Amended And Restated Separation Agreement

AMENDED AND RESTATED SEPARATION AGREEMENT by and Among STARWOOD HOTELS & RESORTS WORLDWIDE, INC., VISTANA SIGNATURE EXPERIENCES, INC., and INTERVAL LEISURE GROUP, INC. (For the Purposes Set Forth Herein) Dated as of April 18, 2016

Exhibit 2.1

 

AMENDED AND RESTATED SEPARATION AGREEMENT

 

 

by and among

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.,

 

VISTANA SIGNATURE EXPERIENCES, INC.,

 

and

 

INTERVAL LEISURE GROUP, INC.

 

(for the purposes set forth herein)

 

Dated as of April 18, 2016

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

ARTICLE I DEFINITIONS

3

 

 

ARTICLE II THE INTERNAL REORGANIZATION

14

 

 

 

Section 2.1

Internal Reorganization

14

Section 2.2

Consents

15

Section 2.3

Termination of Intercompany Agreements; Settlement of Intercompany Accounts

17

Section 2.4

Representations and Warranties

18

 

 

ARTICLE III CLOSING OF THE INTERNAL REORGANIZATION

20

 

 

 

Section 3.1

Business Transfer Time

20

Section 3.2

Recapitalization of Vistana

20

Section 3.3

Business Transfer Time Deliveries

20

Section 3.4

Financial Information Adjustments

21

 

 

ARTICLE IV THE DISTRIBUTION

26

 

 

 

Section 4.1

Form of Distribution

26

Section 4.2

Manner of Distribution

26

Section 4.3

Actions Prior to Distribution

27

Section 4.4

Conditions to the Distribution

29

Section 4.5

Additional Matters

30

 

 

ARTICLE V MUTUAL RELEASES; INDEMNIFICATION

30

 

 

 

Section 5.1

Release of Pre-Business Transfer Time Claims

30

Section 5.2

Indemnification by the Vistana Group

33

Section 5.3

Indemnification by Starwood

34

Section 5.4

Indemnification Obligations Net of Insurance Proceeds and Other Amounts

34

Section 5.5

Procedures for Defense, Settlement and Indemnification of Third-Party Claims

35

Section 5.6

Additional Matters

36

Section 5.7

Contribution

37

Section 5.8

Exclusive Remedy

37

Section 5.9

Survival of Indemnities

38

Section 5.10

Limitations of Liability

38

 

 

ARTICLE VI ADDITIONAL AGREEMENTS

38

 

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Section 6.1

Further Assurances

38

Section 6.2

Agreement for Exchange of Information

38

Section 6.3

Ownership of Information

39

Section 6.4

Compensation for Providing Information

39

Section 6.5

Record Retention

39

Section 6.6

Other Agreements Providing for Exchange of Information

40

Section 6.7

Production of Witnesses; Records; Cooperation

40

Section 6.8

Privilege; Conflicts of Interest

41

Section 6.9

Insurance

42

Section 6.10

Asset Purchase

43

Section 6.11

Certain Separation Expenses

45

 

 

ARTICLE VII MISCELLANEOUS

45

 

 

 

Section 7.1

Expenses

45

Section 7.2

Entire Agreement

45

Section 7.3

Governing Law

46

Section 7.4

Characterization of Payments

46

Section 7.5

Notices

46

Section 7.6

Priority of Agreements

47

Section 7.7

Amendments and Waivers

48

Section 7.8

Termination

48

Section 7.9

Parties in Interest

48

Section 7.10

Assignability

49

Section 7.11

Interpretation

49

Section 7.12

Severability

50

Section 7.13

Captions; Counterparts

50

Section 7.14

Survival of Covenants

50

Section 7.15

Jurisdiction; Consent to Jurisdiction

51

Section 7.16

Plan of Reorganization

51

Section 7.17

Specific Performance

52

 

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EXHIBITS

 

 

 

 

 

Exhibit A

Employee Matters Agreement

 

Exhibit B

License Agreement

 

Exhibit C

Noncompetition Agreement

 

Exhibit D

SPG Affiliation Agreement

 

Exhibit E

Tax Matters Agreement

 

Exhibit F

Transition Services Agreement

 

 

SCHEDULES

 

Schedule I

 

 

Intercompany Agreements

Schedule II

 

 

Starwood Assumed Liabilities

Schedule III

 

 

Starwood Transferred Assets

Schedule IV

 

 

Vistana Assumed Liabilities

Schedule V

 

 

Vistana Transferred Assets

 

ANNEXES

 

Annex A — Capital Spend Schedule and Principles

Annex B — Cash Flow Schedule and Principles

Annex C — Purchased Entities Valuation Schedule and Principles

Annex D — Cash Accounts Balance

 

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AMENDED AND RESTATED SEPARATION AGREEMENT

 

THIS AMENDED AND RESTATED SEPARATION AGREEMENT, dated as of April 18, 2016 (this “Agreement”), is entered into by and among Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation and the sole stockholder of Vistana (“Starwood”), Vistana Signature Experiences, Inc., a Delaware corporation and a wholly-owned Subsidiary of Starwood (“Vistana”) and, solely for purposes of Section 2.1(a), Section 2.2(b), Section 2.4(a), Section 3.4, Section 4.3(c), Section 4.3(e), Section 4.4 (other than Section 4.4(c)), Section 4.5(b), Section 6.10, Section 6.11, Section 7.7(c) and Section 7.9 prior to the Effective Time, and for all purposes after the Effective Time, Interval Leisure Group, Inc., a Delaware corporation (“ILG”).  Each of the foregoing parties is referred to herein as a “Party” and collectively as the “Parties.”  Capitalized terms used in this Agreement and not otherwise defined have the meanings ascribed to such terms in Article I of this Agreement.

 

RECITALS

 

WHEREAS, Starwood, acting through itself and its direct and indirect Subsidiaries, currently conducts the Vistana Business and the Starwood Business;

 

WHEREAS, the board of directors of Starwood (“Starwood Board”) has determined that it is appropriate, desirable and in the best interests of Starwood and its stockholders to separate the Vistana Business from the Starwood Business;

 

WHEREAS, Starwood has caused Vistana to be formed in order to facilitate the separation of the Vistana Business from the Starwood Business;

 

WHEREAS, Starwood currently owns all of the issued and outstanding shares of common stock, par value $0.01 per share, of Vistana (the “Vistana Common Stock”);

 

WHEREAS, each of Starwood and Vistana has determined that it would be appropriate and desirable (a) for Starwood and certain of its Subsidiaries to contribute and transfer to Vistana and certain of its Subsidiaries, and Vistana and certain of its Subsidiaries to accept and assume, the Vistana Assets (other than the Purchased Assets (defined below)) and Vistana Assumed Liabilities (other than the Liabilities related to the Purchased Assets) and (b) for Vistana to issue additional shares of Vistana Common Stock to Starwood, calculated in accordance with the Merger Agreement as further described herein (the “Internal Reorganization”);

 

WHEREAS, immediately prior to the Distribution (defined below) on the Distribution Date, ILG will cause one or more of the ILG Subsidiaries to, purchase (the “Asset Purchase”) from the applicable indirect Subsidiaries of Starwood, and Starwood will cause each such applicable Subsidiary to, sell, convey, transfer, assign and deliver to one or more of ILG’s Subsidiaries (collectively, “ILG Subsidiary Buyer”), all of such Starwood Subsidiary’s right, title and interest in, to and under the assets and entities required to be purchased by ILG Subsidiary Buyer pursuant to Section 6.10 (the “Purchased Assets”) for the respective purchase prices set forth therein (the aggregate purchase price payable by ILG Subsidiary Buyer pursuant to Section 6.10(c), the “Asset Purchase Price”);

 



 

WHEREAS, Starwood and Vistana contemplate that, following the Internal Reorganization and the Asset Purchase, Starwood will either (a) distribute all of the shares of Vistana Common Stock to holders of Starwood Common Stock and Partnership Unitholders without consideration on a pro rata basis (the “One-Step Spin-Off”) or (b) consummate an offer to exchange (the “Exchange Offer”) shares of Vistana Common Stock for currently issued and outstanding shares of Starwood’s common stock, par value $0.01 per share (“Starwood Common Stock”), and, in the event that Starwood’s stockholders subscribe for less than all of the Vistana Common Stock in the Exchange Offer, Starwood will distribute, on a pro rata basis to holders of Starwood Common Stock and Partnership Unitholders, any unsubscribed Vistana Common Stock on the Distribution Date immediately following the consummation of the Exchange Offer so that Starwood will be treated for U.S. federal income Tax purposes as having distributed all of the Vistana Common Stock to its stockholders (the “Clean-Up Spin-Off”);

 

WHEREAS, the disposition by Starwood of 100% of the Vistana Common Stock, whether by way of the One-Step Spin-Off or the Exchange Offer (followed by any Clean-Up Spin-Off), is referred to herein as the “Distribution”;

 

WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of October 27, 2015 (the “Merger Agreement”), by and among Starwood, Vistana, Interval Leisure Group, Inc., a Delaware corporation (“ILG”), and Iris Merger Sub, Inc., a Delaware corporation and a direct, wholly-owned Subsidiary of ILG (“Merger Sub”), immediately following the Distribution, Merger Sub will merge with and into Vistana, with Vistana surviving as the surviving corporation (the “Merger”) and Vistana Common Stock will be converted into shares of common stock of ILG, on the terms and subject to the conditions of the Merger Agreement;

 

WHEREAS, it is a condition to the Merger that, prior to the Effective Time, the Internal Reorganization, the Asset Purchase and the Distribution be consummated in accordance herewith;

 

WHEREAS, the Parties intend that the execution of this Agreement and the Merger Agreement evidence a “plan of reorganization” within the meaning of Section 368 of the Code and Treasury Regulation Section 1.368-2(g);

 

WHEREAS, the Parties intend in this Agreement to set forth the principal arrangements between them regarding the Internal Reorganization, the Asset Purchase and the Distribution, and certain other agreements that will, following the Distribution, govern certain matters relating to the Internal Reorganization, the Asset Purchase and the Distribution and the relationship of Starwood, Vistana and their respective Subsidiaries; and

 

WHEREAS, the Parties desire to amend and restate the Original Separation Agreement in its entirety with this Agreement.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree that the Original Separation Agreement is hereby amended and restated in its entirety as follows:

 

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ARTICLE I
DEFINITIONS

 

As used herein, the following terms have the following meanings:

 

Action” has the meaning set forth in the Merger Agreement.

 

Additional Payment Amount” means $100,000,000.

 

Affiliate” means, with respect to any Person, any other Person (other than any Association) that, directly or indirectly, controls, is controlled by, or is under common control with, such Person, through one or more intermediaries or otherwise; provided, however, that for purposes of this Agreement, from and after the Distribution Date, no member of the Starwood Group shall be deemed an Affiliate of any member of the ILG Group or the Vistana Group, and no member of the ILG Group or the Vistana Group shall be deemed an Affiliate of any member of the Starwood Group; and provided, further, that Liberty Interactive Corporation and its Affiliates shall not be considered Affiliates of Vistana and its Affiliates solely by virtue of their ownership of the common stock of ILG so long as they own no more than 35% of the common stock of ILG.

 

Agent” has the meaning set forth in the Merger Agreement.

 

Ancillary Agreements” means the Employee Matters Agreement, the Tax Matters Agreement, the License Agreement, the Noncompetition Agreement, the SPG Affiliation Agreement, the Transition Services Agreement and any other instruments, assignments, documents and agreements executed on the Distribution Date or otherwise in connection with the implementation of the transactions contemplated by this Agreement and including all annexes, exhibits, schedules, attachments and appendices thereto.

 

Ancillary Amenities” means amenities of Vacation Ownership Properties (e.g., country clubs, spas, golf courses, food and beverage outlets, gift and sundry shops) located at or in the general vicinity of Vacation Ownership Properties, and businesses that are ancillary to the foregoing activities (e.g., travel insurance), all of which are associated with Vacation Ownership Interests.

 

Assets” means all assets, properties claims and rights of any kind, nature and description, whether real, personal or mixed, tangible or intangible, whether accrued, contingent or otherwise, and wherever situated and whether or not recorded or reflected, or required to be recorded or reflected, on the books of any Person.

 

Association” has the meaning set forth in the Merger Agreement.

 

Business Day” has the meaning set forth in the Merger Agreement.

 

Capital Spend” means the total amount actually spent by Starwood and its Affiliates (including the Vistana Entities) with respect to the Vistana Business using the line items under the heading “Capital Spend” as set forth in Annex A.

 

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Cash Accounts Balance” means the aggregate amount of cash held by the Vistana Entities set forth on Annex D as of the Distribution on the Distribution Date, excluding the amount of the Mexican Distributions.

 

Cash Flow” means the operating cash flow of the Vistana Business for the relevant period using the line items under the heading “Operating Cash Flow” as set forth in Annex B.

 

Closing Date” has the meaning set forth in the Merger Agreement.

 

Code” has the meaning set forth in the Merger Agreement.

 

Competition Law” has the meaning set forth in the Merger Agreement.

 

Confidentiality Agreements” has the meaning set forth in the Merger Agreement.

 

Consent” has the meaning set forth in the Merger Agreement.

 

Contract” or “agreement” means any Contract as defined in the Merger Agreement, other than any Starwood Benefit Plan, Vistana Benefit Plan or ILG Benefit Plan.

 

Deficit” means the amount, if any, by which the Post-3-31 Capital Spend exceeds the Post-3-31 Cash Flow.

 

Distribution Date” means the date selected by the Starwood Board or its designee for the Distribution to occur, through a One-Step Spin-Off or an Exchange Offer followed by the Clean-Up Spin-Off (if necessary).

 

Distribution Date Payment” means an amount in cash equal to, without duplication or interest, and as adjusted (with respect to clauses (e), (f), (h) and (i)) in accordance with Section 3.4: (a) the Additional Payment Amount, plus (b) the Vistana Transaction Expenses, plus (c) the Vistana Separation Expenses, plus (d) the Target Cash Flow Total Amount, plus (e) the amount, if any, by which the Estimated Pre-3-31 Capital Spend exceeds the Target Pre-3-31 Capital Spend, less (f) the amount, if any, by which the Target Pre-3-31 Capital Spend exceeds the Estimated Pre-3-31 Capital Spend, less (g) $28,000,000, and, only if the Distribution Date occurs after March 31, 2016, (h) less the amount of the Estimated Surplus or plus the amount of the Estimated Deficit, as applicable, plus (i) the Estimated Cash Accounts Balance.

 

Effective Time” has the meaning set forth in the Merger Agreement.

 

Employee Matters Agreement” means the Employee Matters Agreement entered into on the Execution Date, by and among Starwood, Vistana and ILG, as amended by that certain Amendment to Employee Matters Agreement, dated as of the date hereof, by and among Starwood, Vistana and ILG, the form of which is attached hereto as Exhibit A.

 

Exchange Act” has the meaning set forth in the Merger Agreement.

 

Exchange Program” means any method, arrangement, program or procedure for the voluntary exchange by Owners of the right to use and occupy Vacation Ownership Units for the right to use, occupy or benefit from other accommodations, facilities, programs or services.

 

4



 

Execution Date” means October 27, 2015.

 

Final Determination” has the meaning set forth in the Tax Matters Agreement.

 

GAAP” has the meaning set forth in the Merger Agreement.

 

Governmental Authority” has the meaning set forth in the Merger Agreement.

 

Group” means the Starwood Group, the Vistana Group or the ILG Group, as the context requires.

 

HSR Act” has the meaning set forth in the Merger Agreement.

 

Information” means information, including books and records, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.

 

Initial Valuation Report” means that certain January 31, 2016 valuation report setting forth the fair market value of each of the Purchased Entities prepared by KPMG and delivered to ILG and Vistana prior to the date hereof.

 

Insurance Proceeds” means those monies: (a) received by an insured from any insurance carrier or program; (b) paid by any insurance carrier on behalf of an insured or program; or (c) received (including by way of set-off) from any third party in the nature of insurance, contribution or indemnification in respect of any Liability, in each case, net of any deductible or retention amount or any other third-party costs or expenses incurred by the Indemnitor in obtaining such recovery, including any increased insurance premiums.

 

Intercompany Agreements” means Contracts between or among any Vistana Entity, on the one hand, and any Starwood Entity, on the other hand, a list of which is set forth on Schedule I.

 

Interests” has the meaning set forth in the Merger Agreement.

 

ILG Benefit Plan” has the meaning set forth in the Merger Agreement.

 

ILG Business” has the meaning set forth in the Merger Agreement.

 

ILG Group” means ILG and each of its Subsidiaries, including, after the Effective Time, the Vistana Group.

 

IRS” has the meaning set forth in the Merger Agreement.

 

5



 

Law” has the meaning set forth in the Merger Agreement.

 

Liabilities” means any and all debts, obligations and other liabilities, including all contractual obligations, whether absolute or contingent, inchoate or otherwise, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any pending, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys’ fees and any and all costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any such pending, threatened or contemplated Action), any Law, order or consent decree of any Governmental Authority or any award of any arbitrator of any kind, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person.

 

License Agreement” means the License, Services and Development Agreement to be entered into at or prior to the Effective Time by and among Starwood, Vistana and ILG, substantially in the form attached hereto as Exhibit B.

 

Lien” has the meaning set forth in the Merger Agreement.

 

Los Cabos Project” means the renovation and remediation of the Westin Resort & Spa Los Cabos.

 

Maximum Purchased Note Purchase Price” means the sum of (a) a principal amount equal to $30,000,000 less any amounts paid on such principal amount from January 31, 2016 through the Distribution Date plus (b) all accrued and unpaid interest on the amount in clause (a) of this definition from January 31, 2016 through the Distribution Date.

 

Mexican Distributions” means dividend distributions and/or capital redemptions declared prior to the consummation of the Asset Purchase by Hotel Cabos K.22.5.S. de R.L. de C.V., Hoteles Cancún K20 S. de R.L. de C.V., Hoteles Vallarta 205 S. de R.L. de C.V.,and/or Turistica Cancún S. de R.L. de C.V. to its shareholders of record on such date of declarations, but paid after consummation of the Asset Purchase, and the amount of any Mexican corporate dividend tax attributable to such dividend distributions and/or capital redemptions.

 

Mexico Entities Purchase Price” means the aggregate Estimated Entity FMVs of the Mexico Entities.

 

Noncompetition Agreement” means the Noncompetition Agreement to be entered into at or prior to the Effective Time by and between Starwood and Vistana, substantially in the form attached hereto as Exhibit C.

 

Organizational Documents” has the meaning set forth in the Merger Agreement.

 

Original Separation Agreement” means the Separation Agreement, dated as of the Execution Date, among the Parties.

 

Owner” has the meaning set forth in the Merger Agreement.

 

Partnership” has the meaning set forth in the Merger Agreement.

 

Partnership Unitholder” has the meaning set forth in the Merger Agreement.

 

Person” has the meaning set forth in the Merger Agreement.

 

6



 

Post-3-31 Capital Spend” means the total amount of Capital Spend from April 1, 2016 through the Distribution Date.

 

Post-3-31 Cash Flow” means the total amount of Cash Flow from April 1, 2016 through the Distribution Date.

 

Pre-3-31 Capital Spend” means the total amount of Capital Spend from October 1, 2015 through the earlier of March 31, 2016 and the Distribution Date.

 

Record Date” means the close of business on the date to be determined by the Starwood Board as the record date for determining stockholders of Starwood and Partnership Unitholders entitled to receive shares of Vistana Common Stock in the Distribution, to the extent the Distribution is effected through a One-Step Spin-Off, or in connection with any Clean-Up Spin-Off.

 

Record Holders” means the holders of Starwood Common Stock and the Partnership Unitholders on the Record Date but shall not include any holder of unvested restricted shares granted under the Starwood Stock Plans solely with respect to such restricted shares.

 

Representative” has the meaning set forth in the Merger Agreement.

 

SEC” has the meaning set forth in the Merger Agreement.

 

Securities Act” has the meaning set forth in the Merger Agreement.

 

SPG Affiliation Agreement” means the Starwood Preferred Guest Affiliation Agreement to be entered into at or prior to the Effective Time by and among Starwood, Preferred Guest Inc. and Vistana, substantially in the form attached hereto as Exhibit D.

 

Starwood Assets” means:

 

(a)                                 the Starwood Transferred Assets;

 

(b)                                 all Interests of the Subsidiaries of Starwood (other than any Vistana Entity) immediately prior to the Effective Time (after giving effect to the Internal Reorganization and the Asset Purchase) and all Interests of any other Person (other than any Vistana Entity) owned by any Starwood Entity immediately prior to the Effective Time (after giving effect to the Internal Reorganization and the Asset Purchase);

 

(c)                                  all Assets reflected as assets of Starwood and the other Starwood Entities on the Starwood Balance Sheet and any Assets acquired by or for Starwood or any other Starwood Entity subsequent to the date of the Starwood Balance Sheet that, had they been acquired on or before such date and owned as of such date, would have been reflected on the Starwood Balance Sheet if prepared on a consistent basis, after taking into account any dispositions of any such Assets subsequent to the date of the Starwood Balance Sheet; and

 

7



 

(d)                                 all other Assets owned or held immediately prior to the Effective Time (after giving effect to the Internal Reorganization and the Asset Purchase) by Starwood or any of its Subsidiaries (excluding, for the avoidance of doubt, Vistana and its Subsidiaries).

 

For the avoidance of doubt, the Starwood Assets shall include all assets of or relating to any Starwood Benefit Plan (other than any Vistana Benefit Plan), except to the extent expressly transferred to the ILG Group (including the Vistana Entities) under the Employee Matters Agreement, but shall not include the Vistana Assets or any items expressly governed by the Tax Matters Agreement.

 

Starwood Assumed Liabilities” means the Liabilities listed in Schedule II and the Liabilities expressly assumed by or assigned to the Starwood Group under the Employee Matters Agreement.

 

Starwood Balance Sheet” means the pro forma consolidated balance sheet of Starwood, including the notes thereto, as of the same date as the Vistana Balance Sheet, that Starwood will file with the SEC following the Distribution and that gives effect to the Internal Reorganization, the Asset Purchase and the Distribution.

 

Starwood Benefit Plan” has the meaning set forth in the Merger Agreement.

 

Starwood Business” means all businesses conducted by Starwood and its Subsidiaries and any other businesses or operations conducted through the use of the Starwood Transferred Assets, in each case, other than the Vistana Business.

 

Starwood Entities” means the members of the Starwood Group.

 

Starwood Group” means Starwood and each of its Subsidiaries, but excluding any member of the Vistana Group.

 

Starwood Indemnitees” means Starwood, its Affiliates, and all Persons who are or have been stockholders, directors, partners, managers, managing members, officers, agents or employees of Starwood or any of its Affiliates (in each case, in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns.

 

Starwood Liabilities” means the Liabilities of the Starwood Group (other than Taxes as provided for in the Tax Matters Agreement), including all Liabilities reflected as Liabilities of Starwood and the other Starwood Entities on the Starwood Balance Sheet and any Liabilities of Starwood or any other Starwood Entity accrued subsequent to the date of the Starwood Balance Sheet that, had they accrued on or before such date and been outstanding as of such date, would have been reflected on the Starwood Balance Sheet if prepared on a consistent basis, after taking into account the satisfaction of any such Liabilities subsequent to the date of the Starwood Balance Sheet and the Starwood Assumed Liabilities, but excluding the Vistana Assumed Liabilities.

 

Starwood Stock Plans” has the meaning set forth in the Employee Matters Agreement.

 

8



 

Starwood Transferred Assets” means the Assets listed in Schedule III and any Asset transferred to the Starwood Group by the Vistana Group under the Employee Matters Agreement.

 

Subsidiary” has the meaning set forth in the Merger Agreement.

 

Surplus” means the amount, if any, by which the Post-3-31 Cash Flow exceeds the Post-3-31 Capital Spend.

 

Target Cash Flow Total Amount” means $30,000,000.

 

Target Pre-3-31 Capital Spend” means the total amount of Capital Spend from October 1, 2015 through the earlier of March 31, 2016 and the Distribution Date as set forth on Annex A (prorated for any partial month in which the date on which the end of such period occurs based on the number of days elapsed from the first day of the month in which the date on which the end of such period occurs).

 

Tax” or “Taxes” has the meaning set forth in the Tax Matters Agreement.

 

Tax Benefit” has the meaning set forth in the Tax Matters Agreement.

 

Tax Cost” has the meaning set forth in the Tax Matters Agreement.

 

Tax Matters Agreement” means the Tax Matters Agreement to be entered into at or prior to the Effective Time by and among Starwood, Vistana and ILG, substantially in the form attached hereto as Exhibit E.

 

Tax Return” has the meaning set forth in the Tax Matters Agreement.

 

Transactions” has the meaning set forth in the Tax Matters Agreement.

 

Transition Services Agreement” means the Transition Services Agreement to be entered into at or prior to the Effective Time by and between Starwood and Vistana, substantially in the form attached hereto as Exhibit F.

 

Vacation Ownership Interests” has the meaning set forth in the Merger Agreement.

 

Vacation Ownership Property” means a property that includes Vacation Ownership Units, including (a) all improvements, structures, facilities, entry and exit rights, parking, pools, landscaping, and other appurtenances (including the property building and all operating systems) located at the site of the property and (b) all furniture, fixtures, equipment, supplies and inventories installed or located in such improvements at the site of the property.

 

Vacation Ownership Unit” means a physical unit used for overnight accommodation as part of a Vacation Ownership Interest.

 

Vistana Assets” means:

 

(a)                                 the Vistana Transferred Assets;

 

9



 

(b)                                 all Interests of the Vistana Subsidiaries immediately prior to the Effective Time (after giving effect to the Internal Reorganization and the Asset Purchase) and all Interests of any other Person owned by any Vistana Entity immediately prior to the Effective Time (after giving effect to the Internal Reorganization and the Asset Purchase);

 

(c)                                  (i) all Assets reflected as assets of Vistana and the other Vistana Entities on the Vistana Balance Sheet and (ii) any Assets acquired by or for Vistana or any other Vistana Entity subsequent to the date of the Vistana Balance Sheet that, had they been acquired on or before such date and owned as of such date, would have been reflected on the Vistana Balance Sheet if prepared on a consistent basis, after taking into account any dispositions of any such Assets subsequent to the date of the Vistana Balance Sheet; and

 

(d)                                 all other Assets not expressly covered in clauses (a) through (c) of this definition of “Vistana Assets” that are owned, in whole or in part, by Vistana or any Vistana Entity, but not owned in part by any Starwood Entity immediately prior to the Effective Time (after giving effect to the Internal Reorganization and the Asset Purchase).

 

For the avoidance of doubt, the Vistana Assets shall not include the Starwood Assets or any items expressly governed by the Tax Matters Agreement or licensed to Vistana under the License Agreement.

 

Vistana Assumed Liabilities” means the Liabilities listed in Schedule IV, the Liabilities relating to the Vistana Assets, and the Liabilities expressly assumed by or assigned to the Vistana Group under the Employee Matters Agreement.

 

Vistana Balance Sheet” means the pro forma consolidated balance sheet of Vistana, including the notes thereto, included in the final version of the Vistana Registration Statement, which balance sheet shall give effect to the Internal Reorganization and the Distribution and shall be prepared on a consistent basis with the June 30, 2015 consolidated balance sheet of Vistana attached to the Merger Agreement pursuant to Section 5.08(a) thereof, other than with respect to adjustments to such balance sheet that are intended to reflect transactions effected by the Vistana Entities in the ordinary course of business between June 30, 2015, and the date of the pro forma consolidated balance sheet included in the final version of the Vistana Registration Statement.  The Vistana Balance Sheet shall include the Purchased Assets.

 

Vistana Benefit Plan” has the meaning set forth in the Merger Agreement.

 

Vistana Business” means (a) the business of (i) developing, marketing, managing, and operating Vacation Ownership Properties; (ii) developing, selling, marketing, managing, operating and financing Vacation Ownership Interests and Vacation Ownership Units; (iii) developing, selling, marketing and operating Exchange Programs; (iv) managing rental programs associated with Vacation Ownership Interests; (v) establishing and operating sales facilities for Vacation Ownership Interests; (vi) managing the Owner services related to Vacation Ownership Interests; (vii) servicing purchase money loans for Vacation Ownership Interests; and (viii) managing or operating the Ancillary Amenities of Vacation Ownership Properties, (b) any other business conducted by any member of the Vistana Group and (c) any

 

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other business conducted primarily through the use of Vistana Assets, whether before, at or after the Business Transfer Time.

 

Vistana Confidentiality Agreement” has the meaning set forth in the Merger Agreement.

 

Vistana Entities” means the members of the Vistana Group after giving effect to the Internal Reorganization and the Asset Purchase, including Vistana and the entities listed in item 1 of Schedule V.

 

Vistana Group” means (a) Vistana and each Person that would be a direct or indirect Subsidiary of Vistana after giving effect to the Internal Reorganization and immediately prior to the Effective Time and (b) the Purchased Entities; provided, that the ILG Group shall be deemed to be members of the Vistana Group as of the Effective Time, except as otherwise expressly provided for herein.

 

Vistana Indemnitees” means Vistana, its Affiliates, and all Persons who are or have been stockholders, directors, partners, managers, managing members, officers, agents or employees of Vistana or any of its Affiliates (in each case, in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns.

 

Vistana Liabilities” means the Liabilities of the Vistana Group (other than Taxes as provided for in the Tax Matters Agreement), including all Liabilities reflected as Liabilities of Vistana and the other Vistana Entities on the Vistana Balance Sheet and any Liabilities of Vistana or any other Vistana Entity accrued subsequent to the date of the Vistana Balance Sheet that, had they accrued on or before such date and been outstanding as of such date, would have been reflected on the Vistana Balance Sheet if prepared on a consistent basis, after taking into account the satisfaction of any such Liabilities subsequent to the date of the Vistana Balance Sheet, the Vistana Assumed Liabilities, and Liabilities related to the Vistana Benefit Plans, but excluding the Starwood Assumed Liabilities.

 

Vistana Separation Expenses” means those expenses, in an amount which shall not exceed $10,000,000 (except as set forth in Section 6.11), to the extent incurred by Starwood or its Affiliates on behalf of the Vistana Group in connection with the transactions contemplated by this Agreement after October 1, 2015 and prior to the Distribution, including information technology separation and standalone costs, human resources separation consultants, Separation Management Office separation consultants, tax separation consultants and other legal and separation costs.  For the avoidance of doubt, except as set forth in Section 6.11, (i) for purposes of the calculating the Distribution Date Payment, Vistana Separation Expenses shall equal $10,000,000, and (ii) no member of the Vistana Group shall be responsible for any other separation expenses incurred by Starwood or its Affiliates.

 

Vistana Subsidiaries” means (a) all direct and indirect Subsidiaries of Vistana, after giving effect to the Internal Reorganization and (b) the Purchased Entities.

 

Vistana Transaction Expenses” means those expenses, in an amount which in no event shall exceed $20,000,000, and which include, without duplication, the amount of all out-of-

 

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pocket fees and expenses incurred prior to the Effective Time by Starwood or Vistana or their Affiliates in connection with the transactions contemplated by this Agreement and the Merger Agreement or otherwise relating to the negotiation, preparation or execution of this Agreement and the Merger Agreement or any document or agreement contemplated hereby or thereby or the performance or consummation of the transactions contemplated hereby or thereby, including (A) any fees and expenses associated with obtaining necessary or appropriate waivers, consents or approvals of any Governmental Authority or any other third Person; (B) any fees or expenses associated with obtaining the release and termination of any Liens; (C) all brokers’ or finders’ fees; (D) fees and expenses of counsel, advisors, consultants, investment bankers, accountants, auditors and experts; (E) all sale, “stay-around,” retention, or similar bonuses or payments to current or former directors, officers, managers, employees or consultants to be paid as a result of or in connection with the transactions contemplated by this Agreement and the Merger Agreement; and (F) the cost of the directors’ and officers’ liability insurance policy to the extent obtained by Starwood pursuant to Section 7.08(b) of the Merger Agreement.  For the avoidance of doubt, “Vistana Transaction Expenses” shall not include any fees or expenses (a) the treatment of which is addressed in the Tax Matters Agreement or Employee Matters Agreement, (b) contemplated to be paid by ILG or its Affiliates pursuant to this Agreement or the Merger Agreement or any document or agreement contemplated hereby or thereby or the performance or consummation of the transactions contemplated hereby or thereby or (c) incurred by the Vistana Entities after the Effective Time. For the avoidance of doubt, (i) for purposes of the calculating the Distribution Date Payment, Vistana Transaction Expenses shall equal $20,000,000, and (ii) no member of the Vistana Group shall be responsible for any other transaction expenses incurred by Starwood or its Affiliates in connection with the transactions contemplated by this Agreement and the Merger Agreement or incurred by the Vistana Entities prior to the Effective Time.

 

Vistana Transferred Assets” means the Assets listed in Schedule V and any Asset transferred to the Vistana Group by the Starwood Group under the Employee Matters Agreement.

 

WSJ Purchase Price” means the Estimated Entity FMV of WSJ.

 

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TERMS DEFINED IN THIS AGREEMENT

 

Defined Term

 

Section

 

 

 

After-Tax Basis

 

Section 5.4(c)

Agreement

 

Preamble

Arbiter

 

Section 3.4(d)

Asset Purchase

 

Recitals

Asset Purchase Price

 

Recitals

Business Transfer Time

 

Section 3.1

Clean-Up Spin-Off

 

Recitals

Counsel

 

Section 6.8(b)

Distribution

 

Recitals

Distribution Date Cash Accounts Balance

 

Section 3.4(e)(i)

Distribution Date Deficit

 

Section 3.4(e)(i)

Distribution Date Entity FMV(s)

 

Section 3.4(c)(ii)

Distribution Date Post-3-31 Adjustment Statement

 

Section 3.4(c)(i)

Distribution Date Pre-3-31 Capital Spend

 

Section 3.4(e)(i)

Distribution Date Pre-3-31 Capital Spend Statement

 

Section 3.4(c)(i)

Distribution Date Surplus

 

Section 3.4(e)(i)

Distribution Date Valuation Statement

 

Section 3.4(c)(ii)

Estimated Cash Accounts Balance

 

Section 4.3(e)(i)

Estimated Deficit

 

Section 3.4(b)

Estimated Entity FMV(s)

 

Section 3.4(b)

Estimated Financial Statement(s)

 

Section 3.4(b)

Estimated Post-3-31 Adjustment Statement

 

Section 3.4(b)

Estimated Pre-3-31 Capital Spend Statement

 

Section 3.4(b)

Estimated Surplus

 

Section 3.4(b)

Estimated Valuation Statement

 

Section 3.4(b)

Exchange Offer

 

Recitals

Financial Information Statement(s)

 

Section 3.4(c)(i)

Indemnitee

 

Section 5.4(a)

Indemnitor

 

Section 5.4(a)

Indemnity Payment

 

Section 5.4(a)

Internal Reorganization

 

Recitals

ILG

 

Recitals

ILG Subsidiary Buyer

 

Recitals

Maximum Asset Purchase Price

 

Section 6.10(c)(v)

Merger

 

Recitals

Merger Agreement

 

Recitals

Merger Sub

 

Recitals

Mexico Entities

 

Section 6.10(a)(i)

Mexico Entities Purchase Price

 

Section 6.10(b)

One-Step Spin-Off

 

Recitals

Party

 

Preamble

Pre-Closing Insurance Claim

 

Section 6.9(b)

Pre-Closing Insurance Policies

 

Section 6.9(a)

 

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Defined Term

 

Section

 

 

 

Purchased Assets

 

Recitals

Purchased Entities

 

Section 6.10(a)(i)

Purchased Entities Purchase Price

 

Section 6.10(c)(iii)

Purchased Note

 

Section 6.10(a)(i)

Purchased Note Purchase Price

 

Section 6.10(b)

Reimbursement Amount

 

Section 6.11

SAP Consent

 

Section 6.11

SAP Consent Fee

 

Section 6.11

SHKH

 

Section 6.10(a)(i)

SMSC

 

Section 6.10(a)(i)

Step Plan

 

Section 2.1(a)

Starwood

 

Preamble

Starwood Board

 

Recitals

Starwood Common Stock

 

Recitals

Starwood Released Persons

 

Section 5.1(a)

Third-Party Claim

 

Section 5.5(a)

Third-Party Proceeds

 

Section 5.4(a)

Vistana

 

Preamble

Vistana Common Stock

 

Recitals

Vistana Registration Statement

 

Section 4.3(a)

Vistana Released Persons

 

Section 5.1(b)

WSJ

 

Section 6.10(a)(i)

WSJ Purchase Price

 

Section 6.10(b)

 

ARTICLE II
THE INTERNAL REORGANIZATION

 

Section 2.1                                    Internal Reorganization.  Except as provided in Section 2.2(b) and subject to the terms and conditions of this Agreement and effective as of the Business Transfer Time, to the extent not previously effected, the Parties shall:

 

(a)                                 cause the Internal Reorganization to be completed, subject to Section 2.2(b), in all respects in accordance with the plan and structure set forth on Schedule 2.1(a) (such plan and structure, the “Step Plan”); provided, that Starwood may implement the Internal Reorganization hereunder in any other manner that Starwood determines is necessary, appropriate, advisable or desirable; provided, further, that Starwood shall (i) provide ILG and Vistana with at least seventy-two (72) hours’ notice prior to any change in the implementation of the Internal Reorganization other than as contemplated by the Step Plan, (ii) consider in good faith any comments regarding such proposed changes provided by ILG or Vistana in writing within forty-eight (48) hours after receipt of such notice, and (iii) reimburse and indemnify ILG and Vistana for any incremental costs or liabilities incurred by any member of the Vistana Group as a result of any change in the implementation of the Internal Reorganization other than as contemplated by the Step Plan;

 

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(b)                                 execute such instruments of assignment and transfer and take such other corporate actions as are necessary to transfer to the Vistana Group all of the right, title and interest to all Vistana Assets (other than the Purchased Assets) to the extent that such transfer was not previously effected pursuant to the Internal Reorganization and take all actions necessary to cause the Vistana Group to assume all of the Vistana Assumed Liabilities (other than the Liabilities related to the Purchased Assets) to the extent that such assumption was not previously effected pursuant to the Internal Reorganization; and

 

(c)                                  execute such instruments of assignment and transfer and take such other corporate actions as are necessary to transfer to the Starwood Group all of the right, title and interest to all Starwood Transferred Assets to the extent that such transfer was not previously effected pursuant to the Internal Reorganization, and take all actions necessary to cause the Starwood Group to assume all of the Starwood Assumed Liabilities to the extent that such assumption was not previously effected pursuant to the Internal Reorganization.

