S-1/A 1 d560524ds1a.htm S-1/A S-1/A
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As filed with the Securities and Exchange Commission on April 12, 2019

Registration No. 333-226793

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

BEST WESTERN INTERNATIONAL, INC.

(Exact Name of Each Registrant as Specified in its Charter)

 

 

 

Arizona   7011   86-0138899

(State or other jurisdiction of

Incorporation or organization)

 

(Primary standard industrial

classification code number)

 

(I.R.S. Employer

Identification Number)

6201 N. 24th Parkway

Phoenix, Arizona 85016

(602) 957-5600

(Address, including zip code, and telephone number, including area code, of each registrant’s principal executive offices)

 

 

With copies to:

 

Lawrence M. Cuculic

Senior Vice President, General Counsel and

Corporate Secretary

6201 N. 24th Parkway

Phoenix, Arizona 85016

(602) 957-4200

 

Edward J. Schneidman, P.C.

Wayne E. Williams

Kirkland & Ellis LLP

300 North LaSalle

Chicago, Illinois 60654

Telephone: (312) 862-2000

Fax: (312) 862-2200

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box:  ☒

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is filed to register additional securities for an offering pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Maximum

Aggregate

Offering Price(1)

 

Amount of

Registration Fee(2)(3)

Common Stock, Series A-1, without par value

       

Common Stock, Series A-2, without par value

       

Common Stock, Series A-3, without par value

       

Common Stock, Series A-4, without par value

       

Common Stock, Series A-5, without par value

       

Common Stock, Series A-6, without par value

       

Common Stock, Series A-7, without par value

       

Total

  $74,443,000   $9,022.49

 

 

 

(1)

Pursuant to Rule 457(f)(2), the maximum aggregate offering price is based on the aggregate book value of the Registrant.

(2)

Calculated pursuant to Rule 457(o) based on the maximum aggregate offering price.

(3)

Pursuant to Rule 457(b), the registrant has recalculated the amount of the registration fee due in connection with this amendment and has paid the additional $1,259.51 due.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

EXPLANATORY NOTE

The information statement/prospectus that forms a part of this Registration Statement consists of (i) an information statement relating to a special ballot initiative of members of Best Western International, Inc., an Arizona nonprofit corporation (“BW Inc. (NP)”) and (ii) a prospectus relating to the common stock of Best Western International, Inc., an Arizona corporation (“BW Inc.”), that is filed in connection with the proposed conversion of BW Inc. (NP) to a for-profit Arizona corporation by means of a Plan of Merger effected under Arizona law and the offer and sale of the common stock of BW Inc.

 

 

 


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The information in this information statement/prospectus is not complete and may be changed. We may not issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This information statement/prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, dated April 12, 2019

 

LOGO

BEST WESTERN INTERNATIONAL, INC.

INFORMATION STATEMENT/PROSPECTUS

55,000,000 Shares of Common Stock

 

 

This is an offering of 55,000,000 shares of common stock of Best Western International, Inc. (the “Company”), no par value, to be issued upon and on a continuous basis following the conversion (the “Conversion”) of the Company into a for-profit Arizona corporation (the “post-Conversion corporation”), which will be effected by a merger with our wholly owned subsidiary. This information statement/prospectus contains the ballot proposals submitted for the approval of the current members of the Company required to effect the Conversion. If the conversion proposal is approved and the transactions contemplated by the Conversion are completed, all outstanding membership interests as of November 30, 2019 (including those held by current members as of the date hereof and contingently-approved applicants who become members on or prior to November 30, 2019), subject to the satisfaction of the conditions described herein, will automatically be converted into shares of common stock, no par value, of the post-Conversion corporation (the “Common Stock”).

The Common Stock issued in connection with the Conversion is expected to be issued on or about December 1, 2019 and will be allocated among the members by a formula described in this information statement/prospectus for each individual membership interest held as of November 30, 2019, subject to extension of such dates as described herein. Additionally, in conjunction with and subject to approval of the Conversion by the members, shares of Common Stock are being offered on a continuous basis following the Conversion and will be issued to each contingently-approved applicant and new Best Western franchisee in North America that is not open and active on the Best Western reservation system by November 30, 2019 that satisfies the Post-Conversion Participation Condition (as defined herein) based on a formula described in this information statement/prospectus. See “Important Notes.” We expect that each member will receive approximately 26,000 shares of Common Stock on the effective date of the Conversion (the “Conversion Date”) and the Company will reserve for issuance for each eligible contingently-approved applicant and Best Western franchisee in North America approximately 13,000 shares of Common Stock, to be issued to such eligible contingently-approved applicant or franchisee that satisfies the Post-Conversion Participation Condition (as defined herein) after the Conversion Date.

Prior to this offering, there has been no public market for the Common Stock or the membership interests of the Company. The Company’s membership interests are not currently listed on any national securities exchange. The Company does not currently intend to apply for listing of its Common Stock on any national securities exchange following the completion of the Conversion.

The Company is an “emerging growth company” as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, has elected to comply with certain reduced public company reporting requirements.

 

 

See “Risk Factors” beginning on page 22 for information you should consider with respect to the Conversion and ownership of our Common Stock.

The Company will receive no consideration pursuant to this offering.

 

Title of Each Class of Security(1)(2)

   Amount to be Offered
and Issued
 

Common Stock, Series A-1, without par value

     6,316,416  

Common Stock, Series A-2, without par value

     7,718,609  

Common Stock, Series A-3, without par value

     7,771,027  

Common Stock, Series A-4, without par value

     7,443,412  

Common Stock, Series A-5, without par value

     9,736,716  

Common Stock, Series A-6, without par value

     7,784,132  

Common Stock, Series A-7, without par value

     8,229,688  
  

 

 

 

Total

     55,000,000  
  

 

 

 

 

(1)

The Common Stock will be classified into seven series, designated as Series A-1 through A-7, each a “Series”, and each membership interest will be converted into shares of the Series of Common Stock as corresponds to the geographic district regarding such membership interest. Prior to an initial public offering, each Series will be entitled to elect one member to our board of directors, voting as a separate class, but otherwise has the identical voting and economic rights as each other series.

(2)

Each Series of Common Stock includes shares of the Common Stock to be issued (a) in connection with the Conversion to (i) current members as of the date hereof and (ii) contingently-approved applicants who become members following the date hereof and on or prior to November 30, 2019 and (b) on a continuous basis following the Conversion to each contingently-approved applicant and Best Western franchisee in North America that is not open and active on the Best Western reservation system by November 30, 2019 that satisfies the Post-Conversion Participation Condition (as defined herein).

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this information statement/prospectus. Any representation to the contrary is a criminal offense.

 

 

Information Statement/Prospectus dated                 , 2019.


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LOGO

Dear Members:

On behalf of the President and Chief Executive Officer of Best Western International, Inc., an Arizona nonprofit corporation (the “Company”), you are hereby receiving this information statement/prospectus in connection with a special ballot initiative (the “Special Ballot Initiative”) to vote upon:

 

  (1)

a proposal, which we refer to as the “conversion proposal,” to approve a corporate transaction, pursuant to which the Company will become a for-profit Arizona corporation (the “post-Conversion corporation”) through a merger with our wholly owned, for-profit, subsidiary, and each membership interest of the Company will be converted into shares of common stock of the post-Conversion corporation (the “Conversion”); and

 

  (2)

a proposal, which we refer to as the “membership termination bylaw proposal,” to approve an amendment to our current bylaws to authorize our board of directors to terminate prior to the date of the Conversion the membership interest of any member, and to terminate prior to the date of the Conversion the membership agreement of any contingently-approved applicant, that does not enter into a franchise agreement with the Company and have a property open and active on the Best Western reservation system by the dates described herein.

Both the conversion proposal and the membership termination bylaw proposal must be approved or neither the conversion proposal nor the membership termination bylaw proposal will be adopted.

If both the conversion proposal and the membership termination bylaw proposal are approved, the membership termination bylaw proposal will be adopted with immediate effectiveness.

If the conversion proposal is approved and the transactions contemplated by the Conversion are completed, we will become an Arizona for-profit corporation and membership interests as of November 30, 2019 will automatically be converted into shares of the post-Conversion corporation, or the Common Stock pursuant to the Plan of Merger with our wholly owned subsidiary. We expect to issue the Common Stock in the Conversion on or about December 1, 2019 and such shares will be allocated among the members by a formula described in this information statement/prospectus under the heading “Important Notes” for each individual membership interest held as of November 30, 2019. We expect that each member will receive approximately 26,000 shares of Common Stock on the Conversion Date and the Company will reserve for issuance on a post-Conversion basis for each eligible contingently-approved applicant and Best Western franchisee in North America approximately 13,000 shares of Common Stock, to be issued to such eligible contingently-approved applicant or Best Western franchisee that satisfies the Post-Conversion Participation Condition (as defined herein) after the Conversion Date. If the conversion proposal is approved and the membership termination bylaw proposal is approved, our bylaws will be amended to provide, among other things, that only those members who have executed a franchise agreement with the Company will remain members as of November 30, 2019 and receive shares in connection with the Conversion.

Existing Members

An existing member as of the date of this information statement/prospectus (the “Existing Members”) will receive shares of Common Stock on the Conversion Date in exchange for such Existing Member’s existing membership interest if such Existing Member (i) executes a franchise agreement by September 30, 2019 (subject to the Extension Condition (as defined below)) and (ii) has a property open and active on the Best Western reservation system by November 30, 2019 (collectively, the “Existing Member Participation Condition”);


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otherwise the membership interest of such Existing Member will be cancelled prior to the Conversion Date and such Existing Member will not receive shares of Common Stock in the Conversion.

Contingently-Approved Applicants prior to the Conversion

A person who has executed a Best Western membership agreement prior to the distribution date of the ballot, but was not yet a member (a “Contingently-Approved Applicant”) may become a member after the date this information statement/prospectus is first mailed to voting members and prior to the Conversion Date (such applicants, the “New Members”) and receive Common Stock on the Conversion Date if such Contingently-Approved Applicant (i) executes the applicable franchise agreement September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system by November 30, 2019 (the “New Member Participation Condition”); otherwise the membership agreement of such Contingently-Approved Applicant will be cancelled prior to the Conversion Date and such Contingently-Approved Applicant will not receive shares of Common Stock in the Conversion. Notwithstanding the deadline for participation in the Conversion, Contingently-Approved Applicants are eligible to receive Common Stock on a post-Conversion basis subject to satisfaction of the conditions described herein. See “ —Contingently-Approved Applicants and Best Western Franchisees in North America following the Conversion” and “Summary Of The Information Statement/Prospectus—The Conversion Proposal—Conversion Overview—Consideration to the Company and to Existing Members, New Members and Post-Conversion Shareholders.”

As of the effective date of the Plan of Merger, the Existing Members and New Members receiving shares of Common Stock will own 100% of the outstanding shares of Common Stock of the Company.

Contingently-Approved Applicants and Best Western Franchisees in North America following the Conversion

In conjunction with and subject to approval of the Conversion by the members, shares of Common Stock will be offered on a continuous basis following the Conversion and will be issued to (x) Contingently-Approved Applicants and (y) persons in North America who (i) were not members or Contingently-Approved Applicants prior to the distribution date of the ballot and (ii) subsequently execute the applicable Best Western franchise agreement before December 1, 2019 that

 

(a)

with respect to Contingently-Approved Applicants and New Franchisees that are converting existing properties to a Best Western franchise,

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the board of directors by November 16, 2019;

 

  (3)

execute a Best Western franchise agreement and pay any applicable fees by November 30, 2019; and

 

  (4)

are open and active on the Best Western reservation system by November 30, 2020;

or

 

(b)

with respect to Contingently-Approved Applicants and New Franchisees that are constructing new properties,

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the Board of Directors by November 16, 2019;

 

  (3)

execute a Best Western franchise agreement and pay any applicable fees by November 30, 2019;

 

  (4)

are “Under Construction” by November 30, 2020

Under Construction” means:

 

  (a)

the Company has received and has approved construction drawings;


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  (b)

the Company has received a copy of: proof of ownership of the legal entity, proof of financing, construction permit(s), and the executed contractor agreement; and

 

  (c)

construction has begun, including: the site has been cleared, footings and ground floor have been poured, and structural construction has begun; and

 

  (5)

are open and active on the Best Western reservation system by November 30, 2021.

 

  ((a)

and (b), collectively, the “Post-Conversion Participation Condition”).

Each eligible Contingently-Approved Applicant and New Franchisee (as defined in “Frequently Used Terms”) that satisfies the Post-Conversion Participation Condition described above will receive shares of the Series of Common Stock that corresponds to the district in which the Best Western hotel of such eligible Contingently-Approved Applicant or New Franchisee is located. In the event an eligible Contingently-Approved Applicant or New Franchisee does not satisfy the conditions described above, such Contingently-Approved Applicant or New Franchisee will not be eligible to receive Common Stock on a post-Conversion basis.

The term “Extension Condition” means an extension, with the payment of a nominal extension fee to be determined by the board of directors, on a case by case basis on account of events of force majeure or other events or circumstances not in the control of the Member or applicant seeking such extension, at the discretion of the board of directors, but in no event later than November 30, 2019.

The approval of each of the conversion proposal and the membership termination bylaw proposal will require approval by the affirmative vote of the lesser of two-thirds (23) of the votes cast or a majority of the voting power; provided at least thirty-three and one-third percent (33 13%) of the voting power vote in favor.

You must submit your ballot pursuant to the procedures described herein by no later than 2:00 p.m., Phoenix, Arizona time, on                     , 2019 to have your vote count in the Special Ballot Initiative (the “Voting Deadline”). Voting by proxy is not permitted by our bylaws. We are not asking you for a proxy and you are requested not to send us a proxy.

We intend to continue use of the name “Best Western International, Inc.” after the completion of the Conversion.

Our board of directors believes that the Conversion will help us to grow our scale and funding primarily by adding and retaining more hotels, having greater flexibility in raising capital, more closely aligning brand and hotel owner interests, more effectively competing with other lodging companies and creating value in the ownership interests of our members. A majority of our board of directors has determined that the conversion proposal and the member termination bylaw proposal are advisable and in the best interest of the Company and its members and recommends that you vote “FOR” the conversion proposal and “FOR” the membership termination bylaw proposal.

This information statement/prospectus provides you with detailed information about the Conversion and other matters to be considered in the Special Ballot Initiative to be voted upon by our members in good standing who are entitled to vote in accordance with the terms of our current bylaws. You should carefully evaluate all the information in this information statement/prospectus, including the risks and uncertainties described in “Risk Factors” and throughout the information statement/prospectus. You should only rely on statements made in this information statement/prospectus in determining how to vote on the Special Ballot Initiative and whether you should acquire our shares in the Conversion.


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LOGO

NOTICE OF

SPECIAL BALLOT INITIATIVE TO MEMBERS

VOTING DEADLINE ON                     , 2019

TO THE VOTING MEMBERS OF BEST WESTERN INTERNATIONAL, INC. (the “Company”):

NOTICE IS HEREBY GIVEN that you are being asked to consider and vote upon the following proposals in our special ballot initiative (the “Special Ballot Initiative”) to which this information statement/prospectus relates:

 

  (1)

To consider a proposal, which we refer to as the “conversion proposal,” to approve a corporate transaction, pursuant to which the Company will become a for-profit Arizona corporation, and membership interests of the Company will be converted into shares of Common Stock (the “Conversion”) through a merger with our wholly owned for-profit subsidiary, with the shares of common stock issued in the Conversion being allocated among the members of the Company (the “Members”) by a formula described in this information statement/prospectus for each membership interest held as of November 30, 2019; and

 

  (2)

To consider a proposal, which we refer to as the “membership termination bylaw proposal,” to approve an amendment to our current bylaws to authorize our board of directors to terminate prior to the date of the Conversion the membership interest of any Existing Member, and to terminate prior to the date of the Conversion the membership agreement of any Contingently-Approved Applicant, that does not execute a franchise agreement with the Company and have a property open and active on the Best Western reservation system by the dates described herein.

Both the conversion proposal and the membership termination bylaw proposal must be approved or neither the conversion proposal nor the membership termination bylaw proposal will be adopted.

If both the conversion proposal and the membership termination bylaw proposal are approved, the membership termination bylaw proposal will be adopted with immediate effectiveness.

These special ballot proposals are described in the attached information statement/prospectus, which we encourage you to read in its entirety before voting on the Special Ballot Initiative. Only Members entitled to vote in accordance with the Company’s current bylaws at 1:00 p.m., Phoenix, Arizona time, on                     , 2019 (the “Record Date”) may consider and vote on the Special Ballot Initiative.

The approval of each of the conversion proposal and the membership termination bylaw proposal will require approval by the affirmative vote of the lesser of two-thirds (23) of the votes cast or a majority of the voting power; provided at least thirty-three and one-third percent (33 13%) of the voting power vote in favor.

Pursuant to Article III, Section 5 of the Company’s current bylaws, you are encouraged to electronically submit your ballot by no later than 2:00 p.m., Phoenix, Arizona time, on                     , 2019 to have your vote count in the Special Ballot Initiative (the “Voting Deadline”). Under Arizona law, you are entitled to request an alternate means of obtaining and casting your ballot. Please see “Special Ballot Initiative to the Members—Voting Your Membership Interests” for information regarding alternative voting means.

To have a quorum allowing the Special Ballot Initiative to go forward, Voting Members representing 10% of the Company’s Voting Members as of the Record Date, or                Voting Members, must submit ballots in the Special Ballot Initiative. Proxy voting by Members is expressly prohibited.


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After careful consideration, a majority of our board of directors has determined that the conversion proposal and the membership termination bylaw proposal are advisable and in the best interests of the Company and its Members and recommends that you vote “FOR” the conversion proposal and “FOR” the membership termination bylaw proposal.

Completion of the Conversion is conditioned on approval of the conversion proposal and the membership termination bylaw proposal and other closing conditions. The membership termination bylaw proposal will not become effective unless the conversion proposal is also approved.

Your vote is important regardless of the number of membership interests you own. Please vote on the Special Ballot Initiative using the voting instructions provided to you.

Thank you for your participation. We look forward to your continued support.

 

LOGO

David Kong

President and

Chief Executive Officer

                    , 2019


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LOGO

Dear Fellow Best Western Member,

The Special Ballot Initiative presents an historic decision to our membership, with two very important proposals: (1) the conversion proposal and (2) the membership termination bylaw proposal. The undersigned members of your board of directors support each of the proposals and recommend you vote “Yes” to both proposals in the Special Ballot Initiative.

As Best Western members, we have a responsibility to evaluate our business model from a strategic perspective and to consider the challenging environment in which we compete. We have an obligation to think decisively and to ensure we are in a position to continue our past success.

The first proposal, the conversion proposal, provides for the conversion of our nonprofit membership organization to a for-profit corporation. We acknowledge the competitive challenges facing our business. Those challenges have included the effect of “disrupters” in our industry as well as growth by our competitors across the portfolio of lodging options. To combat these challenges, we have determined that capital investment is necessary to increase awareness in our brands, to continue to enhance our technology and to expand the number of our hotels and brands.

After carefully exploring several strategic alternatives as described in “The Conversion Proposal—Background of the Conversion Proposal,” we, along with the Company’s senior management, have determined that it is in the best interests of the Company and its Members for the Company to convert to a for-profit corporation.

We are also proposing to adopt the membership termination bylaw proposal in order to preserve the relationship, and align more fully the interests, between the Members who will own shares of Common Stock following the Conversion and those owners of hotels who are committed to continuing the growth of our brands. We believe that the Company’s opportunities for growth will be enhanced by asking our Members to enter into the new franchise agreements described in this information statement/prospectus.

We strongly support and are voting “Yes” on each of the proposals. We ask that you vote “Yes” as well—for

the future success of our hotels and our brand.

