UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant  ☒                             Filed by a party other than the Registrant  ☐

Check the appropriate box:

 

☐		Preliminary Proxy Statement
☐		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒		Definitive Proxy Statement
☐		Definitive Additional Materials
☐		Soliciting Material Under §240.14a-12

Hilton Grand Vacations Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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PROPOSED BUSINESS COMBINATION—YOUR VOTE IS VERY IMPORTANT

 

 

Hilton Grand Vacations Inc. (“HGV”) and Dakota Holdings, Inc. (“Diamond”), which indirectly owns all of the interests in Diamond Resorts International, Inc., have entered into an Agreement and Plan of Merger, dated as of March 10, 2021 (the “merger agreement”), providing for the acquisition of Diamond by HGV through a series of transactions (the “merger”). After the completion of the merger, Diamond will cease to exist as an entity and all of its assets and liabilities will be held by Hilton Grand Vacations Borrower LLC, a wholly-owned subsidiary of HGV (“Merger Sub” or “HGV Borrower”).

If the merger is completed, HGV currently anticipates issuing approximately 34,746,298 shares of its common stock (“HGV common stock”) to current Diamond stockholders (based on calculations as of June 1, 2021), subject to certain adjustments as a result of changes in certain liabilities and other items between signing and closing. As a result, based on Diamond’s current capitalization, HGV currently anticipates issuing approximately 0.32022 shares of HGV common stock (based on calculations as of June 1, 2021), plus cash in lieu of any fractional shares, without interest, for each share of Diamond Class A common stock that Diamond stockholders own other than Appraisal Shares (as defined in the merger agreement), treasury shares, and shares owned directly or indirectly by Diamond. This exchange ratio will not be adjusted to reflect stock price changes before the completion of the merger, but is subject to certain adjustments as a result of changes in certain liabilities and other items between signing and closing. Based on the closing price of HGV common stock of $40.57 on March 9, 2021, the last trading day before public announcement of the merger agreement, this estimated merger consideration represented an implied value of $12.99 per share of Diamond Class A common stock. Based on the closing price of HGV common stock of $43.24 on June 17, 2021, the latest practicable date before the printing of this proxy statement, this estimated merger consideration represented an implied value of $13.84 per share of Diamond Class A common stock.

The value of the merger consideration will fluctuate with the market price of HGV common stock, which is currently traded on the New York Stock Exchange (the “NYSE”) under the symbol “HGV.”

The obligations of HGV and Diamond to complete the merger are subject to the satisfaction or waiver of a number of conditions set forth in the merger agreement, a copy of which is included as Annex A to this proxy statement, including stockholder approval of the issuance of our common stock in connection with the proposed merger.

HGV will hold a special meeting of its stockholders in connection with the issuance of HGV common stock in the proposed merger. Your vote is very important. Please submit a proxy to vote your shares as promptly as possible so that your shares may be represented and voted at the special meeting. The HGV board of directors unanimously recommends that HGV stockholders vote “FOR” each of the proposals being submitted to a vote of HGV stockholders at the special meeting.

This proxy statement contains detailed information about HGV, the special meeting, the merger agreement and the merger. You should read this proxy statement carefully and in its entirety before voting, including the section entitled “Risk Factors” beginning on page 22 of this proxy statement. We look forward to HGV’s successful acquisition of Diamond.

Sincerely,

 

This proxy statement is dated June 21, 2021 and is first being mailed to HGV stockholders on or about June 21, 2021.

June 21, 2021

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

Dear Fellow Stockholder:

We are pleased to invite you to attend the special meeting of stockholders (the “special meeting”) of Hilton Grand Vacations Inc. (“HGV”), a Delaware corporation, which will be held at 5323 Millenia Lakes Boulevard, Orlando, Florida 32839, on July 28, 2021 at 9:00 a.m., Eastern time, for the following purposes:

 

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to consider and vote on the proposal to issue shares of HGV common stock to Diamond stockholders (the “stock issuance proposal”) under the Agreement and Plan of Merger, dated as of March 10, 2021, by and among HGV, Hilton Grand Vacations Borrower LLC, a Delaware limited liability company and a wholly-owned subsidiary of HGV (“Merger Sub” or “HGV Borrower”), Dakota Holdings, Inc., a Delaware corporation (“Diamond”) that is controlled by investment funds and vehicles managed by affiliates of Apollo Global Management, Inc. (together with its subsidiaries, “Apollo”), and the stockholders of Diamond, a copy of which is included as Annex A to the proxy statement of which this notice is a part (the “merger agreement”);

 

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to vote upon the proposal to approve, on an advisory (non-binding) basis, the merger-related named executive officer compensation that will or may be paid to HGV’s named executive officers in connection with the merger (the “compensation proposal”); and

 

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to vote upon the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal (the “adjournment proposal” and together with the stock issuance proposal and compensation proposal, the “proposals”).

HGV will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournments or postponements thereof. Please refer to the proxy statement of which this notice is a part for further information on the business to be transacted at the special meeting.

HGV’s board of directors has unanimously approved the merger agreement and the acquisition of Diamond by HGV through a series of transactions as provided in the merger agreement (the “merger”) and determined that the merger agreement and the transactions contemplated thereby, and the issuance of shares of HGV common stock to Diamond stockholders under the merger agreement, are advisable and in the best interests of HGV and its stockholders. HGV’s board of directors unanimously recommends that HGV stockholders vote “FOR” each of the proposals being submitted to a vote of stockholders at the special meeting.

HGV’s board of directors has fixed the close of business on June 1, 2021 as the record date (the “record date”) for determining HGV stockholders entitled to receive notice of, and to vote at, the special meeting or any adjournments or postponements thereof. Only holders of record of HGV common stock at the close of business on the record date are entitled to receive notice of, and to vote at, the special meeting. The presence of the holders of a majority in voting power of the stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, is required to constitute a quorum for the transaction of business at the special meeting. To ensure that your vote is counted, please provide your voting instructions as soon as possible, even if you plan to attend the special meeting in person. We encourage you to vote via the internet or by telephone. You also have the option of voting by completing, signing, dating and returning the proxy card that accompanied the printed materials. Submitting your vote via the internet or by telephone or proxy card will not affect your right to vote in person if you decide to attend the special meeting.

The approval of the stock issuance proposal and the compensation proposal requires the affirmative vote of the holders of a majority of the votes cast. The approval of the adjournment proposal, if necessary or appropriate, requires the affirmative vote of the stockholders of a majority in voting power present if a quorum is not present, or, if a quorum is present, the affirmative vote of the holders of a majority of the votes cast. Abstentions, failures to vote and broker non-votes, if any, will have no effect on the outcome of the stock issuance proposal, compensation proposal or any vote on the adjournment proposal. A list of the names of HGV stockholders of record will be open to the examination by any stockholder for any purpose germane to the special meeting for ten days before the special meeting during regular business hours at HGV’s headquarters, 5323 Millenia Lakes Boulevard, Suite 120, Orlando, Florida 32839. The HGV stockholder list will also be available at the special meeting for examination by any stockholder present at such meeting.

Your vote is very important. Whether or not you expect to attend the special meeting, we urge you to submit a proxy to vote your shares as promptly as possible by (1) accessing the internet website specified on your proxy card and following the on-screen instructions; (2) calling the toll-free number specified on your proxy card; or (3) signing, dating and mailing your proxy card in the postage-paid envelope provided as soon as possible, so that your shares may be represented and voted at the special meeting.

This proxy statement provides a detailed description of the merger agreement and the merger as well as a description of the issuance of shares of HGV common stock to Diamond stockholders under the merger agreement. We urge you to read this proxy statement, including any documents incorporated by reference, and the Annexes carefully and in their entirety. If you have any questions concerning the merger agreement, the merger or this proxy statement, would like additional copies of this document, or need help voting your shares of HGV common stock, please contact HGV’s proxy solicitor:

Okapi Partners LLC

1212 Avenue of the Americas, 24th Floor

New York, New York 10036

Banks and brokers call: +1-212-297-0720

Stockholders and all others call toll-free: (888) 785-6707

Email: info@okapipartners.com

As always, thank you for the confidence that you have placed in us. We are excited about HGV’s proposed acquisition of Diamond.

Sincerely,

By Order of the Board of Directors,

 

Leonard A. Potter

Chairman of the Board of Directors

ADDITIONAL INFORMATION

This proxy statement incorporates by reference important business and financial information about HGV from other documents that are not included in or delivered with this proxy statement. For a listing of the documents incorporated by reference into this proxy statement, see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 155 of this proxy statement. This information is available to you without charge upon your written or oral request. You can obtain the documents incorporated by reference into this document through the Securities and Exchange Commission (“SEC”) website at www.sec.gov or by requesting them in writing or by telephone at Investor Relations, Hilton Grand Vacations Inc., 5323 Millenia Lakes Boulevard, Suite 400, Orlando, Florida 32839, telephone number (407) 613-3100, or by email to IR@hgv.com

You may also obtain documents incorporated by reference into this proxy statement by requesting them in writing or by telephone from Okapi Partners LLC, HGV’s proxy solicitor, at the following addresses and telephone numbers:

Okapi Partners LLC

1212 Avenue of the Americas, 24th Floor

New York, New York 10036

Banks and brokers call: +1-212-297-0720

Stockholders and all others call toll-free: (888) 785-6707

Email: info@okapipartners.com

To receive timely delivery of the documents in advance of the special meeting, you should make your request no later than five business days before the date of the special meeting, or no later than July 21, 2021.

ABOUT THIS PROXY STATEMENT

This proxy statement constitutes a proxy statement for HGV under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting for the special meeting.

No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement and we take no responsibility for, and cannot provide any assurances as to the reliability of, any other information that others may give you. This proxy statement is dated June 21, 2021. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement to our stockholders nor the issuance by us of shares of our common stock, par value $0.01 per share, under the merger agreement will create any implication to the contrary.

In addition, Apollo and Diamond have supplied all information contained in this proxy statement relating to Apollo, Diamond and their affiliates, including, without limitation, information about their businesses, properties, and risk factors, and various financial statements and accounting information and data that pertain to the Diamond business. We, Apollo and Diamond all contributed information to this proxy statement relating to the proposed transaction

All references in this proxy statement to “HGV,” “we,” “us,” and “our” refer to Hilton Grand Vacations Inc., a Delaware corporation; all references in this proxy statement to “Apollo” refers to Apollo Global Management, Inc. together with its subsidiaries; all references in this proxy statement to the “Apollo Funds” refer to investment funds managed by Apollo Management VIII, L.P.; all references in this proxy statement to the “Apollo Investors” refer to AP VIII Dakota Holdings, L.P. and AP Dakota Co-Invest, L.P., collectively, who are affiliates of the Apollo Funds and stockholders of Diamond; all references in this proxy statement to “DRI” refer to Diamond Resorts International, Inc., a Delaware corporation that owns and operates all of Diamond’s timeshare business; all references in this proxy statement to “Diamond” or “Dakota Holdings” refer to Dakota Holdings, Inc., a Delaware corporation which is currently the parent entity of DRI and prior to the merger DRI, through a series of transactions will be merged with and into Dakota Holdings, with Dakota Holdings being the surviving corporation; all references in this proxy statement to “Merger Sub” or “HGV Borrower” refer to Hilton Grand Vacations Borrower LLC, a Delaware limited liability company and a wholly-owned direct subsidiary of HGV; and unless otherwise indicated or as the context requires, all references to the “merger agreement” refer to the Agreement and Plan of Merger, dated as of March 10, 2021, by and among HGV, HGV Borrower, Diamond, the Apollo Investors, and the other stockholders of Diamond, a copy of which is included as Annex A to this proxy statement.

All brand trademarks, service marks or trade names cited in this report are the property of their respective holders, including those of other companies and organizations. Solely for convenience, trademarks, trade names and service marks referred to in this report appear without the ® or ^™ symbols, however such references are not intended to indicate in any way that we, Diamond, or the owner, as applicable, will not assert, to the fullest extent under applicable law, all rights to such, trademarks, trade names and service marks.

We have the exclusive rights to use the Hilton Grand Vacations Club® and Hilton Club® brands for vacation ownership and related products pursuant to our license agreement, as amended, with Hilton Worldwide Holdings Inc. (“Hilton”).

TABLE OF CONTENTS

 

SUMMARY TERM SHEET			1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS AND SPECIAL MEETING			3
SUMMARY			8
The Parties			8
The Merger			9
Consideration to be Paid in the Merger by HGV to Diamond Stockholders			10
Recommendation of Our Board of Directors			10
Opinion of Our Financial Advisor			11
Interests of Our Directors and Executive Officers in the Merger			11
Our Board of Directors Following the Merger			12
Treatment of Diamond Equity-Based Awards			12
Regulatory Clearances Required for the Merger			12
Expected Timing of the Merger			13
Conditions to Completion of the Merger			13
Termination of the Merger Agreement			15
Termination Fees and Expenses			16
No Rights of Appraisal for HGV Stockholders			16
Listing of Shares of Our Common Stock			16
The Special Meeting			16
Description of Debt Financing			17
Securitization and Warehouse Facility			18
Summary Consolidated Financial Data of Diamond			19
Summary Consolidated Financial Data of HGV			20
Summary Unaudited Pro Forma Condensed Combined Financial Information of HGV and Diamond			21
RISK FACTORS			22
THE PARTIES			34
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS			36
THE SPECIAL MEETING			38
THE MERGER			43
Effect of the Merger			43
Background of the Merger			43
Reasons for the Merger; Recommendation of Our Board of Directors			56
Opinion of Our Financial Advisor			60
Certain Unaudited Prospective Financial Information			70
Interests of Our Directors and Executive Officers in the Merger			74
Our Board of Directors Following the Merger			76
Regulatory Clearances Required for the Merger			77
Treatment of Diamond Equity-Based Awards			78
Accounting Treatment			78
U.S. Federal Income Tax Consequences for Our Stockholders			78
NYSE Market Listing of Our Common Stock			78
Description of Debt Financing			78
Securitization and Warehouse Facility			82
No Rights of Appraisal for HGV Stockholders			84
THE MERGER AGREEMENT			85
The Merger			85
Completion of the Merger			85
Merger Consideration			86
Conversion and Exchange of Shares of Diamond Common Stock			86
Representations and Warranties			86
Conduct of Business			89

No Solicitation of Alternative Proposals			94
Change in HGV Board Recommendation			95
Efforts to Obtain Required Stockholder Vote			95
Efforts to Complete the Merger			95
D&O Indemnification, Exculpation and Insurance			96
Employee Benefits Matters			100
Treatment of Equity Awards			101
Conditions to Completion of the Merger			102
Termination of the Merger Agreement			103
Termination Fees and Expenses			104
Amendment and Modification			104
No Third-Party Beneficiaries			105
Specific Performance			105
OTHER AGREEMENTS			106
Stockholders Agreement			106
Hilton Agreements and Consent			109
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF DIAMOND			111
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION OF HGV AND DIAMOND			136
SECURITY OWNERSHIP OF HGV			149
PROPOSAL NUMBER 1: APPROVAL OF ISSUANCE OF COMMON STOCK			151
PROPOSAL NUMBER 2: COMPENSATION PROPOSAL			152
PROPOSAL NUMBER 3: ADJOURNMENT			153
FUTURE STOCKHOLDER PROPOSALS			154
OTHER MATTERS			154
HOUSEHOLDING			154
WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY REFERENCE			155
INDEX – FINANCIAL STATEMENTS			F-1

SUMMARY TERM SHEET

This Summary Term Sheet, together with the sections entitled “Questions and Answers About the Transactions and Special Meeting” and “Summary,” summarizes certain information contained in this proxy statement, but does not contain all of the information that is important to you. You should read carefully this entire proxy statement, including the attached annexes, for a more complete understanding of the matters to be considered at the special meeting.

 

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Hilton Grand Vacations Inc., (“HGV”) is a timeshare company that markets and sells vacation ownership intervals, manages resorts in top leisure and urban destinations, and operates a points-based vacation club. For more information about HGV, see the section entitled “The Parties.”

 

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Hilton Grand Vacations Borrower LLC (“HGV Borrower”) is a wholly-owned subsidiary through which HGV indirectly owns all of its assets and conduct substantially all of its business. HGV Borrower is a party to the merger agreement and will be the surviving entity after the merger. For more information about HGV Borrower, see the section entitled “The Parties.”

 

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Diamond Resorts International, Inc. and its subsidiaries, including Diamond Resorts Corporation (collectively, “DRI”), is a global leader in the hospitality industry and the largest, independent-branded vacation ownership company that markets and sells vacation ownership interests, manages resorts and multi-resort trusts in key vacation destinations, and operates points-based vacation clubs. For more information about DRI, see the sections entitled “The Parties” and “Management’s Discussion and Analysis of the Financial Condition and Results of Operations of Diamond.”

 

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Dakota Holdings, Inc., a Delaware corporation (“Diamond”), is the parent company of DRI and is controlled by investment funds and vehicles managed by affiliates of Apollo Global Management, Inc. (“Apollo”). For more information about Dakota Holdings, Inc., see the section entitled “The Parties.”

 

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Apollo is a leading global alternative investment manager with offices in New York, Los Angeles, San Diego, Houston, Bethesda, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong, Shanghai and Tokyo. Apollo had assets under management of approximately $461.1 billion as of March 31, 2021 in credit, private equity and real assets funds invested across a core group of nine industries where Apollo has considerable knowledge and resources. For more information about Apollo, see the section entitled “The Parties.”

 

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As part of a series of transactions leading to the merger, (i) Dakota Intermediate, Inc., a Delaware corporation, will merge with and into Diamond, with the latter surviving; (ii) thereafter, Dakota Parent, Inc., a Delaware corporation, will merge with and into Diamond, with the latter surviving; and (iii) thereafter, DRI will merge with and into Diamond, with the latter surviving. For more information about the merger, see the section entitled “The Merger – Effect of the Merger.”

 

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On March 10, 2021, HGV, HGV Borrower, Diamond, the Apollo Investors, and the other Diamond stockholders executed and delivered the merger agreement. Simultaneously with the execution of the merger agreement, Hilton Worldwide Holdings Inc. (“Hilton”) delivered to HGV its consent to the merger and the related transactions, and HGV and Hilton entered into the Hilton agreements. For more information about the Hilton agreements, see the section entitled “Other Agreements — Hilton Agreements and Consent.”

 

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Pursuant to the merger agreement and subject to the terms and conditions contained therein, at the effective time, Diamond will merge with and into HGV Borrower, the separate corporate existence of Diamond will cease, and HGV Borrower will continue as the surviving company and a wholly-owned subsidiary of HGV. For more information about the merger agreement, see the sections entitled “The Merger” and “Proposal Number 1: Approval of Issuance of Common Stock.”

 

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At the closing, the current Diamond stockholders are currently expected to receive an aggregate of approximately 34,746,298 shares of HGV common stock (based on calculations as of June 1, 2021),

 

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subject to certain adjustments. As a result, based on Diamond’s current capitalization, Diamond stockholders are expected to receive approximately 0.32022 shares of HGV common stock for each share of Diamond common stock (based on calculations as of June 1, 2021). The HGV board of directors recommends stockholders approve the issuance of stock to Diamond stockholders. For more information about the effects of the merger, see the sections entitled “The Merger — Consideration to be Paid in the Merger by HGV to Diamond Stockholders” and “Proposal Number 1: Approval of Issuance of Common Stock.”

 

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Upon completion of the merger, HGV’s board of directors will expand from its current size of seven members to nine members. All seven members of HGV’s current board of directors prior to the merger will remain on HGV’s board of directors following the merger, and, pursuant to the stockholders agreement, two new members designated by the Apollo Investors will be appointed to HGV’s board of directors at the effective time of the merger. For more information about our board of directors following the merger, and for more information about the stockholders agreement, see the sections entitled “The Merger — Our Board of Directors Following the Merger” and “Other Agreements — Stockholders Agreement.”

 

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Unless waived by the parties to the merger agreement, the closing is subject to a number of conditions set forth in the merger agreement, including, among others, receipt of the requisite stockholder approval of the stock issuance proposal. For more information about the closing conditions to the merger, and the requisite stockholder approval required for the merger to occur, see the sections entitled “The Merger Agreement — Conditions to Completion of the Merger” and “Questions and Answers About the Transactions and Special Meeting — What vote is required to approve each proposal and how are abstentions, failures to vote and broker non-votes treated?”

 

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The merger agreement may be terminated at any time prior to the consummation of the merger upon mutual agreement of the parties thereto, or for other reasons in specified circumstances. For more information about the termination rights under the merger agreement, see the section entitled “The Merger Agreement — Termination of the Merger Agreement.”

 

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The merger agreement and transactions contemplated thereby involve numerous risks. For more information about these risks, please see the section entitled “Risk Factors.”

 

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The HGV Board considered various factors in determining whether to approve the merger agreement. For more information about the HGV Board’s decision-making process, see the sections entitled “The Merger — Reasons for the Merger; Recommendation of Our Board of Directors” and “The Merger — Opinion of Our Financial Advisor.”

 

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In addition to voting on the stock issuance proposal, at the special meeting, HGV stockholders will also be asked to vote on the approval of the compensation proposal. For more information about the compensation proposal, see the section entitled “Proposal Number 2: Compensation Proposal.”

 

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS AND SPECIAL MEETING

The following are brief answers to certain questions that you may have about the proposals being considered at the special meeting of our stockholders, which we refer to as the “special meeting.” We urge you to carefully read this entire proxy statement, including its Annexes, and the other documents to which this proxy statement refers or incorporates by reference, because this section does not provide all of the information that might be important to you. Also see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 155 of this proxy statement.

 

Q:	What is the proposed transaction?

 

A:

On March 10, 2021, we, HGV Borrower, Diamond, the Apollo Investors, and the other stockholders of Diamond entered into the merger agreement, a copy of which is included as Annex A to this proxy statement. The merger agreement provides that we will acquire Diamond in a series of transactions (the “merger”). After the completion of the merger, Diamond will cease to exist as a separate company and all of its assets and liabilities will be assumed by HGV Borrower, the surviving entity of the merger, and HGV Borrower will continue to be a wholly-owned subsidiary of HGV.

If the merger is completed, the Diamond stockholders are currently expected to receive an aggregate of approximately 34,746,298 shares (based on calculations as of June 1, 2021) of our common stock par value $0.01 per share (“our common stock”), subject to certain adjustments as a result of changes in certain liabilities and other items between signing and closing. As a result, based on Diamond’s current capitalization, Diamond stockholders are expected to receive approximately 0.32022 shares of our common stock (based on calculations as of June 1, 2021) for each share of Diamond Class A common stock, par value $0.01 per share (“Diamond common stock”), other than Appraisal Shares (as defined in the merger agreement), treasury shares and shares owned directly or indirectly by Diamond, that they own immediately before the merger, subject to adjustment as a result of changes in certain liabilities and other items between signing and closing of the merger in accordance with the terms of the merger agreement (such ratio, the “exchange ratio”), plus cash for any fractional shares, without interest.

 

Q:	Why am I receiving this proxy statement?

 

A:

You are receiving this proxy statement because you are a stockholder of record of HGV on the record date. This proxy statement serves as the proxy statement through which we will solicit proxies to obtain the necessary stockholder approval for the proposed issuance of our common stock to Diamond stockholders in connection with the merger. The merger itself does not require any HGV stockholder approval.

The Diamond stockholders have already approved the merger agreement and the merger, pursuant to a written consent dated March 10, 2021. Accordingly, there will not be a separate meeting for Diamond stockholders. In addition, Diamond does not file reports with the SEC nor is its common stock publicly traded on any exchange.

This proxy statement, including its Annexes, contains and incorporates by reference important information about us and Diamond, the merger and the special meeting. You should read all the available information carefully and in its entirety.

Your vote is important. We encourage you to vote as soon as possible.

 

Q:	When and where will the special meeting be held?

 

A:	The special meeting will be held at 5323 Millenia Lakes Boulevard, Orlando, Florida 32839, on July 28, 2021 at 9:00  a.m., Eastern time.

 

Q:	Who is entitled to vote at the special meeting?

 

A:	Only holders of record of outstanding shares of our common stock as of the close of business on June 1 , 2021, which we refer to as the record date, are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement of the special meeting.

 

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Q:	What constitutes a quorum at the special meeting?

 

A:

In accordance with Delaware law (the law under which we are incorporated) and our bylaws, the presence of the holders of a majority in voting power of the stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, is required to constitute a quorum for the transaction of business at the special meeting. If a quorum is not present, or if there are not sufficient votes at the time of the special meeting to approve the stock issuance proposal, the special meeting may be adjourned to allow more time for obtaining additional proxies or votes without further notice other than by announcement of the time and place of the adjourned meeting at the special meeting, unless the adjournment is for more than thirty days in which case a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the adjourned meeting. If after the adjournment, a new record date for stockholders entitled to vote is fixed for the adjourned meeting, our board of directors will fix a new record date for notice of such adjourned meeting and will give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting. At any such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. At any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn before the adjourned meeting.

Abstentions (shares of our common stock for which proxies have been received but for which the holders have abstained from voting) will be included in the calculation of the number of shares of our common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. However, broker non-votes will not be included in the calculation of the number of shares of our common stock represented at the special meeting for purposes of determining whether a quorum has been achieved.

 

Q:	How do I vote my shares of common stock?

 

A:	If you are a stockholder of record on the record date, you may vote in person by attending the special meeting, or, to ensure your shares are represented at the special meeting, in advance of the special meeting you may authorize a proxy to vote by:

 

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accessing the internet website specified on your proxy card and following the on-screen instructions;

 

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calling the toll-free number specified on your proxy card; or

 

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signing, dating and mailing your proxy card in the postage-paid envelope provided.

If you are a beneficial owner who holds shares of our common stock in “street name” through a stock brokerage account or through a bank, broker or other nominee, please follow the voting instructions provided by your bank, broker or other nominee to ensure that your shares are represented at the special meeting. Beneficial owners may vote at the special meeting only if they obtain a legal proxy from their bank, broker or other nominee before the special meeting.

 

Q:	How does our board of directors recommend that I vote?

 

A:

Our board of directors, after careful consideration of the various factors described under “The Merger—Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 56 of this proxy statement, at a meeting held on March 8, 2021, unanimously determined that the merger agreement, the issuance of shares of our common stock in the merger and the other transactions contemplated by the merger agreement are advisable and in the best interests of us and our stockholders, authorized and approved the merger agreement, the issuance of shares of our common stock in the merger, and the other transactions contemplated thereby by a unanimous vote, and adopted resolutions directing that the stock issuance proposal be submitted to our stockholders for their consideration and approval.

 

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Accordingly, our board of directors unanimously recommends that our common stockholders vote “FOR” the stock issuance proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.

In relation to the compensation proposal, except with respect to our Executive Vice President and Chief Marketing Officer, we do not intend to terminate any of our executive officers in connection with the merger and, accordingly, we do not anticipate making any change in control payments, accelerated vesting or benefit enhancements to our other named executive officers as a result of the merger.

 

Q:	What vote is required to approve each proposal and how are abstentions, failures to vote and broker non-votes treated?

 

A:

The approval of the stock issuance proposal and the compensation proposal requires the affirmative vote of the holders of a majority of the votes cast and entitled to vote on each proposal. The approval of the adjournment proposal, if necessary or appropriate, requires the affirmative vote of the stockholders of a majority in voting power present if a quorum is not present or, if a quorum is present, the affirmative vote of the holders of a majority of the votes cast. Abstentions, failures to vote and broker non-votes, if any, will have no effect on the outcome of the stock issuance proposal, compensation proposal or the adjournment proposal.

 

Q:	My shares are held in “street name” by my bank, broker or other nominee. Will my bank, broker or other nominee automatically vote my shares for me?

 

A:

No. If your shares are held in the name of a bank, broker or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” You are not the “record holder” of such shares. If this is the case, this proxy statement has been forwarded to you by your bank, broker or other nominee. As the beneficial holder, unless your bank, broker or other nominee has discretionary authority over your shares, you generally have the right to direct your bank, broker or other nominee as to how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which your bank, broker or other nominee does not have discretionary authority. This is often called a “broker non-vote.” With respect to the special meeting, your bank, broker or other nominee does not have discretionary authority to vote on the stock issuance proposal, the compensation proposal or the adjournment proposal.

You should therefore provide your bank, broker or other nominee with instructions as to how to vote your shares of our common stock.

Please follow the voting instructions provided by your bank, broker or other nominee so that it may vote your shares on your behalf. Please note that you may not vote shares held in street name by returning a proxy card directly to us or by voting in person at the special meeting unless you first obtain a legal proxy from your bank, broker or other nominee.

 

Q:	What will happen if I return my proxy card without indicating how to vote?

 

A:

If you properly complete and sign your proxy card but do not indicate how your shares of our common stock should be voted on a matter, the shares of our common stock represented by your proxy will be voted as our board of directors recommends and, therefore, will be voted “FOR” each of the proposals being submitted to a vote of our common stockholders at the special meeting.