 

(d)                                 In the event that at any time or from time to time (whether prior to, at or after the Business Transfer Time), any member of the Starwood Group or the Vistana Group, respectively, is the owner of, receives or otherwise comes to possess any Vistana Asset or Starwood Transferred Asset, as the case may be (including the receipt of payments made pursuant to Contracts and proceeds from accounts receivable) or Vistana Assumed Liability or Starwood Assumed Liability, as the case may be, that is allocated to a member of the Starwood Group or the Vistana Group, respectively, pursuant to this Agreement or any Ancillary Agreement, the applicable Party shall promptly transfer, or cause to be transferred, such Vistana Asset, Starwood Transferred Asset, Vistana Assumed Liability or Starwood Assumed Liability to the Person so entitled thereto or responsible therefor.  Prior to any such transfer, such Vistana Asset, Starwood Transferred Asset, Vistana Assumed Liability or Starwood Assumed Liability shall be held in accordance with Section 2.2(b).

 

Section 2.2                                    Consents.

 

(a)                                 To the extent that the consummation of the Internal Reorganization, the Asset Purchase or the Distribution requires any Consents from any third parties (including any Governmental Authorities), each Party shall use its reasonable best efforts to obtain promptly such Consents; provided, that, with respect to Consents from third parties (other than Governmental Authorities) required under existing Contracts, such efforts shall not include any requirement or obligation to make any payment to any such third party or assume any Liability not otherwise required to be paid or assumed by the applicable Party pursuant to the terms of an existing Contract or offer or grant any financial accommodation or other benefit to such third party not otherwise required to be made by the applicable Party pursuant to the terms of an existing Contract.  For the avoidance of doubt, the required efforts and responsibilities of the Parties (i) to seek the Consents necessary to provide the Services (as defined in the Transition Services Agreement) shall be governed by the Transition Services Agreement and (ii) to seek approval pursuant to the HSR Act or other Competition Laws (each as defined in the Merger Agreement) and the ILG Shareholder Approval (as defined in the Merger Agreement) shall be governed by the Merger Agreement.  The obligations set forth in this Section 2.2(a) shall terminate on the one (1)-year anniversary of the Distribution Date.  Notwithstanding anything in this Section 2.2(a) to the contrary, nothing in this Agreement or any other Ancillary Agreement

 

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shall be construed as an attempt or agreement to transfer any Vistana Asset, including any Contract, permit or other right, if an attempted transfer thereof, without the Consent of a third party (including any Governmental Authority), would constitute a breach or other contravention under any agreement to which any Starwood Entity or any Vistana Entity is a party or any Law or by which any Starwood Entity or any Vistana Entity is bound, or would in any way adversely affect the rights, upon transfer or otherwise, of any Vistana Entity under such Vistana Asset.

 

(b)                                 Transfers and Assumptions Not Consummated Prior To or At the Business Transfer Time.  If the transfer or assumption (as applicable) of any Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability intended to be transferred or assumed (as applicable) is not consummated prior to or at the Business Transfer Time, whether as a result of the provisions of Section 2.2(a) or for any other reason (including any misallocated transfers subject to Section 2.1(d)), then, the Distribution shall, subject to the satisfaction of the conditions set forth in Article IV, nevertheless take place on the terms set forth herein, and, insofar as reasonably practicable (taking into account any applicable restrictions or considerations relating to the contemplated Tax treatment of the Transactions) and to the extent permitted by applicable Law, the Person retaining such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability, as the case may be, (i) shall thereafter hold such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability, as the case may be, in trust for the use and benefit and burden of the Person entitled thereto (and at such Person’s sole expense) until the consummation of the transfer or assumption (as applicable) thereof (or as otherwise determined by Starwood and Vistana, as applicable, in accordance with Section 2.2(a)); and (ii) use reasonable best efforts to take such other actions as may be reasonably requested by the Person to whom such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability is to be transferred or assumed (as applicable) (at the expense of the Person to whom such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability is to be transferred or assumed (as applicable)) in order to place such Person in substantially the same position as if such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability had been transferred or assumed (as applicable) as contemplated hereby and so that all the benefits and burdens relating to such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability, as the case may be, including possession, use, risk of loss, potential for gain, any Tax liabilities in respect thereof and dominion, control and command over such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability, as the case may be, are to inure from and after the Business Transfer Time to the Person to whom such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability is to be transferred or assumed (as applicable).  Any Person retaining any Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability due to the deferral of the transfer or assumption (as applicable) of such Vistana Asset, Vistana Assumed Liability, Starwood Transferred Asset, or Starwood Assumed Liability, as the case may be, shall not be required, in connection with the foregoing, to make any payments, assume any Liability, or offer or grant any accommodation or other benefit (financial or otherwise) to any third party, except to the extent that the Person entitled to the Vistana Asset or Starwood Transferred Asset, or responsible for the Vistana Assumed Liability or Starwood Assumed Liability, as applicable, agrees to reimburse and make whole the Person retaining a Vistana Asset or Starwood Transferred Asset, or a Vistana Assumed Liability

 

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or Starwood Assumed Liability, to such Person’s reasonable satisfaction, for any payment or other accommodation made by the Person retaining a Vistana Asset or Starwood Transferred Asset, or a Vistana Assumed Liability or Starwood Assumed Liability, at the request of the Person entitled to the Vistana Asset or Starwood Transferred Asset or responsible for the Vistana Assumed Liability or Starwood Assumed Liability.  The obligations set forth in this Section 2.2(b) shall terminate on the one (1)-year anniversary of the Distribution Date.

 

Section 2.3                                    Termination of Intercompany Agreements; Settlement of Intercompany Accounts.

 

(a)                                 Termination of Intercompany Agreements.  Except as set forth in Section 2.3(b) and Section 2.3(c), Vistana, on behalf of itself and each other member of the Vistana Group, on the one hand, and Starwood, on behalf of itself and each other member of the Starwood Group, on the other hand, shall terminate, effective as of the Business Transfer Time, any and all Intercompany Agreements.  No such terminated Intercompany Agreement (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Business Transfer Time and all parties shall be released from all Liabilities thereunder.  Each Party shall, at the reasonable request of any other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.  The Parties, on behalf of the members of their respective Groups, hereby waive any advance notice provision or other termination requirements with respect to such Intercompany Agreements.

 

(b)                                 Exceptions to Termination of Intercompany Agreements.  The provisions of Section 2.3(a) shall not apply to any of the following Intercompany Agreements (or to any of the provisions thereof):

 

(i)                                     this Agreement, the Merger Agreement and the Ancillary Agreements (and each other Contract expressly contemplated by this Agreement, the Merger Agreement or any Ancillary Agreement to be entered into or continued by any of the Parties or any of the members of their respective Groups);

 

(ii)                                  any Contracts to which any Person other than the Parties and their respective Affiliates is a party;

 

(iii)                               any Contracts to which any non-wholly-owned Subsidiary of Starwood or Vistana, as the case may be, is a party (it being understood that directors’ qualifying shares or similar interests shall be disregarded for purposes of determining whether a Subsidiary is wholly owned);

 

(iv)                              any confidentiality or non-disclosure agreements among any Starwood Entity, any Vistana Entity and any of their respective employees, including any obligation not to disclose proprietary or privileged information; and

 

(v)                                 any Contracts listed or described on Schedule 2.3(b)(v).

 

(c)                                  Settlement of Intercompany Accounts.  Other than Liabilities for payment and/or reimbursement for costs and other fees and charges relating to goods or services provided by any Starwood Entity to any Vistana Entity, or vice versa, prior to the Business Transfer Time in

 

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the ordinary course of business, including under the Intercompany Agreements described in Section 2.3(b), and payment of the Mexican Distributions, and except as otherwise expressly provided in this Agreement or any Ancillary Agreement, all intercompany receivables, payables, loans and other accounts between any Starwood Entity, on the one hand, and any Vistana Entity, on the other hand, in existence as of immediately prior to the Business Transfer Time and after giving effect to the Internal Reorganization and the Asset Purchase, shall be extinguished by the applicable Starwood Entities and the applicable Vistana Entities no later than the Business Transfer Time by (i) cancellation, forgiveness or release by the applicable obligor or (ii) one or a related series of payments, settlements, netting, distributions of and/or contributions to capital, in each case, as determined by Starwood and such that the Vistana Entities, on the one hand, and the Starwood Entities, on the other hand, do not have any further Liability to one another in respect of such intercompany receivables, payables, loans and other accounts. For the avoidance of doubt, ILG shall cause each applicable Purchased Entity to pay its respective as-declared Mexican Distribution (denominated in Mexican Pesos) promptly after the Distribution Date.

 

Section 2.4                                    Representations and Warranties.

 

(a)                                 Starwood hereby represents and warrants to ILG that: (i) SMSC owns, of record and beneficially, 100% of the Interests in the Mexico Entities, free and clear of all Liens (other than those Liens set forth in their respective Organizational Documents or arising pursuant to applicable securities Laws or created by this Agreement), and upon the consummation of the Asset Purchase, ILG Subsidiary Buyer shall obtain good, legal, valid and marketable title to such Interests, free and clear of all Liens (other than those Liens set forth in their respective Organizational Documents or arising pursuant to applicable securities Laws or created by this Agreement or Liens created by or through ILG or any of ILG’s Subsidiaries); and (ii) SHKH owns, of record and beneficially, (A) 100% of the Interests in WSJ, free and clear of all Liens (other than those Liens set forth in WSJ’s Organizational Documents or arising pursuant to applicable securities Laws or created by this Agreement), and (B) the Purchased Note, free and clear of all Liens, and upon the consummation of the Asset Purchase, ILG Subsidiary Buyer shall obtain good, legal, valid and marketable title to such Interests, free and clear of all Liens (other than those Liens set forth in WSJ’s Organizational Documents or arising pursuant to applicable securities Laws or created by this Agreement or Liens created by or through ILG or any of ILG’s Subsidiaries) and such Purchased Note, free and clear of all Liens.

 

(b)                                 EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN SECTION 2.4(a), THE MERGER AGREEMENT OR ANY ANCILLARY AGREEMENT, VISTANA (ON BEHALF OF ITSELF AND MEMBERS OF THE VISTANA GROUP) ACKNOWLEDGES THAT NEITHER STARWOOD NOR ANY MEMBER OF THE STARWOOD GROUP MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY HEREIN AS TO ANY MATTER WHATSOEVER, INCLUDING ANY REPRESENTATION OR WARRANTY WITH RESPECT TO:  (A) THE CONDITION OR THE VALUE OF ANY VISTANA ASSET, THE VISTANA BUSINESS OR THE AMOUNT OF ANY VISTANA LIABILITY; (B) THE FREEDOM FROM ANY LIEN OF ANY VISTANA ASSET; (C) THE ABSENCE OF DEFENSES OR FREEDOM FROM COUNTERCLAIMS WITH RESPECT TO ANY CLAIM TO BE TRANSFERRED TO OR ASSUMED BY VISTANA OR HELD BY A MEMBER OF THE VISTANA GROUP; OR (D) ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR TITLE.  EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN SECTION 2.4(a), THE MERGER AGREEMENT OR ANY

 

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ANCILLARY AGREEMENT, VISTANA (ON BEHALF OF ITSELF AND MEMBERS OF THE VISTANA GROUP) FURTHER ACKNOWLEDGES THAT ALL OTHER WARRANTIES THAT STARWOOD OR ANY MEMBER OF THE STARWOOD GROUP GAVE OR MIGHT HAVE GIVEN, OR WHICH MIGHT BE PROVIDED OR IMPLIED BY APPLICABLE LAW OR COMMERCIAL PRACTICE, ARE HEREBY EXPRESSLY EXCLUDED.  EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN SECTION 2.4(a), THE MERGER AGREEMENT OR ANY ANCILLARY AGREEMENT, ALL ASSETS, BUSINESSES AND LIABILITIES TO BE TRANSFERRED TO OR ASSUMED BY VISTANA SHALL BE TRANSFERRED WITHOUT ANY COVENANT, REPRESENTATION OR WARRANTY (WHETHER EXPRESS OR IMPLIED), AND ALL OF THE ASSETS, BUSINESSES AND LIABILITIES HELD BY THE VISTANA ENTITIES ARE HELD, “AS IS, WHERE IS,” AND, FROM AND AFTER THE EFFECTIVE TIME, VISTANA SHALL BEAR THE ECONOMIC AND LEGAL RISK THAT ANY SUCH TRANSFER OR ASSUMPTION SHALL PROVE TO BE INSUFFICIENT TO VEST IN VISTANA GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY LIEN OR ANY NECESSARY CONSENTS THAT ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS ARE NOT COMPLIED WITH (BUT SUBJECT TO COMPLIANCE BY STARWOOD WITH ITS OBLIGATIONS IN SECTIONS 2.1 AND 2.2), AND NONE OF THE STARWOOD ENTITIES OR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO ANY INFORMATION, DOCUMENTS OR MATERIAL MADE AVAILABLE IN CONNECTION WITH THE DISTRIBUTION, OR EXECUTION, DELIVERY OR FILING OF THIS AGREEMENT, THE MERGER AGREEMENT OR ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

 

(c)                                  EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN THE MERGER AGREEMENT OR ANY ANCILLARY AGREEMENT, STARWOOD (ON BEHALF OF ITSELF AND MEMBERS OF THE STARWOOD GROUP) ACKNOWLEDGES THAT NEITHER VISTANA NOR ANY MEMBER OF THE VISTANA GROUP MAKES ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY HEREIN AS TO ANY MATTER WHATSOEVER, INCLUDING ANY REPRESENTATION OR WARRANTY WITH RESPECT TO:  (A) THE CONDITION OR THE VALUE OF ANY STARWOOD ASSET, THE STARWOOD BUSINESS OR THE AMOUNT OF ANY STARWOOD LIABILITY; (B) THE FREEDOM FROM ANY LIEN OF ANY STARWOOD ASSET; (C) THE ABSENCE OF DEFENSES OR FREEDOM FROM COUNTERCLAIMS WITH RESPECT TO ANY CLAIM TO BE TRANSFERRED TO OR ASSUMED BY STARWOOD OR HELD BY A MEMBER OF THE STARWOOD GROUP; OR (D) ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE OR TITLE.  EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN THE MERGER AGREEMENT OR ANY ANCILLARY AGREEMENT, STARWOOD (ON BEHALF OF ITSELF AND MEMBERS OF THE STARWOOD GROUP) FURTHER ACKNOWLEDGES THAT ALL OTHER WARRANTIES THAT VISTANA OR ANY MEMBER OF THE VISTANA GROUP GAVE OR MIGHT HAVE GIVEN, OR WHICH MIGHT BE PROVIDED OR IMPLIED BY APPLICABLE LAW OR COMMERCIAL PRACTICE, ARE HEREBY EXPRESSLY EXCLUDED.  EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY PROVIDED IN THE MERGER AGREEMENT OR ANY ANCILLARY AGREEMENT, ALL ASSETS, BUSINESSES AND LIABILITIES TO

 

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BE TRANSFERRED TO OR ASSUMED BY STARWOOD SHALL BE TRANSFERRED WITHOUT ANY COVENANT, REPRESENTATION OR WARRANTY (WHETHER EXPRESS OR IMPLIED), AND ALL OF THE ASSETS, BUSINESSES AND LIABILITIES HELD BY THE STARWOOD ENTITIES ARE HELD, “AS IS, WHERE IS,” AND, FROM AND AFTER THE EFFECTIVE TIME, STARWOOD SHALL BEAR THE ECONOMIC AND LEGAL RISK THAT ANY SUCH TRANSFER OR ASSUMPTION SHALL PROVE TO BE INSUFFICIENT TO VEST IN STARWOOD GOOD AND MARKETABLE TITLE, FREE AND CLEAR OF ANY LIEN OR ANY NECESSARY CONSENTS THAT ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS ARE NOT COMPLIED WITH (BUT SUBJECT TO COMPLIANCE BY VISTANA WITH ITS OBLIGATIONS IN SECTIONS 2.1 AND 2.2), AND NONE OF THE VISTANA ENTITIES OR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO ANY INFORMATION, DOCUMENTS OR MATERIAL MADE AVAILABLE IN CONNECTION WITH THE DISTRIBUTION, OR EXECUTION, DELIVERY OR FILING OF THIS AGREEMENT, THE MERGER AGREEMENT OR ANY ANCILLARY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

ARTICLE III
CLOSING OF THE INTERNAL REORGANIZATION

 

Section 3.1                                    Business Transfer Time.  Unless otherwise provided in this Agreement or in any Ancillary Agreement, and subject to the satisfaction or waiver of the conditions set forth in Article IV (other than those conditions that by their terms are to be satisfied at the Business Transfer Time, but subject to the satisfaction or waiver of such conditions), the effective time and date of each transfer or assumption (as applicable) of any Vistana Asset, Starwood Transferred Asset, Vistana Assumed Liability or Starwood Assumed Liability in accordance with Article II in connection with the Internal Reorganization and in accordance with Section 6.10 in connection with the Asset Purchase shall be 11:58:00 p.m., Eastern Time on the Distribution Date (such time, the “Business Transfer Time”).

 

Section 3.2                                    Recapitalization of Vistana.  At the Business Transfer Time, Vistana shall:

 

(a)                                 issue to Starwood shares of Vistana Common Stock as set forth in Section 7.14 of the Merger Agreement, which Vistana Common Stock, together with the 100 shares of Vistana Common Stock owned by Starwood as of the Execution Date, shall constitute all of the issued and outstanding common stock of Vistana as of the Business Transfer Time; and

 

(b)                                 assume those Vistana Assumed Liabilities to be assumed by Vistana in accordance with Section 2.1.

 

Section 3.3                                    Business Transfer Time Deliveries.

 

(a)                                 At the Business Transfer Time, Starwood shall deliver, or shall cause its applicable Subsidiaries to deliver, to Vistana the following:

 

(i)                                     in each case where any member of the Starwood Group is a party to any Ancillary Agreement to be entered into at the Business Transfer Time, a counterpart of

 

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such Ancillary Agreement duly executed by the member of the Starwood Group party thereto; and

 

(ii)                                  resignations of each individual who serves as an officer or director of members of the Vistana Group in his or her capacity as such and the resignation of any other Person who will be an employee of any member of the Starwood Group after the Business Transfer Time and who is a director or officer of any member of the Vistana Group, to the extent requested by Vistana at least five (5) Business Days prior to the Distribution Date.

 

(b)                                 At the Business Transfer Time, Vistana shall deliver, or shall cause its Subsidiaries to deliver, as appropriate, to Starwood the following:

 

(i)                                     in each case where any member of the Vistana Group is a party to any Ancillary Agreement to be entered into at the Business Transfer Time, a counterpart of such Ancillary Agreement duly executed by the member of the Vistana Group party thereto; and

 

(ii)                                  resignations of each individual who serves as an officer or director of members of the Starwood Group in his or her capacity as such and the resignations of any other Persons that will be an employee of any member of the Vistana Group after the Business Transfer Time and who is a director or officer of any member of the Starwood Group, to the extent requested by Starwood at least five (5) Business Days prior to the Distribution Date.

 

Section 3.4                                    Financial Information Adjustments.

 

(a)                                 Target Financial Information.  Starwood hereby agrees that the amounts reflected in Annex A are reasonable and good faith estimates of the projected Capital Spend of Starwood and its Affiliates (including the Vistana Entities) with respect to the Vistana Business on a monthly basis during the twelve (12) month period reflected therein and that the amounts in Annex B are reasonable and good faith estimates of the projected Cash Flow for the period between April 1, 2016 and October 31, 2016.

 

(b)                                 Estimated Financial Statements.  Not less than ten (10) Business Days prior to the anticipated Distribution Date, Starwood shall deliver to ILG (i) a statement detailing the estimated Pre-3-31 Capital Spend (the “Estimated Pre-3-31 Capital Spend Statement”), (ii) if the Distribution Date is anticipated to occur after March 31, 2016, a statement detailing the estimated Surplus (the “Estimated Surplus”) or estimated Deficit (the “Estimated Deficit”), as applicable, and the Estimated Cash Accounts Balance (the “Estimated Post-3-31 Adjustment Statement”) and (iii) a statement detailing (x) the Maximum Purchased Note Purchase Price and (y) the estimated fair market value of each of the Purchased Entities (each, an “Estimated Entity FMV,” and collectively, the “Estimated Entity FMVs”) as of the Distribution Date (the “Estimated Valuation Statement,” and together with the Estimated Pre-3-31 Capital Spend Statement and Estimated Post-3-31 Adjustment Statement, subject to modification as contemplated below, the “Estimated Financial Statements” and each an “Estimated Financial Statement”), which Purchased Entities proposed to be sold to ILG Subsidiary Buyer pursuant to

 

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and in accordance with Section 6.10(c) will be identified based on the amounts set forth in the Estimated Financial Statements, in the case of each of clauses (i) - (iii), calculated on a reasonable basis and in good faith.  The Estimated Pre-3-31 Capital Spend Statement and Estimated Post-3-31 Adjustment Statement shall be prepared, with respect to the estimated Pre-3-31 Capital Spend and the Estimated Surplus or Estimated Deficit, as applicable, in a manner consistent with Annex A and Annex B, respectively, and using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of Annex A and Annex B, in each case, as described therein.  The Estimated Valuation Statement shall be prepared, with respect to the Maximum Purchased Note Purchase Price, in a manner consistent with the definition of “Maximum Purchased Note Purchase Price” set forth herein, and with respect to each Estimated Entity FMV, based on the fair market value of the applicable Purchased Entity set forth in the Initial Valuation Report, as may be modified in the Estimated Valuation Statement to reflect solely the adjustments to the line items on Annex C (other than line items on Annex C identified as not subject to adjustment) from February 1, 2016 through the Distribution Date using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of Annex C.  If ILG disputes any of the amounts set forth in the Estimated Financial Statements delivered to ILG (which disputes shall not apply to the Estimated Cash Accounts Balance and, to the extent relating to amounts set forth in the Estimated Valuation Statement, for the avoidance of doubt, shall not apply to amounts with respect to line items on Annex C identified as not subject to adjustment or the accounting methods, practices, principles, policies or procedures, classifications, judgments or valuation and estimation methodologies that were used in the preparation of Annex C, but shall only apply to amounts with respect to line items on Annex C that are subject to adjustment), it shall deliver to Starwood within five (5) Business Days of its receipt thereof a statement describing in reasonable detail its dispute, and Starwood and ILG shall use their respective good faith efforts to resolve any dispute regarding such Estimated Financial Statement(s) at least two (2) Business Days prior to the Distribution Date.  If Starwood and ILG agree to modification of any disputed Estimated Financial Statement(s) at least two (2) Business Days prior to the Distribution Date, then such modified Estimated Financial Statement(s) shall be utilized for purposes of determining the Distribution Date Payment and the assets to be sold and payments to be made pursuant to and in accordance with Section 6.10(c).  If Starwood and ILG are unable to agree to modifications at least two (2) Business Days prior to the Distribution Date with respect to any disputed Estimated Financial Statement(s), then such disputed Estimated Financial Statement(s) as originally delivered to ILG by Starwood shall be utilized for purposes of determining the Distribution Date Payment and the assets to be sold and payments to be made pursuant to and in accordance with Section 6.10(c).

 

(c)                                  Financial Information Statements.  No later than ninety (90) calendar days after the Distribution Date:

 

(i)                                     Vistana shall cause to be prepared and delivered to Starwood (A) a statement that sets forth Vistana’s calculation of the Pre-3-31 Capital Spend (the “Distribution Date Pre-3-31 Capital Spend Statement”) and (B) only if the Distribution Date occurs after March 31, 2016, a statement that sets forth Vistana’s calculation of the Surplus or Deficit, as applicable, and the Cash Accounts Balance (the “Distribution Date Post-3-31 Adjustment

 

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Statement, and together with the Distribution Date Pre-3-31 Capital Spend Statement, the “Financial Information Statements” and each, a “Financial Information Statement”), in each case, calculated on a reasonable basis and in good faith; provided, however, that, for the avoidance of doubt, Vistana shall not be restricted in making in its calculations set forth in the Financial Information Statements based on any matters to which it may have objected prior to the Distribution Date as contemplated in Section 3.4(b).  The Distribution Date Pre-3-31 Capital Spend Statement and any Distribution Date Post-3-31 Adjustment Statement shall each be prepared, with respect to the Pre-3-31 Capital Spend and the Surplus or Deficit, as applicable, in a manner consistent with Annex A and Annex B, respectively, and using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of Annex A and Annex B, in each case, as described therein; and

 

(ii)                                  Starwood shall instruct KPMG to prepare and deliver to Vistana an updated valuation report, together with supporting work papers and schedules, setting forth the fair market values of each of the Purchased Entities (each, a “Distribution Date Entity FMV,” and collectively, the “Distribution Date Entity FMVs”) that has been acquired pursuant to Section 6.10(c), prepared in a manner consistent with Annex C, and using the same accounting methods, practices, principles, policies and procedures, with consistent classifications, judgments and valuation and estimation methodologies that were used in the preparation of the Estimated Valuation Statement and Annex C, including, for the avoidance of doubt, not adjusting those line items on Annex C identified as not subject to adjustment, as described therein (the “Distribution Date Valuation Statement”).

 

(d)                                 Acceptance of Statements; Dispute Procedures.  The Maximum Purchased Note Purchase Price included in the Estimated Valuation Statement pursuant to Section 3.4(b) shall be conclusive and binding upon the parties.  Each of the Financial Information Statements (and the computations indicated thereon) delivered to Starwood by Vistana shall be conclusive and binding upon the parties unless Starwood, within thirty (30) days after delivery to Starwood of such Financial Information Statement, notifies Vistana in writing that Starwood disputes any of the amounts set forth therein, specifying the nature of the dispute and the basis therefor. During the thirty (30)-day period following receipt by Starwood of the Financial Information Statements, Vistana shall, promptly following a request of Starwood, provide Starwood with copies of all documents, work papers, schedules, memoranda, and records used by or prepared by Vistana or its Representatives in preparing the Financial Information Statements, and Vistana shall, and shall cause its Representatives to, cooperate reasonably with Starwood in connection herewith. The Distribution Date Valuation Statement (and any computations indicated thereon) delivered to Vistana by KPMG shall be conclusive and binding upon the parties unless Vistana, within thirty (30) days after delivery to Vistana of such Distribution Date Valuation Statement, notifies Starwood in writing that Vistana disputes any of the amounts set forth therein (which disputes, to the extent relating to amounts set forth in the Distribution Date Valuation Statement, for the avoidance of doubt, shall not apply to amounts with respect to line items on Annex C identified as not subject to adjustment or the accounting methods, practices, principles, policies or procedures, classifications, judgments or valuation and estimation methodologies that were used in the preparation of Annex C, but shall only apply to amounts with respect to line items on Annex C that are subject to adjustment), specifying the nature of the dispute and the basis therefor.  During the thirty (30)-day period

 

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following receipt by Vistana of the Distribution Date Valuation Statement, Starwood shall, promptly following a request of Vistana, provide Vistana with, or cause KPMG to provide Vistana with, copies of all documents, work papers, schedules, memoranda, and records used by or prepared by KPMG or its Representatives in preparing the Distribution Date Valuation Statement, and Starwood shall, and shall instruct KPMG and its Representatives to, cooperate reasonably with Vistana in connection therewith. The Parties shall in good faith attempt to resolve any dispute and, if the Parties so resolve all disputes, then the Financial Information Statements (and the computations indicated thereon) and the Distribution Date Valuation Statement (and any computations indicated thereon), as applicable and, in each case, as amended to the extent necessary to reflect the resolution of any disputes, shall be conclusive and binding on the Parties.  If the Parties do not reach agreement in resolving all disputes with respect to the Financial Information Statements within forty-five (45) days after notice is given to Vistana by Starwood pursuant to the second sentence of this Section 3.4(d) or if the Parties do not reach agreement in resolving all disputes with respect to the Distribution Date Valuation Statement within forty-five (45) days after notice is given to Starwood by Vistana pursuant to the fourth sentence of this Section 3.4(d), the Parties shall submit the applicable dispute(s) to BDO USA, LP or another mutually satisfactory nationally recognized independent accounting firm (the “Arbiter”) for resolution. Promptly, but no later than thirty (30) days after acceptance by the Arbiter with respect to any such dispute, the Arbiter shall determine (it being understood that in making such determination, the Arbiter shall be functioning as an expert and not as an arbitrator), based solely on written submissions by Vistana and Starwood (which, for the avoidance of doubt, may include submissions by KPMG), and not by independent review, only those issues in dispute (which, for the avoidance of doubt, shall not include any amounts with respect to line items on Annex C identified as not subject to adjustment or the accounting methods, practices, principles, policies or procedures, classifications, judgments or valuation and estimation methodologies that were used in the preparation of Annex C, but shall only include amounts with respect to line items on Annex C that are subject to adjustment), and shall render a written report as to the resolution of the dispute and the resulting computation of the Financial Information Statements and/or Distribution Date Valuation Statement, as applicable, which shall be conclusive and binding on the Parties. In resolving any disputed item, the Arbiter (x) shall be bound by the provisions of this Section 3.4(d) and (y) may not assign a value to any item greater than the greatest value for such items claimed by either party or less than the smallest value for such items claimed by either party. The fees, costs and expenses of the Arbiter shall be allocated to and borne by Vistana and Starwood based on the inverse of the percentage that the Arbiter’s determination (before such allocation) bears to the total amount of the total items in dispute as originally submitted to the Arbiter.  For example, should the items in dispute total in amount to $1,000 and the Arbiter awards $600 in favor of Starwood’s position, 60% of the costs of its review would be borne by Vistana and 40% of the costs would be borne by Starwood.

 

(e)                                  Post-Distribution Date Financial Information Adjustment Payment.

 

(i)                                     Upon final determination of the Pre-3-31 Capital Spend (the “Distribution Date Pre-3-31 Capital Spend”) and, if the Distribution Date occurs after March 31, 2016, the Surplus (the “Distribution Date Surplus”) or Deficit (the “Distribution Date Deficit”), as applicable, and the Cash Accounts Balance (the “Distribution Date Cash Accounts Balance”), as provided in Section 3.4(d) above, (A) (x) if the Distribution Date Pre-3-31 Capital

 

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Spend is greater than the Estimated Pre-3-31 Capital Spend, Vistana shall pay the amount of such excess to Starwood, and (y) if the Estimated Pre-3-31 Capital Spend is greater than the Distribution Date Pre-3-31 Capital Spend, Starwood shall pay to Vistana the amount of such excess, (B) (x) if the Distribution Date Surplus is greater than the Estimated Surplus, then Starwood shall pay the amount of such excess to Vistana and (y) if the Estimated Surplus is greater than the Distribution Date Surplus, then Vistana shall pay the amount of such excess to Starwood and if the Distribution Date Surplus becomes a Distribution Date Deficit, then Vistana shall pay the Distribution Date Deficit plus the amount of the Estimated Surplus it previously received from Starwood to Starwood, (C) (x) if the Distribution Date Deficit is greater than the Estimated Deficit, then Vistana shall pay the amount of such excess to Starwood and (y) if the Estimated Deficit is greater than the Distribution Date Deficit, then Starwood shall pay the amount of such excess to Vistana, and if the Distribution Date Deficit becomes a Distribution Date Surplus, then Starwood shall pay the Distribution Date Surplus plus the amount of the Estimated Deficit it previously received from Vistana to Vistana and (D) (x) if the Distribution Date Cash Accounts Balance is greater than the Estimated Cash Accounts Balance, then Vistana shall pay the amount of such excess to Starwood and (y) if the Estimated Cash Accounts Balance is greater than the Distribution Date Cash Accounts Balance, then Starwood shall pay the amount of such excess to Vistana.  Notwithstanding whether it owes any other payments under this Section 3.4(e)(i), (1) Starwood shall pay to Vistana an amount equal to the amount that ILG Subsidiary Buyer is required to pay pursuant to Section 3.4(e)(ii)(A), if any, and (2) Vistana shall pay to Starwood an amount equal to the aggregate amount that SMSC and SHKH are required to pay pursuant to Section 3.4(e)(ii)(B), if any.

 

(ii)                                  Upon the final determination of the Distribution Date Entity FMVs as provided in Section 3.4(d) above, (A) if the Distribution Date Entity FMV with respect to any Purchased Entity is greater than the Estimated Entity FMV with respect to such Purchased Entity, then ILG Subsidiary Buyer shall pay the amount of such excess to SMSC or SHKH, as applicable, and (B) if the Estimated Entity FMV with respect to any Purchased Entity is greater than the Distribution Date Entity FMV with respect to such Purchased Entity, then SMSC or SHKH, as applicable, shall pay the amount of such excess to ILG Subsidiary Buyer.

 

(iii)                               Each Person required to make any payment under this Section 3.4(e) shall make such payment promptly, but no later than two (2) Business Days after the date of final determination of the Pre-3-31 Distribution Date Capital Spend, Distribution Date Surplus or Distribution Date Deficit, as applicable, and the Distribution Date Cash Accounts Balance; provided, that each of Vistana and Starwood shall be entitled, at its election, to set-off any of the amounts payable by it under this Section 3.4(e) against other amounts owed to it under this Section 3.4(e) and pay to the other Party the amount of all sums due and owing following such set-off.  For the avoidance of doubt, the set-off right in this Section 3.4(e)(iii), including any adjustments made to the amounts owing by Vistana or Starwood to such other Party pursuant to the last sentence of Section 3.4(e)(i), is limited to amounts owing between Vistana and Starwood, and neither Vistana nor Starwood shall be entitled to include amounts payable by its Subsidiaries or other Affiliates in calculating sums due to or owing by it.

 

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ARTICLE IV
THE DISTRIBUTION

 

Section 4.1                                    Form of Distribution.  (a) Starwood may elect, in its sole discretion, to effect the Distribution in the form of either (i) a One-Step Spin-Off or (ii) an Exchange Offer (including any Clean-Up Spin-Off, as set forth below).

 

(b)                                 If Starwood elects to effect the Distribution in the form of a One-Step Spin-Off, then the Starwood Board, in accordance with applicable Law, shall establish (or designate Persons to establish) a Record Date and the Distribution Date and Starwood shall establish appropriate procedures in connection with, and to effectuate in accordance with applicable Law, the Distribution.  All shares of Vistana Common Stock held by Starwood on the Distribution Date shall be distributed to the Record Holders in the manner determined by Starwood and in accordance with Section 4.5(b).

 

(c)                                  If Starwood elects to effect the Distribution as an Exchange Offer, Starwood shall determine the terms of such Exchange Offer, including the number of shares of Vistana Common Stock that will be offered for each validly tendered share of Starwood Common Stock, the period during which such Exchange Offer shall remain open, the procedures for the tender and exchange of shares and all other terms and conditions of such Exchange Offer, which terms and conditions shall comply with all securities Law requirements applicable to such Exchange Offer.  In the event that Starwood’s stockholders subscribe for less than all of the Vistana Common Stock in the Exchange Offer, Starwood shall consummate the Clean-Up Spin-Off on the Distribution Date immediately following the consummation of the Exchange Offer and the Record Date for the Clean-Up Spin-Off shall be established as of such date in the same manner as provided in Section 4.1(b).  The terms and conditions of any Clean-Up Spin-Off shall be as determined by Starwood and shall comply with the requirements of all applicable Laws; provided, however, that any shares of Vistana Common Stock that are not subscribed for in the Exchange Offer shall be distributed to Record Holders in the Clean-Up Spin-Off.

 

Section 4.2                                    Manner of Distribution.  (a) To the extent the Distribution is effected as a One-Step Spin-Off, subject to the terms thereof, in accordance with Section 4.5(b), each Record Holder shall be entitled to receive for each share of Starwood Common Stock or Partnership Unit, as applicable, held by such Record Holder a number of shares of Vistana Common Stock equal to the total number of shares of Vistana Common Stock held by Starwood on the Distribution Date, multiplied by a fraction, the numerator of which is the number of shares of Starwood Common Stock or Partnership Units, as applicable, held by such Record Holder and the denominator of which is the total number of shares of Starwood Common Stock and Partnership Units held by all Record Holders outstanding on the Distribution Date. For the avoidance of doubt, holders of unvested restricted shares granted under the Starwood Stock Plans will not receive any shares of Vistana Common Stock with respect to such Starwood unvested restricted shares.

 

(b)                                 To the extent the Distribution is effected as an Exchange Offer, subject to the terms thereof, in accordance with Section 4.5(b), each Starwood stockholder may elect in the Exchange Offer to exchange a number of shares of Starwood Common Stock (other than unvested restricted shares granted under a Starwood Stock Plan) held by such Starwood

 

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stockholder for shares of Vistana Common Stock. Subject to applicable securities Laws, Starwood shall determine, in its sole discretion, the terms and conditions of the Exchange Offer, including the exchange ratio (including any discount to the reference price of common stock of Vistana), the timing of the offer period and any extensions thereto, and other customary provisions, each as will be set forth in the Vistana Registration Statement.  The terms and conditions of any Clean-Up Spin-Off will be as determined by Starwood, subject to the provisions of Section 4.2(a), mutatis mutandis.