Sincerely,

 

LOGO

  

LOGO

  

LOGO

Anthony Klok    Peter Kwong    Ishwar Naran
Chairperson    Vice Chairperson    Secretary Treasurer
District 3 Director    District 6 Director    District 4 Director

LOGO

  

LOGO

Terrance J. Bichsel               

John L. Kelly

District 2 Director               

District 5 Director

                    , 2019


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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

     1  

SUMMARY OF THE INFORMATION STATEMENT/PROSPECTUS

     13  

RISK FACTORS

     22  

FORWARD-LOOKING STATEMENTS

     43  

SPECIAL BALLOT INITIATIVE TO THE MEMBERS

     45  

THE CONVERSION PROPOSAL

     48  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

     58  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     59  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     73  

MANAGEMENT

     74  

EXECUTIVE COMPENSATION

     81  

DIRECTOR COMPENSATION

     86  

BUSINESS OF THE COMPANY

     87  

BENEFICIAL OWNERSHIP OF SECURITIES

     105  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     106  

DESCRIPTION OF CAPITAL STOCK FOLLOWING THE CONVERSION

     107  

MARKET PRICE INFORMATION AND DIVIDEND POLICY

     124  

USE OF PROCEEDS

     124  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     125  

MATERIAL CANADIAN INCOME TAX CONSEQUENCES

     131  

THE MEMBER TERMINATION BYLAW PROPOSAL

     135  

LEGAL MATTERS

     137  

EXPERTS

     137  

OTHER BUSINESS

     137  

WHERE YOU CAN FIND MORE INFORMATION

     137  

INDEX TO FINANCIAL STATEMENTS

     F-1  

APPENDIX APLAN OF MERGER

     A-1  

APPENDIX BPROPOSED MEMBERSHIP TERMINATION AMENDMENT TO BYLAWS

     B-1  

 

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FREQUENTLY USED TERMS

As used in this information statement/prospectus:

Amended and Restated Articles of Incorporation” means the articles of incorporation of BW Inc. following effectuation of the Merger, the form of which is included as Exhibit A to the Plan of Merger;

Amended and Restated Bylaws” means the bylaws of BW Inc. following effectuation of the Merger, the form of which is included as Exhibit B to the Plan of Merger;

BW Inc.” means Best Western International, Inc., an Arizona for-profit corporation, after giving effect to the Merger;

BW Inc. (NP)” means Best Western International, Inc., an Arizona nonprofit corporation;

BW Merger Sub” means Best Western Merger Sub, Inc., an Arizona for-profit corporation;

BWR” means Best Western Rewards®;

Code” means the Internal Revenue Code of 1986, as amended;

Common Stock” means the common stock of BW Inc. and any series or class of common stock designated by the board of directors under the authority granted to it by the articles of incorporation of BW Inc.;

Company” or “Best Western” means BW Inc. (NP), up to the effective time of the Conversion, and BW Inc., at and following the effective time of the Conversion;

“Contingently-Approved Applicant” means a person who has executed a Best Western membership agreement prior to the Voting Deadline but was not yet a Member prior to the Voting Deadline;

Conversion” means the conversion of BW Inc. (NP), an Arizona nonprofit corporation, to BW Inc., an Arizona for-profit corporation, pursuant to the Plan of Merger (the form of which is attached hereto as Appendix A) intended to be effected on December 1, 2019;

Conversion Date” means the effective date of the Conversion;

Designated Accountant means Mukai, Greenlee & Company, P.C., the accountants designated by the Board of Directors to certify the results of the vote requested in this information statement/prospectus as provided in our bylaws;

Director” means a member of our board of directors;

District” means one of the seven geographic areas created pursuant to the Company’s bylaws;

District Manager” means the managers coordinating activities in the Company’s Districts;

Exchange Act” means the Securities Exchange Act of 1934, as amended;

Existing Member” means a Member as of the date of this information statement/prospectus;

Existing Member Participation Condition” means an Existing Member has (i) entered into the New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) a property open and active on the Best Western reservation system by November 30, 2019;

 

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Extension Condition” means an extension, with the payment of a nominal extension fee to be determined by the board of directors, on a case by case basis on account of events of force majeure or other events or circumstances not in the control of the Member or applicant seeking such extension, at the discretion of the board of directors of the Company, but in no event later than November 30, 2019;

“GDS” means global distribution systems;

“GDS/Switch” means our GDS/Switch initiative, which includes connections through our reservations platform for our hotels to leading distribution partners, such as online travel agency business, wholesalers, GDS and individual corporations;

Governor” means a person appointed by a Director to act as a liaison in a designated region for the Director in the Director’s District;

“GRR” means gross room revenue;

“Information Statement/Prospectus” means our information statement/prospectus included in our Registration Statement on Form S-1 (Registration No. 333-226793) initially filed with the SEC on August 8, 2018;

“IPO” means an initial public offering of the Company’s shares of Common Stock or a direct listing of the Company’s shares of Common Stock for trading on a national securities exchange. For the avoidance of doubt, the issuance of Common Stock pursuant to this Registration Statement does not constitute an IPO;

JOBS Act” means the Jumpstart Our Business Startups Act of 2012;

Member” means a holder of a single membership interest in BW Inc. (NP);

“Merger” means the merger of BW Inc. (NP) and BW Merger Sub provided for in the Plan of Merger;

NASAA” means North American Securities Administrators Association;

“NASAA Statement of Policy” means the NASAA General Statements of Policy for Registration of Securities;

New Franchise Agreement” means a franchise agreement in the form described in “Business—New Franchise Agreements”;

“New Franchisee” means a person in North America who (i) was not a Member or Contingently-Approved Applicant prior to the Voting Deadline if the Members approve the Conversion and (ii) subsequently executes the applicable Best Western franchise agreement before December 1, 2019;

New Member” means a Contingently-Approved Applicant for a Best Western-branded hotel that satisfies the New Member Participation Condition;

New Member Participation Condition” means a contingently-approved applicant has (i) entered into a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) a property open and active on the Best Western reservation system by November 30, 2019;

“OTA” means online travel agency, such as Expedia, Booking.com and Priceline.com;

Plan of Merger” means the corporate transaction pursuant to Arizona state law whereby BW Merger Sub will merge with and into BW Inc. (NP), with BW Inc. as the surviving entity;

 

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Post-Conversion Franchise Agreement” means the franchise agreement entered into by Post-Conversion Shareholders;

Post-Conversion Participation Condition” means, collectively

 

(a)

with respect to Contingently-Approved Applicants and New Franchisees that are converting existing properties to a Best Western franchise that

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the board of directors by November 16, 2019;

 

  (3)

execute a Post-Conversion Franchise Agreement and pay any applicable fees by November 30, 2019; and

 

  (4)

are open and active on the Best Western reservation system by November 30, 2020;

or

 

(b)

with respect to Contingently-Approved Applicants and New Franchisees that are constructing new properties, that

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the Board of Directors by November 16, 2019;

 

  (3)

execute a Post-Conversion Franchise Agreement and pay any applicable fees by November 30, 2019;

 

  (4)

are “Under Construction” by November 30, 2020

Under Construction” means:

 

  (a)

the Company has received and has approved construction drawings;

 

  (b)

the Company has received a copy of: proof of ownership of the legal entity, proof of financing, construction permit(s), and the executed contractor agreement; and

 

  (c)

construction has begun, including: the site has been cleared, footings and ground floor have been poured, and structural construction has begun; and

 

  (5)

are open and active on the Best Western reservation system by November 30, 2021;

Post-Conversion Shareholder” means a Contingently-Approved Applicant or New Franchisee that is not open and active on the Best Western reservation system by November 30, 2019 that satisfies the Post-Conversion Participation Condition;

RevPAR” means total room revenue divided by the total number of available rooms (i.e., revenue per available room) (for more information with respect to RevPAR, see “Certain Financial Information”);

RevPAR index” means the measurement of a hotel’s or group of hotels’ fair market share of a competitive set’s RevPAR (for more information with respect to RevPAR index, see “Certain Financial Information”);

SEC” or “Commission” means the Securities and Exchange Commission;

Securities Act” means the Securities Act of 1933, as amended;

Special Ballot Initiative” refers to the ballot proposals presented to the Members to which this information statement/prospectus relates;

STR” means STR, Inc. (formerly known as Smith Travel Research, Inc.);

 

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“TCJ Act” means the Tax Cut and Jobs Act of 2017;

Voting Deadline” means the deadline, pursuant to Article III, Section 5 of the Company’s current bylaws, by which a Voting Member may vote in the Special Ballot Initiative, which date shall be 2:00 p.m. Phoenix, Arizona time on                     , 2019; and

Voting Member” means a Member who meets the requirements of Article III, Section 4 of the Company’s current bylaws, including, without limitation, the requirement to have on file with the Company a current voter registration card. Such Member or such Member’s designee, as stated on the voter registration card, shall be the Voting Member.

References to “fiscal year” of the Company refer to the year ending November 30 of the respective year. By way of example, “fiscal 2018” refers to the year ended November 30, 2018.

 

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Important Notes

Assuming the fulfillment of certain conditions set forth in this information statement/prospectus, we expect to complete the Conversion on December 1, 2019, or as soon as practicable following such date, with respect to membership interests as of November 30, 2019. To the extent the effectiveness of the Conversion is delayed beyond December 1, 2019, significant dates in this information statement/prospectus will similarly be delayed, including, without limitation, the date on which membership interests must be outstanding to automatically be converted into shares of BW Inc. and the date by which Existing Members and New Members must have entered into New Franchise Agreements with the Company. If the completion of the Conversion is delayed significantly beyond December 1, 2019, our board of directors would analyze the facts and circumstances at that time in order to determine whether it is necessary or advisable to update the information provided to Voting Members or to seek again Voting Member approval of the Conversion, taking into account all applicable state and federal laws.

In this information statement/prospectus, we describe that the Amended and Restated Articles of Incorporation of the Company will authorize the issuance of 100.0 million shares of Common Stock and that the Company will issue and reserve for issuance a total of 55.0 million shares, or 55.0%, of its authorized shares of Common Stock to Existing Members and New Members in connection with the Conversion, and to Post-Conversion Shareholders on a post-Conversion basis.

On the Conversion Date, each Existing Member and New Member will receive a number of shares of Common Stock determined by the following formula based on the number of Members and the number of Contingently-Approved Applicants and New Franchisees eligible to participate on a Post-Conversion basis as of November 30, 2019. Each Member will receive a number of shares of Common Stock equal to 55.0 million shares divided by the sum of (a) the number of Members as of November 30, 2019 and (b) the product of (x) the number of contingently-approved applicants and Best Western franchisees in North America eligible to participate on a post-Conversion basis as of November 30, 2019 and (y) 0.5. Based on approximately 2,000 Members and approximately 230 Contingently-Approved Applicants in North America existing as of the date of this information statement/prospectus, we expect that each Existing Member and New Member will receive approximately 26,000 shares of Common Stock on the Conversion Date and the Company will reserve for issuance for each Post-Conversion Shareholder approximately 13,000 shares of Common Stock, to be issued to such Post-Conversion Shareholder on a post-Conversion basis.

On February 15, 2019 (the “Acquisition Date”), the Company entered into, and closed, a definitive Share Sale and Purchase Agreement (the “Purchase Agreement”) with WorldHotels Holdings, LLC (“WH Holdings”) and ALHI Holdings, LLC (“ALHI”) (collectively, the “Sellers”), to purchase 100% of the outstanding shares of BV Acquisitions X GmbH (“BV Acquisitions”) from WH Holdings (thereby also acquiring approximately 98% ownership of the outstanding shares of WorldHotels Aktiengesellschaft (“WorldHotels”) (the “WorldHotels Acquisition”). Our financial statements, related discussions and other data and business discussions in this report do not include WorldHotels’ results of operations, financial position or Legacy-WorldHotels business and brands (defined below), except where we specifically state otherwise. We refer to the WorldHotels business and brands that we acquired as “Legacy-WorldHotels.” See Footnote 14 “Subsequent Events” to our audited Consolidated Financial Statements that are included elsewhere in this information statement/prospectus for more information.

Certain Financial Information

We use RevPAR and RevPAR index throughout this information statement/prospectus as supplemental measures of our performance. We believe such measures are used frequently by investors and other interested parties in the evaluation of companies in our industry.

RevPAR is total room revenue divided by the total number of available rooms (the same number is referred to sometimes as the product of the average daily rate and the average daily occupancy percentage). RevPAR does not include non-room revenues, which consist of ancillary revenues generated by a hotel property, such as food

 

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and beverage, parking, telephone and other guest service revenues. Our management uses RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a chain scale basis.

RevPAR index is used to evaluate brand performance. RevPAR index is calculated by the Company by comparing the brands’ RevPAR to the aggregate RevPAR of the competing brands in the Company’s respective chain scales (i.e., midscale, upper midscale, and upscale). We subscribe to STR, a well-recognized and universally accepted benchmarking service for the hospitality industry, which collects and compiles the data used by the Company to calculate RevPAR index. The chain scale segments are defined by STR. Management uses RevPAR index and changes in RevPAR index, particularly year-over-year percentage changes, to evaluate the performance of Best Western brands relative to other competing brands.

Market Information

Information regarding market share, market position and industry data pertaining to our business contained in this information statement/prospectus includes estimates based on data and reports compiled by industry professional organizations and analysts (including STR), and our knowledge of our industry. Although we believe the industry and market data to be reliable, this information could prove inaccurate. Industry and market data could be wrong because of the method by which sources obtained their data and because information cannot always be verified with complete certainty due to the limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. You should carefully consider the inherent risks and uncertainties associated with the market and other industry data contained in this information statement/prospectus. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties as the other forward-looking statements in this information statement/prospectus.

Trademarks and Trade Names

This information statement/prospectus includes our trademarks and service marks which are protected under applicable intellectual property laws and are the property of Best Western International, Inc. or its subsidiaries, such as Best Western®, Best Western Plus®, Best Western Premier®, Executive Residency by Best Western®, Vīb®, GLō®, SadieSM, AidenSM, BW Premier Collection®, BW Signature Collection®, WorldHotelsTM Luxury, WorldHotels Elite, WorldHotels Distinctive, SureStay®, SureStay Plus®, SureStay Collection®, Best Western Rewards®, BWR® and Best Western Travel Card®. This prospectus also contains trademarks, service marks, trade names and copyrights, of other companies, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

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Registered Broker Dealer

We have engaged Citigroup Global Markets Inc. (“Citigroup”) to serve as a registered broker-dealer or dealer, as applicable, in certain U.S. states to assist us solely in the distribution of ballot and related materials, and in the performance of certain other functions in order to satisfy certain requirements of state securities regulators in those states. Citigroup has not been involved in communications with our Members related to this Special Ballot Initiative or the Conversion prior to its engagement by us on August 10, 2018. We agreed to pay Citigroup Global Markets Inc. a total of up to $1.1 million for its services, to reimburse, under certain circumstances, expenses it incurs following the date of Conversion and to indemnify it against potential liabilities arising out of its engagement. We note that, in the opinion of the SEC, indemnification against liabilities under the U.S. federal securities laws is against public policy expressed in the Securities Act, and, therefore, this indemnification may be deemed unenforceable. We may adopt other special procedures in connection with these compliance efforts.

 

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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS

The following are questions and answers about the Conversion, the membership termination bylaw proposal and related matters. These questions and answers do not address all of the questions that you may have about the Conversion and the membership termination bylaw proposal. More detailed information is contained elsewhere in this information statement/prospectus. You should read this entire information statement/prospectus carefully before casting your vote on the Conversion and the membership termination bylaw proposal.

Plan of Merger

 

Q:

What is the Conversion and why am I receiving this information statement/prospectus?

 

A:

We are proposing a conversion from an Arizona nonprofit corporation into an Arizona for-profit corporation by merging our wholly owned, for-profit subsidiary BW Merger Sub, with and into BW Inc. (NP), with BW Inc. as the surviving entity. The Conversion will be effected by adopting the Plan of Merger and amending and restating our articles of incorporation (as so amended and restated, the “Amended and Restated Articles of Incorporation”) and bylaws (as so amended and restated, the “Amended and Restated Bylaws”) to remove provisions which establish our nonprofit character, and adopting certain other provisions that are beneficial to the operations of a for-profit corporation, while maintaining much of the Company’s existing governance structure.

 

Q:

Why is the Company proposing the Conversion?

 

A:

As part of an ongoing analysis of our business, our board of directors and senior management identified several primary factors which led them to recommend the proposed Conversion to the Members. In recent years, our Company has faced competitive challenges to its business. These challenges have included the effect of the ever-growing online travel agency business, large online portal and search engine websites and growth by our competitors across a portfolio of lodging options, which allow them to increase market penetration, achieve synergy and efficiencies and leverage their guest loyalty programs. To combat each of these challenges, and to protect and grow our market share, our board of directors determined that capital investment is necessary to increase advertising and marketing for brand awareness, to provide increased investment in technology and support for our reservation and loyalty reward systems and to expand our number of hotels and brands. Our board of directors believes that the Conversion will help us to grow our scale and funding primarily by adding and retaining more hotels, having greater flexibility in raising capital, more closely aligning brand and hotel owner interests, more effectively competing with other lodging companies and creating value in the ownership interests of our Members. See “The Conversion Proposal—Our Board of Directors’ Reasons for Approval of the Conversion.”

 

Q:

Why change our business model?

While we have worked hard to retain cash to shore up our balance sheet to prepare for any market downturn, our reserves are equivalent to a few months of expenses. The non-contingency reserve funds on our balance sheet are necessary to be maintained for BWR redemptions. The BWR reserve is verified annually by an independent third-party accounting firm to ensure we maintain sufficient funds to cover future BWR redemptions. While we maintain a reserve, there is limited capacity for business opportunities to grow our brands or for additional investments in technology or with online travel agencies or internet search engine websites to drive business and stop our competitors from aggressively taking our market share. Our funding model is not letting us compete in this fast changing and hyper-competitive environment. As a nonprofit company, we are losing scale and lack sufficient funds to actively invest in our future success. Our board of directors and management believes that a for-profit business model would enhance the brand’s organic growth potential and flexibility to adapt to our competitive environment and protect and grow our market share.

 

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Issuance of Common Stock in the Conversion

 

Q:

How will the shares of Common Stock in the Company be distributed in connection with the Conversion?

 

A:

Currently, each Member holds a membership interest in the Company. Pursuant to the Plan of Merger, we will recapitalize the Company by converting all of the outstanding membership interests as of November 30, 2019 into newly-issued shares of Common Stock to be distributed on the effectiveness of the Conversion on December 1, 2019. On the Conversion Date, each Existing Member and New Member will receive a number of shares of Common Stock determined by a formula based on the number of Members, contingently-approved applicants and Best Western franchisees in North America, in each case as of November 30, 2019. Each Member will receive a number of shares of Common Stock equal to 55.0 million shares divided by the sum of (a) the number of Members as of November 30, 2019 and (b) the product of (x) the number of contingently-approved applicants and Best Western franchisees in North America eligible to participate on a post-Conversion basis as of November 30, 2019 and (y) 0.5. Based on approximately 2,000 Members and approximately 230 contingently-approved applicants in North America existing as of the date of this information statement/prospectus, we expect that each Existing Member and New Member will receive approximately 26,000 shares of Common Stock on the Conversion Date and the Company will reserve for issuance for each Post-Conversion Shareholder approximately 13,000 shares of Common Stock, to be issued to such Post-Conversion Shareholder on a post-Conversion basis. Considering all Members participate equally as Members, the board of directors determined that a fixed number of shares for each membership interest was fair and appropriate.

 

Q:

Who is entitled to receive shares of Common Stock in the Conversion?

