Assumed HGV Plans (as defined below) (such Plans, the Hilton Bonus Plans ) and all Assets and Liabilities with respect to the bonus amounts earned (or to be earned) under the Hilton Bonus Plans based on the performance of Hilton for the period beginning on January 1, 2016 and ending on December 31, 2016 with respect to HLT Employees and Former Hilton Employees. Such bonus amounts, if any, shall be paid, following the determination and certification by the HLT Compensation Committee (or its designee), by a member of the HLT Group in accordance with the terms and conditions of the applicable Hilton Bonus Plan.
(b) HGV Cash Bonus Plans . Effective as of the Plan Effective Time, HGV shall, or shall cause another member or members of the HGV Group to, Assume each cash bonus Plan sponsored or maintained by Vacations as of the Cut-Off Date in respect of the 2016 fiscal year (the 2016 Assumed HGV Plans ) and all Assets and Liabilities with respect to bonus amounts earned under the 2016 Assumed HGV Plans based on the performance of the HGV
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Group for the period commencing on January 1, 2016 and ending on December 31, 2016 ( CY 2016 ) with respect to HGV Employees and Former HGV Employees, as determined and certified by the HGV Compensation Committee (or its designee). Such bonus amounts, if any, shall be paid by a member of the HGV Group in accordance with the terms and conditions of the applicable 2016 Assumed HGV Plan.
(c) 2016 PK and HGV Cash Bonuses . Effective as of the Plan Effective Time, each of PK and HGV shall, or shall cause another member or members of the PK Group and HGV Group, as applicable, to, Assume all Liabilities associated with bonuses for CY 2016 under the Hilton Bonus Plans related to PK Employees and HGV Employees, as applicable. Such bonus amounts, if any, shall be paid, following the determination and certification by the HLT Compensation Committee (or its designee), by a member of the PK Group or the HGV Group, as applicable, in accordance with the terms and conditions of the applicable Hilton Bonus Plan.
12. EQUITY-BASED AWARDS . (a) General . Effective as of the Plan Effective Time, HLT shall Assume each equity-based incentive plan sponsored or maintained by Hilton as of the Cut-Off Date that is made available to certain Pre-Existing Hilton Employees as of the Cut-Off Date, including, without limitation, the HLT 2013 Omnibus Incentive Plan (the OIP ) and all Assets and Liabilities associated with such plans related to Former Employees, HLT Employees, PK Employees and HGV Employees, whether incurred prior to, on or following the Plan Effective Time. Following the Plan Effective Time, no member of the PK Group or the HGV Group shall have any Liabilities related to HLT Employees or Former Employees under such plans. Employees who separate from service with Hilton prior to the Plan Effective Time and whose awards are subject to continued vesting under the retirement eligibility provisions of the OIP and the award agreements thereunder shall be treated as HLT Employees regardless of their roles with Hilton prior to the Plan Effective Time.
(b) New PK and HGV Plans . (i) Effective not later than the Plan Effective Time, PK shall have adopted (x) the Park Hotels & Resorts Inc. 2017 Omnibus Incentive Plan (the PK OIP ), which shall permit the issuance of equity-based and cash-based incentive awards denominated in PK Common Stock and (y) the Park Hotels & Resorts Inc. 2017 Stock Plan for Non-Employee Directors, which shall permit the issuance of equity-based awards denominated in PK Common Stock (the PK Director Plan ). HLT shall cause the PK OIP and the PK Director Plan to both be approved prior to the Plan Effective Time by HLT, as PKs sole stockholder.
(ii) Effective not later than the Plan Effective Time, HGV shall have adopted (x) the Hilton Grand Vacations Inc. 2017 Omnibus Incentive Plan (the HGV OIP ), which shall permit the issuance of equity-based and cash-based incentive awards denominated in HGV Common Stock and (y) the Hilton Grand Vacations Inc. 2017 Stock Plan for Non-Employee Directors, which shall permit the issuance of equity-based awards denominated in HGV Common Stock (the HGV Director Plan ). HLT shall cause the HGV OIP and the HGV Director Plan to both be approved prior to the Plan Effective Time by HLT, as HGVs sole stockholder.
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(iii) No individual awards (other than as expressly contemplated below) shall be granted under the PK OIP, the PK Director Plan, the HGV OIP or the HGV Director Plan until after the Distribution Date with any such awards at the discretion of the PK Board, the PK Compensation Committee, the HGV Board or the HGV Compensation Committee, as applicable.
(c) Treatment of Equity-Based Awards . (i) Equity-based awards granted under the OIP based on HLT Common Stock held by HLT Employees, Former Employees, HLT non-employee Board members and PK Employees who serve as General Managers at Hilton-branded PK properties outside of the United States ( PK Non-US GMs ) shall remain outstanding under the OIP and be adjusted, effective as of the Distribution Date, in accordance with the terms of the OIP in a manner as determined by the HLT Compensation Committee, to reflect the impact of the Distribution, but shall otherwise remain subject to the same general terms and conditions, including vesting schedule, as the original awards.
(ii) Equity-based awards granted under the OIP based on HLT Common Stock held by PK Employees (other than PK Non-US GMs) shall be converted, effective as of the Distribution Date, into awards under the PK OIP with equivalent value based on, and settled in, PK Common Stock but shall otherwise remain subject to the same general terms and conditions, including vesting schedule, as the original awards, except as expressly provided for below.
(iii) Equity-based awards granted under the OIP based on HLT Common Stock held by HGV Employees shall be converted, effective as of the Distribution Date, into awards under the HGV OIP with equivalent value based on, and settled in, HGV Common Stock but shall otherwise remain subject to the same general terms and conditions, including vesting schedule, as the original awards, except as expressly provided for below.
(iv) Performance-based awards granted in 2014 under the OIP held by PK Employees shall be converted, effective as of the Distribution Date, into awards under the PK OIP with equivalent value based on, and settled in, PK Common Stock but shall otherwise remain subject to the same general terms and conditions, including vesting schedule, as the original awards. As soon as practicable following the determination by the HLT Compensation Committee as to whether and to what extent the performance conditions have been satisfied with respect to such performance-based awards, HLT or another member of the HLT Group shall notify PK or another member of the PK Group of such determination.
(v) Performance-based awards granted in 2014 under the OIP held by HGV Employees shall be converted, effective as of the Distribution Date, into awards under the HGV OIP with equivalent value based on, and settled in, HGV Common Stock but shall otherwise remain subject to the same general terms and conditions, including vesting schedule, as the original awards. As soon as practicable following the determination by the HLT Compensation Committee as to whether and to what extent the performance conditions have been satisfied with respect to such performance-based awards, HLT or another member of the HLT Group shall notify HGV or another member of the HGV Group of such determination.
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(vi) Performance-based awards granted in 2015 and 2016 under the OIP held by HLT Employees, PK Employees and HGV Employees shall be converted into time vesting awards, effective as of the Distribution Date, based on a performance level determined by the HLT Compensation Committee and, subject to continued employment, shall vest on the date that the applicable performance period would have otherwise ended, be settled in shares of HLT Common Stock, PK Common Stock or HGV Common Stock, as applicable, and otherwise remain subject to the same general terms and conditions as the original awards.
(d) PK and HGV shall, or shall cause another member or members of the PK Group or the HGV Group to, Assume all Liabilities related to any cash long-term incentive awards granted under the OIP by HLT to PK Employees and HGV Employees, respectively, whether incurred prior to, on or following the Distribution Date. On and after the Distribution Date, no member of the HLT Group shall have any Liabilities related thereto.
(e) All of the adjustments and conversions described in this Section 12 shall be effected in accordance with Sections 424 and 409A of the Code, as applicable.
(f) The Parties shall use commercially reasonable efforts to maintain effective registration statements with the SEC with respect to the awards described in this Section 12, to the extent any such registration statement is required by applicable Law.
13. COLLECTIVE BARGAINING AGREEMENTS . (a) HLT Collective Bargaining Agreements . HLT or another member or members of the HLT Group shall expressly Assume all collective bargaining or other labor agreements which relate to the HLT Retained Business, including, without limitation, those so identified on Schedule 13(a) (such agreements, the HLT CBAs ) and associated Liabilities, in each case, effective as of the Distribution Date. For each such HLT CBA in effect as of the Distribution Date, HLT or another member or members of the HLT Group, as applicable, agrees to recognize the union which is a party to each such HLT CBA as the exclusive collective bargaining representative for the HLT Employees covered under the terms of each such HLT CBA. PK shall, or shall cause another member or members of the PK Group to, at the request of HLT, execute all Owners Letters and take all other actions necessary for HLTs and/or PKs compliance with any collective bargaining agreement or other labor agreement identified on Schedule 13(a) or Schedule 13(c).
(b) PK Collective Bargaining Agreements . PK or a member of the PK Group shall expressly Assume all collective bargaining or other labor agreements so identified on Schedule 13(b) (such agreements, the PK CBAs ) and associated Liabilities, in each case, effective as of the Distribution Date. For each such PK CBA in effect as of the Distribution Date, PK or another member or members of the PK Group agrees to recognize the union which is a party to each such PK CBA as the exclusive collective bargaining representative for the PK Employees covered under the terms of each such PK CBA.
(c) HGV Collective Bargaining Agreements . HGV or a member of the HGV Group shall expressly Assume all collective bargaining or other labor agreements so identified on Schedule 13(c) (such agreements, the HGV CBAs ) and associated Liabilities, in each case, effective as of the Distribution Date. For each such HGV CBA in effect as of the Distribution Date, HGV or another member or members of the HGV Group agrees to recognize the union
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which is a party to each such HGV CBA as the exclusive collective bargaining representative for the HGV Employees covered under the terms of each such HGV CBA. HGV shall, or shall cause another member or members of the HGV Group to, at the request of HLT, execute all Owners Letters and take all other actions necessary to HLTs and/or HGVs compliance with any collective bargaining agreement or other labor agreement identified on Schedule 13(a) or Schedule 13(c).
(d) EU Directive . Notwithstanding anything to the contrary in this Section 13, in countries in which the European Union Acquired Rights Directive applies, collective bargaining agreements and any other agreements with employee representatives shall continue to apply after the Distribution Date to the extent and in the manner provided for by local Law.
14. TRANSITION SERVICES . Each of HLT, PK and HGV and the members of their respective Groups shall provide such transition services as required by the Transition Services Agreement.
15. ACCESS TO INFORMATION AND DATA EXCHANGE . (a) Provision of Corporate Records . (i) Consistent with Section 8.3 of the Distribution Agreement, upon the prior written request by PK or HGV for specific and identified agreements, documents, books, records or files including, without limitation, computer files, microfiche, tape recordings and photographs (collectively, Records ), relating to or affecting PK or HGV, as applicable, HLT shall arrange, as soon as reasonably practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the Party making the request has a reasonable need for such originals) in the possession of HLT or any of its Subsidiaries.
(ii) After the Distribution Date, upon the prior written request by HLT or PK for specific and identified Records relating to or affecting HLT or PK, as applicable, HGV shall arrange, as soon as practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the Party making the request has a need for such originals) in the possession of HGV or any of its Subsidiaries.
(iii) After the Distribution Date, upon the prior written request by HLT or HGV for specific and identified Records relating to or affecting HLT or HGV, as applicable, PK shall arrange, as soon as practicable following the receipt of such request, for the provision of appropriate copies of such Records (or the originals thereof if the Party making the request has a need for such originals) in the possession of PK or any of its Subsidiaries.
(b) Access to Information . (i) From and after the Distribution Date and consistent with Section 8.3 of the Distribution Agreement, each of HLT, PK and HGV shall afford to the other and its authorized accountants, counsel and other designated representatives reasonable access during normal business hours, subject to the appropriate restrictions for classified, privileged or confidential information, to the personnel, properties, books and Records of such Party and its Subsidiaries insofar as such access is reasonably required by the other Party.
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(ii) Without limiting the generality of the foregoing clause (i), except as otherwise provided by applicable Law, each Party shall furnish, or shall cause to be furnished to the other Parties, a list of all benefit plan participants and employee data or information in its possession which is necessary for such other Parties to maintain and implement any benefit plan or arrangement covered by this Agreement, or to comply with the provisions of this Agreement, and which is not otherwise readily available to such other Party.
(c) Reimbursement; Other Matters . (i) Except to the extent otherwise specifically identified by the Distribution Agreement or any Ancillary Agreement, a Party providing Records or access to information to the other Party under this Section 15 shall be entitled to receive from the recipient, upon the presentation of invoices therefore, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses, as may be reasonably incurred in providing such Records or access to information.
(ii) The Parties shall comply with those document retention policies, cost sharing arrangements, expense reimbursement procedures and request procedures as shall be established and agreed to in writing by their respective authorized officers on or prior to the Distribution Date in respect of Records and related matters.
(d) Confidentiality . Each of HLT, PK and HGV shall, or shall cause another member or members of the HLT Group, the PK Group, and the HGV Group to, not use or permit the use of (without the prior written consent of the other) and shall hold, and shall cause its consultants and advisors to hold, in strict confidence, all information concerning the other Parties in its possession, its custody or under its control (except to the extent that (A) such information has been in the public domain through no fault of such Party, (B) such information has been later lawfully acquired from other sources by such Party, or (C) as may be required under the USA Patriot Act) to the extent such information (x) relates to the period up to the Plan Effective Time, (y) relates to the Distribution Agreement or any Ancillary Agreement or (z) is obtained in the course of performing services for the other Party pursuant to the Distribution Agreement or any Ancillary Agreement, and each Party shall not (without the prior written consent of the other) otherwise release or disclose such information to any other Person, except such Partys auditors and attorneys, unless compelled to disclose such information by judicial or administrative process or unless such disclosure is required by Law and such Party has used commercially reasonable efforts to consult with the other affected Party or Parties prior to such disclosure. To the extent that a Party is compelled by judicial or administrative process to disclose such information under circumstances in which any evidentiary privilege would be available, such Party agrees to assert such privilege in good faith prior to making such disclosure. Each of the Parties agrees to consult with each relevant other Party in connection with any such judicial or administrative process, including, without limitation, in determining whether any privilege is available, and further agrees to allow each such relevant Party and its counsel to participate in any hearing or other proceeding (including, without limitation, any appeal of an initial order to disclose) in respect of such disclosure and assertion of privilege. Notwithstanding anything to the contrary contained herein, each Party shall be entitled to use information disclosed pursuant to this Agreement to the extent reasonably necessary for the administration of its employee benefit plans in accordance with applicable Law.
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(e) Audit Rights with Respect to Information Provided . Each of the Parties and their duly authorized representatives shall have the right to conduct reasonable audits with respect to all information provided to it by the other Party. The Parties shall cooperate to determine the procedures and guidelines for conducting audits under this Section 15(e), which shall require reasonable advance notice by the auditing Party. The auditing Party shall have the right to make copies of any records at its expense, subject to applicable Law.
16. NOTICES; COOPERATION . Notwithstanding anything in this Agreement to the contrary, all actions contemplated herein with respect to benefit plans which are to be consummated pursuant to this Agreement shall be subject to such notices to, and/or approvals by, the Internal Revenue Service (or other Governmental Entity) as are required or deemed appropriate by such benefit plans sponsor. Each of HLT, PK and HGV agrees to use its commercially reasonable efforts to cause all such notices and/or approvals to be filed or obtained, as the case may be, in a timely fashion. Each Party shall reasonably cooperate with the other Parties with respect to any Governmental Approvals, employee notices or any other actions reasonably necessary to maintain and implement the employee benefit arrangements covered by this Agreement.
17. FURTHER ASSURANCES . From time to time, as and when reasonably requested by any other Party, each Party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other Party may reasonably deem necessary or desirable to effect the purposes of this Agreement and the transactions contemplated hereunder.
18. INDEMNIFICATION . (a) Indemnification by HLT . Except as otherwise specifically set forth in this Agreement or in Article VII of the Distribution Agreement, following the Plan Effective Time, HLT shall, and shall cause the other members of the HLT Group to, indemnify, defend and hold harmless the Ownership Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable Losses of the Ownership Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (i) any HLT Plan, (ii) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from the operation or conduct of any US DB Plan, UK DB Plan or Terminated Hilton DB Plan or any individual identified as an HLT Employee (and any new Employees employed by any member of the HLT Group after the Distribution Date), and (iii) the breach by HLT of any provision of this Agreement. In furtherance of the foregoing, HLT and OpCo shall be jointly and severally liable to any of the Ownership Indemnitees for any and all Indemnifiable Losses of the Ownership Indemnitees arising out of, by reason of or otherwise in connection with the foregoing.
(b) Indemnification by PK . Except as otherwise specifically set forth in this Agreement or in Article VII of the Distribution Agreement, following the Plan Effective Time, PK shall, and shall cause the other members of the PK Group to, indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Timeshare Indemnitees from and against any and all Indemnifiable Losses of the Management and Franchising Indemnitees and the Timeshare Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (i) any PK Plan, (ii) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from the operation or conduct of any Plan sponsored or maintained by any
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member of the PK Group prior to the Distribution Date primarily for the benefit of PK Employees and Former PK Employees or any individual identified as a PK Employee (and any new Employees employed by any member of the PK Group after the Distribution Date), or (iii) the breach by PK of any provision of this Agreement. In furtherance of the foregoing, any and all payments by PK or any other members of the PK Group in respect of Indemnifiable Losses of the Managing and Franchising Indemnitees arising out of, by reason of or otherwise in connection with the foregoing shall be made directly to OpCo or one of its Subsidiaries.
(c) Indemnification by HGV . Except as otherwise specifically set forth in this Agreement or in Article VII of the Distribution Agreement, following the Plan Effective Time, HGV shall, and shall cause the other members of the HGV Group to, indemnify, defend and hold harmless the Managing and Franchising Indemnitees and the Ownership Indemnitees from and against any and all Indemnifiable Losses of the Managing and Franchising Indemnitees and the Ownership Indemnitees, respectively, arising out of, by reason of or otherwise in connection with (i) any HGV Plan, (ii) any and all Liabilities relating primarily to, arising primarily out of or resulting primarily from the operation or conduct of any Plan sponsored or maintained by Vacations prior to the Distribution Date or any individual identified as a HGV Employee (and any new Employees employed by any member of the HGV Group after the Distribution Date), or (iii) the breach by HGV of any provision of this Agreement.
(d) Limitations on Indemnification Obligations . (i) The amount that any Party (an Indemnifying Party ) is or may be required to pay to any other Person (an Indemnitee ) pursuant to paragraphs (a), (b) or (c) of this Section 18, as applicable, shall be reduced (retroactively or prospectively) by any Insurance Proceeds or other amounts actually recovered by or on behalf of such Indemnitee in respect of the related Indemnifiable Loss. If an Indemnitee shall have received the payment required by this Agreement from an Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds or other amounts in respect of such Indemnifiable Loss, then such Indemnitee shall pay to such Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other amounts actually received, up to the aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement in respect of such Indemnifiable Loss.
(ii) An Indemnifying Party shall not be required to indemnify or pay an Indemnitee pursuant to paragraphs (a), (b) or (c) of this Section 18, as applicable, for any Indemnifiable Losses relating to or associated with any Plan of the Indemnifying Party arising out of, by reason of or otherwise in connection with any act or failure to act on the part of such Indemnitee (including for this purpose any Subsidiaries, businesses or operations which become associated with the Indemnitee by virtue of or in connection with the Distribution) with respect to or in connection with such Plan, including, without limitation, any such act or failure to act in connection with the administration by the Indemnitee of such Plan.
(e) Survival of Indemnities . The obligations of HLT, PK and HGV under this Section 18 shall survive the sale or other Transfer by any of them of any assets or businesses or the assignment by any of them of any Liabilities, with respect to any Indemnifiable Loss of the other related to such assets, businesses or Liabilities.
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(f) REIT Status Considerations . The principles of Section 7.9(c) of the Distribution Agreement shall apply to indemnification payments due under this Agreement.
19. DISPUTE RESOLUTION .
(a) Negotiation . In the event of a dispute arising out of or in connection with this Agreement (including its interpretation, performance or validity) (collectively, Agreement Disputes ), the general counsels of the relevant Parties (or such other individuals designated thereby) shall negotiate for a maximum of 21 days (or a mutually-agreed extension) (such period of days, the Negotiation Period ) from the time of receipt by a Party of written notice of such Agreement Dispute. The relevant Parties shall not assert the defenses of statute of limitations and laches for any delays arising due to the procedures in Section 19(a) or Section 19(b).
(b) Mediation . If the Parties have not timely resolved the Agreement Dispute under Section 19(a), the Parties agree to submit the Agreement Dispute to mediation no later than 10 days following the end of the Negotiation Period, with such mediation conducted in accordance with the Mediation Procedure of the International Institute for Conflict Prevention and Resolution ( CPR ). The Parties to the Agreement Dispute agree to bear equally the CPR and mediators costs. The Parties agree to participate in good faith in the mediation for a maximum of 14 days (or a mutually agreed extension). If the Parties have not timely resolved the Agreement Dispute pursuant to this Section 19(b), either Party may then bring an action in accordance with Sections 21(r) and 21(s) herein.
(c ) Confidentiality. All information and communications between the Parties relating to an Agreement Dispute and/or under the procedures in Sections 19(a) and 19(b) shall be considered Confidential Information for which the provisions of Section 15(d) herein apply.
(d ) Unless otherwise agreed in writing, the Parties shall continue to perform under this Agreement during the course of dispute resolution under this Section 19 with respect to all matters not subject thereto.
20. PAYROLL REPORTING AND TAX WITHHOLDING . (a) Form W-2 Reporting . The Parties agree to use commercially reasonable efforts to follow the alternate procedure for United States employment tax withholding as provided in Section 5 of Rev. Proc. 2004-53, I.R.B. 2004-35.
(b) Garnishments, Tax Levies, Child Support orders and Wage Assignments . With respect to Employees with garnishments, tax levies, child support orders and wage assignments in effect with Hilton as of the Cut-Off Date, PK and HGV, as the successor employers to each such PK Employee and HGV Employee, as applicable, shall, or shall cause another member of the PK Group or the HGV Group, as applicable, to honor such payroll deduction authorizations and shall continue to make payroll deductions and payments to the authorized payee, as specified by the court or governmental order which was filed with Hilton. HLT shall, or shall cause another member of the HLT Group to provide each of PK and HGV with a list of the PK Employees and HGV Employees who have garnishments, tax levies, child support orders and wage assignments in effect as of the Cut-Off Date.
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(c) Authorization for Payroll Deductions . Unless otherwise prohibited by this Agreement, another Ancillary Agreement, a Plan document or applicable Law, with respect to Employees with authorizations for payroll deductions and direct deposits in effect with Hilton as of the Cut-Off Date, PK and HGV, as the successor employers, shall, or shall cause another member or members of the PK Group and the HGV Group, as applicable, to honor such payroll deduction authorizations relating to each PK Employee and HGV Employee, as applicable, and shall not require that such PK Employee or HGV Employee, as applicable, submit a new authorization to the extent that the type of deduction by PK or HGV, as applicable, does not differ from that made by Hilton.
21. MISCELLANEOUS . (a) Complete Agreement; Construction . This Agreement, including any schedules hereto and the Distribution Agreement, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement, this Agreement shall control unless specifically stated otherwise in this Agreement. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any other Ancillary Agreement, this Agreement shall control unless specifically stated otherwise in this Agreement.
(b) Data Privacy . The Parties agree that any applicable data privacy Laws and any other obligations of the HLT Group, PK Group and the HGV Group to maintain the confidentiality of any employee information or information held by any Plan in accordance with applicable Law shall govern the disclosure of employee information among the Parties under this Agreement. The Parties agree to use commercially reasonable efforts to have in place appropriate technical and organizational security measures to protect the personal data of the HLT Employees, PK Employees and HGV Employees.
(c) Ancillary Agreements . Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by any other Ancillary Agreement.
(d) Counterparts . This Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.
(e) Survival of Agreements . Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Plan Effective Time and remain in full force and effect in accordance with their applicable terms.
(f) Expenses . All out-of-pocket fees and expenses incurred, or to be incurred and directly related to the transactions contemplated hereby shall be paid as described in Section 11.5 of the Distribution Agreement.
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(g) Notices . All notices, requests, claims, demands and other communications under this Agreement shall be made as described in Section 11.6 of the Distribution Agreement.
(h) Consents . Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party (and its Group).
(i) Assignment . This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Parties (not to be unreasonably withheld or delayed), and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, this Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a Party so long as the resulting, surviving or transferee Business Entity assumes all the obligations of the relevant Party by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the other Parties. No assignment permitted by this Section 21(i) shall release the assigning Party from liability for the full performance of its obligations under this Agreement.
(j) Successors and Assigns . The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.
(k) Termination and Amendment . This Agreement may be terminated, amended, or modified and the Distribution may be amended, modified or abandoned at any time prior to the Effective Time by and in the sole discretion of HLT without the approval of PK, HGV or the stockholders of HLT. In the event of such termination, no Party shall have any Liability of any kind to any other Party or any other Person. After the Effective Time, this Agreement may not be terminated, modified or amended except by an agreement in writing signed by HLT, PK and HGV.
(l) Payment Terms . Except as expressly provided to the contrary in this Agreement or the Transition Services Agreement, any amount to be paid or reimbursed by any Party (and/or a member of such Partys Group), on the one hand, to any other Party or Parties (and/or a member of such Partys or Parties Group), on the other hand, under this Agreement shall be paid or reimbursed hereunder within sixty (60) days after presentation of an invoice or a written demand therefor and setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount. Except as expressly provided to the contrary in this Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within sixty (60) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to LIBOR, from time to time in effect, calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment. Except as expressly provided to the contrary in this Agreement, a Party (or any member of a Partys Group) may direct that any payment owed such Party (or member of such Partys Group) hereunder be paid directly to a member of the same Group.
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(m) No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Partys Group to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement (including adversely affecting the rights or ability of any Party to successfully pursue indemnification or payment pursuant to Section 18).
(n) Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party at and after the Plan Effective Time, to the extent such Subsidiary remains a Subsidiary of the applicable Party.
(o) Third Party Beneficiaries . Except as provided in Section 18 relating to Indemnitees, this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, Liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
(p) Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
(q) Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflict of law principles that would result in the applicable of Laws of a different jurisdiction.
(r) Consent to Jurisdiction . Each Party irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware or (b) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the State of Delaware, to resolve any Agreement Dispute that is not resolved pursuant to Sections 19(a) or 19(b). Any judgment of such court may be enforced by any court of competent jurisdiction. Further, notwithstanding Sections 19(a) or 19(b), either Party may apply to the above courts set forth in Section 21(r)(a) and 21(r)(b) above for a temporary restraining order or similar emergency relief during the process set forth in Sections 19(a) and 19(b). Each of the Parties agrees that service by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any of the above Actions and irrevocably and unconditionally waives any objection to the laying of venue of any Action in accordance with this Section 21(r). Nothing in this Section 21(r) shall limit or restrict the Parties from agreeing to arbitrate any Agreement Dispute pursuant to mutually-agreed procedures.
(s) Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING ANY AGREEMENT DISPUTE.
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(t) Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
(u) Force Majeure . No Party (or any Person acting on its behalf) shall have any Liability for failure to fulfill any obligation (other than a payment obligation) under this Agreement, so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (i) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (ii) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
(v) Interpretation . The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
(w) No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances.
(x) No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
(y) No Admission of Liability . The allocation of Assets and Liabilities herein is solely for the purpose of allocating such Assets and Liabilities among the HLT Group, the PK Group and the HGV Group and is not intended as an admission of liability or responsibility for any alleged Liabilities vis-a-vis any third party, including with respect to the Liabilities of any non-wholly owned Subsidiary of HLT, PK or HGV.
(z) Effect if Distribution Does Not Occur . If the Distribution does not occur, then all actions that are, under this Agreement, to be take or occur effective as of the Distribution, or otherwise in connection with the Distribution, shall not be taken or occur except to the extent specifically agreed by the Parties.
(aa) Relationship of Parties . Nothing in this Agreement shall be deemed or construed by the Parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the Parties, it being understood and agreed that no provision contained herein, and no act of the Parties, shall be deemed to create any relationship between the Parties other than the relationship set forth herein.
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[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. | ||
By: | ||
Name: | ||
Title: | ||
PARK HOTELS & RESORTS INC. | ||
By: | ||
Name: | ||
Title: | ||
HILTON GRAND VACATIONS INC. | ||
By: | ||
Name: | ||
HILTON DOMESTIC OPERATING COMPANY INC. (solely for purposes of Section 18) | ||
By: | ||
Name: |
FINAL
SCHEDULE 4(a)(i)
HLT US DEFINED BENEFIT PENSION PLANS
1. | Hilton Hotels Retirement Plan |
2. | Hilton International Cash Balance Plan |
1
SCHEDULE 4(b)(i)
HLT NON-US DEFINED BENEFIT PENSION PLANS
1. | Hilton UK Pension Plan |
a. | Guarantee, dated May 18, 2015, by Hilton Worldwide Manage Limited for Hilton UK Trustee Limited as trustee of the Hilton UK Pension |
b. | Hilton UK Pension Plan Funding Support Plan |
2. | Hilton International Wien GmbH |
3. | Delta Lloyd Life Defined Benefits Plan |
4. | Hilton UK Hotels Limited Unfunded Retirement Benefit Scheme |
5. | Germany GmbH mit Diensteintritt ab dem 01.05.1988 |
6. | Germany GmbH mit Diensteintritt bis zum 30.04.1988 |
7. | Hilton International Plan (Hilton International Retirement Plan section) |
8. | Hilton Hotels Egypt End of Service Plan for General Managers and Senior Regional SpecialistsEgypt |
9. | Hilton Hotels in Egypt End of Service Plan (for non-Senior Managers) |
10. | Conrad Cairo End of Service Plan |
11. | Bituah Pensioni |
12. | Japan Defined Benefit Plan |
13. | Stichting Pension Fund (the A Plan) |
14. | Statutory Old Age and Collectively Bargained Pension Benefits |
15. | Trinidad Hilton Limited Pension Fund |
16. | Hilton Trinidad Plan (unionized) |
17. | Switzerland Defined Benefit Plan |
2
SCHEDULE 4(b)(ii)(A)
PK NON-US DEFINED BENEFIT PENSION PLANS
1. | Stichting Pension Fund (the A Plan) |
3
SCHEDULE 4(b)(iii)(A)
HGV NON-US DEFINED BENEFIT PENSION PLANS
1. | Japan Social Pension Insurance |
4
SCHEDULE 5(a)(i)
HLT US DEFINED CONTRIBUTION PENSION PLANS
1. | Hilton 401(k) Plan |
2. | Hilton Resorts 401(k) Plan |
3. | Hilton Puerto Rico Retirement Savings Plan |
5
SCHEDULE 5(b)(i)
HLT NON-US DEFINED CONTRIBUTION PENSION PLANS
1. | Hilton Worldwide UK Retirement Plan |
2. | UK Auto-Enrollment Plan |
3. | Alexander Forbes Retirement Fund |
4. | Stichting Pension Fund (B, C and Nettopensioen Plans) |
5. | HOGARENTE through the Hotel and Restaurant Association |
6. | Pensioenfond Horeca & Catering |
7. | DEBEKA/MIKU (for non-Nuremburg employees) |
8. | Personal Retirement Savings Accounts |
9. | Hilton International Plan (Hilton Retirement Capital Plan section) |
10. | Hilton Worldwide International Retirement Plan |
11. | Group Registered Retirement Savings Plan |
12. | Conrad International Retirement Plan |
13. | Bituah Pensioni |
14. | Hilton Nairobi Ltd. Staff Pension Scheme (and Trust) |
15. | Hilton Addis Ababa Provident Fund |
16. | Australasia Hilton Australia Retirement Plan (HARP) |
17. | Zurich Hilton Ireland Management Pension Plan 60515438 |
18. | Delta Lloyd Defined Contribution Plan |
19. | Japan Defined Contribution Plan |
6
SCHEDULE 5(b)(ii)(B)
PK ASSUMED AND NEW NON-US DEFINED CONTRIBUTION PENSION PLANS
1. | Alexander Forbes Retirement Fund |
2. | Personal Retirement Savings Accounts |
3. | Stichting Pension Fund (B and Nettopensioen Plans) |
4. | Debeka Lebensversicherung AG-Debeka |
5. | HOGARENTE through the Hotel and Restaurant Association |
6. | Pensioenfond Horeca & Catering |
7
SCHEDULE 5(b)(iii)(A)
HGV ASSUMED AND NEW NON-US DEFINED CONTRIBUTION PENSION PLANS
1. | Japan Defined Contribution Retirement Plan |
8
SCHEDULE 6(a)
HLT US NON-QUALIFIED DEFERRED COMPENSATION PLANS
1. | Hilton Hotels Executive Deferred Compensation Plan (pre-2005) |
2. | Hilton Supplemental Executive Retirement Plan |
3. | Hilton Hotels Retirement Benefit Replacement Plan |
4. | Promus Hotel Corporation Executive Deferred Compensation Plan |
5. | Promus Hotel Capital Accumulation Plan for Executives |
6. | Promus Hotel Corporation Deferred Compensation Plan |
7. | Hilton International Co. Deferred Compensation Plan 2005 for Management Employees in US and Puerto Rico |
8. | Hilton 2005 Executive Deferred Compensation Plan |
9. | Deferred Compensation Trust Between Hilton Domestic Operating Company Inc. and Wells Fargo Bank, N.A. |
10. | Various Individual Arrangements |
9
SCHEDULE 7(a)(i)
HLT US HEALTH & WELFARE PLANS
1. | Hilton Health & Welfare Plan |
2. | Salary Continuation Plan (SALCO) |
3. | Voluntary Insurance Benefits |
4. | Commuter Benefits |
5. | Paid Maternity Leave Program |
6. | Paid Parental Leave Program |
7. | Educational Assistance Program |
8. | Retiree Health Access Plan |
9. | Washington Hilton Medical Plan |
10. | Embassy Suites Washington, D.C. Convention Center Medical Plan |
11. | Hilton-McLean Welfare Benefits Plan |
12. | DoubleTree-Crystal City Welfare Benefits Plan |
13. | Capital Hilton Medical Plan |
14. | Hilton Worldwide, Inc. Texas Occupational Injury Benefit Plan |
10
SCHEDULE 7(b)(i)(A)
HLT NON-US HEALTH AND WELFARE PLANS
1. | UK Group Medical Insurance |
2. | UK Voluntary Dental Coverage |
3. | UK Employee Assistance Program |
4. | UK Long-Term Disability Insurance |
5. | UK Life Insurance |
6. | UK Business Travel Insurance |
7. | Hilton Hotels Ireland Ltd. Life Assurance Plan |
8. | Long-Term Disability Insurance |
9. | UK Cash Medical Plan Insurance |
10. | Group Term Life, Total Permanent Disability Insurance |
11. | Group Personal Accident Insurance Plan |
12. | Group Hospitalization, Major Medical Insurance, Outpatient, Dental Plans |
13. | Hilton International Retiree Medical Plan and Trust |
11
SCHEDULE 7(b)(ii)(A)
PK CONTINUED PARTICIPATION NON-US HEALTH AND WELFARE PLANS
1. | UK Voluntary Dental Coverage |
2. | UK Employee Assistance Program |
3. | UK Long-Term Disability Insurance |
4. | UK Cash Medical Plan Insurance |
12
SCHEDULE 7(b)(ii)(B)
PK NEW NON-US HEALTH AND WELFARE PLANS
1. | UK Group Medical Insurance |
2. | Discovery Health Medical Scheme (and associated Medical Savings Accounts) |
3. | Life Insurance |
4. | Disability Income Benefit |
5. | Seguro Saude Empresarial |
6. | Seguro de Vida Em Grupo |
7. | Seguro Coletivo Empresarial de Assistencia a Saude Na Segmentacao Odontologico |
8. | Long-Term Disability Insurance |
9. | UK Life Insurance |
10. | Conrad Dublin Life Assurance Plan |
13
SCHEDULE 7(b)(iii)(A)
HGV CONTINUED PARTICIPATION NON-US HEALTH AND WELFARE PLANS
1. | UK Voluntary Dental Coverage |
2. | UK Employee Assistance Program |
3. | UK Long-Term Disability Insurance |
4. | UK Cash Medical Plan Insurance |
5. | Singapore Group Term Life, Total Permanent Disability Insurance |
6. | Singapore Group Personal Accident Insurance Plan |
7. | Singapore Group Hospitalization, Major Medical Insurance, Outpatient, Dental Plans |
14
SCHEDULE 8(a)(i)
HLT US SEVERANCE PLANS
1. | Hilton Worldwide Holdings, Inc. 2013 Executive Severance Plan |
2. | Hilton Worldwide Holdings, Inc. Severance Plan for General Managers, Directors, Senior Directors and Vice Presidents |
3. | Hilton Worldwide Holdings, Inc. Severance Plan for Non-Exempt and Certain Exempt Employees |
4. | Agreement dated April 2015, by and between, the Waldorf=Astoria Hotel and the New York Hotel and Motel Trades Council, AFL-CIO |
5. | Side Letter to the Agreement dated April 2015, by and between, the Waldorf=Astoria Hotel and the New York Hotel and Motel Trades Council, AFL-CIO |
15
SCHEDULE 13(a)
HLT COLLECTIVE BARGAINING AGREEMENTS
1. | Collective Bargaining Agreement by and between Unite Here, Local 7 & International Union of Operating Engineers, AFL-CIO, Local 37 and Hilton Management, LLC d/b/a Hilton Baltimore (February 1, 2012 March 31, 2019) |
2. | Collective Bargaining Agreement between Doubletree by Hilton San Jose and UNITE HERE! Local 19 International Union (July 1, 2011 November 30, 2017) |
3. | Collective Bargaining Agreement between Hilton Rosemont and Unite Here Local 450 (Effective November 1, 2015 October 31, 2020) |
4. | Agreement between Waldorf-Astoria Management, LLC, as Operator of the Arizona Biltmore and The International Union of Operating Engineers Local No, 428, AFL-CIO (Term: March 16. 2016 March 16, 2019) |
5. | Collective Bargaining Agreement between Hotel Association of New York City, Inc. and New York Hotel and Motel Trades Council, AFL-CIO (extended by memorandum of agreement through June 30, 2026) |
6. | Plaza Collective Bargaining Agreement between UNITE HERE Local 610 and Hilton Worldwide International Puerto Rico, LLC d/b/a Condado Plaza Hilton (2016-2018) |
7. | Unite HERE Local 610 and Hilton International Manage LLC d/b/a Caribe Hilton Hotel Memorandum of Agreement 2016-2018 |
8. | Collective Bargaining Agreement between Hilton Minneapolis and Miscellaneous Driver, Helper and Warehousemans Union Local 638 Affiliated with the International Brotherhood of Teamsters May 1, 2016 April 30, 2021 |
9. | Collective Agreement between MH HOTELS (Meadowvale Hotel & Conference Centre) Ltd. doing business as the Hilton Mississauga Meadowvale, the Employer and United Food & Commercial Workers International Union, Local 333 (May 6, 2016 May 5, 2020) |
10. | Contract between Oakland Airport Hilton and Freight Checkers, Clerical Employees & Helpers; Union Local No. 856 International Brotherhood of Teamsters (June 1, 2013 May 31, 2016) 1 |
11. | Agreement between Painting and Decorating Contractors Association, Chicago Council and Painters District Council No. 14 of the International Union of Painters and Allied Trades (of Chicago, Cook, Lake, Will and Grundy Counties, Illinois) (subject to automatic annual extensions) |
12. | Agreement between Hilton Worldwide, Inc. (HWI) as Agent for Oasis West Realty, LLC a Delaware Limited Liability Company d/b/a The Beverly Hilton and International Union of Operating Engineers Local No. 501, AFL-CIO and Painters & Allied Trades District Council No. 36 (August 1, 2013 July 31, 2016) 1 |
13. | Convention Collective de Travail Entre Innvest REIT; Royal Bank Plaza, South Tower, 200, Bay Street, suite 3205; P.O. Box 126, Toronto (Ontario) M5J 2S1 Etablissement Vise: Hilton Quebec; 1100, boulevard Rene-Levesque Est; C.P. 157, succ. Haute-Ville; Quebec (Quebec) G1R 4P3 Ci-apres appelee: LEMPLOYEUR ET Syndicat Des Travailleuses Et Travailleurs de Hilton Quebec (CSN); 155, boulevard Charest Est, bureau 400 Quebec (Quebec) G1K 3G6; Ci-apres appele: LE SYNDICAT (2016-2020) |
1 | Expired and negotiations are underway for a new agreement. |
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14. | Collective Bargaining Agreement by and between Hilton Waikoloa Village and I.L.W.U Local 142 (October 1, 2016 September 30, 2020) |
15. | Agreement between Hilton Worldwide, Inc. d/b/a Hilton Chicago and Chicago and Midwest Regional Joint Board, An Affiliate Workers United/S.E.I.U. (Effective: November 16, 2013 November 15, 2019) |
16. | Agreement between Hilton Worldwide, Inc. d/b/a Palmer House Chicago and Chicago and Midwest Regional Joint Board, An Affiliate Workers United/S.E.I.U. (Effective: November 16, 2013 November 15, 2019) |
17. | Agreement between Hilton Worldwide, Inc. d/b/a The Drake and Chicago and Midwest Regional Joint Board, An Affiliate Workers United/S.E.I.U. (Effective: November 16, 2013 November 15, 2019) |
18. | Agreement between Teamsters Local Union No. 727 and Hilton OHare (January 1, 2012 December 31, 2016) |
19. | Collective Bargaining Agreement by and between Interstate Management Company, LLC as Agent for BVP Tenant LLC d/b/a Buena Vista Palace and UNITE HERE Local 737 (extended by memorandum of agreement through December 31, 2016) and Assumption Agreement: Entered into by and between Hilton Management, LLC as agent for BVP Tenant, LLC d/b/a Buena Vista Palace |
20. | The Beverly Hilton and General Teamsters, Airline, Aerospace and Allied Employees, Warehousemen, Drivers, Construction, Rock and Sand, Local 986 (May 1, 2014 April 30, 2017) |
21. | Agreement between UNITE HERE, Local #8 and Doubletree Management, LLC as Operator of Doubletree Hotel, Seattle Airport 18740 International Boulevard, Seattle, WA 98188 (206) 246-8600 (Effective June 1, 2014 May 31, 2017) |
22. | Agreement between Unite Here, Local #8 and Doubletree Management, LLC as Operator of Hilton Seattle Airport 18740 International Boulevard, Seattle, WA 98188 (206) 246-8600 (Effective June 1, 2014 May 31, 2017) |
23. | Agreement between Plumbing Contractors Association of Chicago and Cook County and Chicago Journeymen Plumbers Local Union 130, U.A. (subject to automatic annual extensions) |
24. | Collective Bargaining Agreement by and between Hilton Worldwide, Inc. (Hilton Washington Hotel) and The Metropolitan Regional Council of Carpenters (June 1, 2014 May 31, 2017) |
25. | Agreement between Hilton Chicago and The United Steelworkers AFL-CIO-CLC on behalf of Drapery, Slip Cover, Window Shade, Venetian Blinds, Exhibition, Flag and Bunting USW Decorators Union, Local Union No. 17U (July 1, 2012 June 30, 2017) |
26. | Agreement between Palmer House and The United Steelworkers AFL-CIO-CLC on behalf of Drapery, Slip Cover, Window Shade, Venetian Blinds, Exhibition, Flag and Bunting USW Decorators Union, Local Union No. 17U (July 1, 2012 June 30, 2018) |
27. | Agreement between The Drake Hotel and The United Steelworkers AFL-CIO-CLC on behalf of Drapery, Slip Cover, Window Shade, Venetian Blinds, Exhibition, Flag and Bunting USW Decorators Union, Local Union No. 17U (July 1, 2012 June 30, 2019) |
28. | Contract and Agreement Between the Hilton Hotel, Vancouver, Washington and Unite Here Local 8 Affiliated with Unite Here International Union (July 1, 2014 June 30, 2017) |
29. | Collective Agreement between The Westin Diplomat Resort and Spa and UNITE HERE Local 355 (July 1, 2013 June 30, 2017) |
17
30. | Collective Bargaining Agreement between Painters and Allied Trades District Council 16 & Hilton San Francisco Union Square (August 1, 2012 July 31, 2017) |
31. | Contract and Agreement between Hilton Management LLC and Unite Here Local 8 Affiliated with Unite Here International Union, AFL-CIO/CLC (August 1, 2014 July 31, 2017) |
32. | Agreement between Unite Here, Local 1 and Waldorf-Astoria Management, LLC as Operator of the Waldorf-Astoria Chicago (September 1, 2013 August 31, 2017) |
33. | International Union of Operating Engineers Local 68-68A 68B, AFL-CIO and Hilton Management , LLC d/b/a Hilton Newark Airport Hotel (May 1, 2016 April 30, 2020) |
34. | Agreement by and between Hilton Management, LLC operators of the Washington Hilton and UNITE HERE Local 25 (October 16, 2010 October 15, 2017) |
35. | Agreement by and between Hilton Management, LLC operators of the Capital Hilton and UNITE HERE Local 25 (October 16, 2010 October 15, 2017) |
36. | Agreement by and between Embassy Suites Management Company, LLC operators of the Embassy Suites Washington D.C., Convention Center and UNITE HERE Local 25 (October 16, 2010 October 15, 2017) |
37. | Collective Bargaining Agreement by and between Hilton Oakland Airport and the International Union of Operating Engineers, Stationary Engineers, Local 39 (November 16, 2014 November 15, 2017) |
38. | Agreement between Hilton San Diego Bayfront and UNITE HERE Local 30 (February 1, 2014 November 28, 2016) 2 |
39. | Collective Bargaining Agreement by and between Doubletree by Hilton Hotel San Jose and the International Union of Operating Engineers, Stationary Engineers, Local 39 (December 1, 2014 November 30, 2017) |
40. | Agreement between Hilton Atlanta and Service Employees International Union/National Association of Government Employees, Local #679 (December 23, 2012 December 22, 2017) |
41. | Clerical Agreement between Teamsters Local Union No. 856, I.B.T. and Hilton San Francisco Union Square (January 1, 2013 December 31, 2017) |
42. | Collective Agreement Between Hilton Saint John and National Automobile, Aerospace, Transportation and General Workers Union of Canada (Unifor Canada), Local 2002 (2014 2017) |
43. | Agreement between Hilton Chicago & Towers International Brotherhood of Electrical Workers, Local Union No. 134 AFL-CIO (July 1, 2015 June 30, 2019) |
44. | Agreement between Palmer House of Chicago, Illinois and International Brotherhood of Electrical Workers, Local Union No. 134 AFL-CIO (July 1, 2015 June 30, 2019) |
45. | Agreement between Drake Hotel of Chicago, Illinois and International Brotherhood of Electrical Workers, Local Union No. 134 AFL-CIO (July 1, 2015 June 30, 2019) |
46. | Agreement between Hilton Chicago OHare Airport of Chicago, Illinois and International Brotherhood of Electrical Workers, Local Union No. 134 AFL-CIO (July 1, 2015 June 30, 2019) |
47. | Clerical Agreement between Parc 55 A Hilton Hotel and Teamsters Union Local No. 856, International Brotherhood of Teamsters (January 1, 2013 December 31, 2017) |
2 | Expired and negotiations are underway for a new agreement. |
18
48. | Collective Agreement as of the 1st day of February, 2006 between Hilton Toronto Airport (hereinafter referred to as the Employer ) and UNITE HERE Local 75 UNITE HERE Ontario Council (hereinafter referred to as the Union) (extended through January 31, 2019 per National Agreement Memorandum of Agreement) |
49. | Collective Agreement between Hilton Toronto and UNITE HERE Local 75 (extended through January 31, 2019 per National Agreement Memorandum of Agreement) |
50. | Agreement between UNITE HERE Local 26 and Hilton Management, LLC as operator of the Hilton Boston Logan Airport (March 1, 2013 February 28, 2018) |
51. | Agreement between The Hilton Oakland Airport and District Council 16; Painters and Drywall Finishers Local Union #3 (April 1, 2013 March 31, 2018) |
52. | Collective Bargaining Agreement by and between 90210 Grand Wailea Management Company, LLC d/b/a Grand Wailea Resort Hotel & Spa and ILWU, Local 142 (April 1, 2013 March 31, 2018) (for hotel and restaurant employees) |
53. | Collective Bargaining Agreement by and between 90210 Grand Wailea Management Company, LLC d/b/a Grand Wailea Resort Hotel & Spa and ILWU, Local 142 (January 1, 2015 December 31, 2018) (for retail employees) |
54. | Collective Bargaining Agreement by and between UNITE HERE! Local 5 and Hilton Management, LLC d/b/a Hilton Hawaiian Village Waikiki Beach Resort (July 1, 2013 June 30, 2018) |
55. | Bargaining Agreement by and between the Journeymen Plasters P&B Society Local No. 5 and the Midwest Ceiling Contractors Association (expires June 30, 2018) |
56. | Agreement between HLT CA Hilton LLC d/b/a Hilton Oakland Airport and Hotel Employees and Restaurant Employees Local #2850 (July 7, 2013 July 6, 2018) |
57. | Collective Bargaining Agreement by and between the International Union of Operating Engineers, Stationary Engineers, Local 39 and the San Francisco Hilton (July 16, 2013 July 15, 2018) |
58. | Collective Bargaining Agreement by and between the International Union of Operating Engineers, Stationary Engineers, Local 39 and the Parc 55 Wyndham Union Square Hotel (August 1, 2013 July 31, 2018) |
59. | Collective Bargaining Agreement between The Hotels and Unite Here, Local 2 (extended through August 14, 2018 by Memorandum of Agreement Concerning Modifications to Collective Bargaining Agreement) |
60. | Collective Bargaining Agreement between The Hotels and Hotel Employees and Restaurant Employees Union, Local 2 (extended through August 14, 2018 by Memorandum of Agreement Concerning Modifications to Collective Bargaining Agreement) |
61. | Agreement between Chicago Joint Executive Board of the UNITE HERE Local 1 and UNITE HERE Local 450 and Hilton Management, LLC d/b/a Hilton Chicago (September 1, 2013 August 31, 2018) |
62. | Agreement between Chicago Joint Executive Board of the UNITE HERE Local 1 and UNITE HERE Local 450 and HLT PALMER d/b/a Palmer House (September 1, 2013 August 31, 2018) |
63. | Agreement between Chicago Joint Executive Board of the UNITE HERE Local 1 and UNITE HERE Local 450 and HLT DRAKE d/b/a The Drake (September 1, 2013 August 31, 2018) |
19
64. | Agreement between Chicago Joint Executive Board of the UNITE HERE Local 1 and UNITE HERE Local 450 and Hilton Management, LLC d/b/a Hilton Chicago OHare Airport (September 1, 2013 August 31, 2018) |
65. | Collective Bargaining Agreement by and between Hilton Management, LLC The Employer at the Hilton Washington and Painters and Allied Trades District Council No. 51, of the International Union of Painters and Allied Trade, AFL-CIO (September 1, 2014 August 31, 2018) |
66. | Collective Bargaining Agreement by and between Hilton Management, LLC The Employer at the Capital Hilton Hotel and Painters and Allied Trades District Council No. 51, of the International Union of Painters and Allied Trade, AFL-CIO (September 1, 2014 August 31, 2018) |
67. | Collective Bargaining Agreement by and between Embassy Suites Management, LLC Employer at 1000 K, LLC d/b/a Embassy Suites DC Convention Center and Painters and Allied Trades District Council No. 51, of the International Union of Painters and Allied Trade, AFL-CIO (September 1, 2014 August 31, 2018) |
68. | Maintenance Agreement by and between Local 26, International Brotherhood of Electrical Workers and the Washington Hilton Hotel (September 1, 2015 August 31, 2018) |
69. | Agreement between HLT Conrad Domestic, LLC d/b/a Hilton San Diego Bayfront and International Union of Operating Engineers Local 501, AFL-CIO (September 1, 2015 August 31, 2018) |
70. | Agreement between Hilton Worldwide, Inc. d/b/a Hilton Chicago and Chicago and Midwest Regional Joint Board, an affiliate Workers United/S.E.I.U. (November 16, 2013 November 15, 2016) 3 |
71. | Agreement between Hilton Illinois Corp d/b/a Palmer House Hilton and Chicago and Midwest Regional Joint Board, an affiliate Workers United/S.E.I.U. (November 16, 2013 November 15, 2016) 3 |
72. | Agreement between Vista International Ill, Inc. d/b/a The Drake Hotel and Chicago and Midwest Regional Joint Board, an affiliate Workers United/S.E.I.U. (November 16, 2013 November 15, 2016) 3 |
73. | Collective Bargaining Agreement Hilton Worldwide, Inc. d/b/a The Crystal City Embassy Suites and Unite Here Local 25 (October 16, 2010 October 15, 2017) |
74. | Collective Bargaining Agreement DT Management, LLC d/b/a Doubletree Hotel Crystal City and Unite Here Local 25 (October 16, 2010 October 15, 2017) |
75. | Collective Bargaining Agreement Hilton Worldwide, Inc. d/b/a The Hilton McLean and Unite Here Local 25 (October 16, 2010 October 15, 2017) |
76. | Agreement between Unite Here Local 26 and Doubletree Management, LLC, as operator of the Doubletree Suits by Hilton Hotel Boston Cambridge (November 1, 2015 February 28, 2018) |
77. | Collective Bargaining Agreement between International Union of Operating Engineers, Local 99 99A, AFL CIO and Embassy Suites Management, LLC as agent for Ashford TRS Crystal City, LLC d/b/a Embassy Suites Crystal City (November 1, 2014 October 31, 2018) |
78. | Collective Bargaining Agreement between IUOE, Local 99 and Hilton Management, LLC as agent for Hilton McLean, LLC d/b/a Hilton McLean (November 1, 2014 October 31, 2018) |
79. | Collective Bargaining Agreement by and between Hilton Management LLC for The Capital Hilton Hotel and Local 99-99A, International Union of Operating Engineers, affiliated with the Greater Washington Central Labor Council, AFL-CIO and the Maryland State and District of Columbia AFL-CIO (November 1, 2014 October 31, 2018) |
3 | Expired and negotiations are underway for a new agreement. |
20
80. | Collective Bargaining Agreement by and between Hilton Management LLC for Washington Hilton Hotel & Towers and Local 99-99A, International Union of Operating Engineers, affiliated with the Greater Washington Central Labor Council, AFL-CIO and the Maryland State and District of Columbia AFL-CIO (November 1, 2014 October 31, 2018) |
81. | Agreement between Hilton Management, LLC as operator of The Hilton Anaheim Hotel and UNITE HERE! Local 11 (May 16, 2013 May 15, 2018) |
82. | Collective Bargaining Agreement between Hilton Boston Logan Airport Hotel and Firemen and Oilers Local 3, S.E.I.U. (December 1, 2015 November 30, 2018) |
83. | Agreement between Hilton Management LLC and International Union of Operating Engineers Local Union No, 701 (January 1, 2016 December 31, 2018) |
84. | Collective Bargaining Agreement between Hilton Minneapolis and Unite Here Local 17 AFL-CIO (May 1, 2014 April 30, 2019) |
85. | Collective Bargaining Agreement between Irvine Hilton and Unite Here Local 11 (June 1, 2014 May 31, 2019) |
86. | Collective Bargaining Agreement between Unite Here International Union Local 631 and Hilton Management LLC (September 1, 2014 October 1, 2019) |
87. | Agreement between Hampton Inn Milford and Local 371 United Food & Commercial Workers Union Westport, Connecticut (September 11, 2015 September 10, 2019) |
88. | Collective Bargaining Agreement between International Union of Operating Engineers Local 68-68A-68B, AFL-CIO and Hilton Worldwide (October 1, 2015 September 30, 2019) |
89. | Collective Bargaining Agreement between United Association of Journeymen & Apprentices of the Plumbing and Pipefitting Industry of the United State and Canada or Broward County, Florida and Starwood Hotels & Resorts Worldwide, Inc. d/b/a Westin Diplomat Resort & Spa (assumed by Hilton Worldwide, Inc. December 2014) (January 21, 2014 January 20, 2020) |
90. | Hilton Americas-Houston Labor Agreement with Unite Here International Union Local 23, AFL-CIO, CLC and The International Union of Operating Engineers Local 564 (The Engineers) AFL-CIO (July 1, 2015 June 30, 2020) |
91. | Chicago Regional Council of Carpenters United Brotherhood of Carpenters and Joiners of America Commercial Area Agreement Cook, Lake and DuPage Counties, in Illinois (June 1, 2014 May 31, 2019) |
92. | Collective Bargaining Agreement by and between Hilton Chicago & Towers and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 (July 1, 2015 June 30, 2019) |
93. | Collective Bargaining Agreement by and between Palmer House and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 (July 1, 2015 June 30, 2019) |
94. | Collective Bargaining Agreement by and between Drake Hotel and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 (July 1, 2015 June 30, 2019) |
95. | Collective Bargaining Agreement by and between Hilton Chicago OHare Airport and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 (July 1, 2015 June 30, 2019) |
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96. | Collective Bargaining Agreement by and between Embassy Suites-Chicago Downtown Lakefront and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 (July 1, 2015 June 30, 2019) |
97. | Collective Bargaining Agreement by and between Waldorf-Astoria Management, LLC and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 (July 1, 2015 June 30, 2019). |
98. | Collective Bargaining Agreement by and between Conrad Chicago and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 (July 1, 2015 June 30, 2019). |
99. | Collective Bargaining Agreement between International Union of Operating Engineers Local 68-68A-68B, AFL-CIO and Embassy Suites Management LLC d/b/a Embassy Suites Parsippany (December 1, 2015 November 30, 2019) |
100. | Collective Bargaining Agreement between International Union of Operating Engineers Local 68-68A-68B, AFL-CIO and Embassy Suites Management LLC d/b/a Embassy Suites Secaucus (December 1, 2015 November 30, 2019) |
101. | Agreement between Greater Regional Bargaining Group Hotels and Hotel Association of New York City, Inc. (party to agreement via property riders below) (April 1, 2013 March 31, 2018) |
102. | Agreement between Hilton Management, LLC, doing business as the Hilton Westchester, its owner(s), and operator(s) and manager(s) on their own behalf and on behalf of any affiliated or related entity and their respective successors or assigns and the New York Hotel and Motel Trades Council, ALF-CIO (Rider) (December 1, 2015 March 31, 2018) |
103. | Agreement by and among Hilton Short Hills Hotel, its current and future owner(s), operator(s) and manager(s) on their own behalf and on behalf of any of their respective affiliated or related entity, as well as their successors or assigns and the New York Hotel and Motel Trades Council, ALF-CIO (Rider) (January 1, 2015 March 31, 2018) |
104. | Agreement by and among Embassy Suites Parsippany, its current and future owner(s), operator(s) and manager(s) on their own behalf and on behalf of any of their respective affiliated or related entity, as well as their successors or assigns and the New York Hotel and Motel Trades Council, ALF-CIO (Rider) (September 17, 2015 March 31, 2018) |
105. | Agreement by and among Embassy Suites Secaucus-Meadowlands, its current and future owner(s), operator(s) and manager(s) on their own behalf and on behalf of any of their respective affiliated or related entity, as well as their successors or assigns and the New York Hotel and Motel Trades Council, ALF-CIO (Rider) (August 18, 2015 March 31, 2018) |
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SCHEDULE 13(b)
PK COLLECTIVE BARGAINING AGREEMENTS
1. | Agreement between Tex Holding, Inc. DBA Meritex and Chicago and Midwest Regional Joint Board, an Affiliate of Workers United/SEIU (Effective Duration: January 1, 2015 December 31, 2016) 4 |
2. | Collective Bargaining Agreement by and between Meritex Laundry Portage Meritex and International Union of Operating Engineers of Chicago, Illinois and Vicinity Local No. 399 June 1, 2012 May, 31 2017 |
3. | Labor Agreement between Meritex LLC and Laundry, Distribution & Food Service Joint Board, Workers United, Affiliated with the SEIU (September 2, 2014 September 1, 2017) |
4. | Collective Bargaining Agreement between International Union of Operating Engineers Local 68-68A-68B, AFL-CIO and Meritex, LLC (October 1, 2013 September 30, 2018) |
4 | Negotiations expected to commence prior to expiration. |
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SCHEDULE 13(c)
HGV COLLECTIVE BARGAINING AGREEMENTS
1. | Collective Bargaining Agreement between Hilton Grand Vacations Company, LLC d/b/a Hilton Grand Vacations Club at the Las Vegas Hilton and International Union of Operating Engineers, Local 501, AFL-CIO July 1, 2011 June 30, 2014 5 |
2. | Collective Bargaining Agreement between Hilton Grand Vacations Company, LLC A Delaware Limited Liability Company and Local Joint Executive Board of Las Vegas (for Elara) (expires 2018) |
3. | Collective Bargaining Agreement between Hilton Grand Vacations Company, LLC A Delaware Limited Liability Company and Local Joint Executive Board of Las Vegas (for Boulevard/Karen/Flamingo) (expires 2018) |
4. | Labor Agreements between Hilton Grand Vacations, LLC at the Elara Hotel and General Teamsters, Airline, Aerospace and Allied Employers, Warehousemen, Drivers, Constructions, Rock and Sand Teamsters Local 986 (Valet/Bell Department) June 1, 2015 May 31, 2019 |
5. | Collective Bargaining Agreement between Hotel Association of New York City, Inc. and New York Hotel and Motel Trades Council, AFL-CIO (July 1, 2012 June 30, 2019, extended through June 30, 2026 by memorandum of agreement) |
5 | Expired and negotiations are underway for a new agreement. |
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Exhibit 10.2
TAX MATTERS AGREEMENT
by and among
HILTON WORLDWIDE HOLDINGS INC.,
PARK HOTELS & RESORTS INC.,
HILTON GRAND VACATIONS INC., and
HILTON DOMESTIC OPERATING COMPANY INC.
Dated as of
TABLE OF CONTENTS
Page | ||||
ARTICLE I DEFINITIONS AND INTERPRETATION | 2 | |||
Section 1.1 |
Definitions | 2 | ||
Section 1.2 |
References; Interpretation | 13 | ||
Section 1.3 |
Effective Time | 14 | ||
ARTICLE II PREPARATION AND FILING OF TAX RETURNS | 14 | |||
Section 2.1 |
Responsibility of HLT to Prepare and File Tax Returns | 14 | ||
Section 2.2 |
Responsibility of Parties to Prepare and File PK Straddle Income Tax Returns and HGV Straddle Income Tax Returns | 15 | ||
Section 2.3 |
Responsibility of Parties to Prepare and File Post-Distribution Income Tax Returns and Non-Income Tax Returns | 16 | ||
Section 2.4 |
Time of Filing Tax Returns | 17 | ||
Section 2.5 |
Costs and Expenses | 17 | ||
ARTICLE III RESPONSIBILITY FOR PAYMENT OF TAXES | 17 | |||
Section 3.1 |
Responsibility for Payment of Taxes | 17 | ||
Section 3.2 |
Reimbursement of Straddle Income Taxes and Restructuring Taxes | 17 | ||
Section 3.3 |
Timing of Payments of Taxes | 17 | ||
ARTICLE IV REFUNDS, CARRYBACKS AND AMENDED TAX RETURNS | 18 | |||
Section 4.1 |
Refunds | 18 | ||
Section 4.2 |
Carrybacks | 18 | ||
Section 4.3 |
Amended Tax Returns | 18 | ||
ARTICLE V DISTRIBUTION TAXES | 19 | |||
Section 5.1 |
Liability for Distribution Taxes | 19 | ||
Section 5.2 |
Definition of Fault for Distribution Purposes | 19 | ||
Section 5.3 |
Limits on Proposed Acquisition Transactions and Other Transactions During Restricted Period | 20 | ||
Section 5.4 |
Certain Limitations on PK with Respect to its Stock | 21 | ||
Section 5.5 |
IRS Ruling, Tax Representation Letters, and Tax Opinions; Consistency | 23 | ||
Section 5.6 |
Timing of Payment of Taxes | 23 | ||
Section 5.7 |
Protective Section 336(e) Elections | 23 | ||
ARTICLE VI INDEMNIFICATION | 24 | |||
Section 6.1 |
Indemnification Obligations of HLT | 24 | ||
Section 6.2 |
Indemnification Obligations of PK | 24 |
i
Page | ||||
Section 6.3 |
Indemnification Obligations of HGV | 25 | ||
Section 6.4 |
Protected REITs | 25 | ||
ARTICLE VII PAYMENTS | 26 | |||
Section 7.1 |
Payments | 26 | ||
Section 7.2 |
Treatment of Payments made Pursuant to Tax Matters Agreement | 26 | ||
Section 7.3 |
Payments Net of Tax Benefit Actually Realized and Tax Cost | 27 | ||
ARTICLE VIII AUDITS | 27 | |||
Section 8.1 |
Notice | 27 | ||
Section 8.2 |
Audits | 27 | ||
Section 8.3 |
Payment of Audit Amounts | 29 | ||
ARTICLE IX COOPERATION AND EXCHANGE OF INFORMATION | 30 | |||
Section 9.1 |
Cooperation and Exchange of Information | 30 | ||
Section 9.2 |
Retention of Records | 31 | ||
Section 9.3 |
Tax Opinions | 32 | ||
ARTICLE X ALLOCATION OF TAX ATTRIBUTES AND OTHER TAX MATTERS | 32 | |||
Section 10.1 |
Allocation of Tax Attributes | 32 | ||
Section 10.2 |
Allocation of Tax Items | 32 | ||
ARTICLE XI DEFAULTED AMOUNTS | 33 | |||
Section 11.1 |
General | 33 | ||
ARTICLE XII DISPUTE RESOLUTION | 33 | |||
Section 12.1 |
Negotiation | 33 | ||
Section 12.2 |
Mediation | 33 | ||
Section 12.3 |
Confidentiality | 34 | ||
Section 12.4 |
Continuity of Performance | 34 | ||
ARTICLE XIII MISCELLANEOUS | 34 | |||
Section 13.1 |
Counterparts | 34 | ||
Section 13.2 |
Survival | 34 | ||
Section 13.3 |
Notices | 34 | ||
Section 13.4 |
Waivers | 35 | ||
Section 13.5 |
Assignment | 35 | ||
Section 13.6 |
Successors and Assigns | 35 | ||
Section 13.7 |
Termination and Amendment | 35 | ||
Section 13.8 |
No Circumvention | 35 | ||
Section 13.9 |
Subsidiaries | 36 |
ii
Page | ||||
Section 13.10 |
Third Party Beneficiaries | 36 | ||
Section 13.11 |
Title and Headings | 36 | ||
Section 13.12 |
Schedules | 36 | ||
Section 13.13 |
Specific Performance | 36 | ||
Section 13.14 |
Governing Law | 36 | ||
Section 13.15 |
Consent to Jurisdiction | 36 | ||
Section 13.16 |
Waiver of Jury Trial | 37 | ||
Section 13.17 |
Force Majeure | 37 | ||
Section 13.18 |
Interpretation | 37 | ||
Section 13.19 |
Changes in Law | 37 | ||
Section 13.20 |
Severability | 37 | ||
Section 13.21 |
Tax Sharing Agreements | 38 | ||
Section 13.22 |
Exclusivity | 38 | ||
Section 13.23 |
No Waiver | 38 | ||
Section 13.24 |
No Duplication; No Double Recovery | 38 |
Schedules
Schedule 2.3 | List of Certain Allocations of Non-Income Taxes | |
Schedule 8.3(b) | List of Specified Audit Taxes |
iii
TAX MATTERS AGREEMENT
THIS TAX MATTERS AGREEMENT (this Agreement ) is made and entered into as of the day of , by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Park Hotels & Resorts Inc., a Delaware corporation ( PK ), Hilton Grand Vacations Inc., a Delaware corporation ( HGV ) and Hilton Domestic Operating Company Inc., a Delaware corporation ( OpCo ). Each of HLT, PK, HGV and OpCo is sometimes referred to herein as a Party and, collectively, as the Parties .
WITNESSETH:
WHEREAS, HLT, acting through its direct and indirect Subsidiaries, currently conducts a number of businesses, including (i) the HLT Retained Business (as defined herein), (ii) the Ownership Business (as defined herein) and (iii) the Timeshare Business (as defined herein);
WHEREAS, the Board of Directors of HLT (the Board ) has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business, which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business, which shall be owned and conducted, directly or indirectly, by PK (which will elect to be a REIT (as defined herein)) and (iii) the Timeshare Business, which shall be owned and conducted, directly or indirectly, by HGV;
WHEREAS, in order to effect such separation, the Board has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders (i) to enter into a series of transactions after giving effect to which (A) HLT and/or one or more of its Subsidiaries (as defined herein) will, collectively, own all of the HLT Retained Assets (as defined herein) and assume (or retain) all of the HLT Retained Liabilities (as defined herein), (B) PK and/or one or more of its Subsidiaries will, collectively, own all of the Ownership Assets (as defined herein) and assume (or retain) all of the Ownership Liabilities (as defined herein) and (C) HGV and/or one or more of its Subsidiaries will, collectively, own all of the Timeshare Assets (as defined herein) and assume (or retain) all of the Timeshare Liabilities (as defined herein) and (ii) for HLT to distribute to the holders of its common stock, par value $0.01 per share ( HLT Common Stock ), on a pro rata basis (in each case without consideration being paid by such stockholders) (A) all of the outstanding shares of common stock, par value $0.01 per share, of PK (the PK Common Stock ) and (B) all of the outstanding shares of common stock, par value $0.01 per share, of HGV (the HGV Common Stock ) (such transactions as they may be amended or modified from time to time, collectively, the Plan of Reorganization );
WHEREAS, it is the intention of the Parties that (i) each of the contributions by PK of Assets to, and the assumption of Liabilities by, OpCo and HGV (each such contribution, an Internal Contribution and together, the Internal Contributions ) together with the corresponding distribution by PK of all of the OpCo common stock and the HGV Common Stock, respectively, qualifies as a reorganization within the meaning of Sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended (the Code ) (each such distribution, an Internal Distribution and together, the Internal Distributions ), (ii) the use by PK of the Cash Proceeds (as defined herein) from OpCo qualifies under Section 361(b) of the Code such
that no gain is recognized upon receipt of the Cash Proceeds by PK in connection with any Internal Contribution, (iii) the Debt Exchanges (as defined herein) qualify as distributions and exchanges of qualified property within the meaning of Section 361(c) of the Code, (iv) the distribution by HGV of Cash Proceeds to HLT qualifies first as a payment in respect of Tax liabilities allocable to HGV or one of its Subsidiaries under Treasury Regulations Section 1.1552-1(b) (or any corresponding provisions under U.S. state or local Law), in each case to the extent of any such Tax liabilities, and second as as a distribution under Section 301 of the Code from HGV to HLT, (v) any distribution by OpCo of Cash Proceeds to Hilton Worldwide Finance LLC, a Delaware limited liability company ( HWF ) qualifies as a distribution under Section 301 of the Code from OpCo to HLT, (vi) any distribution by PK of Cash Proceeds to HWF qualifies first as a payment in respect of Tax liabilities allocable to PK or one of its Subsidiaries under Treasury Regulations Section 1.1552-1(b) (or any corresponding provisions under U.S. state or local Law), in each case to the extent of any such Tax liabilities, and second as a distribution under Section 301 of the Code from PK to HLT and (vii) each of the distributions by HLT of all of the PK Common Stock (the PK Distribution ) and HGV Common Stock (the HGV Distribution and together with the PK Distribution, the External Distributions ) qualifies as a tax-free distribution within the meaning of Section 355 of the Code (collectively, the Intended Tax Treatment ); and
WHEREAS, in connection with the Plan of Reorganization, the Parties desire to set forth their agreement on the rights and obligations with respect to handling and allocating Taxes and related matters.
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, each of the Parties mutually covenant and agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions . As used in this Agreement, the following terms shall have the following meanings:
(1) Acquisition means an acquisition for purposes of Section 355(e) of the Code of stock of PK, or issuance by PK of any options or other instruments that grant the holder a right (including if PK has a right to settle the obligation with property other than PK stock) to complete such an acquisition. The terms Acquire and Acquired has a corresponding meaning. For purposes of determining whether and to what extent a transaction shall be taken into account for purposes of this definition, any recapitalization or other action resulting in a shift of voting power or any redemption or repurchase of shares of stock shall be treated as an indirect acquisition of shares of stock by the benefitted or non-exchanging stockholders.
(2) Active Business means each of (a) the Ownership Business, the HLT Retained Business and the Timeshare Business, in each case taken as a whole, (b) the Select Hotels Business taken as a whole (or any hotel included therein) and (c) the Hotel Laundry Business taken as a whole (or any laundry facility included therein).
2
(3) Affiliate means a Person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. For purposes hereof, none of the Parties or their respective Subsidiaries shall be considered an Affiliate of any of the other Parties or their respective Subsidiaries (determined on the same basis). For the avoidance of doubt, for purposes hereof, neither The Blackstone Group L.P. (nor any of its Affiliates) shall be considered an Affiliate of any Party or its Subsidiaries.
(4) Agreement has the meaning set forth in the preamble hereto.
(5) Agreement Dispute has the meaning set forth in Section 12.1.
(6) Ancillary Agreements has the meaning set forth in the Distribution Agreement.
(7) Assets has the meaning set forth in the Distribution Agreement.
(8) Audit means any audit, assessment of Taxes, other examination by or on behalf of any Taxing Authority (including notices), proceeding, or appeal of such a proceeding relating to Taxes, whether administrative or judicial, including proceedings relating to competent authority determinations initiated by a Party or any of its Subsidiaries.
(9) Audit Management Party means the Party responsible for administering and controlling an Audit pursuant to Section 8.2(a)(i) or (b)(ii).
(10) Audit Representative means the chief tax officer of each Party (or such other officer of a Party that may be designated by that Partys Chief Financial Officer from time to time).
(11) Big Four Accounting Firm means each of Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP.
(12) Blackstone Entity has the meaning set forth in the Stockholders Agreement.
(13) Blackstone-PK Applicable Percentage has the meaning set forth in the Stockholders Agreement.
(14) Blackstone-PK Percentage Shift Limit has the meaning set forth in the Stockholders Agreement.
(15) Blackstone Representative has the meaning set forth in the Stockholders Agreement.
(16) Board has the meaning set forth in the recitals hereto.
(17) Business Day means any day other than a Saturday, Sunday or a day on which banks are required to be closed in New York, New York.
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(18) Cash Proceeds means (i) the cash proceeds received by PK as partial consideration for the Internal Contribution to OpCo, (ii) the cash proceeds received by HWF from OpCo after the Internal Distribution of OpCo stock, (iii) any cash proceeds received by HWF from PK before the PK Distribution as part of the Plan of Reorganization and (iv) the cash proceeds received by HLT from HGV before the HGV Distribution, as the context requires.
(19) Claiming Party has the meaning set forth in Section 11.2(b).
(20) Code has the meaning set forth in the recitals hereto.
(21) Debt Exchanges means (i) OpCo issuing debt instruments to PK as partial consideration for the Internal Contribution to OpCo and PK using such debt instruments to satisfy some or all of the debt owed by PK to Hilton HHonors Worldwide, L.L.C., and (ii) HGV issuing debt instruments to PK as partial consideration for the Internal Contribution to HGV and PK using such debt instruments to satisfy some or all of the mortgage debt owed by PK and secured by a hotel in Bonnet Creek, Florida.
(22) Delaware Courts has the meaning set forth in Section 13.15.
(23) Distribution or Distributions means, individually or collectively, the Internal Distributions and the External Distributions.
(24) Distribution Agreement means the Distribution Agreement by and among HLT, PK, HGV and OpCo dated as of .
(25) Distribution Date means the date on which the Distributions to holders of record of shares of HLT Common Stock of the HGV Common Stock and the PK Common Stock owned by HLT are effectuated pursuant to the Distribution Agreement.
(26) Distribution Taxes mean any and all U.S. federal, state and local Income Taxes required to be paid by or imposed on a Party or any of its Affiliates resulting from, or directly arising in connection with, the failure of any Internal Contribution, any Distribution, any receipt of Cash Proceeds, or any Debt Exchange to qualify for the Intended Tax Treatment (or the failure to qualify under or the application of corresponding provisions of the Laws of U.S. state or local jurisdictions).
(27) Due Date means the date (taking into account all valid extensions) upon which a Tax Return is required to be filed with or Taxes are required to be paid to a Taxing Authority, whichever is applicable.
(28) Effective Time has the meaning set forth in the Distribution Agreement.
(29) Escrow Account has the meaning set forth in Section 6.4.
(30) Expense Amount has the meaning set forth in Section 6.4.
(31) Expense Amount Accountants Letter has the meaning set forth in Section 6.4.
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(32) Expense Amount Tax Opinion has the meaning set forth in Section 6.4.
(33) External Distribution has the meaning set forth in the recitals hereto.
(34) Fault for Distribution Purposes has the meaning set forth in Section 5.2.
(35) Final Determination means the final resolution of liability for any Tax for any taxable period, by or as a result of:
(a) a final decision, judgment, decree or other order by any court of competent jurisdiction that can no longer be appealed to a court other than the Supreme Court of the United States;
(b) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of other jurisdictions, which resolves the liability for the Taxes addressed in such agreement for any taxable period;
(c) any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund or credit may be recovered by the jurisdiction imposing the Tax; or
(d) any other final disposition, including by reason of the expiration of the applicable statute of limitations.
(36) Group means the HLT Group, the PK Group, or the HGV Group.
(37) HGV has the meaning set forth in the preamble hereto.
(38) HGV Allocable Audit Portion means the amount, determined by HLT in its good faith discretion, equal to the product of (a) the amount of any Taxes attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date that are not reported on a Tax Return filed for such periods, and (b) a fraction (i) the numerator of which is the additional Taxes that would be due and payable determined on a separate basis for the Timeshare Assets or the Timeshare Business, and (ii) the denominator of which is the sum of the additional Taxes that would be due and payable determined on a separate basis for each of the HLT Retained Assets or the HLT Retained Business, the Ownership Assets or the Ownership Business, and the Timeshare Assets or the Timeshare Business, respectively. For purposes of this determination, any Distribution Taxes, Specified Audit Taxes or Restructuring Taxes incurred shall be deemed not to have been incurred, regardless of which entity incurs such Taxes.
(39) HGV Common Stock has the meaning set forth in the recitals hereto.
(40) HGV Distribution has the meaning set forth in the recitals hereto.
(41) HGV Group has the meaning set forth in the Distribution Agreement.
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(42) HGV Straddle Income Tax Returns means any Income Tax Return required under applicable Law to be filed by any member of the HGV Group for a Straddle Tax Period.
(43) HLT has the meaning set forth in the preamble hereto.
(44) HLT Allocable Audit Portion means the amount, determined by HLT in its good faith discretion, equal to the product of (a) the amount of any Taxes attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date that are not reported on a Tax Return filed for such periods, and (b) a fraction (i) the numerator of which is the additional Taxes that would be due and payable determined on a separate basis for the HLT Retained Assets or the HLT Retained Business, and (ii) the denominator of which is the sum of the additional Taxes that would be due and payable determined on a separate basis for each of the HLT Retained Assets or the HLT Retained Business, the Ownership Assets or the Ownership Business, and the Timeshare Assets or the Timeshare Business, respectively. For purposes of this determination, any Distribution Taxes, Specified Audit Taxes or Restructuring Taxes incurred shall be deemed not to have been incurred, regardless of which entity incurs such Taxes.
(45) HLT Combined Income Tax Return means any U.S. federal, state, local or foreign consolidated, combined, unitary or similar Income Tax Return that actually includes, by election or otherwise, one or more members of the HLT Group together with one or more members of either the PK Group or the HGV Group.
(46) HLT Common Stock has the meaning set forth in the recitals hereto.
(47) HLT Group has the meaning set forth in the Distribution Agreement.
(48) HLT Retained Assets has the meaning set forth in the Distribution Agreement and shall include any Assets owned leased or licensed by HLT or its current or prior Subsidiaries at any time (whether or not owned, leased or licensed by HLT or its Subsidiaries at or prior to the Effective Time) that related primarily to, were used primarily in, or arose primarily from, the HLT Retained Business.
(49) HLT Retained Business has the meaning set forth in the Distribution Agreement.
(50) HLT Retained Liabilities has the meaning set forth in the Distribution Agreement.
(51) HLT Straddle Income Tax Returns means any Income Tax Return required under applicable Law to be filed by any member of the HLT Group for a Straddle Tax Period.
(52) Hotel Laundry Business means the component of the Ownership Business involving the management and operation of commercial laundry facilities servicing hotels, located in Portage, Indiana, Piscataway, New Jersey and Portland, Oregon.
(53) HWF has the meaning set forth in the recitals hereto.
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(54) Implementing Agreement means any agreement the primary purpose of which is to implement one or more steps described in the Reorganization Slide Deck.
(55) Income Taxes mean:
(a) all Taxes based upon, measured by, or calculated with respect to (i) net income or profits (including, but not limited to, any capital gains, minimum tax or any Tax on items of tax preference, but not including sales, use, real, or personal property, gross or net receipts, value added, excise, leasing, transfer or similar Taxes), or (ii) multiple bases (including, but not limited to, corporate franchise, doing business and occupation Taxes) if one or more bases upon which such Tax is determined is described in clause (a)(i) above; and
(b) all U.S., state, local or non-U.S. franchise Taxes.
(56) Income Tax Returns mean all Tax Returns that relate to Income Taxes.
(57) Indemnified Party means the Party which is or may be entitled pursuant to this Agreement to receive any payments (including reimbursement for Taxes or costs and expenses) from another Party or Parties to this Agreement.
(58) Indemnifying Party means the Party which is or may be required pursuant to this Agreement to make indemnification or other payments (including reimbursement for Taxes and costs and expenses) to another Party to this Agreement.
(59) Intended Tax Treatment has the meaning set forth in the recitals hereto.
(60) Internal Contribution has the meaning set forth in the recitals hereto.
(61) Internal Distribution has the meaning set forth in the recitals hereto.
(62) IRS means the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives, and attorneys.
(63) IRS Ruling means that certain IRS private letter ruling, dated February 24, 2016, delivered to HLT and addressing, among other things, certain issues relevant to the tax-free treatment of the Distributions, together with the requests submitted to the IRS for such private letter ruling and any supplemental materials submitted to the IRS relating thereto.
(64) Law means any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, administrative pronouncement, order, requirement or rule of law (including common law), or any income tax treaty.
(65) LIBOR has the meaning set forth in the Distribution Agreement.
(66) Losses has the meaning assigned to the term Indemnifiable Losses in the Distribution Agreement.
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(67) Majority of the Parties means the consent of at least two of the Parties.
(68) Negotiation Period has the meaning set forth in Section 12.1.
(69) Non-Income Tax Returns mean all Tax Returns other than Income Tax Returns.
(70) Nonqualifying Income shall mean any amount that is treated as gross income for purposes of Section 856 of the Code and which is not Qualifying Income.
(71) OpCo has the meaning set forth in the preamble hereto.
(72) Ownership Assets has the meaning set forth in the Distribution Agreement and shall include any Assets owned leased or licensed by HLT or its current or prior Subsidiaries at any time (whether or not owned, leased or licensed by HLT or its Subsidiaries at or prior to the Effective Time) that related primarily to, were used primarily in, or arose primarily from, the Ownership Business.
(73) Ownership Business has the meaning set forth in the Distribution Agreement.
(74) Ownership Liabilities has the meaning set forth in the Distribution Agreement.
(75) Participating Party has the meaning set forth in Section 8.2(c)(i).
(76) Party has the meaning set forth in the preamble hereto.
(77) Paying Party has the meaning set forth in Section 2.3(b).
(78) Person means any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership, or other organization or entity, whether incorporated or unincorporated, or any governmental entity.
(79) PK has the meaning set forth in the preamble hereto.
(80) PK Allocable Audit Portion means the amount, determined by HLT in its good faith discretion, equal to the product of (a) the amount of any Taxes attributable to a Pre-Distribution Tax Period or the portion of a Straddle Tax Period ending on the Distribution Date that are not reported on a Tax Return filed for such periods, and (b) a fraction (i) the numerator of which is the additional Taxes that would be due and payable determined on a separate basis for the Ownership Assets or the Ownership Business, and (ii) the denominator of which is the sum of the additional Taxes that would be due and payable determined on a separate basis for each of the HLT Retained Assets or the HLT Retained Business, the Ownership Assets or the Ownership Business, and the Timeshare Assets or the Timeshare Business, respectively. For purposes of this determination, any Distribution Taxes, Specified Audit Taxes or Restructuring Taxes incurred shall be deemed not to have been incurred, regardless of which entity incurs such Taxes.
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(81) PK Applicable Percentage means the percentage shift in ownership equal to the greater of (a) the percentage determined by dividing (i) the value of all shares of PK stock (as of immediately after the Distribution) Acquired pursuant to one or more PK Issuances of PK stock occurring on or after the Distribution Date by (ii) the value of all outstanding stock of PK as of immediately after the Distribution, or (b) the percentage determined by dividing (i) the total combined voting power of all shares of PK stock (as of immediately after the Distribution) Acquired pursuant to one or more PK Issuances occurring on or after the Distribution Date by (ii) the total combined voting power of all outstanding stock of PK as of immediately after the Distribution. The amount set forth in (a)(ii) or (b)(ii) shall be reduced by any redemption or repurchase (directly or indirectly) by PK (or its Subsidiaries) of PK Common Stock following the Distribution and prior to the last such PK Issuance (with such reduction calculated in the case of (a)(ii) using the value of the applicable stock as of immediately after the Distribution). This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.
(82) PK Common Stock has the meaning set forth in the recitals hereto.
(83) PK Percentage Shift Limit means 8.34%, as adjusted from time to time by mutual written consent of the Blackstone Representative and PK or under Section 5.4(f) or (g); provided , however , that the sum of the Blackstone-PK Percentage Shift Limit and the PK Percentage Shift Limit immediately after such adjustments must equal such sum immediately before such adjustments; provided further , that if PK has actual knowledge that the Blackstone-PK Applicable Percentage exceeds the Blackstone-PK Percentage Shift Limit, the PK Percentage Shift Limit shall be reduced by such excess (without prejudice to any rights or remedies PK or any other Party may have).
(84) PK Group has the meaning set forth in the Distribution Agreement.
(85) PK Issuance has the meaning set forth in Section 5.4(a).
(86) PK Straddle Income Tax Returns means any Income Tax Return required under applicable Law to be filed by any member of the PK Group for a Straddle Tax Period.
(87) Plan of Reorganization has the meaning set forth in the recitals hereto.
(88) Post-Distribution Income Tax Returns mean, collectively, all Income Tax Returns required to be filed by a Party or its Affiliates for a Post-Distribution Tax Period.
(89) Post-Distribution Payment Tax Benefit has the meaning set forth in Section 11.2(b).
(90) Post-Distribution Ruling has the meaning set forth in Section 5.3.
(91) Post-Distribution Tax Period means a Tax period beginning and ending after the Distribution Date.
(92) Pre-Distribution Income Tax Returns mean, collectively, all Income Tax Returns required to be filed by a Party or its Affiliates for a Pre-Distribution Tax Period.
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(93) Pre-Distribution Tax Period means a Tax period beginning and ending on or before the Distribution Date.
(94) Preparing Party has the meaning set forth in Section 2.3(b).
(95) Proposed Acquisition Transaction means a transaction or series of transactions (i) as a result of which any of the Parties would merge or consolidate with any other Person, or (ii) as a result of which any Person or any group of Persons would (directly or indirectly) acquire, or have the right to acquire (through an option or otherwise), from any of the Parties or any of their Affiliates and/or one or more holders of their stock, respectively, any amount of stock of any of the Parties that would, when combined with any other changes in ownership of the stock of such Party, result in a shift of more than forty-nine percent (49%) of (a) the value of all outstanding shares of stock of such Party as of the date of the Distribution, or (b) the total combined voting power of all outstanding shares of voting stock of such Party as of the date of the Distribution. Notwithstanding the foregoing, a Proposed Acquisition Transaction shall not include the adoption by a Party of, or the issuance of stock pursuant to, a stockholder rights plan. For purposes of the preceding sentence, the total value or total combined voting power of all HLT Common Stock, PK Common Stock or HGV Common Stock, as applicable, issued and outstanding immediately after the Distribution shall be reduced by any redemption or repurchase (directly or indirectly) by a Party (or any of its Affiliates) of HLT Common Stock, PK Common Stock or HGV Common Stock, as applicable, following the Distribution. For purposes of determining whether and to what extent a transaction constitutes an indirect acquisition for purposes of the first sentence of this definition, any recapitalization or other action resulting in a shift of voting power or any redemption or repurchase of shares of stock shall be treated as an indirect acquisition of shares of stock by the benefitted or non-exchanging stockholders. Notwithstanding the two previous sentences, the effect of any such recapitalization, other action, or redemption or repurchase (directly or indirectly) of shares shall take into account any applicable IRS private letter ruling received by one or more of the Parties with respect thereto. This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.
(96) Protected REIT shall mean any entity that (i) has elected to be taxed as a REIT and (ii) either (a) is an Indemnified Party or (b) owns a direct or indirect equity interest in any Indemnified Party and is treated for purposes of Section 856 of the Code as owning all or a portion of the assets of such Indemnified Party or as receiving all or a portion of such Indemnified Partys income.
(97) Qualified Tax Advisor means any Big Four Accounting Firm or any law firm of nationally recognized standing.
(98) Qualifying Income shall mean gross income that is described in Section 856(c)(3) of the Code.
(99) Reallocation Event has the meaning set forth in the Stockholders Agreement.
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(100) Reallocation Event Reduction has the meaning set forth in the Stockholders Agreement.
(101) REIT shall mean any a real estate investment trust within the meaning of Section 856(a) of the Code.
(102) REIT Qualification Ruling has the meaning set forth in Section 6.4.
(103) REIT Requirements shall mean the requirements imposed on REITs pursuant to Sections 856 through and including 860 of the Code.
(104) Release Document has the meaning set forth in Section 6.4.
(105) Reorganization Slide Deck means the Plan of Reorganization (as such term is used in the Distribution Agreement).
(106) Requesting Party shall have the meaning set forth in Section 5.3.
(107) Restricted Period means the period beginning at the Effective Time and ending on the two-year anniversary of the day after the Distribution Date.
(108) Restructuring Tax means any Tax, other than any Distribution Tax, required to be paid by or imposed on a Party or any of its Affiliates, imposed directly in connection with transactions contemplated by the Plan of Reorganization, the Reorganization Slide Deck or the Implementing Agreements, in each case undertaken before or at the same time as any of the Distributions.
(109) Select Hotels Business means the component of the Ownership Business involving the day-to-day management and operation by PK of (i) the Hilton Garden Inn in El Segundo, California, (ii) the Hampton Inn & Suites in Memphis, Tennessee, (iii) the Hilton Garden Inn Chicago/Oakbrook Terrace, and (iv) the Hilton Chicago/Oakbrook Suites.
(110) Specified Audit Taxes has the meaning set forth in Section 8.3(b).
(111) Stockholders Agreement means that certain Stockholders Agreement by and among HLT, HGV and the Blackstone Entities party thereto dated as of .
(112) Sharing Percentages means, with respect to HLT, sixty-five percent (65%), with respect to PK, twenty-six percent (26%), and with respect to HGV, nine percent (9%).
(113) Simpson means Simpson Thacher & Bartlett LLP.
(114) Straddle Tax Period means a Tax period beginning before the Distribution Date and ending after the Distribution Date.
(115) Subsidiary has the meaning set forth in the Distribution Agreement.
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(116) Tax or Taxes means (i) all taxes, charges, fees, imposts, levies or other assessments, including all net income, gross receipts, capital, sales, use, gains, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, property and estimated taxes, custom duties, fees, assessments and charges of any kind whatsoever, and (ii) liability for the payment of any amount of the type described in clause (i) above arising as a result of being (or having been) a member of any group or being (or having been) included or required to be included in any Tax Return related thereto. Whenever the term Tax or Taxes is used it shall include penalties, fines, additions to tax and interest thereon.
(117) Tax Attributes mean for U.S. federal, state, local, and non-U.S. Income Tax purposes, earnings and profits, tax basis, net operating and capital loss carryovers or carrybacks, alternative minimum Tax credit carryovers or carrybacks, general business credit carryovers or carrybacks, income tax credits or credits against income tax, disqualified interest and excess limitation carryovers or carrybacks, overall foreign losses, research and experimentation credit base periods, and all other items that are determined or computed on an affiliated group basis (as defined in Section 1504(a) of the Code determined without regard to the exclusion contained in Section 1504(b)(3) of the Code), or similar Tax items determined under applicable Tax law.
(118) Tax Benefit Actually Realized means with respect to a Party and its Subsidiaries a reduction in the amount of Taxes that are required to be paid or an increase in refund due, whether resulting from a deduction, from reduced gain or increased loss from disposition of an asset, or otherwise, such reduction or increase in refund due determined on an actually realized basis. For purposes of this definition, a Party or its Subsidiaries will be deemed to have actually realized such reduction or increase in refund due at the time the amount of Taxes such Party or any of its Subsidiaries is required to pay is reduced or the amount of any refund due is increased. The amount of any Tax Benefit Actually Realized shall be computed on a with and without basis.
(119) Taxing Authority means any governmental authority or any subdivision, agency, commission, or authority thereof or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection, or imposition of any Tax (including the IRS).
(120) Tax Opinions mean certain Tax opinions and supporting memoranda rendered by Simpson or KPMG to HLT or any of its Affiliates in connection with the Plan of Reorganization.
(121) Tax Package means Tax data and information relating to the operations of PK, HGV and/or their respective Subsidiaries, the Ownership Business (in the case of PK), or the Timeshare Business (in the case of HGV) that is reasonably necessary to prepare and file any Pre-Distribution Income Tax Return, HLT Straddle Income Tax Return, PK Straddle Income Tax Return, or HGV Straddle Income Tax Return, as applicable.
(122) Tax Representation Letter means any letter containing certain representations and covenants issued by HLT or any of its Affiliates to Simpson or KPMG in connection with the Tax Opinions.
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(123) Tax Returns mean any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, amended tax return, claim for refund, or declaration of estimated Tax) required to be supplied to, or filed with, a Taxing Authority in connection with the determination, assessment or collection of any Tax or the administration of any Laws, regulations, or administrative requirements relating to any Taxes.
(124) Tax Sharing Agreement has the meaning set forth in Section 8.3(c).
(125) Timeshare Assets has the meaning set forth in the Distribution Agreement and shall include any Assets owned leased or licensed by HLT or its current or prior Subsidiaries at any time (whether or not owned, leased or licensed by HLT or its Subsidiaries at or prior to the Effective Time) that related primarily to, were used primarily in, or arose primarily from, the Timeshare Business.
(126) Timeshare Business has the meaning set forth in the Distribution Agreement.
(127) Timeshare Liabilities has the meaning set forth in the Distribution Agreement.
(128) Treasury Regulations mean the income tax and administrative regulations promulgated from time to time under the Code, as in effect for the relevant Tax Period.
(129) Unqualified 355(e) Opinion means, with respect to an PK Issuance or Reallocation Event, an unqualified will opinion of a Qualified Tax Advisor addressed to HLT and in form and substance reasonably satisfactory to HLT, without substantive qualifications, to the effect that such PK Issuance or Reallocation Event (including any future PK Issuance of stock pursuant to an option or other instrument that grants the holder a right (including if PK has a right to settle the obligation with property other than PK stock) to complete an Acquisition) will not be part of a plan (or series of related transactions) within the meaning of Section 355(e) of the Code involving the Distributions.
(130) Unqualified Tax Opinion means an unqualified will opinion of a Qualified Tax Advisor, in form and substance reasonably acceptable to each of applicable Parties (other than OpCo) and upon which each of the applicable Parties (other than OpCo) may rely to confirm that a transaction (or transactions) will not result in Distribution Taxes.
(131) U.S. means the United States of America.
Section 1.2 References; Interpretation . Terms not otherwise defined herein shall have the meaning ascribed to them in the Distribution Agreement. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words include, includes, and including when used in this Agreement shall be deemed to be followed by the phrase without limitation. Unless the context otherwise requires, references in this Agreement to Articles, Sections and Schedules shall be deemed references to Articles and Sections of, and Schedules to, this Agreement. Unless the context otherwise requires, the words hereof, hereby, and herein and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. Unless the context otherwise requires, the word stock or shares refers to any equity interests of the applicable entity for U.S. federal income tax purposes and any references to a Person include a reference to any successor to such Person.
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Section 1.3 Effective Time . Notwithstanding that certain interrelated and intermediate internal transactions must be given effect prior to the Distributions, the agreements contained herein, including, but not limited to, the manner in which Taxes are shared amongst the Parties, shall be effective no earlier than and only upon the Effective Time.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.1 Responsibility of HLT to Prepare and File Tax Returns .
(a) General . To the extent not previously filed and subject to the rights and obligations of each of the Parties set forth herein, HLT shall prepare or cause to be prepared all (i) Pre-Distribution Income Tax Returns, and (ii) HLT Straddle Income Tax Returns. HLT shall file or cause to be filed all such Tax Returns with the applicable Taxing Authority to the extent a member of the HLT Group is responsible under applicable Law for filing such Tax Returns, and the other Parties shall cooperate (or cause their Subsidiaries to cooperate) in the filing of such Tax Returns to the extent a member of their Group is responsible for filing such Tax Returns under applicable Law. To the extent any member of the PK Group or the HGV Group could be liable after the Distribution Date for Taxes with respect to such Tax Returns (taking into account any provision under this Agreement), HLT shall be required to prepare such Tax Returns in a manner consistent with the past practice of HLT and its Affiliates (unless otherwise modified by a Final Determination or required by applicable Law); provided , however , that HLT shall be permitted to claim the maximum U.K. tax deductions or other tax reliefs available in the U.K. Tax Returns, including but not limited to capital allowances as provided for in the Capital Allowances Act 2001 and other related U.K. tax legislation. All Tax Returns filed under this Section 2.1 shall be filed in a manner consistent with (and the Parties and their Affiliates shall not take any position inconsistent with) the IRS Ruling, the Tax Representation Letters, and the Tax Opinions. Subject to the foregoing standards, HLT shall have the right with respect to any Tax Return filed under this Section 2.1, to determine: (a) except as provided in Section 10.2, the manner in which such Tax Return will be prepared and filed, including the elections, method of accounting, positions, conventions, and principles of taxation to be used and the manner in which any Tax item will be reported; (b) whether any extensions may be requested; and (c) except as provided in Section 10.2, the elections that will be made by HLT, any member of the HLT Group, any member of the PK Group, or any member of the HGV Group on such Tax Return.
(b) Tax Package . To the extent not previously provided, PK and HGV shall (at their own cost and expense), to the extent that a Pre-Distribution Income Tax Return or HLT Straddle Income Tax Return includes items of that Party or its Affiliates, the Ownership Business (in the case of PK), or the Timeshare Business (in the case of HGV), prepare and provide or cause to be prepared and provided to HLT a Tax Package relating to such Tax Return. Such Tax Package shall be provided in a timely manner. In the event a Party does not fulfill its obligations pursuant to this Section 2.1(b), HLT shall be entitled, at the sole cost and expense of such Party, to prepare or cause to be prepared the information required to be included in the Tax Package for purposes of preparing any such Tax Returns.
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Section 2.2 Responsibility of Parties to Prepare and File PK Straddle Income Tax Returns and HGV Straddle Income Tax Returns .
(a) General . Subject to the rights and obligations of each of the Parties set forth herein, PK shall prepare or cause to be prepared all PK Straddle Income Tax Returns and HGV shall prepare or cause to be prepared all HGV Straddle Income Tax Returns required to be filed after the Distribution Date. PK shall file or cause to be filed all such PK Straddle Income Tax Returns with the applicable Taxing Authority, and HGV shall file or cause to be filed all such HGV Straddle Income Tax Returns with the applicable Taxing Authority. All such Tax Returns shall be prepared in a manner: (i) consistent with the past practice of the Parties and their Affiliates unless otherwise modified by a Final Determination or required by applicable Law; (ii) consistent with (and the Parties and their Affiliates shall not take any position inconsistent with) the IRS Ruling, the Tax Representation Letters, and the Tax Opinions; and (iii) consistent with any Pre-Distribution Income Tax Returns; provided , however , that PK and HGV shall file or cause to be filed any such U.K. Tax Returns in a manner consistent with any elections or claims made in respect of group relief, as provided for in Part 5 of the Corporation Act 2010, from HLT and its Subsidiaries, subject to the grant of consent to surrender such group relief, and shall claim or cause to be claimed the maximum amount of group relief available for U.K. Tax purposes with respect to such Tax Returns, after claiming the maximum available group relief within their own respective U.K. groups.
(b) Tax Package . To the extent not previously provided, HLT shall (at its own cost and expense), prepare and provide or cause to be prepared and provided to PK and HGV a Tax Package relating to any PK Straddle Income Tax Return (in the case of PK) or HGV Straddle Income Tax Return (in the case of HGV). Such Tax Package shall be provided in a timely manner. In the event HLT does not fulfill its obligations pursuant to this Section 2.2(b), PK or HGV, as applicable, shall be entitled, at the sole cost and expense of HLT, to prepare or cause to be prepared the information required to be included in the Tax Package for purposes of preparing any such PK Straddle Income Tax Return or HGV Straddle Income Tax Return.
(c) Procedures Relating to the Preparation and Filing of PK Straddle Income Tax Returns and HGV Straddle Income Tax Returns .
(i) PK (in the case of PK Straddle Income Tax Returns required to be filed after the Distribution Date) and HGV (in the case of HGV Straddle Income Tax Returns required to be filed after the Distribution Date) shall, no later than thirty (30) days prior to the Due Date of each such Tax Return (reduced to twenty (20) days for state or local Tax Returns), shall make available or cause to be made available drafts of such Tax Returns to HLT. HLT shall have access to any and all data and information reasonably necessary for its review of all such Tax Returns, and PK or HGV (as the case may be) shall cooperate fully in the preparation and review of such Tax Returns. Subject to the preceding sentence, no later than fifteen (15) days after receipt of such Tax Returns (reduced to five (5) days for state or local Tax Returns), HLT shall have a right to object to such PK Straddle Income Tax Return or such HGV Straddle Income Tax Return (or, in each case, items with respect thereto) by written notice to PK or HGV (as applicable); such written notice shall contain such disputed item (or items) and the basis for its objection.
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(ii) With respect to a PK Straddle Income Tax Return or HGV Straddle Income Tax Return submitted by PK or HGV (as applicable) to HLT pursuant to Section 2.2(c)(i), if HLT does not object by proper written notice within the time period described, such Tax Return shall be deemed to have been accepted and agreed upon, and to be final and conclusive, for purposes of this Section 2.2(c)(ii). If HLT does object by proper written notice within such applicable time period, PK or HGV (as applicable) shall reflect HLTs comments on such Tax Return; provided , however , that PK or HGV (as applicable) shall not be required to reflect comments to the extent such comments are inconsistent with the standards set forth in Section 2.2(a). The Parties shall act in good faith to resolve any such dispute as promptly as practicable. If the Parties have not reached a final resolution with respect to all disputed items for which proper written notice was given within ten (10) days prior to the Due Date for such Tax Return, then any disputed issues shall be submitted to an Big Four Accounting Firm (excluding any firm involved in preparing such Tax Return) mutually agreed by the Parties for a final binding resolution.