 

(c)                                  None of the Parties, nor any of their Affiliates hereto shall be liable to any Person in respect of any shares of Vistana Common Stock (or dividends or distributions with respect thereto) that are properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

 

Section 4.3                                    Actions Prior to Distribution.

 

(a)                                 Vistana shall cooperate with Starwood to accomplish the Distribution, including in connection with the preparation of all documents and the making of all filings required in connection with the Distribution.  Starwood shall be permitted to reasonably direct and control the efforts of the Parties in connection with the Distribution (including the selection of an investment bank or manager in connection with the Distribution, as well as any financial printer, solicitation and/or exchange agent and financial, legal, accounting and other advisors for Starwood), and Vistana shall use reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all other things reasonably necessary to facilitate the Distribution as reasonably directed by Starwood in good faith and in accordance with the applicable terms and subject to the conditions of this Agreement, the Merger Agreement and all Ancillary Agreements.  Without limiting the generality of the foregoing, Vistana shall and shall cause its Representatives to, as reasonably directed by Starwood in good faith, reasonably cooperate in and take the following actions: (i) preparing and filing the registration under the Securities Act or the Exchange Act of Vistana Common Stock on an appropriate registration form or forms to be designated by Starwood (including any amendment or supplement thereto, the “Vistana Registration Statement”), (ii) participating in meetings, drafting sessions, due diligence sessions, management presentation sessions, and “road shows” in connection with the Distribution (including any marketing efforts), which participation shall be subject to, and may be concurrent with, any such activities required with respect to the Exchange Offer, (iii) furnishing to any dealer manager or other similar agent participating in the Distribution (A) “cold comfort” letters from independent public accountants in customary form and covering such matters as are customary for an underwritten public offering (including with respect to events subsequent to the date of financial statements included in any offering document) and (B) opinions and negative assurance letters of counsel in customary form and covering such matters as may be reasonably requested, and (iv) furnishing all historical and forward-looking financial and other pertinent financial and other information that is available to Vistana and is reasonably required in connection with the Distribution.

 

(b)                                 Starwood and Vistana shall prepare and mail, prior to the Distribution Date, to the Record Holders, such information concerning Vistana, ILG, their respective businesses, operations and management, the Distribution and such other matters as Starwood shall reasonably determine and as may be required by Law.  Starwood and Vistana shall prepare, and

 

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Vistana shall, to the extent required under applicable Law, file with the SEC any such documentation and any requisite no action letters which Starwood determines is necessary or desirable to effectuate the Distribution and Starwood and Vistana shall each use its reasonable best efforts to obtain all necessary approvals from the SEC with respect thereto as soon as practicable.

 

(c)                                  Notwithstanding anything to the contrary in Section 4.3(a) or Section 4.3(b), to the extent any mailing or filing contemplated by this Section 4.3 contains information concerning ILG, the Vistana Entities or any of their respective businesses, operations or management, ILG shall be provided with copies of, and given an opportunity to review and comment on, such documentation before it is mailed or filed, and no such documentation shall be so mailed or filed without ILG’s express approval (not to be unreasonably withheld, conditioned or delayed).

 

(d)                                 Starwood and Vistana shall take all such action as may be necessary or appropriate under the securities or “blue sky” Laws of the United States (and any comparable Laws under any foreign jurisdiction) in connection with the Distribution.

 

(e)                                  From the date of this Agreement up to and including the Distribution Date, Starwood shall, with respect to the Vistana Entities, and shall cause each of the Vistana Entities, to operate substantially in accordance with Annex A, including by effecting the material investments and capital expenditures substantially in accordance with Annex A, in each case, in the manner as would be conducted by a prudent owner and operator of a business of this kind.  In furtherance thereof, except as contemplated by this Agreement (including the Internal Reorganization and the Asset Purchase), as disclosed in Section 7.02(a) of the Vistana Disclosure Schedule, as consented to by ILG in writing (which consent shall not be unreasonably withheld, conditioned, delayed or denied), or as required by Law, Starwood shall, with respect to the Vistana Entities, and shall cause each of the Vistana Entities, to:

 

(i)                                     manage and operate its management accounts in good faith, in the ordinary course of business consistent with past practice; provided, that each of Starwood and Vistana shall take such actions as may be necessary to ensure that, as of the Distribution on the Distribution Date, each of the Vistana Entities set forth on Annex D holds an amount of cash equal to the amount set forth opposite such Vistana Entity’s name on Annex D (all such amounts in the aggregate the “Estimated Cash Accounts Balance”), plus or minus ten percent (10%) of each such amount, and plus the amount of the Mexican Distributions (denominated in Mexican Pesos);

 

(ii)                                  not repurchase, repay, refinance or incur any indebtedness for borrowed money, other than indebtedness incurred in order to distribute to Starwood the amount, if any, by which the Distribution Date Payment exceeds the Asset Purchase Price, issue any debt securities, engage in any securitization transactions or similar arrangements or assume, guarantee or endorse, or otherwise as an accommodation become responsible for (whether directly, contingently or otherwise), the obligations of any Person (other than a Vistana Entity) for borrowed money;

 

(iii)                               with respect to the treatment of all trade creditors and related accounts of the Vistana Group, operate in good faith and in accordance with payment and

 

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accounting practices that are in the ordinary course of business consistent with past practice, including by not delaying the payment of liabilities owed to such creditors that are not in the ordinary course of business consistent with past practice; and

 

(iv)                              with respect to the treatment of all trade debtors and related accounts of the Vistana Group, operate in good faith and in accordance with invoicing and collections practices that are in the ordinary course of business consistent with past practice, including by not accelerating any payments to such debtors in advance of the due date of such payment that is owed in a manner not in the ordinary course of business consistent with past practice.

 

For the avoidance of doubt, in no event shall the covenants and agreements of Starwood or its Affiliates (including the Vistana Entities) hereunder be construed as a representation, warranty, covenant or other agreement that any particular results of operations, financial condition or performance of the Vistana Business have occurred or will occur.

 

Section 4.4                                    Conditions to the Distribution.  The obligations of Starwood pursuant to this Agreement to effect the Distribution shall be subject to the fulfillment or waiver by Starwood (other than with respect to Section 4.4(b), and Section 4.4(d) and Section 4.4(f) with respect to the obligations of Starwood and Vistana, each of which can be waived solely by ILG) on or prior to the Distribution Date of the following conditions:

 

(a)                                 ILG shall have paid on behalf of ILG Subsidiary Buyer, or caused ILG Subsidiary Buyer to pay, the Asset Purchase Price;

 

(b)                                 ILG Subsidiary Buyer shall have received all of the right, title and interest in, to and under the assets purchased in exchange for the Asset Purchase Price;

 

(c)                                  Vistana shall have made a distribution (all or a portion of which, for the avoidance of doubt, may be made using funds borrowed by Vistana from ILG, subject to any such representations, covenants, terms and conditions as may be reasonably and mutually agreed upon by the Parties), if applicable pursuant to Section 6.10, in an amount equal to the Distribution Date Payment less the Maximum Asset Purchase Price;

 

(d)                                 Each of ILG, Starwood and Vistana shall have complied (or shall have caused its applicable Subsidiaries to comply) in all material respects with its respective obligations under Section 6.10 (other than the obligations described in Section 4.4(a) and Section 4.4(b));

 

(e)                                  Starwood and Vistana shall have prepared and mailed to the Record Holders such information concerning Vistana, its business, operations and management, the Distribution and such other matters as Starwood shall determine and as may otherwise be required by Law; provided, that to the extent any mailing contemplated by this Section 4.4(e) contains information concerning ILG, the Vistana Entities or any of their respective businesses, operations or management, ILG shall be provided with copies of, and given an opportunity to review and comment on, such documentation before it is mailed, and no such documentation shall be so mailed without ILG’s express approval (not to be unreasonably withheld, conditioned or delayed); and

 

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(f)                                   each of the parties to the Merger Agreement shall have irrevocably confirmed to each other that each condition to such party’s respective obligations to effect the Merger in Article VIII of the Merger Agreement has been satisfied or waived (other than the consummation of the Distribution and the conditions that by their terms are to be satisfied at the Effective Time, but subject to the satisfaction or waiver of such conditions) and the Merger will be consummated immediately following the Distribution on the Distribution Date; provided, that, notwithstanding anything set forth in this Article IV to the contrary, the Parties agree that the Distribution Date shall occur on the same date as the Closing Date, as determined in accordance with the applicable terms and conditions of the Merger Agreement.

 

Section 4.5                                    Additional Matters.

 

(a)                                 Tax Withholding.  Starwood, Vistana, or the transfer agent or the exchange agent in the Distribution, as applicable, shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement such amounts as are required to be deducted and withheld with respect to the making of such payments under the Code or any provision of local or foreign Tax Law.  Any withheld amounts shall be treated for all purposes of this Agreement as having been paid to the Persons otherwise entitled thereto.

 

(b)                                 Delivery of Certificate.  Prior to the consummation of the One-Step Spin-Off or the Exchange Offer, Starwood shall deliver to the Agent, a global certificate representing the Vistana Common Stock being distributed in the One-Step Spin-Off or exchanged in the Exchange Offer, as the case may be, to be held in escrow for the account of the Starwood stockholders and Partnership Unitholders that are entitled thereto and pending the effective time of the One-Step Spin-Off or the Exchange Offer, as the case may be.  Upon a Clean-Up Spin-Off, if any, Starwood shall deliver to the Agent an additional global certificate representing the Vistana Common Stock being distributed in the Clean-Up Spin-Off, to be held in escrow for the account of the Starwood stockholders and Partnership Unitholders that are entitled thereto pending the effective time of the Clean-Up Spin-Off.  Upon and following the consummation of the One-Step Spin-Off or the Exchange Offer and the Clean-Up Spin-Off, as applicable, the Agent shall further hold such certificate or certificates, as the case may be, in escrow for the account of such Starwood stockholders and Partnership Unitholders pending the Merger.  Such certificate or certificates, as the case may be, shall be cancelled effective upon the consummation of the Merger.  Immediately after the time of the Distribution and prior to the Effective Time, the shares of Vistana Common Stock shall not be transferable and the Agent shall not transfer any shares of Vistana Common Stock.  The Distribution shall be effective upon the date and time set forth in a written certificate signed by an officer of each of Starwood and ILG (which time shall be after the Business Transfer Time and prior to the Effective Time) to be delivered to the Agent prior to the effective time of the Distribution.

 

ARTICLE V
MUTUAL RELEASES; INDEMNIFICATION

 

Section 5.1                                    Release of Pre-Business Transfer Time Claims.

 

(a)                                 Mutual Release.  Except as provided in Section 5.1(c), effective as of the Business Transfer Time, Vistana does hereby, for itself and each wholly-owned Vistana Entity

 

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and their respective Affiliates, predecessors, successors and assigns, remise, release and forever discharge each Starwood Entity, their respective Affiliates, successors and assigns, and all Persons that at any time prior to the Business Transfer Time have been stockholders, members, partners, directors, managers, officers, agents or employees of Starwood or any such wholly-owned Starwood Entity (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns (collectively, the “Starwood Released Persons”), from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from or relating to 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 Business Transfer Time, whether or not known as of the Business Transfer Time, including in connection with the transactions and all other activities to implement the Internal Reorganization, the Asset Purchase and the Distribution.  Without limitation, the foregoing release includes a release of any rights and benefits with respect to such Liabilities that each Vistana Entity and its respective Affiliates, predecessors, successors and assigns, now has or in the future may have conferred upon them by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party’s settlement with the obligor.  In this connection, Vistana hereby acknowledges that it is aware that factual matters now unknown to it may have given or may hereafter give rise to Liabilities that are presently unknown, unanticipated and unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and it nevertheless hereby intends to release the Starwood Released Persons from the Liabilities described in the first sentence of this Section 5.1(a).

 

(b)                                 Starwood Release.  Except as provided in Section 5.1(c), effective as of the Business Transfer Time, Starwood does hereby, for itself and each wholly-owned Starwood Entity and their respective Affiliates, predecessors, successors and assigns, remise, release and forever discharge each Vistana Entity, their respective Affiliates, successors and assigns, and all Persons that at any time prior to the Business Transfer Time have been stockholders, members, partners, directors, managers, officers, agents or employees of Vistana or any such Vistana Entity (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns (collectively, the “Vistana Released Persons”), from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from or relating to 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 Business Transfer Time, whether or not known as of the Business Transfer Time, including in connection with the transactions and all other activities to implement the Internal Reorganization, the Asset Purchase and the Distribution.  Without limitation, the foregoing release includes a release of any rights and benefits with respect to such Liabilities that each Starwood Entity and its respective Affiliates, predecessors, successors and assigns, now has or in the future may have conferred upon them by virtue of any statute or common law principle which provides that a general release does not extend to claims which a party does not know or suspect to exist in its favor at the time of executing the release, if knowledge of such claims would have materially affected such party’s settlement with the obligor.  In this connection,

 

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Starwood hereby acknowledges that it is aware that factual matters now unknown to it may have given or may hereafter give rise to Liabilities that are presently unknown, unanticipated and unsuspected, and it further agrees that this release has been negotiated and agreed upon in light of that awareness and it nevertheless hereby intends to release the Vistana Released Persons from the Liabilities described in the first sentence of this Section 5.1(b).

 

(c)                                  No Impairment.  Nothing contained in Section 5.1(a) or 5.1(b) releases or shall release any Person from (nor impairs or will impair any right of any Person to enforce the applicable agreements, arrangements, commitments or understandings relating thereto) the obligations under this Agreement, the Merger Agreement or any Ancillary Agreement, in each case in accordance with its terms.  In addition, nothing in Section 5.1(a) or 5.1(b) shall release any Person from:

 

(i)                                     any Liability provided in or resulting from any agreement or obligation among any members of the Starwood Group, on the one hand, and any members of the Vistana Group, on the other hand, that survives the Effective Time, or any other Liability that survives the Effective Time, pursuant to the terms of this Agreement, the Merger Agreement or any Ancillary Agreement;

 

(ii)                                  any Liability assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with this Agreement, the Merger Agreement or any other Ancillary Agreement, or any other Liability of any member of any Group under this Agreement, the Merger Agreement or any other Ancillary Agreement;

 

(iii)                               any Liability that the Parties may have with respect to indemnification or contribution pursuant to this Agreement for claims brought against the Parties by third parties, and, if applicable, the appropriate provisions of the Ancillary Agreements;

 

(iv)                              any Liability for which either Party is entitled to, and actually receives, indemnification from a third party to the extent that assignment, release or discharge of such Liability pursuant to Section 5.1(a) or Section 5.1(b) would cause such third party indemnification obligations to be terminated;

 

(v)                                 any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 5.1; or

 

(vi)                              honoring its existing obligations to indemnify any Person who was a director, manager, officer or employee of such party on or prior to the Effective Time, to the extent that such director, manager, officer or employee becomes a named defendant in any Action with respect to which such director, manager, officer or employee was entitled to such indemnification pursuant to then-existing obligations; provided, however, that, to the extent applicable, Section 5.2 and Section 5.3 shall determine whether any Party shall be required to indemnify the other in respect of the underlying obligation giving rise to such Action.

 

(d)                                 No Actions as to Released Pre-Business Transfer Time Claims.  Following the Business Transfer Time, no Party hereto shall make or permit any other member of its Group to

 

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make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against any member of the Group of the other Party, or any other Person released pursuant to Section 5.1(a), with respect to any Liabilities released pursuant to Section 5.1(a), or any other Person released pursuant to Section 5.1(b), with respect to any Liabilities released pursuant to Section 5.1(b).

 

(e)                                  General Intent.  It is the intent of each of Starwood and Vistana, by virtue of the provisions of this Section 5.1, to provide 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 on or before the Business Transfer Time, between or among Vistana or any member of the Vistana Group, on the one hand, and Starwood or any member of the Starwood Group, on the other hand (including any Contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Business Transfer Time), except as expressly set forth in Section 5.1(c).  At any time, at the request of any other Party, each Party shall cause each member of its Group to execute and deliver releases reflecting the provisions hereof.

 

Section 5.2                                    Indemnification by the Vistana Group.  Without limiting or otherwise affecting the indemnity or limitations of liability provisions of the Ancillary Agreements, from and after the Business Transfer Time, Vistana, and each member of the Vistana Group shall, on a joint and several basis, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the Starwood Indemnitees from and against, and shall reimburse such Starwood Indemnitees with respect to, any and all Liabilities that result from, relate to or arise, whether prior to, at or following the Business Transfer Time, out of any of the following items (without duplication):

 

(a)                                 the Vistana Business, including any failure of Vistana or any other member of the Vistana Group or any other Person to pay, perform, fulfill, discharge and, to the extent applicable, comply with, promptly and in full, any Liability relating to, arising out of or resulting from the Vistana Business;

 

(b)                                 the Vistana Assets and Vistana Liabilities;

 

(c)                                  any breach by Vistana or any other member of the Vistana Group of any agreement or obligation to be performed by such Persons pursuant to this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein (which, including any limitation of liability contained therein, shall be controlling);

 

(d)                                 if Starwood elects to effect the Exchange Offer, any documents and information related to ILG expressly provided by ILG for inclusion in any documents and information delivered to the stockholders of Starwood and Partnership Unitholders in connection with the Exchange Offer or Clean-Up Spin-Off that otherwise would not have been delivered to such stockholders and Partnership Unitholders if Starwood had elected to effect the One-Step Spin-Off, and any Liabilities resulting therefrom; and

 

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(e)                                  the enforcement by the Starwood Indemnitees of their rights to be indemnified, defended and held harmless under this Section 5.2.

 

Section 5.3                                    Indemnification by Starwood.  Without limiting or otherwise affecting the indemnity or limitation of liability provisions of the Ancillary Agreements, from and after the Business Transfer Time, Starwood, and each member of the Starwood Group shall, on a joint and several basis, indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the Vistana Indemnitees from and against, and shall reimburse such Vistana Indemnitees with respect to, any and all Liabilities that result from, relate to or arise, whether prior to or following the Business Transfer Time, out of any of the following items (without duplication):

 

(a)                                 the Starwood Business, including any failure of Starwood or any other member of the Starwood Group or any other Person to pay, perform, fulfill, discharge and, to the extent applicable, comply with, promptly and in full any Liability relating to, arising out of or resulting from the Starwood Business;

 

(b)                                 the Starwood Assets and the Starwood Liabilities;

 

(c)                                  any breach by Starwood or any other member of the Starwood Group of any agreement or obligation to be performed by such Persons pursuant to this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein (which, including any limitations on liability contained therein, shall be controlling);

 

(d)                                 if Starwood elects to effect the Exchange Offer, any documents and information delivered to the stockholders of Starwood and Partnership Unitholders in connection with the Exchange Offer or Clean-Up Spin-Off that otherwise would not have been delivered to such stockholders and Partnership Unitholders if Starwood had elected to effect the One-Step Spin-Off, and any Liabilities resulting therefrom, except with respect to documents and information related to ILG expressly provided by ILG for inclusion therein or incorporated by reference therein; and

 

(e)                                  the enforcement by the Vistana Indemnitees of their rights to be indemnified, defended and held harmless under this Section 5.3.

 

Section 5.4                                    Indemnification Obligations Net of Insurance Proceeds and Other Amounts.

 

(a)                                 The Parties intend that any Liability subject to indemnification or reimbursement pursuant to this Agreement shall be net of (i) Insurance Proceeds that actually reduce the amount of the Liability for which indemnification is sought or (ii) other amounts recovered from any third party that actually reduce the amount of, or are paid to the applicable Indemnitee in respect of, such Liability (“Third-Party Proceeds”). Accordingly, the amount which any Party (the “Indemnitor”) is required to pay to any Person entitled to indemnification or reimbursement under Section 5.2 or Section 5.3 of this Agreement (the “Indemnitee”) shall be reduced by any Insurance Proceeds or Third-Party Proceeds theretofore actually recovered by or on behalf of the Indemnitee in reduction of the related Liability. If the Indemnitee receives a payment (an

 

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Indemnity Payment”) required by this Agreement from the Indemnitor in respect of any Liability and subsequently receives Insurance Proceeds or Third-Party Proceeds, then the Indemnitee shall promptly pay to the Indemnitor 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.  For the avoidance of doubt, in no event shall this Section 5.4(a) require any Party to seek insurance or other third-party proceeds.

 

(b)                                 An insurer that would otherwise be obligated to defend or make payment in response to any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to any benefit that it would not be entitled to receive in the absence of the indemnification provisions of this Agreement by virtue of the indemnification provisions hereof.

 

Section 5.5                                    Procedures for Defense, Settlement and Indemnification of Third-Party Claims.

 

(a)                                 If the Indemnitee receives notice or otherwise becomes aware that a Person (including any Governmental Authority) other than a Starwood Entity or a Vistana Entity has asserted any claim or commenced an Action for which the Indemnitee may be entitled to indemnification under this Agreement or any Ancillary Agreement (collectively, a “Third-Party Claim”), then the Indemnitee shall notify the Indemnitor in writing as promptly as practicable thereafter. Any such notice shall describe the Third-Party Claim in reasonable detail and include any relevant written correspondence from the third party regarding the Third-Party Claim. If the Indemnitee does not provide this notice of a Third-Party Claim, then the Indemnitor shall not be relieved of its indemnification obligations under this Article V, except to the extent that the Indemnitor is actually prejudiced as a result of such Indemnitee’s failure to give timely notice. The Indemnitee shall deliver copies of all documents it receives regarding the Third-Party Claim to the Indemnitor promptly (and in any event within five (5) Business Days) after the Indemnitee receives them.

 

(b)                                 With respect to any Third-Party Claim:

 

(i)                                     Unless the Parties otherwise agree and subject to the cooperation and consultation rights and obligations of the Parties described in Section 5.6, to the extent applicable, within thirty (30) days after the Indemnitor receives notice of a Third-Party Claim in accordance with Section 5.5(a), the Indemnitor shall have the right to assume the defense of the Third-Party Claim (and, unless the Indemnitor has specified any reservations or exceptions and subject to this Section 5.5(b), seek to settle or compromise such Third-Party Claim), at its expense and with its counsel; provided, however, that the defense of such Third-Party Claim by the Indemnitor (A) shall not, in the reasonable determination of the Indemnitee, affect the Indemnitee or any of its controlled Affiliates in a materially adverse manner (and, for the avoidance of doubt, any Third-Party Claim relating to or arising in connection with any criminal proceeding, Action, indictment, allocation or investigation against Starwood or its Affiliates shall be

 

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deemed materially adverse to Starwood, and any Third-Party Claim relating to or arising in connection with any criminal proceeding, Action, indictment, allocation or investigation against Vistana or its Affiliates shall be deemed materially adverse to Vistana), (B) shall with respect to a Third-Party Claim that solely seeks (and continues to seek) monetary damages and not equitable relief and (C) shall not, in the reasonable determination of the Indemnitee’s counsel, result in a conflict between the positions of the Indemnitor and Indemnitee in conducting such defense.  The Indemnitee may, at its expense, employ separate counsel and participate in (but not control) the defense, compromise, or settlement of the Third-Party Claim with respect to which the Indemnitor has assumed the defense. However, the Indemnitor shall pay the fees and expenses of counsel that the Indemnitee engages for any period during which the Indemnitor has not assumed (or is prohibited from assuming) the defense of the Third-Party Claim (other than for any period in which the Indemnitee did not notify the Indemnitee of the Third-Party Claim as required by Section 5.5(a)).

 

(ii)                                  No Indemnitor shall consent to entry of a judgment or settle a Third-Party Claim without the applicable Indemnitee’s consent, which consent shall not be unreasonably withheld or delayed. However, the Indemnitee shall consent to entry of a judgment or a settlement if it (A) does not include a finding or admission by the Indemnitee of a violation of Law or the rights of any Person, (B) involves only monetary relief which the Indemnitor has agreed to pay and could not reasonably be expected to have a material adverse impact (financial or nonfinancial) on the Indemnitee, or any of its Subsidiaries or Affiliates and (C) includes a full and unconditional release of the Indemnitee. The Indemnitee shall not be required to consent to entry of a judgment or a settlement if it would permit an injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against any Indemnitee.

 

(c)                                  No Indemnitee shall admit any Liability with respect to, or settle, compromise or discharge, a Third-Party Claim without the Indemnitor’ s prior written consent (which consent shall not be unreasonably withheld or delayed), unless the Indemnitee releases the Indemnitor of such Indemnitor’s indemnification obligations with respect to such Third-Party Claim.

 

Section 5.6                                    Additional Matters.

 

(a)                                 With respect to any Third-Party Claim for which any Vistana Entity, on the one hand, and any Starwood Entity, on the other hand, may have Liability under this Agreement or any of the Ancillary Agreements, the Parties agree to cooperate fully and maintain a joint defense (in a manner that shall preserve the attorney-client privilege, joint defense or other privilege with respect thereto) so as to seek to minimize such Liabilities and defense costs associated therewith. The Party that is not responsible for managing the defense of such Third-Party Claims shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may retain counsel to monitor or assist in the defense of such claims at its own cost.

 

(b)                                 In the event of an Action that involves solely matters that are indemnifiable and in which (i) the Indemnitor is not a named defendant or (ii) any Indemnitee is a named defendant along with the Indemnitor, if either the Indemnitee or the Indemnitor so requests, the

 

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Parties shall endeavor, in the case of clause (i), to substitute the Indemnitor for the named defendant and, in the case of clause (ii), cause the Indemnitee to be removed as a named defendant. If such substitution, addition or removal cannot be achieved for any reason or is not requested, the rights and obligations of the Parties regarding indemnification and the management of the defense of claims as set forth in this Article V shall not be affected.

 

Section 5.7                                    Contribution.

 

(a)                                 If the indemnification provided for under this Agreement is judicially determined to be unavailable, or insufficient to hold harmless the Indemnitee in respect of any indemnifiable Liability, then the Indemnitor, in lieu of indemnifying such Indemnitee, shall contribute to the amount paid or payable by the Indemnitee as a result of such Liabilities. The amount contributed by the Indemnitor shall be in such proportion as reflects the relative fault of the Indemnitor and the Indemnitee in connection with the actions or omissions resulting in the Liability and any other relevant equitable considerations.

 

(b)                                 The Parties agree that any method of allocation of contribution under this Section 5.7 shall take into account the equitable considerations referred to in Section 5.7(a). The amount paid or payable by the Indemnitee to which the Indemnitor shall contribute shall include any legal or other expenses reasonably incurred by the Indemnitee to investigate any claim or defend any Action. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

 

Section 5.8                                    Exclusive Remedy.

 

(a)                                 Each of ILG and Starwood is an established business entity that has been represented by experienced counsel in connection with the execution and delivery of this Agreement and the Ancillary Agreements, and intends and hereby agrees that this Article V sets forth the exclusive remedies and rights of the Parties following the Business Transfer Time in respect of the matters indemnified under this Article V, except that nothing contained in this Section 5.8 will impair any right of any Person (i) to specific performance under this Agreement, and (ii) to equitable relief as provided in Section 7.17 hereof.  In furtherance of the foregoing, each of the Parties hereto hereby waives, for itself and their respective Affiliates, predecessors, successors and assigns, to the fullest extent permitted under applicable Law, any and all rights, claims and causes of action it may have against the other Party and its Affiliates, successors and assigns in respect of the matters indemnified under this Article V, arising under or based upon any Law other than the right to seek indemnity pursuant to this Article V and the right to seek the relief described in clauses (i) and (ii) of the preceding sentence.

 

(b)                                 Notwithstanding anything to the contrary set forth herein, indemnification, limitations on remedies and limitations on liabilities with respect to (i) the Intercompany Agreements set forth Schedule 2.3(b)(v), (ii) the Ancillary Agreements and (iii) any agreements or arrangements entered into after the Business Transfer Time between any member of the Vistana Group or any of their respective Affiliates, on the one hand, and any member of the Starwood Group or any of their respective Affiliates, on the other hand, in each case, shall be governed by the terms of such agreements or arrangements and not by this Article V.

 

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Section 5.9                                    Survival of Indemnities.  The rights and obligations of Starwood and Vistana and their respective Indemnitees under this Article V shall survive the Business Transfer Time and the sale or other transfer by any Party of any Assets or businesses or the assignment by any Party of any Liabilities. The indemnity agreements contained in this Article V shall remain operative and in full force and effect, regardless of (a) any investigation made by or on behalf of any Indemnitee and (b) the knowledge by the Indemnitee of Liabilities for which it might be entitled to indemnification hereunder.

 

Section 5.10                             Limitations of Liability.  Except as may expressly be set forth in this Agreement, in no event shall Starwood, Vistana or any member of their respective Groups have any Liability to the other or to any other member of the other’s Group, or to any other Starwood Indemnitee or Vistana Indemnitee, as applicable, under this Agreement (a) to the extent that any such Liability resulted from any willful violation of Law or fraud by the party seeking indemnification or (b) for any indirect or punitive damages or any damages that are not, as of the Business Transfer Time, reasonably foreseeable (other than to the extent that the Indemnitee is liable for such damages under an order issued by a Governmental Authority in connection with a Third-Party Claim).

 

ARTICLE VI
ADDITIONAL AGREEMENTS

 

Section 6.1                                    Further Assurances.  Subject to the limitations of Section 2.2 and the other terms and conditions of this Agreement, each party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other parties in doing or causing to be done, all things necessary, proper or advisable under this Agreement and applicable Laws to consummate the transactions contemplated by this Agreement as soon as practicable after the Execution Date. In addition, in the event that ILG Subsidiary Buyer does not receive, upon the consummation of the Asset Purchase, good, legal, valid and marketable title to any Purchased Asset, free and clear of all Liens (other than those Liens set forth in any Organizational Document of the applicable Purchased Entity or arising pursuant to applicable securities Laws or created by this Agreement or Liens created by or through ILG or any of ILG’s Subsidiaries), then Starwood shall thereafter use its reasonable best efforts to promptly take, or cause to be taken, at Starwood’s sole cost and expense, all actions, and to assist and cooperate with the other Parties in doing or causing to be done, all things necessary, proper or advisable to remove any such Lien or to otherwise correct such title defect so as to ensure that ILG Subsidiary Buyer has good, legal, valid and marketable title to such Purchased Asset, free and clear of all Liens (other than those Liens set forth in any Organizational Document of the applicable Purchased Entity or arising pursuant to applicable securities Laws or created by this Agreement or Liens created by or through ILG or any of ILG’s Subsidiaries).

 

Section 6.2                                    Agreement for Exchange of Information.

 

(a)                                 Except for any request for Information relating to adversarial Action or threatened adversarial Action by any Starwood Entity or Vistana Entity against any member of the other’s Group (which shall be governed by such discovery rules as may be applicable thereto), and subject to Section 6.2(b), each of Starwood and Vistana, on behalf itself and the members of its respective Group, shall use reasonable efforts to provide, to the other Group, at

 

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any time prior to, on or after the Business Transfer Time, as soon as reasonably practicable after written request therefor, any Information in the possession or under the control of the members of such Group that the requesting party reasonably requests (i) in connection with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities or Laws in respect of Taxes) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative, Tax, insurance or other proceeding or in order to satisfy audit, accounting, claims, regulatory, investigation, litigation, Tax or other similar requirements, or (iii) to comply with its obligations under this Agreement, the Merger Agreement, any Ancillary Agreement, any agreement listed in Section 2.3(b) or any other agreements or arrangements entered into prior to the Business Transfer Time with respect to which the requesting party requires Information from the other Party in order to fulfill the requesting party’s obligations under such agreement or arrangement. The receiving party may use any Information received pursuant to this Section 6.2(a) solely to the extent reasonably necessary to satisfy the applicable obligations or requirements described in the immediately preceding sentence and shall otherwise take reasonable steps to protect such Information. Nothing in this Section 6.2 may be construed as obligating a Party to create Information not already in its possession or control.  Each Party agrees that, after the Effective Time, Information provided to the other Party or its Group pursuant to this Section 6.2 shall be subject to the confidentiality obligations in the applicable Confidentiality Agreements as if such Information were provided prior to the Business Transfer Time; provided, that, for the avoidance of doubt, for such purpose and after the Effective Time, the Vistana Entities shall be considered Representatives of ILG under the Vistana Confidentiality Agreement.

 

(b)                                 If any Party determines that the exchange of any Information pursuant to Section 6.2(a) is reasonably likely to violate any Law or Contract, or waive or jeopardize any attorney-client privilege, or attorney work-product protection, then such party shall not be required to provide access to or furnish such Information to the other Party; provided, however, that the Parties shall take all reasonable measures to permit compliance with Section 6.2(a) in a manner that avoids any such violation, waiver or jeopardy. Starwood and Vistana intend that any provision of access to or the furnishing of Information that would otherwise be within the ambit of any legal privilege shall not operate as a waiver of such privilege.

 

Section 6.3                                    Ownership of Information.  The provision of Information pursuant to Section 6.2 shall not grant or confer rights of license or otherwise in any such Information.

 

Section 6.4                                    Compensation for Providing Information.  Except as otherwise set forth in the Merger Agreement or any Ancillary Agreement, the party requesting Information pursuant to Section 6.2 agrees to reimburse the other Party for the reasonable out-of-pocket costs, if any, actually incurred in seeking, creating, gathering, copying and delivering such Information, to the extent that such costs are incurred for the benefit of the requesting Party.

 

Section 6.5                                    Record Retention.  To facilitate the possible exchange of Information pursuant to this Article VI and other provisions of this Agreement from and after the Effective Time, each Party agrees to use its reasonable efforts to retain all Information in accordance with its record retention policy as in effect immediately prior to the Effective Time or as modified in good faith thereafter; provided, that, to the extent that any Ancillary Agreement provides for a

 

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longer retention period for certain Information, such longer period shall control.  Starwood shall be entitled to retain a copy of the books and records of the Vistana Group relating to periods prior to the Effective Time; provided, that, to the extent required to satisfy Starwood’s legal or Contractual obligations, Starwood shall be entitled to retain original books and records relating to such periods, and shall provide Vistana with a copy of all such retained books and records.  No Party shall destroy, or permit any of its Subsidiaries to destroy, any Information that any other Party may have the right to obtain pursuant to this Agreement before the end of the period provided in the applicable record retention policy without first using its reasonable efforts to notify such other Party of the proposed destruction and giving such other Party the opportunity to take possession of such Information before it is destroyed.  In the case of any Information relating to a pending or threatened Action (including any pending or threatened investigation by a Governmental Authority) subject to a “litigation hold” known to any member of the Group that possesses relevant documents or records, such member shall issue and comply (or cause the applicable members of its Group to comply) with the requirements of such “litigation hold.”  Notwithstanding the foregoing, Section 7.02 of the Tax Matters Agreement shall govern the retention of Tax Returns, schedules and work papers and all material records or other documents relating thereto. No Party shall have any liability to any other Party if any Information is destroyed after reasonable efforts by such party to comply with the provisions of this Section 6.5.

 

Section 6.6                                    Other Agreements Providing for Exchange of Information.  The rights granted and obligations imposed under this Article VI shall be subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in the Merger Agreement, any Ancillary Agreement or the Confidentiality Agreements.

 

Section 6.7                                    Production of Witnesses; Records; Cooperation.  From and after the Business Transfer Time, except in the case of an adversarial Action or threatened adversarial Action by any Starwood Entity or Vistana Entity against any member of the other’s Group (which shall be governed by such discovery rules as may be applicable thereto), each Party, shall (a) cooperate and consult in good faith as reasonably requested in writing by the other Party with respect to (i) any Action, or (ii) any audit or any other legal requirement, in each case, whether relating to this Agreement, the Merger Agreement or any Ancillary Agreement or any of the transactions contemplated hereby or thereby or otherwise, and (b) use reasonable efforts to make available to such other party the former, current and future directors, managers, officers, employees, other personnel and agents of the members of its respective Group (whether as witnesses or otherwise) and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, managers, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection therewith. Notwithstanding the foregoing, this Section 6.7 does not require a Party to take any step that would materially interfere, or that it reasonably determines could materially interfere, with its business.  The requesting Party agrees to reimburse the other Party for the reasonable out-of-pocket costs, if any, incurred in connection with a request under this Section 6.7.

 

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Section 6.8                                    Privilege; Conflicts of Interest.

 

(a)                                 The Parties acknowledge and agree that the Vistana Entities’ attorney-client privilege, attorney work-product protection and expectation of client confidence with respect to any communications concerning any proposed sale, spin-off or other disposition of the Vistana Business or any other transaction contemplated by this Agreement, the Merger Agreement or any Ancillary Agreement or in lieu of any of the foregoing, and all information and documents covered by such privilege, protection or expectation shall be retained and controlled by Starwood, and may be waived only by Starwood.  Vistana acknowledges and agrees, on behalf of itself and the members of its Group, that (i) the foregoing attorney-client privilege, attorney work-product protection and expectation of client confidence shall not be controlled, owned, used, waived or claimed by the Vistana Entities upon consummation of the Distribution; and (ii) in the event of a dispute between any member of the Vistana Group and a third party or any other circumstance in which a third party requests or demands that the member of the Vistana Group produce privileged materials or attorney work-product of a Starwood Entity (including the privileged communications and attorney work-product covered by this Section 6.8), Vistana shall cause such member of the Vistana Group to assert such attorney-client privilege on behalf of the applicable Starwood Entity to prevent disclosure of privileged communications or attorney work-product to such third party.