 

Q:	Can I change my vote or revoke my proxy after I have returned a proxy or voting instruction card?

 

A:	Yes, you can change your vote or revoke your proxy at any time before your proxy is voted at the special meeting. If you are a stockholder of record, you can do this in one of three ways.

 

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you can grant a new, valid proxy bearing a later date, including by telephone or through the internet before the closing of those voting facilities at 11:59 p.m. Eastern time on July 27, 2021;

 

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you can send a signed notice of revocation to Hilton Grand Vacations Inc., 5323 Millenia Lakes Boulevard, Suite 120, Orlando, Florida 32839, Attention: Corporate Secretary, which must be received prior to 5:00 p.m. Eastern time on July 27, 2021; or

 

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you can attend and vote at the special meeting, which will automatically cancel any proxy previously given. Simply attending the special meeting without voting at the special meeting will not revoke any proxy that you have previously given or otherwise change your vote.

If you have submitted a proxy for your shares by telephone or via the internet, you may revoke your prior telephone or internet proxy by any manner described above.

If you are a “beneficial holder” who holds shares of our common stock in “street name,” you must contact your bank, broker or other nominee to change your vote.

 

Q:	Do I need to do anything with my shares of common stock other than voting for the proposals at the special meeting?

 

A:	No. If the merger is consummated, you are not required to take any action with respect to your shares of our common stock.

 

Q:	Do I have appraisal rights?

 

A:	No. You, as an HGV stockholder, do not have appraisal rights as a result of the merger.

 

Q:	How will HGV stockholders be affected by the merger?

 

A:

Upon completion of the merger, each HGV stockholder will hold the same number of shares of our common stock that such stockholder held immediately prior to completion of the merger. As a result of the merger, our stockholders will own shares in a larger company with more assets. However, because HGV will be issuing additional shares of our common stock to Diamond stockholders in exchange for their shares of Diamond common stock, each outstanding share of our common stock immediately prior to the merger will represent a smaller percentage of the aggregate number of shares of our common stock outstanding after the merger. Our common stock will continue to be traded on the New York Stock Exchange (“NYSE”) following consummation of the merger.

 

Q:	When does HGV expect to complete the merger?

 

A:

We are currently expecting to complete the merger in early August 2021. However, we cannot predict the actual date on which the merger will be completed, nor can we assure you that the merger will be completed, because completion is subject to conditions beyond either company’s control. See the section entitled “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 102 of this proxy statement.

 

Q:	What happens if the merger is not completed?

 

A:

If the stock issuance proposal is not approved by our stockholders or the merger is not completed for any other reason, Diamond’s stockholders will not receive any payment for shares of Diamond common stock that they own. Instead, we will not issue any shares of our common stock as contemplated by the merger agreement, we will continue to conduct our operations as currently conducted, and Diamond will remain an independent company.

Under specified circumstances, we may be required to pay a termination fee upon termination of the merger agreement, as described under “The Merger Agreement—Termination Fees and Expenses” beginning on page 104 of this proxy statement.

 

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Q:	Who will own HGV immediately following the merger?

 

A:	We estimate that, upon completion of the merger, our stockholders as of immediately prior to the merger will own approximately 72% and Diamond stockholders will own approximately 28% of our total shares of common stock on a fully diluted basis (based on calculations as of June 1, 2021).

 

Q:	What are the material U.S. federal income tax consequences of the merger to HGV stockholders?

 

A:	Holders of our common stock will not recognize any gain or loss as a result of the merger related to their ownership of our common stock.

 

Q:	Who can help answer my questions?

 

A:	If you have questions about the merger, the other matters to be voted on at the special meeting or how to submit a proxy, or if you desire additional copies of this proxy statement or additional proxy cards, you should contact Okapi Partners LLC, our proxy solicitor, at:

Okapi Partners LLC

1212 Avenue of the Americas, 24th Floor

New York, New York 10036

Banks and brokers call: +1-212-297-0720

Stockholders and all others call toll-free: (888) 785-6707

Email: info@okapipartners.com

 

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RISK FACTORS

In addition to the other information included or incorporated by reference in this proxy statement, including the matters addressed in the section entitled “Special Note About Forward-Looking Statements” beginning on page 36 of this proxy statement, you should carefully consider the following risks before deciding how to vote. In addition, you should read and consider the risks associated with each of the businesses of HGV and Diamond because those risks will also affect us on a combined basis after giving effect to the merger. Those risks that relate to us can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and any amendments thereto, as such risks may be updated or supplemented in our subsequently filed Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, which are incorporated by reference into this proxy statement. You should also read and consider the other information in this proxy statement and the other documents incorporated by reference in this proxy statement. See the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 155 of this proxy statement. Finally, because Diamond is privately owned, it does not file SEC reports. Accordingly, included in the following risks are those that relate specifically to Diamond under “—Risks Related to Diamond.” Due to the fact that our and Diamond’s businesses are similar, Diamond is also subject to substantially all of the risks that are related to our business that are noted under “—Risks Related to Our Business.” When reviewing such risks related to our business, you should assume all such risks also relate to Diamond and its business and operations.

Risks Relating to the Merger

The exchange ratio will not be adjusted for changes in our stock price.

The calculation of the exchange ratio is pre-determined such that each share of Diamond common stock (other than Appraisal Shares (as defined in the merger agreement), treasury shares, and shares owned directly or indirectly by Diamond) is currently expected to be converted into the right to receive 0.32022 shares of our common stock in connection with the merger (based on calculations as of June 1, 2021), subject to certain adjustments as a result of changes in certain liabilities and other items between signing and closing of the merger. This exchange ratio will not be adjusted for changes in the market price of our common stock between the date of signing the merger agreement and completion of the merger.

Changes in the price of our common stock before the closing of the merger will affect the market value of our common stock that Diamond common stockholders will receive at the closing of the merger. The price of our common stock at the closing of the merger may vary from their prices on the date the merger agreement was executed, on the date of this proxy statement and on the date of the special meeting. As a result, the value represented by the exchange ratio will also vary. For example, based on the range of closing prices of our common stock during the period from March 9, 2021, the last trading day before public announcement of the merger agreement, through June 17, 2021, the latest practicable trading date before the date of this proxy statement, the exchange ratio represented a value ranging from a high of $14.72 to a low of $12.16 for each share of Diamond common stock, as determined by reference to the value of merger consideration to be received for each share of Diamond common stock in the merger.

These variations could result from changes in the business, operations or prospects of Diamond or HGV before or following the merger, regulatory considerations, general market and economic conditions and other factors both within and beyond our and Diamond’s control. The merger may be completed a considerable period after the date of the special meeting. Therefore, at the time of the special meeting, stockholders will not know with certainty the value of the shares of our common stock that will be issued upon completion of the merger.

 

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We are subject to various uncertainties and contractual restrictions, including pending litigation and the risk of additional litigation, while the merger is pending, which may cause disruption and may make it more difficult to maintain relationships with employees, suppliers, vendors, customers or others.

Uncertainty about the effect of the merger on relationships with our employees, suppliers, vendors, customers, or others may have an adverse effect on us. Although we intend to take steps designed to reduce any adverse effects, these uncertainties may impair Diamond’s and our ability to attract, retain and motivate key personnel until the merger is completed and for a period of time thereafter, and could cause suppliers, vendors, customers, and others that deal with us to seek to change, not renew or discontinue existing business relationships with us.

Employee retention and recruitment may be challenging before the completion of the merger, as employees and prospective employees may have uncertainty about their future roles with HGV after the merger. If, despite our retention and recruiting efforts, key employees depart or prospective key employees are unwilling to accept employment with us because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with us, our business could be adversely affected.

The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. The diversion of management’s attention away from day-to-day business concerns and any difficulties encountered in the transition and integration process could adversely affect our financial results.

In addition, the merger agreement restricts us and Diamond, without the other party’s consent, from making certain acquisitions and taking other specified actions until the merger closes or the merger agreement terminates. These restrictions may prevent us and Diamond from pursuing otherwise attractive business opportunities and making other changes to our respective businesses before completion of the merger or termination of the merger agreement. See the section entitled “The Merger Agreement—Conduct of Business” beginning on page 89 of this proxy statement.

One of the conditions to the closing of the merger is the absence of any judgment, order, decree, statute, law, ordinance, rule or regulation, having been entered, enacted, promulgated, enforced or issued by any court or other governmental entity of competent jurisdiction or other legal restraint or prohibition that prevents the consummation of the merger. We and our board of directors were named as defendants in lawsuits brought by purported HGV stockholders challenging the adequacy of the public disclosures related to the merger and seeking, among other things, injunctive relief to enjoin us from completing the merger. If a settlement or other resolution is not reached in these lawsuits and any of the plaintiffs in such pending litigation or in possible future lawsuits are successful in obtaining an injunction prohibiting the consummation of the merger, then such injunction may prevent the merger from being completed, or delay it from being completed within the expected time frame.

Failure to complete the merger could negatively impact our stock price and the future of our business and financial results.

If the merger is not completed, our ongoing business may be adversely affected, and we may be subject to several risks, including the following:

 

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being required to pay a termination fee to Diamond under certain circumstances as provided in the merger agreement;

 

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having to pay certain costs relating to the merger, such as legal, accounting, financial advisor and other fees and expenses;

 

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our common stock price could decline to the extent that the current market price reflects a market assumption that the merger will be completed; and

 

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having had the focus of our senior management on the merger instead of on pursuing other opportunities that could have been beneficial to us and our stockholders.

If the merger is not completed, we cannot assure you that these risks will not materialize and will not materially adversely affect our business, financial results and stock price.

Our ability to complete the merger is subject to certain closing conditions and the receipt of consents and approvals from government entities which may impose conditions that could adversely affect us or cause the merger to be abandoned.

The merger agreement contains certain closing conditions, including, among others:

 

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the accuracy of the representations and warranties of the other party contained in the merger agreement, subject to the qualifications described in more detail herein;

 

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the other party having performed in all material respects all obligations required to be performed by it under the merger agreement;

 

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the absence of a “material adverse effect” impacting the other party;

 

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the approval of the stock issuance proposal by the affirmative vote of a majority of the votes cast by holders of our common stock at a stockholders’ meeting duly called and held for such purpose;

 

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the absence of any judgment, order, law or other legal restraint by a court or other governmental entity of competent jurisdiction that prevents the consummation of the merger;

 

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the approval for listing by the NYSE of the shares of our common stock issuable in the merger;

 

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the termination or expiration of any applicable waiting period under the HSR Act;

 

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the receipt of all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, the COFECE under the Mexican Federal Economic Competition Law and the Federal Competition Authority under the Austrian Cartel Act and the Competition Act;

 

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certain ancillary agreements having been delivered and not having been rescinded or repudiated by certain parties; and

 

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the absence of defaults under Diamond’s unsecured notes and absence of defaults and sufficient availability under Diamond’s warehouse facilities.

We cannot assure you that the various closing conditions will be satisfied, or that any required conditions will not materially adversely affect us following the merger or will not result in the abandonment or delay of the merger.

We may be unable to realize anticipated cost savings and expect to incur substantial expenses related to the merger, which could have a material adverse effect on our business, financial condition and results of operations.

While we anticipate certain cost savings from the consummation of the merger, our ability to achieve such estimated cost savings in the timeframe described, or at all, is subject to various assumptions by our management, which may or may not be realized, as well as the incurrence of other costs in our operations that offset all or a portion of such cost savings. As a consequence, we may not be able to realize cost savings within the timeframe expected or at all. In addition, we may incur additional and/or unexpected costs in order to realize these cost savings. Failure to achieve the expected cost savings could significantly reduce the expected benefits associated with the merger and adversely affect us.

 

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In addition, we have incurred and will incur substantial expenses in connection with the negotiation and consummation of the transactions contemplated by the merger agreement. We expect to continue to incur non-recurring costs associated with consummating the merger, combining the operations of the two companies and achieving the desired cost savings. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will consist of transaction costs related to the merger and include, among others, fees paid to financial, legal and accounting advisors, employee benefit costs and filing fees. These costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on our financial condition and operating results following the consummation of the merger and many of these costs will be borne by us even if the merger is not consummated.

Any delay in completing the merger may reduce or eliminate the benefits that we expect to achieve.

The merger is subject to a number of conditions beyond our control that may prevent, delay or otherwise materially adversely affect the completion of the merger. We cannot predict whether and when these conditions will be satisfied. Any delay in completing the merger could cause us not to realize some or all of the synergies that we expect to achieve if the merger is successfully completed within the expected time frame. See the section entitled “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 102 of this proxy statement.

Our directors and executive officers may have interests in the merger that may be different from, or in addition to, the interests of our stockholders generally.

Certain of our directors and executive officers negotiated the terms of the merger agreement, and our board of directors unanimously recommended that our stockholders vote in favor of the stock issuance proposal, the compensation proposal and the adjournment proposal. These directors and executive officers may have interests in the merger that are different from, or in addition to, those of our stockholders. These interests include the continued employment of our executive officers after the merger, the continued service of all of our directors following the merger, and other rights held by our directors and executive officers. Our stockholders should be aware of these interests when they consider our board of directors’ recommendation that they vote in favor of the stock issuance proposal and the other proposals to be voted upon at the special meeting.

Our board of directors was aware of these potential interests and considered them in making its recommendations to approve the stock issuance proposal and the other proposals to be voted upon at the special meeting. The interests of our directors and executive officers are described in more detail in the sections entitled “The Merger—Interests of Our Directors and Executive Officers in the Merger” beginning on page 74 of this proxy statement.

The opinion obtained by our board of directors from its financial advisor does not and will not reflect changes in circumstances after the date of such opinion.

On March 9, 2021, BofA Securities delivered an opinion to our board of directors that, as of the date of such opinion, and based upon and subject to the assumptions, limitations, qualifications and conditions described in BofA Securities’ opinion, the merger consideration was fair, from a financial point of view, to HGV. Changes in the operations and prospects of Diamond or HGV, general market and economic conditions and other factors that may be beyond our control, and on which the opinion of BofA Securities was based, may alter our or Diamond’s value or the price at which shares of our common stock are traded by the time the merger is completed. We have not obtained, and we do not expect to request, an updated opinion from our financial advisor. BofA Securities’ opinion does not speak to the time when the merger will be completed or to any date other than the date of such opinion. As a result, the opinion does not and will not address the fairness, from a financial point of view, of the merger consideration to be paid by us in the merger pursuant to the merger agreement at the time the merger is completed or at any time other than the date when opinion was rendered. For a more complete description of the opinion that our board of directors received from our financial advisor and a summary of the material financial

 

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analyses BofA Securities provided to our board of directors in connection with rendering such opinion, please refer to “The Merger—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement and the full text of such written opinion included as Annex B to this proxy statement.

Risks if the Merger is Completed

We may not be able to integrate successfully and many of the anticipated benefits of combining us and Diamond may not be realized.

We entered into the merger agreement with the expectation that the merger will result in various benefits, including, among other things, operating efficiencies. Achieving the anticipated benefits of the merger is subject to a number of uncertainties, including whether the businesses of HGV and Diamond can be integrated in an efficient and effective manner.

It is possible that the integration process could take longer than anticipated and could result in the loss of valuable employees, the disruption of each company’s ongoing businesses, processes and systems or inconsistencies in standards, controls, procedures, practices, policies and compensation arrangements, any of which could adversely affect our ability to achieve the anticipated benefits of the merger. Our results of operations could also be adversely affected by any issues attributable to Diamond’s operations that arise or are based on events or actions that occur before the closing of the merger. We may have difficulty addressing possible differences in corporate cultures and management philosophies. The integration process is subject to a number of uncertainties, and no assurance can be given that the anticipated benefits will be realized or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs or decreases in the amount of expected net income and could adversely affect our future business, financial condition, operating results and prospects.

Furthermore, we have agreed with Hilton to develop a mutually agreeable plan pursuant to which the Diamond properties are to be operated during the integration period, and with respect to those Diamond properties that will not be converted to our brand. If we fail to develop such a plan with Hilton, such properties may remain subject to a number of restrictions related to how they are operated, and such restrictions may reduce the efficiencies anticipated in connection with the merger.

We will take on additional indebtedness to finance the merger, which could adversely affect our business, financial condition and results of operations, including by decreasing our business flexibility, as well as our ability to meet payment obligations under our indebtedness.

In connection with the completion of the merger, we intend to significantly increase our level of indebtedness. As part of such plan, we closed an unregistered offering of $850 million in aggregate principal amount of 5.000% senior notes due 2029 and priced an unregistered offering of $500 million in aggregate principal amount of 4.875% senior notes due 2031, which is expected to close on June 28, 2021, subject to customary closing conditions. Our increased level of debt, together with certain covenants and restrictions that will be imposed on us in connection with incurring this indebtedness, will, among other things: (a) require us to dedicate a larger portion of our cash flow from operations to servicing and repayment of debt; (b) reduce funds available for strategic initiatives and opportunities, dividends, share repurchases, working capital and other general corporate needs; (c) limit our ability to incur certain kinds or amounts of additional indebtedness, which could restrict our flexibility to react to changes in our business, industry and economic conditions and increase borrowing costs; (d) create competitive disadvantages relative to other companies with lower debt levels and (e) increase our vulnerability to the impact of adverse economic and industry conditions. These covenants and restrictions may limit how our business is conducted. We may not be able to maintain compliance with these covenants and restrictions and, if we fail to do so, we may not be able to obtain waivers thereto and/or amend these covenants and restrictions. Our failure to comply with the covenants and restrictions could result in an event of default, which, if not cured or waived, could result in our being required to repay such indebtedness before its due date or to have to negotiate amendments to or waivers thereof, which may have unfavorable terms or result in the incurrence of additional fees and expenses.

 

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Our ability to make scheduled cash payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate significant operating cash flow in the future, which, to a significant extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors, including the continued adverse impact of the COVID-19 pandemic on our business, that are beyond our control. We may not be able to maintain a sufficient level of cash flow from operating activities to permit us to pay the principal, premium, if any, and interest on our indebtedness.

In addition, our credit ratings will impact the cost and availability of future borrowings and, accordingly, our cost of capital. Our ratings will reflect each rating organization’s opinion of our financial strength, operating performance and ability to meet our debt obligations on a combined basis with Diamond. Downgrades in our ratings could adversely affect our businesses, cash flows, financial condition, operating results and share and debt prices, as well as our obligations with respect to our capital efficient inventory acquisitions.

The pro forma financial information included in this proxy statement is presented for illustrative purposes only and may not be an indication of our financial condition or results of operations after the merger.

Our operating results after the merger may be materially different from those shown in the pro forma financial information presented in this proxy statement, which does not purport to represent what our financial position, results of operations or cash flows would actually have been if the merger had occurred as of the date indicated or what our financial position, results of operations or cash flows would be for any future periods. The pro forma financial information contained in this proxy statement is presented for illustrative purposes only, is based on various adjustments, assumptions, judgments, and preliminary estimates and may not be an indication of our future financial condition or results of operations resulting from the merger for several reasons. See the section entitled “Unaudited Pro Forma Condensed Combined Financial Information of HGV and Diamond” beginning on page 136 of this proxy statement. The actual financial condition and results of operations of us following the merger may not be consistent with, or evident from, this pro forma financial information. In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect our financial condition or results of operations following the completion of the merger. Any potential decline in our financial condition or results of operations may cause significant variations in our stock price after merger. The costs, fees and expenses related to the merger could be higher than currently estimated. Further, because the determination of fair value is dependent upon valuations that must be performed as of the date the merger is consummated, the valuations underlying the unaudited pro forma financial information included in this proxy statement may be revised after the date hereof. Any such adjustments to the preliminary estimates of fair value could be material.

Following the completion of the merger, our vacation ownership business will depend on the quality and reputation of the brands associated with the portfolios of each of HGV and Diamond, and any deterioration in the quality or reputation of these brands could adversely affect our market share, reputation, business, financial condition and results of operations.

Following completion of the merger, we intend to offer vacation ownership products and services under the Hilton Vacation Club brand, a new upscale HGV sub-brand that will consist of rebranded Diamond properties, all pursuant to the Amended and Restated License Agreement with Hilton (the “A&R Hilton license agreement”). If the quality of any of these brands deteriorates, or the reputation of these brands declines, including as the result of actions by Hilton, our market share, reputation, business, financial condition or results of operations could be materially adversely affected. See “Risks Related to our Relationship with Hilton” below.

 

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The maintenance and refurbishment of vacation ownership properties depends on maintenance fees paid by the owners of VOIs.

The maintenance fees that are levied on owners of our and Diamond’s VOIs by property owners’ association boards are used to maintain and refurbish the vacation ownership properties, to maintain reserves for capital expenditures, and to keep the properties in compliance with applicable brand standards. Property owners’ association boards may elect to not levy sufficient maintenance fees, or owners of VOIs may fail to pay their maintenance fees for reasons such as financial hardship, dissatisfaction with the merger or because of damage to their VOIs from natural disasters such as hurricanes. In these circumstances, not only could our and Diamond’s management fee revenue be adversely affected, but the vacation ownership properties could fall into disrepair and fail to comply with applicable brand standards. If a resort fails to comply with applicable brand standards, Hilton could terminate our right under the A&R Hilton license agreement to use its trademarks at the non-compliant resort, which could result in the loss of management fees, decreased customer satisfaction and impairment of our ability to market and sell products at the non-compliant locations. See “Risks Related to Our Relationship with Hilton” below.

If maintenance fees at our or Diamond’s resorts are required to be increased, our or Diamond’s products could become less attractive and our or Diamond’s business could be harmed.

The maintenance fees that are levied on owners of our and Diamond’s VOIs by property owners’ association boards may increase as the costs to maintain and refurbish the vacation ownership properties, to maintain reserves for capital expenditures, and to keep the properties in compliance with brand standards increase. A similar situation may arise with respect to fees imposed on owners of VOIs with respect to new properties added to our portfolio following the completion of the merger. Increased maintenance fees could make our or Diamond’s products less desirable, which could have a negative impact on sales of our or Diamond’s products and could also cause an increase in defaults with respect to our or Diamond’s vacation ownership notes receivable portfolio.

We will incur substantial transaction costs in connection with the merger.

We expect to incur a number of non-recurring expenses both before and after completing the merger, including fees for third party legal, investment banking and advisory services, the costs and expenses of filing, printing and mailing this proxy statement and all filing and other fees paid to the SEC in connection with the merger, obtaining necessary consents and approvals and combining the operations of the two companies. These fees and costs will be substantial. Additional unanticipated costs may be incurred in our integration of Diamond. Although it is expected that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction related costs over time, this net benefit may not be achieved in the near term, or at all. Further, if the merger is not completed, we would have to recognize these expenses without realizing the expected benefits of the merger. See “—Risks Related to the Merger—The pro forma financial information included in this proxy statement is presented for illustrative purposes only and may not be an indication of our financial condition or results of operations after the merger” above.

Our stockholders will have a reduced ownership and voting interest after the completion of the merger and will exercise less influence over management of us as compared to currently.

Our stockholders currently have the right to vote in the election of the board of directors and on other matters affecting us. Upon the completion of the merger, each Diamond stockholder who receives shares of our common stock will become our stockholder. It is currently expected that the former Diamond stockholders as a group will receive shares in the merger constituting approximately 28% of the shares of our common stock on a fully diluted basis immediately after the completion of the merger. As a result, our current stockholders as a group will own approximately 72% of the shares of our common stock on a fully diluted

 

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basis immediately after the completion of the merger. Because of this, our stockholders will have less influence on the management and policies of the combined company than they now have on the management and policies of us prior to the merger.

Our future results will suffer if we do not effectively manage our expanded operations following the completion of the merger.

Following the completion of the merger, the size of our business will increase significantly beyond the current size of either our or Diamond’s current operations. Our future success depends, in part, upon our ability to manage this expanded business, including in non-US jurisdictions where we do not currently have operations, which will pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. We may also need to obtain approvals of developers or HOAs in various instances to include additional resorts in the Diamond Collections or increase maintenance fees or impose additional requirements in order to meet our brand and operating standards. There can be no assurances that we will be successful or that we will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the transactions. In addition, there will be increased compliance and regulatory risk as a result of the expanded size of our business.

We may not be able to retain our and/or Diamond personnel successfully after the merger is completed.

The success of the merger will depend in part on our ability to retain the talents and dedication of key employees currently employed by us and Diamond. It is possible that these employees may decide not to remain with us or Diamond, as applicable, while the merger is pending or with us after the merger is consummated.

If key employees terminate their employment, or if an insufficient number of employees are retained to maintain effective operations, our business activities may be adversely affected and management’s attention may be diverted from successfully integrating Diamond to hiring suitable replacements, all of which may cause our business to suffer. In addition, we may not be able to locate suitable replacements for any key employees who leave either company, or offer employment to potential replacements on reasonable terms.

We and Diamond may be subject to complaints, litigation or reputational harm due to dissatisfaction with, or concerns related to, the merger from our current owners.

Our current owners may be concerned about the actual or perceived impact of the merger on their VOIs, including related to a reduced quality of resorts and product offerings due to the increased size of the business and addition of new owners, or increase or change in HOA or other fees. Diamond’s current owners may have similar concerns related to a decline in the quality of product offerings or increase in fees as a result of the merger and increase in size of the business. Complaints or litigation brought by existing owners following the completion of the merger could harm our reputation, discourage potential new owners and adversely impact our results of operations.

Risks Related to Diamond’s Business

The COVID-19 pandemic has impacted, and will likely continue to have a significant adverse impact on, the business, financial condition and results of operations of Diamond for the foreseeable future.

Tourism and travel-related industries continue to face significant disruption as a result of the COVID-19 pandemic. It may be an extended period of time before the business operations of Diamond and its affiliates return to full operational capacity or occupancy, particularly if there remains lingering actual and/or perceived concern and perception of significant transmission and infection risk due to the COVID-19 pandemic. Diamond has implemented new social distancing, hygiene protocols, and enhanced cleaning measures at its resorts, sales centers, and corporate offices in accordance with guidelines from federal, state and local authorities. Diamond

 

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and its subsidiaries’ management implemented and trained team members on the “Diamond Standard of Clean.” These measures, which are intended to protect human life, may result in additional costs, operational inefficiencies, and fewer revenue opportunities.

As a result of the COVID-19 pandemic and the various governmental mandates and orders for business closure, Diamond temporarily closed operations at substantially all of their resorts and closed substantially all of their sales centers. With the lifting or easing of such restrictions in certain locations in the United States, Diamond has re-opened the majority of its resorts and sales centers, albeit at reduced capacity levels and revenue has not returned to pre-pandemic levels. However, any re-opening of the resorts may be delayed, interrupted or reversed depending on government orders or recommendations or based on assessments of the state of the pandemic. It may be an extended period of time before the resorts return to pre-pandemic operational capacity or occupancy, particularly if there remains lingering actual and/or perceived concern and perception of significant transmission and infection risk due to the COVID-19 pandemic, including in connection with any variant strains of the virus.

Any sustained materially adverse impact on Diamond’s revenues, net income and other operating results due to the impact of the COVID-19 pandemic could cause Diamond to breach its operating and financial covenants under certain of its debt obligations, which may mean lenders have the right to terminate their commitments under certain debt agreements and declare outstanding loans immediately due and payable.

Diamond operates in a number of locations outside the United States and is subject to certain additional risks related to international operations that are not applicable to our current business.

Diamond manages resorts in and sells VOIs in countries outside of the United States, including in Mexico, Canada, the United Kingdom and several countries in the European Union, which are subject to a number of risks, including compliance with local regulations and laws, regulations restricting the sale of VOIs, compliance with anti-corruption laws and regulations such as the Foreign Corrupt Practices Act, exposure to local economic conditions, potential adverse changes in the political or economic relation of foreign countries with the United States, withholding and restrictions on taxes and fluctuations in foreign currency exchange rates. Diamond is and may in the future be subject to litigation in foreign jurisdictions.

In Mexico, the developer of certain of Diamond’s resorts have agreed to requirements that they consider themselves as Mexican nationals with respect to certain property and agree to not invoke the protection of their governments in matters relating to the property. Generally, rules in Mexico limit ownership of land near Mexico’s borders and beaches to Mexican citizens and companies, unless granted the right by the Mexican government. If the developer of Diamond’s resort in Mexico fails to comply with the agreement with the Mexican government, it would forfeit the land back to Mexico.

We do not currently have operations in several of the non-US jurisdictions in which Diamond operates and may lack knowledge or familiarity with the rules and regulations, as well as experience and resources, related to operating such business in these countries.

Interests in Diamond’s resorts are offered through a trust system, which is subject to a number of regulatory and other requirements.