Section 2.3 Responsibility of Parties to Prepare and File Post-Distribution Income Tax Returns and Non-Income Tax Returns .
(a) General . The Party or its Affiliate responsible under applicable Law for filing a Post-Distribution Income Tax Return or a Non-Income Tax Return (in each case required to be filed after the Distribution Date) shall prepare and file or cause to be prepared and filed that Tax Return (at that Partys own cost and expense). All such Tax Returns shall be filed in a manner (i) consistent with (and the Parties and their Affiliates shall not take any position inconsistent with) the IRS Ruling, the Tax Representation Letters, and the Tax Opinions and (ii) consistent with any (1) in the case of any Post-Distribution Income Tax Return, any Pre-Distribution Income Tax Returns and (2) in the case of any Non-Income Tax Return, consistent with past practice.
(b) Procedures Relating to the Preparation and Filing of Non-Income Tax Returns.
(i) If the Party responsible for paying any Taxes shown on a Non-Income Tax Return set forth on Schedule 2.3 (the Paying Party ) is different from the Party responsible for preparing such Non-Income Tax Return under Section 2.3(a) (the Preparing Party ), the Preparing Party shall, no later than thirty (30) days prior to the Due Date of each such Tax Return, shall make available or cause to be made available drafts of such Non-Income Tax Return to the Paying Party. The Paying Party shall have access to any and all data and information reasonably necessary for its review of all such Non-Income Tax Return, and the Preparing Party shall cooperate fully in the preparation and review of such Non-Income Tax Return. Subject to the preceding sentence, no later than fifteen (15) days after receipt of such Non-Income Tax Return, the Paying Party shall have a right to object to such Non-Income Tax Return (or items with respect thereto) by written notice to the Preparing Party; such written notice shall contain such disputed item (or items) and the basis for its objection.
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(ii) With respect to a Non-Income Tax Return submitted by the Preparing Party to the Paying Party pursuant to Section 2.3(b)(i), if the Paying Party does not object by proper written notice within the time period described, such Non-Income Tax Return shall be deemed to have been accepted and agreed upon, and to be final and conclusive, for purposes of this Section 2.3(b)(ii). If the Paying Party does object by proper written notice within such applicable time period, the Preparing Party shall reflect the Paying Partys comments on such Non-Income Tax Return; provided , however , that the Preparing Party shall not be required to reflect comments to the extent such comments are inconsistent with the standards set forth in Section 2.3(a). The Parties shall act in good faith to resolve any such dispute as promptly as practicable. If the Parties have not reached a final resolution with respect to all disputed items for which proper written notice was given within ten (10) days prior to the Due Date for such Non-Income Tax Return, then any disputed issues shall be submitted to an Big Four Accounting Firm (excluding any firm involved in preparing such Tax Return) mutually agreed by the Parties for a final binding resolution.
Section 2.4 Time of Filing Tax Returns . Each Tax Return shall be filed on or prior to the Due Date for such Tax Return by the Party responsible for filing such Tax Return hereunder.
Section 2.5 Costs and Expenses . The party responsible for preparing any Tax Return or Tax Package under Section 2.1, 2.2, or 2.3 shall be responsible for the costs and expenses associated with preparing such Tax Return or Tax Package.
ARTICLE III
RESPONSIBILITY FOR PAYMENT OF TAXES
Section 3.1 Responsibility for Payment of Taxes . Except as otherwise provided in this Agreement, each of HLT, PK and HGV shall be liable for and shall pay or cause to be paid the Taxes shown on the Tax Returns for which it has the responsibility to prepare under Article II to the applicable Taxing Authority.
Section 3.2 Reimbursement of Straddle Income Taxes and Restructuring Taxes . No later than five (5) Business Days prior to the relevant Due Date for Taxes described in Section 3.1, a member of the HLT Group shall pay HGV or PK, as applicable, an amount in immediately available funds equal to such Taxes to the extent they represent Restructuring Taxes shown on Tax Returns for which HGV or PK, as applicable, has responsibility to prepare under Article II or are Income Taxes shown on HGV Straddle Income Tax Returns or PK Straddle Income Tax Returns, as applicable, that relate to the portion of the relevant Straddle Tax Period (as determined under Section 10.2) ending on the Distribution Date. No later than five (5) Business Days prior to relevant Due Date for Taxes shown on Non-Income Tax Returns, the Parties (or members of their Group) shall make payments in immediately available funds to the other Parties for any Taxes for which the Paying Party is responsible pursuant to Schedule 2.3.
Section 3.3 Timing of Payments of Taxes . All Taxes required to be paid or caused to be paid by a Party to a Taxing Authority pursuant to this Article III shall be paid or caused to be paid by such Party on or prior to the Due Date of such Taxes. All amounts required to be paid by one Party to another Party pursuant to this Article III shall be paid or caused to be paid by such first Party to such other Party in accordance with Article VII.
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ARTICLE IV
REFUNDS, CARRYBACKS AND AMENDED TAX RETURNS
Section 4.1 Refunds .
(a) Each Party shall be entitled to refunds (including any similar credit or offset of Taxes) that relate to Taxes for which it is liable hereunder in accordance with Article III (taking into account Section 3.2), including any refunds (or similar credit or offset of Taxes) resulting from overpayments of estimated Taxes on or prior to the Distribution Date in respect of a Straddle Tax Period; provided , however , that each Party shall be entitled to refunds (including any similar credit or offset of Taxes) that relate to Taxes for which it was actually liable in accordance with Article V or Article VIII.
(b) Any refund or portion thereof to which a Party is entitled pursuant to this Section 4.1 that is received or deemed to have been received as described herein by another Party, shall be paid by such other Party to such first Party in immediately available funds in accordance with Article VII.
Section 4.2 Carrybacks . PK and HGV agree and will cause their Subsidiaries not to carry back any Tax Attribute for any taxable period ending after the Distribution Date to an HLT Combined Income Tax Return or any Pre-Distribution Income Tax Return, except as is required by applicable Law; provided that where such Tax Attribute is so required to be carried back, HLT shall reimburse PK or HGV, as applicable, for any Tax Benefit Actually Realized with respect to such Tax Attribute.
Section 4.3 Amended Tax Returns .
(a) Notwithstanding Sections 2.1 and 2.2, a Party or its Subsidiary that is entitled to file an amended Tax Return for a Pre-Distribution Tax Period or a Straddle Tax Period for members of its Group shall be permitted to prepare and file an amended Tax Return at its own cost and expense; provided , however , that (i) such amended Tax Return shall be prepared in a manner: (x) consistent with the past practice of the Parties and their Affiliates unless otherwise modified by a Final Determination or required by applicable Law; (y) consistent with (and the Parties and their Affiliates shall not take any position inconsistent with) the IRS Ruling, the Tax Representation Letters, and the Tax Opinions; and (z) consistent with any HLT Combined Income Tax Returns; and (ii) if such amended Tax Return could result in one or more other Parties becoming responsible for a payment of Taxes pursuant to Article III or a payment to a Party pursuant to Article VIII, such amended Tax Return shall be permitted only if the consent of such other Parties is obtained. The consent of such other Parties shall not be withheld unreasonably and shall be deemed to be obtained in the event that a Party or its Subsidiary is required to file an amended Tax Return as a result of an Audit adjustment that arose in accordance with Article VIII.
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(b) A Party or its Subsidiary that is entitled to file an amended Tax Return for a Post-Distribution Tax Period shall be permitted to do so without the consent of any Party.
(c) A Party that is permitted (or whose Subsidiary is permitted) to file an amended Tax Return shall not be relieved of any liability for payments pursuant to this Agreement notwithstanding that another Party consented thereto.
ARTICLE V
DISTRIBUTION TAXES
Section 5.1 Liability for Distribution Taxes . In the event that Distribution Taxes become due and payable to a Taxing Authority pursuant to a Final Determination or are paid in the reasonable good faith discretion of the relevant Audit Representative, then, notwithstanding anything to the contrary in this Agreement:
(a) No Fault . If such Distribution Taxes are not attributable to the Fault for Distribution Purposes of any Party or any of its Affiliates, the responsibility for such Distribution Taxes shall be shared by the Parties in accordance with their Sharing Percentages. Notwithstanding anything to the contrary in this Agreement, such Distribution Taxes shall not be subject to Article III or Section 8.3.
(b) Fault . If such Distribution Taxes are attributable to the Fault for Distribution Purposes of one or more Parties or any of their Affiliates, the responsibility for such Distribution Taxes shall reside with the Party or Parties at Fault for Distribution Purposes. If more than one Party is at Fault for Distribution Purposes, the responsibility for the Distribution Taxes shall be allocated equally among all of the Parties at Fault for Distribution Purposes. Notwithstanding anything to the contrary in this Agreement, such Distribution Taxes shall not be subject to Article III or Section 8.3.
Section 5.2 Definition of Fault for Distribution Purposes . For purposes of this Agreement, Distribution Taxes shall be deemed to result from the fault ( Fault for Distribution Purposes ) of a Party if such Distribution Taxes are attributable to, or result from:
(a) any act, or failure or omission to act, by such Party or any of such Partys Affiliates following the Distributions that results in one or more Parties (or any of their Affiliates) being responsible for such Distribution Taxes pursuant to a Final Determination, regardless of whether such act or failure to act (i) is covered by a Post-Distribution Ruling, Unqualified Tax Opinion, or waiver in accordance with Section 5.3, or (ii) occurs during or after the Restricted Period, or
(b) the direct or indirect acquisition of all or a portion of the stock of such Party (or any transaction or series of related transactions that is deemed to be such an acquisition for purposes of Section 355(e) of the Code and the Treasury Regulations promulgated thereunder) by any means whatsoever by any person including pursuant to an issuance or repurchase of stock by such Party or any of its Affiliates.
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Section 5.3 Limits on Proposed Acquisition Transactions and Other Transactions During Restricted Period . During the Restricted Period, neither PK nor HGV shall (or allow any of their respective Subsidiaries to take any such action with respect to PK or HGV):
(a) allow any Proposed Acquisition Transaction to occur with respect to PK or HGV (as applicable);
(b) merge or consolidate with any other Person or dissolve, liquidate or partially liquidate (other than a wholly owned Subsidiary of PK or HGV, as applicable, merging or consolidating with PK or HGV or another wholly owned Subsidiary of such PK or HGV, as applicable);
(c) approve or allow the discontinuance, cessation, or sale or other transfer (to an Affiliate or otherwise) of any Active Business by PK or HGV, as applicable, for purposes of Section 355 of the Code;
(d) sell or otherwise dispose of more than 35 percent (35%) of its consolidated gross or net assets or allow the sale or other disposition (to an Affiliate or otherwise) of more than 35 percent (35%) of the consolidated gross or net assets of PK or HGV (as applicable) (in each case, excluding sales in the ordinary course of business, sales the net cash proceeds (taking into account any Taxes payable) of which are reinvested in other assets (including pursuant to an exchange under Section 1031 of the Code) and sales the net cash proceeds (taking into account any Taxes payable) of which are used to repay indebtedness, and measured based on fair market values as of the date of the applicable Distribution or other transaction);
(e) amend its certificate of incorporation (or other organizational documents) or take any other action or approve or allow the taking of any action, whether through a stockholder vote or otherwise, in each case that affects the economic or voting rights of the stock of such Party (in each case, other than certain amendments to such certificates of incorporation to be made in connection with the transactions contemplated by that certain Stock Purchase Agreement dated as of October 24, 2016 among HNA Tourism Group Company Limited and the seller parties named therein);
(f) purchase, directly or through any Affiliate, any of its outstanding stock after the Distributions, other than through stock purchases meeting the requirements of Section 4.05(1)(b) of Revenue Procedure 96-30;
(g) take any action or fail to take any action, or permit any of its Affiliates to take any action or fail to take any action, that is inconsistent with the representations and covenants made in the IRS Ruling or in the Tax Representation Letters, or that is inconsistent with any rulings or opinions in the IRS Ruling or any Tax Opinion;
(h) in the case of PK, materially reduce the size or scope of the Select Hotels Business or the Hotel Laundry Business conducted by PKs separate affiliated group within the meaning of Section 355(b)(3)(B) of the Code;
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(i) in the case of PK, enter into an exchange pursuant to Section 1031 of the Code with respect to any of the assets comprising the Select Hotels Business or the Hotel Laundry Business; or
(j) enter into an arrangement or agreement to do any of the foregoing.
provided , however , that a Party (the Requesting Party ) shall be permitted to take such action or one or more actions set forth in the foregoing clauses (a) through (g) if such action is described in the Reorganization Slide Deck or if, prior to taking any such actions: (1) such Requesting Party or HLT shall have received a favorable private letter ruling from the IRS, or a ruling from another Taxing Authority (a Post-Distribution Ruling ), in form and substance reasonably satisfactory to HLT and upon which HLT, PK and HGV are entitled to rely that confirms that such action or actions will not result in Distribution Taxes, taking into account such actions and any other relevant transactions in the aggregate; (2) such Requesting Party shall have received an Unqualified Tax Opinion that confirms that such action or actions will not result in Distribution Taxes, taking into account such actions and any other relevant transactions in the aggregate; or (3) such Requesting Party shall have received a written statement from each of the other Parties that provides that such other Party waives the requirement to obtain a Post-Distribution Ruling or Unqualified Tax Opinion described in this paragraph. The Requesting Party shall bear all costs and expenses of securing any such Post-Distribution Ruling or Unqualified Tax Opinion.
Section 5.4 Certain Limitations on PK with Respect to its Stock .
(a) During the Restricted Period, PK may not issue any of its stock or take any action with respect to its stock that would cause an Acquisition (including redemptions or repurchases), or issue any options or other instruments that grant the holder a right (including if PK has a right to settle the obligation with property other than PK stock) to complete an Acquisition (any such issuance or other transaction, a PK Issuance ); provided that HGV shall have no right to enforce this Section 5.4(a) against PK.
(b) Notwithstanding Section 5.4(a), a PK Issuance shall be permitted if, immediately after such PK Issuance, the PK Applicable Percentage will be less than or equal to the PK Percentage Shift Limit.
(c) Notwithstanding Section 5.4(a), a PK Issuance shall be permitted where such PK Issuance (or the related issuance of stock in the case of an option issuance) is described in Treasury Regulations Section 1.355-7(d)(8) (other than a PK Issuance made in connection with a merger or other acquisition transaction by a third party; provided , that no PK Issuance will be deemed to be connected with an acquisition pursuant to a secondary sale for cash of PK stock by one or more Blackstone Entities in a public offering).
(d) Notwithstanding Section 5.4(a), a PK Issuance shall be permitted if PK provides an Unqualified 355(e) Opinion to HLT; provided, further, that in the case of a PK Issuance of stock pursuant to an exercise of an option or other instrument that grants the holder a right (including if PK has a right to settle the obligation with property other than PK stock) to complete such an acquisition, such PK Issuance shall be permitted if PK provided an Unqualified 355(e) Opinion to HLT in respect of the PK Issuance of such option or other instrument.
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(e) A PK Issuance which is permitted pursuant to Section 5.4(c) or (d) shall be disregarded for purposes of clauses (a)(i) and (b)(i) of the definition of PK Applicable Percentage.
(f) Upon a Reallocation Event with respect to PK stock, the Blackstone Representative, on the one hand, and PK, on the other, shall use reasonable efforts to allocate the Reallocation Event Reduction to and reduce the Blackstone-PK Percentage Shift Limit and/or PK Percentage Shift Limit. If the Blackstone Representative and PK do not agree on an allocation, the Reallocation Event Reduction shall first be allocated to and reduce the PK Percentage Shift Limit (but not below the PK Applicable Percentage as of the time of the Reallocation Event). Any excess Reallocation Event Reduction shall be allocated to and reduce the Blackstone-PK Percentage Shift Limit (but not below the Blackstone-PK Applicable Percentage as of the time of the Reallocation Event). For the avoidance of doubt, the sum (immediately before the Reallocation Event) of the Blackstone-PK Percentage Shift Limit and PK Percentage Shift Limit shall equal the sum (immediately after the Reallocation Event), of the Reallocation Event Reduction plus Blackstone-PK Percentage Shift Limit and PK Percentage Shift Limit. Notwithstanding anything to the contrary in this Section 5.4(f), if the Blackstone Representative or PK provides an Unqualified 355(e) Opinion with respect to a purported Reallocation Event to HLT, such purported Reallocation Event shall not constitute a Reallocation Event.
(g) During the Restricted Period, if a proposed PK Issuance is a redemption or repurchase, then, immediately before such PK Issuance, (i) the Blackstone-PK Percentage Shift Limit shall be increased or decreased (but not below the Blackstone-PK Applicable Percentage as of immediately before such PK Issuance) such that the number of shares permitted to be Disposed of under Section 2.2(a)(ii) of the Stockholders Agreement remains unchanged immediately after such PK Issuance (other than to reflect shares of PK actually redeemed or repurchased from the Blackstone Entities pursuant to such PK Issuance), and (ii) the PK Percentage Shift Limit shall be decreased (in the case of an increase in clause (i), but not below the PK Applicable Percentage as of immediately before such PK Issuance) or increased (in the case of a decrease in clause (i)) by the amount set forth in clause (i). If clause (ii) calls for a reduction in the PK Percentage Shift Limit and the amount of such reduction would be limited by the parenthetical therein, then, notwithstanding any other provision of this Agreement (including Section 5.4(d)), PK shall not undertake such PK Issuance without the written consent of the Blackstone Representative; provided that in the event the Blackstone Representative so consents, the amount of the increase set forth in (i) shall not exceed the amount of the decrease set forth in (ii). For the avoidance of doubt, a PK Issuance that satisfies the requirements of this Section 5.4(g) remains subject to the provisions of this Agreement, including, without limitation, this Section 5.4. For the avoidance of doubt, if a proposed PK Issuance is not consummated, the Blackstone-PK Percentage Shift Limit and PK Percentage Shift Limit shall not be adjusted pursuant to this Section 5.4(g) as a result of such proposed PK Issuance.
(h) For purposes of computing the (a) PK Applicable Percentage, (b) Blackstone-PK Applicable Percentage or (c) Reallocation Event Reduction, any calculation of the shift of ownership of PK under Section 355(e) shall take into account (i) any IRS private letter ruling received by one or more of HLT, PK, HGV and/or the Blackstone Entities and (ii) any unqualified will opinion of a Qualified Tax Advisor (or, with respect to an opinion delivered by HLT, should opinion) addressed to HLT and in form and substance reasonably satisfactory to HLT, without substantive qualifications, in each case addressing the manner in which the calculation of such shift is performed.
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(i) The provisions of this Section 5.4 are intended for the benefit of, and shall be enforceable by, each of the Blackstone Entities.
Section 5.5 IRS Ruling, Tax Representation Letters, and Tax Opinions; Consistency . Each Party represents that the information and representations furnished with respect to such Party or its Subsidiaries in or in connection with the IRS Ruling, the Tax Representation Letters, or the Tax Opinions are accurate and complete as of the Effective Time. Each Party covenants that if, after the Effective Time, it or any of its Affiliates obtains information indicating, or otherwise becomes aware, that any such information or representations is or may be inaccurate or incomplete, to promptly inform the other Parties.
Section 5.6 Timing of Payment of Taxes . All Distribution Taxes required to be paid or caused to be paid by a Party to a Taxing Authority under applicable Law shall be paid or caused to be paid by such Party on or prior to the Due Date of such Distribution Taxes. All amounts required to be paid by one Party to another Party (including obligations arising under Article VI) pursuant to this Article V shall be paid or caused to be paid by such first Party to such other Party in accordance with Article VII.
Section 5.7 Protective Section 336(e) Elections .
(a) PK, on the one hand, and each of OpCo and HGV, on the other, shall make a protective election under Section 336(e) of the Code (and any similar election under state or local law) with respect to the applicable Internal Distribution in accordance with Treasury Regulation Section 1.336-2(h) and (j) (and any applicable provisions under state and local law), and the Parties shall cooperate in the timely completion and/or filings of such elections and any related filings or procedures (including filing or amending any Tax Returns to implement an election that becomes effective). This Section 5.7(a) is intended to constitute binding, written agreements to make elections under Section 336(e) of the Code with respect to the Internal Distributions. If an election under Section 336(e) of the Code is unavailable to PK, on the one hand, and OpCo or HGV, on the other, in connection with the applicable Internal Distribution, PK and HLT shall (and shall cause their Affiliates to) cooperate in making an effective election under Section 338(h)(10) of the Code (and any similar election under state or local law) with respect to such applicable Internal Distribution and cooperate with respect to any related filings or procedures (including having PK and HLT file an election under Section 338(h)(10) of the Code under the relief provisions of Treasury Regulation Sections 301.9100-1, et. seq. and filing or amending any Tax Returns to implement an election that becomes effective).
(b) HLT and HGV shall make a protective election under Section 336(e) of the Code (and any similar election under state or local law) with respect to the HGV Distribution in accordance with Treasury Regulation Section 1.336-2(h) and (j) (and any applicable provisions under state and local law) and shall cooperate in the timely completion and/or filings of such elections and any related filings or procedures (including filing or amending any Tax Returns to implement an election that becomes effective). This Section 5.7(b) is intended to constitute a binding, written agreement to make an election under Section 336(e) of the Code with respect to the HGV Distribution.
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(c) HLT shall, within six (6) months of the Distribution Date, determine in its good faith discretion whether HLT and PK and/or any additional applicable parent and subsidiary entities shall make a protective election under Section 336(e) of the Code (and any similar election under state or local law) in accordance with Treasury Regulation Section 1.336-2(h) and (j) (and any applicable provisions under state and local law) with respect to the PK or the Subsidiaries of HLT immediately before the first of the External Distributions. If HLT so determines that HLT and PK and/or an applicable parent and subsidiary entity shall make a protective election under Section 336(e), the relevant Parties shall cooperate (and shall cause their respective Affiliates to cooperate) in the timely completion and/or filings of such elections and any related filings or procedures and any similar procedures or relief provisions with respect to Section 338(h)(10) of the Code in the event a protective election under Section 336(e) is not available with respect to an Internal Distribution. The Parties shall cooperate (and shall cause their respective Affiliates to cooperate) in causing HLT and PK and/or the applicable parent and subsidiary entities to enter into binding agreements to make such elections under Section 336(e) of the Code within twenty (20) days following such determination.
(d) Notwithstanding anything to the contrary herein, in the event that an election contemplated in Section 5.7 is made and becomes effective, then the Parties shall share in the Tax Benefit Actually Realized as a result of such election in accordance with the Parties relative responsibility for such Taxes under this Article V, and payments shall be made between the Parties, if necessary.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification Obligations of HLT . HLT and OpCo shall jointly and severally indemnify PK and its Affiliates and HGV and its Affiliates and hold the indemnified party harmless from and against (without duplication):
(a) all Taxes and other amounts for which the HLT Group is responsible under this Agreement and any related Losses; and
(b) all Taxes and Losses attributable to a breach of any representation, covenant, or obligation of HLT or OpCo under this Agreement.
Section 6.2 Indemnification Obligations of PK . PK shall indemnify OpCo and its Affiliates and HGV and its Affiliates and hold them harmless from and against (without duplication):
(a) all Taxes and other amounts for which the PK Group is responsible under this Agreement and any related Losses; and
(b) all Taxes and Losses attributable to a breach of any representation, covenant, or obligation of PK under this Agreement.
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Section 6.3 Indemnification Obligations of HGV . HGV shall indemnify HLT and its Affiliates and PK and its Affiliates and hold them harmless from and against (without duplication):
(a) all Taxes and other amounts for which the HGV Group is responsible under this Agreement and any related Losses; and
(b) all Taxes and Losses attributable to a breach of any representation, covenant or obligation of HGV under this Agreement.
Section 6.4 Protected REITs . Notwithstanding anything to the contrary in this Agreement, in the event that counsel or independent accountants for a Protected REIT determine that there exists a material risk that any indemnification payments due under this Agreement would be treated as Nonqualifying Income upon the payment of such amounts to the relevant Indemnified Party, the amount paid to the Indemnified Party pursuant to this Agreement in any tax year shall not exceed the maximum amount that can be paid to the Indemnified Party in such year without causing the Protected REIT to fail to meet the REIT Requirements for any tax year, determined as if the payment of such amount were Nonqualifying Income as determined by such counsel or independent accountants to the Protected REIT. If the amount payable for any tax year pursuant to the preceding sentence is less than the amount which the relevant Indemnifying Party would otherwise be obligated to pay to the relevant Indemnified Party pursuant to this Agreement (the Expense Amount ), then: (1) the Indemnifying Party shall place the Expense Amount into an escrow account (the Escrow Account ) using an escrow agent and agreement reasonably acceptable to the Indemnified Party (which shall include that (y) the amount in the Escrow Account shall be treated as the property of the Indemnifying Party, unless it is released from such Escrow Account to the Indemnified Party, and (z) all income earned upon the amount in the Escrow Account shall be treated as the property of the Indemnifying Party and reported, as and to the extent required by applicable Law, by the escrow agent to the IRS, or any other taxing authority, on IRS Form 1099 or 1042S (or other appropriate form) as income earned by the Indemnifying Party whether or not said income has been distributed during such taxable year) and shall not release any portion thereof to the Indemnified Party, and the Indemnified Party shall not be entitled to any such amount, unless and until the Indemnified Party delivers to the Indemnifying Party, at the sole option of the relevant Protected REIT, (i) an opinion (an Expense Amount Tax Opinion ) of the Protected REITs tax counsel to the effect that such amount, if and to the extent paid, would not constitute Nonqualifying Income, (ii) a letter (an Expense Amount Accountants Letter ) from the Protected REITs independent accountants indicating the maximum portion of the Expense Amount that can be paid at that time to the Indemnified Party without causing the Protected REIT to fail to meet the REIT Requirements for any relevant taxable year, or (iii) a private letter ruling issued by the IRS to the Protected REIT indicating that the receipt of any Expense Amount hereunder will not cause the Protected REIT to fail to satisfy the REIT Requirements (a REIT Qualification Ruling and, collectively with an Expense Amount Tax Opinion and an Expense Amount Accountants Letter, a Release Document ); (2) pending the delivery of a Release Document by the Indemnified Party to the Indemnifying Party, the Indemnified Party shall have the right, but not the obligation, to borrow the Expense Amount from the Escrow Account pursuant to a loan agreement reasonably acceptable to the Indemnified Party that (i) requires the Indemnifying Party to lend the Indemnified Party immediately available cash proceeds in an amount equal to the Expense
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Amount, and (ii) provides for (A) a commercially reasonable interest rate and commercially reasonable covenants, taking into account the credit standing and profile of the Indemnified Party or any guarantor of the Indemnified Party, including the Protected REIT, at the time of such loan, and (B) a fifteen (15) year maturity with no periodic amortization; and (3) the Indemnified Party shall bear all costs and expenses with respect to the escrow as contemplated by clauses (1) and (2) in this Section 6.4.
ARTICLE VII
PAYMENTS
Section 7.1 Payments .
(a) General . In the event that an Indemnifying Party is required to make a payment to an Indemnified Party pursuant to this Agreement, such payment shall be made to the Indemnified Party within the time prescribed for payment in this Agreement, or if no period is prescribed, within twenty (20) days after delivery of written notice of payment owing together with a computation of the amounts due. If the Indemnifying Party fails to make a payment to the Indemnified Party within the time period set forth in this Section 7.1 or as otherwise provided in this Agreement, such Indemnifying Party shall pay to the Indemnified Party interest that accrues (at a rate equal to LIBOR) on the amount of such payment from the time that such payment was due to the Indemnified Party until the date that payment is actually made to the Indemnified Party; provided , however , that this provision for interest shall not be construed to give the Indemnifying Party the right to defer payment beyond the due date hereunder.
(b) Right of Setoff . It is expressly understood that an Indemnifying Party is hereby authorized to set off and apply any and all amounts required to be paid to an Indemnified Party pursuant to this Section 7.1 against any and all of the obligations of the Indemnified Party to the Indemnifying Party arising under Section 7.1 of this Agreement that are then either due and payable or past due, irrespective of whether such Indemnifying Party has made any demand for payment with respect to such obligations.
Section 7.2 Treatment of Payments made Pursuant to Tax Matters Agreement . Unless otherwise required by a Final Determination or this Agreement or otherwise agreed to among the Parties, for U.S. federal Tax purposes, any payment (other than payments of interest pursuant to Section 7.1(a)) made pursuant to this Agreement by:
(a) PK to OpCo shall be treated for all Tax purposes as a tax-free contribution by PK to OpCo with respect to its stock occurring immediately before the Internal Distribution of OpCo common stock;
(b) HGV to HLT shall be treated for all Tax purposes as a distribution by HGV to HLT with respect to its stock occurring after HGV is directly owned by HLT and immediately before the HGV Distribution;
(c) OpCo to PK shall be treated for all Tax purposes as a distribution by OpCo to PK with respect to stock of OpCo occurring immediately before the Internal Distribution of OpCo common stock;
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(d) HLT to PK shall be treated for all Tax purposes as a tax-free contribution by HLT to PK with respect to its stock occurring immediately before the PK Distribution;
(e) HLT to HGV shall be treated for all Tax purposes as a tax-free contribution by HLT to HGV with respect to its stock occurring after HGV is directly owned by HLT and immediately before the HGV Distribution;
(f) PK to HGV shall be treated for all Tax purposes as a tax-free contribution by PK to HGV with respect to its stock occurring immediately before the Internal Distribution of HGV Common Stock;
(g) HGV to PK shall be treated for all Tax purposes as a distribution by HGV to PK with respect to its stock occurring immediately before the Internal Distribution of HGV Common Stock; and
(h) in each case, none of the Parties shall take any position inconsistent with such treatment. In the event that a Taxing Authority asserts that a Partys treatment of a payment pursuant to this Agreement should be other than as required pursuant to this Agreement (ignoring any potential inconsistent or adverse Final Determination), such Party shall use its commercially reasonable efforts to contest such challenge.
Section 7.3 Payments Net of Tax Benefit Actually Realized and Tax Cost . Subject to Section 5.7(d), all amounts required to be paid by one Party to another pursuant to this Agreement or the Distribution Agreement shall be reduced by the Tax Benefit Actually Realized by the Indemnified Party or its Affiliates in the taxable year the payment is made or any prior taxable year as a result of the claim giving rise to the payment. If the receipt or accrual of any such payment (other than payments of interest pursuant Section 11.11 of the Distribution Agreement or Section 7.1(a)) results in taxable income to the Indemnified Party or its Affiliates, such payment shall be increased so that, after the payment of any Taxes with respect to the payment, the Indemnified Party or its Affiliates shall have realized the same net amount it would have realized had the payment not resulted in taxable income.
ARTICLE VIII
AUDITS
Section 8.1 Notice . Within twenty (20) Business Days after a Party or any of its Affiliates receives a written notice from a Taxing Authority of the existence of an Audit that may require indemnification pursuant to this Agreement, that Party shall notify the other Parties of such receipt and send such notice to the other Parties via overnight mail. The failure of one Party to notify the other Parties of an Audit shall not relieve such other Party of any liability and/or obligation that it may have under this Agreement, except to the extent that the Indemnifying Partys rights under this Agreement are materially prejudiced by such failure.
Section 8.2 Audits .
(a) Determination of Administering Party .
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(i) Subject to Sections 8.2(b) and 8.2(c), HLT and its Subsidiaries shall administer and control all Audits of Pre-Distribution Income Tax Returns.
(ii) Audits of PK Straddle Income Tax Returns, HGV Straddle Income Tax Returns, Post-Distribution Income Tax Returns, and Non-Income Tax Returns shall be administered and controlled by the Party and its Subsidiaries that would be primarily liable under applicable Law to pay to the applicable Taxing Authority the Taxes resulting from such Audits. Audits of Post-Distribution Income Tax Returns and Non-Income Tax Returns for taxable periods beginning after the Distribution Date shall not be subject to Sections 8.2(b) and 8.2(c).
(b) Administration and Control; Cooperation .
(i) Subject to Sections 8.2(b)(ii) and 8.2(c), the Audit Management Party shall have absolute authority to make all decisions (determined in its sole discretion) with respect to the administration and control of such Audit, including the selection of all external advisors. In that regard, the Audit Management Party (a) may in its sole discretion settle or otherwise determine not to continue to contest any issue related to such Audit without the consent of the other Parties, and (b) shall, as soon as reasonably practicable and prior to settlement of an issue that could cause one or more other Parties to become responsible for Taxes under Section 8.3, notify the Audit Representatives of such other Parties of such settlement. The other Parties shall (and shall cause their Affiliates to) undertake all actions and execute all documents (including an extension of the applicable statute of limitations) that are determined in the sole discretion of the Audit Management Party to be necessary to effectuate such administration and control. The Parties shall act in good faith and use their reasonable best efforts to cooperate fully with each other Party (and their Affiliates) in connection with such Audit and shall provide or cause their Subsidiaries to provide such information to each other as may be necessary or useful with respect to such Audit in a timely manner, identify and provide access to potential witnesses, and other persons with knowledge and other information within its control and reasonably necessary to the resolution of the Audit.
(ii) In the case of any Audit in respect of Distribution Taxes for which a Party could be liable pursuant to Section 5.1(b), such Party shall have the rights of a Participating Party described in Section 8.2(c); provided , however , that the relevant Audit Management Party shall not settle such Audit without the prior written consent of such Party that could be liable for Distribution Taxes pursuant to Section 5.1(b). In the event more than one Party would be liable under Section 5.1(b), such Parties shall each have the rights described in this Section 8.2(b)(ii) with respect to such Audit.
(c) Participation Rights of Parties and Information Sharing with respect to Audits .
(i) Each Party that would be responsible under Section 8.3 for Taxes resulting from an Audit (other than the Audit Management Party) (a Participating Party ) shall have the rights as set forth in this Section 8.2(c) with respect to such Audit. Upon the reasonable request of a Participating Party, the Audit Management Party shall make available relevant personnel and external advisors to meet with the Participating Party and its independent auditor in order to review the status of the Audits. The Participating Parties shall provide the Audit Management Party with reasonable notice of such requested meetings or information.
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(ii) Each Participating Party shall have access to any written documentation in the possession of the Audit Management Party that pertains to the Audit (including any written summaries of issues that the Audit Management Party has developed in the context of evaluating the financial reporting of the Audit); provided , however , that if documentation was prepared solely by or on behalf of a Party, then the documentation must relate to the joint defense of the Audit. Copies of the documentation will be made available to the Participating Parties at their sole cost and expense.
(iii) Upon becoming aware of any scheduled meeting or scheduled phone call with an Audit agent, the Audit Management Party shall use commercially reasonable efforts to inform each Participating Party of the time, location and/or expected subject matter of such meeting or phone call. Such Participating Party shall be entitled to designate a representative to attend such meeting or phone call (it being understood that the Audit Management Party shall not have any obligation to reschedule any such meeting or phone call to facilitate such representatives attendance); provided , however , that such Participating Party (and its representative) may not actively participate in such meeting or phone call.
(iv) The Participating Parties are encouraged to provide consultation to the Audit Management Party in regards to Audit strategy and shall, upon request of the Audit Management Party, provide such consultation. The Participating Party may elect to employ separate counsel to advise the Participating Party as additional counsel in or in connection with an Audit, but in that event, the fees and expenses of the separate counsel shall be paid solely by the Participating Party. The Audit Management Party shall in good faith consider all advice and other input received from the Participating Parties in connection with their consultations with respect to an Audit. However, the Audit Management Party shall retain the sole authority to make all Audit decisions. In that regard, the Participating Parties and their separate counsels shall not be allowed to participate in any Audit-related meetings other than those described in (i), (ii) or (iii) above, respond directly to a Taxing Authority conducting the Audit, or in any manner control resolution of the Audit.
(d) Power of Attorney/Officer Signature . Each Party hereby appoints (and shall cause its Subsidiaries to appoint) the Audit Management Party (and its designated representatives) as its agent and attorney-in-fact to take the actions the Audit Management Party deems necessary or appropriate to implement the responsibilities of the Audit Management Party under this Agreement. Each Party also shall (or shall cause its Subsidiaries to) execute and deliver to the Audit Management Party a power of attorney, and such other documents as are reasonably requested from time to time by the Audit Management Party (or its designee).
Section 8.3 Payment of Audit Amounts .
(a) Except as set forth in Section 8.3(b) or (c), in connection with any Audit of any Income Tax Return or Non-Income Tax Return, in each case for a Pre-Distribution Tax Period or a Straddle Tax Period:
(i) A member of the HLT Group shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, PK or HGV (as the case may be) the HLT Allocable Audit Portion owed as a result of such Audit;
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(ii) PK shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, a member of the HLT Group or HGV (as the case may be) the PK Allocable Audit Portion owed as a result of such Audit;
(iii) HGV shall be liable for and shall pay or cause to be paid to the applicable Taxing Authority, a member of the HLT Group or PK (as the case may be) the HGV Allocable Audit Portion owed as a result of such Audit.
(b) All additional U.S. federal, state or local Income Taxes for a Pre-Distribution Tax Period or a Straddle Tax Period due and payable as a result of an Audit of an Income Tax Return for a Pre-Distribution Tax Period or a Straddle Tax Period relating to an item listed on Schedule 8.3(b) (including any corresponding or correlative adjustments for U.S. federal, state or local Income Tax purposes) ( Specified Audit Taxes ) shall be allocated first , to a member of the HLT Group up to an aggregate amount equal to ninety million dollars ($90,000,000), and second , among the Parties in accordance with their respective Sharing Percentages. All additional Taxes that are Restructuring Taxes and are due and payable as a result of an Audit shall be allocated among the Parties in accordance with their respective Sharing Percentages. Each Party shall be liable for any shall pay or cause to be paid to the applicable Taxing Authority all such Taxes so allocated to it.
(c) Third Party Indemnity Payments . Any benefit or liability resulting from any Tax sharing, contractual indemnity agreements or similar agreements, written or unwritten, as between any of the Parties or their respective Subsidiaries, on the one hand, and any other third party, on the other hand (other than the Distribution Agreement, this Agreement or any other Ancillary Agreement) ( Tax Sharing Agreements ), shall remain the benefit or liability of such Party or its respective Subsidiary; provided, however, that the Party responsible under this Agreement for any Taxes shall be responsible for any related liability in respect of such Taxes under any Tax Sharing Agreement, and be entitled to any related benefit in respect of such Taxes under any Tax Sharing Agreement. No Party shall be entitled to indemnification under this Agreement in respect of Taxes to the extent such Party or one of its Subsidiaries is indemnified under any Tax Sharing Agreement, and the Parties shall (and shall cause their Subsidiaries to) use commercially reasonable efforts to pursue any indemnification rights under any Tax Sharing Agreement if such indemnification would reduce the other Partys responsibility for such Taxes under this Agreement.
ARTICLE IX
COOPERATION AND EXCHANGE OF INFORMATION
Section 9.1 Cooperation and Exchange of Information . The Parties shall each cooperate fully (and each shall cause its respective Subsidiaries to cooperate fully) and in a timely manner (considering the other Partys normal internal processing or reporting requirements) with all reasonable requests in writing from another Party hereto, or from an agent,
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representative, or advisor to such Party, in connection with the preparation and filing of Tax Returns, claims for refund, Audits, determinations of Tax Attributes and the calculation of Taxes or other amounts required to be paid hereunder, and any applicable financial reporting requirements of a Party or its Affiliates, in each case, related or attributable to or arising in connection with Taxes or Tax Attributes of any of the Parties or their respective Subsidiaries covered by this Agreement. Such cooperation shall include, without limitation:
(a) the retention until the expiration of the applicable statute of limitations or, if later, until the expiration of all relevant Tax Attributes (in each case taking into account all waivers and extensions), and the provision upon request, of Tax Returns of the Parties and their respective Subsidiaries for periods up to and including the Distribution Date, books, records (including information regarding ownership and Tax basis of property), documentation, and other information relating to such Tax Returns, including accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities;
(b) the execution of any document that may be necessary or reasonably helpful in connection with any Audit of any of the Parties or their respective Subsidiaries, or the filing of a Tax Return or refund claim of the Parties or any of their respective Subsidiaries (including the signature of an officer of a Party or its Subsidiary);
(c) the use of the Partys reasonable efforts to obtain any documentation and provide additional facts, insights or views as requested by another Party that may be necessary or reasonably helpful in connection with any of the foregoing (including without limitation any information contained in Tax or other financial information databases); and
(d) the use of the Partys reasonable efforts to obtain any Tax Returns (including accompanying schedules, related work papers, and documents), documents, books, records, or other information that may be necessary or helpful in connection with any Tax Returns of any of the Parties or their Affiliates.
Each Party shall make its and its Subsidiaries employees and facilities available on a reasonable and mutually convenient basis in connection with the foregoing matters. Except for costs and expenses otherwise allocated among the Parties pursuant to this Agreement, including costs incurred under Article II and Article VIII, no reimbursement shall be made for costs and expenses incurred by the Parties as a result of cooperating pursuant to this Section 9.1.
Section 9.2 Retention of Records . Subject to Section 9.1, if any of the Parties or their respective Subsidiaries intends to dispose of any documentation relating to the Taxes of the Parties or their respective Subsidiaries for which another Party to this Agreement may be responsible pursuant to the terms of this Agreement (including, without limitation, Tax Returns, books, records, documentation, and other information, accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities), such Party shall or shall cause written notice to the other Parties describing the documentation to be destroyed or disposed of sixty (60) Business Days prior to taking such action. The other Parties may arrange to take delivery of the documentation described in the notice at their expense during the succeeding sixty (60) day period.
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Section 9.3 Tax Opinions . The Parties shall reasonably cooperate (and cause the members of the relevant Group to reasonably cooperate) in obtaining any Unqualified Tax Opinion, Unqualified 355(e) Opinion or, in the case of PK, any Unqualified 355(e) Opinion or Unqualified Device Opinion each as defined in the Stockholders Agreement (including making reasonable representations required in connection with any such opinion), including by maintaining and making available to each other all records necessary in connection with such opinions and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder.
ARTICLE X
ALLOCATION OF TAX ATTRIBUTES
AND OTHER TAX MATTERS
Section 10.1 Allocation of Tax Attributes . HLT shall in good faith advise each of PK and HGV in writing of the portion, if any, of any Tax Attributes, earnings and profits, or other consolidated, combined or unitary attribute that HLT determines shall be allocated or apportioned to each Group under applicable Law; provided, however, that such determination shall be made in a manner that is: (a) reasonably consistent with the past practices of the Parties; (b) in accordance with the rules prescribed by applicable Law, including the Code and the Treasury Regulations; and (c) consistent with the IRS Ruling, the Tax Representation Letters, and the Tax Opinions. HLT agrees to provide the other Parties with all of the information supporting the Tax Attribute and other determinations made by HLT pursuant to this Section 10.1. In the case of an Audit of Pre-Distribution Income Tax Returns that results in an increase in the earnings and profits allocated to PK, PK may be required to pay a deficiency dividend, in accordance with Section 860 of the Code, within ninety (90) days after the determination, as defined in Section 860 of the Code. To provide PK with sufficient notice so that PK can make arrangements to pay such a deficiency dividend within ninety (90) days after the determination, notwithstanding anything to the contrary in this Agreement, HLT agrees to keep PK informed of any Audit of Pre-Distribution Income Tax Returns that could result in an increase in the earnings and profits allocated to PK, and HLT agrees to notify PK of a determination with respect to such Audit within five (5) Business Days after such determination.
Section 10.2 Allocation of Tax Items . All determinations for purposes of this Agreement regarding the allocation of Income Tax items (other than Tax items arising on the Distribution Date but after the applicable Distribution that are outside the ordinary course of business) between the portion of a Straddle Tax Period that ends on the Distribution Date and the portion that begins the day after the Distribution Date shall be made based on a closing of the books method under the principles of Treasury Regulation 1.1502-76 (and any similar rule under U.S. state, local or non-U.S. Law) as determined by HLT on any HLT Combined Income Tax Return, unless in each case the Parties unanimously agree otherwise; provided , however , any Taxes in respect of actions taken outside the ordinary course of business on the date of an External Distribution but after such External Distribution shall be deemed to arise the day after such External Distribution. Any such allocation of Tax items shall initially be made by HLT. To the extent that HGV or PK disagrees with such determination, the dispute shall be resolved by an Big Four Accounting Firm mutually agreed upon by the Parties for a final binding resolution. For purposes of preparing any Income Tax Returns for the year of the Distributions that require
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an allocation of Tax items between a Pre-Distribution Tax Period and a Post-Distribution Tax Period, Tax items shall be allocated based on a closing of the books method under Treasury Regulation 1.1502-76 (and any similar rule under U.S. state, local or non-U.S. Law) as determined by HLT on any HLT Combined Income Tax Return, unless the Parties unanimously agree otherwise. Except for the transactions contemplated in the Reorganization Slide Deck or any Implementing Agreement, HGV and PK shall not (and shall not permit any member of their respective Groups to) take any action outside the ordinary course of business on the date of an External Distribution but after such External Distribution.
ARTICLE XI
DEFAULTED AMOUNTS
Section 11.1 General . In the event that one or more Parties defaults on its obligation to pay Distribution Taxes for which it is liable pursuant to Article V to another Party, then each non-defaulting Party shall be required to fund a portion of such Distribution Taxes in accordance with the Sharing Percentages of the non-defaulting Parties; provided, however, that no payment obligation shall exist under this Section 11.1 with respect to Distribution Taxes that are attributable to the Fault for Distribution Purposes of one or more Parties; provided, further, that any payment of Distribution Taxes by a non-defaulting Party pursuant to this Section 11.1 shall in no way release the defaulting Party from its obligations to pay such Distribution Taxes and any non-defaulting Party may exercise any available legal remedies available against such defaulting Party; provided, further, that interest shall accrue on any such payment by a non-defaulting Party at a rate per annum equal to the then applicable LIBOR. In connection with the foregoing, it is expressly understood that any defaulting Partys rights to any amounts to be received by such defaulting Party hereunder may be used via a right of offset to satisfy, in whole or in part, the obligations of such defaulting Party to pay the Distribution Taxes that are borne by the non-defaulting Parties; such rights of offset shall be applied in favor of the non-defaulting Party or Parties in proportion to the additional amounts paid by any such non-defaulting Party or Parties.
ARTICLE XII
DISPUTE RESOLUTION
Section 12.1 Negotiation . In the event of a dispute arising out of or in connection with this Agreement (including its interpretation, performance or validity) (collectively, Agreement Disputes ), the senior tax officers of the relevant Parties (or such other individuals designated thereby) shall negotiate for a maximum of 21 days (or a mutually-agreed extension) (such period of days, the Negotiation Period) from the time of receipt by a Party of written notice of such Agreement Dispute. The relevant Parties shall not assert the defenses of statute of limitations and laches for any delays arising due to the procedures in Sections 12.1 or 12.2.
Section 12.2 Mediation . If the Parties have not timely resolved the Agreement Dispute under Section 12.1, the Parties agree to submit the Agreement Dispute to mediation no later than 10 days following the end of the Negotiation Period, with such mediation to be
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conducted in accordance with the Mediation Procedure of the International Institute for Conflict Prevention and Resolution (CPR). The Parties to the Agreement Dispute agree to bear equally the CPR and mediators costs for same. The Parties agree to participate in good faith in the mediation for a maximum of 14 days (or a mutually agreed extension). If the Parties have not timely resolved the Agreement Dispute pursuant to this Section 12.2, either Party may then bring an action in accordance with Sections 13.15 and 13.16 herein.
Section 12.3 Confidentiality . All information and communications between the Parties relating to an Agreement Dispute and/or under the procedures in Sections 12.1 and 12.2 shall be considered Confidential Information for which the provisions of Section 8.6 of the Distribution Agreement shall apply herein, mutatis mutandis.
Section 12.4 Continuity of Performance . Unless otherwise agreed in writing, the Parties shall continue to perform under this Agreement during the course of dispute resolution under this Article XII with respect to all matters not subject thereto.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Counterparts . This Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.
Section 13.2 Survival . Except as otherwise contemplated by this Agreement or the Distribution Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date and remain in full force and effect in accordance with their applicable terms; provided, however, that all indemnification for Taxes shall survive until ninety (90) days following the expiration of the applicable statute of limitations (taking into account all extensions thereof), if any, of the Tax that gave rise to the indemnification; provided, further, that, in the event that notice for indemnification has been given within the applicable survival period, such indemnification shall survive until such time as such claim is finally resolved.
Section 13.3 Notices . All notices, requests, claims, demands, and other communications under this Agreement shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service), or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 13.3):
To HLT:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 883-6188
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To PK:
Park Hotels & Resorts Inc.
1600 Tysons Boulevard, Suite 1000
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 893-1057
To HGV:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, Florida 32835
Attn: General Counsel
Facsimile: (407) 722-3776
Section 13.4 Waivers . Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party (and its Group).
Section 13.5 Assignment . This Agreement may not be assigned without the express prior written consent of the other Parties, and any attempted assignment, without such consents, will be null and void; provided, however, that this Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a Party hereto so long as the resulting, surviving or transferee entity assumes all the obligations of the relevant Party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other Parties to this Agreement.
Section 13.6 Successors and Assigns . The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.
Section 13.7 Termination and Amendment . This Agreement (including indemnification obligations hereunder) may be terminated, modified or amended and each Distribution may be amended, modified or abandoned at any time prior to the Effective Time by and in the sole discretion of HLT without the approval of PK or HGV or the stockholders of HLT. In the event of such termination, no Party shall have any liability of any kind to any other Party or any other Person. After the Effective Time, this Agreement may not be terminated except by an agreement in writing signed by a duly authorized representative of each of HLT, PK, and HGV.
Section 13.8 No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any member of any such Partys Group to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement, the Distribution Agreement or any other Ancillary Agreement.
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Section 13.9 Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party on and after the Effective Time, to the extent such Subsidiary remains a Subsidiary of the applicable Party.
Section 13.10 Third Party Beneficiaries . Except as provided in Section 5.4 relating to each of the Blackstone Entities, this Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 13.11 Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
Section 13.12 Schedules . The Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.
Section 13.13 Specific Performance . In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party who is or is to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that the Parties may be irreparably harmed as a result. Accordingly, any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by the Parties to this Agreement.
Section 13.14 Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.
Section 13.15 Consent to Jurisdiction . Each Party irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware or (b) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the State of Delaware, to resolve any Agreement Dispute that is not resolved pursuant to Sections 12.1 or 12.2. Any judgment of such court may be enforced by any court of competent jurisdiction. Further, notwithstanding Sections 12.1 and 12.2, either Party may apply to the above courts set forth in Section 13.15(a) and 13.15(b) above for a temporary restraining order or similar emergency relief during the process set forth in Sections 12.1 and
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12.2. Each of the Parties agrees that service by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any of the above Actions and irrevocably and unconditionally waives any objection to the laying of venue of any Action in accordance with this Section 13.15. Nothing in this Section 13.15 shall limit or restrict the Parties from agreeing to arbitrate any Agreement Dispute pursuant to mutually-agreed procedures.
Section 13.16 Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING ANY AGREEMENT DISPUTE.
Section 13.17 Force Majeure . No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure (as defined in the Distribution Agreement). A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
Section 13.18 Interpretation . The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted.
Section 13.19 Changes in Law .
(a) Any reference to a provision of the Code, Treasury Regulations, or a Law of another jurisdiction shall include a reference to any applicable successor provision or Law.
(b) If, due to any change in applicable Law or regulations or their interpretation by any court of Law or other governing body having jurisdiction subsequent to the date hereof, performance of any provision of this Agreement or any transaction contemplated hereby shall become impracticable or impossible, the Parties hereto shall use their commercially reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.
Section 13.20 Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
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Section 13.21 Tax Sharing Agreements . All Tax sharing, indemnification and similar agreements, written or unwritten, as between any of the Parties or their respective Subsidiaries, on the one hand, and any other Party or its respective Subsidiaries, on the other hand (other than this Agreement, any other Ancillary Agreement or any agreement solely between any of HLT, OpCo and/or any of their Subsidiaries), shall be or shall have been terminated as of the Distribution Date and, after the Distribution Date, none of such Parties (or their Subsidiaries) to any such Tax sharing, indemnification or similar agreement shall have any further rights or obligations under any such agreement.
Section 13.22 Exclusivity . Except as specifically set forth herein or in the Distribution Agreement or any other Ancillary Agreement, all matters related to Taxes or Tax Returns of the Parties and their respective Subsidiaries shall be governed exclusively by this Agreement. In the event of a conflict between this Agreement, the Distribution Agreement or any Ancillary Agreement with respect to such matters, this Agreement shall govern and control.
Section 13.23 No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No waiver shall be effective unless it is in writing and is signed by the Party asserted to have granted such waiver.
Section 13.24 No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation, or recovery with respect to any matter arising out of the same facts and circumstances.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. |
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Name: |
Title: |
PARK HOTELS & RESORTS INC. |
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Name: |
Title: |
HILTON GRAND VACATIONS INC. |
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Name: |
Title: |
HILTON DOMESTIC OPERATING COMPANY INC. |
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Name: |
Title: |
Schedule 2.3
1. | HLT is the Paying Party of amounts shown on Non-Income Tax Returns with respect to HLT Retained Assets (determined on a with and without basis, as determined by HLT in its good faith discretion). |
2. | PK is the Paying Party of amounts shown on Non-Income Tax Returns with respect to Ownership Assets (determined on a with and without basis, as determined by HLT in its good faith discretion). |
3. | HGV is the Paying Party of amounts shown on Non-Income Tax Returns with respect to Timeshare Assets (determined on a with and without basis, as determined by HLT in its good faith discretion). |
Schedule 8.3(b)
| The IRS has asserted that certain foreign currency denominated intercompany loans, from HLTs foreign subsidiaries to certain U.S. subsidiaries, should be recharacterized as equity for U.S. federal income tax purposes and should constitute deemed dividends from such foreign subsidiaries to the U.S. subsidiaries as described in Note 12 of HLTs financial statements included in its Form 10Q filing for the quarterly period ending September 30, 2016. |
| In calculating the amount of U.S. taxable income resulting from the Hilton HHonors guest loyalty program, the IRS has taken a position that Hilton HHonors Worldwide, L.L.C. should not reduce gross income by the estimated costs of future redemptions, but rather such costs would be deductible only at the time the points are redeemed as described in Note 12 of HLTs financial statements included in its Form 10Q filing for the quarterly period ending September 30, 2016. |
| The IRS has asserted that foreign currency denominated loans entered into by one of HLTs Luxembourg subsidiaries whose functional currency is the U.S. Dollar, should instead be treated as entered into by one of HLTs Belgian subsidiaries whose functional currency is the Euro, and thus foreign currency gains and losses with respect to such loans should have been measured in Euros, instead of the U.S. Dollar as described in Note 12 of HLTs financial statements included in its Form 10Q filing for the quarterly period ending September 30, 2016. |
| In the fourth quarter of 2015, certain of HLTs U.S. subsidiary corporations were converted to limited liability companies and certain of HLTs subsidiary controlled foreign corporations elected to be disregarded for U.S. federal income tax purposes. These transactions were treated as tax-free liquidations for federal tax purposes. |
Exhibit 10.3
FORM OF MASTER TRANSITION SERVICES AGREEMENT
This Master Transition Services Agreement (this Agreement ) is entered into as of , 2016, by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Park Hotels & Resorts Inc., a Delaware corporation ( PK ) and Hilton Grand Vacations Inc., a Delaware corporation ( HGV ). Each of HLT, PK and HGV is sometimes referred to herein as a Party and collectively as the Parties . Capitalized terms used herein and not otherwise defined herein have the meanings given to such terms in the Distribution Agreement, entered into on the date hereof, by and among HLT, PK, HGV and Hilton Domestic Operating Company Inc. (as such may be amended from time to time, the Distribution Agreement ).
W I T N E S S E T H :
WHEREAS, the Board of Directors of HLT has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate, pursuant to and in accordance with the Distribution Agreement, HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business, which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business, which shall be owned and conducted, directly or indirectly, by PK (which will elect to be a REIT), and (iii) the Timeshare Business, which shall be owned and conducted, directly or indirectly, by HGV; and
WHEREAS, in order to provide for an orderly transition under the Distribution Agreement, each of HLT, PK and HGV desires to provide to the other certain services for specified periods following the Distribution Date, all in accordance with and subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the Parties contained herein, the Parties agree as follows:
1. Services Provided .
(a) With respect to each Service (as defined in Section 1(b )), the Party required to provide such Service is the Service Provider and the other Party is the Service Recipient . In performing the Services, Service Provider and each of its Affiliates shall use commercially reasonable efforts to provide, or to ensure that any Third Party Provider (as defined in Section 1(b )) shall provide, the Services in the same manner, within the same amount of time and at the same level of service (including, as applicable, with respect to type, scope, frequency, quality and quantity), with the same degree of reasonable skill and care and with the same level of security and control as provided and used in providing the Services during the twelve (12) month period prior to the Distribution Date (excluding any actions taken in contemplation of the Distribution); provided , however , that Service Provider shall not be obligated to provide services that are more extensive in type, scope, frequency, quality or quantity than similar or comparable services provided by Service Provider to Service Recipient during the twelve (12) month period prior to the Distribution Date. Notwithstanding anything herein to the contrary, the Services are
to be provided in a manner that does not disparately treat Service Recipient (or its Subsidiaries or its or their personnel or business) as compared to Service Providers treatment of itself (or its Affiliates or its or their personnel or business) in connection with the provision of a Self-Service (as defined in Section 2(a)(v )).
(b) During the period commencing on the Distribution Date and ending on the date that is two (2) years from the date hereof, unless an earlier or later date is otherwise specified for a Service on the services schedules hereto (for each such Service, such end date being herein referred to as the Termination Date , with such schedules being herein referred to as the Services Schedules ), Service Provider shall provide, or shall cause one or more of its Affiliates or a contractor, subcontractor, vendor or other third-party service provider (each, a Third Party Provider ) to provide, upon the terms and subject to the conditions set forth herein, the services described on the Services Schedules (the Services ); provided , Service Provider shall obtain the consent of Service Recipient (not to be unreasonably withheld, delayed or conditioned) in the event any such Service is to be provided by a Third Party Provider or Affiliate if such Services were not provided by such Third Party Provider or Affiliate to Service Recipient during the twelve (12) month period prior to the Distribution Date; provided further , Service Provider shall remain primarily responsible for the performance by any such Affiliate or Third Party Provider of its obligations hereunder. Irrespective of whether Service Provider, an Affiliate or a Third Party Provider is providing a Service, Service Recipient may direct that any such Service be provided directly to Service Recipient or any other member of such Partys Group.
(c) Each Service provided hereunder shall be terminated on its applicable Termination Date, unless otherwise terminated earlier by Service Recipient pursuant to Section 11 . Service Provider shall be under no obligation to provide a Service to Service Recipient after the Termination Date applicable to such Service, except to the extent otherwise agreed in writing by Service Provider and Service Recipient.
(d) Limitations on Services .
(i) Notwithstanding anything to the contrary contained herein or in the Services Schedules, Service Provider shall have no obligation under this Agreement to: (1) operate the business of Service Recipient or any members of its Group or any portion thereof; (2) advance funds; (3) provide any Service to the extent that the provision of such Service would require Service Provider to violate any applicable Law, third-party confidentiality, contractual obligations or fiduciary responsibilities; (4) provide any Service to the extent Service Recipient has breached (or through its actions or omissions has caused the Service Provider to be in breach of or default under) any applicable obligations under, or requirements of, any contract or arrangement with any Third Party Provider ( Third Party Provider Use Requirements ) engaged with respect to such Service ( provided that Service Recipient shall first be permitted to attempt to cure such breach or default within thirty (30) days from receipt of notice thereof if such breach or default is capable of being cured); (5) implement processes, plans or initiatives developed, acquired or utilized by Service Recipient after the Distribution Date except as otherwise agreed; (6) perform or cause to be performed any of the Services for the benefit
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of any third party; (7) render any Service in a particular location that would necessitate that Service Provider obtain any permits or regulatory approvals, or qualify to do business, in any location or jurisdiction other than the locations and jurisdictions where Service Provider does business or conducted business as of the date hereof; or (8) purchase, lease or license any physical assets or equipment, expand its facilities or incur long-term capital expenses.
(ii) All employees and representatives of Service Provider, members of its Group and its Affiliates shall be deemed for all purposes to be employees or representatives of Service Provider, members of its Group or such Affiliates, as applicable. In performing the Services, such employees and representatives shall be under the direction, control and supervision of Service Provider, members of its Group or the applicable Affiliate thereof, and Service Provider, members of its Group and its Affiliates shall have the sole right to exercise all authority with respect to the employment (including termination of employment), assignment and compensation of such employees and representatives.
2. Consideration .
(a) Costs and Fees .
(i) For each Service, Service Recipient shall pay (in accordance with Section 2(b ) ) Service Provider an amount equal to the Market Rate (as defined in Section 2(a)(i)(1 ) ).
(1) The Market Rate for each Service shall be an amount equal to the sum of: (A) the rate as set forth on the applicable Services Schedule (which rate reflects the Parties good faith estimate as to the cost of such Service to the Service Provider plus an additional amount that the Parties acknowledge is fair and adequate consideration for the work expected to be performed by personnel of Service Provider in connection with such Service, including coordinating or managing Third Party Providers); provided that if a Services Schedule is silent regarding such rate, the amount under this subsection (A) shall be equal to Service Providers allocated costs (including salary, wages and benefits, but excluding severance costs that are the responsibility of Service Recipient pursuant to Section 2(a)(ii ) ) for any of its (or its Affiliates) employees involved in providing Services; plus (B) any reasonable out-of-pocket costs and expenses incurred in connection with retaining Third Party Providers or pursuing any warranty or indemnity against a Third Party Provider in accordance with Section 3(c ) ; plus (C) fees incurred in connection with any Third Party Consent or Alternative Method, which shall be borne equally by Service Recipient and Service Provider; plus (D) any sales, transfer, goods, services, value added, gross receipts or similar taxes, fees, charges or assessments (including any such taxes that are required to be withheld); provided that the Parties agree to use commercially reasonable efforts to minimize any such tax with respect to the Services; plus (E) other reasonable miscellaneous out-of-pocket costs and expenses; provided , however , that any such expenses exceeding $25,000 per month for each Service (other than routine business travel and related expenses) shall require advance approval of Service Recipient.
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(2) Any costs and expenses provided for on a Services Schedule shall be subject to an increase of 5% per annum beginning on January 1, 2018, in order to adjust for inflation.
(3) Service Provider shall notify Service Recipient of any event that may reasonably be expected to increase the Market Rate by more than 10%.
(ii) Subject to the terms of this Section 2(a)(ii ) , Service Provider shall use commercially reasonable efforts to retain its workforce required to provide the Services and, consistent with its severance policies then in effect, if any, may make severance payments to its employees. Service Provider shall be responsible for Service Providers actual severance costs incurred as a result of terminating an employee who is primarily engaged in providing a Service in connection with the termination of such Service, provided that to the extent such severance costs are in excess of the amount of the severance costs that would have been paid by Service Provider if such employee had been terminated on the Distribution Date, the Service Recipient shall be reponsible for the amount of such excess severance costs; provided that any such employees employment was actually terminated and such individual is not rehired by Service Provider or any of its Affiliates for at least ninety (90) days following such termination. Notwithstanding the foregoing, if a former employee of Service Provider (who was (a) primarily engaged in providing a Service and (b) terminated by Service Provider within six (6) months of such individual having engaged in any activities with respect to providing such Service) is hired by another Party within twelve (12) months of the termination of such individuals employment with Service Provider, such other Party shall be responsible for (and shall indemnify Service Provider with respect to) all of the actual services costs incurred by Service Recipient with respect to such individual. Service Provider shall prepare and deliver, within thirty (30) days following the end of each quarterly period ending each March 31, June 30, September 30 and December 31 (it being understood that the first such period shall be shorter than one quarter), to Service Recipient an invoice setting forth the amount of severance costs to be paid by Service Recipient in accordance with the foregoing provisions of this Section 2(a)(ii ) , which invoice Service Recipient shall pay pursuant to the terms of Section 2(b ) .
(iii) Unless the Parties otherwise agree in writing, (i) where Services are provided in a country outside of the United States by a Person located in the same country, amounts shall be invoiced and paid in the local currency of the Person providing the Services and (ii) if payments are to be made between Persons not within the same country, such amounts shall be invoiced and paid in U.S. Dollars. To the extent necessary, local currency conversion on any such invoice shall be based on Service Providers internal exchange rate for the then-current month, based upon the average for such month, as calculated consistently with how such local currency conversion was calculated in the twelve (12) month period prior to the Distribution Date.
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(iv) All charges based on a monthly or other time basis will be pro-rated based on actual calendar days elapsed during the period of service.
(v) With respect to any service that a Service Provider provides or causes an Affiliate to provide to itself or its Affiliates that is the same or substantially similar to a Service provided to Service Recipient or its Subsidiaries hereunder (such service, a Self-Service ), if Service Provider determines to no longer provide such Self-Service to itself or its Affiliates, Service Provider shall notify Service Recipient of such termination no later than the number of days prior to such termination as is provided in Section 11(b) for terminating the corresponding Service. If Service Provider terminates a Self-Service prior to the end of the Termination Date applicable for the corresponding Service, the Market Rate of such Service following any such termination and up to but not including the Termination Date shall be calculated as if Service Provider had not terminated such Self-Service. Notwithstanding the foregoing, Service Provider shall continue to provide the Service in accordance with the provisions of this Agreement, unless such Service is otherwise terminated pursuant to Section 11 , and Service Provider shall not be permitted to terminate any Self-Service prior to the Termination Date for the applicable Service if such termination would adversely affect the level of service, security or control of such Service or the scope or content thereof required pursuant to Sections 1(a) and 4(a ).
(b) Invoices and Payment .
(i) Service Provider shall invoice Service Recipient for the amounts owed hereunder in arrears on a calendar monthly basis or, in the case of Section 2(a)(ii ) , as provided therein, and shall provide reasonable documentation supporting such amounts owed pursuant to Section 2(a ) , except to the extent such amounts are set forth on the Services Schedules. Service Recipient shall pay the amount of such invoice by electronic transfer of immediately available funds not later than forty-five (45) days after the date of such invoice. Neither Party nor any of its respective Subsidiaries shall have a right of set-off against the other Party or its Subsidiaries, except in connection with any amounts billed hereunder. In the event Service Recipient does not pay Service Provider in accordance with the terms hereof (i) all amounts so payable and past due shall accrue interest from the 31 st day after the date of the invoice to the receipt of payment at a rate per annum equal to five percent (5%) (the Interest Rate ) until such amounts, together with all accrued and unpaid interest thereon, are paid in full, and (ii) Service Recipient shall pay, as additional fees, all reasonable out-of-pocket costs and expenses incurred by Service Provider in attempting to collect and collecting amounts due under this Section 2 , including all reasonable attorneys fees and expenses.
(ii) In the event that Service Recipient in good faith disputes an invoice submitted by Service Provider, Service Recipient may withhold payment of any amount subject to the dispute; provided , however , that (x) Service Recipient shall continue to pay all undisputed amounts in accordance with the terms hereof, (y) Service Recipient shall notify Service Provider, in writing, of any disputed amounts and the reason for any dispute by the due date for payment of the invoice containing any disputed charges and (z) in the event any dispute is resolved in Service Providers favor, any amount that
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Service Recipient should have paid shall be deemed to have accrued interest at the Interest Rate from the date such payment should have been made. In the event of a dispute regarding the amount of any invoice, the Parties shall use all reasonable efforts to resolve such dispute within thirty (30) days after Service Recipient provides written notification of such dispute to Service Provider. Each Party shall provide full supporting documentation concerning any disputed amount or invoice within twenty (20) days after written notification of the dispute. Unpaid fees that are under good faith dispute shall not be considered a basis for default hereunder. To the extent that a dispute regarding the amount of any invoice cannot be resolved pursuant to this Section 2(b)(ii ) , the dispute resolution procedures set forth in Section 9 herein shall apply.
(c) Migration and Integration; Disconnection and Disintegration .
(i) Service Recipient shall be responsible for planning, preparing and integrating the transition of the provision of each of the Services to its own internal organization or other third-party service providers, and shall use commercially reasonable efforts to prepare, within one hundred and twenty (120) days after the Distribution Date ( Migration Planning Period ), a plan in order to transition off each Service by the end of the term for such Service ( Migration Plan ); provided , however , that Service Recipient will not be deemed to have violated its obligations with respect to preparation of the Migration Plan if Service Recipient (i) fails to complete the Migration Plan within the Migration Planning Period, (ii) has been working, and thereafter continues to work, in good faith and without undue delay to expeditiously prepare the Migration Plan and (iii) completes the Migration Plan no later than one hundred and fifty (150) days after the Distribution Date. At Service Recipients request, Service Provider shall reasonably assist, and shall use commercially reasonable efforts to cause any Third Party Provider to reasonably assist, Service Recipient in connection with the implementation of Service Recipients transition plan, which may include consulting and training and providing reasonable access to data and other information and to Service Providers employees, but which shall take into account the need to minimize the cost of such migration and the disruption to the ongoing business activities of Service Provider and its Affiliates and shall not unduly burden or interfere with Service Providers business and operations ( provided that , for the avoidance of doubt, such services shall not include any services that, in Service Providers commercially reasonable opinion, do not primarily effect the separation of Service Recipient from the Services).
(ii) In furtherance of the foregoing, Service Recipient shall use commercially reasonable efforts to make or obtain any approvals, permits and licenses and implement any systems as may be necessary for it to perform the Services independently in each country and applicable jurisdiction as soon as practicable following the Distribution Date.
(iii) Notwithstanding anything to the contrary contained herein (but subject to Section 2(a)(ii ) ), in the Distribution Agreement or in any Ancillary Agreement, Service Recipient shall bear all costs or expenses associated with integrating the Services with the Information, facilities, personnel and assets of Service Recipient and shall reimburse Service Provider for any costs or expenses incurred by Service Provider which are to be borne by Service Recipient pursuant to this Section 2(c ) .
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3. Cooperation .
(a) It is understood that it will require significant efforts by the Parties to implement this Agreement and ensure performance hereunder. The Parties shall: (i) cooperate with and provide such information and documentation to the other Party as is reasonably necessary for Service Provider to perform the Services and for Service Recipient to meet its obligations under the Agreement; (ii) notify the other Party of any changes to operating environments or key personnel to the extent related to the provision of the Services; (iii) provide timely decisions, approvals and acceptances required to perform the obligations hereunder in a timely and efficient manner; and (iv) perform such other duties and tasks as may be reasonably required to permit Service Provider to perform the Services or for Service Recipient to meet its obligations under the Agreement, including (A) cooperating in obtaining any Third Party Consents necessary to facilitate Service Providers ability to provide the Services and (B) upon thirty (30) days prior written notice by Service Provider, conducting such testing as may be reasonably required by Service Provider in connection with any updates or changes to the applicable systems or processes involved in providing a Service. Service Provider shall not be deemed to be in breach of its obligations to provide or make available any Service to the extent that Service Recipient has not provided information and access to appropriate personnel that is reasonably necessary for the performance of such Service.
(b) Upon Service Recipients written request and without prejudice to Service Recipients direct rights against a Third Party Provider, Service Provider shall use commercially reasonable efforts to request any warranty or indemnity under any contract Service Provider or its Subsidiaries may have with a Third Party Provider with respect to any Service provided to Service Recipient by such Third Party Provider.
(c) Service Provider and Service Recipient shall use commercially reasonable efforts to obtain in a cost effective manner any necessary waivers, permits, license, consents or similar approvals with respect to agreements with third parties in order for Service Provider to provide the Services directly or indirectly (any such waiver, permit, consent, license or similar approval, a Third Party Consent ). If a Third Party Consent cannot be obtained on reasonable terms or after using commercially reasonable efforts, such Parties will use commercially reasonable efforts to arrange for an alternative method of obtaining any such Service on Service Recipients behalf in a cost effective manner ( Alternative Method ), which may include Service Provider providing such Service itself. If there is any Third Party Consent which was not required as of the date hereof but will subsequently be required before the Termination Date for a particular Service, Service Provider shall identify in writing to Service Recipient such Third Party Consent within sixty (60) days of the date hereof.
(d) In connection with the provision of Services hereunder, except as provided pursuant to Section 2(a)(iii) for local currency conversion for invoices, the Parties shall use the same methodology to determine the appropriate foreign exchange conversion rate as used in the twelve (12) month period prior to the Distribution Date, which may be determined or based upon the average for the month or other applicable period or the spot rate at the end of such month or period or otherwise.
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4. Performance Standard; Reports; Personnel .
(a) Except as otherwise provided in the Services Schedule and Section 1(a) herein, nothing in this Agreement shall require or be interpreted to require Service Provider to provide a Service to Service Recipient beyond the scope and content of such Service as provided by Service Provider to the HLT Retained Business, Ownership Business or Timeshare Business, as the case may be, during the twelve (12) month period prior to the Distribution Date, excluding any actions taken in contemplation of the Distribution.
(b) Service Provider shall not make changes in the manner of providing a Service unless (i) Service Provider is making similar changes in a service being performed for itself or its Subsidiaries, (ii) such changes are immaterial and do not adversely affect the level of service, security or control of such Service or the scope or content thereof required pursuant to Sections 1(a) and 4(a ) above, (iii) such changes are required by Service Provider or Service Recipient pursuant to applicable Law (including changes required by Service Provider or Service Recipient in connection with the provision of the Services to the other Party) or (iv) Service Recipient provides its prior written consent (which shall not be unreasonably withheld, conditioned or delayed) to such changes (in each case, for the avoidance of doubt, with the costs of any such change to be included in the calculation of the Market Rate). In the event Service Provider determines to change the location of delivery of any Service, Service Provider shall provide Service Recipient with thirty (30) days prior written notice. All Services shall be performed in compliance with applicable Law, including all applicable U.S. and non-U.S. laws and regulations relating to export controls, sanctions, and imports, including without limitation those regulations maintained by the U.S. Department of the Treasurys Office of Foreign Assets Control and the U.S. Department of Commerce, Bureau of Industry and Security.
(c) In performing the Services, Service Provider shall use its commercially reasonable efforts to prepare and furnish to Service Recipient reports concerning the Services with such reports to contain substantially the same data, in substantially the same format, and prepared and delivered on substantially the same timetable, as reports prepared during the twelve (12) month period prior to the Distribution Date (excluding any reports solely prepared in contemplation of the Distribution), except as may be otherwise required by Service Recipient or Service Provider pursuant to applicable Law. Upon Service Recipients written request for modifications to the reporting and data transfer practices reasonably required to assist Service Recipient in transitioning off the Service, Service Provider shall cooperate and consult in good faith with Service Recipient to make such modifications; provided that if Service Provider reasonably determines in its sole discretion that any such modification may cause Service Provider to be in breach of its obligations to the other Party hereunder (including as a result of breaching its obligations as a Service Provider to the other Party as Service Recipient), then Service Provider shall not be under any obligation to make such modifications.
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(d) Service Provider shall use commercially reasonable efforts consistent with past practice to make available such personnel as may be required to provide the Services. Service Provider shall have the right to designate which personnel it will assign to perform the Services. Service Provider also shall have the right to remove and replace any such personnel at any time or designate any of its Subsidiaries or a Third Party Provider (subject to Section 1(a) herein) at any time to perform the Services; provided , however , that Service Provider shall use its commercially reasonable efforts consistent with past practice to limit the disruption to Service Recipient in the transition of the Services to different personnel. Subject to and consistent with Section 2(a)(ii ), Service Provider shall have no obligation to retain any individual employee or any Third Party Provider or to employ additional personnel in order to provide a particular Service.
(e) In the event Service Recipient or any of its Subsidiaries hires away an employee of Service Provider or its Subsidiaries, and such employee was providing Services to Service Recipient and will not continue to provide such Service, Service Provider shall have the option, in its sole discretion (in addition to any other remedies available to it under the Distribution Agreement or otherwise), upon ten (10) Business Days written notice to Service Recipient to reduce its obligations with respect to such Service (with a proportionate reduction in the applicable Market Rate) effective on the date of such employees termination of employment with Service Provider. Any provision of Service thereafter pursuant to such a reduction in Service Providers obligations shall be deemed to be consistent with Service Providers obligations under this Agreement, so long as Service Provider satisfies the other obligations contained in this Section 4 with respect to such Service. Notwithstanding the foregoing, nothing in this Section 4(e) shall be deemed to modify, amend or waive the non-solicitation and no-hire restrictions set forth in Section 5.1 of the Distribution Agreement.
(f) Each Party agrees that it shall take appropriate action by instruction of or agreement with its personnel (including any Third Party Provider) to ensure that all such personnel performing or otherwise involved with Services shall be bound by and comply with all of the terms and conditions of this Agreement.
(g) In the event Service Provider has received a notice of default or breach in the performance of a Service hereunder (including as a result of substantial errors in the performance of such Service), it will use its commercially reasonable efforts to cure such default or breach. In the event Service Provider is unable to cure such default within thirty (30) days from receipt of notice thereof, in addition to the rights available under Section 11 , there shall be an adjustment to the Market Rate to reflect the costs to Service Recipient associated with such default, breach or error, including any reasonable out-of-pocket costs and expenses incurred by Service Recipient in retaining any Third Party Provider to provide such Service or in providing such Service itself.
(h) Each Party shall notify the applicable other Party as promptly as practicable after becoming aware of any breach of this Agreement committed by either it or the applicable other Party. Service Provider shall notify Service Recipient of any event that may reasonably be expected to materially impact a Service provided hereunder, which may include a Termination Notice (as defined in Section 11(b )) provided by the other Party as Service Recipient hereunder or a notice of termination of a Self-Service, issued pursuant and in accordance with, Section 2(a)(v ).
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(i) In the event of any conflict, as reasonably determined by Service Provider in its sole discretion, between requests for modification or termination of Services made by the two other Parties and each properly delivered hereunder, Service Provider shall determine which request it received first and, subject to the other terms and conditions of this Agreement, make such modifications or terminations pursuant to the request that was first received before making any modifications or terminations pursuant to any requests received afterwards.
5. New Services .
If, after the date hereof and on or prior to August 31, 2017, or, with respect to Services provided in connection with any Transfer that, pursuant to Section 2.5 of the Distribution Agreement, is not consummated at or prior to the Effective Time, one hundred (100) days following the actual date of such Transfer (notwithstanding that under Section 2.5(c) of the Distribution Agreement such Transfer may be deemed to have occurred on the Effective Time) the Parties determine that a service required by Service Recipient and provided by Service Provider or one of its Subsidiaries prior to the Distribution Date was omitted from the Services Schedules, Service Recipient may request that Service Provider perform such service ( New Service ) in addition to the Services being provided hereunder. Service Provider shall promptly begin performing any New Service consistent with past practice upon a timely written request from Service Recipient (which request may be in the form of email) including (i) a description of the work Service Recipient anticipates being performed by Service Provider in connection with such New Service and (ii) a schedule for commencing and completing such New Service, and Service Provider and Service Recipient shall enter into good faith negotiations to agree to an amendment to the Services Schedules providing for such New Service; provided that if no agreement for an Additional Service Schedule Amendment has been reached in writing in thirty (30) days, such New Service shall be deemed to have a Termination Date of two (2) years from the date hereof, with the Market Rate as provided for in Section 2(a)(i ) , calculated as if the amendment to the Services Schedule for such New Service were silent regarding costs and expenses (such amendment or deemed amendment pursuant to the foregoing proviso, an Additional Service Schedule Amendment ). Any New Service shall be considered a Service hereunder and the Services Schedules shall incorporate, and be deemed to be duly amended by, such Additional Service Schedule Amendment.
6. Intellectual Property; IT Security .
(a) Except as provided in the Services Schedules, the Market Rate shall include the allocable portion of any amounts that are required to be paid by Service Provider to any third party licensors of software that is used by Service Provider in connection with the provision of any Services hereunder, including (i) license, right-to-use and royalty fees and (ii) any amounts required to obtain the consent of such licensors to allow Service Provider to provide any of the Services hereunder. Service Recipient agrees to comply and cause its Subsidiaries to comply with the terms of any license or other agreement of Service Provider or any of its Subsidiaries relating to software that is provided to Service Recipient and is used in connection with the provision of any Services hereunder, including as specified in the Third Party Provider Use Requirements; provided that in the event that Service Provider enters into new software licenses after the Distribution Date, Service Recipient shall have the prior opportunity to review
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and confirm its ability to comply therewith, which it shall do in good faith. In the event that Service Recipient provides notice of its inability to comply therewith, Service Provider may at its sole discretion discontinue its provision of any Services under such new software licenses effective after thirty (30) days notice of the same, and Service Recipient shall indemnify Service Provider for any claims by third parties arising out of or in connection with Service Recipients noncompliance or violation of such software licenses; provided that, for the avoidance of doubt, Service Recipients delivery of such notice will not affect Service Recipients obligation to comply with all Third Party Provider Use Requirements applicable to Services already in use by Service Recipient. Subject to the foregoing, Service Provider shall use commercially reasonable efforts to obtain any consent that may be required from such licensors in order to provide any of the Services hereunder and the Parties shall cooperate to identify any material licenses or consents necessary for such provision and shall use commercially reasonable efforts to minimize the costs associated therewith.
(b) If the receipt or provision of any Service hereunder requires the use by a Party of the patents, know-how, trade secrets, methods and processes (excluding Customer Information and Loyalty Program Information) of the other Party, then, subject to applicable restrictions contained in Service Providers contracts with Third Party Providers, such Party and its Subsidiaries shall have the non-exclusive, royalty-free, non-sublicensable (except as required for its and its Subsidiaries receipt or provision of Services) right and license to use such Intellectual Property for the sole purpose of, and only to the extent necessary for, the receipt or provision of such Services hereunder, pursuant to the terms and conditions of this Agreement. Upon the Termination Date applicable to such Service, or the earlier termination of any Services in accordance with Section 11 , the license herein to the applicable Intellectual Property will terminate, and the applicable Service Recipient and/or Service Provider shall cease all use of the Intellectual Property licensed hereunder. The applicable Service Recipient and/or Service Provider acknowledges that it will acquire no right, title or interest (including any license rights or rights of use) in any firmware or software, and the licenses therefor which are held by the applicable Service Provider and/or Service Recipient, by reason of the provision of the Services provided hereunder, except to the extent that any such license rights or rights of use are provided for in a written agreement signed by Service Provider and Service Recipient. Nothing in this Section 6(b) shall be deemed to limit, modify or terminate any License Agreement between the Parties.
(c) Subject to the limited licenses granted in Section 6(b) , each Party shall exclusively own any Intellectual Property that it creates, develops or invents in connection with the provision of any Services hereunder.
(d) While using or accessing any computers, systems, software, networks, information technology or related infrastructure or equipment (including any data stored thereon or transmitted thereby) ( Systems ) of the other Party (whether or not a Service), each Party shall and shall cause each of its Subsidiaries to, adhere in all respects to the other Partys controlled processes, policies and procedures (including any of the foregoing with respect to Confidential Information, data, communications and system privacy, operation, security and proper use) as in effect on the Distribution Date or as communicated to such Party from time to time in writing.
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(e) Service Provider and Service Recipient shall each maintain reasonable, current security measures (i) to prevent unauthorized access to its systems and (ii) with respect to all data contained in its facilities, networks and systems and used in connection with the Services. Such measures shall in no event be less stringent than those used to safeguard such Partys own property, or industry standard security measures used by companies of a similar size. Such measures shall include, where appropriate, use of updated firewalls, virus screening software, logon identification and passwords, encryption, intrusion detection systems, logging of incidents, periodic reporting, and prompt application of current security patches, virus definitions and other updates. Service Recipient shall not install any new equipment, software or technology or modify the setup of any existing equipment, software or technology that is, or will be, connected to Service Providers facilities, networks or systems without the prior consent of Service Provider.
(f) Service Provider may suspend Service Recipients access (if any) to the information technology or communications systems used by Service Recipient following advance written notice to the extent practicable if, in Service Providers reasonable opinion (i) the integrity, security or performance of its systems, or any data stored on them, is being or is likely to be jeopardized by the activities of Service Recipient, or (ii) continued access to those information technology or communications systems by Service Recipient would expose Service Provider to liability. Service Recipient shall take appropriate corrective actions and if such actions fully resolve the matter (as determined by Service Provider in its sole discretion), Service Provider shall restore such access to Service Recipient.
(g) Each Party reserves the right to terminate all Services that provide access to such Partys information technology or communications systems, in its sole discretion and without limitation or termination liability, if Service Recipient or Service Provider, as applicable, remains in breach of this Section 6 five (5) Business Days after receipt of notice of such breach. Service Provider and Service Recipient acknowledge that the security measures used by the other as of the date of this Agreement are in compliance with this Section 6.
(h) Each party will comply with all applicable privacy and other Laws and regulations relating to protection, collection, use, and distribution of information (including Customer Information) received by a Party in connection with the Services that can be associated with or traced to any individual, including an individuals name, address, telephone number, e-mail address, credit card information, social security number, or other similar specific factual information, regardless of the media on which such information is stored (e.g., on paper or electronically), and which includes certain of such information that is generated, collected, stored or obtained as part of this Agreement, including transactional and other data pertaining to users ( Personally Identifiable Information ). In no event may a Party sell or transfer Personally Identifiable Information to third parties other than its Affiliates, or otherwise provide third parties other than its Affiliates with access thereto, except (i) as may be allowed pursuant to other written agreements between the Parties, or (ii) in the case of Service Provider, with any of its Third Party Providers assisting Service Provider with the performance of the Services hereunder. If there is a suspected or actual breach of security involving Personally Identifiable Information, responsible Party will notify the other Partys privacy counsel within twenty four (24) hours of a management-level associate becoming aware of such occurrence.
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(i) Those Third Party Providers (and their personnel) of Service Recipient and Service Provider (or their respective Affiliates) having access to the other Partys Systems may be required by Service Provider or Service Recipient, as the case may be, to enter into a customary non-disclosure agreement in connection with, and as a condition to, such access.
7. Records .
Service Provider shall use commercially reasonable efforts to provide to Service Recipient, taking into consideration the financial reporting, internal controls and other public company requirements of Service Recipient, all information and records reasonably required to maintain full and accurate books relating to the provision of Services whether prior to or after the Distribution Date. Upon reasonable notice and reasonable request from Service Recipient, and at Service Recipients cost, Service Provider shall (a) make available for inspection and copying by Service Recipients agents or representatives such information, books and records relating to the Services during reasonable business hours and (b) certify that the controls in effect prior to the Distribution Date continue to be in effect, or if Service Provider is aware of any instances where such controls are not so in effect, in lieu of certification for such instances, provide a list of such instances and descriptions of the change in such controls thereof.
8. Force Majeure; Reduction of Services .
No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible. Notwithstanding the foregoing, Service Recipient shall be entitled to terminate Services so affected by a Force Majeure upon fifteen (15) days prior written notice in respect of any such delay or failure resulting from any such Force Majeure without any penalty or obligation to pay for Services not performed; provided that, for the avoidance of doubt, Service Recipient shall remain responsible for any severance costs for any such Services to the extent set forth in Section 2(a)(ii).
9. TSA Managers; Steering Committee; Dispute Resolution .
(a) Each Party shall nominate in writing one representative to act as the primary contact with respect to the provision and receipt of Services (a TSA Manager ), with the initial TSA Managers as listed on Schedule A . Each Party may, at its discretion, from time to time select another individual to serve in these capacities during the term of this Agreement; provided , however , each Party shall notify the other Party promptly (and in any event within five (5) Business Days) of any change in an individual serving in this capacity, setting forth the name and contact information of the replacement, and stating that such replacement is authorized to act for such Party in accordance with this Section 9(a) . The TSA Managers shall meet regularly or as needed.
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(b) A steering committee (the Steering Committee ) of the TSA Managers, a finance executive from each Party (the Finance Officers ) and corporate counsel from each Party (the Legal Officers ) will have overall responsibility for oversight, administration and issue resolution relating to the performance and migration of Services under this Agreement. The Finance Officers will liaise with the TSA Managers and the Legal Officers to suggest modifications to Services or their costs (as necessary). The Legal Officers will adjust the schedule of Services to reflect changes in scope (as necessary).
(c) In the event of a dispute arising out of or in connection with this Agreement (including its interpretation, performance or validity) (collectively, Agreement Disputes ), the TSA Managers shall meet as expeditiously as possible to resolve same. If any Agreement Dispute is not resolved within thirty (30) days, a TSA Manager may notify each Partys Chief Financial Officer (or such other executive designated thereby), who shall attempt to resolve such Agreement Dispute for a maximum of fifteen (15) days after the prior thirty (30) day period (such period of days, the Negotiation Period). The relevant Parties shall not assert the defenses of statute of limitations and laches for any delays arising due to the procedures in Sections 9(c) or 9(d).
(d) If the Parties have not timely resolved the Agreement Dispute under Section 9(c), the Parties agree to submit the Agreement Dispute to mediation no later than 10 days following the end of the Negotiation Period, with such mediation conducted in accordance with the Mediation Procedure of the International Institute for Conflict Prevention and Resolution ( CPR ). The Parties to the Agreement Dispute agree to bear equally the CPR and mediators costs for same. The Parties agree to participate in good faith in the mediation for a maximum of 14 days (or a mutually agreed extension). If the Parties have not timely resolved the Agreement Dispute pursuant to this Section 9(d), either Party may then bring an action in accordance with Sections 26 and 27 herein.
(e) In the event of any dispute between the Parties regarding a Service prior to the applicable Termination Date (other than a Partys failure to pay undisputed amounts due), Service Provider shall not discontinue the supply of any such Service during the above dispute resolution process, unless so requested by Service Recipient pursuant to a Termination Notice.
(f) All information and communications between the Parties relating to an Agreement Dispute and/or under the procedures in Sections 9(c) and 9(d) shall be considered Confidential Information under Section 13 herein.
10. Disclaimer; Limited Liability .
(a) Service Recipient acknowledges that Service Provider is not in the business of providing the Services and that the Services being provided pursuant to this Agreement are provided as an accommodation to Service Recipient. Other than in the event of Service Providers fraud, gross negligence or willful misconduct, Service Provider will not be liable for any error or omission in rendering Services under this Agreement, or for any defect in Services so rendered; provided that if there is a substantial error in any of the Services, Service Provider shall use commercially reasonable efforts to attempt to correct the error, or if Service
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Provider is unable to so correct such error, to provide an adjustment to the Market Rate for such Service in reasonable proportion to that which the error bears to the Service provided for such month, which adjustment may, pursuant to Section 2(a)(i)(1 ) , include any reasonable out-of-pocket costs and expenses incurred by Service Recipient in retaining a Third Party Provider to provide such Service or in providing such service itself. Other than in the event of Service Providers fraud, gross negligence or willful misconduct, and other than for the Market Rate, severance costs owed under Section 2(a)(ii) and other amounts expressly owed hereunder, Service Provider will not be liable for any damages, fines, penalties, deficiencies, losses, liabilities (including settlements and judgments) and expenses (including interest, court costs, reasonable fees and expenses of attorneys, accountants or other experts and professionals or other reasonable fees and expenses of litigation or other proceedings or of any claim, default or assessment) ( Losses ) arising out of a breach of Service Providers obligations in connection with the Services provided under this Agreement. Service Provider agrees to indemnify, defend and hold harmless Service Recipient and its Affiliates and their respective directors, officers, employees and agents as a result of the fraud, gross negligence or willful misconduct of Service Provider or its Affiliates or any of their respective directors, officers, employees or agents. Service Recipient agrees to indemnify, defend and hold harmless Service Provider and its Affiliates and their respective directors, officers, employees and agents from any Loss resulting from Service Recipients breach of any Third Party Provider Use Requirements.
(b) NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESSED OR IMPLIED (INCLUDING WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, ACCURACY, SATISFACTORY QUALITY, FITNESS FOR A PARTICULAR PURPOSE OR CONFORMITY TO ANY REPRESENTATION OR DESCRIPTION), ARE MADE BY SERVICE PROVIDER OR ANY OF ITS AFFILIATES WITH RESPECT TO THE PROVISION OF SERVICES UNDER THIS AGREEMENT AND, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL SUCH REPRESENTATIONS OR WARRANTIES ARE HEREBY WAIVED AND DISCLAIMED. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, UNDER NO CIRCUMSTANCES, INCLUDING THE FAILURE OF THE ESSENTIAL PURPOSE OF ANY REMEDY, SHALL SERVICE PROVIDER BE LIABLE FOR, INCLUDING BUT NOT LIMITED TO, ANY LOST PROFITS, BUSINESS INTERRUPTIONS, CUSTOMER CLAIMS, REMITTANCES, COLLECTIONS, INVOICES, PENALTIES, INTEREST OR SPECIAL, INCIDENTAL, PUNITIVE, CONSEQUENTIAL OR EXEMPLARY DAMAGES CAUSED BY THE PERFORMANCE OF, ANY DELAY IN THE PERFORMING, FAILURE TO PERFORM OR DEFECTS IN THE PERFORMANCE OF, THE SERVICES CONTEMPLATED TO BE PERFORMED BY SERVICE PROVIDER PURSUANT TO THIS AGREEMENT, REGARDLESS OF WHETHER A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
11. Term and Service Termination Dates .
(a) This Agreement (other than Sections 9 , 10 , 11 and 13 ) shall terminate upon the last of the Termination Dates in respect of all Services to be provided hereunder; provided that the rights of the Parties in respect of any claims that have accrued prior to such termination shall survive such termination.
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(b) For each Service, the service period during which Service Provider is obligated to provide such Service to Service Recipient ends as of the Termination Date set forth on the applicable Services Schedule. The Parties agree to cooperate if necessary to adjust the applicable Termination Date to end on a date that is the end of a calendar or fiscal month, as deemed appropriate. Service Recipient may terminate any Service prior to its Termination Date by providing to Service Provider written notice of termination, which shall be deemed irrevocable upon delivery (a Termination Notice ), not less than sixty (60) days before the date of such earlier termination except as otherwise specified in the Services Schedules; provided that if the Services Schedules indicate that any Service is dependent on one or more other Services, then each such Service must be terminated together; provided further that any termination may be on a location by location basis if so indicated on the Services Schedules. In the event a Service is terminated prior to its Termination Date pursuant to Service Recipients Termination Notice, Service Recipient shall reimburse Service Provider for any out-of-pocket costs incurred by Service Provider through the date of receipt of any Termination Notice in expectation that such Service would be provided until the applicable Termination Date (subject to Service Provider exercising commercially reasonable efforts to mitigate such costs). Notwithstanding the foregoing, upon the receipt of a Termination Notice, if Service Provider is unable to transition the applicable Service to Service Recipient or its designee in a commercially reasonable manner which does not unduly disrupt the Service on the requested termination date, Service Provider shall use commercially reasonable efforts consistent with past practice to transition such Service as soon as possible, and any resulting third party out-of-pocket costs to Service Recipient shall be paid by Service Recipient.
(c) In the event either Party defaults in the performance of any of its obligations under this Agreement, and if such default is not excused and not cured within thirty (30) days after written notice from the other Party specifying such default, then the non-defaulting Party may at any time thereafter terminate, at its option, any such Service that is the subject of such default by giving five (5) days prior written notice; provided that if no such termination notice is given within fifteen (15) days after the end of the thirty (30) day cure period, then the non-defaulting Party waives all rights to terminate such Service with respect to such default; provided further , that such fifteen (15) day period referred to in the immediately foregoing proviso shall be extended if (x) the Parties dispute whether there has been a default hereunder or (y) agree that there has been a default hereunder and have a dispute related to such default, and in either case are attempting to resolve such dispute pursuant to Section 9(c) until ten (10) days after there has been a final determination pursuant to the procedures in Section 9(c ) .
(d) Any Service can be terminated prior to the Distribution Date, with no fee, penalty or ongoing obligation, if Service Recipient provides a Termination Notice to Service Provider (which may be via email) at least ten (10) Business Days prior to the Distribution Date; provided , however , that Service Recipient shall reimburse Service Provider for any out-of-pocket costs incurred by Service Provider through the date of receipt of any Termination Notice received prior to the Distribution Date (subject to Service Provider exercising commercially reasonable efforts to mitigate such costs).
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12. Independent Contractor .
The Parties hereto understand and agree that this Agreement does not make either of them an agent or legal representative of the other for any purpose whatsoever. No Party is granted, by this Agreement or otherwise, any right or authority to assume or create any obligation or responsibilities, express or implied, on behalf of or in the name of any other Party, or to bind any other Party in any manner whatsoever. The Parties expressly acknowledge (i) that Service Provider is an independent contractor with respect to Service Recipient in all respects, including the provision of the Services, and (ii) that the Parties are not partners, joint venturers, employees or agents of or with each other.
13. Confidentiality .
(a) Any Confidential Information of the Parties shall be subject to Section 8.6 of the Distribution Agreement. With respect to any information disclosed by one Party to another Party for the purpose of this Agreement or otherwise accessible to such other Party during the performance hereunder, including any Customer Information ( Confidential Information ), the Party receiving such Confidential Information agrees that it will use the same skill and care as set forth in Section 1(a) to prevent the disclosure or accessibility to others of the disclosing Partys Confidential Information and will use such Confidential Information only for the purposes of this Agreement, the Distribution Agreement and the Ancillary Agreements. The receiving Party and its employees, representatives and agents (including any Third Party Provider) (collectively, the Recipient Parties ) shall only disclose and permit access to Confidential Information of the other Parties to such Recipient Parties who have a need to know such Confidential Information for the purposes of this Agreement, the Distribution Agreement or the Ancillary Agreements and who are informed of the obligation to hold such Confidential Information confidential and in respect of whose failure to comply with such obligations, the applicable Party will be responsible. For Confidential Information provided with respect to any Service, the obligations of the Recipient Parties pursuant to this Section 13 shall expire on the date that is five (5) years from the termination of such Service. Each Party shall provide prompt written notice of any breach of the obligations under this Section 13 by such Party or its Recipient Parties and shall use commercially reasonable efforts to assist the other Party in remedying any such breach.
(b) Specifically excluded from the definition of Confidential Information is any and all information that:
(i) is independently developed by the Recipient Parties after the Effective Time without reference to any Confidential Information;
(ii) is or comes to be in the public domain or available to the public through no fault of the Recipient Parties of the Confidential Information; or
(iii) is lawfully acquired after the Effective Time by the Recipient Parties from other sources not known to be subject to confidentiality obligations with respect to such Confidential Information.
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(c) If the Recipient Party is required to disclose Confidential Information by Law, process or regulation, to the extent legally permissible, such Recipient Party shall promptly notify the disclosing Party, reasonably cooperate with the disclosing Party to the extent it may seek to limit such disclosure and, insofar as a protective order or waiver from the disclosing Party is not obtained, only disclose such Confidential Information that is required to be disclosed.
(d) In connection with any permitted disclosure of this Agreement to any third party, each Party shall redact the portions of the Services Schedules that are not relevant to such third partys inquiry.
(e) It is further understood and agreed that money damages may not be a sufficient remedy for any breach of this Section 13 and that each Party shall be entitled to seek equitable relief, including injunction and specific performance, as remedy for any such breach in any court of competent jurisdiction, without posting bond or other security. Such remedies shall not be deemed to be the exclusive remedies for a breach, but shall be in addition to all other remedies herein described available at law or equity.
14. Audit Rights .
(a) Audits by Service Provider . Upon notice from Service Provider, Service Recipient shall use commercially reasonable efforts to provide Service Provider, its auditors (including internal audit staff and external auditors), inspectors, regulators and other reasonably designated representatives as Service Provider may from time to time designate in writing (collectively, the Service Provider Auditors ) with access to, at reasonable times, any Service Recipient facility or part of a facility at which Service Recipient is using the Services, Service Recipient personnel, and data and records relating to the Services for purposes of verifying compliance with this Agreement. Service Provider audits may include security reviews (including Service Recipients completion of security-related questionnaires) of the Services and Service Recipients systems, including reasonable use of automated scanning tools such as network scanners, port scanners, and web inspection tools. Service Recipient will provide any assistance that Service Provider Auditors may reasonably require with respect to such audits. Upon notice from Service Recipient, Service Provider shall provide Service Recipient and its auditors with access to, at reasonable times, books and records relating to the Services or this Agreement in order for Service Recipient to comply with applicable Laws.
(b) Audits by Service Recipient . Service Recipient shall have the right, upon at least thirty (30) days written notice to Service Provider, and in a manner to avoid unreasonable interruption to Service Providers business, to perform audit procedures over Service Providers internal controls and procedures for the Services provided by Service Provider under this Agreement; provided that, such audit right shall exist solely to the extent required by Service Recipients external auditors to ensure Service Recipients compliance with the Sarbanes-Oxley Act of 2002, to determine if Service Recipients financial statements conform to Generally Accepted Accounting Principles (GAAP), to verify third-party expenses or to the extent required by any Governmental Authority; provided , further , that such audit right shall not grant Service Recipient the right to perform audit activities with respect to any Third Party Provider engaged in the provision of the Services. Service Provider shall use commercially
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reasonable efforts to provide Service Recipient and its auditors with appropriate space, furnishings, and telephone, facsimile and photocopy equipment as Service Recipient or its auditors may reasonably require to perform such audit procedures. Service Provider shall consider in good faith, but shall not be obligated to make, changes to its controls and procedures to address any findings of such audits. Service Recipient shall pay or reimburse all of Service Providers incremental costs arising from all such audit-related activities, provision of space, furnishings and equipment, and analysis and implementation, if any, of any potential changes in Service Providers controls or procedures described in this Section 14(b ).
15. Beneficiary of Services; No Third Party Beneficiaries.
This Agreement is for the sole benefit of the Parties hereto, and nothing expressed or implied shall give or be construed to give any Person any legal or equitable rights hereunder, whether as a third-party beneficiary or otherwise. Each Party agrees, and each Party in its capacity as a Service Recipient represents and warrants, that the Services shall be provided solely to, and shall be used solely by, Service Recipient and its Subsidiaries. Service Recipient shall not resell or provide the Services to any other Person, or permit the use of the Services by any Person other than Service Recipient and its Subsidiaries.
16. Entire Agreement .
This Agreement, together with the Distribution Agreement and the other Ancillary Agreements, constitutes the entire agreement of the Parties with respect to the subject matter hereof, and supersedes all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter hereof. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of the Distribution Agreement or any other Ancillary Agreement, the Parties agree that this Agreement shall govern. The Parties agree that, in the event of an express conflict between the terms of this Agreement and a Services Schedule, the terms of the Services Schedule shall govern as it relates to the Services to which such terms and conditions apply.
17. Amendment; Waiver .
This Agreement and the Services Schedules may be amended, and any provision of this Agreement may be waived, only if such amendment or waiver is in writing and signed, in the case of an amendment, by each of the Parties, or in the case of a waiver, by the Party against whom the waiver is effective. No failure or delay by either Party in exercising any right, power or privilege under this Agreement shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.
18. Notices .
All notices, requests, claims, demands and other communications to any Party hereunder shall be in writing (including telecopy, electronic transmission or similar writing) and shall be given as follows:
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if to HLT:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 883-6188
if to PK:
Park Hotels & Resorts Inc.
1600 Tysons Blvd., Suite 1000
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 893-1057
if to HGV:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, Florida 32835
Attn: General Counsel
Facsimile: (407) 722-3776
or to such other address or telecopy number and with such other copies, as such Party may hereafter specify for the purpose of notice to the other Parties. All notices, requests, claims, demands and other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile or electronic transmission with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 18 ).