 

(b)                                 The Parties acknowledge and agree that the attorney-client privilege, attorney work-product protection and expectation of client confidence with respect to any communications concerning general business matters related to the Vistana Business and the Vistana Entities and arising prior to the Distribution for the benefit of both Starwood and the Vistana Entities (other than with respect to any communications concerning any proposed sale, spin-off or other disposition of the Vistana Business or any other transaction contemplated by this Agreement, the Merger Agreement or any Ancillary Agreement or in lieu of any of the foregoing) shall be subject to a joint privilege and protection between Starwood, on the one hand, and the Vistana Entities, on the other hand, and Starwood and the Vistana Entities shall have equal right to assert such joint privilege and protection and no such joint privilege or protection may be waived by (i) Starwood without the prior written consent of such Vistana Entity or (ii) by any Vistana Entity without the prior written consent of Starwood; provided, however, that any such privileged communications or attorney-work product, whether arising prior to, or after the Distribution Date, with respect to any matter for which a Party has an indemnification obligation hereunder, shall be subject to the sole control of such party, which shall be solely entitled to control the assertion or waiver of the privilege or protection, whether or not such communications or work product is in the possession of or under the control of such party. Notwithstanding the foregoing, the Parties acknowledge and agree that Latham & Watkins LLP, Skadden, Arps, Slate, Meagher & Flom LLP, Jones Day, Kilpatrick, Townsend & Stockton, LLP (“Counsel”) and in-house counsel of Starwood represent only Starwood and not the Vistana Entities and that (A) any advice given by or communications with Counsel shall not be subject to any joint privilege and shall be owned solely by Starwood, (B) any advice given by or communications with in-house counsel of Starwood (to the extent it relates to any proposed sale, spin-off or other disposition of the Vistana Business or any other transaction contemplated by this Agreement, the Merger Agreement or any Ancillary Agreement or in lieu of any of the foregoing) shall not be subject to any joint privilege and shall be owned solely by Starwood, and (C) no other party has the status of a client of Counsel for conflict of interest or any other purposes as a result thereof. Starwood and Vistana (for itself and on behalf of the Vistana Group, including, after the Effective Time, the ILG Group) hereby agree that, in the

 

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event that any dispute, or any other matter in which the interests of Starwood, its Affiliates and its direct and indirect equity holders, on the one hand, and the Vistana Group (including, after the Effective Time, the ILG Group), on the other hand, are adverse, arises after the Effective Time between the Vistana Group, on the one hand, and Starwood, its Affiliates and its direct and indirect equity holders, on the other hand, Counsel may represent Starwood, its Affiliates and its direct and indirect equity holders in such dispute, even though the interests of Starwood, its Affiliates and its direct and indirect equity holders may be directly adverse to one or more members of the Vistana Group (including, after the Effective Time, the ILG Group), unless Counsel formerly represented one or more of members of the Vistana Group in any matter substantially related to such dispute.

 

Section 6.9                                    Insurance.

 

(a)                                 Except as otherwise provided in the License Agreement or any other Ancillary Agreement, from and after the Business Transfer Time, the Vistana Entities shall cease to be insured by the Starwood Group’s insurance policies or by any of their self-insured or captive insurance programs, except with respect to insurance policies providing coverage on an occurrence basis, including defense and indemnity benefits attributable to or arising from or under such policies or programs (such policies or programs, the “Pre-Closing Insurance Policies”).  Any Starwood Entity may, to be effective at the Business Transfer Time, amend any insurance policies in the manner they deem appropriate to give effect to this Section 6.9; provided, that in no event shall a Starwood Entity be permitted to amend any insurance policy in any manner which would eliminate, reduce or otherwise limit coverage for any occurrence or action that occurred prior to the Distribution if such coverage was then available.  Other than as stated in the foregoing sentences of this Section 6.9(a), from and after the Business Transfer Time, Vistana shall be responsible for securing all insurance it considers appropriate for its operation of the Vistana Entities and the Vistana Business and for promptly providing evidence thereof, as may be required, to third parties under any Contract or lease; provided, that notwithstanding the foregoing, each of Starwood and Vistana shall comply (and shall cause the members of its Group to comply) with the applicable requirements relating to insurance matters set forth in the Merger Agreement and the Ancillary Agreements.

 

(b)                                 From and after the Business Transfer Time, Vistana shall not, and shall cause the members of its Group not to, assert any right, claim or interest in, to or under any Pre-Closing Insurance Policies, other than any right, claim or interest that existed prior to the Business Transfer Time.  From and after the Business Transfer Time, in the event any Vistana Entity incurs any Liabilities covered by “occurrence form” Pre-Closing Insurance Policies (“Pre-Closing Insurance Claims”), and notifies Starwood and/or the Insurer of such Pre-Closing Insurance Policies, in accordance with the notice provisions of such policies of such Pre-Closing Insurance Claim, Starwood shall, or shall cause its applicable Subsidiaries to, submit such Pre-Closing Insurance Claim to the applicable insurer following such notification. To the extent not covered by or payable under Pre-Closing Insurance Policies, Vistana shall be solely responsible to Starwood and its Subsidiaries for all costs, expenses and fees in connection with any Pre-Closing Insurance Claim, and for any deductibles, retentions, premium increases on any Pre-Closing Insurance Policies which are attributable to any Pre-Closing Insurances Claims submitted pursuant to this Section 6.9(b).  Vistana shall, and shall cause the members of its Group to, reasonably cooperate with Starwood or its applicable Subsidiaries or the applicable

 

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insurer in the investigation, contesting, defense or settlement of such Pre-Closing Insurance Claim.  For the avoidance of doubt, (i) any Liabilities involving or related to Pre-Closing Insurance Claims that are in excess of insurance coverage therefor (net of any retention amounts, recovery costs, increases in premium and related deductible payable by Starwood or its Subsidiaries in connection therewith) under applicable Pre-Closing Insurance Policies shall not be the responsibility of Starwood or its Subsidiaries, unless otherwise required by this Agreement, including the provisions of Article V, (ii) Starwood or its Subsidiaries shall have the right, subject to the terms and provisions of the applicable Pre-Closing Insurance Policy, to investigate, contest, assume the defense of or settle any Pre-Closing Insurance Claim and (iii) any amounts paid by an insurer and/or received by the Vistana Group pursuant to this Section 6.9(b) shall not constitute indemnifiable Liabilities under Article V, and the Vistana Group shall have no right to indemnification under Article V with respect to any such amounts. Furthermore, to the extent any Pre-Closing Insurance Claim has been brought under a Pre-Closing Insurance Policy by Starwood or its Subsidiaries, Vistana shall, and shall cause the members of its Group to, from and after the Business Transfer Time, reasonably cooperate with Starwood or such Subsidiaries in the investigation, contesting, defense or settlement of any such Pre-Closing Insurance Claim.

 

(c)                                  Subject to Starwood’s compliance with the applicable terms of this Section 6.9, the Starwood Group shall have no Liability to the Vistana Group whatsoever as a result of the insurance policies and practices of the Starwood Group as in effect at any time, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, or the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise.

 

(d)                                 Notwithstanding anything to the contrary herein or in the Merger Agreement or any Ancillary Agreement, Starwood and its Affiliates (other than the Vistana Entities) shall be entitled to receive and retain all Insurance Proceeds recovered or recoverable by any Party or any of its Group members in respect of restoration of the Los Cabos Resort, which shall be remitted promptly to Starwood after the Effective Time to the extent actually received by any of member of the ILG Group.

 

Section 6.10                             Asset Purchase.

 

(a)                                 Immediately prior to the Distribution on the Distribution Date, solely to the extent required pursuant to Section 6.10(c), for the applicable considerations set forth in Section 6.10(b), and upon the other applicable terms and conditions set forth in this Section 6.10:

 

(i)                                     ILG shall, or shall cause one or more of the ILG Subsidiaries to, purchase, acquire and accept from (A) Starwood Mexico Servicios Compartidos SA de CV, an indirect Subsidiary of Starwood (“SMSC”): 100% of the Interests of (1) Empresa de Servicios Cancún S.A. de C.V., (2) Empresa de Servicios Los Cabos S.A. de C.V., (3) Empresa de Servicios K20 Cancún, S. de R.L. de C.V., (4) Hoteles Cancún K20, S. de R.L. de C.V., (5) Hoteles Cabos K22.5, S. de R.L. de C.V., (6) Hoteles Vallarta 205, S. de R.L. de C.V. and (7) Turistica Cancún S. de R.L. de C.V. (the entities described in subclauses (1)-(7) of this Section 6.10(a)(i)(A), the “Mexico Entities”) and (B) Starwood Hong Kong Holdings (“SHKH”): (1) 100% of the Interests of Westin St. John Hotel

 

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Company, Inc. (“WSJ,” together with the Mexico Entities, the “Purchased Entities”) and (2) 100% or less than 100% of the note receivable owed by WSJ to SHKH (such note receivable, the “Purchased Note”); and

 

(ii)                                  Starwood shall cause each of SMSC and SHKH to, sell, convey, transfer, assign and deliver to ILG Subsidiary Buyer all of its respective right, title and interest in, to and under the Interests of the applicable Purchased Entities and all or a portion of the Purchased Note.

 

(b)                                 The consideration for acquiring (i) 100% of the Interests of the Mexico Entities is an amount equal to the Mexico Entities Purchase Price; (ii) 100% of the Interests of WSJ is an amount equal to the WSJ Purchase Price; and (iii) (A) 100% of the Purchased Note is an amount equal to the Maximum Purchased Note Purchase Price or (B) less than 100% of the Purchased Note is an amount equal to the applicable portion of the Maximum Purchased Note Purchase Price (the “Purchased Note Purchase Price”).

 

(c)                                  In the event that the Distribution Date Payment:

 

(i)                                     is equal to or less than the Mexico Entities Purchase Price but greater than zero, (A) ILG Subsidiary Buyer shall not acquire any of the Interests of WSJ or any portion of the Purchased Note, but shall acquire only 100% of the Interests of the Mexico Entities from SMSC and (B) Starwood shall make a capital contribution to Vistana in a cash amount (if any) equal to (x) the Mexico Entities Purchase Price, minus (y) the Distribution Date Payment;

 

(ii)                                  is equal to or less than the sum of the Mexico Entities Purchase Price and the Maximum Purchased Note Purchase Price but greater than the Mexico Entities Purchase Price, ILG Subsidiary Buyer shall not acquire any of the Interests of WSJ, but shall acquire only (A) 100% of the Interests of the Mexico Entities from SMSC and (B) the portion of the Purchased Note from SHKH equal to the Distribution Date Payment minus the Mexico Entities Purchase Price;

 

(iii)                               is equal to or less than the sum of the Mexico Entities Purchase Price and the WSJ Purchase Price (such sum, the “Purchased Entities Purchase Price”) but greater than the sum of the Mexico Entities Purchase Price and the Maximum Purchased Note Purchase Price, ILG Subsidiary Buyer shall not acquire any portion of the Purchased Note, but shall acquire only (A) 100% of the Interests of the Mexico Entities from SMSC and 100% of the Interests of WSJ from SHKH, and (B) Starwood shall make a capital contribution to Vistana in a cash amount (if any) equal to (x) the Purchased Entities Purchase Price, minus (y) the Distribution Date Payment;

 

(iv)                              is equal to or less than the sum of the Purchased Entities Purchase Price and the Maximum Purchased Note Purchase Price but greater than the Purchased Entities Purchase Price, ILG Subsidiary Buyer shall acquire only (A) 100% of the Interests of the Mexico Entities from SMSC and 100% of the Interests of WSJ from SHKH and (B) the portion of the Purchased Note from SHKH equal to the Distribution Date Payment minus the Purchased Entities Purchase Price; or

 

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(v)                                 exceeds the sum of the Purchased Entities Purchase Price and the Maximum Purchased Note Purchase Price (the “Maximum Asset Purchase Price”), (A) ILG Subsidiary Buyer shall acquire 100% of the Interests of the Mexico Entities from SMSC and 100% of the Interests of WSJ from SHKH and 100% of the Purchased Note from SHKH and (B) Vistana shall pay to Starwood an amount of cash (all or a portion of which, for the avoidance of doubt, may be borrowed by Vistana from ILG, subject to any such representations, covenants, terms and conditions as may be reasonably and mutually agreed upon by the Parties) equal to the amount by which the Distribution Date Payment exceeds the Maximum Asset Purchase Price.

 

(d)                                 Starwood shall, and shall cause its applicable Subsidiaries to, execute such instruments of assignment and transfer and take such other corporate actions as are necessary to transfer to ILG Subsidiary Buyer, all of the right, title and interest in, to and under the Purchased Assets from Starwood or its applicable Subsidiaries.  All amounts payable pursuant to this Section 6.10 shall be paid in cash by wire transfer of immediately available funds on or prior to the Distribution Date.

 

Section 6.11                             Certain Separation Expenses.  Each of Starwood, Vistana and ILG acknowledges that Starwood has incurred $225,448.11 of third-party expenses (“Reimbursement Amount”) comprised of: (i) an amount of $72,738 (fifty percent (50%) of the total fee) (the “SAP Consent Fee”) incurred by Starwood to obtain a Consent (as defined in the Transition Services Agreement) under that certain Transitional Services Amendment to SAP America Inc. - Starwood Hotels & Resorts Worldwide, Inc. Software License Agreement with SAP American, Inc., dated as of March 11, 2016 (the “SAP Consent”) and (ii) a $152,710.11 fee incurred by Starwood in connection with that certain Vistana Migration Services Agreement with Ceridian HCM, Inc., dated as of December 31, 2015, in each case, for the benefit of Vistana prior to the Distribution Date, and agrees that such Reimbursement Amount shall be treated as additional “Vistana Separation Expenses,” and, as such, shall increase the aggregate amount of Vistana Separation Expenses by an amount equal to the Reimbursement Amount for purposes of calculating the Distribution Date Payment in accordance with this Agreement. For the avoidance of doubt, payment of that portion of the Distribution Date Payment equal to the SAP Consent Fee shall be deemed to satisfy in full any and all payment obligations of ILG, the Vistana Group and their respective Affiliates in connection with the SAP Consent pursuant to the terms of Section 2.1(c) of the Transition Services Agreement.

 

ARTICLE VII
MISCELLANEOUS

 

Section 7.1                                    Expenses.  Except as otherwise provided in this Agreement, each Party shall be responsible for the fees and expenses of the Parties as provided in the Merger Agreement.

 

Section 7.2                                    Entire Agreement.  This Agreement, the Merger Agreement, the Ancillary Agreements and the Confidentiality Agreements, including any related annexes, exhibits and schedules, as well as any other agreements and documents referred to herein and therein, shall together constitute the entire agreement between the Parties relating to the transactions contemplated hereby and supersede any other agreements, whether written or oral,

 

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that may have been made or entered into by or among any of the Parties or any of their respective Affiliates relating to the transactions contemplated hereby.

 

Section 7.3                                    Governing Law.  This Agreement and, unless expressly provided therein, each Ancillary Agreement, and all Actions (whether in contract or tort) that may be based upon, arise out of or relate hereto or thereto or the negotiation, execution or performance hereof or thereof (including any claim or cause of action based upon, arising out of or related to any representation or warranty made in or in connection with this Agreement or as an inducement to enter into this Agreement), shall be governed by and construed in accordance with the Law of the State of Delaware, without regard to the choice of law or conflicts of law principles thereof.  The Parties expressly waive any right they may have, now or in the future, to demand or seek the application of a governing Law other than the Law of the State of Delaware.

 

Section 7.4                                    Characterization of Payments.

 

(a)                                 Except for payments made pursuant to Section 6.10(b) for the Purchased Assets and except as provided in Section 7.4(b), the Parties agree to treat all payments required by this Agreement (other than any payments with respect to interest accruing after the Distribution Date) as either a contribution by Starwood to Vistana or a distribution by Vistana to Starwood, as the case may be, occurring immediately prior to the Distribution Date unless a contrary treatment is required under applicable Law.

 

(b)                                 The Parties agree to treat any Indemnity Payment in respect of the Purchased Assets as an adjustment to the Mexico Entities Purchase Price, the WSJ Purchase Price or the Purchased Note Purchase Price, as the case may be, unless a contrary treatment is required under applicable Law.

 

Section 7.5                                    Notices.  All notices and other communications among the parties hereto shall be in writing and shall be deemed to have been duly given (a) when delivered in person, (b) when delivered after posting in the United States mail having been sent registered or certified mail return receipt requested, postage prepaid, (c) when delivered by FedEx or other nationally recognized overnight delivery service or (d) when delivered by facsimile (solely if receipt is confirmed) or email (so long as the sender of such email does not receive an automatic reply from the recipient’s email server indicating that the recipient did not receive such email), addressed as follows:

 

If to Starwood or, prior to the Effective Time, Vistana:

 

Starwood Hotels & Resorts Worldwide, Inc.

 

One Star Point

 

Stamford, Connecticut 06902

 

Attention:

 

Chief Financial Officer

Facsimile No.:

 

(203) 351-2519

Email:

 

thomas.mangas@starwoodhotels.com

 

 

 

with a copy (which shall not constitute notice) to the same address:

 

 

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Attention:

 

Kenneth S. Siegel

Facsimile No.:

 

(203) 351-2401

Email:

 

kenneth.siegel@starwoodhotels.com

 

 

 

with a copy (which shall not constitute notice) to:

 

Latham & Watkins LLP

885 Third Avenue

New York, New York 10022

Attention:

 

Edward Sonnenschein

 

 

Jennifer Perkins

Facsimile No.:

 

(212) 751-4864

Email:

 

ted.sonnenschein@lw.com

 

 

jennifer.perkins@lw.com

 

If to Vistana, after the Effective Time, or to ILG:

 

Interval Leisure Group, Inc.

 

 

6262 Sunset Drive

 

 

Miami, Florida 33143

 

 

Attention: Victoria J. Kincke, General Counsel

 

 

Facsimile No.:

 

(305) 667-2072

 

 

Email: Victoria.Kincke@iilg.com

 

 

 

with a copy (which shall not constitute notice) to:

 

Weil, Gotshal & Manges LLP

 

 

767 Fifth Avenue

 

 

New York, NY 10153

 

 

Attention: Michael E. Lubowitz

 

 

Facsimile No.:

 

(212) 310-8007

Email: michael.lubowitz@weil.com

 

 

 

or to such other address addresses as the Parties hereto may from time to time designate in writing.

 

Section 7.6                                    Priority of Agreements.  If there is a conflict between any provision of this Agreement and a provision in any of the Ancillary Agreements (other than the Tax Matters Agreement and Employee Matters Agreement), each of this Agreement and the other Ancillary Agreement is to be interpreted and construed, if possible, so as to avoid or minimize such conflict, but to the extent, and only to the extent, of such conflict, the provision of this Agreement shall control unless specifically provided otherwise in this Agreement or in the Ancillary Agreement.  Except as otherwise specifically provided herein, this Agreement shall not apply to matters relating to Taxes or employees, employee benefits plans, and related assets and liabilities including pension and other post-employment benefit assets and liabilities, which shall be exclusively governed by the Tax Matters Agreement and Employee Matters

 

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Agreement, respectively.  In the case of any conflict between this Agreement and the Tax Matters Agreement or Employee Matters Agreement, respectively, in relation to any matters addressed by the Tax Matters Agreement or Employee Matters Agreement, the Tax Matters Agreement or Employee Matters Agreement, as applicable, shall prevail. The procedures relating to indemnification for Tax matters shall be exclusively governed by the Tax Matters Agreement.

 

Section 7.7                                    Amendments and Waivers.  (a) Subject to Section 7.7(c), any Party may, at any time, by action taken by its board of directors (or other governing body), or officers thereunto duly authorized, waive any of the terms or conditions of this Agreement or (without limiting Section 7.7(b)) agree to an amendment or modification to this Agreement by an agreement in writing executed in the same manner (but not necessarily by the same Persons) as this Agreement.  No waiver by any of the Parties of any breach hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent breach hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.  No waiver by any of the Parties of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the Party sought to be charged with such waiver.

 

(b)                                 Subject to Section 7.7(c), this Agreement may be amended or modified in whole or in part, only by a duly authorized agreement in writing executed by the Parties in the same manner as this Agreement and which makes reference to this Agreement.

 

(c)                                  In addition, unless the Merger Agreement shall have been terminated in accordance with its terms, any waiver or amendment of this Agreement shall also require the written consent of ILG.

 

Section 7.8                                    Termination.  This Agreement shall terminate without further action at any time before the Effective Time upon termination of the Merger Agreement.  If terminated, no Party shall have any Liability of any kind to the other Party or any other Person on account of this Agreement, except as provided in the Merger Agreement.

 

Section 7.9                                    Parties in Interest.  Notwithstanding anything herein to the contrary, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.  ILG shall have the rights to enforce the rights of Vistana under this Agreement and shall have the rights to enforce Section 2.1(a), Section 2.2(b), Section 2.4(a), Section 3.4, Section 4.3(c), Section 4.3(e), Section 4.4 (other than Section 4.4(c)), Section 4.5(b), Section 6.10, Section 6.11, Section 7.7(c) and this Section 7.9.  As of the Effective Time, this Agreement shall be binding on ILG (including as a member of the Vistana Group) and ILG shall be, as between Starwood and ILG, subject to the obligations and restrictions (including any acknowledgements, releases and waivers) imposed on, and shall be the beneficiary of the rights of, Vistana and the other Vistana Entities under this Agreement.  Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the Parties, any rights or remedies under or by reason of this Agreement, except (i) as contemplated in the preceding sentence and (ii) for the provisions of Article V with respect to the indemnification of Indemnitees and the release of Starwood Released Persons and Vistana Released Persons.

 

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Section 7.10                             Assignability.  No Party may assign its rights or delegate its duties under this Agreement without the written consent of the other Party, except that a Party may assign its rights or delegate its duties under this Agreement to an Affiliate thereof; provided, that Vistana may assign this Agreement, without obtaining the prior written consent of Starwood, to any lender (or agent for any lender) for collateral purposes only (and upon any assignment permitted by this proviso, the references to Vistana Group shall also apply to any such assignee unless the context otherwise acquires); provided, further, that no assignment or delegation shall relieve any Party of its indemnification obligations or obligations in the event of a breach of this Agreement and any assignee shall agree in writing to be bound by the terms and conditions contained in this Agreement.  Any attempted assignment or delegation in breach of this Section 7.10 shall be null and void.

 

Section 7.11                             Interpretation.

 

(a)                                 Unless the context of this Agreement otherwise requires:

 

(i)                                     (A) words of any gender include each other gender and neuter form; (B) words using the singular or plural number also include the plural or singular number, respectively; (C) derivative forms of defined terms will have correlative meanings; (D) the terms “hereof,” “herein,” “hereby,” “hereto,” “herewith,” “hereunder” and derivative or similar words refer to this entire Agreement; (E) the terms “Article,” “Section,” “Annex,” “Exhibit,” and “Schedule” refer to the specified Article, Section, Annex, Exhibit or Schedule of this Agreement and references to “paragraphs” or “clauses” shall be to separate paragraphs or clauses of the section or subsection in which the reference occurs; (F) the word “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation,” and (G) the word “or” shall be disjunctive but not exclusive;

 

(ii)                                  references to Contracts (including this Agreement) and other documents or Laws shall be deemed to include references to such Contract or Law as amended, restated, supplemented or modified from time to time in accordance with its terms and the terms hereof, as applicable, and in effect at any given time (and, in the case of any Law, to any successor provisions);

 

(iii)                               references to any federal, state, local, or foreign statute or Law shall include all regulations promulgated thereunder; and

 

(iv)                              references to any Person include references to such Person’s successors and permitted assigns, and in the case of any Governmental Authority, to any Person succeeding to its functions and capacities.

 

(b)                                 The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent.  The Parties acknowledge that each Party and its attorney has reviewed and participated in the drafting of this Agreement and that any rule of construction to the effect that any ambiguities are to be resolved against the drafting Party, or any similar rule operating against the drafter of an agreement, shall not be applicable to the construction or interpretation of this Agreement.

 

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(c)                                  Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified.  If any action is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action may be deferred until the next Business Day.

 

(d)                                 The word “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if.”

 

(e)                                  The term “writing,” “written” and comparable terms refer to printing, typing and other means of reproducing words (including electronic media) in a visible form.

 

(f)                                   All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP unless the context otherwise requires.

 

(g)                                  All monetary figures shall be in United States dollars unless otherwise specified.

 

(h)                                 Except as otherwise expressly provided elsewhere in this Agreement, the Merger Agreement, or any Ancillary Agreement, any provision herein which contemplates the agreement, approval or consent of, or exercise of any right of, a Party, such Party may give or withhold such agreement, approval or consent, or exercise such right, in its sole and absolute discretion.

 

Section 7.12                             Severability.  If any provision of this Agreement or any Ancillary Agreement, or the application of any provision to any Person or circumstance, is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect.  The Parties further agree that if any provision contained herein is, to any extent, held invalid or unenforceable in any respect under the Laws governing this Agreement, they shall take any actions necessary to render the remaining provisions of this Agreement valid and enforceable to the fullest extent permitted by Law and, to the extent necessary, shall amend or otherwise modify this Agreement to replace any provision contained herein that is held invalid or unenforceable with a valid and enforceable provision giving effect to the intent of the Parties.

 

Section 7.13                             Captions; Counterparts.  The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.  This Agreement may be executed in two or more counterparts (including by electronic or .pdf transmission), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Delivery of any signature page by facsimile, electronic or pdf. transmission shall be binding to the same extent as an original signature page.

 

Section 7.14                             Survival of Covenants.  Except as expressly set forth in this Agreement or any Ancillary Agreement, the covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and liability for the breach of any obligations contained herein, shall survive each of the Internal Reorganization, the Asset Purchase and the Distribution and shall remain in full force and effect thereafter.  The representations and warranties contained in Section 2.4(a) of this Agreement, and liability for breach thereof, shall not survive the Asset Purchase and shall terminate thereupon.

 

50



 

Section 7.15                             Jurisdiction; Consent to Jurisdiction.

 

(a)                                 Exclusive Jurisdiction.  Except as otherwise expressly provided in any Ancillary Agreement, each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the Court of Chancery of the State of Delaware or, if such court shall not have jurisdiction, any federal court of the United States of America sitting in Delaware, and any appellate court from any appeal thereof, in any Action arising out of or relating to this Agreement, the Ancillary Agreements, the documents referred to in this Agreement, or any of the transactions contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the parties hereby irrevocably and unconditionally (i) agrees not to commence any such Action except in such courts, (ii) agrees that any claim in respect of any such Action may be heard and determined in the Court of Chancery of the State of Delaware or, to the extent permitted by Law, in such federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any such Action in the Court of Chancery of the State of Delaware or such federal court and (iv) waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such Action in the Court of Chancery of the State of Delaware or such federal court.  Each of the Parties agrees that a final judgment in any such Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.  Each Party irrevocably consents to service of process in the manner provided for notices in Section 7.5.  Nothing in this Agreement shall affect the right of any party to this Agreement to serve process in any other manner permitted by Law.

 

(b)                                 Waiver of Jury Trial.  EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE ANCILLARY AGREEMENTS IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ANCILLARY AGREEMENTS OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE ANCILLARY AGREEMENTS.  EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY LITIGATION, SEEK TO ENFORCE SUCH WAIVERS, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) EACH PARTY MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.15(b).

 

Section 7.16                             Plan of Reorganization.  This Agreement and the Merger Agreement together shall constitute a “plan of reorganization” under Treasury Regulations Section 1.368-2(g).

 

51



 

Section 7.17                             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 or any other Ancillary Agreement, the Party who is, or is to be, thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief in respect of its rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, subject to Section 5.8.  The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that 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 each of the Parties to this Agreement.

 

[Signature page follows.]

 

52



 

IN WITNESS WHEREOF, each of the Parties has caused this Amended and Restated Separation Agreement to be executed on its behalf by its officers hereunto duly authorized effective on the day and year first above written.

 

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

 

 

 

 

 

By:

/s/ Thomas B. Mangas

 

Name:

Thomas B. Mangas

 

Title:

Chief Executive Officer

 

[Signature Page to Amended and Restated Separation Agreement]

 



 

 

VISTANA SIGNATURE EXPERIENCES, INC.

 

 

 

 

 

 

 

By:

/s/ Thomas B. Mangas

 

Name:

Thomas B. Mangas

 

Title:

Authorized Signatory

 

[Signature Page to Amended and Restated Separation Agreement]

 



 

 

INTERVAL LEISURE GROUP, INC., for purposes of Sections 2.1(a), 2.2(b), 2.4(a), 3.4, 4.3(c), 4.3(e), 4.4 (other than Section 4.4(c)), 4.5(b), 6.10, 6.11, 7.7(c) and 7.9

 

 

 

 

 

By:

/s/ Jeanette E. Marbert

 

 

Name: Jeanette E. Marbert

 

 

Title: Executive Vice President and Chief Operating Officer

 

[Signature Page to Amended and Restated Separation Agreement]

 



 

EXHIBIT A

 

Employee Matters Agreement

 

See Attached.

 



 

FORM OF EMPLOYEE MATTERS AGREEMENT

 

by and among

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.,

 

VISTANA SIGNATURE EXPERIENCES, INC.

 

And

 

INTERVAL LEISURE GROUP, INC.

 

dated as of

 

October 27, 2015

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

 

ARTICLE I.

 

 

DEFINITIONS

 

 

 

 

Section 1.01

Definitions

1

 

 

 

Section 1.02

Other Terms

5

 

 

 

Section 1.03

Interpretation; Construction

6

 

 

 

Section 1.04

Survival

6

 

 

 

Section 1.05

Termination

6

 

 

 

 

ARTICLE II.

 

 

EMPLOYEE BENEFITS

 

 

 

 

Section 2.01

Employment

7

 

 

 

Section 2.02

Retirement Plans

9

 

 

 

Section 2.03

Nonqualified Plans

11

 

 

 

Section 2.04

Annual Bonus

13

 

 

 

Section 2.05

Health and Welfare Benefits

13

 

 

 

Section 2.06

Workers’ Compensation

15

 

 

 

Section 2.07

Vacation and Sick Pay Liabilities

15

 

 

 

Section 2.08

Severance

16

 

 

 

Section 2.09

Preservation of Right To Amend or Terminate Plans

16

 

 

 

Section 2.10

No Right to Employment

16

 

 

 

Section 2.11

Equity Compensation Awards

16

 

 

 

 

ARTICLE III.

 

 

LABOR AND EMPLOYMENT MATTERS

 

 

 

 

Section 3.01

Collective Bargaining Agreements

18

 

 

 

Section 3.02

WARN Obligations

18

 

 

 

Section 3.03

Multiemployer Plan

18

 

 

 

Section 3.04

Attorney-Client Privilege

19

 

 

 

 

ARTICLE IV.

 

 

REMEDIES

 

 

 

 

Section 4.01

Indemnification

20

 

 

 

Section 4.02

Enforcement

20

 

i



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

 

 

 

 

ARTICLE V.

 

 

MISCELLANEOUS

 

 

 

 

Section 5.01

Relationship of Parties

20

 

 

 

Section 5.02

Assignment

20

 

 

 

Section 5.03

Rights of Third Parties

20

 

 

 

Section 5.04

Captions

21

 

 

 

Section 5.05

Severability of Provisions

21

 

 

 

Section 5.06

Notices

21

 

 

 

Section 5.07

Further Assurances

23

 

 

 

Section 5.08

Amendment; Waiver

23

 

 

 

Section 5.09

Governing Law

23

 

 

 

Section 5.10

Consent to Jurisdiction: Waiver of Jury Trial

23

 

 

 

Section 5.11

Entire Agreement

24

 

 

 

Section 5.12

Counterparts

24

 

 

 

Section 5.13

Expenses

24

 

ii



 

SCHEDULES

 

 

 

Schedule 2.01(a)

Employees Transferred to Vistana

 

 

Schedule 2.01(b)

Employees Transferred to Starwood

 

 

Schedule 2.01(d)

Employment Agreements

 

 

Schedule 2.01(e)

Severance Guidelines

 

 

Schedule 2.11(a)

Starwood Time-Based Awards

 

 

Schedule 2.11(b)

Starwood Performance-Based Awards

 

iii



 

FORM OF EMPLOYEE MATTERS AGREEMENT

 

This EMPLOYEE MATTERS AGREEMENT (this “Agreement”) is made and entered into as of October 27, 2015, by and among STARWOOD HOTELS & RESORTS WORLDWIDE, INC., a Maryland corporation (“Starwood”), VISTANA SIGNATURE EXPERIENCES, INC., a Delaware corporation (“Vistana”) and INTERVAL LEISURE GROUP, INC., a Delaware corporation (“ILG,” and together with Starwood and Vistana, the “Parties”).

 

RECITALS

 

WHEREAS, pursuant to that certain Separation Agreement dated as of October 27, 2015, between Starwood and Vistana (the “Separation Agreement”), Starwood and Vistana have set out the terms on which, and the conditions subject to which, they wish to implement the Internal Reorganization (as defined in the Separation Agreement) and the Distribution (as defined in the Separation Agreement);

 

WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of October 27, 2015, by and among Starwood, Vistana, ILG and Iris Merger Sub, Inc. a Delaware corporation (the “Merger Agreement”), immediately following the Distribution, a Subsidiary of ILG will merge with and into Vistana, and Vistana Common Stock will be converted into ILG Common Stock on the terms and subject to the conditions of the Merger Agreement (the “Merger”); and

 

WHEREAS, in connection with the foregoing, the Parties have agreed to enter into this Agreement to allocate, among Starwood, Vistana and ILG, Assets, Liabilities and responsibilities with respect to certain employee compensation, benefits, labor and certain other employment matters pursuant to the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Starwood, ILG, and Vistana agree as follows:

 

ARTICLE I.

DEFINITIONS

 

Section 1.01 Definitions. As used in this Agreement, the following terms shall have the meanings indicated below:

 

Action: has the meaning specified in the Merger Agreement.

 

Adjustment Ratio: means a fraction, (x) the numerator of which is the closing sale price of a share of Starwood Common Stock on the New York Stock Exchange immediately preceding the Distribution (as traded on the “regular way” market) as reported by Bloomberg L.P. or any successor thereto, and (y) the denominator of which is the opening sale price of a share of ILG Common Stock on the Nasdaq Stock Market immediately following the Effective Time (as traded on the “regular way” market) as reported by Bloomberg L.P. or any successor thereto.

 

Affiliate: has the meaning specified in the Separation Agreement.

 

1



 

Assets: has the meaning specified in the Separation Agreement.

 

Assumed Time-Based Stock Award: has the meaning specified in Section 2.11(a).

 

Business Day: has the meaning specified in the Merger Agreement.

 

Business Transfer Date: has the meaning specified in the Separation Agreement.

 

Business Transfer Time: has the meaning specified in the Separation Agreement.

 

Closing: has the meaning specified in the Merger Agreement.

 

Closing Date: has the meaning specified in the Merger Agreement.

 

Closing Plan Year: means the calendar year in which the Closing Date occurs.

 

COBRA: has the meaning specified in Section 2.05(d).

 

Code: means the Internal Revenue Code of 1986, as amended, or any successor federal income tax Law. Reference to a specific Code provision also includes any temporary or final regulation in force under that provision.

 

Collective Bargaining Agreement: means any collective bargaining agreement, labor agreement, or other written agreement to which Starwood, ILG, or any of their respective direct or indirect Subsidiaries is a party with any labor union, works council, its predecessors-in-interest, and its constituent local unions.

 

Contract: has the meaning specified in the Separation Agreement.

 

Converted RSU: has the meaning specified in Section 2.11(b).

 

Distribution Date: has the meaning specified in the Separation Agreement.

 

Earned Starwood Performance Shares: has the meaning specified in Section 2.11(b).

 

Effective Time: has the meaning specified in the Merger Agreement.

 

Employee: means 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, whether active or inactive, on disability leave, or on other leave of absence.

 

Employment Agreement: means any individual employment, offer, retention, consulting, change in control, split dollar life insurance, sale bonus, incentive bonus, severance, restrictive covenant or other employment related or individual compensatory agreement related to the Vistana Business between any current or former employee and Starwood or any of its Affiliates (including Vistana) which is listed on Schedule 2.01(d).

 

Employment Claim: means any actual or threatened lawsuit, arbitration, ERISA claim, or federal, state, or local judicial or administrative proceeding of whatever kind involving a demand by or on behalf of or relating to an employee, former employee, job applicant, intern or volunteer, independent contractor, leased employee, or anyone

 

2



 

claiming to be an employee or joint employee, or by or relating to a collective bargaining agent of employees, or by or relating to any federal, state, or local government agency alleging liability against an employer or against an employee pension, welfare or other benefit plan, or an administrator, trustee or fiduciary thereof.

 

ERISA: means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specified provision of ERISA also includes any temporary or final regulations in force under that provision.

 

Foreign Service DB Plan: has the meaning specified in Section 2.02(e)(i).

 

Former Vistana Employee: means former Employees of Starwood or its Affiliates whose last employment with Starwood or its Affiliates before the Closing Date was with a Vistana Entity.

 

FY ILG AIP Award: has the meaning specified in Section 2.04(a).

 

Governmental Authority: has the meaning specified in the Merger Agreement.

 

Hotel Trust Fund: has the meaning specified in Section 3.03(a).

 

ILG: has the meaning specified in the preamble of this Agreement.

 

ILG AIP: has the meaning specified in Section 2.04(a).

 

ILG Common Stock: means the common stock, par value $0.01 per share, of ILG.

 

ILG Equity Award: means each Assumed Time-Based Stock Award and Converted RSU.

 

ILG FSA: has the meaning specified in Section 2.05(c).

 

ILG Flexible Benefits Plan: has the meaning specified in Section 2.05(b).

 

ILG HRA: means the Plan established or designed and maintained by ILG pursuant to Section 2.05(e).

 

ILG Restricted Share Award: means an award of restricted ILG Common Stock that is subject only to time-based vesting requirements and granted pursuant to an ILG Stock Plan.

 

ILG Retirement Plan: means the Plan established or designated and maintained by ILG pursuant to Section 2.02(b).

 

ILG RSU Award: has the meaning specified in the Merger Agreement.

 

ILG Stock Plans: has the meaning specified in the Merger Agreement.

 

ILG Time-Based Stock Award: means an ILG RSU Award or ILG Restricted Share Award granted by ILG under an ILG Stock Plan as described in Section 2.11(a).

 

Law: has the meaning specified in the Merger Agreement.

 

3



 

Liabilities: has the meaning specified in the Separation Agreement.

 

Merger: has the meaning specified in the recitals of this Agreement.

 

Merger Agreement: has the meaning specified in the recitals of this Agreement.