The Diamond Collections located in the United States are alternatives to traditional deeded timeshare ownership, inasmuch as they create a network of available resort accommodations at multiple locations. For those United States-based Diamond Collections, title to the units available through the Diamond Collections is held in a trust or similar arrangement that is administered by an independent trustee (the “Collection Trustee”). A purchaser of a timeshare interest in a Collection does not receive a deeded interest in any specific resort or resort accommodation, but acquires a membership in the timeshare plan which is denominated by an annual or biennial allotment of points. Owners of Diamond’s timeshare interests are allowed to use their allocated points to reserve

 

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accommodations at the various component site(s)/participating resort(s) within the Diamond Collections, thereby giving the members greater flexibility to plan their vacations. Owners may also elect to reserve accommodations at resorts that are not part of their Collection through Diamond’s exchange programs.

The Diamond Collections are registered pursuant to, exempted from, or otherwise in compliance with, the applicable statutory requirements for the sale of timeshare plans in a growing number of jurisdictions. Such registrations and formal exemption determinations for the Diamond Collections confirm the substantial compliance with the filing and disclosure requirements of the respective timeshare statutes by the developer of the applicable Diamond Collection. It does not constitute the endorsement of the creation, sale, promotion or operation of the Diamond Collections by any regulatory body nor relieve the developer of a Diamond Collection or any affiliates of such developer of any duty or responsibility under other statutes or any other applicable laws. Registration under a respective timeshare act (or other applicable law) is not a guarantee or assurance of compliance with applicable law nor an assurance or guarantee of how any judicial body may interpret the Diamond Collections’ compliance therewith. A determination that specific provisions or operations of the Collections do not comply with relevant timeshare acts or applicable law may have a material adverse effect on the developer, the Collection Trustee and the related non-profit members association for each of the Diamond Collections.

Increased activity by third-party exit companies on Diamond and its owners may cause distractions and adversely impact our integration.

Diamond and other timeshare companies continue to be significantly targeted by organized activities of third parties that actively pursue timeshare owners claiming to provide timeshare interest transfers and/or “exit” services. Any increases in the level of participation by the Diamond owners in response to such overtures and/or delinquencies or defaults with respect to the timeshare loans owed by such owners may disrupt Diamond’s business, affect cash flow from collections on the timeshare loans, and generally adversely affect our integration plans of Diamond. In addition, exit companies may target HGV owners to a greater extent than they already do in light of the proposed merger with Diamond.

Risks Related to Our Relationship with Hilton

Our future results may suffer if Hilton seeks to modify or terminate the A&R Hilton license agreement.

We are a party to a license agreement with Hilton under which we license substantially all of the trademarks, brand names and intellectual property used in our business. The A&R Hilton license agreement also permits us to utilize the Hilton Honors program, which is a valuable asset for lead generation. These assets are critical to our business and the modification or amendment the A&R Hilton license agreement or any exercise by Hilton of its termination or other rights under the A&R Hilton license agreement will materially impact our business. The termination or amendment of the A&R Hilton license agreement in whole or in part could result in the loss of the right of HGV to use the Hilton brands in our business as currently conducted as well as in connection with our post-combination business, and in related services offered by Hilton, including marketing channels and guest loyalty programs. The loss of such rights will materially harm our business and results of operations and impair our ability to market and sell our VOI products and maintain our competitive position, and will have a material adverse effect on our financial position, results of operations or cash flows. Further, it is likely to be very challenging for us to find or develop a comparable replacement for the Hilton brand and the A&R Hilton license agreement. In addition, we may incur liabilities if any such termination results from our alleged breach of the A&R Hilton license agreement.

If the A&R Hilton license agreement is terminated, we may lose our rights to certain brands developed by us in connection with the integration of the Diamond business.

Pursuant to the A&R Hilton license agreement, Hilton would be the sole owner of certain licensed marks related to new brands associated with the Diamond portfolio that are developed by us in connection with our

 

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post-combination business. If, following the completion of the merger, we default under the A&R Hilton license agreement, we could lose the right to use one or more of such new brands. The loss of these rights and/or certain other related rights could materially adversely affect our ability to generate revenue and profits from the vacation ownership business associated with the Diamond portfolio. The termination of the A&R Hilton license agreement following completion of the merger would materially harm our combined business and results of operations and impair our ability to market and sell our products and maintain our competitive position.

Our ability to integrate the Diamond business and otherwise expand our business and remain competitive could be harmed if Hilton does not consent to the use of their trademarks in connection with the conversion of Diamond properties and/or new resorts that we may acquire or develop in the future.

Under the terms of the A&R Hilton license agreement, we must obtain Hilton’s approval to use the Hilton brand names and trademarks in connection with the conversion of the Diamond properties to branded properties using the Hilton marks, as well as for the branding of timeshare properties that we acquire or develop in the future. If Hilton does not permit us to use its trademarks in connection with such conversion and integration on a timely basis or at all, or in connection with any other timeshare properties that we may acquire in the future pursuant to any future development or acquisition plans, or if we cannot come to an agreement with Hilton on how to brand and operate Diamond properties that are not approved by Hilton, our ability to successfully integrate Diamond and otherwise expand our business and remain competitive may be materially adversely affected. The requirement to obtain approval for such conversion and integration of Diamond properties and any future expansion plans, or the need to identify and secure alternative solutions because we cannot obtain such approval, may delay implementation of our integration and/or expansion plans or cause us to incur additional expense related to the branding of our properties.

Our ability to integrate the Diamond business depends on our compliance with the A&R Hilton license agreement, including the “Separate Operations” provisions and certain prohibitions on doing business with competitors. While the parties intend to provide some revisions to the applicable requirements, strict compliance with such provisions will negatively impact the synergies and efficiencies related to the Diamond acquisition.

For now, we have agreed with Hilton to operate the Diamond business as a “Separate Operation” under the A&R Hilton license agreement. Complying with that requirement can be costly and difficult and will likely significantly diminish the efficiencies and synergies that are critical to our successful integration of the Diamond business. In addition, the A&R Hilton license agreement requires Hilton’s approval in connection with our anticipated conversion of the Diamond properties into our branded properties and/or Hilton Vacation Club or another new brand of properties, and the creation of any such new brand also requires Hilton’s consent. While we and Hilton have agreed to modify the Separate Operations requirements, with such modifications to be made in Hilton’s sole discretion, so as to allow us to achieve greater operating efficiency and synergy than currently provided for, any failure of the parties to do so will adversely impact such operating efficiency and synergy. In addition, any failure to obtain Hilton’s approval with respect to the creation of any new brand or the conversion of the Diamond properties into such new brand or existing branded properties will significantly harm our ability to integrate the Diamond business and its properties. If we cannot come to an agreement with Hilton on how to brand and operate Diamond properties that do not currently or will not in the future meet the Hilton brand standards, then we will be required to continue to operate them as separate operations.

In addition, the A&R Hilton license agreement contains a number of prohibitions on us entering into certain agreements and arrangements with competitors of Hilton. As a result of the merger, we will assume Diamond’s contracts with third parties, a number which are with competitors of Hilton and are prohibited under the A&R Hilton license agreement. The A&R Hilton license agreement provides for a cure period for agreements or arrangements related to the Diamond business that would result in a violation or breach of provisions in the A&R Hilton license agreement. However, to the extent we are not able to terminate such agreements within the cure period or we are unable to obtain a waiver from Hilton, we may breach the A&R Hilton license agreement.

 

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Risks Related to Our Business

You should read and consider risk factors specific to our businesses that will also affect the combined company after the completion of the merger. These risks are described in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and Part II, Item IA of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, and in other documents that are incorporated by reference into this proxy statement. See the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 155 of this proxy statement for the location of information incorporated by reference in this proxy statement.

 

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THE PARTIES

HGV

We are a timeshare company that markets and sells VOIs, manages resorts in top leisure and urban destinations, and operates a points-based vacation club. As of March 31, 2021, we had 62 properties, representing 499,616 are primarily located in vacation destinations such as Orlando, Las Vegas, the Hawaiian Islands, New York City, Washington D.C., South Carolina, Barbados and Mexico and feature spacious, condominium-style accommodations with superior amenities and quality service. As of March 31, 2021, we had approximately 330,000 Club members. Club members have the flexibility to exchange their VOIs for stays at any Hilton Grand Vacations resort or any property in the Hilton system of 18 industry-leading brands across approximately 6,500 properties, as well as numerous experiential vacation options, such as cruises and guided tours.

Our compelling VOI product allows customers to advance purchase a lifetime of vacations. Because our VOI owners generally purchase only the vacation time they intend to use each year, they are able to efficiently split the full cost of owning and maintaining a vacation residence with other owners. Our customers also benefit from the high-quality amenities and service at our Hilton-branded resorts. Furthermore, our points-based platform offers members flexibility, enabling us to more effectively adapt to their changing vacation needs over time. Building on the strength of that platform, we continuously seek new ways to add value to our Club membership, including enhanced product offerings, greater geographic distribution, broader exchange networks and further technological innovation, all of which drive better, more personalized vacation experiences and guest satisfaction.

We operate our business across two segments: real estate sales and financing and resort operations and club management. Our real estate sales and financing segment primarily generates revenue from VOI sales and consumer financing in connection with such sales, and our resort operations and club management segment primarily generates revenue from resort management, Club management and transient rental of available VOI inventory.

On January 3, 2017, Hilton completed a tax-free spin-off of HGV and Park Hotels & Resorts Inc. As a result of the spin-off, HGV became an independent publicly-traded company. Our common stock is listed on the NYSE under the symbol “HGV.”

Our executive offices are located at 5323 Millenia Lakes Boulevard, Suite 120, Orlando, Florida 32839 and our telephone number is (407) 613-3100.

This proxy statement incorporates important business and financial information about us from other documents that are incorporated by reference; see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 155 of this proxy statement.

HGV Borrower

HGV Borrower is a wholly-owned subsidiary through which we indirectly own all of our assets and conduct substantially all of our business. HGV Borrower, together with other subsidiaries, are also issuers and guarantors of our outstanding senior unsecured notes and other borrowings. HGV Borrower is a party to the merger agreement and will be the surviving entity after its merger with Diamond and will be the subsidiary through which we will own all of Diamond’s assets and operate all of Diamond’s business immediately after the merger. HGV Borrower’s executive offices are located at 5323 Millenia Lakes Boulevard, Suite 120, Orlando, Florida 32839, and its telephone number is (407) 613-3100.

Diamond

Diamond Resorts International, Inc. and its subsidiaries, including Diamond Resorts Corporation (collectively, “DRI”), are a global leader in the hospitality industry and the largest, independent-branded vacation ownership

 

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company that markets and sells Vacation Interests, manages resorts, multi-resort trusts and the Diamond Collections in key vacation destinations, and operates points-based vacation clubs. As of March 31, 2021, DRI’s portfolio consists of 110 Portfolio Properties representing approximately 14,198 units. In addition, DRI’s global resort network includes 229 affiliated resorts and hotels (which DRI does not manage and do not carry its brand, but are a part of DRI’s exchange network). Through its innovative and extensive distribution network, DRI sells a points-based Vacation Interests product, which allows its owners to travel to 339 vacation destinations located in 34 countries throughout the world, including key leisure destinations such as Orlando, Las Vegas, the Hawaiian Islands, Mexico, and Europe.

DRI believes it is unique within the vacation ownership industry in its infusion of hospitality and experiences through the full life cycle of an owner or member’s relationship with its properties. DRI’s marketing has increasingly emphasized unique experiences to generate new customers and repeat business through its innovative Events of a Lifetime^®, Diamond Resorts Concert Series, Diamond Dream Holidays, and related programs. These drive high-quality leads to its hospitality focused sales processes. DRI continuously creates new offerings both pre- and post-stay for its members to drive affinity. Existing members are also offered additional unique experiences and the opportunity to enhance and upgrade their ownership. As a result, DRI is able to realize substantial lifetime value both from and for its members – often significantly in excess of their initial purchases.

DRI’s flexible Vacation Interests product allows customers to purchase a lifetime of experiences. Its members receive an annual or biennial allotment of points and, depending on the number of points purchased, can use these points to stay at destinations within its network of resort properties while maintaining flexibility relating to the location, season and duration of their vacation. DRI’s points-based product also allows its owners to redeem their annual points for numerous alternative experiential vacation options, such as cruises or guided tours, as well as events such as the Events of a Lifetime^® series among others. DRI seeks to continuously improve its value proposition to its existing or new owners by enhancing its product offerings, expanding the geographic diversity of its resort network, and providing best-in-class customer service.

DRI’s operations consist of two interrelated businesses: (i) Vacation Interest sales and financing, which includes the marketing and sale of Vacation Interests and consumer financing for purchasers of Vacation Interests and (ii) hospitality and management services, which includes management of resort properties and trusts, operation of its vacation programs and resort amenities, and the provision of other hospitality and management services.

DRI’s principal executive offices are located at 10600 West Charleston Boulevard, Las Vegas, Nevada 89135 and its telephone number is (702) 684-8000.

Dakota Holdings, Inc., a Delaware corporation, is the parent company of DRI and is controlled by investment funds and vehicles managed by affiliates of Apollo Global Management, Inc. Its principal executive offices are located at 10600 West Charleston Boulevard, Las Vegas, Nevada 89135 and its telephone number is (702) 684-8000.

Apollo

Founded in 1990, Apollo Global Management, Inc. (“Apollo”) is a leading global alternative investment manager with offices in New York, Los Angeles, San Diego, Houston, Bethesda, London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong, Shanghai and Tokyo. Apollo had assets under management of approximately $461.1 billion as of March 31, 2021 in credit, private equity and real assets funds invested across a core group of nine industries where Apollo has considerable knowledge and resources.

Apollo’s principal executive offices are located at 9 West 57th Street, New York, New York 10019 and its telephone number is (212) 513-3200.

 

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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

This proxy statement, including information included or incorporated by reference herein, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words such as “expect,” “anticipate,” “target,” “goal,” “project,” “intend,” “plan,” “believe,” “budget,” “should,” “continue,” “could,” “forecast,” “may,” “might,” “potential,” “strategy,” “will,” “would,” “seek,” “estimate,” or variations of such words and similar expressions, although the absence of any such words or expressions does not mean that a particular statement is not a forward-looking statement. All statements, other than statements of historical facts, are forward-looking statements. It is important to note that Diamond’s and our goals and expectations are not predictions of actual performance. Any statements about the benefits of the merger, or Diamond’s or our future financial condition, results of operations and business are also forward-looking statements. Without limiting the generality of the preceding sentence, certain statements contained in the sections entitled “The Merger— Background of the Merger,” “The Merger—Reasons for the Merger; Recommendation of Our Board,” “The Merger—Opinion our Financial Advisor” may also constitute forward-looking statements.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events, including the completion of the merger, and are subject to risks, uncertainties and other factors. Many of these factors are outside our control and could cause actual results to differ materially from the results expressed or implied by these forward-looking statements. In addition to the risk factors described in the section entitled “Risk Factors” beginning on page 22 of this proxy statement, these factors include:

 

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those that we have identified and disclosed in our filings with the SEC;

 

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failing to obtain our stockholder approval of the stock issuance proposal in connection with the issuance of shares of our common stock to Diamond stockholders as consideration in the merger;

 

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satisfying the conditions to the closing of the merger;

 

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the length of time necessary to complete the merger;

 

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pending and possible additional litigation related to the merger;

 

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successfully integrating our and Diamond’s businesses, and avoiding problems which may result in us not operating as effectively and efficiently as expected following the completion of the merger;

 

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the possibility that the expected benefits of the merger will not be realized within the expected time frame or at all;

 

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prevailing economic, market and business conditions;

 

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the cost and availability of capital and any restrictions imposed by lenders or creditors;

 

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changes in the industry in which we and Diamond operate;

 

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conditions beyond our or Diamond’s control, such as disaster, pandemics, epidemics, acts of war or terrorism; the weather and other natural phenomena, including the economic, operational and other effects of severe weather or climate events, such as tornadoes, hurricanes, volcanos, ice, sleet, or snowstorms;

 

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the failure to renew, or the revocation of, any license or other required permits;

 

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unexpected charges or unexpected liabilities arising from a change in accounting policies, or the effects of acquisition accounting varying from the companies’ expectations;

 

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the risk that our and our subsidiaries’ credit ratings following the completion of the merger may be different from what we expect, which may increase borrowing costs and/or make it more difficult for us to pay or refinance our and our subsidiaries’ debts and require us to borrow or divert cash flow from operations in order to service debt payments;

 

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•

the effects on the companies’ businesses resulting from uncertainty surrounding the merger, including uncertainty for the companies’ relationship with employees, labor unions, holders of licensed marks, developers and franchisors, and the response of key suppliers and licensors to our and Diamond’s licensed brand expansion or the diversion of management’s time and attention;

 

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the effects on the companies of future regulatory or legislative actions, including changes in laws and regulations to which we, Diamond or its subsidiaries are subject;

 

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the conduct of and changing circumstances related to third-party relationships on which we and Diamond rely, including the level of creditworthiness of counterparties;

 

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the volatility and unpredictability of stock market and credit market conditions;

 

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fluctuations in interest rates;

 

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variations between the stated assumptions on which forward-looking statements are based and our and Diamond’s actual experience; and

 

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other economic, business, and/or competitive factors.

For any forward-looking statements made in this proxy statement or in any documents incorporated by reference, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement.

You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this proxy statement and should be read in conjunction with the risk factors and other disclosures contained or incorporated by reference into this proxy statement. The areas of risk and uncertainty described above, which are not exhaustive, should be considered in connection with any written or oral forward-looking statements that may be made in this proxy statement or on, before or after the date of this proxy statement by us or anyone acting for us. We undertake no obligation to release publicly or otherwise make any revisions to any forward-looking statements, to report events or circumstances after the date of this proxy statement or to report the occurrence of unanticipated events, unless, and only to the extent, required by law.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports we have filed with the SEC. For a list of the documents incorporated by reference, see the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 155 of this proxy statement.

 

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THE SPECIAL MEETING

This proxy statement is being provided to our stockholders as part of a solicitation of proxies by our board of directors for use at the special meeting to be held at the time and place specified below, and at any properly convened meeting following an adjournment or postponement thereof. This proxy statement and the information incorporated by reference herein provides our stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting.

Date, Time and Place

The special meeting is scheduled to be held at 9:00 a.m. Eastern time, on July 28, 2021 at 5323 Millenia Lakes Boulevard, Orlando, Florida 32839.

Purpose of the HGV Special Meeting

At the special meeting, and any adjournments or postponements thereof, you will be asked to consider and vote on:

 

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the stock issuance proposal;

 

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the compensation proposal; and

 

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the adjournment proposal, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the stock issuance proposal.

Recommendation of Our Board of Directors

Our board of directors, after careful consideration of the various factors described under “The Merger—Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 56 of this proxy statement, at a meeting held on March 8, 2021, unanimously determined that the merger agreement, the issuance of shares of our common stock in the merger and the other transactions contemplated by the merger agreement are advisable and in the best interests of us and our stockholders; authorized and approved the merger agreement, the issuance of shares of our common stock in the merger and the other transactions contemplated by the merger agreement by a unanimous vote; and adopted resolutions directing that the stock issuance proposal be submitted to our stockholders for their consideration.

In evaluating the merger, our board of directors consulted with and received the advice of our outside legal and financial advisors, held discussions with our management and considered a number of factors that it believed supported its decision to enter into the merger agreement. These factors included, but were not limited to, those listed in “The Merger—Reasons for the Merger; Recommendation of Our Board of Directors” beginning on page 56 of this proxy statement.

Accordingly, our board of directors unanimously recommends that you vote “FOR” the stock issuance proposal, “FOR” the compensation proposal and “FOR” the adjournment proposal.

In relation to the compensation proposal, except with respect to our Executive Vice President and Chief Marketing Officer, we do not intend to terminate any of our executive officers in connection with the merger and, accordingly, we do not anticipate making any change in control payments, accelerated vesting or benefit enhancements to our other named executive officers as a result of the merger.

Record Date; Stockholders Entitled to Vote

Only holders of record of our common stock at the close of business on June 1, 2021, the record date for the special meeting, will be entitled to notice of, and to vote at, the special meeting, or any adjournment or

 

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postponement thereof. At the close of business on the record date, 85,718,663 shares of our common stock were issued and outstanding and held by six holders of record. In addition, many brokers, banks and other institutions hold shares of common stock as nominees for beneficial owners that deposit these shares of common stock in participant accounts at the Depository Trust Company.

Holders of record of our common stock on the record date are entitled to one vote per share at the special meeting on each proposal. A list of the names of our stockholders of record will be open to the examination by any stockholder for any purpose germane to the special meeting for ten days before the special meeting during regular business hours at our headquarters, 5323 Millenia Lakes Boulevard, Suite 120, Orlando, Florida 32839. The HGV stockholder list will also be available at the special meeting for examination by any stockholder present at such meeting.

Voting by our Directors and Executive Officers

At the close of business on the record date, our directors and executive officers were entitled to vote 1,483,245 shares of our common stock, or approximately 1.7% of the shares of our common stock outstanding on that date. We currently expect that all of our directors and executive officers will vote their shares in favor of each proposal being submitted to a vote of our stockholders at the special meeting, although none of them has entered into any agreement obligating them to do so.

Quorum

No business may be transacted at the special meeting unless a quorum is present. The presence of the holders of a majority in voting power of the stock issued and outstanding and entitled to vote at the special meeting, present in person or represented by proxy, is required to constitute a quorum for the transaction of business at the special meeting. If a quorum is not present, or if there are not sufficient votes at the time of the special meeting to approve the stock issuance proposal, the special meeting may be adjourned to allow more time for obtaining additional proxies or votes. At any subsequent reconvening of the special meeting, all proxies will be voted in the same manner as they would have been voted at the original convening of the special meeting, except for any proxies that have been effectively revoked or withdrawn before the adjourned meeting.

Abstentions (shares of our common stock for which proxies have been received but for which the holders have abstained from voting) will be included in the calculation of the number of shares of our common stock represented at the special meeting for purposes of determining whether a quorum has been achieved. However, broker non-votes will not be included in the calculation of the number of shares of our common stock represented at the special meeting for purposes of determining whether a quorum has been achieved.

Required Vote

The approval of the stock issuance proposal and the compensation proposal requires the affirmative vote of the holders of a majority of the votes cast. The approval of the adjournment proposal, if necessary or appropriate, requires the affirmative vote of the stockholders of a majority in voting power present if a quorum is not present, or, if a quorum is present, the affirmative vote of the holders of a majority of the votes cast. Failures to vote and broker non-votes, if any, will have no effect on the stock issuance proposal, the compensation proposal or the adjournment proposal.

Failure to Vote, Broker Non-Votes and Abstentions

If your shares of our common stock are held in “street name” in a stock brokerage account or by another nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your bank, broker or other nominee. You may not vote shares of our common stock held in street name by returning a proxy card directly to HGV or by voting at the special meeting unless you provide a “legal proxy,” which you must first obtain from your bank, broker or other nominee.

 

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Banks, brokers or other nominees who hold shares of our common stock in street name for a beneficial owner typically have the authority to vote in their discretion on “routine” proposals, even when they have not received instructions from beneficial owners. However, banks, brokers or other nominees are not allowed to exercise their voting discretion on matters that are determined to be “non-routine” without specific instructions from the beneficial owner. A “broker non-vote” is a vote that, in accordance with stock exchange rules, is not cast by a broker on a non-routine matter because the bank, broker or other nominee has not received instructions from the beneficial owner of such shares to vote on the particular proposal and the bank, broker or other nominee does not have discretionary voting power on such proposal.

Under the written rules of the NYSE, banks, brokers or other nominees do not have discretionary authority to vote on any of the proposals to be voted upon at this special meeting. Therefore, if you are an HGV stockholder who holds shares in “street name” and you do not instruct your bank, broker or other nominee on how to vote your shares, your bank, broker or other nominee may not vote your shares on any of these proposals, and the resulting broker non-vote will have no effect on these proposals.

Instructions to “ABSTAIN” for each proposal to be voted upon at the special meeting will be counted for purposes of determining the number of shares present and entitled to vote for purposes of determining a quorum. Abstentions will not be included in the vote totals for each proposal and will have no effect on the outcome of the vote on the proposals. If you return your signed proxy card but do not mark the boxes indicating how you wish to vote, your shares will be voted “FOR” the stock issuance proposal, “FOR” the compensation proposal, on an advisory basis, and, if necessary or appropriate, “FOR” any proposal to adjourn the special meeting.

Voting at the Special Meeting

Whether or not you plan to attend the special meeting, please vote your shares. If you are a registered or “record” holder, which means your shares are registered in your name with EQ Shareowner Services, our transfer agent, you may vote in person at the special meeting or be represented by proxy. If your shares are held in “street name,” which means your shares are held of record in an account with a bank, broker or other nominee, you must follow the instructions from your bank, broker or other nominee in order to vote, and must obtain a legal proxy from your bank, broker or other nominee in order to vote in person at the special meeting. Please contact your bank, broker or other nominee for further information on how to obtain such legal proxy. You will not be able to vote your shares at the special meeting without a legal proxy from your bank, broker or other nominee. If you do not plan to attend the special meeting or do not wish to vote at the special meeting, you may authorize proxies to vote your shares by written proxy, by telephone or over the internet.

Voting by Proxy

You should vote your proxy in advance of the meeting even if you plan to attend the special meeting. If you are an HGV stockholder of record, a proxy card is enclosed for your use. If you wish to authorize proxies to vote your shares by telephone or over the internet, you may use the toll-free telephone number or access the electronic link to the proxy voting site by following the instructions on the proxy card. Our stockholders of record may also submit their proxies through the mail by completing the enclosed proxy card, and signing, dating and returning it in the enclosed, pre-addressed, postage-paid envelope. To be valid, a returned proxy card must be signed.

If you hold your shares of our common stock in street name (i.e., through a bank, broker or other nominee), you will find enclosed instructions from your bank, broker or other nominee that you must follow in order to vote your shares. You may authorize proxies to vote your shares by telephone or over the internet if your bank, broker or other nominee makes these methods available, as detailed on the enclosed voting instruction form. You may also return your voting instructions by signing, dating and returning the enclosed voting instruction form in the postage-paid envelope provided.

YOUR VOTE IS IMPORTANT. ACCORDINGLY, PLEASE SUBMIT YOUR PROXY PROMPTLY, BY TELEPHONE, INTERNET OR MAIL WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.

 

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How Proxies are Counted

All shares represented by properly executed proxies received in time for the special meeting will be voted at the meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” each of the proposals covered by this proxy statement.

Only shares affirmatively voted for the proposals, and properly executed proxies that do not contain voting instructions, will be counted as “FOR” the proposals submitted by us as described in this proxy statement. Abstentions will not be included in the vote totals for each proposal and will have no effect on the outcome of the vote on any of the proposals. Failures to vote and broker non-votes, if any, will have no effect on the outcome of any of the proposals.

Revocation of Proxies

You can change your vote or revoke your proxy at any time before your proxy is voted at the special meeting. If you are a stockholder of record, you can do this in one of three ways:

 

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you can grant a new, valid proxy bearing a later date, including by telephone or through the internet before the closing of those voting facilities at 11:59 p.m. Eastern time on July 27, 2021;

 

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you can send a signed notice of revocation to Hilton Grand Vacations Inc., 5323 Millenia Lakes Boulevard, Suite 120, Orlando, Florida 32839, Attention: Corporate Secretary, which must be received prior to 5:00 p.m. Eastern time on July 27, 2021; or

 

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you can attend and vote at the special meeting, which will revoke any proxy previously given. Simply attending the special meeting without voting will not revoke any proxy that you have previously given or otherwise change your vote.

A registered stockholder may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy.

If you are a “beneficial holder” who holds shares of our common stock in “street name,” you must contact your bank, broker or other nominee to change your vote. If your shares are held in the name of a bank, broker or other nominee and you decide to change your vote by attending the special meeting and voting in person at the special meeting, you will not be able to vote unless you have obtained and present a legal proxy issued in your name from the record holder (your bank, broker or nominee).

Tabulation of Votes

A representative of Broadridge will serve as the Inspector of Election for the special meeting and will independently tabulate affirmative and negative votes and abstentions.

Solicitation of Proxies

We are soliciting proxies for the special meeting from our stockholders. We will pay our own cost of soliciting proxies, including the cost of mailing this proxy statement, from our stockholders. In addition to solicitation by use of the mails, proxies may be solicited by each of our directors and certain members of our management team, each of whom may be deemed a participant in this solicitation, in person or by telephone or other means of communication. These persons will not receive additional compensation, but may be reimbursed for reasonable out-of-pocket expenses in connection with this solicitation.

We have retained Okapi Partners LLC to provide investor response services and assist in the solicitation of proxies at a solicitation fee of up to $45,000, plus related reasonable out-of-pocket expenses. We will make arrangements with brokerage houses, custodians, nominees and fiduciaries to forward proxy solicitation materials

 

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to beneficial owners of shares held of record by them. We will also reimburse these brokerage houses, custodians, nominees and fiduciaries for their reasonable expenses incurred in forwarding the proxy materials.