19. Non-Assignability .
Neither this Agreement nor any of the rights, interests or obligations of either Party hereunder may be assigned or transferred by any such Party without the prior written consent of the other Party (not to be unreasonably withheld, delayed or conditioned), and any purported assignment, without such prior written consent shall be null and void. Notwithstanding the foregoing, (a) any Party may assign or transfer all its rights hereunder without such consent to an acquirer in connection with a sale of all or substantially all of its assets or other similar change in control of such Party and (b) Service Provider may assign any or all of its rights or obligations arising under this Agreement to any of its Affiliates that is reasonably capable of providing the Services ( provided , however , that Service Provider shall remain primarily responsible for its obligations under this Agreement notwithstanding any such assignment).
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20. Further Assurances .
From time to time after the date hereof, without further consideration, each Party shall use commercially reasonable efforts to take, or cause to be taken, all appropriate action, do or cause to be done all things reasonably proper or advisable under applicable Law, and execute and deliver such documents as may be required or appropriate to carry out the provisions of this Agreement and to consummate, perform and make effective the transition contemplated hereby.
21. Definitions and Rules of Construction .
(a) Defined terms used in this Agreement have the meanings ascribed to them by definition in this Agreement or in the Distribution Agreement.
(b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
(c) Whenever the words include, including, or includes appear in this Agreement, they shall be read to be followed by the words without limitation or words having similar import.
(d) As used in this Agreement, the plural shall include the singular and the singular shall include the plural.
(e) All references to $ herein shall be references to U.S. Dollars.
22. Counterparts; Effectiveness .
This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 22 , provided that receipt of copies of such counterparts is confirmed. This Agreement shall become effective when each Party has received a counterpart hereof signed by the other Party hereto.
23. Section Headings .
The section headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.
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24. Severability .
If any provision of this Agreement shall be declared by any court of competent jurisdiction to be illegal, void or unenforceable, all other provisions of this Agreement shall not be affected and shall remain in full force and effect, and the Parties shall negotiate in good faith to replace such illegal, void or unenforceable provision with a provision that corresponds as closely as possible to the intentions of the Parties as expressed by such illegal, void, or unenforceable provision.
25. Governing Law .
This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.
26. Consent to Jurisdiction .
Each Party irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware or (b) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the State of Delaware, to resolve any Agreement Dispute that is not resolved pursuant to Sections 9(c) or 9(d). Any judgment of such court may be enforced by any court of competent jurisdiction. Further, notwithstanding Sections 9(c) and 9(d), either Party may apply to the courts specified in this Section 26 for a temporary restraining order or similar emergency relief during the process set forth in such Sections. Each of the Parties agrees that service by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any of the above Actions and irrevocably and unconditionally waives any objection to the laying of venue of any Action in accordance with this Section 26. Nothing in this Section 26 shall limit or restrict the Parties from agreeing to arbitrate any Agreement Dispute pursuant to mutually-agreed procedures.
27. Waiver of Jury Trial .
EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING ANY AGREEMENT DISPUTE.
[ Remainder of Page Intentionally Blank ]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. | ||
By: | ||
Name: | ||
Title: |
PARK HOTELS & RESORTS INC. | ||
By: | ||
Name: | ||
Title: |
HILTON GRAND VACATIONS INC. | ||
By: | ||
Name: | ||
Title: |
SCHEDULE A
TSA Managers
HLT: Mike Duffy
HGV: Eduardo Schutte
PK: Darren Robb
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MASTER TRANSITION SERVICES AGREEMENT
SERVICES SCHEDULES
1. | FINANCE |
2. | HUMAN RESOURCES |
3. | INFORMATION TECHNOLOGY |
4. | LEGAL |
5. | RISK MANAGEMENT |
1
MASTER TRANSITION SERVICES AGREEMENT
SERVICES SCHEDULES
1. | FINANCE |
A. | FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY HLT TO HGV |
B. | FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY HLT TO PK |
C. | FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY HGV TO HLT |
D. | FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY PK TO HLT |
2
FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY HLT TO HGV 1
Services |
Market Rate Costs and Expenses |
Service Period 2 |
||
Shared Service (US) |
||||
Accounts Payable processing support, including:
Invoice processing
Payment processing (check printing, ACH, payments, etc.)
Payment voiding and stopping
Payment investigation
W-9 maintenance
Vendor 1099 preparation (service will be completed in January of the year following service termination)
Invoice archiving and maintenance
Vendor Master Data maintenance |
HGV: $3.00/ voucher
Express Checks (same day printing) $25.00 per check
Special Handling of Payments $10.00/ check
Returned Checks $10.00/ check
Stop/ void Payment$10.00/ check |
12/31/17 |
1 | HWHI may, at its sole election determine that certain finance and accounting services that it currently performs as of the date of this agreement may be performed by a third party or outsourced vendor. For the Service Period, to the extent that HWHI elects to engage a third party or outsourced vendor to perform the Services in whole or in any part, it will ensure that the Services are provided on a consistent basis with current HWHI standards, policies and procedures. HWHI will inform HGV to the extent that any Services are being performed by a third party or outsourced vendor. HWHI will also ensure that any third party or outsourced vendor meets its then-current standards for execution of internal controls over financial reporting and other relevant framework. |
2 | Services to continue to be available and provided on request of recipient through no later than date noted. |
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4
5
6
Services |
Market Rate Costs and Expenses |
Service Period 2 |
||
Governmental required reporting (U.S. Bureau of Economic Analysis, Census Bureau, etc.), including quarterly and annual filings as required. | Up to $3,350 per quarter for quarterly filings and an additional $8,625 for separate annually required filings. | 6/30/18 | ||
Financial Systems |
||||
Provide governance and support for code block requests based upon Hiltons current definitions and timing. Ensure code block segments are appropriately configured and setup in the necessary PeopleSoft and Hyperion applications. Current Hilton related controls will be applied to all areas. Provide Blackline security administration as currently provided | $9,000/ month | 12/31/17 | ||
Consulting type services to support transition of business processes | $150/ hour | 12/31/17 | ||
Consulting support for Hyperion, PeopleSoft, and other financial applications | $175/hour | 12/31/17 | ||
Any activity/support required to effect the separation of financial applications will be mutually agreed upon. | Hourly rates on an as needed basis | 12/31/17 | ||
APAC Service (HGV) |
||||
Accounts Payable service including:
Coding of invoices
Review of department level results
Process cash disbursements, expense reports, electronic wires |
For A/P and Payroll: At cost for 2.6 FTE and rent $16,667/ month | 12/31/2017 |
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8
Services |
Market Rate Costs and Expenses |
Service Period 2 |
||
Cash & Banking: Incremental Backup (US) Ad hoc support to backfill US cash & banking functions, beyond support provided under fixed cost bundle |
Per hour charge $50/hour | 12/31/2017 | ||
Cash & Banking: Incremental Backup (UK, ROW) Ad hoc support to backfill UK and ROW cash & banking functions, beyond support provided under fixed cost bundle, subject to banking access |
Per hour charge $65/hour | 12/31/2017 | ||
Cash & Banking Consulting (Project) Engagement on multi-hour projects, as defined by HGV/PK and agreed by Hilton, on design and/or implementation of global cash & banking services |
Per hour charge $150/hour | 12/31/2017 | ||
Risk/Liquidity Consulting (Project) Engagement on multi-hour projects, as defined by HGV/PK and agreed by Hilton, on design and/or implementation of global risk & liquidity management |
Per hour charge $325/hour | 12/31/2017 | ||
Treasury System Consulting (Project) Engagement on multi-hour projects, as defined by HGV/PK and agreed by Hilton, on design and/or implementation of treasury systems solutions |
Per hour charge $325/hour | 12/31/2017 |
9
Services |
Market Rate Costs and Expenses |
Service Period 3 |
||
Tax 4 |
||||
Tax Compliancefurnishing data through 12/31/16 periods | The TMA stipulates each party is to fulfill its obligation at its own cost. No charging for services to occur. | Through completion of 2016 compliance. | ||
Tax audit activity through the 12/31/17 periods. Cooperation and participation rights among the three companies as necessary for administration and completion of tax audits. Rights and obligations for such are stipulated in the TMA. | The TMA stipulates each party is to fulfill its obligation at its own cost. No charging for services to occur. | Through completion of audits up to the periods ending 12/31/17. | ||
Consulting and provision of services for Income Tax Compliance (beyond activities described in TMA), including:
General consulting regarding historic processes employed to perform Income Tax Compliance
Provision of Income Tax Compliance Services
Tax technology consulting services |
Hourly per rate card plus expenses | 12/31/17 (at HLTs discretion, reasonable requests not to be denied, timing of when services performed at HLT sole discretion) |
3 | Services to continue to be available and provided on request of recipient through no later than date noted. |
4 | The following hourly rates for Tax support apply: |
HWHI: |
SVP Tax | $ | 1,200 | |||
VP1 Tax | 1,200 | |||||
VP Tax | 1,000 | |||||
Senior Director/Director | 800 | |||||
Senior Manager/Manager | 400 | |||||
Other | 350 |
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11
5 | Services to continue to be available and provided on request of recipient through no later than date noted. |
12
FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY HLT TO PK 6
6 | HWHI may, at its sole election determine that certain finance and accounting services that it currently performs as of the date of this agreement may be performed by a third party or outsourced vendor. For the Service Period, to the extent that HWHI elects to engage a third party or outsourced vendor to perform the Services in whole or in any part, it will ensure that the Services are provided on a consistent basis with current HWHI standards, policies and procedures. HWHI will inform PK to the extent that any Services are being performed by a third party or outsourced vendor. HWHI will also ensure that any third party or outsourced vendor meets its then-current standards for execution of internal controls over financial reporting and other relevant framework. |
7 | Services to continue to be available and provided on request of recipient through no later than date noted. |
13
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8 | Services to continue to be available and provided on request of recipient through no later than date noted. |
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16
9 | Services to continue to be available and provided on request of recipient through no later than date noted. |
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10 | Services to continue to be available and provided on request of recipient through no later than date noted. |
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Services |
Market Rate Costs and Expenses |
Service Period |
||
JV Accounting | provided by Accounting, Reporting, Close, and Consolidation | 6/30/18 | ||
Calculation and booking of US GAAP Adjustments |
6/30/18 |
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Intercompany elimination processing and consolidation entries |
6/30/18 |
|||
USD overrides on equity and IC investment accounts |
6/30/18 |
|||
Financial Systems | ||||
Provide governance and support for code block requests based upon Hiltons current definitions and timing. Ensure code block segments are appropriately configured and setup in the necessary PeopleSoft and Hyperion applications. Current Hilton related controls will be applied to all areas. Provide Blackline security administration as currently provided | $1,000.00/month for Corporate requests only | 6/30/18 | ||
Consulting type services to support transition of business processes | $150/ hour | 6/30/18 | ||
Consulting support for Hyperion, PeopleSoft, and other financial applications | $175/hour | 6/30/18 | ||
Functional Hyperion support for applications required to support the PK global close, consolidation processes. Also includes the Hyperion application support of the Operational reporting that will be provided by Global Operations Finance. This specifically excludes any Corporate expense/overhead planning support. | Monthly fixed charge of 1.5 FTE $22,500.00 | 6/30/18 | ||
Any activity/support required to effect the separation of financial applications will be mutually agreed upon. | As per need basis | 6/30/18 |
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11 | Services to continue to be available and provided on request of recipient through no later than date noted. |
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Services |
Market Rate Costs and Expenses |
Service Period 11 |
||
Cash & Banking: Incremental Backup (US) Ad hoc support to backfill US cash & banking functions, beyond support provided under fixed cost bundle |
Per hour charge $50/hour | 12/31/2017 | ||
Cash & Banking: Incremental Backup (UK, ROW) Ad hoc support to backfill UK and ROW cash & banking functions, beyond support provided under fixed cost bundle, subject to banking access |
Per hour charge $65/hour | 12/31/2017 | ||
Cash & Banking Consulting (Project) Engagement on multi-hour projects, as defined by HGV/PK and agreed by Hilton, on design and/or implementation of global cash & banking services |
Per hour charge $150/hour | 12/31/2017 | ||
Risk/Liquidity Consulting (Project) Engagement on multi-hour projects, as defined by HGV/PK and agreed by Hilton, on design and/or implementation of global risk & liquidity management |
Per hour charge $325/hour | 12/31/2017 | ||
Treasury System Consulting (Project) Engagement on multi-hour projects, as defined by HGV/PK and agreed by Hilton, on design and/or implementation of treasury systems solutions |
Per hour charge $325/hour | 12/31/2017 |
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Services |
Market Rate Costs and Expenses |
Service Period 12 |
||
Tax 13 | ||||
Tax Compliancefurnishing data through 12/31/16 periods | The TMA stipulates each party is to fulfill its obligation at its own cost. No charging for services to occur. | Through completion of 2016 compliance. | ||
Tax audit activity through the 12/31/17 periods. Cooperation and participation rights among the three companies as necessary for administration and completion of tax audits. Rights and obligations for such are stipulated in the TMA. | The TMA stipulates each party is to fulfill its obligation at its own cost. No charging for services to occur. | Through completion of audits up to the periods ending 12/31/17. | ||
Consulting and provision of services for Income Tax Compliance (beyond activities described in TMA), including:
General consulting regarding historic processes employed to perform Income Tax Compliance
Provision of Income Tax Compliance Services
Tax technology consulting services |
Hourly per rate card plus expenses | One year post spin at HLTs discretion, reasonable requests not to be denied, timing of when services performed at HLT sole discretion. |
12 | Services to continue to be available and provided on request of recipient through no later than date noted. |
13 | The following hourly rates for Tax support apply: |
HWHI: |
SVP Tax | $ | 1,200 | |||
VP1 Tax | 1,200 | |||||
VP Tax | 1,000 | |||||
Senior Director/Director | 800 | |||||
Senior Manager/Manager | 400 | |||||
Other | 350 |
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14 | Services to continue to be available and provided on request of recipient through no later than date noted. |
24
FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY HGV TO HLT
15 | Services to continue to be available and provided on request of recipient through no later than date noted. |
16 | The following hourly rates for Tax support apply: |
HGV |
VP Tax | $ | 1,000 | |||
Sr Director/Director | 800 | |||||
Sr Manager/Manager | 400 | |||||
Other | 350 |
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Services |
Market Rate Costs and Expenses |
Service Period 15 |
||
Consulting and provision of services for Income Tax Compliance (beyond activities described in TMA), including:
General consulting regarding historic processes employed to perform Income Tax Compliance
Provision of Income Tax Compliance Services
Tax technology consulting services |
Hourly per rate card plus expenses | One year post spin at HLTs discretion, reasonable requests not to be denied, timing of when services performed at HLT sole discretion. | ||
Income tax audit matters (beyond activity described in TMA), including:
provision of data,
cooperation,
general consulting |
Hourly per rate card plus expenses | One year post spin. | ||
General income tax consulting, including
consulting regarding tax planning
structuring specific to the spin |
Hourly per rate card plus expenses | One year post spin. | ||
Indirect (sales/use) taxesgeneral consulting | Hourly per rate card plus expenses | One year post spin. | ||
Financial Planning & Analysis and Treasury | ||||
Ad hoc consulting | $325/hour | 12/31/2017 |
26
FINANCE AND ACCOUNTING SERVICES TO BE PROVIDED BY PK TO HLT
17 | Services to continue to be available and provided on request of recipient through no later than date noted. |
18 | The following hourly rates for Tax support apply: |
Park: |
SVP Tax | $ | 1,200 | |||
VP Tax | 1,000 | |||||
Senior Director/Director | 800 | |||||
Senior Manager/Manager | 400 | |||||
Other | 350 |
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MASTER TRANSITION SERVICES AGREEMENT
SERVICES SCHEDULES
2. | HUMAN RESOURCES |
a. | HR/BENEFITS RELATED SERVICES TO BE PROVIDED BY HLT |
b. | HR/BENEFITS RELATED SERVICES TO BE PROVIDED BY PK |
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HR/BENEFITS RELATED SERVICES TO BE PROVIDED BY HLT
Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Executive Compensation | ||||||
Executive compensation advisory/consulting support | HGV & PK | $250/hour | Through no later than 12/31/2017 | |||
Global Compensation (excluding Executive Compensation) | ||||||
Compensation support related to calculation of 2016 Bonuses and 2017 merit increase and LTI award distribution | HGV & PK | One-time charge of $100,000 (HGV)/ $10,000 (PK) | Through no later than 12/31/2017 | |||
Performance ManagementPM Support 2016cycle performance review/rating process using current performance management system | HGV & PK | One-time charge not to exceed $100,000 (HGV)/ $5,000 one-time charge (PK) | Through no later than 12/31/2017 | |||
Compensation and consulting support Job evaluation, market pricing and general compensation consulting Salary structure building, program design and analysis |
HGV & PK | $250/hour | Through no later than 12/31/2017 | |||
U.S. Benefits | ||||||
Continued health and welfare benefits administrative services, including creation of separate third-party benefit administration platforms (U.S. H&W Program Management Fee) | HGV & PK | Monthly cost $65,000 (HGV)/ $6,000 (PK) | Through no later than 12/31/2017 |
19 | For certain costs that are impacted by participation, the costs in this document are estimated based on current plan enrollment, employee contributions, salaries and elections, as applicable. Actuals will be based on actual number of employees participating, and employee pay and contribution levels. |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Continued participation in US medical, prescription, dental and vision plans | HGV & PK |
Employer health benefit contribution for medical, prescription and dental monthly cost $2,525,000 (HGV)/ $155,000 (PK)
Vision is 100% employee paid. |
Through no later than 12/31/2017 | |||
Continued participation in US basic life insurance policy | HGV & PK | Monthly cost $27,500 (HGV)/ $2,000 (PK) | Through no later than 12/31/2017 | |||
Continued participation in US supplemental, dependent life and accidental death and dismemberment insurance plan | HGV & PK | Cost included as part of the monthly U.S. H&W Program Management Fee. | Through no later than 12/31/2017 | |||
Continued participation in US employer-paid basic short-term disability plan for the benefit of eligible property-level employees | HGV & PK | Monthly cost $42,000 (HGV)/ $1,400 (PK) | Through no later than 12/31/2017 | |||
Continued participation in US long-term disability plan | HGV & PK | Cost included as part of the monthly U.S. H&W Program Management Fee. | Through no later than 12/31/2017 | |||
Continued U.S. Salary Continuation (SALCO) administrative services | HGV & PK | Monthly cost $1,100 (HGV)/ $200 (PK) | Through no later than 12/31/2017 | |||
Continued Adoption Assistance Program administrative services | HGV | Fee of $75 per claim reviewed | Through no later than 12/31/2017 |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Continued participation in US employee assistance program | HGV & PK | Monthly cost $6,500 (HGV)/$450 (PK) | Through no later than 12/31/2017 | |||
Continued participation in US business travel accident insurance policy | HGV & PK | Monthly cost $1,900 (HGV)/ $120 (PK) | Through no later than 12/31/2017 | |||
Continued administrative services related to US voluntary insurance policy (home, auto, pet, legal) | HGV & PK | Cost included as part of the monthly U.S. H&W Program Management Fee. | Through no later than 12/31/2017 | |||
Continued U.S. Health & Welfare HRO administrative services related to enrollment, continuation of benefits, dependent verification, outsourced benefits center 20 | HGV & PK | Monthly cost $38,000 (HGV)/ $3,700 (PK) | Through no later than 12/31/2017 | |||
Continued access to health benefits tax reporting service |
HGV & PK | Monthly cost $5,000 | Through no later than 12/31/2017 | |||
Continued administrative services related to US commuter benefits program | HGV & PK | Monthly cost $200 (HGV)/ $25 (PK) | Through no later than 12/31/2017 | |||
Continued administrative services related to pre-tax flexible spending accounts | HGV & PK | Monthly cost $3,100 (HGV)/ $200 (PK) | Through no later than 12/31/2017 |
20 | If HGV or PK changes its human capital management system, U.S. health and welfare costs will increase. The schedule assumes that HGV and PK will not change their human capital management system. |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Continued administrative services related to pre-tax health savings account benefits | HGV & PK | Monthly cost $825 (HGV)/ $25 (PK) | Through no later than 12/31/2017 | |||
Continued administrative services related to qualified medical child support orders (QMCSO) | HGV & PK | Monthly cost $6,000 (HGV)/ $900 (PK) | Through no later than 12/31/2017 | |||
Continued administrative services of tuition reimbursement program. | HGV & PK | Monthly cost $800 (PK) | Through no later than 12/31/2017 | |||
Continued participation in Go Hilton Programs and related administrative services | HGV & PK | $200,000 annual program management fee (HGV)/ No fee (PK) | HGV and PK continued participation reviewed annually by HLT | |||
Continued access to US domestic relocation support for relocation initiations under relocation plans for current open relocations and new relocation initiations prior to 7/1/2017 under current and revised relocation plans. | HGV & PK | Monthly cost varies based on plan, family size, distance (actual costs will be invoiced to HGV or PK, as applicable, directly) | Through no later than 12/31/2017 | |||
Continued participation in Hilton 401(k) plan and accompanying administrative services | HGV & PK | Monthly cost $22,500 (HGV)/ $2,500 (PK) | Through no later than 12/31/2017 | |||
Matching contributions related to continued participation in Hilton 401(k) plan | HGV & PK | Monthly cost $600,000 (HGV)/ $15,000 (PK). Estimated based on current plan enrollment. Actuals will be based on actual number of employees participating, and employee pay and contribution levels. | Through no later than 12/31/2017 |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Global expatriate services and administration related to retirement and health and welfare plans | HGV & PK |
Monthly cost $4,500 (HGV)/ $7,500 (PK) for health and welfare support Monthly cost $450 (PK) retirement support |
Through no later than 12/31/2017 | |||
Continued access to Hilton U.S. Marketplace site | HGV | Monthly cost $2,000 | Through no later than 12/31/2017 | |||
Non-U.S. Benefits | ||||||
Provide continued general human resources support in Singapore | HGV | Annual cost $500,000 | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued administrative support for UK group private medical insurance scheme | HGV | Monthly cost £40 | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued participation in UK cash medical plan insurance | HGV | 100% employee paid | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued participation in UK dental plan | HGV | Monthly cost £50, including an administrative fee. | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued administrative support for UK Life Assurance Plan | HGV | Monthly cost £29 | Through no later than 12/31/2017, subject to an extension upon review by HLT |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
UK Life Insurance Administrationsupport setting up new plan and transitioning employees from Hilton UK Pension Plan Life Assurance policy | HGV | Fixed, one-time fee to vendor of £5,000 | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued participation in UK long term disability plan | HGV | Monthly cost of £100. Increase possible for 2017 if group is moved moves to Small and Medium Enterprise scheme. | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued participation in UK employee assistance plan | HGV | Monthly cost of £44 | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued access to the Hilton UK and Ireland Marketplace site | HGV | Monthly cost £31 | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Continued administrative support for UK Hilton Worldwide (UK) personal retirement plan (DC Plan) and UK auto-enrollment plan (DC Plan) for certain specified employee(s) | HGV | Monthly cost £127 | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Administrative support in establishing new UK DC plans and related administrative services | HGV | Fixed, one-time fee of £7,000 | Through no later than 12/31/2017, subject to an extension upon review by HLT | |||
Recruitment | ||||||
Continued access to various recruitment-related systems and support (excluding set-up costs) | HGV & PK | Estimated aggregate annual cost $188,500 (HGV)/ $14,810 (PK) | Through no later than 12/31/2017 |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Background check and drug testing (new hire) services. | PK | $4,950 | Through no later than 12/31/2017 | |||
Support for executive and corporate recruitment | PK |
Executive: 25% of base salary per requisition not to exceed $100,000. Corporate: 20% of base salary per requisition |
Through no later than 12/31/2017 | |||
Recruitment services for select properties | PK | Cost is based on a cost per requisition model. | Through no later than 12/31/2017 | |||
Recruitment services for management level resort roles and volume resort roles | HGV | $500 to $2012 (region dependent) per role for management level resort roles and $225 to $1,600 (region dependent) per role for volume resort roles | Through no later than 12/31/2017 (for management resort roles) and 12/31/2017 (for volume resort roles) | |||
Support to design, develop, prepare and deliver affirmative action plans, develop and deliver OFCCP training; provide OFCCP compliance and audit support. | HGV | $19,195 | Through no later than 12/1/2017 | |||
Learning | ||||||
Course hosting and creation on Hilton Worldwide University | HGV |
$20 per current course hosting fee.
$220 per new course to load and host |
Through no later than 3/31/2017 | |||
Continued access to courseware vendor and software | HGV | Estimated aggregate cost $38,520 including license fee. | Through no later than 12/31/2017 |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Sales training learning license fee | HGV | 17% of full 2017 contract amount. | Through no later than 9/30/2017 | |||
Ad-hoc learning and development | PK | $250/hour | Through no later than 12/31/2017 | |||
HR IT Systems | ||||||
Continued support in connection with employee lists, Talent Acquisition/Recruitment, continued access to The Lobby, and performance/talent management consulting support. | HGV & PK | $250/hour | Through no later than (a) 12/31/2017 or (b) until a new HCM is implemented by HGV or PK, whichever comes first. | |||
Continued support to learning systemsHilton Worldwide University (HWU) | HGV | $250/hour | Through no later than (a) 12/31/2017 or (b) until a new HCM is implemented by HGV or PK, whichever comes first. | |||
Continued access to performance management systems 21 | PK | $70/form for exempt employees and $3.50/form for non-exempt employees | Through no later than 12/31/2017 or until a new HCM is implemented, whichever comes first. |
21 | The performance management system is connected to transition services provided under the IT schedules. Please review when considering any modifications to these transition services. |
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Services |
Service Recipient(s) |
Market Rate Costs and Expenses 19 |
Service Period |
|||
Technical software and IT support related to learning and performance management system | HGV & PK | $82,500 (HGV)/ $52,800 (PK) annual cost. Will be billed on a quarterly basis. | Through no later than 12/31/2017 or until a new HCM is implemented, whichever comes first. | |||
Access to human resource call center | PK | $50/case | Through no later than 12/31/2017 | |||
HRIS consultingtechnical system and integration support | HGV & PK | $250/hour | Through no later than 12/31/2017 |
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HR/BENEFITS RELATED SERVICES TO BE PROVIDED BY PK
Services |
Service Recipient(s) |
Market Rate Costs and Expenses |
Service Period |
|||
Non-US Benefits | ||||||
Continued participation in Brazilian health benefits Seguro Saude Empresarial (medical and dental insurance) for certain specified employee(s) | HLT | Monthly cost $1,500 | Through no later than 12/31/2017 | |||
Continued participation in Brazilian life insurance Seguro de Vida Em Grupo (employer paid group life insurance) for certain specified employee(s) | HLT | Monthly cost $50 | Through no later than 12/31/2017 |
| For certain costs that are impacted by participation, the costs in this document are estimated based on current plan enrollment, employee contributions, salaries and elections, as applicable. Actuals will be based on actual number of employees participating, and employee pay and contribution levels. |
39
MASTER TRANSITION SERVICES AGREEMENT
SERVICES SCHEDULES
3. | INFORMATION TECHNOLOGY |
a. | INFORMATION TECHNOLOGY SERVICES TO BE PROVIDED BY HLT TO HGV |
b. | INFORMATION TECHNOLOGY SERVICES TO BE PROVIDED BY HLT TO PK |
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SERVICES TO BE PROVIDED BY HLT TO HGV
Services |
Market Rate Costs and Expenses |
Service Period |
||
Financial and Core HR Systems | ||||
General Ledger Systems Management of general ledger used to keep track of all financial transactions. Hilton provides the following support for GL systems:
Accounts Receivable and Billing Systems Management of systems used to support accounting transactions dealing with the billing of a customer for goods and services that a customer has ordered. Hilton provides the following support for AR and Billing systems:
Accounts Payable Systems Management of systems used to support money owed by Hilton to its suppliers. Hilton provides the following support for accounts payable systems:
Financial Reporting Systems Suite of applications used to support both internal management reporting as well as the foundation for external reporting (e.g., SEC and Statutory). Includes capabilities to create/update budgets and forecasts as well as report on actuals during close.
Enterprise Data Warehouse reporting/HGV Dashboard
Current reports will be serviced as is
Costs of any requested changes will be discussed and costs will be mutually agreed
Budgeting and Forecasting Systems Management of systems used to manage the budgeting and forecasting process. Hilton provides functional and IT support for hotel users during global business working hours with weekend support during budget season.
Reconciliation Systems Management of systems used to manage the financial close process and bank reconciliations. Hilton provides the following support for reconciliation systems: |
Annual cost: $950,000 |
24 months
Can terminate early based on TSA notice provisions
Cannot be scaled down |
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Services |
Market Rate Costs and Expenses |
Service Period |
||
Travel and Expense Systems Management of systems used to process transactions associated with travel and valid company expenses. Hilton provides the following support for travel and expense systems:
Human Resources, Payroll, Timekeeping, and Related Systems Management of the core PeopleSoft 9.1 Human Resources, Payroll and Timekeeping environment including ADP, UniFocus, Greenware, Ceridian UK Payroll and related services. Manage vendor partners including Dell, TCS, etc.
All Financial and Core HR Systems Include:
Functional and IT support for end users.
Ensures that all transactions have been properly accounted for and accurately reflected in the companys accounting process.
Management of all product releases and enhancements.
Management of change control to support SOX compliance.
Infrastructure to support these systems.
Management of license agreements.
End user security administration process. |
||||
Legal and Contracting Systems | ||||
Legal and Contracting Management of systems used to support the legal and contracting functions. Hilton provides the following support for Legal and Contracting systems:
Matter management, contract negotiation document management, contract repository, trademark management, corporate filing tracking, eDiscovery and legal hold management, records management.
Physical and digital records management.
Management of all product releases and enhancements.
Infrastructure to support these systems.
Management of license agreements.
End user security administration process. |
Annual cost: $150,000 |
9 Months
Can terminate early based on TSA notice provisions
Cannot be scaled down |
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Services |
Market Rate Costs and Expenses |
Service Period |
||
Help Desk Services | ||||
Help Desk and Desktop Support Management of the help desk. | Annual cost: $550,000 |
8 Months
Can terminate early based on TSA notice provisions
Can be scaled down based on count of users with access to the help desk |
||
Data Center and Security Management | ||||
Data Center Management of servers and other infrastructure housed in a data center. This includes management of the business resumption planning, disaster recovery requirements and crisis planning/communication.
Identity Systems Management of the Identity Management and Directory Services environments. IDM manages the provisioning and lifecycle of accounts in the Hilton ecosystem.
Management of IDM and Authentication infrastructure.
Day to day support of IDM, LDAP, RSA Access Manager and Securid servers.
Distribution of RSA Securid tokens.
User account management including Add/Remove resources and roles to user accounts moves between Organizations.
User lockout and other password issues including password out of sync issues.
Troubleshooting and resolving account issues.
Creation of Corporate Contractor and Call Center contractor accounts.
Bug fixes for existing IDM functionality.
New feature enhancements for IDM Website.
Creation, testing and deployment of new roles/capabilities according to given business requirements.
Creation, testing and deployment of new workflows to support business processes. |
Annual cost: $4,175,000 |
14 Months
Can terminate early based on TSA notice provisions
Can be scaled down based on count of servers receiving services |
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Services |
Market Rate Costs and Expenses |
Service Period |
||
Creation, testing and deployment of new user types.
Creation, testing and deployment of new SSO federation agreements.
Maintain and administer the information security program protecting the confidentiality, integrity, and availability of data.
Develop and maintain information security policies, standards, and processes.
Provide guidance and direction on information security matters during the project lifecycle, as well as technology and technology services procurement.
Manage information security communications and inquiries with internal and external stakeholders.
Web Proxy Services Management of the web proxy environment used for security and bandwidth management purposes.
Scan, filter, and protect against email attacks originating from malicious attachments, links, and other methods.
Services are not severable while using the Hilton email system.
Scan and block malicious network traffic.
Control internal and external network traffic based on network, host, and port / protocol.
Services are not severable while using Hilton Internet, data center, and / or WAN connections.
Protect against malicious activity on servers and workstations.
Perform change auditing and alerting.
Protect sensitive accounts and passwords from misuse.
Identify security vulnerabilities and route for resolution.
Services are not severable while hosts reside in Hilton networks.
Monitor the environment for potential security incidents. Review and investigate as warranted.
Platform to deliver and track information security awareness training for general users. |
44
Services |
Market Rate Costs and Expenses |
Service Period |
||
Platform to deliver and track secure code training for developers.
Maintain and enhance the IT internal controls program necessary to support SOX requirements and the Centralized Accounting service organization audit (SOC1).
Maintain and enhance the PCI program necessary to support periodic compliance validation reporting.
File and Print Services Management of local file and print services along with any other local on premise servers. |
||||
Telecom / Network Systems | ||||
Telecom Systems Management of the telecom environment. This includes cloud PBX, voice mail, conference calling, etc.
Management of all product releases and enhancements.
Infrastructure to support these systems.
Management of license agreements.
End user security administration process.
VPN Services Management of the VPN environment for all global network access.
Network Connectivity Management of the Local and Wide Area Networking environment. Includes items such as switches, WAPs, routers, etc. Also includes access to video conferencing. |
Annual cost: $550,000 |
14 Months
Can terminate early based on TSA notice provisions
Cannot be scaled down |
||
Email and Related Services | ||||
Email and Related Services Management of the email environment. This includes distribution list creation and management, email archiving, mobile device access, instant messaging, list server, etc.
Management of all product releases and enhancements.
Infrastructure to support these systems.
Management of license agreements.
End user security administration process. |
Annual cost: $650,000 |
8 Months
Can terminate early based on TSA notice provisions
Can be scaled down based on count of email users receiving services |
45
Services |
Market Rate Costs and Expenses |
Service Period |
||
Intranet and Portal Systems | ||||
Intranet and Portal Systems Management of the Intranet, Portal and Team Sites.
Corporate communications, portfolio reporting, property operational reporting and collaboration resources.
Management of all product releases and enhancements.
Infrastructure to support these systems.
Management of license agreements.
End user security administration process. |
Annual cost: $200,000 |
10 Months
Can terminate early based on TSA notice provisions
Cannot be scaled down |
||
Pass Through of Direct Software Costs | ||||
Direct Software Costs including Oracle and Microsoft. | Annual cost: $2,325,000 |
24 months
Can terminate early based on TSA notice provisions
Can be scaled down based on direct costs |
||
Benefits Conversion | ||||
Conversion: HGVC and REIT will be responsible for all aspects (including cost) of the migration of systems to their end state environments during the transition period. This includes any required system selection, contracting, design, implementation, and testing of the systems. All system configuration data such as user profiles, report definition, interface configurations, external interface data, system rules, application tables, etc. will be provided by Hilton as reasonably requested. Hilton will provide any available documentation of current system configurations as reasonably requested. | $300/hour |
24 months
Cost based on actual usage |
46
Services |
Market Rate Costs and Expenses |
Service Period |
||
Data Migration | ||||
Systems & Data Migration: Hilton will provide data owned by the relevant party in a format requested as reasonably requested. | $300/hour |
24 months
Cost based on actual usage |
47
SERVICES TO BE PROVIDED BY HLT TO PK
Services |
Market Rate Costs and Expenses |
Service Period |
||
Financial Systems | ||||
General Ledger Systems Management of general ledger used to keep track of all financial transactions. Hilton provides the following support for GL systems:
Accounts Receivable and Billing Systems Management of systems used to support accounting transactions dealing with the billing of a customer for goods and services that a customer has ordered. Hilton provides the following support for AR and Billing systems:
Accounts Payable Systems Management of systems used to support money owed by Hilton to its suppliers. Hilton provides the following support for accounts payable systems:
Financial Reporting Systems Suite of applications used to support both internal management reporting as well as the foundation for external reporting (e.g., SEC and Statutory). Includes capabilities to create/update budgets and forecasts as well as report on actuals during close.
Enterprise Data Warehouse reporting/HGV Dashboard
Current reports will be serviced as is
Costs of any requested changes will be discussed and costs will be mutually agreed
Budgeting and Forecasting Systems Management of systems used to manage the budgeting and forecasting process. Hilton provides functional and IT support for hotel users during global business working hours with weekend support during budget season.
Reconciliation Systems Management of systems used to manage the financial close process and bank reconciliations. Hilton provides the following support for reconciliation systems:
Travel and Expense Systems Management of systems used to process transactions associated with travel and valid company expenses. Hilton provides the following support for travel and expense systems: |
Annual cost: $181,000 |
24 months
Can terminate early based on TSA notice provisions
Cannot be scaled down |
48
Services |
Market Rate Costs and Expenses |
Service Period |
||
Human Resources, Payroll, Timekeeping, and Related Systems Management of the core PeopleSoft 9.1 Human Resources, Payroll and Timekeeping environment including ADP, UniFocus, Greenware, Ceridian UK Payroll and related services. Manage vendor partners including Dell, TCS, etc.
All Financial and Core HR Systems Include:
Functional and IT support for end users.
Ensures that all transactions have been properly accounted for and accurately reflected in the companys accounting process.
Management of all product releases and enhancements.
Management of change control to support SOX compliance.
Infrastructure to support these systems.
Management of license agreements.
End user security administration process. |
||||
Treasury Systems | ||||
Treasury Systems Management of systems used to support risk and liquidity management, cash management, and treasury and cash accounting. Hilton leverages a system called Global Treasury Management System (GTMS) that is based on the Wall Street Systems software. This is a 3 rd party hosted system that integrates with Hiltons network via a dedicated T1 connection. Hilton provides the following IT support for treasury systems: | Annual Cost: $19,000 |
24 months
Can terminate early based on TSA notice provisions
Cannot be scaled down |
49
50
Services |
Market Rate Costs and Expenses |
Service Period |
||
Help Desk and Desktop Support Services | ||||
Help Desk and Desktop Support Management of the help desk and desk side support services.
During the TSA period while Hilton resources are being used, Contract Services for DSS personnel will be charged on an as-needed basis (separate from the $175,000 annual cost).
During the TSA period REIT will be charged for helpdesk services based on headcount reports.
During the TSA period while using Hilton helpdesk and DSS services provisioned by Hilton, the HWI Standards and SOPs will prevail.
Desktop Hardware and Software Management and procurement of the client devices used by employees such as desktops, laptops, printers, etc. as well as the software installed on those devices. This includes desktop security services, such as anti-malware. |
Annual Cost: $175,000 |
24 Months
Can terminate early based on TSA notice provisions
Can be scaled down based on TSA count of users with access to the help desk |
||
Data Center and Security Management | ||||
Data Center Management of servers and other infrastructure housed in a data center. This includes management of the business resumption planning, disaster recovery requirements and crisis planning/communication.
Identity Systems Management of the Identity Management and Directory Services environments. IDM manages the provisioning and lifecycle of accounts in the Hilton ecosystem.
Management of IDM and Authentication infrastructure.
Day to day support of IDM, LDAP, RSA Access Manager and Securid servers.
Distribution of RSA Securid tokens.
User account management including Add/Remove resources and roles to user accounts moves between Organizations.
User lockout and other password issues including password out of sync issues. |
Annual Cost: $55,000 |
24 Months
Can terminate early based on TSA notice provisions
Can be scaled down based on count of servers receiving services |
51
Services |
Market Rate Costs and Expenses |
Service Period |
||
Troubleshooting and resolving account issues.
Creation of Corporate Contractor and Call Center contractor accounts.
Bug fixes for existing IDM functionality.
New feature enhancements for IDM Website.
Creation, testing and deployment of new roles/capabilities according to given business requirements.
Creation, testing and deployment of new workflows to support business processes.
Creation, testing and deployment of new user types.
Creation, testing and deployment of new SSO federation agreements.
Maintain and administer the information security program protecting the confidentiality, integrity, and availability of data.
Develop and maintain information security policies, standards, and processes.
Provide guidance and direction on information security matters during the project lifecycle, as well as technology and technology services procurement.
Manage information security communications and inquiries with internal and external stakeholders.
Web Proxy Services Management of the web proxy environment used for security and bandwidth management purposes.
Scan, filter, and protect against email attacks originating from malicious attachments, links, and other methods.
Services are not severable while using the Hilton email system.
Scan and block malicious network traffic.
Control internal and external network traffic based on network, host, and port / protocol.
Services are not severable while using Hilton Internet, data center, and / or WAN connections. |
52
Services |
Market Rate Costs and Expenses |
Service Period |
||
Protect against malicious activity on servers and workstations.
Perform change auditing and alerting.
Protect sensitive accounts and passwords from misuse.
Identify security vulnerabilities and route for resolution.
Services are not severable while hosts reside in Hilton networks.
Monitor the environment for potential security incidents. Review and investigate as warranted.
Platform to deliver and track information security awareness training for general users.
Platform to deliver and track secure code training for developers.
Maintain and enhance the IT internal controls program necessary to support SOX requirements and the Centralized Accounting service organization audit (SOC1).
Maintain and enhance the PCI program necessary to support periodic compliance validation reporting.
File and Print Services Management of local file and print services along with any other local on premise servers. |
||||
Telecom / Network Systems | ||||
Telecom Systems Management of the telecom environment. This includes cloud PBX, voice mail, conference calling, etc.
Management of all product releases and enhancements.
Infrastructure to support these systems.
Management of license agreements.
End user security administration process.
VPN Services Management of the VPN environment for all global network access.
Network Connectivity Management of the Local and Wide Area Networking environment. Includes items such as switches, WAPs, routers, etc. Also includes access to video conferencing. |
Annual Cost: $125,000 |
24 Months
Can terminate early based on TSA notice provisions
Cannot be scaled down |
53
54
Services |
Market Rate Costs and Expenses |
Service Period |
||
Conversion | ||||
Conversion: HGVC and REIT will be responsible for all aspects (including cost) of the migration of systems to their end state environments during the transition period. This includes any required system selection, contracting, design, implementation, and testing of the systems. All system configuration data such as user profiles, report definition, interface configurations, external interface data, system rules, application tables, etc. will be provided by Hilton as reasonably requested. Hilton will provide any available documentation of current system configurations as reasonably requested. | $300/hour |
24 months
Cost based on actual usage |
||
Data Migration | ||||
Systems & Data Migration: Hilton will provide data owned by the relevant party in a format requested as reasonably requested. | $300/hour |
24 months
Cost based on actual usage |
55
MASTER TRANSITION SERVICES AGREEMENT
SERVICES SCHEDULES
4. | LEGAL |
a. | LEGAL RELATED SERVICES TO BE PROVIDED BY HLT |
b. | LEGAL RELATED SERVICES TO BE PROVIDED BY HGV |
c. | LEGAL RELATED SERVICES TO BE PROVIDED BY PK |
56
LEGAL RELATED SERVICES TO BE PROVIDED BY HLT DURING TRANSITION PERIOD
57
Services |
Service Recipient(s) |
Market Rate Costs and Expenses |
Service Period |
|||
e. Additional documents not already in the possession of Service Recipient, including:
Relevant corporate entity records and communications
Real estate records for relevant properties
Lease agreements and records for relevant properties (PK only)
Contracts that have been retained or assumed by requesting Service Recipient
Loan agreements retained or assumed by Service Recipient
Benefit plans
Labor/employment-related agreements |
HGV, PK |
Applicable hourly rate + any necessary third party costs |
Effective Date 12/31/2018 | |||
II. Legal Systems Access. | ||||||
a. Access to Matter Management System . HLT will provide Service Recipient with continued access to and use of matter management software system. |
HGV |
Cost of license + Any applicable hourly rate for technical support provided by HLT |
Effective Date 12/31/2017 for HGV
Effective Date 9/30/2017 for PK |
|||
b. Matter Management Data Migration. HLT will provide consulting services in connection with migrating PK data out of existing matter management system into new environment (to the extent not complete in the initial distribution of records), including:
Formulating plan for migrating such data
Engaging and directing necessary third party vendors to migrate data |
PK |
Applicable hourly rate + any necessary third party costs |
03/31/2017 9/30/2017 |
58
59
Services |
Service Recipient(s) |
Market Rate Costs and Expenses |
Service Period |
|||
b. Regulatory Compliance . Consulting services related to regulatory practices, procedures, policies and compliance with respect to the business of the Service Recipient, including:
Historical FCPA compliance policies and procedures
Assistance with data and records related to OFAC compliance programs |
HGV, PK |
Applicable hourly rate + any necessary third party costs |
Effective Date 12/31/17 | |||
c. Benefits Plans. Consulting services related to start-up and ongoing administration of benefit plan matters set forth in Employment Matters Agreement, including:
Historical benefits plans
Benefit plan transition matters (e.g., assumption of existing plan, adoption of new plan, etc.)
Notices and correspondence related to benefits plans |
HGV, PK |
Applicable hourly rate + any necessary third party costs |
Effective Date 12/31/2017 | |||
d. Labor & Employment . Consulting services related to ongoing labor and employment matters, including:
Historical information related to labor unions and card check
Historical information related to collective bargaining |
HGV, PK |
Applicable hourly rate + any necessary third party costs |
Effective Date 12/31/2017 |
Hourly Rates for Consulting Services Performed by HLT
| Administrative Assistant/Paralegal: $225/hour |
| Systems Services and Consulting: $281/hour |
| Junior Attorney: $450/hour |
| Senior Attorney: $750/hour |
60
LEGAL RELATED SERVICES TO BE PROVIDED BY HGV DURING TRANSITION PERIOD
Services |
Service Recipient(s) |
Market Rate Costs and Expenses |
Minimum Service Period |
|||
I. Upon request of Service Recipient, HGV will reasonably provide records and documents not already in the possession of Service Recipients, subject to appropriate exclusions and restrictions for classified Information, Privileged Information or Confidential Information (as defined in the Distribution Agreement) * |
HLT, PK |
Applicable hourly rate + any necessary third party costs |
Effective date 12/31/2017 | |||
II. Upon the request of Service Recipient, HGV will reasonably provide consulting services regarding specific questions related to Service Recipient matters, excluding any and all claims or litigation to which HGV is or may be adverse |
HLT, PK |
Applicable hourly rate + any necessary third party costs |
Effective date 12/31/2017 |
* | After 12/31/17 (and for the avoidance of doubt), the parties shall have the ongoing rights to obtain Information set forth in the Distribution Agreement (including under Section 8.3 thereof). |
Hourly Rates for Legal Services Performed by HGV
| Administrative Assistant/Paralegal: $225/hour |
| Systems Services and Consulting: $281/hour |
| Junior Attorney: $450/hour |
| Senior Attorney: $750/hour |
61
LEGAL RELATED SERVICES TO BE PROVIDED BY PK DURING TRANSITION PERIOD
Services |
Service Recipient(s) |
Market Rate Costs and Expenses |
Minimum Service Period |
|||
I. Upon request of Service Recipient, PK will reasonably provide records and documents not already in the possession of Service Recipients, subject to appropriate exclusions and restrictions for classified Information, Privileged Information or Confidential Information (as defined in the Distribution Agreement) * |
HGV, HLT |
Applicable hourly rate + any necessary third party costs |
Effective date 12/31/2017 | |||
II. Upon the request of Service Recipient, PK will reasonably provide consulting services regarding specific questions related to Service Recipient matters, excluding any and all claims or litigation to which PK is or may be adverse |
HGV, HLT |
Applicable hourly rate + any necessary third party costs |
Effective date 12/31/2017 |
* | After 12/31/17 (and for the avoidance of doubt), the parties shall have the ongoing rights to obtain Information set forth in the Distribution Agreement (including under Section 8.3 thereof). |
Hourly Rates for Legal Services Performed by PK
| Administrative Assistant/Paralegal: $225/hour |
| Systems Services and Consulting: $281/hour |
| Junior Attorney: $450/hour |
| Senior Attorney: $750/hour |
62
MASTER TRANSITION SERVICES AGREEMENT
SERVICES SCHEDULES
5. | RISK MANAGEMENT |
63
RISK MANAGEMENT RELATED SERVICES TO BE PROVIDED BY HLT
64
Exhibit 10.16
LICENSE AGREEMENT
by and between
HILTON WORLDWIDE HOLDINGS INC.
and
HILTON GRAND VACATIONS INC.
Dated as of
TABLE OF CONTENTS
Page | ||||||
ARTICLE I LICENSES |
1 | |||||
Section 1.1. |
Trademark License | 1 | ||||
Section 1.2. |
Content License | 2 | ||||
Section 1.3. |
Software Licenses | 2 | ||||
Section 1.4. |
Data Access | 2 | ||||
Section 1.5. |
Marketing Rights | 2 | ||||
Section 1.6. |
Brand Displays | 2 | ||||
ARTICLE II EXCLUSIVITY AND RESERVED RIGHTS |
2 | |||||
Section 2.1. |
[Intentionally Omitted] | 2 | ||||
Section 2.2. |
Exclusivity | 2 | ||||
Section 2.3. |
Licensors Reserved Rights | 3 | ||||
Section 2.4. |
Licensees Reserved Rights | 4 | ||||
Section 2.5. |
Similar Lines of Business | 4 | ||||
Section 2.6. |
Licensor Transactions | 4 | ||||
ARTICLE III FEES |
5 | |||||
Section 3.1. |
Royalty Fees | 5 | ||||
Section 3.2. |
Additional Fees | 6 | ||||
Section 3.3. |
Other Costs | 6 | ||||
Section 3.4. |
Reimbursement | 6 | ||||
Section 3.5. |
Licensee Forecasts | 6 | ||||
Section 3.6. |
Making of Payments | 7 | ||||
Section 3.7. |
Interest on Late Payments | 7 | ||||
Section 3.8. |
Currency and Taxes | 7 | ||||
ARTICLE IV TERM |
7 | |||||
Section 4.1. |
Initial Term | 7 | ||||
Section 4.2. |
Extension Term; Tail Period | 7 | ||||
ARTICLE V EXISTING AND NEW PROJECTS |
8 | |||||
Section 5.1. |
Existing Projects | 8 | ||||
Section 5.2. |
New Projects | 8 | ||||
Section 5.3. |
Undeveloped Parcels | 9 | ||||
Section 5.4. |
Projects at Third-Party Hotels | 9 |
i
Page | ||||||
Section 5.5. |
Future Franchise and Management Agreements | 9 | ||||
Section 5.6. |
Vacation Ownership Properties at Licensor Lodging Properties | 9 | ||||
Section 5.7. |
Limitations on Licensed Business; Compliance with Contracts | 10 | ||||
Section 5.8. |
Delegation; Sublicensing | 10 | ||||
Section 5.9. |
Limited Lodging Operations by Licensee | 11 | ||||
ARTICLE VI SOURCING |
11 | |||||
Section 6.1. |
Sourcing | 11 | ||||
ARTICLE VII LICENSOR BRAND IDENTITY GUIDELINES; STANDARDS; LOYALTY PROGRAM |
11 | |||||
Section 7.1. |
Licensor Brand Identity Guidelines | 11 | ||||
Section 7.2. |
Modified Standards | 11 | ||||
Section 7.3. |
Loyalty Program Participation | 12 | ||||
Section 7.4. |
Exclusivity/Licensee Status | 12 | ||||
Section 7.5. |
Sale of Loyalty Program Points | 13 | ||||
Section 7.6. |
Use of Loyalty Program Points | 13 | ||||
Section 7.7. |
Conversion to Loyalty Program Points | 13 | ||||
ARTICLE VIII OPERATIONS |
13 | |||||
Section 8.1. |
Licensee Operations, Brand Standards | 13 | ||||
Section 8.2. |
Employees | 13 | ||||
Section 8.3. |
Management and Operation of the Projects | 14 | ||||
Section 8.4. |
Quality Assurance | 14 | ||||
Section 8.5. |
Licensed HOAs Not Controlled By Licensee | 14 | ||||
Section 8.6. |
Employee Discounts | 15 | ||||
Section 8.7. |
Managers | 15 | ||||
ARTICLE IX LICENSEE OBLIGATIONS |
15 | |||||
Section 9.1. |
Lodging Business | 15 | ||||
Section 9.2. |
Hilton Competitors | 15 | ||||
Section 9.3. |
Acquisitions | 15 | ||||
Section 9.4. |
New Products and Services | 16 | ||||
Section 9.5. |
Advertising | 16 | ||||
Section 9.6. |
Sponsorships/Partnerships | 16 | ||||
Section 9.7. |
Reservations | 17 | ||||
Section 9.8. |
Diversion | 17 | ||||
Section 9.9. |
Finances | 17 |
ii
Page | ||||||
ARTICLE X SYSTEMS |
17 | |||||
Section 10.1. |
Systems | 17 | ||||
ARTICLE XI LICENSOR SERVICES |
18 | |||||
Section 11.1. |
Call Center Transfer Services | 18 | ||||
Section 11.2. |
Other Services | 18 | ||||
ARTICLE XII REPAIRS AND MAINTENANCE |
18 | |||||
Section 12.1. |
Repairs | 18 | ||||
ARTICLE XIII INTELLECTUAL PROPERTY |
18 | |||||
Section 13.1. |
Ownership/New Marks | 18 | ||||
Section 13.2. |
Licensees Use of Licensed IP | 19 | ||||
Section 13.3. |
Enforcement | 19 | ||||
Section 13.4. |
Credit Cards | 20 | ||||
ARTICLE XIV CONFIDENTIALITY |
20 | |||||
Section 14.1. |
Confidential Information | 20 | ||||
Section 14.2. |
Data and Data Security | 21 | ||||
ARTICLE XV ACCOUNTING AND REPORTS |
22 | |||||
Section 15.1. |
Maintenance of Records | 22 | ||||
Section 15.2. |
Audit | 22 | ||||
Section 15.3. |
Royalty and Fee Reporting | 22 | ||||
ARTICLE XVI INDEMNIFICATION; INSURANCE |
22 | |||||
Section 16.1. |
Indemnification | 22 | ||||
Section 16.2. |
Insurance Policies | 23 | ||||
Section 16.3. |
Insurance Requirements | 24 | ||||
Section 16.4. |
Licensees Obligations | 24 | ||||
Section 16.5. |
Contribution | 24 | ||||
ARTICLE XVII TRANSFERS |
25 | |||||
Section 17.1. |
By Licensee | 25 | ||||
Section 17.2. |
By Licensor | 25 | ||||
Section 17.3. |
By Either Party | 25 | ||||
ARTICLE XVIII BREACH, DEFAULT, AND REMEDIES |
25 | |||||
Section 18.1. |
Deflagging | 25 | ||||
Section 18.2. |
Termination by Licensor for Bankruptcy by Licensee | 27 |
iii
Page | ||||||
Section 18.3. |
Termination by Licensor For Breach by Licensee | 27 | ||||
Section 18.4. |
Termination of Corporate Name Rights | 28 | ||||
Section 18.5. |
Suspension | 28 | ||||
ARTICLE XIX POST TERMINATION OBLIGATIONS |
28 | |||||
Section 19.1. |
After Termination | 28 | ||||
Section 19.2. |
Liquidated Damages | 29 | ||||
Section 19.3. |
Cross-Default | 29 | ||||
Section 19.4. |
Survival | 29 | ||||
ARTICLE XX COMPLIANCE WITH LAWS |
29 | |||||
Section 20.1. |
Applicable Laws | 29 | ||||
Section 20.2. |
Notice of Events | 29 | ||||
ARTICLE XXI RELATIONSHIP OF PARTIES |
30 | |||||
Section 21.1. |
Consent Standard | 30 | ||||
Section 21.2. |
Independent Contractor | 30 | ||||
ARTICLE XXII GOVERNING LAW/DISPUTE RESOLUTION |
30 | |||||
Section 22.1. |
Governing Law | 30 | ||||
Section 22.2. |
Negotiation | 30 | ||||
Section 22.3. |
Mediation | 30 | ||||
Section 22.4. |
Arbitration | 30 | ||||
ARTICLE XXIII NOTICES |
31 | |||||
ARTICLE XXIV MISCELLANEOUS |
32 | |||||
Section 24.1. |
Complete Agreement; Construction | 32 | ||||
Section 24.2. |
Counterparts | 32 | ||||
Section 24.3. |
Amendment | 32 | ||||
Section 24.4. |
Third Party Beneficiaries | 32 | ||||
Section 24.5. |
Title and Headings | 32 | ||||
Section 24.6. |
Severability | 32 | ||||
Section 24.7. |
Interpretation | 32 | ||||
Section 24.8. |
No Waiver | 32 | ||||
Section 24.9. |
Cumulative Remedies | 32 | ||||
Section 24.10. |
Force Majeure | 32 |
iv
Page | ||||||
ARTICLE XXV WARRANTIES |
33 | |||||
Section 25.1. |
By Each Party | 33 | ||||
Section 25.2. |
Disclaimer | 33 | ||||
Section 25.3. |
Limitation on Damages | 33 |
LIST OF EXHIBITS
Exhibit A | Definitions | |
Exhibit B | Operating Guidelines | |
Exhibit C | Licensed Marks | |
Exhibit D | Excluded Products and Services | |
Exhibit E | Licensee Products and Services | |
Exhibit F | Properties Under Development | |
Exhibit G | Non-Licensed Existing Projects | |
Exhibit H | Excluded Fractional Vacation Club Services | |
Exhibit I | Existing Vacation Ownership Properties | |
Exhibit J | Undeveloped Real Estate Parcels | |
Exhibit K | Approved Mixed-Use Development New Properties | |
Exhibit L | Approved Subcontracting and Delegation Agreements | |
Exhibit M | Existing Marketing Agreements for Licensed Exchange Program |
v
HGV LICENSE AGREEMENT
This HGV LICENSE AGREEMENT dated as of 2016 (the Effective Date ), by and between Hilton Worldwide Holdings Inc., a Delaware corporation ( Licensor and Hilton Grand Vacations Inc., a Delaware corporation ( Licensee ). Each of Licensor and Licensee is referred to herein as a Party and collectively, as the Parties .
W I T N E S S E T H:
WHEREAS, Licensor, Park Hotels & Resorts Inc., a Delaware corporation ( PHRI ) and Licensee entered into that certain Distribution Agreement, dated as of (the Distribution Agreement ), pursuant to which Licensor will be separated into three independent, publicly traded companies; and
WHEREAS, Licensor, directly or indirectly, owns the Licensed IP and possesses the Hilton Data (as defined herein) and Licensee wishes to use the Licensed IP and Hilton Data in its Vacation Ownership Business after the Effective Date, and Licensor is willing to grant Licensee such a license on the terms and conditions herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements and covenants contained in this Agreement, the Parties hereby agree as follows:
ARTICLE I
LICENSES
Section 1.1. Trademark License .
(a) Subject to the terms and conditions herein, during the Term, Licensor hereby grants to Licensee a license to use the Licensed Marks as Trademarks in the Territory in connection with the current and future operation of the Licensed Vacation Ownership Business. Such license shall be exclusive for the Term. For clarity, (i) the above license covers only the exact Licensed Marks, and Licensee may not use the term Hilton standing alone or, except as permitted by the Licensor Brand Identity Guidelines any variations, derivatives, abbreviations or stylizations of the Licensed Marks, in each case, without Licensors prior written consent, and (ii) the above exclusivity means that, during the Term, Licensor will not use (or allow others to use) the Licensed Marks in connection with the Licensed Vacation Ownership Business.
(b) Without the prior written consent of Licensor, Licensee shall not (i) bid for, purchase, register or use the term Hilton or any other Trademark owned by Licensor or its Subsidiaries as or as part of any key word, ad word, metatag or similar device designed to attract viewers or users in online, social, mobile or other media or (ii) link to or frame any website, online, social or mobile media property or venue of Licensor that Licensee is not already linking to or framing as of the Effective Date, regardless of whether the foregoing constitutes trademark use under applicable Laws.
(c) Licensee hereby grants to Licensor and its Subsidiaries a non-exclusive sublicense during the Term to (i) use the Licensed Marks and (ii) use and exercise the intellectual property rights in the Licensed Content, in each case, to the extent necessary to advertise and promote the Licensed Vacation Ownership Business on Licensees behalf during the Term. Licensee may further sublicense the above license in connection with the foregoing.
Section 1.2. Content License . Subject to the terms and conditions herein, during the Term, Licensor hereby grants to Licensee a license to use, reproduce, distribute, perform and display the Licensed Content in the Territory solely in connection with the current and future operation of the Licensed Vacation Ownership Business. Such license shall be exclusive for the Noncompetition Term and non-exclusive for the remainder of the Term. Licensee may modify Licensed Content for format or technical reasons, but may not make substantive or artistic changes thereto, without Licensors prior written consent.
Section 1.3. Software Licenses .
(a) Licensor hereby at its option (i) grants to Licensee a non-exclusive sublicense or (ii) agrees to cause an Affiliate to grant to Licensee a non-exclusive license, in each case, during the Term to use the Licensed Software in connection with the Licensed Vacation Ownership Business. Licensee shall comply with all terms and conditions of the applicable license or sublicense (which shall be equivalent in all material respects to the then-current version of the Hilton Information Technology System Agreement) in connection with such use.
(b) Licensor hereby grants to Licensee the non-exclusive right during the Term to access the Licensed System and provide the Licensed System with information as to the current inventory of vacant rooms at Licensed Vacation Ownership Properties.
Section 1.4. Data Access . Subject to the terms and conditions herein, Licensor hereby grants to Licensee the rights to use the Hilton Data as set forth in Section 14.2(b).
Section 1.5. Marketing Rights . Subject to the terms and conditions herein, during the Noncompetition Term, Licensor hereby grants to Licensee the right to market the Licensed Vacation Ownership Business at Licensors corporate-level advertising channels, including websites and social media properties (but not the channels of individual Hilton-branded properties). Such right is exclusive, meaning that during the Noncompetition Term, Licensor will not allow any other Person to market a Vacation Ownership Business through such channels.
Section 1.6. Brand Displays . Licensor acknowledges and agrees that during the Noncompetition Term, Licensor shall, wherever legally permissible, include (i) the Licensed Mark Hilton Grand Vacations on its brand bar, and similar displays where Licensor advertises all of the Hilton Marks for the Licensor Lodging Business and (ii) inventory of transient rentals for the Licensed Vacation Ownership Properties in all proprietary and third-party advertising venues that list such inventory for the Licensor Lodging Business, in each case, in the same manner and quality Licensor provided prior to the Effective Date of this Agreement.
ARTICLE II
EXCLUSIVITY AND RESERVED RIGHTS
Section 2.1. [Intentionally Omitted] .
Section 2.2. Exclusivity .
(a) Until December 31, 2046 (the Initial Noncompetition Term ), Licensor will not: (x) engage or license any Person to engage in the Vacation Ownership Business worldwide under any Trademark; (y) use or license any Person to use the Licensed IP or Hilton Data in connection with the Vacation Ownership Business; and/or (z) allow any Person engaged in the Vacation Ownership Business, other than Licensee, to participate in the Loyalty Program.
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(b) The Initial Noncompetition Term shall be extended for additional 10-year terms (each 10-year term, a Renewal Noncompetition Term and together with the Initial Noncompetition Term, the Noncompetition Term ), if Licensee satisfies the criteria in either clause (i) or (ii) below in calendar year 2046 (or the final calendar year of any Renewal Noncompetition Term) (each, a Measuring Year ):
(i) Licensees Gross Revenues in a Measuring Year must be equal to or greater than 80% of $1,493,000,000 USD (Licensees 2016 projected Gross Revenues) as inflated to such Measuring Year dollars by the CPI Adjustment. For example, if Licensee had 2016 Gross Revenues of $100 USD, and that translated into $300 in projected Gross Revenues in 2046 due to CPI Adjustments, Licensees minimum 2046 revenue to renew the Noncompetition Term until December 31, 2056 would be $240; or
(ii) Licensee must generate the sum of the Gross Sales Price and Fee For Services Sales Price in a Measuring Year that rank first, second or third among Vacation Ownership Business worldwide, based on revenues disclosed in audited financial reports for such Measuring Year (or a comparable mutually-agreed metric, if such annual contract sales are no longer publicly reported).
(c) If Licensee does not satisfy clause (i) or (ii) during a Measuring Year, Licensee may retain the Noncompetition Term for one year terms by paying Licensor 5% of the shortfall between Licensees actual Gross Revenues for the Measuring Year and 100% of Licensees projected Gross Revenues for the Measuring Year as set forth in clause (i) (each, a Shortfall Payment ). The Shortfall Payment shall be due within 30 days after the end of the Measuring Year. For example, if Licensee had 2016 Gross Revenues of $100, and that translated into $300 in projected Gross Revenues in 2046 due to CPI Adjustments, and Licensees Gross Revenues were $220 in 2046, that would be a shortfall of $80, and Licensee would submit a Shortfall Payment of $80 times 5% for the Royalty, or $4.
(d) Licensee shall be allowed a maximum of five consecutive Shortfall Payments during any Renewal Noncompetition Term, with no carryover of unused Shortfall Payments into the next Renewal Noncompetition Term. If during any year of noncompetition afforded by a Shortfall Payment, Licensee satisfies clause (i) or (ii), the Noncompetition Term shall be extended by a 10-year Renewal Noncompetition Term beginning at the end of the prior Measuring Year. For example, if Licensees Gross Revenues are $220 in 2046, Licensee would make the above $4 Shortfall Payment for 2046, and if in 2047 Licensees Gross Revenues meet the target, the Noncompetition Term would renew until December 31, 2056. If after five consecutive Shortfall Payments, Licensee fails to satisfy clauses (i) or (ii), the Noncompetition Term expires on December 31 st in the year in which the last Shortfall Payment was made.
(e) If the Noncompetition Term terminates under Section 2.2(a) or Section 2.6(a), Licensor shall notify Licensee of same in writing. Thereafter, Licensee will continue to be bound by its obligations in this Agreement including Article IX, but Licensor may (and may assist or allow other Persons to) engage in the Vacation Ownership Business in any form and under any Trademark (other than HGV and Hilton Grand Vacations) worldwide for the remainder of the Term.
Section 2.3. Licensors Reserved Rights . Licensor reserves all rights not expressly licensed to Licensee hereunder, including without limitation, the right to Operate any business or properties and/or use the Licensed IP and Hilton Data in any manner that does not violate Licensees exclusive rights herein. Licensor may sell, assign or license the Hilton Marks (other than the Licensed Marks) without Licensees consent, and any acquirer, assignee or licensee shall have no obligation to Licensee herein.
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Section 2.4. Licensees Reserved Rights . Licensee reserves the right to engage in any activity worldwide not expressly prohibited in this Agreement.
Section 2.5. Similar Lines of Business . Licensee may engage in the Fractional Vacation Club Business and the Whole Ownership Business, as a Separate Operation (or as part of the Licensed Vacation Ownership Business, subject to Licensors prior written consent), at any time during the Term. Licensor may engage in the Fractional Vacation Club Business and the Whole Ownership Business at any time during the Term.
Section 2.6. Licensor Transactions .
(a) Notwithstanding Section 2.2(a), if at any time during the Noncompetition Term, Licensor merges with or acquires direct or indirect Control of a Person that operates a Vacation Ownership Business as well as a Lodging Business (in either an equity or asset acquisition), Licensor shall use commercially reasonable efforts to allow Licensee to acquire or manage such acquired Vacation Ownership Business (the Acquired Vacation Business ) as a Licensed Vacation Ownership Business herein. For the avoidance of doubt, Licensor has no obligation to include Licensee in any pre-closing discussions or negotiations with the third-party counter-party and may elect to present Licensee with the opportunity to acquire or manage the Acquired Vacation Business only after closing of the business transaction and, in either case, Licensor may proceed with the transaction whether or not Licensee acquires or manages the Acquired Vacation Business. For the avoidance of doubt, during the Noncompetition Term Licensor may not merge with or acquire direct or indirect Control of a Person that operates solely a Vacation Ownership Business.
(b) If Licensee does not acquire or manage the acquired Vacation Ownership Business: (i) Licensor shall have no further obligations to include Licensee in the ownership or management of the Acquired Vacation Business; (ii) Licensor may merge its Loyalty Program with the loyalty program of the Acquired Vacation Business and, notwithstanding the exclusivity and non-competition provisions herein, compete in the Vacation Ownership Business using the Hilton IP (but not the Licensed Marks), Hilton Data and the Loyalty Program in connection with such Acquired Vacation Business; and (iii) during the Noncompetition Term, Licensor shall use Reasonable Best Efforts to continue to provide Licensee the Licensed IP and Hilton Data on a basis comparable to Licensors past practice under this Agreement.
(c) If, on the closing date for the acquisition of the Acquired Vacation Business, 90% of all ownership interests, use rights, or other entitlements to use overnight accommodations in the Vacation Ownership Properties within such business ( Acquired Vacation Property Inventory ) have been sold to Persons for their own use such that the Acquired Vacation Property Inventory is not being actively marketed, during the Noncompetition Term, Licensor shall not use the Hilton Data to sell any newly created Acquired Vacation Property Inventory or develop new Vacation Ownership Properties under the Acquired Vacation Business unless Licensee is given the right of first offer to manage such properties. However, Licensor shall be permitted to use the Hilton Data to sell any existing unsold Acquired Vacation Property Inventory or existing Acquired Vacation Property Inventory that may become available through foreclosure or otherwise comes available to Licensor.
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ARTICLE III
FEES
Section 3.1. Royalty Fees .
(a) (i) Licensee shall pay to Licensor a royalty (the Royalty ) for the rights granted to Licensee under this Agreement in an amount equal to five percent (5%) of Gross Revenues.
(ii) Except for the limited exception for Non-Licensed Existing Projects below, if Licensee develops Vacation Ownership Properties or acquires Vacation Ownership Properties from a Person other than a Hilton Competitor and they are not operated as Separate Operations, the Royalty shall apply to such Vacation Ownership Properties as if they were Licensed Vacation Ownership Properties, even if such properties are not Licensed Vacation Ownership Properties. The Royalty shall also apply to all Transient Rental Revenue at any Vacation Ownership Properties that use the Licensed IP or Hilton Data. For clarity, Licensee shall not owe a Royalty arising out of its Vacation Ownership Properties that are operated as Separate Operations.
(iii) If Licensee permits Non-Licensed Existing Projects, or other non-licensed Vacation Ownership Properties with which Licensee has entered into a Marketing Agreement pursuant to Section 9.6(d), to be exchanged pursuant to an arrangement between the Licensed Exchange Program and a non-licensed Exchange Program whereby individual owners of the non-licensed Vacation Ownership Properties do not have full access to the Loyalty Program through the Licensed Exchange Program, then the Royalty shall be due only on the applicable Club Revenue portion of the Gross Revenue. If Hilton Data is used to market the sale of units at Non-Licensed Existing Projects, then the Royalty shall be due on Gross Sales Price, Club Revenue, and Marketing Package Revenues.
(b) A sale occurs for Royalty purposes with respect to the initial sale or re-sale of an interest in a Licensed Vacation Ownership Property when all of the following conditions have been satisfied, regardless of when, or whether, any part of the Gross Sales Price or Fee For Services Sales Price are actually paid to, or received by or on behalf of, Licensee.
(i) A written agreement ( Purchase Contract ) is executed by a purchaser and has been accepted by Licensee pursuant to which such purchaser contractually commits to acquire such interest;
(ii) With respect to purchase money financing provided by or through Licensee or its Affiliates, if any, such purchaser has duly executed all applicable sales and purchase money financing documents in respect of such Purchase Contract;
(iii) Such purchaser has duly tendered payment of the full purchase price in respect of such Purchase Contract (or full installments thereof in the case of purchase money financing, as applicable) by cash, by check which has cleared, or by credit card which has been duly processed) to either (x) Licensee or its Affiliates or (y) a fiduciary, escrow agent, trustee or other independent third-party designated by Licensee or its Affiliates, as may be required by applicable Laws;
(iv) All rescission periods applicable to such Purchase Contract have expired, without any such right of rescission having been exercised; and
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(v) All pre-conditions set forth in such Purchase Contract and any legal requirements under the applicable Laws in order to close the transaction which is the subject of the Purchase Contract as set forth in such Purchase Contract shall have been duly satisfied, without the purchaser having exercised any right of cancellation afforded such purchaser under the terms of such Purchase Contract or under the applicable Laws.
(vi) To the extent that the sale of a Licensed Vacation Ownership Property meets (i) through (v) above, but such Licensed Vacation Ownership Property has not achieved a Certificate of Occupancy granted by relevant municipalities that approve the use by a purchaser of the Licensed Vacation Ownership Property, the sale for Royalty purposes will be multiplied by the Percentage of Completion. The Percentage of Completion will be calculated and applied to such Licensed Vacation Ownership Property each reporting period until such time that the Licensed Vacation Ownership Property achieves its Certificate of Occupancy, at which time and for all periods thereafter, the Percentage of Completion will be 100%.
(c) The Gross Sales Price or Fee For Services Sales Price shall, for purposes of calculating the Royalty under Section 3.1(a), exclude the amount attributable to a gross up for imputed interest associated with a zero percent (0%) or below market interest rate program used in relation to financing a purchasers acquisition of interests in a Licensed Vacation Ownership Property, but only where the Gross Sales Price or Fee For Services Sales Price is offered at different amounts to the customers on a programmatic basis, depending on the financing or payment terms selected by the customer.
Section 3.2. Additional Fees . In addition to the Royalty, Licensee shall pay to Licensor:
(a) An annual transition fee for the first five years of the Term of $5 million per year.
(b) The then-current Loyalty Program fee for eligible guest folios, subject to caps in place as of the Effective Date for a period of twenty (20) years from the Effective Date. At the end of such twenty (20) year period, the caps will be eliminated and Licensee will pay the same Loyalty Program fee that is in effect for Licensor Lodging Properties.
Section 3.3. Other Costs . Licensee shall pay Licensor fees covering Licensors proportionate costs for Licensees use of the Licensed Software. Licensee shall pay the non-refundable, up-front installation costs (if any) for the Licensed Software to be installed at any additional Licensed Vacation Ownership Properties, which shall include sales centers that are not in existence as of the Effective Date.
Section 3.4. Reimbursement . Licensee shall reimburse Licensor for its costs (without profits) that would typically be covered by the Program Fee, including marketing campaigns in which Licensee participates under Section 9.5 or Section 9.6 below or enhancements to the Licensed Software that are provided to all of Licensor Lodging Properties, provided that Licensee will pay such costs only for services that Licensee uses. Licensee shall also reimburse Licensor for all costs associated with Call transfer services, GBCS Services used by Licensee, central delivery used by Licensee, third party reservation charges, guest assistance services and the handling of guest complaints, whether such guests are Loyalty Program members or not.
Section 3.5. Licensee Forecasts . At least one month prior to the end of each of Licensors fiscal years during the Term, Licensee shall provide to Licensor a forecast of its projected Royalties and Gross Revenues (separated by the categories in the definition of Gross Revenues herein) for Licensors upcoming fiscal year, and then after each fiscal year quarter during the Term, Licensee shall provide to Licensor the actual Royalties and Gross Revenues for such prior quarter and an updated rolling forecast of outstanding quarterly royalties for the remainder of Licensors then current fiscal year.
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Section 3.6. Making of Payments . The Royalty and all additional fees due in this Article III shall be paid within thirty (30) days following the end of each calendar quarter. All other payments herein shall be made within thirty (30) days after receipt of an invoice from Licensor. Licensee shall pay via a wire transfer (or other method reasonably designated by Licensor) of immediately available funds, pursuant to Licensors commercially reasonable instructions. All amounts payable to Licensor shall be invoiced in U.S. dollars unless Licensor otherwise designates another currency. The exchange rate shall be set each month by Licensor as taken from an international reporting service. Licensee shall submit to Licensor, within eight (8) business days after the end of each month, a statement in the form reasonably required by Licensor that includes all Information required by Licensor to determine all due payments hereunder, and on a quarterly basis, such statement will also aggregate the amounts presented on the monthly statement itemizing the various revenue streams to Licensor that constitute the Royalty. Such Information is not Licensees Confidential Information and Licensor may use or disclose it for authorized business purposes.
Section 3.7. Interest on Late Payments . If a Party does not make any payment due under this Agreement within fourteen (14) days after its due date, such Party shall pay interest from the due date until the date of payment compounded monthly, at the interest rate of an annual rate equal to the lesser of (i) the prime rate (as published by the Wall Street Journal or, if no longer published, such other similar source as reasonably selected by Licensor) applicable on the date such payment is due and on each date thereafter that interest is compounded, plus eight (8) percentage points and (ii) the highest rate then permitted by applicable Laws.
Section 3.8. Currency and Taxes . Licensee shall bear and be responsible for all taxes, duties and deductions (including any sales, value added, use, excise, gross receipts, income, goods and service taxes, stamp or other duties, fees, deductions, withholdings or other payments, and including penalties and interest as a result of failure to comply) (collectively, Taxes ) levied on, deducted or withheld from, or assessed or imposed on any payments made by Licensee hereunder. If Licensor or its designee pays any such amounts due, then Licensee must reimburse Licensor therefor. Licensee shall gross-up all payments herein so that Licensor receives the same amount that it would have received if no Taxes were applicable.
ARTICLE IV
TERM
Section 4.1. Initial Term . The term of this Agreement begins on the Effective Date and expires on December 31, 2116 (the Term ).
Section 4.2. Extension Term; Tail Period . For a period of thirty (30) years following the Term (if it expires on December 31, 2116 and is not earlier terminated) ( Tail Period ), Licensee shall have a non-exclusive license (but no obligation) to use the Licensed IP (and a non-exclusive right to access and use the Hilton Data and Loyalty Program) in connection with any Licensed Vacation Ownership Properties in existence at the end of the Term (including any new Licensed Vacation Ownership Properties under development and approved by Licensor as of such date), provided that: (i) Licensee complies with all terms and conditions herein; (ii) the exclusivity granted in Section 2.2(a) (if not earlier terminated) shall immediately terminate at the expiration of the Term (not including the Tail Period); and (iii) Licensee shall be required to pay the Royalty and other payments due under Article III during the Tail Period for so long as such properties use the Licensed IP, Hilton Data or Loyalty Program. All other applicable terms and conditions of this Agreement, including Licensees requirement to pay all fees in Article III other than the Royalty, shall be in force during the Tail Period.
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ARTICLE V
EXISTING AND NEW PROJECTS
Section 5.1. Existing Projects . The Vacation Ownership Properties listed on Exhibit I to this Agreement shall be deemed Licensed Vacation Ownership Properties herein.
Section 5.2. New Projects .
(a) If Licensee notifies Licensor that it wishes to develop additional Vacation Ownership Properties that use Hilton Marks (other than the Licensed Marks) either alone or as co-branding with any Licensed Marks, it shall notify Licensor in writing by submitting to Licensor a written application that contains all material information with respect thereto. Licensor may, in its sole discretion, grant Licensee a license to use such additional Trademarks in connection therewith, pursuant to a separate agreement or an amendment to this Agreement.
(b) If Licensee notifies Licensor that it wishes to (i) develop or acquire additional Vacation Ownership Properties that would use the Licensed Marks or (ii) expand the scope or size of an existing Licensed Vacation Ownership Property (if such expansion was not included in the original proposal for the property approved by Licensor), it shall notify Licensor in writing by submitting to Licensor a written application that contains all material information with respect thereto. Licensor shall not unreasonably withhold its approval for such Vacation Ownership Properties to use the Licensed IP and Hilton Data (and upon such approval, such properties shall become Licensed Vacation Ownership Properties herein) if the proposed additional Vacation Ownership Property or proposed expansion to an existing Licensed Vacation Ownership Property (each, a New Property ) and Licensees intended operation thereof complies with the then-current Standards and Agreements and:
(i) the development of the proposed New Property would not breach, or be reasonably likely to breach, any applicable Laws or agreement between Licensor or its Affiliates, including territorial restrictions or areas of protection;
(ii) the proposed New Property will not involve any co-investor that (a) is a Hilton Competitor, (b) is known in the community as being of bad moral character, (c) has been convicted in any court of a felony or other offense that could result in imprisonment for one (1) year or more or a fine or penalty of one million dollars ($1,000,000) (as adjusted annually after the Effective Date by the CPI Adjustment) or more (or is in Control of or Controlled by Persons who have been convicted in any court of felonies or such offenses), or (d) is (or has an Affiliate that is) a Blocked Person; and
(iii) the proposed New Property is not reasonably likely to harm Licensor, the Licensed IP, the Hilton Data or the goodwill associated therewith.
(c) Licensor shall provide the plans and specifications for each New Project to Licensor for review and inspection to ensure that they are in compliance with this Agreement and the Standards and Agreements. Licensee shall pay Licensor a fixed fee for such review. Notwithstanding such review and inspection, as between the Parties, Licensee is responsible for ensuring that all aspects of each New Project comply with all applicable Laws, this Agreement and the Standards and Agreements, and Licensor disclaims all liability for any of same.
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Section 5.3. Undeveloped Parcels .
(a) Licensee has listed on Exhibit J all real estate owned by Licensee that have not been developed as of the Effective Date ( Undeveloped Parcels ). Licensor hereby approves the Undeveloped Parcels as sites for future New Properties, which shall be subject to Section 5.2.
(b) If Licensee wishes to sell an Undeveloped Parcel (or any part thereof or rights therein) to any Person other than a Hilton Competitor, Licensee will notify Licensor, and for thirty (30) days after such notice, the Parties shall negotiate in good faith towards a sale agreement. If no such agreement is executed in such time period, for 270 days thereafter, Licensee shall be free to execute such sale with such Person, so long as the sale price is at least 95% of the sale price proposed to Licensor. Licensee shall promptly provide Licensor with all information reasonably requested by Licensee to confirm Licensees compliance with this Section 5.3(b).
(c) If Licensee wishes to sell an Undeveloped Parcel (or any part thereof or rights therein) to a Hilton Competitor, Licensee will notify Licensor, and Licensor shall have a right of first refusal on such purchase for 30 days, on the same terms set forth in the offer from the Hilton Competitor. If the third party offer provides for payment of consideration other than cash, Licensor may offer commercially reasonable cash equivalent.
(d) Licensee agrees that any purported transaction in violation of Licensors rights in this Section 5.3 shall be deemed null and void at the outset and of no force or effect, and Licensor shall be entitled to equitable relief, including rescission, to effect such nullification.
Section 5.4. Projects at Third-Party Hotels . Licensee shall not participate in a New Property that is a mixed-use development project (whether or not such New Property uses the Licensed IP and/or Hilton Data) that includes Hilton Competitors without Licensors prior written consent, except for those projects set forth on Exhibit K.
Section 5.5. Future Franchise and Management Agreements . Licensor will use commercially reasonable efforts to ensure that any third-party management, operating and franchise agreements for Licensor Lodging Properties (i) if executed after the Effective Date, include commercially reasonable provisions to ensure that third party hotel owners and franchisees do not (and do not allow other Persons to) operate, promote or sell interests in Vacation Ownership Properties other than Licensed Vacation Ownership Properties in connection with such Licensor Lodging Property; and (ii) if executed as of the Effective Date, retain the above-described provisions, if such retention can be achieved with no material concession or liability by Licensor. Licensor shall not be liable to Licensee for any failure to obtain the above provisions, if it exercises the above commercially reasonable efforts in this regard.
Section 5.6. Vacation Ownership Properties at Licensor Lodging Properties .
(a) If a third-party developer of a Licensor Lodging Property intends to develop a Vacation Ownership Property as a component thereof (the Co-Located Licensor Lodging Property ), Licensor will notify Licensee and use commercially reasonable efforts to allow Licensee to negotiate with such developer to Operate the Vacation Ownership Property as a Licensed Vacation Ownership Property. If, despite such efforts, such counterparty does not offer Licensee such opportunity, Licensor shall have no further obligations to Licensee in this regard (but Licensors obligations during the Noncompetition Term shall still apply).
(b) If Licensor engages in a mixed-use project that includes a Vacation Ownership Property, Licensor will use commercially reasonable efforts to include Licensee in same, and if Licensee is not included, Licensor shall not allow the Hilton Data or the Loyalty Program to be used to conduct direct marketing activities with respect to the above Vacation Ownership Business component (but shall have no other restriction on the use of Hilton Data or Loyalty Program for such projects).
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Section 5.7. Limitations on Licensed Business; Compliance with Contracts .
Licensee shall abide by all territorial and other contractual restrictions applicable to Licensor that relate to the Licensed Vacation Ownership Business and are in effect as of the Effective Date (or thereafter, subject to Licensees consent). Licensor will not agree to an extension of the duration, or a broadening of the scope, of any such restrictions without Licensees prior written consent (which shall be required only during the Noncompetition Term), except for extending or renewing such agreements in accordance with their terms. Licensee shall not enter into any agreement with any third party that purports to limit or restrict Licensors right to Operate Licensor Lodging Properties in any manner that is inconsistent with this Agreement.
Section 5.8. Delegation; Sublicensing .
(a) Licensee may sublicense the Licensed IP
(i) as expressly permitted in this Agreement;
(ii) to Persons other than Licensee who are authorized to manage Licensed Vacation Ownership Properties under Section 8.3(a), to the extent necessary to enable such operation; and
(iii) to its Subsidiaries and their respective suppliers, service providers and contractors, solely (x) to the extent necessary to assist Licensee in conducting the Licensed Vacation Ownership Business, with respect to the Licensed Marks and Licensed Content and (y) with the prior written consent of Licensor for Persons other than Subsidiaries, with respect to the Licensed Software and Licensed System.
(b) Except as permitted above, Licensee may not sublicense the Licensed IP to any Person, or use the Licensed IP for the direct or indirect benefit of any other Person, without Licensors prior written consent.
(c) Licensee may also sublicense the Licensed Marks to Licensed HOAs, solely to the extent necessary for their operation. Licensee shall ensure that all Licensed HOAs include all information and terms reasonably requested by Licensor (in a form approved by Licensor) in their sales offering documents, sale, deed and other agreements with potential buyers, including provisions that (i) Licensor is a third-party beneficiary with the right to enforce such terms directly against the Licensed HOA and buyer and (ii) the intended buyer is not acquiring any rights in or to use any Licensed IP or Hilton Data. Licensee shall obtain Licensors prior written consent before signing any agreement with respect to the creation, operation, title, deed or sales provisions of any Licensed HOA. Licensee will, at its expense, submit to Licensor within ninety (90) days request for the same, information regarding the length of the terms, renewal rights and expiration dates of all Licensed HOA management agreements.
(d) Licensee is liable for any act or omission by any of its sublicenses that would breach this Agreement if committed by such Licensee.
(e) The Subsidiaries of each Party may exercise the rights of such Party herein and are bound by the obligations of such Party herein. A Party is liable for any act or omission by any of its Affiliates that would breach this Agreement if committed by such Party.
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Section 5.9. Limited Lodging Operations by Licensee . Notwithstanding the prohibition on Licensee operating a Lodging Business in Section 9.1, Licensee may:
(a) On a limited basis, engage in the transient rental of inventory of Vacation Ownership Properties that are held for development and sale and owned by Licensee, its Affiliates, an HOA or a third party with which Licensee or its Affiliates has entered into a development agreement or management agreement (together, Licensee Parties ) or that is controlled by Licensee, its Affiliates or an HOA as a result of a Vacation Ownership Property owner default pending foreclosure or cure in the ordinary course of business, in each case, solely to support Licensees Vacation Ownership Business. Licensee agrees that all Licensed Vacation Ownership Properties transient rental inventory shall be made available through the Licensed System and shall not be placed on any third party platforms or distribution channels.
(b) In the event Licensee acquires a hotel, resort or other transient or extended stay lodging facilities for the purpose of converting such facilities into a Vacation Ownership Property, Licensee may during such conversion process operate such facilities, or a significant portion thereof, as a hotel provided Licensee shall pursue such conversion in a commercially reasonable manner so as to limit Licensees competition with Licensor in the Lodging Business. The parties agree Licensees obligation in this regard shall be met if Licensee diligently pursues the conversion and has commenced bona fide sales of Vacation Ownership Property intervals within 24 months of Licensees obtaining ownership, control or management of such property. If the Licensee fails to commence bona fide sales of Vacation Ownership Property intervals within the 24-month period, Licensee shall retain Licensor (for any Licensed Vacation Ownership Properties) or a third party management company (for any Separate Operations) to manage the hotel component of the project.
ARTICLE VI
SOURCING
Section 6.1. Sourcing . Licensee will source the furniture, fixtures and equipment for the Licensed Vacation Ownership Properties in compliance with all applicable Laws and the Standards and Agreements.
ARTICLE VII
LICENSOR BRAND IDENTITY GUIDELINES; STANDARDS; LOYALTY PROGRAM
Section 7.1. Licensor Brand Identity Guidelines . Licensee shall use the Licensed Marks solely: (i) in good faith, in a dignified manner and in accordance with the Licensor Brand Identity Guidelines and good trademark practice in the Territory; (ii) in a manner that does not harm or jeopardize the value of the Licensed Marks or their associated goodwill; and (iii) in connection with activities, products, and services that maintain at all times the high levels of quality associated with Licensees use of the Licensed Marks prior to the Effective Date. Licensee shall not take any action (or fail to take any action) that materially harms or jeopardizes (or could reasonably be expected to materially harm or jeopardize) the value, validity, reputation or goodwill of the Licensed IP.
Section 7.2. Modified Standards .
(a) Licensor may modify or implement any existing or new Standards during the Term, effective upon notice to Licensee, provided that (i) Licensor may not require Licensee to comply with any Standards that, as a whole, place a disproportionate or discriminatory burden upon Licensee relative to practices for similarly situated Licensor Lodging Properties, but Licensee acknowledges that certain Standards may not apply to all of Licensors branded hotels and (ii) Licensee shall have a commercially reasonable time to transition to comply with the above new Standards (unless new or modified Standards reflect changes in applicable Laws, in which case, Licensee must adopt such changes sufficiently promptly to comply with such Laws).
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(b) On an annual basis during the Term, Licensee may submit proposed changes to the Brand Standards for Licensors prior written approval. Licensor shall not unreasonably withhold its approval to any such changes.
Section 7.3. Loyalty Program Participation .
(a) Licensee shall participate in the Loyalty Program pursuant to the terms in this Article VII, the Loyalty Program terms, and all additional terms contained in any other agreement executed between the Parties at any time during the Term with respect to the Loyalty Program.
(b) Licensor may modify the Loyalty Program terms in its sole discretion, provided that:
(i) Licensee shall receive commercially reasonable advance notice of any material changes;
(ii) Owners at Licensed Vacation Ownership Properties maintain the Loyalty Program status tier level or equivalent that was purchased prior to such notice;
(iii) Licensee may opt out of select programs if they are optional for similarly situated Licensor Lodging Properties; and
(iv) Licensor will not modify the Loyalty Program in any manner that places a disproportionate or discriminatory burden upon (x) Licensee relative to similarly situated participants or (y) owners at Licensed Vacation Ownership Properties related to other Loyalty Program members.
(c) All Loyalty Program members shall have the right to redeem Loyalty Program Points for nightly stays at Licensed Vacation Ownership Properties. Licensee shall provide Loyalty Program members benefits for stays at Licensed Vacation Ownership Properties, consistent with the tiers and rules of the Loyalty Program. Licensee shall have sole responsibility for all matters, activities and disputes involving Loyalty Program members with respect to their stays in Licensed Vacation Ownership Properties.
(d) So long as the Loyalty Program maintains an air travel mileage partner, Licensor will use commercially reasonable efforts to allow Licensee to purchase air travel miles at the same cost as Licensor.
Section 7.4. Exclusivity/Licensee Status . Licensee may not participate in a loyalty program (or purchase and use loyalty program points) of a Hilton Competitor unless such loyalty program relates solely to Vacation Ownership Properties maintained as Separate Operations. Licensor will not authorize Loyalty Program Points to be used solely for the creation of a Vacation Ownership Business that conflicts with Licensees rights under this Agreement. Licensor will maintain Licensees tier status (or grant comparable tier status to Licensee) in the Loyalty Program, if Licensee changes the tier structure of the Loyalty Program during the Term. Licensee may purchase tier status from Licensor for the Loyalty Program.
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Section 7.5. Sale of Loyalty Program Points . Licensor shall cause Hilton HHonors Worldwide, L.L.C. ( HHonors LLC ) to sell Loyalty Program Points to Licensee at cost for a period of 20 years after the Effective Date. Licensor shall cause HHonors LLC to inform Licensee of the cost per point at the beginning of each calendar year during such 20 year period. Thereafter, (i) Licensor shall cause HHonors LLC to sell Loyalty Program Points to Licensee at the market rate (which shall not be (x) less than cost or (y) more than the amount paid by any other Person participating in the Loyalty Program who buys the similar quantity of points on the same terms and is otherwise similarly situated to Licensee), provided that such market rate is no higher than the price per point paid by any strategic partner that purchases a comparable volume of points annually on comparable business terms from HHonors LLC. During the Term and in accordance with the restrictions in this Article VII, HHonors LLC shall be entitled to increase the price per point on an annual basis.
Section 7.6. Use of Loyalty Program Points . Licensee may use the Loyalty Program Points it purchases:
(i) to fulfill benefits related to the Licensed Vacation Ownership Business;
(ii) as awards or incentives associated with the marketing or sale of the Licensed Vacation Ownership Properties;
(iii) in connection with customer complaints or customer service responses; or
(iv) for any other reason approved by Licensor in advance in writing.
Licensee may not resell or transfer Loyalty Program Points to any other Person or allow any Person (other than members of the Loyalty Program for end-use purposes) to do same.
Section 7.7. Conversion to Loyalty Program Points . Licensee can convert points associated with Licensees own point-based reservations and exchange system into Loyalty Program Points through a Licensed Exchange Program at a conversion rate to be determined by Licensee. Licensees members elections to convert such points to Loyalty Program Points will be irrevocable and irreversible. All costs and expenses associated with such point conversion shall be the sole responsibility of Licensee.
ARTICLE VIII
OPERATIONS
Section 8.1. Licensee Operations, Brand Standards . At all times during the Term, Licensee will, at its sole expense, (i) operate the Licensed Vacation Ownership Business in strict compliance with all Standards and Agreements and all applicable Laws; (ii) obtain and maintain all approvals, permits, licenses and consents required for the operation of the Licensed Vacation Ownership Properties; and (iii) pay all Taxes relating thereto. Licensee acknowledges that, although Licensor provides the Standards and Agreements, Licensee has exclusive day-to-day control of the business and operation of the Licensed Vacation Ownership Business. Without limiting any obligations in this Agreement or the Standards and Agreements, Licensee shall, at its sole cost and expense, comply with its obligations set forth on Exhibit B.
Section 8.2. Employees . Licensee will employ sufficient and suitably qualified individuals with respect to the Licensed Vacation Ownership Business. Licensee will ensure that Licensees employees at all times comply with the Standards and Agreements.
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Section 8.3. Management and Operation of the Projects .
(a) Licensee may subcontract or delegate its property-level, non-management functions with respect to Operating one or more Licensed Vacation Ownership Properties, such as housekeeping, security and maintenance to vendors without Licensors prior written consent, provided that such functions are delegated or subcontracted in accordance with the Brand Standards. Licensee may subcontract or delegate both property-level and management functions to (i) a Subsidiary without notice to or consent of Licensor or (ii) any other Person, with Licensors prior written consent not to be unreasonably withheld. Licensor hereby consents to the subcontracting and delegation agreements set forth on Exhibit L.
(b) Licensee shall require all sublicensees (and all Persons referenced in Section 8.3(a)) to agree in writing to abide by all terms herein relating to the Standards and Agreements and protection of the Licensed IP, and Licensee is liable to Licensor hereunder for any act or omission by a sublicensee or a Person referenced in Section 8.3(a) that would breach this Agreement if committed by Licensee. A Party may not license or authorize any Person (including Subsidiaries) to take any action that such Party is prohibited from doing under this Agreement, and each Party is liable hereunder for any action by a Subsidiary that would breach this Agreement if committed by such Party.
Section 8.4. Quality Assurance .
(a) Subject to any pre-existing third-party agreements prohibiting same, Licensor and its representatives have the right (but not the obligation) to enter the Licensed Vacation Ownership Properties at any time without notice or additional permission from Licensee to verify that Licensee is complying with this Agreement and the Standards and Agreements. Licensee shall provide commercially reasonable assistance to facilitate such inspections and promptly (or immediately, for material deficiencies or issues involving health or safety) take all actions necessary to correct any deficiencies found during any inspection. If Licensor is required to conduct more than one (1) inspection in any twelve (12) month period because of Licensees failure to comply with the Standards and Agreements or this Agreement, Licensee shall reimburse Licensor for the commercially reasonable out-of-pocket costs of such additional inspections. The results of such inspection are Licensors Confidential Information, and Licensor may use and disclose them for authorized business purposes.
(b) Licensors representatives who travel to the Licensed Vacation Ownership Properties to perform design review, training, inspections, assistance or other services shall be permitted, subject to availability, to stay at the relevant Licensed Vacation Ownership Property and use its facilities (including commercially reasonable food and beverage consumption) without charge.
Section 8.5. Licensed HOAs Not Controlled By Licensee . If any Licensed HOA not Controlled by Licensee operates or maintains a Licensed Vacation Ownership Property in a manner that would constitute a Deflagging Event or an action set forth in Section 18.3 of this Agreement if committed by Licensee, Licensee shall promptly notify the Licensed HOA of such failure and request the same be cured within thirty (30) days. If such failure is not susceptible to being cured during such 30 day period, Licensee may extend such cure period for such additional periods as is reasonable under the circumstances if cure is being diligently pursued, and in no event will such period be more than one year from the date of the initial notice without Licensors prior written consent. If the Licensed HOA cannot effect cure within such time (or an extension thereof, which requires Licensors prior written consent, not to be unreasonably withheld), then Licensee shall immediately Deflag such Licensed Vacation Ownership Property, and the provisions of Section 18.1 shall apply.
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Section 8.6. Employee Discounts . Licensors employees may stay at the Licensed Vacation Ownership Properties (and Licensees employees may stay at the Licensor Lodging Properties) for other business or non-business purposes at reduced rates (such rates also covering food and beverage costs), subject to the terms and conditions contained in the Employee Matters Agreement dated as of the date hereof among the Parties, Park Hotels & Resorts Inc. and Hilton Domestic Operating Company Inc. (the Employee Matters Agreement ). Licensees employees may enjoy discounts consistent with Licensors then-current discount offers to its own employees for in-room amenities, in accordance with the Standards and Agreements and the Employee Matters Agreement. If Licensor so requests in writing, Licensors employees may enjoy discounts consistent with Licensees then-current discount offers to Licensees own employees to purchase units in Licensed Vacation Ownership Properties.
Section 8.7. Managers . Each Party shall give the other Party notice of one representative to act as such Partys primary contact(s) with respect to the various performance areas and obligations in this Agreement. Each Party may change one or more of its primary contacts in accordance with the procedures set forth in Article XXIII. The Parties contacts shall fully cooperate to perform this Agreement and meet regularly or as needed.
ARTICLE IX
LICENSEE OBLIGATIONS
Section 9.1. Lodging Business . During the Term and except as permitted in Section 5.9 and this Section 9.1, Licensee will not engage in the Lodging Business under any Trademark anywhere in the world.
Section 9.2. Hilton Competitors . Without Licensors prior written consent, Licensee may not:
(a) merge with or acquire direct or indirect Control of a (x) Hilton Competitor or (y) Vacation Ownership Business (in either an equity or asset acquisition) which has entered into an agreement for Operating activities with a Hilton Competitor;
(b) acquire direct or indirect Control of a Vacation Ownership Business together with a Lodging Business (in either an equity or asset acquisition); or
(c) be directly or indirectly acquired by, merged into or combined with any Person other than an Affiliate (in either an equity or asset transaction).
Any purported transaction in violation of this Section 9.2 shall be deemed null and void at the outset and of no force or effect.
Section 9.3. Acquisitions .
(a) Without Licensors prior written consent, Licensee may acquire direct or indirect Control of a business that is not a Vacation Ownership Business or Lodging Business (in either an equity or asset acquisition), and Licensee may (i) operate such new business as Separate Operations or (ii) use the Licensed IP in connection with such new business, subject to Licensors prior written consent.
(b) Without Licensors prior written consent, Licensee may acquire direct or indirect Control of Vacation Ownership Properties (in either an equity or asset acquisition) that have never been branded with any Hilton Marks, and Licensee may operate such Vacation Ownership Properties as (i) Separate Operations or (ii) new Licensed Vacation Ownership Properties, subject to all terms and conditions herein regarding same.
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Section 9.4. New Products and Services . Licensee may develop or acquire products or services that are not in the Vacation Ownership Business but are substantially similar to products and services being offered at the time by other Persons who operate a business described in clause (i) of the definition of Vacation Ownership Business of quality similar to Licensee: (i) as Separate Operations or (ii) subject to Licensors prior written consent, as part of the Licensed Vacation Ownership Business.
Section 9.5. Advertising .
(a) Licensee shall, at its cost and expense, advertise and promote the Licensed Vacation Ownership Business, in all venues and media, in a first-class, dignified manner, in compliance with all Standards and Agreements and this Agreement. Licensee shall ensure that all advertising and promotional materials used in connection with the Licensed Vacation Ownership Business, in any form or media ( Marketing Content ) comply with all applicable Laws and the Standards and Agreements. Notwithstanding the foregoing, Licensee may continue to use all Marketing Content that Licensee has used prior to the Effective Date, to the extent such Marketing Content is consistent with the Standards and Agreements, and will not violate any Standards and Agreements by such use. Licensor has the right to review (on a periodic basis), and Licensee shall respond to Licensors commercially reasonable requests to submit to Licensor any new Marketing Content that differs materially from that used by Licensee as of the Effective Date. Licensee shall promptly revise or cease using any Marketing Content after it becomes aware (whether from notice from Licensor or otherwise) that it does not comply with this Agreement, the Standards and Agreements (subject to this Section 9.5(a)) or applicable Laws.
(b) The Parties will cooperate to facilitate advertising the Licensed Vacation Ownership Properties in Licensors distribution channels, and develop and exploit new Marketing Content and channels to support the Licensed Vacation Ownership Business, provided that , in each case, Licensor has sole discretion as to any specific advertising activities.
(c) The Parties will coordinate all marketing activities provided under this Agreement, including online demand generation, Internet keyword purchasing and email marketing (and future successors and equivalents of the foregoing), so as to prevent current and prospective customers from declining to receive marketing for Licensor and/or the Loyalty Program.
Section 9.6. Sponsorships/Partnerships .
(a) The Parties shall meet quarterly during the Term to discuss future Marketing Content and any sponsorship, marketing, endorsement or similar agreements ( Marketing Agreements ) for the Licensed Vacation Ownership Business between the Parties and their advertisers.
(b) If Licensor wishes to enter into any Marketing Agreement on an exclusive basis, and such exclusivity would restrict the Licensed Vacation Ownership Business, Licensor shall notify Licensee (i) at the quarterly meeting or (ii) for time-sensitive matters, at least 30 days prior to executing same. In each case, Licensor shall consult with Licensee and in good faith consider Licensees comments with respect to such agreement; however, for the avoidance of doubt, nothing in this Section 9.6(b) shall give Licensee the right to block or delay any such exclusive marketing agreement. Licensor shall have the sole right to approve and execute any such exclusive Marketing Agreements that involve the Licensed Marks. However, should Licensor request Licensee participate in a marketing or similar agreement with respect to co-branded credit cards, and such arrangement includes a bounty fee or similar payment by the issuer for acquisitions at Licensees Vacation Ownership Properties, Licensee shall not be required to participate in such marketing activates unless Licensee receives a share of such payment.