 

A:

Pursuant to the membership termination bylaw proposal, if adopted, Existing Members that (i) execute a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) are open and active on the Best Western reservation system by November 30, 2019 will receive shares of Common Stock in the Conversion in exchange for such Existing Member’s existing membership interest. Contingently-Approved Applicants that (i) execute a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) are open and active on the Best Western reservation system by November 30, 2019 will become New Members, will receive membership interests, and will thereafter receive Common Stock in the Conversion in exchange for their membership interest. The shares will be issued to the Member entity holding the existing membership interest that entered into the current membership agreement and subsequently the New Franchise Agreement. Owners and licensees of branded hotels outside of North America will not receive shares in the Conversion nor will executive officers of the Company on account of such persons not being Members. Our Directors will receive shares in the Conversion as they are Members.

 

Q:

What percentage of the Company will be owned by Members upon the Conversion?

 

A:

Upon the effectiveness of the Conversion, the Existing Members and New Members will own 100% of the outstanding Common Stock of the Company. We expect that each Existing Member and New Member will receive approximately 26,000 shares of Common Stock on the Conversion Date and the Company will reserve for issuance for each Post-Conversion Shareholder approximately 13,000 shares of Common Stock, to be issued to such Post-Conversion Shareholder on a post-Conversion basis. The Amended and Restated Articles of Incorporation will authorize additional shares of Common Stock for issuance, but the shares issued and reserved for issuance to the Existing Members, New Members and Post-Conversion Shareholders will represent a total of 55% of the aggregate number of authorized shares of Common Stock. No other class of capital stock will be authorized for issuance in the Amended and Restated Articles of Incorporation.

 

Q:

Will I be able to sell the shares of Common Stock that I receive in the Conversion?

 

A:

The shares of Common Stock that you receive in the Conversion will not be transferable other than with the prior approval of our board of directors, unless and until the Company conducts an initial public offering of

 

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  shares of its Common Stock or the Company directly lists its Common Stock for trading on a national securities exchange (each referred to herein as an “IPO”). For the avoidance of doubt, the issuance of Common Stock pursuant to this information statement/prospectus does not constitute an IPO. See “Description of Capital Stock Following the Conversion.” You should note that our board of directors currently does not expect to approve transfers of shares of Common Stock to competitors. After an IPO, the restrictions on transferability of the Common Stock will no longer be applicable, and you may freely transfer your Common Stock, subject to any applicable restrictions under U.S. securities laws. These restrictions on transferability of the Common Stock are different from the transferability of a membership interest, which may be transferred automatically so long as the hotel is in good standing. The New Franchise Agreements will also provide for automatic transferability of the Best Western franchise to a purchaser of the hotel who enters into a subsequent franchise agreement; however transferees must execute a franchise agreement consistent with terms and conditions of the form of franchise agreement approved by our board of directors prior to the beginning of each fiscal year with the exception of discounted fees in certain circumstances. See “Business of the Company—New Franchise Agreements.”

 

Q:

What happens if I cease to operate my hotel as a Best Western after the Conversion?

 

A:

During the initial three-year period following the Conversion Date or until an IPO if one occurs within such initial three-year period, if the hotel is no longer a Best Western franchisee, or if notice has been given that such hotel will cease to be operated as a Best Western franchisee, the Company will have the right to redeem the shares of Common Stock issued to any Member in the Conversion for $0.10 per share. After the initial three-year holding period, assuming such shares have not been previously redeemed, you will continue to retain your shares regardless of whether the hotel continues to be operated as a Best Western franchisee. Any shares of Common Stock that are redeemed by the Company will be retired and may not be reissued by the Company. In addition, the number of authorized shares of Common Stock will be reduced proportionately by the number of shares so redeemed, to the extent there are authorized but unissued shares that are not then reserved for issuance, so that a total of 55% of the aggregate number of authorized shares of Common Stock will have been issued to the shareholders of the Company holding the seven designated Series of Common Stock.

In addition, if the hotel of a New Franchisee or a Contingently-Approved Applicant who becomes a Post-Conversion Shareholder ceases for any reason to be operated as a Best Western-branded hotel within three years of being open and active on the Best Western reservation system, the Company will have the right to repurchase all Common Stock issued to such shareholder for $0.10 per share.

 

Q:

What will happen to the shares of Common Stock issued to a Member in the Conversion if a hotel is transferred or sold?

 

A:

During the initial three-year period following the effectiveness of the Conversion, assuming there is not an IPO prior to such time, with respect to any Member receiving shares of Common Stock in the Conversion:

 

   

If you sell your hotel with approval of our board of directors and it remains a Best Western franchisee, you will retain your shares of Common Stock. You may not sell such shares of Common Stock to the purchaser of your hotel without the approval of the board of directors.

 

   

If your transferee ceases to operate the hotel as a Best Western franchisee, the Company has the right to redeem your shares of Common Stock for $0.10 per share.

 

   

In the event your shares of Common Stock are redeemed because your transferee ceases to operate the hotel as a Best Western franchisee, any other rights you may have are solely between you and your transferee.

After the initial three-year period following the Conversion Date, you will continue to retain your shares regardless of whether the hotel continues to be operated as a Best Western franchisee.

 

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Q:

Is there a plan to issue the remaining authorized but unissued shares of Common Stock?

 

A:

Following the Conversion and the issuance of Common Stock on a Post-Conversion basis, the Company will have authorized but unissued shares of Common Stock of 45.0 million shares, or approximately 45% of the authorized capital stock of the Company. These additional shares may be utilized for corporate purposes such as future offerings to raise additional capital for investment, corporate acquisitions or general corporate purposes and any such shares may only be issued with the approval of at least two-thirds of the members of our board of directors. The board of directors believes that the value of the Company, and of the shares of Common Stock, will grow over time and that issuing shares in the near term may not reflect the intended value of the implementation of the Conversion. Pursuant to the Amended and Restated Articles of Incorporation, the Company may not issue shares of Common Stock to any member of the board of directors without the affirmative vote of the holders of at least a majority of the outstanding Common Stock, other than in accordance with the terms of this offering or in a transaction generally available to all shareholders.

Issuance of Common Stock following the Conversion

 

Q:

Who is entitled to receive shares of Common Stock following the Conversion?

 

A:

In conjunction with and subject to approval of the Conversion by the Members, shares of Common Stock will be offered on a continuous basis following the Conversion and will be issued to a Contingently-Approved Applicant or New Franchisee that is not open and active on the Best Western reservation system by November 30, 2019 that

 

(a)

with respect to Contingently-Approved Applicants and New Franchisees that are converting existing properties to a Best Western franchise,

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the board of directors by November 16, 2019;

 

  (3)

execute a Post-Conversion Franchise Agreement and pay any applicable fees by November 30, 2019; and

 

  (4)

are open and active on the Best Western reservation system by November 30, 2020;

or

 

(b)

with respect to Contingently-Approved Applicants and New Franchisees that are constructing new properties,

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the Board of Directors by November 16, 2019;

 

  (3)

execute a Post-Conversion Franchise Agreement and pay any applicable fees by November 30, 2019;

 

  (4)

are “Under Construction” by November 30, 2020

Under Construction” means:

 

  (a)

the Company has received and has approved construction drawings;

 

  (b)

the Company has received a copy of: proof of ownership of the legal entity, proof of financing, construction permit(s), and the executed contractor agreement; and

 

  (c)

construction has begun, including: the site has been cleared, footings and ground floor have been poured, and structural construction has begun; and

 

  (5)

are open and active on the Best Western reservation system by November 30, 2021.

 

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Each Post-Conversion Shareholder will receive shares of the Series of Common Stock that corresponds to the District in which the Best Western hotel of such Post-Conversion Shareholder is located. In the event a Contingently-Approved Applicant or New Franchisee, does not satisfy conditions described above, such Contingently-Approved Applicant or New Franchisee will not be eligible to receive Common Stock on a post-Conversion basis. Prospective Post-Conversion Shareholders should review the section entitled “Risk Factors” regarding the risks associated with the business of the Company and ownership of the Common Stock.

 

Q:

How will the shares of Common Stock in the Company be distributed following the Conversion?

 

A:

As described above, shares of Common Stock are being offered on a continuous basis following the Conversion and will be issued to each Post-Conversion Shareholder that satisfies the Post-Conversion Participation Condition based on a formula described in this information statement/prospectus. We expect that the Company will reserve for issuance for each Contingently-Approved Applicant and New Franchisee that is not open and active on the Best Western reservation system by November 30, 2019 approximately 13,000 shares of Common Stock, to be issued on a post-Conversion basis. The board of directors determined that a fixed number of shares for each Post-Conversion Shareholder was fair and appropriate.

 

Q:

Will Post-Conversion Shareholders be able to sell the shares of Common Stock that they receive on a post-Conversion basis?

 

A:

The shares of Common Stock that Post-Conversion Shareholders receive following the Conversion will not be transferable other than with the prior approval of our board of directors, unless and until the Company completes an IPO. See “Description of Capital Stock Following the Conversion.” Post-Conversion Shareholders should note that our board of directors currently does not expect to approve transfers of shares of Common Stock to competitors. After an IPO, the restrictions on transferability of the Common Stock will no longer be applicable, and our stockholders may freely transfer Common Stock, subject to any applicable restrictions under U.S. securities laws. While these restrictions on transferability of the Common Stock are different from transferability of a membership interest, which may occur automatically so long as the Best Western hotel is in good standing, the Post-Conversion Franchise Agreement will also provide for automatic transferability of the franchise to a purchaser of the hotel who enters into a subsequent franchise agreement, subject to the payment of a transfer fee as set by the board of directors from time to time.

 

Q:

What happens if a Post-Conversion Shareholder ceases to operate its hotel as a Best Western after the Conversion or after being open and active on the Best Western reservation system?

 

A:

Under the terms of the Amended and Restated Articles of Incorporation, until the earlier of the third anniversary of the Conversion Date or an IPO of the Company, if the hotel is no longer a Best Western franchisee, or if notice has been given that such hotel will cease to be operated as a Best Western franchisee, the Company will have the right to redeem the shares of Common Stock issued to such Post-Conversion Shareholder for $0.10 per share.

In addition, under the Post-Conversion Franchise Agreement (i) if the hotel of a Post-Conversion Shareholder ceases for any reason to be operated as a Best Western-branded hotel within three years of being open and active on the Best Western reservation system, the Company will have the right to repurchase all Common Stock issued to such shareholder for $0.10 per share (ii) and in the event a Post-Conversion Shareholder ceases to operate its hotel as a Best Western during the term of the agreement, the Post-Conversion Shareholder will be subject to liquidated damages.

The Membership Termination Bylaw Proposal

 

Q:

Are there any other proposals in the Special Ballot Initiative?

 

A:

In addition to voting on the conversion proposal, the Voting Members will vote on the membership termination bylaw proposal, which will authorize our board of directors to terminate prior to the Conversion

 

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Date the membership interest of any Existing Member, and to terminate prior to the Conversion Date the membership agreement of any Contingently-Approved Applicant, that does not enter into a New Franchise Agreement with the Company and have a property open and active on the Best Western reservation system by the dates described herein. See the section entitled “The Membership Termination Bylaw Proposal” for a description of the membership termination bylaw proposal.

Both the conversion proposal and the membership termination bylaw proposal must be approved or neither the conversion proposal nor the membership termination bylaw proposal will be adopted.

If both the conversion proposal and the membership termination bylaw proposal are approved, the membership termination bylaw proposal will be adopted with immediate effectiveness.

 

Q.

Why are we proposing to amend our current bylaws?

 

A.

As described above, we are proposing to amend our current bylaws, with immediate effectiveness, to authorize our board of directors to terminate prior to the Conversion Date the membership interest of any Existing Member, and to terminate prior to the Conversion Date the membership agreement of any Contingently-Approved Applicant that does not enter into a New Franchise Agreement with the Company and have a property open and active on the Best Western reservation system by the dates described herein.

We are proposing to adopt this bylaw initiative in order to preserve the relationship, and align more fully the interests, between the Members who will own shares of Common Stock after the Conversion and those owners of hotels who are committed to continuing the growth of our brands. As more fully described herein, our board of directors has determined that the Company’s opportunities for growth will be enhanced by asking our Existing Members and Contingently-Approved Applicants to enter into the New Franchise Agreements that, while maintaining our current brand standards (with limited exceptions), will provide the opportunity for long-term growth and increased scale and investment by the Company. Our board of directors has determined that those Existing Members or Contingently-Approved Applicants who do not wish to participate in this proposed construct by signing a New Franchise Agreement should not share in the value created by it as shareholders of the Company as a for-profit corporation.

The New Franchise Agreements

 

Q:

Why are we lengthening the term of our agreement with Members (i.e. the New Franchise Agreement)?

 

A:

We need to lengthen the term of our agreements with our hotel owners because our current one-year term provides no protection against hotels leaving our brand while our remaining Members are left to deal with the consequences, including loss of scale and any funding shortfall. As we prepare for our future, we need stability and continuity to ensure our success. Therefore, the term of the New Franchise Agreement will be 12 years. Our Members who execute the New Franchise Agreement will be able to cancel the New Franchise Agreement without paying liquidated damages on the first and second anniversaries of the agreement (i.e., November 30, 2020 and 2021). The 12-year agreement also protects the low fees as well as the important rights and voice of our shareholders for that duration. Moreover, the New Franchise Agreement for Members will provide that any franchisee thereunder will be offered a subsequent 10-year franchise agreement with all fees, dues and assessments unchanged with the exception of an additional royalty fee of no more than 1.5% of property room revenue, if the applicable hotel is, at the conclusion of the initial 12-year term, in good standing (e.g., current in fees), current as to brand standards (e.g., guest service, breakfast, high speed internet access, design, etc.) and meets then-current requirements for relevance and guest satisfaction in the hotel’s market, which requirements may differ in each market, considering the hotel’s RevPAR index, sentiment scores or other guest satisfaction ratings, social media ratings, and other factors then utilized by the hotel industry to determine relevance and guest satisfaction. The Area of Protection for the subsequent 10-year term will be subject to negotiation based upon competitive market conditions.

 

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Q:

Will I still be able to auto-transfer?

 

A:

Yes, the New Franchise Agreements will include the ability to auto-transfer your franchise (i.e., the right to transfer the franchise agreement with the Company to the purchaser of your hotel) in the event of a sale of your hotel. However, transferees will be required to enter into a franchise agreement with the Company with a term of up to 15 years and with terms similar to those that are offered to non-Member/non-shareholder owners with the exception of discounted fees in certain circumstances (such fees being either: (A) with respect to the first transferee, as applicable, the lesser of (i) 3.5% of gross room revenue (“GRR”) for a transferee with former Members as of July 1, 2016 having a minimum 50% financial ownership interest in the transferee property; or (ii) a percentage of GRR equal to the fees paid by the transferor expressed as a percentage of the hotel’s GRR for the 12 months prior to such transfer plus 1%; and (B) with respect to any subsequent transferee, the lesser of (i) 3.5% of GRR for a transferee with former Members as of July 1, 2016 having a minimum 50% financial ownership interest in the transferee property; or (ii) then-current fees for new franchisees).

 

Q:

Why does the New Franchise Agreement include a two-year liquidated damages provision?

 

A:

Many of our Members have been with the Best Western brand for a long time and intend to remain with the brand. They are left facing the negative consequences of losing scale and funding when hotels leave our brand (often because they do not want to improve their hotels). To protect our Members’ interests, we need to provide an incentive for hotels that may otherwise leave our brand to invest in order to remain in compliance with our standards as other Members have done.

On average, it takes at least two years for us to redevelop and establish a replacement for a hotel that has ceased operating under our brand. A new construction hotel will take considerably more time. Therefore, we believe that liquidated damages of two years are reasonable. As described above, any Existing Member will not be subject to any liquidated damages provision if its hotel leaves our brand on the first or second anniversaries of the New Franchise Agreement.

 

Q:

By when must Members enter into New Franchise Agreements?

 

A:

An Existing Member that (i) executes a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system by November 30, 2019 will receive shares of Common Stock on the Conversion Date in exchange for such Existing Member’s existing membership interest; otherwise the membership interest of such Existing Member will be cancelled prior to the Conversion Date and such Existing Member will not receive shares of Common Stock in the Conversion.

A Contingently-Approved Applicant that (i) executes a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system by November 30, 2019 will become a New Member prior to the Conversion, will receive membership interests, and thereafter receive shares of Common Stock on the Conversion Date in exchange for their membership interests; otherwise the membership agreement of such Contingently-Approved Applicant will be cancelled prior to the Conversion Date and such Contingently-Approved Applicant will not receive shares of Common Stock in the Conversion. Notwithstanding the deadline for participation in the Conversion, Contingently-Approved Applicants are eligible to receive Common Stock on a post-Conversion basis subject to satisfaction of the Post-Conversion Participation Condition. See “Summary of the Information Statement/Prospectus—The Conversion Proposal—Conversion Overview—Consideration to the Company and to Existing Members, New Members and Post-Conversion Shareholders.”

The New Franchise Agreements will have an effective date of December 1, 2019. For a comparison of the material terms of our existing membership agreements and the expected terms of the New Franchise Agreements, see “Business of the Company—New Franchise Agreements.”

 

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Governance Matters

 

Q:

How will governance of the Company change?

 

A:

We are proposing to retain most of the key elements of our current governance structure, subject to the requirements of the Arizona Business Corporation Act applicable to for-profit corporations. First, we will retain our board of directors, with the Directors elected by the shareholders within a District through separate Series of Common Stock, as described below. Nominations for, and election of, board members will continue to proceed on a District-by-District basis (unless and until there is an IPO), through the issuance of separate Series of Common Stock to Members in each District, subject to providing for earlier notification and nomination timeframes necessary to permit compliance with the provisions applicable to public reporting companies under the Exchange Act to the extent applicable to the Company. In order to be nominated and elected by a District, a Director nominee must continue to meet the specified qualifications in our Amended and Restated Bylaws, including that such Director nominee must have a material interest in a Best Western-branded hotel within that District. Second, we are proposing to continue our Governor and Advisory Committee programs to ensure the concerns of our hotel owners are heard and their feedback considered before any significant brand changes. Third, franchisees will vote on material brand matters in accordance with the terms of their franchise agreements, as described herein. See “Business of the Company—New Franchise Agreements.” Our shareholders will be entitled to vote on major corporate matters, such as amendments to the articles of incorporation, any amendments to our bylaws, and certain fundamental transactions, such as mergers or consolidations or pursuing an IPO of the Company. See “Description of Capital Stock Following the Conversion—Comparison of Members Rights Before and After the Conversion” for a description of the rights of Members as shareholders in the post-Conversion corporation.

 

Q:

Who is being proposed for the current board of directors?

 

A:

Pursuant to the Plan of Merger, we are proposing that the current members of our board of directors or Directors-elect as of November 30, 2019 constitute the initial board of directors of BW Inc. The board of directors will be classified into two separate classes of Directors, with Directors in each class serving two-year terms.

 

Q:

What is the proposed composition of the board of directors going forward?

 

A:

Our Plan of Merger provides that the Company will continue to have a board of directors consisting of seven members, with each District continuing to elect one member of the board of directors who is a representative of that District unless and until there is an IPO. In order to effect this voting arrangement, the Amended and Restated Articles of Incorporation will, in conjunction with the Conversion, designate seven different Series of our Common Stock as follows: Series A-1 Common Stock, which will correspond to District 1; Series A-2 Common Stock, which will correspond to District 2; Series A-3 Common Stock, which will correspond to District 3; Series A-4 Common Stock, which will correspond to District 4; Series A-5 Common Stock, which will correspond to District 5; Series A-6 Common Stock, which will correspond to District 6; and Series A-7 Common Stock, which will correspond to District 7. As noted above, the board of directors will be classified into two classes of Directors with each class of Directors serving a two-year term following the initial terms provided in the Plan of Merger. Directors in Districts 3, 6 and 7 will be Class I Directors, whose initial terms shall expire at the annual meeting of shareholders held in 2020, and Directors in Districts 1, 2, 4 and 5 will be Class II Directors, whose initial terms shall expire at the annual meeting of shareholders held in 2021. Our Amended and Restated Articles of Incorporation will provide that each member of the board of directors may serve no more than three terms of two years each following the Conversion (other than Directors elected to fill a vacancy and the initial Class I Directors whose terms expire in 2020).