 

Parties: has the meaning set forth in the preamble of this Agreement.

 

Person: has the meaning specified in the Merger Agreement.

 

Plan: means any plan, policy, arrangement, contract or agreement providing compensation or benefits for any group of Employees or individual Employee, or the dependents or beneficiaries of any such Employee(s), whether formal or informal or written or unwritten, and including, without limitation, 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 settlement of actual or potential Employment Claims. Notwithstanding the foregoing, no Employment Agreement will constitute a Plan for purposes hereof.

 

Plan Payee: means an individual who is entitled to payment of Plan benefits in his or her capacity as a beneficiary with respect to the benefits of a deceased participant in the Plan or an alternate payee under a qualified domestic relations order within the meaning of Section 414(p)(1)(A) of the Code and Section 206(d)(3)(B)(i) of ERISA with respect to the benefits of a participant in the Plan.

 

Representative: has the meaning specified in the Merger Agreement.

 

SEC: has the meaning specified in the Merger Agreement.

 

Separation Agreement: has the meaning specified in the recitals of this Agreement.

 

Starwood: has the meaning specified in the preamble of this Agreement.

 

Starwood AIP: has the meaning specified in Section 2.04(a).

 

Starwood Common Stock: has the meaning specified in the Merger Agreement.

 

Starwood Deferred Compensation Plan: means the Amended and Restated Starwood Hotels & Resorts Worldwide, Inc. Deferred Compensation Plan (effective as of January, 1, 2008).

 

Starwood Equity Award: means each Starwood Time-Based Stock Award and Starwood Performance Share.

 

Starwood Flexible Benefits Plan: means the Starwood Hotels & Resorts Worldwide, Inc. Flexible Benefits Plan.

 

Starwood FSA: has the meaning specified in Section 2.05(c).

 

Starwood HRA: has the meaning specified in Section 2.05(e).

 

4



 

Starwood Performance Share: means a performance share award granted by Starwood under the Starwood Stock Plan before the Distribution Date.

 

Starwood Plan: means any of (i) the Starwood Flexible Benefits Plan, the Starwood Retirement Plan, the Starwood Deferred Compensation Plan, and (ii) any other Plan that, as of the close of business on the day before the Closing Date, is sponsored or maintained solely by Starwood.

 

Starwood Retirement Plan: means the Starwood Hotels & Resorts Worldwide, Inc. Savings and Retirement Plan, as in effect immediately prior to the Closing Date.

 

Starwood Stock Plan: means the Starwood Hotels & Resorts Worldwide, Inc. 2013 Long-Term Incentive Compensation Plan.

 

Starwood Time-Based Stock Award: means an award of Starwood restricted stock or, in the case of certain Employees based outside the United States, restricted stock units, granted by Starwood under the Starwood Stock Plan before the Distribution Date.

 

Subsidiary: has the meaning specified in the Merger Agreement.

 

Transaction: means those certain transactions contemplated by the Transaction Documents.

 

Transaction Documents: has the meaning specified in the Merger Agreement.

 

Vistana: has the meaning specified in the preamble of this Agreement.

 

Vistana Benefit Plans: has the meaning specified in the Merger Agreement.

 

Vistana Business: has the meaning specified in the Separation Agreement.

 

Vistana Common Stock: has the meaning specified in the Separation Agreement.

 

Vistana Deferred Compensation Plan: has the meaning specified in Section 2.03(b).

 

Vistana Employee(s): has the meaning specified in Section 2.01(a).

 

Vistana Entities: has the meaning specified in the Separation Agreement.

 

Vistana Group: has the meaning specified in the Separation Agreement.

 

WARN: has the meaning specified in Section 3.02.

 

Withdrawal Liability: has the meaning specified in Section 3.03(a).

 

Workers’ Compensation Event: means the event, injury, illness or condition giving rise to a workers’ compensation claim.

 

Section 1.02 Other Terms. Any capitalized terms used herein but not defined herein shall have the meaning specified in the Merger Agreement or Separation Agreement, as applicable.

 

5



 

Section 1.03 Interpretation; Construction.

 

(a) Unless the context of this Agreement otherwise requires:

 

(i) (A) words of any gender include each other gender and neutral form; (B) words using the singular or plural number also include the plural or singular number, respectively; (C) the terms “hereof,” “herein,” “hereby,” “hereto,” “herewith,” “hereunder” and derivative or similar words refer to this entire Agreement; (D) the terms “Article,” “Section,” “Annex,” “Exhibit,” “Schedule,” and “Disclosure Schedule” refer to the specified Article, Section, Annex, Exhibit, Schedule or Disclosure Schedule of this Agreement and references to “paragraphs” or “clauses” shall be to separate paragraphs or clauses of the section or subsection in which the reference occurs; (E) the word “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation,” and (F) the word “or” shall be disjunctive but not exclusive;

 

(ii) references to Contracts (including this Agreement) and other documents or Laws shall be deemed to include references to such Contract or Law as amended, supplemented or modified from time to time in accordance with its terms and the terms hereof, as applicable, and in effect at any given time (and, in the case of any Law, to any successor provisions);

 

(iii) references to any federal, state, local, or foreign statute or Law shall include all regulations promulgated thereunder; and

 

(iv) references to any Person include references to such Person’s successors and permitted assigns, and in the case of any Governmental Authority, to any Person succeeding to its functions and capacities.

 

(b) The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent and no rule of strict construction shall be applied against any party hereto.

 

(c) Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. If any action is to be taken or given on or by a particular calendar day, and such calendar day is not a Business Day, then such action may be deferred until the next Business Day.

 

(d) The word “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if.”

 

(e) All monetary figures shall be in United States dollars unless otherwise specified.

 

Section 1.04 Survival. If the Merger is consummated, the obligations set forth in this Agreement shall remain in full force and effect and shall survive the Closing Date.

 

Section 1.05 Termination. This Agreement shall terminate automatically without any further action of the Parties upon a termination of the Merger Agreement, and no Party will have any further obligations to the other Parties.

 

6



 

ARTICLE II.

EMPLOYEE BENEFITS

 

Section 2.01 Employment.

 

(a) Transfer of Employees to Vistana. At or prior to the Business Transfer Time, Starwood shall take all steps necessary and appropriate so that all of the following Employees are transferred to the Vistana Entities: (i) each Employee (other than any Employees who are on long-term disability leave as of the Business Transfer Time) whose employment duties immediately prior to the Business Transfer Date relate exclusively to the Vistana Business and (ii) each Employee listed on Schedule 2.01(a) attached hereto (clauses (i) and (ii) collectively, the “Vistana Employees,” and each such Employee a “Vistana Employee”). Between the date hereof and the Business Transfer Date, Starwood and ILG may mutually agree to update, amend or supplement Schedule 2.01(a) attached hereto to correct any inadvertent inclusions and exclusions thereto. Starwood shall deliver the final Schedule 2.01(a), as amended, updated or supplemented by mutual agreement of the Parties subject to this Section 2.01(a), to ILG immediately prior to the Business Transfer Time.

 

(b) Employees of the Vistana Entities. Starwood shall not, and shall cause its Affiliates not to, terminate the employment of any Employees of the Vistana Entities other than in the ordinary course of business and shall not transfer the employment of such Employees prior to the Closing Date except as provided below. Notwithstanding the foregoing, at or prior to the Business Transfer Time, Starwood shall take all steps necessary and appropriate so that the Employees of the Vistana Entities listed on Schedule 2.01(b) shall be transferred to Starwood. Between the date hereof and the Business Transfer Date, Starwood and ILG may mutually agree to update, amend or supplement Schedule 2.01(b) attached hereto to correct any inadvertent inclusions and exclusions thereto. Starwood shall deliver the final Schedule 2.01(b), as amended, updated or supplemented by mutual agreement of the Parties subject to this Section 2.01(b), to ILG immediately prior to the Business Transfer Time.

 

(c) Allocation of Responsibilities as Employer. At the Business Transfer Time, except as otherwise provided under this Agreement or any other agreement relating to the Transaction, the Vistana Group shall retain or assume, as the case may be, responsibility as employer of the Vistana Employees.

 

(d) Employment Agreements. At or prior to the Business Transfer Time, Starwood shall cause Vistana to assume and be solely and exclusively responsible for all Employment Agreements entered between the Vistana Employees or Former Vistana Employees and Starwood or any of its Affiliates that are listed on Schedule 2.01(d) and all obligations and liabilities with respect thereto, to be effective as of the Business Transfer Date, and on and after the Business Transfer Date Starwood and its

 

7



 

Affiliates (other than Vistana Entities) shall have no obligations or liabilities with respect to such Employment Agreements. From and after the Closing Date, ILG shall, or shall cause Vistana to, assume and honor all liabilities and obligations to or in respect of the Vistana Employees or Former Vistana Employees (and any dependents or beneficiaries thereof) under all Vistana Benefit Plans and all Employment Agreements, severance, termination, consulting, retirement and other compensation and benefit plans, arrangements and agreements to which any Vistana Entity is a party, as in effect immediately prior to the Closing. Starwood shall take all steps necessary to terminate the Employment Agreement between Matthew Avril and Starwood Vacation Ownership, Inc., dated April 13, 2015 prior to the Business Transfer Time without any payment by Starwood Vacation Ownership, Inc. or any of the Vistana Entities, and ILG and the Vistana Entitles shall have no liability with respect to such employment agreement or the Consulting Agreement between MAE Business Enterprises, Inc. and Starwood, dated December 15, 2014, as amended.

 

(e) Comparable Benefits. For the period from the Closing Date through December 31, 2016, ILG shall or shall cause Vistana to provide to each Vistana Employee (i) annual base salary, target bonus opportunities (as a percentage of base salary) and commission opportunities that are no less than the annual base salary, target bonus opportunities and commission opportunities, respectively, provided to such Vistana Employee immediately prior to the Closing Date, (ii) employee benefits that are comparable in the aggregate to such Vistana Employee to those benefits provided to such Vistana Employee immediately prior to the Closing Date but excluding any defined benefit pension benefits, employer or matching contributions under any defined contribution retirement plan, equity compensation arrangement, stock purchase programs, retiree medical or insurance benefits, any benefits under a nonqualified deferred compensation plan or employee discount program, (iii) severance benefit opportunities that are not less favorable to such Vistana Employee than the greater of (A) the severance benefit opportunities available to such Vistana Employee under such Vistana Employee’s offer letter (if listed on Schedule 2.01(d)) or (B) the severance benefit opportunities available to such Vistana Employee under Starwood’s severance benefit guidelines listed on Schedule 2.01(e), in each case immediately prior to the Closing Date, and (iv) an opportunity to participate in the ILG Retirement Plan on substantially the same terms as similarly situated employees of ILG.

 

(f) Service Credit. From and after the Closing, ILG shall give each Vistana Employee full credit for determining the amount of paid time off, vacation or sick leave, and the level of employer contributions under any defined contribution retirement plan, and for purposes of eligibility to participate and vesting (but not benefit accruals (if applicable)) under any employee benefit plans, arrangements, collective agreements and employment-related entitlements (including under any applicable pension, defined contribution (for example, 401(k)), deferred compensation, savings, medical, dental, life insurance, disability, vacation, long-service leave or other leave entitlements, post-retirement health and life insurance, termination indemnity, severance or separation pay plans) provided, sponsored, maintained or contributed to by ILG or any of its Affiliates (including Vistana and its

 

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Subsidiaries) under which such Vistana Employee is eligible to participate after the Closing for such Vistana Employee’s service with Starwood, Vistana or their Subsidiaries prior to the Effective Time, to the same extent recognized by any of Starwood, Vistana and their Subsidiaries immediately prior to the Effective Time, except to the extent such credit would result in the duplication of benefits for the same period of service. Notwithstanding the foregoing, to the extent permitted under applicable Law, neither ILG nor Vistana shall be required to provide credit for such service for benefit accrual purposes under any employee benefit plan of ILG that is a defined benefit pension plan.

 

Section 2.02 Retirement Plans.

 

(a) Starwood Retirement Plan. Effective on the Closing Date, Vistana Employees shall cease to be eligible to: (A) have elective deferrals contributed on their behalf to the Starwood Retirement Plan with respect to pay paid after the Closing Date, (B) be credited with future employer contributions (for example, matching contributions) in the Starwood Retirement Plan, or (C) make contributions (for example, rollovers or loan repayments) to the Starwood Retirement Plan. Starwood shall contribute to the applicable Vistana Employee or Former Vistana Employee accounts under the Starwood Retirement Plan the employer match true-up pursuant to Section 4.2(b) of such plan with respect to the completed plan year prior to the Closing Plan Year in the ordinary course but no later than the day before the Closing Date. Such employer match true-up shall be charged to and paid by Vistana pursuant to Starwood’s normal operating rules for the employer match true-up.

 

(b) ILG Retirement Plan. Prior to the Closing Date, ILG shall take, or cause to be taken, or have taken, all action necessary and appropriate to establish or maintain for the benefit of Vistana Employees (i) a defined contribution plan qualified under Section 401(a) of the Code that includes a cash or deferred arrangement qualified under Section 401(k) of the Code that is a participant-directed individual account plan that complies with Section 404(c) of ERISA, and (ii) a related trust or trusts exempt under Section 501(a) of the Code, each to be effective no later than the Closing Date (such plan and trust(s), the “ILG Retirement Plan”).

 

(c) Spin-Off of the Starwood Retirement Plan and Merger into the ILG Retirement Plan. Effective on the Closing Date, Starwood shall cause the Starwood Retirement Plan to spin off the portion of the Starwood Retirement Plan attributable to the Vistana Employees and Former Vistana Employees, as well as to any respective Plan Payees, such spinoff to include (but not be limited to) any and all such individual’s accounts, liabilities, related assets, unvested amounts, zero dollar accounts, forfeited accounts, unlocatable participant accounts and outstanding loan balances. Effective immediately thereafter, ILG or one of its Affiliates shall cause the ILG Retirement Plan to accept the merger of such spun-off portion of the Starwood Retirement Plan. All assets shall be transferred in cash as soon as administratively practicable thereafter and shall be mapped to appropriate investment options in the ILG Retirement Plan pursuant to Section 404(c)(4) of ERISA or to the appropriate qualified default investment fund under the ILG Retirement Plan pursuant

 

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to Section 404(c)(5) of ERISA. Such spinoff and merger shall be conducted in accordance with Section 414(l) of the Code, Treasury Regulation Section 1.414(l)-1 and Section 208 of ERISA. The benefits of the Vistana Employees participating in the Starwood Retirement Plan as of immediately prior to the plan merger described in this Section 2.02(c) shall be preserved in the ILG Retirement Plan effective as of the plan merger described in this Section 2.02(c) to the extent required under the anti-cutback rules of Section 411(d)(6) of the Code.

 

(d) Alternative to Spin-Off and Merger. Starwood represents that, with respect to the Starwood Retirement Plan (i) the plan is qualified within the meaning of Section 401(a) of the Code, (ii) Starwood has received a favorable determination from the Internal Revenue Service with respect to the qualified status of the plan covering the terms of the plan as currently in effect, (iii) nothing has occurred since the date of such letter that would reasonably be expect to adversely affect the qualified status of the plan, and (iv) the plan has been administered materially in accordance with its terms and all applicable Laws, including ERISA and the Code. Notwithstanding anything herein to the contrary, if events happen such that the representations made by Starwood set forth in the preceding sentence are not materially true and correct with respect to the Starwood Retirement Plan at any time prior to the Closing Date and have not been fully corrected by the Closing Date, then ILG may elect, in a written notice to Starwood delivered not later than three (3) business days prior to the Closing Date, not to effectuate the transactions described in Section 2.02(c) (which shall be the only consequence of any such breach of Starwood’s representation in this Section 2.02(d)). In such case, after the Closing Date the Starwood Retirement Plan shall give each Vistana Employee, Former Vistana Employee, and any respective Plan Payee who has a vested account balance under the Starwood Retirement Plan at the Closing Date the opportunity to elect a distribution of the portion of such balance that would be an eligible rollover distribution within the meaning of Section 402(c)(4) of the Code (including any outstanding loan notes that are not in default at the time of the rollover) (“eligible rollover distributions”) in the form of a direct rollover to the ILG Retirement Plan, pursuant to procedures and time frames agreed to by the parties to facilitate this process. The Starwood Retirement Plan shall arrange for a transfer of these direct eligible rollover distributions to the ILG Retirement Plan in one or more transmissions to occur no later than sixty (60) days following the Closing Date. ILG shall cause the ILG Retirement Plan and related trust to accept such rollovers (including such outstanding loan notes), except for any for which it has evidence that they are not in fact eligible rollover distributions. Vistana Employees, Former Vistana Employees, and any respective Plan Payees who do not take advantage of this rollover opportunity retain the right to make direct or indirect rollovers to the ILG Retirement Plan under its usual rules.

 

(e) Foreign Service Defined Benefit Plan.

 

(i) General. Starwood will, or will cause one of its Affiliates (other than Vistana Entities) to, assume or retain the Starwood Hotels & Resorts Retirement Plan for Foreign Service Employees (the “Foreign Service DB Plan”), which is a frozen plan.

 

(ii) Foreign Service DB Shortfall. Notwithstanding Section 2.02(e)(i) above, within seven (7) days following the Closing Date, ILG shall transfer to Starwood $180,000, which Starwood shall immediately contribute to the Foreign Service DB Plan. ILG and Vistana shall have no liability with respect to the Foreign Services DB Plan, other than as provided in the preceding sentence.

 

(f) Foreign Service Defined Contribution Plan. Starwood will, or will cause one of its Affiliates (other than Vistana Entities) to, assume or retain the Starwood Hotels & Resorts Defined Contribution Plan for Foreign Service Employees.

 

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Section 2.03 Nonqualified Plans.

 

(a) Starwood Deferred Compensation Plan. Vistana Employees shall not be permitted to defer compensation to the Starwood Deferred Compensation Plan on or after the Closing Date.

 

(b) Vistana Deferred Compensation Plan. Effective immediately prior to the Closing Date, Vistana shall take, or cause to be taken, or have taken, all action necessary and appropriate to establish for the benefit of Vistana Employees a nonqualified deferred compensation plan (such plan, the “Vistana Deferred Compensation Plan”). The Vistana Deferred Compensation Plan shall have terms and features that are substantially similar to the Starwood Deferred Compensation Plan, other than with respect to investment options, such that (for the avoidance of doubt), the Starwood Deferred Compensation Plan shall be substantially replicated by the Vistana Deferred Compensation Plan, except that neither ILG nor Vistana shall be under any obligation to offer any employees the opportunity to make future deferral elections under such Plan, and if it does, neither ILG nor Vistana shall be under any obligation to make deferral elections available under the same terms as applied under the Starwood Deferred Compensation Plan. However, the Vistana Deferred Compensation Plan shall honor deferral elections made by Vistana Employees in the Starwood Deferred Compensation Plan before the Closing Date. Vistana shall designate one or more phantom investment options that are commercially reasonable for a nonqualified deferred compensation plan like the Vistana Deferred Compensation Plan, the gains and losses and income and expenses of which shall be used to determine investment return equivalents by which the account of participants in the Vistana Deferred Compensation Plan shall be adjusted. From and after the Closing Date, Vistana shall be solely and exclusively responsible for all obligations and liabilities with respect to, or in any way related to, the Vistana Deferred Compensation Plan, whether accrued before, on or after the Closing Date. The Vistana Deferred Compensation Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and Department of Labor Regulation § 2520.104-23. The Vistana Deferred Compensation Plan shall not be a funded plan,

 

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and neither Vistana nor any of its Affiliates is under any obligation to set aside any funds for the purpose of making payments under the Vistana Deferred Compensation Plan.

 

(c) Transfer of Interests and Elections as of Closing Date.

 

(A) Transfer of Interests. Prior to the Closing Date, Starwood shall cause the Starwood Deferred Compensation Plan to transfer to the Vistana Deferred Compensation Plan, and Vistana or an Affiliate thereof will cause such Vistana Deferred Compensation Plan to accept the transfer of, the interests of participants in the Starwood Deferred Compensation Plan who are Vistana Employees or Former Vistana Employees, as well as any respective Plan Payees. Starwood will not transfer to Vistana or an Affiliate thereof any assets that are earmarked for the payment of benefits with respect to these transferred interests.

 

(B) Transfer of Elections. Prior to the Closing Date and as permitted by Section 409A of the Code, Vistana will cause the Vistana Deferred Compensation Plan to recognize and maintain existing elections, including deferral, payment form elections, and beneficiary designations with respect to Vistana Employees and Former Vistana Employees, as well as any respective Plan Payees, under the Starwood Deferred Compensation Plan, but Vistana is under no obligation to recognize or maintain the investment elections and options under the Starwood Deferred Compensation Plan. The transfer of elections contemplated in this Section 2.03(c) shall be expressly conditioned on Starwood providing to ILG, no later than thirty (30) days prior to the Closing Date, a data report of all elections (other than investment elections) made by the Vistana Employees or Former Vistana Employees under the Starwood Deferred Compensation Plan, in a format reasonably acceptable to ILG.

 

(d) Transfer of Liabilities. Within seven (7) days following the Closing Date, Starwood or one of its Affiliates shall transfer to ILG an amount in cash equal to the sum of the value of each of the existing subaccounts under the Starwood Deferred Compensation Plan with respect to each of the participants in the Starwood Deferred Compensation Plan who are Vistana Employees or Former Vistana Employees, as well as any respective plan payees, determined as of the last “Valuation Date” (as defined therein) immediately before the Closing Date, and after crediting such subaccounts with earnings and gains (and debited for expenses and losses) as specified in Section 6 thereof through such Valuation Date. The recordkeeper for the Starwood Deferred Compensation Plan, which is MullinTBG as of the execution hereof, shall make this determination pursuant to the terms of the Starwood Deferred Compensation Plan and its customary rules for valuing such subaccounts (to the extent such rules do not conflict with the terms of the Starwood Deferred Compensation Plan), subject to the review and approval of ILG which approval shall not be unreasonably withheld.

 

(e) Section 409A. The Parties will cooperate in good faith so that the transfers contemplated by this Section 2.03 will not result in adverse Tax consequences under Section 409A of the Code.

 

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Section 2.04 Annual Bonus.

 

(a) ILG will be responsible for establishing, or causing Vistana to establish, effective as of the Closing Date, a bonus program in which Vistana Employees who participated in Starwood’s Annual Incentive Plan or any other bonus or incentive compensation plan or program maintained by Starwood, Vistana or any of their Affiliates (the “Starwood AIP”) immediately prior to the Closing Date will participate effective on the Closing Date (the “ILG AIP”). The ILG AIP will be structured so that it provides a bonus opportunity for the Closing Plan Year that preserves to the extent practicable the bonus opportunity that each Vistana Employee would have had if he or she would have remained a participant in the Starwood AIP for the entire Closing Plan Year (the “FY ILG AIP Award”). The FY ILG AIP Award shall consist of (1) a pro-rated award calculated based upon the achievement of the performance objectives applicable to the related Starwood AIP award and the number of days in the Closing Plan Year that occurs prior to the Closing Date and (2) a pro-rated award calculated based upon performance of ILG and the number of days in the Closing Plan Year that occurs following the Closing Date and including the Closing Date. ILG will pay all FY ILG AIP Awards. Starwood shall provide ILG with any necessary performance results for the Closing Plan Year and any other information necessary to enable ILG to meet its obligations under this Section 2.04(a).

 

(b) Starwood will retain all obligations related to bonus compensation earned by Vistana Employees under the Starwood AIP with respect to any calendar year ended prior to the Closing Date that is earned but unpaid as of the Effective Time; providedhowever, that, if requested by Starwood, ILG or an Affiliate thereof will make all cash payments in respect of any such bonus compensation so long as Starwood transfers to ILG, prior to the date that such payment is to be made to the applicable Vistana Employee, the amounts payable in respect of such cash payments, including all applicable withholding amounts and the employer’s portion of any employment taxes.

 

Section 2.05 Health and Welfare Benefits.

 

(a) Starwood Flexible Benefits Plan. Effective as of the Closing Date, Vistana Employees will cease to participate in the Starwood Flexible Benefits Plan.

 

(b) Establishment of ILG Flexible Benefits Plan. Prior to the Closing Date, ILG shall or shall cause one of its Affiliates to take, or cause to be taken, or have taken, all action necessary and appropriate to establish or designate and administer a group welfare benefits plan for the benefit of all Vistana Employees effective as of the Closing Date (the “ILG Flexible Benefits Plan”) and to provide benefits thereunder for all eligible Vistana Employees who choose to enroll in such Plan. ILG will cause such ILG Flexible Benefits Plan to cover those Vistana Employees and their dependents who immediately prior to the Closing Date were participating in, or entitled to present or future benefits under, the Starwood Flexible Benefits Plan, and shall recognize the most recent hire date of such Vistana Employee with Starwood or a member of the controlled group of organizations of which

 

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Starwood is a part (as defined by Section 414 of the Code and regulations issued thereunder) for purposes of determining whether such Vistana Employee has met any otherwise applicable waiting period. Starwood will be responsible for all liabilities associated with claims incurred prior to the Closing Date by Vistana Employees and Former Vistana Employees and their dependents under the Starwood Flexible Benefits Plan, which are paid on or after the Closing Date, regardless of when such claims are filed and/or paid.

 

(c) Dependent Care Flexible Spending Account. Notwithstanding anything contained in Section 2.05(b), to the extent Vistana Employees participate in a dependent care spending account under the Starwood Flexible Benefits Plan (the “Starwood FSA”) during the Closing Plan Year, ILG shall establish (or cause its Affiliate, if applicable, to establish) one or more comparable plans (the “ILG FSA”) that will recognize the elections that such Vistana Employees had in effect for purposes of the Closing Plan Year under the Starwood FSA. The ILG FSA shall (1) assume the assets and obligations of the Starwood FSA with respect to Vistana Employees as of the Closing Date and (2) provide the same level of dependent care spending account benefits as those provided under the Starwood FSA at least through the end of the Closing Plan Year. After the Closing Date, the ILG FSA will be responsible for reimbursement of all previously unreimbursed reimbursable dependent care claims incurred by Vistana Employees, regardless of when the claims were incurred.

 

(d) Continuation Coverage. As of the Closing Date, ILG and the ILG Flexible Benefits Plan shall assume or retain and shall be solely responsible for providing and meeting the continuation coverage requirements imposed by Section 4980B of the Code and Sections 601 through 608 of ERISA (“COBRA”) for all Vistana Employees and all Former Vistana Employees, as well as their “qualified beneficiaries” (as defined under COBRA), regardless of whether such liabilities arose before, on or after the Closing Date.

 

(e) Health Reimbursement Account. Notwithstanding anything contained in Section 2.05(b), ILG shall or shall cause one of its Affiliates to adopt a health reimbursement account (the “ILG HRA”), effective as of the Closing Date. The ILG HRA shall have similar terms and provide the same level of benefits as Starwood’s health reimbursement account in effect immediately prior to the Closing Date (the “Starwood HRA”). Effective as of the Closing Date, ILG shall assume the liabilities and obligations with respect to the account balances for all Vistana Employees and Former Vistana Employees under the Starwood HRA and shall pay all benefits with respect thereto to such Vistana Employees and Former Vistana Employees on and after the Closing Date.

 

(f) 6055/6056 Reporting. ILG shall be solely responsible for ensuring that Vistana complies with the reporting obligations under Section 6056 of the Code (Reporting of Offers of Coverage) with respect to Vistana Employees for the Closing Plan Year (including while Vistana was owned by Starwood) and periods after the Closing Date, for which Vistana has a reporting obligation, provided that Starwood shall be responsible for complying with all reporting obligations with respect to the

 

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year prior to the Closing Plan Year. In this regard, Vistana shall be responsible for distributing IRS Form 1095-C to applicable individuals and filing IRS Forms 1094-C and 1095-C with the IRS, all according to the applicable rules and regulations governing such forms. ILG shall also be solely responsible for ensuring that Vistana complies with the reporting obligations under Section 6055 of the Code (Reporting of Enrollment in Minimum Essential Coverage) with respect to all Vistana Employees who are enrolled in a self-insured medical plan under the Starwood Flexible Benefits Plan. Vistana may meet this obligation either through IRS Forms 1094-C and 1095-C or IRS Forms 1094-B and 1095-B, all in accordance with applicable rules and regulations. The reporting obligations under Section 6055 of the Code for Vistana Employees who are enrolled in a fully insured medical plan under the Starwood Flexible Benefits Plan shall be met by the applicable insurance carrier or HMO. Starwood shall work with ILG to provide all necessary, pre-Closing Date information for Vistana to meet its reporting obligation, which information shall be complete, accurate and provided to Vistana no later than thirty (30) days prior to the date that such reporting obligation is due; providedhowever, that to the extent reasonably necessary such time frame shall be reduced to fifteen (15) days for any data related to the four (4) month period ending on the date such reporting obligation is due.

 

(g) Credit for Benefits. ILG shall (1) waive for each Vistana Employee and his or her dependents, any waiting period provision, payment requirement to avoid a waiting period, pre-existing condition limitation, actively-at-work requirement and any other restriction that would prevent immediate or full participation under the welfare plans of ILG or any of its Affiliates applicable to (or was previously satisfied by) such Vistana Employee to the extent such waiting period, pre-existing condition limitation, actively-at-work requirement or other restriction would not have been applicable to such Vistana Employee under the terms of the welfare plans of Vistana and its Affiliates (including Starwood) immediately prior to the Effective Time, and (2) give full credit under the welfare plans of ILG and its Affiliates applicable to each Vistana Employee and his or her dependents for all co-payments and deductibles satisfied prior to the Effective Time in the Closing Plan Year, and for any lifetime maximums, as if there had been a single continuous employer.

 

Section 2.06 Workers’ Compensation. Starwood will be solely responsible for all United States (including its territories) workers’ compensation claims for all Employees and former Employees of Starwood or its Affiliates other than the Vistana Employees, regardless of when the Workers’ Compensation Events to which such claims relate occur. Effective as of the Closing Date, ILG and its Affiliates will be solely responsible for all United States (including its territories) workers’ compensation claims of Vistana Employees with respect to Workers’ Compensation Events, regardless of when such Workers Compensation Events to which such claims relate occur except to the extent claims related to events occurring prior to the Closing Date are covered under an applicable Starwood’s workers’ compensation insurance policy.

 

Section 2.07 Vacation and Sick Pay Liabilities. On and after the Closing Date, ILG shall provide the Vistana Employees with the same vested and unvested balances of vacation and sick leave as credited to the Vistana Employees on Starwood’s or its Affiliate’s payroll system

 

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immediately prior to the Closing Date. On and after the Closing Date, ILG shall continue to accrue vacation and sick leave in respect of each Vistana Employee according to Starwood’s accrual schedule as in effect immediately prior to the Closing Date.

 

Section 2.08 Severance. Effective as of the Effective Time, ILG shall assume all severance obligations under any Starwood Plan with respect to any Former Vistana Employee.

 

Section 2.09 Preservation of Right To Amend or Terminate Plans. Except as otherwise expressly provided in this Agreement, the Separation Agreement or the Merger Agreement, no provisions of this Agreement, shall be construed as a limitation on the right of Starwood, Vistana or ILG or any Affiliate thereof to amend any Plan or terminate its participation therein which Starwood, Vistana or ILG or any Affiliate thereof would otherwise have under the terms of such Plan or otherwise, and no provision of this Agreement shall be construed to create a right in any Employee or former Employee, or dependent or beneficiary of such Employee or former Employee, or any Plan Payee under a Plan which such person would not otherwise have under the terms of the Plan itself.

 

Section 2.10 No Right to Employment. Notwithstanding anything to the contrary set forth in this Agreement, no provisions of this Agreement shall be deemed to guarantee employment for any period of time for, or preclude the ability of Vistana, ILG or any of its or their Affiliates (as defined in the Merger Agreement) to terminate any employee or individual service provider for any reason.

 

Section 2.11 Equity Compensation Awards. Each Starwood Equity Award granted in 2014 or later and held by a Vistana Employee that is outstanding immediately prior to the Effective Time will be converted as described in subsections (a) and (b) below, so that each such Starwood Equity Award will become an ILG Equity Award. Starwood shall provide all information or documentation reasonably requested by ILG to fulfill such obligation within seven (7) days of receiving such request. From and after the Closing Date, ILG will retain, pay, perform, fulfill and discharge all liabilities arising out of or relating to the ILG Equity Awards.

 

(a) Starwood Time-Based Stock Awards. Each Starwood Time-Based Stock Award granted in 2014 or later and held by a Vistana Employee and listed on Schedule 2.11(a) will be assumed by ILG and converted, effective as of the Effective Time, into an ILG Time-Based Stock Award of the same type (the “Assumed Time-Based Stock Award”). Each such Assumed Time-Based Stock Award will be subject to substantially the same terms, vesting conditions and other restrictions, if any, that were applicable to the related Starwood Time-Based Stock Award immediately prior to the Closing Date, except that such terms, conditions and restrictions will be modified to the extent necessary to reflect that the holder of such Assumed Time-Based Stock Award provides services to ILG or its Affiliates (and not Starwood or its Affiliates) and the issuer of the common stock underlying the Assumed Time-Based Stock Award is ILG (and not Starwood). The number of shares of ILG Common Stock covered by each Assumed Time-Based Stock Award for each Vistana Employee will be equal to the product (rounded up to the nearest whole share) of (1) the number of shares of Starwood Common Stock covered by such Starwood Time-Based Stock Award immediately prior to the Effective Time and (2) the Adjustment

 

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Ratio. For the avoidance of doubt, the holder of any Starwood Time-Based Stock Award that consists of restricted shares will not be entitled to receive any shares of Vistana Common Stock to which such holder may have been entitled with respect to such restricted shares as a stockholder at the Record Date. As soon as reasonably practicable following the Effective Time, ILG will issue each Person who holds an Assumed Time-Based Stock Award a document evidencing the foregoing assumption of such Assumed Time-Based Stock Award by ILG.

 

(b) Starwood Performance Shares. Each Starwood Performance Share award granted in 2014 or later and held by a Vistana Employee and listed on Schedule 2.11(b) will be deemed to have been earned (the “Earned Starwood Performance Shares”) at the greater of (1) the target level of achievement of the applicable management objectives or (2) the actual level of achievement of the applicable management objectives measured as of the Closing Date and reasonably determined by Starwood in accordance with the terms of the Starwood Stock Plan using a methodology consistent with the methodology used in Starwood’s past practice in the ordinary course of business. For the avoidance of doubt, although the amount of Earned Starwood Performance Shares may be affected as a result of determining the achievement of the applicable management objectives as of the Closing Date rather than as of the end of the original performance period, such Earned Starwood Performance Shares shall not be further reduced or pro-rated based on the Vistana Employee ceasing to be employed by Starwood or its Affiliates as of such date. The Earned Starwood Performance Shares will be assumed by ILG and converted, effective as of the Effective Time, into a restricted stock units award covering ILG Common Stock (the “Converted RSUs”) and subject to substantially the same terms as the related Starwood Performance Shares, except that (y) such restricted stock units awards will vest in full on the third anniversary of the grant date of the original Starwood Performance Share award (generally subject to continued employment or service with ILG or an Affiliate thereof through such date) and will not be subject to any additional performance objectives and (z) the other terms and conditions will be modified to the extent necessary to reflect that the holder of such Converted RSU provides services to ILG or its Affiliates (and not Starwood or its Affiliates) and the issuer of the common stock underlying the Converted RSU is ILG (and not Starwood). The number of such Converted RSUs for each such Vistana Employee will be equal to the product (rounded up to the nearest whole share) of (1) the number of Earned Starwood Performance Shares, as determined in accordance with the above, and (2) the Adjustment Ratio. Any portion of the Starwood Performance Share awards that is not earned as of the Closing Date will be cancelled and forfeited. As soon as reasonably practicable following the Effective Time, ILG will issue each Person who holds a Converted RSU a document evidencing the foregoing assumption of such Converted RSU by ILG.

 

(c) Miscellaneous. Starwood and ILG shall take any and all actions reasonably necessary to effectuate the transactions contemplated by this Section 2.11. Without limiting the generality of the foregoing, as soon as practicable after the Effective Time, to the extent necessary, ILG shall prepare and file with the SEC a registration statement registering the number of shares of ILG Common Stock necessary to fulfill ILG’s obligations under this Section 2.11.

 

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ARTICLE III.

LABOR AND EMPLOYMENT MATTERS

 

Notwithstanding any other provision of this Agreement or any other agreement between ILG, Vistana and/or Starwood to the contrary, the Parties understand and agree that:

 

Section 3.01 Collective Bargaining Agreements.

 

(a) With regard to Employees of Starwood and its Subsidiaries covered by a Collective Bargaining Agreement immediately prior to the Closing Date, the Parties covenant to cooperate with each other to avoid any action which could, on a reasonably foreseeable basis, disrupt or otherwise negatively impact the labor relations of any other Party.

 

(b) Effective as of the Business Transfer Date, Vistana or an Affiliate of Vistana shall retain or assume each Collective Bargaining Agreement covering Vistana Employees, and Starwood shall have no further liability thereunder. Prior to the Business Transfer Date, Starwood agrees that it will comply and will cause any Affiliate of Starwood to comply, in all material respects, with all of the terms and conditions set forth in each such Collective Bargaining Agreement and with applicable Law covering      Starwood and any Starwood Affiliate’s Employees, including but not limited to, the fulfillment of any   labor or employment-related notice, information or consultation requirements relating to the matters contemplated hereby.

 

Section 3.02 WARN Obligations. Before and after the Closing Date, each party shall comply in all material respects with the Worker Adjustment and Retraining Notification Act and similar state and local laws (“WARN”). As of the Closing Date, ILG and its Affiliates shall be responsible for all obligations and liabilities under WARN relating to the Vistana Employees arising from mass layoffs or plant closings (each as defined under WARN) occurring on or after the Closing Date, and Starwood shall be responsible for all obligations and liabilities under WARN relating to the Vistana Employees arising from mass layoff or plant closings (each as defined under WARN) occurring prior to the Closing Date and all obligations and liabilities under WARN relating to Former Vistana Employees.