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(c) Licensee shall ensure that all marketing activities, Marketing Content and Marketing Agreements entered into in connection with the Licensed Vacation Ownership Business comply with all applicable Laws and the Standards and Agreements and, absent the prior written consent of Licensor, do not involve a Hilton Competitor. Licensee shall not use any of the Licensed Marks or participate in a Marketing Agreement that may subject Licensor to public ridicule, criticism or controversy or that may substantially tarnish Licensors goodwill.
(d) Licensee may continue to perform under all Marketing Agreements that Licensee has entered into in writing and made available to Licensor for review prior to the Effective Date. Licensor acknowledges that Licensee has prior to the Effective Date entered into certain Marketing Agreements or other arrangements designed to support the Licensed Exchange Program with Hilton Competitors, a list of which is attached hereto as Exhibit M. Should Licensee desire to enter into a new Marketing Agreement or other arrangement with a Hilton Competitor, or materially expand the scope of such an existing arrangement, Licensee must first obtain Licensors prior written consent.
(e) Licensee may enter into new local Marketing Agreements and enterprise-wide Marketing Agreements at any time, subject to Licensors prior written approval for all enterprise-wide Marketing Agreements and any new local Marketing Agreement that differs materially from that used by Licensee as of the Effective Date. Licensee shall notify Licensor of all proposed new Marketing Agreements (i) at the quarterly meeting or (ii) for time-sensitive matters, at least 30 days prior to the signing date. Licensor shall not unreasonably withhold its approval for any Marketing Agreement that does not involve a Hilton Competitor. In each case, Licensee shall consult with Licensor and in good faith consider Licensors comments with respect to such agreement. Should Licensor determine, in its reasonable discretion, that a Marketing Agreement does not comply with this Agreement, the Standards and Agreements (subject to this Section 9.6(e)) or applicable Laws, then Licensor shall notify Licensee of same and Licensee shall terminate such Marketing Agreement. Licensee shall respond to Licensors reasonable requests to submit to Licensor any Marketing Content.
Section 9.7. Reservations . Licensee shall, at all times during the Term, participate in and use the Licensed System and honor all confirmed reservations referred to the Licensed Vacation Ownership Properties through the Licensed System.
Section 9.8. Diversion . Licensee shall not divert any business from the Licensed Vacation Ownership Properties to any other facilities or products (except other Vacation Ownership Properties through an exchange program or facilities or products affiliated with Licensor, in each case, as approved by Licensor in its sole discretion).
Section 9.9. Finances . Licensee shall have sole responsibility for all debts, liabilities, permits, Taxes and other financial obligations incurred in the operation of the Licensed Vacation Ownership Business, and make all such payments when due.
ARTICLE X
SYSTEMS
Section 10.1. Systems . Licensee shall maintain all Licensee Systems in connection with all Standards and Agreements.
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ARTICLE XI
LICENSOR SERVICES
Section 11.1. Call Center Transfer Services . The Parties have executed the Marketing Services Agreement, effective as of the Effective Date (the Marketing Services Agreement ), which shall govern the transfer of Calls from Licensor to Licensee. The Marketing Services Agreement shall at a minimum provide that:
(i) it shall terminate automatically, if the Noncompetition Term expires or terminates (either standing alone or if this Agreement terminates in its entirety);
(ii) Licensor shall have no service level obligations or required minimums for transferred Calls; however, for ten years after the Effective Date, Licensor shall use Reasonable Best Efforts to transfer Calls to Licensee at a level consistent with past practice prior the Effective Date as adjusted in good faith to reflect, among other facts and circumstances that could affect the overall value proposition of the Marketing Services Agreement, overall call volume, changes to the demographic mix of callers and changes in customers preference or willingness to be presented with Licensed Vacation Ownership offers;
(iii) For three years after the Effective Date, Licensors existing call center procedures shall not be changed in a way that negatively and materially affects the order in which Calls are forwarded by Licensor to third parties, including Licensee; and
(iv) Licensor shall provide the Call transfer services described therein at cost for the first 30 years and at market rates thereafter.
All other terms and conditions with respect to such Call transfers shall be set forth in the Marketing Services Agreement.
Section 11.2. Other Services . Licensor shall otherwise provide services to Licensee as set forth in all other Party Agreements.
ARTICLE XII
REPAIRS AND MAINTENANCE
Section 12.1. Repairs . Licensee shall ensure that all Licensed Vacation Ownership Properties are in good repairs and first-class condition and conform with applicable Laws and the Standards and Agreements.
ARTICLE XIII
INTELLECTUAL PROPERTY
Section 13.1. Ownership/New Marks .
(a) Licensor, together with its Affiliates, is the sole owner of all Licensed IP, and Licensee will not file to register, register, patent, maintain or renew any of same. Licensee will not directly or indirectly attack, contest or otherwise challenge the validity, enforceability or ownership of any Licensed IP or Hilton Data. Notwithstanding the foregoing, if Licensee is deemed to be the owner of any Licensed
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IP (or own any rights in any Hilton Data), Licensee hereby assigns and agrees to assign to Licensor all of such rights in same. Unless Licensee has notified Licensor that it no longer requires the use of any Licensed Marks, Licensor shall continue to maintain and renew all Licensed Marks (and file and use Reasonable Best Efforts to prosecute until registration all new Licensed Marks approved hereunder), so long as Licensee reimburses Licensor for all commercially reasonable out-of-pocket costs incurred.
(b) Without limiting Section 13.1(a), Licensor agrees that Licensee may (i) serve as the administrative and technical contact for all domain names and social or mobile media registrations included in the Licensed Marks, provided that Licensor shall be the registrant of any such domain names (and social or mobile media registrations, if and to the extent the trademark owner is intended to be the registrant) and (ii) file to register corporate, trade, d/b/a and similar names containing the Licensed Marks, so long as any such registration does not modify or compromise Licensors ownership rights in the Licensed Marks.
(c) If Licensee wishes to use a Licensed Mark in a country or jurisdiction for which it is not registered as of the Effective Date, it may notify Licensor of same. The Parties will cooperate to perform all necessary due diligence with respect to Licensees proposed use. Licensor shall not withhold its consent to any proposed new Trademark if the new Trademark, in Licensors good-faith judgment, would not reasonably be expected to harm or jeopardize the value, validity, reputation or goodwill of the Licensed Marks or subject Licensor to any risk of legal liability or an adverse Action anywhere in the world. Any new Trademark approved by Licensor hereunder shall be owned by Licensor and deemed to be a Licensed Mark hereunder.
Section 13.2. Licensees Use of Licensed IP .
(a) Licensee shall use all Licensed IP solely in compliance with applicable Laws and all Standards and Agreements. Licensee will use all notices and legends for the Licensed IP that are required by applicable Laws or reasonably requested by Licensor.
(b) Licensee acknowledges that Licensor may change the stylization, font or appearance of the Licensed Marks during the Term. Licensee must use the latest version of the Licensed Marks that Licensor has adopted for its own use, subject to a commercially reasonable transition period during which Licensee may engage in traditional phase out use of the prior version of the Licensed Marks.
(c) Licensee may use the Trademarks of third parties in connection with permitted marketing activities in the ordinary course of business in the Licensed Vacation Ownership Business, provided that, without Licensors prior written consent (whether provided in connection with the Parties marketing activities in Section 9.5 or Section 9.6 or otherwise), Licensee shall not use (i) the Licensed Marks with any other Trademark in such a manner so as to suggest (a) a co-branded, combined or composite Trademark or (b) that Licensor is affiliated with, endorses or sponsors the owner of such Trademark; or (ii) the Trademarks of any Hilton Competitor in the Licensed Vacation Ownership Business.
Section 13.3. Enforcement . If Licensee learns of any actual or threatened unauthorized use of the Licensed IP by any Person, Licensee shall promptly notify Licensor. Licensor, in its sole discretion, shall decide whether to commence an Action against such use. If Licensor elects not to bring an Action and such unauthorized use is materially impairing Licensees rights under this Agreement, Licensor shall not unreasonably refuse a request by Licensee to bring an Action in its own name. If Licensor refuses such a request, Licensee may not bring such an Action. If Licensor grants such a request, Licensor may participate in such Action with counsel of its own choice at its own expense. The Parties may also elect in their discretion to bring a joint Action. The Parties shall fully cooperate in any such Action brought in this Section 13.3. Absent a joint Action or later agreement to the contrary, the Party that brings any
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Action herein shall control its prosecution, pay all costs and expenses associated therewith and have the sole right to any and all damages, settlements and proceeds therefrom; provided that a Party shall not enter into any settlement or other agreement that would impose any liability or obligations or have any adverse effect upon on the other Party without its prior written consent, which consent shall not be unreasonably withheld. Licensee hereby agrees that this Section 13.3 limits its rights under applicable Laws to commence an Action against any Persons unauthorized use of the Licensed IP, and hereby waives such rights, to the extent they conflict with this Section 13.3.
Section 13.4. Credit Cards .
(a) Licensee may not enter into any agreement with a financial institution or any other Person to create a co-branded credit card or any co-branded alternative payment technology (e.g., Google Wallet) without Licensors prior written consent. Should Licensee establish Separate Operations, Licensee may co-brand a credit card or other payment alternative provided such co-branding does not include any Hilton Marks and is only utilized in connection with the Separate Operations.
(b) Licensee shall use the then-current Loyalty Program credit card designated by Licensor as the exclusive instant credit card issued for down payments, renewals or other fees in connection with Licensed Vacation Ownership Properties and honor all nationally recognized credit cards and credit vouchers and enter into all necessary agreements with issuers therefor.
ARTICLE XIV
CONFIDENTIALITY
Section 14.1. Confidential Information .
(a) Absent the prior written consent of the disclosing Party (the Disclosing Party ), each Party (the Receiving Party ) shall not use any of the Disclosing Partys Confidential Information other than as required to perform this Agreement or exercise its rights hereunder, and shall not disclose any such Confidential Information to any Person, other than to its Subsidiaries (but not including Licensees Subsidiaries engaged in Separate Operations) and their respective employees and counsel (and Persons described in Section 8.3(a) who need to know it for such Party to perform under this Agreement ( Recipients ), subject to commercially reasonable confidentiality agreements or obligations of confidentiality (and the provisions of Section 14.2 for Hilton Data). Each Party shall protect the security of the other Partys Confidential Information with the same measures it uses to protect its own most sensitive information, and shall use at least a commercially reasonable standard of care in this regard. Each Party is liable for any unauthorized use or disclosure of Confidential Information by its Recipients, and shall promptly notify the other Party about (and cooperate with the other Party to remediate) any instance of same.
(b) Confidential Information shall not include Information (other than Hilton Data, for which such exceptions do not apply) that: (i) was in the Receiving Partys possession on a non-confidential basis prior to the time of disclosure to such Party by or on behalf of the Disclosing Party; (ii) was or becomes generally available to the public other than as a result of a disclosure by the Receiving Party or its Recipients; (iii) becomes available to such Party on a non-confidential basis from a source other than the Disclosing Party or its Recipients; (iv) was independently developed by the Receiving Party without the use of Confidential Information of the Disclosing Party; or (v) is required to be disclosed by applicable Laws, subpoena, legal process or document demand (or to enforce a Partys rights under this Agreement), provided that the Receiving Party shall promptly inform the Disclosing Party of any such requirement, disclose no more Information than as required and cooperate with any efforts by the Disclosing Party to obtain a protective order or similar treatment.
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Section 14.2. Data and Data Security .
(a) As between Licensor and Licensee, (i) Licensor is the owner of all Hilton Data and (ii) Licensee is the owner of all Licensee Data. Unless otherwise specified, to the extent that any data may fall within the definitions of both Hilton Data and Licensee Data, the use by a Party of such data shall be in accordance with the rights and restrictions applicable to data owned by such Party, without regard to the restrictions applicable to the same data to the extent owned by the other Party.
(b) Subject to all terms and conditions herein, including this Section 14.2(b), Licensor grants to Licensee during the Term a limited, non-transferable right to use the Hilton Data: (i) to engage in the promotion of the Licensed Vacation Ownership Business and (ii) for research and analysis in furtherance of Licensees internal business purposes, in each case solely in connection with Licensees operation of the Licensed Vacation Ownership Business. Except as otherwise expressly set forth herein, Licensee shall not use the Hilton Data (including in aggregate form) for any purpose. Without limiting the generality of the foregoing, in no event shall Hilton Data (including in aggregate form) be disclosed, sold, assigned, leased or otherwise provided to third parties (including any non-Subsidiary Licensee Parties and Separate Operations) by Licensee except as otherwise expressly permitted herein or with Licensors prior written consent. Notwithstanding the above rights, Licensor is not required to provide any Hilton Data to Licensee to the extent such provision would result in Licensors violation of any applicable Laws, Privacy Policies or Data Security Policies.
(c) Licensees Systems and Licensees use of Hilton Data, whether acquired, obtained or developed prior to or after the Effective Date shall at all times comply with: (i) this Agreement, all applicable Laws, the Standards and Agreements and best practices in the industry; and (ii) Licensees own Privacy Policies and Data Security Policies. Licensee shall provide to Licensor all of its policies and procedures with respect to the Licensee Systems as of the Effective Date and will not materially change same without Licensors prior written consent. Licensee may not share or disclose Hilton Data to any third party vendor, or agent of Licensee without Licensors prior written consent. Licensee shall ensure that its third-party vendors that operate, host or otherwise have access to Licensee Systems or Hilton Data also comply with the above applicable Laws, the Standards and Agreements, best practices in the industry and Licensors Privacy Policies and Data Security Policies, and in all agreements with such vendors, shall expressly (i) require such compliance and (ii) designate Licensor as a third-party beneficiary with the right to enforce such agreement directly against such vendor with respect to all Hilton Data or Licensed IP. Other than as permitted under this Agreement, Licensee will not have, claim or assert any right against or to such Hilton Data.
(d) Licensee will notify Licensor immediately following discovery of any actual, attempted, suspected or threatened or reasonably foreseeable circumstance that compromises, or could reasonably be expected to compromise, either physical security (including security at any facility housing Licensee Systems or relating to transportation of Licensee Systems or the physical media containing Licensors Confidential Information) or Systems security (including security control measures of Systems of any variety) of any Licensee Systems used in connection with the Licensed Vacation Ownership Business (or Systems interacting with same) in any manner that either does or could reasonably be expected to permit unauthorized processing, use, disclosure or acquisition of or access to any Licensee Systems, Hilton Data, or other Confidential Information of Licensor, or otherwise harm the Licensed Vacation Ownership Business or the reputation or goodwill of Licensor (a Security Breach ). Licensee shall remedy any such breach at its own expense, in compliance with all applicable Laws and the Standards and Agreements, and a remediation plan approved by Licensor, and the Parties shall cooperate fully in all such remedial actions. Unless otherwise required by applicable Laws, Licensee shall not make any notifications to customers, members or the general public of any such Security Breach without Licensors prior written consent.
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ARTICLE XV
ACCOUNTING AND REPORTS
Section 15.1. Maintenance of Records . Licensee, at its expense, will maintain and preserve for at least five (5) years (or, if longer, the period of time required by applicable Laws) after their creation or generation complete and accurate books, records and accounts for the Licensed Vacation Ownership Business, in accordance with United States Generally Accepted Accounting Principles, applicable Laws and the Standards and Agreements.
Section 15.2. Audit . During the Term and for three (3) years thereafter, Licensor and its representatives have the right, at any time, upon commercially reasonable notice to Licensee and at Licensors cost, to examine, copy and audit all Information of Licensee for the past five (5) years preceding as is required to ensure that Licensee complies with this Agreement. Licensee will fully cooperate with any such audit. If an examination or audit reveals that Licensee has underpaid Licensor, Licensee will promptly pay to Licensor the amount underpaid plus interest. If the underpayment is five (5%) or more for the period being audited, Licensee will reimburse Licensor for all commercially reasonable costs and expenses connected with the audit. If the examination or audit establishes a pattern of underreporting, Licensor may require that the financial reports due hereunder be audited by an internationally recognized independent accounting firm.
Section 15.3. Royalty and Fee Reporting . During the Term and Tail Period, and for a period of at least one (1) year thereafter, Licensee agrees that it shall, at Licensees expense, maintain accurate and complete records with respect to the basis upon which the Royalties and fees are calculated under this Agreement. Upon reasonable advance notice to Licensee, such records shall be open for inspection by representatives of Licensor during Licensees regular business hours. Licensor has the right to inspect the records of all Licensee Parties to the extent that such records are relevant to how the Royalties and fees were calculated under this Agreement.
ARTICLE XVI
INDEMNIFICATION; INSURANCE
Section 16.1. Indemnification .
(a) Licensee shall indemnify, defend at its expense and hold harmless Licensor and its Subsidiaries and their respective officers, directors, agents, employees and representatives ( Related Parties ) from and against any and all losses, costs, liabilities, damages, judgments, settlements, fees, claims, demands and expenses (including commercially reasonable attorneys fees and costs of suit) ( Losses ) resulting from (i) third-party claims based upon (w) Licensees breach of this Agreement or any representation, warranty or covenant herein, (x) the operation of its Vacation Ownership Business, and all acts and omissions in connection therewith, (y) Licensees use of or access to the Licensed IP or Hilton Data other than as expressly authorized herein and (z) Licensors use as authorized herein of any content provided by Licensee under Section 1.2 and/or (ii) claims based upon any Security Breach or any unauthorized use, processing or disclosure of any Hilton Data.
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(b) Licensor shall indemnify, defend at its expense and hold harmless Licensee and its Subsidiaries and their Related Parties from and against all Losses resulting from third-party claims based upon (i) Licensors breach of this Agreement or any representation, warranty or covenant herein, (ii) Licensor and its Subsidiaries operation of their businesses, and all of their acts and omissions in connection therewith or (iii) Licensees use of the Licensed IP as expressly authorized herein.
(c) A Party receiving notice of an indemnified claim herein shall promptly notify the other Party. The indemnified Party may, at its expense, employ separate counsel and participate in (but not control) the defense, compromise or settlement of such claim, and shall fully cooperate with the indemnifying Party in connection therewith. Neither Party shall settle or compromise an indemnified claim in any manner that adversely affects the other Party without its prior written consent.
Section 16.2. Insurance Policies . Licensee shall obtain and maintain at all times during the Term and thereafter, to the extent any such policies require coverage at the time a claim is made (unless such requirement is waived pursuant to Licensors prior written consent), insurance of the following types:
(a) Commercial General Liability Insurance including coverage for premises and operations, contractual liability, bodily injury, personal injury, advertising injury, property damage, innkeepers liability and liquor liability if applicable with a minimum policy limit of $25,000,000 USD per occurrence.
(b) Business Automobile Liability Insurance with coverage for any auto or vehicle whether owned, non-owned, hired, leased or otherwise used in the performance of this Agreement with limits of $25,000,000 USD combined single limit each accident.
(c) Crime, Employee Dishonesty Insurance with coverage for loss arising out of or in connection with any fraudulent or dishonest acts committed by the employees, acting alone or in collusion with others, in an amount of at least $2,000,000 USD.
(d) Employment Practice Liability Insurance shall be obtained in an amount no less than $1,000,000 USD. Such insurance shall include coverage for mass/class action multi-party claims, and shall specifically amend the definition of Employer to include both Owner and Manager, regardless of who is the statutory employer.
(e) Property Damage and Business Interruption Insurance as follows:
(i) Property Damage and Business Interruption insurance on a special causes of loss policy form (all-risk), covering one hundred percent (100%) of the insurable replacement value of the building and its contents, and for full recovery of the net profits and continuing expenses for the property (including rental value and franchise fees) for a twelve (12) month period must be carried. The policy must include coverage for the peril of windstorm, earthquake, and flood with limits as close to replacement cost of the building as is available at commercially reasonable prices. Limits below full replacement cost should be based on a professional study probable maximum loss.
(ii) Broad form Boiler and Machinery Insurance, including business interruption coverage, against loss from accidental damage to, or from the explosion of, boilers, air conditioning systems, including refrigeration and heating apparatus, pressure vessels and pressure pipes in an amount equal to one hundred percent (100%) of the actual replacement value of such items plus full recovery of the net profits and continuing expenses of the property.
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(iii) Terrorism Insurance coverage for both first party damage and third party liability either stand-alone, through a government operated or mandated pool, or as part of the General Liability coverage and the Property Damage and Business Interruption coverage.
(f) Workers Compensation Insurance per applicable Laws and Employers Liability insurance with a limit not less than $1,000,000 USD each accident for bodily injury, $100,000,000 USD each employee for bodily injury by disease, and $1,000,000 USD policy limit for disease.
(g) Cyber Liability Insurance, including but not limited to coverage for privacy and network security liability: 1st and 3rd party liability, wrongful disclosure of data, breach of security, downtown, identification theft, credit monitoring service and with a minimum policy limit of $3,500,000 USD each occurrence of claim.
(h) Upon sixty (60) days written notice, such other insurance in such amounts as Licensor may reasonably request against such other insurable hazards common in the industry, taking into account the changing circumstances in the law and insurance marketplace.
Section 16.3. Insurance Requirements .
(a) Licensee shall purchase the insurance in Section 16.2 solely from insurance companies with a financial rating acceptable to Licensor, which shall be no less than AVII if rated by the company A.M. Best. Licensee shall provide evidence to Licensor via certificate (initial coverage, renewal or change in limits) by fax, email or upload to Licensor (or Licensors external partner as indicated by Licensor to Licensee) of its compliance with Section 16.2 and Section 16.3 herein.
(b) With the exception of Boiler & Machinery and Workers Compensation, all insurance policies must name Licensor and its Affiliates and their respective past and current employees, officers and directors as additional insureds. Licensor shall cause all policies to be endorsed to be primary insurance with no recourse to, or contribution from, other similar insurance, if any, which may be carried by Licensor or its Affiliates.
(c) Requests by Licensee to modify requirements for Earthquake, Flood, Windstorm or Terrorism may be submitted to Licensors Risk Management division for consideration. Guidelines for such requests may be requested from RiskManagement@hilton.com.
(d) If Licensee breaches its obligations under Section 16.2 or Section 16.3, Licensor may (but is not obligated to) obtain and maintain insurance to remedy such breach without notifying Licensee, and Licensee shall immediately reimburse Licensor for all costs and premiums in this regard.
Section 16.4. Licensees Obligations . Licensor makes no representation, implied or express, that the foregoing insurance requirements are adequate to protect Licensee from its potential liability relating to this Agreement or the Licensed Vacation Ownership Business. The insurance coverage requirements do not limit Licensees indemnification or other liabilities to Licensor under this Agreement. Any failure of Licensor to demand evidence of compliance by Licensee with Section 16.2 or Section 16.3 shall not be construed as a waiver of Licensees obligations.
Section 16.5. Contribution . If a Partys indemnification obligations herein are unavailable, unenforceable or insufficient to indemnify, hold harmless and defend the indemnified Party and its Related Parties from an indemnified claim herein, the indemnifying Party will, to the fullest extent permitted by applicable Laws, contribute to the Losses of any indemnified parties for an indemnified claim, in proportion to the relative fault of the indemnifying Party in relation to such claim.
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ARTICLE XVII
TRANSFERS
Section 17.1. By Licensee . Without the prior written consent of Licensor, Licensee cannot assign, mortgage or pledge its rights under this Agreement, in whole or in part, to any Person other than an assignment of this Agreement in its entirety to an Affiliate, solely as part of an internal reorganization for tax or administrative purposes, and solely if (i) Licensee guarantees the performance of such Subsidiary thereafter and (ii) the assignee is the ultimate parent entity in Licensees organization or otherwise has the power to control the actions of all of Licensees Affiliates receiving the benefit of this Agreement. For clarity, this Agreement shall be construed as an agreement for the personal services of Licensee in its current form as a non-bankrupt entity, and Licensee may not assume this Agreement (or assign this Agreement to any other Person, including an Affiliate) in bankruptcy without Licensors prior written consent. Without the prior written consent of Licensor, Licensee shall not permit a tax sale, seizure, security interest, lien, mortgage or encumbrance or attachment to occur with respect to any Licensed Vacation Ownership Property.
Section 17.2. By Licensor . Licensor may assign this Agreement, in whole or in part, in its discretion, provided that any successor or acquirer must assume in writing all of Licensors obligations hereunder. Licensor may delegate its obligations herein to any Person, provided that Licensor is obligated hereunder for such Persons acts or omissions.
Section 17.3. By Either Party . Any purported assignment, sublicense, acquisition or other transaction with a third party in violation of any provision of this Agreement shall be null and void at the outset. In the event of a permitted assignment hereunder, this Agreement will be binding upon and inure to the benefit of the Parties permitted successors or assigns.
ARTICLE XVIII
BREACH, DEFAULT, AND REMEDIES
Section 18.1. Deflagging . Upon the occurrence of any of the events below (each a Deflagging Event ), without limiting its other rights and remedies herein, Licensor has the right to require Licensee to Deflag the applicable Licensed Vacation Ownership Property and terminate access to or use of all Licensed IP, Hilton Data and Loyalty Program by the applicable Licensed Vacation Ownership Property, whether or not it is Controlled by an HOA or Controlled by Licensee (the Deflagged Property ), and Licensor may exercise the applicable remedy as set forth below:
(a) If execution is levied against any Licensed Vacation Ownership Property in connection with a final, non-appealable judgment for the payment of an amount in excess of $10,000,000 USD (as adjusted annually after the Effective Date by the CPI Adjustment), or a suit to foreclose any lien, mortgage or security interest (except for foreclosures with respect to consumer financing and mechanics liens that are placed on such Licensed Vacation Ownership Property in the ordinary course of business) on such Licensed Vacation Ownership Property or any property necessary for the operation of such Licensed Vacation Ownership Property in accordance with Standards and Agreements, is initiated and not vacated within ninety (90) days, then Licensor may issue of notice of breach to Licensee with respect to such Licensed Vacation Ownership Property. Licensee shall have thirty (30) days following notice of breach to post a bond or provide other financial assurances reasonably acceptable to Licensor that such Licensed Vacation Ownership Property can continue to operate as part of the Licensed Vacation Ownership Business in accordance with this Agreement. Licensees failure to obtain such bond or provide adequate financial assurances is a Deflagging Event and Licensor may Deflag such Licensed Vacation Ownership Property immediately upon notice to Licensee.
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(b) An on-going threat or danger to public health or safety occurs at any Licensed Vacation Ownership Property, and such occurrence has or is reasonably expected to have a substantial, material and adverse effect on such Licensed Vacation Ownership Property, Licensor, the Licensed IP or any goodwill associated therewith, Licensee will notify Licensor of the threat or danger and Licensee will provide Licensor with a plan to address such threat or danger in a manner reasonably acceptable to Licensor, which plan may include proposed arrangements to accommodate guests at alternative lodging facilities. Depending on the severity of such threat or danger, Licensor may suspend or remove such Licensed Vacation Ownership Property from the Licensed IP, Hilton Data and Loyalty Program until resolution of the threat or danger. If the threat or danger to public health or safety is not eliminated within six (6) months and Licensee fails to develop a plan to address such threat or danger in a manner reasonably acceptable to Licensor, it shall be a Deflagging Event and Licensor may Deflag such Licensed Vacation Ownership Property, immediately upon notice to Licensee.
(c) Except where the failure to meet the applicable thresholds for performance under the quality assurance audit system at such Licensed Vacation Ownership Property is directly a result of Licensors actions or inactions with respect to the provision of management services or shared services at such Licensed Vacation Ownership Property, it shall be a Deflagging Event if Licensed Vacation Ownership Property fails to achieve the thresholds of performance established by the Licensors quality assurance audit system and such failure has not been cured within the applicable cure period under the quality assurance audit system which shall not be less than thirty (30) days. If Licensee fails to cure or enter into a remediation arrangement with Licensor within ninety (90) days following the date of the Deflagging Event, or fails to improve the performance of such Licensed Vacation Ownership Property in accordance with the remediation arrangement, Licensor may Deflag such Licensed Vacation Ownership Property, immediately upon notice to Licensee.
(d) If any Licensed Vacation Ownership Property is not Operated in compliance with the Standards and Agreements and this Agreement, Licensor may issue a notice of breach to Licensee with respect to such Licensed Vacation Ownership Property. If Licensee fails to cure the breach within the time period specified in the notice, which shall not be less than thirty (30) days, it shall be a Deflagging Event. If Licensee fails to cure or enter into a remediation arrangement with Licensor within sixty (60) days following the date of the Deflagging Event, or fails to improve the performance of such Licensed Vacation Ownership Property in accordance with the remediation arrangement, Licensor may Deflag such Licensed Vacation Ownership Property, immediately upon notice to Licensee.
(e) Any Deflagging Event shall not affect the rights of the other Licensed Vacation Ownership Properties hereunder. Upon notice from Licensor of Deflagging, Licensee shall notify the Deflagged Property within 30 days, and starting from the date of Deflagging, Licensee will comply with the terms of Section 19.1 with respect to such property. If Licensee then wishes to continue to operate the Deflagged Property, Licensee may operate it solely as a Separate Operation. This Section 18.1 is cumulative with, and shall not limit Licensors rights under Section 18.3.
(f) If Licensee fails to operate any Sales Facility or Member Service Center in compliance with the Standards and Agreements or this Agreement, then Licensor may issue a notice of breach with respect to such failure. If Licensee fails to remedy within thirty (30) days of such notice, then Licensor may require Licensee to close such Sales Facility or Member Service Center or cease to operate such Sales Facility or Member Service Center as part of the Licensed Vacation Ownership Business.
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(g) Upon the occurrence of a Deflagging Event, without limiting its other rights and remedies herein, Licensee shall not develop new phases of such Licensed Vacation Ownership Property as determined by Licensor its sole discretion until the breach is cured.
Section 18.2. Termination by Licensor for Bankruptcy by Licensee . Licensor may immediately terminate this Agreement, effective upon notice to the Licensee, if Licensee dissolves, liquidates, ceases business operations (excluding a merger into another entity that continues such operations thereafter), becomes insolvent, generally does not pay its debts as they become due or files a voluntary petition (or consents to an involuntary petition) or an involuntary petition is filed and is not dismissed within sixty (60) days under any bankruptcy, insolvency or similar Laws.
Section 18.3. Termination by Licensor For Breach by Licensee . Licensor may immediately terminate this Agreement in its entirety, effective upon notice to Licensee, if at any time during the Term:
(a) (i) 25% or more of the Licensed Vacation Ownership Properties are failing the performance thresholds of Licensors then-current quality assurance system for Vacation Ownership Properties or (ii) Licensees overall customer satisfaction score for all Licensed Vacation Ownership Properties is less than 60, and in each case of (i) and (ii), such failure has not been cured within the applicable cure period under the quality assurance or customer satisfaction audit system, which shall not be less than thirty (30) days or (iii) Licensee fails to operate any Licensed Vacation Ownership Property in compliance with this Agreement or the Standards and Agreements, or otherwise breaches any of the foregoing, and such failure or breach has a material adverse effect on the business, goodwill, operations, assets, liabilities (actual or contingent) or financial condition of Licensor and its Subsidiaries, taken as a whole;
(b) Licensee timely fails to pay any amounts due herein in excess of (i) $5 million USD (as adjusted annually after the Effective Date by the CPI, or its equivalent, if the CPI is unavailable (the CPI Adjustment ) and does not cure such payment within fifteen (15) days or (ii) $3 million USD (subject to the CPI Adjustment) two (2) or more times within any twenty-four (24) month period;
(c) A threat or danger to public health or safety occurs at any Licensed Vacation Ownership Property, and such occurrence has a material adverse effect on the business, goodwill, operations, assets, liabilities (actual or contingent) or financial condition of Licensor and its Subsidiaries, taken as a whole;
(d) Licensee directly or indirectly becomes an Affiliate of a Person who is (i) (x) owned or Controlled by, or is acting on behalf of any Governmental Entity of any country that is subject to comprehensive U.S. sanctions in force; (y) located in, organized under the laws of or ordinarily resident in any such country; or (c) identified by any Governmental Entity as a person with whom dealings and transactions by Licensee are prohibited or restricted or (ii) a Hilton Competitor, unless the Hilton Competitors Vacation Ownership Business is managed thereafter as a Separate Operation;
(e) Licensee breaches Section 9.2 (without giving effect to the provisions therein that would render any breaching transaction null and void) or Section 9.3; or
(f) Licensee (i) contests in any Action Licensors ownership or the validity of the Licensed IP or Hilton Data or assists any other Person to do same; (ii) assigns this Agreement in violation of Section 17.1 (without giving effect to the provisions in Section 17.3 that would render such assignment null and void); (iii) intentionally submits false information or maintains false records or books with respect to its payment obligations herein; (iv) has a senior executive or board member that is convicted of a felony (or any other crime that is reasonably likely to harm Licensor, the Licensed Marks or their goodwill); or (v) is the subject of publicly disclosed information that harms any licenses or permits held by Licensor or its Subsidiaries or their stature with any Governmental Entity.
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Section 18.4. Termination of Corporate Name Rights . Licensees license to use the Licensed Marks as a trade, corporate, d/b/a or similar name shall terminate automatically if: (x) the aggregate number of units of accommodation in the Licensed Vacation Ownership Business falls below two-thirds of the total number of units of accommodation in Licensees entire Vacation Ownership Business; (y) if Licensee, directly or indirectly, merges with or into or acquires 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 Licensee or any such other Person uses the brands of such Persons in any business after such acquisition or (z) Licensee becomes an Affiliate of a Hilton Competitor, in each case regardless of whether the Licensed Vacation Ownership Business is operated as a Separate Operation.
Section 18.5. Suspension . Upon a default under Section 18.3(a) or Section 18.3(c), without limiting its other rights and remedies herein, Licensor has the right to (i) suspend Licensees access to and use of all Licensed IP and/or Hilton Data (other than the Licensed Marks and Licensed Content) until such breach is cured.
ARTICLE XIX
POST TERMINATION OBLIGATIONS
Section 19.1. After Termination . On termination or expiration of this Agreement, Licensee will:
(a) within 10 days, pay all sums due and owing to Licensor, including all costs and expenses incurred by Licensor in obtaining injunctive relief in connection with the enforcement of this Agreement;
(b) cease using (and at Licensors option, securely destroy or return when applicable) the Licensed IP and Hilton Data according to the following deadlines:
(i) immediately, cease creating new advertising, marketing and promotional materials in any form or media that contain the Licensed Marks;
(ii) immediately, cease all access to and use of Licensors Confidential Information;
(iii) within 10 days, cease all access to the Licensed System;
(iv) within 10 days, at Licensors option, securely destroy or return to Licensor all of Licensors Confidential Information;
(v) within 20 days, delete all uses of Licensed Marks from all websites, social and mobile media and other digital or electronic venues in Licensees possession or control and establish Licensors designated employees as all contact names on any registrations or reservations for domain names, social, mobile media and similar identifiers;
(vi) within 30 days, file to change or transfer to Licensor, at Licensors option, all corporate, trade and d/b/a names and vanity telephone numbers to names (or numbers corresponding to names) that do not contain any Licensed Marks;
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(vii) within 60 days, cease using all Licensed Content in digital or electronic media;
(viii) within 6 months, cease using all business cards, stationery, brochures, portable signage and all other printed matter and collateral that is visible to the public and bears the Licensed Marks;
(ix) within 1 year, remove the Licensed Marks from all motor vehicles and large outdoor signage; and
(x) in the next replacement cycle, cease using all internal office collateral that is not visible to the public and bears the Licensed Marks.
Section 19.2. Liquidated Damages . Each Party agrees that the termination of this Agreement due to the fault of Licensee will cause substantial damage to Licensor, and without limiting Licensors right to seek injunctive or equitable relief, Licensor may in its sole discretion elect to receive, in lieu of actual damages, a payment of liquidated damages not as a penalty, but as a commercially reasonable estimate of the minimum just and fair compensation for its lost profits and/or direct damages. If Licensor so elects, such liquidated damages will be due thirty (30) days following any termination of this Agreement and shall be an amount equal to the net present value as of the termination date of all unpaid Royalties and fees under Article III that Licensor expected (had Licensee not breached) to collect for the remainder of the Term. A discount rate of 8% shall be used to determine the net present value.
Section 19.3. Cross-Default . Upon termination of this Agreement, all Standards and Agreements shall automatically terminate.
Section 19.4. Survival . Section 1.1(b), Article III (for fees accruing prior to termination date), Section 4.2, Section 13.1, Section 14.1, Section 14.2(a), Section 15.1Section 15.3, Section 16.1 and Section 16.5, Article XIX and Article XXIArticle XXV shall survive the expiration or termination of this Agreement.
ARTICLE XX
COMPLIANCE WITH LAWS
Section 20.1. Applicable Laws . At all times during the Term, Licensee will (i) at its sole expense, operate the Licensed Vacation Ownership Business in strict compliance with all applicable Laws and (ii) subject to reimbursement by Licensor for its commercially reasonable out-of-pocket costs, provide Licensor with all information relating to the Licensed Vacation Ownership Business that is necessary or desirable to allow Licensor to comply with all applicable Laws.
Section 20.2. Notice of Events .
(a) Licensee shall promptly provide to Licensor all Information Licensor reasonably requests about Licensee and its Subsidiaries (including its and their respective beneficial owners, officers, directors, shareholders, partners or members) and/or the Licensed Vacation Ownership Business and the Licensed Vacation Ownership Properties;
(b) Licensee shall give Licensor notice within ten (10) business days of (i) any occurrence that reasonably could materially adversely affect any Licensed Vacation Ownership Property, the Licensed Vacation Ownership Business or the financial condition of Licensee, (ii) any communication from a Governmental Entity alleging that the Licensed Vacation Ownership Business (or Licensees
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Operating of same) fails to comply with any Laws, or that may materially adversely affect the Operation or financial condition of Licensee or the Licensed Vacation Ownership Business or (iii) any potential or pending Action of which Licensee becomes aware (x) that names Licensor or its Subsidiaries, the Licensed IP or Hilton Data, (y) that would be reasonably likely to have a material adverse effect on the Licensed Vacation Ownership Business, the Licensed IP or Hilton Data or (z) with respect to which the amount in controversy relating to the Licensed Vacation Ownership Business exceeds five million dollars ($5,000,000 USD).
ARTICLE XXI
RELATIONSHIP OF PARTIES
Section 21.1. Consent Standard . Any consent or approval given under this Agreement may be given or withheld by a Party in its sole discretion, unless otherwise specified.
Section 21.2. Independent Contractor . The Parties are independent contractors, and nothing in this Agreement is intended to constitute or deem either Party as an agent, legal representative, fiduciary, subsidiary, joint venturer, partner, manager, employee or servant of the other Party for any purpose, provided that Licensor may act on Licensees behalf as Licensees agent for purposes of booking reservations at any Licensed Vacation Ownership Property. Nothing in this Agreement authorizes either Party to make, provide, or enter into any contract, agreement, warranty or representation on the other Partys behalf or to incur any debt or other obligation in the other Partys name.
ARTICLE XXII
GOVERNING LAW/DISPUTE RESOLUTION
Section 22.1. Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of New York without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.
Section 22.2. Negotiation . In the event of a dispute arising out of or in connection with this Agreement (including its interpretation, performance or validity) (collectively, Agreement Disputes ), the general counsels of the relevant Parties (or such other individuals designated thereby) shall negotiate for a maximum of 21 days (or a mutually-agreed extension) (such period of days, the Negotiation Period ) from the time of receipt by a Party of written notice of such Agreement Dispute. The relevant Parties shall not assert the defenses of statute of limitations and laches for any delays arising due to the procedures in Sections 22.2 or 22.3.
Section 22.3. Mediation . If the Parties have not timely resolved the Agreement Dispute under Section 22.2, the Parties agree to submit the Agreement Dispute within to mediation no later than 10 days following the end of the Negotiation Period, with such mediation to be conducted in accordance with the Mediation Procedure of the International Institute for Conflict Prevention and Resolution ( CPR ). The Parties to the Agreement Dispute agree to bear equally the CPR and mediators costs. The Parties agree to participate in good faith in the mediation for a maximum of 14 days (or a mutually agreed extension). If the Parties have not timely resolved the Agreement Dispute pursuant to this Section 22.3, either Party may then bring an action in accordance with Sections 22.4 and 22.5 herein.
Section 22.4. Consent to Jurisdiction . Each Party irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware or (b) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the
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State of Delaware, to resolve any Agreement Dispute that is not resolved pursuant to Sections 22.2 or 22.3. Any judgment of such court may be enforced by any court of competent jurisdiction. Further, notwithstanding Sections 22.2 and 22.3, either Party may apply to the above courts set forth in Section 22.4(a) & 22.4(b) above for a temporary restraining order or similar emergency relief during the process set forth in Sections 22.2 and 22.3. Each of the Parties agrees that service by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any of the above Actions and irrevocably and unconditionally waives any objection to the laying of venue of any Action in accordance with this Section 22.4. Nothing in this Section 22.4 shall limit or restrict the Parties from agreeing to arbitrate any Agreement Dispute pursuant to mutually-agreed procedures.
Section 22.5. Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING ANY AGREEMENT DISPUTE.
Section 22.6. Confidentiality . All information and communications between the Parties relating to an Agreement Dispute and/or under the procedures in Sections 22.2 and 22.3 shall be considered Confidential Information under Article XIV herein.
Section 22.7. Continuity of Performance . Unless otherwise agreed in writing, the Parties shall continue to perform under this Agreement during the course of dispute resolution under this Article XXII with respect to all matters not subject thereto.
ARTICLE XXIII
NOTICES
All notices under this Agreement shall be in English, in writing and given or made by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Article XXIII):
To Licensor:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 883-6188
To Licensee:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, Florida 32835
Attn: General Counsel
Facsimile: (407) 722-3776
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ARTICLE XXIV
MISCELLANEOUS
Section 24.1. Complete Agreement; Construction . This Agreement, including the Exhibits, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter.
Section 24.2. Counterparts . This Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties. Facsimile or PDF signature shall serve as originals for purposes of binding the Parties hereto.
Section 24.3. Amendment . This Agreement may not be modified or waived in whole or in part except by an agreement in writing signed by Licensor and Licensee.
Section 24.4. Third Party Beneficiaries . This Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.
Section 24.5. Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
Section 24.6. Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, and such provision shall be interpreted to fullest extent possible consistent with the Parties intent. Further, the Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 24.7. Interpretation . The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.
Section 24.8. No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.
Section 24.9. Cumulative Remedies . No right or remedy conferred upon or reserved to Licensor or Licensee by this Agreement is intended to be, nor will be, deemed exclusive of any other right or remedy herein or by law or equity provided or permitted, but each will be cumulative of every other right or remedy.
Section 24.10. Force Majeure . Neither Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation or Licensees obligations under Article XIV) under this Agreement (which is an Ancillary Agreement as
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defined in the Distribution Agreement), so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered or delayed as a consequence of circumstances of Force Majeure. A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other Party of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
ARTICLE XXV
WARRANTIES
Section 25.1. By Each Party . Without modifying the Distribution Agreement, each Party represents and warrants to the other Party that: (i) the warranting Party has full power and authority to execute and deliver this Agreement and to perform its obligations under this Agreement and (ii) this Agreement has been duly executed and delivered by the warranting Party and, assuming the due execution and delivery of this Agreement by both Parties, constitutes a valid and binding agreement of the warranting Party enforceable against the warranting Party in accordance with its terms.
Section 25.2. Disclaimer . Except as expressly set forth in Section 25.1, each Party disclaims any representations and warranties, either express or implied, with respect to this Agreement, and Licensor disclaims any representations and warranties, either express or implied, with respect to the Licensed Marks, including any warranty of ownership, non-infringement, suitability, value, fitness for use or non-infringement of third party rights.
Section 25.3. Limitation on Damages . Except for claims arising under or breaches of Article XVI, neither Party will be liable to the other Party for any (i) special, incidental, indirect, exemplary, punitive or consequential damages or (ii) except for Licensors reasonably estimated lost profits included in the liquidated damages payment in Section 19.2, lost profits, in each case, relating to this Agreement, regardless of whether such Party has been notified of the possibility or the foreseeability thereof.
[ Signature Page Follows ]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. | ||
By: | ||
Name: | ||
Title: | ||
HILTON GRAND VACATIONS INC. | ||
By: | ||
Name: | ||
Title: |
EXHIBIT A
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings:
(1) Action shall mean any demand, action, claim, suit, countersuit, arbitration, inquiry, subpoena, case, litigation, proceeding or investigation (whether civil, criminal, administrative or investigative) by or before any court or grand jury, any Governmental Entity or any arbitration or mediation tribunal.
(2) Acquired Vacation Business has the meaning set forth in Section 2.6(a).
(3) Acquired Vacation Property Inventory has the meaning set forth in Section 2.6(c).
(4) Affiliate shall mean, when used with respect to any Person, another Person that directly or indirectly Controls, is Controlled by or is under common Control with such Person. For clarity, Licensor, Licensee and PHRI (and their respective Subsidiaries after the Effective Date) shall not be deemed to be Affiliates of each other in this Agreement.
(5) Agreement means this HGV License Agreement, including all Exhibits and Schedules, as each may be amended by the Parties from time to time.
(6) Blocked Person shall mean (i) a Person designated by the U.S. Department of Treasurys Office of Foreign Assets Control as a specially designated national or blocked person or similar status; (ii) a Person described in Section 1 of U.S. Executive Order 13224, issued on September 23, 2001; or (iii) a Person otherwise identified by government or legal authority as a Person with whom Licensor, Licensee or any of their Affiliates, are prohibited from transacting business As of the Effective Date, a list of such designations and the text of the Executive Order are published under the internet website address www.ustreas.gov/offices/enforcement/ofac.
(7) Brand Standards shall mean the guidelines developed for use with the Licensed Vacation Ownership Business as modified, amended or supplemented from time to time in accordance with Article VII, which include without limitation standards and specifications related to health, fire and life safety, security, guest services and assistance, quality assurance as well as design and construction standards, it being acknowledged Brand Standards differ from other Licensor brand standards in a manner to reflect appropriate differences between hotel service levels and service levels applicable to the Licensed Vacation Ownership Business.
(8) Call has the meaning set forth in the Marketing Services Agreement.
(9) Club Revenue shall mean Licensees revenue resulting from the collection of annual dues paid by members (mandatory and voluntary) of the Licensed Exchange Program.
(10) Co-Located Licensor Lodging Property has the meaning set forth in Section 5.6(a).
(11) Confidential Information shall mean all confidential, proprietary or non-public Information, content or materials in any form or media provided by or on behalf of a Party to the other Party hereunder, including any information relating to a Party or its Subsidiaries (or any other Person who has provided such Information to them under obligations of confidentiality) and/or their respective activities, businesses or operations, including financial, technical, customer, personnel and marketing Information. For clarity, Licensors Confidential Information shall include the Standards and Agreements, Hilton Data, Licensed Software and Licensed System.
(12) Contract Sales shall mean the sum of (i) the gross sale price paid or to be paid to a third party in a fee for service transaction or arrangement for the initial sale or re-sale of interests held by third parties in Vacation Ownership Properties, and (ii) gross sale price paid or to be paid for the initial sale or re-sale of interests held in Vacation Ownership Properties, regardless of whether any part thereof is financed. For the avoidance of doubt, the Contract Sales excludes maintenance fees, management fees, dues, exchange fees, enrollment fees, closing costs, transaction costs, including brokerage commissions and expenses, applicable Taxes paid by an owner of Vacation Ownership Business or its Affiliates or gross up for Taxes paid by purchasers, or interest or financing charges with respect to financed purchases.
(13) Control of a person shall mean having direct or indirect (i) ownership of all or substantially all of the properties or assets of a person; (ii) right to appoint a majority of the members of the board of directors of such person; and/or (iii) beneficial ownership of more than 50% of the outstanding shares of stock or other equity interests of any class of such person entitled to vote in the election of directors, or otherwise to participate in the direction of the management and policies, of such person (excluding shares or equity interests entitled so to vote or participate only upon the happening of some contingency). For the purposes of this definition, person and beneficial owner have the meanings used in Section 13(d) of the Securities Exchange Act of 1934.
(14) CPI shall mean the Consumer Price Index published by the Bureau of Labor Statistics of the United States Department of Labor, U.S. City Average, All Items (Not Seasonally Adjusted) (1982-1984=100). If the Consumer Price Index is hereafter converted to a different standard reference base or otherwise revised, any determination hereunder that uses the Consumer Price Index shall be made with the use of such conversion factor, formula or table for converting the Consumer Price Index as may be published by the Bureau of Labor Statistics, or, if the bureau shall no longer publish the same, then with the use of such conversion factor, formula or table as may be published by any nationally recognized publisher of similar statistical information.
(15) CPI Adjustment has the meaning set forth in Section 18.3(b).
(16) CPR has the meaning set forth in Section 22.3.
(17) Data Security Policies shall mean any current or future posted or internal agreement, standard or policy of a Person relating to the integrity, operation, redundancy, disaster recovery, security testing, monitoring and remediation of Systems used in such Persons or its Affiliates business (and the data therein).
(18) Deflag shall mean, with respect to (i) a Licensed Vacation Ownership Property, for such property to lose its license to use the Hilton Data, Loyalty Program and Licensed IP herein and (ii) Licensor Lodging Property, for Licensor to cease Operating such property under a Hilton Mark.
(19) Deflagged Property has the meaning set forth in Section 18.1.
(20) Deflagging Event has the meaning set forth in Section 18.1.
(21) Disclosing Party has the meaning set forth in Section 14.1(a).
(22) Disputes has the meaning set forth in Section 22.2.
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(23) Distribution Agreement has the meaning set forth in the Recitals to this Agreement.
(24) Effective Date has the meaning set forth in the opening paragraph of this Agreement.
(25) Eligible HOA Expenses shall mean Eligible HOA operating expenses, reserves and real estate taxes.
(26) Eligible HOAs shall mean HOAs operated in connection with Licensed Vacation Ownership Properties (i) subsequent to the Effective Date of this Agreement and ii) along with the following Licensed Vacation Ownership Properties operated as of the Effective Date: HLTV Vacation Suites, LV Tower 52 Vacation Suites, AOC Vacation Suites, Ocean 22 Vacation Suites, Sunrise Lodge, Las Palmeras, GI Vacation Suites, Ocean Oak Vacation Suites, TD Suites, HC Suites and BW Vacation Suites. Future phases of existing resorts where new phases will be combined with existing phases for HOA assessment purposes, such as RL Vacation Suites, WBKL Vacation Suites and Las Vegas Boulevard Vacation Suites, shall be excluded from this definition, however, if such new phases are not under the existing HOA, they shall be counted when assessing Royalty.
(27) Exchange Program shall mean any program or arrangement for the voluntary exchange of the right to use and occupy an accommodation unit for the right to use or occupy another accommodation unit. For example, as of the Effective Date, Licensee operates the following Exchange Programs: Hilton Grand Vacations Club Exchange Program and Hilton Club Exchange Program.
(28) Fee For Services Sales Price shall mean the gross sale price paid or to be paid to a third party in a fee for service transaction or arrangement for the initial sale or re-sale of interests held by third-parties in Licensed Vacation Ownership Properties (excluding HGVClub at Craigendarroch Suites and HGVClub at MarBrisa). For the avoidance of doubt, the Fee For Services Sales Price excludes maintenance fees, management fees, dues, exchange fees, enrollment fees, closing costs, transaction costs, including brokerage commissions and expenses, applicable Taxes paid by Licensee or its Affiliates or gross up for Taxes paid by purchasers, or interest or financing charges with respect to financed purchases. To the extent that interests in Licensed Vacation Ownership Properties are used as consideration, in whole or in part, for the purchase of interests in other Licensed Vacation Ownership Properties (i.e., upgrades), then the Fee For Services Sales Price shall be the difference between the gross sales price paid by the owner for the prior interest in the Licensed Vacation Ownership Property and the gross sales price paid by the owner for the newly acquired interest in the Licensed Vacation Ownership Property.
(29) Force Majeure shall mean, with respect to a Party, an event beyond the commercially reasonable control of such Party (or any Person acting on its behalf), which by its nature could not have been foreseen by such Party (or such Person), or, if it could have been foreseen, was unavoidable, and includes acts of God, storms, floods, riots, labor unrest, pandemics, nuclear incidents, fires, sabotage, civil commotion or civil unrest, interference by civil or military authorities, acts of war (declared or undeclared) or armed hostilities or other national or international calamity or one or more acts of terrorism or failure of energy sources or distribution facilities.
(30) Fractional Vacation Club Business shall mean (i) business of Operating properties for vacation or leisure purposes in which Persons acquire an shared ownership interest in or right to use (including through interests in a land trust or similar real estate vehicle, Destination Club, and/or in the form of points, deeded weeks or other currency) one or more specified overnight accommodations and associated facilities, in each case, on a recurring, minimum periodic basis greater than twenty-seven (27) days per calendar year, and pay for such interest or right in advance (whether payments lump-sum or periodically over time and (ii) natural ancillary products or services for such business.
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(31) GBCS Services shall mean a series of commercial services centrally delivered by Licensor including, but not limited to, group lead generation, business travel sales RFP management, sales operational support, EDGE program management and online demand generation and optimization, and third party distribution.
(32) Governmental Entity shall mean any (i) nation or government, any state, municipality or other political subdivision thereof; (ii) entity, body, agency, commission, department, board, bureau or court, whether U.S., state, municipal, foreign or multinational, exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any official thereof; and (iii) stock exchange or industry self-regulatory organization.
(33) Gross Revenues shall mean the sum of:
(a) | the aggregate Gross Sales Price; |
(b) | the Fee For Services Sales Price; |
(c) | Leasehold Sales Price Amortization; |
(d) | Property Operations Revenue; |
(e) | Club Revenue; |
(f) | Marketing Package Revenue; |
(g) | Transient Rental Revenue; and |
(h) | Eligible HOA Expenses. |
(34) Gross Sales Price shall mean the gross sale price paid or to be paid to Licensee or its Affiliates for the initial sale or re-sale of interests, other than those sold with a reversionary leasehold interest, held by Licensee or its Affiliates in Licensed Vacation Ownership Properties (excluding HGVClub at Craigendarroch Suites and HGVClub at MarBrisa), regardless of whether any part thereof is financed by Licensee or any third-party. For the avoidance of doubt, the Gross Sales Price excludes bad debt expense, maintenance fees, management fees, dues, exchange fees, enrollment fees, closing costs, transaction costs, including brokerage commissions and expenses and incentives granted to a purchaser at the time of purchase, applicable Taxes paid by Licensee or its Affiliates or gross up for Taxes paid by purchasers, or interest or financing charges with respect to financed purchases. To the extent that interests in Licensed Vacation Ownership Properties are used as consideration, in whole or in part, for the purchase of interests in other Licensed Vacation Ownership Properties (i.e. upgrades), then the Gross Sales Price shall be the difference between the original gross sales price paid for the first Licensed Vacation Ownership Property and gross sales price of the newly acquired Licensed Vacation Ownership Property.
(35) HHonors LLC has the meaning set forth in Section 7.5.
(36) Hilton Competitor shall mean any Person who (i) Operates a Lodging Business and/or (ii) competes with Licensor or its Subsidiaries in any other business other than exclusively in the Vacation Ownership Business at any time during the Term, and the Affiliates of any such Person.
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(37) Hilton Data shall mean the Loyalty Program Data and all guest, customer or member profiles, contact information (including addresses, phone numbers and email addresses), histories, preferences and other related information obtained or derived from guests, customers or members in connection with any Lodging Business of Licensor or its Subsidiaries.
(38) Hilton Information Technology System Agreement shall mean that certain Hilton Information Technology System Agreement which the Parties have entered into concurrent with this Agreement.
(39) Hilton Marks shall mean all Trademarks owned or controlled by Licensor or its Affiliates, including the Licensed Marks.
(40) HOA shall mean an association of owners with ownership interests in a Vacation Ownership Property (i.e., the single governing association, not the individual homeowners within the HOA).
(41) Information shall mean information and data in any form or media, including written, oral, electronic, computerized or digital.
(42) Initial Noncompetition Term has the meaning set forth in Section 2.2(a).
(43) Intellectual Property shall mean all worldwide intellectual property, proprietary and industrial property rights, including all (i) patents, patent applications, inventions and invention disclosures and utility models, (ii) trademarks, service marks, corporate, trade, d/b/a or similar names, logos, slogans, designs, trade dress, domain names, social and mobile media identifiers and other designations of source or origin, together with the goodwill symbolized by any of the foregoing (collectively, Trademarks ), (iii) copyrights, (iv) trade secrets, know-how, processes and methods, and (v) all registrations, applications, continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, renewals, extensions and foreign counterparts thereof.
(44) Laws shall mean all laws, statutes, ordinances, orders, rules, directives, judgments and decrees (by consent or otherwise), regulations, codes, permits, licenses, certificates, authorizations, directions and requirements of, issued by or executed with any Governmental Entity.
(45) Leasehold Sales Price Amortization shall mean the recognition of the sales price of a Licensed Vacation Ownership Property sold subject to a reversionary leasehold interest. For avoidance of doubt, Leasehold Sales Price Amortization will be calculated by multiplying the sales price of the Licensed Vacation Ownership Property by a fraction, the numerator of which is the time period over which the license is being recognized and the denominator is the leasehold period.
(46) Licensed Content shall mean all consumer-facing advertising and promotional materials in any form or media that are owned by Licensor or its Subsidiaries and displayed in print, digital, electronic or computerized form and are provided to Licensee in Licensors discretion during the Term for use in connection with the Licensed Vacation Ownership Business, but excluding all software, information technology infrastructure and other non-consumer-facing assets and items.
(47) Licensed Exchange Program shall mean an exchange program operated by Licensee that uses the Licensed Marks. For example, as of the Effective Date, Licensee operates the following Licensed Exchange Programs: Hilton Grand Vacations Club Exchange Program and Hilton Club Exchange Program.
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(48) Licensed HOA shall mean the HOA in the Licensed Vacation Ownership Business that has hired Licensee to manage its Licensed Vacation Ownership Property.
(49) Licensed IP shall mean the Licensed Marks, the Licensed Content, the Licensed System and the Licensed Software.
(50) Licensed Marks shall mean the trademarks Hilton Grand Vacations and HGV and Hilton Club in their entirety, and not any variations thereof, including the term Hilton standing alone or used with any other words, terms, designs or other elements, including those registered trademarks set forth on Exhibit C.
(51) Licensed Software shall mean the business software and hardware system, currently known as OnQ, which Licensor may periodically change in its sole discretion (including changes to the way in which OnQ data is delivered to users and their properties), that is currently comprised of software that includes a proprietary property management component, reservations component, revenue management component, rate & inventory component, learning management component and other components Licensor considers necessary to support the following activities: reservations, sales, distribution, customer relationship management, operations, and business intelligence gathering and analysis.
(52) Licensed System shall mean Licensors then-current reservation system pursuant to which Licensor offers inventory of vacant rooms to the public.
(53) Licensed Vacation Ownership Business shall mean (i) Licensees business of Operating the Licensed Exchange Program and Licensed Vacation Ownership Properties (or interests therein) for vacation or leisure purposes, (ii) natural extensions of and ancillary products and services for such business of Licensee, including membership services, financing, establishing and operating sales facilities, managing rental programs associated with Licensed Vacation Ownership Properties, but excluding products on Exhibit D or products and services of the type excluded from the Vacation Ownership Business definition, (iii) products and services that Licensor has approved pursuant to Section 9.4 and (iv) the products and services of Licensee set forth on Exhibit E.
(54) Licensed Vacation Ownership Property shall mean the existing Licensed Vacation Ownership Properties and Vacation Ownership Properties under development listed in Exhibit F and additional Vacation Ownership Properties approved by Licensor pursuant to Section 9.1, and for clarity, excluding any Separate Operations and any Non-Licensed Existing Projects. Where the Licensed Vacation Ownership Property is limited to Licensed Vacation Ownership units being offered within a larger, mixed-use facility, and Licensee or its Affiliates do not control the other improvements, structures, facilities, entry and exit rights, parking, pools, landscaping, and other appurtenances located at such facility, then the Licensed Vacation Ownership Property shall refer to such Licensed Vacation Ownership units and not to which Licensee or its Affiliates do not control.
(55) Licensee has the meaning set forth in the opening paragraph of this Agreement.
(56) Licensee Data shall mean all guest, customer or member profiles, contact information (including addresses, phone numbers and email addresses), histories, preferences and other related information obtained or derived by Licensee or its Subsidiaries from guests, customers or members in connection with (i) owners of Licensed Vacation Ownership Properties in their capacity as owners of such Licensed Vacation Ownership Properties; and (ii) owners or other guests, members or customers of the Licensed Vacation Ownership Business to the extent collected by Licensee or its Subsidiaries in connection with the marketing and sale of Licensed Vacation Ownership Properties. Licensee Data shall not include any (x) Loyalty Program Data or (y) data collected from owners, members or other guests or customers in connection with a transient stay or event at Licensed Vacation Ownership Properties, except as covered by subsection (ii) above.
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(57) Licensee Parties has the meaning set forth in Section 5.9(a).
(58) Licensee Systems shall mean, collectively, all Systems used in the Licensed Vacation Ownership Business, whether owned by Licensee or any other Person.
(59) Licensor has the meaning set forth in the opening paragraph of this Agreement.
(60) Licensor Brand Identity Guidelines shall mean Licensors general guidelines for its licensees use of the Licensed Marks, as may be modified by Licensor and provided to Licensee throughout the Term.
(61) Licensor Lodging Properties shall mean those hotels, resorts and other lodging properties that are Operated by Licensor or its Affiliates, including those bearing the Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Canopy by Hilton, Hilton Hotels & Resorts, CurioA Collection by Hilton, DoubleTree by Hilton, Embassy Suites Hotels, Hilton Garden Inn, Hampton by Hilton, Tru by Hilton, Homewood Suits by Hilton, Home2 Suits by Hilton and Hilton brand names.
(62) Lodging Business shall mean the (i) business of Operating hotels, resorts or other transient or extended stay lodging, fractional residential sales, whole ownership or branded residential sales, destination clubs, travel clubs, travel agencies (including online travel agencies), serviced apartments, condo hotels, home sharing and similar facilities and (ii) all related ancillary services, including travel agent services and loyalty programs (in any current or future media).
(63) Losses has the meaning set forth in Section 16.1(a).
(64) Loyalty Program shall mean the guest frequency or reward program predominantly used by Licensor Branded Lodging Properties at any time during the Term, which such program is currently titled the Hilton HHonors ® program.
(65) Loyalty Program Data shall mean all member profiles, contact information (including addresses, phone numbers and email addresses), histories, preferences and other related information obtained or derived from members of the Loyalty Program.
(66) Loyalty Program Points shall mean any point credits earned by Loyalty Program members that are redeemable for various rewards in the Loyalty Program.
(67) Marketing Agreements has the meaning set forth in Section 9.6(a).
(68) Marketing Content has the meaning set forth in Section 9.5(a).
(69) Marketing Package Revenue shall mean revenue from the sale of vacation packages for stays at Licensor Lodging Properties or Licensed Vacation Ownership Properties which related to the marketing of Licensed Vacation Ownership Properties which include the sale of trial memberships of the Licensed Exchange Program known as exit, sampler or vacation introduction programs as well as forfeiture revenue related to the expiration of vacation packages and trial memberships.
(70) Marketing Services Agreement has the meaning set forth in Section 11.1
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(71) Measuring Year has the meaning set forth in Section 2.2(b).
(72) Member Service Center shall mean a facility at which Licensee provides owners of Vacation Ownership Properties with off-site services with respect to their use and enjoyment of such ownership interests.
(73) New Property has the meaning set forth in Section 5.2(b).
(74) Noncompetition Term shall have the meaning set forth in Section 2.2(b).
(75) Non-Licensed Existing Projects shall mean the projects that do not use the Licensed Marks and existed prior to the Effective Date listed on Exhibit G.
(76) Operate shall mean, with respect to a business or property, (i) owning, financing, developing, redeveloping, managing, marketing, operating, licensing, leasing or franchising vacation properties; and/or (ii) acquiring or selling ownership of or the right to use individual units within properties included in such business.
(77) Operating Guidelines shall mean Licensors general guidelines set forth on Exhibit B for operation of Vacation Ownership Properties under the Licensed Marks, as may be modified by Licensor throughout the Term.
(78) Parties has the meaning set forth in the opening paragraph of this Agreement.
(79) Party has the meaning set forth in the opening paragraph of this Agreement.
(80) Party Agreements has the meaning set forth in the definition of Standards and Agreements.
(81) Percentage of Completion shall mean a fraction of which the numerator is the total project construction costs incurred for a Licensed Vacation Ownership Property under construction at the end of a reporting period and the denominator is the total expected project construction costs for such Licensed Vacation Ownership Property.
(82) Person shall mean any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership or other organization or entity, whether incorporated or unincorporated, or any Governmental Entity.
(83) PHRI has the meaning set forth in the Recitals to this Agreement.
(84) Privacy Policy shall mean any current or future posted or internal agreement, standard or policy of a Person relating to privacy, personal, regulated or confidential information or personally identifiable information.
(85) Program Fee shall mean the fee paid by Licensors branded hotels to Licensor or its designee for various programs benefitting Licensors branded hotel system, including (i) advertising, promotion, publicity, public relations, market research, and other marketing programs, (ii) developing and maintaining directories and Internet sites for properties; (iii) developing and maintaining the reservation service systems and support; (iv) quality assurance programs; and (v) administrative costs and overhead related to the administration or direction of these projects and programs.
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(86) Property Operations Revenue shall mean Licensees or its Affiliates gross revenue resulting from the operation of spas and wellness centers; retail; food and beverage; and other on-property operations, in conjunction with a Licensed Vacation Ownership Property. Property Operations Revenue shall not include any onsite revenue related to the Anderson Ocean Club with respect to managing the Anderson Ocean Club HOA (this property is a joint timeshare and whole ownership project that includes multiple associations and the revenues represent reimbursements from the various associations).
(87) Purchase Contract has the meaning in Section 3.1(b)(i).
(88) Reasonable Best Efforts shall mean (i) commercially reasonable efforts plus, if necessary, (ii) any additional actions that do not (x) incur material out-of-pocket costs; (y) require material additional employee resources; and/or (z) materially interfere with the conduct of the performing partys applicable business.
(89) Receiving Party has the meaning set forth in Section 14.1(a).
(90) Recipients has the meaning set forth in Section 14.1(a).
(91) Related Parties has the meaning set forth in Section 16.1(a).
(92) Renewal Noncompetition Term has the meaning set forth in Section 2.2(b).
(93) Royalty has the meaning set forth in Section 3.1(a)(i).
(94) Sales Facilities shall mean galleries, desks and other physical facilities from which interests in units of Vacation Ownership Properties are offered and sold to the public.
(95) Security Breach has the meaning set forth in Section 14.2(d).
(96) Separate Operations shall mean a project or business that satisfies all of the following conditions: (i) it is operated completely separately from the Licensed Vacation Ownership Business with respect to physical locations of Licensed Vacation Ownership Properties and is not directly exchangeable or interchangeable with Licensed Vacation Ownership Properties (including through Exchange Programs owned or operated by Licensee or its Affiliates); (ii) it is sold through separate and distinct sales locations and personnel (other than common regional-level management personnel) from the Licensed Vacation Ownership Business and uses separate Member Service Centers and Sales Facilities; (iii) it is operated and marketed without use of (or access to) the Loyalty Program, any Licensed IP or Hilton Data (or any key word, ad word, metatag or similar device designed to attract viewers or users in online, social, mobile or other media that uses a Licensed Mark); (iv) it is not a Subsidiary of, or operated directly or indirectly by a Person that uses the Licensed Marks as a corporate, trade or d/b/a name; and (v) it is advertised, marketed and otherwise presented to the public as being operated completely separately from the Licensed Vacation Ownership Business.
(97) Shortfall Payment has the meaning set forth in Section 2.2(c).
(98) Standards has the meaning set forth in the definition of Standards and Agreements.
(99) Standards and Agreements shall mean all (i) standards, rules, guidelines, manuals and policies that are provided to the Licensee, including Brand Standards, Licensor Brand Identity Guidelines, Licensors Privacy Polices, Data Security Policies and Operating Guidelines (the Standards ) and (ii) agreements executed by the Parties as of the Effective Date (other than the Agreement) or at any time during the Term, in each case, with respect to the Licensed IP or Hilton Data and/or any aspect of Licensees activities, the Licensed Vacation Ownership Business and the Marketing Services Agreement (the Party Agreements ).
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(100) Subsidiary shall mean, when used with respect to any Person, another Person that is directly or indirectly Controlled by such Person.
(101) Systems shall mean software, systems, networks, computers, hardware and other information technology assets.
(102) Tail Period has the meaning set forth in Section 4.2.
(103) Taxes has the meaning set forth in Section 3.8.
(104) Term has the meaning set forth in Section 4.1.
(105) Territory for each Licensed Mark shall mean all countries and jurisdictions worldwide in which (i) Licensor has a valid registration for such Licensed Mark as of the Effective Date or (ii) Licensor has approved Licensees use of the Licensed Mark in writing pursuant to Section 5.2.
(106) Trademarks has the meaning set forth within the definition of Intellectual Property.
(107) Transient Rental Revenue shall mean all revenues generated from the transient rental of inventory of Licensed Vacation Ownership Properties and conversion properties (but not Marketing Package Revenue) (i) that is held for development and sale and owned by a Licensee Party; (ii) that is Controlled by Licensee or its Affiliates as a result of VOP Owners participation in programmatic elements of Licensed Vacation Ownership Business (e.g., exchange, banking, borrowing, Brand Loyalty Program trade, and similar programs); and (iii) that is Controlled by Licensee, its Affiliates or an HOA as a result of VOP Owner default (e.g., maintenance fee defaults or financing defaults) pending foreclosure or cure in the ordinary course of business. Transient Rental Revenue shall also include bonus point, guest resort charge, open season rental, access fees and no show revenue for stays at Licensed Vacation Ownership Properties.
(108) Undeveloped Parcels has the meaning set forth in Section 5.3(a).
(109) Vacation Ownership Business shall mean (i) the business of Operating Vacation Ownership Properties (or interests therein) for vacation or leisure purposes, (ii) natural ancillary products and services for such business of Licensee, including membership services, Exchange Programs, financing, establishing and operating sales facilities, managing rental programs associated with Vacation Ownership Properties, but excluding destination clubs, travel clubs, travel agencies (including online travel agencies), serviced apartments, condo hotels, home sharing and similar facilities, (iii) products and services that Licensor has approved Licensee to offer pursuant to Section 9.4, and (iv) any business ancillary amenities to Vacation Ownership Properties, such as country clubs, spas, golf courses, food and beverage outlets, gift and sundry shops, only if they are physically located on a Vacation Ownership Property (and excluding any of same, if they are not physically located on such property). Vacation Ownership Business excludes the Fractional Vacation Club Business, Whole Ownership Business, and any products and services of the type set forth on Exhibit H.
(110) Vacation Ownership Property shall mean (i) a property in which Persons acquire an ownership interest in or right to use (including through interests in a land trust or similar real estate vehicle and/or in the form of points, deeded weeks or other currency) one or more specified overnight
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accommodations and associated facilities on a recurring, periodic basis, in all cases for less than 28 days per calendar year, and pay for such interest or right in advance (whether payments lump-sum or periodically over time), (ii) all improvements, structures, facilities, entry and exit rights, parking, pools, landscaping and other appurtenances (including the property building) located at the site of the property and (iii) all furniture, fixtures, equipment, supplies and inventories installed or located in such improvements at the site of the property.
(111) Whole Ownership Business shall mean the business of developing or operating a project that includes whole residential units, including single family homes, condominium units, or other housing units which are owned on a whole (not fractional) ownership basis.
References; Interpretation.
References in this Agreement to the singular include references to the plural and vice versa. The word including shall be deemed to be followed by the phrase without limitation. All references to $ or dollar herein shall be references to U.S. dollars. Unless the context otherwise requires, the words hereof, hereby and herein and words of similar meaning when used in this Agreement refer to this Agreement in its entirety.
The Parties acknowledge that given the long length of the Term, evolutions in technology and industry practices will occur. Therefore, the definitions herein shall be interpreted broadly to include new media and distribution channels or new industry products and services that are equivalent or analogous to those existing on the Effective Date, so as to give each Party the full benefit of its bargain herein over the Term. By way of example, the terms telephone, domain names, metatags and credit cards shall be interpreted to include their successor versions and replacements during the Term.
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EXHIBIT B
OPERATING GUIDELINES
Licensee shall perform all of the obligations listed herein. In the event of a conflict between these guidelines and any existing or new Standards and Agreements, the latter shall control.
I. | Operation of the Licensed Vacation Ownership Properties |
(a) Keep the Licensed Vacation Ownership Properties open and operating twenty-four (24) hours a day, three hundred sixty-five (365) days a year.
(b) Operate the Licensed Vacation Ownership Business in such a manner to provide courteous, uniform, respectable and high quality lodging and other services and conveniences to the public.
(c) Purchase a particular brand of product or service to maintain the common identity and reputation of the Licensed Marks and/or purchase products or services from suppliers or distributors approved by Licensor.
(d) Participate in and pay all charges in connection with all required guest complaint resolution programs, which programs may include chargebacks to a Licensed Vacation Ownership Property for guest refunds or credits and all required quality assurance programs, such as guest comment cards, customer surveys and mystery shopper programs.
(e) Participate in, and promptly pay all fees, commissions and charges associated with all travel agent commission programs and third-party reservation and distribution services (such as airline reservation systems).
(f) Pay Licensor all fees and charges, if any, Licensor requires for Licensees personnel to attend such training programs. Licensee is responsible for all travel, lodging and other expenses Licensee or its employees incur in attending these programs.
(g) Purchase and maintain property management, revenue management, in-room entertainment, telecommunications, high-speed internet access and other computer and technology systems that Licensor designates as necessary based on its assessment of the long-term best interests of the Vacation Ownership Business.
II. | Ownership and Control of the Vacation Ownership Properties |
(a) Not directly or indirectly conduct or permit any gaming or casino operations in or connected to any Licensed Vacation Ownership Property or otherwise engage in any activity which, in Licensors business judgment, is likely to adversely reflect upon or affect in any manner, any gaming licenses or permits held or applied for by Licensor or its Affiliates.
(b) Not share the business operations of or license, lease or sublease commercial space in the Licensed Vacation Ownership Properties, or enter into concession or other arrangements for operations in connection with the Licensed Vacation Ownership Business, without Licensors prior written consent.
III. | Marketing and Promotion |
(a) Display in a manner reasonably prominent and visible to visitors, guests and customers of the Licensed Vacation Ownership Business all Marketing Content that Licensor provides, and allow advertising and promotion only of Licensor Lodging Properties on the Licensed Vacation Ownership Properties.
(b) Honor the terms of any discount or promotional programs (including any frequent guest program) that Licensor offers to the public, any room rate quoted to any guest for an advance reservation and any award certificates issued to guests participating in these programs.
EXHIBIT C
(Licensed Marks)
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HGVCLUB | United States of America | Registered | 74412050 | 1827728 | ||||
HGV | United States of America | Pending | 86926636 | |||||
HGVCLUB | EUTM | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Austria | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Benelux | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Bulgaria | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Croatia | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Cyprus | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Czech Republic | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Denmark | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Estonia | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Finland | Registered | 003520079 | 003520079 | ||||
HGVCLUB | France | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Germany | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Gibraltar | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Greece | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Hungary | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Ireland | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Italy | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Latvia | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Lithuania | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Malta | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Poland | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Portugal | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Romania | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Slovakia | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Slovenia | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Spain | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Sweden | Registered | 003520079 | 003520079 | ||||
HGVCLUB | United Kingdom | Registered | 003520079 | 003520079 | ||||
HGVCLUB | Jersey | Registered | 003520079 | 003520079 | ||||
HILTON GRAND VACATIONS | United States of America | Registered | 85445480 | 4157339 | ||||
HILTON GRAND VACATIONS | United States of America | Registered | 78804055 | 3304342 | ||||
HILTON GRAND VACATIONS | Peru | Registered | 472351 | 3725 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | United Arab Emirates | Registered | 163800 | 163800 | ||||
HILTON GRAND VACATIONS | St. Maarten | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Samoa | Registered | 6048 | 6048 | ||||
HILTON GRAND VACATIONS | Kenya | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Israel | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Tonga | Registered | 02515 | 02082 | ||||
HILTON GRAND VACATIONS | Guatemala | Registered | 20119209 | 182520 | ||||
HILTON GRAND VACATIONS | Guatemala | Registered | 20119210 | 183444 | ||||
HILTON GRAND VACATIONS | Djibouti | Registered | 43711RADM | 43711RADM | ||||
HILTON GRAND VACATIONS | Ecuador | Registered | 201111607 | 196313 | ||||
HILTON GRAND VACATIONS | Ecuador | Registered | 201111609 | 196213 | ||||
HILTON GRAND VACATIONS | Gaza | Registered | 15931 | 15931 | ||||
HILTON GRAND VACATIONS | Kazakhstan | Registered | 56017 | 40344 | ||||
HILTON GRAND VACATIONS | Mauritius | Registered | MUM1114121 | 123382012 | ||||
HILTON GRAND VACATIONS | Mozambique | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Aruba | Registered | 11101218 | 29916 | ||||
HILTON GRAND VACATIONS | Aruba | Registered | 11101219 | 29917 | ||||
HILTON GRAND VACATIONS | Costa Rica | Registered | 201110256 | 216085 | ||||
HILTON GRAND VACATIONS | El Salvador | Registered | 2011113303 | 07200015016 | ||||
HILTON GRAND VACATIONS | Hong Kong | Registered | 302055186 | 302055186 | ||||
HILTON GRAND VACATIONS | New Zealand | Registered | 850844 | 850844 | ||||
HILTON GRAND VACATIONS | Macau | Registered | N60404 | N60404 | ||||
HILTON GRAND VACATIONS | Macau | Registered | N60405 | N60405 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | United Arab Emirates | Registered | 163799 | 163799 | ||||
HILTON GRAND VACATIONS | Namibia | Pending | 110434 | |||||
HILTON GRAND VACATIONS | United Kingdom | Registered | 2597428 | 2597428 | ||||
HILTON GRAND VACATIONS | Canada | Registered | 1547389 | TMA836213 | ||||
HILTON GRAND VACATIONS | Zanzibar | Registered | ZND2011387 | ZND2011387 | ||||
HILTON GRAND VACATIONS | Honduras | Registered | 3478311 | 17436 | ||||
HILTON GRAND VACATIONS | Honduras | Registered | 3478811 | 17433 | ||||
HILTON GRAND VACATIONS | Philippines | Registered | 42015002850 | 42015002850 | ||||
HILTON GRAND VACATIONS | WIPO | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Albania | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Antigua & Barbuda | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Armenia | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Australia | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Azerbaijan | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Bahrain | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Belarus | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Bhutan | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Bosnia & Herzegovina | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | China | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Croatia | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Curacao | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Georgia | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Iceland | Registered | 1105480 | 1105480 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Japan | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Kyrgyzstan | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Liechtenstein | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Macedonia | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Madagascar | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Moldova (Republic of) | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Monaco | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Mongolia | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Montenegro | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Morocco | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Norway | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Oman | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Republic of Korea (South) | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Russian Federation | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | San Marino | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Sao Tome & Principe | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Serbia | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Singapore | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Turkey | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Turkmenistan | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Ukraine | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Uzbekistan | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Vietnam | Registered | 1105480 | 1105480 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Andorra | Registered | 26322 | 34740 | ||||
HILTON GRAND VACATIONS | Chile | Registered | 974149 | 1072111 | ||||
HILTON GRAND VACATIONS | Gaza | Registered | 15930 | 15930 | ||||
HILTON GRAND VACATIONS | Jersey | Registered | 9142 | |||||
HILTON GRAND VACATIONS | Kosovo | Registered | 121611 | 13973 | ||||
HILTON GRAND VACATIONS | Kuwait | Registered | 129762 | 109269 | ||||
HILTON GRAND VACATIONS | Kuwait | Registered | 129763 | 109270 | ||||
HILTON GRAND VACATIONS | Liberia | Registered | LRM201100301 | |||||
HILTON GRAND VACATIONS | Namibia | Pending | 110435 | |||||
HILTON GRAND VACATIONS | Nepal | Registered | 041733 | 33107 | ||||
HILTON GRAND VACATIONS | Nicaragua | Registered | 2011003774 | 2013099854LM | ||||
HILTON GRAND VACATIONS | Rwanda | Registered | RWM10000354 | |||||
HILTON GRAND VACATIONS | Samoa | Registered | 6047 | 6047 | ||||
HILTON GRAND VACATIONS | Solomon Islands | Registered | TM2847 | |||||
HILTON GRAND VACATIONS | St. Lucia | Registered | 11000405 | TM2011000405 | ||||
HILTON GRAND VACATIONS | Swaziland | Registered | 2352011 | 2352011 | ||||
HILTON GRAND VACATIONS | Switzerland | Registered | 615502011 | 625861 | ||||
HILTON GRAND VACATIONS | Taiwan | Registered | 100052312 | 1514684 | ||||
HILTON GRAND VACATIONS | Tajikistan | Registered | 11011339 | 10581 | ||||
HILTON GRAND VACATIONS | Tunisia | Pending | TNE201101731 | |||||
HILTON GRAND VACATIONS | Uganda | Registered | UGT2014050383 | 50383 | ||||
HILTON GRAND VACATIONS | Uganda | Pending | UGT2014050384 | |||||
HILTON GRAND VACATIONS | West Bank | Registered | 19794 | 19794 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Zanzibar | Registered | ZNS2011386 | ZNS2011386 | ||||
HILTON GRAND VACATIONS | ARIPO | Registered | APM 2011001142 | APM 2011001142 | ||||
HILTON GRAND VACATIONS | Tajikistan | Registered | 13012798 | TJ11100 | ||||
HILTON GRAND VACATIONS | Zambia | Pending | 7392011 | |||||
HILTON GRAND VACATIONS | Nepal | Registered | 041734 | 33108 | ||||
HILTON GRAND VACATIONS | Malawi | Registered | MWTM201100380 | MWTM201100380 | ||||
HILTON GRAND VACATIONS | St. Vincent & Grenadines | Registered | 3182011 | 3182011 | ||||
HILTON GRAND VACATIONS | Paraguay | Registered | 441192011 | 376378 | ||||
HILTON GRAND VACATIONS | Paraguay | Registered | 441202011 | 376274 | ||||
HILTON GRAND VACATIONS | Qatar | Registered | 72273 | 72273 | ||||
HILTON GRAND VACATIONS | Qatar | Registered | 72274 | 72274 | ||||
HILTON GRAND VACATIONS | Nigeria | Pending | FTM201118292 | |||||
HILTON GRAND VACATIONS | Nigeria | Pending | FTM201118293 | |||||
HILTON GRAND VACATIONS | Uruguay | Registered | 428233 | 428233 | ||||
HILTON GRAND VACATIONS | Afghanistan | Registered | 1137 | 11902 | ||||
HILTON GRAND VACATIONS | Tanzania | Registered | TZS2011460 | TZS2011460 | ||||
HILTON GRAND VACATIONS | Bahamas | Pending | ||||||
HILTON GRAND VACATIONS | Laos | Registered | 24879 | 24181 | ||||
HILTON GRAND VACATIONS | Laos | Registered | 24880 | 24182 | ||||
HILTON GRAND VACATIONS | Anguilla | Registered | 5162 | 5162 | ||||
HILTON GRAND VACATIONS | Barbados | Pending | 8128820 | |||||
HILTON GRAND VACATIONS | Dominican Republic | Registered | 20123781 | 195056 | ||||
HILTON GRAND VACATIONS | Pakistan | Pending | 308776 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Pakistan | Pending | 308777 | |||||
HILTON GRAND VACATIONS | Palau | Cautionary Notice | ||||||
HILTON GRAND VACATIONS | Bolivia | Registered | SM055122011 | 136596 | ||||
HILTON GRAND VACATIONS | Bolivia | Registered | SM055112011 | 136595 | ||||
HILTON GRAND VACATIONS | Puerto Rico | Pending | 78336 | |||||
HILTON GRAND VACATIONS | Malaysia | Registered | 2011018295 | 2011018295 | ||||
HILTON GRAND VACATIONS | Malaysia | Registered | 2011018296 | 2011018296 | ||||
HILTON GRAND VACATIONS | Jamaica | Registered | 59078 | 59078 | ||||
HILTON GRAND VACATIONS | Benin | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Burkina Faso | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Cameroon | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Central African Republic | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Chad | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Comoros | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Ivory Coast | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Equatorial Guinea | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Gabon | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Guinea | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Guinea-Bissau | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Mali | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Mauritania | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Niger | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Senegal | Registered | 3201101862 | 68599 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Togo | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Angola | Pending | 30443 | |||||
HILTON GRAND VACATIONS | Argentina | Pending | 3121920 | |||||
HILTON GRAND VACATIONS | Brazil | Pending | 831141352 | |||||
HILTON GRAND VACATIONS | Burundi | Registered | 6146BUR | 6146BUR | ||||
HILTON GRAND VACATIONS | Cambodia | Registered | 43324 | KH4116412 | ||||
HILTON GRAND VACATIONS | Colombia | Registered | 2011134961 | 454809 | ||||
HILTON GRAND VACATIONS | Colombia | Registered | 2011134965 | 454810 | ||||
HILTON GRAND VACATIONS | Sudan | Registered | 44384 | 44384 | ||||
HILTON GRAND VACATIONS | Sudan | Registered | 44383 | 44383 | ||||
HILTON GRAND VACATIONS | Bangladesh | Registered | 147534 | 147534 | ||||
HILTON GRAND VACATIONS | Bangladesh | Registered | 147535 | 147535 | ||||
HILTON GRAND VACATIONS | Bermuda | Registered | 51221 | 51221 | ||||
HILTON GRAND VACATIONS | Bermuda | Registered | 51220 | 51220 | ||||
HILTON GRAND VACATIONS | Zimbabwe | Registered | APM2011001142 | APM2011001142 | ||||
HILTON GRAND VACATIONS | Caribbean Netherlands (BES-Bonaire,Eustatius,Saba) | Registered | 1105480 | 1105480 | ||||
HILTON GRAND VACATIONS | Algeria | Pending | 113081 | |||||
HILTON GRAND VACATIONS | Angola | Pending | 30442 | |||||
HILTON GRAND VACATIONS | Argentina | Registered | 3121918 | 2549132 | ||||
HILTON GRAND VACATIONS | Belize | Registered | 829511 | 829511 | ||||
HILTON GRAND VACATIONS | Brazil | Pending | 831141360 | |||||
HILTON GRAND VACATIONS | British Virgin Islands | Registered | N/A | 2864 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Brunei Darussalam | Registered | 42343 | 42343 | ||||
HILTON GRAND VACATIONS | Cambodia | Registered | 43323 | KH4116312 | ||||
HILTON GRAND VACATIONS | Cape Verde | Pending | 17132011 | |||||
HILTON GRAND VACATIONS | Cayman Islands | Registered | 2597428 | 2597428 | ||||
HILTON GRAND VACATIONS | Comoros | Cautionary Notice | ||||||
HILTON GRAND VACATIONS | Dominica | Registered | 2822011 | 2822011 | ||||
HILTON GRAND VACATIONS | Eritrea | Cautionary Notice | ||||||
HILTON GRAND VACATIONS | Eritrea | Cautionary Notice | ||||||
HILTON GRAND VACATIONS | Ethiopia | Registered | 6168 | 7747 | ||||
HILTON GRAND VACATIONS | Fiji | Registered | 4782012 | 4782012 | ||||
HILTON GRAND VACATIONS | Gambia | Pending | GMM201100130 | |||||
HILTON GRAND VACATIONS | Ghana | Pending | 0006512011 | |||||
HILTON GRAND VACATIONS | Ghana | Pending | ||||||
HILTON GRAND VACATIONS | Gibraltar | Registered | 10330 | |||||
HILTON GRAND VACATIONS | Grenada | Registered | 752012 | 752012 | ||||
HILTON GRAND VACATIONS | Guernsey | Registered | N/A | GGGT7797 | ||||
HILTON GRAND VACATIONS | Guernsey | Pending | ||||||
HILTON GRAND VACATIONS | Guyana | Registered | 25112C | 025112 | ||||
HILTON GRAND VACATIONS | Haiti | Registered | 1447G | 355191 | ||||
HILTON GRAND VACATIONS | India | Registered | 2218768 | 2218768 | ||||
HILTON GRAND VACATIONS | Jordan | Registered | 120322 | 120322 | ||||
HILTON GRAND VACATIONS | Jordan | Registered | 120370 | 120370 | ||||
HILTON GRAND VACATIONS | Kiribati | Registered | 3220 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Lesotho | Registered | LSM1100129 | LSM1100129 | ||||
HILTON GRAND VACATIONS | Libya | Pending | ||||||
HILTON GRAND VACATIONS | Libya | Pending | ||||||
HILTON GRAND VACATIONS | Maldives | Cautionary Notice | ||||||
HILTON GRAND VACATIONS | Marshall Islands | Cautionary Notice | ||||||
HILTON GRAND VACATIONS | Montserrat | Registered | 99281770 | 4238 | ||||
HILTON GRAND VACATIONS | Myanmar | Cautionary Notice | 119412011 | |||||
HILTON GRAND VACATIONS | Nauru | Pending | ||||||
HILTON GRAND VACATIONS | Nauru | Pending | ||||||
HILTON GRAND VACATIONS | Panama | Registered | 205459 | 205459 | ||||
HILTON GRAND VACATIONS | Panama | Registered | 205456 | 20545601 | ||||
HILTON GRAND VACATIONS | Papua New Guinea | Registered | 69946 | A69946 | ||||
HILTON GRAND VACATIONS | Papua New Guinea | Registered | 69947 | A69947 | ||||
HILTON GRAND VACATIONS | Puerto Rico | Pending | 78335 | |||||
HILTON GRAND VACATIONS | Saudi Arabia | Registered | 174423 | 143212839 | ||||
HILTON GRAND VACATIONS | Saudi Arabia | Registered | 174424 | 143212838 | ||||
HILTON GRAND VACATIONS | Seychelles | Registered | 4232011 | 10184 | ||||
HILTON GRAND VACATIONS | Seychelles | Registered | 4222011 | 10183 | ||||
HILTON GRAND VACATIONS | Sierra Leone | Pending | 19320 | |||||
HILTON GRAND VACATIONS | South Africa | Registered | 201125367 | 201125367 | ||||
HILTON GRAND VACATIONS | South Africa | Registered | 201125368 | 201125368 | ||||
HILTON GRAND VACATIONS | Sri Lanka | Pending | 166219 | |||||
HILTON GRAND VACATIONS | Sri Lanka | Pending | 166220 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | St. Helena | Registered | 1836 | |||||
HILTON GRAND VACATIONS | St. Kitts Nevis | Pending | ||||||
HILTON GRAND VACATIONS | Surinam | Registered | 23535 | 23535 | ||||
HILTON GRAND VACATIONS | Tanzania | Pending | TZS2011456 | |||||
HILTON GRAND VACATIONS | Trinidad & Tobago | Registered | 44501 | 44501 | ||||
HILTON GRAND VACATIONS | Turks & Caicos Islands | Registered | 16861 | 16861 | ||||
HILTON GRAND VACATIONS | Tuvalu | Pending | ||||||
HILTON GRAND VACATIONS | Vanuatu | Registered | 25503 | |||||
HILTON GRAND VACATIONS | West Bank | Registered | 19793 | 19793 | ||||
HILTON GRAND VACATIONS | Yemen | Registered | 56673 | 56673 | ||||
HILTON GRAND VACATIONS | Yemen | Registered | 56674 | 56674 | ||||
HILTON GRAND VACATIONS | Gambia | Pending | GMM200100131 | |||||
HILTON GRAND VACATIONS | Haiti | Registered | 1448G | 356191 | ||||
HILTON GRAND VACATIONS | Venezuela | Pending | 2011019377 | |||||
HILTON GRAND VACATIONS | Venezuela | Pending | 2011019378 | |||||
HILTON GRAND VACATIONS | Kiribati | Registered | 3219 | |||||
HILTON GRAND VACATIONS | Turks & Caicos Islands | Registered | 16862 | 16862 | ||||
HILTON GRAND VACATIONS | Barbados | Pending | 8128821 | |||||
HILTON GRAND VACATIONS | Botswana | Registered | APM2011001142 | APM2011001142 | ||||
HILTON GRAND VACATIONS | Fiji | Registered | 4792012 | 4792012 | ||||
HILTON GRAND VACATIONS | Congo (Republic / Brazzaville) | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | OAPI | Registered | 3201101862 | 68599 | ||||
HILTON GRAND VACATIONS | Indonesia | Pending |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON GRAND VACATIONS | Indonesia | Pending | ||||||
HILTON GRAND VACATIONS | Thailand | Pending | 823967 | |||||
HILTON GRAND VACATIONS | Thailand | Pending | 823968 | |||||
HILTON GRAND VACATIONS CLUB | United States of America | Registered | 74228130 | 1810193 | ||||
HILTON GRAND VACATIONS CLUB in English and Katakana | Japan | Registered | 2004042827 | 4821215 | ||||
HILTON GRAND VACATIONS design | United States of America | Registered | 78809165 | 3304364 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Slovenia | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Spain | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Sweden | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | United Kingdom | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Jersey | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Lithuania | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Malta | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Poland | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Portugal | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Romania | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Slovakia | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Gibraltar | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Greece | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Hungary | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Ireland | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Italy | Registered | 001717537 | 001717537 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
HILTON INTERNATIONAL GRAND VACATIONS | Latvia | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Czech Republic | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Denmark | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Estonia | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Finland | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | France | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Germany | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | EUTM | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Austria | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Benelux | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Bulgaria | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Croatia | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Cyprus | Registered | 001717537 | 001717537 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Egypt | Registered | 152093 | 152093 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Egypt | Registered | 152094 | 152094 | ||||
HILTON INTERNATIONAL GRAND VACATIONS | Egypt | Registered | 152095 | 152095 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | United States of America | Registered | 85079550 | 4309459 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Canada | Pending | 1502904 | |||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Slovakia | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Slovenia | Registered | 009551623 | 009551623 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Italy | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Cyprus | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Czech Republic | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Denmark | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Estonia | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Finland | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | France | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Austria | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Benelux | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Bulgaria | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | Croatia | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | EUTM | Registered | 009551623 | 009551623 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | China | Registered | 8953399 | 8953399 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | China | Registered | 8953400 | 8953400 | ||||
STAY CONNECTED @ HILTON GRAND VACATIONS | India | Pending | 2052008 | 2052008 | ||||
THE HILTON CLUB | United States of America | Registered | 78096709 | 2811681 |
TRADEMARK |
COUNTRY |
TRADEMARK STATUS |
APPLICATION NO. |
REGISTRATION NO. |
||||
THE HILTON CLUB design | United States of America | Registered | 78167627 | 2788816 | ||||
WEST 57TH STREET BY HILTON CLUB design | United States of America | Registered | 77465368 | 3549743 |
EXHIBIT D
(Excluded Products and Services)
None.
EXHIBIT E
(Licensees Products and Services included in Licensed Vacation Ownership Business)
1. | Programs and Services |
1.1. | Local programs providing access and discounts to local attractions, entertainment, dining, and similar services to guests at Licensed Vacation Ownership Properties. Such programs include Fun in the Sun, Elevated Rewards, Village Experience, and the Holo Holo card. |
1.2. | Short term membership programs (sometimes known as sampler or exit programs) where after a sales presentation a potential owner is offered the option to experience the benefits of being an owner for a limited time for a fee. Licensees current programs are known as the Vacation Introduction Program and Hawaii Vacation Introduction Program. |
2. | Travel agency operations: |
2.1. | Hilton Travel, LLC (operates a travel agency in Florida) |
2.2. | Hilton Resorts Corporation (operates a travel agency in Hawaii) |
2.3. | Hilton Resorts Marketing Corp (operates a travel agency in Japan) |
EXHIBIT F
(Licensed Vacation Ownership Properties under development)
Project Name |
Location |
|||
1. | Maui Bay | Hawaii | ||
2. | 48th Street New York | New York, New York |
EXHIBIT G
(Non-Licensed Vacation Ownership Properties)
Property Name |
Property Address |
|||
1. | Casa Ybel |
2255 West Gulf Drive Sanibel, FL 33957 |
||
2. | Charter Club |
700 S. Colllier Boulevard Marco Island, FL 34145 |
||
3. | Club Regency |
50 S. Collier Boulevard Marco Island, FL 34145 |
||
4. | Cottages at South Seas Plantation | 13000 South Seas Plantation Road | ||
5. | Eagles Nest |
410 S. Collier Boulevard Marco Island, FL 34145 |
||
6. | Harbourview Villas |
970 South Seas Plantation Captiva, FL 33924 |
||
7. | Hurricane House |
2939 West Gulf Drive Sanibel, FL 33957 |
||
8. | Plantation Beach Club at Indian River Plantation |
329 NE Tradewind Lane Stuart, FL 34996 |
||
9. | Plantation Bay Villas |
13000 South Seas Plantation Road Captiva Island, FL 33924 |
||
10. | Plantation Beach Club |
13000 South Seas Plantation Road Captiva Island, FL 33924 |
||
11. | Plantation House at South Seas |
13000 South Seas Plantation Road Captiva Island, FL 33924 |
||
12. | Sanibel Cottages |
2341 West Gulf Drive Sanibel, FL 34996 |
||
13. | Seawatch on the Beach |
6550 Estero Boulevard Fort Myers Beach, FL 33931 |
||
14. | South Seas Plantation |
13000 South Seas Plantation Rd Captiva, FL 33924 |
||
15. | Surf Club |
540 S. Collier Boulevard Marco Island, FL 34145 |
||
16. | Tortuga Beach Club |
959 East Gulf Drive Sanibel, FL 33957 |
||
17. | Valdoro Mountain Lodge |
500 Village Road Breckenridge, CO 80424 |
EXHIBIT H
(Excluded Fractional Club Services)
None.