Adjournments

Any adjournment of the special meeting may be made from time to time by the chairman of the meeting or, if a quorum is not present, a majority in voting power of the stockholders present, or if a quorum is present, the holders of a majority of the votes cast without further notice other than by an announcement of the time and place of the adjourned meeting made at the special meeting; provided, however, that if the adjournment is for more than thirty days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, our board of directors shall fix a new record date for notice of such adjourned meeting and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such adjourned meeting. If a quorum is not present at the special meeting, or if there are not sufficient votes at the time of the special meeting to approve the stock issuance proposal, then our stockholders may be asked to vote on a proposal to adjourn the special meeting so as to permit the further solicitation of proxies.

 

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THE MERGER

The following is a discussion of the merger and the material terms of the merger agreement between us, Diamond and Diamond’s stockholders. We urge you to carefully read the merger agreement in its entirety, a copy of which is attached as Annex A to this proxy statement and is incorporated by reference herein.

Effect of the Merger

The merger agreement provides that, on the terms and subject to the conditions set forth in the merger agreement and in accordance with the DGCL, we will acquire Diamond in a series of transactions, which are referred to as the merger.

As part of a series of transactions leading to the merger, (i) Dakota Intermediate, Inc., a Delaware corporation, will merge with and into Diamond, with the latter surviving; (ii) thereafter, Dakota Parent, Inc., a Delaware corporation, will merge with and into Diamond, with the latter surviving; and (iii) thereafter, DRI will merge with and into Diamond, with the latter surviving.

At closing, Diamond will be merged with and into HGV Borrower, with HGV Borrower surviving the merger and continuing to exist as a wholly-owned subsidiary of HGV. As a result of the merger, (i) each share of Diamond common stock (other than Appraisal Shares (as defined in the merger agreement), treasury shares and shares owned directly or indirectly by Diamond) will be converted into the right to receive the merger consideration and (ii) each in-the-money option, whether vested or unvested, will automatically cease to be outstanding and be converted into and exchanged for the right to receive, without any interest thereon, a number of shares of our common stock and/or cash in lieu of any fractional shares of our common stock equal to the option consideration (assuming full satisfaction of any performance-vesting conditions applicable to such in-the-money option).

Background of the Merger

After our spin-off from Hilton in January 2017 to become an independent, publicly-traded company, our newly constituted board of directors and senior management focused on ensuring appropriate corporate governance and board oversight, financial reporting, internal controls over financial reporting, investor communications, and other significant areas that are critical to the success of a new public company. With oversight from our board of directors, our senior management prioritized proper execution and management of our core business and fully leveraging our license arrangement with Hilton. During the course of 2017 and early 2018, two of our significant stockholders, The Blackstone Group and its affiliates (“Blackstone”), which owned an aggregate of approximately 40% of our common stock immediately after the spin-off, and HNA Group and its affiliates (“HNA”), which owned 24% of our common stock as a result of their purchase of our shares of common stock from Blackstone, sold all of their interests in us in multiple public offerings. As a result, one director who was designated by Blackstone and two directors (one independent and one affiliate) designated by HNA had either resigned from our board of directors or elected not to stand for re-election by May 2018.

Thereafter, our board of directors and senior management focused on the overall strategic direction of the company, and on an ongoing basis, our board of directors and senior management team reviewed our performance and future growth prospects, and considered potential opportunities to strengthen our businesses and enhance stockholder value, including the review of our strategy on a standalone basis and potential opportunities for business combinations, acquisitions and other financial and strategic alternatives.

Starting in the summer of 2019, as part of our ongoing strategic evaluation, we explored different potential strategic alternatives, including acquisitions, combinations, sale and similar transactions, and engaged in discussions with several interested parties, including with Apollo and Diamond. As part of such discussions with Apollo and Diamond, Mr. Mark Wang, our President and Chief Executive Officer, Mr. Michael Flaskey, Chief Executive Officer of Diamond, and Mr. David Sambur, Co-Lead Partner of Private Equity at Apollo, considered our and Diamond’s respective businesses, as well as potential opportunities, including a combination structure involving us and Diamond.

 

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As part of such discussion to explore a potential transaction, we, Apollo and Diamond entered into confidentiality agreements in September 2019. In addition, we, together with BofA Securities, Inc. (“BofA Securities”), our financial advisor for such strategic evaluation, and our legal advisors, and Apollo and Diamond, together with their financial and legal advisors, conducted due diligence of each other. Our discussions and mutual diligence with Apollo and Diamond lasted through the end of 2019 and into March of 2020. At the time, our board of directors had selected BofA Securities to act as our financial advisor based on, among other things, its qualifications, expertise and reputation, and its knowledge of our business and affairs and familiarity with us and the industry in which we operate. Among other experiences, BofA Securities had significant hospitality, gaming and real estate M&A and capital markets experience. BofA Securities and its affiliates also had served as a key lead bank in our credit facility syndicate of banks and lead underwriter under our ABS program. As part of such engagement, our board of directors evaluated whether BofA Securities had any material conflicts with respect to the parties involved or potentially involved.

While such discussions and strategic explorations were continuing, in late February 2020 and early March 2020, positive cases of the COVID-19 virus began to proliferate rapidly around the world. During the same period, global travel, leisure, hospitality, and other related sectors began to experience significant disruptions due to the continued unfolding of the COVID-19 pandemic. As the pandemic continued to spread, more and more countries began to impose quarantines, shelter-in-place orders and similar restrictions, including restrictions on travel, which only exacerbated already significant disruptions on the global health, social, economic, and political sectors. Between mid-February 2020 through March 2020, the global stock markets began to experience significant volatility due to the pandemic and its widespread impact. On March 9, 2020, the Dow Jones Industrial Average (“DJIA”) lost more than 2,000 points in one day, the biggest one-day drop in its history. In barely four trading days, the DJIA plunged 6,400 points, an equivalent to approximately 26% of the total market value. Foreign stock markets experienced similar drops and volatility, including London’s FTSE 100 which lost more than 7.7% in one trading day.

The pandemic triggered a worldwide health, financial and economic crisis, including in the United States. During the ensuing months, as more and more U.S. local and state government agencies adopted quarantine and similar orders, a substantial number of hospitality, travel, and leisure businesses were forced to shut down.

The impact on our business and our stock price was no less severe. Our stock price dropped more than 68% from $32.97 on February 14, 2020, prior to the onset of the pandemic, to $10.53 on March 18, 2020. By the end of April 2020, in response to the pandemic and the governmental quarantine and similar orders, we closed virtually all of our properties and sales center operations. Like many other companies, we began to take a number of significant steps to preserve our business and liquidity in response to the pandemic and protect our stockholders, including drawing on our available amounts under our credit facility to maximize liquidity, making significant cuts to capital and inventory spending, amending our credit and warehouse facilities to provide temporary relief from financial and other covenant compliance, implementing furloughs and, eventually, workforce reductions, implementing salary cuts, including for our executive officers and directors, and adopting a stockholder rights plan. Our focus rapidly pivoted to safeguarding our owners, guests and team members, and, eventually, re-opening properties, sales locations and offices while protecting our owners, guests and team members, while implementing steps to create incremental value, including repeat owner sales with new inventory offerings, preservation of future tours by extending travel dates, ongoing work on new product offerings and partnerships, and expansion of our new virtual sales model. Accordingly, during this time, we ceased all review and exploration of, and discussions with third parties regarding potential strategic alternatives, financing and similar transactions.

As we began to re-open our properties, sales locations and offices in early June 2020 and worked towards returning to more normal business operations and conditions, Mr. Wang and the rest of our senior management team evaluated our strategic and capital allocation goals and options, including the possible acquisition of Diamond. Mr. Wang believed that combining our and Diamond’s businesses could help further drive our business to return to growth and achieve faster recovery from the pandemic in light of the complementary mix of

 

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properties between the two companies and resort locations. In early June, Mr. Wang discussed with representatives from BofA Securities the possibility of us acquiring Diamond. Shortly thereafter, BofA Securities contacted Mr. Sambur on our behalf to gauge Apollo’s interest in selling all of the Apollo Investors’ interests in Diamond to us, with Mr. Sambur indicating that he would be interested in exploring such a transaction.

On June 9, 2020, Mr. Sambur presented to Mr. Wang Apollo’s preliminary thoughts on a hypothetical all-stock combination transaction involving HGV and Diamond that could potentially create significant value for both companies’ stockholders and achieve certain synergies on a combined basis. Being keenly aware of the disruption that the pandemic had caused in the travel, leisure and lodging sectors, they agreed there could be potential added benefits of combining the two companies once the severity of the pandemic receded and consumers re-commenced leisure travel. Afterwards, Mr. Wang and the rest of our senior management discussed with BofA Securities the possibility of our acquisition of Diamond, potential valuation, and structure.

Between June 19, 2020 and June 25, 2020, our senior management met with representatives of BofA Securities numerous times to discuss the potential acquisition, synergies, capital structure, and diligence involving Diamond.

Based on such discussions, on June 25, 2020, BofA Securities, on our behalf, presented to Apollo an illustrative transaction structure whereby we would acquire 100% of the equity interest in Diamond in an all-stock transaction in exchange for approximately 29% of the total ownership in the combined company representing an equity value of approximately $935.0 million at the then-current trading price comprised of an upfront payment in our common stock valued at $497.0 million for approximately 22% equity interest, plus deferred contingent payment of $438.0 million for an additional 7% equity interest in the form of warrants or similar instruments, which would be payable in a series of tranches when our stock price crosses certain thresholds, for 50% of the value of the expected cost synergy. Such structure and potential consideration were based on limited financial information and prior to any formal financial or legal diligence, and were intended for further discussion and evaluation purposes only.

Between June 26, 2020 and July 31, 2020, our senior management continued to meet with representatives of BofA Securities numerous times to discuss the potential acquisition involving Diamond.

On August 5, 2020, at a regularly scheduled meeting, our board of directors met with representatives of our senior management to discuss the state of the timeshare industry during the pandemic, the potential recovery timeline, a potential acquisition of Diamond, and other potential value-creating opportunities with respect to an acquisition involving Diamond. Following discussion, our board of directors agreed our senior management should continue to explore such an opportunity with Apollo and Diamond’s management.

On August 11, 2020, our senior management informed senior management of Hilton that we were considering a potential acquisition of Diamond. Our senior management and the senior management of Hilton discussed the strategic merits and risks of the proposed transaction. Among other matters, we discussed Hilton’s consent that would be required under the license agreement for the acquisition, and the need to explore certain modification to the current license agreement to allow us to achieve desired synergy and value in connection such potential transaction.

On August 14, 2020, our senior management, BofA Securities, and certain representatives of Apollo held a telephone conference to discuss preliminary scope of due diligence, including our initial critical request list.

Shortly afterwards, on August 18, 2020, our senior management, BofA Securities, representatives of Apollo, and senior management of Diamond held a call to discuss an overview of our rebranding and brand integration planning and strategy as part of any acquisition of Diamond by us.

Starting on August 21, 2020, we and BofA Securities were given access to Diamond’s electronic data room. Our senior management, certain of our senior team members who were privy to such evaluation, and BofA Securities commenced financial diligence of Diamond based on available information in the data room.

 

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Between August 27, 2020 and September 25, 2020, certain representatives from our senior management, Apollo, Diamond, BofA Securities, and Credit Suisse, financial advisor to Diamond, participated in a number of telephonic meetings to continue our discussions on exploring a possible acquisition transaction and covered a number of topics, including operational and financial diligence, financial projections, valuations and potential synergies.

On September 23, 2020, as we continued our discussions with Apollo and Diamond, Diamond provided us with financial forecasts through the electronic data room for our review and evaluation. Our senior management reviewed the materials, together with other existing materials, and continued to discuss the potential valuation and feasibility of a transaction with representatives of BofA Securities.

On October 5, 2020, our senior management met again with senior management of Hilton to present our rebranding and repositioning strategy to integrate Diamond. During the meeting, we discussed the potential that the transaction might cause our timeshare business to grow, to the benefit of both HGV and Hilton. We also discussed a “ramp-up” of the license fee under the Hilton license agreement that would be applicable with respect to the integration of the Diamond business into our platform.

On October 9, 2020, our board of directors discussed via teleconference with our senior management and representatives of BofA Securities to receive an update from our senior management and BofA Securities regarding general strategic and financial considerations relating to a potential acquisition of Diamond and related discussions with Apollo and Diamond. Our senior management discussed with our board of directors preliminary strategic and economic rationales, as well as potential risks, for pursuing such acquisition. In addition, our senior management, together with representatives from BofA Securities, provided to our board of directors an overview of the Diamond projections, our and BofA Securities’ preliminary revisions to such projections, our projections, and preliminary valuation of Diamond. In addition, based on such preliminary evaluation, our senior management presented an overview of a potential all-stock acquisition of Diamond at an equity value of approximately $840.0 million, comprised of upfront and deferred contingent payments. Our board of directors agreed that our senior management should continue to explore a possible acquisition of Diamond and to submit a preliminary, non-binding proposal to Apollo reflecting such structure.

On October 19, 2020, BofA Securities presented to Apollo and Credit Suisse a non-binding proposal on behalf of HGV regarding a potential acquisition by us of 100% of the equity interests of Diamond in an all-stock transaction whereby the former Diamond stockholders would own an aggregate of approximately 28% of the total ownership in the combined company (representing an equity value of approximately $838.0 million at the then-current trading price), comprised of an upfront payment in our common stock valued at $466.0 million for approximately 20% equity interest, plus a deferred contingent payment of $372.0 million for an additional 8% equity interest in the form of warrants or similar instruments for 50% of the value of the expected cost synergy. As an alternative, the warrants could be payable in a series of tranches when our stock price crossed certain thresholds.

In addition, on October 19, 2020, our senior management again met with senior management of Hilton during which our senior management presented a preliminary ramp-up license fee structure proposal with respect to the Diamond acquisition during the integration of the Diamond business and other related matters, and discussed Hilton’s consent that would be required under the license agreement for the acquisition.

On October 23, 2020, our senior management held a telephonic call with representatives from Apollo and Diamond to discuss both companies’ projections, business prospects, and potential cost and revenue synergies.

Throughout October 2020, our senior management continued to refine synergy assumptions, Hilton license fee modeling, and rebranding strategy. We responded to information requests from Apollo, Diamond, Credit Suisse, and PricewaterhouseCoopers, Diamond’s tax and accounting advisor, as well as Hilton. We also made information and diligence requests to Apollo, Diamond and its advisors. During this time, our senior

 

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management also engaged in discussions with BofA Securities regarding financial and cost synergies of the transaction, as well as debt financing strategy to consummate the Diamond acquisition, including bridge financing.

On November 3, 2020, at a regularly scheduled meeting, our board of directors met with our senior management to discuss further updates on discussions between us and Apollo and Diamond regarding our potential acquisition of Diamond.

On November 10, 2020, Diamond and Credit Suisse presented certain updates to Diamond’s forecast of 2022 adjusted EBITDA and explained the basis for such changes to our senior management and BofA Securities, noting that such changes were being principally driven by changes in their own projections based on favorable recovery trends from the pandemic disruptions. Our senior management and BofA Securities continued to discuss and evaluate such changes presented by Diamond, including forming their own independent views of the recovery trends and basis for such changes in the Diamond projections.

On November 15, 2020, Credit Suisse, on behalf of Diamond, delivered a non-binding proposal for a transaction whereby we would acquire Diamond for a consideration to be comprised of a combination of our common stock and $250.0 million of convertible notes with a 25% conversion premium. In exchange, assuming full conversion of the convertible notes, the former Diamond stockholders would own approximately 37% of our outstanding shares of common stock (having an equity value of approximately $1.22 billion). The shares of our common stock to be issued upfront would be equal to approximately 33% of our outstanding stock after the transaction (having an equity value of approximately $1.039 billion based on our stock’s volume weighed average price for a 2 week-period prior to the date of the offer), plus an additional 4% of our outstanding stock after the transaction (having an additional equity value of approximately $183.0 million) assuming full conversion of the convertible notes.

On November 17, 2020, Mr. Wang and Mr. Sambur spoke about the November 15 proposal and the November 10 forecast. Subsequently, on November 20, 2020, Mr. Wang received from Mr. Sambur certain supplemental information with respect to the November 10 forecast. Our senior management and BofA Securities continued to discuss and evaluate such changes, together with such additional information provided by Diamond, and continued to form and apply their own independent views for the basis of such changes and the supplemental information.

After further discussion with BofA Securities and internal discussions and evaluation, our senior management authorized BofA Securities to inform Apollo that we were not willing to proceed on the terms outlined in the November 15 offer and instead instructed BofA Securities to present, on November 30, 2020, a counteroffer to Apollo of a transaction whereby the former Diamond stockholders would own approximately 29% of our outstanding shares of common stock (having an equity value of approximately $975.0 million at the then-current market price), but with no convertible note feature. This counteroffer was reiterated by Mr. Wang directly to Mr. Sambur via telephone conversation on November 30.

On December 4, 2020, our senior management met again with Hilton’s senior management to present a revised license fee structure proposal with respect to the Diamond acquisition. Among other items, the proposal reflected the ramp-up fee structure over the initial five-year period following the closing of the transaction based on sales of new brand club membership and property revenues associated with Diamond properties that convert into HGV/Hilton licensed properties.

On December 6, 2020, we received from Credit Suisse, on behalf of Diamond, a counteroffer to our November 30 offer that reflected the former Diamond stockholders acquiring approximately a 33% interest in our company upon the closing of the transaction (having an equity value of approximately $1.20 billion at the then-current market price). Subsequently, on December 8, 2020, Mr. Wang spoke to Mr. Sambur about the latest counteroffer and indicated that we were unwilling to proceed or continue our discussions based on such valuation.

 

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On December 11, 2020, our senior management, Diamond’ senior management, and representatives from BofA Securities and Credit Suisse held a telephone meeting to discuss certain preliminary financing considerations in connection with a possible transaction, including scope and structure of potential financing alternatives.

On December 14, 2020, Credit Suisse, on behalf of Diamond, presented an updated version of its December 6 counteroffer that reflected the former Diamond stockholders acquiring approximately a 31% interest in our company (having an equity value of approximately $1.115 billion at the then-current market price). Apollo also proposed an alternative financing structure whereby all existing indebtedness of HGV and Diamond would remain outstanding after the transaction other than the redemption of our outstanding $300.0 million senior notes, for which the Apollo Funds would provide a backstop to eliminate our need for bridge financing. However, after diligence, we concluded that it would not be feasible nor desirable to have all of Diamond’s indebtedness remain outstanding after the transaction due to a number of reasons, including change in control and similar triggers, unfavorable pricing, and terms of such indebtedness. Apollo and Credit Suisse also provided an estimated timeline for completing all financial and legal due diligence and potential signing of a definitive agreement.

After evaluation and consultation with our advisors, including with BofA Securities, on December 15, 2020, our senior management responded to Apollo with a non-binding, “best and final” offer of an all-stock acquisition that would result in the former Diamond stockholders acquiring approximately a 29.7% interest in the combined company (reflecting an equity value of approximately $1.05 billion at the then-current market price) upon the closing of the transaction. Apollo preliminarily accepted the offer, subject to continued diligence by both parties. Afterwards, the parties agreed to accelerate their respective financial and legal diligence efforts and, subject to our board of directors’ concurrence, work towards a definitive agreement on an expedited basis.

On December 18, 2020, our senior management met with representatives of PJT Partners, a financial advisor that we had retained to assist us in exploring different financing alternatives, to discuss potential debt structures for the transaction. Subsequently, our senior management continued to explore various financing structures and alternatives for the transaction in parallel to our discussions with Apollo regarding our acquisition of Diamond.

On December 22, 2020, a special meeting was convened for our board of directors at which our senior management and representatives of BofA Securities updated the board on the recent discussions and negotiations with Apollo and Diamond that culminated with the non-binding offer on December 15. After consideration, our board of directors instructed management to continue exploring a possible transaction on the terms outlined in the December 15 proposal. BofA Securities summarized for our board of directors the process to date and the likely timeline leading to a definitive acquisition agreement. Both our senior management and BofA Securities also updated our board of directors on a detailed review of Diamond and the strategic and financial considerations of a transaction, as well as the diligence efforts expended to date and the expected expansion and acceleration of the overall timeline for completing all diligence. At the special meeting, Mr. Charles R. Corbin, Executive Vice President and General Counsel, reviewed with our board its fiduciary duties with regard to its evaluation of a possible acquisition transaction involving Diamond.

Starting on December 30, 2020, our senior management and other team members, BofA Securities, and our legal advisors, Alston & Bird LLP (“Alston & Bird”), Simpson Thacher & Bartlett LLP (“Simpson Thacher”), and Foley & Lardner LLP (“Foley”), as well as our independent auditor and tax consultant, Ernst & Young LLP (“E&Y”), were provided access to Diamond’s electronic diligence data room, conducted a substantial amount of diligence, and engaged in a series of diligence conference calls with representatives from Apollo, Diamond, Credit Suisse, and Apollo’s and Diamond’s outside legal advisors, including Paul Weiss Rifkind Wharton & Garrison LLP (“Paul Weiss”).

Between December 30, 2020 and March 5, 2021, we and our financial, legal, and accounting and tax advisors held over forty separate due diligence calls with representatives of Apollo, Diamond, and their financial,

 

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legal, and accounting and tax advisors lasting up to several hours per call. During these calls, the parties discussed and covered a number of different areas of Diamond’s business and the Apollo Funds’ ownership in Diamond, including topics pertaining to treasury, inventory and rental activities, accounting and financial, resort operations and HOAs, sales and marketing, business operations, loan portfolio, IT infrastructure, call center and marketing, US and foreign tax, labor, employment and human resources, financial accounting, software, legal, consumer licensing and regulatory, securitization and debt capital, and property and development.

During a portion of the same period, Apollo’s principals, Diamond’s senior management, and their financial, legal and accounting and tax advisors conducted their own additional business and legal diligence of us and, between January 11, 2021 and February 9, 2021, they and we and our advisors held several “reverse” due diligence calls regarding our business.

Beginning in late December 2020, our senior management and our outside legal advisors began to prepare a draft merger agreement for the transaction contemplated by the December 15 proposal. The merger agreement included certain “private company” style adjustments to the purchase price, including adjustments for working capital, and an indemnification construct, and contemplated that we would purchase representations and warranties insurance. It also did not contain any type of restriction on our ability to solicit transactions involving an acquisition of HGV. Around the same time, our senior management and our outside legal advisors began to prepare a draft stockholders agreement, as well as a related overview of key governance topics (“governance overview”) to be addressed in the stockholders agreement, such as board and governance rights, transfer restrictions, standstill provisions, non-competition, and consent rights.

On January 6, 2021, BofA Securities, on our behalf, sent to representatives of Credit Suisse a draft governance overview.

On January 9, 2021, we and our legal advisors began to prepare a draft term sheet covering amendments to the existing Hilton license agreement and other arrangements that our senior management and senior management of Hilton had been discussing with respect to the license fee and related structure as part of the Diamond integration (such amendments to, or amended and restated, license agreement and other arrangements, the “Hilton agreements”).

Separately, on January 15, 2021, Simpson Thacher provided a draft of the merger agreement to Paul Weiss. During this time, all parties and their respective advisors continued to conduct business, legal and financial due diligence of the other party.

On January 20, 2021, Paul Weiss provided a draft governance rights term sheet with respect to the stockholders agreement in response to our January 6, 2021 governance overview. Among other items, the term sheet addressed board and governance rights, transfer restrictions, preemptive rights, registration rights, and consent rights, but did not include standstill or noncompetition provisions. All of these topics were the subject of numerous discussions and negotiations among the parties in the next several weeks.

On January 20, 2021, BofA Securities provided to us a proposal for a $2.3 billion of debt financing commitment for the transaction, which our senior management began to review and evaluate.

On January 21, 2021, our senior management and senior management of Hilton met in person to discuss and tentatively agreed to the final economic terms of the previously discussed ramp-up license fee structure for the integration of the Diamond properties.

On January 23, 2021, Paul Weiss provided to us comments to the draft merger agreement. In Paul Weiss’s draft, Apollo proposed a “public company” style agreement, with no adjustment to the purchase price for working capital, transaction expenses, debt or other liabilities at Diamond unlike the January 15 draft merger agreement that Simpson Thacher had provided. Also, Paul Weiss’s draft did not include an indemnity construct. These proposals were the subject of numerous discussions and negotiations among the parties in the coming weeks leading up to the signing of a definitive agreement.

 

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Our senior management, BofA Securities and our outside legal advisors engaged in a number of discussions and analysis regarding the key issues and positions of Apollo and their advisors as reflected in the January 23 comments to the merger agreement. Concurrently, our legal advisors continued to revise the draft merger agreement and prepare a draft stockholders agreement. During this time, we, our senior management, and our outside advisors continued to conduct various diligence of Diamond and Apollo.

At the same time, our senior management, together with BofA Securities and PJT Partners, continued to evaluate various debt financing alternatives and work towards securing necessary debt commitments for the transaction. In furtherance of such effort, on January 26, 2021, our senior management requested proposals from several financial institutions (Deutsche Bank, Barclays and Truist) for debt financing commitments for the transaction, to which we received preliminary term sheets and financing strategies from such parties on January 29, 2021. Throughout the rest of January 2021 and February 2021, our senior management held a number of discussions with such financial institutions and BofA Securities to discuss their respective financial proposals and financing structure.

On February 9, 2021, our senior management, representatives from Apollo and Diamond, Simpson Thacher, Alston & Bird, and Paul Weiss participated in a telephonic meeting to discuss key issues related to the draft merger agreement and the draft stockholders agreement. Afterwards, Paul Weiss provided to us, BofA Securities, and our legal advisors a summary of key outstanding issues under both agreements. Over the course of next two days, we and our advisors discussed those outstanding item and other aspects of the transaction.

On February 10, 2021, our board of directors convened a special meeting with our senior management, BofA Securities, Alston & Bird and Simpson Thacher in attendance. Mr. Corbin reviewed with our board of directors its fiduciary obligations and the need to maintain strict confidentiality. During the meeting, our senior management discussed the status of diligence, principal documents, negotiations, governance and Hilton discussions. BofA Securities overviewed the current state of affairs, financing, timing, and other considerations. Among other items, our senior management and advisors noted that, while the parties had made substantial progress overall, significant gaps remained on a number of important items in both the merger agreement and the stockholders agreement, including the “private company” vs. “public company” issue on the merger agreement and, with respect to the stockholders agreement, the number of board seats, memberships on board committees and related governance matters, transfer restrictions, expansive consent rights, voting requirements, standstill obligations, and noncompetition restrictions. Our senior management also updated our board of directors on its evaluation of debt financing alternatives and provided an overview of the preliminary proposals that we had received from the four financial institutions, and discussed the potential license fee structure for the Diamond business under our license agreement with Hilton, disclosure implications and potential timing. After consideration, our board of directors instructed management to continue to engage in discussions and negotiations with Apollo and its advisors to resolve these outstanding items in a manner that appropriately balanced the benefits of pursuing a transaction against prudence and protecting the company and its stockholders’ interests.

On February 10, 2021, after the special meeting, our senior management and Alston & Bird discussed updates to the draft term sheet for the Hilton agreements.

On February 11, 2021, our senior management, Alston & Bird and Simpson Thacher held a telephonic conference with Mr. Leonard A. Potter, the chairman of our board of directors, to discuss the outstanding key items related to the merger agreement, the stockholders agreement, and the timeline.

Shortly after that call, on the same day, Mr. Wang held a telephonic meeting with Mr. Sambur noting that the parties still had some significant gaps in certain key areas, including excluded liabilities, public company style merger, board and related governance rights, and consent rights over corporate and board actions. Mr. Wang also noted to Mr. Sambur that, while we were open to continuing to negotiate and discuss such items, it was critical from our board of directors’ and management’s perspective to continue to focus on our year-end

 

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matters, particularly given the number of significant gaps that remained on the parties’ negotiations. Separately, Simpson Thacher had a telephone conference with Paul Weiss to relay a similar view.

Later on February 11, 2021, Simpson Thacher received an updated issues list for both the merger and stockholders agreements from Paul Weiss on behalf of Apollo, while Mr. Wang received a similar document from Mr. Sambur, pursuant to which Apollo showed significant progress on a majority of the outstanding issues.

On February 12, 2021, our senior management met with Alston & Bird and Simpson Thacher to discuss the latest progress from Apollo as reflected in the revised issues list that Paul Weiss had provided. Given the significant progress made, our legal advisors began to prepare updated drafts of the merger agreement and stockholders agreement. In addition, Alston & Bird began to prepare drafts of the Hilton agreements and updated the term sheet related to the Hilton agreements.