 

Section 3.03 Multiemployer Plan.

 

(a) In the event the Hotel Union And Hotel Industry Of Hawaii Pension Trust Fund (the “Hotel Trust Fund”) assesses withdrawal liability under Section 4201(a) of ERISA against Starwood, and/or its Affiliates as the result of a complete or partial withdrawal from the Hotel Trust Fund that is caused by actions taken by either Vistana or ILG without the consent of Starwood with respect to Employees at the resort currently known as the Sheraton Kauai Resort (“Withdrawal Liability”) (examples would include, but are not limited to, Withdrawal Liability that is caused by ILG closing the Sheraton Kauai Resort or converting it to timeshares, or terminating its management contract with Starwood), ILG shall indemnify Starwood for such Withdrawal Liability as follows:

 

(i) in the event Withdrawal Liability is assessed against Starwood or its Affiliates with respect to a withdrawal event that occurs on or after the Closing Date and prior to the first anniversary of the Closing Date, ILG shall not indemnify Starwood for any portion of such Withdrawal Liability;

 

18



 

(ii) in the event Withdrawal Liability is assessed against Starwood or its Affiliates with respect to a withdrawal event that occurs on or after the first anniversary of the Closing Date and prior to the second anniversary of the Closing Date, ILG shall indemnify Starwood for one-third of such Withdrawal Liability;

 

(iii) in the event Withdrawal Liability is assessed against Starwood or its Affiliates with respect to a withdrawal event that occurs on or after the second anniversary of the Closing Date and prior to the third anniversary of the Closing Date, ILG shall indemnify Starwood for two-thirds of such Withdrawal Liability; and

 

(iv) in the event Withdrawal Liability is assessed against Starwood or its Affiliates on or after the third anniversary of the Closing Date, ILG shall indemnify Starwood for the full amount of such Withdrawal Liability.

 

Starwood shall remain fully responsible, with no right to any indemnification or reimbursement from ILG, for any Withdrawal Liability for which ILG does not expressly agree to indemnify Starwood pursuant to this Section 3.03(a).

 

(b) Notwithstanding anything herein to the contrary, Starwood shall have no right to any indemnification against ILG for any Withdrawal Liability pursuant to Section 3.03(a) above until Starwood or an Affiliate satisfies any of its required ongoing obligations to make contributions under the Hotel Trust Fund that remain unpaid at the time of the withdrawal triggering such indemnification right under Section 3.03(a).

 

(c) In the event that Starwood incurs any Withdrawal Liability for which Starwood is entitled to indemnification from ILG pursuant to this Section 3.03, then with respect to such Withdrawal Liability, ILG shall have the right to direct Starwood to challenge such assessment of Withdrawal Liability to the full extent permitted by applicable Law and the Hotel Trust Fund, including, without limitation, a proceeding under Section 4221 of ERISA provided that ILG pays (or reimburses Starwood for) the costs of such defense in proportion to its obligation to indemnify Starwood for such Withdrawal Liability pursuant to Section 3.03(a).

 

(d) ILG shall not be considered or deemed to be a participating employer in the Hotel Trust Fund and shall have no liability to the Hotel Trust Fund.

 

Section 3.04 Attorney-Client Privilege. The provisions herein requiring the Parties to cooperate shall not be deemed to be a waiver of the attorney-client privilege for the Parties nor shall it require the Parties to waive their attorney-client privilege. In the event of any conflict

 

19



 

between the applicable terms of the Separation Agreement or the Merger Agreement and the terms of this Agreement with respect to matters relating to attorney-client privilege, the work product doctrine and all other evidentiary privileges and non-disclosure doctrines, the applicable terms of the Merger Agreement or the Separation Agreement, as applicable (including Sections 7.06 and 7.07 of the Merger Agreement and Section 6.8 of the Separation Agreement), shall prevail.

 

ARTICLE IV.

REMEDIES

 

Section 4.01 Indemnification. Any breach of this Agreement by any party hereto or any indemnification obligation under this Agreement shall be subject to the provisions set forth in Article V of the Separation Agreement which shall apply to this Agreement as if incorporated in their entirety herein.

 

Section 4.02 Enforcement. The Parties agree that irreparable damage would occur, and that the Parties would not have any adequate remedy at Law, in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to specifically enforce the terms and provisions of this Agreement, without proof of actual damages or otherwise, in addition to any other remedy to which any party hereto is entitled at Law or in equity. Each party hereto agrees to waive any requirement for the securing or posting of any bond in connection with such remedy. The Parties further agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to Law or inequitable for any reason, nor to assert that a remedy of monetary damages would provide an adequate remedy. In furtherance of the foregoing, the Parties hereby further acknowledge and agree that prior to the Closing, Starwood and Vistana shall be entitled to specific performance to enforce specifically the terms and provisions of and to prevent or cure breaches of this Agreement by ILG.

 

ARTICLE V.

MISCELLANEOUS

 

Section 5.01 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.

 

Section 5.02 Assignment. No party hereto shall assign this Agreement or any part hereof without the prior written consent of the other Parties. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the Parties and their respective permitted successors and assigns.

 

Section 5.03 Rights of Third Parties. Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any Person, other than the Parties, any right or remedies under or by reason of this Agreement.

 

20



 

Section 5.04 Captions. The captions in this Agreement are inserted for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement.

 

Section 5.05 Severability of Provisions. If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement shall remain in full force and effect. The Parties further agree that if any provision contained herein is, to any extent, held invalid or unenforceable in any respect under the Laws governing this Agreement, they shall take any actions necessary to render the remaining provisions of this Agreement valid and enforceable to the fullest extent permitted by Law and, to the extent necessary, shall amend or otherwise modify this Agreement to replace any provision contained herein that is held invalid or unenforceable with a valid and enforceable provision giving effect to the intent of the Parties.

 

Section 5.06 Notices. All notices, consents, approvals and other communications among the Parties shall be in writing and shall be deemed to have been duly given (a) when delivered in person, (b) when after posting in the United States mail having been sent registered or certified mail return receipt requested, postage prepaid, (c) when delivered by FedEx or other nationally recognized overnight delivery service, (d) when delivered by facsimile (solely if receipt is confirmed) or (e) or by email (so long as the sender of such email does not receive an automatic reply from the recipient’s email server indicating that the recipient did not receive such email), addressed as follows:

 

 

if to Starwood

 

 

 

 

 

 

 

 

Starwood Hotels & Resorts Worldwide, Inc.
One StarPoint
Stamford, Connecticut 06902
Attention: Chief Financial Officer
Facsimile: (203) 351-2519
Email: thomas.mangas@starwoodhotels.com

 

 

 

 

 

with a copy (which shall not constitute notice) to the same address:

 

 

 

 

 

Attention:

Kenneth S. Siegel

 

 

Facsimile No.:

(203) 351-2401

 

 

Email:

kenneth.siegel@starwoodhotels.com

 

 

 

 

 

with a copy (which shall not constitute notice) to:

 

 

 

 

 

Latham & Watkins LLP

 

 

885 Third Avenue

 

 

New York, New York 10022

 

 

Attention:

Jennifer Perkins

 

 

Facsimile No.:

(212) 751-4864

 

 

Email:

jennifer.perkins@lw.com

 

21



 

 

 

with a copy (which shall not constitute notice) to:

 

 

 

 

 

Jones Day

 

 

North Point

 

 

901 Lakeside Avenue

 

 

Cleveland, OH 44114-1190

 

 

Attention:

Stephen Coolbaugh

 

 

Facsimile No.:

(216) 579-0212

 

 

Email:

spcoolbaugh@jonesday.com

 

 

 

 

 

with a copy (which shall not constitute notice) to:

 

 

 

 

 

Kilpatrick Townsend & Stockton LLP

 

 

 

607 14th Street, NW Suite 900

 

 

 

Washington, DC 20005-2018

 

 

 

Attention:

Devon Miller

 

 

 

Facsimile No.:

(202) 253-1967

 

 

 

Email:

dmiller@kilpatricktownsend.com

 

 

 

if to ILG

 

 

 

 

 

 

Interval Leisure Group, Inc.

 

 

6262 Sunset Drive

 

 

Miami, Florida 33143

 

 

Attention:    Victoria J. Kincke, General Counsel

 

 

Facsimile:    305-667-2072

 

 

 

 

 

with a copy (which shall not constitute notice) to:

 

 

 

 

 

Weil, Gotshal & Manges LLP

 

 

767 Fifth Avenue

 

 

New York, NY 10153

 

 

Attention: Michael E. Lubowitz

 

 

Facsimile No.: (212) 310-8007

 

 

Email: michael.lubowitz@weil.com

 

 

if to Vistana

 

 

 

 

Vistana Signature Experiences, Inc.

 

 

9002 San Marco Court

 

 

Orlando, Florida 32819

 

 

Attention:

President and Chief Executive Officer

 

 

Facsimile No.:

(407) 417-7110

 

 

 

 

 

with a copy (which shall not constitute notice) to:

 

 

 

 

 

Weil, Gotshal & Manges LLP

 

 

767 Fifth Avenue

 

 

New York, NY 10153

 

 

Attention: Michael E. Lubowitz

 

 

Facsimile No.: (212) 310-8007

 

 

Email: michael.lubowitz@weil.com

 

22



 

or to such other address or addresses as the Parties may from time to time designate in writing.

 

Section 5.07 Further Assurances. Each party hereto agrees that it will execute and deliver or cause its respective Affiliates to execute and deliver such further instruments, and take (or cause their respective Affiliates to take) such other action, as may be reasonably necessary to carry out the purposes and intents of this Agreement.

 

Section 5.08 Amendment; Waiver. This Agreement may be amended or modified in whole or in part, only by a duly authorized agreement in writing executed by the Parties in the same manner as this Agreement and which makes reference to this Agreement. Any party hereto may waive any of the terms or conditions of this Agreement in writing executed in the same manner (but not necessarily by the same Persons) as this Agreement. No waiver by any of the Parties of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the party hereto sought to be charged with such waiver. No waiver by any of the Parties of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

 

Section 5.09 Governing Law. This Agreement, and all claims or causes of action based upon, arising out of, or related to this Agreement or the transactions contemplated hereby, shall be governed by, and construed in accordance with, the Laws of the State of Delaware, without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of Laws of another jurisdiction.

 

Section 5.10 Consent to Jurisdiction: Waiver of Jury Trial.

 

(a) Any Action based upon, arising out of or related to this Agreement or the transactions contemplated hereby shall be brought exclusively in the Court of Chancery of the State of Delaware, or, if it cannot acquire jurisdiction, in any federal court of the United States of America sitting in Delaware, and, in each case, appellate courts therefrom, and each of the Parties irrevocably submits to the exclusive jurisdiction of each such court in any such Action, waives any objection it may now or hereafter have to personal jurisdiction, venue or to convenience of forum, agrees that all claims in respect of the Action shall be heard and determined only in such courts and agrees not to bring any Action arising out of or relating to this Agreement or the transactions contemplated hereby in any other court. Nothing herein contained shall be deemed to affect the right of any party hereto to serve process in any manner permitted by Law or to commence legal proceedings or otherwise proceed against any other party hereto in any other jurisdiction, in each case, to enforce judgments obtained in any action, suit or proceeding brought pursuant to this Section 5.10(a).

 

(b) Each party hereto hereby waives, to the fullest extent permitted by applicable Law, any right it may have to a trial by jury in respect of any suit, action or other proceeding arising out of this Agreement or the transactions contemplated hereby. Each party hereto (i) certifies that no Representative of any other party hereto has represented, expressly or otherwise, that such party would not, in the event of any action, suit or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other Parties have been induced to enter into this Agreement, by, among other things, the mutual waiver and certifications in this Section 5.10.

 

23



 

Section 5.11 Entire Agreement. This Agreement, the Separation Agreement and the Merger Agreement constitute the entire agreement among the Parties relating to the transactions contemplated hereby and supersede any other agreements, whether written or oral, that may have been made or entered into by or among any of the Parties or any of their respective Subsidiaries relating to the transactions contemplated hereby. No representations, warranties, covenants, understandings, agreements, oral or otherwise, relating to the transactions contemplated by this Agreement exist between the Parties, except as expressly set forth in this Agreement, the Separation Agreement and the Merger Agreement.

 

Section 5.12 Counterparts. This Agreement may be executed in two or more counterparts (including by electronic or .pdf transmission), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Delivery of any signature page by facsimile, electronic or .pdf transmission shall be binding to the same extent as an original signature page.

 

Section 5.13 Expenses. Each party hereto shall bear its own expenses incurred in connection with this Agreement and the transactions herein contemplated whether or not such transactions shall be consummated, including all fees of its legal counsel, financial advisers and accountants.

 

[Remainder of page intentionally left blank]

 

24



 

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

 

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

VISTANA SIGNATURE EXPERIENCES, INC.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

INTERVAL LEISURE GROUP, INC.

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

[Signature Page to Employee Matters Agreement]

 



 

AMENDMENT TO EMPLOYEE MATTERS AGREEMENT

 

This Amendment (this “Amendment”) to the Employee Matters Agreement, dated as of October 27, 2015, by and among Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation and the sole stockholder of Vistana (“Starwood”), Vistana Signature Experiences, Inc., a Delaware corporation and a wholly-owned Subsidiary of Starwood (“Vistana”), and Interval Leisure Group, Inc., a Delaware corporation (“ILG”) (the “Employee Matters Agreement”), is made as of April 18, 2016 (“Execution Date”).  Capitalized terms used but not defined in this Amendment have the meanings ascribed to them in the Employee Matters Agreement.

 

RECITALS

 

WHEREAS, in connection with the Agreement and Plan of Merger, dated as of October 27, 2015, entered into by and among Starwood, Vistana, ILG, and Iris Merger Sub, Inc., a Delaware corporation and a wholly-owned Subsidiary of ILG (the “Merger Agreement”), the Parties contemporaneously entered into the Employee Matters Agreement; and

 

WHEREAS, the Parties desire to amend certain rights and obligations of the Parties under the Employee Matters Agreement.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereof, and intending to be legally bound hereby, the Parties agree as follows:

 

AGREEMENT

 

Section 1.01                             Business Transfer Date.  When used in the Employee Matters Agreement, the term “Business Transfer Date” shall be deemed to be a reference to “Distribution Date,” as such term is defined in the Separation Agreement.

 

Section 1.02                             Retirement Plans.  Notwithstanding the provisions of Section 2.01(e)(iv) of the Employee Matters Agreement to the contrary, for the period from the Closing Date through December 31, 2016, the ILG Retirement Plan shall provide the Vistana Employees with the opportunity to receive the same rate of employer matching contributions and the same vesting schedule as provided under the Starwood Retirement Plan to such employees as of the date hereof; provided, however, that service may be credited for purposes of vesting or eligibility under the ILG Retirement Plan using the methodology currently provided by such ILG Retirement Plan.

 

Section 1.03                             Nonqualified Plans.  Notwithstanding the first two sentences of Section 2.03(b) of the Employee Matters Agreement, ILG shall amend its existing nonqualified deferred compensation plan (the “ILG Deferred Compensation Plan”) as of the Closing Date to provide for participation in the ILG Deferred Compensation Plan by Vistana Employees who were participants in the Starwood Deferred Compensation Plan immediately prior to the Closing Date

 



 

on terms and conditions (other than with respect to investment options) that are substantially similar to what was provided to them under the Starwood Deferred Compensation Plan and pursuant to the remainder of Section 2.03 of the Employee Matters Agreement. Notwithstanding the foregoing, neither ILG nor Vistana shall be under any obligation to offer any employees the opportunity to make future deferral elections under the ILG Deferred Compensation Plan, and if any future deferral elections are offered under the ILG Deferred Compensation Plan, neither ILG nor Vistana shall be under any obligation to make deferral elections available under the same terms as applied under the Starwood Deferred Compensation Plan.  References in the Employee Matters Agreement to the “Vistana Deferred Compensation Plan” shall be deemed to be references to the “ILG Deferred Compensation Plan,” as amended.  References to the actions to be taken “prior to the Closing Date” in the first sentence of each of Sections 2.03(c)(A) and 2.03(c)(B) of the Employee Matters Agreement shall be deemed to mean “as of the Closing Date.”

 

Section 1.04                             Flexible Benefit Plan.  Notwithstanding the provisions of Sections 2.05(a) and 2.05(b) of the Employee Matters Agreement to the contrary, in the event that the Closing Date has not occurred as of April 1, 2016, then effective as of such date Vistana Employees shall cease to participate in the Starwood Flexible Benefit Plan, and Vistana shall establish a new flexible benefit plan (the “Vistana Flexible Benefit Plan”) for the benefit of Vistana Employees.  The Vistana Flexible Benefit Plan shall be similar to the Starwood Flexible Benefit Plan, and shall be subject to the review and approval of ILG prior to its adoption, which consent shall not be unreasonably withheld.  In the event the foregoing applies, references in the Employee Matters Agreement to the “ILG Flexible Benefits Plan” shall be deemed to be references to the new Vistana Flexible Benefits Plan, and the Vistana Flexible Benefits Plan shall be deemed a Vistana Benefit Plan for purposes of the Merger Agreement.  Starwood will be responsible for all liabilities with respect to any Vistana Employee or Former Vistana Employee and their dependents, regardless of when such claims are filed and/or paid under the Starwood Flexible Benefits Plan with respect to all claims incurred on or before March 31, 2016.  The amounts Starwood has previously received for health and welfare coverage under the Starwood Flexible Benefits Plan for Vistana Employees or Former Vistana Employees through March 31, 2016 shall be considered full payment for such coverage and Vistana shall not be obligated to make any further payments toward such coverage.  Vistana will be responsible for all liabilities with respect to any Vistana Employee or COBRA Participant and their dependents, regardless of when such claims are filed and/or paid, under the Vistana Flexible Benefits Plan with respect to all claims incurred on or after April 1, 2016 and Starwood shall not be responsible for any “true up” payment with respect to such claims, including for the period that Vistana remains part of the Starwood controlled group.  Vistana shall not be required to pay Starwood a monthly amount for health and welfare coverage for Vistana Employees or Former Vistana Employees beginning with the month of April, 2016.

 



 

Section 1.05                             Dependent Care Flexible Spending Account.  Notwithstanding the provisions of Section 2.05(c) of the Employee Matters Agreement to the contrary, ILG shall not be required to establish nor cause to be established an ILG FSA effective as of or following the Closing Date.  Starwood shall remain liable for all claims and liabilities under the Starwood FSA with respect to any Vistana Employee or Former Vistana Employee.  Furthermore, Vistana Employees shall not be eligible to participate in a dependent care spending account program on or after April 1, 2016; provided, however, that in its sole discretion, ILG may establish a flexible spending account for the benefit of Vistana Employees on or after April 1, 2016.

 

Section 1.06                             Continuation Coverage.  Notwithstanding the provisions of Section 2.05(d) of the Employee Matters Agreement to the contrary, in the event that the Closing Date has not occurred as of April 1, 2016, the Vistana Flexible Benefits Plan shall be solely responsible for providing and meeting the COBRA continuation coverage requirements for all Vistana Employees and all Former Vistana Employees, as well as their “qualified beneficiaries” (as defined in COBRA), with respect to all claims incurred on or after April 1, 2016.  Furthermore, all COBRA premiums for coverage for such individuals beginning on April 1, 2016 shall be paid to Vistana or the Vistana Flexible Benefits Plan.

 

Section 1.07                             Health Reimbursement Account.  Notwithstanding the provisions of Section 2.05(e) of the Employee Matters Agreement to the contrary, in the event that the Closing Date has not occurred as of April 1, 2016, Vistana Employees will cease to participate in the Starwood HRA as of such date, and Vistana shall establish a new health reimbursement account (the “Vistana HRA”) for the benefit of Vistana Employees.  The Vistana HRA shall have similar terms and provide the same level of benefits as the Starwood HRA, and shall be subject to the review and approval of ILG prior to its adoption which consent shall not be unreasonably withheld.  In connection with providing the same level of benefits, to the extent permitted by applicable Law, the Vistana HRA shall provide that the account balances for each Vistana Employee who is a participant under the Vistana HRA shall be increased by any balance that still remains under the Starwood HRA for such participant after the end of the run out period under the Starwood HRA for paying claims incurred in the 2015-2016 plan year to the same extent as such amount would have remained available for such participant’s use under the Starwood HRA during the 2016-2017 plan year.  In the event the foregoing applies, references in the Employee Matters Agreement to the “ILG HRA” shall be deemed to be references to the new Vistana HRA, and the Vistana HRA shall be deemed a Vistana Benefit Plan for purposes of the Merger Agreement.  In the event the Vistana HRA is established pursuant to this Section 1.07, (i) Starwood shall be responsible for all liabilities with respect to any Vistana Employee or Former Vistana Employee and their dependents, regardless of when such claims are filed and/or paid under the Starwood HRA, and (ii) Vistana shall be responsible for all liabilities with respect to any Vistana Employee or Former Vistana Employee and their dependents, regardless of when such claims are filed, under the Vistana HRA with respect to all claims incurred on or after April 1, 2016.

 



 

Section 1.08                             Vacation and Sick Pay Liabilities.  Notwithstanding the provisions of Section 2.07 of the Employee Matters Agreement to the contrary, on and after the Closing Date, accrual of vacation and sick leave in respect of each Vistana Employee working in California, shall be according to an accrual schedule that is substantially similar to Starwood’s accrual schedule as in effect immediately prior to the Closing Date, rather than one which is identical.

 

Section 1.09                             Full Force and Effect.  Except as expressly set forth in this Amendment, this Amendment does not, by implication or otherwise, alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Merger Agreement or the Employee Matters Agreement, which are hereby incorporated by reference and shall remain in full force and effect.

 

Section 1.10                             Counterparts.  This Amendment may be executed in two or more counterparts (including by electronic or .pdf transmission), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Delivery of any signature page by facsimile, electronic or .pdf transmission shall be binding to the same extent as an original signature page.

 

Section 1.11                             Updates to Vistana Disclosure Schedule.  If the Vistana Flexible Benefit Plan and Vistana HRA are established pursuant to Sections 1.04 and 1.07 hereof, they will be deemed to be listed as a Vistana Benefit Plan on Section 5.13(a) of the Vistana Disclosure Schedule.

 

Section 1.12                             Governing Law.  This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws principles thereof.

 

[Signature page follows]

 



 

IN WITNESS WHEREOF, the Parties have executed this Amendment as of the Execution Date.

 

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

[Signature Page to Amendment to Employee Matters Agreement]

 



 

 

VISTANA SIGNATURE EXPERIENCES, INC.

 

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

[Signature Page to Amendment to Employee Matters Agreement]

 



 

 

INTERVAL LEISURE GROUP, INC.

 

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

[Signature Page to Amendment to Employee Matters Agreement]

 



 

EXHIBIT B

 

License Agreement

 

See Attached.

 



 

FORM OF LICENSE, SERVICES AND DEVELOPMENT AGREEMENT

 

dated as of

 

· ]

 

by and among

 

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.

 

and

 

VISTANA SIGNATURE EXPERIENCES, INC.

 

and

 

INTERVAL LEISURE GROUP, INC.

 



 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

1.

LICENSE

1

 

 

 

2.

NONCOMPETITION AGREEMENT; EXCLUSIVITY AND RESERVED RIGHTS

3

 

 

 

 

 

2.1

Noncompetition Agreement

3

 

2.2

Exclusivity

3

 

2.3

Starwood’s Reserved Rights

3

 

2.4

Vistana’s Reserved Rights

4

 

2.5

Loss of Exclusivity

5

 

 

 

 

3.

FEES

7

 

 

 

 

 

3.1

Royalty Fees; Other Fees

7

 

3.2

Making of Payments; Delegation of Duties and Performance of Services

9

 

3.3

Interest on Late Payments

10

 

3.4

Currency and Taxes

10

 

 

 

 

4.

TERM

12

 

 

 

 

 

4.1

Initial Term

12

 

4.2

Extension Term; Tail Period

12

 

 

 

 

5.

EXISTING PROPERTIES; DEVELOPMENT RIGHTS AND RESTRICTIONS

12

 

 

 

 

 

5.1

Existing Properties

12

 

5.2

New Properties

13

 

5.3

Undeveloped Parcels

17

 

5.4

Material Changes and Expansions

17

 

5.5

Properties Located at Unbranded Co-Located Hotels

17

 

5.6

Prohibitions To Be Included in Future Franchise and Management Agreements

18

 

5.7

Vacation Ownership Properties at Third-Party Owned Starwood Lodging Facilities

18

 

5.8

Limitations on Licensed Business; Compliance with Contractual Restrictions

19

 

5.9

Conversion of Transferred Lodging Properties and Future Conversion Lodging Properties

21

 

5.10

Association Management Services

22

 

i



 

6.

CENTRALIZED SERVICES

22

 

 

 

 

 

6.1

Centralized Services

22

 

6.2

Participation in Centralized Services

23

 

6.3

Centralized Services Charges

23

 

6.4

Vistana Services

24

 

 

 

 

7.

OPERATIONS

24

 

 

 

 

 

7.1

Standard of Operation

24

 

7.2

Management of the Licensed Vacation Ownership Properties

28

 

7.3

Staff

28

 

7.4

Marketing

29

 

7.5

Purchasing

30

 

7.6

Inspections; Starwood Personnel Visits; Employee Rates

32

 

7.7

Delegation of Certain Functions

32

 

7.8

Quality Assurance System

33

 

7.9

Licensed Vacation Ownership Properties Controlled by Non-Controlled Property Owners’ Association

35

 

7.10

Vistana Initial Business Plan

36

 

 

 

 

8.

RESTRICTIONS AND LIMITATIONS ON CONDUCT OF LICENSED BUSINESS

36

 

 

 

 

 

8.1

Offers and Sales of Vacation Ownership Interests

36

 

8.2

Transient Rentals of Vacation Ownership Units

39

 

8.3

No Affiliation with Other Brands/Businesses

40

 

8.4

Exchange Programs

41

 

8.5

Licensed Clubs

43

 

8.6

Changes in Programs, Services or Benefits

43

 

 

 

 

9.

TECHNOLOGY

44

 

 

 

 

 

9.1

Technology Installation and Modification

44

 

9.2

Restrictions on Use of Starwood Technology

44

 

9.3

Reservation System

44

 

9.4

Network Security

45

 

 

 

 

10.

OTHER STARWOOD SERVICES

46

 

 

 

 

11.

GOVERNANCE

46

 

 

 

 

12.

MAINTENANCE AND REPAIRS

47

 

 

 

 

 

12.1

Implementation of Maintenance and Repairs

47

 

12.2

Funding of Maintenance and Repairs

47

 

12.3

Capital Expenditure Plans

47

 

12.4

Non-Routine Maintenance and Repairs

48

 

12.5

Maintenance and Repairs by Property Owners’ Associations

48

 

ii



 

13.

PROPRIETARY MARKS AND INTELLECTUAL PROPERTY RIGHTS

49

 

 

 

 

 

13.1

Starwood’s and Vistana’s Representations and Responsibility Regarding the Licensed Marks

49

 

13.2

Vistana’s Use of Applicable System and Starwood Intellectual Property; Agreements Regarding Starwood’s Intellectual Property Rights

50

 

13.3

Vistana’s Use of Other Marks

54

 

13.4

Use of Vistana Marks

54

 

 

 

 

14.

CONFIDENTIAL INFORMATION; CUSTOMER INFORMATION

56

 

 

 

 

 

14.1

Starwood Confidential Information

56

 

14.2

Guest Data

56

 

14.3

Vistana Data

57

 

14.4

Vistana Confidential Information

57

 

14.5

Common Data

58

 

14.6

Survival

58

 

 

 

 

15.

ACCOUNTING AND REPORTS

58

 

 

 

 

 

15.1

Books, Records, and Accounts

58

 

15.2

Reports

59

 

15.3

Starwood Examination and Audit of Vistana’s Records

59

 

 

 

 

16.

INDEMNIFICATION; LIMITATION ON LIABILITY

60

 

 

 

 

 

16.1

Indemnification

60

 

16.2

Limitations on Liability

64

 

16.3

Survival

65

 

 

 

 

17.

INSURANCE

65

 

 

 

 

 

17.1

Insurance Requirements of Vistana

65

 

17.2

Other Insurance Provisions

68

 

17.3

Release from Liability

70

 

17.4

Insurance Terms

70

 

 

 

 

18.

TRANSFERABILITY OF INTERESTS

70

 

 

 

 

 

18.1

Transfers by Vistana

70

 

18.2

Transfers by Starwood

72

 

18.3

Proposed Transfers to Lodging Competitors

73

 

18.4

Proposed Transfers of Properties or Bulk Vacation Ownership Interests

73

 

18.5

Grant of Security Interests by Vistana

74

 

iii



 

19.

DEFAULTS AND REMEDIES

75

 

 

 

 

 

19.1

Vistana Property-, Sales Gallery-, Marketing Facility, and Owner Service Center-Level Defaults and Remedies

75

 

19.2

Vistana Agreement-Level Defaults

78

 

19.3

No Waiver

81

 

19.4

Starwood Defaults

81

 

19.5

Other Defaults

83

 

19.6

Extraordinary Events

84

 

 

 

 

20.

POST-TERMINATION OBLIGATIONS; DE-IDENTIFICATION

85

 

 

 

 

 

20.1

Property De-Identification and Post-Termination Obligations

85

 

20.2

Agreement De-Identification and Post-Termination Obligations

88

 

20.3

Survival

89

 

 

 

 

21.

COMPLIANCE WITH LAWS; LEGAL ACTIONS

89

 

 

 

 

 

21.1

Compliance with Laws

89

 

21.2

Block Exemption

90

 

21.3

Sanction and Anti-Corruption Laws

90

 

 

 

 

22.

GOVERNING LAW; INJUNCTIVE RELIEF; COSTS OF ENFORCEMENT; ARBITRATION; AND EXPERT RESOLUTION

91

 

 

 

 

 

22.1

Governing Law; Venue

91

 

22.2

Injunctive Relief

92

 

22.3

Costs of Enforcement

92

 

22.4

Mediation

92

 

22.5

Arbitration

92

 

22.6

Expert Resolution

93

 

22.7

Litigation

94

 

22.8

Class Actions

95

 

22.9

Decisions in Prior Claims

95

 

22.10

Survival

95

 

 

 

 

23.

REPRESENTATIONS, WARRANTIES AND COVENANTS

95

 

 

 

 

 

23.1

Existence and Power; Authorization; Contravention

95

 

23.2

Acknowledgements and Representations Regarding Territorial Restrictions in Existing Contracts

96

 

 

 

 

24.

GENERAL PROVISIONS

96

 

 

 

 

 

24.1

Notices

96

 

24.2

Independent Contractor

97

 

24.3

Interpretation of this Agreement

98

 

24.4

Approvals, Consents and Waivers

99

 

iv



 

 

24.5

Entire Agreement

99

 

24.6

Amendments

99

 

24.7

Translations

100

 

24.8

Multiple Counterparts

100

 

24.9

Survival

100

 

 

 

 

25.

STARWOOD MANAGED PROPERTIES

100

 

 

 

 

26.

GUARANTY

100

 

 

 

 

 

26.1

Guaranty

100

 

26.2

Parent Waivers

101

 

26.3

Maximum Liability of Parent

102

 

26.4

Representations and Warranties of Parent

103

 

EXHIBIT A — DEFINITIONS

EXHIBIT B-1 — EXISTING PROPERTIES

EXHIBIT B-2 — UNDEVELOPED PARCELS

EXHIBIT C — FORM OF AFFILIATE SUBLICENSE AGREEMENT

EXHIBIT D — FORM OF PROPERTY APPROVAL REQUEST

EXHIBIT E — DESIGN REVIEW PROCEDURES

EXHIBIT F — FORM OF DISCLOSURE TO PROSPECTIVE PURCHASERS

EXHIBIT G — REGISTRATIONS AND APPLICATIONS FOR LICENSED MARKS

EXHIBIT H — REGISTRATIONS AND APPLICATIONS FOR VISTANA MARKS

EXHIBIT I — CONFIRMATION OF INSURANCE PLACEMENT FORM

EXHIBIT J-1 — FORM OF LENDER LETTER (PLEDGE OF LICENSE AGREEMENT)

EXHIBIT J-2 — FORM OF LENDER LETTER (PLEDGE OF OWNERSHIP INTERESTS)

 

v



 

FORM OF LICENSE, SERVICES, AND DEVELOPMENT AGREEMENT

 

This LICENSE, SERVICES, AND DEVELOPMENT AGREEMENT (“Agreement”), effective as of [ • ], (“Effective Date”), is entered into by and among Starwood Hotels & Resorts Worldwide, Inc., a Maryland corporation (“Starwood”), Vistana Signature Experiences, Inc., a Delaware corporation (“Vistana”) and, solely for the purposes of the Guaranty in Section 26 and Sections 18, 21.1, 22, and 24 and, as applicable, Exhibit A, Interval Leisure Group, Inc., a Delaware corporation (“Parent”).

 

RECITALS

 

A. Pursuant to that certain Agreement and Plan of Merger, dated as of October 27, 2015 by and among Starwood, Vistana, Interval Leisure Group, Inc., a Delaware corporation (“Buyer”), and Iris Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Buyer (“Merger Sub”) (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Merger Agreement”), Merger Sub will merge with and into Vistana immediately following the spin-off of Vistana to Starwood’s stockholders.

 

B. Vistana has been operating the Licensed Business by developing, selling, marketing, operating and financing Vacation Ownership Properties under the Licensed Marks using the Applicable System.

 

C. Vistana desires to continue operating the Licensed Business under the Licensed Marks using the Applicable System.

 

D. Starwood or its Affiliates will provide certain services to Vistana and its Affiliates with respect to the Licensed Business in accordance with the terms hereof.

 

E. Unless otherwise specified, capitalized terms used in this Agreement are defined in Exhibit A.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Vistana and Starwood agree as follows:

 

1.                       LICENSE

 

A. Subject to the terms and conditions of this Agreement, Starwood hereby grants to Vistana within the Territory during the Term, and Vistana hereby accepts, under the terms hereof:

 

(i) the limited exclusive right for the Vacation Ownership Business to be developed, sold, marketed, managed, operated and/or financed (including the servicing of purchase money loans for Vacation Ownership Interests) under the Licensed Names using the Applicable System;

 



 

(ii) the limited exclusive right for the Licensed Vacation Ownership Properties to be developed, marketed, managed, and/or operated under the marks listed in clause (i) of the definition of Licensed Marks using the Applicable System;

 

(iii) the limited exclusive right for the Vacation Ownership Business, solely to the extent it relates to the Specified Fractional Properties, to be sold, marketed, managed, operated and/or financed (including the servicing of purchase money loans for Vacation Ownership Interests) under the Specified Fractional Licensed Names using the Applicable System;

 

(iv) the limited exclusive right for the Specified Fractional Properties to be marketed, managed, developed and/or operated under the Specified Fractional Licensed Marks using the Applicable System;

 

(v) the limited exclusive or non-exclusive (as applicable) right for the programs, products and services of the Vacation Ownership Business agreed in writing by the parties to be marketed, developed or operated under the marks specified pursuant to clause (v) of the definition of Licensed Marks using the Applicable System; and

 

(vi) the limited right for the Licensed Unbranded Properties to be marketed, developed and/or operated using the Applicable System. For the avoidance of doubt, all provisions of this Agreement shall apply to the Licensed Unbranded Properties in the same manner as all Licensed Vacation Ownership Properties, except solely to the extent such provisions relate to (a) the use of the Licensed Marks (including the application of Standards and Policies relating to the Licensed Marks) and (b) Centralized Services that are specific to properties operated under the Licensed Marks. Notwithstanding anything to the contrary in this Agreement, Starwood does not grant Vistana any rights to use the Licensed Marks with respect to the Licensed Unbranded Properties,

 

providedhowever, that Vistana shall have no right under this Agreement to develop, own, operate, or manage, any Licensed Vacation Ownership Interests or Licensed Unbranded Vacation Ownership Interests other than those designed and intended primarily for leisure and vacation use, it being understood that recreational uses, social uses, and uses for educational or other affinity group events, meetings or classes, family reunions, and the conducting of business during leisure and vacation stays shall be considered consistent with leisure and vacation use, but Licensed Vacation Ownership Interests or Licensed Unbranded Vacation Ownership Interests designed and intended primarily for business travelers or for group, meeting, association or convention business shall not be considered leisure and vacation use.

 

B. The limited rights granted in Section 1.A shall extend on a non-exclusive basis during the Tail Period.

 

C. Vistana shall have no right to use the Licensed Marks or the Applicable System in connection with the development or sales, or the marketing, operating, managing or financing of units in a (i) Hotel (including a Condominium Hotel) other than the Transferred Lodging Properties or any Future Conversion Lodging Properties pursuant to the applicable Hotel Management Agreements, or (ii) the operation of a Whole Ownership Residential Business.

 



 

2.                       NONCOMPETITION AGREEMENT; EXCLUSIVITY AND RESERVED RIGHTS

 

2.1                      Noncompetition Agreement.

 

In partial consideration for the parties’ agreement to enter into this Agreement, Starwood and Vistana have entered into a Noncompetition Agreement (“Noncompetition Agreement”) contemporaneously herewith under which Starwood and Vistana have agreed to certain noncompetition covenants, and the parties hereby agree to comply with the terms of the Noncompetition Agreement.

 

2.2                      Exclusivity.

 

A. Subject to Section 7.2, during the Term, neither Starwood nor its Affiliates will:

 

(i) use, or license any third party to use, the names and marks “Westin” and “Sheraton” (other than as part of one or more corporate names of Starwood or its Affiliates) in connection with the activities described in clauses (i) through (vii) of the definition of Vacation Ownership Business,

 

(ii) other than on behalf of Vistana, use, or license any third party to use, Starwood’s knowledge of an Owner’s ownership of Licensed Vacation Ownership Interests or Licensed Unbranded Vacation Ownership Interests specifically to target such Owner in connection with the marketing or selling of interests in Vacation Ownership Units, or

 

(iii) conduct, or permit any third party to conduct, any marketing, leasing or sales activities for Vacation Ownership Interests (other than in connection with the Licensed Business) at any “Sheraton”-branded or “Westin”-branded Starwood Lodging Facilities which are owned by Starwood and its Affiliates.