EXHIBIT I
(Existing Licensed Vacation Ownership Properties)
Property Name |
Property Address |
|||
CENTRAL FLORIDA | ||||
1. |
Hilton Grand Vacations Club at SeaWorld
aka Orlando Vacation Suites |
6924 Grand Vacations Way Orlando, Florida 32821 |
||
2. |
Hilton Grand Vacations Club at Tuscany Village
aka Tuscany Village Vacation Suites |
8122 Arezzo Way Orlando, Florida 32821 |
||
3. |
Parc Soleil by Hilton Grand Vacations Club
aka RL Vacation Suites |
11272 Desforges, Avenue Orlando, FL 32836 |
||
4. |
Las Palmeras by Hilton Grand Vacations Club
aka LP Vacation Suites |
9501 Universal Boulevard Orlando, FL 32839 |
||
SOUTH FLORIDA | ||||
5. |
Hilton Grand Vacations Club at McAlpin
aka South Beach Vacation Suites |
1430 Ocean Drive Miami, Florida 33139 |
||
NEVADA | ||||
6. |
Hilton Grand Vacations Club at the Flamingo
aka FHRC Suites |
3575 Las Vegas Blvd. South Las Vegas, Nevada 89109 |
||
7. |
Hilton Grand Vacations Club on Paradise
aka Las Vegas Vacation Suites |
455 Karen Avenue Las Vegas, Nevada 89109 |
||
8. |
Hilton Grand Vacations Club on the Boulevard
aka Las Vegas Boulevard Vacation Suites |
455 Karen Avenue Las Vegas, Nevada 89109 |
||
9. |
Hilton Grand Vacations Club at the Trump International Hotel Las Vegas
aka HLTV Vacations Suites |
2000 Fashion Drive, Las Vegas, NV 89109 |
||
10. |
Elara, Hilton Grand Vacations Club
aka LV Tower 52 Vacation Suites |
80 East Harmon Avenue Las Vegas, NV 89109 |
||
HAWAII | ||||
11. |
Lagoon Tower by Hilton Grand Vacations Club
aka Hawaiian Village Vacation Suites |
2003 Kalia Road Honolulu, Hawaii 96815 |
||
12. |
Kalia Suites by Hilton Grand Vacations Club
aka KT Vacation Suites |
2005 Kalia Road, Honoluly, Hawaii 96815 |
||
13. |
Kohala Suites by Hilton Grand Vacations Club
aka Kohala Coast Vacation Suites |
69-550 Waikoloa Beach Drive Waikoloa, Hawaii 96738 |
||
14. |
Kings Land by Hilton Grand Vacations Club
aka WBKL Vacation Suites |
69-699 Waikoloa Beach Drive Waikoloa, Hawaii 96738 |
||
15. |
Grand Waikikian by Hilton Grand Vacations Club
aka GW Vacation Suites |
1811 Ala Moana Boulevard Honolulu, Hawaii 96815 |
||
16. |
Hokulani Waikiki by Hilton Grand Vacations Club
aka BW Vacation Suites |
2181 Kalakaua Condominium Honolulu, Hawaii |
Property Name |
Property Address |
|||
17. |
Grand Islander by Hilton Grand Vacations Club
aka GI Vacation Suites |
Kalia road, Honolulu, Hawaii 96815 |
||
18. | The Bay Club at Waikoloa Beach Resort |
69-450 Waikoloa Beach Drive Waikoloa, Hawaii 96738 |
||
NEW YORK | ||||
19. |
The Hilton Club-New York
aka HNY Club Suites |
1335 Avenue of the Americas, New York, NY 10019 | ||
20. |
The Residences by Hilton club
aka HC Suites |
1335 Avenue of the Americas, New York, NY 10019 | ||
21. |
West 57 th Street by Hilton Club
aka 57 th Street Vacation Suites |
102 West 57 th St., New York, New York 10019 | ||
SOUTH CAROLINA | ||||
22. |
Ocean 22 by Hilton Grand Vacations Club
aka Ocean 22 by Hilton Grand Vacations Club |
2200 North Ocean Boulevard, Myrtle Beach, South Carolina | ||
23. |
Hilton Grand Vacations Club at Anderson Ocean Club
aka AOC Vacation Suites |
2600 North Ocean Boulevard Myrtle Beach, SC 29577 |
||
24. |
Ocean Oak by Hilton Grand Vacations Club
aka MBV Vacation Suites |
41 South Forest Beach Road Hilton Head, SC 29929 |
||
SCOTLAND | ||||
25. |
Hilton Grand Vacations Club at Craigendarroch Suites
aka Craigendarroch Suites |
Braemar Road, Ballater, Royal Deeside, Aberdeenshire, Scotland AB35 5XA. | ||
26. | Hilton Grand Vacations Club at Craigendarroch Lodges | Braemar Road, Ballater, Royal Deeside, Aberdeenshire, Scotland AB35 5XA. | ||
27. | Coylumbridge Highland Lodges |
Coylumbridge, Aviemore Inverness-shire PH 22 IQN |
||
28. | Lodges at Dunkheld House Lodges Club |
Dunkeld, Perthshire PH8 OHX Scotland |
||
OTHER | ||||
29. | The District by Hilton Club aka TD Suites |
1250 22 nd Street NW Washington DC 20037 |
||
30. |
Hilton Grand Vacations Club at MarBrisa
aka Grand Pacific MarBrisa Resort |
5500 Grand Pacific Drive, Carlsbad, CA 92008 | ||
31. |
Sunrise Lodge, a Hilton Grand Vacations Club
aka Sunrise Lodge |
2307 West High Mountains Road Park City, Utah 84098 |
||
32. |
Hilton Grand Vacations Club at Borgo Alle Vigne
aka Borgo Alle Vigne Fractional Ownership |
Via Casanova 11 Selvatelle, Terricolla Italy 56030 |
EXHIBIT J
(Undeveloped Real Estate Parcels)
Project |
Parcels |
|||
1. |
Parc Soleil 11272 Desforges Ave, Orlando, FL 32836 |
52 acres total Developed: 22.315 Undeveloped: 29.685 |
||
2. |
Las Vegas Boulevard 2650 S Las Vegas Blvd, Las Vegas, Nevada 89109 |
10 acres total Developed: 4.83 Undeveloped: 2.17 |
||
3. |
Kings Land 69-699 Waikoloa Beach Drive, Waikoloa Village, HI 96738 |
112.4 acres total Developed: 54.505 Undeveloped: 57.895 |
||
4. |
Coylumbridge, Coylumbridge Hotel, Coylumbridge Aviermore |
Plots of land at Coylumbridge Hotel registered in the Land Register of Scotland under Title Number INV20700 |
EXHIBIT K
(Approved Mixed-Use Development New Properties)
Third Party Mixed Use Developments:
1. | Grand Pacific Resorts, Carlsbad, California |
2. | Trump International Hotel and Spa, Las Vegas, Nevada |
3. | Miracle Mile Shops at Planet Hollywood, Las Vegas, Nevada |
4. | Flamingo Hotel and Casino, Las Vegas, Nevada |
5. | Waikiki Beach Walk, Honolulu, Hawaii |
6. | Sunrise at Escala Canyons Resort, Park City, Utah |
7. | Dunkeld House Hotel (formerly Hilton Dunkeld), Scotland, United Kingdom |
Hilton Mixed Use Developments:
1. | New York Hilton, New York City, New York |
2. | Hilton Hawaiian Village, Honolulu, Hawaii |
3. | Hilton Waikoloa Resort, Waikoloa, Hawaii |
4. | Embassy Suites Georgetown, Washington, DC |
5. | Hilton Odawara, Odawara, Japan |
6. | Hilton Coylumbridge, Scotland, United Kingdom |
7. | Hilton Vilamoura Resort, Vilamoura, Portugal |
EXHIBIT L
(Approved Subcontracting and Delegation Agreements)
PROPERTY LEGAL NAME |
MANAGEMENT CO. |
SUB-MANAGEMENT CO | ||
BW Vacation Suites 270 Lewers Street, Honolulu, Hawaii |
Hilton Grand Vacations Management, LLC | Outrigger Hotel Hawaii | ||
Grand Pacific MarBrisa Resort 5900 Pasteur Ct., Suite 200 Carlsbad, CA 92008 |
Hilton Grand Vacations Management, LLC |
Grand Pacific Resort
Services, L.P. |
||
Borgo alle Vigne Fractional Ownership Project Viale Della Repubblica 298 Prato 59100, Italy |
Hilton Grand Vacations Italy s.r.l. | Prime Service SRL |
EXHIBIT M
(Existing Marketing Agreements for Licensed Exchange Program)
1. | Anantara Resorts |
2. | Fiesta Americana |
3. | O.A.R.S. Adventure Travel |
4. | Guided Journeys via Tauck |
5. | Forever Resorts Houseboats |
6. | EagleRider Motorcycles |
7. | El Monte RV Motorhomes |
8. | Walking Excursions via Country Walkers |
9. | The Moorings Yacht Charters |
10. | International Cruise Exchange (ICE) |
11. | World Travel Holdings |
12. | RCI |
13. | SFX Preferred Resorts |
14. | ResorTime |
15. | Tokyu Resort Services |
16. | Tokyu corporation |
17. | Unimat Precious Co. Ltd |
18. | Kamori Kanko Co. Ltd |
19. | JTB Corporate Sales |
20. | CLEAR (airport security program) |
21. | GroundLink (car service) |
22. | Luggage Forward (door to door delivery) |
23. | Grand Pacific Resorts |
24. | Miki Tours (Japan Cruise partner) |
25. | Priority Pass (lounge airport access) |
26. | Vacation Guard (insurance) |
27. | Smart Destinations (Destination attractions) |
28. | Miracle Mile Shops at Planet Hollywood Resort and Casino |
29. | Avis/Budget Group |
30. | The Forbes Company-The Mall at Millenia |
31. | Engage/LRG (online shopping channel) |
32. | Waikoloa Golf Resort |
33. | Waikoloa Kohala Spa |
34. | JAL |
35. | Hawaiian Airlines |
Exhibit 10.20
STOCKHOLDERS AGREEMENT
by and among
HILTON WORLDWIDE HOLDINGS INC.,
HILTON GRAND VACATIONS INC.,
and
the Blackstone Holders
(as defined herein)
Dated as of
TABLE OF CONTENTS
Page | ||||||||
ARTICLE I DEFINITIONS AND INTERPRETATION |
2 | |||||||
Section 1.1 |
Definitions | 2 | ||||||
Section 1.2 |
References; Interpretation | 9 | ||||||
Section 1.3 |
Effective Time | 9 | ||||||
ARTICLE II SECTION 355(e) RESTRICTIONS |
9 | |||||||
Section 2.1 |
General | 9 | ||||||
Section 2.2 |
Exceptions for Applicable Percentage, Safe Harbor VIII and Unqualified 355(e) Opinion | 10 | ||||||
Section 2.3 |
Blackstone Ownership Shift due to Issuance | 11 | ||||||
Section 2.4 |
Special Rule | 11 | ||||||
ARTICLE III DEVICE RESTRICTIONS |
11 | |||||||
Section 3.1 |
General | 11 | ||||||
Section 3.2 |
Exceptions for In Parallel and Unqualified Device Opinion | 11 | ||||||
ARTICLE IV ADDITIONAL RULES |
12 | |||||||
Section 4.1 |
Plan of Reorganization and Blackstone Restructuring | 12 | ||||||
Section 4.2 |
Representation Regarding Blackstone Restructuring | 12 | ||||||
Section 4.3 |
Joint and Several Liability | 12 | ||||||
Section 4.4 |
Margin Loan | 12 | ||||||
Section 4.5 |
Reallocation Event | 12 | ||||||
Section 4.6 |
Cooperation | 13 | ||||||
Section 4.7 |
Effect of Rulings and Opinion on Section 355(e) Calculations | 13 | ||||||
ARTICLE V MISCELLANEOUS |
13 | |||||||
Section 5.1 |
Counterparts | 13 | ||||||
Section 5.2 |
Survival | 13 | ||||||
Section 5.3 |
Notices | 14 | ||||||
Section 5.4 |
Waivers | 14 | ||||||
Section 5.5 |
Assignment | 14 | ||||||
Section 5.6 |
Successors and Assigns | 15 | ||||||
Section 5.7 |
Termination and Amendment | 15 | ||||||
Section 5.8 |
No Circumvention | 15 | ||||||
Section 5.9 |
Subsidiaries | 15 | ||||||
Section 5.10 |
Third Party Beneficiaries | 15 | ||||||
Section 5.11 |
Title and Headings | 15 | ||||||
Section 5.12 |
Schedules | 15 | ||||||
Section 5.13 |
Specific Performance | 15 |
i
Page | ||||||||
Section 5.14 |
Governing Law | 16 | ||||||
Section 5.15 |
Consent to Jurisdiction | 16 | ||||||
Section 5.16 |
Waiver of Jury Trial | 16 | ||||||
Section 5.17 |
Force Majeure | 16 | ||||||
Section 5.18 |
Interpretation | 17 | ||||||
Section 5.19 |
Changes in Law | 17 | ||||||
Section 5.20 |
Severability | 17 | ||||||
Section 5.21 |
No Waiver | 17 | ||||||
Section 5.22 |
No Duplication; No Double Recovery | 17 | ||||||
Section 5.23 |
No Recourse | 17 | ||||||
Schedules | ||||||||
Schedule I | List of Blackstone Entities |
ii
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this Agreement ) is made and entered into as of the day of , by and among Hilton Worldwide Holdings Inc., a Delaware corporation ( HLT ), Hilton Grand Vacations Inc., a Delaware corporation ( HGV ), and the Blackstone Holders (as defined herein). Each of HLT, HGV and each Blackstone Holder is sometimes referred to herein as a Party and collectively, as the Parties . Each of HLT, HGV and Park Hotels & Resorts Inc., a Delaware corporation ( PK ), is sometimes referred to herein as a Spinoff Party and collectively, as the Spinoff Parties .
WITNESSETH:
WHEREAS, the Board of Directors of HLT (the Board ) has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders to separate HLT into three separate, publicly traded companies, one for each of (i) the HLT Retained Business (as defined herein), which shall be owned and conducted, directly or indirectly, by HLT, (ii) the Ownership Business (as defined herein), which shall be owned and conducted, directly or indirectly, by PK (which will elect to be a REIT (as defined herein)), and (iii) the Timeshare Business (as defined herein), which shall be owned and conducted, directly or indirectly, by HGV;
WHEREAS, in order to effect such separation, the Board has determined that it is appropriate, desirable and in the best interests of HLT and its stockholders (i) to enter into a series of transactions after giving effect to which (A) HLT and/or one or more of its Subsidiaries (as defined herein) will, collectively, own all of the HLT Retained Assets (as defined herein) and assume (or retain) all of the HLT Retained Liabilities (as defined herein), (B) PK and/or one or more of its Subsidiaries will, collectively, own all of the Ownership Assets (as defined herein) and assume (or retain) all of the Ownership Liabilities (as defined herein) and (C) HGV and/or one or more of its Subsidiaries will, collectively, own all of the Timeshare Assets (as defined herein) and assume (or retain) all of the Timeshare Liabilities (as defined herein) and (ii) for HLT to distribute to the holders of its common stock, par value $0.01 per share ( HLT Common Stock ), on a pro rata basis (in each case without consideration being paid by such stockholders) (A) all of the outstanding shares of common stock, par value $0.01 per share, of PK (the PK Common Stock ), and (B) all of the outstanding shares of common stock, par value $0.01 per share, of HGV (the HGV Common Stock ) (such transactions as they may be amended or modified from time to time, collectively, the Plan of Reorganization ); and
WHEREAS, it is the intention of the Parties that each of the distributions by HLT of all of the PK Common Stock (the PK Distribution ) and HGV Common Stock (the HGV Distribution and together with the PK Distribution, the External Distributions ) qualifies as a tax-free distribution within the meaning of Section 355 of the Internal Revenue Code of 1986, as amended (the Code ).
NOW, THEREFORE, in consideration of the foregoing and the terms, conditions, covenants and provisions of this Agreement, each of the Parties mutually covenant and agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions . As used in this Agreement, the following terms shall have the following meanings:
(1) Acquisition means an acquisition for purposes of Section 355(e) of the Code of stock of the applicable Spinoff Party, or issuance by a Spinoff Party of any options or other instruments that grant the holder a right (including if such Spinoff Party has a right to settle the obligation with property other than stock of such Spinoff Party) to complete such an acquisition. The terms Acquire and Acquired have a corresponding meaning. For purposes of determining whether and to what extent a transaction shall be taken into account for purposes of this definition, any recapitalization or other action resulting in a shift of voting power or any redemption or repurchase of shares of stock shall be treated as an indirect acquisition of shares of stock by the benefitted or non-exchanging stockholders.
(2) Additional Blackstone Entity means any Blackstone Entity designated as an Additional Blackstone Entity on Schedule I hereto.
(3) Affiliate means a Person that directly, or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified Person. A Person shall be deemed to control another Person if such first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of such other Person, whether through the ownership of voting securities, by contract or otherwise. For purposes hereof, none of the Spinoff Parties or their respective Subsidiaries shall be considered an Affiliate of any of the other Parties or their respective Subsidiaries (determined on the same basis). For the avoidance of doubt, for purposes hereof, neither The Blackstone Group L.P. (nor any of its Affiliates) shall be considered an Affiliate of any of the Spinoff Parties or their respective Subsidiaries.
(4) Agreement has the meaning set forth in the preamble hereto.
(5) Ancillary Agreement has the meaning set forth in the Distribution Agreement.
(6) Big Four Accounting Firm means each of Deloitte & Touche LLP, Ernst & Young LLP, KPMG LLP, and PricewaterhouseCoopers LLP.
(7) Blackstone Acquisition has the meaning set forth in Section 2.1(a).
(8) Blackstone Applicable Percentage means, with respect to a Spinoff Party, the percentage shift in ownership equal to the greater of (a) the percentage determined by dividing (i) the value of all shares of such Spinoff Party (as of immediately after the Distribution) transferred in one or more Dispositions of stock of such Spinoff Party occurring on or after the Distribution Date by (ii) the value of all outstanding stock of such Spinoff Party as of immediately after the Distribution, or (b) the percentage determined by dividing (i) the total combined voting power of all shares of such Spinoff Party (as of immediately after the Distribution) transferred in one or more Dispositions of stock of such Spinoff Party occurring on
2
or after the Distribution Date by (ii) the total combined voting power of all outstanding stock of such Spinoff Party as of immediately after the Distribution. The amount set forth in (a)(ii) or (b)(ii) shall be reduced by any redemption or repurchase (directly or indirectly) by a Spinoff Party (or any of its Subsidiaries) of HLT Common Stock, PK Common Stock or HGV Common Stock, as applicable, following the Distribution and prior to the last such Disposition (with such reduction calculated in the case of (a)(ii) by using the value of the applicable stock as of immediately after the Distribution). This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.
(9) Blackstone Entity means any of the entities listed on Schedule I hereto and any successors thereto.
(10) Blackstone-HGV Applicable Percentage means the Blackstone Applicable Percentage with respect to HGV.
(11) Blackstone-HGV Percentage Shift Limit means % 1 , as adjusted from time to time by mutual written consent of the Blackstone Representative and HGV or under Section 2.3 or Section 4.5; provided , however , that the sum of the Blackstone-HGV Percentage Shift Limit and the HGV Percentage Shift Limit immediately after such adjustments must equal such sum immediately before such adjustments; provided further , that if the Blackstone Representative has actual knowledge that the HGV Applicable Percentage exceeds the HGV Percentage Shift Limit, the Blackstone-HGV Percentage Shift Limit shall be reduced by such excess (without prejudice to any rights or remedies any Blackstone Holder or any other Party may have).
(12) Blackstone-HLT Applicable Percentage means the Blackstone Applicable Percentage with respect to HLT.
(13) Blackstone-HLT Percentage Shift Limit means % 2 , as adjusted from time to time by mutual written consent of the Blackstone Representative and HLT or under Section 2.3 or Section 4.5; provided , however , that the sum of the Blackstone-HLT Percentage Shift Limit and the HLT Percentage Shift Limit immediately after such adjustments must equal such sum immediately before such adjustments; provided further , that if the Blackstone Representative has actual knowledge that the HLT Applicable Percentage exceeds the HLT Percentage Shift Limit, the Blackstone-HLT Percentage Shift Limit shall be reduced by such excess (without prejudice to any rights or remedies any Blackstone Holder or any other Party may have).
1 | The Blackstone-HGV Percentage Shift Limit, the Blackstone-HLT Percentage Shift Limit, and the Blackstone-PK Percentage Shift Limit will be (i) 40.66% if the closing of the transactions contemplated by that certain Stock Purchase Agreement dated as of October 24, 2016 among HNA Tourism Group Co., Ltd., and the Seller Parties named therein (the HNA Stock Purchase Agreement and the closing, the SPA Closing ) has not occurred as of the Distribution Date and (ii) 15.65% if the SPA Closing has occurred as of the Distribution Date. If, after October 24, 2016 but prior to the Distribution Date, the Blackstone Holders have disposed of shares of HLT Common Stock in one or more transactions other than the disposition pursuant to the HNA Stock Purchase Agreement, the limit described in the preceding sentence will be reduced by the percentage of HLT Common Stock that is the subject of such disposition or dispositions. |
2 | See footnote 1. |
3
(14) Blackstone Holder means any Blackstone Entity designated as a Blackstone Holder on Schedule I hereto.
(15) Blackstone-PK Applicable Percentage means the Blackstone Applicable Percentage with respect to PK.
(16) Blackstone-PK Percentage Shift Limit means % 3 , as adjusted from time to time in connection with an adjustment to PK Applicable Percentage pursuant to the terms of the Tax Matters Agreement or under Section 5.4(f) or (g) of the Tax Matters Agreement; provided , however , that the sum of the Blackstone-PK Percentage Shift Limit and the PK Percentage Shift Limit immediately after such adjustments must equal such sum immediately before such adjustments; provided further , that if the Blackstone Representative has actual knowledge that the PK Applicable Percentage exceeds the PK Percentage Shift Limit, the Blackstone-PK Percentage Shift Limit shall be reduced by such excess.
(17) Blackstone Representative means Tyler Henritze, or such other person as the Blackstone Holders may designate.
(18) Blackstone Restructuring has the meaning set forth in Section 4.1.
(19) Board has the meaning set forth in the recitals hereto.
(20) Code has the meaning set forth in the recitals hereto.
(21) Delaware Courts has the meaning set forth in Section 5.15.
(22) Disposition has the meaning set forth in Section 2.1(a). The terms Dispose and Disposed have a corresponding meaning.
(23) Distribution or Distributions means, individually or collectively, the Internal Distributions and the External Distributions.
(24) Distribution Agreement means the Distribution Agreement by and among HLT, PK, HGV and OpCo dated as of .
(25) Distribution Date means the date on which the Distributions to holders of record of shares of HLT Common Stock of the HGV Common Stock and the PK Common Stock owned by HLT are effectuated pursuant to the Distribution Agreement.
(26) Effective Time has the meaning set forth in the Distribution Agreement.
(27) External Distributions has the meaning set forth in the recitals hereto.
(28) HGV has the meaning set forth in the recitals hereto.
3 | See footnote 1. |
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(29) HGV Applicable Percentage means the percentage shift in ownership equal to the greater of (a) the percentage determined by dividing (i) the value of all shares of HGV stock (as of immediately after the Distribution) Acquired pursuant to one or more Issuances of HGV stock occurring on or after the Distribution Date by (ii) the value of all outstanding stock of HGV as of immediately after the Distribution, or (b) the percentage determined by dividing (i) the total combined voting power of all shares of HGV stock (as of immediately after the Distribution) Acquired pursuant to one or more Issuances of HGV stock occurring on or after the Distribution Date by (ii) the total combined voting power of all outstanding stock of HGV as of immediately after the Distribution. The amount set forth in (a)(ii) or (b)(ii) shall be reduced by any redemption or repurchase (directly or indirectly) by HGV (or its Subsidiaries) of HGV Common Stock following the Distribution and prior to the last such Issuance (with such reduction calculated in the case of (a)(ii) by using the value of the applicable stock as of immediately after the Distribution). This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.
(30) HGV Common Stock has the meaning set forth in the recitals hereto.
(31) HGV Distribution has the meaning set forth in the recitals hereto.
(32) HGV Group has the meaning set forth in the Distribution Agreement.
(33) HGV Percentage Shift Limit means 8.34%, as adjusted from time to time by mutual written consent of the Blackstone Representative and HGV or under Section 2.3 or Section 4.5; provided , however , that the sum of the Blackstone-HGV Percentage Shift Limit and the HGV Percentage Shift Limit immediately after such adjustments must equal such sum immediately before such adjustments; provided further , that if HGV has actual knowledge that the Blackstone-HGV Applicable Percentage exceeds the Blackstone-HGV Percentage Shift Limit, the HGV Percentage Shift Limit shall be reduced by such excess (without prejudice to any rights or remedies HGV or any other Party may have).
(34) HLT has the meaning set forth in the preamble of this Agreement.
(35) HLT Applicable Percentage means the percentage shift in ownership equal to the greater of (a) the percentage determined by dividing (i) the value of all shares of HLT stock (as of immediately after the Distribution) Acquired pursuant to one or more Issuances of HLT stock occurring on or after the Distribution Date by (ii) the value of all outstanding stock of HLT as of immediately after the Distribution, or (b) the percentage determined by dividing (i) the total combined voting power of all shares of HLT stock (as of immediately after the Distribution) Acquired pursuant to one or more Issuances of HLT stock occurring on or after the Distribution Date by (ii) the total combined voting power of all outstanding stock of HLT as of immediately after the Distribution. The amount set forth in (a)(ii) or (b)(ii) shall be reduced by any redemption or repurchase (directly or indirectly) by HLT (or its Subsidiaries) of HLT Common Stock following the Distribution and prior to the last such Issuance (with such reduction calculated in the case of (a)(ii) by using the value of the applicable stock as of immediately after the Distribution). This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.
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(36) HLT Common Stock has the meaning set forth in the Distribution Agreement.
(37) HLT Group has the meaning set forth in the Distribution Agreement.
(38) HLT Percentage Shift Limit means 8.34%, as adjusted from time to time by mutual written consent of the Blackstone Representative and HLT or under Section 2.3 or Section 4.5; provided , however , that the sum of the Blackstone-HLT Percentage Shift Limit and the HLT Percentage Shift Limit immediately after such adjustments must equal such sum immediately before such adjustments; provided further , that if HLT has actual knowledge that the Blackstone-HLT Applicable Percentage exceeds the Blackstone-HLT Percentage Shift Limit, the HLT Percentage Shift Limit shall be reduced by such excess (without prejudice to any rights or remedies HLT or any other Party may have).
(39) HLT Retained Assets has the meaning set forth in the Distribution Agreement.
(40) HLT Retained Business has the meaning set forth in the Distribution Agreement.
(41) HLT Retained Liabilities has the meaning set forth in the Distribution Agreement.
(42) In Parallel describes one or more Dispositions by a Blackstone Entity if and only if such Dispositions (i) result in the disposition of proportionate or almost proportionate amounts of HLT Common Stock, PK Common Stock and HGV Common Stock (e.g., a sale by a Blackstone Entity of 5% of its HLT stock would require a sale by such Blackstone Entity (or its parallel Additional Blackstone Entity) of 5% of its (or such parallel Additional Blackstone Entitys) PK stock and 5% of its HGV stock), (ii) commenced at the same time and as part of the same plan, (iii) completed within a single taxable year of such Blackstone 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 a Blackstone Entity are In Parallel shall be made taking into account only those shares of HLT Common Stock, PK Common Stock and HGV Common Stock owned by such Blackstone Entity on the Distribution Date. For the avoidance of doubt, one or more Dispositions shall not fail to meet the requirements of (i) solely because such Dispositions include, in addition to a proportionate or almost proportionate amount of PK Common Stock owned on the Distribution Date, an amount of PK Common Stock received in the Purging Distribution.
(43) Internal Distributions has the meaning set forth in the Tax Matters Agreement.
(44) IRS means the United States Internal Revenue Service or any successor thereto, including, but not limited to its agents, representatives, and attorneys.
(45) Issuance has the meaning set forth in Section 2.1(b).
(46) Issuer has the meaning set forth in Section 2.1(b).
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(47) Law means any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, administrative pronouncement, order, requirement or rule of law (including common law), or any income tax treaty.
(48) Margin Loan Agreement means that certain Margin Loan Agreement dated as of June 30, 2014 among HLT Holdco III LLC, as borrower, the Margin Loan Lenders party thereto, and Morgan Stanley Bank International Limited, as Administrative Agent and any related security agreements, control agreements, issuer agreements and guarantees, in each case as amended, supplemented or modified from time to time.
(49) Margin Loan Collateral has the meaning given to the term Collateral in the Margin Loan Agreement.
(50) Margin Loan Event of Default has the meaning given to the term Event of Default in the Margin Loan Agreement.
(51) Margin Loan Lender has the meaning given to the term Lender in the Margin Loan Agreement.
(52) Ownership Assets has the meaning set forth in the Tax Matters Agreement.
(53) Ownership Business has the meaning set forth in the Distribution Agreement.
(54) Ownership Liabilities has the meaning set forth in the Distribution Agreement.
(55) Party has the meaning set forth in the preamble hereto.
(56) Person means any natural person, firm, individual, corporation, business trust, joint venture, association, company, limited liability company, partnership, or other organization or entity, whether incorporated or unincorporated, or any governmental entity.
(57) PK has the meaning set forth in the recitals hereto.
(58) PK Applicable Percentage has the meaning set forth in the Tax Matters Agreement.
(59) PK Distribution has the meaning set forth in the recitals hereto.
(60) PK Percentage Shift Limit has the meaning set forth in the Tax Matters Agreement.
(61) PK Common Stock has the meaning set forth in the recitals hereto.
(62) Plan of Reorganization has the meaning set forth in the recitals hereto.
(63) Purging Distribution means any distribution made by PK in order to comply with the requirements of Section 857(a)(2)(B) of the Code.
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(64) Qualified Tax Advisor means any Big Four Accounting Firm or any law firm of nationally recognized standing.
(65) Reallocation Event means any Acquisition during the Restricted Period of the stock of a Spinoff Party (other than a Disposition or an Issuance) that could reasonably be viewed as increasing the ownership shift with respect to such Spinoff Party for purposes of Section 355(e) of the Code, taking into account any available safe harbors under Treasury Regulations Section 1.355-7 (and the amount of such increase, the Reallocation Event Reduction ). This definition and the application thereof is intended to monitor compliance with Section 355(e) of the Code and the Treasury Regulations promulgated thereunder and shall be interpreted accordingly by the Parties in good faith.
(66) REIT means a real estate investment trust within the meaning of Section 856(a) of the Code.
(67) Reorganization Slide Deck has the meaning set forth in the Tax Matters Agreement.
(68) Restricted Period means the two-year period beginning on the Distribution Date.
(69) Spinoff Party has the meaning set forth in the preamble hereto.
(70) Subsidiary has the meaning set forth in the Distribution Agreement.
(71) Tax Matters Agreement means that certain Tax Matters Agreement by and among HLT, PK, HGV and Hilton Domestic Operating Company Inc., a Delaware corporation, dated as of .
(72) Timeshare Assets has the meaning set forth in the Tax Matters Agreement.
(73) Timeshare Business has the meaning set forth in the Distribution Agreement.
(74) Timeshare Liabilities has the meaning set forth in Distribution Agreement.
(75) Unqualified 355(e) Opinion means, with respect to a Disposition, Blackstone Acquisition, Issuance or Reallocation Event, an unqualified will opinion (or, with respect to Issuance or Reallocation Event, in either case with respect to which HLT delivers the opinion, a will or should opinion) of a Qualified Tax Advisor addressed to HLT and in form and substance reasonably satisfactory to HLT, without substantive qualifications, to the effect that such Disposition, Blackstone Acquisition, Issuance (including any future Issuance of stock pursuant to an option or other instrument that grants the holder a right (including if the Issuer has a right to settle the obligation with property other than stock of such Issuer) to complete an Acquisition) or Reallocation Event will not be part of a plan (or series of related transactions) within the meaning of Section 355(e) of the Code involving the Distributions.
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(76) Unqualified Device Opinion means, with respect to a Disposition, an unqualified will opinion of a Qualified Tax Advisor addressed to HLT, in form and substance reasonably satisfactory to HLT, 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.
(77) U.S. means the United States of America.
Section 1.2 References; Interpretation .
(a) Terms not otherwise defined herein shall have the meaning ascribed to them in the Distribution Agreement. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words include, includes, and including when used in this Agreement shall be deemed to be followed by the phrase without limitation. Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Unless the context otherwise requires, the words hereof, hereby, and herein and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. Unless the context otherwise requires, the word stock or shares refers to any equity interests of the applicable entity for U.S. federal income tax purposes and any references to a Person include a reference to any successor to such Person.
Section 1.3 Effective Time .
(a) The agreements contained herein, including, but not limited to, the certain restrictions on the transfer and other actions with respect to HLT Common Stock, PK Common Stock and HGV Common Stock shall be effective upon the Distribution Date.
ARTICLE II
SECTION 355(E) RESTRICTIONS
Section 2.1 General .
(a) During the Restricted Period, (i) the Blackstone Holders shall not, and shall cause the other Blackstone Entities not to, permit any person to sell, transfer or otherwise dispose of interests in any Blackstone Entity unless such disposition is described in Treasury Regulations Section 1.355-7(d)(7)(i) and (ii) the Blackstone Holders shall not, and shall cause the other Blackstone Entities not to, directly or indirectly dispose of any HLT Common Stock, PK Common Stock or HGV Common Stock, including through the issuance of an interest in any Blackstone Entity (any such sale, transfer or disposition described in (i) or (ii), a Disposition ); provided , however , that no transaction entered into by a Spinoff Party shall constitute a Disposition. During the Restricted Period, the Blackstone Holders shall not, and shall cause the other Blackstone Entities not to, Acquire any HLT stock, PK stock or HGV stock (such Acquisition, a Blackstone Acquisition ); provided that the foregoing shall not be applicable to any Acquisition resulting from action by a Spinoff Party or a Subsidiary thereof.
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(b) During the Restricted Period, neither HLT nor HGV (each, an Issuer ) may issue any of its stock or take any action with respect to its stock that would cause an Acquisition (including redemptions or repurchases), or issue any options or other instruments that grant the holder a right (including if such Issuer has a right to settle the obligation with property other than stock of such Issuer) to complete an Acquisition (any such issuance or other transaction, an Issuance ); provided that , HGV shall have no right to enforce this Section 2.1(b) against HLT.
Section 2.2 Exceptions for Applicable Percentage, Safe Harbor VIII and Unqualified 355(e) Opinion .
(a) Applicable Percentage . Notwithstanding Section 2.1, but subject to Article III,
(i) a Disposition of HLT Common Stock shall be permitted if, immediately after such Disposition, the Blackstone-HLT Applicable Percentage will be less than or equal to the Blackstone-HLT Percentage Shift Limit;
(ii) a Disposition of PK Common Stock shall be permitted if, immediately after such Disposition, the Blackstone-PK Applicable Percentage will be less than or equal to the Blackstone-PK Percentage Shift Limit;
(iii) a Disposition of HGV Common Stock shall be permitted if, immediately after such Disposition, the Blackstone-HGV Applicable Percentage will be less than or equal to the Blackstone-HGV Percentage Shift Limit;
(iv) an Issuance by HLT shall be permitted if, immediately after such Issuance, the HLT Applicable Percentage will be less than or equal to the HLT Percentage Shift Limit; and
(v) an Issuance by HGV shall be permitted if, immediately after such Issuance, the HGV Applicable Percentage will be less than or equal to the HGV Percentage Shift Limit.
(b) Safe Harbor VIII . Notwithstanding Section 2.1(b), an Issuance shall be permitted where such Issuance (or the related issuance of stock in the case of an option issuance) is described in Treasury Regulations Section 1.355-7(d)(8) (other than an Issuance made in connection with a merger or other acquisition transaction by a third party of the relevant Issuers stock; provided , that no Issuance will be deemed to be connected with an acquisition pursuant to a secondary sale for cash of Issuer stock by one or more Blackstone Entities in a public offering).
(c) Unqualified 355(e) Opinion . Notwithstanding Section 2.1, but subject to Article III, a Disposition, Blackstone Acquisition or Issuance, as the case may be, shall be permitted if the Blackstone Representative (in the case of a Disposition or Blackstone Acquisition) or Issuer (in the case of an Issuance) provides an Unqualified 355(e) Opinion to HLT; provided , further , that in the case of an Issuance of stock pursuant to an exercise of an option or other instrument that grants the holder a right (including if the Issuer has a right to settle the obligation with property other than stock of such Issuer) to complete such an acquisition, such Issuance shall be permitted if the Issuer provided an Unqualified 355(e) Opinion to HLT in respect of the Issuance of such option or other instrument.
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Section 2.3 Blackstone Ownership Shift due to Issuance . During the Restricted Period, if a proposed Issuance is a redemption or repurchase, then, immediately before such Issuance, (i) the Blackstone-HLT Percentage Shift Limit or Blackstone-HGV Percentage Shift Limit (as applicable) shall be increased or decreased (but not below the Blackstone-HLT Applicable Percentage or Blackstone-HGV Applicable Percentage, respectively, as of immediately before such Issuance) such that the number of shares permitted to be Disposed of under Section 2.2(a)(i) or (a)(iii) remains unchanged immediately after such Issuance (other than to reflect shares of the relevant Issuer actually redeemed or repurchased from the Blackstone Entities pursuant to such Issuance), and (ii) the HLT Percentage Shift Limit or HGV Percentage Shift Limit (as applicable) shall be decreased (in the case of an increase in clause (i), but not below the HLT Applicable Percentage or HGV Applicable Percentage, respectively, as of immediately before such Issuance) or increased (in the case of a decrease in clause (i)) by the amount set forth in clause (i). If clause (ii) calls for a reduction in the HLT Percentage Shift Limit or HGV Percentage Shift Limit (as applicable) and the amount of such reduction would be limited by the parenthetical therein, then, notwithstanding any other provision of this Agreement (including Section 2.2(c)), the relevant Issuer shall not undertake such Issuance without the written consent of the Blackstone Representative; provided that in the event the Blackstone Representative so consents, the amount of the increase set forth in (i) shall not exceed the amount of the decrease set forth in clause (ii). For the avoidance of doubt, an Issuance that satisfies the requirements of this Section 2.3 remains subject to the provisions of this Agreement, including, without limitation, Sections 2.1(b) and 2.2(a)(iv) and (a)(v). For the avoidance of doubt, if a proposed Issuance is not consummated, the Blackstone-HLT Percentage Shift Limit and HLT Percentage Shift Limit, or Blackstone-HGV Percentage Shift Limit and HGV Percentage Shift Limit, as applicable shall not be adjusted pursuant to this Section 2.3 as a result of such proposed Issuance.
Section 2.4 Special Rule . Any Disposition or Issuance which is permitted pursuant to Section 2.2(b) or (c) shall be disregarded for purposes clauses (a)(i) and (b)(i) of the definition of Blackstone-HLT Applicable Percentage, Blackstone-PK Applicable Percentage, Blackstone-HGV Applicable Percentage, HLT Applicable Percentage or HGV Applicable Percentage, as applicable.
ARTICLE III
DEVICE RESTRICTIONS
Section 3.1 General . During the Restricted Period, the Blackstone Holders shall cause the Blackstone Entities not to directly or indirectly dispose of HLT Common Stock, PK Common Stock or HGV Common Stock.
Section 3.2 Exceptions for In Parallel and Unqualified Device Opinion .
(a) In Parallel . Notwithstanding Section 3.1, but subject to Article II, one or more Dispositions shall be permitted if such Dispositions are In Parallel.
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(b) Unqualified Device Opinion . Notwithstanding Section 3.1, but subject to Article II, a Disposition shall be permitted if the Blackstone Representative provides an Unqualified Device Opinion to HLT.
ARTICLE IV
ADDITIONAL RULES
Section 4.1 Plan of Reorganization and Blackstone Restructuring . For the avoidance of doubt, this Agreement does not impose any restrictions of any kind on the consummation of the transactions set forth in the Plan of Reorganization, the Reorganization Slide Deck or that certain series of transactions relating to the Blackstone Entities previously described by the Blackstone Holders to HLT (such series of transactions, the Blackstone Restructuring ).
Section 4.2 Representation Regarding Blackstone Restructuring . Each of the Blackstone Holders represents and warrants to HLT and HGV that (i) the ultimate indirect ownership of HLT Common Stock, PK Common Stock and HGV Common Stock held by each Blackstone Entity will remain unchanged as a result of the Blackstone Restructuring and (ii) the transactions comprising the Blackstone Restructuring are tax-free for U.S. federal income tax purposes.
Section 4.3 Joint and Several Liability . The Blackstone Holders shall be jointly and severally liable for all of their respective obligations pursuant to Article II and Article III of this Agreement.
Section 4.4 Margin Loan . Notwithstanding anything to the contrary herein, this Agreement shall not impose any restrictions of any kind on a Disposition resulting from the exercise by any Margin Loan Lender of its right to foreclosure or similar enforcement action on any of the Margin Loan Collateral following the occurrence of a Margin Loan Event of Default; provided that immediately after such foreclosure or similar enforcement action, the Blackstone-HLT Applicable Percentage, Blackstone-PK Applicable Percentage and/or Blackstone-HGV Applicable Percentage, as applicable, shall be increased to reflect such foreclosure or similar enforcement action. Notwithstanding the foregoing, if the Blackstone Representative or a Spinoff Party provides an Unqualified 355(e) Opinion with respect to such foreclosure or similar enforcement action to HLT, such foreclosure or similar enforcement action shall not increase the relevant Blackstone Applicable Percentage.
Section 4.5 Reallocation Event . Upon a Reallocation Event with respect to HLT stock or HGV stock, the Blackstone Representative, on the one hand, and the relevant Spinoff Party, on the other, shall use reasonable efforts to allocate the Reallocation Event Reduction to and reduce the Blackstone-HLT Percentage Shift Limit and/or HLT Percentage Shift Limit, or Blackstone-HGV Percentage Shift Limit and/or HGV Percentage Shift Limit, as applicable. If the Blackstone Representative and the relevant Spinoff Party do not agree on an allocation, the Reallocation Event Reduction shall first be allocated to and reduce the relevant HLT Percentage Shift Limit or HGV Percentage Shift Limit (but not below the HLT Applicable Percentage or HGV Applicable Percentage, respectively, as of the time of the Reallocation
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Event). Any excess Reallocation Event Reduction shall be allocated to and reduce the relevant Blackstone-HLT Percentage Shift Limit or Blackstone-HGV Percentage Shift Limit (but not below the Blackstone-HLT Applicable Percentage or Blackstone-HGV Applicable Percentage, respectively, as of the time of the Reallocation Event). For the avoidance of doubt, the sum (immediately before the Reallocation Event) of the Blackstone-HLT Percentage Shift Limit and HLT Percentage Shift Limit, or Blackstone-HGV Percentage Shift Limit and HGV Percentage Shift Limit, as applicable, shall equal the sum (immediately after the Reallocation Event), of the Reallocation Event Reduction plus the Blackstone-HLT Percentage Shift Limit and HLT Percentage Shift Limit, or Blackstone-HGV Percentage Shift Limit and HGV Percentage Shift Limit, as applicable. Notwithstanding anything to the contrary in this Section 4.5, if the Blackstone Representative or the relevant Spinoff Party provides an Unqualified 355(e) Opinion with respect to a purported Reallocation Event to HLT, such purported Reallocation Event shall not constitute a Reallocation Event.
Section 4.6 Cooperation . The Parties shall reasonably cooperate (and, in the case of HLT and HGV, cause the members of the HLT Group and the HGV Group, respectively, to reasonably cooperate) in obtaining any Unqualified Device Opinion or Unqualified 355(e) Opinion (including making reasonable representations required in connection with any such opinion), including by maintaining and making available to each other all records necessary in connection with such opinions and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder.
Section 4.7 Effect of Rulings and Opinion on Section 355(e) Calculations . For purposes of computing the (a) HLT Applicable Percentage, (b) HGV Applicable Percentage, (c) Blackstone-HLT Applicable Percentage, (d) Blackstone-HGV Applicable Percentage, (e) Blackstone-PK Applicable Percentage or (f) Reallocation Event Reduction, any calculation of the shift of ownership of one or more of the Spinoff Parties under Section 355(e) shall take into account (i) any IRS private letter ruling received by one or more of the Spinoff Parties and/or the Blackstone Entities and (ii) any unqualified will opinion of a Qualified Tax Advisor (or, with respect to an opinion delivered by HLT, should opinion) addressed to HLT and in form and substance reasonably satisfactory to HLT, without substantive qualifications, in each case addressing the manner in which the calculation of such shift is performed.
ARTICLE V
MISCELLANEOUS
Section 5.1 Counterparts . This Agreement may be executed in more than one counterpart, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.
Section 5.2 Survival . Except as otherwise contemplated by this Agreement or the Distribution Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date and remain in full force and effect in accordance with their applicable terms.
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Section 5.3 Notices . All notices, requests, claims, demands, and other communications under this Agreement shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service), or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 5.3):
To HLT:
Hilton Worldwide Holdings Inc.
7930 Jones Branch Drive, Suite 1100
McLean, Virginia 22102
Attn: General Counsel
Facsimile: (703) 883-6188
To HGV:
Hilton Grand Vacations Inc.
6355 MetroWest Boulevard, Suite 180
Orlando, Florida 32835
Attn: General Counsel
Facsimile: (407) 722-3776
To the Blackstone Holders:
The Blackstone Group L.P.
345 Park Avenue
New York, New York
Attn: Tyler Henritze
Facsimile: (212) 583-5191
Section 5.4 Waivers . Any consent required or permitted to be given by any Party to the other Parties under this Agreement shall be in writing and signed by the Party giving such consent and shall be effective only against such Party.
Section 5.5 Assignment . 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 , (i) without the prior written consent of HLT or HGV, a Blackstone Entity may assign this Agreement to an Affiliate that becomes a party hereto and (ii) this Agreement shall be assignable in whole in connection with a merger or consolidation or the sale of all or substantially all the assets of a Party hereto so long as the resulting, surviving or transferee entity assumes all the obligations of the relevant Party hereto by operation of law or pursuant to an agreement in form and substance reasonably satisfactory to the other Parties to this Agreement.
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Section 5.6 Successors and Assigns . The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors and permitted transferees and assigns.
Section 5.7 Termination and Amendment . This Agreement may not be terminated or amended except by an agreement in writing signed by a duly authorized representative of each of HLT, HGV and the Blackstone Representative (on behalf of the Blackstone Holders). HLT and HGV agree not to amend Sections 5.4, 9.3 or 13.10 of the Tax Matters Agreement (or the relevant definitions used in such Sections), or grant any waivers with respect thereto, without the written consent of the Blackstone Representative (on behalf of the Blackstone Holders).
Section 5.8 No Circumvention . The Parties agree not to directly or indirectly take any actions, act in concert with any Person who takes an action, or cause or allow any Subsidiary of such Party to take any actions (including the failure to take a reasonable action) such that the resulting effect is to materially undermine the effectiveness of any of the provisions of this Agreement, the Distribution Agreement or any Ancillary Agreement.
Section 5.9 Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party on and after the Effective Time, to the extent such Subsidiary remains a Subsidiary of the applicable Party.
Section 5.10 Third Party Beneficiaries . This Agreement is solely for the benefit of the Parties and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement; provided that the Blackstone Holders shall be jointly and severally liable for any losses, costs, expenses, damages, claims and other liabilities (including reasonable attorneys fees) incurred by PK or any of its Affiliates arising, directly or indirectly, from or in connection with any breach by any Blackstone Holder of its obligations hereunder.
Section 5.11 Title and Headings . Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.
Section 5.12 Schedules . Any Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.
Section 5.13 Specific Performance . In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party who is or is to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that the Parties may be irreparably harmed as a result. Accordingly, any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by the Parties to this Agreement.
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Section 5.14 Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware without reference to any choice-of-law or conflicts of law principles that would result in the application of the laws of a different jurisdiction.
Section 5.15 Consent to Jurisdiction . Each of the Parties irrevocably submits to the exclusive jurisdiction of (a) the Court of Chancery of the State of Delaware and any appeals court thereof or (b) if such court does not have subject matter jurisdiction, any other state or federal court located within the County of New Castle in the State of Delaware and any appeals court thereof (the courts referred to in clauses (a) and (b), the Delaware Courts ), for the purposes of any suit, action, or other proceeding to compel arbitration or for provisional relief in aid of arbitration or to prevent irreparable harm, and to the non-exclusive jurisdiction of the Delaware Courts for the enforcement of any award issued thereunder. Each of the Parties further agrees that service of any process, summons, notice, or document by U.S. registered mail to such Partys respective address set forth above shall be effective service of process for any action, suit, or proceeding in the Delaware Courts with respect to any matters to which it has submitted to jurisdiction in this Section 5.15. Each of the Parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit, or proceeding arising out of this Agreement or the transactions contemplated hereby in the Delaware Courts, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.
Section 5.16 Waiver of Jury Trial . EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 5.16.
Section 5.17 Force Majeure . No Party (or any Person acting on its behalf) shall have any liability or responsibility for failure to fulfill any obligation (other than a payment obligation) under this Agreement so long as and to the extent to which the fulfillment of such obligation is prevented, frustrated, hindered, or delayed as a consequence of circumstances of Force Majeure (as defined in the Distribution Agreement). A Party claiming the benefit of this provision shall, as soon as reasonably practicable after the occurrence of any such event: (a) notify the other applicable Parties of the nature and extent of any such Force Majeure condition and (b) use due diligence to remove any such causes and resume performance under this Agreement as soon as feasible.
16
Section 5.18 Interpretation . The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted.
Section 5.19 Changes in Law .
(a) Any reference to a provision of the Code, Treasury Regulations, or a Law of another jurisdiction shall include a reference to any applicable successor provision or Law.
(b) If, due to any change in applicable Law or regulations or their interpretation by any court of Law or other governing body having jurisdiction subsequent to the date hereof, performance of any provision of this Agreement or any transaction contemplated hereby shall become impracticable or impossible, the Parties hereto shall use their commercially reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such provision.
Section 2.20 Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
Section 5.21 No Waiver . No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. No waiver shall be effective unless it is in writing and is signed by the Party asserted to have granted such waiver.
Section 5.22 No Duplication; No Double Recovery . Nothing in this Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation, or recovery with respect to any matter arising out of the same facts and circumstances.
Section 5.23 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 or any of the foregoing 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.
17
[ Remainder of Page Intentionally Left Blank ]
18
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed the day and year first above written.
HILTON WORLDWIDE HOLDINGS INC. |
|
Name: |
Title: |
HILTON GRAND VACATIONS INC. |
|
Name: |
Title: |
HLT A23 BREH VI HOLDCO LLC |
By: Blackstone Real Estate Holdings VI L.P., its sole member |
By: BREP VI Side-by-Side GP L.L.C., its general partner. |
|
Name: |
Title: |
HLT BREH VI HOLDCO LLC |
By: HLT BREH VI Holdings Holdco LLC, its controlling member |
|
Name: |
Title: |
HLT BREH INTL II HOLDCO LLC |
By: HLT BREH Intl II Holdings Holdco LLC, its sole member |
|
Name: |
Title: |
HLT A23 HOLDCO LLC |
By: Blackstone A23 Holdings LLC, its sole member |
|
Name: |
Title: |
HLT BREP VI.TE.2 HOLDCO LLC |
By: Blackstone Real Estate Partners VI.TE.2 L.P., its sole member |
By: Blackstone Real Estate Associates VI L.P., its general partner |
By: BREA VI L.L.C., its general partner. |
|
Name: |
Title: |
HLT HOLDCO III, LLC |
By: HLT Holdco II LLC, its sole member |
|
Name: |
Title: |
2
HLT HOLDCO II, LLC |
By: HLT Holdco LLC, its sole member |
|
Name: |
Title: |
HLT A23 BREH VI HOLDCO PRIME LLC |
By: Blackstone Real Estate Holdings VI L.P., its sole member |
By: BREP VI Side-by-Side GP L.L.C., its general partner |
|
Name: |
Title: |
HLT BREH VI HOLDCO PRIME LLC |
By: HLT BREH VI Holdings Holdco LLC, its controlling member |
|
Name: |
Title: |
HLT BREH INTL II HOLDCO PRIME LLC |
By: HLT BREH Intl II Holdings Holdco LLC, its sole member |
|
Name: |
Title: |
3
HLT A23 HOLDCO PRIME LLC |
By: Blackstone A23 Holdings LLC, its sole member |
|
Name: |
Title: |
HLT BREP VI.TE.2 HOLDCO PRIME LLC |
By: Blackstone Real Estate Partners VI L.P., its sole member |
By: Blackstone Real Estate Associates VI L.P., its general partner |
By: BREA VI L.L.C., its general partner |
|
Name: |
Title: |
HLT HOLDCO III PRIME, LLC |
By: HLT Holdco II Prime LLC, its sole member |
By: HLT Holdco Prime LLC, its sole member |
By: BH Hotels Holdco LLC, its sole member |
|
Name: |
Title: |
HLT HOLDCO II PRIME, LLC |
By: HLT Holdco Prime LLC, its sole member |
By: BH Hotels Holdco LLC, its sole member |
|
Name: |
Title: |
4
Exhibit 10.21
INDENTURE
Dated as of October 24, 2016
Among
HILTON GRAND VACATIONS BORROWER LLC, as the Issuer,
HILTON GRAND VACATIONS BORROWER INC., as the Co-Issuer,
the Guarantors from time to time party hereto
and
WILMINGTON TRUST, NATIONAL ASSOCIATION,
as Trustee
6.500% SENIOR NOTES DUE 2024
CROSS-REFERENCE TABLE *
Trust Indenture Act Section |
Indenture Section |
|
310(a)(1) | 7.10 | |
(a)(2) | 7.10 | |
(a)(3) | N.A. | |
(a)(4) | N.A. | |
(a)(5) | 7.10 | |
(b) | 7.03; 7.10 | |
311(a) | 7.11 | |
(b) | 7.11 | |
312(a) | 2.05 | |
(b) | 12.03 | |
(c) | 12.03 | |
313(a) | 7.06 | |
(b)(1) | N.A. | |
(b)(2) | 7.06; 7.07 | |
(c) | 7.06; 12.02 | |
(d) | 7.06 | |
314(a) | 4.03; 12.05 | |
(b) | N.A. | |
(c)(1) | 12.04 | |
(c)(2) | 12.04 | |
(c)(3) | N.A. | |
(d) | N.A. | |
(e) | 12.05 | |
(f) | N.A. | |
315(a) | 7.01 | |
(b) | 7.05; 12.02 | |
(c) | 7.01 | |
(d) | 7.01 | |
(e) | 6.14 | |
316(a)(last sentence) | 2.09 | |
(a)(1)(A) | 6.05 | |
(a)(1)(B) | 6.04 | |
(a)(2) | N.A. | |
(b) | 6.07 | |
(c) | 2.12; 9.04 | |
317(a)(1) | 6.08 | |
(a)(2) | 6.12 | |
(b) | 2.04 | |
318(a) | 12.01 | |
(b) | N.A. | |
(c) | 12.01 |
N.A. means not applicable.
* | This Cross-Reference Table is not part of this Indenture. |
TABLE OF CONTENTS
Page | ||||||
ARTICLE 1 | ||||||
DEFINITIONS AND INCORPORATION BY REFERENCE | ||||||
Section 1.01. |
Definitions | 1 | ||||
Section 1.02. |
Other Definitions | 39 | ||||
Section 1.03. |
Incorporation by Reference of Trust Indenture Act | 39 | ||||
Section 1.04. |
Rules of Construction | 40 | ||||
Section 1.05. |
Acts of Holders | 41 | ||||
Section 1.06. |
Timing of Payment | 42 | ||||
Section 1.07. |
Co-Issuers | 42 | ||||
Section 1.08. |
Financial Calculations for Limited Condition Acquisitions | 42 | ||||
ARTICLE 2 | ||||||
THE NOTES | ||||||
Section 2.01. |
Form and Dating; Terms | 42 | ||||
Section 2.02. |
Execution and Authentication | 44 | ||||
Section 2.03. |
Registrar, Transfer Agent and Paying Agent | 44 | ||||
Section 2.04. |
Paying Agent to Hold Money in Trust | 45 | ||||
Section 2.05. |
Holder Lists | 45 | ||||
Section 2.06. |
Transfer and Exchange | 45 | ||||
Section 2.07. |
Replacement Notes | 56 | ||||
Section 2.08. |
Outstanding Notes | 56 | ||||
Section 2.09. |
Treasury Notes | 56 | ||||
Section 2.10. |
Temporary Notes | 57 | ||||
Section 2.11. |
Cancellation | 57 | ||||
Section 2.12. |
Defaulted Interest | 57 | ||||
Section 2.13. |
CUSIP Numbers; ISINs | 57 | ||||
ARTICLE 3 | ||||||
REDEMPTION | ||||||
Section 3.01. |
Notices to Trustee | 57 | ||||
Section 3.02. |
Selection of Notes to Be Redeemed | 58 | ||||
Section 3.03. |
Notice of Redemption | 58 | ||||
Section 3.04. |
Effect of Notice of Redemption | 59 | ||||
Section 3.05. |
Deposit of Redemption Price | 59 | ||||
Section 3.06. |
Notes Redeemed in Part | 59 | ||||
Section 3.07. |
Optional Redemption | 60 | ||||
Section 3.08. |
Offers to Repurchase by Application of Excess Proceeds | 61 | ||||
ARTICLE 4 | ||||||
COVENANTS | ||||||
Section 4.01. |
Payment of Notes | 62 | ||||
Section 4.02. |
Maintenance of Office or Agency | 63 | ||||
Section 4.03. |
Reports and Other Information | 63 | ||||
Section 4.04. |
Compliance Certificate | 64 | ||||
Section 4.05. |
Taxes | 64 | ||||
Section 4.06. |
Stay, Extension and Usury Laws | 64 | ||||
Section 4.07. |
Limitation on Restricted Payments | 65 |
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Section 4.08. |
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries |
72 | ||||
Section 4.09. |
Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock |
74 | ||||
Section 4.10. |
Asset Sales |
80 | ||||
Section 4.11. |
Transactions with Affiliates |
82 | ||||
Section 4.12. |
Liens |
85 | ||||
Section 4.13. |
Company Existence |
85 | ||||
Section 4.14. |
Offer to Repurchase Upon Change of Control Triggering Event |
85 | ||||
Section 4.15. |
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries |
87 | ||||
Section 4.16. |
Limitations on Business Activities of the Co-Issuer |
88 | ||||
Section 4.17. |
Suspension of Covenants |
88 | ||||
ARTICLE 5 | ||||||
SUCCESSORS | ||||||
Section 5.01. |
Merger, Consolidation or Sale of All or Substantially All Assets |
89 | ||||
Section 5.02. |
Successor Person Substituted |
91 | ||||
ARTICLE 6 | ||||||
DEFAULTS AND REMEDIES | ||||||
Section 6.01. |
Events of Default |
91 | ||||
Section 6.02. |
Acceleration |
93 | ||||
Section 6.03. |
Other Remedies |
94 | ||||
Section 6.04. |
Waiver of Past Defaults |
94 | ||||
Section 6.05. |
Control by Majority |
94 | ||||
Section 6.06. |
Limitation on Suits |
94 | ||||
Section 6.07. |
Rights of Holders to Receive Payment |
94 | ||||
Section 6.08. |
Collection Suit by Trustee |
95 | ||||
Section 6.09. |
Restoration of Rights and Remedies |
95 | ||||
Section 6.10. |
Rights and Remedies Cumulative |
95 | ||||
Section 6.11. |
Delay or Omission Not Waiver |
95 | ||||
Section 6.12. |
Trustee May File Proofs of Claim |
95 | ||||
Section 6.13. |
Priorities |
95 | ||||
Section 6.14. |
Undertaking for Costs |
96 | ||||
ARTICLE 7 | ||||||
TRUSTEE | ||||||
Section 7.01. |
Duties of Trustee |
96 | ||||
Section 7.02. |
Rights of Trustee |
97 | ||||
Section 7.03. |
Individual Rights of Trustee |
98 | ||||
Section 7.04. |
Trustees Disclaimer |
98 | ||||
Section 7.05. |
Notice of Defaults |
99 | ||||
Section 7.06. |
Reports by Trustee to Holders |
99 | ||||
Section 7.07. |
Compensation and Indemnity |
99 | ||||
Section 7.08. |
Replacement of Trustee |
99 | ||||
Section 7.09. |
Successor Trustee by Merger, etc |
100 | ||||
Section 7.10. |
Eligibility; Disqualification |
100 | ||||
Section 7.11. |
Preferential Collection of Claims Against Issuers |
100 | ||||
ARTICLE 8 | ||||||
LEGAL DEFEASANCE AND COVENANT DEFEASANCE | ||||||
Section 8.01. |
Option to Effect Legal Defeasance or Covenant Defeasance |
101 | ||||
Section 8.02. |
Legal Defeasance and Discharge |
101 |
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Section 8.03. |
Covenant Defeasance |
101 | ||||
Section 8.04. |
Conditions to Legal or Covenant Defeasance |
102 | ||||
Section 8.05. |
Deposited Money and U.S. Government Securities to be Held in Trust; Other Miscellaneous Provisions |
103 | ||||
Section 8.06. |
Repayment to Issuers |
103 | ||||
Section 8.07. |
Reinstatement |
103 | ||||
ARTICLE 9 | ||||||
AMENDMENT, SUPPLEMENT AND WAIVER | ||||||
Section 9.01. |
Without Consent of Holders |
103 | ||||
Section 9.02. |
With Consent of Holders |
105 | ||||
Section 9.03. |
Compliance with Trust Indenture Act |
106 | ||||
Section 9.04. |
Revocation and Effect of Consents |
106 | ||||
Section 9.05. |
Notation on or Exchange of Notes |
106 | ||||
Section 9.06. |
Trustee to Sign Amendments, etc. |
106 | ||||
Section 9.07. |
Amendments to Conform to Marketed Notes |
107 | ||||
ARTICLE 10 | ||||||
GUARANTEES | ||||||
Section 10.01. |
Guarantee |
107 | ||||
Section 10.02. |
Limitation on Guarantor Liability |
109 | ||||
Section 10.03. |
Execution and Delivery |
109 | ||||
Section 10.04. |
Subrogation |
109 | ||||
Section 10.05. |
Benefits Acknowledged |
109 | ||||
Section 10.06. |
Release of Guarantees |
109 | ||||
ARTICLE 11 | ||||||
SATISFACTION AND DISCHARGE | ||||||
Section 11.01. |
Satisfaction and Discharge |
110 | ||||
Section 11.02. |
Application of Trust Money |
111 | ||||
ARTICLE 12 | ||||||
MISCELLANEOUS | ||||||
Section 12.01. |
Trust Indenture Act Controls |
112 | ||||
Section 12.02. |
Notices |
112 | ||||
Section 12.03. |
Communication by Holders with Other Holders |
113 | ||||
Section 12.04. |
Certificate and Opinion as to Conditions Precedent |
113 | ||||
Section 12.05. |
Statements Required in Certificate or Opinion |
113 | ||||
Section 12.06. |
Rules by Trustee and Agents |
114 | ||||
Section 12.07. |
No Personal Liability of Directors, Officers, Employees and Stockholders |
114 | ||||
Section 12.08. |
Governing Law |
114 | ||||
Section 12.09. |
Waiver of Jury Trial |
114 | ||||
Section 12.10. |
Force Majeure |
114 | ||||
Section 12.11. |
No Adverse Interpretation of Other Agreements |
114 | ||||
Section 12.12. |
Successors |
114 | ||||
Section 12.13. |
Severability |
114 | ||||
Section 12.14. |
Counterpart Originals |
114 | ||||
Section 12.15. |
Table of Contents, Headings, etc. |
114 | ||||
Section 12.16. |
Qualification of Indenture |
115 | ||||
Section 12.17. |
USA Patriot Act |
115 |
-iv-
EXHIBITS
Exhibit A-1 | FORM OF NOTE (OTHER THAN THE PHRI NOTES) | |
Exhibit A-2 | FORM OF NOTE REPRESENTING THE PHRI NOTES | |
Exhibit B | FORM OF CERTIFICATE OF TRANSFER | |
Exhibit C | FORM OF CERTIFICATE OF EXCHANGE | |
Exhibit D | FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS |
-v-
INDENTURE, dated as of October 24, 2016, among Hilton Grand Vacations Borrower LLC, a Delaware limited liability company (the Issuer ), Hilton Grand Vacations Borrower Inc., a Delaware corporation wholly owned by the Issuer (the Co-Issuer and together with the Issuer, the Issuers ), the Guarantors (as defined herein) from time to time party hereto and Wilmington Trust, National Association, a national banking association, as Trustee.
W I T N E S S E T H
WHEREAS, the Issuers have duly authorized the creation of an issue of $300,000,000 aggregate principal amount of the Issuers 6.500% Senior Notes due 2024, initially represented by one or more Restricted Definitive Notes issued to PHRI (as defined below) (the PHRI Notes ) in connection with the Issuer Capitalization (as defined herein);
WHEREAS, the Issuers will be jointly and severally liable for all obligations under the Notes and this Indenture; and
WHEREAS, each of the Issuers and the Guarantors has duly authorized the execution and delivery of this Indenture.
NOW, THEREFORE, each of the Issuers, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined herein).
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions .
144A Global Note means one or more Global Notes, substantially in the form of Exhibit A-2 hereto, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in denominations that, in the aggregate, equal the outstanding principal amount of Notes sold in reliance on Rule 144A.
Acquired Indebtedness means, with respect to any specified Person,
(a) Indebtedness of any other Person existing at the time such other Person is merged or consolidated with or into or became a Restricted Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging or consolidating with or into or becoming a Restricted Subsidiary of such specified Person, and
(b) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.
Additional Interest means all additional interest then owing pursuant to the Registration Rights Agreement.
Additional Notes means any additional Notes (other than the Initial Notes or any Exchange Notes issued in exchange for such Initial Notes) issued from time to time under this Indenture in accordance with Sections 2.01, 2.02 and 4.09 hereof.
Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control (including, with correlative meanings, the terms controlling , controlled by and under common control with ), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
Agent means any Registrar, Transfer Agent or Paying Agent.
Agents Message means a message transmitted by DTC to, and received by, the tender agent and forming a part of the book-entry confirmation, which states that DTC has received an express acknowledgment from each participant in DTC tendering the Notes and that such participants have received the Letter of Transmittal and agree to be bound by the terms of the Letter of Transmittal and the Issuers may enforce such agreement against such participants.
Applicable Premium means, with respect to any Note on any Redemption Date as calculated by the Issuer, the greater of:
(a) 1.0% of the principal amount of such Note; and
(b) the excess, if any, of (i) the present value at such Redemption Date of (A) the redemption price of such Note at December 1, 2021 (such redemption price being set forth in the table set forth in Section 3.07(c) hereof), plus (B) all required remaining scheduled interest payments due on such Note through December 1, 2021 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the Applicable Treasury Rate as of such Redemption Date plus 50 basis points over (ii) the then outstanding principal amount of such Note.
Calculation of any Applicable Premium is a responsibility of the Issuer, and the Trustee shall not be responsible to calculate or verify any calculation related to the Applicable Premium.
Applicable Procedures means, with respect to any transfer or exchange of or for, redemption of, or notice with respect to beneficial interests in any Global Note or the redemption or repurchase of any Global Note, the rules and procedures of the Depositary, Euroclear and/or Clearstream that apply to such transfer, exchange, redemption or repurchase.
Applicable Treasury Rate means, with respect to any Note on any Redemption Date, the yield to maturity, as determined by the Issuer, as of such Redemption Date of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to December 1, 2021; provided, that if the period from the Redemption Date to such date is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
Asset Sale means:
(a) the sale, conveyance, transfer or other disposition, whether in a single transaction or a series of related transactions (including by way of a Sale and Lease-Back Transaction), of property or assets of the Issuer or any of its Restricted Subsidiaries (each referred to in this definition as a disposition ); or
(b) the issuance or sale of Equity Interests of any Restricted Subsidiary (other than Preferred Stock of Restricted Subsidiaries issued in compliance with Section 4.09 hereof), whether in a single transaction or a series of related transactions;
in each case, other than:
(i) any disposition of Cash Equivalents or Investment Grade Securities or obsolete, damaged, unnecessary, unsuitable or worn out equipment, inventory or other property in the ordinary course of business or any disposition of inventory or goods (or other assets, including timeshare and residential assets) held for sale or no longer used or useful in the ordinary course of business;
-2-
(ii) the disposition of all or substantially all of the assets of the Issuer in a manner permitted pursuant to Section 5.01 hereof or any disposition that constitutes a Change of Control Triggering Event pursuant to this Indenture;
(iii) the making of any Restricted Payment that is permitted to be made, and is made, under Section 4.07 hereof or any Permitted Investment;
(iv) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary in any transaction or series of related transactions with an aggregate fair market value of less than $50.0 million;
(v) any disposition of property or assets or issuance of securities by a Restricted Subsidiary to the Issuer or the Co-Issuer, or by the Issuer, the Co-Issuer or a Restricted Subsidiary to a Restricted Subsidiary;
(vi) to the extent allowable under Section 1031 of the Internal Revenue Code of 1986, as amended, or comparable law or regulation, any exchange of like property (excluding any boot thereon) for use in a Similar Business;
(vii) the lease, assignment, sub-lease, license or sub-license of any real or personal property in the ordinary course of business;
(viii) any issuance or sale of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;
(ix) foreclosures, condemnation, expropriation, forced dispositions or any similar action with respect to assets or the granting of Liens not prohibited by this Indenture;
(x) sales of accounts receivable, or participations therein, or Securitization Assets or related assets, or any disposition of the Equity Interests in a Subsidiary, all or substantially all of the assets of which are Securitization Assets, in each case in connection with any Qualified Securitization Facility or the disposition of an account receivable in connection with the collection or compromise thereof in the ordinary course of business;
(xi) any financing transaction with respect to property built or acquired by the Issuer or any Restricted Subsidiary after the Issue Date, including Sale and Lease-Back Transactions and asset securitizations permitted by this Indenture;
(xii) the sale, discount or other disposition of vacation ownership intervals or other inventory (whether developed, just-in-time or fee-for-service), accounts receivable or notes receivable in the ordinary course of business or the conversion of accounts receivable to notes receivable;
(xiii) the licensing or sub-licensing of intellectual property or other general intangibles in the ordinary course of business;
(xiv) any surrender or waiver of contract rights or the settlement, release or surrender of contract rights or other litigation claims in the ordinary course of business;
(xv) the unwinding of any Hedging Obligations;
(xvi) sales, transfers and other dispositions of Investments in joint ventures to the extent required by, or made pursuant to, customary buy/sell arrangements between the joint venture parties set forth in joint venture arrangements and similar binding arrangements;
-3-
(xvii) the lapse or abandonment of intellectual property rights in the ordinary course of business, which in the reasonable good faith determination of the Issuer are not material to the conduct of the business of the Issuer and its Restricted Subsidiaries taken as a whole;
(xviii) the issuance by a Restricted Subsidiary of Preferred Stock or Disqualified Stock that is permitted under Section 4.09 hereof;
(xix) the granting of a Lien that is permitted under Section 4.12 hereof;
(xx) the issuance of directors qualifying shares and shares issued to foreign nationals as required by applicable law;
(xxi) the sale, conveyance, transfer or other disposition of land or other real property, whether vacant, unused or improved, in each case in the ordinary course of business or otherwise in connection with a vacation ownership interval transaction;
(xxii) Permitted Intercompany Activities, the Spin-Off Transaction and related transactions;
(xxiii) [reserved]; and
(xxiv) transfers of property subject to Casualty Events upon receipt of the Net Proceeds of such Casualty Event; provided that any Cash Equivalents received by the Issuer or any of its Restricted Subsidiaries in respect of such Casualty Event shall be deemed to be Net Proceeds of an Asset Sale, and such Net Proceeds shall be applied in accordance with Section 4.10(b) hereof.
In the event that a transaction (or a portion thereof) meets the criteria of a permitted Asset Sale and would also be a permitted Restricted Payment or Permitted Investment, the Issuer, in its sole discretion, will be entitled to divide and classify such transaction (or a portion thereof) as an Asset Sale and/or one or more the types of permitted Restricted Payments or Permitted Investments.
Bank Products means any facilities or services related to cash management, including treasury, depository, overdraft, credit or debit card, purchase card, automatic clearinghouse transfer transactions, controlled disbursements, foreign exchange facilities, stored value cards, merchant services, electronic funds transfer and other cash management arrangements.
Bankruptcy Law means Title 11, U.S. Code, as amended, or any similar federal or state law for the relief of debtors.
Blackstone Funds means, individually or collectively, Blackstone Capital Partners V, L.P., BCP V-S L.P., Blackstone Capital Partners V-AC L.P., BCP V Co-Investors L.P., Blackstone Family Investment Partnership V L.P., Blackstone Family Investment Partnership V-SMD L.P. and Blackstone Participation Partnership V L.P., each a Delaware limited partnership and Blackstone Real Estate Partners International II (AIV) L.P., each an English partnership, Blackstone Real Estate Holdings International II-Q L.P. and Blackstone Family Real Estate Partnership International II-SMD L.P., each an Alberta, Canada limited partnership, Blackstone Real Estate Partners VI L.P., Blackstone Real Estate Holdings VI L.P., Blackstone Real Estate Partners VI.TE.1 L.P., Blackstone Real Estate Partners VI.TE.2 L.P., Blackstone Real Estate Partners (AIV) VI L.P., Blackstone Real Estate Partners VI.F L.P., Blackstone Family Real Estate Partnership VI-SMD L.P. and Blackstone HLT Principal Transaction Partners L.P., each a Delaware limited partnership, and any other investment fund managed by an Affiliate of The Blackstone Group L.P., in each case, or any of their respective successors.
Board of Directors means, with respect to any Person, (i) in the case of any corporation, the board of directors of such Person, (ii) in the case of any limited liability company, the sole or managing member or board of managers of such Person, (iii) in the case of any partnership, the sole or managing member or board of directors of the general partner of such Person and (iv) in any other case, the functional equivalent of the foregoing or, in each case, any duly authorized committee of such body.
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Business Day means each day which is not a Legal Holiday.
Capital Stock means:
(a) in the case of a corporation, corporate stock or shares in the capital of such corporation;
(b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.
Capitalized Lease Obligation means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) prepared in accordance with GAAP; provided that any obligations of the Issuer or its Restricted Subsidiaries either existing on the Issue Date or created prior to any recharacterization described below (i) that were not included on the consolidated balance sheet of the Issuer as financing or capital lease obligations and (ii) that are subsequently recharacterized as financing or capital lease obligations or indebtedness due to a change in accounting treatment or otherwise, shall for all purposes under this Indenture (including, without limitation, the calculation of Consolidated Net Income, the Consolidated Total Debt Ratio, the Consolidated Secured Debt Ratio, EBITDA and Fixed Charges) not be treated as financing or capital lease obligations, Capitalized Lease Obligations or Indebtedness.
Capitalized Software Expenditures means, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by a Person and its Restricted Subsidiaries during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in conformity with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of a Person and its Restricted Subsidiaries.
Captive Insurance Subsidiary means (i) any Subsidiary established by the Issuer for the primary purpose of insuring the businesses or properties owned or operated by the Issuer or any of its Subsidiaries or (ii) any Subsidiary of any such insurance subsidiary established for the same primary purpose described in clause (i) above.
Cash Equivalents means:
(a) United States dollars;
(b) (i) Canadian dollars, pounds sterling, yen, euros or any national currency of any participating member state of the EMU; or
(ii) such local currencies held by the Issuer or any Restricted Subsidiary from time to time in the ordinary course of business;
(c) securities issued or directly and fully and unconditionally guaranteed or insured by the U.S. government or any agency or instrumentality thereof the securities of which are unconditionally guaranteed as a full faith and credit obligation of such government with maturities of 24 months or less from the date of acquisition;
(d) certificates of deposit, time deposits and eurodollar time deposits with maturities of 24 months or less from the date of acquisition, demand deposits, bankers acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any domestic or foreign commercial bank having capital and surplus of not less than $250.0 million in the case of U.S. banks and $100.0 million (or the U.S. Dollar Equivalent as of the date of determination) in the case of non-U.S. banks;
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(e) repurchase obligations for underlying securities of the types described in clauses (c), (d), (g) and (h) of this definition entered into with any financial institution or recognized securities dealer meeting the qualifications specified in clause (d) above;
(f) commercial paper and variable or fixed rate notes rated at least P-2 by Moodys or at least A-2 by S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) and in each case maturing within 24 months after the date of creation thereof;
(g) marketable short-term money market and similar funds having a rating of at least P-2 or A-2 from either Moodys or S&P, respectively (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency);
(h) readily marketable direct obligations issued by any state, commonwealth or territory of the United States or any political subdivision or taxing authority thereof having an Investment Grade Rating from either Moodys or S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) with maturities of 24 months or less from the date of acquisition;
(i) readily marketable direct obligations issued by any foreign government or any political subdivision or public instrumentality thereof, in each case having an Investment Grade Rating from either Moodys or S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) with maturities of 24 months or less from the date of acquisition;
(j) Investments with average maturities of 12 months or less from the date of acquisition in money market funds rated AAA- (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moodys (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency);
(k) securities with maturities of 12 months or less from the date of acquisition backed by standby letters of credit issued by any financial institution or recognized securities dealer meeting the qualifications specified in clause (d) above;
(l) Indebtedness or Preferred Stock issued by Persons with a rating of A or higher from S&P or A2 or higher from Moodys with maturities of 24 months or less from the date of acquisition; and
(m) investment funds investing at least 90% of their assets in securities of the types described in clauses (a) through (l) above.
In the case of Investments by any Foreign Subsidiary that is a Restricted Subsidiary or Investments made in a country outside the United States of America, Cash Equivalents shall also include (i) investments of the type and maturity described in clauses (a) through (h) and clauses (j), (k), (l) and (m) above of foreign obligors, which Investments or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies and (ii) other short-term investments utilized by Foreign Subsidiaries that are Restricted Subsidiaries in accordance with normal investment practices for cash management in investments analogous to the foregoing investments in clauses (a) through (m) and in this paragraph.
Notwithstanding the foregoing, Cash Equivalents shall include amounts denominated in currencies other than those set forth in clauses (a) and (b) above, provided that such amounts are converted into any currency listed in clauses (a) and (b) as promptly as practicable and in any event within ten Business Days following the receipt of such amounts.
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For the avoidance of doubt, any items identified as Cash Equivalents under this definition will be deemed to be Cash Equivalents for all purposed under this Indenture regardless of the treatment of such items under GAAP.
Casualty Event means any event that gives rise to the receipt by the Issuer or any Restricted Subsidiary of any insurance proceeds or condemnation awards in respect of any equipment, fixed assets or real property (including any improvements thereon) to replace or repair such equipment, fixed assets or real property.
Change of Control means the occurrence of any of the following after the Issue Date:
(a) the sale, lease, transfer, conveyance or other disposition in one or a series of related transactions (other than by merger, consolidation or amalgamation), of all or substantially all of the assets of the Issuer and its Subsidiaries, taken as a whole, to any Person other than any Permitted Holder or the Issuer or any Guarantor; or
(b) the Issuer becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by (A) any Person (other than any Permitted Holder) or (B) Persons (other than any Permitted Holders) that are together a group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any such group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of more than 50.0% of the total voting power of the Voting Stock of the Issuer directly or indirectly through any of its direct or indirect parent holding companies, in each case, other than in connection with any transaction or series of transactions in which the Issuer shall become the Wholly Owned Subsidiary of a Parent Company.
Notwithstanding the foregoing, the Spin-Off Transaction shall be deemed not to constitute a Change of Control.
Change of Control Triggering Event means the occurrence of a Change of Control, unless a Ratings Improvement has occurred prior to the date of the completion of the transaction constituting the Change of Control.
Clearstream means Clearstream Banking, Société Anonyme or any successor securities clearing agency.
Co-Issuer has the meaning set forth in the recitals hereto until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter Co-Issuer shall mean such successor Person.
consolidated when used with respect to any Person refers to such Person consolidated with its Restricted Subsidiaries.
Consolidated Depreciation and Amortization Expense means with respect to any Person for any period, the total amount of depreciation and amortization expense and capitalized fees related to any Qualified Securitization Facility of such Person, including the amortization of intangible assets, deferred financing costs, debt issuance costs, commissions, fees and expenses and Capitalized Software Expenditures of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP.
Consolidated Interest Expense means, with respect to any Person for any period, without duplication, the sum of:
(a) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted (and not added back) in computing Consolidated Net Income (including (i) amortization of original issue discount resulting from the issuance of Indebtedness at less than par, (ii) all commissions, discounts and other fees and charges owed with respect to letters of credit or
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bankers acceptances, (iii) non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments pursuant to GAAP), (iv) the interest component of Capitalized Lease Obligations, and (v) net payments, if any made (less net payments, if any, received), pursuant to interest rate Hedging Obligations with respect to Indebtedness, and excluding (q) annual agency fees paid to the administrative agents and collateral agents under any Credit Facilities, (r) costs associated with obtaining Hedging Obligations, (s) any expense resulting from the discounting of any Indebtedness in connection with the application of recapitalization accounting or purchase accounting, (t) penalties and interest relating to taxes, (u) any Additional Interest and any additional interest or liquidated damages with respect to other securities for failure to timely comply with registration rights obligations, (v) amortization or expensing of deferred financing fees, amendment and consent fees, debt issuance costs, commissions, fees and expenses and discounted liabilities, (w) any expensing of bridge, commitment and other financing fees and any other fees related to the Spin-Off Transaction or any acquisitions after the Issue Date, (x) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Qualified Securitization Facility, (y) any accretion of accrued interest on discounted liabilities and any prepayment premium or penalty) and (z) interest expense attributable to a parent entity resulting from push-down accounting; plus
(b) consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued; less
(c) interest income of such Person and its Restricted Subsidiaries for such period.
For purposes of this definition, interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
Consolidated Net Income means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, and otherwise determined in accordance with GAAP; provided that, without duplication:
(a) any after-tax effect of extraordinary, non-recurring or unusual gains or losses (less all fees and expenses relating thereto), charges or expenses (including relating to the Spin-Off Transaction or any multi-year strategic initiatives), restructuring and duplicative running costs, relocation costs, integration costs, facility consolidation and closing costs, severance costs and expenses, one-time compensation charges, costs relating to pre-opening, opening and conversion costs for facilities, losses, costs or cost inefficiencies related to facility or property disruptions or shutdowns, signing, retention and completion bonuses, costs incurred in connection with any strategic initiatives, transition costs, costs incurred in connection with acquisitions and non-recurring product and intellectual property development, other business optimization expenses (including costs and expenses relating to business optimization programs and new systems design, retention charges, system establishment costs and implementation costs) and operating expenses attributable to the implementation of cost-savings initiatives, and curtailments or modifications to pension and post-retirement employee benefit plans shall be excluded;
(b) the cumulative effect of a change in accounting principles and changes as a result of the adoption or modification of accounting policies during such period shall be excluded;
(c) any net after-tax effect of gains or losses on disposal, abandonment or discontinuance of disposed, abandoned or discontinued operations, as applicable, shall be excluded;
(d) any net after-tax effect of gains or losses (less all fees, expenses and charges relating thereto) attributable to asset dispositions or abandonments or the sale or other disposition of any Capital Stock of any Person other than in the ordinary course of business shall be excluded;
(e) the Net Income for such period of any Person that is not a Subsidiary, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting shall be excluded; provided that
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Consolidated Net Income of such Person shall be increased by the amount of dividends or distributions or other payments (other than Excluded Contributions) that are actually paid in cash (or to the extent converted into cash) to such Person or a Restricted Subsidiary thereof in respect of such period;
(f) solely for the purpose of determining the amount available for Restricted Payments under clause (C)(1) of Section 4.07(a) hereof, the Net Income for such period of any Restricted Subsidiary (other than any Guarantor) shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule, or governmental regulation applicable to that Restricted Subsidiary or its stockholders (other than restrictions in the Notes or this Indenture), unless such restriction with respect to the payment of dividends or similar distributions has been legally waived, provided that Consolidated Net Income of such Person will be increased by the amount of dividends or other distributions or other payments actually paid in Cash Equivalents (or to the extent converted into Cash Equivalents) to such Person or a Restricted Subsidiary thereof in respect of such period, to the extent not already included therein;
(g) effects of adjustments (including the effects of such adjustments pushed down to such Person and its Restricted Subsidiaries) in such Persons consolidated financial statements pursuant to GAAP (including in the inventory (including any impact of changes to inventory valuation policy methods, including changes in capitalization of variances), property and equipment, software, goodwill, intangible assets, in-process research and development, deferred revenue and debt line items thereof) resulting from the application of recapitalization accounting or purchase accounting, as the case may be, in relation to the Spin-Off Transaction or any consummated acquisition or joint venture investment or the amortization or write-off or write-down of any amounts thereof, net of taxes, shall be excluded;
(h) any after-tax effect of income (loss) from the early extinguishment or conversion of (i) Indebtedness, (ii) Hedging Obligations or (iii) other derivative instruments shall be excluded;
(i) any impairment charge or asset write-off or write-down, including impairment charges or asset write-offs or write-downs related to intangible assets, long-lived assets, investments in debt and equity securities and investments recorded using the equity method or as a result of a change in law or regulation, in each case, pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP shall be excluded;
(j) any equity-based or non-cash compensation charge or expense including any such charge or expense arising from grants of stock appreciation or similar rights, stock options, restricted stock, profits interests or other rights or equity or equity-based incentive programs ( equity incentives ), any one-time cash charges associated with the equity incentives or other long-term incentive compensation plans (including under deferred compensation arrangements of the Issuer or any of its direct or indirect parent entities or subsidiaries), rollover, acceleration, or payout of Equity Interests by management, other employees or business partners of the Issuer or any of the Issuers direct or indirect parent companies, shall be excluded;
(k) any fees, expenses or charges incurred during such period, or any amortization thereof for such period, in connection with any acquisition, recapitalization, Investment, Asset Sale, disposition, incurrence or repayment of Indebtedness (including such fees, expenses or charges related to the offering and issuance of the Notes and other securities and the syndication and incurrence of any Credit Facilities), issuance of Equity Interests of the Issuer or its direct or indirect parent entities, refinancing transaction or amendment or modification of any debt instrument (including any amendment or other modification of the Notes and other securities and any Credit Facilities) and including, in each case, any such transaction consummated on or prior to the Issue Date and any such transaction undertaken but not completed, and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case whether or not successful or consummated (including, for the avoidance of doubt the effects of expensing all transaction related expenses in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic No. 805, Business Combinations ), shall be excluded;
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(l) accruals and reserves that are established or adjusted within twelve months after the Spin-Off Date that are so required to be established or adjusted as a result of the Spin-Off Transaction (or within 24 months after the closing of any acquisition that are so required to be established as a result of such acquisition) in accordance with GAAP or changes as a result of modifications of accounting policies shall be excluded;
(m) any expenses, charges or losses to the extent covered by insurance or indemnity and actually reimbursed, or, so long as such Person has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer or indemnifying party and only to the extent that such amount is in fact reimbursed within 365 days of the date of the insurable or indemnifiable event (net of any amount so added back in any prior period to the extent not so reimbursed within the applicable 365-day period), shall be excluded;
(n) any noncash compensation expense resulting from the application of Accounting Standards Codification Topic No. 718, Compensation Stock Compensation , shall be excluded;
(o) the following items shall be excluded:
(i) any net unrealized gain or loss (after any offset) resulting in such period from Hedging Obligations and the application of Accounting Standards Codification Topic No. 815, Derivatives and Hedging ;
(ii) any net unrealized gain or loss (after any offset) resulting in such period from currency translation gains or losses including those related to currency remeasurements of Indebtedness (including any net loss or gain resulting from Hedging Obligations for currency exchange risk) and any other foreign currency translation gains and losses, to the extent such gain or losses are non-cash items;
(iii) any adjustments resulting for the application of Accounting Standards Codification Topic No. 460, Guarantees, or any comparable regulation;
(iv) effects of adjustments to accruals and reserves during a prior period relating to any change in the methodology of calculating reserves for returns, rebates and other chargebacks; and
(v) earn-out, non-compete and contingent consideration obligations (including to the extent accounted for as bonuses or otherwise) and adjustments thereof and purchase price adjustments;
(p) reserves established for the benefit of landlords of fee-for-service and just-in-time vacation ownership intervals for the acquisition of capitalized assets and equipment at such properties shall be excluded; and
(q) if such Person is treated as a disregarded entity or partnership for U.S. federal, state and/or local income tax purposes for such period or any portion thereof, the amount of distributions actually made to any direct or indirect parent company of such Person in respect of such period in accordance with clause (xv)(B) under Section 4.07(b) shall be included in calculating Consolidated Net Income as though such amounts had been paid as taxes directly by such Person for such period.
In addition, to the extent not already included in the Consolidated Net Income of such Person and its Restricted Subsidiaries, notwithstanding anything to the contrary in the foregoing, Consolidated Net Income shall include the amount of proceeds received from business interruption insurance and reimbursements of any expenses and charges that are covered by indemnification or other reimbursement provisions in connection with any acquisition, Investment or any sale, conveyance, transfer or other disposition of assets permitted under this Indenture.
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Notwithstanding the foregoing, for the purpose of Section 4.07 hereof only (other than clause (C)(4) of Section 4.07(a) hereof), there shall be excluded from Consolidated Net Income any income arising from any sale or other disposition of Restricted Investments made by the Issuer and its Restricted Subsidiaries, any repurchases and redemptions of Restricted Investments from the Issuer and its Restricted Subsidiaries, any repayments of loans and advances which constitute Restricted Investments by the Issuer or any of its Restricted Subsidiaries, any sale of the stock of an Unrestricted Subsidiary or any distribution or dividend from an Unrestricted Subsidiary, in each case only to the extent such amounts increase the amount of Restricted Payments permitted under such covenant pursuant to clause (C)(4) of Section 4.07(a) hereof.
Consolidated Secured Debt Ratio means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness of the Issuer and its Restricted Subsidiaries that is secured by Liens on the property of the Issuer and its Restricted Subsidiaries as of the end of the most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur minus Cash Equivalents included on the consolidated balance sheet of the Issuer as of the end of such most recent fiscal quarter to (b) EBITDA of the Issuer and its Restricted Subsidiaries for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur, in each case with such pro forma adjustments to Consolidated Total Indebtedness, Cash Equivalents and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio.
Consolidated Total Debt Ratio means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness of the Issuer and its Restricted Subsidiaries as of the end of the most recent fiscal quarter for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur minus Cash Equivalents included on the consolidated balance sheet of the Issuer as of the end of such most recent fiscal quarter to (b) EBITDA of the Issuer and its Restricted Subsidiaries for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such event for which such calculation is being made shall occur, in each case with such pro forma adjustments to Consolidated Total Indebtedness, Cash Equivalents and EBITDA as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio.
Consolidated Total Indebtedness means, as at any date of determination, an amount equal to the sum of (a) the aggregate amount of all outstanding Indebtedness of the Issuer and its Restricted Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, Obligations in respect of Capitalized Lease Obligations and debt obligations evidenced by promissory notes and similar instruments, as determined in accordance with GAAP (excluding for the avoidance of doubt all undrawn amounts under revolving credit facilities and letters of credit, and all obligations relating to Qualified Securitization Facilities) and (b) the aggregate amount of all outstanding Disqualified Stock of the Issuer and all Preferred Stock of its Restricted Subsidiaries on a consolidated basis, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences and maximum fixed repurchase prices, in each case determined on a consolidated basis in accordance with GAAP (but excluding the effects of any discounting of Indebtedness resulting from the application of repurchase or purchase accounting in connection with any acquisition); provided that Consolidated Total Indebtedness shall not include Indebtedness in respect of (A) any letter of credit, except to the extent of unreimbursed amounts under standby letters of credit; provided that any unreimbursed amounts under commercial letters of credit shall not be counted as Consolidated Total Indebtedness until three Business Days after such amount is drawn and (B) Hedging Obligations existing on the Issue Date or otherwise permitted by Section 4.09(b)(x) hereof. For purposes hereof, the maximum fixed repurchase price of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Total Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock or Preferred Stock, such fair market value shall be determined reasonably and in good faith by the Issuer. The U.S. Dollar Equivalent principal amount of any Indebtedness denominated in a foreign currency will reflect the currency translation effects, determined in accordance with GAAP, of Hedging Obligations for currency exchange risks with respect to the applicable currency in effect on the date of determination of the U.S. Dollar Equivalent principal amount of such Indebtedness.
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Contingent Obligations means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness ( primary obligations ) of any other Person (the primary obligor ) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:
(a) to purchase any such primary obligation or any property constituting direct or indirect security therefor;
(b) to advance or supply funds:
(i) for the purchase or payment of any such primary obligation; or
(ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
Controlled Investment Affiliate means, as to any Person, any other Person, other than any Investor, which directly or indirectly is in control of, is controlled by, or is under common control with such Person and is organized by such Person (or any Person controlling such Person) primarily for making direct or indirect equity or debt investments in the Issuer and/or other companies.
Corporate Trust Office means the office of the Trustee at which any time its corporate trust business related to this Indenture shall be administered, which office at the date hereof is Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Hilton Grand Vacations Borrower LLC Administrator, or such other address as the Trustee may designate from time to time by notice to the Holders and the Issuers, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Issuers).
Credit Agreement means that certain Credit Agreement, to be dated on or about the Spin-Off Date, by and among the Issuer, as borrower, HGV Intermediate Parent, Deutsche Bank AG New York Branch, as administrative agent, and the lenders and other parties thereto.
Credit Facilities means, with respect to the Issuer or any of its Restricted Subsidiaries, one or more debt facilities, including the Senior Secured Credit Facilities, or other financing arrangements (including, without limitation, commercial paper facilities or indentures) providing for revolving credit loans, term loans, letters of credit or other long-term indebtedness, including any notes, mortgages, guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements or refundings thereof, in whole or in part, and any indentures or credit facilities or commercial paper facilities that replace, refund, supplement or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding, supplemental or refinancing facility, arrangement or indenture that increases the amount permitted to be borrowed or issued thereunder or alters the maturity thereof ( provided that such increase in borrowings or issuances is permitted under Section 4.09 hereof) or adds Restricted Subsidiaries as additional borrowers or guarantors thereunder and whether by the same or any other agent, trustee, lender or group of lenders or other holders.
Custodian means the Trustee, as custodian with respect to the Global Notes, or any successor entity thereto.
Default means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.
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Definitive Note means (a) a certificated Note representing the PHRI Notes registered in the name of PHRI and issued in accordance with Section 2.01 hereof, substantially in the form of Exhibit A-1 hereto, and (b) a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06(c) hereof, substantially in the form of Exhibit A-2 hereto, except that such Note shall not bear the Global Note Legend and shall not have the Schedule of Exchanges of Interests in the Global Note attached thereto.
Depositary means, with respect to the Notes issuable or issued in whole or in part in global form, any Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as Depositary hereunder and having become such pursuant to the applicable provision of this Indenture.
Designated Non-cash Consideration means the fair market value of non-cash consideration received by the Issuer or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers Certificate, setting forth the basis of such valuation, executed by the principal financial officer of the Issuer, less the amount of Cash Equivalents received in connection with a subsequent sale, redemption or repurchase of or collection or payment on such Designated Non-cash Consideration.
Designated Preferred Stock means Preferred Stock of the Issuer or any direct or indirect parent company thereof (in each case other than Disqualified Stock) that is issued for cash (other than to a Restricted Subsidiary or an employee stock ownership plan or trust established by the Issuer or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to an Officers Certificate executed by the principal financial officer of the Issuer or the applicable parent company thereof, as the case may be, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (C) of Section 4.07(a) hereof.
Disqualified Stock means, with respect to any Person, any Capital Stock of such Person which, by its terms, or by the terms of any security into which it is convertible or for which it is putable or exchangeable, or upon the happening of any event, matures or is mandatorily redeemable (other than solely as a result of a change of control or asset sale) pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than solely as a result of a change of control or asset sale), in whole or in part, in each case prior to the date 91 days after the earlier of the maturity date of the Notes or the date the Notes are no longer outstanding; provided that if such Capital Stock is issued to any plan for the benefit of employees of the Issuer or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations; provided , further , that any Capital Stock held by any future, current or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries, any of its direct or indirect parent companies or any other entity in which the Issuer or a Restricted Subsidiary has an Investment and is designated in good faith as an affiliate by the Board of Directors of the Issuer (or the compensation committee thereof), in each case pursuant to any stock subscription or shareholders agreement, management equity plan or stock option plan or any other management or employee benefit plan or agreement shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Issuer or its Subsidiaries or in order to satisfy applicable statutory or regulatory obligations.
Distribution Agreement means the Distribution Agreement, to be dated on or prior to the Spin-Off Date, containing substantially the terms described in the Offering Memorandum, by and among Hilton Parent, PHRI and HGV Parent, as amended, supplemented, waived or otherwise modified from time to time in a manner not materially adverse to the Holders of the Notes when taken as a whole, as compared to the Distribution Agreement as in effect immediately prior to such amendment, supplement, waiver or modification.
EBITDA means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period:
(a) increased (without duplication) by the following, in each case (other than with respect to clauses (viii) and (xi)) to the extent deducted (and not added back) in determining Consolidated Net Income for such period:
(i) (A) provision for taxes based on income or profits or capital, including, without limitation, federal, state, franchise, and similar taxes (such as the Delaware franchise tax, the
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Pennsylvania capital tax, Texas margin tax and provincial capital taxes paid in Canada) and foreign withholding taxes (including any future taxes or other levies which replace or are intended to be in lieu of such taxes and any penalties and interest related to such taxes or arising from tax examinations), (B) if such Person is treated as a disregarded entity or partnership for U.S. federal, state and/or local income tax purposes for such period or any portion thereof, the amount of distributions actually made to any direct or indirect parent company of such Person in respect of such period in accordance with clause (xv)(B) under Section 4.07(b) and (C) the net tax expense associated with any adjustments made pursuant to clauses (a) through (q) of the definition of Consolidated Net Income ; plus
(ii) Fixed Charges of such Person for such period (including (x) net losses on Hedging Obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, (y) bank fees and other financing fees and (z) costs of surety bonds in connection with financing activities, plus amounts excluded from Consolidated Interest Expense as set forth in clauses (a)(q) through (z) in the definition thereof); plus
(iii) Consolidated Depreciation and Amortization Expense of such Person for such period; plus
(iv) the amount of any restructuring charges or reserves, equity-based or non-cash compensation charges or expenses including any such charges or expenses arising from grants of stock appreciation or similar rights, stock options, restricted stock or other rights, retention charges (including charges or expenses in respect of incentive plans), start-up or initial costs for any project or new production line, division or new line of business, integration costs or reserves including, without limitation, costs or reserves associated with improvements to IT and accounting functions, integration and facilities opening costs or any one-time costs incurred in connection with acquisitions and Investments and costs related to the closure and/or consolidation of facilities; plus
(v) any other non-cash charges, including any write-offs or write-downs reducing Consolidated Net Income for such period ( provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, (A) the Issuer may elect not to add back such non-cash charge in the current period and (B) to the extent the Issuer elects to add back such non-cash charge, the cash payment in respect thereof in such future period shall be subtracted from EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period); plus
(vi) the amount of any non-controlling interest or minority interest expense consisting of Subsidiary income attributable to minority equity interests of third parties in any non-Wholly Owned Subsidiary; plus
(vii) the amount of management, monitoring, consulting, advisory fees and other fees (including termination fees) and indemnities and expenses paid or accrued in such period under the Support and Services Agreement (and related agreements or arrangements) or otherwise to the Investors to the extent otherwise permitted under Section 4.11 hereof; plus
(viii) the amount of run-rate cost savings, operating expense reductions and synergies projected by the Issuer in good faith to result from actions taken, committed to be taken or expected in good faith to be taken no later than 24 months after the end of such period (calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of such period for which EBITDA is being determined and as if such cost savings, operating expense reductions and synergies were realized during the entirety of such period), net of the amount of actual benefits realized during such period from such actions; provided that such cost savings and synergies are reasonably identifiable and factually supportable (it is understood and agreed that run-rate means the full recurring benefit for a period that is associated with any action taken, committed to be taken or expected to be taken, net of the amount of actual benefits realized during such period from such actions); plus
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(ix) the amount of loss or discount on sale of receivables, Securitization Assets and related assets to any Securitization Subsidiary in connection with a Qualified Securitization Facility; plus
(x) any costs or expense incurred by the Issuer or any direct or indirect or a parent entity of the Issuer or a Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement, to the extent that such cost or expenses are funded with cash proceeds contributed to the capital of the Issuer or net cash proceeds of an issuance of Equity Interest of the Issuer (other than Disqualified Stock) solely to the extent that such net cash proceeds are excluded from the calculation set forth in clause (C) of Section 4.07(a) hereof; plus
(xi) cash receipts (or any netting arrangements resulting in reduced cash expenditures) not representing EBITDA or Consolidated Net Income in any period to the extent non-cash gains relating to such income were deducted in the calculation of EBITDA pursuant to clause (b) below for any previous period and not added back; plus
(xii) any net loss from disposed, abandoned or discontinued operations; plus
(xiii) business optimization expenses and other restructuring charges, reserves or expenses (which, for the avoidance of doubt, shall include, without limitation, the effect of inventory optimization programs, facility closures, facility consolidations, retention, severance, systems establishment costs, contract termination costs, future lease commitments and excess pension charges) and Pre-Opening Expenses; plus
(xiv) the amount of any loss attributable to a New Project, until the date that is 12 months after the date of completing the construction, acquisition, assembling or creation of such New Project, as the case may be; provided that (a) such losses are reasonably identifiable and factually supportable and certified by a responsible financial or accounting officer of the Issuer and (b) losses attributable to such New Project after 12 months from the date of completing such construction, acquisition, assembling or creation, as the case may be, shall not be included in this clause (xiv);
(b) decreased (without duplication) by the following, in each case to the extent included in determining Consolidated Net Income for such period:
(i) non-cash gains increasing Consolidated Net Income of such Person for such period, excluding any non-cash gains to the extent they represent the reversal of an accrual or reserve for a potential cash item that reduced EBITDA in any prior period and any non-cash gains with respect to cash actually received in a prior period so long as such cash did not increase EBITDA in such prior period; plus
(ii) any net income from disposed, abandoned or discontinued operations.
Employee Matters Agreement means the Employee Matters Agreement, to be dated on or prior to the Spin-Off Date, by and among Hilton Parent, PHRI and HGV Parent, containing substantially the terms described in the Offering Memorandum, as amended, supplemented, waived or otherwise modified from time to time in a manner not materially adverse to the Holders of the Notes when taken as a whole, as compared to the Employee Matters Agreement as in effect immediately prior to such amendment, supplement, waiver or modification.
EMU means economic and monetary union as contemplated in the Treaty on European Union.
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Equity Interests means Capital Stock and all warrants, options or other rights to acquire Capital Stock, but excluding any debt security that is convertible into, or exchangeable for, Capital Stock.
Equity Offering means any public or private sale or issuance of common stock or Preferred Stock (excluding Disqualified Stock) of the Issuer or any of its direct or indirect parent companies, other than:
(a) public offerings with respect to the Issuers or any direct or indirect parent companys common stock registered on Form S-4 or Form S-8;
(b) issuances to any Subsidiary of the Issuer; and
(c) any such public or private sale or issuance that constitutes an Excluded Contribution.
euro means the single currency of participating member states of the EMU.
Euroclear means Euroclear Bank S.A./N.V., as operator of the Euroclear system, or any successor securities clearing agency.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes means any Notes issued in an Exchange Offer pursuant to Section 2.06(f) hereof.
Exchange Offer has the meaning assigned to such term in the Registration Rights Agreement.
Exchange Offer Registration Statement has the meaning assigned to such term in the Registration Rights Agreement.
Excluded Contribution means net cash proceeds, marketable securities or Qualified Proceeds received by the Issuer since the Issue Date from:
(a) contributions to its common equity capital;
(b) dividends, distributions, fees and other payments from Unrestricted Subsidiaries and any joint ventures that are not Restricted Subsidiaries; and
(c) the sale (other than to a Subsidiary of the Issuer or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Issuer) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of the Issuer,
in each case designated as Excluded Contributions pursuant to an Officers Certificate executed by the principal financial officer of the Issuer, which are (or were) excluded from the calculation set forth in clause (C) of Section 4.07(a) hereof.
fair market value means, with respect to any asset or liability, the fair market value of such asset or liability as determined by the Issuer in good faith.
Financing Transactions means the issuance of the PHRI Notes and the guarantees thereof, the offer and sale of the Marketed Notes pursuant to the offering contemplated by the Offering Memorandum, the execution of the Senior Secured Credit Facility, additional borrowings under the Timeshare Facility and the payment of any fees or expenses incurred or paid in connection therewith.
Fixed Charge Coverage Ratio means, with respect to any Person for any period, the ratio of EBITDA of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Issuer or any Restricted Subsidiary incurs, assumes, guarantees, redeems, repays, retires or extinguishes any Indebtedness
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(other than Indebtedness incurred or repaid under any revolving credit facility unless such Indebtedness has been permanently repaid and has not been replaced) or issues or redeems Disqualified Stock or Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to or simultaneously with the event for which the calculation of the Fixed Charge Coverage Ratio is made (the Fixed Charge Coverage Ratio Calculation Date ), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption, repayment, retirement or extinguishment of Indebtedness, or such issuance or redemption of Disqualified Stock or Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period; provided, however , that the pro forma calculation of Fixed Charges for purposes of Section 4.09(a) (and for the purposes of other provisions of this Indenture that refer to Section 4.09(a)) shall not give effect to any Indebtedness being incurred on such date (or on such other subsequent date which would otherwise require pro forma effect to be given to such incurrence) pursuant to Section 4.09(b).
For purposes of making the computation referred to above, Investments, acquisitions, dispositions, mergers, amalgamations, consolidations and discontinued operations (as determined in accordance with GAAP) that have been made by the Issuer or any of its Restricted Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Fixed Charge Coverage Ratio Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions, dispositions, mergers, amalgamations, consolidations and discontinued operations (and the change in any associated fixed charge obligations and the change in EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If since the beginning of such period any Person that subsequently became a Restricted Subsidiary or was merged with or into the Issuer or any of its Restricted Subsidiaries since the beginning of such period shall have made any Investment, acquisition, disposition, merger, amalgamation, consolidation or discontinued operation that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, merger, amalgamation, consolidation or discontinued operation had occurred at the beginning of the applicable four-quarter period.
For purposes of this definition, whenever pro forma effect is to be given to an Investment, acquisition, disposition, merger, amalgamation, consolidation or discontinued operation (including the Spin-Off Transaction), the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of the Issuer (and may include, for the avoidance of doubt, cost savings, synergies and operating expense reductions resulting from such Investment, acquisition, merger, amalgamation or consolidation (including the Spin-Off Transaction) which is being given pro forma effect that have been or are expected to be realized based on actions taken, committed to be taken or expected in good faith to be taken within 18 months). If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the Fixed Charge Coverage Ratio Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a responsible financial or accounting officer of the Issuer to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP. For purposes of making the computation referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period except as set forth in the first paragraph of this definition. Interest on Indebtedness that may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rate, shall be deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Issuer may designate.
Fixed Charges means, with respect to any Person for any period, the sum of, without duplication:
(a) Consolidated Interest Expense of such Person for such period;
(b) all cash dividends or other distributions paid (excluding items eliminated in consolidation) on any series of Preferred Stock during such period; and
(c) all cash dividends or other distributions paid (excluding items eliminated in consolidation) on any series of Disqualified Stock during such period.
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Foreign Subsidiary means, with respect to any Person, (1) (A) any Restricted Subsidiary of such Person that is not organized or existing under the laws of the United States, any state thereof or the District of Columbia and (B) any Restricted Subsidiary of such Foreign Subsidiary, and (2) any FSHCO Subsidiary of such Person.
FSHCO Subsidiary means, with respect to any Person, any Restricted Subsidiary of such Person substantially all of whose assets consist, directly or indirectly, of Equity Interests and/or Indebtedness of one or more Foreign Subsidiaries, and any other assets incidental thereto.