Other than with respect to the deemed election of the board of directors pursuant to the Plan of Merger as proposed herein, each Series of Common Stock going forward will be entitled to elect one Director unless

 

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and until there is an IPO. Each Series of Common Stock is otherwise identical and will vote on all other matters presented to the shareholders together as one class and will participate in any dividends on an equal per share basis.

 

Q:

What is the difference post-Conversion between a shareholder vote and a vote of the hotel franchisees?

 

A:

Shareholders will be entitled to vote on certain matters relating to corporate governance of BW Inc., including the election of Directors, amendments to the articles of incorporation, proposed amendments to our bylaws, and certain fundamental transactions, such as mergers or consolidations or pursuing an IPO of the Company. Hotel franchisees operating under a franchise agreement with the Company will be entitled to vote on proposals regarding brand standards, such as building exteriors, public area and guest room design standards, brand logo and signage, and breakfast standards.

Other Material Considerations

 

Q:

Do the Directors and executive officers of the Company have any interests in the Conversion that I should consider?

 

A:

When considering our board of directors’ recommendation that you vote to approve the Conversion, you should be aware that our Directors and executive officers may have interests in the Conversion that are different from your interests. Each member of our board of directors is also a Member of our Company. Members of our board of directors will participate in the Conversion on the same terms as any other Member of the Company. Our Directors have indicated they will vote in favor of the conversion proposal and the membership termination bylaw proposal. Our Directors hold membership interests representing less than 1% in the aggregate of our existing membership interests outstanding as of the Record Date. Our Directors and executive officers serving the Company prior to the Conversion will continue serving the Company following the Conversion and will be entitled to compensation for their service following the Conversion. See “Executive Compensation” and “Director Compensation” for a discussion of the expected compensation that our executive officers and Directors may receive. Our executive officers are not receiving shares in the Conversion.

 

Q:

How will Existing Members be taxed on the Conversion?

 

A:

We generally expect that neither Existing Members nor the Company will recognize gain or loss for U.S. federal income tax purposes or Canadian income tax purposes as a result of the Conversion. Notwithstanding the foregoing, tax matters are complex, and the tax consequences of the Conversion to Existing Member will depend on the Existing Member’s individual situation. We recommend that you consult with your personal tax advisor for a full understanding of the tax consequences of the Conversion. For a description of the material U.S. federal income tax consequences and material Canadian income tax consequences of the Conversion, please see the information set forth in “Material U.S. Federal Income Tax Consequences” and “Material Canadian Income Tax Consequences,” respectively.

 

Q:

How will Contingently-Approved Applicants who become Members be taxed on the receipt of membership interests and how will Post-Conversion Shareholders be taxed, following the Conversion, on the receipt of Common Stock?

 

A:

As described above, we generally expect that Existing Members will not recognize gain or loss for U.S. federal income tax purposes or Canadian income tax purposes as a result of the Conversion. We generally expect that New Members will recognize income for U.S. federal income tax purposes or Canadian income tax purposes, as applicable, as a result of the receipt of membership interests in an amount equal to the excess of the fair market value of such membership interests at the time of receipt, over the New Member’s capitalized costs (if any) associated with such membership interests. In addition, we generally expect that Post-Conversion Shareholders will recognize income for U.S. federal income tax purposes or Canadian income tax purposes, as applicable, as a result of the receipt of Common Stock in an amount equal to the excess of the fair market value of such Common Stock at the time of receipt, over the Post-Conversion

 

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  Shareholder’s capitalized costs (if any) associated with such Common Stock. Notwithstanding the foregoing, tax matters are complex, and the tax consequences of the receipt of membership interests by a New Member or the receipt of Common Stock by a Post-Conversion Shareholder will depend on the recipient’s individual situation. We recommend that you consult with your personal tax advisor for a full understanding of the tax consequences of becoming a New Member or a Post-Conversion Shareholder. For a description of the material U.S. federal income tax consequences and material Canadian income tax consequences to a New Member of receiving membership interests, or to a Post-Conversion Shareholder of receiving Common Stock as a result of satisfying the Post-Conversion Participation Condition, please see the information set forth in “Material U.S. Federal Income Tax Consequences” and “Material Canadian Income Tax Consequences,” respectively.

 

Q:

What risks should an Existing Member consider in deciding whether to vote in favor of the Conversion and the membership termination bylaw proposal?

 

A:

There are various risks that relate to the Conversion and the membership termination bylaw proposal, and other risks will affect the value of the Common Stock that you will receive in the Conversion. In connection with the conversion proposal and the transactions contemplated by the Conversion, Existing Members must enter into New Franchise Agreements, and the terms of the New Franchise Agreement will differ from the terms of the existing membership agreements in certain material respects, including an extension of the term, the inclusion of a liquidated damages provision in the event of a termination of a New Franchise Agreement after the first two years, a change regarding a marketing and technology assessment and changes regarding transfer and assignment. For a comparison of the material terms of our existing membership agreements and the expected terms of the New Franchise Agreements, see “Business of the Company—New Franchise Agreements.”

An Existing Member that (i) executes a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system will receive shares of Common Stock in the Conversion; otherwise the membership interest of such Existing Member will be cancelled prior to the Conversion Date and such Existing Member will not receive shares of Common Stock.

Existing Members have paid certain application and affiliation fees in connection with their membership applications, and Existing Members pay annual dues and monthly fees in connection with our current membership association structure. An Existing Member that (i) does not execute a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) or (ii) is not open and active on the Best Western reservation system by November 30, 2019 will not receive shares in the Conversion, will have its membership interest cancelled prior to the Conversion Date and will not recoup previously paid fees or annual dues. An Existing Member that (i) executes a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system by November 30, 2019 will receive shares of Common Stock on the Conversion Date in exchange for its existing membership interest. The deadlines for satisfying these conditions occurs later than the Voting Deadline. Notwithstanding an Existing Member’s vote in favor of the conversion proposal and the membership termination bylaw proposal, in the event an Existing Member does not satisfy these conditions, such Existing Member will still have its membership interest cancelled prior to the Conversion Date and will not receive shares of Common Stock in the Conversion.

 

Q:

If I oppose the conversion proposal or the membership termination bylaw proposal, will I be able to assert statutory appraisal rights under Arizona law?

 

A:

No. Under Arizona law, Members of the Company who oppose the conversion proposal or the membership termination bylaw proposal will not have the statutory right to dissent from the transaction and demand the cash payment of the fair value of their membership interest.

 

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Q:

When is the Conversion expected to be completed?

 

A:

We are working to complete the Conversion as quickly as possible. The completion of the Conversion depends on a number of conditions being met, including:

 

   

approval of the conversion proposal by the Voting Members;

 

   

approval of the membership termination bylaw proposal by the Voting Members; and

 

   

other closing conditions.

Assuming the fulfillment of these conditions, we expect to complete the Conversion on December 1, 2019 or as soon as practicable following such date.

Voting on the Proposals

 

Q:

How does our board of directors recommend that I vote?

 

A:

A majority of our board of directors has determined that the conversion proposal, including the Merger and Amended and Restated Articles of Incorporation inherent in the conversion proposal, and the membership termination bylaw proposal are advisable and in the best interests of the Company and its Members; has approved the conversion proposal and the membership termination bylaw proposal, subject to Member approval of the conversion proposal; and recommends that Voting Members vote “FOR” the conversion proposal and vote “FOR” the membership termination bylaw proposal.

 

Q:

How can I get more information about the Conversion?

 

A:

You may call the Company’s toll-free hotline at 800-428-7234 to answer your questions. You may contact your District Manager regarding your Voting Member status. You may also contact the Company for information regarding your District Manager. Additionally, you may also direct your written questions by mail to the Company at:

Best Western International, Inc.

6201 N. 24th Parkway

Phoenix, Arizona 85016

Attn: Secretary

 

Q:

How many votes does it take to approve the conversion proposal and the membership termination bylaw proposal?

 

A:

The conversion proposal and the membership termination bylaw proposal each require approval by the affirmative vote of two-thirds (23) of the votes cast or by a majority of the voting power, whichever is less, provided that not less than one-third (13) of the voting power vote in favor. As of the Record Date, there were                Voting Members entitled to cast votes in the Special Ballot Initiative. To have a quorum allowing the Special Ballot Initiative to go forward, Voting Members representing 10% of the Company’s Voting Members, or                Voting Members, must submit ballots in the Special Ballot Initiative.

 

Q:

May I change my vote after I have submitted my ballot?

 

A:

No. There are no procedures to change your vote after you have voted.

 

Q:

What happens if I do not vote?

 

A:

If you do not vote, it could affect the adoption of a proposal, since the success of a proposal may depend on a majority of the Company’s voting power voting in favor of it, and at least thirty-three and one-third percent (3313%) of the Company’s voting power voting in favor of it. If you do not vote on the proposal,

 

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  and the success of the proposal is determined by a majority of the Company’s voting power voting in favor of it, with at least thirty-three and one-third percent (3313%) of the Company’s voting power voting in favor, your failure to vote would have the same effect as voting “AGAINST” the proposal. See “The Special Ballot Initiative—How to Vote.”

 

Q:

How do I vote?

 

A:

You may vote on the proposals contemplated by the Special Ballot Initiative by means of a secure website to be provided to Members or by paper ballot, upon request. Please read the ballot instructions included on the secure website or paper ballot carefully before voting on the proposals contemplated by the Special Ballot Initiative. Links to the Company’s current bylaws and articles of incorporation, and the Company’s Rules & Regulations will be available on the secure website. You may direct your request for a paper ballot by mail at: Best Western International, Inc., 6201 N. 24th Parkway, Phoenix, Arizona 85016 or facsimile at: (602) 957-5966, attention: Secretary.

Paper ballots may be returned by U.S. mail or facsimile as provided in the ballot instructions. Pursuant to the Company’s bylaws, the responses of 10% of the Voting Members as of the Record Date, or Voting Members, are needed to meet the quorum requirements for this ballot.

At 2:00 p.m., Phoenix, Arizona time, on                     , 2019, the voting shall close and the voting system data and any paper ballots shall be securely and confidentially provided to Mukai, Greenlee & Company, P.C. (the “Designated Accountant”). Please allow yourself sufficient time to review and consider the proposals and to submit your votes before the deadline. Only ballots that have been submitted prior to that date and time shall be counted. You are invited to be present at the certification of the results of the vote. The Designated Accountant is located at 2600 North Central Avenue, Suite 1820, Phoenix, Arizona 85004.

Please note that the Company’s bylaws detail specific requirements that protect voting anonymity. Member votes are counted by an independent third party that operates an electronic voting system and will hand-count any paper ballots. The counted votes are provided by secure means to an independent Designated Accountant for certification. The counted votes do not indicate how a particular individual voted. The Designated Accountant only provides the total voting results to the Company. The Company is prohibited from knowing how a Member voted and does not have access to that information.

The vote of the Voting Members is important. Voting Members are encouraged to vote as soon as possible after carefully reviewing this information statement/prospectus. You must submit your ballot by no later than 2:00 p.m., Phoenix, Arizona time, on                 , 2019 to have your vote count in the Special Ballot Initiative.

 

Q:

What do I need to do now?

 

A:

After carefully reading and considering the information contained in this information statement/ prospectus, please vote in accordance with the voting instructions for the Special Ballot Initiative.

 

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SUMMARY OF THE INFORMATION STATEMENT/PROSPECTUS

This summary highlights selected information from this information statement/prospectus and does not contain all of the information that is important to you. To better understand the proposals to be submitted for a vote at the Special Ballot Initiative, including the conversion proposal and the membership termination bylaw proposal, you should read this entire document carefully.

Company Overview

Best Western is a leading global hospitality brand with a presence in nearly 100 countries and territories worldwide. We are among the top 10 largest global lodging brands by number of hotels (according to Hotels magazine July/August 2018) with over 3,600 total branded hotels (of which nearly 2,100 branded hotels are in North America) and a pipeline of over 600 hotel applicants to enter our brands (of which approximately 400 such hotels are in North America). Over the past five years, our prospective hotel pipeline has seen an average annual attrition rate of approximately 20% prior to such hotels entering the brand. The Company has 13 unique North American Best Western hotel brands ranging from economy to upper upscale. Ten of those 13 brands have been launched in recent years, providing new avenues for growth. The Company’s Members and franchisees operate hotels under the following proprietary brand names: Best Western, Best Western Plus, Best Western Premier, Executive Residency by Best Western, Vīb, GLō, Sadie, Aiden, BW Premier Collection, BW Signature Collection, SureStay, SureStay Plus and SureStay Collection. The Company has achieved an average RevPAR index of over 109 over the last seven years. We have also received many industry awards, including Business Travel News #1 Midprice and #1 Upper Midprice hotels in 2017, Top Ranked Guest Loyalty Program from US News & World Report from 2013 through 2019, and ten-time Hotel Partner of the Year from AAA Travel from 2009 through 2018. Through the WorldHotels Acquisition in February 2019, the Company also now offers WorldHotels Luxury, WorldHotels Elite and WorldHotels Distinctive brands under license.

The Company has a comprehensive and readily scalable platform of services that it offers to branded hotels including sales and marketing, brand management, technology and support services. Our sales and marketing team seeks to drive market share growth and to leverage our award-winning BWR program to increase revenues to our hotel brands and to increase customer satisfaction. Our brand management team provides a full range of services, including regional service manager consultation, revenue management, Supply and Design (as defined below), guest satisfaction surveys and analysis, customer relations services and education and training to hotels, in addition to outsourced quality assurance (“QA”) assessments, that seek to ensure high quality and guest experiences that meet or exceed expectations, in addition to profitable operations. Our technology team oversees a scalable technology platform which provides reservations systems, e-commerce, cybersecurity and other technology support systems. Our support services team provides an in-house shared services platform that includes our call center, accounting and finance, legal and human resources. This platform allows us to drive revenue to our hotels and to grow our scale and create synergies, efficiencies and leverage.

Company Business Model

The Company has an asset-light business model which, together with Best Western’s platform of services, provides us with a solid foundation to generate stable revenues and strong returns on capital.

North America

The Company is currently organized as a nonprofit membership organization. As a nonprofit membership organization, we manage our operations to generate sufficient revenue to cover the expenses incurred in delivering services designed to enhance brand equity and drive revenue to our branded hotels. The Company drives revenue in North America primarily from fees assessed to Member hotels. The Company has a



 

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demonstrated long-term commitment from its ownership base of Members, which has historically driven consistent and predictable revenues and financial performance. Approximately 69% of Best Western-branded hotels have been Members for over ten years, and the average tenure for a Member is 18 years.

In North America, the Company’s relationship with branded hotels falls into one of three categories, depending on the brand: (i) a full membership agreement where hotel owners are Members, must maintain brand standards and have access to Best Western’s platform of services; (ii) soft brand agreements, where hotel licensees are not Members and have access to Best Western’s platform of services; and (iii) a franchise agreement, where hotel franchisees are franchisees and not Members and have access to Best Western’s platform of services (e.g., SureStay hotels). Members pay fees and assessments under their membership agreements. Hotels under soft brand agreements pay fees, including fees based on revenue delivered to the hotel through the Best Western’s platform of services, plus pass-through costs. Franchise hotels generally pay a royalty fee and a marketing fee based on a percentage of gross room revenue, plus pass-through costs.

In addition, North American Best Western-branded hotels have access to our Supply and Design department (“Supply and Design”), which offers our branded hotels an online catalog platform connected to endorsed vendors with discounted pricing as well as an experienced team of design professional focused on maintaining brand standards and a fee based service for design needs, and our GDS/Switch, which includes connections through our reservations platform for our hotels to leading distribution partners, such as OTAs, wholesalers, GDS and individual corporations.

International

Outside North America, the Company licenses its trademarks and provides reservation and other services to hotels through the following: (i) property direct relationships to hotels located in specific international countries or territories that use our brand and services through a sub-license agreement; (ii) affiliation agreements entered into with territory-specific organizations, referred to as “Affiliate Organizations,” which are formed as nonprofit entities for the sole purpose to initiate, plan, coordinate and execute joint marketing activities and otherwise advance the interests of Best Western-branded hotels in their territory; and (iii) master license agreements, or “MLAs,” entered into with territory-specific organizations, which are formed as for-profit entities for the sole purpose to initiate, plan, coordinate and execute joint marketing activities and otherwise advance the interests of Best Western-branded hotels in their territory. In each of the three types of relationships, we are paid fees for reservation and other services, generally on a cost-recovery basis.

Company Growth Strategy

The Company’s vision is to lead the industry in superior customer care and its mission is to enhance brand equity and increase value to our hoteliers. The Company’s growth strategy focuses on creating a distinctive brand portfolio that is appealing to both hoteliers and guests; delivering superior guest satisfaction and building brand loyalty; growing the Company’s brands around the world; and maintaining a continuous focus on innovation.

Distinctive and Appealing Brand Portfolio: The Company and its Members invest heavily in the Best Western brand portfolio as an integral part of the Company’s growth strategy. Beginning with adding Best Western, Best Western Plus, and Best Western Premier to the iconic Best Western brand, the Company has also engaged in a Design Excellence program, which resulted in Members investing over $2.0 billion since 2012 to meet new brand standards, and launched ten new global brands since 2015. The Design Excellence program is an on-going, multi-year evolution and adoption of brand standards intended to elevate guest experiences and our guests’ expectations for the brand. This includes a series of cutting-edge concepts catering to a new generation of travelers with our newest brands Vīb, GLō , Sadie and Aiden, as well as soft brand options for most chain scale segments: upper economy (SureStay Collection), upper midscale (BW Signature Collection) and upscale (BW



 

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Premier Collection). With Executive Residency by Best Western, the Company offers unique, dual-branded property options, which combine the best of the Best Western Plus and Executive Residency by Best Western brands. Through the WorldHotels Acquisition in February 2019, the Company also now offers WorldHotels Luxury, WorldHotels Elite and WorldHotels Distinctive brands under license. The Company believes that a distinctive and appealing brand portfolio increases the number of branded hotels and the scale of the Company.

Delivering Guest Satisfaction and Brand Loyalty: The Company strives to deliver a consistent guest experience that instills consumer confidence in the brand. The Company’s brands have enjoyed significant increases to guest satisfaction ratings in the past ten years, with scores doubling since 2007. This stems from the award-winning I Care Every Guest, Every Time hotel staff training program and the more than $2.0 billion spent by our Members on strategic renovations associated with the Design Excellence program. In 2018, nearly 2,000 Best Western-branded hotels globally received the TripAdvisor Certificate of Excellence recognition, yielding the brand’s highest level of guest satisfaction to date. To build brand loyalty, the Company has continued to make valuable enhancements to its award-winning loyalty program BWR. By offering more rewards and recognition for Elite members and generous promotions for members of all levels, BWR’s membership has grown to more than 38.1 million members globally—representing gains of nearly 15% annually, since 2007.

Growth Around the World: In addition to approximately 400 hotels entering our brands in North America, Best Western brands are also growing across the globe with approximately 200 additional hotels in the pipeline outside of North America. In particular, the Company opened 24 new hotels in Asia in 2017 and 2018, with locations in China, India, Indonesia, Japan, Korea, Myanmar, Thailand and the Philippines. These have included four brands that are entirely new to the region: BW Premier Collection, SureStay Plus Hotel, Vīb and Aiden. The Company received recognition as the “Fastest Growing Hotel Chain in India” at the 2018 India Hospitality Awards, and has plans to open six additional hotels in India and three in Bangladesh.