On February 19, 2021, Simpson Thacher provided an updated draft of the merger agreement and a draft of the stockholders agreement to Paul Weiss. The merger agreement included agreed on elements of both a “private company” style agreement (certain excluded liabilities that are not calculated in the purchase price and certain indemnities) and a “public company’ style agreement (a “locked box” purchase price calculation, where the purchase price is (a) adjusted downward for any “leakage” that occurs after the locked box date of December 31, 2020 and (b) not adjusted upwards for any increase in value that occurs after the locked box date). The merger agreement also included interim operating covenants for Diamond customary for a private company acquisition, limited interim operating covenants for HGV and additional closing conditions related to the warehouse facilities. The stockholders agreement reflected limited board, committee and related governance rights, significant transfer restrictions, significantly limited Apollo voting rights, customary standstill provisions, and certain noncompetition obligations.

Between February 22 and February 23, 2021, Paul Weiss provided comments to the merger agreement and the stockholders agreement to Alston & Bird and Simpson Thacher. The merger agreement reflected closer alignment of the parties on provisions related to indemnification, interim operating covenants and other covenants. The draft reflected ongoing negotiations on open economic points related to repurchase obligations, financing, taxes and employees. The draft stockholders agreement also reflected progress that the parties had made on provisions pertaining to board and governance rights, transfer restrictions, voting rights, standstill provisions, and noncompetition restrictions, but the parties continued to have ongoing negotiations on some of the details related to those provisions.

On February 23, 2021, Diamond’s board of directors held a meeting with representatives of its management and Paul Weiss in attendance. At that meeting, representatives of Diamond’s management provided Diamond’s board of directors with a summary of Diamond’s recent financial performance. In addition, representatives of management updated Diamond’s board of directors on the progress and material economic terms of the potential transaction with HGV and reviewed with Diamond’s board of directors its fiduciary duties under applicable law in considering such potential transaction. The meeting concluded with representatives of management indicating that they would continue to keep the board informed of material updates and provide Diamond’s board of directors with further fulsome details of the material terms of a potential transaction with HGV at a later date.

Starting on February 23, 2021, both parties and their respective advisors commenced a daily status and update call to keep apprised of progress and any significant outstanding items.

In addition, commencing on February 23, 2021, we and Diamond (including our respective advisors) began to share certain preliminary and confidential external and internal communication plans in anticipation of a transaction announcement. Ultimately, these included the exchanges of draft press releases, internal employee and VOI owner communications, and related materials all the way up to the March 10 announcement.

On February 24, 2021, our senior management team met with its advisors, including BofA Securities, Alston & Bird and Simpson Thacher to discuss the revised drafts of the merger agreement and stockholders

 

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agreement and discuss next steps. Also on February 24, 2021, Alston & Bird held a telephonic meeting with Paul Weiss to discuss the revised draft of the stockholders agreement to provide feedback and obtain clarification regarding certain items.

Between February 24, and February 26, 2021, the parties discussed the comments on the merger agreement and stockholders agreement, and continued dialogue over excluded liabilities and transaction expenses, standstill, and transfer restrictions in the two principal documents. The parties continued to address gaps in the scope and calculation of excluded liabilities, including transaction expenses of Diamond, change of control payments of Diamond, taxes, and indebtedness items; antitrust divestiture threshold; termination fees; closing conditions related to warehouse financing and no securitization defaults; and transfer restrictions and standstill.

On February 25 and February 26, 2021, our senior management and senior management of Hilton discussed comments on the term sheet related to the Hilton agreements, and their comments on the merger agreement and stockholders agreement, including a request by Hilton to become a party to the stockholders agreement with a right to consent to any amendment or waiver thereto. The parties also discussed the Hilton consent and the timing of finalizing such consent and Hilton agreements within the overall timing for finalizing the merger agreement and the stockholders agreement.

On February 26, 2021, Alston & Bird sent a revised draft of the stockholders agreement to Paul Weiss while, on February 27, 2021, Simpson Thacher sent a revised draft of the merger agreement to Paul Weiss. Over the course of both days, our senior management and Alston & Bird continued to discuss with Hilton certain open points with respect to the term sheet for the Hilton agreements.

On February 27, 2021, our senior management selected three banks—BofA Securities, Deutsche Bank and Barclays—to provide the necessary debt financings for the transaction, and the parties, together with their respective counsels, began to prepare and negotiate the debt commitment documents.

Between February 27 and March 1, 2021, HGV, Apollo, Diamond and their respective legal advisors continued to conduct diligence and hold a number of calls to discuss key open issues on the principal documents. In addition, our senior management, Alston & Bird and Hilton continued to discuss the Hilton term sheet and Hilton’s comments to the stockholders agreement.

On February 28, 2021, we provided our initial draft of the disclosure schedules to Paul Weiss. We received initial comments on March 2, 2021 and Apollo, Diamond and their advisors continued to review and provide comments to us, and we continued to revise the disclosure schedules over the course of next approximately two weeks. During this time, we also reviewed and provide comments on multiple drafts of Diamond’s disclosure schedules.

On March 2, 2021, each of the three standing committees of our board of directors met for its respective regularly scheduled meeting. On March 2, 2021, at the Nominating & Corporate Governance Committee meeting, our senior management and Alston & Bird updated the members of the committee on the status of negotiation with Apollo related to board governance, transfer restrictions, standstill and other matters, including the qualifications of the Apollo designees to serve on the board of directors, and the committee’s evaluation process with respect to such designees.

On March 3, 2021, our board of directors held a meeting with representatives of our management, BofA Securities, Alston & Bird and Simpson Thacher in attendance. During that meeting, our board of directors discussed the business, financial and other aspects of the potential business combination with Diamond and the outcome of our management’s and our advisors’ due diligence review of Apollo and Diamond. In addition, a representative of Simpson Thacher reviewed and discussed the fiduciary duties applicable to our directors in connection with the proposed transaction and the terms of the draft merger agreement, and a representative of Alston & Bird reviewed and discussed the terms of the draft stockholders agreement with Apollo and the

 

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amended and restated license agreement with Hilton. In addition, our management and representatives of BofA Securities, Alston & Bird and Simpson Thacher provided updates on the status of negotiations with Apollo, Diamond and their advisors. Our board of directors discussed key remaining issues in the merger agreement, stockholders agreement and the Hilton agreements, including efforts required to obtain regulatory approvals, the scope and calculation of purchase price items, closing conditions related to Diamond’s warehouse facilities scheduled to roll over, covenants regarding HGV’s proxy statement and stockholder vote, indemnification for certain pre-closing taxes, the outside date to close the transaction, and the termination fee payable by HGV in the event that, among other situations, we or Diamond were to terminate the merger agreement under certain circumstances. BofA Securities presented to our board of directors its preliminary financial analyses of the merger consideration. Our board of directors also discussed certain management projections and forecasts for HGV and forecasts relating to anticipated synergies, and directed BofA Securities to use these management projections and forecasts, or subsets thereof, for their respective financial analyses. For further information regarding these management projections and forecasts, please see “The Merger—Certain Unaudited Prospective Financial Information” beginning on page 70 of this proxy statement. In addition, at the meeting, our senior management also provided an update to our board of directors on debt financing alternatives and negotiations with BofA Securities, Deutsche Bank and Barclays, and the terms of the likely committed financing package from such banks. Based on such presentations and discussions, our board of directors authorized our senior management and our advisors to continue to negotiate with Diamond towards a transaction.

On March 3, 2021, Paul Weiss provided comments to the merger agreement to Simpson Thacher. The merger agreement reflected closer alignment on efforts required to obtain regulatory approvals and other covenants and ongoing negotiations of the purchase price, repurchase obligations, financing, taxes and employee matters.

On March 4, 2021, our senior management team met with its advisors, including BofA Securities, Alston & Bird and Simpson Thacher to discuss the revised draft of the merger agreement.

Between March 4 and 5, 2021, Hilton provided additional comments to the stockholders agreement and Hilton consent. Among other items, Hilton continued to request that it be added as a party to the stockholders agreement for the purposes of approving any amendments or waivers thereto, but we and Alston & Bird discussed with Hilton that such right of approval should be limited only to certain key provisions thereof, including board and governance, transfer restrictions, required voting, and standstill provisions.

On March 5, Simpson Thacher sent a revised draft of merger agreement to Paul Weiss.

On March 5, 2021, our senior management, Alston & Bird and Hilton discussed several open matters on the draft term sheet related to the Hilton agreements. After resolving several of the remaining items, on March 6, 2021, Alston & Bird circulated draft Hilton agreements to Hilton. Alston & Bird also circulated a revised draft of the Hilton consent to Hilton.

On March 6, 2021, our senior management team met with its advisors, including BofA Securities, Alston & Bird and Simpson Thacher to discuss the remaining open items in the merger agreement.

On March 6, 2021, Alston & Bird, Hilton and Wilmer Hale LLP (“Wilmer”), Hilton’s counsel, had several telephonic meetings to discuss the draft stockholders agreement, the Hilton consent, and the Hilton agreements. Among several items discussed were standstill, noncompetition, and transfer restriction provisions. Alston & Bird and Paul Weiss also had several telephonic meetings to discuss the draft stockholders agreement and certain schedules and attachments thereto, and the Hilton consent.

On March 7, 2021, Paul Weiss provided comments to the merger agreement to Simpson Thacher and a spreadsheet of the calculation of transaction expenses, indebtedness and leakage and other dollar amounts to be borne by each party.

 

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On March 7, 2021, our senior management, Alston & Bird and Hilton had additional telephonic meetings to discuss the Hilton agreements. Alston & Bird and Hilton had separate telephonic meetings to continue their discussions on the draft stockholders agreement and the Hilton consent. Similarly, Alston & Bird and Paul Weiss had several additional telephonic meetings to discuss the draft stockholders agreement and certain schedules and attachments thereto, and the Hilton consent.

On March 7 and March 8, 2021, representatives from HGV, Apollo, Diamond, and their respective advisors continued to negotiate the purchase price items in the spreadsheet of transaction expenses, indebtedness and leakage. In addition, during the same period, Alston & Bird revised and recirculated draft stockholders agreement and related schedules and attachments thereto, the Hilton consent, and the Hilton agreements to each of Paul Weiss and Hilton.

On March 8, 2021, our senior management team met with its advisors, including BofA Securities, Alston & Bird and Simpson Thacher, to discuss remaining open items in the merger agreement and ongoing negotiations on purchase price items. Simpson Thacher sent a revised draft of the merger agreement and spreadsheet to Paul Weiss.

On March 8, 2021, our board of directors held a meeting with representatives of our management, BofA Securities, Alston & Bird and Simpson Thacher in attendance. At that meeting, our management and our advisors in attendance updated the board of directors on the status of negotiations with Apollo, Diamond and their advisors. BofA Securities made a presentation to our board of directors regarding the business, financial and other aspects of the potential business combination with Diamond and the outcome of management’s due diligence review of Diamond. Representatives of BofA Securities then rendered its oral fairness opinion, which was subsequently confirmed by delivery of a written opinion from BofA Securities, dated March 9, 2021, to our board of directors to the effect that, as of the date of its written opinion and based upon and subject to the various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by BofA Securities in preparing its written opinion, as set forth in such opinion, the merger consideration to be paid by HGV in the proposed acquisition of Diamond pursuant to the merger agreement was fair, from a financial point of view, to HGV (see “—Opinion of our Financial Advisor” on page 60 of this proxy statement). Representatives of Simpson Thacher reviewed with our board of directors its fiduciary duties under applicable law and reviewed with our board of directors the negotiated terms of the merger agreement that was substantially complete, focusing on certain changes to the terms discussed at the meeting of our board of directors on March 3, 2021, such as the agreed on concept that would allow HGV’s board to change its recommendation in favor of the deal in response to an “Intervening Event” that occurs post-signing of the merger agreement and the calculation of transaction expenses. In addition, Alston & Bird reviewed with our board of directors the negotiated terms of the stockholders agreement that was substantially complete, focusing on a few items that remained subject to continuing discussions with Paul Weiss, as well as the substantially completed Hilton agreements. In addition, our management updated our board of directors that the committed financing package from BofA Securities, Deutsche Bank and Barclays was close to being finalized.

After such review and following further discussion with representatives of BofA Securities, Alston & Bird, and Simpson Thacher about potential reasons for and against the proposed merger (see below under the heading “ —Our Reasons for the Merger; Recommendation of Our Board of Directors” on page 56 of this proxy statement), our board of directors approved the proposed merger and the share issuance substantially on the terms presented to, and discussed by, the board of directors at the meeting and at the March 3 meeting, as well as the committed financing package, and authorized our management and our advisors to continue to negotiate and finalize the terms of the merger agreement, the stockholders agreement, the Hilton consent, the Hilton agreements, debt financing documents, and to execute and deliver the merger agreement, substantially in the form provided to the board of directors in advance of the meeting, with such changes as the authorized officers deemed necessary, desirable or advisable, as well as any ancillary agreements or items to be provided in connection with the signing of the merger agreement. In approving the debt financing arrangement with BofA Securities, Deutsche Bank and Barclays, including in connection with considering such arrangement at prior

 

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meetings, our board of directors was aware of BofA Securities’ role as our financial advisor in the merger, BofA Securities affiliates’ prior and existing banking relationship with HGV, and its participation in the debt financing arrangements for the merger transaction.

On March 8, 2021, Diamond’s board of directors held a meeting with representatives of its management and Paul Weiss in attendance. At that meeting, representatives of Paul Weiss updated Diamond’s board of directors on the status of negotiations with HGV and its advisors and representatives of Credit Suisse provided an overview to Diamond’s board of directors of the transaction and economic terms. Representatives of Paul Weiss reviewed with Diamond’s board of directors its fiduciary duties under applicable law in considering a potential transaction with HGV and the negotiated terms of the merger agreement that was substantially complete and the limited number of open items that remained subject to continuing discussions with HGV’s advisors, particularly as it related to the calculation of transaction expenses, indebtedness and leakage and other dollar amounts to be borne by each party. The meeting concluded with representatives of Paul Weiss indicating that they would update Diamond’s board of directors upon finalization of the open items for their final approval.

Throughout March 8 and March 9, 2021, representatives of HGV, Simpson Thacher, Apollo, Diamond, and Paul Weiss continued to finalize the terms of the merger agreement, including the dollar amount of the termination fees payable in certain situations by us to Diamond and the interim operating covenants of Diamond and HGV. In addition, representatives of HGV, Alston & Bird, Paul Weiss, Hilton and Wilmer continued to finalize the terms of the stockholders agreement, Hilton consent and the Hilton agreements.

On March 9 and early March 10, 2021, we and BofA Securities, Deutsche Bank and Barclays finalized and entered into commitment arrangements for such banks to provide to us an aggregate of $2.8 billion of debt financing to financing the acquisition of Diamond and the related transactions. In addition, HGV, Apollo, Diamond, Simpson Thacher and Paul, Weiss finalized the terms of the merger agreement while HGV, Apollo, Alston & Bird, and Paul Weiss finalized the form of the stockholders agreements, other ancillary documents, and the Hilton consent. Further, contemporaneously, HGV, Alston & Bird, Hilton and Wilmer finalized the Hilton consent and the Hilton agreements.

During the early morning on March 10, 2021, representatives of Paul Weiss provided Diamond’s board of directors with an update on the status of the discussions with HGV’s advisors and a summary of the material changes to the merger agreement since Diamond’s board of directors last convened. Diamond’s board of directors proceeded to approve the merger agreement and each of the transactions contemplated thereby, including the merger, by unanimous written consent.

Later in the early morning of March 10, 2021, we, HGV Borrower, Diamond, the Apollo Investors, and the other Diamond stockholders executed and delivered the merger agreement. Simultaneously with the execution of the merger agreement, Hilton delivered to us the Hilton consent, and we and Hilton entered into the Hilton agreements.

On the morning of March 10, 2021, prior to the opening of trading on the NYSE, we, Diamond and Apollo issued a joint press release announcing the execution of the merger agreement.

Subsequent to the announcement, on April 8, 2021, we determined that the Net Synergy/Cost Savings (as defined below under “—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement) estimates should have assumed only the synergies that would be achieved subsequent to the anticipated closing of the transaction of July 1, 2021, rather than a January 1, 2021 closing that was assumed in the initial Net Synergy/Cost Savings estimates used by BofA Securities in connection with its fairness opinion on March 9, 2021. This adjustment changed our estimate of the realized Net Synergies/Cost Savings for calendar year 2021 to $25 million from the prior $59 million assumed in the initial fairness opinion. Consequently, (i) BofA Securities’ discounted cash flow analysis using the original Net Synergy/Cost Savings estimates, as described below under “—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement, resulted in a range of

 

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implied equity value for Diamond of $1,260 million to $1,950 million instead of $1,230 million to $1,930 million, and (ii) BofA Securities’ pro forma relative ownership analysis based on discounted cash flow using the original Net Synergy/Cost Savings estimates, as described below under “—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement, resulted in a range of pro forma ownership by Diamond’s stockholder of the combined company of 22.2% to 38.6% instead of 21.8% to 38.4%. On April 9, 2021, BofA Securities confirmed to our board of directors in writing that had BofA Securities issued its opinion on the basis of the actual Net Synergies/Cost Savings, there would have been no change to the conclusion set forth in its March 9, 2021 opinion.

Reasons for the Merger; Recommendation of Our Board of Directors

After careful consideration, our board of directors, at a meeting held on March 8, 2021, unanimously determined that the merger agreement, the issuance of shares of our common stock in connection with the merger, and the other transactions contemplated by the merger agreement are advisable and in the best interests of HGV and its stockholders. As such, our board of directors authorized and approved the merger agreement, the issuance of shares of our common stock in the merger and the other transactions contemplated thereby by a unanimous vote of its directors, and adopted resolutions directing that the stock issuance proposal be submitted to our stockholders for their consideration. Accordingly, our board of directors unanimously recommends that HGV stockholders vote “FOR” the stock issuance proposal.

HGV’s board of directors considered many reasons in making its decision to approve the merger agreement and the issuance of shares of our common stock in the merger and the other transactions contemplated thereby and in making its recommendation to the HGV stockholders that they approve the issuance of shares of our common stock in the merger. In arriving at its decision, our board of directors consulted with our senior management, legal advisors, financial advisors and other advisors, reviewed a significant amount of information, and concluded in its business judgment that the proposed merger is likely to result in significant strategic and financial benefits to HGV and its stockholders, including the following anticipated benefits (which are not exclusive or listed in any relative order of importance):

Potentially Positive Considerations

 

•

Combining HGV and Diamond would create a leading vacation ownership company with locations in key destinations and create a more globally diversified company, with increased scale, geographic presence, diversity of revenue streams and product offerings, particularly as the travel and leisure industry continues its recovery from the COVID-19 pandemic;

 

•

HGV and Diamond have historically focused on different customer pools, and acquiring Diamond will allow HGV to dramatically expand its potential customer base;

 

•

The expectation that HGV would achieve a minimum of $125 million of targeted annual cost synergies by leveraging operational and general and administrative cost efficiencies;

 

•

The expectation that the merger will increase recurring EBITDA streams and drive overall cash flow, with adjusted free cash flow per share accretion in year one (excluding one-time transaction-related expenses);

 

•

The expectation that adding a new brand within HGV as part of the Diamond integration represents a strong strategic fit in conjunction with Hilton generated opportunities and enhances our ability to capitalize on leads and tours sourced from Hilton;

 

•

The expectation that adding the Hilton Vacations Club Brand to the Diamond portfolio of resorts will add significant credibility and enhance the value of the Diamond portfolio and existing owners within the existing Diamond business;

 

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•

The expectation that the merger will accelerate the launch of a HGV-branded trust product offering by rebranding Diamond’s trust, Club, and properties to drive further revenue growth in a new customer segment

 

•

The expectation that the free cash flow from the combined businesses after the merger would be strong and allow for us to advance further growth prospects, enhance stockholder returns and/or repay debt;

 

•

The expectation of sales growth with respect to Diamond’s vacation ownership business and properties, and potential for further improvement when combined with opportunities provided by our agreements with Hilton;

 

•

The fact that Hilton has provided its irrevocable consent as required under the Hilton license agreement (subject to certain limited conditions), and we and Hilton have entered into the A&R license agreement and other arrangements that will facilitate our integration of Diamond’s business and properties, as more fully described in “Other Agreements—Hilton Agreements and Consent” beginning on page 109 of this proxy statement;

 

•

The fact that because the number of shares of our common stock to be issued under the merger agreement is fixed (with certain adjustments) and will not be adjusted for fluctuations in the market price of shares of our common stock, we have greater certainty as to the number of shares of our common stock to be issued in the merger;

 

•

Based on our outstanding shares as of June 1, 2021, our stockholders would own approximately 72% of the combined company on a fully diluted basis immediately following the closing of the merger and, therefore, will continue to participate in potential appreciation in equity value of the combined company;

 

•

The continuity of our board of directors and their familiarity with, and understanding of, our company and the timeshare industry, as augmented by the expected addition of two members designated by Apollo, which will only add to our board of directors’ understanding and knowledge of Diamond and add additional experience with the timeshare industry;

 

•

The oral opinion of BofA Securities to our board of directors on March 8, 2021, and the written opinion of BofA Securities to our board of directors, dated March 9, 2021, and related financial analysis presented by BofA Securities to our board of directors on such dates, to the effect that, as of the date of the written opinion and based upon and subject to the factors and assumptions set forth in such opinion, the merger consideration in the proposed merger was fair, from a financial point of view, to us. A copy of that written opinion is included as Annex B to this proxy statement and described under “—Opinion of our Financial Advisor,” beginning on page 60 of this proxy statement;

 

•

The belief of our board of directors, following consultation with our senior management, and based in part upon the debt financing commitments that we obtained, that it was likely that we would be able to obtain the necessary financing to refinance our debt and existing Diamond indebtedness, if necessary, and that after the completion of the merger, HGV would be able to repay and service any indebtedness that is expected to form the interim or permanent financing of the merger and, with respect to such indebtedness, to comply with the financial covenants applicable to such indebtedness, after its review and discussion of various factors, including the expected terms of the proposed interim and permanent financing for the merger (including fees and interest);

 

•

The fact that Diamond’s remedy in the event we are not able to obtain the proceeds of our committed debt financing in connection with the merger could be limited to a reverse termination fee of $73.5 million;

 

•

The terms and conditions of the merger agreement reflect our and Diamond’s commitment to closing;

 

•

The ability of our board of directors, under certain circumstances, to make a change in their recommendation of the merger agreement in response to certain intervening events favorable to us;

 

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•

The fact that the merger is subject to approval by the holders of a majority of the shares of HGV common stock, and that stockholders have the ability to reject the merger;

 

•

We purchased a representation and warranty insurance policy in connection with Diamond’s representations and warranties in the merger agreement and obtained certain indemnities from the Apollo Investors, which protects us against certain downside risk;

 

•

The terms of the transaction were heavily negotiated over the course of a long period of discussions with an Apollo affiliate, and the Apollo affiliate agreed to price and post-closing recourse terms that our board of directors thought were attractive;

 

•

The fact that Apollo is a sophisticated investor and Apollo’s willingness to have the Apollo Funds invest in the combined company by taking stock consideration, which our board of directors viewed as validation of the combined company’s prospects;

 

•

Apollo agreed to certain company favorable governance terms under the stockholders agreement, including (a) limited approval rights and (b) a standstill and our ability to adopt a poison pill that would prevent the Apollo Funds from acquiring control of the combined company without negotiating with the full board of directors of the combined company;

 

•

Our ability, under certain circumstances as set out in the merger agreement, to engage in discussions with a third party that was interested in acquiring HGV or the combined company;

 

•

Apollo agreed to certain restrictions in the stockholders agreement on the manner and timing of the Apollo Funds’ ability to exit HGV stock, and such restrictions could be favorable to our stockholders; and

 

•

The merger agreement includes a condition that we will not be obligated to close the merger if a material adverse effect on Diamond has occurred and is continuing.

Potentially Negative Considerations

In the course of its deliberations, our board of directors also considered a variety of uncertainties, risks and other potentially negative considerations relevant to the transaction, including the following (which are not exclusive or listed in any relative order of importance):

 

•

The restrictions on the conduct of our business during the period between the execution of the merger agreement and the completion of the merger;

 

•

The costs associated with completing the merger and realizing the benefits we expect to obtain in connection with the merger, including management’s time and energy and potential opportunity cost;

 

•

The challenges in absorbing the effect of any failure to complete the merger, including potential termination fees and stockholder and market reactions;

 

•

The potential earnings dilution to our stockholders following the closing of the merger if synergies are not achieved;

 

•

Our stockholders, who currently own all of the equity interests in HGV, will own approximately 72% of the equity interest in the combined company on a fully diluted basis (based on calculations as of June 1, 2021);

 

•

The challenges inherent in combining two businesses of the size and complexity of HGV and Diamond, including the possible diversion of management and employee attention for an extended period of time;

 

•

The potential for diversion of management and employee attention during the period before completion of the merger, and the potential negative effects on our and our combined company’s business;

 

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•

The extent to which our increased leverage could result in restrictions on our uses of cash, which could cause us to reduce capital expenditures, limit financing offered to customers (which could result in reduced sales) and dedicate an unsustainable level of its cash flow from operations to the payment of principal and interest on its indebtedness;

 

•

The risk that certain provisions in certain of our and Diamond’s contracts may constrain or delay the timing for realizing, operational and development plans, synergies, cost savings and other anticipated benefits expected to result from a combination of us and Diamond;

 

•

The risk that regulatory agencies may object to and challenge the merger or may impose terms and conditions in order to resolve those objections that adversely affect our financial results on a combined basis; see the section entitled “—Regulatory Clearances Required for the Merger” beginning on page 77 of this proxy statement;

 

•

Hilton’s right to terminate or take other actions with respect to the A&R license agreement with us following the consummation of the merger if we fail to comply with its terms as we integrate the Diamond business;

 

•

Hilton’s ability to revoke its consent of the merger in the event that the merger agreement is materially amended or the final form of the stockholders agreement is modified between the date of the merger agreement and the closing;

 

•

The absence of a financing condition in the merger agreement and Diamond’s ability to terminate the agreement and seek payment of a termination fee in the event we are not able to obtain the proceeds of our committed debt financing in connection with the merger;

 

•

The potential that the fixed exchange ratio under the merger agreement could result in us delivering greater value to Diamond stockholders than had been anticipated by HGV should the value of the shares of our common stock increase from the date of the execution of the merger agreement;

 

•

The risk that the travel and leisure industry will not recover as quickly or as much as we expect or would hope from the COVID-19 pandemic, or that the pandemic will continue to cause significant disruptions and adverse effect on our business, Diamond’s business, the travel and leisure industry, and the global economy in general, making it very difficult for us to achieve positive benefits from the merger;

 

•

The risk of significant decline in value of Diamond’s business during the period between signing and closing;

 

•

The risk that the Apollo Funds exit the stock of the combined company which could drive down the share price of the stock of the combined company;

 

•

The risk that adding two members to the board of directors of the combined company could alter the dynamics of the board of directors in unproductive ways;

 

•

The risk that Diamond employees may not successfully integrate into our culture;

 

•

The risk that our existing customers may not accept or use the Diamond properties as part of our overall network of properties after the integration;

 

•

The risk that an Apollo affiliate may end up competing with the combined company through other investments;

 

•

The risk that our stockholders will be diluted in the short term before expected synergies are achieved; and

 

•

Acquirors often face a decline in their stock price immediately post-announcement.

Further, our board of directors considered that some members of our board of directors and certain executive officers may have interests in the proposed merger as individuals that are in addition to, and that may

 

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be different from, the interest of our stockholders generally, as described under “—Interests of Our Directors and Executive Officers in the Merger” beginning on page 73 of this proxy statement.

After considering the factors described above, our board of directors unanimously concluded that the potentially positive reasons relating to the merger agreement and the transactions contemplated thereby, including the issuance of shares of our common stock to Diamond stockholders, outweighed the potentially negative reasons.

The foregoing discussion of the information and reasons considered by our board of directors is not exhaustive but is intended to reflect the material reasons considered by our board of directors in its evaluation of the merger. In view of the complexity, and the large number, of the reasons considered, our board of directors, both individually and collectively, did not find it practicable to, and did not attempt to, quantify or assign any relative or specific weight to the various reasons. Rather, our board of directors based its recommendation on the totality of the information presented to and considered by it. In addition, individual members of our board of directors may have given different weight to different reasons.

The foregoing discussion of the information and reasons considered by our board of directors is forward-looking in nature. This information should be read in light of the reasons described under “Risk Factors” beginning on page 22 of this proxy statement and “Special Note About Forward-Looking Statements” beginning on page 36 of this proxy statement.

Opinion of Our Financial Advisor

HGV has retained BofA Securities to act as HGV’s financial advisor in connection with the merger. BofA Securities is an internationally recognized investment banking firm which is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. As previously noted, HGV selected BofA Securities to act as its financial advisor in connection with the merger on the basis of BofA Securities’ experience in transactions similar to the merger, its reputation in the investment community, and its familiarity with HGV, Diamond, and their respective businesses, and its significant hospitality, gaming and real estate M&A and capital markets experience.