 

B. Notwithstanding the foregoing, nothing in this Agreement shall restrict Starwood or any of its Affiliates from engaging in the activities described in Section 2.3 of this Agreement.

 

2.3                      Starwood’s Reserved Rights.

 

A. Vistana agrees that, except as set forth in Section 2.2, Starwood and its Affiliates expressly retain the right to engage in any Vacation Ownership Business under existing brands and brands including all Intellectual Property Rights therein, that Starwood or its Affiliates may develop or acquire in the future, without restriction of any kind, and to use and sublicense the use of the Starwood Intellectual Property in connection therewith; provided that, unless Vistana otherwise agrees in writing in its sole discretion, no such activities above involve or utilize in any way the Vistana Intellectual Property.

 



 

B. Vistana agrees that Starwood and its Affiliates expressly retain the right to:

 

(i) engage in the Lodging Business and any other business operations, subject to Section 2.2;

 

(ii) allow Starwood Lodging Facilities to use the System (in whole or in part);

 

(iii) use the Licensed Marks or the System in connection with developing, selling, marketing, managing, operating, and financing units in a Hotel (including a Condominium Hotel) or in connection with the Whole Ownership Residential Business; and

 

(iv) accept advance deposits or payments for stays at Starwood Lodging Facilities, and accept multi-year advanced bookings for stays at Starwood Lodging Facilities (provided that any such multi-year advance bookings relate to specific, identified Starwood Lodging Facilities and are not on a systemwide basis).

 

C. Starwood reserves all rights in the Licensed Marks not expressly and exclusively granted to Vistana in this Agreement and in all other Starwood Intellectual Property, including without limitation any individual elements or components thereof.

 

D. Vistana acknowledges and agrees that, notwithstanding anything in this Agreement to the contrary, Starwood shall not be restricted in any manner from using the terms “vacation,” “resort,” “club,” “lodge,” “villa,” “destination,” or similar terms in connection with the development, promotion, or operation of any of Starwood’s businesses; provided that any such usage would not violate any other provisions of the Transaction Agreements.

 

E. While the parties acknowledge that Starwood retains the rights in the term “Starwood Vacation Network,” Starwood agrees not to use or license such term in connection with a Vacation Ownership Business other than the Licensed Business during the Term.

 

F. The parties acknowledge and agree that the Noncompetition Agreement provides for additional limitations on, and certain retained rights with respect to, the activities of Starwood and its Affiliates.

 

2.4                           Vistana’s Reserved Rights.

 

A. Starwood agrees that, subject to Section 13.4, Vistana and its Affiliates expressly retain the right to engage in the Lodging Business; provided that, unless Starwood otherwise agrees in writing in its sole discretion, no such activities involve or utilize in any way the Starwood Intellectual Property, including the Applicable System.

 

B. Starwood agrees that, except with respect to such limitations as are set forth in this Agreement solely with respect to the Licensed Business, Vistana and its Affiliates expressly retain the right to engage in the Vacation Ownership Business, including under brands that Vistana or its Affiliates may develop or acquire in the future, without restriction of any kind, and to use and sublicense the use of the Vistana Intellectual Property in connection therewith;

 



 

provided that, unless Starwood otherwise agrees in writing in its sole discretion, no such activities involve or utilize in any way the Starwood Intellectual Property, including the Applicable System.

 

C. Subject to Section 13.4, Vistana reserves all rights in the Vistana Intellectual Property, including without limitation any individual elements or components thereof.

 

D. Starwood acknowledges and agrees that Vistana shall not be restricted in any manner from using the terms “hotel,” “inn,” or similar terms in connection with the development, promotion, or operation of any of Vistana’s businesses; provided that any such usage would not violate any other provisions of the Transaction Agreements.

 

E. The parties acknowledge and agree that the Noncompetition Agreement provides for additional limitations on, and certain retained rights with respect to, the activities of Vistana and its Affiliates.

 

2.5                           Loss of Exclusivity.

 

A. The parties agree that the exclusivity granted in Section 1 of this Agreement shall become non-exclusive and the restrictions and limitations on Starwood and its Affiliates in Section 2.2A of this Agreement shall cease upon the last to occur of the following events in connection with clauses (i) through (vi) below, as applicable: (x) the calculations required to determine the amounts as set forth in any of clauses (i) through (vi) below are completed, as applicable, (y) any dispute in connection with the results of such calculations is resolved, and (z) an installment of the applicable Exclusivity Continuation Fee has become due and payable and Vistana has failed to make the required payment thereof before the end of the applicable cure period (each of clauses (i) through (vi) below being an “Exclusivity Test”):

 

(i) If the aggregate Gross Sales Price for sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests, during the period commencing on January 1, 2021 and ending on December 31, 2040 and calculated by Vistana by no later than February 28, 2041 is less than six billion dollars ($6,000,000,000);

 

(ii) If the aggregate Gross Sales Price for sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests, during the prior twenty (20) year period ending on December 31, 2060 and calculated by Vistana by no later than February 28, 2061 is less than six billion dollars ($6,000,000,000), as adjusted annually after the Effective Date by the GDP Deflator;

 

(iii) If the aggregate Gross Sales Price for sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests during the prior twenty (20) year period ending on December 31, 2080 and calculated by Vistana by no later than February 28, 2081 is less than six billion dollars ($6,000,000,000), as adjusted annually after the Effective Date by the GDP Deflator;

 

(iv) In the event Vistana obtains the first Extension Term in accordance with Section 4.2, if the aggregate Gross Sales Price for sales of Licensed Vacation Ownership

 



 

Interests and Licensed Unbranded Vacation Ownership Interests during the prior twenty (20) year period ending on December 31, 2100 and calculated by Vistana by no later than February 28, 2101 is less than six billion dollars ($6,000,000,000), as adjusted annually after the Effective Date by the GDP Deflator;

 

(v) In the event Vistana obtains the first Extension Term in accordance with Section 4.2, if the aggregate Gross Sales Price for sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests during the prior twenty (20) year period ending on December 31, 2120 and calculated by Vistana by no later than February 28, 2121 is less than six billion dollars ($6,000,000,000), as adjusted annually after the Effective Date by the GDP Deflator; or

 

(vi) In the event Vistana obtains the second Extension Term in accordance with Section 4.2, if the aggregate Gross Sales Price for sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests during the prior twenty (20) year period ending on December 31, 2140 and calculated by Vistana by no later than February 28, 2141 is less than six billion dollars ($6,000,000,000), as adjusted annually after the Effective Date by the GDP Deflator.

 

(vii) For the purposes hereof, each twenty (20) year period, as applicable, described in clauses (i) through (vi) above shall be an “Exclusivity Test Period”, and the respective six billion dollar ($6,000,000,000) amount (as appropriately adjusted by the GDP Deflator) for each such Exclusivity Test Period shall be an “Exclusivity Test Target”. Any Exclusivity Test Target shall be replaced in one or more of clauses (i) through (vi) above by the Adjusted Exclusivity Test Target, if any, as determined in accordance with Section 2.5B(iii) below.

 

B. (i) Notwithstanding the foregoing to the contrary, in the event an Exclusivity Test Target is not satisfied for any Exclusivity Test Period as provided in Section 2.5A above, Vistana may maintain the exclusivity granted to it in Section 1 of this Agreement by paying an Exclusivity Continuation Fee (as defined below). Each Exclusivity Continuation Fee, if any, shall be paid in six (6) equal installments, with the first installment due within ten (10) Business Days after the calculations to determine the Exclusivity Continuation Fee for the applicable Exclusivity Test Period are finalized, and the remaining five (5) installments paid on the next five (5) anniversaries of the payment of the first installment for the applicable period. Vistana may prepay any Exclusivity Continuation Fee without penalty. If Vistana fails to pay any installment when the same becomes due and payable, then Starwood may issue a notice to Vistana with respect to such failure. Vistana shall have thirty (30) days following Vistana’s receipt of such notice to cure the failure to pay. If Vistana fails to cure any payment failure within such thirty (30) day period, then the entire outstanding amount of the Exclusivity Continuation Fee shall become immediately due and payable. Without limiting any other remedies that may be available to Starwood under this Agreement or otherwise, in the event of an uncured default by Vistana of its payment of an Exclusivity Continuation Fee, Starwood may at any time after the end of the applicable cure period, upon delivery of written notice to Vistana, declare that the grant of exclusive rights under this Agreement have become non-exclusive, at which time the exclusivity granted in Section 1 and the restrictions and limitations on Starwood and its Affiliates in Section 2.2A shall immediately cease and be of no further force or effect.

 



 

(ii) Vistana shall calculate the amount of any shortfall for an Exclusivity Test Period by determining the difference between the applicable Exclusivity Test Target for such Exclusivity Test Period and the actual aggregate Gross Sales Price for sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests occurring during such Exclusivity Test Period (the “Sales Performance Shortfall Amount”). The Sales Performance Shortfall Amount shall be multiplied by two percent (2%) to determine the Variable Sale Royalty to be paid for the applicable Exclusivity Test Period attributable to sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests. The amount so calculated is the “Exclusivity Continuation Fee,” (which, for the avoidance of doubt, shall be payable in addition to the Variable Sale Royalty payable for sales of Licensed Vacation Ownership Interests and Licensed Unbranded Vacation Ownership Interests which did occur during such period).

 

(iii) The Exclusivity Test Target shall be reduced for any Exclusivity Test Period, as applicable, by an amount determined at the time of calculation which is equal to the following fraction,

 

(a) the numerator of which is the total number of Vacation Ownership Units in Vacation Ownership Properties which were rejected by Starwood during the applicable Exclusivity Test Period and subsequently developed by Vistana or its Affiliate as unbranded Vacation Ownership Properties during the applicable Exclusivity Test Period (but not on account of a rejection based on the location for such proposed New Properties being within a Permitted Territorial Restriction previously identified to Vistana); providedhowever, that all such rejections must have been made after the complete Property Approval Request of such proposed New Property has been submitted in good faith and the related Property Approval Request Fee has been paid in full; and

 

(b) the denominator of which is the total number of Vacation Ownership Units in all approved New Properties as of the date of determination.

 

The resulting fraction shall be multiplied by the then Exclusivity Test Target and the product thereof shall be subtracted from such Exclusivity Test Target to determine an adjusted Exclusivity Test Target (the “Adjusted Exclusivity Test Target”).

 

3.               FEES

 

3.1                                  Royalty Fees; Other Fees.

 

A. Vistana shall pay to Starwood a royalty (the “Royalty Fee”) in an amount equal to:

 

(i) the Base Royalty, plus

 

(ii) the Variable Sale Royalty.

 



 

B. (i) A sale of a Licensed Vacation Ownership Interest or Licensed Unbranded Vacation Ownership Interest (as applicable) occurs when all of the following conditions have been satisfied:

 

(a) a written agreement has been executed by a purchaser and accepted by Vistana or its Affiliates pursuant to which such purchaser has contractually committed to acquire such interest (“Purchase Contract”);

 

(b) the purchaser has duly tendered payment of the full purchase price in respect of such Purchase Contract (or full down payment installment thereof in the case of purchase money financing) including by cash, by check which has cleared, or by credit card which has been duly processed, to either (x) Vistana or its Affiliates or (y) a fiduciary, escrow agent, trustee or other independent third-party designated by Vistana or its Affiliates, as may be required by law;

 

(c) all rescission periods applicable to such Purchase Contract have expired, without any such right of rescission having been exercised; and

 

(d) all pre-conditions set forth in such Purchase Contract and any legal requirements under Applicable Law 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 (or waived by Vistana), without the purchaser having exercised any right of cancellation afforded such purchaser under the terms of such Purchase Contract or under Applicable Law.

 

Any delay in the recording, registration or filing of any conveyance documents that have otherwise been executed and delivered in connection with the transfer or assignment of an interest will not delay the occurrence of a “sale” for purposes of this Agreement.

 

(ii) The conversion of interests that were previously sold to end-user customers on an equivalent value basis into other types of interests that derive their value from the interests being converted (for example, interests that are initially sold in the form of a weeks-based Vacation Ownership Interest and are subsequently converted to a trust-based beneficial interest Vacation Ownership Interest) shall not be considered a sale for purposes of Sections 3.1A and 3.1B.

 

C. The Gross Sales Price shall, for purposes of calculating the Variable Sale Royalty, include (i) the amount of any newly-created initial or ongoing, recurring, or installment fees or charges that may be imposed by Vistana or its Affiliates after the Effective Date that are currently included, free of separate charge, for the rights, benefits and services currently obtained by purchasers of interests in Licensed Vacation Ownership Units or Licensed Unbranded Vacation Ownership Units (as applicable), upon payment of the purchase price thereof (other than promotional or trial features for which separate fees or charges may be contemplated), or (ii) the amount by which any other fees existing as of the Effective Date are increased after the Effective Date, as a direct or indirect offset to any decrease in the purchase price of an interest in a Licensed Vacation Ownership Unit or Licensed Unbranded Vacation Ownership Unit (as applicable). In the event any such new or changed fee or charge is implemented, the Royalty Fee shall be restructured such that the amount of the Royalty Fee Starwood receives is not reduced as

 



 

a result of the implementation of such new or changed fee or charge, which restructuring may, by agreement of the parties, include adding to the Gross Sales Price the net present value of fees or charges that are paid on an ongoing, recurring, or installment basis discounted by a discount rate of nine percent (9%).

 

D. The Gross Sales Price shall, for purposes of calculating the Royalty Fee, 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 purchaser’s acquisition of interests in Licensed Vacation Ownership Units or Licensed Unbranded Vacation Ownership Units (as applicable), but only where the Gross 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.

 

E. The Variable Sale Royalty shall be earned as and when a sale of an interest in a Licensed Vacation Ownership Unit or Licensed Unbranded Vacation Ownership Unit (as applicable) occurs pursuant to Section 3.1B, regardless of when, or whether, any part of the Gross Sales Price is actually paid to, or received by or on behalf of, Vistana and/or its Affiliates or any third party. For the avoidance of doubt, the Variable Sale Royalty shall not be due for any interests in Licensed Vacation Ownership Units or Licensed Unbranded Vacation Ownership Units (as applicable), the Purchase Contracts for which were signed prior to the Effective Date, regardless of when such Purchase Contracts actually close or would otherwise be deemed to occur.

 

F. For the avoidance of doubt, in addition to the Royalty Fee, Vistana shall pay to Starwood the Centralized Services Charges as set forth in Section 6.

 

3.2                                  Making of Payments; Delegation of Duties and Performance of Services.

 

A. The Base Royalty payable under Section 3.1 shall be paid within fifteen (15) days following the end of each calendar quarter, as applicable, during the Term (it being acknowledged that no Base Royalty shall be payable during the Tail Period) for the immediately preceding calendar quarter along with any reports required under Section 15.2. The Base Royalty payable under Section 3.1A(i) shall be paid in quarterly installments, with the amount to be paid each quarter equal to one-fourth of the amount to be paid for such calendar year (such amount shall be prorated for any partial calendar quarter occurring at the beginning or end of the Term). All other payments (including Variable Sale Royalty, Centralized Service Charges and Reimbursable Expenses) required by this Agreement, whether payable by Vistana or its Affiliates to Starwood or its Affiliates or by Starwood or its Affiliates to Vistana or its Affiliates, will be made within thirty (30) days after receipt by Vistana or its Affiliate or Starwood or its Affiliate, as the case may be, of each statement for such payment.

 

B. Starwood may designate that all or part of any payment be made to one of its Affiliates instead of Starwood, and Vistana and its Affiliates must make such payments as designated.

 



 

C. Vistana may designate that all or part of any payment be made to one of its Affiliates instead of Vistana, and Starwood and its Affiliates must make such payments as designated.

 

D. If either party, in good faith, disputes the amount due and payable by that party in accordance with this Agreement and the parties are unable to resolve the discrepancy, then the party required to make payment (the “payor”) may submit the disagreement regarding the disputed amount to an arbitration panel for resolution pursuant to Section 22.5 and at such time shall pay the amount that the other party (the “payee”) purports is owed to the payee into an escrow account set up at the payor’s sole cost. Notwithstanding anything to the contrary in Section 22.5, the non-prevailing party shall pay the prevailing party’s costs of the arbitration, including attorneys’ fees. If the arbitration panel determines that any or all of the disputed amount is owed to the payee or its Affiliates, then such amount shall be released to the payee from the funds in escrow, with any remaining funds in escrow to be returned to the payor. To the extent the arbitration panel awards an amount that is greater than the funds in escrow (the “additional amount”), then the payor shall immediately pay such additional amount to the payee in addition to releasing the funds in escrow to the payee. If the arbitration panel determines that none of the disputed amount is owed to the payee or its Affiliates, then the payor shall not be required to pay the disputed amount, and the funds in escrow shall be released to the payor.

 

3.3                                  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.

 

3.4                                  Currency and Taxes.

 

A. Vistana 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 or reimbursements made by Vistana to Starwood or its designee (including Reimbursable Expenses) under this Agreement by any Governmental Authority or imposed on Starwood or its designee due to any such payments or reimbursements, other than corporate net income taxes imposed as a result of (i) Starwood or its designee, as applicable, being organized under the laws of, or having its principal office in, the jurisdiction imposing such tax or (ii) a present or former connection between Starwood or its designee, as applicable, and the jurisdiction imposing the tax (other than any connection arising from Starwood or its designee, as applicable, having executed, delivered, become a party to, performed its obligations under, received payments under, engaged in any other transaction pursuant to or enforced this Agreement) (collectively, “Connection Income Taxes”). If Starwood or its designee pays such amounts due, then Vistana must reimburse Starwood for all payments of such Taxes Starwood or its designee makes so that the amount of Vistana’s payments that Starwood retains after payment of the applicable Taxes equals the full amount of the payments Vistana was required to make under this Agreement had the Tax not been imposed upon Starwood. All amounts payable pursuant to this Agreement or any related agreement between

 



 

Starwood (or its designee) and Vistana are exclusive of any such Taxes. For clarification, if Taxes (other than Connection Income Taxes) are required to be deducted or withheld from any payment or reimbursement under this Agreement (including payments pursuant to this Section 3.4) to Starwood or its designee, Vistana shall gross-up or increase such payment so that Starwood or its designee receives the same amount that it would have received if no Taxes were applicable. To the extent any Applicable Law requires or allows deduction, payment or withholding of Taxes to be paid by the paying party directly to a Governmental Authority, the paying party must account for and pay such amounts promptly and provide to the other party receipts or other proof of such payment promptly upon request of the other party.

 

B. Vistana shall be responsible for and administer payment of all stamp duties and other Taxes or charges imposed with respect to the execution or registration of this Agreement.

 

C. Vistana and its Affiliates must promptly pay when due all Taxes levied or assessed against Vistana and its Affiliates by any Tax authority relating to the Licensed Vacation Ownership Properties and the Licensed Business, Vistana, its Affiliates, this Agreement, the payment obligations hereunder or otherwise in connection with the operation of the Licensed Vacation Ownership Properties or the Licensed Business.

 

D. All amounts payable to Starwood shall be invoiced in U.S. Dollars unless Starwood otherwise designates the currency of the jurisdiction in which the Entity issuing the relevant invoice is located or in which the expense was incurred. The exchange rate shall be set each month by Starwood as taken from an international reporting service and applied to substantially all Starwood Lodging Facilities. Payment shall be due within thirty (30) days of delivery of the invoice (unless this Agreement expressly provides otherwise), and made in the currency of the invoice in immediately available funds, at the location designated by Starwood from time to time. Starwood may require that any such payments be made through electronic debit/credit transfer of funds programs specified by Starwood from time to time, and Vistana shall pay such fees and costs and do such things as Starwood deems necessary or advisable to effect such transfers of funds. Vistana shall use all available means to obtain any Approvals necessary to make payments in the currency and to the location designated in accordance with this Section 3.4D. If any Applicable Law or the paying bank restricts payment in any manner, Vistana shall immediately notify Starwood and Starwood may require Vistana to make payments in such other currency (at the exchange rate reported by an authorized foreign exchange bank designated by Starwood) and/or to such other place as are designated by Starwood and permitted under Applicable Law or the paying bank for so long as the restriction remains in effect.

 

E. All payments to be made by Vistana under this Agreement shall be made pursuant to independent covenants and Vistana shall not set off any claim for damages or money due from Starwood.

 

F. If any payments by Vistana under this Agreement are less than the full amounts due and payable by Vistana (including any past due amounts), such payments shall be applied as designated by Starwood, regardless of any conditions or instructions of Vistana to the contrary, and Vistana may not designate an order for application of any payments different from that designated by Starwood.

 



 

4.               TERM

 

4.1                                  Initial Term.

 

The initial term of this Agreement begins on the Effective Date and expires December 31, 2095 (the “Initial Term”).

 

4.2                                  Extension Term; Tail Period.

 

A. Vistana shall have the option to extend this Agreement for up to two (2) additional extension terms of thirty (30) years each (each, an “Extension Term”); provided that Vistana meets the following conditions: (i) Vistana must provide Starwood with notice of its desire to obtain the applicable Extension Term not earlier than December 31, 2080 or later than December 31, 2093 for the first Extension Term and not earlier than December 31, 2110 or later than December 31, 2123 for the second Extension Term; (ii) Vistana is not in Default pursuant to Section 19.2 at the time of its delivery of the extension notice; and (iii) the sale of interests in Licensed Vacation Ownership Units and Licensed Unbranded Vacation Ownership Units must have generated at least three hundred fifty million dollars ($350,000,000) (as adjusted annually after the Effective Date by the GDP Deflator) or more in average annual revenues from the Gross Sales Prices during the five (5) year period preceding the date of such notice. For each Extension Term, Starwood shall provide Vistana with written confirmation of Starwood’s acceptance (or if applicable, rejection, and the grounds for such rejection pursuant to the terms hereof) within six (6) months of Vistana’s submission of its notice of extension to Starwood pursuant to this Section 4.2A. For the avoidance of doubt, any termination of this Agreement shall also result in the termination of any Extension Term.

 

B. For a tail period of thirty (30) years following the expiration of the Term (which, for the avoidance of doubt, shall not include the early termination of this Agreement in whole for any reason, the “Tail Period”), Vistana shall be entitled (but not required) to continue to operate the then-existing Licensed Vacation Ownership Properties (including any New Properties under development as contemplated in clause (ii) below) in the Territory; provided that such operation is in compliance with the terms and conditions of this Agreement. The parties agree that (i) the exclusivity granted in Section 1 and the restrictions and limitations on Starwood and its Affiliates in Section 2.2 shall immediately cease and be of no further force or effect as of the first day of the Tail Period; (ii) Vistana shall have no right to propose New Properties or Material Changes or Expansions during the Tail Period (but will have the right to continue and complete the development of any New Properties or any Material Changes or Expansions that have been approved by Starwood pursuant to this Agreement prior to the commencement of the Tail Period), and (iii) Vistana shall not be required to pay any Base Royalty during the Tail Period. All other applicable terms and conditions of this Agreement, including, without limitation, the requirement to pay all fees (other than the Base Royalty) shall remain in place and be applicable during the Tail Period.

 



 

5.               EXISTING PROPERTIES; DEVELOPMENT RIGHTS AND RESTRICTIONS

 

5.1                                  Existing Properties.

 

A. The Existing Properties are listed on Exhibit B-1 to this Agreement. Vistana may continue to operate the Existing Properties under the Applicable System and Standards and Policies in accordance with the terms and conditions of this Agreement. Each Existing Property may operate only under the applicable Existing Property name set forth in Exhibit B-1, which name may be changed only with Starwood’s prior written consent, which consent may be withheld in its sole discretion; provided that Starwood will use reasonable efforts to cooperate with a name change if reasonably required based on legal exposure. Except as expressly provided under this Agreement, Vistana may not voluntarily Deflag an Existing Property without the prior written consent of Starwood.

 

B. In the event that Vistana delegates (or prior to the Effective Date has delegated) the authority to operate an Existing Property to an Affiliate, Vistana shall sublicense to such Affiliate the right to operate the applicable Existing Property only under the form of sublicense agreement attached hereto as Exhibit C, under which such Affiliate will be required to operate the Existing Property in accordance with the sublicense agreement and the terms and conditions of this Agreement, and such Affiliate will agree to be bound by the same responsibilities, limitations, and duties of Vistana under this Agreement with respect to such Existing Property. Vistana shall provide Starwood with a fully-executed copy of each sublicense agreement entered into hereunder promptly following its execution and will notify Starwood in writing upon the termination or expiration of any sublicense agreement. Except to the extent required by Applicable Law, Vistana shall not amend or otherwise modify any such sublicense agreement without Starwood’s prior written approval.

 

C. The parties understand and agree that, to the extent that the transactions relating to Existing Properties described in this Agreement constitute or could be construed as constituting a franchise sale, such franchise sale shall be exempt from the Federal Trade Commission’s Franchise Rule disclosure requirements pursuant to 16 C.F.R. 436.8(a)(6) and/or one or more exemptions or exclusions under each Applicable Law with a Registration/Disclosure Requirement. Vistana represents and warrants to Starwood that Vistana or at least one of its Affiliates is an Entity that has been in business for at least five (5) years and has a net worth of at least $5,424,500.

 

D. For the purposes of this Agreement, a “Registration/Disclosure Requirement” means (i) in the United States, any Applicable Law with respect to the Federal Trade Commission, and any state or other jurisdiction regulating the offer and/or sale of franchises, business opportunities or seller assigned marketing plans, including all franchise disclosure and franchise registration laws relating to the Licensed Business, and (ii) outside the United States, any Applicable Law that regulates agreements or relationships which, if conducted in the United States, would be covered by the Applicable Law described in clause (i) above, in each case, that requires Starwood, Vistana, and/or any of their respective Affiliates or permitted sublicensees, prior to the grant of rights under this Agreement or the exercise of any rights as contemplated by this Agreement, to register or make any franchise related filing with any Governmental Authority and/or deliver to Vistana, any permitted sublicensees, or any other Person a related disclosure document or other information concerning those rights or the obligations relating thereto.

 



 

5.2          New Properties.

 

Vistana shall provide Starwood with a property approval request in the form attached hereto as Exhibit D, as modified by Starwood from time to time (“Property Approval Request”) for each proposed New Property. For each Property Approval Request for New Properties submitted to Starwood, Vistana shall pay to Starwood simultaneously with the submission of such Property Approval Request a property approval request fee (a “Property Approval Request Fee”) in the amount of $50,000 (as adjusted annually after the Effective Date by the GDP Deflator); providedhowever, that if Vistana requested a Location Confirmation for such proposed New Property in accordance with Section 5.2B(i) below, the Property Approval Request Fee shall be reduced by an amount equal to the Location Confirmation Fee, if any, paid by Vistana to Starwood in respect of such proposed New Property. The Property Approval Request Fee shall be inclusive of all costs and expenses incurred by Starwood in connection with providing evaluation and other approval and vetting services for each New Property in accordance with this Section 5.2, other than any Reimbursable Expenses relating to such Property Approval Request.

 

A. Starwood may reject a proposed New Property if:

 

(i) Starwood determines, in Starwood’s sole discretion, that the proposed New Property does not meet the applicable Standards and Policies (including related to construction and design);

 

(ii) Starwood determines, in Starwood’s sole discretion, that using the Licensed Marks in association with the proposed New Property would be reasonably likely to (a) materially interfere with Starwood’s or its Affiliate’s ownership of the Proprietary Marks, (b) pose a material risk to Vistana’s use of the Licensed Marks or Starwood’s use of the Proprietary Marks in the jurisdiction(s) in which the proposed New Property would be developed, sold, marketed or operated, (c) violate a settlement or co-existence agreement relating to the Proprietary Marks; or (d) violate Applicable Law;

 

(iii) Starwood determines that (a) in Starwood’s sole discretion, the location of the proposed New Property does not meet applicable Standards and Policies or is otherwise not appropriate for the proposed New Property; (b) the proposed New Property (x) jeopardizes the commercial viability of an existing Starwood Lodging Facility or Residential Property, or (y) Starwood’s ability to proceed with a proposed Starwood Lodging Facility or Residential Property that is being actively pursued by Starwood (and “active pursuit” shall commence upon the initiation of negotiations for a letter of intent with respect to such proposed Starwood Lodging Facility or Residential Property and shall continue until the earlier of the opening day of such facility or the abandonment of such facility); or (c) will be located in an Urban Location and (x) will have more than fifty (50) Vacation Ownership Units or (y) the facilities proposed to be included at such proposed New Property are not consistent with the facilities of then-comparable Vacation Ownership Properties in such Urban Location;

 

(iv) Starwood determines that the development of the proposed New Property would breach, or be reasonably likely to breach, any Permitted Territorial Restrictions;

 

(v) Vistana proposes to delegate the authority to develop, market, sell and/or operate the proposed New Property to a third party, or the proposed New Property will

 



 

otherwise involve a co-investor with Vistana, and Starwood determines that such co-investor or third-party (a) is a Lodging Competitor of Starwood, (b) is or has an Affiliate that is a Prohibited Person, or (c) will have an Ownership Interest in a permitted sublicensee sufficient to allow the co-investor or third-party (as applicable) to Control such permitted sublicensee, and does not have, in Starwood’s judgment, the necessary business experience and know-how to operate the New Property and meet the Standards and Policies;

 

(vi) Starwood determines that the proposed New Property is not adequately capitalized;

 

(vii) Starwood does not approve of the agreements proposed to be entered into in connection with the proposed New Property pursuant to this Agreement; providedhowever, that unless changes are required to comply with Applicable Law, Starwood may not reject the proposed New Property on this basis if any agreement or document referred to in this Section 5.2A(vii) is in the same form as attached hereto as an exhibit or otherwise previously approved by Starwood (or in a modified form; providedhowever, that any such modifications are immaterial or non-substantive in nature);

 

(viii) The proposed New Property will have three thousand (3,000) square feet or more dedicated to meeting and/or conference space;

 

(ix) The proposed New Property will charge a fixed price for substantially all of the following: lodging, drinks (both alcoholic and non-alcoholic), food (three (3) meals: breakfast, lunch and dinner, or open bar), gratuities, non-motorized water sports and entertainment at such New Property, and is to be located outside of Mexico and the Caribbean; or

 

(x) Starwood reasonably demonstrates that the proposed New Property violates, or, when completed, would result in a violation of, any other provision of this Agreement.

 

B. Property Approval Requests.

 

(i) Prior to submitting any Property Approval Request for a New Property, Vistana may, within one hundred and eighty (180) days prior to such submission, seek prior written confirmation from Starwood on a confidential basis that any proposed New Property will not be rejected for the failure to satisfy the conditions described in clauses (ii), (iii) or (iv) of Section 5.2A above (each, a “Location Confirmation”). Vistana may request up to five (5) Location Confirmations per calendar year at no cost. For each additional Location Confirmation (if any) requested by Vistana during any calendar year, Vistana shall pay to Starwood a fee (a “Location Confirmation Fee”) in the amount of $5,000 (as adjusted annually after the Effective Date by the GDP Deflator). Starwood shall respond in writing to Vistana within sixty (60) days after Starwood’s receipt of any request for a Location Confirmation. Any such solicitation of a Location Confirmation, which must be made by Vistana in good faith and solely with respect to any proposed New Property that Vistana has legitimate and documented interest in pursuing, by itself, will not trigger the obligation to pay the Property Approval Request Fee.

 

(ii) Starwood shall provide a written response to each Property Approval Request for a New Property within sixty (60) days after receipt of the Property Approval Request; providedhowever, that in the event Vistana sought a Location Confirmation and such proposed New Property was not rejected pursuant to Section 5.2B(i), Starwood shall provide its response within forty-five (45) days. If the Property Approval Request for a New Property is rejected by Starwood, Starwood shall provide an explanation indicating with respect to the Property Approval Request, which of the conditions described in clauses (i) through (x) of Section 5.2A above were not satisfied based on the information and documentation provided in the Property Approval Request.

 



 

C. If Starwood does not approve the proposed New Property under Sections 5.2A and 5.2B and Vistana disagrees with such determination, then Vistana may refer the matter for Expert resolution pursuant to Section 22.6. The Expert shall make its determination based upon whether Starwood’s rejection was reasonable, given the market positioning and Standards and Policies applicable to the proposed New Property.

 

D. Each New Property may operate only under the applicable name agreed to by the parties, which name may be changed only with Starwood’s prior written consent, which consent may be withheld in its sole discretion; provided that Starwood will use reasonable efforts to cooperate with a name change if reasonably required based on legal exposure. Except as expressly provided under this Agreement, Vistana may not voluntarily Deflag a New Property without the prior written consent of Starwood.

 

E. (i) In the event that Vistana delegates the authority to develop a New Property to an Affiliate, Vistana shall sublicense to such Affiliate the right to develop such New Property under the form of sublicense agreement attached hereto as Exhibit C, under which such Affiliate will be required to develop the New Property in accordance with the sublicense agreement and the terms and conditions of this Agreement, and such Affiliate will agree to be bound by the same responsibilities, limitations, and duties of Vistana under this Agreement with respect to such New Property.

 

(ii) In the event that Vistana delegates the authority to operate a New Property to an Affiliate, Vistana shall sublicense to such Affiliate the right to operate such New Property under the form of sublicense agreement attached hereto as Exhibit C, under which such Affiliate will be required to operate the New Property in accordance with the sublicense agreement and the terms and conditions of this Agreement, and such Affiliate will agree to be bound by the same responsibilities, limitations, and duties of Vistana under this Agreement with respect to such New Property.

 

(iii) Vistana shall provide Starwood with a fully-executed copy of each sublicense agreement entered into hereunder promptly following its execution and will notify Starwood in writing upon the termination or expiration of any sublicense agreement. Except to the extent required by Applicable Law, Vistana shall not amend or otherwise modify any such sublicense agreement without Starwood’s prior written approval.

 

F. If the offer or execution of the sublicense agreement for any Existing Property or proposed New Property (including any New Property that is to be developed through

 



 

a third party) results in a requirement for Vistana to comply with regulatory requirements, including, without limitation, the preparation and provision to the property developer of a disclosure document or filing of the disclosure document or other documents with regulatory authorities, Vistana shall comply with such regulatory requirements at its sole cost and expense and provide Starwood with evidence satisfactory to Starwood of Vistana’s compliance therewith within the timeframe required by the applicable regulations. If Starwood determines that Starwood is required to comply with such regulatory requirements in connection with any Existing Property or proposed New Property, Vistana will fully cooperate with Starwood with respect to Starwood’s compliance requirements, and Starwood will not charge Vistana any amounts for costs incurred by Starwood in connection with Starwood’s compliance requirements.

 

G. Vistana’s obligations regarding the development of New Properties are further set forth in Exhibit E.

 

5.3       Undeveloped Parcels.

 

Parcels owned by Vistana or its Affiliates that have not been developed as of the Effective Date are listed on Exhibit B-2 (“Undeveloped Parcels”). Starwood hereby approves the Undeveloped Parcels and the Transferred Lodging Properties as sites for Licensed Vacation Ownership Properties; providedhowever, that any New Properties developed on any such Undeveloped Parcel or at any such Transferred Lodging Property must be developed and operated in accordance with the terms and conditions of this Agreement, including, without limitation, Section 5.2 and the Standards and Policies related to construction and design for New Properties.

 

5.4       Material Changes and Expansions.

 

Except with Starwood’s prior written approval (which Starwood may withhold in its sole discretion) and subject to Section 12.5, Vistana shall not make any alterations, improvements, replacements, renewals or additions to any Licensed Vacation Ownership Property that (i) involve a significant change in the primary use of any part of a Licensed Vacation Ownership Property, or (ii) involve a material physical expansion, material alteration or material reconfiguration of a Licensed Vacation Ownership Property, (collectively, “Material Changes or Expansions”). Vistana shall provide Starwood with a Property Approval Request for each proposed Material Change or Expansion. For each Property Approval Request for Material Changes or Expansions, Vistana shall pay to Starwood simultaneously with the submission of such Property Approval Request a Property Approval Request Fee in the amount of $15,000 (as adjusted annually after the Effective Date by the GDP Deflator). If any Material Changes or Expansions are approved by Starwood pursuant to this Section 5.4, Vistana shall carry them out in accordance with the Standards and Policies and Applicable Law and in the manner set forth in Exhibit E.

 

5.5       Properties Located at Unbranded Co-Located Hotels.

 

If Vistana desires to develop a Vacation Ownership Property that is located in, co-located with, or is otherwise a part of any Hotel that is not a Starwood Lodging Facility (such Hotel, a

 



 

Unbranded Co-Located Hotel”), and Vistana reasonably determines that there may be an opportunity for Starwood to participate in the relevant project, Vistana will attempt to secure an introduction on Starwood’s behalf with the owner of the Unbranded Co-Located Hotel, but shall have no obligation to attempt to persuade such owner of the Unbranded Co-Located Hotel to pursue the opportunity with Starwood. For the avoidance of doubt, nothing in this Section 5.5 shall restrict Vistana (or the relevant owner of the Unbranded Co-Located Hotel) from proceeding with such project without Starwood’s involvement; provided that to the extent the Vacation Ownership Property will be a New Property (i) Vistana obtains Starwood’s consent pursuant to Section 5.2, (ii) Vistana and the Hotel owner agree upon reasonable restrictions required by Starwood regarding the facilities and services to ensure a level of brand separation sufficient to avoid customer confusion as determined by Starwood in its sole discretion, and (iii) Vistana implements appropriate safeguards to protect the confidentiality and security of, and to restrict the access to, the Starwood Intellectual Property (including Guest Data) and the Applicable System.