Continuous Innovation: The Company is committed to implementing continuous innovations that continue to position its brands as an industry leader. The Company was named to Fast Company’s coveted list of the Top Ten Most Innovative Companies in 2018 for its innovations in the augmented reality/virtual reality (“AR/VR”) space in connection with the Best Western Virtual Reality Experience, a tool that lets potential guests visualize hotel locations’ pools, lobbies, fitness centers, and guest rooms. In addition, the Company has implemented a number of other technological advancements aimed at enhancing the guest journey from the development of an award-winning website and mobile applications to the creation of a leading mobile guest engagement platform.

Competitive Strengths

The Company is a recognized global lodging brand with established scale and a strong presence in the midscale to upper upscale segments, as well as, a new and growing presence in the economy segment. Highlights of our competitive strengths include:

 

   

Leading global hospitality company. We maintain and enhance well-recognized, established brands, as well as develop and launch new brands designed to meet guests’ needs. We believe overall guest satisfaction is very favorable based on service scores measured through guest satisfaction surveys (also known as Medallia). Our brand contributes approximately 73% of the total revenue to our North American hotels (total revenue includes central reservation system revenue plus direct-to-property revenue attributable to BWR members). As of November 30, 2018, 42% of Best Western hotels are outside of North America, which drives global brand awareness.

 

   

Comprehensive and readily scalable platform. Our fully-developed platform of services and capabilities in sales and marketing, brand management, technology and reservations, and other support services create synergies and efficiencies and allow us to significantly grow scale.



 

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Ranked Consistently as a Leader in broad midscale. The Company has achieved an average RevPAR index of over 109 over the last seven years. Our BWR loyalty program hit an historic level, surpassing 38.1 million members worldwide in 2018. We have also received many industry awards, including Business Travel News #1 Midprice and #1 Upper Midprice hotels, Top Ranking Guest Loyalty Program from U.S. News & World Report from 2013 through 2018, and ten-time Hotel Partner of the Year from AAA Travel from 2009 through 2018.

 

   

Supportive hotel base. The Company enjoys strong support from our long-standing and loyal hotel base. Approximately 69% of Best Western-branded hotels have been Members for more than ten years and the average tenure for a Member is 18 years. Annually, we survey our Members regarding their satisfaction with the brand and our services. Historically, Members have given the Company high marks for satisfaction, with an average over the past ten years of approximately 75% of our Members surveyed as satisfied or very satisfied with the brand.

 

   

Seasoned management team. We have a seasoned and highly regarded management team led by our President and Chief Executive Officer, David Kong. We believe our senior management team is one of the most experienced and accomplished executive teams in the travel industry. David Kong has over 40 years of hospitality industry experience, Dorothy Dowling, our Chief Marketing Officer, has over 30 years of hospitality industry experience, Ron Pohl, our Chief Operations Officer, has over 35 years of hospitality industry experience, Lawrence Cuculic, our General Counsel, has over 30 years of legal and business experience, Mark Straszynski, our Chief Financial Officer, has over 25 years of finance and accounting experience, Greg Adams, our Chief Digital Officer, has over 20 years of technology and marketing experience in the hospitality industry, Suzi Yoder, our Senior Vice President of International Operations, has over 35 years of hospitality industry experience, and Brad LeBlanc, our Senior Vice President and Chief Development Officer, has over 25 years of development experience in the hospitality industry. Through the team’s leadership, the Company has achieved significant successes, including transformative brand programs and expansion of our brand portfolio, growth of the award winning BWR loyalty program and delivering revenue to our branded hotels, achieving a RevPAR index of over 109 over the last seven years.

Emerging Growth Company

The Company is an “emerging growth company,” as defined under the JOBS Act. The JOBS Act is intended, among other things, to ease regulatory burdens on certain companies that are newly public. As an emerging growth company, the Company is eligible for certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can “opt-in” to the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. The Company has elected to “opt-in” to such extended transition period.

We could be an emerging growth company for up to five years after the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2024. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We will become a large accelerated filer the year after we have an aggregate



 

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worldwide market value of the voting and non-voting common equity held by non-affiliates of $700 million or more.

The Conversion Proposal

Conversion Overview

Voting Members will vote on a proposal to convert the Company from an Arizona nonprofit corporation to an Arizona for-profit corporation, pursuant to the Plan of Merger. Upon the filing of a statement of merger with the Arizona Corporation Commission on or about December 1, 2019, the Conversion would be effective. All of the rights and obligations belonging to the Company, as a nonprofit corporation, would remain vested in the Company, as a for-profit corporation, following the effectiveness of the Conversion. The Company’s current articles of incorporation and bylaws would each be amended and restated to govern the affairs of the Company as a for-profit corporation. See “The Conversion Proposal—General” for a description of the amendments to the articles of incorporation and bylaws and material governance provisions.

Both the conversion proposal and the membership termination bylaw proposal must be approved or neither the conversion proposal nor the membership termination bylaw proposal will be adopted.

If both the conversion proposal and the membership termination bylaw proposal are approved, the membership termination bylaw proposal will be adopted with immediate effectiveness.

The Company will retain the name “Best Western International, Inc.” after the Conversion.

Consideration to the Company and to Existing Members, New Members and Post-Conversion Shareholders

The Company will receive no cash proceeds from the Conversion. See “Use of Proceeds.”

In exchange for each Member’s existing membership interest, each Existing Member and New Member will receive a number of shares of Common Stock determined by a formula based on the number of Members, Contingently-Approved Applicants and New Franchisees, in each case as of November 30, 2019. Each Member will receive a number of shares of Common Stock equal to 55.0 million shares divided by the sum of (a) the number of Members as of November 30, 2019 and (b) the product of (x) the number of Contingently-Approved Applicants and New Franchisees eligible to participate on a post-Conversion basis as of November 30, 2019 and (y) 0.5. Based on approximately 2,000 Members and approximately 230 Contingently-Approved Applicants existing as of the date of this information statement/prospectus, we expect that each Existing Member and New Member will receive approximately 26,000 shares of Common Stock on the Conversion Date and the Company will reserve for issuance for each Post-Conversion Shareholder after the Conversion Date approximately 13,000 shares of Common Stock, to be issued to such Post-Conversion Shareholder on a post-Conversion basis.

An Existing Member that (i) executes a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system by November 30, 2019 will receive shares of Common Stock on the Conversion Date in exchange for such Existing Member’s existing membership interest; otherwise the membership interest of such Existing Member will be cancelled prior to the Conversion Date and such Existing Member will not receive shares of Common Stock in the Conversion.

A Contingently-Approved Applicant that (i) executes a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system by November 30, 2019 will become a Member prior to the Conversion and receive shares of Common



 

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Stock on the Conversion Date; otherwise the membership agreement of such Contingently-Approved Applicant will be cancelled prior to the Conversion Date and such Contingently-Approved Applicant will not receive shares of Common Stock in the Conversion. Notwithstanding the deadline for participation in the Conversion, Contingently-Approved Applicants are eligible to receive Common Stock on a post-Conversion basis subject to satisfaction of the Post-Conversion Participation Condition.

In conjunction with and subject to approval of the Conversion by the Members, shares of Common Stock will be offered on a continuous basis following the Conversion and will be issued to a Contingently-Approved Applicant or New Franchisee, that is not open and active on the Best Western reservation system by November 30, 2019 that

 

(a)

with respect to Contingently-Approved Applicants and New Franchisees that are converting existing properties to a Best Western franchise,

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the board of directors by November 16, 2019;

 

  (3)

execute a Post-Conversion Franchise Agreement and pay any applicable fees by November 30, 2019; and

 

  (4)

are open and active on the Best Western reservation system by November 30, 2020;

or

 

(b)

with respect to Contingently-Approved Applicants and New Franchisees that are constructing new properties,

 

  (1)

furnish an application to the Company by September 30, 2019;

 

  (2)

are approved by the Board of Directors by November 16, 2019;

 

  (3)

execute a Post-Conversion Franchise Agreement and pay any applicable fees by November 30, 2019;

 

  (4)

are “Under Construction” by November 30, 2020

Under Construction” means:

 

  (a)

the Company has received and has approved construction drawings;

 

  (b)

the Company has received a copy of: proof of ownership of the legal entity, proof of financing, construction permit(s), and the executed contractor agreement; and

 

  (c)

construction has begun, including: the site has been cleared, footings and ground floor have been poured, and structural construction has begun; and

 

  (5)

are open and active on the Best Western reservation system by November 30, 2021.

Each Post-Conversion Shareholder will receive shares of the Series of Common Stock that corresponds to the District in which the Best Western hotel of such Post-Conversion Shareholder is located. In the event a contingently-approved applicant or Best Western franchisee in North America that is not open and active on the Best Western reservation system by November 30, 2019 does not satisfy conditions described above, such Contingently-Approved Applicant or New Franchisee will not be eligible to receive Common Stock on a post-Conversion basis. Prospective Post-Conversion Shareholders should review the section entitled “Risk Factors” regarding the risks associated with the business of the Company and ownership of the Common Stock.

The Membership Termination Bylaw Proposal

Voting Members will vote on a proposal to amend our current bylaws to authorize our board of directors to terminate prior to the Conversion Date the membership interest of any Existing Member that (x) does not execute



 

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a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) or (y) is not open and active on the Best Western reservation system by November 30, 2019, and to terminate the membership agreement of any Contingently-Approved Applicant that (x) does not execute a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) or (y) is not open and active on the Best Western reservation system by November 30, 2019.

Both the conversion proposal and the membership termination bylaw proposal must be approved or neither the conversion proposal nor the membership termination bylaw proposal will be adopted.

If both the conversion proposal and the membership termination bylaw proposal are approved, the membership termination bylaw proposal will be adopted with immediate effectiveness.

Procedures for Submitting Votes in Special Ballot Initiative

You may vote on the proposals contemplated by the Special Ballot Initiative by means of secure website to be provided to Members or by paper ballot, upon request. Please read the ballot instructions included on the secure website or paper ballot, carefully before voting on the proposals contemplated by the Special Ballot Initiative. Links to the Company’s current bylaws and articles of incorporation, and the Company’s Rules & Regulations will be available on the secure website. You may direct your request for a paper ballot by mail at: Best Western International, Inc., 6201 N. 24th Parkway, Phoenix, Arizona 85016 or facsimile at: (602) 957-5966, attention: Secretary.

Paper ballots may be returned by U.S. mail or facsimile as provided in the ballot instructions. Pursuant to the Company’s bylaws, the responses of Voting Members representing 10% of the Voting Members as of the Record Date, or                Voting Members, are needed to meet the quorum requirements for this ballot.

At 2:00 p.m., Phoenix, Arizona time, on                 , 2019, the voting shall close and the voting system data and any paper ballots shall be securely and confidentially provided to the Designated Accountant. Please allow yourself sufficient time to review and consider the proposals and to submit your votes before the deadline. Only ballots that have been submitted prior to that date and time shall be counted. You are invited to be present at the certification of the results of the vote. The Designated Accountant, Mukai, Greenlee & Company, P.C., is located at 2600 North Central Avenue, Suite 1820, Phoenix, Arizona 85004.

Please note that the Company’s bylaws detail specific requirements that protect voting anonymity. Member votes are counted by an independent third party that operates an electronic voting system and will hand-count any paper ballots. The counted votes are provided by secure means to an independent Designated Accountant for certification. The counted votes do not indicate how a particular individual voted. The Designated Accountant only provides the total voting results to the Company. The Company is prohibited from knowing how a Member voted and does not have access to that information.

Voting Power; Record Date

Members will be entitled to vote in the Special Ballot Initiative if they were entitled to vote in accordance with the Company’s bylaws, and are thereby Voting Members, at 1:00 p.m., Phoenix, Arizona time, on the day immediately prior to the date of this information statement/prospectus, which is the Record Date. Each Voting Member as of the Record Date will have one vote for each Member that it represents. On the Record Date, there were                Voting Members entitled to cast votes in the Special Ballot Initiative. Votes must be submitted by no later than 2:00 p.m., Phoenix, Arizona time, on                     , 2019 to count in the Special Ballot Initiative.



 

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Quorum and Vote of Members

The conversion proposal requires approval by the affirmative vote of the lesser of two-thirds (23) of the votes cast or a majority of the voting power; provided, at least thirty-three and one-third percent (3313%) of the voting power vote in favor. Each Voting Member as of the Record Date will have one vote for each Member that it represents.

The membership termination bylaw proposal requires approval by the affirmative vote of the lesser of two-thirds (23) of the votes cast or a majority of the voting power; provided, at least thirty-three and one-third percent (3313%) of the voting power vote in favor. Each Voting Member as of the Record Date will have one vote for each Member that it represents.

To have a quorum allowing the Special Ballot Initiative to go forward, Voting Members representing 10% of the Company’s Voting Members as of the Record Date, or                Voting Members, must submit ballots in the Special Ballot Initiative. Proxy voting by Members is expressly prohibited.

Appraisal Rights

Members do not have appraisal rights in connection with the Conversion or the membership termination bylaw proposal under Arizona law for nonprofit corporations.

Interests of the Company’s Directors and Officers in the Conversion

When considering our board of directors’ recommendation that you vote to approve the Conversion, you should be aware that our Directors and executive officers may have interests in the Conversion that are different from your interests. Each member of our board of directors is also a Member of the Company. Members of our board of directors will participate in the Conversion on the same terms as any other Member of the Company. Our Directors and executive officers serving the Company prior to the Conversion will continue serving the Company following the Conversion and will be entitled to compensation for their service following the Conversion. See “Executive Compensation” and “Director Compensation” for a discussion of the expected compensation that our executive officers and Directors may receive. Our executive officers are not receiving shares in the Conversion.

Recommendation to Members

A majority of our board of directors has determined that the conversion proposal and the membership termination bylaw proposal are advisable and in the best interest of the Company and its Members and recommends that the Voting Members vote “FOR” the conversion proposal and “FOR” the membership termination bylaw proposal. The membership termination bylaw proposal will not become effective unless the conversion proposal is approved; if the conversion proposal and membership termination bylaw proposal are approved the Conversion proposal will be adopted and the membership termination bylaw proposal will be immediately effective.

Conditions to the Conversion

Completion of the Conversion is conditioned on approval of the conversion proposal and approval of the membership termination bylaw proposal and other customary closing conditions. Assuming the fulfillment of these conditions, we expect to complete the Conversion on December 1, 2019 or as soon as practicable following such date. If the completion of the Conversion is delayed significantly beyond December 1, 2019, our board of directors would analyze the facts and circumstances at that time in order to determine whether it is necessary or advisable to update the information provided to Voting Members or to seek again Voting Member approval of the Conversion, taking into account all applicable state and federal laws.



 

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Tax Consequences of the Conversion

For a description of the material U.S. federal income tax consequences and material Canadian income tax consequences of the Conversion to Members, please see the information set forth in “Material U.S. Federal Income Tax Consequences” and “Material Canadian Income Tax Consequences,” respectively. For a description of the tax consequences to Post-Conversion Shareholders that receive Common Stock on a Post-Conversion basis, please see “Material U.S. Tax Federal Tax Income Consequences—U.S. Federal Income Tax Consequences to New Members of the Receipt of Membership Interests and, following the Conversion, to Post-Conversion Shareholders of the Receipt of Common Stock” and “Material Canadian Income Tax Consequences—Canadian Income Tax Consequences to New Members of the Receipt of Membership Interests and to Post-Conversion Shareholders of the Receipt of Common Stock.”

Anticipated Accounting Treatment

The Conversion should not change the accounting for assets and liabilities. The only material impact should be to provide for a new issue of various Series of Common Stock in exchange for existing membership interests. The amount assigned to the new Common Stock will be equal to the amounts of Net Assets as of November 30, 2019. For a discussion of the anticipated accounting treatment, see “Selected Historical and Unaudited Pro Forma Financial Information.”

Regulatory Matters

The Company is required to make filings with and obtain the approval of various state regulatory agencies of the franchise disclosure documents in respect of the New Franchise Agreement. The Company expects to have made such filings and obtained such approvals prior to distribution of this information statement/prospectus to Voting Members for voting on the Special Ballot Initiative.

Risk Factors

In evaluating the proposals to be presented in the Special Ballot Initiative, a Voting Member should carefully read this information statement/prospectus and especially consider the factors discussed in the section entitled “Risk Factors.



 

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RISK FACTORS

Best Western International, Inc. and its subsidiaries are subject to various risks, which could have a negative effect on us and our financial condition. These risks could cause actual operating results to differ from those expressed in certain “forward looking statements” contained in this information statement/prospectus as well as in our other communications. You should carefully consider the risk factors described below, before deciding whether to approve the Conversion.

Risks Related to Our Business

We are subject to the operating risks common in the hospitality industry.

A significant portion of our revenue is derived from fees from our Existing Members based on the number of rooms at their Best Western-branded hotels. As such, our business is subject, directly or through our hoteliers, to the following risks common in the lodging and franchising industry, among others:

 

   

changes in the number of hotels and the number of rooms in such hotels operating under our brands;

 

   

changes in the relative mix of our hotels in our industry’s price categories;

 

   

changes in occupancy and room rates achieved by hotels;

 

   

desirability of hotel geographic location;

 

   

changes in general and local economic and market conditions, which can adversely affect the level of business and leisure travel, and therefore the demand for lodging and related services;

 

   

the level of customer unemployment;

 

   

increases in operating costs that may not be able to be offset by increases in room rates, such as labor (including minimum wage increases), energy, food, workers’ compensation, and employee benefits, which may affect the continued operation of some of the hotels of our Members;

 

   

increases in corporate-level operating costs resulting in lower operating margins;

 

   

oil prices and travel costs;

 

   

over-building in one or more sectors of the hospitality industry and/or in one or more geographic regions, could lead to excess supply compared to demand, and to decreases in hotel occupancy and/or room rates;

 

   

the availability and cost of capital to allow hotel owners and developers to build new hotels and fund investments;

 

   

changes in the desirability of particular locations or travel patterns of customers;

 

   

travelers’ fears of exposure to contagious diseases or insect infestations in hotel rooms;

 

   

changes in governmental regulations that influence or determine wages, benefits, prices, interest rates or construction and maintenance procedures;

 

   

changes by governmental agencies and within relevant legal systems of prevailing opinion and interpretation of new or existing rules, regulations and legal doctrine, particularly those limiting the liability of hotels for employment and general liability claims involving hotels;

 

   

security concerns or travel restrictions (whether security-related or otherwise) imposed by governmental authorities that have the effect of discouraging or limiting travel to and from certain jurisdictions;

 

   

the costs and administrative burdens associated with compliance with applicable laws and regulations, including, among others, lending, privacy, marketing and sales, licensing, labor, climate change, employment and regulations applicable under the Office of Foreign Asset Control (“OFAC”) and the Foreign Corrupt Practices Act (the “FCPA”);

 

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the financial condition of hotels and travel related companies;

 

   

our ability to develop and maintain positive relations with current members and post-conversion franchisees; and

 

   

changes in exchange rates or economic weakness in the United States (affecting domestic travel) and internationally could also unfavorably impact future results.

These factors, and the reputational repercussions of these factors, can adversely affect, and from time to time have adversely affected, individual hotels, particular regions or our business as a whole. How we manage any one or more of these factors, or any crisis, could limit or reduce demand for the properties operated under our brand, or the rates charged for rooms or services.

Because we operate in a highly competitive industry, our revenues, profits or market share could be harmed if we are unable to compete effectively, and alternatives to traditional hotels and industry consolidation among our competitors may negatively impact our business.