GAAP means (1) generally accepted accounting principles in the United States of America which are in effect on the Issue Date or (2) if elected by the Issuer by written notice to the Trustee in connection with the delivery of financial statements and information, the accounting standards and interpretations ( IFRS ) adopted by the International Accounting Standard Board, as in effect on the first date of the period for which the Issuer is making such election; provided that (a) any such election once made shall be irrevocable, (b) all financial statements and reports required to be provided after such election pursuant to this Indenture shall be prepared on the basis of IFRS, (c) from and after such election, all ratios, computations and other determinations based on GAAP contained in this Indenture shall be computed in conformity with IFRS, (d) in connection with the delivery of financial statements (x) for any of its first three financial quarters of any financial year, it shall restate its consolidated interim financial statements for such interim financial period and the comparable period in the prior year to the extent previously prepared in accordance with GAAP as in effect on the Issue Date and (y) for delivery of audited annual financial information, it shall provide consolidated historical financial statements prepared in accordance with IFRS for the prior most recent fiscal year to the extent previously prepared in accordance with GAAP as in effect on the Issue Date.
Global Note Legend means the legend set forth in Section 2.06(g)(ii) hereof, which is required to be placed on all Global Notes issued under this Indenture.
Global Notes means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, substantially in the form of Exhibit A-2 hereto, issued in accordance with Section 2.01, 2.06(b), 2.06(d) or 2.06(f) hereof.
guarantee means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.
Guarantee means the guarantee by any Guarantor of the Issuers Obligations under this Indenture and the Notes.
Guarantor means (i) HGV Parent, (ii) HGV Intermediate Parent and (iii) each Subsidiary of the Issuer, if any, that Guarantees the Notes in accordance with the terms of this Indenture. On the Original Issue Date, each Restricted Subsidiary that is expected to guarantee any Indebtedness of the Issuer under the Senior Secured Credit Facilities will be a Guarantor.
Hedging Obligations means, with respect to any Person, the obligations of such Person under any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, commodity swap agreement, commodity cap agreement, commodity collar agreement, foreign exchange contract, currency swap agreement or similar agreement providing for the transfer, modification or mitigation of interest rate, currency or commodity risks either generally or under specific contingencies.
HGV Intermediate Parent means Hilton Grand Vacations Parent LLC, a Delaware limited liability company, and not any of its Subsidiaries or Affiliates.
HGV Parent means Hilton Grand Vacations Inc., a Delaware corporation, and not any of its Subsidiaries or Affiliates.
Hilton Parent means Hilton Worldwide Holdings Inc., a Delaware corporation.
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Holder means the Person in whose name a Note is registered on the Registrars books.
Immediate Family Members means with respect to any individual, such individuals child, stepchild, grandchild or more remote descendant, parent, stepparent, grandparent, spouse, former spouse, qualified domestic partner, sibling, mother-in-law, father-in-law, son-in-law and daughter-in-law (including adoptive relationships) and any trust, partnership or other bona fide estate-planning vehicle the only beneficiaries of which are any of the foregoing individuals or any private foundation or fund that is controlled by any of the foregoing individuals or any donor-advised fund of which any such individual is the donor.
Indebtedness means, with respect to any Person, without duplication:
(a) any indebtedness (including principal and premium) of such Person, whether or not contingent:
(i) in respect of borrowed money;
(ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers acceptances (or, without duplication, reimbursement agreements in respect thereof);
(iii) representing the balance deferred and unpaid of the purchase price of any property (including Capitalized Lease Obligations), except (A) any such balance that constitutes an obligation in respect of a commercial letter of credit, a trade payable or similar obligation to a trade or similar business creditor, in each case accrued in the ordinary course of business and (B) any earn-out obligations until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and is not paid after becoming due and payable; or
(iv) representing the net obligations under any Hedging Obligations,
if and to the extent that any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP; provided that Indebtedness of any direct or indirect parent of the Issuer appearing upon the balance sheet of the Issuer solely by reason of push-down accounting under GAAP shall be excluded;
(b) to the extent not otherwise included, any obligation by such Person to be liable for, or to pay, as obligor, guarantor or otherwise, the obligations of the type referred to in clause (a) of a third Person (whether or not such items would appear upon the balance sheet of such obligor or guarantor), other than by endorsement of negotiable instruments for collection in the ordinary course of business; and
(c) to the extent not otherwise included, the obligations of the type referred to in clause (a) of a third Person secured by a Lien on any asset owned by such first Person, whether or not such Indebtedness is assumed by such first Person; provided , that the amount of any such Indebtedness will be the lesser of (i) the fair market value of such asset at such date of determination and (ii) the amount of such Indebtedness of such third Person;
provided that notwithstanding the foregoing, Indebtedness shall be deemed not to include (a) Contingent Obligations incurred in the ordinary course of business, or (b) obligations under or in respect of Qualified Securitization Facilities, operating leases or Sale and Lease-Back Transactions (except any resulting Capitalized Lease Obligations); provided, further , that Indebtedness shall be calculated without giving effect to the effects of Financial Accounting Standards Board Accounting Standards Codification Topic No. 815 and related interpretations to the extent such effects would otherwise increase or decrease an amount of Indebtedness for any purpose under this Indenture as a result of accounting for any embedded derivatives created by the terms of such Indebtedness.
Indenture means this Indenture, as amended, supplemented or otherwise modified from time to time.
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Independent Financial Advisor means an accounting, appraisal, investment banking firm or consultant to Persons engaged in Similar Businesses of nationally recognized standing that is, in the good faith judgment of the Issuer, qualified to perform the task for which it has been engaged.
Indirect Participant means a Person who holds a beneficial interest in a Global Note through a Participant.
Initial Interest Payment Date means the Reset Date.
Initial Notes means (a) on and after the Original Issue Date and prior to the Reset Date, the PHRI Notes and (b) on and after the Reset Date, any Marketed Notes issued in exchange for the PHRI Notes.
Initial Record Date means the day immediately preceding the Reset Date.
Initial Purchasers means the initial purchasers of the Notes on the Reset Date pursuant to the Purchase Agreement.
Interest Payment Date means June 1 and December 1 of each year to stated maturity and, in the case of the PHRI Notes, the Initial Interest Payment Date.
Investment Company Act means the Investment Company Act of 1940, as amended.
Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P, or if the applicable securities are not then rated by Moodys or S&P, an equivalent rating by any other Rating Agency.
Investment Grade Securities means:
(a) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents);
(b) debt securities or debt instruments with an Investment Grade Rating, but excluding any debt securities or instruments constituting loans or advances among the Issuer and its Subsidiaries;
(c) investments in any fund that invests exclusively in investments of the type described in clauses (a) and (b) which fund may also hold immaterial amounts of cash pending investment or distribution; and
(d) corresponding instruments in countries other than the United States customarily utilized for high quality investments.
Investments means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, trade credit, advances to customers, commission, travel and similar advances to employees, directors, officers, managers and consultants, in each case made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet (excluding the footnotes) of the Issuer in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of Unrestricted Subsidiary and Section 4.07 hereof:
(a) Investments shall include the portion (proportionate to the Issuers equity interest in such Subsidiary) of the fair market value of the net assets of a Subsidiary of the Issuer at the time that such Subsidiary is designated an Unrestricted Subsidiary; and
(b) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer.
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The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced by any dividend, distribution, interest payment, return of capital, repayment or other amount received in Cash Equivalents by the Issuer or a Restricted Subsidiary in respect of such Investment.
Investors means any of the Blackstone Funds and any of their Affiliates but not including, however, any of its or such Affiliates portfolio companies.
Issue Date means (a) on and after the Original Issue Date and prior to the Reset Date, the Original Issue Date, and (b) on and after the Reset Date, the Reset Date.
Issuer has the meaning set forth in the recitals hereto until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter Issuer shall mean such successor Person.
Issuers has the meaning set forth in the recitals hereto until a successor Person or Persons shall have become such pursuant to the applicable provisions of this Indenture, and thereafter Issuers shall mean such successor Person or Persons.
Issuer Capitalization means the transactions which upon consummation thereof will result in the Issuer holding, directly or indirectly, all of the Equity Interests of Hilton Resorts Corporation, a Delaware corporation, and all of the assets and operations of the Timeshare Business.
Issuers Order means a written request or order signed on behalf of each of the Issuer and the Co-Issuer by an Officer of the Issuer and the Co-Issuer, as applicable, who must be the principal executive officer, the principal financial officer, the treasurer, the secretary, the principal accounting officer or any senior or executive vice president of the Issuer and the Co-Issuer, as applicable, and delivered to the Trustee.
Legal Holiday means a Saturday, a Sunday or a day on which commercial banking institutions are not required to be open in the State of New York or at the place of payment in respect of the Notes. If a payment date is on a Legal Holiday, payment will be made on the next succeeding day that is not a Legal Holiday and no interest shall accrue for the intervening period.
Letter of Transmittal means the letter of transmittal to be prepared by the Issuers and sent to all Holders for use by such Holders in connection with an Exchange Offer.
License Agreement means the License Agreement, to be dated on or prior to the Spin-Off Date, containing substantially the terms described in the Offering Memorandum, by and between Hilton Parent and HGV Parent, as amended, supplemented, waived or otherwise modified from time to time in a manner not materially adverse to the Holders of the Notes when taken as a whole, as compared to the License Agreement as in effect immediately prior to such amendment, supplement, waiver or modification.
Lien means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction; provided that in no event shall an operating lease be deemed to constitute a Lien.
Limited Condition Acquisition means any acquisition, including by way of merger, amalgamation or consolidation, by the Issuer or one or more of its Restricted Subsidiaries whose consummation is not conditioned upon the availability of, or on obtaining, third party financing; provided that Consolidated Net Income (and any other financial term derived therefrom), other than for purposes of calculating any ratios in connection with the Limited Condition Acquisition, shall not include any Consolidated Net Income of or attributable to the target company or assets associated with any such Limited Condition Acquisition unless and until the closing of such Limited Condition Acquisition shall have actually occurred.
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Management Stockholders means the current and former employees and members of management (and their Controlled Investment Affiliates and Immediate Family Members) of the Issuer (or its direct or indirect parent entities) who are holders of Equity Interests of any direct or indirect parent companies of the Issuer on the Issue Date.
Market Capitalization means an amount equal to (a) the total number of issued and outstanding shares of common Equity Interests of HGV Parent (or, as the case may be, of a direct or indirect parent entity whose Equity Interests are traded on a securities exchange) on the date of the declaration of a Restricted Payment permitted pursuant to clause (ix) of Section 4.07(b) hereof, multiplied by (b) the arithmetic mean of the closing prices per share of such common Equity Interests on the principal securities exchange on which such common Equity Interests are traded for the 30 consecutive trading days immediately preceding the date of declaration of such Restricted Payment.
Moodys means Moodys Investors Service, Inc. and any successor to its rating agency business.
Net Income means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.
Net Proceeds means the aggregate Cash Equivalents proceeds received by the Issuer or any of its Restricted Subsidiaries in respect of any Asset Sale, including any Cash Equivalents received upon the sale or other disposition of any Designated Non-cash Consideration received in any Asset Sale, net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration, including legal, accounting and investment banking fees, payments made in order to obtain a necessary consent or required by applicable law, and brokerage and sales commissions, any relocation expenses incurred as a result thereof, other fees and expenses, including title and recordation expenses, taxes paid or payable as a result thereof or any transactions occurring or deemed to occur to effectuate a payment under this Indenture (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of principal, premium, if any, and interest on Senior Indebtedness or amounts required to be applied to the repayment of Indebtedness secured by a Lien on such assets and required (other than required by clause (i) of Section 4.10(b) hereof) to be paid as a result of such transaction and any deduction of appropriate amounts to be provided by the Issuer or any of its Restricted Subsidiaries as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by the Issuer or any of its Restricted Subsidiaries after such sale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.
New Project means (x) each property or resort which is either a new property or resort or an expansion, relocation, remodeling, or substantial modernization of an existing property or resort owned by the Issuer or its Restricted Subsidiaries which in fact commences operations and (y) each creation (in one or a series of related transactions) of a business unit (including, without limitation, individual resorts) to the extent such business unit commences operations or each expansion (in one or series of related transactions) of business into a new market.
Non-U.S. Person means a Person who is not a U.S. Person.
Notes means the Initial Notes, and more particularly means any Note authenticated and delivered under this Indenture. Unless the context requires otherwise, all references to Notes for all purposes of this Indenture shall include any Additional Notes that are actually issued. The Initial Notes and any Additional Notes subsequently issued under this Indenture will be treated as a single class for all purposes under this Indenture, including waivers, amendments, redemptions and offers to purchase, except for certain waivers and amendments as set forth herein.
Obligations means any principal, interest (including any interest accruing on or subsequent to the filing of a petition in bankruptcy, reorganization or similar proceeding at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable state, federal or foreign law), premium, penalties, fees, indemnifications, reimbursements (including reimbursement obligations with respect to letters
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of credit and bankers acceptances), damages and other liabilities, and guarantees of payment of such principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities, payable under the documentation governing any Indebtedness; provided that any of the foregoing (other than principal and interest) shall no longer constitute Obligations after payment in full of such principal and interest except to the extent such obligations are fully liquidated and non-contingent on or prior to such payment in full.
Offering Memorandum means the offering memorandum, to be dated the date of the Purchase Agreement, relating to the offer and sale of the Marketed Notes; provided , that, prior to such date, references to descriptions of documents and transactions in the Offering Memorandum shall be deemed to be references to the corresponding descriptions of such documents and transactions in the HGV Parent Information Statement filed as Exhibit 99.1 to Amendment No. 3 to the Form 10 filed by HGV Parent on September 16, 2016 (as it may be amended from time to time).
Officer means the Chairman of the Board of Directors, the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer, the President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of any Person, or any other officer of such Person designated by any such individuals. Unless otherwise indicated, Officer shall refer to an Officer of the Issuer.
Officers Certificate means a certificate signed on behalf of a Person by an Officer of such Person that meets the requirements set forth in this Indenture. Unless otherwise indicated, Officers Certificate shall refer to an Officers Certificate of an Officer of each Issuer.
Opinion of Counsel means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Issuer or the Trustee.
Original Issue Date means October 24, 2016.
Ownership Business has the meaning assigned to such term in the Distribution Agreement.
Parent Company means any Person so long as such Person directly or indirectly holds 100.0% of the total voting power of the Capital Stock of the Issuer, and at the time such Person acquired such voting power, no Person and no group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision), including any such group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) (other than a Parent Company or any Permitted Holder), shall have beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision), directly or indirectly, of 50.0% or more of the total voting power of the Voting Stock of such Person.
Parent Guarantee means the Guarantee by each Parent Guarantor.
Parent Guarantors means HGV Parent and HGV Intermediate Parent.
Participant means, with respect to the Depositary, a Person who has an account with the Depositary (and, with respect to DTC, shall include Euroclear and Clearstream).
Participating Broker-Dealer has the meaning set forth in the Registration Rights Agreement.
Permitted Asset Swap means the substantially concurrent purchase and sale or exchange of Related Business Assets or a combination of Related Business Assets and Cash Equivalents between the Issuer or any of its Restricted Subsidiaries and another Person; provided that any Cash Equivalents received must be applied in accordance with Section 4.10 hereof.
Permitted Holders means any of the Investors and Management Stockholders and any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) of which any of the foregoing are members; provided that in the case of such group and without giving effect to the existence of such group or any other group, such Investors and Management Stockholders, collectively, have beneficial ownership of
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more than 50.0% of the total voting power of the Voting Stock of the Issuer or any of its direct or indirect parent companies. Any Person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of this Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder.
Permitted Intercompany Activities means any transactions between or among the Issuer and its Subsidiaries (for the avoidance of doubt, including Unrestricted Subsidiaries) that are entered into in the ordinary course of business of the Issuer and its Subsidiaries and, in the good faith judgment of the Issuer are necessary or advisable in connection with the ownership or operation of the business of the Issuer and its Subsidiaries, including, but not limited to, (a) payroll, cash management, purchasing, insurance and hedging arrangements; (b) management, technology and licensing arrangements; and (c) HHonors, Hilton Grand Vacations Club and similar customer loyalty and rewards programs.
Permitted Investments means:
(a) any Investment in the Issuer or any of its Restricted Subsidiaries;
(b) any Investment in Cash Equivalents or Investment Grade Securities;
(c) any Investment by the Issuer or any of its Restricted Subsidiaries in a Person (including, to the extent constituting an Investment, in assets of a Person that represent substantially all of its assets or a division, business unit or product line, including research and development and related assets in respect of any product) that is engaged directly or through entities that will be Restricted Subsidiaries in a Similar Business if as a result of such Investment:
(i) such Person becomes a Restricted Subsidiary; or
(ii) such Person, in one transaction or a series of related transactions, is amalgamated, merged or consolidated with or into, or transfers or conveys substantially all of its assets (or such division, business unit or product line) to, or is liquidated into, the Issuer or a Restricted Subsidiary,
and, in each case, any Investment held by such Person; provided that such Investment was not acquired by such Person in contemplation of such acquisition, merger, amalgamation, consolidation or transfer;
(d) any Investment in securities or other assets, including earn-outs, not constituting Cash Equivalents or Investment Grade Securities and received in connection with an Asset Sale made pursuant to Section 4.10(a) hereof or any other disposition of assets not constituting an Asset Sale;
(e) any Investment existing on the Issue Date or made pursuant to binding commitments in effect on the Issue Date or an Investment consisting of any extension, modification or renewal of any such Investment or binding commitment existing on the Issue Date; provided that the amount of any such Investment may be increased in such extension, modification or renewal only (i) as required by the terms of such Investment or binding commitment as in existence on the Issue Date (including as a result of the accrual or accretion of interest or original issue discount or the issuance of pay-in-kind securities) or (ii) as otherwise permitted under this Indenture;
(f) any Investment acquired by the Issuer or any of its Restricted Subsidiaries:
(i) consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business;
(ii) in exchange for any other Investment or accounts receivable, endorsements for collection or deposit held by the Issuer or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable (including any trade creditor or customer); or
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(iii) in satisfaction of judgments against other Persons; or
(iv) as a result of a foreclosure by the Issuer or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;
(g) Hedging Obligations permitted under Section 4.09(b)(x) hereof;
(h) [reserved];
(i) Investments the payment for which consists of Equity Interests (other than Disqualified Stock) of the Issuer or any of its direct or indirect parent companies; provided that such Equity Interests will not increase the amount available for Restricted Payments under clause (C) of Section 4.07(a) hereof;
(j) guarantees of Indebtedness permitted under Section 4.09 hereof, performance guarantees and Contingent Obligations incurred in the ordinary course of business or consistent with past practice and the creation of Liens on the assets of the Issuer or any Restricted Subsidiary in compliance with Section 4.12 hereof;
(k) any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of Section 4.11(b) hereof (except transactions described in clauses (ii), (v), (ix) and (xxiii) of Section 4.11(b) hereof);
(l) Investments consisting of purchases or other acquisitions of inventory, supplies, material or equipment or the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;
(m) Investments having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (m) that are at that time outstanding (without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities), not to exceed the greater of (1) $75.0 million and (2) 4.0% of Total Assets (in each case, determined on the date such Investment is made, with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided, however , that if any Investment pursuant to this clause (m) is made in any Person that is not a Restricted Subsidiary of the Issuer at the date of the making of such Investment and such Person becomes a Restricted Subsidiary after such date, such investment shall thereafter be deemed to have been made pursuant to clause (a) above and shall cease to have been made pursuant to this clause (m);
(n) Investments in or relating to a Securitization Subsidiary that, in the good faith determination of the Issuer are necessary or advisable to effect any Qualified Securitization Facility (including any contribution of replacement or substitute assets to such subsidiary) or any repurchase obligation in connection therewith;
(o) advances to, or guarantees of Indebtedness of, employees not in excess of $25.0 million outstanding in the aggregate;
(p) loans and advances to employees, directors, officers, managers and consultants (i) for business-related travel expenses, moving expenses and other similar expenses or payroll advances, in each case incurred in the ordinary course of business or consistent with past practices or (ii) to fund such Persons purchase of Equity Interests of the Issuer or any direct or indirect parent company thereof;
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(q) advances, loans or extensions of trade credit in the ordinary course of business or consistent with past practice by the Issuer or any of its Restricted Subsidiaries;
(r) any Investment in any Subsidiary or any joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business or consistent with past practice;
(s) Investments consisting of purchases and acquisitions of assets or services in the ordinary course of business or consistent with past practice;
(t) Investments made in the ordinary course of business or consistent with past practice in connection with obtaining, maintaining or renewing client contracts;
(u) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits entered into as a result of the operations of the business in the ordinary course of business or consistent with past practice;
(v) repurchases of Notes;
(w) Investments in the ordinary course of business or consistent with past practice consisting of Uniform Commercial Code Article 3 endorsements for collection of deposit and Article 4 customary trade arrangements with customers consistent with past practices;
(x) Investments consisting of promissory notes issued by the Issuer or any Guarantor to future, present or former officers, directors and employees, members of management, or consultants of the Issuer or any of its Subsidiaries or their respective estates, spouses or former spouses to finance the purchase or redemption of Equity Interests of the Issuer or any direct or indirect parent thereof, to the extent the applicable Restricted Payment is a permitted by Section 4.07 hereof;
(y) Investments (including debt obligations and Equity Interests) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement of delinquent obligations of, or other disputes with, customers and suppliers arising in the ordinary course of business or consistent with past practice or upon the foreclosure with respect to any secured Investment or other transfer of title with respect to any secured Investment;
(z) Investments (i) by the Captive Insurance Subsidiary made in the ordinary course of its business or consistent with past practice, and (ii) in the Captive Insurance Subsidiary in the ordinary course of business or required under statutory or regulatory authority applicable to such Captive Insurance Subsidiary;
(aa) Investments made in connection with Permitted Intercompany Activities, the Spin-Off Transaction and related transactions;
(bb) Investments in joint ventures of the Issuer or any of its Restricted Subsidiaries existing on the Issue Date;
(cc) Investments in joint ventures of the Issuer or any of its Restricted Subsidiaries, taken together with all other Investments made pursuant to this clause (cc) that are at that time outstanding, not to exceed the greater of (a) $25.0 million and (b) 2.0% of Total Assets (in each case, determined on the date such Investment is made, with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(dd) Investments in an Unrestricted Subsidiary consisting of Equity Interests issued by, or property or assets of, another Unrestricted Subsidiary;
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(ee) Investments in the form of (A) Timeshare Loans generated in the ordinary course of business, (B) construction loans to developers of properties in the ordinary course of business or otherwise in connection with vacation ownership interval transactions and (C) purchases of vacation ownership intervals for inventory or resale, in each case by the Issuer and its Restricted Subsidiaries; and
(ff) Investments made in exchange for the contribution of Specified Real Property Assets.
Permitted Liens means, with respect to any Person:
(a) pledges, deposits or security by such Person under workmens compensation laws, unemployment insurance, employers health tax, and other social security laws or similar legislation or other insurance-related obligations (including, but not limited to, in respect of deductibles, self-insured retention amounts and premiums and adjustments thereto) or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business;
(b) Liens imposed by law, such as landlords, carriers, warehousemens, materialmens, repairmens and mechanics Liens, in each case for sums not yet overdue for a period of more than 45 days or, if more than 45 days overdue, that are unfiled and no other action has been taken to enforce such Lien or that are being contested in good faith by appropriate actions or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(c) Liens for taxes, assessments or other governmental charges not yet overdue for a period of more than 30 days or not yet payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(d) Liens in favor of issuers of performance, surety, bid, indemnity, warranty, release, appeal or similar bonds or with respect to other regulatory requirements or letters of credit or bankers acceptances issued, and completion guarantees provided for, in each case, issued pursuant to the request of and for the account of such Person in the ordinary course of its business or consistent with past practice prior to the Issue Date;
(e) minor survey exceptions, minor encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights-of-way, servitudes, sewers, electric lines, drains, telegraph, telephone and cable television lines and other similar purposes, or zoning, building codes or other restrictions (including minor defects and irregularities in title and similar encumbrances) as to the use of real properties or Liens incidental, to the conduct of the business of such Person or to the ownership of its properties which were not incurred in connection with Indebtedness and which do not in the aggregate materially interfere with the ordinary conduct of the business of the Issuer or any of its Restricted Subsidiaries, taken as a whole, and exceptions on title policies insuring liens granted on Mortgaged Properties (as defined in the Senior Secured Credit Facilities);
(f) Liens securing Obligations relating to any Indebtedness permitted to be incurred pursuant to clause (iv), (xii), (xiii), (xiv), (xxiii) or (xxv) of Section 4.09(b) hereof; provided that (a) Liens securing Obligations relating to any Indebtedness, Disqualified Stock or Preferred Stock to be incurred pursuant to clause (iv) of Section 4.09(b) hereof extend only to the assets so purchased, leased or improved; (b) Liens securing Obligations relating to any Indebtedness permitted to be incurred pursuant to clause (xiii) of Section 4.09(b) hereof relate only to Obligations relating to Refinancing Indebtedness that (x) is secured by Liens on the same assets as the assets securing the Refinancing Indebtedness or (y) extends, replaces, refunds,
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refinances, renews or defeases Indebtedness incurred or Disqualified Stock or Preferred Stock issued under clauses (iii), (iv) or (xii) of Section 4.09(b) hereof; (c) Liens securing Indebtedness permitted to be incurred pursuant to clause (xiv) of Section 4.09(b) hereof shall only be permitted if such Liens are limited to all or part of the same property or assets, including Capital Stock (plus improvements, accessions, proceeds or dividends or distributions in respect thereof, or replacements of any thereof) acquired, or of any Person acquired or merged or consolidated with or into the Issuer or any Restricted Subsidiary, in any transaction to which such Indebtedness relates; and (d) Liens securing Indebtedness permitted to be incurred pursuant to clauses (xxiii) and (xxv) of Section 4.09(b) hereof shall only be permitted if such Liens extend only to the assets of Restricted Subsidiaries of the Issuer that are not Guarantors;
(g) Liens existing on the Issue Date (excluding Liens securing the Credit Agreement), including Liens securing any Refinancing Indebtedness of any Indebtedness secured by such Liens;
(h) Liens on property or shares of stock or other assets of a Person at the time such Person becomes a Subsidiary; provided that such Liens are not created or incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided , further , that such Liens may not extend to any other property or other assets owned by the Issuer or any of its Restricted Subsidiaries;
(i) Liens on property or other assets at the time the Issuer or a Restricted Subsidiary acquired the property or such other assets, including any acquisition by means of a merger, amalgamation or consolidation with or into the Issuer or any of its Restricted Subsidiaries; provided that such Liens are not created or incurred in connection with, or in contemplation of, such acquisition, amalgamation, merger or consolidation; provided , further , that the Liens may not extend to any other property owned by the Issuer or any of its Restricted Subsidiaries;
(j) Liens securing Obligations relating to any Indebtedness or other obligations of a Restricted Subsidiary owing to the Issuer or another Restricted Subsidiary permitted to be incurred in accordance with Section 4.09 hereof;
(k) Liens securing (x) Hedging Obligations and (y) obligations in respect of Bank Products;
(l) Liens on specific items of inventory or other goods and proceeds of any Person securing such Persons accounts payable or similar trade obligations in respect of bankers acceptances or documentary letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(m) leases, sub-leases, licenses or sub-licenses granted to others in the ordinary course of business which do not materially interfere with the ordinary conduct of the business of the Issuer or any of its Restricted Subsidiaries, taken as a whole, and do not secure any Indebtedness;
(n) Liens arising from Uniform Commercial Code (or equivalent statute) financing statement filings regarding operating leases or consignments entered into by the Issuer and its Restricted Subsidiaries in the ordinary course of business or purported Liens evidenced by the filing of precautionary Uniform Commercial Code financing statements or similar public filings;
(o) Liens in favor of the Issuer, the Co-Issuer or any Subsidiary Guarantor;
(p) Liens on equipment of the Issuer or any of its Restricted Subsidiaries granted in the ordinary course of business to the Issuers or a Restricted Subsidiarys customers or clients;
(q) Liens on accounts receivable, Securitization Assets and related assets incurred in connection with a Qualified Securitization Facility;
(r) Liens to secure any modification, refinancing, refunding, extension, renewal or replacement (or successive refinancing, refunding, extensions, renewals or replacements) as a whole, or in part, of
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any Indebtedness secured by any Lien referred to in the foregoing clauses (f), (g), (h), (i), this clause (r) and clause (nn) below; provided that (i) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements on such property) and proceeds and products thereof, and (ii) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (f), (g), (h), (i), this clause (r) and clause (nn) below at the time the original Lien became a Permitted Lien under this Indenture, and (B) an amount necessary to pay any fees and expenses (including original issue discount, upfront fees or similar fees) and premiums (including tender premiums and accrued and unpaid interest), related to such modification, refinancing, refunding, extension, renewal or replacement;
(s) deposits made or other security provided in the ordinary course of business to secure liability to insurance carriers;
(t) Liens securing obligations in an aggregate principal amount outstanding which does not exceed $75.0 million (determined as of the date of such incurrence);
(u) security given to a public utility or any municipality or governmental authority when required by such utility or authority in connection with the operations of that Person in the ordinary course of business;
(v) Liens securing judgments for the payment of money not constituting an Event of Default under clause (v) of Section 6.01(a) hereof;
(w) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(x) Liens (i) of a collection bank arising under Section 4-210 of the Uniform Commercial Code or any comparable or successor provision on items in the course of collection, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, and (iii) in favor of banking institutions arising as a matter of law or under general terms and conditions encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;
(y) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 4.09 hereof;
(z) Liens encumbering reasonable customary deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(aa) Liens that are contractual rights of set-off or rights of pledge (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Issuer or any of its Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Issuer and its Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Issuer or any of its Restricted Subsidiaries in the ordinary course of business;
(bb) Liens securing obligations owed by the Issuer or any Restricted Subsidiary to any lender under the Senior Secured Credit Facilities or any Affiliate of such a lender in respect of any overdraft and related liabilities arising from treasury, depository and cash management services or any automated clearing house transfers of funds;
(cc) any encumbrance or restriction (including put and call arrangements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;
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(dd) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale or purchase of goods entered into by the Issuer or any Restricted Subsidiary in the ordinary course of business;
(ee) Liens solely on any cash earnest money deposits made by the Issuer or any of its Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted by this Indenture;
(ff) ground leases in respect of real property on which facilities owned or leased by the Issuer or any of its Subsidiaries are located;
(gg) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
(hh) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;
(ii) Liens on the assets of Restricted Subsidiaries that are not the Co-Issuer or a Guarantor securing Indebtedness of such Subsidiaries that were permitted by the terms of this Indenture to be incurred;
(jj) Liens on cash advances in favor of the seller of any property to be acquired in an Investment permitted under this Indenture to be applied against the purchase price for such Investment;
(kk) any interest or title of a lessor, sub-lessor, licensor or sub-licensor or secured by a lessors, sub-lessors, licensors or sub-licensors interest under leases or licenses entered into by the Issuer or any of its Restricted Subsidiaries in the ordinary course of business;
(ll) (i) deposits of cash with the owner or lessor of premises leased and operated by the Issuer or any of its Subsidiaries in the ordinary course of business of the Issuer and such Subsidiary to secure the performance of the Issuers or such Subsidiarys obligations under the terms of the lease for such premises and (ii) Liens with respect to property or assets of the Issuer and its Restricted Subsidiaries (including accounts receivable or other revenue streams and other rights to payment and any other assets related thereto) in connection with a property managers obligations in respect of timeshare collection accounts, operating accounts and reserve accounts;
(mm) [reserved];
(nn) Liens securing Indebtedness (including Liens securing any Obligations in respect thereof) permitted to be incurred pursuant to Section 4.09 (including, without limitation, Indebtedness incurred under one or more Credit Facilities) so long as after giving pro forma effect to such incurrence and such Liens the Consolidated Secured Debt Ratio of the Issuer and its Restricted Subsidiaries shall be equal to or less than 2.00 to 1.00 for the Issuers most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Lien is incurred;
(oo) Liens securing obligations in respect of (i) Indebtedness and other Obligations permitted to be incurred under Credit Facilities, including any letter of credit facility relating thereto, that was permitted to be incurred pursuant to clause (i) of Section 4.09(b) and (ii) obligations of the Issuer or any Subsidiary in respect of any Bank Products or Hedging Obligation provided by any lender party to any Credit Facility or any Affiliate of such lender (or any Person that was a lender or an Affiliate of a lender at the time the applicable agreements pursuant to which such Bank Products are provided were entered into); and
(pp) Liens on any funds or securities held in escrow accounts established for the purpose of holding proceeds from issuances of debt securities by the Issuer or any of its Restricted Subsidiaries issued after the Issue Date, together with any additional funds required in order to fund any mandatory redemption or sinking fund payment on such debt securities within 180 days of their issuance; provided that such Liens do not extend to any assets other than such proceeds and such additional funds.
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For purposes of this definition, the term Indebtedness shall be deemed to include interest on such Indebtedness.
Person means any individual, corporation, limited liability company, partnership (including a limited partnership), joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
PHRI means Park Hotels & Resorts Inc., a Delaware corporation.
Preferred Stock means any Equity Interest with preferential rights of payment of dividends or upon liquidation, dissolution, or winding up.
Pre-Opening Expenses means, with respect to any fiscal period, the amount of expenses (other than interest expense) incurred with respect to properties or resorts which are classified as pre-opening expenses (or any similar or equivalent caption) on the applicable financial statements of the Issuer and its Subsidiaries for such period, prepared in accordance with GAAP.
Private Placement Legend means the legend set forth in Section 2.06(g)(i) hereof to be placed on all Notes issued under this Indenture, except where otherwise permitted by the provisions of this Indenture.
Purchase Agreement means the purchase agreement, to be dated the date of pricing of the Marketed Notes, among the Issuers, the Guarantors, the Selling Noteholders and Goldman, Sachs & Co., as representative of such initial purchasers, relating to the offer and sale of the Marketed Notes.
Purchase Money Obligations means any Indebtedness incurred to finance or refinance the purchase, acquisition, leasing, expansion, construction, installation, replacement, repair or improvement of property (real or personal) or assets, and whether acquired through the direct acquisition of such property or assets, or otherwise (including through the purchase of Capital Stock of any Person owning such property or assets).
QIB means a qualified institutional buyer as defined in Rule 144A.
Qualified Proceeds means the fair market value of assets that are used or useful in, or Capital Stock of any Person engaged in, a Similar Business.
Qualified Securitization Facility means (a) any timeshare financing receivable backed notes (such as notes issued by Hilton Grand Vacations Trust 2013-A pursuant to the indenture, dated as of August 8, 2013, between Hilton Grand Vacations Trust 2013-A, as issuer, and Wells Fargo Bank, National Association, as indenture trustee) and similar note issuances, in each case, the Obligations of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection therewith) to the Issuer or any of its Restricted Subsidiaries (other than a Securitization Subsidiary); (b) any timeshare financing receivable backed credit facility (such as the Timeshare Facility) and similar financings, in each case, the Obligations of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection therewith) to the Issuer or any of its Restricted Subsidiaries (other than a Securitization Subsidiary); and (c) any other Securitization Facility (i) constituting a securitization financing facility that meets the following conditions: (A) the Board of Directors or management of the Issuer shall have determined in good faith that such Securitization Facility is in the aggregate economically fair and reasonable to the Issuer and (B) all sales and/or contributions of Securitization Assets and related assets to the applicable Securitization Subsidiary are made at fair market value (as determined in good faith by the Issuer) or (ii) constituting a receivables or payables financing or factoring facility.
Rating Agencies means Moodys and S&P or if Moodys or S&P or both shall not make a rating on the Notes publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Issuers which shall be substituted for Moodys or S&P or both, as the case may be.
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Rating Categories means:
(a) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and
(b) with respect to Moodys, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).
Ratings Improvement means, with respect to a Change of Control, the obtaining of a rating of the Notes, taking into account the applicable transaction, representing an increase in the rating of the Notes by either Moodys or S&P by one or more gradations (including gradations within Rating Categories as well as between Rating Categories, but not including ratings outlook changes) over such rating as of the Issue Date. In determining whether the rating of the Notes has increased by one or more gradations, gradations within Ratings Categories, namely + or - for S&P, and 1, 2, and 3 for Moodys, will be taken into account; for example, in the case of S&P, a rating change either from BB to BB+ or from B+ to BB- will constitute an increase of one gradation.
Record Date means, for the interest payable on any applicable Interest Payment Date, the May 15 and November 15 (whether or not a Business Day) immediately preceding such Interest Payment Date and, in the case of the PHRI Notes, for the interest payable on the Initial Interest Payment Date, the Initial Record Date (whether or not a Business Day).
Registration Rights Agreement means a registration rights agreement with respect to the Marketed Notes to be dated as of the Reset Date, among the Issuers, the Guarantors party thereto and the representative of the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements among the Issuers and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Issuers to the purchasers of Additional Notes to register such Additional Notes under the Securities Act.
Regulation S means Regulation S promulgated under the Securities Act.
Regulation S Global Note means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as applicable.
Regulation S Permanent Global Note means a permanent Global Note, substantially in the form of Exhibit A-2 hereto, bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the applicable Restricted Period.
Regulation S Temporary Global Note means a temporary Global Note, substantially in the form of Exhibit A-2 hereto, bearing the Global Note Legend and the Private Placement Legend and the Regulation S Temporary Global Note Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903.
Regulation S Temporary Global Note Legend means the legend set forth in Section 2.06(g)(iii) hereof.
Related Business Assets means assets (other than Cash Equivalents) used or useful in a Similar Business or any securities of a Person received by the Issuer or a Restricted Subsidiary in exchange for assets transferred by the Issuer or a Restricted Subsidiary; provided that any such securities shall not be deemed to be Related Business Assets, unless (a) upon receipt of the securities of such Person, such Person would become a Restricted Subsidiary or (b) such securities are received in respect of a transfer of the Specified Real Property Assets.
Responsible Officer means, when used with respect to the Trustee, any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed
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by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such Persons knowledge of and familiarity with the particular subject and, in each case, who shall have direct responsibility for the administration of this Indenture.
Restricted Definitive Note means (a) the Definitive Note representing the PHRI Notes and (b) any other Definitive Note bearing, or that is required to bear, the Private Placement Legend.
Restricted Global Note means a Global Note bearing, or that is required to bear, the Private Placement Legend.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Period means, in respect of any Note issued under Regulation S, the 40-day distribution compliance period as defined in Regulation S applicable to such Note.
Restricted Subsidiary means, at any time, any direct or indirect Subsidiary of the Issuer (including the Co-Issuer and any Foreign Subsidiary) that is not then an Unrestricted Subsidiary; provided that upon an Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of Restricted Subsidiary .
Rule 144 means Rule 144 promulgated under the Securities Act.
Rule 144A means Rule 144A promulgated under the Securities Act.
Rule 903 means Rule 903 promulgated under the Securities Act.
Rule 904 means Rule 904 promulgated under the Securities Act.
S&P means Standard & Poors, a division of The McGraw-Hill Companies, Inc., and any successor to its rating agency business.
Sale and Lease-Back Transaction means any arrangement providing for the leasing by the Issuer or any of its Restricted Subsidiaries of any real or tangible personal property, which property has been or is to be sold or transferred by the Issuer or such Restricted Subsidiary to a third Person in contemplation of such leasing.
SEC means the U.S. Securities and Exchange Commission.
Secured Indebtedness means any Indebtedness of the Issuer or any of its Restricted Subsidiaries secured by a Lien.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Securitization Assets means the loans, accounts receivable, financing receivables, other receivables, royalty or other revenue streams and other rights to payment and any assets related thereto subject to a Qualified Securitization Facility and the proceeds thereof.
Securitization Facility means any of one or more receivables or securitization financing facilities as amended, supplemented, modified, extended, renewed, restated or refunded from time to time, the Obligations of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection with such facilities) to the Issuer or any of its Restricted Subsidiaries (other than a Securitization Subsidiary) pursuant to which the Issuer or any of its Restricted Subsidiaries sells or grants a security interest in Securitization Assets to, or for the benefit of, either (a) a Person that is not a Restricted Subsidiary or (b) a Securitization Subsidiary that in turn sells or grants a security interest in Securitization Assets to, or for the benefit of, a Person that is not a Restricted Subsidiary.
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Securitization Fees means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not a Securitization Subsidiary in connection with, any Qualified Securitization Facility.
Securitization Subsidiary means any Subsidiary formed for the purpose of, and that solely engages only in one or more Qualified Securitization Facilities and other activities reasonably related thereto.
Selling Noteholders means the selling securityholders named in the Offering Memorandum.
Senior Indebtedness means:
(a) all Indebtedness of the Issuers or any Guarantor outstanding under the Senior Secured Credit Facilities and the related Guarantees and the Notes and related Guarantees (including interest accruing on or after the filing of any petition in bankruptcy or similar proceeding or for reorganization of the Issuers or any Guarantor (at the rate provided for in the documentation with respect thereto, regardless of whether or not a claim for post-filing interest is allowed in such proceedings)), and any and all other fees, expense reimbursement obligations, indemnification amounts, penalties, and other amounts (whether existing on the Issue Date or thereafter created or incurred) and all obligations of the Issuers or any Guarantor to reimburse any bank or other Person in respect of amounts paid under letters of credit, acceptances or other similar instruments;
(b) all (x) Hedging Obligations (and guarantees thereof) and (y) obligations in respect of Bank Products (and guarantees thereof) owing to a lender under the Senior Secured Credit Facilities or any Affiliate of such lender (or any Person that was a lender or an Affiliate of such lender at the time the applicable agreement giving rise to such Hedging Obligation was entered into); provided that such Hedging Obligations and obligations in respect of Bank Products, as the case may be, are permitted to be incurred under the terms of this Indenture;
(c) any other Indebtedness of the Issuers or any Guarantor permitted to be incurred under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to the Notes or any related Guarantee; and
(d) all Obligations with respect to the items listed in the preceding clauses (a), (b) and (c); provided that Senior Indebtedness shall not include:
(i) any obligation of such Person to the Issuers or any of the Issuers Subsidiaries;
(ii) any liability for federal, state, local or other taxes owed or owing by such Person;
(iii) any accounts payable or other liability to trade creditors arising in the ordinary course of business;
(iv) any Indebtedness or other Obligation of such Person which is subordinate or junior in any respect to any other Indebtedness or other Obligation of such Person; or
(v) that portion of any Indebtedness which at the time of incurrence is incurred in violation of this Indenture.
Senior Secured Credit Facilities means the revolving credit facility and other credit facilities under the Credit Agreement, including any guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements, refundings, refinancings or replacements thereof and any one or more indentures or credit facilities or commercial paper facilities with banks or other institutional lenders or investors that replace, refund, supplement or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing
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facility or indenture that increases the amount borrowable thereunder or alters the maturity thereof ( provided that such increase in borrowings is permitted under Section 4.09 hereof) or adds Restricted Subsidiaries as additional borrowers or guarantors thereunder and whether by the same or any other agent, trustee, lender or group of lenders or holders.
Shelf Registration Statement means a Shelf Registration Statement as defined in the Registration Rights Agreement.
Significant Subsidiary means any Restricted Subsidiary that would be a significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act, as such regulation is in effect on the Issue Date.
Similar Business means (a) any business conducted or proposed to be conducted by the Issuer or any of its Restricted Subsidiaries on the Issue Date, and any reasonable extension thereof, or (b) any business or other activities that are reasonably similar, ancillary, incidental, complementary or related to, or a reasonable extension, development or expansion of, the businesses in which the Issuer and its Restricted Subsidiaries are engaged or propose to be engaged on the Issue Date.
Specified Real Property Assets means any real property or assets of the Issuer or its Restricted Subsidiaries with an aggregate book value not to exceed 4.0% of Total Assets of the Issuer and its Restricted Subsidiaries.
Spin-Off Date means the date on which the Spin-Off Transaction is consummated.
Spin-Off Transaction means, collectively, the transactions which upon consummation thereof, will result in (a) PHRI holding directly or indirectly all or substantially all of the Ownership Business and (b) HGV Parent holding directly or indirectly all or substantially all of the Timeshare Business, and which will be completed by the distribution by Hilton Parent to its stockholders of shares of each of PHRI and HGV Parent on a pro rata basis, and all related transactions, including the Issuer Capitalization and the Financing Transactions, substantially on the terms described in the Offering Memorandum.
Stockholders Agreement means the Stockholders Agreement, to be dated on or prior to the Spin-Off Date, containing substantially the terms described in the Offering Memorandum, by and among Hilton Parent, HGV Parent, the Blackstone Entities (as defined therein) and the other parties thereto, as amended, supplemented, waived or otherwise modified from time to time in a manner not materially adverse to the Holders of the Notes when taken as a whole, as compared to the Stockholders Agreement as in effect immediately prior to such amendment, supplement, waiver or modification.
Subordinated Indebtedness means, with respect to the Notes,
(1) any Indebtedness of the Issuers which is by its terms subordinated in right of payment to the Notes, and
(2) any Indebtedness of any Guarantor which is by its terms subordinated in right of payment to the Guarantee of such entity of the Notes.
Subsidiary means, with respect to any Person:
(a) any corporation, association, or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50.0% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof; and
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(b) any partnership, joint venture, limited liability company or similar entity of which:
(i) more than 50.0% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof whether in the form of membership, general, special or limited partnership or otherwise; and
(ii) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity.
For the avoidance of doubt, any entity that is owned at a 50.0% or less level (as described above) shall not be a Subsidiary for any purpose under this Indenture, regardless of whether such entity is consolidated on the Issuers or any Restricted Subsidiarys financial statements.
Subsidiary Guarantor means each Guarantor other than HGV Parent and HGV Intermediate Parent.
Support and Services Agreement means the management services or similar agreements between certain of the management companies associated with one or more of the Investors or their advisors, if applicable, and HGV Parent (and/or its direct or indirect parent companies), as in effect from time to time; provided that any management, monitoring, consulting and advisory fees payable in advance by HGV Parent (and/or its direct or indirect parent companies) and its Restricted Subsidiaries shall not exceed an amount equal to 2.0% of EBITDA for such fiscal year.
Tax Matters Agreement means the Tax Matters Agreement, to be dated on or prior to the Spin-Off Date, containing substantially the terms described in the Offering Memorandum, by and among Hilton Parent, PHRI and HGV Parent and the other parties thereto, as amended, supplemented, waived or otherwise modified from time to time in a manner not materially adverse to the Holders of the Notes when taken as a whole, as compared to the Tax Matters Agreement as in effect immediately prior to such amendment, supplement, waiver or modification.
Timeshare Business has the meaning assigned to such term in the Distribution Agreement.
Timeshare Facility means the 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, as amended or replaced.
Timeshare Loans means loans made by the Issuer or any of its Subsidiaries to consumers in connection with their purchase of vacation ownership intervals from the Issuer or one of its Subsidiaries and evidenced by a promissory note secured by points earned under the Hilton Grand Vacations Club or similar customer loyalty and rewards programs or a fee simple interest in a residential unit.
Total Assets means the total assets of the Issuer and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as shown on the most recent balance sheet of the Issuer.
Transaction Agreements means, collectively, the Distribution Agreement, the Employee Matters Agreement, the License Agreement, the Stockholders Agreement, the Tax Matters Agreement, the Transition Services Agreement and each other instrument or agreement to be entered into in connection with, or as contemplated by, the Spin-Off Transaction.
Transition Services Agreement means the Master Transition Services Agreement, to be dated on or prior to the Spin-Off Date, containing substantially the terms described in the Offering Memorandum, by and among Hilton Parent, PHRI and HGV Parent, as amended, supplemented, waived or otherwise modified from time to time in a manner not materially adverse to the Holders of the Notes when taken as a whole, as compared to the Transition Services Agreement as in effect immediately prior to such amendment, supplement, waiver or modification.
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Trust Indenture Act means the Trust Indenture Act of 1939, as amended (15 U.S.C. §§ 77aaa-77bbbb).
Trustee means Wilmington Trust, National Association, as trustee, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.
Uniform Commercial Code means the Uniform Commercial Code or any successor provision thereof as the same may from time to time be in effect in the State of New York.
Unrestricted Definitive Note means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend.
Unrestricted Global Note means a permanent Global Note, substantially in the form of Exhibit A-2 hereto, bearing the Global Note Legend and that has the Schedule of Exchanges of Interests in the Global Note attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing Notes that do not bear the Private Placement Legend.
Unrestricted Securitization Subsidiaries means, as of the date hereof, HGV Depositor LLC, Hilton Grand Vacations Trust I LLC, Hilton Grand Vacations Trust 2014-A and Hilton Grand Vacations Trust 2013-A and their direct or indirect subsidiaries.
Unrestricted Subsidiary means:
(a) any Unrestricted Securitization Subsidiary or any Subsidiary of the Issuer which at the time of determination is an Unrestricted Subsidiary (as designated by the Issuer, as provided below); and
(b) any Subsidiary of an Unrestricted Securitization Subsidiary entity or any other Unrestricted Subsidiary.
The Issuer may designate any Subsidiary of the Issuer other than the Co-Issuer (including any existing Subsidiary and any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on, any property of, the Issuer or any Subsidiary of the Issuer (other than solely any Subsidiary of the Subsidiary to be so designated); provided that:
(i) any Unrestricted Subsidiary must be an entity of which the Equity Interests entitled to cast at least a majority of the votes that may be cast by all Equity Interests having ordinary voting power for the election of directors or Persons performing a similar function are owned, directly or indirectly, by the Issuer;
(ii) such designation complies with Section 4.07 hereof; and
(iii) each of (A) the Subsidiary to be so designated and (B) its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Issuer or any Restricted Subsidiary, in each case, except any Permitted Intercompany Activities.
The Issuer may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that, immediately after giving effect to such designation, no Default shall have occurred and be continuing and either:
(a) the Issuer could incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Test; or
(b) the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries would be equal to or greater than such ratio for the Issuer and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation.
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Any such designation by the Issuer shall be notified by the Issuer to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of the Issuer or any committee thereof giving effect to such designation and an Officers Certificate certifying that such designation complied with the foregoing provisions.
U.S. Dollar Equivalent means with respect to any monetary amount in a currency other than U.S. dollars, at any time for determination thereof, the amount of U.S. dollars obtained by converting such foreign currency involved in such computation into U.S. dollars at the spot rate for the purchase of U.S. dollars with the applicable foreign currency as published in The Wall Street Journal in the Exchange Rates column under the heading Currency Trading on the date two business days prior to such determination.
U.S. Government Securities means securities that are:
(a) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged; or
(b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America,
which, in either case, are not callable or redeemable at the option of the issuers thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Securities or a specific payment of principal of or interest on any such U.S. Government Securities held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Securities or the specific payment of principal of or interest on the U.S. Government Securities evidenced by such depository receipt.
U.S. Person means a U.S. person as defined in Rule 902(k) under the Securities Act.
Voting Stock of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness, Disqualified Stock or Preferred Stock, as the case may be, at any date, the quotient obtained by dividing:
(a) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock or Preferred Stock multiplied by the amount of such payment; by
(b) the sum of all such payments;
provided that for purposes of determining the Weighted Average Life to Maturity of any Indebtedness that is being extended, replaced, refunded, refinanced, renewed or defeased (the Applicable Indebtedness ), the effects of any amortization or prepayments made on such Applicable Indebtedness prior to the date of the applicable extension, replacement, refunding, refinancing, renewal or defeasance shall be disregarded.
Wholly Owned Subsidiary of any Person means a Subsidiary of such Person, 100.0% of the outstanding Equity Interests of which (other than directors qualifying shares and shares issued to foreign nationals as required by applicable law) shall at the time be owned by such Person and/or by one or more Wholly Owned Subsidiaries of such Person.
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Section 1.02. Other Definitions .
Term |
Defined in Section |
|
Acceptable Commitment | 4.10 | |
Affiliate Transaction | 4.11 | |
Applicable Indebtedness | 1.01 | |
Applicable Premium Deficit | 8.04 | |
Asset Sale Offer | 4.10 | |
Authentication Order | 2.02 | |
Change of Control Offer | 4.14 | |
Change of Control Payment | 4.14 | |
Change of Control Payment Date | 4.14 | |
Code | 2.06 | |
Covenant Defeasance | 8.03 | |
Covenant Suspension Event | 4.17(a) | |
DTC | 2.03 | |
ERISA | 2.06 | |
equity incentives | 1.01 | |
Event of Default | 6.01 | |
Excess Proceeds | 4.10 | |
Fixed Charge Coverage Test | 4.07 | |
incur and incurrence | 4.09 | |
Legal Defeasance | 8.02 | |
Marketed Notes | 9.07 | |
Note Register | 2.03 | |
Offer Amount | 3.08 | |
Offer Period | 3.08 | |
Pari Passu Indebtedness | 4.10 | |
Paying Agent | 2.03 | |
PHRI Notes | Recitals | |
Purchase Date | 3.08 | |
Redemption Date | 3.01 | |
Refinancing Indebtedness | 4.09 | |
Refunding Capital Stock | 4.07 | |
Registrar | 2.03 | |
Reset Date | 9.07 | |
Restricted Payments | 4.07 | |
Reversion Date | 4.17(b) | |
Second Commitment | 4.10 | |
Successor Company | 5.01 | |
Successor Person | 5.01 | |
Suspended Covenants | 4.17(a) | |
Suspension Period | 4.17(b) | |
Transfer Agent | 2.03 | |
Treasury Capital Stock | 4.07 |
Section 1.03. Incorporation by Reference of Trust Indenture Act . At all times after the effectiveness of a registration statement under the Registration Rights Agreement, this Indenture will be subject to the mandatory provisions of the Trust Indenture Act, which unless otherwise indicated are incorporated by reference in and made a part of this Indenture upon the effectiveness of any such registration statement. Whenever this Indenture refers to a provision of the Trust Indenture Act, the provision is incorporated by reference in and made a part of this Indenture.
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The following Trust Indenture Act terms if used in this Indenture have the following meanings:
indenture securities means the Notes and the Guarantees;
indenture security Holder means a Holder of a Note;
indenture to be qualified means this Indenture;
indenture trustee or institutional trustee means the Trustee; and obligor on the Notes and the Guarantees means the Issuers and the Guarantors, respectively, and any successor obligor upon the Notes and the Guarantees, respectively.
All other terms used in this Indenture that are defined by the Trust Indenture Act, defined by Trust Indenture Act reference to another statute or defined by SEC rule under the Trust Indenture Act have the meanings so assigned to them.
Section 1.04. Rules of Construction . Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) or is not exclusive;
(d) the words including, includes and similar words shall be deemed to be followed by without limitation;
(e) words in the singular include the plural, and in the plural include the singular;
(f) shall and will shall be interpreted to express a command;
(g) provisions apply to successive events and transactions;
(h) references to sections of, or rules under, the Securities Act or the Exchange Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time;
(i) unless the context otherwise requires, any reference to an Article, Section or clause refers to an Article, Section or clause, as the case may be, of this Indenture;
(j) the words herein, hereof and hereunder and other words of similar import refer to this Indenture as a whole and not any particular Article, Section, clause or other subdivision;
(k) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the Issuer dated such date prepared in accordance with GAAP;
(l) words used herein implying any gender shall apply to both genders;
(m) in the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding and the word through means to and including;
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(n) the principal amount of any Preferred Stock at any time shall be (i) the maximum liquidation value of such Preferred Stock at such time or (ii) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock at such time, whichever is greater; and
(o) all references to any interest or other amount payable on or with respect to the Notes shall be deemed to include any Additional Interest.
Section 1.05. Acts of Holders .
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Issuers. Proof of execution of any such instrument or of a writing appointing any such agent, or the holding by any Person of a Note, shall be sufficient for any purpose of this Indenture and (subject to Section 7.01 hereof) conclusive in favor of the Trustee and the Issuers, if made in the manner provided in this Section 1.05.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by the certificate of any notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by or on behalf of any legal entity other than an individual, such certificate or affidavit shall also constitute proof of the authority of the Person executing the same. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof, in respect of any action taken, suffered or omitted by the Trustee or the Issuers in reliance thereon, whether or not notation of such action is made upon such Note.
(e) The Issuers may, in the circumstances permitted by the Trust Indenture Act, set a record date for purposes of determining the identity of Holders entitled to give any request, demand, authorization, direction, notice, consent, waiver or take any other act, or to vote or consent to any action by vote or consent authorized or permitted to be given or taken by Holders. Unless otherwise specified, if not set by the Issuers prior to the first solicitation of a Holder made by any Person in respect of any such action, or in the case of any such vote, prior to such vote, any such record date shall be the later of 10 days prior to the first solicitation of such consent or, if the Trustee is not then also the Registrar, the date of the most recent list of Holders furnished to the Trustee prior to such solicitation.
(f) Without limiting the foregoing, a Holder entitled to take any action hereunder with regard to any particular Note may do so with regard to all or any part of the principal amount of such Note or by one or more duly appointed agents, each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Any notice given or action taken by a Holder or its agents with regard to different parts of such principal amount pursuant to this Section 1.05(f) shall have the same effect as if given or taken by separate Holders of each such different part.
(g) Without limiting the generality of the foregoing, a Holder, including DTC, that is a Holder of a Global Note, may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders, and any Person, that is a Holder of a Global Note, including DTC, may provide its proxy or proxies to the beneficial owners of interests in any such Global Note through such Depositarys standing instructions and customary practices.
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(h) The Issuers may fix a record date for the purpose of determining the Persons who are beneficial owners of interests in any Global Note held by DTC entitled under the procedures of such Depositary to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies, and only such Persons, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other action shall be valid or effective if made, given or taken more than 120 days after such record date.
Section 1.06. Timing of Payment . Notwithstanding anything herein to the contrary, if the date on which any payment is to be made pursuant to this Indenture or the Notes is not a Business Day, the payment otherwise payable on such date shall be payable on the next succeeding Business Day with the same force and effect as if made on such scheduled date and (provided such payment is made on such succeeding Business Day) no interest shall accrue on the amount of such payment from and after such scheduled date to the time of such payment on such next succeeding Business Day and the amount of any such payment that is an interest payment will reflect accrual only through the original payment date and not through the next succeeding Business Day.
Section 1.07. Co-Issuers . At any time at which the Issuer, as defined in Section 1.01 hereof, includes one or more co-issuers, each such issuer and co-issuer shall be jointly and severally liable for all obligations of the Issuer under or related to, or arising in connection with, this Indenture and the Notes, and any document to be executed by the Issuer hereunder during such time shall be executed by each such issuer and co-issuer.
Section 1.08. Financial Calculations for Limited Condition Acquisitions . For purposes of calculating the availability under any basket or ratio under this Indenture, in each case in connection with a Limited Condition Acquisition, the date of determination of any such basket or ratio under this Indenture and of any Default or Event of Default related thereto may, at the option of the Issuers, be the date the definitive agreements for such Limited Condition Acquisition are entered into, in which case such baskets or ratios shall be calculated with such pro forma adjustments as are appropriate and consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio in Section 1.01 hereof after giving effect to such Limited Condition Acquisition and the other transactions to be entered into in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) as if they occurred at the beginning of the applicable period for purposes of determining the ability to consummate any such Limited Condition Acquisition (and not for purposes of any subsequent availability of any basket or ratio). For the avoidance of doubt, (a) if any of such baskets or ratios are exceeded as a result of fluctuations in such basket or ratio (including due to fluctuations in EBITDA of the Issuers or the target company) subsequent to such date of determination and at or prior to the consummation of the relevant Limited Condition Acquisition, such baskets or ratios will not be deemed to have been exceeded as a result of such fluctuations for purposes of determining whether the Limited Condition Acquisition and related transactions are permitted under this Indenture and (b) such baskets or ratios shall not be tested at the time of consummation of such Limited Condition Acquisition or related transactions solely for purposes of determining whether such Limited Condition Acquisition is permitted under this Indenture; provided, however , that if the Issuers elect to have such determinations occur at the time of entry into such definitive agreement, any such transactions (including any incurrence of Indebtedness and the use of proceeds thereof) shall be deemed to have occurred on the date such definitive agreement is entered and shall be deemed to be outstanding thereafter for purposes of calculating any usage of baskets or ratios under this Indenture from and including the date of such definitive agreement and before the consummation of such Limited Condition Acquisition, unless and until such Limited Condition Acquisition has been abandoned or such definitive agreement has expired or been terminated prior to consummation thereof.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating; Terms .
(a) General . The PHRI Notes and the Trustees certificate of authentication relating to the PHRI Notes shall be substantially in the form of Exhibit A-1 hereto, and any other Notes and the Trustees certificate of authentication relating to such other Notes shall be substantially in the form of Exhibit A-2 hereto. No PHRI Notes
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shall be issued hereunder following the Reset Date. The Notes may have notations, legends or endorsements required by law, stock exchange rules or usage. Each Note shall be dated the date of its authentication. The Notes shall be issued in minimum denominations of $2,000 and any integral multiple of $1,000 in excess of $2,000.
(b) Global Notes . Notes issued in global form shall be substantially in the form of Exhibit A-2 hereto, including the Global Note Legend thereon and the Schedule of Exchanges of Interests in the Global Note attached thereto. Notes (other than the PHRI Notes) issued in definitive form shall be substantially in the form of Exhibit A-2 hereto, but without the Global Note Legend thereon and without the Schedule of Exchanges of Interests in the Global Note attached thereto. Each Global Note shall represent such of the outstanding Notes as shall be specified in the Schedule of Exchanges of Interests in the Global Note attached thereto and each shall provide that it shall represent up to the aggregate principal amount of Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as applicable, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.
(c) Temporary Global Notes . Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Custodian and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Issuers and authenticated by the Trustee as hereinafter provided.
Following (i) the termination of the applicable Restricted Period and (ii) the receipt by the Trustee of (A) a certification or other evidence in a form reasonably acceptable to the Issuers together with copies of certificates from Euroclear and Clearstream certifying that they have received certifications of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note, to the extent the Depositary, Euroclear and Clearstream provide such certificates in the ordinary course of their business (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who shall take delivery of a beneficial ownership interest in a 144A Global Note bearing the Private Placement Legend, all as contemplated by Section 2.06(b) hereof) and (B) an Officers Certificate from the Issuers, the Trustee shall remove the Regulation S Temporary Global Note Legend from the Regulation S Temporary Global Note, following which temporary beneficial interests in the Regulation S Temporary Global Note shall automatically become beneficial interests in the Regulation S Permanent Global Note pursuant to the Applicable Procedures.
The aggregate principal amount of a Regulation S Temporary Global Note and a Regulation S Permanent Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided.
(d) Terms . The aggregate principal amount of Notes that may be authenticated and delivered under this Indenture is unlimited.
The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Issuers, the Guarantors from time to time party hereto and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.
The Notes shall be subject to repurchase by the Issuers pursuant to an Asset Sale Offer as provided in Section 4.10 hereof or a Change of Control Offer as provided in Section 4.14 hereof. The Notes shall not be redeemable, other than as provided in Article 3 hereof.
Subject to compliance with Section 4.09 hereof, the Issuers may issue Additional Notes from time to time ranking pari passu with the Initial Notes without notice to or consent of the Holders, and such Additional Notes shall be consolidated with and form a single class with the Initial Notes and shall have the same terms as to status,
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redemption or otherwise as the Initial Notes, except that interest may accrue on the Additional Notes from their date of issuance (or such other date specified by the Issuers); provided that if any Additional Notes are not fungible with the Initial Notes for U.S. federal income tax purposes, such Additional Notes will have a separate CUSIP number. Any Additional Notes may be issued with the benefit of an indenture supplemental to this Indenture.
(e) Euroclear and Clearstream Applicable Procedures . The provisions of the Operating Procedures of the Euroclear System and Terms and Conditions Governing Use of Euroclear and the General Terms and Conditions of Clearstream Banking and Customer Handbook of Clearstream shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes that are held by Participants through Euroclear or Clearstream.
Section 2.02. Execution and Authentication . At least one Officer of each of the Issuer and the Co-Issuer shall execute the Notes on behalf of the Issuer and the Co-Issuer, as applicable, by manual, facsimile or electronic (including .pdf) signature.
If an Officer of the Issuer or the Co-Issuer whose signature is on a Note no longer holds that office at the time the Trustee authenticates the Note, the Note shall nevertheless be valid.
A Note shall not be entitled to any benefit under this Indenture or be valid or obligatory for any purpose until authenticated substantially in the form of Exhibit A-1 hereto, in the case of the PHRI Notes, or in the form of Exhibit A-2 hereto, in the case of any other Notes, by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been duly authenticated and delivered under this Indenture.
On the Issue Date, the Trustee shall, upon receipt of an Issuers Order (an Authentication Order ), authenticate and deliver the Initial Notes in the aggregate principal amount or amounts specified in such Authentication Order. In addition, at any time, from time to time, the Trustee shall, upon receipt of an Authentication Order, authenticate and deliver any Additional Notes or Exchange Notes for an aggregate principal amount specified in such Authentication Order for such Additional Notes or Exchange Notes issued or increased hereunder.
The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuers.
Section 2.03. Registrar, Transfer Agent and Paying Agent . The Issuers shall maintain (i) an office or agency where Notes may be presented for registration (the Registrar ), which shall be Wilmington Trust, National Association as of the date of this Indenture, (ii) an office or agency where the Notes may be presented for transfer or for exchange (the Transfer Agent ), which shall be Wilmington Trust, National Association as of the date of this Indenture and (iii) an office or agency where Notes may be presented for payment (the Paying Agent ), which shall be Wilmington Trust, National Association as of the date of this Indenture. The Registrar shall keep a register of the Notes ( Note Register ) and of their transfer and exchange. The registered Holder of a Note will be treated as the owner of such Note for all purposes and only registered Holders shall have rights under this Indenture and the Notes. The Issuers may appoint one or more co-registrars, one or more co-transfer agents and one or more additional paying agents. The term Registrar includes any co-registrar, the term Transfer Agent includes any co-transfer agent and the term Paying Agent includes any additional paying agents. The Issuers may change any Paying Agent, Transfer Agent or Registrar without prior notice to any Holder. The Issuers shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar, Transfer Agent or Paying Agent, the Trustee shall act as such. Either Issuer or any of its respective Subsidiaries may act as Paying Agent, Transfer Agent or Registrar upon written notice to the Trustee.
The Issuers initially appoint The Depository Trust Company, its nominees and successors ( DTC ) to act as Depositary with respect to any Global Notes.
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The Issuers initially appoint the Trustee to act as the Paying Agent, Transfer Agent and Registrar for the Notes and to act as Custodian with respect to the Notes and any Global Notes.
If any Notes are listed on an exchange and the rules of such exchange so require, the Issuers will satisfy any requirement of such exchange as to paying agents, registrars and transfer agents and will comply with any notice requirements required under such exchange in connection with any change of paying agent, registrar or transfer agent.
Section 2.04. Paying Agent to Hold Money in Trust . The Issuers shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, interest or Additional Interest, if any, on the Notes, and will notify the Trustee in writing of any default by the Issuers in making any such payment. While any such default continues, the Trustee may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee. The Issuers at any time may require a Paying Agent (other than the Trustee) to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Issuer or a Subsidiary or the Trustee) shall have no further liability for the money. If the Issuer or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Issuer or the Co-Issuer, the Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists . The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with Section 312(a) of the Trust Indenture Act. If the Trustee is not the Registrar, the Issuers shall furnish to the Trustee at least two Business Days before each Interest Payment Date (other than the Initial Interest Payment Date) and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders and the Issuers shall otherwise comply with Section 312(a) of the Trust Indenture Act.
Section 2.06. Transfer and Exchange .
(a) Transfer and Exchange of Global Notes . Except as otherwise set forth in this Section 2.06, a Global Note may be transferred, in whole and not in part, only to another nominee of the Depositary or to a successor thereto or a nominee of such successor thereto. A beneficial interest in a Global Note may not be exchanged for a Definitive Note unless, and, if applicable, subject to the limitation on issuance of Definitive Notes set forth in Section 2.06(c)(ii), (i) the Depositary (x) notifies the Issuers that it is unwilling or unable to continue as Depositary for such Global Note or (y) has ceased to be a clearing agency registered under the Exchange Act, and, in either case, a successor Depositary is not appointed by the Issuers within 120 days, (ii) the Issuers, at their option, notify the Trustee in writing that they elect to cause the issuance of Definitive Notes (although Regulation S Temporary Global Notes may not be exchanged for Definitive Notes prior to (A) the expiration of the applicable Restricted Period and (B) the receipt by the Registrar of any certification of beneficial ownership required pursuant to Rule 903(b)(3)(ii)(B)), (iii) upon the request of a Holder if there shall have occurred and be continuing an Event of Default with respect to the Notes, or (iv) the Trustee has received a written request by or on behalf of the Depositary to issue Definitive Notes. Upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) above, Definitive Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depositary (in accordance with its customary procedures). Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Sections 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note, except for Definitive Notes issued subsequent to any of the events described in clause (i), (ii), (iii) or (iv) above and pursuant to Section 2.06(c) hereof. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a); provided , however , beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes . The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to
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restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note . Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person other than pursuant to Rule 144A. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes . In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) hereof, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in a Regulation S Temporary Global Note prior to (x) the expiration of the applicable Restricted Period therefor and (y) the receipt by the Registrar of any certification of beneficial ownership required pursuant to Rule 903(b)(3)(ii)(B). Upon consummation of an Exchange Offer by the Issuers in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the applicable Letter of Transmittal or through an Agents Message delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global Note . A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) hereof and the Registrar receives the following:
(A) if the transferee will take delivery in the form of a beneficial interest in a 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; or
(B) if the transferee will take delivery in the form of a beneficial interest in a Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note . A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) hereof and:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
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(B) such Notes are sold or exchanged pursuant to an effective registration statement under the Securities Act;
(C) such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or
(2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes .
(i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes . If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) of Section 2.06(a) hereof and receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
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(C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to the Issuer, the Co-Issuer or any of their Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and mail to the Person designated in the instructions a Definitive Note in the applicable principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall mail such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) (except transfers pursuant to clause (F) above) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.
(ii) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes . Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the applicable Restricted Period therefor and (B) the receipt by the Registrar of any certifications of beneficial ownership required pursuant to Rule 903(b)(3)(ii)(B) of the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes . A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) of Section 2.06(a) hereof and if:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
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(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes . If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon the occurrence of any of the events described in clause (i), (ii), (iii) or (iv) of Section 2.06(a) hereof and satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall execute and, upon receipt of an Authentication Order, the Trustee shall authenticate and mail to the Person designated in the instructions a Definitive Note in the applicable principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from or through the Depositary and the Participant or Indirect Participant. The Trustee shall mail such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iv) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests .
(i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes . If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(a) thereof;
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(E) if such Restricted Definitive Note is being transferred to the Issuer, the Co-Issuer or any of their Subsidiaries, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(F) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate substantially in the form of Exhibit B hereto, including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the applicable Restricted Global Note, in the case of clause (B) above, the applicable 144A Global Note, and in the case of clause (C) above, the applicable Regulation S Global Note.
Notwithstanding the foregoing, exchanges of the Definitive Notes by the Initial Purchasers or PHRI on or prior to the Reset Date for beneficial interests in one or more Restricted Global Notes shall not require the delivery of the certifications referred to in clauses (A) through (F) above.
(ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
(B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
Upon satisfaction of the applicable conditions of this Section 2.06(d)(ii), the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes . A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or
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transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraph (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes . Upon request by a Holder of Definitive Notes and such Holders compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer or exchange in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e):
(i) Restricted Definitive Notes to Restricted Definitive Notes . Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:
(A) if the transfer will be made to a QIB in accordance with Rule 144A, then the transferor must deliver a certificate substantially in the form of Exhibit B hereto, including the certifications in item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; or
(C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications required by item (3) thereof, if applicable.
Notwithstanding the foregoing, transfers of the Definitive Notes to the Selling Noteholders or the Initial Purchasers, in each case on or prior to the Reset Date, shall not require the delivery of the certifications referred to in clause (A) through (C) above.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes . Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a Participating Broker-Dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Issuer or the Co-Issuer;
(B) any such transfer is effected pursuant to a Shelf Registration Statement in accordance with the Registration Rights Agreement;
(C) any such transfer is effected by a Participating Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or
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(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder substantially in the form of Exhibit B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the Issuers so request, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes . A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.
(f) Exchange Offer . Upon the occurrence of an Exchange Offer in accordance with the Registration Rights Agreement, the Issuers shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal or through an Agents Message through the DTC Automated Tender Offer Program that (x) they are not participating in a distribution of the Exchange Notes and (y) they are not affiliates (as defined in Rule 144) of the Issuer or the Co-Issuer, and accepted for exchange in an Exchange Offer and (ii) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not participating in a distribution of the Exchange Notes and (y) they are not affiliates (as defined in Rule 144) of the Issuer or the Co-Issuer, and accepted for exchange in an Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Issuers shall execute and the Trustee shall authenticate and mail to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the applicable principal amount. Any Notes that remain outstanding after the consummation of an Exchange Offer, and Exchange Notes issued in connection with such Exchange Offer, shall be treated as a single class of securities under this Indenture.
(g) Legends . The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture:
(i) Private Placement Legend .
(A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
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SUBJECT TO, REGISTRATION AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT (RULE 144A)), OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES TO OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER SUCH NOTE PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD THEN IMPOSED BY RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) ONLY (A) TO THE ISSUER OR ANY CO-ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN AN OFFSHORE TRANSACTION PURSUANT TO REGULATION S UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS AND THE TRUSTEES RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
Except as permitted by subparagraph (B) below, each Global Note and Definitive Note issued in a transaction exempt from registration pursuant to Regulation S shall also bear the legend in substantially the following form:
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION ORIGINALLY EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. TERMS USED ABOVE HAVE THE MEANINGS GIVEN TO THEM IN REGULATION S UNDER THE SECURITIES ACT.
(B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to Section 2.01 (in the case of the PHRI Notes) and subparagraph (b)(iv), (c)(iii), (c)(iv), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend . Each Global Note shall bear a legend in substantially the following form (with appropriate changes in the last sentence if DTC is not the Depositary):
THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06(h) OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11
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OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (DTC) TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
BY ACCEPTING THIS NOTE, EACH HOLDER AND EACH TRANSFEREE IS DEEMED TO REPRESENT AND WARRANT THAT AT THE TIME OF ITS ACQUISITION AND THROUGHOUT THE PERIOD THAT IT HOLDS THIS NOTE (I) IT IS NOT, AND IS NOT ACQUIRING THE NOTES WITH THE ASSETS OF ANY (A) EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA)), THAT IS SUBJECT TO ERISA, (B) PLAN, INDIVIDUAL RETIREMENT ACCOUNT, PROGRAM OR ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), OR PROVISIONS UNDER ANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY, SIMILAR LAW) OR WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE PLAN ASSETS OF ANY SUCH PLAN, ACCOUNT OR ARRANGEMENTS AND (II) ITS ACQUISITION AND HOLDING OF THIS NOTE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAW.
(iii) Regulation S Temporary Global Note Legend . The Regulation S Temporary Global Note shall bear a legend in substantially the following form:
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN).
(h) Cancellation and/or Adjustment of Global Notes . At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or cancelled in whole and not in part, each such Global Note shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.
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(i) General Provisions Relating to Transfers and Exchanges .
(i) To permit registrations of transfers and exchanges, the Issuers shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 hereof or at the Registrars request.
(ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.07, 2.10, 3.06, 3.08, 4.10, 4.14 and 9.05 hereof).
(iii) Neither the Registrar nor the Issuers shall be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the mailing or transmission of a notice of redemption of the Notes to be redeemed under Section 3.03 hereof and ending at the close of business on the day of such mailing or transmission, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part, (C) to register the transfer or exchange of a Note between a Record Date and the next succeeding Interest Payment Date (provided that this clause (C) shall not apply to the period between the Initial Record Date and the Initial Interest Payment Date) or (D) to register the transfer or exchange of any Notes tendered (and not withdrawn) for repurchase in connection with a Change of Control Offer or an Asset Sale Offer.
(iv) Neither the Registrar nor the Issuers shall be required to register the transfer or exchange of any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; provided that new Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.
(v) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.
(vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers shall deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Issuers shall be affected by notice to the contrary.
(vii) Upon surrender for registration of transfer of any Note at the office or agency of the Issuers designated pursuant to Section 4.02 hereof, the Issuers shall execute, and the Trustee shall authenticate and mail, in the name of the designated transferee or transferees, one or more replacement Notes of any authorized denomination or denominations of a like aggregate principal amount.
(viii) At the option of the Holder, subject to Section 2.06(a) hereof, Notes may be exchanged for other Notes of any authorized denomination or denominations of a like aggregate principal amount upon surrender of the Notes to be exchanged at such office or agency. Whenever any Global Notes or Definitive Notes are so surrendered for exchange, the Issuers shall execute, and the Trustee shall authenticate and mail, the replacement Global Notes and Definitive Notes which the Holder making the exchange is entitled to in accordance with the provisions of Section 2.02 hereof.
(ix) All certifications, certificates and Opinions of Counsel required to be submitted pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.
(x) Notwithstanding anything contained herein to the contrary, neither the Trustee nor the Registrar shall be responsible for ascertaining whether any transfer complies with the registration provisions of or exemptions from the Securities Act, applicable state securities laws, ERISA (or, in the case of a governmental plan or a church plan (as described in ERISA Sections 3(32) and 3(33), respectively) any substantially similar federal, state or local law), the Code or the Investment Company Act; provided that if a certificate is specifically required by the express terms of this Section 2.06 to be delivered to the Trustee by a purchaser or transferee of a Note, the Trustee shall be under a duty to receive and examine the same to determine whether on its face it conforms to the express terms of this Indenture and shall promptly notify the party delivering the same if such certificate does not comply with such terms.
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Section 2.07. Replacement Notes . If either (x) any mutilated Note is surrendered to the Trustee, the Registrar or the Issuers, or (y) the Issuers and the Trustee receive evidence to their satisfaction of the ownership and destruction, loss or theft of any Note, then the Issuers shall issue and the Trustee, upon receipt of an Authentication Order and satisfaction of any other requirements of the Trustee, shall authenticate a replacement Note. If required by the Trustee or the Issuers, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of both (i) the Trustee to protect the Trustee and (ii) the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers and the Trustee may charge the Holder for their expenses in replacing a Note.
Every replacement Note is a contractual obligation of the Issuers and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes . The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Issuer, the Co-Issuer or a Guarantor or an Affiliate of the Issuer, the Co-Issuer or a Guarantor holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser (as defined in Section 8-303 of the Uniform Commercial Code).
Notes in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture shall not be deemed to be outstanding for purposes hereof.
If the principal amount of any Note is considered paid under Section 4.01 hereof, such Note shall cease to be outstanding and interest thereon shall cease to accrue.
If the Paying Agent (other than the Issuer, the Co-Issuer or a Guarantor or an Affiliate of the Issuer, the Co-Issuer or a Guarantor) holds, on a Redemption Date or maturity date, money sufficient to pay Notes (or portions thereof) payable on that date, then on and after that date such Notes (or portions thereof) shall be deemed to be no longer outstanding (including for accounting purposes) and shall cease to accrue interest on and after such date.
Section 2.09. Treasury Notes . In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent at any time from and including the Reset Date, Notes owned by the Issuer, the Co-Issuer or by any Affiliate of the Issuer or the Co-Issuer, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgees right to deliver any such direction, waiver or consent with respect to such pledged Notes and that the pledgee is not the Issuer, the Co-Issuer or a Guarantor or any Affiliate of the Issuer, the Co-Issuer or a Guarantor.
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Section 2.10. Temporary Notes . Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes. Without unreasonable delay, the Issuers shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders and beneficial holders, as the case may be, of temporary Notes shall be entitled to all of the benefits accorded to Holders, or beneficial holders, respectively, of Notes under this Indenture.
Section 2.11. Cancellation . The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall dispose of such cancelled Notes in its customary manner (subject to the record retention requirements of the Exchange Act). Certification of the cancellation of all cancelled Notes shall be delivered to the Issuers upon their written request therefor. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest . If the Issuers default in a payment of interest on the Notes, they shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Issuers shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Issuers shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as provided in this Section 2.12. The Issuers shall fix or cause to be fixed any such special record date and payment date; provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. The Issuers shall promptly notify the Trustee of any such special record date. At least 15 days before any such special record date, the Issuers (or, upon the written request of the Issuers, the Trustee in the name and at the expense of the Issuers) shall mail or cause to be mailed, first-class postage prepaid, or otherwise deliver in accordance with the Applicable Procedures, to each Holder, with a copy to the Trustee, a notice at his or her address as it appears in the Note Register that states the special record date, the related payment date and the amount of such interest to be paid.
Subject to the foregoing provisions of this Section 2.12 and for greater certainty, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note.
Section 2.13. CUSIP Numbers; ISINs . The Issuers in issuing the Notes may use CUSIP numbers and ISINs (in each case, if then generally in use) and, if so, the Trustee shall use CUSIP numbers and ISINs in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuers will as promptly as practicable notify the Trustee in writing of any change in the CUSIP numbers and ISINs.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee . If the Issuers elect to redeem Notes pursuant to Section 3.07 hereof, they shall furnish to the Trustee, at least two Business Days (unless a shorter notice shall be agreed to by the Trustee) before notice of redemption is required to be delivered or mailed to Holders pursuant to Section 3.03 hereof, an Officers Certificate setting forth (a) the paragraph or subparagraph of such Note and/or Section of this Indenture
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pursuant to which the redemption shall occur, (b) the date of redemption (as such date may be delayed pursuant to Section 3.07(e), the Redemption Date ), (c) the principal amount of the Notes to be redeemed and (d) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed . If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed (a) if the Notes are listed on a securities exchange (and such listing is known to the Trustee), in compliance with the requirements of such exchange on which such Notes are listed or (b) on a pro rata basis to the extent practicable, or, if the pro rata basis is not practicable for any reason, by lot or by such other method as the Trustee shall deem fair and appropriate and otherwise in accordance with the Applicable Procedures in minimum denominations of $2,000 and increments of $1,000 in excess thereof. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the Redemption Date by the Trustee from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Issuers in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in integral multiples of $1,000 (but in a minimum amount of $2,000) and no Notes of $2,000 or less can be redeemed in part, except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder shall be redeemed, even if not in a principal amount of at least $2,000. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption . Subject to Section 3.08 hereof, the Issuers shall send electronically, mail or cause to be mailed by first-class mail, postage prepaid, notices of redemption at least 15 days but (except as set forth in Section 3.07(e)) not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holders registered address stated in the Note Register or otherwise in accordance with the Applicable Procedures, except that redemption notices may be delivered or mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with Article 8 or Article 11 hereof. Notices of redemption may, at the Issuers discretion, be conditional.
The notice shall identify the Notes to be redeemed and shall state:
(a) the Redemption Date;
(b) the redemption price;
(c) if any Definitive Note is to be redeemed in part only, the portion of the principal amount of that Note that is to be redeemed and that, after the Redemption Date upon surrender of such Note, a new Note or Notes in a principal amount equal to the unredeemed portion of the original Note representing the same indebtedness to the extent not redeemed will be issued in the name of the Holder upon cancellation of the original Note; provided that new Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date;
(g) the paragraph or subparagraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed;
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(h) the CUSIP number and ISIN, if any, printed on the Notes being redeemed and that no representation is made as to the correctness or accuracy of any such CUSIP number and ISIN that is listed in such notice or printed on the Notes; and
(i) any condition to such redemption.
In addition, any notice of redemption may include additional information, including any information pursuant to Section 3.07(e) hereof.
At the Issuers request, the Trustee shall give the notice of redemption in the Issuers name and at their expense; provided that the Issuers shall have delivered to the Trustee, at least two Business Days before notice of redemption is required to be delivered electronically, mailed or caused to be mailed to Holders pursuant to this Section 3.03 (unless a shorter notice shall be agreed to by the Trustee), an Officers Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph.
If the Notes are listed on an exchange, for so long as the Notes are so listed and the rules of such exchange so require, the Issuers shall notify the exchange of any such redemption and, if applicable, of the principal amount of any Notes outstanding following any partial redemption of Notes.
Section 3.04. Effect of Notice of Redemption . A notice of redemption, if delivered electronically, mailed or caused to be mailed in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. In any case, failure to deliver such notice or any defect in the notice to the Holder of any Note designated for redemption in whole or in part shall not affect the validity of the proceedings for the redemption of any other Note. Notes or portions of Notes called for redemption shall become due and payable on the Redemption Date, subject to satisfaction of any conditions specified in the notice. Subject to Section 3.05 hereof, on and after the Redemption Date, interest shall cease to accrue on Notes or portions of Notes called for redemption.
Section 3.05. Deposit of Redemption Price .
(a) Prior to 11:00 a.m. (New York City time) on the Redemption Date, the Issuers shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued and unpaid interest on all Notes to be redeemed on that Redemption Date. The Trustee or the Paying Agent shall promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the redemption price of, and accrued and unpaid interest on, all Notes to be redeemed.
(b) If the Issuers comply with the provisions of the preceding paragraph (a), on and after the Redemption Date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an applicable Record Date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest to the Redemption Date shall be paid to the Person in whose name such Note was registered at the close of business on such Record Date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the Redemption Date until such principal is paid, and to the extent lawful on any interest accrued to the Redemption Date not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part . Upon surrender of a Definitive Note that is redeemed in part, the Issuers shall issue and the Trustee shall authenticate for the Holder, at the expense of the Issuers, a new Note equal in principal amount to the unredeemed portion of the Note surrendered representing the same indebtedness to the extent not redeemed; provided that each new Note will be in a minimum principal amount of $2,000 and any integral multiple of $1,000 in excess of $2,000. It is understood that, notwithstanding anything to the contrary in this Indenture, only an Authentication Order and not an Opinion of Counsel or Officers Certificate is required for the Trustee to authenticate such new Note.
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Section 3.07. Optional Redemption .
(a) Except as set forth in clauses (b) and (d) of this Section 3.07, the Notes will not be redeemable at the Issuers option prior to December 1, 2021.
(b) At any time prior to December 1, 2021, the Issuers may, at their option, and on one or more occasions, redeem all or a part of the Notes, upon notice in accordance with Section 3.03 hereof, at a redemption price equal to the sum of (A) 100.0% of the principal amount of the Notes redeemed, plus (B) the Applicable Premium as of the Redemption Date, plus (C) accrued and unpaid interest and Additional Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date falling prior to or on the Redemption Date.
(c) On and after December 1, 2021, the Issuers may, at their option and on one or more occasions, redeem the Notes, in whole or in part, upon notice in accordance with Section 3.03 hereof, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest and Additional Interest, if any, thereon to, but excluding, the applicable Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date falling prior to or on the Redemption Date, if redeemed during the twelve-month period beginning on December 1 of each of the years indicated below:
Year | Percentage | |||
2021 |
103.250 | % | ||
2022 |
101.625 | % | ||
2023 and thereafter |
100.000 | % |
(d) In connection with any tender offer for the Notes, including without limitation any Change of Control Offer, if Holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in such tender offer and the Issuers, or any third party making such tender offer in lieu of the Issuers, purchase all of the Notes validly tendered and not withdrawn by such Holders, the Issuers or such third party will have the right upon not less than 15 nor more than 60 days prior notice, given not more than 30 days following such purchase date, to redeem all Notes that remain outstanding following such purchase at a price equal to the price offered to each other Holder in such tender offer plus, to the extent not included in the tender offer payment, accrued and unpaid interest, if any, thereon, to, but excluding, the Redemption Date.
(e) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Notice of any redemption may be given prior to the completion thereof, and any such redemption or notice may, at the Issuers discretion, be subject to one or more conditions precedent, including, but not limited to, completion of the related transaction. In addition, if such redemption is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Issuers discretion, the Redemption Date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the Redemption Date, or by the Redemption Date so delayed. For the avoidance of doubt, if any Redemption Date shall be delayed pursuant to this Section 3.07(e) and the terms of the applicable notice of redemption, such Redemption Date as so delayed may occur at any time after the original Redemption Date set forth in the applicable notice of redemption and after the satisfaction of any applicable conditions precedent, including, without limitation, on a date that is more than 60 days after the date of the applicable notice of redemption. In addition, the Issuers may provide in such notice that payment of the redemption price and performance of the Issuers obligations with respect to such redemption may be performed by another Person. The Issuers, the Investors and their respective Affiliates may acquire the Notes by means other than a redemption pursuant to this Section 3.07, whether by tender offer, open market purchases, negotiated transactions or otherwise.
(f) The Trustee shall have no duty to calculate or verify the calculation of the Applicable Premium.
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Section 3.08. Offers to Repurchase by Application of Excess Proceeds .
(a) In the event that, pursuant to Section 4.10 hereof, the Issuers shall be required to commence an Asset Sale Offer, the Issuers shall follow the procedures specified below.
(b) The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the Offer Per i od ). No later than five Business Days after the termination of the Offer Period (the Purchase Date ), the Issuers shall apply all Excess Proceeds (the Offer Amount ) to the purchase of Notes and, if required, Pari Passu Indebtedness (on a pro rata basis, if applicable, with adjustments as necessary so that no Notes or Pari Passu Indebtedness will be repurchased in part in an unauthorized denomination), or, if less than the Offer Amount has been tendered, all Notes and Pari Passu Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made.
(c) If the Purchase Date is on or after a Record Date and on or before the related Interest Payment Date, any accrued and unpaid interest and Additional Interest, if any, up to but excluding the Purchase Date, shall be paid to the Person in whose name a Note is registered at the close of business on such Record Date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer.
(d) Upon the commencement of an Asset Sale Offer, the Issuers shall send electronically or by first-class mail, a notice to each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders and holders of such Pari Passu Indebtedness. The notice, which shall govern the terms of the Asset Sale Offer, shall state:
(i) that the Asset Sale Offer is being made pursuant to this Section 3.08 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open;
(ii) the Offer Amount, the purchase price and the Purchase Date;
(iii) that any Note not tendered or accepted for payment shall continue to accrue interest;
(iv) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest on and after the Purchase Date;
(v) that any Holder electing to have less than all of the aggregate principal amount of its Notes purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in an amount not less than $2,000 and in integral multiples of $1,000 in excess thereof;
(vi) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled Option of Holder to Elect Purchase attached to the Note completed, or transfer such Note by book-entry transfer, to the Issuers, the Depositary, if appointed by the Issuers, or a Paying Agent at the address specified in the notice at least two Business Days before the Purchase Date;
(vii) that Holders shall be entitled to withdraw their election if the Issuers, the Depositary or the Paying Agent, as the case may be, receives, not later than the close of business on the second Business Day prior to the expiration date of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;
(viii) that, if the aggregate principal amount of Notes or the Pari Passu Indebtedness, as the case may be, surrendered by the holders thereof exceeds the Offer Amount, the Issuers shall purchase such Notes and such Pari Passu Indebtedness, as the case may be, on a pro rata basis based on the accreted value or principal amount of the Notes or such Pari Passu Indebtedness, as the case may be, tendered (with such adjustments as may be deemed appropriate by the Issuers so that only Notes in an amount not less than $2,000 or integral multiples of $1,000 in excess thereof are purchased); and
(ix) that Holders whose certificated Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer) representing the same indebtedness to the extent not repurchased; provided that new Notes will only be issued in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.
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(e) On or before the Purchase Date, the Issuers shall, to the extent lawful, (1) accept for payment, on a pro rata basis as described in clause (d)(viii) of this Section 3.08, the Offer Amount of Notes or portions thereof validly tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered and (2) deliver or cause to be delivered to the Trustee the Notes properly accepted, together with an Officers Certificate stating the aggregate principal amount of Notes or portions thereof so tendered.
(f) The Issuers, the Depositary or the Paying Agent, as the case may be, shall promptly mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes properly tendered by such Holder and accepted by the Issuers for purchase, and the Issuers shall promptly issue a new Note, and the Trustee, upon receipt of an Authentication Order, shall authenticate and mail or deliver (or cause to be transferred by book-entry) such new Note to such Holder (it being understood that, notwithstanding anything in this Indenture to the contrary, no Opinion of Counsel or Officers Certificate is required for the Trustee to authenticate and mail or deliver such new Note) in a principal amount equal to any unpurchased portion of the Note surrendered representing the same indebtedness to the extent not repurchased; provided , that each such new Note shall be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers shall publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Purchase Date.
(g) Prior to noon (New York City time) on the purchase date, the Issuers shall deposit with the Trustee or with the Paying Agent money sufficient to pay the purchase price of and accrued and unpaid interest on all Notes to be purchased on that purchase date. The Trustee or the Paying Agent shall promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the purchase price of, and accrued and unpaid interest on, all Notes to be redeemed.
Other than as specifically provided in this Section 3.08 or Section 4.10 hereof, any purchase pursuant to this Section 3.08 shall be made pursuant to the applicable provisions of Sections 3.01 through 3.06 hereof, and references therein to redeem, redemption, Redemption Date and similar words shall be deemed to refer to purchase, repurchase, Purchase Date and similar words, as applicable.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes . The Issuers, jointly and severally, shall pay or cause to be paid the principal of, premium, if any, Additional Interest, if any, and interest on the Notes on the dates and in the manner provided in the Notes and this Indenture. Principal, premium, if any, Additional Interest, if any, and interest shall be considered paid on the date due if the Paying Agent, if other than the Issuer, the Co-Issuer or a Guarantor or an Affiliate of the Issuer, the Co-Issuer or a Guarantor, holds as of noon (New York City time) on the due date money deposited by the Issuers in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due.
The Issuers shall pay all Additional Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement.
The Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to the then applicable interest rate on the Notes to the extent lawful; the Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest (without regard to any applicable grace period) at the same rate to the extent lawful.
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Section 4.02. Maintenance of Office or Agency . The Issuers shall maintain the offices or agencies (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or Transfer Agent) required under Section 2.03 hereof where Notes may be surrendered for registration of transfer or for exchange or presented for payment and where notices and demands to or upon the Issuers in respect of the Notes and this Indenture may be served. The Issuers shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuers shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office.
The Issuers may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided that no such designation or rescission shall in any manner relieve the Issuers of their obligation to maintain such offices or agencies as required by Section 2.03 hereof for such purposes. The Issuers shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office as one such office or agency of the Issuers in accordance with Section 2.03 hereof.
Section 4.03. Reports and Other Information .
(a) Notwithstanding that the Issuer may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, the Issuer shall file with the SEC (with a copy to the Trustee unless filed and available on the SECs EDGAR website) from and after the Reset Date:
(i) within 90 days after the end of each fiscal year (or, if the Spin-Off Transaction has not then been completed, 120 days for the first fiscal year ending after the Reset Date), annual reports on Form 10-K, or any successor or comparable form (if the Issuer had been a reporting company under Section 15(d) of the Exchange Act), containing substantially all the information that would be required to be contained therein, or required in such successor or comparable form;
(ii) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or, if the Spin-Off Transaction has not then been completed, 60 days for the first three fiscal quarters ending after the Reset Date), reports on Form 10-Q, or any successor or comparable form (if the Issuer had been a reporting company under Section 15(d) of the Exchange Act), containing substantially all quarterly information that would be required to be contained in Form 10-Q, or any successor or comparable form;
(iii) promptly after the occurrence of a material event which would have been required to be reported on a Form 8-K or any successor or comparable form (if the Issuer had been a reporting company under Section 15(d) of the Exchange Act), a current report relating to such event on Form 8-K or any successor or comparable form;
in each case, in a manner that complies in all material respects with the requirements specified in such form (except as described above or below and subject to exceptions consistent with the presentation of information in the Offering Memorandum); provided , however , that the Issuer shall not be so obligated to file such reports referred to in clauses (i), (ii) and (iii) above with the SEC if the SEC does not permit such filing, in which event the Issuer shall make available such information to the Trustee, the Holders and prospective purchasers of Notes, in each case within 15 days after the time the Issuer would be required to file such information with the SEC if it were subject to Section 15(d) of the Exchange Act. In addition, to the extent not satisfied by the foregoing, for so long as any Notes are outstanding, the Issuer shall furnish to Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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(b) The Issuer may satisfy its obligations under this Section 4.03 with respect to financial information relating to the Issuer by furnishing financial information relating to a direct or indirect parent of the Issuer (including HGV Parent) as long as any such parent entity of the Issuer provides a Guarantee of the Notes.
(c) If with respect to any reporting period(s) covered in the applicable report, the Issuers Unrestricted Subsidiaries (other than the Unrestricted Securitization Subsidiaries) would, individually or in the aggregate, constitute a significant subsidiary (as such term is defined in Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act (as such regulation is in effect on the Issue Date)), then the applicable annual and quarterly financial information required by clauses (a)(i) and (a)(ii) above shall include a supplemental section in Managements Discussion and Analysis of Financial Condition and Results of Operations presenting (in a manner consistent with the presentation of information included or incorporated by reference in the Offering Memorandum) selected financial measures of such Unrestricted Subsidiaries in the aggregate (separate from the financial information of the Issuer and its Restricted Subsidiaries).
(d) Notwithstanding anything herein to the contrary, the Issuer will not be deemed to have failed to comply with any of its obligations hereunder for purposes of clause (iii) of Section 6.01(a) hereof until 120 days after the receipt of the written notice delivered thereunder.
To the extent any information is not provided within the time periods specified in this Section 4.03 and such information is subsequently provided, the Issuer will be deemed to have satisfied its obligations with respect thereto at such time and any Default with respect thereto shall be deemed to have been cured.
Section 4.04. Compliance Certificate .
(a) The Issuer shall deliver to the Trustee, within 90 days after the end of each fiscal year ending after the Issue Date (or 120 days for the first fiscal year ending after the Issue Date), a certificate from its principal executive officer, principal financial officer or principal accounting officer stating that a review of the activities of the Issuer and its Restricted Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officer with a view to determining whether the Issuer and its Restricted Subsidiaries have kept, observed, performed and fulfilled their respective obligations under this Indenture, and further stating, as to such Officer signing such certificate, that to the best of his or her knowledge, on behalf of the Issuer and its Restricted Subsidiaries have kept, observed, performed and fulfilled in all material respects each and every condition and covenant contained in this Indenture during such fiscal year and no Default has occurred and is continuing with respect to any of the terms, provisions, covenants and conditions of this Indenture (or, if a Default shall have occurred and is continuing, describing all such Defaults of which he or she may have knowledge and what action the Issuer is taking or proposes to take with respect thereto).
(b) When any Default has occurred and is continuing under this Indenture, or if the Trustee or the holder of any other evidence of Indebtedness of the Issuer or any Subsidiary gives any notice or takes any other action with respect to a claimed Default, the Issuer shall promptly (which shall be no more than 20 Business Days after becoming aware of such Default) deliver to the Trustee by registered or certified mail or by facsimile transmission an Officers Certificate specifying such event and what action the Issuer proposes to take with respect thereto.
Section 4.05. Taxes . The Issuer shall pay or discharge, and shall cause each of its Restricted Subsidiaries to pay or discharge, prior to delinquency, all material taxes, lawful assessments, and governmental levies except such as are contested in good faith and by appropriate actions or where the failure to effect such payment or discharge is not adverse in any material respect to the Holders.
Section 4.06. Stay, Extension and Usury Laws . The Issuer, the Co-Issuer and each of the Guarantors covenant (to the extent that they may lawfully do so) that they shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture and the Notes; and the Issuer, the Co-Issuer and each of the Guarantors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and (to the extent that they may lawfully do so) covenant that they shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.
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Section 4.07. Limitation on Restricted Payments .
(a) The Issuer will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any payment or distribution on account of the Issuers or any of its Restricted Subsidiaries Equity Interests (in each case, solely to a holder of Equity Interests in such Persons capacity as a holder of such Equity Interests), including any dividend, payment or distribution payable in connection with any merger, amalgamation or consolidation, other than:
(A) dividends and distributions by the Issuer payable solely in Equity Interests (other than Disqualified Stock) of the Issuer or in options, warrants or other rights to purchase such Equity Interests; or
(B) dividends and distributions by a Restricted Subsidiary so long as, in the case of any dividend, payment or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a Wholly Owned Subsidiary, the Issuer or a Restricted Subsidiary receives at least its pro rata share of such dividend, payment or distribution in accordance with its Equity Interests in such class or series of securities;
(ii) purchase, redeem, defease or otherwise acquire or retire for value any Equity Interests of the Issuer or any direct or indirect parent company of the Issuer, including any purchase, redemption, defeasance, acquisition or retirement in connection with any merger, amalgamation or consolidation;
(iii) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case, prior to any scheduled repayment, sinking fund payment or maturity, any Subordinated Indebtedness, other than:
(A) Indebtedness permitted under clauses (vii), (viii) and (ix) of Section 4.09(b) hereof; or
(B) the purchase, repurchase or other acquisition of Subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above (other than any exceptions thereto) being collectively referred to as Restricted Payments ), unless, at the time of such Restricted Payment:
(A) no Default shall have occurred and be continuing or would occur as a consequence thereof;
(B) immediately after giving effect to such transaction on a pro forma basis, the Issuer could incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof (the Fixed Charge Coverage Test ); and
(C) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries after the Issue Date (including Restricted Payments permitted by clauses (i), (vi)(C) and (ix) of Section 4.07(b) hereof (to the extent not deducted in calculating Consolidated Net Income), but excluding all other Restricted Payments permitted by Section 4.07(b) hereof), is less than the sum of (without duplication):
(1) 50.0% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period and including the predecessor of the Issuer) beginning on July 1, 2016 to the end of the Issuers most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment, or, in the case such Consolidated Net Income for such period is a deficit, minus 100.0% of such deficit; plus
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(2) 100.0% of the aggregate net cash proceeds and the fair market value of marketable securities or other property received by the Issuer or its Restricted Subsidiaries since the Issue Date (other than net cash proceeds to the extent such net cash proceeds have been used to incur Indebtedness or issue Disqualified Stock or Preferred Stock pursuant to clause (xii)(A) of Section 4.09(b) hereof and any securities or other property received in connection with the Issuer Capitalization) from the issue or sale of:
(i) (A) Equity Interests of the Issuer, including Treasury Capital Stock, but excluding cash proceeds and the fair market value of marketable securities or other property received from the sale of:
(x) Equity Interests to any future, present or former employees, directors, officers, managers or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any direct or indirect parent company of the Issuer or any of the Issuers Subsidiaries after the Issue Date to the extent such amounts have been applied to Restricted Payments made in accordance with clause (iv) of Section 4.07(b) hereof; and
(y) Designated Preferred Stock; and
(B) to the extent such net cash proceeds are (or have been) actually contributed to the Issuer or any of its Restricted Subsidiaries, Equity Interests of the Issuer or any of the Issuers direct or indirect parent companies (excluding contributions of the proceeds from the sale of Designated Preferred Stock of any such companies or contributions to the extent such amounts have been applied to Restricted Payments made in accordance with clause (iv) of Section 4.07(b) hereof); or
(ii) Indebtedness of the Issuer or a Restricted Subsidiary that has been converted into or exchanged for such Equity Interests of the Issuer or a direct or indirect parent company of the Issuer;
provided that this clause (2) shall not include the proceeds from (w) Refunding Capital Stock applied in accordance with clause (ii) of Section 4.07(b) hereof, (x) Equity Interests or convertible debt securities of the Issuer sold to a Restricted Subsidiary, (y) Disqualified Stock or debt securities that have been converted into Disqualified Stock or (z) Excluded Contributions; plus
(3) 100.0% of the aggregate amount of cash and the fair market value of marketable securities or other property contributed to the capital of the Issuer or a Restricted Subsidiary or that becomes part of the capital of the Issuer or a Restricted Subsidiary through consolidation or merger, in each case since the Issue Date (other than (i) net cash proceeds to the extent such net cash proceeds have been used to incur Indebtedness or issue Disqualified Stock or Preferred Stock pursuant to clause (xii)(A) of Section 4.09(b) hereof, (ii) contributions by the Issuer or a Restricted Subsidiary, (iii) contributions in connection with the Issuer Capitalization and (iv) any Excluded Contributions); plus
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(4) 100.0% of the aggregate amount received in cash and the fair market value of marketable securities or other property received by the Issuer or any Restricted Subsidiary by means of:
(i) the sale or other disposition (other than to the Issuer or a Restricted Subsidiary) of, or other returns on Investments from, Restricted Investments made by the Issuer or its Restricted Subsidiaries and repurchases and redemptions of such Restricted Investments from the Issuer or its Restricted Subsidiaries and repayments of loans or advances, and releases of guarantees, which constitute Restricted Investments made by the Issuer or its Restricted Subsidiaries, in each case after the Issue Date; or
(ii) the sale (other than to the Issuer or a Restricted Subsidiary) of the stock of an Unrestricted Subsidiary or a dividend or distribution (other than an Excluded Contribution) from an Unrestricted Subsidiary (other than, in each case, to the extent the Investment in such Unrestricted Subsidiary was made by the Issuer or a Restricted Subsidiary pursuant to clause (vii) of Section 4.07(b) hereof or to the extent such Investment constituted a Permitted Investment), in each case, after the Issue Date; plus
(5) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary or the merger, amalgamation or consolidation of an Unrestricted Subsidiary into the Issuer or a Restricted Subsidiary or the transfer of all or substantially all of the assets of an Unrestricted Subsidiary to the Issuer or a Restricted Subsidiary after the Issue Date, the fair market value (as determined by the Issuer in good faith) of the Investment in such Unrestricted Subsidiary (or the assets transferred) at the time of the redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary or at the time of such merger, amalgamation, consolidation or transfer of assets, other than to the extent the Investment in such Unrestricted Subsidiary was made by the Issuer or a Restricted Subsidiary pursuant to clause (vii) of Section 4.07(b) hereof or to the extent such Investment constituted a Permitted Investment.