 

5.6       Prohibitions To Be Included in Future Franchise and Management Agreements.

 

A. Starwood will include in the initial draft of its future “Sheraton”-branded or “Westin”-branded Starwood Lodging Facility management, operating, and franchise agreements with third-party Hotel owners and franchisees, prohibitions on the operation, promotion and sale of interests in Vacation Ownership Properties, other than Licensed Vacation Ownership Properties, at the applicable Hotel and attempt to persuade such third-party Hotel owners or franchisees (as applicable) to agree to retain such prohibitions in the applicable agreements. However, Starwood will not be required to offer any concessions to such third-party Hotel owners or franchisees in order to retain such prohibitions in the applicable agreements.

 

B. Vistana acknowledges and agrees (provided that Starwood meets the requirements of Section 5.6A as expressly set forth therein) that neither Starwood nor its Affiliates will have any liability under this Agreement for failure to obtain such prohibitions in such agreements under this Section 5.6. This Section 5.6 shall not affect any other obligations of Starwood and its Affiliates hereunder.

 

5.7       Vacation Ownership Properties at Third-Party Owned Starwood Lodging Facilities.

 

A. If a third-party developer of a Starwood Lodging Facility desires to have a Vacation Ownership Property as a component of or adjacent to such Starwood Lodging Facility project (the “Co-Located Starwood Lodging Facility”), and Starwood reasonably determines that there may be an opportunity for Vistana to participate in the relevant project, Starwood will attempt to secure an introduction on Vistana’s behalf with the third-party developer, but shall have no obligation to attempt to persuade such developer to pursue the opportunity with Vistana.

 

B. For the avoidance of doubt and subject to the exclusivity provisions in Section 2.2A(i) and (ii), nothing in this Section 5.7 shall restrict Starwood (or the relevant developer) from proceeding with such Vacation Ownership Property without Vistana’s involvement nor restrict Starwood (or developer) from engaging in any activities to the extent not prohibited under this Agreement. Notwithstanding anything to the contrary in this

 



 

Agreement, the following activities shall not be deemed to be prohibited under this Agreement: (i) the marketing, offering, and selling of units in such Vacation Ownership Property at the Co-Located Starwood Lodging Facility to any Person, including guests of the Co-Located Starwood Lodging Facility, whether or not such guest is a member of any Brand Loyalty Program; provided that, during the term of the Noncompetition Agreement, such Vacation Ownership Property is not affiliated with a Vacation Ownership Competitor, (ii) the provision of operational services to such Vacation Ownership Property; provided that such services are also being provided to the Co-Located Starwood Lodging Facility, (iii) the placing of overflow guests of the Co-Located Starwood Lodging Facility in such Vacation Ownership Property on a transient basis, and (iv) the offering of potential customers of such Vacation Ownership Property stays at the Co-Located Starwood Lodging Facility in connection with the marketing and sale of the units of such adjacent Vacation Ownership Property; provided that Starwood will take reasonable steps to provide for appropriate brand separation sufficient to avoid customer confusion, if necessary. For the avoidance of doubt, in the event Starwood proceeds, without Vistana’s involvement, with such Vacation Ownership Property, Starwood will not, except with respect to Ancillary Amenities related to such Vacation Ownership Property, license the developer to use the “Sheraton” or “Westin” brands in connection with such Vacation Ownership Property.

 

C. Notwithstanding anything to the contrary in this Agreement:

 

(i) any Vacation Ownership Properties that are a component of or adjacent to or integrated with Starwood Lodging Facilities, and any and all shared services, marketing, sales and other activities conducted in connection therewith as of the Effective Date, are hereby permitted (and prior to the Effective Date, Starwood has provided Vistana with a list of “Sheraton”-branded and “Westin”-branded Starwood Lodging Facilities, which, to the knowledge of Starwood’s regional vice-presidents, are adjacent to or integrated with any Vacation Ownership Property that has shared facilities with or receives services from the relevant Starwood Lodging Facility or where sales and marketing for such Vacation Ownership Property is conducted in the relevant Starwood Lodging Facility); provided that the parties agree to use commercially reasonable efforts (taking into account Starwood’s relationship with the applicable owner, developer, operator, or franchisee of the relevant Starwood Lodging Facility) to cooperate in order to reduce the impact to the Licensed Business to the extent Vistana reasonably demonstrates that the sales and marketing activities conducted pursuant to this Section 5.7C at any “Sheraton”-branded or “Westin”-branded Starwood Lodging Facility adjacent to or integrated with a Vacation Ownership Property would reasonably have an adverse effect on the Licensed Business; providedhowever, that any such efforts to cooperate shall not apply with respect to any activities permitted under any contract or agreement in place as of the Effective Date; and

 

(ii) any Vacation Ownership Properties that are acquired by Starwood pursuant to Section 2.4 of the Noncompetition Agreement, or acquired by Starwood after the expiry of the Noncompetition Agreement, and any and all activities conducted in connection therewith as of the date of acquisition thereof, are hereby permitted.

 



 

5.8       Limitations on Licensed Business; Compliance with Contractual Restrictions

 

A. Starwood shall not enter into any contract or agreement that limits or restricts Vistana’s or its Affiliates’ right to engage in the Licensed Business (i) with respect to the Existing Properties (including all future phases thereof), the Undeveloped Parcels, the operation or conversion of the Transferred Lodging Properties or any other Licensed Vacation Ownership Properties (including all future phases) which then have been approved for development, or (ii) in any of the following markets: Mexico; Costa Rica; the Caribbean; Hawaii; Florida; Las Vegas; New York City; Chicago; Washington D.C.; California; Arizona; Colorado; Park City, Utah; and British Columbia, Canada (which such list may be updated from time to time by mutual written agreement of the parties), in each case without Vistana’s consent. Nothing in this Section 5.8A will restrict or limit Starwood’s or its Affiliates’ ability to grant territorial protections solely with respect to Hotels to owners, developers, operators, lessees, licensees, or franchisees of any Starwood Lodging Facilities (“Agreed Territorial Protections”), and Starwood will not be in breach of this Agreement as a result of the grant of such Agreed Territorial Protections or the enforcement or the attempted enforcement of such Agreed Territorial Protections against Vistana or its Affiliates by such owners, developers, operators, lessees, licensees, or franchisees, so long as the Agreed Territorial Protections do not restrict the Licensed Business.

 

B. Vistana shall abide by (i) all territorial and other contractual restrictions that are in effect as of the Effective Date, (ii) all territorial and other contractual restrictions that are agreed to after the Effective Date with Vistana’s consent, (iii) all territorial and other contractual restrictions that are implemented after the Effective Date pursuant to Section 5.8A and C, and (iv) all territorial and other contractual restrictions imposed by Applicable Law, in each case to the extent applicable to Starwood and/or its Affiliates relating to the Licensed Business (the “Permitted Territorial Restrictions”); provided that, in the case of the Permitted Territorial Restrictions in clauses (i) and (iii) above, Starwood has identified such restrictions to Vistana. As of the Effective Date, Starwood has not identified any territorial restrictions that would limit or restrict in any manner Vistana’s or its Affiliate’s right to engage in the Licensed Business or transient rental activity at Existing Properties, the Undeveloped Parcels or the Transferred Properties; provided that with respect to any Undeveloped Parcel adjacent to an Existing Property, such Undeveloped Parcel is developed as part of the applicable Existing Property under the name of such Existing Property. Neither Starwood nor its Affiliates shall agree to an extension of the duration, or a broadening of the scope, of any Permitted Territorial Restriction described in clause (i) or (ii) above without Vistana’s consent; provided that such consent may only be withheld where Vistana can reasonably demonstrate that the proposed extension or broadening would materially and adversely affect the then-existing operation of, or reasonably documented plans for, the Licensed Business; providedhowever, that nothing herein shall prohibit Starwood or its Affiliates from extending or renewing agreements containing such Permitted Territorial Restrictions in accordance with the terms of such agreements, even if such extension or renewal has the effect of extending the duration of any such Permitted Territorial Restriction.

 

C. In the event Starwood requests Vistana’s consent under Section 5.8A or 5.8B, the parties agree that if Vistana does not have a legitimate and reasonably documented interest in pursuing operations in a particular market within the ten (10) years following such request by Starwood, the proposed limitation or restriction or proposed extension or broadening, as the case may be, shall be deemed not to materially and adversely affect the then-existing

 



 

operation of, or reasonably documented plans for, the Licensed Business, and Vistana shall not be entitled to withhold its consent. In the event Vistana’s consent is required pursuant to Section 5.8A(ii) or 5.8B, and Vistana withholds such consent, Starwood may override such denied consent, and proceed with any contract or agreement that does not expressly exclude the Licensed Business without Vistana’s prior written consent one (1) time in any three (3) year period, a maximum of five (5) times in any twenty (20) calendar year period during the Term; provided that no such override may occur with respect to Mexico, Hawaii, Florida, or Las Vegas which list may be updated from time to time by mutual written agreement of the parties.

 

D. For the purposes of this Section 5.8, in determining what constitutes a “market” hereunder, the relevant market will be appropriately construed in a reasonable manner, and the parties agree that any dispute as to the determination of what constitutes a market hereunder may be referred by either party for Expert resolution pursuant to Section 22.6. In the event a dispute is referred to Expert resolution pursuant to this Section 22.6, the Expert may give consideration to the concentration of Hotels and volume of tourism in the relevant market for the purposes of determining what is a reasonable area of protection.

 

E. In the event that Starwood or its Affiliates enters into any contract or agreement that limits or restricts Vistana’s or its Affiliates’ right to engage in the Licensed Business in any territory, without having sought Vistana’s prior written consent under Section 5.8A or 5.8B (where such failure to seek Vistana’s consent was unintentional), such action shall not be considered a breach of this Agreement if Starwood can reasonably demonstrate that Vistana would not have been entitled to withhold its consent to such request pursuant to this Section 5.8.

 

F. Vistana shall not enter into any contract or agreement that limits or restricts Starwood’s or its Affiliates’ right to develop, operate, sell, market, license, or franchise Starwood Lodging Facilities or otherwise operate the Lodging Business, Whole Ownership Residential Business, or any other activity or business of Starwood or its Affiliates.

 

5.9       Conversion of Transferred Lodging Properties and Future Conversion Lodging Properties.

 

Notwithstanding any other provision of this Agreement, the parties acknowledge and agree that on and from the Effective Date, each of the Transferred Lodging Properties shall be managed by Starwood or franchised to Vistana (as the case may be) subject to a separate agreement between Starwood and Vistana or their respective Affiliates (each, an “Existing Hotel Management Agreement” and a “Hotel Management Agreement”) and in the event that Vistana in the future acquires any Hotels with the intent of having such Hotels become Starwood Lodging Facilities and for the purpose of converting such Starwood Lodging Facilities to Licensed Vacation Ownership Properties (the “Future Conversion Lodging Properties”), one or more of the Future Conversion Lodging Properties may be managed by Starwood or franchised to Vistana pursuant to a separate agreement between Starwood and Vistana or their respective Affiliates (each, a “Future Hotel Management Agreement” and a “Hotel Management Agreement”). To the extent that any or all of the rooms at a Transferred Lodging Property or a Future Conversion Lodging Property, as applicable, are deemed converted into one or more

 



 

Licensed Vacation Ownership Units pursuant to and in accordance with the terms of the applicable Hotel Management Agreement, the converted Licensed Vacation Ownership Units shall be treated as part of or deemed to constitute a Licensed Vacation Ownership Property hereunder and subject to the terms and conditions of this Agreement. In addition, upon termination of the applicable Hotel Management Agreement due to conversion of a sufficient number of rooms at the Transferred Lodging Property or Future Conversion Lodging Property, as applicable, such that such Transferred Lodging Property or Future Conversion Lodging Property, as applicable, is treated as converted in its entirety to a Licensed Vacation Ownership Property under the applicable Hotel Management Agreement, such Transferred Lodging Property or such Future Conversion Lodging Property, as the case may be, shall, in its entirety, be deemed to be a Licensed Vacation Ownership Property hereunder and subject to the terms and conditions of this Agreement. Notwithstanding the foregoing, Vistana and its Affiliates shall be required to comply with this Agreement prior to any such conversion to the extent the applicable Hotel Management Agreement requires such compliance prior to conversion.

 

5.10     Association Management Services.

 

As of the Effective Date, Vistana is providing certain association management services to the Residential Properties as agreed to in writing between Starwood and Vistana or their respective Affiliates (“Existing Association Management Services”). During the Term (and any Tail Period), Vistana shall continue to provide the Existing Association Management Services for such properties pursuant to the terms of separate agreements related thereto. At Starwood’s request, Vistana will provide association management services for any additional Residential Properties or Residential Units reasonably requested by Starwood from time to time on terms substantially consistent with the Existing Association Management Services (including with respect to the scope of services, structure, performance standards, and fee structure taking into account the GDP Deflator, to the extent applicable) pursuant to separate agreements with Starwood or the homeowners associations for the Residential Properties. In the event that Starwood determines to provide such association management services or source services with another provider of association management services, then upon Starwood’s request Vistana shall reasonably cooperate in the transitioning of such services, including considering, in good faith, any request to transition to Starwood or its designee Individuals employed by Vistana but primarily providing services with respect to the Residential Properties.

 

6.      CENTRALIZED SERVICES

 

6.1       Centralized Services.

 

Starwood shall provide or make available to Vistana for use in the operation of each Licensed Vacation Ownership Property those programs and services that it provides or makes available on a centralized basis to substantially all of the Branded Starwood Lodging Facilities or to a category thereof in which the relevant Licensed Vacation Ownership Property would be included if it was a Branded Starwood Lodging Facility (the “Centralized Services”). Starwood or any of its designees shall have the exclusive right to maintain and administer the Centralized Services. The Centralized Services may be provided by one or more of Starwood, its Affiliates, or any third parties designated by Starwood, and Starwood may own or have investments in the suppliers and other providers of the Centralized Services. Starwood may (i) change the structure,

 



 

scope, delivery and terms of any Centralized Service, (ii) add a new, or discontinue all or part of an existing, Centralized Service or (iii) make a mandatory Centralized Service optional, or an optional Centralized Service mandatory, in each case as Starwood deems advisable from time to time; provided that such changes are applicable to the Branded Starwood Lodging Facilities.

 

6.2       Participation in Centralized Services.

 

Unless Starwood agrees in writing to an exception with respect thereto (including, without limitation, due to differences between the Licensed Vacation Ownership Property and the Branded Starwood Lodging Facilities), each Licensed Vacation Ownership Property shall participate in all Centralized Services that Starwood designates as mandatory and may participate in any of the Centralized Services made available to Vistana that Starwood designates as optional; provided that, in each case, the relevant Licensed Vacation Ownership Property is treated in a manner consistent with the manner in which the Branded Starwood Lodging Facilities are treated, or a category thereof in which the affected Licensed Vacation Ownership Property would be included if it was a Branded Starwood Lodging Facility. The Centralized Services may not benefit all participants proportionately. Vistana shall comply with all Standards and Policies applicable to the Centralized Services in which a Licensed Vacation Ownership Property participates, including executing any related documents. Vistana at its expense shall purchase and install all Equipment and Supplies necessary for a Licensed Vacation Ownership Property to participate in the Centralized Services required under this Agreement or any other written agreement between Starwood and Vistana or their respective Affiliates. Vistana shall provide Starwood with at least ninety (90) days’ notice to terminate a Licensed Vacation Ownership Property’s participation in an optional Centralized Service, unless the termination is in connection with such termination by at least four (4) other Licensed Vacation Ownership Properties, in which case the notice period shall be at least one (1) year. Vistana shall not use the Centralized Services in connection with any other property, site, business, product, service or activity at any time (other than those services being offered to and paid for by any of the Licensed Unbranded Properties) or allow any Licensed Vacation Ownership Property to participate in any program or receive any services that are similar to the mandatory Centralized Services, without Starwood’s prior approval. Starwood has provided to Vistana a true and complete list of all mandatory Centralized Services as of the Effective Date.

 

6.3       Centralized Services Charges.

 

A. Fees for Centralized Services with respect to each Licensed Vacation Ownership Property (“Centralized Services Charges”) shall be determined by Starwood on a fair and commercially reasonable basis in a manner consistent with the manner in which such charges are made with respect to substantially all of the Branded Starwood Lodging Facilities or a category thereof in which the Licensed Vacation Ownership Property would be included if it was a Branded Starwood Lodging Facility receiving the services or participating in the programs and systems to which such fees, expenses or costs are applicable, subject to modifications agreed to in writing by Starwood and Vistana (including, without limitation, those due to differences between the Licensed Vacation Ownership Property and the Branded Starwood Lodging Facilities). The Centralized Services Charges may include amounts reasonably calculated to cover Starwood’s or its Affiliates’ overheads and other costs incurred in providing (or arranging for the provision of) the Centralized Services, including costs of personnel and equipment and

 



 

developing, promoting, operating, maintaining and upgrading the Centralized Services and associated Starwood Technology. The Centralized Services Charges also may include fees and costs from third-party providers of Centralized Services, or if Starwood or its Affiliates pay such fees or costs directly, Vistana shall reimburse such amounts. Starwood may increase or decrease any Centralized Services Charges from time to time; provided that such changes are applicable to substantially all of the Branded Starwood Lodging Facilities or to a category thereof in which the Licensed Vacation Ownership Property would be included if it was a Branded Starwood Lodging Facility, subject to any appropriate modifications agreed to in writing by Starwood to reflect appropriate differences between the Branded Starwood Lodging Facilities and such Licensed Vacation Ownership Property. The Centralized Services Charges might not benefit all participants proportionately and Starwood and its Affiliates shall determine in their sole discretion how and when the Centralized Services Charges, including but not limited to funds collected for sales and marketing, are spent and allocated on behalf of a region, locality or subset of participants. The Centralized Services do not create any trust and Starwood and its Affiliates do not act as trustee or in any other fiduciary capacity with respect to the Centralized Services Charges.

 

B. The Centralized Services Charges for mandatory Centralized Services shall be calculated to reimburse costs, including pass-through fees of third-party suppliers, and shall not include a mark-up that results in a profit for Starwood or its Affiliates. In any given year the amount of Centralized Services Charges collected might differ from the cost of delivering Centralized Services and Starwood may use any surplus to fund the deficit from a previous year or the delivery of Centralized Services in a future year. Any such surplus, and any interest earned on the Centralized Services Charges retained by Starwood, shall not be deemed a profit. Starwood and its Affiliates may accept marketing or promotional funds from manufacturers and suppliers of goods or services made available through a Centralized Service. Such funds shall be used for programs intended to benefit the brands covered by the Licensed Marks and/or other Starwood brands and in accordance with any manufacturer or supplier requirements.

 

C. The Centralized Services Charges for optional Centralized Services may include a mark-up that results in a profit for Starwood or its Affiliates. Starwood and its Affiliates may use the systems, resources and assets related to the Centralized Services to deliver products, services and programs to third parties for a profit by way of a trademark license fee, price mark up, administrative fee, commission, sale-leaseback arrangement, contribution for marketing or promotions and other forms of compensation.

 

6.4       Vistana Services.

 

Vistana may, from time to time, make available to Starwood for use in its business any centrally offered marketing or sales programs that Vistana uses in or makes available to the Licensed Business, which Starwood may accept or decline to use, in its sole discretion.

 



 

7.      OPERATIONS

 

7.1       Standard of Operation.

 

A. Standards and Policies. Starwood shall make the Standards and Policies, including any revisions and updates, available to Vistana in electronic form or such other format as Starwood may specify. Starwood shall have no obligation to provide Standards and Policies in a language other than English. Vistana at its expense shall maintain the necessary equipment at the Licensed Vacation Ownership Properties to access and use in a secure manner the up-to-date Standards and Policies. If there is any dispute as to the contents of the Standards and Policies, the master versions maintained by Starwood shall control.

 

B. Operating the Licensed Vacation Ownership Properties and the Licensed Business. Vistana will operate the Licensed Vacation Ownership Properties and the Licensed Business in strict compliance with the Standards and Policies, and implement all parts of the Applicable System. Without limiting the generality of the foregoing, Vistana shall:

 

(i) not use or permit the use of any Licensed Vacation Ownership Property for any other purpose or activity without Starwood’s prior written approval, which Starwood may withhold in its sole discretion;

 

(ii) operate each Licensed Vacation Ownership Property at a high moral and ethical standard and atmosphere and in a clean, safe and orderly manner, providing efficient, courteous and high-quality service to the public;

 

(iii) not take any action that would be reasonably likely to adversely affect Starwood or its Affiliates, the Licensed Marks or the System (including the Trademarks) or the goodwill associated with them;

 

(iv) comply with the Privacy Policy;

 

(v) keep the Licensed Vacation Ownership Properties open and operating twenty-four (24) hours a day, every day during the Term (and any Tail Period), and keep the Licensed Vacation Ownership Properties’ facilities open for the minimum hours prescribed in the Standards and Policies, except in each case to the extent (a) required for any Material Changes or Expansions under Section 5.4, or other refurbishments or capital improvements under Section 12, or (b) the closure of a Licensed Vacation Ownership Property has been approved by Starwood due to the seasonal nature of the Licensed Vacation Ownership Property and Owner use patterns (including decreased Owner use in low demand seasons);

 

(vi) purchase or lease, install, use, maintain, update, repair and replace all Equipment and Supplies required by Section 7.5 and not install or use, or permit to be installed or used, at or in connection with the Licensed Vacation Ownership Properties, any Equipment and Supplies that do not comply with the Standards and Policies;

 

(vii) offer for sale at the Licensed Vacation Ownership Properties all goods and services as required to comply with the Standards and Policies and no goods or services inconsistent with the Standards and Policies, except as approved in writing by Starwood;

 

(viii) determine and communicate all charges for guest rooms and goods and services provided at the Licensed Vacation Ownership Properties in compliance with Applicable Law and, unless prohibited by Applicable Law, the Standards and Policies (including any promotional programs offered to the public);

 



 

(ix) comply with all Standards and Policies relating to customer, Owner and guest services, (including but not limited to the quality assurance requirements set forth in Section 7.8), respond promptly to complaints, ensure positive customer, guest and Owner relations and participate in all surveys and complaint resolution procedures and programs required by Starwood; and

 

(x) comply with all restrictions and requirements set forth in Starwood’s promotional, marketing or other alliance programs in place as of the Effective Date to the extent they apply to Vistana following the Effective Date and Starwood has identified in writing such restrictions and requirements to Vistana.

 

C. Modification of Applicable System.

 

(i) Starwood may from time to time change, add to or remove parts of the Applicable System (including the Standards and Policies) to respond to market trends, customer demands, economic conditions, technological advances and Applicable Law or for other reasons, and Vistana, at its expense, shall implement or comply with such modifications to the extent applicable to the Licensed Business and with appropriate modifications to reflect appropriate differences between hotel service levels and service levels applicable to the Licensed Business. Starwood shall provide Vistana with notice of any modifications to the Applicable System, in a manner consistent with the manner in which such notice is given to substantially all of the Branded Starwood Lodging Facilities or a category thereof in which the affected Licensed Vacation Ownership Properties would be included if they were Branded Starwood Lodging Facilities; providedhowever, that if Vistana, in good faith, objects to the applicability of such modifications to the Licensed Business, it shall promptly notify Starwood thereof and the parties shall discuss the matter in good faith and attempt to resolve such dispute. If the parties cannot resolve such dispute within fifteen (15) Business Days, either party may refer such dispute for Expert resolution pursuant to Section 22.6.

 

(ii) Starwood may grant a variance or exemption from any Standards and Policies based on any conditions that Starwood in its sole discretion deems to be of importance to the operation of a particular Licensed Vacation Ownership Property or category of property, including the characteristics of a particular location or circumstance, differences from the Branded Starwood Lodging Facilities, business potential or Applicable Law. Except for those variances designated as “permanent variances” by agreement of Starwood and Vistana which require the agreement of both parties to revoke (including the list of “permanent variances” provided by Starwood to Vistana prior to the Effective Date), Starwood shall have no obligation to grant to Vistana the same or similar variance or exemption then-granted or previously granted to Vistana or any Starwood Lodging Facility. Vistana shall have no recourse against Starwood due to any variance or exemption granted to any Starwood Lodging Facility.

 

(iii) For the avoidance of doubt, where a modification to the Applicable System would require Vistana to increase the maintenance fee assessment at any Licensed Vacation Ownership Property, then the implementation of such modification may be delayed

 



 

until the next annual maintenance fee budget process at such Licensed Vacation Ownership Property; provided that an assessment that significantly increases the annual maintenance fee may need to be phased over multiple years to the extent reasonable under the circumstances, giving consideration to the amount to be collected; provided, however, that where the change is reasonably required to (a) comply with any Applicable Law, (b) avoid or minimize any risk of injury to individuals or damage to the applicable Licensed Vacation Ownership Property, or (c) avoid or minimize any risk to Starwood and its Affiliates of criminal or civil liability, Vistana shall be required to make or cause to be made such changes as soon as reasonably required by Starwood. Where implementation of any modification is delayed or takes place in phases as contemplated by this Section 7.1C(iii), Vistana shall comply with Starwood’s reasonable directions as to the priority that should be given to the implementation of such modifications.

 

(iv) Vistana may, at the annual meeting between the parties described in Section 11.C, propose modifications to the Applicable System that would not impose an unreasonable burden or cost on Starwood or any of its Affiliates. Starwood shall determine whether or not to make such modifications and have the modifications become part of the Applicable System.

 

D. Compliance with Laws. Vistana shall lawfully obtain and maintain all Approvals required for the operation of the Licensed Vacation Ownership Properties (and the development of any New Properties and any Material Changes or Expansions), operate the Licensed Vacation Ownership Properties in compliance with Applicable Law and all Approvals, including any Applicable Law that affords protections to Individuals with disabilities, and promptly cure any violation. Starwood shall have no obligation to ensure that the Standards and Policies comply with Applicable Law and if any Standards and Policies would violate any Applicable Law, Applicable Law shall prevail.

 

E. No Gaming. Vistana shall not (i) operate or permit the operation of a casino or any other gambling activities at the Licensed Vacation Ownership Properties (except for those which are incidental to a reputable event of short duration held at a Licensed Vacation Ownership Property) or (ii) otherwise directly or indirectly associate with any gambling or gaming license activity, in each case without Starwood’s prior approval, which Starwood may withhold in its sole discretion.

 

F. Vistana’s Debts and Taxes. Vistana shall have sole responsibility for all debts, liabilities and obligations incurred in the operation of the Licensed Vacation Ownership Properties (and the development of any New Properties and any Material Changes or Expansions) and the operation of the Licensed Business generally, and shall make all such payments when due, including all Taxes imposed on Vistana. Starwood shall have no liability for any such debts, liabilities or obligations. If Vistana in good faith disputes any liability for such amounts, Vistana may contest such liability in accordance with Applicable Law; provided that Vistana shall not permit a tax sale, seizure or attachment to occur against the Licensed Vacation Ownership Properties or any of its assets. Unless specifically stated in this Agreement that Starwood is to bear a specific cost (and regardless of whether the words “at Vistana’s expense” are used), Vistana is solely responsible for all costs incurred with respect to the Licensed Vacation Ownership Properties and the Vacation Ownership Business and Vistana’s performance of this Agreement.

 

G. Notice Regarding Legal Actions. As soon as reasonably practicable (but always within ten (10) Business Days), Vistana shall give Starwood notice of (i) any occurrence that reasonably could materially adversely affect any Licensed Vacation Ownership Property or the Licensed Business, or the financial condition of Vistana or its shareholders, or with respect to which the amount in controversy relating to the Licensed Business exceeds five million dollars ($5,000,000) (as adjusted annually after the Effective Date by the GDP Deflator) (ii) any communication from a Governmental Authority alleging that any Licensed Vacation Ownership Property or the Licensed Business fails to comply with any Applicable Law, or any other governmental instrumentality that may materially adversely affect the operation or financial condition of any Licensed Vacation Ownership Property, Starwood or Vistana or the Licensed Business or (iii) any legal action or proceeding of which Vistana becomes aware that (a) names Starwood or its Affiliates, or (b) would be reasonably likely to have a material adverse effect on Vistana, Starwood, any Licensed Vacation Ownership Property, the Licensed Business or Starwood’s businesses. Nothing in this Section 7.1G, however, will abrogate any notice requirement that Starwood or Vistana may have under any insurance program or contract.

 



 

7.2       Management of the Licensed Vacation Ownership Properties.

 

Except to the extent otherwise expressly provided under this Agreement, Vistana shall self-operate each Licensed Vacation Ownership Property, and shall not permit any other Person to operate any Licensed Vacation Ownership Property; providedhowever, that: (i) Vistana may delegate certain management and non-management functions in accordance with Section 7.7; (ii) Starwood or its Affiliates may operate certain Licensed Vacation Ownership Properties (“Starwood Managed Properties”) under separate management agreements (“Starwood Management Agreements”); and (iii) certain aspects of certain Licensed Vacation Ownership Properties may be subject to shared service and integrated facility arrangements with co-located Starwood Lodging Facilities and managed in whole or in part by the manager of such Starwood Lodging Facilities.

 

7.3       Staff.

 

A. Throughout the Term (and any Tail Period), Vistana shall ensure that each Licensed Vacation Ownership Property is staffed with a sufficient number of qualified and trained Individuals to operate the Licensed Vacation Ownership Property in accordance with the Standards and Policies. Vistana shall (i) ensure that the Licensed Vacation Ownership Property staff wear uniforms that comply with the Standards and Policies, present a neat and clean appearance and conduct themselves in a competent and courteous manner, (ii) use reasonable efforts to manage each Licensed Vacation Ownership Property’s employment and labor relations policies and practices so as to avoid incidents that materially disrupt the operation of the Licensed Vacation Ownership Property or damage the reputation of the Licensed Marks or Starwood or its Affiliates, and (iii) comply with Applicable Law relating to or governing the workplace, including without limitation, wage and hour laws, anti-discrimination and anti-retaliation laws, and laws requiring a healthy and safe workplace. Starwood does not have the right to exercise or assume any direction or control over the employment practices, policies or decisions of Vistana, including without limitation, the hiring, training, supervision, discipline, discharge, performance, assignment of duties, setting of wages, or any other aspects of employment. Vistana shall be solely responsible for all employment decisions, regardless of whether Vistana requests or receives input from Starwood regarding any such decision.

 

B. Vistana shall ensure that each Licensed Vacation Ownership Property’s staff completes, to Starwood’s satisfaction, all training programs designated as mandatory in the Standards and Policies from time to time, at the time and place designated by Starwood. Vistana shall pay all costs of such training programs, including salaries, transportation, accommodation and meals for trainers and trainees. Training programs provided by Starwood shall be conducted in English only and Vistana at its expense may provide a translator. Starwood reserves the right to require that employees of Vistana or its Affiliates and other Individuals receiving training execute confidentiality agreements in form and substance satisfactory to Starwood.

 



 

7.4       Marketing.

 

A. Subject to this Section 7.4, Vistana shall (i) conduct advertising, marketing, promotional and public relations programs and activities for each Licensed Vacation Ownership Property and the Licensed Business in accordance with Standards and Policies, (ii) with respect to each Licensed Vacation Ownership Property, join, and remain a member in good standing of, such advertising and marketing cooperative groups that Starwood may require for Branded Starwood Lodging Facilities or for a category thereof in which the applicable Licensed Vacation Ownership Property would be included if it was a Branded Starwood Lodging Facility, and (iii) obtain and maintain listings of each Licensed Vacation Ownership Property in appropriate directories and any promotional materials that Starwood requires for Branded Starwood Lodging Facilities or for a category thereof in which the applicable Licensed Vacation Ownership Property would be included if it was a Branded Starwood Lodging Facility.

 

B. Vistana may only enter into marketing arrangements with respect to the Licensed Business with third parties that are consistent with the brand positioning of the Licensed Business, are in compliance with the Standards and Policies, and for which Starwood provides its prior written consent.

 

C. Marketing Content.

 

(i) Starwood and Vistana shall work together in good faith to develop Marketing Content and templates thereof to support the Licensed Business (including sales of interests in Licensed Vacation Ownership Units and Licensed Unbranded Vacation Ownership Units) and to agree upon the manner and the mediums (e.g., print, website) in which such Marketing Content and templates can be used. Vistana shall submit Marketing Content to Starwood to review and approve in accordance with the terms of this Agreement and the Standards and Policies, including the marketing review processes. Starwood has provided approval of templates and other Marketing Content identified for use as of the Effective Date. Vistana shall not make any material modifications or changes to any Marketing Content approved by Starwood, without obtaining Starwood’s prior written approval. Vistana shall promptly make changes to its Marketing Content that does not comply with this Agreement or that Starwood believes does not comply with the Standards and Policies or Applicable Law. If Starwood subsequently withdraws its approval of any Marketing Content, Vistana shall promptly cease the use, distribution or dissemination of any such unapproved items. Notwithstanding

 



 

anything in this Section 7.4 to the contrary, Starwood’s review and approval of any Marketing Content shall not constitute any judgment or determination by Starwood that such Marketing Content is in compliance with Applicable Law.

 

(ii) Vistana shall provide Starwood with representative samples of any advertising, marketing, promotional, or public relations materials and other Marketing Content associated with Vistana’s marketing initiatives and programs, as reasonably requested by Starwood.

 

(iii) Vistana shall not, without the prior written approval of Starwood, bid on or purchase placement rights for any keywords or adwords that incorporate any of the Licensed Marks, the Trademarks or anything similar to them or use any advertising method that creates or overlays links or banners on websites by using the Licensed Marks, the Trademarks or anything similar to them.

 

(iv) Starwood may obtain, and upon request, Vistana at its expense shall obtain and provide to Starwood, photographs, descriptive content, video, floor plans and other media relating to the Licensed Vacation Ownership Properties. All such materials used by Vistana or submitted to Starwood and its Affiliates must be complete and accurate and comply with Starwood’s specifications. Any Marketing Content developed by or on behalf of Vistana with respect to the Licensed Business or one or more Licensed Vacation Ownership Properties generally and provided to Starwood pursuant to this Section 7.4.C(iv) may be used by Starwood or any of its Affiliates on an unlimited basis for the benefit of any Starwood Lodging Facility or Residential Property of Starwood without compensation to Vistana.

 

D. Vistana shall promote at the Licensed Vacation Ownership Properties the use of all Starwood Lodging Facilities in accordance with the Standards and Policies. Vistana shall not: (i) divert any business from the Licensed Vacation Ownership Properties to any other facilities or products (except other Licensed Vacation Ownership Properties, through an approved Exchange Program, or facilities or products affiliated with Starwood); (ii) sell any condominium, residential, timeshare, interval ownership or other lodging product (other than the Licensed Vacation Ownership Interests and related incentives, exit programs or similar products) at the premises of any Licensed Vacation Ownership Property; (iii) promote, market or advertise, at or in connection with the Licensed Vacation Ownership Properties, any business unrelated to the marketing and sale of products designed and intended for leisure and vacation use; providedhowever, that the promotion, marketing or advertisement of Hotels, Vacation Ownership Interests and Residential Properties other than Starwood Lodging Facilities, the Licensed Business, approved Exchange Programs, and Starwood’s Residential Properties, shall be prohibited; or (iv) use any Guest Data or Starwood Confidential Information in promoting, advertising or marketing any Hotel, condominium, residential timeshare, interval ownership or other lodging product (except related to the Licensed Business to the extent permitted hereunder).

 

7.5       Purchasing.

 

A. Equipment and Supplies. Vistana at its expense shall (i) buy, lease, install, use, maintain, update, repair and replace any Equipment and Supplies designated in the Standards and Policies to be used as part of the Applicable System and (ii) maintain service contracts necessary or advisable to keep all such Equipment and Supplies working properly.

 



 

B. Approved Suppliers. Subject to Section 7.5C, Starwood may require Vistana to buy any Equipment and Supplies or services used as part of the Applicable System solely from Approved Suppliers. In designating an Approved Supplier, Starwood will consider if the prices and terms of the products or services available from such supplier are competitive with those of similar items of equal quality available on an arm’s length basis to similar companies in the hotel industry from other reputable and qualified unrelated third-party suppliers. These may be grouped in reasonable categories rather than being compared item by item. Starwood or its Affiliates may offer products and services for sale to Vistana and other Persons and Starwood may designate Starwood or its Affiliates as an Approved Supplier or sole Approved Supplier for any Equipment and Supplies and/or services. If any supplier ceases to be an Approved Supplier, Vistana may not reorder from such supplier after receiving notice of such change. Starwood will determine the number of Approved Suppliers (if any) for any product or service, which could be only one. Notwithstanding anything to the contrary in this Agreement, Starwood and its Affiliates may (i) receive payments, fees, rebates, commissions or reimbursements from suppliers (including Approved Suppliers) and other third parties in respect of any products and services purchased by the Licensed Vacation Ownership Properties, (ii) own or have investments in such suppliers and third parties and (iii) derive a financial benefit from the Licensed Vacation Ownership Properties’ purchases of such products and services.

 

C. Vistana’s Right to Choose Alternative Suppliers. If Vistana wishes to buy any Equipment and Supplies or services used as part of the Applicable System (i) from a supplier who is not an Approved Supplier for the relevant item or (ii) for which no Approved Supplier has been designated, Vistana shall first provide Starwood with (a) all information that Starwood may request to assess such supplier’s ability to meet the relevant Standards and Policies, its quality controls, its capacity to supply Vistana’s needs promptly and reliably and its insurance protecting Starwood and its Affiliates from any relevant claims and (b) upon Starwood’s request, a reasonable quantity (as determined by Starwood) of samples of the applicable Equipment and Supplies. Starwood may charge Vistana or the supplier for the costs of Starwood’s evaluation. Starwood may approve or disapprove any proposed supplier, may approve a supplier conditionally and may revoke any approval. Vistana may not buy any Equipment and Supplies or services used as part of the Applicable System from a supplier disapproved by Starwood.

 

D. Purchasing Programs. Starwood may from time to time make available to Vistana programs through which one or more