The hospitality industry is subject to intense competition. Properties operating under our brands compete with other major hospitality chains with well-established and recognized reputations. Some competitors to our hotels may have substantially greater marketing and financial resources than our hotels, and they may construct new facilities or improve their existing facilities, reduce their prices or expand and improve their marketing programs in ways that adversely affect our hotels’ ability to compete for guests effectively and their operating results and financial condition. In addition to these competitors, our hotels also compete against smaller hotel chains and independent and local hotel owners and operators.

Increasingly, our hotels also face competition from new channels of distribution in the hospitality industry, such as peer-to-peer inventory sources that allow travelers to book stays on websites that facilitate the short-term rental of homes and apartments from owners, thereby providing an alternative to hotel rooms, such as Airbnb and HomeAway.

Since a significant portion of our revenue is derived from fees based upon number of rooms at Best Western-branded hotels, as well as on room revenues, our prospects for growth are largely dependent upon the ability of our hotels to compete in the lodging market, our ability to convert competitor franchisees and independent hotels to our brands, and the ability of existing and potential Best Western-branded hotels to obtain financing to construct new hotels. We believe that hotel operators select a brand in part based on the brand’s reputation among other brands and the success of our existing hotels.

We may not grow our brand or we may lose business by failing to compete effectively.

Our success and growth prospects depend on the strength and desirability of our brands. We believe that hotel operators choose lodging brands based primarily on the value and quality of each brand and services, the extent to which affiliation with that brand may increase the hotel operator’s reservations and profits, and the brand fees charged. Demographic, economic or other changes in markets may adversely affect the desirability of our brands and, correspondingly, the number of hotels under our brands.

We compete with other lodging companies for hotels. As a result, the terms of franchise agreements we enter into in the future may not be as favorable as our current agreements. For example, competition may require us to reduce or change fee structures, make greater use of financial incentives such as “key money,” discounted fees, loans and guarantees to acquire hotels and/or reduce the level of property improvements required before operating under our brand names. This could potentially impact our margins negatively. New competition may also emerge using different business models with a lesser reliance on fees. In addition, an excess supply of hotel rooms or unfavorable borrowing conditions may discourage potential applicants from expanding or constructing new hotels, thereby limiting a source of growth of the fees received by us.

 

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The growing use of social and digital media by consumers, us, our franchisees and third parties increases the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our brands or our products on social or digital media could seriously damage our brands, and reputation and brand loyalty, regardless of the information’s accuracy. The harm may be immediate without affording us an opportunity for redress or correction. Brand recognition and loyalty can also be impacted by the effectiveness of our advertising campaigns, marketing programs and sponsorships, as well as our and our hoteliers’ use of social media. If we do not maintain the favorable perception of our brands, our results could be negatively impacted.

The hospitality industry is cyclical and a worsening of global economic conditions or low levels of economic growth could adversely affect our revenues and profitability as well as cause a decline in or limitation of our future growth.

Consumer demand for our products and services is closely linked to the performance of the general economy and is sensitive to business and personal discretionary spending levels. Declines in consumer demand due to adverse general economic conditions, risks affecting or reducing travel patterns, lower consumer confidence and high unemployment or adverse political conditions can lower the amount of fee revenues we are able to generate from our branded properties. As a result, changes in consumer demand and general business cycles could adversely affect our revenues, earnings and results of operations.

In addition, the expenses of hotels are relatively fixed. These costs include personnel costs, interest, rent, property taxes, insurance and utilities, all of which may increase at a greater rate than revenues of our hotels and our hotels may not be able to reduce such expenses at the same rate as declining revenues. When our hotels’ cost-cutting efforts are insufficient to offset any declines in revenues as a result economic contraction, slow economic growth or changes in travel patterns, they could experience a material decline in margins and reduced or negative cash flows.

These factors, among others, could adversely affect the operating results and financial condition of our hotels and result in declines in the number of branded properties and/or fees and other revenues derived from our business. In addition, these negative operating conditions could result in the financial failure of our owners and result in a termination of the branded hotel for non-payment of fees or require the transfer of ownership of the hotel. In those instances where ownership is transferred, there can be no assurance that the new owners will choose to affiliate with our brands.

Increasing use by consumers of alternative internet reservation channels may decrease loyalty to our brands and our existing distribution channels, and may influence our distribution strategies, in ways that may adversely affect us.

A significant, and increasing, percentage of hotel rooms are booked through internet travel intermediaries. If these intermediaries are successful in continuing to increase their share of bookings, or are otherwise successful in executing strategies to strengthen their commercial and contractual ties to our hotels and hotel guests, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contractual and operational concessions from our hoteliers or us.

Moreover, some of these internet travel intermediaries hope that consumers will eventually develop brand loyalties to their reservations systems rather than to our lodging brands and our existing distribution channels. As the internet travel intermediary industry continues to consolidate, and/or if well-known or well-financed companies decide to enter the internet travel intermediary space, the resources that the internet travel intermediaries have available and may be willing to apply toward their own marketing and customer loyalty could significantly exceed the resources that we are able to apply for the same purposes. In addition, some competitors to our branded hotels may have substantially greater marketing and financial resources than our hotels, which may result in these competitors obtaining more favorable pricing terms from internet reservation channels. As a result, our hotels’ ability to compete for guests effectively and their operating results and financial condition could be adversely affected.

 

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The increasing use of alternative internet reservation channels influences the way in which we utilize and market the benefits of our existing distribution channel. For example, we have introduced closed-user group pricing to encourage bookings directly through our distribution system. However, there can be no assurance that current margins or levels of utilization associated with these or other strategies will succeed in increasing the booking percentages to our direct channels at the expense of channels controlled by travel intermediaries. In addition, our implementation of programs such as closed-user group pricing may cause travel intermediaries to respond by diverting business away from our hotels, by removing or marginalizing our hotels in search results on their platforms.

Finally, there can be no assurance that we will be able to maintain stable commercial or contractual relationships with every significant internet travel intermediary, and any resulting instability may have a significant adverse impact on our business, if for example, our brands are not available through one or more of such intermediaries. Relatedly, we may not be able to negotiate mutually acceptable agreements, or renegotiate extensions of agreements with existing internet travel intermediaries upon their expiration, and any such renegotiated or extended agreement may not be entered into on terms as favorable as the provisions that existed before such expiration, replacement or renegotiation.

We are subject to certain risks related to litigation filed by or against us.

We cannot predict with certainty the cost of defense, the cost of prosecution or the ultimate outcome of litigation filed by or against us, including, remedies or damage awards. This litigation may involve, but is not limited to, actions or negligence by our branded hotels outside of our control. Our franchise agreements will provide that we are not liable for the actions of our franchisees; however, there is no guarantee that we would be insulated from liability in all cases. Moreover, we may be involved in matters such as class actions, administrative proceedings, employment and personal injury claims, and litigation with or involving our relationship with our hoteliers and the legal distinction between our hotels and us for employment law or general liability purposes, for which the cost and other effects of defense, settlements or judgments may require us to make disclosures or take other actions that may affect perceptions of our brand and products and adversely affect our business results.

We are currently, and may in the future be, subject to state regulatory actions related to applicable franchise laws.

As the Company transitions from its current membership association structure to a for-profit corporation, the Company is required to make filings with and obtain the approval of various state regulatory agencies of the franchise disclosure documents in respect of the New Franchise Agreement. The Company expects to have made such filings and obtained such approvals prior to the effectiveness of this Registration Statement on Form S-1 of which this information statement/prospectus forms part. Certain states may allege the Company did not properly register franchise offerings in the past with those states by offering and selling franchises without registration or an available exemption, notwithstanding the Company operating as an Arizona nonprofit membership association. For example, the Securities Division of the Office of the Attorney General of Maryland (“Maryland Securities Division”) asserted that the Company violated the registration and disclosure provisions of the Maryland Franchise Registration and Disclosure Law (the “Maryland Franchise Law”) by entering into membership agreements. Without admitting or denying any violation of law, the Company voluntarily entered into a Consent Order with the Maryland Securities Commissioner on August 24, 2018 (the “Maryland Consent Order”). We recently entered into similar consent orders with the state of Washington and the state of California and may, in the future, enter into judgments, and pay fines or other penalties in certain states. For more information regarding the Maryland, Washington and California consent orders and other state regulatory actions, see “Business of the Company—Legal Proceedings.” See also “The Conversion ProposalRegulatory Matters.” The cost and other effects of defense, settlements or judgments associated with this and any such actions may require us to make disclosures or take other actions that may affect perceptions of our brand and products, and adversely affect our financial condition or business results.

 

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Deterioration in the general financial condition of our hoteliers may adversely affect our results.

Our operating results are impacted by the ability of our hotels to generate revenues at their properties. An extended period of occupancy or room rate declines may adversely affect the operating results and financial condition of our branded hotels. These negative operating conditions could result in the financial failure of our owners and result in a termination of the hotel for non-payment of fees or require the transfer of ownership of the hotel. In those instances when ownership of the hotel is transferred, there can be no assurance that the new owners will choose to affiliate with our brand.

The hospitality industry is highly competitive. Competition for hotel guests is based primarily on the level of service, quality of accommodations, convenience of locations and room rates. Our hotels compete for guests with other hotel properties in their geographic markets. Some of their competitors may have substantially greater marketing and financial resources than our branded hotels, and they may construct new facilities or improve their existing facilities, reduce their prices or expand and improve their marketing programs in ways that adversely affect our hotels’ operating results and financial condition. In addition, the ability of our hotels to compete for guests directly impacts the desirability of our brands to current and prospective branded hotels.

Actions by our hotels could adversely affect our image and reputation.

Under the terms of their agreements with us, our hotels interact directly with customers and other third parties under our brand and trade names. Our hoteliers are contractually obligated to operate their hotels in accordance with the operations and standards set forth in our agreements with them. However, hoteliers are independent third parties whom we do not control. The hoteliers own, operate, and oversee the daily operations of their hotels and have sole control over all employee and other workforce decisions. As a result, the ultimate success and quality of any branded hotel rests with the hoteliers. If these hoteliers fail to maintain or act in accordance with applicable brand standards, experience operational problems, including any data breach involving customer information, or project a brand image inconsistent with ours, our image and reputation could suffer. Although our franchise agreements will provide us with recourse and remedies in the event of a breach by a franchisee, including termination of the agreements under certain circumstances, pursuing any such recourse, remedy, or termination could be expensive and time consuming. In addition, there can be no assurance that a court would ultimately enforce our contractual termination rights in every instance.

Although we believe we generally enjoy a positive working relationship with our hoteliers, active and/or potential disputes with hotels could damage our brand reputation and/or our relationships with the broader hotel group.

We and our branded hotels are reliant upon technology and the disruption or malfunction in our information systems could adversely affect our business.

The hospitality industry depends upon the use of sophisticated technology and systems to process, transmit and store electronic information, including those utilized for reservations, property management, procurement, hotel revenue management, operation of our customer loyalty programs and our administrative systems. Consequently, disruptions or malfunctions in technology can impact our revenue as well as our ability to retain existing hotels and attract new hotels to our system. The operation of many of these systems is dependent upon third party data communication networks and software upgrades, maintenance and support. Furthermore, a significant portion of the communications between, and storage of personal data of, our personnel, customers, and suppliers depends on information technology. Our information technology systems, and the systems of the parties we communicate and collaborate with, may be vulnerable to a variety of interruptions, as a result of updating our enterprise platform or due to events beyond our or their control, including, but not limited to, network or hardware failures, malicious or disruptive software, unintentional or malicious actions of employees or contractors, cyberattacks by common hackers, criminal groups or nation-state organizations or social-activist (hacktivist) organizations, geopolitical events, natural disasters, failures or impairments of telecommunications

 

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networks, or other catastrophic events. Accordingly, an extended interruption in the ability of any system to function could significantly curtail, directly and indirectly, our ability to conduct our business and generate revenue.

Our information technology systems can be expected to require refinements and there is the risk that advanced new technologies will be introduced. There can be no assurance that as various systems and technologies become outdated or new technology is required we will be able to replace or introduce them as quickly as our competitors or within budgeted costs for such technology.

There can be no assurance that we will achieve the benefits that may have been anticipated from any new technology or system. Further, there can be no assurance that disruptions of the operation of these systems will not occur as a result of failures related to our internal or third party systems and support.

We are subject to risks related to cybersecurity.

Cyber threats are constantly evolving and this increases the difficulty of detecting and successfully defending against them. These events could compromise our confidential information, impede or interrupt our business operations, and may result in other negative consequences, including remediation costs, loss of revenue, litigation and reputational damage. We expect to continue to be subject to, cybersecurity threats and incidents, none of which have been material to us to date. While we have implemented administrative and technical controls and taken other preventive actions to reduce the risk of cyber incidents and protect our information technology, they may be insufficient to prevent physical and electronic break-ins, cyber-attacks or other security breaches to our computer systems.

In addition, we or our members, future franchisees or vendors could experience cyber-attacks, privacy breaches, data breaches or other incidents that result in unauthorized disclosure of customer, employee or Company information. If we suffer a loss as a result of a breach or other breakdown in our technology, including such cyber-attack, privacy breaches, data breaches or other incident involving one of our vendors, that result in unauthorized disclosure or significant unavailability of business, financial, personal or stakeholder information, we may suffer reputational, competitive and/or business harm and may be exposed to legal liability, which may adversely affect our results of operations and/or financial condition. The misuse, leakage or falsification of information could result in violations of data privacy laws, we may become subject to legal action and increased regulatory oversight. We could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or to repair or replace networks and information systems. In addition, if our suppliers or customers experience such a breach or unauthorized disclosure or system failure, their businesses could be disrupted or otherwise negatively affected, which may result in a disruption in our supply chain or reduced customer orders, which could adversely affect our business operations.

We seek to minimize the impact of these attacks through various technologies, processes and practices designed to help protect our networks, systems, computers and data from attack, damage or unauthorized access. However, there are no guarantees that our cyber-security practices will be sufficient to thwart all attacks. While we carry cyber breach, property and business operation interruption insurance, we may not be sufficiently compensated for all losses we may incur. These losses include not only a loss of revenues but also potential reputational damage to our brand and litigation, fines or regulatory action against us. Furthermore, we may also incur substantial remediation costs to repair system damage as well as satisfy liabilities for stolen assets or information that may further reduce our profits.

Failure to maintain the integrity of internal or customer data could result in faulty business decisions, damage of reputation and/or subject us to costs, fines or lawsuits.

Our business requires the collection and retention of large volumes of internal and customer data, including credit card numbers and other personally identifiable information of our employees and customers as such

 

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information is entered into, processed, summarized, and reported by the various information systems we use. The integrity and protection of that customer, employee, and company data is critical to us. Our customers have a high expectation that we will adequately protect their personal information, and the regulatory environment surrounding information security and privacy is increasingly demanding, both in the United States and in the international jurisdictions in which we operate. If we fail to maintain compliance with the various U.S. and international laws and regulations applicable to the protection of such data or with the Payment Card Industry (“PCI”) data security standards, our ability to process such data could be adversely impacted and expose us to fines, litigation or other expenses or sanctions.

Damage to, or losses involving, our branded properties may not be covered by insurance.

We require our branded hotels to maintain comprehensive property, general liability, covered automobile and cyber liability insurance policies with coverage features and insured limits that we believe are customary. Market forces may nonetheless limit the scope of the insurance coverage our hotels can obtain or their ability to obtain coverage at reasonable rates. Certain types of losses, generally of a catastrophic nature, such as earthquakes, hurricanes and floods, or terrorist acts, or liabilities that result from breaches in the security of our information systems, may be uninsurable or too expensive to justify obtaining insurance above the required coverage amounts. As a result, our hotels may not be successful in obtaining insurance without increases in cost or decreases in coverage levels. In addition, in the event of a substantial loss, the insurance coverage our hotels carry may not be sufficient to pay the full market value or replacement cost of any lost investment or in some cases could result in certain losses being totally uninsured.

We may not achieve our objectives for growth in the number of branded hotels.

The number of properties and rooms under our brands significantly affects our results. There can be no assurance that we will be successful in achieving our objectives with respect to growing the number of hotels in our system or that we will be able to attract qualified hotels. The growth in the number of branded hotels is subject to numerous risks, many of which are beyond the control of our hoteliers or us. Among other risks, the following factors affect our ability to achieve growth in the number of branded hotels:

 

   

the ability of our hoteliers to open and operate additional hotels profitably. Factors affecting the opening of new hotels, or the conversion of existing hotels to a Best Western-branded hotel, include, among others:

 

   

the availability of hotel management, staff and other personnel;

 

   

the cost and availability of suitable hotel locations;

 

   

the availability and cost of capital to allow hotel owners and developers to fund investments;

 

   

cost effective and timely construction of hotels (which construction can be delayed due to, among other reasons, availability of financing, labor and materials availability, labor disputes, local zoning and licensing matters, and weather conditions); and

 

   

securing required governmental permits;

 

   

our ability to continue to enhance our reservation, operational and service delivery systems to support additional hotels in a timely, cost-effective manner;

 

   

our formal impact policy, which may offer certain hotels protection from the opening of a same-brand property within a specified distance;

 

   

the effectiveness and efficiency of our development organization;

 

   

an inability to introduce new brands that gain market acceptance;

 

   

our dependence on our independent hotels’ skills and access to financial resources necessary to open the desired number of hotels; and

 

   

our ability to attract and retain qualified domestic and international branded hotels.

 

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We are subject to risks relating to the acquisition of new brands or lines of business, including the WorldHotels Acquisition.

On February 15, 2019, we acquired the business and brands of WorldHotels. We acquired WorldHotels with the expectation this acquisition will result in various benefits, including, among other things, operating efficiencies. Achieving those anticipated benefits is subject to a number of uncertainties, including whether we can integrate the business of WorldHotels in an efficient and effective manner, and we cannot assure you that those benefits will be realized at all or as quickly as we expect. In addition, the success of the WorldHotels Acquisition will depend in part on our ability to retain the business of Legacy-WorldHotels hoteliers. It remains possible that these hoteliers may decide not to remain with us upon the expiration of their existing agreements with Legacy-WorldHotels. The loss of a material number of these hoteliers may diminish the anticipated benefits of the WorldHotels Acquisition. If we do not achieve the anticipated benefits of the WorldHotels Acquisition as a result of these uncertainties, our costs could increase, our expected net income could decrease, and our revenues, earnings and results of operations could be adversely affected.

Moreover, the integration process could take longer than we anticipate and involve unanticipated costs. Disruptions of each company’s ongoing businesses, processes, and systems or differences in standards, controls, procedures, practices and policies could disrupt the integration process. Additionally, we may also have difficulty harmonizing our different reservations and other systems and business practices. Although we expect that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will over time offset the transaction and merger-related costs and charges we incurred in connection with the WorldHotels Acquisition, we may not achieve expected net benefits in the near term, or at all.

From time-to-time, we may consider acquisitions of additional new brands that complement our current portfolio of brands. In such event, we will be competing for these opportunities with third parties who may have substantially greater financial resources or different or lower acceptable return requirements than we do. There can be no assurance that we will be able to identify acquisition candidates, acceptable new markets or complete transactions on commercially reasonable terms or at all. If transactions are consummated or new markets entered, there can be no assurance that any anticipated benefits will actually be realized. Similarly, there can be no assurance that we will be able to obtain additional financing for acquisitions or investments, or that the ability to obtain such financing will not be restricted by the terms of any then existing debt agreements. Furthermore, if events or changes in circumstances indicate that the carrying value of the acquisition costs are not recoverable, we may be required to record a significant non-cash impairment charge in our financial statements, which may negatively impact our results of operations and shareholders’ equity.

New brands may not be accepted by hoteliers and consumers.