(b) The foregoing provisions of Section 4.07(a) hereof shall not prohibit:
(i) the payment of any dividend or other distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or other distribution or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or other distribution or redemption payment would have complied with the provisions of this Indenture;
(ii) (A) the redemption, repurchase, defeasance, retirement or other acquisition of any Equity Interests, including any accrued and unpaid dividends thereon ( Treasury Capital Stock ) or Subordinated Indebtedness of the Issuer or any Restricted Subsidiary or any Equity Interests of any direct or indirect parent company of the Issuer, in exchange for, or out of the proceeds of the substantially concurrent sale or issuance (other than to a Restricted Subsidiary) of, Equity Interests of the Issuer or any direct or indirect parent company of the Issuer to the extent contributed to the Issuer (in each case, other than any Disqualified Stock) ( Refunding Capital Stock ), (B) the declaration and payment of dividends on Treasury Capital Stock out of the proceeds of the substantially concurrent sale or issuance (other than to a Subsidiary of the Issuer or to an employee stock ownership plan or any trust established by the Issuer or any of its Subsidiaries) of Refunding Capital Stock, and (C) if, immediately prior to the retirement of Treasury Capital Stock, the declaration and payment of dividends thereon was permitted under clauses (vi)(A) or (B) of this Section 4.07(b), the declaration and payment of dividends on the Refunding Capital Stock (other than Refunding Capital Stock the proceeds of which were used to redeem, repurchase, retire or otherwise acquire any Equity Interests of any direct or indirect parent company of the Issuer) in an aggregate amount per year no greater than the aggregate amount of dividends per annum that were declarable and payable on such Treasury Capital Stock immediately prior to such retirement;
(iii) the prepayment, defeasance, redemption, repurchase, exchange or other acquisition or retirement (1) of Subordinated Indebtedness of the Issuers or a Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, new Indebtedness of the Issuers or a Subsidiary
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Guarantor or Disqualified Stock of the Issuers or a Subsidiary Guarantor or (2) Disqualified Stock of the Issuers or a Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of, Disqualified Stock of the Issuers or a Subsidiary Guarantor, that, in each case, is incurred or issued, as applicable, in compliance with Section 4.09 hereof so long as:
(A) the principal amount (or accreted value, if applicable) of such new Indebtedness or the liquidation preference of such new Disqualified Stock does not exceed the principal amount of (or accreted value, if applicable), plus any accrued and unpaid interest on, the Subordinated Indebtedness or the liquidation preference of, plus any accrued and unpaid dividends on, the Disqualified Stock being so prepaid, defeased, redeemed, repurchased, exchanged, acquired or retired for value, plus the amount of any premium (including tender premium) required to be paid under the terms of the instrument governing the Subordinated Indebtedness or Disqualified Stock being so defeased, redeemed, repurchased, exchanged, acquired or retired, defeasance costs and any fees and expenses incurred in connection with the issuance of such new Indebtedness or Disqualified Stock;
(B) such new Indebtedness is subordinated to the Notes or the applicable Guarantee at least to the same extent as such Subordinated Indebtedness so defeased, redeemed, repurchased, exchanged, acquired or retired;
(C) such new Indebtedness or Disqualified Stock has a final scheduled maturity date equal to or later than the final scheduled maturity date of the Subordinated Indebtedness or Disqualified Stock being so defeased, redeemed, repurchased, exchanged, acquired or retired (or, if earlier, a date that is at least 91 days after the maturity date of the Notes); and
(D) such new Indebtedness or Disqualified Stock has a Weighted Average Life to Maturity equal to or greater than the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness or Disqualified Stock being so defeased, redeemed, repurchased, exchanged, acquired or retired (or requires no or nominal payments in cash prior to the date that is 91 days after the maturity date of the Notes);
(iv) a Restricted Payment to pay for the repurchase, redemption or other acquisition or retirement for value of Equity Interests (other than Disqualified Stock) of the Issuer or any direct or indirect parent company of the Issuer held by any future, present or former employee, director, officer, member of management or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries or any of its direct or indirect parent companies pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, or any stock subscription or shareholder agreement (including, for the avoidance of doubt, any principal and interest payable on any Indebtedness incurred or issued by the Issuer or any direct or indirect parent company of the Issuer in connection with such repurchase, retirement or other acquisition); provided that the aggregate amount of Restricted Payments made under this clause (iv) do not exceed in any calendar year an amount equal to $25.0 million (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $50.0 million in any calendar year); provided , further , that such amount in any calendar year under this clause (iv) may be increased by an amount not to exceed:
(A) the cash proceeds from the sale of Equity Interests (other than Disqualified Stock) of the Issuer and, to the extent contributed to the Issuer, the cash proceeds from the sale of Equity Interests of any of the Issuers direct or indirect parent companies, in each case to any future, present or former employees, directors, officers, members of management or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries or any of its direct or indirect parent companies that occurs after the Issue Date, to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause (C) of Section 4.07(a) hereof; plus
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(B) the cash proceeds of key man life insurance policies received by the Issuer or its Restricted Subsidiaries (or any direct or indirect parent company to the extent contributed to the Issuer) after the Issue Date; less
(C) the amount of any Restricted Payments previously made with the cash proceeds described in clauses (A) and (B) of this clause (iv);
and provided , further , that (i) cancellation of Indebtedness owing to the Issuer or any Restricted Subsidiary from any future, present or former employees, directors, officers, members of management or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of the Issuers direct or indirect parent companies or any of the Issuers Restricted Subsidiaries in connection with a repurchase of Equity Interests of the Issuer or any of its direct or indirect parent companies and (ii) the repurchase of Equity Interests deemed to occur upon the exercise of options, warrants or similar instruments if such Equity Interests represent all or a portion of the exercise price thereof or payments, in lieu of the issuance of fractional Equity Interests or withholding to pay other taxes payable in connection therewith, in the case of each of clauses (i) and (ii), will not be deemed to constitute a Restricted Payment for purposes of this Section 4.07 or any other provision of this Indenture;
(v) the declaration and payment of dividends to holders of any class or series of Disqualified Stock of the Issuer or any of its Restricted Subsidiaries or any class or series of Preferred Stock of any Restricted Subsidiary issued in accordance with Section 4.09 hereof to the extent such dividends are included in the definition of Fixed Charges ;
(vi) (A) the declaration and payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by the Issuer or any of its Restricted Subsidiaries after the Issue Date;
(B) the declaration and payment of dividends to any direct or indirect parent company of the Issuer, the proceeds of which will be used to fund the payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by such parent company after the Issue Date; provided that the amount of dividends paid pursuant to this clause (B) shall not exceed the aggregate amount of cash actually contributed to the Issuer from the sale of such Designated Preferred Stock; or
(C) the declaration and payment of dividends on Refunding Capital Stock that is Preferred Stock in excess of the dividends declarable and payable thereon pursuant to clause (ii) of this Section 4.07(b);
provided , in the case of each of (A) and (C) of this clause (vi), that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock or the declaration of such dividends on Refunding Capital Stock that is Preferred Stock, after giving effect to such issuance or declaration on a pro forma basis, the Issuer and its Restricted Subsidiaries on a consolidated basis would have had a Fixed Charge Coverage Ratio of at least 2.00 to 1.00;
(vii) Investments in Unrestricted Subsidiaries having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (vii) that are at the time outstanding, without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities (until such proceeds are converted to Cash Equivalents), not to exceed the greater of (i) $50.0 million and (ii) 4.0% of Total Assets at the time of such Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);
(viii) payments made or expected to be made by the Issuer or any Restricted Subsidiary in respect of withholding or similar taxes payable upon exercise of Equity Interests by any future, present or
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former employee, director, officer, member of management or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer or any Restricted Subsidiary or any direct or indirect parent company of the Issuer and any repurchases of Equity Interests deemed to occur upon exercise of stock options, warrants or other equity-based awards if such Equity Interests represent a portion of the exercise price of such options, warrants or awards;
(ix) the declaration and payment of dividends on, or the purchase, redemption, defeasance or other acquisition or retirement for value of, the Issuers common shares (or the payment of dividends to any direct or indirect parent company of the Issuer to fund a payment of dividends on such companys common stock or to fund such companys purchase, redemption, defeasance or other acquisition or retirement for value of such companys common stock), in an amount not to exceed the sum of (A) up to 6.0% per annum of the amount of net cash proceeds received by or contributed to the Issuer since the Issue Date from any public offering of the Issuers common shares or the common stock of any direct or indirect parent company of the Issuer, other than public offerings with respect to the Issuers common shares or the common stock of any direct or indirect parent company of the Issuer registered on Form S-4 or Form S-8 and other than any public sale constituting an Excluded Contribution, and (B) an aggregate amount per annum not to exceed 5.0% of Market Capitalization;
(x) Restricted Payments, in an aggregate amount taken together with all other Restricted Payments made pursuant to this clause (x), that are made (a) in an amount equal to the amount of Excluded Contributions received since the Issue Date or (b) without duplication with clause (a), in an amount equal to the Net Proceeds from an Asset Sale in respect of property or assets acquired after the Issue Date, if the acquisition of such property or assets was financed with Excluded Contributions;
(xi) (A) Restricted Payments in an aggregate amount taken together with all other Restricted Payments made pursuant to this clause (xi)(A) (in the case of Restricted Investments, at the time outstanding (without giving effect to the sale of an Investment to the extent the proceeds of such sale do not consist of, or have not been subsequently sold or transferred for, Cash Equivalents)) not to exceed $75.0 million; and (B) any Restricted Payments, so long as, after giving pro forma effect to the payment of any such Restricted Payment, the Consolidated Total Debt Ratio shall be no greater than 2.00 to 1.00;
(xii) distributions or payments of Securitization Fees;
(xiii) any Restricted Payment used to fund amounts owed to Affiliates (including dividends to any direct or indirect parent company of the Issuer to permit payment by such parent company of such amounts), in each case to the extent permitted by Section 4.11 hereof;
(xiv) the repurchase, redemption or other acquisition or retirement for value of any Subordinated Indebtedness pursuant to the provisions similar to those described under Sections 4.10 and 4.14 hereof; provided that if the Issuer shall have been required to make a Change of Control Offer or Asset Sale Offer, as applicable, to purchase the Notes on the terms provided in this Indenture applicable to Change of Control Offers or Asset Sale Offers, respectively, all Notes validly tendered by Holders of such Notes in connection with a Change of Control Offer or Asset Sale Offer, as applicable, have been repurchased, redeemed, acquired or retired for value;
(xv) the declaration and payment of dividends or distributions by the Issuer to, or the making of loans to, any direct or indirect parent company of the Issuer in amounts required for any direct or indirect parent company of the Issuer to pay, in each case without duplication:
(A) franchise, excise and similar taxes, and other fees and expenses, required to maintain their corporate existence;
(B) consolidated, combined or similar foreign, federal, state or local income or similar taxes of a tax group that includes the Issuer and/or its Subsidiaries and whose common parent is a direct or indirect parent of the Issuer, to the extent such income or similar taxes are attributable
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to the income of the Issuer and its Restricted Subsidiaries or, to the extent of any cash amounts actually received from its Unrestricted Subsidiaries for such purpose, to the income of such Unrestricted Subsidiaries; provided that in each case the amount of such payments in respect of any fiscal year does not exceed the amount that the Issuer and/or its Restricted Subsidiaries (and, to the extent permitted above, its Unrestricted Subsidiaries), as applicable, would have been required to pay in respect of the relevant foreign, federal, state or local income or similar taxes for such fiscal year had the Issuer, its Restricted Subsidiaries and/or its Unrestricted Subsidiaries (to the extent described above), as applicable, (1) paid such taxes separately from any such parent company or (2) if the Issuer is treated as a disregarded entity or partnership for U.S. federal, state and/or local income tax purposes for such period, were the Issuer a taxpayer and parent of a consolidated group and had paid such taxes for the Issuer, its Restricted Subsidiaries and/or its Unrestricted Subsidiaries (to the extent described above);
(C) customary salary, bonus and other benefits payable to employees, directors, officers and managers of any direct or indirect parent company of the Issuer to the extent such salaries, bonuses and other benefits are attributable to the ownership or operation of the Issuer and its Restricted Subsidiaries;
(D) general corporate operating and overhead costs and expenses and listing fees and other costs and expenses attributable to being a publicly traded company of the Issuer or any direct or indirect parent company of the Issuer;
(E) fees and expenses other than to Affiliates of the Issuer related to any unsuccessful equity or debt offering of such parent entity;
(F) amounts payable pursuant to (x) the Support and Services Agreement or (y) any of the Transaction Agreements (including, in each case, any amendment thereto or replacement thereof so long as any such amendment or replacement is not materially disadvantageous in the good faith judgment of the Board of Directors of the Issuer to the Holders when taken as a whole, as compared to the applicable agreement as in effect immediately prior to such amendment or replacement), solely to the extent such amounts are not paid directly by the Issuer or its Subsidiaries;
(G) cash payments in lieu of issuing fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of the Issuer or any direct or indirect parent company of the Issuer;
(H) to finance Investments that would otherwise be permitted to be made pursuant to this Section 4.07 if made by the Issuer; provided that (1) such Restricted Payment shall be made substantially concurrently with the closing of such Investment, (2) such direct or indirect parent company shall, immediately following the closing thereof, cause (x) all property acquired (whether assets or Equity Interests) to be contributed to the capital of the Issuer or one of its Restricted Subsidiaries or (y) the merger or amalgamation of the Person formed or acquired into the Issuer or one of its Restricted Subsidiaries (to the extent not prohibited by Section 5.01 hereof) in order to consummate such Investment, (3) such direct or indirect parent company and its Affiliates (other than the Issuer or a Restricted Subsidiary) receives no consideration or other payment in connection with such transaction except to the extent the Issuer or a Restricted Subsidiary could have given such consideration or made such payment in compliance with this Indenture, (4) any property received by the Issuer shall not increase amounts available for Restricted Payments pursuant to clause (C) of Section 4.07(a) hereof and (5) such Investment shall be deemed to be made by the Issuer or such Restricted Subsidiary pursuant to another provision of this Section 4.07 (other than pursuant to clause (x) of this Section 4.07(b)) or pursuant to the definition of Permitted Investments (other than clause (i) thereof); and
(I) amounts that would be permitted to be paid by the Issuer under clauses (iii), (iv), (vii), (viii), (xii), (xiii) and (xvi) of Section 4.11(b) hereof; provided that the amount of any dividend or distribution under this clause (xv)(I) to permit such payment shall reduce, without duplication,
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Consolidated Net Income of the Issuer to the extent, if any, that such payment would have reduced Consolidated Net Income of the Issuer if such payment had been made directly by the Issuer and increase (or, without duplication of any reduction of Consolidated Net Income, decrease) EBITDA to the extent, if any, that Consolidated Net Income is reduced under this clause (xv)(I) and such payment would have been added back to (or, to the extent excluded from Consolidated Net Income, would have been deducted from) EBITDA if such payment had been made directly by the Issuer, in each case, in the period such payment is made;
(xvi) the distribution, by dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to the Issuer or a Restricted Subsidiary by Unrestricted Subsidiaries (other than Unrestricted Subsidiaries, the primary assets of which are cash and/or Cash Equivalents); and
(xvii) (A) the Spin-Off Transaction and (B) the distribution by the Issuer to its immediate parent of the cash proceeds from additional borrowings under the Timeshare Facility;
provided that at the time of, and after giving effect to, any Restricted Payment permitted under clause (xi)(B) of this Section 4.07(b), no Event of Default shall have occurred and be continuing or would occur as a consequence thereof.
(c) For purposes of determining compliance with this Section 4.07, in the event that a proposed Restricted Payment (or a portion thereof) meets the criteria of clauses (i) through (xvii) of Section 4.07(b) hereof and/or one or more of the clauses contained in the definition of Permitted Investments, or is entitled to be made pursuant to Section 4.07(a), the Issuer will be entitled to divide or classify or later divide or reclassify (based on circumstances existing on the date of such reclassification) such Restricted Payment (or a portion thereof) between such clauses (i) through (xvii) of Section 4.07(b) hereof and such Section 4.07(a) and/or one or more of the clauses contained in the definition of Permitted Investments, in any manner that otherwise complies with this Section 4.07; and
(d) The Issuer shall not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the penultimate sentence of the definition of Unrestricted Subsidiary . For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by the Issuer and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated shall be deemed to be Restricted Payments in an amount determined as set forth in the penultimate sentence of the definition of Investments . Such designation shall be permitted only if a Restricted Payment in such amount would be permitted at such time, pursuant to this Section 4.07, or pursuant to the definition of Permitted Investments , and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Unrestricted Subsidiaries shall not be subject to any of the restrictive covenants set forth in this Indenture. For the avoidance of doubt, this Section 4.07 shall not restrict the making of any AHYDO catch up payment with respect to, and required by the terms of, any Indebtedness of the Issuer or any of its Restricted Subsidiaries permitted to be incurred under the terms of this Indenture.
Section 4.08. Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries that is not the Co-Issuer or a Guarantor to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any such Restricted Subsidiary to:
(i) (A) pay dividends or make any other distributions to the Issuer or any of its Restricted Subsidiaries that is the Co-Issuer or a Guarantor on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits; or
(B) pay any Indebtedness owed to the Issuer or any of its Restricted Subsidiaries that is the Co-Issuer or a Guarantor;
(ii) make loans or advances to the Issuer or any of its Restricted Subsidiaries that is the Co-Issuer or a Guarantor; or
(iii) sell, lease or transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries that is the Co-Issuer or a Guarantor.
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(b) The restrictions in Section 4.08(a) hereof shall not apply to encumbrances or restrictions existing under or by reason of:
(i) contractual encumbrances or restrictions in effect on the Issue Date, including pursuant to Hedging Obligations and the related documentation;
(ii) contractual encumbrances or restrictions pursuant to the Senior Secured Credit Facilities in effect on the date the Senior Secured Credit Facilities are entered into;
(iii) this Indenture, the Notes and the Guarantees thereof;
(iv) purchase money obligations for property acquired in the ordinary course of business and capital lease obligations that impose restrictions of the nature discussed in clause (iii) of Section 4.08(a) hereof on the property so acquired;
(v) applicable law or any applicable rule, regulation or order;
(vi) (A) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary or the merger, amalgamation or consolidation of an Unrestricted Subsidiary into the Issuer or a Restricted Subsidiary or the transfer of all or substantially all of the assets of an Unrestricted Subsidiary to the Issuer or a Restricted Subsidiary, any agreement or other instrument of such Unrestricted Subsidiary in existence at the time of such redesignation (but, in any such case, not created in contemplation thereof) and (B) any agreement or other instrument of a Person acquired by or merged or consolidated with or into the Issuer or any of its Restricted Subsidiaries in existence at the time of such acquisition or at the time it merges with or into the Issuer or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person (but, in any such case, not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired and its Subsidiaries, or the property or assets of the Person so acquired and its Subsidiaries or the property or assets so acquired;
(vii) contracts for the sale of assets, including customary restrictions with respect to a Subsidiary of the Issuer pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary;
(viii) Secured Indebtedness otherwise permitted to be incurred pursuant to Sections 4.09 and 4.12 hereof that limit the right of the debtor to dispose of the assets securing such Indebtedness;
(ix) restrictions on cash or other deposits or net worth imposed by suppliers, customers or landlords under contracts entered into in the ordinary course of business or arising in connection with any Permitted Liens;
(x) other Indebtedness, Disqualified Stock or Preferred Stock of Restricted Subsidiaries that are not the Co-Issuer or the Guarantors permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.09 hereof;
(xi) customary provisions in joint venture agreements and other similar agreements or arrangements relating to such joint venture;
(xii) customary provisions contained in leases, sub-leases, licenses, sub-licenses or similar agreements, including with respect to intellectual property and other agreements, in each case, entered into in the ordinary course of business;
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(xiii) restrictions or conditions contained in any trading, netting, operating, construction, service, supply, purchase, sale or other agreement to which the Issuer or any of its Restricted Subsidiaries is a party entered into in the ordinary course of business; provided that such agreement prohibits the encumbrance of solely the property or assets of the Issuer or such Restricted Subsidiary that are the subject to such agreement, the payment rights arising thereunder or the proceeds thereof and does not extend to any other asset or property of the Issuer or such Restricted Subsidiary or the assets or property of another Restricted Subsidiary;
(xiv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Restricted Subsidiary;
(xv) customary provisions restricting assignment of any agreement entered into in the ordinary course of business;
(xvi) restrictions arising in connection with cash or other deposits permitted under Section 4.12 hereof;
(xvii) any agreement or instrument (A) relating to any Indebtedness, Disqualified or preferred stock permitted to be incurred or issued subsequent to the Issue Date pursuant to Section 4.09 hereof if the encumbrances and restrictions are not materially more disadvantageous, taken as a whole, to the Holders than is customary in comparable financings for similarly situated issuers (as determined in good faith by the Issuer) or as otherwise in effect on the Issue Date and (B) either (x) the Issuer determines that such encumbrance or restriction will not adversely affect the Issuers ability to make principal and interest payments on the Notes as and when they come due or (y) such encumbrances and restrictions apply only during the continuance of a default in respect of a payment or financial maintenance covenant relating to such Indebtedness;
(xviii) restrictions created in connection with any Qualified Securitization Facility that in the good faith determination of the Issuer are necessary or advisable to effect such Qualified Securitization Facility; and
(xix) any encumbrances or restrictions of the type referred to in clauses (i), (ii) and (iii) of Section 4.08(a) hereof imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (i) through (xviii) of this Section 4.08(b); provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Issuer, not materially more restrictive with respect to such encumbrance and other restrictions taken as a whole than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.
Section 4.09. Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries (including the Co-Issuer) to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise (collectively, incur and collectively, an incurrence ) with respect to any Indebtedness (including Acquired Indebtedness) and the Issuer shall not issue any shares of Disqualified Stock and shall not permit any Restricted Subsidiary to issue any shares of Disqualified Stock or any Restricted Subsidiary that is not the Co-Issuer or a Guarantor to issue Preferred Stock; provided that the Issuer may incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock, and any Restricted Subsidiary may incur Indebtedness (including Acquired Indebtedness), issue shares of Disqualified Stock and any Restricted Subsidiary that is not the Co-Issuer or a Guarantor may issue shares of Preferred Stock, if the Fixed Charge Coverage Ratio on a consolidated basis of the Issuer and its Restricted Subsidiaries for the most recently ended four fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness
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had been incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period; provided that the then outstanding aggregate principal amount of Indebtedness (including Acquired Indebtedness), Disqualified Stock and Preferred Stock that may be incurred or issued, as applicable, pursuant to this Section 4.09(a) (plus any Refinancing Indebtedness in respect thereof) by Restricted Subsidiaries that are not the Co-Issuer or the Guarantors shall not exceed the greater of (i) $60.0 million and (ii) 4.25% of Total Assets (determined on the date of such incurrence).
(b) The provisions of Section 4.09(a) hereof shall not apply to:
(i) Indebtedness incurred pursuant to any Credit Facilities by the Issuer or any Restricted Subsidiary and the issuance and creation of letters of credit and bankers acceptances thereunder (with letters of credit and bankers acceptances being deemed to have a principal amount equal to the face amount thereof); provided that immediately after giving effect to any such incurrence or issuance, the then outstanding aggregate principal amount of all Indebtedness incurred or issued under this clause (i) does not exceed (x) $700 million, plus , (y) an additional aggregate principal amount of Indebtedness (with all such Indebtedness being deemed, for purposes of this clause (i)(y) only, to be secured by a Lien) such that after giving effect to any such incurrence or issuance (including a pro forma application of the net proceeds therefrom), the Consolidated Secured Debt Ratio would be no greater than 2.00 to 1.00;
(ii) the incurrence by the Issuer, the Co-Issuer and any Guarantor of Indebtedness represented by the Notes (including any guarantee thereof) and the Exchange Notes and related Guarantees thereof to be issued in exchange for the Notes and the Guarantees thereof pursuant to the Registration Rights Agreement (but excluding any Additional Notes)
(iii) Indebtedness of the Issuer and its Restricted Subsidiaries in existence on the Issue Date (other than Indebtedness described in clauses (i) and (ii) of this Section 4.09(b));
(iv) Indebtedness consisting of Capitalized Lease Obligations and Purchase Money Obligations in an aggregate principal amount (together any Refinancing Indebtedness in respect thereof) not to exceed the greater of (i) $80.0 million and (ii) 6.0% of Total Assets (in each case, determined at the date of incurrence or issuance); so long as such Indebtedness exists at the date of such purchase, lease or improvement, or is created within 365 days thereafter (for the avoidance of doubt, the purchase date for any asset shall be the later of the date of completion of construction or installation and the beginning of the full productive use of such asset);
(v) Indebtedness incurred by the Issuer or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit, bank guarantees, bankers acceptances, warehouse receipts, or similar instruments issued or created in the ordinary course of business, including letters of credit in favor of suppliers or trade creditors or in respect of workers compensation claims, performance or surety bonds, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement type obligations regarding workers compensation claims, performance or surety bonds, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance; provided that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 45 Business Days following such drawing or incurrence;
(vi) Indebtedness arising from (A) Permitted Intercompany Activities and (B) agreements of the Issuer or its Restricted Subsidiaries providing for indemnification, adjustment of purchase price, earnouts or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided that such Indebtedness is not reflected on the balance sheet of the Issuer or any of its Restricted Subsidiaries (Contingent Obligations referred to in a footnote to financial statements and not otherwise reflected on the balance sheet shall not be deemed to be reflected on such balance sheet for purposes of this clause (vi));
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(vii) Indebtedness of the Issuer to a Restricted Subsidiary; provided that any such Indebtedness owing to a Restricted Subsidiary that is not the Co-Issuer or a Guarantor is subordinated in right of payment to the Notes; provided , further , that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Issuer or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien) shall be deemed, in each case, to be an incurrence of such Indebtedness (to the extent such Indebtedness is then outstanding) not permitted by this clause (vii);
(viii) Indebtedness of a Restricted Subsidiary to the Issuer or another Restricted Subsidiary; provided that if the Co-Issuer or a Subsidiary Guarantor incurs such Indebtedness to a Restricted Subsidiary that is not the Co-Issuer or a Guarantor, such Indebtedness is subordinated in right of payment to the Notes or the Guarantee of the Notes of such Subsidiary Guarantor; provided , further , that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of any such Indebtedness (except to the Issuer or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien) shall be deemed, in each case, to be an incurrence of such Indebtedness (to the extent such Indebtedness is then outstanding) not permitted by this clause (viii);
(ix) shares of Preferred Stock of a Restricted Subsidiary issued to the Issuer or another Restricted Subsidiary; provided that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to the Issuer or another of its Restricted Subsidiaries or any pledge of such Capital Stock constituting a Permitted Lien) shall be deemed in each case to be an issuance of such shares of Preferred Stock (to the extent such Preferred Stock is then outstanding) not permitted by this clause (ix);
(x) Hedging Obligations (excluding Hedging Obligations entered into for speculative purposes) for the purpose of limiting interest rate risk with respect to any Indebtedness permitted to be incurred under this Indenture, exchange rate risk or commodity pricing risk;
(xi) obligations in respect of self-insurance and obligations in respect of performance, bid, appeal and surety bonds and performance and completion guarantees and similar obligations provided by the Issuer or any of its Restricted Subsidiaries or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case in the ordinary course of business or consistent with past practice;
(xii) (A) Indebtedness or Disqualified Stock of the Issuer and Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or any Restricted Subsidiary in an aggregate principal amount or liquidation preference up to 100% of the net cash proceeds received by the Issuer since the Issue Date from the issue or sale of Equity Interests of the Issuer or any direct or indirect parent company of the Issuer or cash contributed to the capital of the Issuer (in each case, other than Excluded Contributions, proceeds of Disqualified Stock or sales of Equity Interests to the Issuer or any of its Subsidiaries) as determined in accordance with clauses (C)(2) and (C)(3) of Section 4.07(a) hereof to the extent such net cash proceeds or cash have not been applied pursuant to such clauses to make Restricted Payments pursuant to Section 4.07(b) hereof or to make Permitted Investments specified in clauses (h), (k), (m), (bb) or (cc) of the definition thereof, and (B) Indebtedness or Disqualified Stock of the Issuer and Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or any Restricted Subsidiary in an aggregate principal amount or liquidation preference, which, when aggregated with the principal amount and liquidation preference of all other Indebtedness, Disqualified Stock and Preferred Stock then outstanding and incurred pursuant to this clause (xii)(B), does not at any time outstanding exceed $150.0 million (determined on the date of such incurrence); it being understood that any Indebtedness, Disqualified Stock or Preferred Stock incurred pursuant to this clause (xii)(B) shall cease to be deemed incurred or outstanding for purposes of this clause (xii)(B) but shall be deemed incurred for the purposes of Section 4.09(a) hereof from and after the first date on which the Issuer or such Restricted Subsidiary could have incurred such Indebtedness, Disqualified Stock or Preferred Stock under Section 4.09(a) hereof without reliance on this clause (xii)(B);
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(xiii) the incurrence or issuance by the Issuer or any Restricted Subsidiary of Indebtedness, Disqualified Stock or Preferred Stock which serves to extend, replace, refund, refinance, renew or defease any Indebtedness, Disqualified Stock or Preferred Stock incurred or issued as permitted under Section 4.09(a) hereof and clauses (ii), (iii), (iv) and (xii)(A) of this Section 4.09(b), this clause (xiii) and clause (xiv) of this Section 4.09(b) or any Indebtedness, Disqualified Stock or Preferred Stock incurred or issued to so extend, replace, refund, refinance, renew or defease such Indebtedness, Disqualified Stock or Preferred Stock, including, in each case, additional Indebtedness, Disqualified Stock or Preferred Stock incurred to pay premiums (including tender premiums), defeasance costs, and accrued interest, fees and expenses in connection therewith (the Refinancing Indebtedness ) prior to its respective maturity; provided that such Refinancing Indebtedness:
(A) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred which is not less than the remaining Weighted Average Life to Maturity of the Indebtedness, Disqualified Stock or Preferred Stock being extended, replaced, refunded, refinanced, renewed or defeased (or requires no or nominal payments in cash prior to the date that is 91 days after the maturity date of the Notes);
(B) to the extent such Refinancing Indebtedness extends, replaces, refunds, refinances, renews or defeases (i) Indebtedness subordinated in right of payment to the Notes or any Guarantee thereof, such Refinancing Indebtedness is subordinated in right of payment to the Notes or the Guarantee thereof at least to the same extent as the Indebtedness being extended, replaced, refunded, refinanced, renewed or defeased or (ii) Disqualified Stock or Preferred Stock, such Refinancing Indebtedness must be Disqualified Stock or Preferred Stock, respectively; and
(C) shall not include:
(1) Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary of the Issuer that is not the Co-Issuer or a Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of the Issuer;
(2) Indebtedness, Disqualified Stock or Preferred Stock of a Subsidiary of the Issuer that is not the Co-Issuer or a Guarantor that refinances Indebtedness, Disqualified Stock or Preferred Stock of the Co-Issuer or a Subsidiary Guarantor; or
(3) Indebtedness or Disqualified Stock of the Issuer or Indebtedness, Disqualified Stock or Preferred Stock of a Restricted Subsidiary that refinances Indebtedness, Disqualified Stock or Preferred Stock of an Unrestricted Subsidiary;
and, provided , further , that subclause (A) of this clause (xiii) will not apply to (x) any extension, replacement, refunding, refinancing, renewal or defeasance of any Credit Facilities, Secured Indebtedness or Indebtedness incurred pursuant to clause (iv) above or (y) any Secured Indebtedness that otherwise qualifies as Refinancing Indebtedness as defined herein;
(xiv) (A) Indebtedness, Disqualified Stock or Preferred Stock of the Issuer or a Restricted Subsidiary incurred or issued to finance an acquisition (or other purchase of assets) or (B) Indebtedness, Disqualified Stock or Preferred Stock of Persons that are acquired by the Issuer or any Restricted Subsidiary or merged into or consolidated with the Issuer or a Restricted Subsidiary in accordance with the terms of this Indenture; provided that in the case of clauses (A) and (B), after giving effect to such acquisition, merger, amalgamation or consolidation, (1) the aggregate amount of such Indebtedness does not exceed $25.0 million at any time outstanding, or (2) either (x) the Issuer would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Test set forth in Section 4.09(a) hereof, or (y) the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries is equal to or greater than immediately prior to such acquisition, merger, amalgamation or consolidation;
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(xv) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business;
(xvi) Indebtedness of the Issuer or any of its Restricted Subsidiaries supported by a letter of credit issued pursuant to the Credit Facilities, in a principal amount not in excess of the stated amount of such letter of credit;
(xvii) (A) any guarantee by the Issuer or a Restricted Subsidiary of Indebtedness or other obligations of any Restricted Subsidiary so long as the incurrence of such Indebtedness by such Restricted Subsidiary is permitted under the terms of this Indenture;
(B) any guarantee by a Restricted Subsidiary of Indebtedness or other obligations of the Issuer so long as the incurrence of such Indebtedness by such Restricted Subsidiary is permitted under the terms of this Indenture; and
(C) any incurrence by the Co-Issuer of Indebtedness as a co-issuer of Indebtedness of the Issuer that was permitted to be incurred by another provision of this Section 4.09;
(xviii) (A) Indebtedness consisting of Indebtedness issued by the Issuer or any of its Restricted Subsidiaries to future, present or former employees, directors, officers, managers and consultants thereof, their respective Controlled Investment Affiliates or Immediate Family Members, in each case to finance the purchase or redemption of Equity Interests of the Issuer or any direct or indirect parent company of the Issuer to the extent described in clause (iv) of Section 4.07(b) hereof, and (B) Indebtedness representing deferred compensation to employees of the Issuer (or any direct or indirect parent thereof) or any of its Restricted Subsidiaries incurred in the ordinary course of business;
(xix) to the extent constituting Indebtedness, customer deposits and advance payments (including progress premiums) received in the ordinary course of business from customers for goods and services purchased in the ordinary course of business;
(xx) (A) Indebtedness owed on a short-term basis of no longer than 30 days to banks and other financial institutions incurred in the ordinary course of business of the Issuer and its Restricted Subsidiaries with such banks or financial institutions that arises in connection with ordinary banking arrangements to manage cash balances of the Issuer and its Restricted Subsidiaries and (B) Indebtedness in respect of Bank Products;
(xxi) Indebtedness incurred by a Restricted Subsidiary in connection with bankers acceptances, discounted bills of exchange or the discounting or factoring of receivables or payables for credit management purposes, in each case incurred or undertaken consistent with past practice or in the ordinary course of business on arms length commercial terms;
(xxii) Indebtedness of the Issuer or any of its Restricted Subsidiaries consisting of (A) the financing of insurance premiums or (B) take-or-pay obligations contained in supply arrangements, in each case incurred in the ordinary course of business;
(xxiii) the incurrence of Indebtedness of Restricted Subsidiaries of the Issuer that are not the Co-Issuer or the Guarantors in an amount at any one time outstanding under this clause (xxiii) not to exceed together with any other Indebtedness incurred under this clause (xxiii) $50.0 million (determined on the date of such incurrence); it being understood that any Indebtedness deemed incurred pursuant to this clause (xxiii) shall cease to be deemed incurred or outstanding for purposes of this clause (xxiii) but shall be deemed incurred for the purposes of Section 4.09(a) hereof from and after the first date on which the Issuer or such Restricted Subsidiaries could have incurred such Indebtedness under Section 4.09(a) hereof without reliance on this clause (xxiii);
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(xxiv) Indebtedness of the Issuer or any of its Restricted Subsidiaries undertaken in connection with cash management and related activities with respect to any Subsidiary or joint venture in the ordinary course of business;
(xxv) Indebtedness of Foreign Subsidiaries in an amount not to exceed, at any one time outstanding and together with any other Indebtedness incurred under this clause (xxv), 10.0% of the total assets of the Foreign Subsidiaries on a consolidated basis as shown on the Issuers most recent balance sheet (it being understood that any Indebtedness incurred pursuant to this clause (xxv) shall cease to be deemed incurred or outstanding for purposes of this clause (xxv) but shall be deemed incurred for the purposes of the Section 4.09(a) hereof from and after the first date on which the Issuer or its Restricted Subsidiaries could have incurred such Indebtedness under Section 4.09(a) hereof without reliance on this clause (xxv)); and
(xxvi) Indebtedness incurred by the Issuer or any of its Restricted Subsidiaries to the extent that the net proceeds thereof are deposited with the Trustee at or promptly after the funding of such Indebtedness to satisfy and discharge the Notes or exercise the Issuers legal defeasance or covenant defeasance option as described under Article 8 hereof, in each case, in accordance with this Indenture.
(c) For purposes of determining compliance with this Section 4.09:
(i) in the event that an item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) meets the criteria of more than one of the categories of permitted Indebtedness, Disqualified Stock or Preferred Stock described in clauses (i) through (xxvi) of Section 4.09(b) hereof or is entitled to be incurred pursuant to Section 4.09(a) hereof, the Issuer, in its sole discretion, may classify or reclassify such item of Indebtedness, Disqualified Stock or Preferred Stock (or any portion thereof) and shall only be required to include the amount and type of such Indebtedness, Disqualified Stock or Preferred Stock in one of the clauses under Section 4.09(b) or under Section 4.09(a) hereof; provided that all Indebtedness outstanding under the Senior Secured Credit Facilities on the Reset Date (or, if none is then outstanding, the date the Senior Secured Credit Facilities are entered into on or before the Spin-Off Date) shall be treated as incurred on the Reset Date (or, if none is then outstanding, the date the Senior Secured Credit Facilities are entered into on or before the Spin-Off Date) under clause (i) of Section 4.09(b) hereof; and
(ii) the Issuer shall be entitled to divide and classify an item of Indebtedness in more than one of the types of Indebtedness described in Section 4.09(a) and Section 4.09(b) hereof.
Accrual of interest or dividends, the accretion of accreted value, the accretion or amortization of original issue discount and the payment of interest or dividends in the form of additional Indebtedness, Disqualified Stock or Preferred Stock, as the case may be, of the same class shall not be deemed to be an incurrence of Indebtedness, Disqualified Stock or Preferred Stock for purposes of this Section 4.09. Any Refinancing Indebtedness and any Indebtedness permitted to be incurred under this Indenture to refinance Indebtedness incurred pursuant to clauses (i) and (xii)(B) of Section 4.09(b) hereof shall be deemed to include additional Indebtedness, Disqualified Stock or Preferred Stock incurred to pay premiums (including tender premiums), defeasance costs, fees and expenses in connection with such refinancing.
For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. Dollar Equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case of revolving credit debt; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed (A) the principal amount of such Indebtedness being refinanced plus (B) the aggregate amount of fees, underwriting discounts, premiums (including tender premiums) and other costs and expenses (including original issue discount, upfront fees or similar fees) incurred in connection with such refinancing.
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The principal amount of any Indebtedness incurred to refinance other Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.
Notwithstanding anything to the contrary, the Issuer shall not, and shall not permit the Co-Issuer or any Subsidiary Guarantor to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness) that is contractually subordinated or junior in right of payment to any Indebtedness of the Issuer, the Co-Issuer or such Guarantor, as the case may be, unless such Indebtedness is expressly subordinated in right of payment to the Notes or such Guarantors Guarantee to the extent and in the same manner as such Indebtedness is subordinated to other Indebtedness of the Issuer, the Co-Issuer or such Guarantor, as the case may be.
This Indenture shall not treat (1) unsecured Indebtedness as subordinated or junior to Secured Indebtedness merely because it is unsecured or (2) Indebtedness as subordinated or junior to any other Indebtedness merely because it has a junior priority with respect to the same collateral or because it is guaranteed by other obligors.
Section 4.10. Asset Sales .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale, unless:
(i) the Issuer or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Issuer at the time of contractually agreeing to such Asset Sale) of the assets sold or otherwise disposed of; and
(ii) except in the case of a Permitted Asset Swap, at least 75.0% of the consideration for such Asset Sale, together with all other Asset Sales since the Issue Date (on a cumulative basis), received by the Issuer or such Restricted Subsidiary, as the case may be, is in the form of Cash Equivalents; provided that the amount of:
(A) any liabilities (as shown on the Issuers or such Restricted Subsidiarys most recent balance sheet or in the footnotes thereto or, if incurred or increased subsequent to the date of such balance sheet, such liabilities that would have been shown on the Issuers or such Restricted Subsidiarys balance sheet or in the footnotes thereto if such incurrence or increase had taken place on or prior to the date of such balance sheet, as determined by the Issuer) of the Issuer or such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the Notes, that are assumed by the transferee of any such assets pursuant to a written agreement which releases or indemnifies the Issuer or such Restricted Subsidiary from such liabilities;
(B) any securities, notes or other obligations or assets received by the Issuer or such Restricted Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary into Cash Equivalents (to the extent of the Cash Equivalents received) within 180 days (365 days in the case of any securities, notes or other obligations or assets received in respect of any Asset Sale of the Specified Real Property Assets) following the closing of such Asset Sale; and
(C) any Designated Non-cash Consideration received by the Issuer or such Restricted Subsidiary in such Asset Sale having an aggregate fair market value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (C) that is at that time outstanding, not to exceed the greater of (i) $75.0 million and (ii) 5.0% of Total Assets at the time of the receipt of such Designated Non-cash Consideration, with the fair market value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value,
shall be deemed to be Cash Equivalents for purposes of this provision and for no other purpose.
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(b) Within 365 days after the receipt of any Net Proceeds of any Asset Sale, the Issuer or such Restricted Subsidiary, at its option, may apply the Net Proceeds from such Asset Sale:
(i) to permanently reduce Indebtedness as follows:
(A) Obligations under the Senior Secured Credit Facilities, and to correspondingly reduce commitments with respect thereto;
(B) Obligations under Secured Indebtedness which is secured by a Lien that is permitted by this Indenture, and to correspondingly reduce commitments with respect thereto;
(C) Obligations under the Notes or any other Senior Indebtedness of the Issuer or any Restricted Subsidiary (and, in the case of other Senior Indebtedness, to correspondingly reduce any outstanding commitments with respect thereto, if applicable); provided that if the Issuer or any Restricted Subsidiary shall so repay any Senior Indebtedness other than the Notes, the Issuer will either (A) reduce Obligations under the Notes on a pro rata basis by, at its option, (x) redeeming Notes as provided under Section 3.07 hereof or (y) purchasing Notes through open-market purchases, or (B) make an offer (in accordance with the procedures set forth in Sections 3.08 and 4.10(c) hereof) to all Holders to purchase their Notes on a ratable basis with such other Senior Indebtedness for no less than 100.0% of the principal amount of such Notes, plus the amount of accrued but unpaid interest, if any, on the principal amount of the Notes to be repurchased, to, but excluding, the date of repurchase; or
(D) if the assets that are the subject of such Asset Sale are the property or assets of a Restricted Subsidiary that is not the Co-Issuer or a Guarantor, to permanently reduce Indebtedness of (i) a Restricted Subsidiary that is not the Co-Issuer or a Guarantor, other than Indebtedness owed to the Issuer or any Restricted Subsidiary, or (ii) the Issuer or a Subsidiary Guarantor; or
(ii) to make (A) an Investment in any one or more businesses, provided that such Investment in any business is in the form of the acquisition of Capital Stock and results in the Issuer or any of its Restricted Subsidiaries, as the case may be, owning an amount of the Capital Stock of such business such that it constitutes a Restricted Subsidiary, (B) capital expenditures or (C) acquisitions of other assets, in each of (A), (B) and (C), used or useful in a Similar Business; or
(iii) to make an Investment in (A) any one or more businesses, provided that such Investment in any business is in the form of the acquisition of Capital Stock and results in the Issuer or any of its Restricted Subsidiaries, as the case may be, owning an amount of the Capital Stock of such business such that it constitutes a Restricted Subsidiary, (B) capital expenditures, (C) properties or (D) acquisitions of other assets that, in each of (A), (B), (C) and (D), replace the businesses, properties and/or assets that are the subject of such Asset Sale;
provided that a binding commitment entered into not later than such 365th day shall be treated as a permitted application of the Net Proceeds from the date of such commitment so long as the Issuer or such Restricted Subsidiary enters into such commitment with the good faith expectation that such Net Proceeds will be applied to satisfy such commitment within the later of such 365th day and 180 days of such commitment (an Acceptable Commitment ) and, in the event any Acceptable Commitment is later cancelled or terminated for any reason before the Net Proceeds are applied in connection therewith, the Issuer or such Restricted Subsidiary enters into another Acceptable Commitment (a Second Commitment ) within 180 days of such cancellation or termination; provided further that if any Second Commitment is later cancelled or terminated for any reason before such Net Proceeds are applied, then such Net Proceeds shall constitute Excess Proceeds.
(c) Any Net Proceeds from the Asset Sale that are not invested or applied as provided and within the time period set forth in Section 4.10(b) hereof will be deemed to constitute Excess Proceeds . When the aggregate amount of Excess Proceeds exceeds $75.0 million, the Issuers shall make an offer (an Asset Sale Offer ) to all Holders of the Notes and, if required by the terms of any Indebtedness that ranks pari passu with the Notes ( Pari
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Passu Indebtedness ), to the holders of such Pari Passu Indebtedness, to purchase the maximum aggregate principal amount of the Notes and such Pari Passu Indebtedness that is in an amount equal to at least $2,000, or an integral multiple of $1,000 in excess thereof, that may be purchased out of the Excess Proceeds at an offer price, in the case of the Notes, in cash in an amount equal to 100.0% of the principal amount thereof (or accreted value thereof, if less), plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer, and in the case of any Pari Passu Indebtedness at the offer price required by the terms thereof but not to exceed 100% of the principal amount thereof, plus accrued and unpaid interest, if any, in accordance with the procedures set forth in this Indenture and the agreement(s) governing such Pari Passu Indebtedness. The Issuers will commence an Asset Sale Offer with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceed $75.0 million by delivering the notice required pursuant to the terms of this Indenture, with a copy to the Trustee. The Issuers may satisfy the foregoing obligations with respect to any Net Proceeds from an Asset Sale by making an Asset Sale Offer with respect to such Net Proceeds prior to the expiration of the relevant 365 days (or such longer period provided above) or with respect to Excess Proceeds of $75.0 million or less.
To the extent that the aggregate amount of Notes and such Pari Passu Indebtedness, as the case may be, tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuers may use any remaining Excess Proceeds for any purposes not otherwise prohibited under this Indenture. If the aggregate principal amount of Notes or the Pari Passu Indebtedness, as the case may be, surrendered by such holders thereof exceeds the amount of Excess Proceeds, the Issuers shall purchase the Notes and such Pari Passu Indebtedness, as the case may be, on a pro rata basis based on the accreted value or principal amount of the Notes or such Pari Passu Indebtedness, as the case may be, tendered with adjustments as necessary so that no Notes or Pari Passu Indebtedness, as the case may be, will be repurchased in part in an unauthorized denomination. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds that resulted in the requirement to make an Asset Sale Offer shall be reset to zero (regardless of whether there are any remaining Excess Proceeds upon such completion). Additionally, the Issuers may, at their option, make an Asset Sale Offer using the proceeds from any Asset Sale at any time after the consummation of such Asset Sale. Upon consummation or expiration of any Asset Sale Offer, any remaining Net Proceeds shall not be deemed Excess Proceeds and the Issuers may use such Net Proceeds for any purpose not otherwise prohibited under this Indenture.
(d) Pending the final application of any Net Proceeds pursuant to this Section 4.10, the holder of such Net Proceeds may apply such Net Proceeds temporarily to reduce Indebtedness outstanding under a revolving credit facility, including under the Senior Secured Credit Facilities, or otherwise invest such Net Proceeds in any manner not prohibited by this Indenture.
(e) The notice, if delivered electronically or mailed in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. If (i) the notice is delivered electronically or mailed in a manner herein provided and (ii) any Holder fails to receive such notice or a Holder receives such notice but it is defective, such Holders failure to receive such notice or such defect shall not affect the validity of the proceedings for the purchase of the Notes as to all other Holders that properly received such notice without defect. The Issuers shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase by the Issuers of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof.
The provisions of this Section 4.10 may be waived or modified with the written consent of the Holders of a majority in principal amount of all the Notes then outstanding.
Section 4.11. Transactions with Affiliates .
(a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Issuer (each of the foregoing, an Affiliate Transaction ) involving aggregate payments or consideration in excess of $25.0 million, unless:
(i) such Affiliate Transaction is on terms that are not materially less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person on an arms-length basis; and
(ii) the Issuer delivers to the Trustee with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate payments or consideration in excess of $50.0 million, a resolution adopted by the majority of the Board of Directors of the Issuer approving such Affiliate Transaction and set forth in an Officers Certificate certifying that such Affiliate Transaction complies with clause (i) of this Section 4.11(a).
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(b) The provisions of Section 4.11(a) hereof shall not apply to the following:
(i) transactions between or among the Issuer or any of its Restricted Subsidiaries;
(ii) Restricted Payments permitted by Section 4.07 hereof and the definition of Permitted Investments ;
(iii) (A) the payment of management, consulting, monitoring, transaction, advisory and other fees, indemnities and expenses pursuant to the Support and Services Agreement (plus any unpaid management, consulting, monitoring, transaction, advisory and other fees, indemnities and expenses accrued in any prior year) and any termination fees pursuant to the Support and Services Agreement and (B) transactions pursuant to the Transaction Agreements, or, in the case of each of (A) and (B), any amendment thereto or replacement thereof so long as any such amendment or replacement is not materially disadvantageous in the good faith judgment of the Board of Directors of the Issuer to the Holders when taken as a whole, as compared to the applicable agreement as in effect immediately prior to such amendment or replacement;
(iv) (A) employment agreements, employee benefit and incentive compensation plans and arrangements and (B) the payment of reasonable and customary fees and compensation paid to, and indemnities and reimbursements and employment and severance arrangements provided on behalf of or for the benefit of, current or former employees, directors, officers, managers or consultants of the Issuer, any of its direct or indirect parent companies or any of its Restricted Subsidiaries;
(v) transactions in which the Issuer or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to the Issuer or such Restricted Subsidiary from a financial point of view or stating that the terms are not materially less favorable, when taken as a whole, to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person on an arms-length basis;
(vi) any agreement or arrangement as in effect as of the Issue Date, or any amendment thereto (so long as any such amendment is not disadvantageous in any material respect in the good faith judgment of the Issuer to the Holders when taken as a whole as compared to the applicable agreement as in effect on the Issue Date);
(vii) the existence of, or the performance by the Issuer or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it (or any parent company of the Issuer) is a party as of the Issue Date and any similar agreements which it (or any parent company of the Issuer) may enter into thereafter; provided that the existence of, or the performance by the Issuer or any of its Restricted Subsidiaries (or such parent company) of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (vii) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous in any material respect in the good faith judgment of the Issuer to the Holders when taken as a whole;
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(viii) the Spin-Off Transaction (including each instrument or agreement to be entered into in connection with, or contemplated by, the Spin-Off Transaction) and the payment of all fees and expenses related thereto;
(ix) transactions with customers, clients, suppliers, contractors, joint venture partners or purchasers or sellers of goods or services that are Affiliates, in each case in the ordinary course of business or that are consistent with past practice and otherwise in compliance with the terms of this Indenture which are fair to the Issuer and its Restricted Subsidiaries, in the reasonable determination of the Issuer, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;
(x) the issuance or transfer of Equity Interests (other than Disqualified Stock) of the Issuer to any direct or indirect parent company of the Issuer or to any Permitted Holder or to any employee, director, officer, manager or consultant (or their respective Affiliates or Immediate Family Members) of the Issuer, any of its direct or indirect parent companies or any of its Restricted Subsidiaries;
(xi) sales of accounts receivable, or participations therein, or Securitization Assets or related assets in connection with any Qualified Securitization Facility;
(xii) payments by the Issuer or any of its Restricted Subsidiaries to any of the Investors made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which payments are approved by the Issuer in good faith;
(xiii) payments and Indebtedness and Disqualified Stock (and cancellation of any thereof) of the Issuer and its Restricted Subsidiaries and Preferred Stock (and cancellation of any thereof) of any Restricted Subsidiary to any future, current or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Issuer, any of its Subsidiaries or any of its direct or indirect parent companies pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement that are, in each case, approved by the Issuer in good faith; and any employment agreements, stock option plans and other compensatory arrangements (and any successor plans thereto) and any supplemental executive retirement benefit plans or arrangements with any such employees, directors, officers, managers or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) that are, in each case, approved by the Issuer in good faith;
(xiv) (i) investments by Permitted Holders in securities or loans of the Issuer or any of its Restricted Subsidiaries (and payment of reasonable out-of-pocket expenses incurred by such Permitted Holders in connection therewith) so long as the investment is being offered by the Issuer or such Restricted Subsidiary generally to other investors on the same or more favorable terms, and (ii) payments to Permitted Holders in respect of securities or loans of the Issuer or any of its Restricted Subsidiaries contemplated in the foregoing subclause (i) or that were acquired from Persons other than the Issuer and its Restricted Subsidiaries, in each case, in accordance with the terms of such securities or loans;
(xv) payments to or from, and transactions with, any joint venture in the ordinary course of business or consistent with past practice (including, without limitation, any cash management activities related thereto);
(xvi) payments by the Issuer (and any direct or indirect parent company thereof) and its Subsidiaries pursuant to tax sharing agreements among the Issuer (and any such parent company) and its Subsidiaries, to the extent such payments are permitted under clause (xv)(B) of Section 4.07(b) hereof;
(xvii) any lease entered into between the Issuer or any Restricted Subsidiary, as lessee, and any Affiliate of the Issuer, as lessor, which is approved by the Issuer in good faith;
(xviii) intellectual property licenses in the ordinary course of business;
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(xix) all payments to a direct or indirect parent entity of the Issuer otherwise permitted under this Indenture;
(xx) the payment of reasonable out-of-pocket costs and expenses relating to registration rights and indemnities provided to stockholders of the Issuer or any direct or indirect parent thereof pursuant to the stockholders, registration rights or similar agreements;
(xxi) the pledge of Equity Interests of any Unrestricted Subsidiary to lenders to support the Indebtedness of such Unrestricted Subsidiary owed to such lenders;
(xxii) Permitted Intercompany Activities and related transactions; and
(xxiii) any transactions with any Subsidiary or a joint venture or similar entity which would constitute an Affiliate Transaction solely because the Issuer or a Restricted Subsidiary owns an equity interest or otherwise controls such Subsidiary, joint venture or similar entity.
Section 4.12. Liens . The Issuer will not, and will not permit the Co-Issuer or any Subsidiary Guarantor to, directly or indirectly, create, incur, assume or suffer to exist any Lien (except Permitted Liens) that secures Obligations under any Indebtedness or any related guarantee of Indebtedness, on any asset or property of the Issuer, the Co-Issuer or any Subsidiary Guarantor, or any income or profits therefrom, or assign or convey any right to receive income therefrom, unless:
(a) in the case of Liens securing Subordinated Indebtedness, the Notes and related Subsidiary Guarantees are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens; and
(b) in all other cases, the Notes or the Subsidiary Guarantees are equally and ratably secured,
except that the foregoing shall not apply to or restrict Liens securing obligations in respect of the Notes (and Exchange Notes with respect thereto) and the related Guarantees.
Any Lien created for the benefit of the Holders of the Notes pursuant to this Section 4.12 shall be deemed automatically and unconditionally released and discharged upon the release and discharge of each of the Liens described in clauses (a) and (b) above.
Section 4.13. Company Existence . Subject to Article 5 hereof, the Issuer shall do or cause to be done all things necessary to preserve and keep in full force and effect its limited liability company existence and the corporate, partnership, limited liability company or other existence of each of its Restricted Subsidiaries (including the Co-Issuer), in accordance with the respective organizational documents (as the same may be amended from time to time) of the Issuer or any such Restricted Subsidiary; provided that the Issuer shall not be required to preserve the corporate, partnership or other existence of its Restricted Subsidiaries (other than the Co-Issuer), if the Issuer in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Issuer and its Restricted Subsidiaries, taken as a whole. For the avoidance of doubt, the Issuer and its Restricted Subsidiaries will be permitted to change their organizational form; provided that for so long as an Issuer is organized as a partnership or a limited liability company, it will maintain a corporate co-issuer of the Notes.
Section 4.14. Offer to Repurchase Upon Change of Control Triggering Event . If a Change of Control Triggering Event occurs, unless the Issuers have previously or concurrently sent a redemption notice with respect to all the outstanding Notes as described under Sections 3.03 and 3.07 hereof, the Issuers shall make an offer to purchase all of the Notes pursuant to the offer described below (the Change of Control Offer ) at a price in cash (the Change of Control Payment ) equal to 101.0% of the aggregate principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, to, but excluding, the date of purchase, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date falling prior to or on the purchase date. Within 30 days following any Change of Control Triggering Event, the Issuers will send notice of such Change of Control Offer electronically or by first-class mail, with a copy to the Trustee, to each Holder to the address of such Holder appearing in the Note Register or otherwise delivered in accordance with the Applicable Procedures with the following information:
(a) that a Change of Control Offer is being made pursuant to this Section 4.14 and that all Notes properly tendered pursuant to such Change of Control Offer will be accepted for payment by the Issuers;
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(b) the purchase price and the purchase date, which will be no earlier than 15 days nor later than 60 days from the date such notice is sent (the Change of Control Payment Date ), except in the case of a conditional Change of Control Offer made in advance of a Change of Control Triggering Event in accordance with clause (l) of this Section 4.14;
(c) that any Note not properly tendered will remain outstanding and continue to accrue interest;
(d) that unless the Issuers default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Payment Date;
(e) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer shall be required to surrender such Notes, with the form entitled Option of Holder to Elect Purchase on the reverse of such Notes completed or otherwise in accordance with the Applicable Procedures, to the Paying Agent specified in the notice at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;
(f) that Holders shall be entitled to withdraw their tendered Notes and their election to require the Issuers to purchase such Notes; provided that the Paying Agent receives, not later than the close of business on the second Business Day prior to the expiration date of the Change of Control Offer, a facsimile transmission, letter or other communication in accordance with the Applicable Procedures setting forth the name of the Holder of the Notes, the principal amount of Notes tendered for purchase, and a statement that such Holder is withdrawing its tendered Notes, or a specified portion thereof, and its election to have such Notes purchased;
(g) that Holders whose Notes are being purchased only in part shall be issued new Notes and such new Notes will be equal in principal amount to the unpurchased portion of the Notes surrendered. The unpurchased portion of the Notes must be equal to at least $2,000 or any integral multiple of $1,000 in excess of $2,000;
(h) if such notice is delivered prior to the occurrence of a Change of Control Triggering Event, stating that the Change of Control Offer is conditional on the occurrence of such Change of Control Triggering Event and shall describe each such condition, and, if applicable, shall state that, in the Issuers discretion, the Change of Control Payment Date may be delayed until such time (including more than 60 days after the notice is mailed or delivered, including by electronic transmission) as any such condition shall be satisfied, or that such repurchase may not occur and such notice may be rescinded in the event that any such condition shall not have been satisfied by the Change of Control Payment Date, or by the Change of Control Payment Date as so delayed; and
(i) any other instructions, as determined by the Issuers, consistent with this Section 4.14 that a Holder must follow in order to have the Notes repurchased.
The notice, if delivered electronically or mailed in a manner herein provided, shall be conclusively presumed to have been given, whether or not the Holder receives such notice. If (a) the notice is delivered or mailed in a manner herein provided and (b) any Holder fails to receive such notice or a Holder receives such notice but it is defective, such Holders failure to receive such notice or such defect shall not affect the validity of the proceedings for the purchase of the Notes as to all other Holders that properly received such notice without defect. The Issuers
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shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws or regulations are applicable in connection with the repurchase by the Issuers of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Indenture, the Issuers shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in this Indenture by virtue thereof.
(j) On the Change of Control Payment Date, the Issuers shall, to the extent permitted by law:
(i) accept for payment all Notes issued by it or portions thereof properly tendered pursuant to the Change of Control Offer;
(ii) deposit with the Paying Agent an amount equal to the aggregate Change of Control Payment in respect of all Notes or portions thereof so tendered; and
(iii) deliver, or cause to be delivered, to the Trustee for cancellation the Notes so accepted together with an Officers Certificate to the Trustee stating that such Notes or portions thereof have been tendered to and purchased by the Issuers.
(k) The Issuers shall not be required to make a Change of Control Offer following a Change of Control Triggering Event if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Issuers and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
(l) Notwithstanding anything to the contrary herein, a Change of Control Offer may be made in advance of a Change of Control Triggering Event, conditional upon such Change of Control Triggering Event, if a definitive agreement is in place for the Change of Control Triggering Event at the time of making of the Change of Control Offer.
(m) Other than as specifically provided in this Section 4.14, any purchase pursuant to this Section 4.14 shall be made pursuant to the provisions of Sections 3.02, 3.05 and 3.06 hereof, and references therein to redeem, redemption, Redemption Date and similar words shall be deemed to refer to purchase, repurchase and Change of Control Payment Date and similar words, as applicable.
The provisions of this Section 4.14 may be waived or modified with the written consent of the Holders of a majority in principal amount of all the Notes then outstanding.
Section 4.15. Limitation on Guarantees of Indebtedness by Restricted Subsidiaries . The Issuer shall not permit any of its Wholly Owned Subsidiaries that are Restricted Subsidiaries (and non-Wholly Owned Subsidiaries if such non-Wholly Owned Subsidiaries guarantee other capital markets debt securities of the Issuer, the Co-Issuer or any Subsidiary Guarantor), other than a Subsidiary Guarantor, the Co-Issuer, a Foreign Subsidiary or a Securitization Subsidiary, to guarantee the payment of (i) any Credit Facility permitted under clause (i) of Section 4.09(b) hereof or (ii) capital markets debt securities of the Issuer, the Co-Issuer or any Subsidiary Guarantor unless:
(a) such Restricted Subsidiary within 60 days after the guarantee of such Indebtedness executes and delivers a supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto, providing for a Guarantee by such Restricted Subsidiary, except that with respect to a guarantee of Indebtedness of the Issuer, the Co-Issuer or any Subsidiary Guarantor, if such Indebtedness is by its express terms subordinated in right of payment to the Notes or such Guarantors Guarantee, any such guarantee by such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Guarantee substantially to the same extent as such Indebtedness is subordinated to the Notes; and
(b) such Restricted Subsidiary waives and shall not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other applicable rights against the Issuer or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Guarantee;
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provided that this Section 4.15 shall not be applicable to any guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary. The Issuer may elect, in its sole discretion, to cause any Subsidiary that is not otherwise required to be a Guarantor to become a Guarantor, in which case such Subsidiary shall not be required to comply with the 60 day period described in clause (a) of this Section 4.15.
Section 4.16. Limitations on Business Activities of the Co-Issuer .
The Co-Issuer may not hold any assets, become liable for any obligations or engage in any business activities; provided that it may be a co-obligor or guarantor with respect to the Notes or any other Indebtedness issued by the Issuer, and may engage in any activities related thereto or necessary in connection therewith. The Co-Issuer shall be a Wholly Owned Subsidiary of the Issuer at all times.
Section 4.17. Suspension of Covenants .
(a) If at any time (i) the Notes have an Investment Grade Rating from both of the Rating Agencies and (ii) no Default has occurred and is continuing under this Indenture, then, beginning on that day (the occurrence of the events described in the foregoing clauses (i) and (ii) being collectively referred to as a Covenant Suspension Event ), each of Section 4.07, Section 4.08, Section 4.09, Section 4.10, Section 4.11, Section 4.15 and clause (iv) of Section 5.01(a) hereof shall no longer be applicable to the Notes (collectively, the Suspended Covenants ).
(b) In the event that the Issuer and its Restricted Subsidiaries are not subject to the Suspended Covenants under this Indenture for any period of time as a result of the foregoing, and on any subsequent date (the R e version Date ) either of the Rating Agencies rate the Notes below an Investment Grade Rating, then the Issuer and its Restricted Subsidiaries will thereafter again be subject to the Suspended Covenants under this Indenture with respect to future events. The period of time between the Covenant Suspension Event and the Reversion Date is referred to as the Suspension Period . Upon the occurrence of a Covenant Suspension Event, the amount of Excess Proceeds from any Asset Sales shall be reset to zero.
(c) During the Suspension Period, the Issuer and its Restricted Subsidiaries shall be entitled to incur Liens to the extent provided for under Section 4.12 (including, without limitation, Permitted Liens) to the extent provided for in such section and any Permitted Liens which may refer to one or more Suspended Covenants shall be interpreted as though such applicable Suspended Covenant(s) continued to be applicable during the Suspension Period (but solely for purposes of Section 4.12 and no other section).
(d) Notwithstanding the foregoing, in the event of any such reinstatement of the Suspended Covenants, no action taken or omitted to be taken by the Issuer or any of its Restricted Subsidiaries prior to such reinstatement that was permitted at such time will give rise to a Default or Event of Default under this Indenture with respect to the Notes; provided , that (1) with respect to Restricted Payments made after such reinstatement, the amount available to be made as Restricted Payments will be calculated as though Section 4.07 had been in effect prior to, but not during, the Suspension Period; and (2) all Indebtedness incurred, or Disqualified Stock issued, during the Suspension Period will be classified to have been incurred or issued pursuant to clause (iii) of Section 4.09(b); (3) any Affiliate Transaction entered into after such reinstatement pursuant to an agreement entered into during any Suspension Period shall be deemed to be permitted pursuant to clause (vi) of Section 4.11(b); (4) any encumbrance or restriction on the ability of any Restricted Subsidiary that is not the Co-Issuer or a Guarantor to take any action described in clauses (i) through (iii) of Section 4.08(a) that becomes effective during any Suspension Period shall be deemed to be permitted pursuant to clause (i) of Section 4.08(b); and (5) no Subsidiary of the Issuer (other than the Co-Issuer) shall be required to comply with Section 4.15 after such reinstatement with respect to any guarantee entered into by such Subsidiary during any Suspension Period.
(e) The Trustee shall have no obligation to determine if the Notes have an Investment Grade Rating at any time or to provide Holders with notice of whether the Notes have an Investment Grade Rating or no longer have an Investment Grade Rating.
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ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation or Sale of All or Substantially All Assets .
(a) The Issuer may not consolidate or merge with or into or wind up into (whether or not the Issuer is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to any Person unless:
(i) the Issuer is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made, is a Person organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such Person, as the case may be, being herein called the Successor Company ); provided that in such a transaction where the surviving Person is not a corporation, a co-obligor of the Notes is a corporation;
(ii) the Successor Company, if other than the Issuer, expressly assumes all the obligations of the Issuer under this Indenture, the Notes and the Registration Rights Agreement (if the Exchange Offer contemplated therein has not been consummated) pursuant to supplemental indentures or other documents or instruments;
(iii) immediately after such transaction, no Default exists;
(iv) immediately after giving pro forma effect to such transaction and any related financing transactions, as if such transactions had occurred at the beginning of the applicable four-quarter period:
(A) the Issuer would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Test; or
(B) the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries would be equal to or greater than the Fixed Charge Coverage Ratio for the Issuer and its Restricted Subsidiaries immediately prior to such transaction;
(v) each Guarantor, unless it is the other party to the transactions described above, in which case clause (i)(B) of Section 5.01(e) hereof shall apply, shall have by supplemental indenture confirmed that its Guarantee shall apply to such Persons obligations under this Indenture, the Notes and the Registration Rights Agreement;
(vi) the Co-Issuer, unless it is the party to the transactions described above, shall have by supplemental indenture confirmed that it continues to be a co-obligor of the Notes; and
(vii) the Issuer or, if applicable, the Successor Company shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures, if any, comply with this Indenture.
(b) The Successor Company shall succeed to, and be substituted for, the Issuer under this Indenture, the Guarantees and the Notes, as applicable, and the Issuer will automatically be released and discharged from its obligations under this Indenture, the Guarantees and the Notes.
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(c) Notwithstanding clauses (iii) and (iv) of Section 5.01(a) hereof:
(i) any Restricted Subsidiary may consolidate or amalgamate with or merge with or into or transfer all or part of its properties and assets to the Issuer or a Subsidiary Guarantor; and
(ii) the Issuer may merge with an Affiliate of the Issuer solely for the purpose of reorganizing the Issuer in the United States, any state thereof, the District of Columbia or any territory thereof so long as the amount of Indebtedness of the Issuer and its Restricted Subsidiaries is not increased thereby.
(d) The Co-Issuer may not, directly or indirectly, consolidate or merge with or into or windup into (whether or not the Co-Issuer is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Co-Issuers properties or assets, in one or more related transactions, to any Person, unless:
(i) (A) concurrently therewith, a corporate Wholly Owned Restricted Subsidiary of the Issuer organized and validly existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof (which may be the continuing Person as a result of such transaction) expressly assumes all the obligations of the Co-Issuer under the Notes and the Registration Rights Agreement (if the exchange offer contemplated therein has not been consummated) pursuant to supplemental indentures or other documents or instruments; or
(B) after giving effect thereto, at least one obligor on the Notes shall be a corporation organized and validly existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof;
(ii) immediately after such transaction, no Default or Event of Default will have occurred and be continuing; and
(iii) the Co-Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture, if any, comply with this Indenture.
(e) Subject to Section 10.06 hereof, no Subsidiary Guarantor shall, and the Issuer shall not permit any Subsidiary Guarantor to, consolidate or merge with or into or wind up into (whether or not such Subsidiary Guarantor is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets, in one or more related transactions, to any Person unless:
(i) (A) such Guarantor is the surviving Person or the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a Person organized or existing under the laws of the jurisdiction of organization of such Guarantor, as applicable, or the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such surviving Guarantor or such Person, as the case may be, being herein called the Successor Person );
(B) the Successor Person, if other than such Guarantor, expressly assumes all the obligations of such Guarantor under this Indenture and such Guarantors related Guarantee pursuant to supplemental indentures or other documents or instruments;
(C) immediately after such transaction, no Default exists; and
(D) the Issuer shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures, if any, comply with this Indenture; or
(ii) the transaction is made in compliance with Section 4.10(a) hereof; or
(iii) in the case of assets comprised of Equity Interests of Subsidiaries that are not Guarantors, such Equity Interests are sold, assigned, transferred, leased, conveyed or otherwise disposed of to one or more Restricted Subsidiaries.
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(f) Subject to Section 10.06 hereof, the Successor Person shall succeed to, and be substituted for, such Guarantor under this Indenture and such Guarantors Guarantee. Notwithstanding the foregoing, any Subsidiary Guarantor may (1) merge or consolidate with or into, wind up into or transfer all or part of its properties and assets to another Subsidiary Guarantor or the Issuer, (2) merge with an Affiliate of the Issuer solely for the purpose of reorganizing such Subsidiary Guarantor in the United States, any state thereof, the District of Columbia or any territory thereof, (3) convert into a corporation, partnership, limited partnership, limited liability company or trust organized or existing under the laws of the jurisdiction of organization of such Subsidiary Guarantor or (4) liquidate or dissolve or change its legal form if the Issuer determines in good faith that such action is in the best interests of the Issuer, in each case, without regard to the requirements set forth in Section 5.01(e). HGV Parent and HGV Intermediate Parent may merge with an Affiliate of the Issuer solely for the purpose of reincorporating or reorganizing HGV Parent or HGV Intermediate Parent, as the case may be, in the United States, any state thereof, the District of Columbia or any territory thereof. Notwithstanding anything to the contrary in this Section 5.01, (A) the Issuer may contribute or transfer the Capital Stock of any or all of its Subsidiaries to any Subsidiary Guarantor, and (B) nothing contained in this Section 5.01 shall prohibit the Spin-Off Transaction.
Section 5.02. Successor Person Substituted . Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer, the Co-Issuer or a Subsidiary Guarantor in accordance with Section 5.01 hereof, the successor Person formed by such consolidation or into or with which the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable, is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable, shall refer instead to the successor Person, as applicable, and not to the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable), and may exercise every right and power of the Issuer, the Co-Issuer or such Subsidiary Guarantor, as applicable, under this Indenture with the same effect as if such successor Person, as applicable, had been named as the Issuer, the Co-Issuer or a Subsidiary Guarantor, as applicable, herein; provided that the predecessor Issuer shall not be relieved from the obligation to pay, or to Guarantee the payment of, as applicable, the principal of and interest on the Notes, except in the case of a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the Issuers or the Co-Issuers assets, as applicable, that meets the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default .
(a) An Event of Default , wherever used herein, means any one of the following events:
(i) default in payment when due and payable, upon redemption, acceleration or otherwise, of principal of, or premium, if any, on the Notes;
(ii) default for 30 consecutive days or more in the payment when due of interest on or with respect to the Notes;
(iii) subject to Section 4.03(d) hereof, failure by the Issuer, the Co-Issuer or any Guarantor for 60 days after receipt of written notice given by the Trustee or the Holders of not less than 25.0% in aggregate principal amount of the then outstanding Notes to comply with any of its obligations, covenants or agreements (other than a default referred to in clause (i) or (ii) above) contained in this Indenture or the Notes;
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(iv) default under any mortgage, indenture or instrument under which there is issued or by which there is secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Restricted Subsidiaries or the payment of which is guaranteed by the Issuer or any of its Restricted Subsidiaries, other than Indebtedness owed to the Issuer or a Restricted Subsidiary, whether such Indebtedness or guarantee now exists or is created after the issuance of the Notes, if both:
(A) such default either results from the failure to pay any principal of such Indebtedness at its stated final maturity (after giving effect to any applicable grace periods) or relates to an obligation other than the obligation to pay principal of any such Indebtedness at its stated final maturity and results in the holder or holders of such Indebtedness causing such Indebtedness to become due prior to its stated maturity; and
(B) the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at stated final maturity (after giving effect to any applicable grace periods), or the maturity of which has been so accelerated, aggregate $75.0 million or more outstanding;
(v) failure by the Issuer, the Co-Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary) to pay final judgments aggregating in excess of $75.0 million (net of amounts covered by insurance policies issued by reputable insurance companies), which final judgments remain unpaid, undischarged and unstayed for a period of more than 60 days after such judgment becomes final, and in the event such judgment is covered by insurance, an enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;
(vi) the Issuer, the Co-Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), pursuant to or within the meaning of any Bankruptcy Law:
(A) commences proceedings to be adjudicated bankrupt or insolvent;
(B) consents to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under applicable Bankruptcy Law;
(C) consents to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or other similar official of it or for all or substantially all of its property;
(D) makes a general assignment for the benefit of its creditors; or
(E) generally is not paying its debts as they become due;
(vii) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(A) is for relief against the Issuer, the Co-Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), in a proceeding in which the Issuer, the Co-Issuer or any such Subsidiary or such group of Restricted Subsidiaries is to be adjudicated bankrupt or insolvent;
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(B) appoints a receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Issuer, the Co-Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), or for all or substantially all of the property of the Issuer, the Co-Issuer or any such Significant Subsidiary or such group of Restricted Subsidiaries; or
(C) orders the liquidation of the Issuer, the Co-Issuer or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary);
and the order or decree remains unstayed and in effect for 60 consecutive days; or
(viii) the Guarantee of HGV Parent, HGV Intermediate Parent or any Significant Subsidiary (or any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary) shall for any reason cease to be in full force and effect or be declared null and void or any responsible officer of HGV Parent, HGV Intermediate Parent or any Guarantor that is a Significant Subsidiary (or the responsible officers of any group of Restricted Subsidiaries that together (as of the latest audited consolidated financial statements of the Issuer for a fiscal quarter end provided as required under Section 4.03 hereof) would constitute a Significant Subsidiary), as the case may be, denies in writing that it has any further liability under its Guarantee or gives written notice to such effect, other than by reason of the termination of this Indenture or the release of any such Guarantee in accordance with this Indenture.
(b) In the event of any Event of Default specified in clause (iv) of Section 6.01(a) hereof, such Event of Default and all consequences thereof (excluding any resulting payment default, other than as a result of acceleration of the Notes) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders, if within 30 days after such Event of Default arose:
(i) the Indebtedness or guarantee that is the basis for such Event of Default has been discharged;
(ii) the requisite number of holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default; or
(iii) the default that is the basis for such Event of Default has been cured.
Section 6.02. Acceleration . If any Event of Default (other than an Event of Default of the type specified in clause (vi) or (vii) of Section 6.01(a) hereof) occurs and is continuing under this Indenture, the Trustee or the Holders of not less than 25.0% in aggregate principal amount of all the then outstanding Notes may, by notice to the Issuers and the Trustee, in either case specifying in such notice the respective Event of Default and that such notice is a notice of acceleration, declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately.
Upon the effectiveness of such declaration, such principal of and premium, if any, and interest will be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising under clause (vi) or (vii) of Section 6.01(a) hereof, all outstanding Notes will become due and payable without further action or notice. The Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal, premium, if any, or interest, if it determines that withholding notice is in their interest. In addition, subject to Section 6.05, the Trustee will have no obligation to accelerate the Notes if in the judgment of the Trustee acceleration is not in the interests of the Holders of all of the Notes.
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Section 6.03. Other Remedies . If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults . Holders of a majority in aggregate principal amount of all the Notes then outstanding, by written notice to the Trustee (with a copy to the Issuers, provided that any waiver or rescission under this Section 6.04 shall be valid and binding notwithstanding the failure to provide a copy of such notice to the Issuers) may on behalf of the Holders of all of the Notes waive any existing Default and its consequences under this Indenture (except a continuing Default in the payment of interest on, premium, if any, or the principal of any Note held by a non-consenting Holder) (including in connection with an Asset Sale Offer or a Change of Control Offer) and rescind any acceleration with respect to the Notes and its consequences under this Indenture (except if such rescission would conflict with any judgment of a court of competent jurisdiction). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.
Section 6.05. Control by Majority . Subject to Section 7.01(e) hereof, the Holders of a majority in aggregate principal amount of all the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee and the Trustee may take any other action deemed proper by the Trustee that is not inconsistent with such direction. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability.
Section 6.06. Limitation on Suits . Subject to Section 6.07 hereof, no Holder of a Note may pursue any remedy with respect to this Indenture or the Notes unless:
(a) such Holder has previously given the Trustee written notice that an Event of Default is continuing;
(b) the Holders of at least 25.0% in the aggregate principal amount of the then outstanding Notes have requested in writing the Trustee to pursue the remedy;
(c) the Holders of the Notes have offered the Trustee security or indemnity satisfactory to the Trustee against any loss, liability or expense;
(d) the Trustee has not complied with such request within 60 days after the receipt thereof and the offer of security or indemnity; and
(e) the Holders of a majority in aggregate principal amount of all the then outstanding Notes have not given the Trustee a direction in writing inconsistent with such written request within such 60-day period.
Section 6.07. Rights of Holders to Receive Payment . Notwithstanding any other provision of this Indenture, the contractual right expressly set forth in this Indenture or the Notes of any Holder of a Note to receive payment of principal, premium, if any, and Additional Interest, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an Asset Sale Offer or a Change of Control Offer), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.
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Section 6.08. Collection Suit by Trustee . If an Event of Default specified in Section 6.01(a)(i) or (ii) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Issuers for the whole amount of principal of, premium, if any, Additional Interest, if any, and interest remaining unpaid on, the Notes and interest on overdue principal, if applicable, and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Restoration of Rights and Remedies . If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceedings, the Issuers, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding has been instituted.
Section 6.10. Rights and Remedies Cumulative . Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in Section 2.07 hereof, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
Section 6.11. Delay or Omission Not Waiver . No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article 6 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 6.12. Trustee May File Proofs of Claim . The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Issuers (or any other obligor upon the Notes including the Guarantors), their creditors or their property and shall be entitled and empowered to participate as a member in any official committee of creditors appointed in such matter and to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.13. Priorities . If the Trustee or any Agent collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order:
(a) FIRST, to the Trustee, such Agent, their agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee or such Agent and the costs and expenses of collection;
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(b) SECOND, to Holders for amounts due and unpaid on the Notes for principal, premium, if any, Additional Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest, respectively; and
(c) THIRD, to the Issuers or to such party as a court of competent jurisdiction shall direct including a Guarantor, if applicable.
The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.13.
Section 6.14. Undertaking for Costs . In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.14 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10.0% in principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee .
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such persons own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of willful misconduct or bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not investigate or confirm the accuracy of mathematical calculations or other facts stated therein).
(c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved in a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
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(e) The Trustee shall be under no obligation to exercise any of its rights or powers under this Indenture at the request or direction of any of the Holders unless the Holders have offered to the Trustee indemnity or security satisfactory to it against any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
Section 7.02. Rights of Trustee .
(a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers and its Restricted Subsidiaries, personally or by agent or attorney at the sole cost of the Issuers and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.
(b) Before the Trustee acts or refrains from acting, it may require an Officers Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Issuer or the Co-Issuer shall be sufficient if signed by an Officer of the Issuer or the Co-Issuer, as applicable.
(f) None of the provisions of this Indenture shall require the Trustee to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if an indemnity satisfactory to it against such risk or liability is not assured to it.
(g) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a Default or Event of Default is received by the Trustee at the Corporate Trust Office, and such notice references the Notes and this Indenture.
(h) In no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
(j) In the event the Issuers are required to pay Additional Interest, the Issuers will provide written notice to the Trustee of the Issuers obligation to pay Additional Interest no later than 15 days prior to the next Interest Payment Date, which notice shall set forth the amount of the Additional Interest to be paid by the Issuers. The Trustee shall not at any time be under any duty or responsibility to any Holders to determine whether the Additional Interest is payable and the amount thereof.
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(k) Delivery of reports, information and documents (including without limitation reports contemplated under Section 4.03 hereof) to the Trustee is for informational purposes only and the Trustees receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers compliance with any of their covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers Certificates).
(l) The permissive rights of the Trustee to take certain actions under this Indenture shall not be construed as a duty unless so specified herein.
(m) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other paper or document unless requested in writing to do so by the Holders of not less than a majority in principal amount of the Notes at the time outstanding, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Issuers, personally or by agent or attorney, at the expense of the Issuers and shall incur no liability of any kind by reason of such inquiry or investigation.
(n) The Trustee may request that the Issuers deliver an Officers Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers Certificate may be signed by any Person authorized to sign an Officers Certificate, including any Person specified as so authorized in any such certificate previously delivered and not superseded.
(o) The Trustee shall not be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused, directly or indirectly, by circumstances beyond its reasonable control, including, without limitation, acts of God; earthquakes; fire; flood; terrorism; wars and other military disturbances; sabotage; epidemics; riots; loss or malfunction of utilities, computer (hardware or software) or communication services; strikes or similar labor disputes; and acts of civil or military authorities and governmental action.
(p) The Trustee shall have no duty to inquire as to the performance of the Issuers with respect to the covenants contained in Article 4 or to make any calculation in connection therewith or in connection with any redemption of the Notes. In addition, except as otherwise expressly provided herein, the Trustee shall have no obligation to monitor or verify compliance by the Issuers or any Guarantor with any other obligation or covenant under this Indenture.
Section 7.03. Individual Rights of Trustee . The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuers or any of their Affiliates with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as such term is used in the Trust Indenture Act) it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee (if this Indenture has been qualified under the Trust Indenture Act) or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee s Disclaimer . The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuers use of the proceeds from the Notes or any money paid to the Issuers or upon the Issuers direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.
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Section 7.05. Notice of Defaults . If a Default occurs and is continuing and if it is known to a Responsible Officer of the Trustee, the Trustee shall deliver to Holders a notice of the Default within 90 days after it occurs, unless such Default shall have been cured or waived, or if discovered after 90 days, promptly thereafter. The Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal, premium, if any, or interest, if it determines that withholding notice is in their interest.
Section 7.06. Reports by Trustee to Holders . Within 60 days after each June 1, beginning on June 1, 2017, and for so long as Notes remain outstanding, the Trustee shall send to the Holders a brief report dated as of such reporting date that complies with Trust Indenture Act Section 313(a) (but if no event described in Trust Indenture Act Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with Trust Indenture Act Section 313(b)(2), to the extent applicable. The Trustee shall also send all reports as required by Trust Indenture Act Section 313(c).
A copy of each report at the time it is sent to the Holders shall be sent to the Issuers and filed with the SEC and each stock exchange on which the Notes are listed in accordance with Trust Indenture Act Section 313(d). The Issuers shall promptly notify the Trustee when the Notes are listed on any stock exchange or delisted therefrom.
Section 7.07. Compensation and Indemnity . The Issuers shall pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as the parties shall agree in writing from time to time. The Trustees compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuers shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustees agents and counsel.
The Issuers and the Guarantors, jointly and severally, shall indemnify the Trustee and its officers, directors, employees, agents and any predecessor trustee and its officers, directors, employees and agents for, and hold the Trustee harmless against, any and all loss, damage, claims, liability or expense (including reasonable attorneys fees and expenses) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder (including the reasonable costs and expenses of enforcing this Indenture against the Issuers or any of the Guarantors (including this Section 7.07) or defending itself against any claim whether asserted by any Holder, the Issuers or any Guarantor, or liability in connection with the acceptance, exercise or performance of any of its powers or duties hereunder) (but excluding taxes imposed on such Persons in connection with compensation for such administration or performance). The Trustee shall notify the Issuers promptly of any claim of which a Responsible Officer has received written notice for which it may seek indemnity. Failure by the Trustee to so notify the Issuers shall not relieve the Issuers or the Guarantors of their obligations hereunder. The Issuers shall defend the claim and the Trustee may have separate counsel and the Issuers shall pay the reasonable fees and expenses of such counsel. Neither the Issuers nor any Guarantor need reimburse any expense or indemnify against any loss, liability or expense incurred by the Trustee through the Trustees own willful misconduct, negligence or bad faith. Neither the Issuers nor any Guarantor need pay for any settlement made without its consent.
The obligations of the Issuers and the Guarantors under this Section 7.07 shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee.
To secure the payment obligations of the Issuers and the Guarantors in this Section 7.07, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except money or property held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(a)(vi) or Section 6.01(a)(vii) hereof occurs, the expenses and the compensation for the services (including the reasonable fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee . A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustees acceptance of appointment as provided in this Section 7.08. The Trustee may resign in writing at any time and be discharged from the trust hereby
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created by so notifying the Issuers. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof or Trust Indenture Act Section 310;
(b) the Trustee is adjudged bankrupt or insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuers shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuers.
If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the Issuers expense), the Issuers or the Holders of at least 10% in principal amount of the then outstanding Notes, may petition any court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall send a notice of its succession to Holders. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee; provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc . If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification . There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has, together with its parent, a combined capital and surplus of at least $150.0 million as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the requirements of Trust Indenture Act Sections 310(a)(1), (2) and (5). The Trustee is subject to Trust Indenture Act Section 310(b).
Section 7.11. Preferential Collection of Claims Against Issuers . The Trustee is subject to Trust Indenture Act Section 311(a), excluding any creditor relationship listed in Trust Indenture Act Section 311(b). A Trustee who has resigned or been removed shall be subject to Trust Indenture Act Section 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance . The Issuers may, at their option and at any time, elect to have either Section 8.02 or 8.03 hereof applied to all outstanding Notes and all obligations of the Guarantors with respect to the Guarantees upon compliance with the conditions set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge . Upon the Issuers exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Issuers and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes and the related Guarantees and all Events of Default cured on the date the conditions set forth below are satisfied ( Legal Defeasance ). For this purpose, Legal Defeasance means that the Issuers and the Guarantors shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be outstanding only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below (it being understood that such Notes shall not be deemed outstanding for accounting purposes), and to have satisfied all their other obligations under such Notes and this Indenture including that of the Guarantors (and the Trustee, on demand of and at the expense of the Issuers, shall execute proper instruments acknowledging the same) and to have cured all then existing Events of Default, except for the following provisions which shall survive until otherwise terminated or discharged hereunder:
(a) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Notes when such payments are due solely out of the trust created pursuant to this Indenture referred to in Section 8.04 hereof;
(b) the Issuers obligations with respect to Notes concerning issuing temporary Notes, registration of such Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;
(c) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuers and the Guarantors obligations in connection therewith; and
(d) this Section 8.02.
Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance . Upon the Issuers exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Issuers and the Guarantors shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from their obligations under Sections 3.08, 4.03, 4.04, 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.16 hereof, and clauses (iv) and (v) of Section 5.01(a), and Section 5.01(e) hereof with respect to all outstanding Notes and the related Guarantees, on and after the date the conditions set forth in Section 8.04 hereof are satisfied ( Covenant Defeasance ), and such Notes shall thereafter be deemed not outstanding for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed outstanding for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to all outstanding Notes and the related Guarantees, the Issuers and the Guarantors may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and the Guarantees shall be unaffected thereby. In addition, upon the Issuers exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Section 6.01(a)(iii) (solely with respect to the covenants that are released upon a Covenant Defeasance), 6.01(a)(iv), 6.01(a)(v), 6.01(a)(vi) (solely with respect to Restricted Subsidiaries (other than the Co-Issuer) subject thereto), 6.01(a)(vii) (solely with respect to Restricted Subsidiaries (other than the Co-Issuer) subject thereto) and 6.01(a)(viii) hereof shall not constitute Events of Default.
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Section 8.04. Conditions to Legal or Covenant Defeasance . The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance with respect to the Notes:
(a) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of Notes, cash in U.S. dollars, U.S. Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest due on such Notes on the stated maturity date or on the Redemption Date, as the case may be, of such principal, premium, if any, or interest on such Notes and the Issuers must specify whether such Notes are being defeased to maturity or to a particular Redemption Date; provided that upon any redemption that requires the payment of the Applicable Premium, the amount deposited shall be sufficient for purposes of this Indenture to the extent that an amount is deposited with the Trustee equal to the Applicable Premium calculated as of the date of the notice of redemption, with any deficit as of the Redemption Date (any such amount, the Applicable Premium Deficit ) only required to be deposited with the Trustee on or prior to the Redemption Date. Any Applicable Premium Deficit shall be set forth in an Officers Certificate delivered to the Trustee simultaneously with the deposit of such Applicable Premium Deficit that confirms that such Applicable Premium Deficit shall be applied toward such redemption;
(b) in the case of Legal Defeasance, the Issuers shall have delivered to the Trustee an Opinion of Counsel confirming that, subject to customary assumptions and exclusions:
(i) the Issuers have received from, or there has been published by, the United States Internal Revenue Service a ruling, or
(ii) since the issuance of the Notes, there has been a change in the applicable U.S. federal income tax law,
in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, subject to customary assumptions and exclusions, the beneficial owners of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Legal Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
(c) in the case of Covenant Defeasance, the Issuers shall have delivered to the Trustee an Opinion of Counsel confirming that, subject to customary assumptions and exclusions, the beneficial owners of the Notes will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such Covenant Defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
(d) no Event of Default (other than that resulting from borrowing funds to be applied to make such deposit and any similar and simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith) shall have occurred and be continuing on the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, the Senior Secured Credit Facilities or any other material agreement or instrument (other than this Indenture) to which the Issuers or any Guarantor is a party or by which the Issuers or any Guarantor is bound (other than that resulting from any borrowing of funds to be applied to make the deposit required to effect such Legal Defeasance or Covenant Defeasance and any similar and simultaneous deposit relating to other Indebtedness, and, in each case, the granting of Liens in connection therewith);
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(f) the Issuers shall have delivered to the Trustee an Officers Certificate stating that the deposit was not made by the Issuers with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuers or any Guarantor or others; and
(g) the Issuers shall have delivered to the Trustee an Officers Certificate and an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions) each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance, as the case may be, have been complied with.
Section 8.05. Deposited Money and U.S. Government Securities to be Held in Trust; Other Miscellaneous Provisions . Subject to Section 8.06 hereof, all money and U.S. Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the Trustee ) pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer or a Guarantor acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law.
The Issuers shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes and the related Guarantees.
Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuers from time to time upon the request of the Issuers any money or U.S. Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Issuers . Subject to any applicable abandoned property law, any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) shall be discharged from such trust; and the Holder of such Note shall thereafter look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuers as trustee thereof, shall thereupon cease.
Section 8.07. Reinstatement . If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuers and the Guarantors obligations under this Indenture and the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided that, if the Issuers make any payment of principal of, premium, if any, or interest on any Notes following the reinstatement of their obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders . Notwithstanding Section 9.02 hereof, the Issuers, any Guarantor (with respect to a Guarantee or this Indenture) and the Trustee may amend or supplement this Indenture and any Guarantee or Notes without the consent of any Holder:
(a) to cure any ambiguity, omission, mistake, defect or inconsistency;
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(b) to provide for uncertificated Notes in addition to or in place of certificated Notes;
(c) to comply with Section 5.01 hereof;
(d) to provide for the assumption of the Issuers or any Guarantors obligations to the Holders;
(e) to make any change that would provide any additional rights or benefits to the Holders or that does not materially adversely affect the legal rights under this Indenture of any such Holder;
(f) to add covenants for the benefit of the Holders or to surrender any right or power conferred upon the Issuers or any Guarantor;
(g) to provide for the issuance of Additional Notes in accordance with the terms of this Indenture;
(h) to comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act;
(i) to evidence and provide for the acceptance and appointment under this Indenture of a successor Trustee or a successor Paying Agent hereunder pursuant to the requirements hereof;
(j) to make any amendment to the provisions of this Indenture relating to the transfer or legending of the Notes or to provide for the issuance of Exchange Notes or private exchange notes, which are identical to Exchange Notes except that they are not freely transferable;
(k) to add an obligor or a Guarantor under this Indenture or to release an obligor or a Guarantor in accordance with the terms of this Indenture;
(l) at any time following the Reset Date, if any, to conform the text of this Indenture, the Guarantees or the Notes to any provision of the Description of the Notes section of the Offering Memorandum to the extent that such provision in such Description of the Notes section was intended to be a verbatim recitation of a provision of this Indenture, Guarantee or Notes as provided in an Officers Certificate;
(m) to make any amendment to the provisions of this Indenture relating to the transfer and legending of Notes as permitted by this Indenture, including, without limitation to facilitate the issuance and administration of the Notes; provided, however , that such amendment does not materially and adversely affect the rights of Holders to transfer Notes;
(n) to secure the Notes and/or the related Guarantees or to add collateral thereto;
(o) to effect the Spin-Off Transaction and related transactions so long as such modification, when taken as a whole, does not materially adversely affect the legal rights under this Indenture of any Holder; or
(p) to make any other modifications to the Notes or the Indenture of a formal, minor or technical nature or necessary to correct a manifest error, so long as such modification does not adversely affect the rights of any Holders in any material respect.
Upon the request of the Issuers accompanied by a resolution of the Board of Directors of each Issuer authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof (to the extent requested by the Trustee and subject to the last sentence of
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Section 9.06), the Trustee shall join with the Issuers and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall have the right, but not be obligated to, enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Notwithstanding the foregoing, neither an Opinion of Counsel nor an Officers Certificate, nor a board resolution, shall be required in connection with the addition of a Guarantor under this Indenture upon execution and delivery by such Guarantor and the Trustee of a supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto.
Section 9.02. With Consent of Holders . Except as provided in Section 9.01 and this Section 9.02, the Issuers, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes and the Guarantees with the consent of the Holders of at least a majority in principal amount of all the Notes then outstanding, including consents obtained in connection with a purchase of, or tender offer or exchange offer for, Notes and, subject to Section 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Guarantees or the Notes issued thereunder may be waived with the consent of the Holders of a majority in principal amount of all the Notes then outstanding (including consents obtained in connection with a purchase of or tender offer or exchange offer for the Notes). Section 2.08 hereof and Section 2.09 hereof shall determine which Notes are considered to be outstanding for the purposes of this Section 9.02.
Upon the request of the Issuers accompanied by a resolution of the Board of Directors of each Issuer authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders as aforesaid, the Trustee shall join with the Issuers and the Guarantors in the execution of such amended or supplemental indenture, unless such amended or supplemental indenture directly affects the Trustees own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture.
It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Issuers shall send to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuers to send such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver.
Without the consent of each affected Holder, an amendment or waiver under this Section 9.02 may not, with respect to any Notes held by a non-consenting Holder:
(a) reduce the principal amount of such Notes whose Holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed final maturity of any such Note or alter or waive the provisions with respect to the redemption of such Notes (other than provisions relating to (i) notice periods (to the extent consistent with applicable requirements of clearing and settlement systems) for redemption and conditions to redemption and (ii) Section 3.08, Section 4.10 and Section 4.14 hereof);
(c) reduce the rate of or change the time for payment of interest on any such Note;
(d) (A) waive a Default in the payment of principal of or premium, if any, or interest on such Notes, except a rescission of acceleration of such Notes by the Holders of a majority in aggregate principal amount of all the Notes then outstanding, and a waiver of the payment default that resulted from such acceleration, or (B) waive a Default in respect of a covenant or provision contained in this Indenture, the Notes or any Guarantee which cannot be amended or modified without the consent of all affected Holders;
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(e) make any such Note payable in money other than that stated therein;
(f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the contractual rights of Holders to receive payments of principal of or premium, if any, or interest on such Notes;
(g) make any change in these amendment and waiver provisions;
(h) amend the contractual right expressly set forth in this Indenture or the Notes of any Holder to receive payments of principal of or premium, if any, or interest on such Notes or to institute suit for the enforcement of any payment on or with respect to such Holders Notes;
(i) make any change to or modify the ranking of such Notes that would adversely affect the Holders; or
(j) except as expressly permitted by this Indenture, modify the Guarantees of any Significant Subsidiary, or any group of Restricted Subsidiaries that, taken together (as of the latest audited consolidated financial statements for the Issuer), would constitute a Significant Subsidiary in any manner materially adverse to the Holders of such Notes.
Section 9.03. Compliance with Trust Indenture Act . Every amendment or supplement to this Indenture or the Notes shall be set forth in an amended or supplemental indenture that complies in all material respects with the Trust Indenture Act as then in effect.
Section 9.04. Revocation and Effect of Consents . Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holders Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder.
The Issuers may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement, or waiver. If a record date is fixed, then, notwithstanding the preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date unless the consent of the requisite number of Holders has been obtained.
Section 9.05. Notation on or Exchange of Notes . The Trustee may, at the direction of the Issuer, place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Issuers in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc . The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 9 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Issuers may not sign an amendment, supplement or waiver until the Board of Directors of each Issuer approve it. In executing any amendment, supplement or waiver, the Trustee shall be provided with, upon request, and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers Certificate and an Opinion of Counsel each stating that the execution of such amended or supplemental indenture is authorized or permitted
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by this Indenture and that such amendment, supplement or waiver is the legal, valid and binding obligation of the Issuer and any Guarantors party thereto, enforceable against them in accordance with its terms, subject to customary exceptions, and complies with the provisions hereof (including Section 9.03 hereof). Notwithstanding the foregoing, neither an Opinion of Counsel nor an Officers Certificate, nor a board resolution, shall be required for the Trustee to execute any supplemental indenture to this Indenture, the form of which is attached as Exhibit D hereto, adding a new Guarantor under this Indenture.
Section 9.07. Amendments to Conform to Marketed Notes Notwithstanding anything herein to the contrary, if, following the Original Issue Date, in connection with an anticipated marketed offering of all of the then outstanding PHRI Notes (such marketed PHRI Notes, the Marketed Notes ), the terms agreed to in connection with the offering of such Marketed Notes as set forth in the Offering Memorandum differ from the terms of the PHRI Notes as set forth in the PHRI Notes or in this Indenture, then (A) the corresponding terms applicable to the Notes shall be deemed to have been automatically supplemented, amended or modified as of the closing date for the sale of the Marketed Notes (the Reset Date ), provided that the Issuer shall notify the Trustee of such date in advance thereof, to reflect any such differences without the consent of the Holders of the Notes or any other person (including, without limitation, the interest rate set forth in the PHRI Notes), and (B) the Issuer, the Guarantors and the Trustee shall, on or prior to the Reset Date, amend or supplement this Indenture, any Guarantees and the Notes with effect from the Reset Date, without the consent of any Holder, to conform the text of this Indenture, such Guarantees and the Notes to the Description of the Notes section of the Offering Memorandum; provided that (i) the interest rate of the Notes shall be reset with effect from the Reset Date to reflect the interest rate at which the offering price to be set forth in the Offering Memorandum would equal 100.000% (of the principal amount of the Marketed Notes) plus accrued and unpaid interest, if any, to but excluding the Reset Date, (ii) no additional redemption features that allow for optional redemption by the Issuers prior to December 1, 2021 shall be added to this Indenture or the Notes and (iii) the maturity date agreed to in connection with the offering of the Marketed Notes shall not be earlier than the maturity date then applicable to the Notes or later than three months after the maturity date then applicable to the Notes.
Upon the request of the Issuers, the Trustee shall join with the Issuers and the Guarantors in the execution of such amended or supplemental indenture, unless such amended or supplemental indenture directly affects the Trustees own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental indenture.
The Issuer may, and, at the Issuers direction, the Trustee shall, exchange the PHRI Notes, in certificated form, for other Definitive Notes or a corresponding beneficial interest in one or more Global Notes issued under this Indenture to reflect any such change in the terms of this Indenture, any Guarantees or the Notes, and/or to include CUSIP numbers and ISIN numbers with respect to the Notes, or as may otherwise be necessary or appropriate to give effect to any supplement, amendment or modification of the terms of this Indenture, any Guarantees or the Notes pursuant to this Section 9.07, and if any new Notes are to be issued in exchange for Notes then outstanding pursuant to this Section 9.07, the Issuer shall provide an Authentication Order and a cancellation order to the Trustee in respect thereof. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of any such supplement, amendment or modification. The Trustee shall have no obligation to obtain any CUSIP numbers for the Marketed Notes or to make the Marketed Notes eligible for DTC.
