Opinion No. 24-04Re: Applicability of SRC Registration Requirements to Timeshares

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Exchange Securities and Commission PPINES

BAGONC PILIPINAS

OFFICE OF THE GENERAL COUNSEL

March 2024

SEC OGC Opinion No.&4 Re: Applicability of SRC Registration Requirements to Timeshares

Hidalgo Cor. Plaza Drive, Rockwell Center PUYAT JACINTO &SANTOS Makati City 1200,Philippines 10F 8Rockwell

Attention: ybviray@pjslaw.com Atty. Virginia B. Viray

Atty.Pearl Grace G. Cabali Atty.Elaine Marie G. Laceda Dear Atty.Viray

Resorts, Inc. (MORI), requesting for an opinion on the applicability of the registration requirements under the Securities Regulation Code (SRC) to MORI's Marriot Vacation Club Destinations Exchange Program (MVCD-EP). This refers to your letter dated 20 March 2015 sent on behalf of your client Marriott Ownership

In your letter, you disclosed the following:

a b MORI is a Delaware company engaged, inter alia, in the operation of the Marriot Vacation ownership products (MVC Timeshares) The MVC Timeshares are "currently being marketed for sale in the United States, Europe, Club Destinations (MVCD) Program and the sale of Marriot Vacation Club vacation-

C To enhance the MVC Timeshares it sells, MORI developed the MVCD-EP which "provides and the Asia[-]Pacific region,excluding the Philippines,among other locations"

d exchange services and related benefits provided by the Exchange Company" The MVCD-EP allows its members "to exchange their existing timeshare interests for timeshare interest owners, who are members thereof, the opportunity to utilize the

e With the introduction of the automatic membership, the MVCD-EP documents (i.e., the available by the Exchange Company or by independent third parties by arrangement with As membership in the MVCD-EP is currently on a voluntary basis, MORI intends to provide automatic membership in the MVCD-EP to all existing MVC Timeshare owners, without the need for an enrollment agreement and payment of any enrollment fee or Exchange Company Disclosure Guide, the Exchange Procedures, and the Quality Assurance Checklist) are sent to existing MVC Timeshare owners wherever they reside Exchange Points, which such members can use to reserve accommodations in other Exchange Company[-]affiliated plans/resorts or avail of other benefits that may be made the Exchange Company"; The MVCD-EP documents will: annual dues; 1.Provide disclosures on the program and describe its usage;

www.sec.gov.ph / imessagemo@sec.gov.ph The SEC Headquarters,7907 Makati Avenue +63253227696 Salcedo VillageBe-airMakati Ciy INVESTORS IN PEOPLE Nainvostinnoonl TOVRheinland ww.t IO 9001:201 00 D EX

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2. 3. Inform existing MVC Timeshare owners of the new feature to the MVC Not involve any new offering of the MVC Timeshares to existing owners; and Timeshares, specifically on the auto-membership with the MVCD-EP;

to the distribution of the MVCD-EP Documents to the MVC Timeshare owners who are Philippine residents. The issue is whether the requirement of registration of securities under the SRC is applicable g None of the subject MVC Timeshares were, at any time, offered and/or sold within the residing in the Philippines, to whom MORI intends to send such documents. Philippines; however, there are some existing owners of MVC Timeshares currently 4 Not involve any consideration paid for the new feature to the MVC Timeshares;and

matter at issue is not the MVC Timeshares but rather, the MVCD-EP offered for free to existing MVC considered contracts similar to that of an investment contract which require registration.2 Here, the subject Timeshare holders in the Philippines. Timeshares have been held to be securities.1 More specifically, contracts for future employment of a privilege or service such as vacation rights or interests consisting of future right to use resort facilities are At the outset, the MVCD-EP must be distinguished from the MVC Timeshares to which it attaches.

manner: Rule 3.1.20 of the 2015 Implementing Rules and Regulations of the SRC (SRC-IRR)3, viz: In addition, Rule 26.3.5(4) of the 2015 SRC-IRR4 further defines an investment contract in this The test is whether the MVCD-EP, independent of the timeshares, fits the definition of securities in certificates of interest or participation in a profit sharing agreement, certificates of deposit for a future subscription; (c) Fractional undivided interests in oil, gas or other mineral rights; (d) Derivatives like option and warrants; (e) Certificates of assignments, certificates of participation, trust certificates, votingtrust certificates or similar instruments; (f) Proprietary or nonproprietary membership certificates in corporations; and (g) Other instruments as may in the future be determined by the Commission. (Emphasis and underscoring supplied) debentures, notes, evidences of indebtedness, asset-backed securities; (b) Investment contracts Securities shall include: (a Shares of stock, bonds, government securities, commercial papers,

Meanwhile, Section 8.1 of the SRC5 expressly provides that: Thus, for the registration requirement to bind the issuer, the following elements must be present: a)the subject matter must be securities; b C the securities must either be sold or offered for sale or distribution; and the sale or offer to sell/distribute securities must be within the Philippines. shall be made available to each prospective purchaser. (Emphasis supplied) information on the securities, in such form and with such substance as the Commission may prescribe, Securities shall not be sold or offered for sale or distribution within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such sale, money in a common enterprise and is led to expect profits primarily from the efforts of others. An "investment contract" means a contract, transaction, or scheme whereby a person invests his

alone, it can no longer be considered an investment contract. EP is essentially only a free upgrade of the benefits arising from MVC Timeshare ownership given exclusively to existing owners. the distribution of the MVCD-EP documents to existing MVC Timeshare owners in the Philippines. Timeshare owner. As previously opined by the Commission, by the absence of an investment of money Further, there is no sale or offer for sale or distribution of securities to the public as the MVCD. Notably, there is no monetary investment or consideration for the MVCD-EP given by the MVC From the foregoing, it is apparent that the SRC registration requirement is not necessary prior to

2 SEC Opinion dated 2 January 1997 addressed to Attys. Kennedy B. Sarmiento and Je Frollan M. Clerigo 3 Rule 3.1.20, Implementing Rules and Regulations of Republic Act (R.A.) No. 8799 or the Securities Regulation Code (SRC-IRR), 04 4 Rule 26.3.5, Paragraph 4, ibid. 5 Section 8.1, R.A. No. 8799 or the Securities Regulation Code (SRC), 19 July 2000 SEC-OGC Opinion No.11-21 addressed to Atty. Arthur C. Corpuz dated 12 April 2011. 1 SEC En Banc Case No. 10-04-19, 25 March 2011; see also SEC Opinion addressed to Atty.Nicanor M. Zaratan dated 16 April 1996. August 2015.

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investigation, it will be disclosed that the facts relied upon are different, this opinion shall be rendered null circumstances, and documents disclosed/submitted, and should be considered relevant solely to the particular issue raised therein. It shall not be used in the nature of a standing rule binding upon the Commission in other cases or upon the courts whether of similar or dissimilar circumstances.7 If upon and void. of the MVC Timeshares. The reason for this is that the MVC Timeshares were never offered for sale in the Philippines and were bought by the Philippine residents elsewhere. It shall be understood that the foregoing opinion is rendered solely on the basis of the facts, The same conclusion would hold true even if we were not to consider the MVCD-EP independently

Please be guided accordingly.

Very truly yours

ROMUALD C. PADILLA wMwMi General Counsel JMn

7 Section 7, SEC Memorandum Circular No. 15, Series of 2003, 16 December 2003.