We may develop and launch additional brands in the future. There can be no assurance regarding the level of acceptance of new brands in the development and consumer marketplaces, that costs incurred to develop the brands will be recovered or that the anticipated benefits from these new brands will be realized.

Our international operations are subject to political and monetary risks.

We have properties open and operating in approximately 100 countries and territories outside of the United States. We also have, and may in the future make, investments in foreign hotel franchisors. As a result, we are exposed to the challenges and risks of doing business outside the United States, many of which are outside of our control, and which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, otherwise disrupt our business, or damage our reputation. These challenges include: (1) compliance with complex and changing laws, regulations and government policies that may impact our operations, import and export controls, and trade restrictions; (2) compliance with U.S. and foreign laws that affect the activities of companies abroad, such as competition laws, currency regulations, and other laws affecting dealings with certain

 

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nations; (3) limitations on our ability to repatriate non-U.S. earnings in a tax effective manner, or in some cases at all due to foreign exchange restrictions; (4) the difficulties involved in managing an organization doing business in many different countries; (5) uncertainties as to the enforceability of contract and intellectual property rights under local laws; (6) rapid changes in government policy and the threat of international boycotts or U.S. anti-boycott legislation; (7) the risk of war or civil unrest, political instability; and (8) currency exchange rate fluctuations, which may impact the results and cash flows of our international operations. In certain countries, these risks also include the risk of war or civil unrest, political instability, expropriation and nationalization.

Because we conduct our business on a global platform, changes in global and regional economies impact our activities. Decreases in travel resulting from weak economic conditions and the heightened travel security measures from the threat of further terrorism could affect our operating results and financial condition. Our future performance could be similarly affected by the economic environment in each of our operating regions, the resulting unknown pace of business travel, and any future incidents or changes in those regions.

Additional factors may also impact our international operations. The laws of some international jurisdictions do not adequately protect our intellectual property and restrict the repatriation of non-U.S. earnings. Various international jurisdictions also have laws limiting the right and ability of non-U.S. entities to pay dividends and remit earnings to affiliated companies unless specified conditions have been met. In addition, revenues from international jurisdictions typically are earned in local currencies, which subjects us to risks associated with currency fluctuations. Currency devaluations and unfavorable changes in international monetary and tax policies could have a material adverse effect on our profitability and financing plans, as could other changes in the international regulatory climate. Our future performance could be adversely affected by weak economic conditions in any region where we operate, and uncertainty regarding the pace of economic growth in different regions of the world makes it difficult to predict future profitability levels. We intend to continue to expand internationally, which would make the risks related to our international operations more significant over time.

Any failure by our international operations to comply with anti-corruption laws or trade sanctions could increase our costs, reduce our profits, limit our growth, harm our reputation, or subject us to broader liability.

We are subject to restrictions imposed by the FCPA and anti-corruption laws and regulations of other countries applicable to our operations, such as the UK Bribery Act 2010 (the “UK Bribery Act”). Anti-corruption laws and regulations generally prohibit companies and their intermediaries from making improper payments to government officials or other persons in order to receive or retain business. These laws also require us to maintain adequate internal controls and accurate books and records. We franchise properties in countries outside of the United States, including in many parts of the world where corruption is common, and our compliance with anti-corruption laws may potentially conflict with local customs and practices. The compliance programs, internal controls and policies we maintain and enforce to promote compliance with applicable anti-bribery and anti-corruption laws may not prevent our associates, contractors or agents from acting in ways prohibited by these laws and regulations. We are also subject to trade sanctions administered by OFAC and the U.S. Department of Commerce. Our compliance programs and internal controls also may not prevent conduct that is prohibited under these rules. The United States may impose additional sanctions at any time against any country in which or with whom we do business. Depending on the nature of the sanctions imposed, our operations in the relevant country could be restricted or otherwise adversely affected. Any violations of anti-corruption laws and regulations or trade sanctions could result in significant civil and criminal penalties, reduce our profits, disrupt or have a material adverse effect on our business, damage our reputation, or result in lawsuits being brought against us or our officers or Directors. In addition, the operation of these laws or an imposition of further restrictions in these areas could increase our cost of operations, reduce our profits or cause us to forgo development opportunities, or cease operations in certain countries, that would otherwise support growth.

 

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We may have disputes with our future hotel franchisees or their representative franchisee associations.

Our responsibilities under our future franchise agreements may be subject to interpretation and may give rise to disagreements in some instances. Such disagreements may be more likely when hotel returns are depressed as a result of economic conditions. We will seek to resolve any disagreements in order to develop and maintain positive relations with hoteliers as well as their representative franchisee associations. However, failure to resolve such disagreements could result in litigation with outcomes that may be adverse to our economic interests.

Under certain circumstances, our franchisees may terminate our franchise contracts.

In connection with the Conversion, we will franchise hotels to independent third parties pursuant to franchise agreements. These agreements may be terminated, renegotiated or expire but generally will have an initial term of 12 years. The agreements with our Existing Members will permit termination by the owner at the first and second anniversaries of the New Franchise Agreements without any payment of liquidated damages. Otherwise, while our franchise agreements provide for liquidated damages to be paid to us by franchisees whose agreements have been terminated as the result of a violation of the provisions of the agreement or in the event of certain early terminations, these damage amounts are typically less than the fees we would have received if the terminated franchisee fulfilled its contractual obligations. In addition, there can be no assurance that we will be able to replace expired or terminated franchise agreements, or that the provisions of renegotiated or new agreements will be as favorable as the provisions that existed before such expiration, replacement or renegotiation. As a result, our revenues could be negatively impacted.

Our franchisees may fail to make investments necessary to maintain or improve their properties, preference for our brands and our reputation could suffer and our franchise agreements with these franchisees could terminate.

Our franchised properties will be governed by the terms of franchise agreements. Substantially all of these agreements require property owners to comply with standards that are essential to maintaining our brand integrity and reputation. We will depend on our franchisees to comply with these requirements by maintaining and improving properties through investments, including investments in furniture, fixtures, amenities and personnel.

Franchisees may be unable to access capital or unwilling to spend available capital when necessary, even if required by the terms of our franchise agreements. If our franchisees fail to make investments necessary to maintain or improve their properties, our brand preference and reputation could suffer. In addition, if franchisees breach the terms of our agreements with them, we may elect to exercise our termination rights, which would eliminate the revenues we earn from these properties and cause us to incur expenses related to terminating these relationships. These risks become more pronounced during economic downturns.

We are dependent upon our ability to attract and retain key officers and other highly qualified personnel.

Our future success and our ability to manage future growth depend in large part upon the efforts and skills of our senior management and our ability to attract and retain key officers and other highly qualified personnel. Competition for such personnel is intense. There can be no assurance that we will continue to be successful in attracting and retaining qualified personnel. Accordingly, there can be no assurance that the Company will be able to successfully execute and implement our growth and operating strategies.

We are subject to certain risks related to any future indebtedness.

We cannot assure you that our business will generate sufficient cash flow from operations to enable us to pay indebtedness we may incur in the future or to fund our other liquidity needs. Prior to the Conversion, we have not incurred substantial amounts of indebtedness, but we are not restricted in the amount of indebtedness we may

 

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incur. If we fail to generate sufficient cash flow from future operations to meet any such future debt service obligations, we may need to refinance all or a portion of such debt on or before maturity. We cannot assure you that we will be able to refinance any of debt we may incur in the future on attractive terms, commercially reasonable terms or at all. Our future operating performance and our ability to service, extend or refinance any indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control. Our future borrowings could have important adverse consequences to us, such as:

 

   

limiting our ability to obtain additional financing;

 

   

requiring a substantial portion of our cash flow to be used for principal and interest payments on the debt, thereby reducing our ability to use cash flow to fund working capital, capital expenditures, pay dividends and/or repurchase our Common Stock;

 

   

limiting our ability to respond to changing business, industry and economic conditions and to withstand competitive pressures, which may affect our financial condition;

 

   

causing us to incur higher interest expense in the event of increases in interest rates on our borrowings that have variable interest rates or in the event of refinancing existing debt at higher interest rates;

 

   

limiting our ability to make investments or acquisitions;

 

   

increasing our vulnerability to downturns in our business, our industry or the general economy and restricting us from making improvements or acquisitions or exploring business opportunities;

 

   

placing us at a competitive disadvantage to competitors with less debt or greater resources; and

 

   

subjecting us to financial and other restrictive covenants resulting from indebtedness, the non-compliance with which could result in an event of default.

A portion of our future borrowings may be at variable rates of interest, and to the extent not protected with interest rate hedges, could expose us to market risk from adverse changes in interest rates. Unless we enter into interest rate hedges, if interest rates increase, our future debt service obligations on the variable-rate indebtedness could increase significantly even though the amount borrowed would remain the same.

Government franchise and tax regulation could impact our business.

The Federal Trade Commission (the “FTC”), various states and provinces, and certain foreign jurisdictions where we will market franchises regulate the sale of franchises. The FTC requires franchisors to make extensive disclosure to prospective franchisees but does not require registration. A number of states in which our hotels operate may require registration and disclosure in connection with future franchise offers and sales. In addition, several states in which our hotels operate have “franchise relationship laws” that limit the ability of the franchisor to terminate agreements or to withhold consent to the renewal or transfer of these agreements. While our business has not been materially affected by such regulation in that we are a membership association, there can be no assurance that this will continue or that future regulation or legislation will not have such an effect.

In addition, on December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJ Act. The TCJ Act makes broad and complex changes to the U.S. tax code, including but not limited to, reducing the corporate tax rate from 35% to 21%, requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may be electively paid over eight years, accelerating first year expensing of certain capital expenditures and modifying or repealing many deductions and credits. The impact of many provisions of the TCJ Act lack clarity and is subject to interpretation until additional Internal Revenue Service guidance is issued. The ultimate impact of the act may differ from the Company’s estimates due to changes in the interpretations and assumptions made as well as any forthcoming regulatory guidance.

The determination of our worldwide provision for income taxes and other tax liabilities requires estimation and significant judgment and there are many transactions and calculations where the ultimate tax determination is

 

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uncertain. Like many other multinational corporations, we are subject to tax in multiple U.S. and foreign tax jurisdictions and have structured our operations to reduce our effective tax rate. Our determination of our tax liability is always subject to audit and review by applicable domestic and foreign tax authorities. Any adverse outcome of any such audit or review could have a negative effect on our business, operating results and financial condition, and the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made.

Failure to protect our trademarks and other intellectual property could impact our business.

We believe that our trademarks and other intellectual property are fundamental to our brands and our business. We generate, maintain, license and enforce a substantial portfolio of trademarks and other intellectual property rights. We enforce our intellectual property rights to protect the value of our trademarks, our development activities, to protect our good name, to promote our brand name recognition, to enhance our competitiveness and to otherwise support our business goals and objectives. We rely on trademark laws to protect our proprietary rights. Monitoring the unauthorized use of our intellectual property is difficult. Litigation has been and may continue to be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could result in substantial costs and diversion of resources, may result in counterclaims or other claims against us and could significantly harm our results of operations. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. From time to time, we apply to have certain trademarks registered. There is no guarantee that such trademark registrations will be granted. We cannot assure you that all of the steps we have taken to protect our trademarks in the United States, Canada and other countries will be adequate to prevent imitation of our trademarks by others. The unauthorized reproduction of our trademarks could diminish the value of our brand and its market acceptance, competitive advantages or goodwill, which could adversely affect our business.

Changes in privacy laws could adversely affect our ability to transfer guest data and market our products effectively and could impact our results from operations or result in costs and fines.

Our business operations are subject to various U.S. and international privacy and data protection laws. Any future changes or restrictions in United States or international privacy and data protection laws could adversely affect our operations, including our ability to transfer guest data, which could adversely impact guest bookings. Compliance with such future changes or restrictions could result in significant costs. Failure to comply could expose us to fines, litigation, or other expenses or sanctions.

We also rely on a variety of direct marketing techniques, including telemarketing, email, marketing and postal mailings. Any future restrictions in laws such as Telemarketing Sales Rule, CANSPAM Act, and various U.S. state and Canadian provincial laws, or new federal laws regarding marketing and solicitation or international data protection laws that govern these activities could adversely affect the continuing effectiveness of telemarketing, email and postal mailing techniques and could force changes in our marketing strategies. If this occurs, we may not be able to develop adequate alternative marketing strategies, which could impact the amount and timing of our revenues. We also obtain access to potential customers from travel service providers and other companies with whom we have substantial relationships and market to some individuals on these lists directly or by including our marketing message in the other company’s marketing materials. If access to these lists was prohibited or otherwise restricted, our ability to develop new customers and introduce them to our products could be impaired.

We depend on the skill, ability and decisions of third party operators.

We utilize third party operators to provide significant services, such as inspecting our branded hotels. In addition, we rely on third party providers to provide market and competitor information that is utilized in our strategic decision making process. The failure of any third-party operator or provider to make decisions, perform their

 

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services, discharge their obligations, deal with regulatory agencies, provide accurate information and comply with laws, rules and regulations could result in material adverse consequences to our business.

We are subject to risks relating to events such as acts of God, terrorist activity, epidemics and war.

Our financial and operating performance may be adversely affected by sudden or unexpected events such as acts of God, including natural disasters and/or pandemics, epidemics, the spread of contagious diseases, terrorist activities, political instability, civil unrest and acts of war affecting locations where we have a high concentration of branded hotels and areas of the world from which our hotels draw a large number of guests.

Risks Related to the Conversion and Ownership of our Common Stock

If our visual presentations to our members regarding the proposed initiative to convert to a for-profit corporation at our member business meetings or our providing certain written information regarding such initiative to our regional Governors and other limited persons were held to be “gun jumping” in violation of Section 5 of the Securities Act or applicable provisions of state securities laws, we could be required to repurchase securities sold in this offering.

In connection with our customary meeting process with our membership for 2018, our seeking feedback from our Members with regard to this strategic initiative, and our seeking feedback from certain Members that are part of our overall governance structure regarding the potential business strategy to convert to a for-profit corporation, we:

 

  (i)

Made visual presentations to and discussed with Members of the Company, at Member business meetings in the winter and spring of 2018, the current business posture of the Company vis-à-vis the industry in which we compete and potential business strategies, including the potential conversion to a for-profit corporation. No written materials were provided to the Members in the meetings. The presentations were identified as draft—subject to change—and included a statement that the presentation was not an offer to sell any security of the Company and that any offer and sale of any shares of the for-profit corporation as part of a conversion would be pursuant to a registration statement containing an information statement/prospectus that will have been declared effective by the SEC.

 

  (ii)

Presented materials to an ad hoc committee of 13 regional Governors and one former Director, in a meeting on April 26, 2018, for review and feedback to the leadership of the Company regarding a potential conversion of the Company to a for-profit corporation. These materials included preliminary drafts of franchise disclosure documents, an initial version of the information statement/prospectus, and the proposed amended articles of incorporation and bylaws of the Company. No attendees retained any of the written materials. Such materials were indicated to be confidential, draft—subject to change.

 

  (iii)

Provided certain written explanatory materials regarding the potential conversion initiative to regional Governors during the winter and spring of 2018. Such materials were marked as confidential, draft, stated that the initiative may change, may be implemented in whole, in part, or not at all, that the materials are not an offer to sell any shares of the Company, and that the Company is not soliciting an offer to buy any shares of the Company.

The Company publicly filed its initial registration statement for this offering on August 8, 2018.

Noting the Company is a longstanding nonprofit membership association that self-governs by way of membership voting, the Company’s management and board of directors have historically relied on regional Governors for review, guidance and feedback on Company business strategies and brand standards. The Company has also historically undertaken to seek input, advice and feedback from its membership, to include those matters the Members would be asked to vote upon, to include changes in business strategy such as that presented by the initiative to convert to a for-profit corporation. The Members expect transparency and to provide input regarding strategic initiatives, and they recognize that their feedback is important to the formation

 

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of strategies discussed with them. Historically, and with this initiative, feedback from Members has led to revisions in strategies.

We do not believe that the communications described in clauses (i), (ii) or (iii) constitute a violation of Section 5 of the Securities Act or of applicable provisions of state securities laws. However, if such communications were held by a court to be in violation of the Securities Act or applicable provisions of state securities laws, we could be required to repurchase the shares sold to the Members in this offering, for any consideration determined to have been paid for such shares, with interest thereon, less the amount of any income received therefrom, or for damages if the shares are no longer owned by such Member, for a period of one year following the date of the violation (and similar remedies under state securities laws). We would contest vigorously any claim that a violation of the Securities Act or applicable provisions of state securities law occurred.

The impact of the Conversion on our business is difficult to predict; it could disrupt existing relationships and harm our financial results.

Since 1957 we have operated as an Arizona nonprofit corporation. The business considerations and decisions made by us during this period may differ from those of a for-profit, publicly held corporation.

In addition, we have started a transition of our fee structure to a market-based fee structure for new Members. We compete with other lodging companies for hotels. Our transition to a franchise model and market-based franchise fee structure for new franchisees may impair brand differentiation and the desirability and strength of our brand and, correspondingly, the number of hotels franchised under our brands going forward.

We cannot be certain that we will manage this transition successfully, and any problems that arise are likely to increase our costs and decrease our profits. As a public company, we will be subject to time-consuming and costly requirements of periodic reporting, corporate governance and accounting that will increase our costs and present new management challenges. Since our relationships with our Members, suppliers and employees have been within a membership association context, there can be no assurance that the Conversion will not disrupt one or more of these relationships and harm our financial results.

Shares of our Common Stock are subject to restrictions on transfer, which may prevent their holders from realizing gains during certain time periods.

Under our Amended and Restated Articles of Incorporation that will be in effect after the Conversion, shares of our Common Stock may not be sold or transferred, except in limited circumstances. For a description of these transfer restrictions, and the circumstances in which they may be removed, see “Description of Capital Stock Following the Conversion—Share Transfer Restrictions and Redemption.”

During the duration of these transfer restrictions on their shares of our Common Stock, our shareholders will be precluded from realizing any gains from the increase in the fair market value of these shares. In addition, these transfer restrictions may directly reduce the fair market value of our shares.

Shares of the seven designated Series of Common Stock are subject to redemption or repurchase by the Company in certain circumstances.

Under our Amended and Restated Articles of Incorporation that will be in effect after the Conversion, we are entitled to redeem shares of our Common Stock from shareholders (including Post-Conversion Shareholders) within the three-year period following the effectiveness of the Conversion (unless there has been an earlier IPO) if (a) the Best Western-branded hotel with respect to which such shares of the seven designated Series of Common Stock were issued ceases for any reason to be operated as a Best Western-branded hotel, or (b) the owner of a Best Western-branded hotel with respect to which such shares of the seven designated Series of Common Stock were issued has given notice to us, or we have given notice to such owner, that such property

 

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will cease to be operated as a Best Western-branded hotel. For a description of our redemption rights and the terms of any such redemption, see “Description of Capital Stock Following the Conversion—Share Transfer Restrictions and Redemption.”

In addition, if the hotel of a Post-Conversion Shareholder ceases for any reason to be operated as a Best Western-branded hotel within three years of being open and active on the Best Western reservation system, the Company will have the right to repurchase all Common Stock issued to such shareholder for $0.10 per share. See “Business of the Company—Franchise Agreements” for more information.

Existing Members may not receive shares of Common Stock in the Conversion despite voting in favor of the Conversion.

An Existing Member that (i) executes a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) and (ii) has a property open and active on the Best Western reservation system will receive shares of Common Stock on the Conversion Date in exchange for its existing membership interest. The deadlines for satisfying these conditions occurs later than the Voting Deadline. Notwithstanding an Existing Member’s vote in favor of the conversion proposal and the membership termination bylaw proposal, in the event an Existing Member does not satisfy these conditions, such Existing Member will still have its membership interest cancelled prior to the Conversion Date and will not receive shares of Common Stock in the Conversion.