On March 8, 2021, at a meeting of HGV’s board of directors held to evaluate the merger, BofA Securities delivered to HGV’s board of directors an oral opinion, which was confirmed by delivery of a written opinion dated March 9, 2021, to the effect that, as of such date and based on and subject to various assumptions and limitations described in its opinion, the merger consideration was fair, from a financial point of view, to HGV.

On April 8, 2021, HGV notified BofA Securities that the Net Synergies/Cost Savings (as defined below) used by BofA Securities in connection with its fairness opinion should have assumed only the synergies that would be achieved subsequent to the anticipated closing of the transaction of July 1, 2021, rather than a January 1, 2021 closing. Specifically, the estimated cost savings for fiscal year 2021 should have been stated as $25 million rather than $59 million as reflected in the Net Synergies/Cost Savings. Consequently, (i) BofA Securities’ discounted cash flow analysis using the original Net Synergy/Cost Savings estimates, as described below, resulted in a range of implied equity value for Diamond of $1,260 million to $1,950 million instead of $1,230 million to $1,930 million, and (ii) BofA Securities’ pro forma relative ownership analysis based on discounted cash flow using the original Net Synergy/Cost Savings estimates, as described below, resulted in a range of pro forma ownership by Diamond’s shareholders of the combined company of 22.2% to 38.6% instead of 21.8% to 38.4%. On April 9, 2021, BofA Securities confirmed in writing to HGV’s board of directors that had BofA Securities issued its opinion on the basis of the actual Net Synergies/Cost Savings, there would have been no change to the conclusion set forth in such opinion.

The full text of the written opinion of BofA Securities to the HGV board of directors, which sets forth, among other things, the various assumptions made, procedures followed, matters considered and

 

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qualifications and limitations on the scope of the review undertaken by BofA Securities in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated by reference herein in its entirety. The following summary of BofA Securities’ opinion is qualified in its entirety by reference to the full text of the written opinion. BofA Securities delivered its opinion to the HGV board of directors for the benefit and use of the HGV board of directors (in its capacity as such) in connection with and for purposes of its evaluation of the merger consideration provided for in the merger from a financial point of view. BofA Securities’ opinion does not address any terms or other aspects or implications of the merger and no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to HGV or any of its affiliates or in which HGV or any of its affiliates might engage or as to the underlying business decision of HGV to proceed with or effect the merger. BofA Securities’ opinion does not address any other aspect or implication of the merger and does not constitute a recommendation to any shareholder as to how to vote or act in connection with the stock issuance proposal or any related matter.

In connection with rendering its opinion, BofA Securities, among other things:

 

(a)

reviewed certain publicly available business and financial information relating to Diamond and HGV;

 

(b)

reviewed certain internal financial and operating information with respect to the business, operations and prospects of Diamond furnished to or discussed with BofA Securities by the management of Diamond, including certain financial forecasts relating to Diamond prepared by the management of Diamond (such forecasts, the “Diamond Forecasts”);

 

(c)

reviewed an alternative version of the Diamond Forecasts incorporating certain adjustments thereto made by the management of HGV (the “Adjusted Diamond Forecasts”) and discussed with the management of HGV its assessments as to the relative likelihood of achieving the future financial results reflected in the Diamond Forecasts and the Adjusted Diamond Forecasts;

 

(d)

reviewed certain internal financial and operating information with respect to the business, operations and prospects of HGV furnished to or discussed with BofA Securities by the management of HGV, including certain financial forecasts relating to HGV prepared by the management of HGV (such forecasts, the “HGV Forecasts”);

 

(e)

reviewed certain estimates as to the amount and timing of cost savings and revenue enhancements, inclusive of the costs and timing to implement such cost savings and revenue enhancements (collectively, the “Net Synergies/Cost Savings”) anticipated by the management of HGV to result from the merger;

 

(f)

discussed the past and current business, operations, financial condition and prospects of Diamond with members of senior managements of Diamond and HGV, and discussed the past and current business, operations, financial condition and prospects of HGV with members of senior management of HGV;

 

(g)

discussed with the management of HGV its assessments as to Diamond’s existing and future relationships, agreements and arrangements with, and HGV’s ability to retain, key customers and employees of Diamond;

 

(h)

reviewed the potential pro forma financial impact of the merger on the future financial performance of HGV, including the potential effect on HGV’s estimated adjusted free cash flow;

 

(i)

reviewed the trading history for our common stock and a comparison of such trading history with the trading histories of other companies BofA Securities deemed relevant;

 

(j)

compared certain financial information of Diamond and certain financial and stock market information of HGV with similar information of other companies BofA Securities deemed relevant;

 

(k)

compared certain financial terms of the merger to financial terms, to the extent publicly available, of other transactions BofA Securities deemed relevant;

 

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(l)

reviewed the relative financial contributions of Diamond and HGV to the future financial performance of the combined company on a pro forma basis;

 

(m)

reviewed a draft, dated March 7, 2021, of the Agreement (the “Draft Agreement”); and

 

(n)

performed such other analyses and studies and considered such other information and factors as BofA Securities deemed appropriate.

In arriving at its opinion, BofA Securities assumed and relied upon, without independent verification, the accuracy and completeness of the financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with BofA Securities and BofA Securities relied upon the assurances of the managements of HGV and Diamond that they were not aware of any facts or circumstances that would make such information or data inaccurate or misleading in any material respect. With respect to the Diamond Forecasts, BofA Securities were advised by Diamond, and BofA Securities assumed with the consent of HGV, that they were reasonably prepared on bases reflecting the best available estimates and good faith judgments of the management of Diamond as to the future financial performance of Diamond. With respect to the Adjusted Diamond Forecasts, the HGV Forecasts and the Net Synergies/Cost Savings, BofA Securities assumed, at the direction of HGV, that they were reasonably prepared on bases reflecting the best available estimates and good faith judgments of the management of HGV as to the future financial performance of Diamond and HGV and the other matters covered thereby and, based on the assessments of the management of HGV as to the relative likelihood of achieving the future financial results reflected in the Diamond Forecasts and the Adjusted Diamond Forecasts, BofA Securities relied, at the direction of HGV, on the Adjusted Diamond Forecasts for purposes of its opinion. BofA Securities relied, at the direction of HGV, on the assessments of the management of HGV as to HGV’s ability to achieve the Net Synergies/Cost Savings and were advised by HGV, and assumed, that the Net Synergies/Cost Savings will be realized in the amounts and at the times projected. BofA Securities did not make, nor were they provided with, any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Diamond or HGV, nor did BofA Securities make any physical inspection of the properties or assets of Diamond or HGV. BofA Securities did not evaluate the solvency or fair value of Diamond or HGV under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. BofA Securities assumed, at the direction of HGV, that the merger will be consummated in accordance with its terms, without waiver, modification or amendment of any material term, condition or agreement and that, in the course of obtaining the necessary governmental, regulatory and other approvals, consents, releases and waivers for the merger, no delay, limitation, restriction or condition, including any divestiture requirements or amendments or modifications, will be imposed that would have an adverse effect on Diamond, HGV or the contemplated benefits of the merger. BofA Securities also assumed, at the direction of HGV, that the merger will qualify for federal income tax purposes as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. BofA Securities also assumed, at the direction of HGV, that the final executed merger agreement did not differ in any material respect from the Draft Agreement reviewed by BofA Securities.

BofA Securities expressed no view or opinion as to any terms or other aspects or implications of the merger (other than the merger consideration to the extent expressly specified in its opinion), including, without limitation, the form or structure of the merger, any adjustments to the merger consideration, or any terms, aspects or implications of any other agreement, arrangement or understanding entered into in connection with or related to the merger or otherwise. BofA Securities’ opinion was limited to the fairness, from a financial point of view, to HGV of the merger consideration provided for in the merger and no opinion or view was expressed with respect to any consideration received in connection with the merger by the holders of any class of securities, creditors or other constituencies of any party. In addition, no opinion or view was expressed with respect to the fairness (financial or otherwise) of the amount, nature or any other aspect of any compensation to any of the officers, directors or employees of any party to the merger, or class of such persons, relative to the merger consideration. Furthermore, no opinion or view was expressed as to the relative merits of the merger in comparison to other strategies or transactions that might be available to HGV or in which HGV might engage or as to the underlying business decision of HGV to proceed with or effect the merger. BofA Securities also did not express any view or opinion with respect to, and BofA Securities relied, at the direction of HGV, upon the

 

62

assessments of representatives of HGV regarding, legal, regulatory, accounting, tax and similar matters relating to Diamond, HGV or the merger, as to which matters BofA Securities understood that HGV obtained such advice as it deemed necessary from qualified professionals. BofA Securities did not express any opinion as to what the value of our common stock actually will be when issued or the prices at which our common stock will trade at any time, including following announcement or consummation of the merger. In addition, BofA Securities expressed no opinion or recommendation as to how any holder of shares of our common stock should vote or act in connection with the stock issuance proposal or any related matter.

BofA Securities’ opinion was necessarily based on financial, economic, monetary, market and other conditions and circumstances as in effect on, and the information made available to BofA Securities as of, the date of its opinion. BofA Securities noted that the credit, financial and stock markets have been experiencing unusual volatility and BofA Securities expressed no opinion or view as to any potential effects of such volatility on HGV, Diamond, or the merger. It should be understood that subsequent developments may affect its opinion, and BofA Securities does not have any obligation to update, revise or reaffirm its opinion. The issuance of BofA Securities’ opinion was approved by a fairness opinion review committee of BofA Securities.

The discussions set forth below in the sections entitled “—Summary of Material Diamond Financial Analyses,” “—Summary of Material HGV Financial Analyses” and “—Summary of Material Relative Financial Analyses” represent a brief summary of the material financial analyses presented by BofA Securities to HGV’s board of directors in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses performed by BofA Securities, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses performed by BofA Securities. Considering the data set forth in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses performed by BofA Securities.

Summary of Material Diamond Financial Analyses

Selected Publicly Traded Companies Analysis. BofA Securities reviewed publicly available financial and stock market information for Diamond and four publicly traded companies in the timeshare industry. BofA Securities reviewed, among other things, enterprise values of the selected publicly traded companies, calculated as equity values based on closing stock prices on March 5, 2021, plus debt, plus preferred stock, plus minority interest, and less cash and cash equivalents, as a multiple of calendar year 2019 and estimated calendar year 2022 (which years were selected by BofA Securities in an effort to analyze financial characteristics of Diamond unaffected by COVID-19) earnings before interest, taxes, depreciations and amortization, unburdened for net construction deferrals, non-operating gains, share-based compensation expenses and one-time, non-recurring expenses including impairment expenses, which is consistent with the management of HGV’s methodology and which is referred to herein as Adj. EBITDA. The mean and median enterprise value / calendar year 2019 Adj. EBITDA multiple observed for the selected publicly traded companies were 9.4x and 9.0x, respectively, and the mean and median enterprise value / estimated calendar year 2022 Adj. EBITDA multiple for the selected publicly traded companies were 9.5x and 9.2x, respectively. The selected publicly traded companies and their respective multiples are as follows:

 

Selected Publicly Traded Companies		Enterprise Value / Adj. EBITDA
		2019A				2022E
Marriott Vacations Worldwide Corporation			13.1x				11.2x
Travel + Leisure Co.			8.6x				9.1x
Hilton Grand Vacations Inc.			9.4x				9.4x
Bluegreen Corporation			6.6x				8.2x

 

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The overall low to high calendar year 2019 and 2022 Adj. EBITDA multiples observed for selected publicly traded companies were 6.6x to 13.1x (with an average of 9.4x and a median of 9.0x) and 8.2x to 11.2x (with an average of 9.5x and a median of 9.2x), respectively. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates, and estimated financial data of Diamond were based on the Adjusted Diamond Forecasts.

Based on the financial characteristics of the selected publicly traded companies and Diamond, and based on its professional judgment and experience, BofA Securities applied calendar year 2019 and 2022 Adj. EBITDA multiples of 6.5x to 8.0x, derived from the selected publicly traded companies, to Diamond’s calendar year 2019 and 2022 estimated Adj. EBITDA of $304 million and $324 million, respectively, as set forth in the Adjusted Diamond Forecasts, to calculate ranges of implied enterprise values for Diamond. BofA Securities then calculated implied base equity value reference ranges by deducting estimated net debt of Diamond of $1,622 million as of December 31, 2020, as provided by Diamond’s management, from such equity values. BofA Securities then calculated implied equity value reference ranges for Diamond inclusive of estimated synergies by adding to each of the base equity value reference ranges the product of assumed annual net synergies of $120 million (the “Run-Rate Synergies”), based on the Net Synergies/Cost Savings, and the same multiple ranges of 6.5x to 8.0x.

This analysis indicated the following approximate implied base equity value ranges and equity value ranges inclusive of synergies for Diamond, as compared to the equity value of Diamond implied by the merger consideration, calculated based on HGV’s closing stock price as of March 5, 2021:

 

		Implied Equity Value Range for Diamond				Equity Value for Diamond Implied by Parent Stock Issuance Amount
		2019A		2022E
Base Valuation		$360mm - $810mm		$490mm - $970mm
Synergies		$780mm - $960mm		$780mm - $960mm
Synergies-Inclusive Valuation		$1,140mm - $1,770mm		$1,270mm - $1,930mm		$	1,479mm

No company used in this analysis is identical or directly comparable to Diamond. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which Diamond was compared.

Selected Precedent Transactions Analysis. BofA Securities reviewed, to the extent publicly available, financial information relating to eight selected transactions involving companies in the timeshare industry. BofA Securities reviewed transaction values, calculated as the enterprise value implied for the target company based on the consideration payable in the selected transaction, as a multiple of the target company’s estimated Adj. EBITDA/revenue. The selected transactions and their respective multiples are as follows:

 

Acquiror		Target		Enterprise Value/Adj. EBITDA
Marriott Vacations Worldwide Corporation		Welk Resort Group, Inc.		14.8x
KSL Capital Partners LLC		Orange Lake Resorts		~9.0x
Marriott Vacations Worldwide Corporation		ILG, Inc.		13.2x
Funds affiliated with Apollo Global Management LLC		Diamond Resorts International		7.7x
Diamond Resorts International		Intrawest Resorts Holdings, Inc		10.8x
Interval Leisure Group, Inc.		Vistana Signature Experiences, Inc.		10.5x
Diamond Resorts International		Gold Key Resorts LLC		6.0x
Orange Lake Country Club, Inc.		Silverleaf Resorts, Inc.		8.4x

 

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The overall low to high multiples of enterprise value to the target companies’ Adj. EBITDA for the selected transactions were 6.0x to 14.8x (with a median of 9.7x). Estimated financial data of the selected transactions were based on publicly available information. Estimated financial data of Diamond were based on the Adjusted Diamond Forecasts.

BofA Securities then applied enterprise value/Adj. EBITDA multiples of 7.0x to 13.0x, derived from the selected transactions and based on its professional experience and judgment, to Diamond’s calendar year 2019 and estimated calendar year 2022 (which years were selected by BofA Securities in an effort to analyze financial characteristics of Diamond unaffected by COVID-19) Adj. EBITDA, to calculate ranges of implied enterprise values for Diamond. BofA Securities then calculated implied base equity value reference ranges by deducting estimated net debt of Diamond of $1,622 million as of December 31, 2020, as provided by Diamond’s management, from such equity values. In applying the calendar year 2019 and 2022 multiples, BofA Securities took into consideration, among other things, the observed data for the selected publicly traded companies and for Diamond, the common stocks of the selected publicly traded companies and the differences in the financial profiles of Diamond and the selected publicly traded companies.

This analysis indicated the following approximate implied equity value ranges for Diamond, as compared to the implied equity value of Diamond by the merger consideration, calculated based on HGV’s closing stock price as of March 5, 2021:

 

Implied Equity Value Range for Diamond				Equity Value for Diamond Implied by Merger Consideration
2019A		2022E
$510mm - $2,340mm		$650mm - $2,590mm		$1,479mm

No company, business or transaction used in this analysis is identical or directly comparable to Diamond or the merger. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which Diamond and the merger were compared.

Discounted Cash Flow Analysis. BofA Securities performed a discounted cash flow analysis of Diamond to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that Diamond was forecasted to generate during calendar years 2021 through 2025 based on the Adjusted Diamond Forecasts. BofA Securities calculated terminal values for Diamond by applying terminal forward multiples of 6.0x to 7.5x to Diamond’s calendar year 2026 estimated Adj. EBITDA. The cash flows and terminal values were then discounted to present value as of March 5, 2021 using discount rates ranging from 9.50% to 11.50%, which were based on an estimate of Diamond’s weighted average cost of capital. From the resulting enterprise values, BofA Securities deducted estimated net debt of Diamond as of December 31, 2020 of $1,622 million, as provided by Diamond’s management, to derive implied base equity value reference ranges.

BofA Securities then calculated the unlevered, after tax free cash flows projected to result from the net cost savings and revenue synergies for calendar years 2021 through 2025 based on the Net Synergies/Cost Savings, as well as terminal values for such net cost savings and revenue synergies by applying terminal forward multiples of 6.0x to 7.5x to calendar year 2026 estimated net cost savings and revenue synergies based on the Net Synergies/Cost Savings. The cash flows and terminal values were then discounted to present value as of March 5, 2021 using discount rates ranging from 9.50% to 11.50%, which were based on an estimate of Diamond’s weighted average cost of capital to arrive at an estimated present value of such net cost savings and revenue synergies.

 

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This analysis indicated the following approximate implied base equity value ranges and equity value ranges inclusive of synergies for Diamond compared to the implied equity value of Diamond by the merger consideration, calculated based on HGV’s closing stock price as of March 5, 2021:

 

		Implied Equity Value Reference Range for Diamond		Equity Value for Diamond Implied by Merger Consideration
Base Valuation		$580mm - $1,110mm
Synergies		$680mm - $840mm
Synergies-Inclusive Valuation		$1,260mm - $1,950mm		$1,479mm

Summary of Material HGV Financial Analyses

Selected Publicly Traded Companies Analysis. BofA Securities reviewed publicly available financial and stock market information for HGV and three publicly traded companies in the timeshare industry. BofA Securities reviewed, among other things, enterprise values of the selected publicly traded companies, calculated as equity values based on closing stock prices on March 5, 2021, plus debt, plus preferred stock, plus minority interest, and less cash and cash equivalents, as a multiple of calendar year 2019 and estimated calendar year 2022 (which years were selected by BofA Securities in an effort to analyze financial characteristics of HGV unaffected by COVID-19) earnings before interest, taxes, depreciations and amortization, unburdened for net construction deferrals, non-operating gains, share-based compensation expenses and one-time, non-recurring expenses including impairment expenses, calculated in accordance with a methodology prescribed by HGV’s management, which is referred to herein as Adj. EBITDA. The mean and median enterprise value / calendar year 2019 Adj. EBITDA multiple observed for the selected publicly traded companies were 9.4x and 9.0x, respectively, and the mean and median enterprise value / estimated calendar year 2022 Adj. EBITDA multiple for the selected publicly traded companies were 9.5x and 9.2x, respectively. The selected publicly traded companies and their respective multiples are as follows:

 

Selected Publicly Traded Companies		Enterprise Value / Adj. EBITDA
		2019A				2022E
Marriott Vacations Worldwide Corporation			13.1x				11.2x
Travel + Leisure Co.			8.6x				9.1x
Hilton Grand Vacations Inc.			9.4x				9.4x
Bluegreen Corporation			6.6x				8.2x

The overall low to high calendar year 2019 and 2022 Adj. EBITDA multiples observed for selected publicly traded companies were 6.6x to 13.1x (with an average of 9.4x and a median of 9.0x) and 8.2x to 11.2x (with an average of 9.5x and a median of 9.2x), respectively. Estimated financial data of the selected publicly traded companies were based on publicly available research analysts’ estimates and estimated financial data of HGV were based on the HGV Forecasts.

Based on the financial characteristics of the selected publicly traded companies and HGV, and based on its professional judgment and experience, BofA Securities applied calendar year 2019 and 2022 Adj. EBITDA multiples of 7.0x to 9.0x, derived from the selected publicly traded companies to HGV’s calendar year 2019 and 2022 estimated Adj. EBITDA of $453 million and $469 million, respectively, as set forth in the HGV Forecasts, to calculate ranges of implied enterprise values per share of our common stock. BofA Securities then calculated implied per share of our common stock equity value reference ranges by deducting estimated net debt of HGV of $737 million as of December 31, 2020, as provided by HGV’s management, from such equity values, and dividing the result by the number of fully-diluted shares outstanding, calculated using the treasury stock method, based on information provided by HGV management.

 

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This analysis indicated the following approximate implied per share of our common stock equity value reference ranges for HGV, rounded to the nearest $0.25, as compared to the trading price of our common stock as of March 5, 2021:

 

Implied Per Share Equity Value Range for HGV
2019A		2022E		HGV Per Share Trading Price as of March 5, 2021
$28.00 - $38.50		$29.25 - $40.00		$40.55

No company used in this analysis is identical or directly comparable to HGV. Accordingly, an evaluation of the results of this analysis is not entirely mathematical. Rather, this analysis involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the public trading or other values of the companies to which HGV was compared.

Discounted Cash Flow Analysis. BofA Securities performed a discounted cash flow analysis of HGV to calculate the estimated present value of the standalone unlevered, after-tax free cash flows that HGV was forecasted to generate during calendar years 2021 through 2025 based on the HGV Forecasts. BofA Securities calculated terminal values for HGV by applying terminal forward multiples of 6.5x to 8.5x to HGV’s calendar year 2026 estimated Adj. EBITDA. The cash flows and terminal values were then discounted to present value as of March 5, 2021 using discount rates ranging from 8.50% to 10.50%, which were based on an estimate of HGV’s weighted average cost of capital. From the resulting enterprise values, BofA Securities deducted estimated net debt of HGV as of December 31, 2020 of $737 million, as provided by HGV’s management, from such enterprise values and dividing the result by the number of fully-diluted shares outstanding, calculated using the treasury stock method, based on information provided by HGV’s management.

This analysis indicated the following approximate implied per share of our common stock equity value reference ranges for HGV, rounded to the nearest $0.25, as compared to the trading price of our common stock as of March 5, 2021:

 

Implied Per Share Equity Value Reference Range for HGV		HGV Per Share Trading Price as of March 5, 2021
$35.75 - $50.75		$40.55

Summary of Material Relative Financial Analyses

Using the results of the analyses described above under “Summary of Material Diamond Financial Analyses—Selected Publicly Traded Companies Analysis”, “Summary of Material Diamond Financial Analyses—Discounted Cash Flow Analysis”, “Summary of Material HGV Financial Analyses—Selected Publicly Traded Companies Analysis”, and “Summary of Material HGV Financial Analyses— Discounted Cash Flow Analysis”, BofA Securities determined Diamond’s implied relative pro forma ownership percentage of the combined company. In order to calculate the implied relative pro forma ownership, BofA Securities used (i) implied equity value ranges inclusive of synergies for Diamond and the implied aggregate common stock equity value reference ranges for HGV, in each case obtained pursuant to the selected publicly traded companies analysis using 2019 Adj. EBITDA and 2022 estimated Adj. EBITDA and rounded to the nearest $10 million, and (ii) the implied equity value range inclusive of synergies for Diamond and the implied aggregate common stock equity value reference range for HGV, in each case obtained pursuant to the discounted cash flow analysis and rounded to the nearest $10 million. BofA Securities then compared Diamond’s implied relative pro forma ownership percentages of the combined company resulting from these analyses with Diamond’s relative pro forma ownership percentage of the combined company implied by the merger consideration, as follows:

 

		Publicly Traded Companies								Discounted Cash Flow				Aggregate Merger Consideration (before adjustments)
		2019A				2022E
Diamond Pro Forma Ownership Percentage (with synergies)			25.4% - 42.1%				26.7% - 43.2%				22.2% - 38.6%				29.5	%

 

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Other Factors

In rendering its opinion, BofA Securities also noted certain additional factors that were not considered part of BofA Securities’ material financial analyses with respect to its opinion but were referenced for informational purposes, including, among other things, the following:

 

(1)

historical trading prices and trading volumes of our common stock during the period from January 1, 2019 until March 5, 2021 (the “Reference Period”);

 

(2)

an illustrative has/gets analysis to calculate the theoretical change in value for HGV stockholders resulting from the merger based on a comparison of (i) the pro forma ownership by HGV stockholders of the combined company following the merger, and (ii) the 100% ownership by HGV stockholders of our common stock on a stand-alone basis, using the discounted cash flow analyses described above in “—Summary of Material Diamond Financial Analyses—Discounted Cash Flow Analysis” And “—Summary of Material HGV Financial Analyses—Discounted Cash Flow Analysis”, which indicated that the value attributable to a share of our common stock on a pro forma basis after giving effect to the merger would generally be higher than that on a stand-alone basis based on such analyses; and

 

(3)

the potential pro forma financial effect of the merger on HGV’s estimated adjusted free cash flow per share from 2021 through 2023, which indicated that the merger could be accretive to HGV’s adjusted free cash flow per share in each of calendar years 2021 through 2023.

Miscellaneous

As noted above, the discussion set forth above in the sections entitled “—Summary of Material Diamond Financial Analyses,” “—Summary of Material HGV Financial Analyses”, and “—Summary of Material Relative Financial Analyses” represent a brief summary of the material financial analyses presented by BofA Securities to HGV’s board of directors in connection with its opinion and is not a comprehensive description of all analyses undertaken by BofA Securities in connection with its opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to partial analysis or summary description. BofA Securities believes that its analyses summarized above must be considered as a whole. BofA Securities further believes that selecting portions of its analyses and the factors considered or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying BofA Securities’ analyses and opinion. The fact that any specific analysis has been referred to in the summary above is not meant to indicate that such analysis was given greater weight than any other analysis referred to in the summary.

In performing its analyses, BofA Securities considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of HGV and Diamond. The estimates of the future performance of HGV and Diamond in or underlying BofA Securities’ analyses are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than those estimates or those suggested by BofA Securities’ analyses. These analyses were prepared solely as part of BofA Securities’ analysis of the fairness, from a financial point of view, of the merger consideration and were provided to HGV’s board of directors in connection with the delivery of BofA Securities’ opinion. The analyses do not purport to be appraisals or to reflect the prices at which a company might actually be sold or the prices at which any securities have traded or may trade at any time in the future. Accordingly, the estimates used in, and the ranges of valuations resulting from, any particular analysis described above are inherently subject to substantial uncertainty and should not be taken to be BofA Securities’ view of the actual values of HGV or Diamond.

The type and amount of consideration payable in the merger was determined through negotiations between HGV and Diamond, rather than by any financial advisor, and was approved by HGV’s board of directors. The

 

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decision to enter into the merger agreement was solely that of HGV’s board of directors. As described above, BofA Securities’ opinion and analyses were only one of many factors considered by HGV’s board of directors in its evaluation of the proposed merger and should not be viewed as determinative of the views of HGV’s board of directors or management with respect to the merger or the merger consideration.

HGV has agreed to pay BofA Securities for its services in connection with the merger an aggregate fee of up to $35 million, of which (a) $1.5 million was payable in connection with its opinion, and (b) $31.0 million base fee and up to $2.5 million discretionary fee are contingent upon the completion of the merger. HGV also has agreed to reimburse BofA Securities for its expenses incurred in connection with BofA Securities’ engagement and to indemnify BofA Securities, any controlling person of BofA Securities and each of their respective directors, officers, employees, agents and affiliates against specified liabilities, including liabilities under the federal securities laws.

BofA Securities and its affiliates comprise a full service securities firm and commercial bank engaged in securities, commodities and derivatives trading, foreign exchange and other brokerage activities, and principal investing as well as providing investment, corporate and private banking, asset and investment management, financing and financial advisory services and other commercial services and products to a wide range of companies, governments and individuals. In the ordinary course of their businesses, BofA Securities and its affiliates invest on a principal basis or on behalf of customers or manage funds that invest, make or hold long or short positions, finance positions or trade or otherwise effect transactions in the equity, debt or other securities or financial instruments (including derivatives, bank loans or other obligations) of HGV, Diamond and certain of their respective affiliates.

BofA Securities and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to HGV and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as joint lead manager in certain asset-backed securitization transactions and as administrative agent, managing agent and/or as a joint bookrunner for, and as a lender (including in some cases as a swing-line lender and a letter of credit lender) to, HGV and/or its affiliates, and (ii) having provided or providing certain derivatives and foreign exchange trading and treasury management services and products to HGV and/or its affiliates. From February 1, 2019 through January 31, 2021, BofA Securities and its affiliates derived aggregate revenues from HGV and its affiliates of approximately $22 million.