ARTICLE 10
GUARANTEES
Section 10.01. Guarantee . Subject to this Article 10, from and after the Original Issue Date, each of the Guarantors hereby, jointly and severally, irrevocably and unconditionally, guarantees, on an unsecured senior basis, to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the Obligations of the Issuers hereunder or thereunder, that: (a) the principal of and interest and premium, if any, on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other Obligations of the Issuers to the Holders or the Trustee hereunder or under the Notes shall be promptly paid in full, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due in accordance with the terms of the extension or renewal,
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whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same promptly. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder with respect to any provisions hereof or thereof, the recovery of any judgment against the Issuer or the Co-Issuer, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor (other than payment in full of all of the Obligations of the Issuers hereunder or under the Notes). Each Guarantor hereby waives, to the fullest extent permitted by law, diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuer or the Co-Issuer, any right to require a proceeding first against the Issuers, protest, notice and all demands whatsoever and covenants that this Guarantee shall not be discharged except by full payment of the obligations contained in the Notes and this Indenture or by release in accordance with the provisions of this Indenture.
Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys fees) incurred by the Trustee or any Holder in enforcing any rights under this Section 10.01.
If any Holder or the Trustee is required by any court or otherwise to return to the Issuers, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Issuers or the Guarantors, then any amount paid either to the Trustee or such Holder, this Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guarantee. The Guarantors shall have the right to seek contribution from any nonpaying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Guarantees. Each Guarantor that makes a payment under its Guarantee shall, to the fullest extent permitted by applicable law, be entitled upon payment in full of all guaranteed obligations under this Indenture to a contribution from each other Guarantor in an amount equal to such other Guarantors pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.
Until terminated in accordance with Section 10.06, each Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Issuer or the Co-Issuer for liquidation, reorganization, should the Issuer or the Co-Issuer become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Issuers or the Co-Issuers assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment of the Notes are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Notes or Guarantees, whether as a voidable preference, fraudulent transfer or otherwise, all as though such payment had not been made. In the event that any payment or any part thereof, is rescinded, reduced, restored or returned, the Notes shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
In case any provision of any Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
The Guarantee issued by any Guarantor shall be a general unsecured senior obligation of such Guarantor and shall be pari passu in right of payment with all existing and future Senior Indebtedness of such Guarantor, if any.
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Each payment to be made by a Guarantor in respect of its Guarantee shall be made without set-off, counterclaim, reduction or diminution of any kind or nature.
Section 10.02. Limitation on Guarantor Liability . Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor under its Guarantee not constituting a fraudulent conveyance or fraudulent transfer under applicable law or being void or voidable under any law relating to insolvency of debtors.
Section 10.03. Execution and Delivery . To evidence its Guarantee set forth in Section 10.01 hereof, each Guarantor hereby agrees that this Indenture (or a supplemental indenture in the form of Exhibit D hereto) shall be executed on behalf of such Guarantor by one of its authorized officers.
Each Guarantor hereby agrees that its Guarantee set forth in Section 10.01 hereof shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
If an officer whose signature is on this Indenture (or a supplemental indenture in the form of Exhibit D hereto) no longer holds that office at the time the Trustee authenticates a Note, the Guarantee of such Guarantor shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Guarantee set forth in this Indenture on behalf of the Guarantors.
If required by Section 4.15 hereof, the Issuer shall cause any Restricted Subsidiary to comply with the provisions of Section 4.15 hereof and this Article 10, to the extent applicable.
Section 10.04. Subrogation . Each Guarantor shall be subrogated to all rights of Holders against the Issuers in respect of any amounts paid by any Guarantor pursuant to the provisions of Section 10.01 hereof; provided that, if an Event of Default has occurred and is continuing, no Guarantor shall be entitled to enforce or receive any payments arising out of, or based upon, such right of subrogation until all amounts then due and payable by the Issuers under this Indenture or the Notes shall have been paid in full.
Section 10.05. Benefits Acknowledged . Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the guarantee and waivers made by it pursuant to its Guarantee are knowingly made in contemplation of such benefits.
Section 10.06. Release of Guarantees .
(a) Each Guarantee by a Subsidiary Guarantor shall be automatically and unconditionally released and discharged, and shall thereupon terminate and be of no further force and effect, and no further action by such Subsidiary Guarantor, the Issuers or the Trustee is required for the release of such Subsidiary Guarantors Guarantee, upon:
(i) (A) any sale, exchange, disposition or transfer (by merger, amalgamation, consolidation, dividend, distribution or otherwise) of (x) the Capital Stock of such Subsidiary Guarantor, after which the applicable Subsidiary Guarantor is no longer a Restricted Subsidiary or (y) all or substantially all the assets of such Subsidiary Guarantor, in each case if such sale, exchange, disposition or transfer is made in compliance with the applicable provisions of this Indenture;
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(B) the release or discharge of the guarantee by such Subsidiary Guarantor of Indebtedness under the Senior Secured Credit Facilities, or the release or discharge of such other guarantee that resulted in the creation of such Guarantee, except a discharge or release by or as a result of payment under such guarantee (it being understood that a release subject to a contingent reinstatement will constitute a release for the purposes of this provision, and that if any such Guarantee is so reinstated, such Guarantee shall also be reinstated to the extent that such Subsidiary Guarantor would then be required to provide a Guarantee pursuant to Section 4.15 hereof);
(C) the designation of any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted Subsidiary in compliance with the applicable provisions of this Indenture;
(D) the merger or consolidation of any Subsidiary Guarantor with and into the Issuer or another Subsidiary Guarantor or upon the liquidation of such Subsidiary Guarantor following the transfer of all of its assets to the Issuer or another Subsidiary Guarantor; or
(E) the exercise by the Issuers of their Legal Defeasance option or Covenant Defeasance option in accordance with Article 8 hereof or the discharge of the Issuers obligations under this Indenture in accordance with the terms of this Indenture; and
(ii) such Subsidiary Guarantor delivering to the Trustee an Officers Certificate of such Subsidiary Guarantor or the Issuer and an Opinion of Counsel, each stating that all conditions precedent provided for in this Indenture relating to such transaction or release and discharge have been complied with. Notwithstanding the foregoing, neither an Officers Certificate nor an Opinion of Counsel shall be required in the case of a merger or consolidation in accordance with clause (i)(D) of this Section 10.06(a), provided that notice of any such merger or consolidation shall be provided to the Trustee.
(b) Each Parent Guarantee shall be automatically and unconditionally released and discharged, and shall thereupon terminate and be of no further force and effect, and no further action by the Parent Guarantors, the Issuers or the Trustee is required for the release of such Guarantee, upon:
(i) (A) except with respect to the Parent Guarantee provided by HGV Parent, the release or discharge of the guarantee by such Parent Guarantor of Indebtedness under the Senior Secured Credit Facilities (it being understood that a release subject to a contingent reinstatement will constitute a release for the purposes of this provision); or
(B) the exercise by the Issuers of their Legal Defeasance option or Covenant Defeasance option in accordance with Article 8 hereof or the discharge of the Issuers obligations under this Indenture in accordance with the terms of this Indenture; and
(ii) such Parent Guarantor, as applicable, delivering to the Trustee an Officers Certificate of such Parent Guarantor or the Issuer, and an Opinion of Counsel, each stating that all conditions precedent provided for in this Indenture relating to such release and discharge have been complied with.
ARTICLE 11
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge . This Indenture shall be discharged and shall cease to be of further effect as to all Notes when either:
(a) all Notes theretofore authenticated and delivered, except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust, have been delivered to the Trustee for cancellation; or
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(b) (i) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise, will become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuers, and the Issuers have or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders of the Notes cash in U.S. dollars, U.S. Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest to pay and discharge the entire indebtedness on the Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; provided that upon any redemption that requires the payment of the Applicable Premium, the amount deposited shall be sufficient for purposes of this Indenture to the extent that an amount is deposited with the Trustee equal to the Applicable Premium calculated as of the date of the notice of redemption, with any Applicable Premium Deficit only required to be deposited with the Trustee on or prior to the Redemption Date. Any Applicable Premium Deficit shall be set forth in an Officers Certificate delivered to the Trustee simultaneously with the deposit of such Applicable Premium Deficit that confirms that such Applicable Premium Deficit shall be applied toward such redemption;
(ii) no Event of Default (other than that resulting from borrowing funds to be applied to make such deposit or any similar and simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith) with respect to this Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under the Senior Secured Credit Facilities or any other material agreement or instrument (other than this Indenture) to which the Issuers or any Guarantor is a party or by which the Issuers or any Guarantor is bound (other than resulting from any borrowing of funds to be applied to make such deposit and any similar and simultaneous deposit relating to other Indebtedness and, in each case, the granting of Liens in connection therewith);
(iii) the Issuers have paid or caused to be paid all sums payable by them under this Indenture; and
(iv) the Issuers have delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of the Notes at maturity or the Redemption Date, as the case may be.
In addition, the Issuers must deliver an Officers Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Such Opinion of Counsel may rely on such Officers Certificate as to matters of fact, including clauses (b)(i), (ii), (iii) and (iv) of this Section 11.01.
Notwithstanding the satisfaction and discharge of this Indenture, if money shall have been deposited with the Trustee pursuant to clause (b)(i) of this Section 11.01, the provisions of Section 11.02 and Section 8.06 hereof shall survive such satisfaction and discharge.
Section 11.02. Application of Trust Money . Subject to the provisions of Section 8.06 hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuer, the Co-Issuer or a Guarantor acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or U.S. Government Securities in accordance with Section 11.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuers and any Guarantors obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01 hereof; provided that if the Issuers have made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Holders to receive such payment from the money or U.S. Government Securities held by the Trustee or Paying Agent.
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ARTICLE 12
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls . If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Trust Indenture Act Section 318(c), the imposed duties shall control.
Section 12.02. Notices . Any notice or communication by the Issuer, the Co-Issuer or any Guarantor or the Trustee to the others is duly given if in writing and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), facsimile, electronic mail or other electronic transmission or overnight air courier guaranteeing next day delivery, to the others address:
If to the Issuers and/or any Guarantor:
Hilton Grand Vacations Borrower LLC
Hilton Grand Vacations Borrower Inc.
c/o Hilton Grand Vacations Borrower Inc.
5323 Millenia Lakes Boulevard, Suite 160
Orlando, FL 32839
Facsimile: (407) 722-3637
Attention: Charles R. Corbin, Jr.
With a copy to (which shall not constitute notice for any purpose under this Indenture):
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: (212) 455-2502
Attention: Edward P. Tolley III
If to the Trustee:
Wilmington Trust, National Association
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Facsimile: (302) 636-4145
Attention: Hilton Grand Vacations Borrower Administrator
The Issuers, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five calendar days after being deposited in the mail, postage prepaid, if mailed by first-class mail; when receipt is acknowledged, if faxed or sent electronically; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery; provided that any notice or communication delivered to the Trustee shall be deemed effective upon actual receipt thereof and, subject to compliance with the Trust Indenture Act, on the first date on which publication is made, if given by publication.
Any notice or communication to a Holder shall be electronically delivered, mailed by first-class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the Note Register kept by the Registrar. Any notice or communication shall also be so delivered or mailed to any Person described in Trust Indenture Act Section 313(c), to the extent required by the Trust Indenture Act. Failure to deliver a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders.
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If a notice or communication is mailed or otherwise delivered in the manner provided above within the time prescribed, such notice or communication shall be deemed duly given, whether or not the addressee receives it.
If the Issuers send a notice or communication to Holders, they shall send a copy to the Trustee and each Agent at the same time.
Notwithstanding any other provision of this Indenture or any Note, where this Indenture or any Note provides for notice of any event or any other communication (including any notice of redemption or repurchase) to a holder of a Global Note (whether by mail or otherwise), such notice shall be sufficiently given if given to the Depositary (or its designee) pursuant to the standing instructions from the Depositary or its designee, including by electronic mail in accordance with accepted practices at the Depositary.
Section 12.03. Communication by Holders with Other Holders . Holders may communicate pursuant to Trust Indenture Act Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuers, the Trustee, the Registrar and anyone else shall have the protection of Trust Indenture Act Section 312(c).
Section 12.04. Certificate and Opinion as to Conditions Precedent . Upon any request or application by the Issuer, the Co-Issuer or any of the Guarantors to the Trustee to take any action under this Indenture, the Issuer, the Co-Issuer or such Guarantor, as the case may be, shall furnish to the Trustee:
(a) an Officers Certificate in form reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.
Section 12.05. Statements Required in Certificate or Opinion . Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to Section 4.04 hereof or Trust Indenture Act Section 314(a)(4)) shall comply with the provisions of Trust Indenture Act Section 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with (and, in the case of an Opinion of Counsel, may be limited to reliance on an Officers Certificate as to matters of fact); and
(d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with; provided , however , that with respect to matters of fact an Opinion of Counsel may rely on an Officers Certificate or certificates of public officials.
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Section 12.06. Rules by Trustee and Agents . The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees and Stockholders . No past, present or future director, officer, employee, incorporator, or direct or indirect member, partner or stockholder of the Issuers or any Guarantor (other than in their capacity as Issuers or any Guarantor) or of any of their direct or indirect parent companies shall have any liability, for any obligations of the Issuers or the Guarantors under the Notes, the Guarantees or this Indenture or any supplemental indenture or for any claim based on, in respect of, or by reason of such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
Section 12.08. Governing Law . THIS INDENTURE, THE NOTES AND ANY GUARANTEE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS INDENTURE, THE NOTES OR ANY GUARANTEE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 12.09. Waiver of Jury Trial . EACH OF THE ISSUERS, THE GUARANTORS AND THE TRUSTEE (1) AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT LOCATED IN THE BOROUGH OF MANHATTAN, IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES AND (2) HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 12.10. Force Majeure . In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations under this Indenture arising out of or caused by, directly or indirectly, forces beyond its reasonable control, including without limitation strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software or hardware) services.
Section 12.11. No Adverse Interpretation of Other Agreements . This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Issuers or their Restricted Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
Section 12.12. Successors . All agreements of the Issuers in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. All agreements of each Guarantor in this Indenture shall bind its successors, except as otherwise provided in Section 10.06 hereof.
Section 12.13. Severability . In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.14. Counterpart Originals . The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
Section 12.15. Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof.
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Section 12.16. Qualification of Indenture . The Issuer and the Guarantors shall qualify this Indenture under the Trust Indenture Act in accordance with the terms and conditions of the Registration Rights Agreement and shall pay all reasonable costs and expenses (including attorneys fees and expenses for the Issuer, the Guarantors and the Trustee) incurred in connection therewith, including, but not limited to, costs and expenses of qualification of this Indenture and the Notes and printing this Indenture and the Notes. The Trustee shall be provided with such Officers Certificates, Opinions of Counsel or other documentation as it may reasonably request and as is necessary in connection with any such qualification of this Indenture under the Trust Indenture Act. The Trust Indenture Act shall not apply to this Indenture prior to such qualification, and all references herein to compliance with the Trust Indenture Act refer to such compliance following any such qualification.
Section 12.17. USA Patriot Act . The parties hereto acknowledge that in accordance with Section 326 of the USA Patriot Act the Trustee, like all financial institutions and in order to help fight the funding of terrorism and money laundering, are required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account. The parties to this agreement agree that they shall provide the Trustee with such information as they may request in order to satisfy the requirements of the USA Patriot Act.
[ Signatures on following page ]
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written.
HILTON GRAND VACATIONS BORROWER LLC, as Issuer | ||||
By: |
/s/ Allen Klingsick |
|||
Name: | Allen Klingsick | |||
Title: | President | |||
HILTON GRAND VACATIONS BORROWER INC., as Co-Issuer | ||||
By: |
/s/ Allen Klingsick |
|||
Name: | Allen Klingsick | |||
Title: | President | |||
HILTON GRAND VACATIONS INC., as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President and Chief Executive Officer | |||
HILTON GRAND VACATIONS PARENT LLC, as Guarantor | ||||
By: |
/s/ Allen Klingsick |
|||
Name: | Allen Klingsick | |||
Title: | President | |||
HILTON RESORTS CORPORATION, as Guarantor | ||||
By: |
/s/ W. Steven Standefer |
|||
Name: | W. Steven Standefer | |||
Title: | Senior Vice President | |||
48TH STREET HOLDING LLC, as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President |
Signature Page to Indenture
GRAND VACATIONS REALTY, LLC, as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President | |||
GRAND VACATIONS SERVICES LLC, as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President | |||
GRAND VACATIONS TITLE, LLC, as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President | |||
HILTON GRAND VACATIONS CLUB, LLC, as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President | |||
HILTON GRAND VACATIONS COMPANY, LLC, as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President | |||
HILTON GRAND VACATIONS FINANCING, LLC, as Guarantor | ||||
By: |
s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President |
Signature Page to Indenture
HILTON GRAND VACATIONS MANAGEMENT, LLC, as Guarantor | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President | |||
HILTON KINGSLAND 1, LLC, as Guarantor | ||||
By: |
/s/ W. Steven Standefer |
|||
Name: | W. Steven Standefer | |||
Title: | Senior Vice President | |||
HILTON RESORTS MARKETING CORP., as Guarantor | ||||
By: |
/s/ W. Steven Standefer |
|||
Name: | W. Steven Standefer | |||
Title: | Senior Vice President | |||
HILTON TRAVEL, LLC, as Guarantors | ||||
By: |
/s/ Mark Wang |
|||
Name: | Mark Wang | |||
Title: | President | |||
HRC ISLANDER LLC, as Guarantors | ||||
By: |
/s/ W. Steven Standefer |
|||
Name: | W. Steven Standefer | |||
Title: | Senior Vice President |
Signature Page to Indenture
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee | ||||
By: |
/s/ W. Thomas Morris, II |
|||
Name: | W. Thomas Morris, II | |||
Title: | Vice President |
Signature Page to Indenture
EXHIBIT A-1
[FORM OF NOTE REPRESENTING THE PHRI NOTES]
BY ACCEPTING THIS NOTE, EACH HOLDER AND EACH TRANSFEREE IS DEEMED TO REPRESENT AND WARRANT THAT AT THE TIME OF ITS ACQUISITION AND THROUGHOUT THE PERIOD THAT IT HOLDS THIS NOTE (I) IT IS NOT, AND IS NOT ACQUIRING THE NOTES WITH THE ASSETS OF ANY (A) EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (ERISA)), THAT IS SUBJECT TO ERISA, (B) PLAN, INDIVIDUAL RETIREMENT ACCOUNT, PROGRAM OR ARRANGEMENT THAT IS SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE CODE), OR PROVISIONS UNDER ANY OTHER FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT ARE SIMILAR TO SUCH PROVISIONS OF ERISA OR THE CODE (COLLECTIVELY, SIMILAR LAW) OR WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE PLAN ASSETS OF ANY SUCH PLAN, ACCOUNT OR ARRANGEMENTS AND (II) ITS ACQUISITION AND HOLDING OF THIS NOTE WILL NOT RESULT IN A NON-EXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE OR A SIMILAR VIOLATION UNDER ANY APPLICABLE SIMILAR LAW.
THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR ANY STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS AN INSTITUTIONAL ACCREDITED INVESTOR (WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT), AND (2) AGREES TO OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER SUCH NOTE PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD THEN IMPOSED BY RULE 144 UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION) ONLY (A) TO THE ISSUER OR ANY CO-ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT (RULE 144A) TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A) THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN AN OFFSHORE TRANSACTION PURSUANT TO REGULATION S UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUERS AND THE TRUSTEES RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM.
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NOTE
representing
$300,000,000
HILTON GRAND VACATIONS BORROWER LLC
HILTON GRAND VACATIONS BORROWER INC.
6.500% Senior Note due 2024
No. 1 | $300,000,000 |
Hilton Grand Vacations Borrower LLC, a Delaware limited liability company, and Hilton Grand Vacations Borrower Inc., a Delaware corporation, jointly and severally, promise to pay to Park Hotels & Resorts Inc. or registered assigns the principal amount of Three Hundred Million Dollars ($300,000,000) on December 1, 2024.
Interest Payment Dates: The Reset Date (as defined herein), and each June 1 and December 1 thereafter, commencing on the Reset Date
Record Dates: | The day immediately preceding the Reset Date, and each May 15 and November 15 thereafter |
Additional provisions of this Note are set forth on the other side of this Note.
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IN WITNESS HEREOF, the Issuers have caused this instrument to be duly executed.
Dated:
HILTON GRAND VACATIONS BORROWER LLC, as Issuer | ||||
By: |
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Name: | ||||
Title: | ||||
HILTON GRAND VACATIONS BORROWER INC., as Co-Issuer | ||||
By: |
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Name: | ||||
Title: | ||||
This is one of the Notes referred to in the within-mentioned Indenture: | ||||
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee |
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By: |
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Name: | ||||
Title: |
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[REVERSE OF NOTE]
6.500% Senior Note due 2024
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. Interest . Hilton Grand Vacations Borrower LLC, a Delaware limited liability company (the Issuer ), and Hilton Grand Vacations Borrower Inc., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ), jointly and severally, promise to pay interest on the principal amount of this Note at a rate per annum of 6.500% (subject to any reset pursuant to paragraph 4 below) from October 24, 2016 until maturity and to pay the Additional Interest, if any, payable pursuant to the Registration Rights Agreement expected to be entered into on the Reset Date (as defined below). The Issuers will pay interest on this Note semi-annually in arrears beginning on the Reset Date (the Initial Interest Payment Date ) and on June 1 and December 1 of each year thereafter, or, if any such day is not a Business Day, on the next succeeding Business Day (each an Interest Payment Date ). The Issuers will make each interest payment to the Holder of record of this Note on the immediately preceding May 15 and November 15 (or, in the case of the Initial Interest Payment Date, the calendar day immediately preceding the Reset Date) (each, a Record Date ). Interest on this Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including October 24, 2016. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate borne by this Note; the Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by this Note. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
2. Method of Payment . The Issuers will pay interest on this Note to the Person who is the registered Holder of this Note at the close of business on the Record Date (whether or not a Business Day) next preceding the Interest Payment Date, even if this Note is cancelled after such Record Date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Cash payments of principal of, premium, if any, and interest on this Note will be payable at the office or agency of the Issuers maintained for such purpose pursuant to Section 4.02 of the Indenture or, at the option of the Issuers, cash payment of interest may be made through the Paying Agent by check mailed to the Holders at their respective addresses set forth in the Note Register of Holders, provided that (a) all cash payments of principal, premium, if any, and interest with respect to Notes represented by Global Notes registered in the name of or held by DTC or its nominee will be made through the Paying Agent by wire transfer of immediately available funds to the accounts specified by the registered Holder or Holders thereof and (b) all cash payments of principal, premium, if any, and interest with respect to certificated Notes may, at the option of the Issuers, be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
3. Paying Agent, Transfer Agent and Registrar . Initially, Wilmington Trust, National Association, the Trustee under the Indenture, will act as Paying Agent, Transfer Agent and Registrar. The Issuers may change any Paying Agent, Transfer Agent or Registrar without prior notice to the Holders. The Issuer or any of its Subsidiaries may act in any such capacity upon written notice to the Trustee.
4. Indenture . The Issuers issued the Notes under an Indenture, dated as of October 24, 2016 (as amended, supplemented or otherwise modified from time to time, the Indenture ), among the Issuers, the Guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee (the Trustee ). This Note is one of a duly authorized issue of notes of the Issuer designated as its 6.500% Senior Notes due 2024. The Issuers shall be entitled to issue Additional Notes pursuant to Sections 2.01 and 4.09 of the Indenture. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and the Trust Indenture Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.
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5. Optional Redemption .
(a) Except as set forth in clauses (b) and (d) of this paragraph 5 and in clauses (b) and (d) of Section 3.07 of the Indenture, the Notes will not be redeemable at the Issuers option prior to December 1, 2021.
(b) At any time prior to December 1, 2021, the Issuers may, at their option and on one or more occasions, redeem all or a part of the Notes, upon notice in accordance with Section 3.03 of the Indenture, at a redemption price equal to the sum of (A) 100.0% of the principal amount of the Notes redeemed, plus (B) the Applicable Premium as of the Redemption Date, plus (C) accrued and unpaid interest and Additional Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the Notes on the relevant Interest Payment Date falling prior to or on the Redemption Date.
(c) On and after December 1, 2021, the Issuers may, at their option and on one or more occasions, redeem the Notes, in whole or in part, upon notice in accordance with Section 3.03 of the Indenture, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest and Additional Interest, if any, thereon to, but excluding, the applicable Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date falling prior to or on the Redemption Date, if redeemed during the twelve-month period beginning on December 1 of each of the years indicated below:
Year | Percentage | |||
2021 |
103.250 | % | ||
2022 |
101.625 | % | ||
2023 and thereafter |
100.000 | % |
(d) In connection with any tender offer for the Notes, including without limitation any Change of Control Offer, if Holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in such tender offer and the Issuers, or any third party making such tender offer in lieu of the Issuers, purchases all of the Notes validly tendered and not withdrawn by such Holders, the Issuers or such third party will have the right upon not less than 15 nor more than 60 days prior notice, given not more than 30 days following such purchase date, to redeem all Notes that remain outstanding following such purchase at a price equal to the price offered to each other Holder in such tender offer plus, to the extent not included in the tender offer payment, accrued and unpaid interest, if any, thereon, to, but excluding, the Redemption Date.
(e) Any redemption pursuant to this paragraph 5 shall be made pursuant to the provisions of Sections 3.01 through 3.06 of the Indenture. Notice of any redemption may be given prior to the completion thereof, and any such redemption or notice may, at the Issuers discretion, be subject to one or more conditions precedent, including, but not limited to, completion of a related transaction. In addition, if such redemption is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Issuers discretion, the Redemption Date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the Redemption Date, or by the Redemption Date so delayed. In addition, the Issuers may provide in such notice that payment of the redemption price and performance of the Issuers obligations with respect to such redemption may be performed by another Person. The Issuers, the Investors and their respective Affiliates may acquire the Notes by means other than a redemption pursuant to this paragraph 5, whether by tender offer, open market purchases, negotiated transactions or otherwise.
6. Notice of Redemption . Subject to Sections 3.03 and 3.08 of the Indenture, notices of redemption shall be delivered electronically or mailed by first-class mail, postage prepaid, at least 15 but (except as set forth in paragraph 5(e) above and Section 3.07(e) of the Indenture) not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at such Holders registered address or otherwise in accordance with the Applicable Procedures, except that redemption notices may be delivered electronically or mailed more than 60
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days prior to a Redemption Date if the notice is issued in connection with Article 8 or Article 11 of the Indenture. Notes and portions of Notes selected for redemption shall be in integral multiples of $1,000 (but in a minimum amount of $2,000) and no Notes of $2,000 or less can be redeemed in part, except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder shall be redeemed, even if not in a principal amount of at least $2,000. On and after the Redemption Date, subject to satisfaction of any conditions precedent specified in the applicable notice of redemption, interest ceases to accrue on this Note or portions thereof called for redemption.
7. Offers to Repurchase . Upon the occurrence of a Change of Control Triggering Event, the Issuers shall make a Change of Control Offer in accordance with Section 4.14 of the Indenture. In connection with certain Asset Sales, the Issuers shall make an Asset Sale Offer as and when provided in accordance with Sections 3.09 and 4.10 of the Indenture.
Other than as specifically provided in Section 3.09 or Section 4.10 of the Indenture, any purchase pursuant to Section 3.09 of the Indenture shall be made pursuant to the applicable provisions of Sections 3.01 through 3.06 of the Indenture, and references therein or herein to redeem, redemption, Redemption Date and similar words shall be deemed to refer to purchase, repurchase, Purchase Date and similar words, as applicable.
8. Denominations, Transfer, Exchange . The Notes are in registered form without coupons in minimum denominations of $2,000 and any integral multiple of $1,000 in excess of $2,000. The transfer of Notes shall be registered and Notes may only be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part; provided that new Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption of Notes to be redeemed.
9. Persons Deemed Owners . The registered Holder of a Note shall be treated as its owner for all purposes. Only registered Holders shall have rights hereunder.
10. Amendment, Supplement and Waiver . The Indenture, the Guarantees or the Notes may be amended or supplemented as provided in the Indenture.
Notwithstanding anything herein to the contrary, if, following the date hereof, in connection with an anticipated marketed offering of all of the then outstanding PHRI Notes (such marketed PHRI Notes, the Marketed Notes ), the terms agreed to in connection with the offering of such Marketed Notes, as set forth in the final offering memorandum relating thereto (the Offering Memorandum ), differ from the terms of this Note as set forth herein or in the Indenture, then (a) the corresponding terms of this Note as set forth herein or in the Indenture shall be deemed to have been automatically supplemented, amended or modified as of the closing date for the sale of the Marketed Notes pursuant to the Purchase Agreement (the Reset Date ) to reflect any such differences without the consent of the Holder of this Note or any other person (including, without limitation, the interest rate set forth in paragraph 1 of this Note), and (b) the Issuer, the Guarantors and the Trustee shall, on or prior to the Reset Date, amend or supplement the Indenture, any Guarantees and the Notes with effect from the Reset Date, pursuant to Section 9.07 of the Indenture without the consent of any Holder, to conform the text of the Indenture, such Guarantees and the Notes to the Description of the Notes section of the Offering Memorandum; provided that (i) the interest rate of this Note shall be reset with effect from the Reset Date to reflect the interest rate at which the offering price to be set forth in the Offering Memorandum would equal 100.000% (of the principal amount of the Marketed Notes) plus accrued and unpaid interest, if any, to, but excluding, the Reset Date, (ii) no additional redemption features that allow for optional redemption by the Issuers prior to December 1, 2021shall be added to this Note or the Indenture and (iii) the maturity date agreed to in connection with the offering of the Marketed Notes shall not be earlier than the maturity date set forth in this Note or later than three months after the maturity date set forth in this Note. The Issuer may, and, at the Issuers direction, the Trustee shall, exchange this Note, in certificated form, for another Definitive Note or a corresponding beneficial interest in one or more Global Notes issued under the Indenture to reflect any such change in the terms of the Indenture, any Guarantees or this Note, and/or to include CUSIP numbers and
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ISIN numbers with respect to the Notes, or as may otherwise be necessary or appropriate to give effect to any supplement, amendment or modification of the terms of the Indenture, any Guarantees or this Note pursuant to this paragraph and Section 9.07 of the Indenture, and if any new Notes are to be issued in exchange for this Note pursuant to this paragraph and Section 9.07 of the Indenture, the Issuer shall provide an Authentication Order and a cancellation order to the Trustee in respect thereof. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of any such supplement, amendment or modification.
11. Defaults and Remedies .
(a) The Events of Default relating to the Notes are defined in Section 6.01 of the Indenture. If any Event of Default (other than an Event of Default of the type specified in clause (vi) or (vii) of Section 6.01(a) of the Indenture) occurs and is continuing under the Indenture, the Trustee or the Holders of not less than 25.0% in aggregate principal amount of all of the then outstanding Notes may, by notice to the Issuers and the Trustee, in either case, specifying in such notice the respective Event of Default and that such notice is a notice of acceleration, declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately. Upon the effectiveness of such declaration, such principal of and premium, if any, and interest will be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising under clause (vi) or (vii) of Section 6.01(a) of the Indenture, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture, the Notes or the Guarantees except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of all the Notes then outstanding may direct the Trustee in its exercise of any trust or power.
(b) The Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal, premium, if any, or interest, if it determines that withholding notice is in their interest. In addition, subject to Section 6.05 of the Indenture, the Trustee will have no obligation to accelerate the Notes if in the judgment of the Trustee acceleration is not in the interests of the Holders of all of the Notes.
(c) Holders of a majority in aggregate principal amount of all the Notes then outstanding, by notice to the Trustee (with a copy to the Issuers, provided that any waiver or rescission under Section 6.04 of the Indenture shall be valid and binding notwithstanding the failure to provide a copy of such notice to the Issuers) may on behalf of the Holders of all of the Notes waive any existing Default and its consequences under the Indenture (except a continuing Default in the payment of interest on, premium, if any, or the principal of any Note held by a non-consenting Holder) (including in connection with an Asset Sale Offer or a Change of Control Offer) and rescind any acceleration with respect to the Notes and its consequences under the Indenture (except if such rescission would conflict with any judgment of a court of competent jurisdiction). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of the Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.
(d) The Issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuer shall promptly (which shall be no more than 20 Business Days after becoming aware of such Default) deliver to the Trustee by registered or certified mail or by facsimile transmission an Officers Certificate specifying such event and what action the Issuers propose to take with respect thereto.
12. Guarantees . The Issuers obligations under the Notes will be fully and unconditionally guaranteed, jointly and severally, by the Guarantors from time to time party to the Indenture.
13. Authentication . This Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of the Trustee.
14. Governing Law . THIS NOTE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS NOTE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
15. CUSIP Numbers and ISINs . The Issuers may use CUSIP numbers and ISINs (in each case, if then generally in use). The Issuers will as promptly as practicable notify the Holders in writing of any change in the
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CUSIP numbers and ISINs. No representation will be made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to the Issuers at the following address:
Hilton Grand Vacations Borrower LLC
Hilton Grand Vacations Borrower Inc.
c/o Hilton Grand Vacations Borrower Inc.
5323 Millenia Lakes Boulevard, Suite 160
Orlando, FL 32839
Facsimile: | (407) 722-3637 | |
Attention: | Charles R. Corbin, Jr., General Counsel |
With a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: | (212) 455-2502 | |
Attention: | Edward P. Tolley III |
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: |
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(Insert assignees legal name) |
(Insert assignees soc. sec. or tax I.D. no.)
(Print or type assignees name, address and zip code)
and irrevocably appoint |
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to transfer this Note on the books of the Issuer. The agent may substitute another to act for him.
Date: |
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Your Signature: |
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(Sign exactly as your name appears on the face of this Note) |
Signature Guarantee*: |
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* | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuer pursuant to Section 4.10 or 4.14 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of this Note purchased by the Issuer pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased:
$
Date: |
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Your Signature: |
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(Sign exactly as your name appears on the face of this Note) | ||||||||
Tax Identification No.: |
Signature Guarantee*: |
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* | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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EXHIBIT A-2
[FORM OF NOTE]
[FACE OF NOTE]
[Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture]
[Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture]
[Insert the Regulation S Temporary Global Note Legend, if applicable pursuant to the provisions of the Indenture]
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CUSIP | [-] | |
ISIN | [-] |
[RULE 144A][REGULATION S] [GLOBAL] NOTE
initially representing [up to]
$[ ]
HILTON GRAND VACATIONS BORROWER LLC
HILTON GRAND VACATIONS BORROWER INC.
6.500% Senior Notes due 2024
No. | [$ ] |
Hilton Grand Vacations Borrower LLC, a Delaware limited liability company, and Hilton Grand Vacations Borrower Inc., a Delaware corporation, jointly and severally, promise to pay to [Cede & Co.]* or registered assigns the principal sum [set forth on the Schedule of Exchanges of Interests in the Global Note attached hereto] [of United States Dollars] on December 1, 2024.
Interest Payment Dates: | June 1 and December 1, commencing on June 1, 2017 | |
Record Dates: | May 15 and November 15 |
Additional provisions of this Note are set forth on the other side of this Note.
* | Include only if the Note is issued in global form. |
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IN WITNESS HEREOF, the Issuers have caused this instrument to be duly executed.
Dated:
HILTON GRAND VACATIONS BORROWER LLC, as Issuer | ||||
By: |
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Name: | ||||
Title: | ||||
HILTON GRAND VACATIONS BORROWER INC., as Co-Issuer | ||||
By: |
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Name: | ||||
Title: |
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This is one of the Notes referred to in the within-mentioned Indenture: | ||||
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee | ||||
By: |
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Name: | ||||
Title: | ||||
Date: |
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[REVERSE OF NOTE]
6.500% Senior Notes due 2024
Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.
1. Interest . Hilton Grand Vacations Borrower LLC, a Delaware limited liability company (the Issuer ), and Hilton Grand Vacations Borrower Inc., a Delaware corporation (the Co-Issuer ) and, together with the Issuer, the Issuers ) (in each case, until a successor Person or Persons shall have become such pursuant to the applicable provisions of the Indenture, and thereafter references to Issuer or Issuers shall refer to such successor Person or Persons), jointly and severally, promise to pay interest on the principal amount of this Note at a rate per annum of 6.500% from [-], [-] 1 until maturity and to pay the Additional Interest, if any, payable pursuant to the Registration Rights Agreement referred to below. The Issuers will pay interest on this Note semi-annually in arrears on June 1 and December 1 of each year, beginning June 1, 2017, or, if any such day is not a Business Day, on the next succeeding Business Day (each, an Interest Payment Date ). The Issuers will make each interest payment to the Holder of record of this Note on the immediately preceding May 15 and November 15 (each, a Record Date ). Interest on this Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including [-], [-]. 2 The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate borne by this Note; the Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by this Note. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.
2. Method of Payment . The Issuers will pay interest on this Note to the Person who is the registered Holder of this Note at the close of business on the Record Date (whether or not a Business Day) next preceding the Interest Payment Date, even if this Note is cancelled after such Record Date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Cash payments of principal of, premium, if any, and interest on this Note will be payable at the office or agency of the Issuers maintained for such purpose pursuant to Section 4.02 of the Indenture or, at the option of the Issuers, cash payment of interest may be made through the Paying Agent by check mailed to the Holders at their respective addresses set forth in the Note Register of Holders, provided that (a) all cash payments of principal, premium, if any, and interest with respect to Notes represented by Global Notes registered in the name of or held by DTC or its nominee will be made through the Paying Agent by wire transfer of immediately available funds to the accounts specified by the registered Holder or Holders thereof and (b) all cash payments of principal, premium, if any, and interest with respect to certificated Notes may, at the option of the Issuers, be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
3. Paying Agent, Transfer Agent and Registrar . Initially, Wilmington Trust, National Association, the Trustee under the Indenture, will act as Paying Agent, Transfer Agent and Registrar. The Issuers may change any Paying Agent, Transfer Agent or Registrar without prior notice to the Holders. The Issuer or any of its Subsidiaries may act in any such capacity upon written notice to the Trustee.
1 | To be the Reset Date, in the case of Notes issued on the Reset Date. |
2 |
To be the Reset Date, in the case of Notes issued on the Reset Date. |
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4. Indenture . The Issuers issued the Notes under an Indenture, dated as of October 24, 2016 (as amended, supplemented or otherwise modified from time to time, the Indenture ), among the Issuers, the Guarantors from time to time party thereto and Wilmington Trust, National Association, as trustee (the Trustee ). This Note is one of a duly authorized issue of notes of the Issuer designated as its 6.500% Senior Notes due 2024. The Issuers shall be entitled to issue Additional Notes pursuant to Sections 2.01 and 4.09 of the Indenture. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling.
5. Optional Redemption .
(a) Except as set forth in clauses (b) and (d) of this paragraph 5 and in clauses (b) and (d) of Section 3.07 of the Indenture, the Notes will not be redeemable at the Issuers option prior to December 1, 2021.
(b) At any time prior to December 1, 2021, the Issuers may, at their option and on one or more occasions, redeem all or a part of the Notes, upon notice in accordance with Section 3.03 of the Indenture, at a redemption price equal to the sum of (A) 100.0% of the principal amount of the Notes redeemed, plus (B) the Applicable Premium as of the Redemption Date, plus (C) accrued and unpaid interest and Additional Interest, if any, to, but excluding, the Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the Notes on the relevant Interest Payment Date falling prior to or on the Redemption Date.
(c) On and after December 1, 2021, the Issuers may, at their option and on one or more occasions, redeem the Notes, in whole or in part, upon notice in accordance with Section 3.03 of the Indenture, at the redemption prices (expressed as percentages of principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest and Additional Interest, if any, thereon to, but excluding, the applicable Redemption Date, subject to the right of Holders of record on the relevant Record Date to receive interest due on the relevant Interest Payment Date falling prior to or on the Redemption Date, if redeemed during the twelve-month period beginning on December 1 of each of the years indicated below:
Year | Percentage | |||
2021 |
103.250 | % | ||
2022 |
101.625 | % | ||
2023 and thereafter |
100.000 | % |
(d) In connection with any tender offer for the Notes, including without limitation any Change of Control Offer, if Holders of not less than 90% in aggregate principal amount of the outstanding Notes validly tender and do not withdraw such Notes in such tender offer and the Issuers, or any third party making such tender offer in lieu of the Issuers, purchases all of the Notes validly tendered and not withdrawn by such Holders, the Issuers or such third party will have the right upon not less than 15 nor more than 60 days prior notice, given not more than 30 days following such purchase date, to redeem all Notes that remain outstanding following such purchase at a price equal to the price offered to each other Holder in such tender offer plus, to the extent not included in the tender offer payment, accrued and unpaid interest, if any, thereon, to, but excluding, the Redemption Date.
(e) Any redemption pursuant to this paragraph 5 shall be made pursuant to the provisions of Sections 3.01 through 3.06 of the Indenture. Notice of any redemption may be given prior to the completion thereof, and any such redemption or notice may, at the Issuers discretion, be subject to one or more conditions precedent, including, but not limited to, completion of a related transaction. In addition, if such redemption is subject to satisfaction of one or more conditions precedent, such notice shall state that, in the Issuers discretion, the Redemption Date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied by the Redemption Date, or by the Redemption Date so delayed. In addition, the Issuers may provide in such notice that payment
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of the redemption price and performance of the Issuers obligations with respect to such redemption may be performed by another Person. The Issuers, the Investors and their respective Affiliates may acquire the Notes by means other than a redemption pursuant to this paragraph 5, whether by tender offer, open market purchases, negotiated transactions or otherwise.
6. Notice of Redemption . Subject to Sections 3.03 and 3.08 of the Indenture, notices of redemption shall be delivered electronically or mailed by first-class mail, postage prepaid, at least 15 but (except as set forth in paragraph 5(e) above and Section 3.07(e) of the Indenture) not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at such Holders registered address or otherwise in accordance with the Applicable Procedures, except that redemption notices may be delivered electronically or mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with Article 8 or Article 11 of the Indenture. Notes and portions of Notes selected for redemption shall be in integral multiples of $1,000 (but in a minimum amount of $2,000) and no Notes of $2,000 or less can be redeemed in part, except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder shall be redeemed, even if not in a principal amount of at least $2,000. On and after the Redemption Date, subject to satisfaction of any conditions precedent specified in the applicable notice of redemption, interest ceases to accrue on this Note or portions thereof called for redemption.
7. Offers to Repurchase . Upon the occurrence of a Change of Control Triggering Event, the Issuers shall make a Change of Control Offer in accordance with Section 4.14 of the Indenture. In connection with certain Asset Sales, the Issuers shall make an Asset Sale Offer as and when provided in accordance with Sections 3.08 and 4.10 of the Indenture.
Other than as specifically provided in Section 3.08 or Section 4.10 of the Indenture, any purchase pursuant to Section 3.08 of the Indenture shall be made pursuant to the applicable provisions of Sections 3.01 through 3.06 of the Indenture, and references therein or herein to redeem, redemption, Redemption Date and similar words shall be deemed to refer to purchase, repurchase, Purchase Date and similar words, as applicable.
8. Denominations, Transfer, Exchange . The Notes are in registered form without coupons in minimum denominations of $2,000 and any integral multiple of $1,000 in excess of $2,000. The transfer of Notes shall be registered and Notes may only be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part; provided that new Notes will only be issued in minimum denominations of $2,000 and integral multiples of $1,000 in excess of $2,000. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption of Notes to be redeemed.
9. Persons Deemed Owners . The registered Holder of a Note shall be treated as its owner for all purposes. Only registered Holders shall have rights hereunder.
10. Amendment, Supplement and Waiver . The Indenture, the Guarantees or the Notes may be amended or supplemented as provided in the Indenture.
11. Defaults and Remedies .
(a) The Events of Default relating to the Notes are defined in Section 6.01 of the Indenture. If any Event of Default (other than an Event of Default of the type specified in clause (vi) or (vii) of Section 6.01(a) of the Indenture) occurs and is continuing under the Indenture, the Trustee or the Holders of not less than 25.0% in aggregate principal amount of all of the then outstanding Notes may, by notice to the Issuers and the Trustee, in either case, specifying in such notice the respective Event of Default and that such notice is a notice of acceleration, declare the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Notes to be due and payable immediately. Upon the effectiveness of such declaration, such principal of and premium, if any, and interest will be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising under clause (vi) or (vii) of Section 6.01(a) of the Indenture, all outstanding Notes will become due and payable
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without further action or notice. Holders may not enforce the Indenture, the Notes or the Guarantees except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of all the Notes then outstanding may direct the Trustee in its exercise of any trust or power.
(b) The Trustee may withhold from the Holders notice of any continuing Default, except a Default relating to the payment of principal, premium, if any, or interest, if it determines that withholding notice is in their interest. In addition, subject to Section 6.05 of the Indenture, the Trustee will have no obligation to accelerate the Notes if in the judgment of the Trustee acceleration is not in the interests of the Holders of all of the Notes.
(c) Holders of a majority in aggregate principal amount of all the Notes then outstanding, by notice to the Trustee (with a copy to the Issuers, provided that any waiver or rescission under Section 6.04 of the Indenture shall be valid and binding notwithstanding the failure to provide a copy of such notice to the Issuers) may on behalf of the Holders of all of the Notes waive any existing Default and its consequences under the Indenture (except a continuing Default in the payment of interest on, premium, if any, or the principal of any Note held by a non-consenting Holder) (including in connection with an Asset Sale Offer or a Change of Control Offer) and rescind any acceleration with respect to the Notes and its consequences under the Indenture (except if such rescission would conflict with any judgment of a court of competent jurisdiction). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of the Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereto.
(d) The Issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuer shall promptly (which shall be no more than 20 Business Days after becoming aware of such Default) deliver to the Trustee by registered or certified mail or by facsimile transmission an Officers Certificate specifying such event and what action the Issuers propose to take with respect thereto.
12. Guarantees . The Issuers obligations under the Notes will be fully and unconditionally guaranteed, jointly and severally, by the Guarantors from time to time party to the Indenture.
13 . Authentication . This Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose until authenticated by the manual signature of the Trustee.
14. Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes . In addition to the rights provided to Holders under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes shall have all the rights set forth in the Registration Rights Agreement, including the right to receive Additional Interest (as defined in the Registration Rights Agreement).
15. Governing Law . THIS NOTE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS NOTE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. CUSIP Numbers and ISINs . Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuer has caused CUSIP numbers and ISINs to be printed on the Notes and the Trustee may use CUSIP numbers and ISINs in notices of redemption as a convenience to Holders.
The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to the Issuers at the following address:
Hilton Grand Vacations Borrower LLC
Hilton Grand Vacations Borrower Inc.
c/o Hilton Grand Vacations Borrower Inc.
5323 Millenia Lakes Boulevard, Suite 160
Orlando, FL 32839
Facsimile: | (407) 722-3637 | |
Attention: | Charles R. Corbin, Jr., General Counsel |
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With a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: | (212) 455-2502 | |
Attention: | Edward P. Tolley III |
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ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: |
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(Insert assignees legal name) |
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(Insert assignees soc. sec. or tax I.D. no.) |
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(Print or type assignees name, address and zip code) |
and irrevocably appoint |
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to transfer this Note on the books of the Issuer. The agent may substitute another to act for him. |
Date: |
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Your Signature: |
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(Sign exactly as your name appears on the face of this Note) |
Signature Guarantee*: |
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* | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuer pursuant to Section 4.10 or 4.14 of the Indenture, check the appropriate box below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of this Note purchased by the Issuer pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased:
$
Date: |
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Your Signature: |
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(Sign exactly as your name appears on the face of this Note) | ||||||||
Tax Identification No.: |
Signature Guarantee*: |
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* | Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). |
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SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE *
The initial outstanding principal amount of this Global Note is $ . The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global or Definitive Note for an interest in this Global Note, have been made:
Date of Exchange |
Amount of
decrease in Principal Amount of this Global Note |
Amount of increase
in Principal Amount of this Global Note |
Principal Amount of
this Global Note following such decrease or increase |
Signature of
authorized signatory of Trustee or Custodian |
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* | This schedule should be included only if the Note is issued in global form. |
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EXHIBIT B
[FORM OF CERTIFICATE OF TRANSFER]
Hilton Grand Vacations Borrower LLC
Hilton Grand Vacations Borrower Inc.
c/o Hilton Grand Vacations Borrower Inc.
5323 Millenia Lakes Boulevard, Suite 160
Orlando, FL 32839
Facsimile: | (407) 722-3637 | |
Attention: | Charles R. Corbin, Jr., General Counsel |
With a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: | (212) 455-2502 | |
Attention: | Edward P. Tolley III |
Wilmington Trust, National Association
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Facsimile: | (302) 636-4145 | |
Attention: | Hilton Grand Vacations Borrower Administrator |
Re: | 6.500% Senior Notes due 2024 |
Reference is hereby made to the Indenture, dated as of October 24, 2016 (as amended, supplemented or otherwise modified from time to time, the Indenture ), among Hilton Grand Vacations Borrower LLC, a Delaware limited liability company (the Issuer ), Hilton Grand Vacations Borrower Inc., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ), the Guarantors (as defined therein) from time to time party thereto and Wilmington Trust, National Association, a national banking association, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
(the Transferor ) owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $ in such Note[s] or interests (the Transfer ), to (the Transferee ), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RELEVANT 144A GLOBAL NOTE OR RELEVANT DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the Securities Act ), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States.
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2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RELEVANT REGULATION S GLOBAL NOTE OR RELEVANT DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the applicable Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Indenture and the Securities Act.
3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE RELEVANT DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):
(a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or
(b) [ ] such Transfer is being effected to the Issuer or a subsidiary thereof; or
(c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act.
4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.
(b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.
(c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions
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contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.
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This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer.
[Insert Name of Transferor] | ||||||||||
By: |
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Name: | ||||||||||
Title: | ||||||||||
Dated: |
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ANNEX A TO CERTIFICATE OF TRANSFER
1. | The Transferor owns and proposes to transfer the following: |
[CHECK ONE OF (a) OR (b)] |
(a) | [ ] a beneficial interest in the: |
(i) | [ ] 144A Global Note (CUSIP: [-],or |
(ii) | [ ] Regulation S Global Note (CUSIP: [-]),or |
(b) | [ ] a Restricted Definitive Note. |
2. | After the Transfer the Transferee will hold: |
[CHECK ONE] |
(a) | [ ] a beneficial interest in the: |
(i) | [ ] 144A Global Note (CUSIP: [-]),or |
(ii) | [ ] Regulation S Global Note (CUSIP: [-]),or |
(iii) | [ ] Unrestricted Global Note (CUSIP: [-]), or |
(b) | [ ] a Restricted Definitive Note; or |
(c) | [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. |
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EXHIBIT C
[FORM OF CERTIFICATE OF EXCHANGE]
Hilton Grand Vacations Borrower LLC
Hilton Grand Vacations Borrower Inc.
c/o Hilton Grand Vacations Borrower Inc.
5323 Millenia Lakes Boulevard, Suite 160
Orlando, FL 32839
Facsimile: | (407) 722-3637 | |
Attention: | Charles R. Corbin, Jr., General Counsel |
With a copy to:
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
Facsimile: | (212) 455-2502 | |
Attention: | Edward P. Tolley III |
Wilmington Trust, National Association
Rodney Square North
1100 North Market Street
Wilmington, DE 19890
Facsimile: | (302) 636-4145 | |
Attention: | Hilton Grand Vacations Borrower Administrator |
Re: | 6.500% Senior Notes due 2024 |
Reference is hereby made to the Indenture, dated as of October 24, 2016 (as amended, supplemented or otherwise modified from time to time, the Indenture ), among Hilton Grand Vacations Borrower LLC, a Delaware limited liability company (the Issuer ), Hilton Grand Vacations Borrower Inc., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ), the Guarantors (as defined therein) from time to time party thereto and Wilmington Trust, National Association, a national banking association, as Trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.
(the Owner ) owns and proposes to exchange Note[s] or an interest in such Note[s], in the principal amount of $ in such Note[s] or interests (the Exchange ). In connection with the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owners beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the Securities Act ), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
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(b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owners beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owners Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
(d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owners Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owners own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES
(a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owners beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owners own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.
(b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owners Restricted Definitive Note for a beneficial interest in the [CHECK ONE] [ ] 144A Global Note [ ] Regulation S Global Note in each case, with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owners own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act.
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This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer and are dated
[Insert Name of Transferor] | ||||||||||
By: |
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Name: | ||||||||||
Title: | ||||||||||
Dated: |
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EXHIBIT D
[FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS]
Supplemental Indenture (this Supplemental Indenture ), dated as of , among (the Guaranteeing Subsidiary ), a subsidiary of Hilton Grand Vacations Borrower LLC, a Delaware limited liability company (the Issuer ), and Wilmington Trust, National Association, a national banking association, as trustee (the Trustee ).
W I T N E S S E T H
WHEREAS, the Issuer and Hilton Grand Vacations Borrower Inc., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ) have heretofore executed and delivered to the Trustee an Indenture, dated as of October 24, 2016 (as amended, supplemented or otherwise modified, the Indenture ) providing for the issuance of an unlimited aggregate principal amount of 6.500% Senior Notes due 2024 (the Notes );
WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers Obligations under the Notes and the Indenture on the terms and conditions set forth herein and under the Indenture (the Guarantee ); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture without the consent of the Holders.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms . Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Agreement to Guarantee . The Guaranteeing Subsidiary acknowledges that it has received and reviewed a copy of the Indenture and all other documents it deems necessary to review in order to enter into this Supplemental Indenture, and acknowledges and agrees to (i) join and become a party to the Indenture as indicated by its signature below; (ii) be bound by the Indenture, as of the date hereof, as if made by, and with respect to, each signatory hereto; and (iii) perform all obligations and duties required of a Guarantor pursuant to the Indenture. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Indenture, including, but not limited to, Article 10 thereof.
(3) Notices . All notices or other communications to the Guaranteeing Subsidiary shall be given as provided in Section 12.02 of the Indenture.
(4) Execution and Delivery . The Guaranteeing Subsidiary agrees that the Guarantee shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guarantee on the Notes.
(5) Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
(6) No Recourse Against Others . No past, present or future director, officer, employee, incorporator, or direct or indirect member, partner or stockholder of any Parent Company of the Issuer or any Guaranteeing Subsidiary shall have any liability for any obligations of the Issuers or the Guarantors, including the Guaranteeing Subsidiary (other than in their capacity as Issuer or Guarantor), under the Notes, any Guarantees, the Indenture or this
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Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
(7) Governing Law . THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary.
(11) Benefits Acknowledged . The Guaranteeing Subsidiarys Guarantee is subject to the terms and conditions set forth in the Indenture. The Guaranteeing Subsidiary acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Indenture and this Supplemental Indenture and that the guarantee and waivers made by it pursuant to this Guarantee are knowingly made in contemplation of such benefits.
(12) Successors . All agreements of the Guaranteeing Subsidiary in this Supplemental Indenture shall bind its Successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
[GUARANTEEING SUBSIDIARY] | ||
By: |
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Name: | ||
Title: | ||
WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee | ||
By: |
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Name: | ||
Title: |
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Exhibit 10.23
FORM OF FIRST SUPPLEMENTAL INDENTURE
First Supplemental Indenture (this Supplemental Indenture ), dated as of November , 2016, among Hilton Grand Vacations Borrower LLC, a Delaware limited liability company (the Issuer ), Hilton Grand Vacations Borrower Inc., a Delaware corporation (the Co-Issuer and, together with the Issuer, the Issuers ), the Guarantors party to the Indenture (as defined below) from time to time and Wilmington Trust, National Association, a national banking association, as trustee (the Trustee ).
W I T N E S S E T H
WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an Indenture, dated as of October 24, 2016 (the Original Issue Date ) (as amended, supplemented or otherwise modified, the Indenture ) providing for the issuance on such date of an unlimited aggregate principal amount of 6.500% Senior Notes due 2024 (the PHRI Notes ) to Park Hotels & Resorts Inc., a Delaware corporation ( PHRI ), in connection with the Issuer Capitalization;
WHEREAS, Section 9.07 of the Indenture provides that if, following the Original Issue Date, in connection with the marketed offering of all of the then outstanding PHRI Notes (such marketed PHRI Notes, the Marketed Notes ), the terms agreed to in connection the offering of such Marketed Notes as set forth in the final offering memorandum dated November 18, 2016, relating to the Notes (the Offering Memorandum ), differ from the terms of the PHRI Notes as set forth in the PHRI Notes or in the Indenture, then the Issuers, the Guarantors and the Trustee shall, on or prior to the Reset Date, amend or supplement the Indenture, any Guarantees and the Notes with effect from the Reset Date to conform the text of the Indenture, the Guarantees and the Notes to the Description of the Notes section of the Offering Memorandum, subject to the conditions described in Section 9.07 of the Indenture;
WHEREAS, pursuant to Section 9.07 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture without the consent of the Holders.
NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties mutually covenant and agree for the equal and ratable benefit of the Holders as follows:
(1) Capitalized Terms . Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.
(2) Amendments . Each of the following amendments shall be effective as of the Reset Date, which is the date of this Supplemental Indenture.
(a) Clause (a)(ii) of the defined term EBITDA in Section 1.01 of the Indenture is hereby amended and restated in its entirety to read as follows:
(ii) Fixed Charges of such Person for such period (including (x) net losses on Hedging Obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, (y) bank fees and other financing fees and (z) costs of surety bonds in connection with financing activities, plus amounts excluded from Consolidated Interest Expense as set forth in clauses (a)(q) through (w), (y) and (z) in the definition thereof); plus
(b) Section 3.07(c) of the Indenture is hereby amended by replacing the table in such Section in its entirety with the following table:
Year | Percentage | |||
2021 |
103.063 | % | ||
2022 |
101.532 | % | ||
2023 and thereafter |
100.000 | % |
(c) Section 4.07(b)(xvii) of the Indenture is hereby amended and restated in its entirety to read as follows:
(xvii) (A) the Spin-Off Transaction and (B) the distribution (or other Restricted Payment) by the Issuer to its immediate parent of (i) the cash proceeds from the term loans under the Credit Agreement and from additional borrowings under the Timeshare Facility and (ii) an additional amount of cash to the extent the balance of available cash (including restricted cash) as of the date of the Spin-Off exceeds $125.0 million;
(d) The Indenture is hereby amended by replacing each reference to 6.500% Senior Notes due 2024 with 6.125% Senior Notes due 2024.
(e) The form of Note set forth in Exhibit A-1 to the Indenture is hereby amended by:
(i) replacing each reference to 6.500% Senior Notes due 2024 in such Exhibit A-1 with 6.125% Senior Notes due 2024;
(ii) replacing the reference to 6.500% in Section 1 of the reverse of such form of Note with 6.125%;
(iii) replacing the table in Section 5(c) on the reverse of such form of Note in its entirety with the following table:
Year | Percentage | |||
2021 |
103.063 | % | ||
2022 |
101.532 | % | ||
2023 and thereafter |
100.000 | % |
(iv) replacing each reference to CUSIP [] with CUSIP [43283QAA8][U4328TAA8] and each reference to ISIN [] with ISIN [US43283QAA85][USU4328TAA89].
(f) Annex A to the form of Certificate of Transfer set forth in Exhibit B to the Indenture is hereby amended by:
(i) replacing each reference to [ ] 144A Global Note (CUSIP: []) with [ ] 144A Global Note (CUSIP: 43283QAA8); and
(ii) replacing each reference to [ ] Regulation S Global Note (CUSIP: []) with [ ] Regulation S Global Note (CUSIP: U4328TAA8).
(3) Notices . All notices or other communications to the parties hereto shall be given as provided in Section 12.02 of the Indenture.
(4) Ratification of Indenture; Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
(6) No Recourse Against Others . No past, present or future director, officer, employee, incorporator, or direct or indirect member, partner or stockholder of the Parent, any Issuer or any Guarantor shall have any liability for any obligations of the Issuers or the Guarantors under the Notes, any Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting Notes waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
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(7) Governing Law . THIS SUPPLEMENTAL INDENTURE, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS SUPPLEMENTAL INDENTURE, WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(8) Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. This Supplemental Indenture may be executed in multiple counterparts which, when taken together, shall constitute one instrument. The exchange of copies of this Supplemental Indenture and of signature pages by facsimile or PDF transmissions shall constitute effective execution and delivery of this Supplemental Indenture as to the parties hereto and may be used in lieu of the original Supplemental Indenture for all purposes. Signatures of the parties hereto transmitted by facsimile or PDF shall be deemed to be their original signatures for all purposes.
(9) Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
(10) The Trustee . The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein. This Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions set forth in the Indenture with the same force and effect as if those terms and conditions were repeated at length herein and made applicable to the Trustee with respect hereto. For the avoidance of doubt, the Trustee is entering into this Supplemental Indenture at the request of the Issuers in accordance with Section 9.07 of the Indenture.
(11) Successors . All agreements of the Issuers and the Guarantors in this Supplemental Indenture shall bind its Successors, except as otherwise provided in this Supplemental Indenture. All agreements of the Trustee in this Supplemental Indenture shall bind its successors.
(12) Conflicts . If there is any conflict or inconsistency between the Indenture and this Supplemental Indenture, the provisions of this Supplemental Indenture shall control.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed, all as of the date first above written.
HILTON GRAND VACATIONS BORROWER LLC, as Issuer | ||||
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HILTON GRAND VACATIONS BORROWER INC., as Co-Issuer | ||||
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HILTON GRAND VACATIONS INC., as Guarantor | ||||
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HILTON GRAND VACATIONS PARENT LLC, as Guarantor | ||||
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HILTON RESORTS CORPORATION, as Guarantor | ||||
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48TH STREET HOLDING LLC, as Guarantor | ||||
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GRAND VACATIONS REALTY, LLC, as Guarantor | ||||
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GRAND VACATIONS SERVICES LLC, as Guarantor | ||||
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GRAND VACATIONS TITLE, LLC, as Guarantor | ||||
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Title: | ||||
HILTON GRAND VACATIONS CLUB, LLC, as Guarantor | ||||
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HILTON GRAND VACATIONS COMPANY, LLC, as Guarantor | ||||
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HILTON GRAND VACATIONS FINANCING, LLC, as Guarantor | ||||
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HILTON GRAND VACATIONS MANAGEMENT, LLC, as Guarantor | ||||
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HILTON KINGSLAND 1, LLC, as Guarantor | ||||
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HILTON RESORTS MARKETING CORP., as Guarantor | ||||
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HILTON TRAVEL, LLC, as Guarantors | ||||
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HRC ISLANDER LLC, as Guarantors | ||||
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WILMINGTON TRUST, NATIONAL ASSOCIATION, as Trustee | ||||
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6
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 December 15, 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 23, 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 December 15, 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 January 3, 2017. 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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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Security Ownership of Certain Beneficial Owners and Management |
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F-1 |
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.
i
CERTAIN DEFINED TERMS
Except where the context suggests otherwise, we define certain terms in this information statement as follows:
| capital-efficient inventory refers to our fee-for-service and just-in-time VOI inventory; |
| Club refers to Hilton Grand Vacations Club, our points-based vacation exchange program; |
| contract sales represents the total amount of VOI products under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales is not a recognized term under generally accepted accounting principles in the United States (U.S. GAAP), and should not be considered in isolation or as an alternative to timeshare sales, net, or any other comparable operating measure derived in accordance with U.S. GAAP. For a reconciliation of contract sales to sales of VOIs, net, which we believe is the most closely comparable U.S. GAAP financial measure, see Managements Discussion and Analysis of Financial Condition and Results of OperationsResults of OperationsReal Estate; |
| developed inventory refers to VOI inventory sourced from projects developed by HGV; |
| fee-for-service refers to VOI inventory we sell and manage on behalf of third-party developers; |
| just-in-time refers to VOI inventory sourced in transactions that are designed to closely correlate the timing of the acquisition with our sale of that inventory to purchasers; |
| owned inventory refers to our developed and just-in-time VOI inventory; and |
| VOIs refers to vacation ownership intervals. |
ii
This summary highlights information contained in this information statement and provides an overview of our company, our separation from Hilton and the distribution of HGV Parent common stock by Hilton Parent to its stockholders. For a more complete understanding of our business and the spin-off, you should read this entire information statement carefully, particularly the discussion set forth under Risk Factors and our audited historical consolidated financial statements, our unaudited pro forma consolidated financial statements and the respective notes to those statements included in this information statement.
Hilton Grand Vacations
Hilton Grand Vacations (HGV) is a rapidly growing timeshare company that markets and sells vacation ownership intervals (VOIs), manages resorts in top leisure and urban destinations, and operates a points-based vacation club. Our 46 resorts, representing 7,592 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 and Secondary Offering
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 15, 2016, certain selling stockholders affiliated with Blackstone completed a secondary offering of 55,000,000 shares of common stock of Hilton Parent (the Secondary Offering). In this information statement, information with respect to the anticipated beneficial ownership of our common stock by Blackstone reflects the completion of the Secondary Offering.
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 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. |
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 December 15, 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 December 15, 2016. |
Q: | When will the distribution occur? |
A: | The distribution date of the spin-off is January 3, 2017. 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. |
|
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 |
15
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 |
16
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 December 15, 2016. |
Distribution Date |
The distribution date is January 3, 2017. |
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 December 15, 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 |
23
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: |
||||||||||||||||||||||||||||
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 | 168 | 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: |
||||||||||||||||||||||||
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 $828 million as of December 31, 2015, 2014 and 2013, respectively. |
Nine Months Ended
September 30, |
Year Ended
December 31, |
|||||||||||||||||||
($ in millions) | 2016 | 2015 | 2015 | 2014 | 2013 | |||||||||||||||
Other Financial Data: |
||||||||||||||||||||
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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$ | 338 | $ | 320 | $ | 283 | ||||||
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$ | 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; (3) selling or disposing of more than 35% of our assets; or (4) 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 an assumed conversion ratio of 1:1 and 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 Park Hotels & Resorts. The distribution will occur on the distribution date, which is expected to be January 3, 2017. 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 December 15, 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 January 3, 2017, 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 December 15, 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 January 3, 2017, 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.
66
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. |
67
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.
68
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.
69
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 | ||||||
|
|
|
|
|||||
Total |
$ | 97 | $ | 138 | ||||
|
|
|
|
|||||
Debt: |
||||||||
Allocated Hilton Parent debt |
$ | 743 | $ | | ||||
Debt (2) |
| 500 | ||||||
Non-recourse debt (2) |
420 | 720 | ||||||
|
|
|
|
|||||
Total debt |
1,163 | 1,220 | ||||||
Equity: |
||||||||
Common stock, $0.01 par value; 3,000,000,000 shares authorized, 98,978,319 shares issued and outstanding, pro forma |
| 1 | ||||||
Paid in capital |
| 118 | ||||||
Parent deficit |
(48 | ) | | |||||
|
|
|
|
|||||
Total equity (deficit) |
(48 | ) | 119 | |||||
|
|
|
|
|||||
Total capitalization |
$ | 1,115 | $ | 1,339 | ||||
|
|
|
|
(1) | See Unaudited Pro Forma Consolidated Financial Statements. |
(2) | Amounts are not presented net of unamortized deferred financing costs. |
70
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: |
||||||||||||||||||||||||
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. |
71
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.
72
Hilton Resorts Corporation
Unaudited Pro Forma Consolidated Balance Sheet
As of September 30, 2016
(in millions)
Historical |
Pro Forma
Adjustments (1) |
Pro
Forma |
||||||||||||
ASSETS |
||||||||||||||
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 | |||||||||||
|
|
|
|
|
|
|||||||||
TOTAL ASSETS |
$ | 1,859 | $ | 284 | $ | 2,143 | ||||||||
|
|
|
|
|
|
|||||||||
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 |
| (19 | ) | (d) | (19 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Income before income taxes |
228 | 10 | 238 | |||||||||||||
Income tax expense |
(98 | ) | (4 | ) | (f) | (102 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
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.
74
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 |
| (26 | ) | (d | ) | (26 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Income before income taxes |
292 | (10 | ) | 282 | ||||||||||||
Income tax expense |
(118 | ) | 4 | (f | ) | (114 | ) | |||||||||
|
|
|
|
|
|
|||||||||||
Net income |
$ | 174 | $ | (6 | ) | $ | 168 | |||||||||
|
|
|
|
|
|
|||||||||||
Pro forma earnings per share: |
||||||||||||||||
Basic and diluted |
(i | ) | $ | 1.70 | ||||||||||||
|
|
|||||||||||||||
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 |
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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 4.75% 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. |
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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.
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The interest rate on our loans is determined by the amount of the down payment, the borrowers credit profile and the loan term. The weighted average FICO score for new loans to U.S. and Canadian borrowers at the time of origination were as follows:
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
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that allow the member to exchange his or her annual usage rights in the VOI that they own for a number of vacation and travel options. The Hilton Club operates for owners of VOIs at the Hilton New York, but whose members also enjoy exchange benefits with the Hilton Grand Vacations Club. In addition to an annual membership fee, Club members pay incremental fees depending on exchanges they choose within the Club system.
We rent unsold VOI inventory, third-party inventory and inventory made available due to ownership exchanges through our club programs. We earn a fee from rentals of third-party inventory. Additionally, we provide ancillary offerings including food and beverage, retail and spa offerings at these timeshare properties.
Principal Components of and Factors Affecting Our Results of Operations
Principal Components of Revenues
| Sales of VOIs, net represents revenue recognized from the sale of owned VOIs. |
| Sales, marketing, brand and other fees represents sales commissions, brand fees and other fees earned on the sale of VOIs through fee-for-service agreements with third-party developers. The sales commissions and brand fees are based on the total sales price of the VOI. Also included in Sales, marketing, brand and other fees are revenues from marketing and incentive programs, including redemption of Club Bonus Points and prepaid vacation packages, excluding stays at Hilton Grand Vacations properties, which are included in Rental and ancillary services . |
| Financing represents revenue from the financing of sales of our owned intervals, which includes interest income and fees from servicing loans. We also earn fees from servicing the loans provided by third-party developers to purchasers of their VOIs. |
| Club and resort management represents revenues from Club activation fees, annual dues and transaction fees from member exchanges. Club and resort management also includes recurring management fees under our agreements with HOAs for day-to-day-management services, including housekeeping services, operation of a reservation system, maintenance, and certain accounting and administrative services for HOAs, generally based on a percentage of costs to operate the resorts. |
| Rental and ancillary services represents revenues from transient rentals of unoccupied vacation ownership units and revenues recognized from the utilization of Club points and vacation packages when points and packages are redeemed for rental stays at one of our resorts. We also earn fees from the rental of inventory owned by third parties. Ancillary revenues include food and beverage, retail, spa offerings and other guest services provided to resort guests. |
| Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer. The corresponding expenses are presented as Cost reimbursements expense in our consolidated statements of operations resulting in no effect on net income. |
Factors Affecting Revenues
|
Relationships with developers . In recent years, we have entered into fee-for-service agreements to sell VOIs on behalf of third-party developers. We expect the sales of VOIs developed by third parties and resort operations and club management to comprise a growing percentage of our revenue and revenues derived from the sale of developed VOIs to comprise a smaller percentage of our revenue in future periods, consistent with our strategy to focus our business on the management aspects and deploy less of our capital to asset construction. The success and sustainability of our capital efficient business model depends on our ability to maintain good relationships with third-party developers. Our relationships with these third parties also generate new relationships with developers and opportunities for property development that can support our growth. We believe that we have strong relationships |
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with our third-party developers and are committed to the continued growth and development of these relationships. These relationships exist with a diverse group of developers and are not significantly concentrated with any particular third party. |
| Consumer demand and global economic conditions . Consumer demand for our products and services may be affected by the performance of the general economy and is sensitive to business and personal discretionary spending levels. Declines in consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence and adverse political conditions can subject and have subjected our revenues to significant volatility. |
| Interest rates . We generate interest income from consumer loans we originate and declines in interest rates may cause us to lower our interest rates on our originated loans, which would adversely affect our income generated on future loans. |
| Competition. We compete with other hotel and resort timeshare operators for sales of VOIs based principally on location, quality of accommodations, price, service levels and amenities, financing terms, quality of service, terms of property use, reservation systems and flexibility for VOI owners to exchange into time at other timeshare properties or other travel rewards. In addition, we compete based on brand name recognition and reputation. Our primary competitors in the timeshare space include Marriott Vacations Worldwide, Wyndham Vacation Ownership, Vistana Signature Experiences, Disney Vacation Club, Hyatt Vacation Ownership, Holiday Inn Club Vacations, Bluegreen Vacations and Diamond Resorts International. |
Principal Components of Expenses
| Cost of VOI sales represents the costs attributable to the sales of owned VOIs recognized, as well as charges incurred related to granting credit to customers for their existing ownership when upgrading into fee-for-service projects. |
| Sales and marketing represents costs incurred to sell and market VOIs, including costs incurred relating to marketing and incentive programs, costs for tours, rental expense and wages and sales commissions. |
| Financing represents consumer financing interest expense related to our Securitized Debt and Timeshare Facility, amortization of the related deferred loan costs and other expenses incurred in providing consumer financing and servicing loans. 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. |
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| License fee expense represents the royalty fee paid to Hilton under a license agreement for the exclusive right to use the Hilton Grand Vacations mark, which is based on a percentage of gross revenues. See Unaudited Pro Forma Consolidated Financial Statements and the accompanying notes for discussion of the change in expenses related to the license agreements we will enter into with Hilton upon completion of the spin-off. |
| Cost reimbursements include costs that HOAs and developers reimburse to us. These costs primarily consist of payroll and payroll-related costs for management of the HOAs and other services we provide where we are the employer. The corresponding revenues are presented as Cost reimbursements revenue in our consolidated statements of operations resulting in no effect on net income. |
Factors Affecting Expenses
| Costs of VOI sales. In periods where there is increased demand for VOIs, we may incur increased costs to acquire inventory in the short-term, which can have an adverse effect on our net cash flow, margins and profits. Additionally, as we encourage owners to upgrade into other products, we incur expenses when owners upgrade from an interval in a project we developed into fee-for-service projects, on which we earn fees. In periods where more upgrades are occurring and we are not generating increased sales volume on unsold supply, we could see an adverse effect on our net cash flow, margins and profits. |
| Sales and marketing expense . A significant portion of our costs relates to selling and marketing of our VOIs. In periods of decreased demand for VOIs, we may be unable to reduce our sales and marketing expenses quickly enough to prevent a deterioration of our profit margins on our real estate operations. |
| Rental and ancillary services expense . Many of the expenses associated with operating timeshare resorts are relatively fixed. These expenses include personnel costs, rent, property taxes, insurance and utilities. We pay a portion of these costs through maintenance fees of unsold intervals and by subsidizing the costs of HOAs not covered by maintenance fees collected. If we are unable to decrease these costs significantly or rapidly when demand for our unit rentals decreases, the resulting decline in our revenues can have an adverse effect on our net cash flow, margins and profits. |
| Interest rates . Increases in interest rates would increase the consumer financing interest expense we pay on the Timeshare Facility and could adversely affect our financing operations in future securitization or other debt transactions, affecting net cash flow, margins and profits. |
Other Items
| Seasonality. We experience modest seasonality in VOI sales at certain of our resorts, with increased revenue during traditional vacation periods for those locations. |
| Regulation. Our business activities are highly regulated. We are subject to a wide variety of complex international, national, federal, state and local laws, regulations and policies in jurisdictions in which we operate. These laws, regulations and policies primarily affect four areas of our business: real estate development activities; marketing and sales activities; lending activities; and resort management activities. We seek to actively participate in the determination of new laws or other regulations affecting the timeshare industry. For further detail of these regulations see Risk Factors and BusinessGovernment Regulation included elsewhere in this information statement. |
Key Business and Financial Metrics and Terms Used by Management
Real Estate Sales Metrics
|
Contract sales Represents the total amount of VOI products under purchase agreements signed during the period where we have received a down payment of at least 10 percent of the contract price. Contract sales is not a recognized term under U.S. GAAP and should not be considered in isolation or |
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as an alternative to Sales of VOIs, net or any other comparable operating measure derived in accordance with U.S. GAAP. Contract sales differ from revenues from the Sales of VOIs, net that we report in our consolidated statements of operations due to the requirements for revenue recognition as described in Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere in this information statement, as well as adjustments for incentives and other administrative fee revenues. We consider contract sales to be an important operating measure because it reflects the pace of sales in our business. |
| Sales revenue Represents sale of VOIs, net and commissions and brand fees earned from the sale of fee-for-service intervals. |
| Real estate margin Represents sales revenue less the cost of VOI sales and sales and marketing costs, net of marketing revenue. Real estate margin percentage is calculated by dividing real estate margin by sales revenue. We consider this to be an important operating measure because it measures the efficiency of our sales and marketing spending and management of inventory costs. |
| Tour flow Represents the number of sales presentations given at our sales centers during the period. |
| Volume per guest (VPG) Represents the sales attributable to tours at our sales locations and is calculated by dividing Contract sales, excluding telesales, by tour flow. We consider VPG to be an important operating measure because it measures the effectiveness of our sales process, combining the average transaction price with closing rate. |
Club and Resort Management and Rental Metrics
| Transient rate Represents the total rental room revenue for transient guests divided by total number of transient room nights sold in a given period and excludes room rentals associated with marketing programs, owner usage and the redemption of Club Bonus Points. See Note 2: Basis of Presentation and Summary of Significant Accounting Policies in our audited consolidated financial statements included elsewhere in this information statement for further discussion on Club Bonus Points. |
| Resort occupancy Represents the utilization of the resorts available capacity. |
EBITDA and Adjusted EBITDA
EBITDA, presented herein, is a financial measure that is not recognized under U.S. GAAP that reflects net income before interest expense, a provision for income taxes and depreciation and amortization. Adjusted EBITDA, presented herein, is calculated as EBITDA, as previously defined, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs; (vi) share-based and certain other compensation expenses; (vii) severance, relocation and other expenses; and (viii) other items.
EBITDA and Adjusted EBITDA are not recognized terms under U.S. GAAP and should not be considered as alternatives to net income (loss) or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
We believe that EBITDA and Adjusted EBITDA provide useful information to investors about us and our financial condition and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA are among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions; and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties as a common performance measure to compare results or estimate valuations across companies in our industry.
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EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered either in isolation or as a substitute for net income (loss), cash flow or other methods of analyzing our results as reported under U.S. GAAP. Some of these limitations are:
| EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs; |
| EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness; |
| EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes; |
| EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; |
| EBITDA and Adjusted EBITDA do not reflect the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations; |
| although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and |
| other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures. |
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.
Results of Operations
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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|
|
|
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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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|
|
|
|
|||||||||||
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. |
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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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|
|
|
|
|
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Segment Adjusted EBITDA |
398 | 355 | 43 | 12.1 | ||||||||||||
Less: |
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General and administrative (3) |
36 | 30 | 6 | 20.0 | ||||||||||||
License fee expense |
61 | 55 | 6 | 10.9 | ||||||||||||
|
|
|
|
|
|
|||||||||||
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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|
|
|
|
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Net income |
$ | 130 | $ | 125 | $ | 5 | 4.0 | |||||||||
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|
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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 | ) | |||||||||
|
|
|
|
|||||||||||||
Sales of VOIs, net |
$ | 359 | $ | 355 | 4 | 1.1 | ||||||||||
|
|
|
|
|||||||||||||
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 | ||||||||||||
|
|
|
|
|||||||||||||
Sales revenue |
654 | 628 | 26 | 4.1 | ||||||||||||
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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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|
|
|||||||||||||
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 $22 million increase in commissions and brand fees due to the launch of two new fee-for-service products, one in late 2015 and one in early 2016, that resulted in higher sales volume during the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015.
Real estate margin and real estate margin percentage increased for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 as result of increased sales revenue and decreased cost of VOI sales, due to a decline in existing owners upgrading into fee-for-service projects, partially offset by higher sales and marketing expense based on increased contract sales volume.
87
Financing
Nine Months Ended
September 30, |
2016 vs 2015
Variance |
|||||||||||||||
($ 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 |
|
|
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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|||||||||||
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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Rental and ancillary services revenues |
135 | 125 | 10 | 8.0 | ||||||||||||
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|||||||||||
Rental expenses |
67 | 66 | 1 | 1.5 | ||||||||||||
Ancillary services expense |
19 | 17 | 2 | 11.8 | ||||||||||||
|
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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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|
|||||||||||
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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|
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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 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
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 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
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 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
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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|
|
|
|
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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.
91
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 $3 million, respectively.
Refer to Club and Resort Management and Rental and Ancillary Services for further discussion on the revenues and expenses of the resort operations and club management segment.
Real Estate
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
||||||||||||||||||||||||||
($ in millions, except VPG) | 2015 | 2014 | 2013 | $ | % | $ | % | |||||||||||||||||||||
Contract sales |
$ | 1,068 | $ | 905 | $ | 829 | $ | 163 | 18.0 | % | $ | 76 | 9.2 | % | ||||||||||||||
Less adjustments: |
||||||||||||||||||||||||||||
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.
92
Year Ended December 31, |
2015 vs. 2014
Variance |
2014 vs. 2013
Variance |
||||||||||||||||||||||||||
($ 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: |
||||||||||||||||||||||||||||
Marketing revenue and other fees |
108 | 110 | 85 | (2 | ) | (1.8 | ) | 25 | 29.4 | |||||||||||||||||||
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|
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Sales revenue |
841 | 710 | 695 | 131 | 18.5 | 15 | 2.2 | |||||||||||||||||||||
|
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|
|||||||||||||||||||||||
Less: |
||||||||||||||||||||||||||||
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 |
||||||||||||||||||||||||||
($ 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): |
||||||||||||||||||||||||||||
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 |
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($ 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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)
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187 | NM | (1) | |||||||
Debt issuance costs |
(6 | ) | | (6 | ) | NM | (1) | |||||||||
Net transfers from (to) Parent |
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(114
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)
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98 |
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(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 |
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Allocated Parent debt (1) |
$ | 778 | $ | 27 | $ | 52 | $ | 523 | $ | 176 | ||||||||||
Non-recourse debt (1) |
541 | 123 | 277 | 75 | 66 | |||||||||||||||
Operating leases |
34 | 11 | 11 | 8 | 4 | |||||||||||||||
Purchase commitments |
206 | 16 | 8 | 182 | | |||||||||||||||
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Total contractual obligations |
$ | 1,559 | $ | 177 | $ | 348 | $ | 788 | $ | 246 | ||||||||||
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(1) | Includes principal, as well as estimated interest payments. For our variable-rate debt, we have assumed a constant 30-day LIBOR rate of 0.36 percent as of December 31, 2015. |
As of 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 |
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($ in millions) | ||||||||||||||||||||
Debt (1) |
$ | 675 | $ | 35 | $ | 68 | $ | 217 | $ | 355 | ||||||||||
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 |
$ | 1,767 | $ | 192 | $ | 668 | $ | 482 | $ | 425 | ||||||||||
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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
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Fee-for-service refers to VOI inventory we sell and manage on behalf of third-party developers.
Just-in-time refers to VOI inventory primarily sourced in transactions that are designed to closely correlate the timing of the acquisition with our sale of that inventory to purchasers.
Developed refers to VOI inventory sourced from projects developed by HGV. |
Fee-for-service sales require virtually no capital investment on our part and provide us the flexibility to invest capital selectively. In 2015, our fee-for-service transactions represented 58% of contract sales, up from 0% in 2009. Based on our 2015 sales pace, we have access to more than six years of future inventory, with capital efficient arrangements representing approximately 85% of that supply. This visibility into our long-term supply allows us to efficiently manage inventory to meet predicted sales, reduce capital investments, minimize our exposure to the cyclicality of the real estate market and mitigate the risks of entering new markets.
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The strength of our platform, coupled with what we believe is the industrys most capital-efficient inventory sourcing model, has led to:
| Robust sales growth over the course of the cycle with contract sales increasing at a CAGR of 7.9% from 2007 to 2015, outperforming the industry, which experienced a decline of 2.6% over the same period; |
| Strong net owner growth with Club membership increasing at a 9% CAGR over the last four years to total approximately 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.) |
||||||||||||
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.) |
||||||||||||
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 | Executive Vice President and Chief Financial Officer | ||||
Michael D. Brown |
46 | Executive Vice President and Chief Operating Officer | ||||
David C. Hayes |
54 | Executive Vice President and Chief Marketing Officer | ||||
Charles R. Corbin, Jr. |
60 | Executive Vice President and General Counsel | ||||
Stan R. Soroka |
57 | Executive Vice President and Chief Customer Officer | ||||
Barbara L. Hollkamp |
63 | Executive Vice President and 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 Executive Vice President and 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 Executive Vice President and 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 Executive Vice President and 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 Executive Vice President and 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 Executive Vice President and 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 Executive Vice President and 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
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experienced human resources professionals who provide strategic business partnerships and consultative talent services across the global business. Her oversight also includes talent management, compensation, benefits, recruitment, succession planning, learning and development, and general HR shared services. Mrs. Hollkamp joined Hilton Parent in June 2004 as Vice President before being appointed a Senior Vice President of Human Resources for Hilton Parent. Her professional experience spans more than 30 years and is highlighted by strategic human resources management, organizational development, leadership development, and culture management. Mrs. Hollkamp earned a bachelors degree in organizational behavior from Rollins College in Florida.
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 Executive Vice President and Chief Operating Officer |
Senior Vice President and Chief Operating Officer, Hilton Grand Vacations | |
David C. Hayes Executive Vice President and Chief Marketing Officer |
Senior Vice President and Chief Marketing Officer, Hilton Grand Vacations | |
Stan R. Soroka Executive Vice President and 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 | |||||||||||||||||||||||||||
Executive Vice President and 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 | |||||||||||||||||||||||||||
Executive Vice President and 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 | |||||||||||||||||||||||||||
Executive Vice President and 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. |
150
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
151
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 |
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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 | ||||||||||||
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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). |
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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); |
| additional cash retainer 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 |
¡ | $20,000 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 will generally vest 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 who receives compensation for his or her service on our board of directors or a committee thereof will be required to own stock in an amount equal to five times his or her annual cash retainer. For purposes of this requirement, a directors holdings include shares held directly or indirectly, individually or jointly; shares underlying vested options; shares underlying unvested time-vesting restricted stock and stock units; 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. |
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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 which is anticipated to be 65%, 26%, and 9% for each of Hilton, Park Hotels & Resorts, and us, respectively. 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 forth 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 may be resolved through legal proceedings as set forth in the Distribution Agreement.
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 sharing percentages of 65% for Hilton Parent, 26% for Park Hotels & Resorts, and 9% for us, 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; |
| merging or consolidating with any other person or dissolving or liquidating in whole or in part; |
| selling or otherwise disposing of, or allowing the sale or other disposition of, more than 35% of our consolidated gross or net assets; or |
| 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 to 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, 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.
Following the consummation of the Sale, we expect to increase the size of our board of directors to ten members. HNA would be entitled to designate two of the ten 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. Assuming no change in its current beneficial ownership other than as a result of the Sale, one of the members of the board of directors would continue to be a designee of Blackstone. Additionally, assuming no change in its current beneficial ownership other than as a result of the Sale, Blackstone will be entitled to designate an additional board member.
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.
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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.
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 acquire or 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, provided that we continue to comply with the terms of the license agreement, including payment of royalty and other fees.
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.
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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 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 for the first ten (10) years. 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-
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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.
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; (y) the operation of our vacation ownership properties; (z) any use of the Hilton IP or Hilton Data in violation of the license
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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.
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.
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Other Relationships
In April 2014, we entered into a fee-for-service agreement with an affiliate of Blackstone to sell VOIs at a property for which we earn commissions. During the years ended December 31, 2015 and 2014, we earned commissions of $137 million and $25 million, respectively.
Upon consummation of the spin-off, we anticipate that T. Rowe Price Associates, Inc. may be a beneficial holder of more than 5 percent of our outstanding common stock upon based on a Schedule 13G that it filed with the SEC on February 12, 2016 reporting its ownership of Hilton Parent. T. Rowe Price Retirement Plan Services, Inc. provides recordkeeping and management services for three of Hilton Parents retirement savings plans and received in 2015, in the aggregate, approximately $6.4 million for investment management services and approximately $1.0 million for recordkeeping services in connection with the three plans. We anticipate that T. Rowe Price Retirement Plan Services, Inc. may provide recordkeeping and management services for HGV Parents retirement savings plans following the spin-off.
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.
6.125% Senior Notes due 2024
On October 24, 2016, 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 6.125% 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. In November 2016, the Notes were marketed and sold to qualified buyers in reliance on Rule 144A under the Securities Act, and outside the United Stated to non-U.S. persons in reliance on Regulation S under the Securities Act. We refer to the closing date for the sale of the Notes in such offering as the Reset Date, which we expect to occur on November 29, 2016. On the Reset Date, the Issuers and the Trustee will enter into a supplemental indenture to the Indenture.
The Notes were sold at 100.0% of their par value and will bear interest at a rate of 6.125% per annum, payable semi-annually in arrears on June 1 and December 1, beginning on the Reset Date. The Notes mature on December 1, 2024.
Ranking; Guarantees
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.
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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.
Optional Redemption
The Issuers may, at their option, redeem the Notes, in whole or in part, at any time prior to December 1, 2021, at a price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date, plus the applicable make-whole premium. In addition, beginning on December 1, 2021, the Issuers may redeem all or a part of the Notes at a redemption price equal to 103.063% of the principal amount redeemed. The redemption price decreases to 101.532% and 100.000% of the principal amount redeemed on December 1, 2022 and December 1, 2023, respectively.
Repurchase at the Option of Holders
Upon the occurrence of a change of control triggering event or upon the sale of certain assets in which HGV Borrower and its restricted subsidiaries do not apply the proceeds as required, the holders of the Notes will have the right to require the Issuers to make an offer to repurchase each holders Notes at a price equal to 101% (in the case of a change of control triggering event) or 100% (in the case of an asset sale) of their principal amount, plus accrued and unpaid interest.
Covenants; Events of Default
The Indenture contains covenants that, among other things, limit the ability of the Issuers and their restricted subsidiaries to incur additional indebtedness or issue certain preferred shares, pay dividends, redeem stock or make other distributions, make certain investments, sell or transfer certain assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of HGV Borrowers assets, enter into certain transactions with affiliates, and designate subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important exceptions and qualifications. The Notes also contain customary events of default, the occurrence of which could result in the principal of and accrued interest on the Notes to become or be declared due and payable.
Registration Rights
On the Reset Date, the Issuers, the guarantors and certain purchasers of the Notes will enter into a Registration Rights Agreement with respect to the Notes (the Senior Notes Registration Rights Agreement). In the Senior Notes Registration Rights Agreement, the Issuers and the guarantors will agree to use their respective commercially reasonable efforts to (i) file a registration statement on an appropriate registration form with respect to a registered offer to exchange the Notes for new notes, with terms substantially identical in all material respects to the Notes and (ii) cause the exchange offer registration statement to be declared effective under the Securities Act.
The Issuers and the guarantors will agree to use their commercially reasonable efforts to cause the exchange offer to be consummated or, if required, to have one or more shelf registration statements declared effective, within 425 days after the original issue date of the Notes. If the Issuers and the guarantors fail to satisfy this obligation (a registration default), the annual interest rate on the Notes will increase by 0.25% for the first 90-day period immediately following the occurrence of the registration default. The annual interest rate on the Notes will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 1.0% per annum. If the registration default is corrected, the interest rate on the Notes will revert to the original level.
If the Issuers must pay additional interest, they will pay holders of the Notes in cash on the same dates that the Issuers make other interest payments on the Notes, until the registration default is corrected.
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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 December 15, 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 | % | |||||
Directors and Executive Officers: |
||||||||
Mark D. Wang |
101,128 | (3)(10) | * | |||||
James E. Mikolaichik |
| | ||||||
Michael D. Brown |
22,753 | (4)(10) | * | |||||
David C. Hayes |
11,218 | (5)(10) | * | |||||
Stan R. Soroka |
2,779 | (6)(10) | * | |||||
Brenda J. Bacon (7) |
| | ||||||
Kenneth A. Caplan (7) |
13,593 | (8) | * | |||||
David W. Johnson (7) |
| | ||||||
Mark H. Lazarus (7) |
| | ||||||
Pamela H. Patsley (7) |
| |
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* | Represents less than 1%. |
(1) | Reflects the completion of the Secondary Offering. |
(2) | 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.
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Schwarzman. Each of such Blackstone entities (other than each of the Blackstone Funds to the extent they directly hold securities reported herein) and Mr. Schwarzman may be deemed to beneficially own the shares beneficially owned by the Blackstone Funds directly or indirectly controlled by it or him, but each disclaims beneficial ownership of such shares. Also reflects 636,939 shares of Hilton Parent common stock held directly by a foundation over which Mr. Schwarzman may be deemed to have investment and voting power, based on information provided to Hilton Parent on July 29, 2016. The address of each of Mr. Schwarzman and each of the entities listed in this footnote is c/o The Blackstone Group L.P., 345 Park Avenue, New York, New York 10154.
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.
(3) | Includes 16,688 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(4) | Includes 2,920 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(5) | Includes 2,628 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(6) | Includes 1,473 shares underlying options and restricted stock units that are vested or scheduled to vest within 60 days of the distribution date. |
(7) | 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. |
(8) | Includes 13,593 shares held by the Deborah and Kenneth Caplan Foundation. Mr. Caplan has dispositive and voting control of such shares. |
(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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Page No. | ||||
Audited Balance Sheet of Hilton Grand Vacations Inc. |
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F-2 | ||||
F-3 | ||||
F-4 | ||||
Unaudited Balance Sheets of Hilton Grand Vacations Inc. |
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F-5 | ||||
F-6 | ||||
Audited Consolidated Financial Statements of Hilton Resorts Corporation |
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F-7 | ||||
Consolidated Balance Sheets as of December 31, 2015 and 2014 |
F-8 | |||
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 |
F-9 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 |
F-10 | |||
Consolidated Statements of Parent Deficit for the years ended December 31, 2015, 2014 and 2013 |
F-11 | |||
F-12 | ||||
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 |
F-37 | |||
F-38 | ||||
F-39 | ||||
F-40 | ||||
F-41 |
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 |
| | ||||||
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 | |||||||||
|
|
|
|
|
|
|||||||
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 | ) | |||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
292 | 280 | 218 | |||||||||
Income tax expense |
(118 | ) | (113 | ) | (90 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 174 | $ | 167 | $ | 128 | ||||||
|
|
|
|
|
|
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 |
||||||||||||
Net income |
$ | 174 | $ | 167 | $ | 128 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
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: |
||||||||||||
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 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
131 | 213 | 196 | |||||||||
|
|
|
|
|
|
|||||||
Investing Activities |
||||||||||||
Capital expenditures for property and equipment |
(12 | ) | (12 | ) | (9 | ) | ||||||
Proceeds from asset dispositions |
| 6 | | |||||||||
Capitalized software costs |
(6 | ) | (5 | ) | (8 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(18 | ) | (11 | ) | (17 | ) | ||||||
|
|
|
|
|
|
|||||||
Financing Activities |
||||||||||||
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 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Net cash used in financing activities |
(111 | ) | (202 | ) | (178 | ) | ||||||
|
|
|
|
|
|
|||||||
Net increase in cash |
2 | | 1 | |||||||||
Cash, beginning of period |
2 | 2 | 1 | |||||||||
|
|
|
|
|
|
|||||||
Cash, end of period |
$ | 4 | $ | 2 | $ | 2 | ||||||
|
|
|
|
|
|
|||||||
Supplemental Disclosures |
||||||||||||
Cash paid during the year: |
||||||||||||
Interest, net of amounts capitalized |
$ | 37 | $ | 44 | $ | 45 | ||||||
Non-cash financing activities: |
||||||||||||
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 |
||||
Balance as of December 31, 2012 |
$ | (506 | ) | |
Net income |
128 | |||
Net transfers to Parent |
(157 | ) | ||
|
|
|||
Balance as of December 31, 2013 |
(535 | ) | ||
Net income |
167 | |||
Net transfers to Parent |
(39 | ) | ||
Capital contribution from Parent |
48 | |||
Distribution to Parent |
(14 | ) | ||
|
|
|||
Balance as of December 31, 2014 |
(373 | ) | ||
Net income |
174 | |||
Net transfers from Parent |
95 | |||
Distribution to Parent |
(2 | ) | ||
|
|
|||
Balance as of December 31, 2015 |
$ | (106 | ) | |
|
|
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).
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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 |
||||||||||||
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 |
||||||||
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 |
|||||||||
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 |
|||||||||
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 |
|||
Year |
||||
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 |
||||||||||||
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: |
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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: |
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Allocated Parent debt |
719 | 176 | 555 | |||||||||
Non-recourse debt |
625 | | 626 |
We believe the carrying amounts of our other financial assets and liabilities approximated fair value as of December 31, 2015 and 2014. Our estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values.
The estimated fair values of our timeshare financing receivables were based on the expected future cash flows discounted at weighted-average interest rates of the current portfolio, which reflect the risk of the underlying notes, primarily determined by the credit worthiness of the borrowers.
The estimated fair values of our Level 1 allocated Parent debt were based on prices in active debt markets. The estimated fair values of our Level 3 allocated Parent debt were based on indicative quotes received for similar issuances.
The estimated fair values of our Level 3 non-recourse debt approximated carrying values as the interest rates under the loan agreements either approximated current market rates or there were not significant fluctuations in current market rates to change the fair values of the underlying instruments or were based on indicative quotes received for similar issuances.
Note 13: Leases
We lease sales centers, office space and equipment under operating leases. Our operating leases may require minimum rent payments, contingent rent payments based on a percentage of revenue or income or rent payments equal to the greater of a minimum rent or contingent rent. Our leases expire at various dates from 2016 through 2021, with varying renewal options.
The future minimum rent payments under non-cancelable leases, due in each of the next five years and thereafter as of December 31, 2015, were as follows:
($ in millions) |
Operating
Leases |
|||
Year |
||||
2016 |
$ | 11 | ||
2017 |
6 | |||
2018 |
5 | |||
2019 |
4 | |||
2020 |
4 | |||
Thereafter |
4 | |||
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Total minimum rent payments |
$ | 34 | ||
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F-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 | |||||||||
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$ | 17 | $ | 15 | $ | 12 | |||||||
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Note 14: Income Taxes
Our tax provision includes federal, state and foreign income taxes payable. The domestic and foreign components of income before income taxes were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
U.S. income before tax |
$ | 275 | $ | 267 | $ | 208 | ||||||
Foreign income before tax |
17 | 13 | 10 | |||||||||
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Income before income taxes |
$ | 292 | $ | 280 | $ | 218 | ||||||
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The components of our provision for income taxes were as follows:
Year Ended December 31, | ||||||||||||
($ in millions) | 2015 | 2014 | 2013 | |||||||||
Current: |
||||||||||||
Federal |
$ | 85 | $ | 64 | $ | 50 | ||||||
State |
7 | 6 | 5 | |||||||||
Foreign |
6 | 6 | 2 | |||||||||
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Total current |
98 | 76 | 57 | |||||||||
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Deferred: |
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Federal |
18 | 34 | 30 | |||||||||
State |
2 | 3 | 3 | |||||||||
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Total deferred |
20 | 37 | 33 | |||||||||
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Total provision for income taxes |
$ | 118 | $ | 113 | $ | 90 | ||||||
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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 | |||||||||
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Provision for income taxes |
$ | 118 | $ | 113 | $ | 90 | ||||||
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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 | ) | ||||
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Net deferred taxes |
$ | (286 | ) | $ | (268 | ) | ||
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(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 | ||||||
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|
|||||
Deferred tax assets |
52 | 58 | ||||||
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|
|||||
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: |
||||||||||||
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 $82 million of income tax liabilities related to us, which is reflected in our condensed consolidated financial statements as a decrease to Parent deficit.
F-47
Note 11: Related Party Transactions
Net Parent Transfers
The components of Net transfers from (to) Parent in the condensed consolidated statements of parent equity (deficit) were as follows:
Nine Months Ended September 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Cash pooling and general financing activities |
$ | (233 | ) | $ | (17 | ) | ||
Corporate allocations |
37 | 33 | ||||||
Income taxes |
82 | 82 | ||||||
|
|
|
|
|||||
Net transfers from (to) Parent |
$ | (114 | ) | $ | 98 | |||
|
|
|
|
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 $9 million capital contribution from Hilton related to the transfer.
Note 12: Business Segments
We operate our business through the following two segments:
| Real estate sales and financing We market and sell VOIs that we own. We also source VOIs through fee-for-service agreements with third-party developers. Related to the sales of the VOIs that we own, we provide consumer financing, which includes interest income generated from the origination of consumer loans to customers to finance their purchase of VOIs and revenue from servicing the loans. We also generate fee revenue from servicing the loans provided by third-party developers to purchasers of their VOIs. |
| Resort operations and club management We manage the Club, receiving activation fees, annual dues and transaction fees from member exchanges for other vacation products. We earn fees for managing the timeshare properties. We generate rental revenue from unit rentals of unsold inventory and inventory made available due to ownership exchanges under our Club program. We also earn revenue from food and beverage, retail and spa outlets at our timeshare properties. |
The performance of our operating segments is evaluated primarily based on adjusted earnings before interest expense, taxes and depreciation and amortization (EBITDA). We define Adjusted EBITDA as EBITDA, further adjusted to exclude certain items, including, but not limited to, gains, losses and expenses in connection with: (i) asset dispositions; (ii) foreign currency transactions; (iii) debt restructurings/retirements; (iv) non-cash impairment losses; (v) reorganization costs; (vi) share-based compensation expense; (vii) severance and other expenses; and (viii) other items.
F-48
The following table presents revenues for our reportable segments reconciled to condensed consolidated amounts:
Nine Months Ended September 30, | ||||||||
($ in millions) | 2016 | 2015 | ||||||
Revenues: |
||||||||
Real estate sales and financing (1) |
$ | 843 | $ | 803 | ||||
Resort operations and club management (2) |
251 | 225 | ||||||
|
|
|
|
|||||
Total segment revenues |
1,094 | 1,028 | ||||||
Cost reimbursements |
94 | 82 | ||||||
Intersegment eliminations (1)(2) |
(20 | ) | (16 | ) | ||||
|
|
|
|
|||||
Total revenues |
$ | 1,168 | $ | 1,094 | ||||
|
|
|
|
(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: |
||||||||
Real estate sales and financing (1) |
$ | 259 | $ | 236 | ||||
Resort operations and club management (1) |
139 | 119 | ||||||
|
|
|
|
|||||
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 | ) | ||||
|
|
|
|
|||||
Net income |
$ | 130 | $ | 125 | ||||
|
|
|
|
(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
Financing Transaction
During the fourth quarter of 2016, as part of Hilton Parents internal reorganization, we executed an agreement to issue $300 million aggregate principal amount of 6.125% senior unsecured notes due 2024 (the Senior Notes due 2024), payable semi-annually in arrears beginning on June 1 and December 1.
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.
Asset Transfers
In October 2016, we entered into an agreement with Park Hotels & 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.
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