As described below under “—Description of Debt Financing”, BofA Securities and its affiliate Bank of America, N.A., together with a group of other banks and lending institutions, entered into a commitment letter with HGV with respect to certain financing arrangements in connection with the merger. Pursuant to such commitment letter, BofA Securities will act as a global coordinator and bookrunner with respect to the term loan and bridge loan facilities and Bank of America, N.A. will act as sole administrative agent with respect to the term loan facility. In addition, Bank of America, N.A. acted as bookrunner with respect to certain amendments to the Company’s existing facility in connection with the transactions contemplated by the merger agreement and made “back-stop” financing commitments in respect thereof. In connection with such commitment letter, BofA Securities, together with a group of other securities firms, also entered into an engagement letter with an affiliate of HGV pursuant to which BofA Securities would act as underwriter, initial purchaser, placement agent, bookrunner and/or billing and delivery agent with respect to the underwritten offering or private placement of debt securities to be issued in connection with the merger. BofA Securities and Bank of America, N.A. will be entitled to receive fees in an aggregate amount estimated to be up to $9.5 million in connection with the aforementioned financing arrangements.

In addition, BofA Securities and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Diamond and have received or in the future may receive compensation for the rendering of these services, including having provided or providing certain derivatives and foreign exchange trading and treasury management services and products to

 

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Diamond and/or its affiliates. From February 1, 2019 through January 31, 2021, BofA Securities and its affiliates derived aggregate revenues from Diamond and its affiliates of approximately $2.5 million.

In addition, BofA Securities and its affiliates in the past have provided, currently are providing, and in the future may provide, investment banking, commercial banking and other financial services to Apollo, an affiliate of Diamond, and certain of its affiliates and their portfolio companies and have received or in the future may receive compensation for the rendering of these services, including (i) having acted or acting as financial advisor to Apollo and certain of its affiliates and their portfolio companies in connection with certain M&A transactions, (ii) having acted or acting as administrative agent, collateral agent, arranger, bookrunner and/or lender for Apollo and certain of its affiliates and their portfolio companies in connection with, among other things, the financing for various acquisition transactions, (iii) having acted or acting as underwriter, initial purchaser and placement agent for various equity and debt offerings undertaken by Apollo and certain of its affiliates and their portfolio companies and (iv) having provided or providing certain commodity, derivatives and foreign exchange trading services and treasury and trade management services and products to Apollo and certain of its affiliates and their portfolio companies. From February 1, 2019 through January 31, 2021, BofA Securities and its affiliates derived aggregate revenues from Apollo and its affiliates in excess of $400 million.

Certain Unaudited Prospective Financial Information

Other than annual and other limited financial guidance provided to investors, which we may update from time to time, we do not, as a matter of course, publicly disclose long-term forecasts as to future performance, earnings or other results due to, among other reasons, the unpredictability of the underlying assumptions and estimates. However, we have included below certain of our financial forecasts that, as described below, were furnished to our board of directors, BofA Securities, Diamond and Diamond’s financial advisor, Credit Suisse, in connection with discussions concerning the merger. During the course of our evaluation of Diamond, we received from Diamond and Credit Suisse similar long-term forecasts of Diamond, including Diamond’s Adjusted EBITDA, to which we made certain adjustments to be consistent with our forecasting methodology, including our definition of Adjusted EBITDA. Such adjustments lowered Diamond provided forecasts for all covered years. We refer to such adjusted Diamond forecast in this proxy statement as the “Adjusted Diamond Forecasts.” Our management provided to our board of directors and our financial advisor the Adjusted Diamond Forecasts, the HGV Forecasts, the Net Synergies/Cost Savings, and the HGV Combined Company Forecasts.

For internal purposes and in connection with the process leading to the merger agreement, our management prepared certain projections of future financial performance of HGV on a stand-alone basis for the fiscal years ending December 31, 2021, 2022, 2023, 2024 and 2025. We refer to the HGV forecasts in this proxy statement as the “HGV Forecasts.” The estimates of HGV’s future financial performance set forth below entitled “HGV Forecasts” were prepared by our management based on management’s reasonable best estimates, judgments and assumptions with respect to HGV’s future financial performance at the time such estimates were prepared. Our management furnished the HGV Forecasts to our board of directors and BofA Securities, Diamond and Credit Suisse.

As noted above, we also provided to our board of directors and BofA Securities the Adjusted Diamond Forecasts. The estimates set forth below entitled “Adjusted Diamond Forecasts” were prepared using forecasts provided by Diamond’s management based on such management’s reasonable best estimates, judgments and assumptions with respect to its future financial performance at the time such estimates were prepared, as adjusted by our management to be consistent with our forecasting methodology, including our definition of Adjusted EBITDA. In all affected forecast years, our management’s adjustments resulted in lower Adjusted Diamond Forecasts as compared to forecasts provided by Diamond.

Our management, after discussions with Diamond, also estimated that the projected realization of (i) annual EBITDA synergies would be $25.1 million, $117.1 million, $135.7 million, $133.4 million and $119.8 million for each of the years ending December 31, 2021, 2022, 2023, 2024 and 2025, respectively, and (ii) discrete costs

 

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would be $25 million, $106.1 million, $104.5 million, $111.7 million and $10.5 million for each of the years ending December 31, 2021, 2022, 2023, 2024 and 2025, respectively, in each case assuming a July 1, 2021 closing date (which we refer to as the “Net Synergies/Cost Savings”). Such synergies are not reflected in the HGV Forecasts or the Adjusted Diamond Forecasts but they are reflected in the HGV Combined Company Forecasts (as defined below). In addition, our management prepared certain projections of future financial and operating performance for the combined company for the fiscal years ending December 31, 2021, 2022, 2023, 2024 and 2025 by combining the HGV Forecasts, the Adjusted Diamond Forecasts and the Net Synergies/Cost Savings. Such projections are referred to in this proxy statement as the “HGV Combined Company Forecasts.” The HGV Combined Company Forecasts were provided to our board of directors and BofA Securities.

The HGV Forecasts, the Adjusted Diamond Forecasts, the Net Synergies/Cost Savings and the HGV Combined Company Forecasts are sometimes referred to as the “HGV Forward Looking Financial Information.”

With our approval, BofA Securities utilized the HGV Forward Looking Financial Information for its financial analysis and for purposes of its opinion (summarized in the section entitled “—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement). The HGV Forward Looking Financial Information (i.e., prospective financial information) was not prepared with a view toward public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of our and Diamond’s management, was prepared on a reasonable basis and reflects the best currently available estimates and judgments. In addition, the HGV Forward Looking Financial Information was not prepared with a view toward complying with the published guidelines of the SEC regarding forward-looking statements or GAAP. Instead, such information was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to each of our and Diamond’s respective management’s knowledge and belief, the expected course of action and the expected future financial performance of each of us, Diamond, and us and Diamond on a combined basis for the purposes of evaluating the merger. A summary of this information is presented below.

The HGV Forward Looking Financial Information covers multiple years and by their nature become less reliable with each successive year. While the HGV Forward Looking Financial Information was prepared in good faith, no assurance can be made regarding future events. The estimates and assumptions underlying these financial forecasts involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industries in which we and Diamond operate, and the risks and uncertainties described under “Risk Factors” (as well as those that are incorporated by reference in this proxy statement) and “Special Note Regarding Forward-Looking Statements,” all of which are difficult to predict and many of which are outside our and Diamond’s control and will be beyond the control of the combined company. We urge our stockholders to review our SEC filings for a description of risk factors with respect to our business, as well as the section entitled “Risk Factors.” There can be no assurance that the underlying assumptions will prove to be accurate or that the projected results will be realized, and actual results likely will differ, and may differ materially, from those reflected in the HGV Forward Looking Financial Information, whether or not the merger is completed. The inclusion in this proxy statement of the HGV Forward Looking Financial Information below should not be regarded as an indication that we, Diamond, our respective boards of directors or our respective financial advisors considered, or now considers, these forecasts to be necessarily predictive of future results. The HGV Forward Looking Financial Information should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on this information. In addition, both the HGV Forecasts and the Adjusted Diamond Forecasts assume that each of HGV and Diamond would continue to operate as standalone companies, without giving effect to the merger or other transactions discussed in this proxy statement and as if the merger and other transactions had not been contemplated by us or Diamond.

 

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The HGV Forward Looking Financial Information includes certain non-GAAP financial measures. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and non-GAAP financial measures as presented in this proxy statement may not be comparable to similarly titled amounts used by us, Diamond or other companies. The footnotes to the tables below provide certain supplemental information with respect to the calculation of these non-GAAP financial measures. Neither Ernst & Young LLP (our independent registered public accounting firm) nor any other independent registered public accounting firm (including Deloitte & Touche LLP, as Diamond’s independent auditors) has examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in these financial forecasts and, accordingly, none of Ernst & Young LLP, Deloitte & Touche LLP and any other independent registered public accounting firm has expressed any opinion or given any other form of assurance with respect thereto and no independent registered public accounting firm assumes any responsibility for the prospective financial information. Neither firm assumes any responsibility for, and each disclaims any association with, such information. The Ernst & Young LLP and Deloitte & Touche LLP reports incorporated by reference or included in this proxy statement relate to the historical financial information of HGV and Diamond, respectively. Those reports do not extend to the financial forecasts and should not be read to do so. The HGV Forward Looking Financial Information forecasts were prepared by HGV solely for use by our board of directors in connection with its consideration of HGV’s acquisition of Diamond, and BofA Securities in connection with their financial analysis and opinion and, Diamond and Diamond’s financial advisor in connection with Diamond’s consideration of the merger. Such forecasts are subjective in many respects.

By including in this proxy statement the HGV Forward Looking Financial Information below, none of HGV, Diamond or any of our or their respective representatives has made or makes any representation to any person regarding the ultimate performance of HGV or Diamond compared to the information contained in the financial forecasts. Further, the inclusion of HGV Forward Looking Financial Information in this proxy statement does not constitute an admission or representation by us that this information is material. The HGV Forward Looking Financial Information summarized in this section reflected the best estimates, judgments and assumptions available to our management at the time such information was prepared and have not been updated to reflect any changes since the dates each was prepared. Neither us nor, after completion of the merger, the combined company undertakes any obligation, except as required by law, to update or otherwise revise the HGV Forward Looking Financial Information to reflect circumstances existing since their preparation or to reflect the occurrence of unanticipated events, even in the event that any or all of the underlying assumptions are shown to be in error, or to reflect changes in general economic or industry conditions.

HGV Forward Looking Financial Information should be evaluated, if at all, in conjunction with the historical financial statements and other information regarding HGV contained in our filings with the SEC.

The summary of the financial forecasts is not included in this proxy statement in order to induce any stockholder to vote in favor of the stock issuance proposal or any of the other proposals to be voted on at the special meeting; it is included because HGV Forward Looking Financial Information was made available to our board of directors and our financial advisor and, in the case of the HGV Forecasts, to Diamond and Diamond’s financial advisor.

 

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HGV Forecasts

The following table presents a summary of the HGV Forecasts prepared by our management. The HGV Forecasts were reviewed with our board of directors. The HGV Forecasts were also provided to BofA Securities and approved by us for its use in connection with its financial analysis and fairness opinion rendered to our board of directors (summarized in the section entitled “—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement), and provided to Diamond and Diamond’s financial advisor in connection with Diamond’s consideration of the merger. Amounts in millions, except per share data.

 

		2021E				2022E				2023E				2024E				2025E
Total Revenues (Excluding Cost Reimbursements) (1)(2)		$	1,416			$	1,943			$	2,213			$	2,396			$	2,539
Adjusted EBITDA (1)(3)		$	305			$	469			$	588			$	662			$	731
Unlevered Free Cash Flow (4)		$	4			$	192			$	177			$	544			$	401

 

(1)	Forecasts exclude the impact of net deferrals of revenue and direct expenses related to the sales of VOIs for projects under construction.

(2)	Total revenues includes vacation ownership interest sales, service and membership related fees, rental and ancillary service fees and consumer financing fees.

(3)

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. For purposes of the HGV Financial Forecasts, Adjusted EBITDA is defined as net income attributable to common stockholders, before interest income or expense (excluding consumer financing interest income and expense), provision for income taxes, depreciation and amortization, non-cash compensation expense, other non-operating income and certain special or non-recurring items.

(4)

Unlevered free cash flow is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. HGV’s unlevered free cash flow is defined as cash from operating activities plus tax-effected net interest expense, less non-inventory capital spending, less non-recourse debt activities.

Adjusted Diamond Forecasts

The following table presents a summary of the Adjusted Diamond Forecasts which were based on certain projections prepared by Diamond’s management of Diamond’s future financial performance, as adjusted by our management. The Adjusted Diamond Forecasts were reviewed with our board of directors. The Adjusted Diamond Forecasts were also provided to BofA Securities and approved by us for its use in connection with its financial analysis and fairness opinion rendered to our board of directors (summarized in the section entitled “—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement). Amounts in millions, except per share data.

 

		2021E				2022E				2023E				2024E				2025E
Total Revenues (Excluding Cost Reimbursements) (1)		$	1,377			$	1,506			$	1,551			$	1,605			$	1,652
Adjusted EBITDA (2)		$	253			$	324			$	337			$	352			$	368
Unlevered Free Cash Flow (3)		$	56			$	258			$	287			$	306			$	310

 

(1)	Total revenues includes vacation ownership interest sales, service and membership related fees, rental and ancillary service fees and consumer financing fees.

(2)

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. For purposes of the HGV-Adjusted Diamond Financial Forecasts, Adjusted EBITDA is defined as net income attributable to common stockholders, before interest income or expense (excluding consumer financing interest income and expense), provision for income taxes, depreciation and amortization, non-cash compensation expense, other non-operating income and certain special or non-recurring items.

 

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(3)

Unlevered free cash flow is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. HGV-Adjusted Diamond’s unlevered free cash flow is defined as cash from operating activities plus tax-effected net interest expense, less non-inventory capital spending, less non-recourse debt activities.

HGV Pro Forma Forecasts for Combined Company

The following table presents a summary of the HGV Combined Company Forecasts prepared by our management. The HGV Combined Company Forecasts were reviewed with our board of directors. The HGV Combined Company Forecasts were also provided to BofA Securities and approved by us for its use in connection with its financial analysis and fairness opinion rendered to our board of directors (summarized in the section entitled “—Opinion of Our Financial Advisor” beginning on page 60 of this proxy statement). Amounts in millions, except per share data.

 

		2021E				2022E				2023E				2024E				2025E
Total Revenues (Excluding Cost Reimbursements) (1)(2)		$	2,793			$	3,636			$	4,044			$	4,297			$	4,494
Adjusted EBITDA (1)(3)(5)		$	583			$	910			$	1,060			$	1,148			$	1,219
Unlevered Free Cash Flow(4)(5)		$	41			$	571			$	770			$	740			$	692

 

(1)	Forecasts exclude the impact of net deferrals of revenue and direct expenses related to the sales of VOIs for projects under construction.

(2)	Total revenues includes vacation ownership interest sales, service and membership related fees, rental and ancillary service fees and consumer financing fees.

(3)

Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. For purposes of the HGV Combined Company Financial Forecasts, Adjusted EBITDA is defined as net income attributable to common stockholders, before interest income or expense (excluding consumer financing interest income and expense), provision for income taxes, depreciation and amortization, non-cash compensation expense, other non-operating income and certain special or non-recurring items.

(4)

Unlevered free cash flow is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity. HGV Combined Company’s unlevered free cash flow is defined as cash from operating activities plus tax-effected net interest expense, less non-inventory capital spending, less non-recourse debt activities. Unlevered Free Cash Flow shown includes discrete integration-related costs, plus cost and revenue synergies net of incremental license fees.

(5)

Reflects the updated synergies estimate of $25 million for 2021, based on an anticipated closing date of July 1, 2021. The original synergies estimate of $59 million for 2021, based on an assumed January 1, 2021 closing, resulted in Adjusted EBITDA of $616 million in 2021 and Unlevered Free Cash Flow of $65 million in 2021.

Interests of Our Directors and Executive Officers in the Merger

In considering the recommendation of our board of directors to vote “FOR” the stock issuance proposal, you should be aware that certain members of our board of directors and certain executive officers may have interests in the merger that may be in addition to, or different from, your interest as our stockholder. These interests may create the appearance of conflicts of interest. Our board of directors was aware of these potential conflicts of interest during its deliberations on the merits of the merger and in making its decisions to approve the merger agreement, the merger and the stock issuance.

Each of the current members of our board of directors and our senior management team will continue as our director or executive officer, respectively, following the completion of the merger and will hold office from and after the completion of the merger until his or her successor is duly elected and qualified or until his or her earlier

 

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death, resignation, retirement or removal, except that, as previously announced, we and our Executive Vice President and Chief Marketing Officer have agreed to separate after the consummation of the merger as part of our planned integration of the Diamond business and synergy in connection with the merger.

The merger will technically constitute a “change in control” for purposes of our currently outstanding equity-based awards and current executive severance agreements. However, as our obligations to make or confer any change in control payments, accelerated vesting or benefit enhancements under such agreements and arrangements are “double-trigger” (i.e., such benefits are triggered only as a result of a qualifying termination within a certain period of time after a “change in control” event), and, except with respect to our Executive Vice President and Chief Marketing Officer as described above, we do not intend to terminate any of our executive officers in connection with the merger, we do not anticipate any change in control payments, accelerated vesting or benefit enhancements to be triggered for our executive officers by the merger. The merger also will constitute a “change in control” under our Executive Deferred Compensation Plan, pursuant to which certain of our executive officers have elected to defer salary and/or bonus amounts. Pursuant to the terms of such plan, we are required to distribute to all plan participants all deferred amounts within thirty (30) days following the closing of the merger. However, all deferred compensation accounts are fully vested and only comprise those earned amounts that our executive officers have elected to defer. The merger does not result in any benefit enhancements under the Executive Deferred Compensation Plan.

Merger-Related Compensation for Our Named Executive Officers

The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about certain compensation and benefits payable to each of our named executive officers that is based on or otherwise relates to the merger.

The compensation shown in this table and described in the footnote to the table is the subject of a non-binding, advisory vote of our stockholders at the special meeting, as described in “Proposal No. 2: Compensation Proposal” beginning on page 152. The compensation reflected in the table below would be triggered by the merger only if and upon the named executive officer’s “qualifying termination” (as defined below) within certain periods of time after the consummation of the merger as specified in such table. However, as noted previously, except with respect to our Executive Vice President and Chief Marketing Officer, for whom we have already disclosed the pending separation, we do not intend to terminate any of our named executive officers in connection with the merger. Accordingly, we do not expect to make any such payments to our named executive officers other than to our Executive Vice President and Chief Marketing Officer in connection with her separation, and the information below is provided solely to comply with the applicable disclosure requirements as noted above. In addition, with respect to the cash severance payments, our named executive officers would be entitled to such amounts in any event upon a qualifying termination in accordance with the terms of the severance agreements even without the consummation of the merger. None of the information below represents any additional or enhanced benefits for our named executive officers other than those that already exist and have been previously disclosed.

The amounts reflected in the table relate to each named executive officer’s existing severance agreement and equity awards, which arrangements we have previously disclosed in our proxy statement for our 2021 annual meeting of stockholders. The amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described below, and do not reflect certain compensation actions that may occur before the effective time of the merger. For purposes of calculating such amounts, we have assumed (i) August 1, 2021 as the closing date of the merger: (ii) a termination of each named executive officer’s employment without cause or resignation for good reason, effective as of immediately following the effective time of the merger; and (iii) a price per share of our common stock of $40.14 (the average closing market price of our common stock over the first 5 business days following the public announcement of the merger on March 10, 2021).

 

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Golden Parachute Compensation

 

Named Executive Officer		Cash ($)(1)				Equity ($)(2)				Pension/NQ DC (3)				Perquisites/ Benefits ($)(4)				Total ($)
Mark. D. Wang President & CEO		$	5,937,500			$	14,081,243				—			$	22,453			$	20,041,196
Daniel J. Mathewes EVP & CFO		$	2,475,000			$	3,799,833				—			$	30,160			$	6,304,993
Charles R. Corbin EVP & Chief Legal Officer		$	1,909,620			$	3,142,510				—			$	22,292			$	5,074,422
Dennis A. DeLorenzo EVP & Chief Sales Officer		$	2,622,546			$	3,169,201				—			$	30,212			$	5,821,959
Sherri A. Silver (5) Former EVP & Chief Marketing Officer		$	2,622,546			$	1,819,025				—			$	30,223			$	4,471,793
Barbara L. Hollkamp(6) Former EVP & Chief Human Resources Officer			—				—				—				—				—

(1)

Reflects double-trigger severance benefits that would become payable under the applicable severance agreements for our NEOs. The severance agreements provide that a “qualifying termination” means a termination of employment either by us without “cause” or by the executive for “good reason,” each as defined in the applicable severance agreement. An executive is not deemed to have experienced a qualifying termination as a result of (a) his or her death or disability or (b) solely as a result of a change in control. Under the applicable severance agreement, in the event of a qualifying termination within 24 months of a change in control, each NEO would be entitled to receive a cash severance amount equal to 2.5 times (in the case of Mr. Wang) or 2.0 times (in the case of the other NEOs) the sum of the executive’s annual base salary at the rate in effect at the time of such termination and annual target cash incentive award under the short-term incentive plan for the year in which such termination occurs. The NEO also would be entitled to a pro rata bonus for the year in which his or her qualifying termination occurred. For purposes of this table, we have assumed that the NEOs received a pro rata target bonus for 2021.

 

(2)

Reflects double-trigger equity acceleration benefits. The merger will constitute a “change in control” under our 2017 Omnibus Incentive Plan, as amended. If the NEO’s employment is terminated by us ‘’without cause” or by the NEO for “good reason” within 12 months following a change in control, then (i) all unvested service-based RSUs will immediately vest; (ii) all unvested stock options will immediately vest and become exercisable until the earlier of the expiration of the options or 90 days after the termination date; and (iii) the performance-based RSUs will immediately vest at actual performance, or at target if performance cannot reasonably be assessed. For the purposes of this table, we have assumed that the performance-based RSUs vested at target.

 

(3)

The merger will constitute a “change in control” under our Executive Deferred Compensation Plan (the “EDCP”), pursuant to which certain of our named executive officers have elected to defer salary and/or bonus amounts. Pursuant to the terms of such plan, we are required to distribute to all plan participants all deferred amounts within thirty (30) days following the closing of the merger. However, all deferred compensation accounts are fully vested and only comprise those earned amounts that our executive officers have elected to defer. The merger does not result in any benefit enhancements under the EDCP.

 

(4)

Reflects double-trigger benefits under the severance agreements. Under the applicable severance agreements for our NEOs, upon a “qualifying termination,” each NEO is entitled to continued healthcare coverage in an amount equal to the excess of the cost of the coverage over the amount that the executive would have had to pay if the executive remained employed for 18 months following the date of termination. In addition, to the extent we provide the executive’s life insurance coverage immediately prior to the qualifying termination and this coverage is eligible for post-termination continuation or conversion to an individual policy, each NEO is entitled to receive a cash payment equal to the amount required to continue such coverage as an individual policy for a period of 12 months following the termination date (and, if we deem necessary or advisable, to convert such coverage to an individual policy), payable in a single lump sum within 60 days following the termination date.

 

(5)	As previously disclosed, Ms. Silver will separate from the Company after the consummation of the merger as part of our planned integration of the Diamond business and synergy in connection with the merger.

 

(6)	Ms. Hollkamp separated from the Company effective July 31, 2020.

Our Board of Directors Following the Merger

Upon the effective time of the merger, our board of directors will expand from its current size of seven members to nine members. All seven members of our board of directors prior to the merger will remain on our

 

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board of directors following the merger, and, pursuant to the stockholders agreement, two new members designated by the Apollo Investors will be appointed to our board of directors at the effective time of the merger. See “Other Agreements—Stockholders Agreement” below, for more information about the stockholders agreements and Apollo’s right to appoint certain designees to our board of directors.

Regulatory Clearances Required for the Merger

We and Diamond have agreed to use each of our reasonable best efforts to obtain all governmental and regulatory clearances and approvals required to complete the transactions contemplated by the merger agreement, including our reasonable best efforts to (i) resolve such objections, if any, as may be asserted by any governmental authority with respect to the transactions contemplated hereby and (ii) take all such actions as may be required to obtain all antitrust approvals as promptly as possible after the execution of the merger agreement and no later than the merger agreement Termination Date, including such action that would (A) require the divestiture of any businesses, properties, rights or assets, or portions thereof, of HGV, Diamond, or any of their respective subsidiaries or affiliates, (B) limit HGV’s freedom of action with respect to, or its ability to consolidate and control, Diamond and its subsidiaries or affiliates or any of their businesses, properties, rights or assets, or portions thereof, or any of HGV’s or its subsidiaries or affiliates’ other businesses, properties, rights or assets, or portions thereof, or (C) limit HGV’s ability to acquire or hold, or exercise full rights of ownership with respect to Diamond and its subsidiaries or affiliates, provided that (x) such action is conditioned on consummation of the transactions contemplated by the merger agreement and (y) such action would not require HGV to sell, divest, assign, dispose of or hold separate any businesses, properties, rights or assets of HGV, Diamond or their respective affiliates and subsidiaries, or agree to, or enter into any conditions or mitigation agreements or other remedies with respect to, any businesses, properties, rights or assets of HGV, Diamond or their respective affiliates and subsidiaries, that (together with all other businesses, properties, rights and assets that are subject to antitrust remedies) generated more than $75,000,000 in revenues during the parties’ respective most recently completed fiscal years.

United States Antitrust. Under the HSR Act, certain transactions, including the merger, may not be completed until notifications have been given and information furnished to the Antitrust Division and the FTC and all statutory waiting period requirements have been satisfied. We and Diamond filed the Notification and Report Forms with the Antitrust Division and the FTC on March 29, 2021, and the other Apollo Investors completed their respective filings on March 30, 2021. The relevant waiting periods expired at 11:59 p.m. Eastern on April 28, 2021 and April 29, 2021.

It is not out of the ordinary for the FTC and the Antitrust Division to scrutinize the legality of transactions like the merger under U.S. antitrust laws. At any time before or after the consummation of the merger, notwithstanding the expiration or termination of the waiting period under the HSR Act, the FTC or Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, seeking divestiture of substantial assets of the parties or requiring the parties to license, or hold separate, assets or terminate existing relationships and contractual rights. At any time before or after the completion of the merger, and notwithstanding the expiration or termination of the waiting period under the HSR Act, any U.S. state could take such action under its antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the merger or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. Although there is no assurance that they will not do so, we do not expect any regulatory authority, state or private party to take legal action under the antitrust laws.

Mexican Antitrust. The approval of the merger by the COFECE under the Mexican Federal Economic Competition Law is required to consummate the merger. Under the Mexican Federal Economic Competition Law, transactions involving parties with sales/assets above certain thresholds cannot be completed until they are reviewed and approved by COFECE. We, Diamond and the Apollo Investors filed a formal notification to COFECE of the merger on April 9, 2021 and COFECE unanimously and unconditionally approved the merger on June 10, 2021.

 

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Austrian Antitrust. The approval of the merger by the Bundeswettbewerbsbehörde (“BWB”), or Federal Competition Authority, under the Austrian Cartel Act and the Competition Act is required to consummate the merger. Under the Austrian Cartel Act and the Competition Act, transactions involving parties with sales above certain revenue levels cannot be completed until they are reviewed and approved by the BWB. We and Diamond filed a formal notification to the BWB of the merger on April 9, 2021 and received formal notice of unconditional clearance on May 10, 2021.

We cannot assure you that a challenge to the merger will not be made or that, if a challenge is made, it will not succeed.

Treatment of Diamond Equity-Based Awards

Each in-the-money option, whether vested or unvested, will automatically cease to be outstanding and be converted into and exchanged for the right to receive, without any interest thereon, a number of shares of our common stock and/or cash in lieu of any fractional shares of our common stock equal to the option consideration (assuming full satisfaction of any performance-vesting conditions applicable to such in-the-money option).

All Diamond options outstanding immediately prior to the effective time that are not in-the-money options will (i) to the extent not then vested, become fully vested as of immediately prior to the effective time (assuming full satisfaction of any performance-vesting conditions applicable to such option) and (ii) automatically be cancelled and terminated at the effective time without payment therefor, and, to such extent, will have no further force or effect.

Accounting Treatment

The merger will be accounted for under the acquisition method of accounting in accordance with GAAP, with us being considered the acquiror. This means that we will allocate the aggregate merger consideration to assets and liabilities of Diamond based on their estimated fair values as of the date of completion of the merger, with any excess merger consideration being allocated to goodwill. See the section entitled “Unaudited Pro Forma Combined Financial Information of HGV and Diamond” and related notes thereto beginning on page 136 of this proxy statement.

U.S. Federal Income Tax Consequences for Our Stockholders

Our stockholders will not recognize any gain or loss as a result of the merger related to their ownership of our common stock. Accordingly, there are no material U.S. federal income tax consequences to you as a result of the merger.

NYSE Market Listing of Our Common Stock

We have agreed to use our reasonable best efforts to cause our common stock issued in connection with the merger to be approved for listing on the NYSE.

Description of Debt Financing

Overview

In connection with the merger, HGV intends to issue or borrow, or to cause one of its wholly-owned subsidiaries to issue or borrow, a combination of debt securities in a private offering, term loans and/or revolving loans. On March 25, 2021, HGV entered into the commitment letter with Bank of America, N.A., BofA Securities, Deutsche Bank Securities Inc., Deutsche Bank AG Cayman Islands Branch, Deutsche Bank AG New York Branch, Barclays Bank PLC, Credit Suisse AG, Cayman Islands Branch, Credit Suisse Loan Funding LLC, JPMorgan Chase Bank, N.A., Goldman Sachs Bank USA, MUFG Bank, Ltd. and each of the other banks and

 

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lending institutions party thereto, pursuant to which the commitment parties have agreed to provide (i) a $675.0 million senior unsecured bridge loan facility and (ii) a $1.3 billion seven-year senior secured term loan facility. The commitment parties’ obligation to fund the term loan facility is subject to several limited conditions as set forth in the commitment letter, including, among others, completion of the merger substantially concurrently with the funding of the term loan facility the non-occurrence of a company material adverse effect (as defined in the merger agreement) on Diamond, the accuracy in all material respects of certain representations and warranties related to both HGV and Diamond, the delivery of certain financial statements of HGV and Diamond and other customary conditions.

On May 20, 2021, we priced an unregistered offering of $850 million in aggregate principal amount of 5.000% senior notes due 2029, which closed on June 4, 2021. Upon issuance of such senior notes into escrow, the commitments in respect of the bridge facility were terminated.

On June 14, 2021, we priced an unregistered offering of $500 million in aggregate principal amount of 4.875% senior notes due 2031, which is expected to close on June 28, 2021, subject to customary closing conditions.

Term Loan Facility

Pursuant to the terms of the commitment letter, the proceeds of the loans under the term loan facility will be available upon the satisfaction of several limited conditions precedent on completion of the merger and will be used, together with the proceeds of the 2029 notes and the 2031 notes to finance the repayment of certain existing indebtedness of HGV and Diamond and to pay fees, commissions and expenses incurred in connection with the merger. The loans under the term loan facility will mature on the seven-year anniversary after funding thereof.

Conditions Precedent

The commitment parties’ obligation to fund the loans under the term loan facility is subject to several limited conditions, including completion of the merger substantially concurrently with the funding of the term loan facility, the non-occurrence of a company material adverse effect (as such term is defined in the merger agreement) on Diamond, the accuracy in all material respects of certain representations and warranties related to both HGV and Diamond, the delivery of certain financial statements of HGV and Diamond and other customary conditions more fully set forth in the commitment letter.

Interest

At the option of HGV Borrower, borrowings under the term loan facility will bear interest at either a base rate or at an annual rate equal to the London Interbank Offered Rate (“LIBOR”), for deposits with a corresponding term in U.S. dollars adjusted for applicable statutory reserve requirements (such rate as so adjusted is referred to in this proxy statement as the “reserve adjusted Eurodollar rate”), plus, in each case, an applicable margin and subject to a 0.50% LIBOR floor. The applicable margin for the term facility will be 2.00% per annum with respect to base rate borrowings, and 3.00% per annum with respect to the reserve adjusted Eurodollar rate borrowings.

If the base rate option is selected by HGV Borrower, interest will be at the base rate plus the applicable margin, calculated on the basis of the actual number of days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case base rate loans based upon the “prime rate”) and payable quarterly in arrears. The base rate will be, for any day, a fluctuating rate per annum equal to the highest of (i) the rate publicly announced by the administrative agent as its “prime rate”, (ii) the Federal Funds effective rate plus 1/2 of 1.00%, (iii) the one-month reserve adjusted Eurodollar Rate (provided, that the reserve adjusted Eurodollar rate, plus 1.00% and (iv) 1.00%.

 

 

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If the reserve adjusted Eurodollar rate option is selected by HGV Borrower, interest will be determined based on interest periods to be selected by HGV Borrower of one, three or six months or (if agreed by all relevant lenders under the term loan facility) twelve months or, to the extent agreed to by the administrative agent, a shorter period and for each interest period will be at an annual rate equal to LIBOR, for deposits with a term equivalent to such interest period in U.S. dollars adjusted for applicable reserve requirements, plus the applicable margin. Interest will be paid at the end of each interest period (and at the end of every three months, in the case of interest periods longer than three months) and will be calculated on the basis of the actual number of days elapsed in a year of 360 days.

Covenants and Events of Default

The commitment letter provides that the definitive financing agreement documenting the term loan facility, which is referred to in this proxy statement as the “term loan credit agreement”, will contain covenants substantially similar to the covenants in credit agreement, dated as of December 28, 2016, among HGV Borrower, the guarantors party thereto, and Bank of America, N.A., as administrative agent (as amended prior to the date of the commitment letter, the “existing credit agreement”), which, in each case, relate to, among other things, the following subjects:

 

•

legal existence;

 

•

payment of taxes;

 

•

maintenance of insurance;

 

•

performance of obligations;

 

•

maintenance of property;

 

•

observance of legal requirements;

 

•

delivery of financial statements and other information;

 

•

books and records;

 

•

limitations on indebtedness;

 

•

limitations on liens;

 

•

limitations on dispositions of assets;

 

•

limitations on affiliate transactions;

 

•

limitations on mergers, consolidations, amalgamations, liquidations and dissolutions;

 

•

limitations on restricted payments;

 

•

limitations on investments; and

 

•

limitation on negative pledges.

The commitment letter also provides that the term loan credit agreement (if executed and delivered) will contain events of default substantially similar to the events of default in the existing credit facility, limited to nonpayment of principal, interest or fees (with grace periods for interest, fees and other amounts); failure to perform negative covenants (and affirmative covenants to provide notice of default or maintain HGV Borrower’s corporate existence); failure to perform other covenants subject to a 30-day cure period after notice by the agent; any representation or warranty incorrect in any material respect when made; cross-default of, and cross-acceleration to, other indebtedness, subject to a threshold amount; bankruptcy or insolvency proceedings; final monetary judgments, subject to a threshold amount; ERISA events, subject to material adverse effect; invalidity (actual or asserted in writing by HGV Borrower) of the applicable operative documents or material portion of collateral; and change of control.

 

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2029 Notes

On June 4, 2021, the Escrow Issuers issued $850 million aggregate principal amount of senior unsecured notes, which bear interest at a rate of 5.000% per annum and mature on June 1, 2029. Interest on the 2029 notes is payable semi-annually on June 1 and December 1. The gross proceeds of the 2029 notes were deposited into a segregated escrow account for the 2029 notes. The proceeds of the 2029 notes will be released from escrow upon consummation of the merger.

We may redeem all or part of the 2029 notes at any time prior to June 1, 2024 at a redemption price of 105.000% of the aggregate outstanding principal amount, during the twelve month period commencing on June 1, 2024 at a redemption price of 102.500% of the aggregate outstanding principal amount, during the twelve-month period commencing on June 1, 2025 at a redemption price of 101.250% of the aggregate outstanding principal amount and at any time on or after June 1, 2026 at par, in each case plus accrued and unpaid interest, if any, to but excluding the redemption date.

Prior to the Escrow Release Date (as defined in the indenture governing the 2029 notes (the “2029 notes indenture”), the 2029 notes will not be guaranteed (other than in respect of the Escrow Guaranteed Obligations (as defined in the 2029 notes indenture). As of the Escrow Date, the 2029 notes will be guaranteed by HGV Parent, HGV Intermediate Parent and each of the Issuer’s wholly-owned domestic restricted subsidiaries that guarantee our Senior Secured Credit Facilities.

On or substantially concurrently with the Escrow Release Date, the Escrow Merger (as defined in the 2029 notes indenture) will take place and the Issuers will thereupon assume the Escrow Issuers’ obligations under the 2029 notes.

If the Issuer sells certain of its assets or there is a Change of Control Triggering Event (as defined in the 2029 notes indenture), the holders of the 2029 notes may require us to repurchase some or all of the 2029 notes.

The 2029 notes contain a number of significant affirmative and negative covenants and customary events of default. Such covenants, among other things, limit or restrict, subject to certain exceptions, the ability of the Issuer and its subsidiaries to:

 

•

incur or guarantee additional indebtedness or issue disqualified stock or certain preferred stock;

 

•

pay dividends and make other distributions or repurchase stock;

 

•

make certain investments;

 

•

create or incur certain liens;

 

•

transfer or sell certain assets;

 

•

enter into restrictions affecting the ability of certain restricted subsidiaries to make distributions, loans

 

•

or advances or transfer assets to the Issuers or the guarantors;

 

•

enter into certain transactions with affiliates;

 

•

designate restricted subsidiaries as unrestricted subsidiaries; and

 

•

merge, consolidate or transfer or sell all or substantially all of the Issuer’s or the guarantors’ assets.

2031 Notes

On June 28, 2021, the Escrow Issuers are expected to issue $500 million aggregate principal amount of senior unsecured notes, which bear interest at a rate of 4.875% per annum and mature on July 1, 2031. Interest on the 2031 notes will be payable semi-annually on July 1 and January 1. The gross proceeds of the 2031 Notes will be deposited into a segregated escrow account for the 2031 Notes. The proceeds of the 2031 notes will be released from escrow upon consummation of the merger.

 

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We may redeem all or part of the 2031 notes at any time prior to July 1, 2026 at a redemption price of 104.875% of the aggregate outstanding principal amount, during the twelve month period commencing on July 1, 2026 at a redemption price of 102.438% of the aggregate outstanding principal amount, during the twelve-month period commencing on July 1, 2027 at a redemption price of 101.625% of the aggregate outstanding principal amount, during the twelve-month period commencing on July 1, 2028 at a redemption price of 100.813% of the aggregate outstanding principal amount and at any time on or after July 1, 2029 at par, in each case plus accrued and unpaid interest, if any, to but excluding the redemption date.

Prior to the Escrow Release Date (as defined in the indenture governing the 2031 notes (the “2031 notes indenture”), the 2031 notes will not be guaranteed (other than in respect of the Escrow Guaranteed Obligations (as defined in the 2031 notes indenture). As of the Escrow Date, the 2031 notes will be guaranteed by HGV Parent, HGV Intermediate Parent and each of the Issuer’s wholly-owned domestic restricted subsidiaries that guarantee our Senior Secured Credit Facilities.

On or substantially concurrently with the Escrow Release Date, the Escrow Merger (as defined in the 2031 notes indenture) will take place and the Issuers will thereupon assume the Escrow Issuers’ obligations under the 2031 notes.

If the Issuer sells certain of its assets or there is a Change of Control Triggering Event (as defined in the 2031 notes indenture), the holders of the 2031 notes may require us to repurchase some or all of the 2031 notes.

The 2031 notes contain a number of significant affirmative and negative covenants and customary events of default. Such covenants, among other things, limit or restrict, subject to certain exceptions, the ability of the Issuer and its subsidiaries to:

 

•

incur or guarantee additional indebtedness or issue disqualified stock or certain preferred stock;

 

•

pay dividends and make other distributions or repurchase stock;

 

•

make certain investments;

 

•

create or incur certain liens;

 

•

transfer or sell certain assets;

 

•

enter into restrictions affecting the ability of certain restricted subsidiaries to make distributions, loans

 

•

or advances or transfer assets to the Issuers or the guarantors;

 

•

enter into certain transactions with affiliates;

 

•

designate restricted subsidiaries as unrestricted subsidiaries; and

 

•

merge, consolidate or transfer or sell all or substantially all of the Issuer’s or the guarantors’ assets.

Securitization and Warehouse Facility

On or prior to the Closing Date, the Diamond Entities are required to have taken various actions with respect to their warehouse facilities. These include:

(a) obtaining commitments under Diamond’s existing Deutsche Bank warehouse facility and Credit Suisse variable funding note facility, which commitments in the aggregate shall be no less than an amount equal to (x) $400,000,000 minus (y) the proceeds of the asset-backed notes relating to a term securitization occurring in 2021 net of (i) the placement fee and other transaction expenses, (ii) the amount escrowed to fund the prefunding account and (iii) the amount used to repay the existing indebtedness under the related financing facilities;

(b) with respect to Diamond’s existing Deutsche Bank warehouse facility obtaining all necessary consents, approvals, amendments and waivers necessary pursuant to the terms set forth in the applicable warehouse

 

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commitment letter such that, immediately after giving effect to the transactions contemplated on the Closing Date (including the merger), no facility default shall occur under such facility, and such related amendments shall be deemed effective substantially concurrent with (and no later than the occurrence of) the merger;

(c) with respect to Diamond’s existing Credit Suisse receivables warehouse and variable funding note facility, obtaining all necessary consents, approvals, amendments and waivers necessary such that, immediately after giving effect to the transactions contemplated on the Closing Date (including the merger), no facility default shall occur under such facility, and such related amendments shall be deemed effective substantially concurrent with (and no later than the occurrence of) the merger

(d) with respect to any other warehouse facilities that remain outstanding on or after the Closing Date, obtaining all necessary consents, approvals, amendments and waivers necessary such that, immediately after giving effect to the transactions contemplated on the Closing Date (including the merger), no facility default shall occur thereunder, provided that, any such consents, approvals, amendments and waivers shall not change any existing right of the borrower parties to terminate early at their option and prepay such facility without penalty, and any related amendments shall be deemed effective substantially concurrent with (and no later than the occurrence of) the merger; and

(e) with respect to any warehouse facilities where the Diamond Entities have been unable to obtain all necessary consents, approvals, amendments and waivers necessary such that, immediately after giving effect to the transactions contemplated on the Closing Date (including the merger), no facility default shall occur thereunder, paying down on or prior to the Closing Date, with prior notice to us, the outstanding loan balance to zero and terminating all outstanding obligations relating thereto so that each related transaction document is no longer in full force and effect, and providing evidence of such termination as reasonably satisfactory to us.

Issuance of DROT-2021-1

On April 20, 2021, Diamond completed a securitization transaction involving the issuance of $319.2 million of securities consisting of four tranches of Vacation Interest notes receivable. For additional information see “Management’s Discussion & Analysis of Financial Condition and Results of Operations of Diamond – Subsequent Events.”

Litigation Relating to the Merger

On April 21, 2021, Charles Blackburn, a purported stockholder of HGV filed a lawsuit in the Court of Chancery of the State of Delaware, styled Blackburn v. Potter, et al., No. 2021-339-JTL (the “Blackburn Action”). The Blackburn Action was filed against HGV and our board of directors and purports to be asserted on behalf of plaintiff and all other similarly situated stockholders. The complaint in the Blackburn Action asserts that the HGV Board breached their fiduciary duties by omitting certain information issued in connection with the Preliminary Proxy Statement on Schedule 14A filed with the SEC on April 15, 2021 (the “Preliminary Proxy”) in connection with the merger. The Blackburn Action seeks, among other things, certification of a class of HGV stockholders, a finding that our board of directors breached its fiduciary duties and an award of attorneys’, accountants’, and experts’ fees.

On April 30, 2021, Matthew Hopkins, a purported stockholder of HGV, filed a lawsuit in the United States District Court for the Southern District of New York, styled Hopkins v. Hilton Grand Vacations, Inc., et al., No. 21-cv-3857-ER (the “Hopkins Action”). The Hopkins Action was filed against HGV and our board of directors.

The complaint in the Hopkins Action asserts that the Preliminary Proxy omitted certain material information, in violation of Section 14(a) of the Exchange Act, and that the members of our board of directors are control persons under Section 20(a) of the Exchange Act. The Hopkins Action seeks, among other things, an

 

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injunction enjoining the merger from closing, rescission of the merger or rescissory damages if the merger is consummated, the filing of an amendment to the Preliminary Proxy, and an award of attorneys’ and experts’ fees.

On May 7, 2021, Marina Clough, a purported stockholder of HGV, filed a lawsuit in the United States District Court for the Eastern District of New York, styled Clough v. Hilton Grand Vacations, Inc., et al., No. 21-cv-2583-FB-PK (the “Clough Action”). The Clough Action was filed against HGV and our board of directors. The complaint in the Clough Action asserts that the Preliminary Proxy omitted certain material information, in violation of Section 14(a) of the Exchange Act, and that the members of our board of directors are control persons under Section 20(a) of the Exchange Act. The Clough Action seeks, among other things, an injunction enjoining the merger from closing, rescission of the merger or rescissory damages if the merger is consummated, and an award of attorneys’ and experts’ fees.

No Rights of Appraisal for HGV Stockholders

Current holders of our common stock will not have any rights of appraisal as a result of the merger.

 

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THE MERGER AGREEMENT

The following section summarizes material provisions of the merger agreement, which is included in this proxy statement as Annex A and is incorporated herein by reference in its entirety. The rights and obligations of HGV and Diamond are governed by the express terms and conditions of the merger agreement and not by this summary or any other information contained in this proxy statement. Our stockholders are urged to read the merger agreement carefully and in its entirety as well as this proxy statement before making any decision regarding the stock issuance proposal.

The merger agreement is included in this proxy statement to provide you with information on its terms and is not intended to provide any factual information about HGV or Diamond. The merger agreement contains representations and warranties by each of the parties to the merger agreement. These representations and warranties:

 

•

have been made solely for the benefit of the other parties to the merger agreement;

 

•

may not be intended as statements of fact, but rather as a way of allocating the risk between the parties if the statements therein prove to be inaccurate (and, accordingly, investors and others should not rely on the representations and warranties, or any descriptions thereof, as characterizations of the actual state of facts or condition of Diamond, HGV or any of their respective subsidiaries or affiliates);

 

•

have been qualified by certain disclosures that were made between the parties in connection with the negotiation of the merger agreement, which disclosures are not reflected in the merger agreement itself; and

 

•

may apply standards of materiality in a way that is different from what may be viewed as material by you or other investors.

Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read together with the information provided elsewhere in this proxy statement and in the documents incorporated by reference into this proxy statement. See the section entitled “Where You Can Find More Information and Incorporation by Reference” beginning on page 155 of this proxy statement.

This summary is qualified in its entirety by reference to the merger agreement.

The Merger

Upon the terms and subject to the conditions of the merger agreement and in accordance with the DGCL, at the effective time, Diamond will merge with and into HGV Borrower, the separate corporate existence of Diamond will cease, and HGV Borrower will continue as the surviving company and a wholly-owned subsidiary of HGV. The merger will have the effects set forth in the merger agreement and the relevant provisions of the DGCL.

Completion of the Merger

The closing of the merger will take place electronically through the exchange of documents via e-mail or facsimile, at 9:00 a.m. (New York City time) on the third business day following the satisfaction or waiver of the conditions to closing described below under “Closing Conditions” (other than those conditions that by their terms are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of those conditions at the closing) or at such other date, time and place as HGV and Diamond may mutually agree in writing provided, that if the marketing period has not ended on or prior to the time the closing of the merger would have otherwise been required to occur pursuant to the foregoing, the closing will be delayed until the earlier to occur of (x) any business day before or during the marketing period as may be specified by HGV on no less than three business days’ prior written notice to Diamond and (y) three business days following the final day of the marketing

 

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period, subject in each case to the continued satisfaction or waiver of all of the conditions to closing described below under “Closing Conditions” (other than those conditions that by their terms are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of those conditions at the closing). Concurrently with the closing, Diamond and HGV Borrower will cause a certificate of merger relating to the merger to be executed, acknowledged and filed with the Secretary of State of the State of Delaware as provided in Section 264 of the DGCL and Section 18-209 of the Delaware Limited Liability Company Act. The merger will become effective at the time the certificate of merger with respect to the merger is filed with the Secretary of State of the State of Delaware or at such later time as may be agreed by HGV and Diamond in writing and specified in the certificate of merger.

Merger Consideration

Pursuant and subject to the terms and conditions set forth in the merger agreement, at the effective time, among other things:

 

•

each share of Diamond common stock issued and outstanding immediately prior to the effective time will cease to be outstanding, shall automatically be cancelled and cease to exist and, other than Appraisal Shares (as defined in the merger agreement), treasury shares and shares owned directly or indirectly by Diamond, be converted into and exchanged for the right to receive the merger consideration, calculated in the manner set forth in the merger agreement and allocated among the various sellers based on their respective ownership interests in Diamond in accordance with the merger agreement;

 

•

each in-the-money option, whether vested or unvested, will automatically cease to be outstanding and be converted into and exchanged for the right to receive, without any interest thereon, a number of shares of our common stock and/or cash in lieu of any fractional shares of our common stock equal to the option consideration (assuming full satisfaction of any performance-vesting conditions applicable to such in-the-money option); and

 

•

all Diamond options outstanding immediately prior to the effective time that are not in-the-money options will (i) to the extent not then vested, become fully vested as of immediately prior to the effective time (assuming full satisfaction of any performance-vesting conditions applicable to such option) and (ii) automatically be cancelled and terminated at the effective time without payment therefor, and, to such extent, will have no further force or effect.

Conversion and Exchange of Shares of Diamond Common Stock

At the effective time, shares of Diamond common stock will cease to be outstanding, shall automatically be cancelled and cease to exist, and each holder thereof shall have the right to receive the merger consideration. HGV will deposit (or cause to be deposited) with the exchange agent, evidence of book-entry shares representing a number of shares of our common stock equal to (i) the aggregate merger consideration issuable in respect of shares of Diamond common stock pursuant to the merger agreement plus (ii) the aggregate option consideration issuable in respect of in-the-money options, as well as cash in an amount sufficient to pay any cash payments to be made in lieu of fractional shares.

Each of the parties to the merger agreement and the exchange agent will be entitled to deduct and withhold from amounts otherwise payable pursuant to the merger agreement those amounts that it is required to deduct and withhold from such payments under applicable tax law.

Representations and Warranties

The merger agreement contains representations and warranties made by Diamond to HGV and HGV Borrower, on the one hand, and by HGV and HGV Borrower to Diamond, on the other hand. Such

 

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representations and warranties (i) were made solely for the benefit of the parties to the merger agreement; (ii) are subject to limitations agreed upon by the parties; (iii) are not intended to be treated as categorical statements of fact, but rather as a way of allocating contractual risk among the parties; (iv) may be subject to standards of materiality applicable to the parties that differ from what might be viewed as material to stockholders; (v) are qualified by information in confidential disclosure schedules delivered to HGV by Diamond, on the one hand, and Diamond by HGV, on the other hand, concurrently with the execution and delivery of the merger agreement, which contain information that modify, qualify and create exceptions to the representations and warranties set forth in the merger agreement; and (vi) were made only as of the date of the merger agreement or such other date or dates as may be specified in the merger agreement. Accordingly, investors and others should not rely on the representations and warranties, or any descriptions thereof, as characterizations of the actual state of facts or condition of Diamond, HGV or any of their respective subsidiaries or affiliates.

Diamond’s representations and warranties relate to, among other things:

 

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organization, qualification and power;

 

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authority with respect to the execution and delivery of the merger agreement, and the due and valid execution and delivery and enforceability of the merger agreement;

 

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absence of conflicts with, or violations of, organizational documents, other contracts and applicable laws;

 

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required regulatory filings and consents and approvals of governmental entities;

 

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capital structure;

 

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indebtedness;

 

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financial statements and undisclosed liabilities;

 

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absence of certain changes and events during certain specified time periods prior to the date of the execution of the merger agreement;

 

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compliance with applicable laws and permits;

 

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litigation;

 

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employee benefits matters and employment and labor matters;

 

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tax matters;

 

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insurance;

 

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title to, sufficiency and condition of assets;

 

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inapplicability of state takeover statutes and anti-takeover devices;

 

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intellectual property, information technology systems, privacy and data protection matters;

 

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material contracts;

 

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environmental matters;

 

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compliance with applicable anti-corruption and trade sanctions laws;

 

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real property;

 

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certain previous securitization transactions;

 

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the vote of Diamond’s stockholders required to approve the merger and the recommendation of Diamond’s board of directors;

 

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opinions from financial advisors;

 

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•

broker’s fees payable in connection with the transactions contemplated by the merger agreement;

 

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affiliate transactions;

 

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certain matters related to COVID-19; and

 

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timeshare and exchange matters.

HGV’s representations and warranties relate to, among other things:

 

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organization, qualification and power;

 

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authority with respect to the execution and delivery of the merger agreement, and the due and valid execution and delivery and enforceability of the merger agreement;

 

•

absence of conflicts with, or violations of, organizational documents, other contracts and applicable laws;

 

•

required regulatory filings and consents and approvals of governmental entities;

 

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capital structure;

 

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SEC reports;

 

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litigation;

 

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employee benefits matters and employment and labor matters;

 

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tax matters;

 

•

financial statements and undisclosed liabilities;

 

•

absence of certain changes and events during a specified time period prior to the date of execution of the merger agreement;

 

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inapplicability of state takeover statutes and anti-takeover devices compliance with applicable laws and permits;

 

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the ownership and operation of HGV Borrower;

 

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timeshare and exchange matters.

 

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broker’s fees payable in connection with the transactions contemplated by the merger agreement;

 

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affiliate transactions;

 

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solvency; and

 

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the debt financing in connection with the merger.

Many of the representations and warranties in the merger agreement are qualified by a “materiality” or “material adverse effect” standard (that is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct, individually or in the aggregate, would, as the case may be, be material or have a material adverse effect). For purposes of the merger agreement, a “material adverse effect” means, with respect to either party, any event, change, occurrence, development or effect that, individually or taken as a whole with all other events, changes, occurrences, developments or effects, would, or is reasonably expected to, (i) prevent, materially delay or materially impede the performance by Diamond or the sellers, or HGV, as applicable, of their obligations under the merger agreement or the consummation of the transactions contemplated by the merger agreement, or (ii) have a material adverse effect on the business, properties, financial condition or results of operations of Diamond and its subsidiaries or HGV and its subsidiaries, as applicable, taken as a whole, other than, in the case of the foregoing clause (ii) only, any event, change, occurrence, development or effect (by itself

 

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or taken together with any and all other events, changes, occurrences, developments or effects) constituting or resulting from:

 

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changes or developments in general economic, business or geopolitical conditions or financial, debt, capital, currency or securities markets (including changes in interest rates or exchange rates);

 

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general changes or developments in any of the industries in which such parties operate, as applicable;

 

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any weather, meteorological conditions or climate, storms, earthquakes, floods, hurricanes, tornadoes, volcanic eruptions or natural disasters, epidemics or pandemics (including COVID-19) or any escalation or worsening of any of the foregoing;

 

•

changes after March 10, 2021 in any applicable laws or applicable accounting regulations or principles (including GAAP) or, in each case, any change in the interpretations thereof or the adoption or addition of any new laws or the rescission, expiration or retirement of any current laws;

 

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any outbreak or escalation of hostilities or any acts of war (whether or not declared) or terrorism;

 

•

any work stoppages, layoff, furlough or reduced work schedule of employees or independent contractors of such parties, as applicable, resulting from, arising out of or otherwise related to COVID-19 (and the impact of any associated shutdown, shelter in place or non-essential business order or other similar measures mandated by any applicable governmental authority);

 

•

the execution and delivery of the merger agreement (other than in the case of certain representations made by such parties, as applicable) or announcement or pendency of the merger agreement and the transactions contemplated thereby; or

 

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any failure by such parties, as applicable, to meet its internal or published projections, budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that the underlying facts or occurrences giving rise to or contributing to such failure, not otherwise excluded by the exceptions set forth in this definition, shall be taken into consideration when determining whether a material adverse effect has occurred or is reasonably expected to occur),

provided, that with respect to the first six bullets above, such matter will only be excluded to the extent such matter does not have a disproportionate effect on such parties, as applicable, taken as a whole, relative to other participants in the industries or markets in which such parties operate, as applicable (in which case solely the incremental disproportionate effect may be taken into account in determining whether there has been a material adverse effect).

Conduct of Business

Each of Diamond and HGV has undertaken certain covenants in the merger agreement restricting the conduct of their respective businesses between the date of the merger agreement and the effective time. In general, each of Diamond and HGV has agreed to, and to cause our and their respective subsidiaries to, carry on their respective businesses in the ordinary course of business and use commercially reasonable efforts to preserve intact their business organizations, preserve in all material respects their relationships with customers, suppliers, governmental authorities and other persons with which it has material business relations or regulatory relations, keep available the services of their current officers, employees and consultants. However, each of Diamond and HGV may deviate from the ordinary course covenants if, among other things, it determines reasonably and in good faith that deviation is necessary to protect the health and safety of its employees, customers or other individuals with whom it has direct business dealings or to respond to the direct impact of COVID-19 on it.

Each of Diamond and HGV has also agreed to various specific restrictions relating to the conduct of its business, including with respect to the below (subject in each case to certain exceptions, including those specified below or in the merger agreement or disclosed in the confidential disclosure schedules provided to the other party).

 

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