No market for our Common Stock currently exists, and we do not intend to list the Common Stock on any stock exchange in connection with the Conversion.

Our shares of Common Stock are a new issue of securities for which there is no established public market. We do not intend to list the Common Stock on any stock exchange. Because of the restrictions on transferability with respect to our Common Stock in our Amended and Restated Articles of Incorporation, an active market for the shares of our Common Stock is not expected to develop or, if developed, may not continue.

The value of our Common Stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:

 

   

actual or anticipated fluctuations in our operating results due to factors related to our business;

 

   

success or failure of our business strategies, including our transition to a publicly-held, for-profit company;

 

   

our quarterly or annual earnings or those of other companies in our industry;

 

   

our ability to obtain financing as needed;

 

   

announcements by us or our competitors of significant acquisitions or dispositions;

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

   

the operating and stock price performance of other comparable companies;

 

   

investor perception of us and our industry;

 

   

overall market fluctuations;

 

   

results from any material litigation or government investigation;

 

   

changes in laws and regulations (including tax laws and regulations) affecting our business;

 

   

changes in capital gains taxes affecting shareholders; and

 

   

general economic conditions and other external factors including, but not limited to acts of God, terrorist activity, epidemics, and war.

 

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If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of Common Stock at a price that is attractive to you, or at all, after the transfer restrictions on your shares of Common Stock have been lifted. The lack of an active market may also reduce the fair market value of our shares.

Members will not have appraisal or dissenters rights in the Conversion.

Appraisal rights are statutory rights that, if applicable under law, enable equityholders to dissent from an extraordinary transaction, such as a merger, and to demand that the company pay the fair value for their equity interest as determined by a court in a judicial proceeding instead of receiving the consideration offered to equity holders in connection with the extraordinary transaction. Under Arizona law, Members of the Company who oppose the conversion proposal or the membership termination bylaw proposal will not have the statutory rights in connection with the Conversion to dissent from the transaction and will not be entitled to demand appraisal rights or the cash payment of the fair value of their membership interest.

The terms of the New Franchise Agreement will differ from the terms of existing membership agreements.

In connection with the conversion proposal and the transactions contemplated by the Conversion, Existing Members must enter into New Franchise Agreements, and the terms of the New Franchise Agreement will differ from the terms of the existing membership agreements in certain material respects, including an extension of the term, the inclusion of a liquidated damages provision in the event of a termination of a New Franchise Agreement after the first two years, a change regarding a marketing and technology assessment and changes regarding transfer and assignment. For a comparison of the material terms of our existing membership agreements and the expected terms of the New Franchise Agreements, see “Business of the Company—New Franchise Agreements.”

Directors and executive officers may have interests in the Conversion that are different from your interests

Directors and executive officers may have interests in the Conversion that are different from your interests. Each member of our board of directors is also a Member of our Company. Members of our board of directors will participate in the Conversion on the same terms as any other Member of the Company. Our Directors have indicated they will vote in favor of the conversion proposal and the membership termination bylaw proposal. Our Directors hold membership interests representing less than 1% in the aggregate of our existing membership interests outstanding as of the Record Date. Our Directors and executive officers serving the Company prior to the Conversion will continue serving the Company following the Conversion and will be entitled to compensation for their service following the Conversion. See “Executive Compensation” and “Director Compensation” for a discussion of the expected compensation that our executive officers and Directors may receive. Our executive officers are not receiving shares in the Conversion.

As a public reporting company, we will be subject to rules and regulations established from time to time by the SEC regarding our internal control over financial reporting. If we fail to establish and maintain effective internal controls over financial reporting and disclosure controls and procedures, we may not be able to accurately report our financial results, or report them in a timely manner.

Upon completion of the registration of our Common Stock pursuant to this information statement/prospectus we will become a public reporting company subject to the rules and regulations established from time to time by the SEC.

These rules and regulations will require that, among other things, we establish and periodically evaluate procedures with respect to our internal control over financial reporting. Reporting obligations as a public company are likely to place a considerable strain on our financial and management systems, processes and controls, as well as on our personnel.

 

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In addition, as a public company we will be required to document and test our internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley so that our management can certify as to the effectiveness of our internal control over financial reporting by the time our second annual report is filed with the SEC and thereafter, which will require us to document and make significant changes to our internal control over financial reporting. Likewise, our independent registered public accounting firm will be engaged to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “emerging growth company,” as defined in the JOBS Act.

In the event our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on management’s assessment and effectiveness of our internal control over financial reporting, when required, or if material weaknesses in our internal control over financial reporting are identified, we could be subject to regulatory scrutiny, a loss of public and investor confidence, and to litigation from investors and shareholders, which could have a material adverse effect on our business. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could adversely affect our results of operations and financial condition. Additionally, to comply with the requirements of being a public company, we may need to undertake various costly and time-consuming actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit personnel, which may adversely affect our business, financial condition and results of operations.

We are an “emerging growth company” and have elected to comply with reduced public company reporting requirements, which could make our Common Stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, the Company is eligible for certain exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, and (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years after the first sale of our Common Stock pursuant to an effective registration statement under the Securities Act, which fifth anniversary will occur in 2024. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenue exceeds $1.07 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We have made certain elections with regard to the reduced disclosure obligations regarding executive compensation in this information statement/prospectus and may elect to avail ourselves of other reduced disclosure obligations in future filings. As a result, the information that we provide to holders of our Common Stock may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our Common Stock less attractive as a result of our reliance on these exemptions. If some investors find our Common Stock less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our Common Stock and the market price for our Common Stock may be more volatile.

Under the JOBS Act, emerging growth companies may also elect to delay adoption of new or revised accounting standards until such time as those standards apply to private companies. We have elected to “opt-in” to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis.

 

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Anti-takeover provisions in our charter documents and Arizona law might discourage or delay acquisition attempts for us that you might consider favorable.

Our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws will contain provisions that may make the acquisition of the Company more difficult without the approval of our board of directors. These provisions:

 

   

place restrictions on the transferability of our Common Stock;

 

   

establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by shareholders at shareholder meetings;

 

   

establish a classified board of directors, as a result of which our board of directors will be divided into two classes, with each class serving for staggered two-year terms, which prevents shareholders from electing an entirely new board of directors at an annual meeting;

 

   

establish seven separate Series of our Common Stock, each of which is entitled, prior to an IPO, to elect one Director to our board of directors;

 

   

require the approval of holders of at least a majority of the voting power of the outstanding shares of our voting common stock entitled to vote generally to amend our Amended and Restated Articles of Incorporation and to amend our Amended and Restated Bylaws; and

 

   

place restrictions on certain business combinations with interested shareholders.

These anti-takeover provisions and other provisions under Arizona law could discourage, delay or prevent a transaction involving a change in control of the Company, even if doing so would benefit our shareholders. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect Directors of your choosing and to cause us to take other corporate actions you desire. For a further discussion of these and other such anti-takeover provisions, see “Description of Capital Stock Following the Conversion—Anti-Takeover Provisions.”

Our classified board of directors may prevent our shareholders from effecting a change in the control of our board of directors.

We believe that classification of our board of directors will help to assure the continuity and stability of our business strategies and policies as determined by the board of directors. However, the classified board provision could have the effect of making the replacement of incumbent Directors more time-consuming and difficult. The classified board provision could increase the likelihood that incumbent Directors will retain their positions. The staggered terms of Directors may delay, defer or prevent a transaction or a change in control of the Company or a transaction that otherwise might be in the best interest of the shareholders.

The personal liability of our directors and officers to the Company and our shareholders will be limited under Arizona law, our Amended and Restated Articles of Incorporation, and our Amended and Restated Bylaws, and our directors and officers will be entitled to indemnification and advancement of expenses to the fullest extent authorized by Arizona law.

The Arizona Business Corporation Act authorizes corporations to limit or eliminate the personal liability of Directors to corporations and their shareholders for monetary damages for breaches of Directors’ fiduciary duties, subject to certain exceptions. Our Amended and Restated Articles of Incorporation will include a provision that eliminates the personal liability of our Directors for monetary damages for any action or failure to act as a Director, except to the extent such liability results from a financial benefit received by the Director to which the Director is not entitled, an intentional infliction of harm on the Company or our shareholders, an intentional violation of criminal law or a violation of Section 10-833 of the Arizona Business Corporation Act regarding unlawful distributions. The effect of these provisions will be to limit or eliminate the rights of us and our shareholders, through shareholders’ derivative suits on our behalf, to recover monetary damages from a Director for breach of fiduciary duty as a Director, including breaches resulting from grossly negligent behavior.

 

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Our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws will provide that we must indemnify and advance expenses to our Directors and officers to the fullest extent authorized by the Arizona Business Corporation Act. We also will be expressly authorized to carry directors’ and officers’ liability insurance providing indemnification for our Directors, officers, employees and agents for some liabilities. We believe that these indemnification and advancement provisions and insurance will be useful to attract and retain qualified directors and officers.

The limitation of liability, indemnification and advancement provisions that will be included in our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws may discourage shareholders from bringing a lawsuit against our Directors for breaches of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our Directors and officers, even though such an action, if successful, might otherwise benefit us and our shareholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our Directors and officers pursuant to these indemnification provisions.

Our Amended and Restated Articles of Incorporation upon completion of the Conversion will designate a federal district court located in Maricopa County, Arizona as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our Directors, officers or employees.

Our Amended and Restated Articles of Incorporation upon completion of the Conversion will provide that, unless we consent in writing to selection of an alternate forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our Directors, officers or other employees to us or our shareholders, (iii) any action asserting a claim against us arising pursuant to any provision of Arizona Corporation Law, our Amended and Restated Articles of Incorporation or our Amended and Restated Bylaws or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine, in each case shall be the federal district court located in Maricopa County, Arizona, unless the claims are not subject to the federal district court’s jurisdiction, in which event such claims must be brought in a state court located in Maricopa County, Arizona. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our Amended and Restated Articles of Incorporation described above. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our Directors, officers or other employees, which may discourage such lawsuits against us and our Directors, officers and employees. Alternatively, if a court were to find these provisions of our Amended and Restated Articles of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.

Shareholders’ ownership in us may be diluted in the future.

In conjunction with and subject to approval of the Conversion, shares of Common Stock will be offered on a continuous basis following the Conversion and will be issued to Contingently-Approved Applicants and New Franchisees that satisfy the Post-Conversion Participation Condition. The issuance of shares of Common Stock to the Post-Conversion Shareholders from time to time as described herein will dilute the ownership of those shareholders who hold our Common Stock immediately following the Conversion.

In addition, shareholders’ ownership in us may be diluted in the future if we issue equity as all or part of the consideration paid for acquisitions and strategic investments that we may make in the future or as necessary to finance our ongoing operations. Our Amended and Restated Articles of Incorporation will provide that the Company is authorized to issue 100.0 million shares of Common Stock, and we will issue and reserve for issuance a total of 55.0 million shares of Common Stock to our Members in the Conversion and to those

 

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Contingently-Approved Applicants and New Franchisees that satisfy the Post-Conversion Participation Condition. As a result, the Company may issue up to 45.0 million shares of Common Stock under the Amended and Restated Articles of Incorporation following the Conversion.

The control held by the Members following the Conversion as Shareholders could diminish over time.

As noted above, the Company will be authorized to issue 100.0 million shares of Common Stock, with a total of 55.0 million shares issued to our Members in the Conversion and reserved for issuance to the Post-Conversion Shareholders, and the remaining 45.0 million shares of Common Stock will be available for issuance at the discretion of our board of directors. In the event of any redemption or repurchase by the Company of any shares of the seven designated Series of Common Stock, we will retire and not reissue those shares; further, if it is determined that the Company is no longer obligated to issue any shares of Common Stock that have been reserved for issuance to Contingently-Approved Applicants or New Franchisees, such shares will also be retired and will not be available for issuance. In addition, following any such redemption or repurchase, or determination that the Company is no longer obligated to issue any such reserved shares, we will proportionately reduce the number of authorized shares, to the extent there are authorized but unissued shares that are not then reserved for issuance, so that 55% of the aggregate number of authorized shares have been issued to the then-existing holders of the seven designated Series of Common Stock. However, in the event at the time of any such redemption or repurchase of shares or termination of reservation of shares, all or a significant portion of the remaining 45.0 million authorized shares of Common Stock have been issued or otherwise reserved for issuance, the ownership percentage of the Company of the then-existing holders of the seven designated Series of Common Stock will be reduced below 55% in the aggregate. Moreover, to the extent that, upon the request of an existing holder of Common Stock, our board of directors grants approval for a transfer of shares by one of the holders of the seven designated Series of Common Stock, or in the event a shareholder after the Conversion transfers its hotel property to a new franchisee and retains its shares, those shares may be held by a party who is not a Best Western franchisee and may not have the same interests as the Best Western franchisees. As a result of the foregoing, the control that may be exercised by the Members, as shareholders of the Company following the Conversion, could diminish over time.

Future changes in financial accounting standards or practices and recent, and possible future, changes to existing tax laws may adversely affect the Company’s reported results of operations after the Conversion.

Financial accounting standards in the United States are constantly under review and may be changed from time to time. While we have made certain elections as an emerging growth company with regard to extended transition periods for complying with new or revised accounting standards, we will be required to adopt such new or revised accounting standards when they become generally applicable to private companies. Once implemented, these changes could materially affect our financial condition and results of operations and/or the way in which such financial condition and results of operations are reported. Similarly, we will be subject to taxation in the United States and a number of state and local jurisdictions, as well as jurisdictions outside of the United States. The rates of taxation, definitions of income, exclusions from income, and other tax policies in jurisdictions in which we are subject to taxation are subject to change over time, and such changes, as well as the recent changes to the existing U.S. federal income tax laws as enacted as part of the TCJ Act could affect our effective tax rate and profitability.

Tax-free treatment for the Conversion is not assured, and no ruling has been or will be requested from the Internal Revenue Service regarding the U.S. federal income tax consequences of the Conversion.

It is intended that, for U.S. federal income tax purposes, the Conversion will qualify as a “reorganization” within the meaning of Section 368(a) of the Code (the “Intended Tax Treatment”). In connection with the Conversion, Kirkland & Ellis LLP will be issuing an opinion to the effect that the Conversion will qualify for the Intended Tax Treatment. A copy of such opinion is or will be filed with the SEC as an exhibit to the registration statement, of which this information statement/prospectus is a part. An opinion of counsel is not binding upon the Internal

 

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Revenue Service (“IRS”) or the courts, and we do not intend to request a ruling from the IRS regarding the U.S. federal income tax consequences of the Conversion. Accordingly, no guarantee or assurance can be given that the Conversion will qualify for the Intended Tax Treatment, or that the IRS will not assert and that a court will not sustain a contrary position. Each Member should read the discussion under “Material U.S. Federal Income Tax Consequences” and should consult its own tax advisor for a full understanding of the tax consequences of the Conversion to such Member. Further, the completion of the Conversion is not conditioned on the Conversion qualifying for the Intended Tax Treatment.

Tax-free treatment for the Conversion is not assured, and no ruling has been or will be requested from the Canada Revenue Agency regarding the Canadian income tax consequences of the Conversion.

It is intended that, for Canadian income tax purposes, the Conversion will qualify as a foreign merger of BW Inc. (NP) and BW Merger Sub described in subsections 87(8) to 87(8.2) of the Income Tax Act (Canada) (the “Intended Canadian Tax Treatment”). In connection with the Conversion, Felesky Flynn LLP will be issuing an opinion to the effect that the Conversion will qualify for the Intended Canadian Tax Treatment. A copy of such opinion is or will be filed with the SEC as an exhibit to the registration statement, of which this information statement/prospectus is a part. An opinion of counsel is not binding upon the Canada Revenue Agency (“CRA”) or the courts, and we do not intend to request a ruling from the CRA regarding the Canadian income tax consequences of the Conversion. Accordingly, no assurance can be given that the Conversion will qualify for the Intended Canadian Tax Treatment, or that the CRA will not assert and that a court will not sustain a contrary position. Each Member who is potentially subject to Canadian income tax should read the discussion under “Material Canadian Income Tax Consequences” and should consult its own tax advisor for a full understanding of the Canadian income tax consequences of the Conversion to such Member. Further, the completion of the Conversion is not conditioned on the Conversion qualifying for the Intended Canadian Tax Treatment.

Members should consult their local tax advisors regarding the potential non-U.S. tax consequences, as well as the potential U.S. state and local tax consequences, of the Conversion.

 

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FORWARD-LOOKING STATEMENTS

We believe that some of the information in this information statement/prospectus constitutes forward-looking statements within the meaning of federal securities laws. You can identify these statements by forward-looking words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or similar words. You should read statements that contain these words carefully because they:

 

   

discuss future expectations;

 

   

contain projections of future results of operations or financial condition; or

 

   

state other “forward-looking” information.

We believe it is important to communicate our expectations to our Members. However, there may be events in the future that we are not able to predict accurately or over which it has no control. The risk factors and cautionary language discussed in this information statement/prospectus provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:

 

   

operating risks common in the hospitality industry;

 

   

our inability to compete effectively;

 

   

alternatives to traditional hotels and industry consolidation;

 

   

cyclicality of the hospitality industry and global economic conditions;

 

   

increasing use of alternative internet reservation channels;

 

   

deterioration in the general financial condition of our hotels;

 

   

actions by our hotels that adversely affect our image and reputation;

 

   

disruptions and malfunctions in our information systems;

 

   

cyber threats, cybersecurity and the failure to maintain the integrity of internal or customer data;

 

   

damages or losses involving our branded hotels properties which may not be covered by insurance;

 

   

our inability to achieve our objectives for growth in certain branded hotels;

 

   

political and monetary risks relating to our international operations;

 

   

the failure by our international operations to comply with anti-corruption laws or trade sanctions;

 

   

risks related to the acquisition of new brands or lines of business, including the WorldHotels Acquisition;

 

   

disputes with the owners of our branded hotels;

 

   

following the Conversion, termination by our franchisees of our franchise contracts; and

 

   

failure by our branded hotels to make investments necessary to maintain or improve their properties.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this information statement/prospectus.

All forward-looking statements included herein attributable to any of the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, the Company undertakes no obligations

 

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to update these forward-looking statements to reflect events or circumstances after the date of this information statement/prospectus or to reflect the occurrence of unanticipated events.

Before a Voting Member votes on the conversion proposal or the membership termination bylaw proposal, it should be aware that the occurrence of the events described in the “Risk Factors” section and elsewhere in this information statement/prospectus may adversely affect the Company.

 

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SPECIAL BALLOT INITIATIVE TO THE MEMBERS

General

The Company is furnishing this information statement/prospectus to the Company’s Voting Members in connection with their voting on the proposals set forth herein for the Special Ballot Initiative. This information statement/prospectus provides the Company’s Voting Members with information they need to know to be able to vote in the Special Ballot Initiative.

Purpose of the Special Ballot Initiative

In the Special Ballot Initiative, the Company is asking Voting Members to:

 

   

consider and vote upon a proposal to convert the Company into a for-profit Arizona corporation; and

 

   

consider and vote upon a proposal to amend our current bylaws to authorize the board of directors to terminate prior to the Conversion Date the membership interest of any Existing Member that (i) does not execute a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) or (ii) is not open and active on the Best Western reservation system by November 30, 2019, and to terminate prior to the Conversion Date the membership agreement of any Contingently-Approved Applicant that (i) does not execute a New Franchise Agreement by September 30, 2019 (subject to the Extension Condition) or (ii) is not open and active on the Best Western reservation system by November 30, 2019.

The conversion proposal involves the Merger and is further described in the Plan of Merger attached hereto as Appendix A. The Plan of Merger also contemplates the adoption of the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws of BW Inc., the surviving entity in the Merger, to be effective upon the effective date of the Merger. The form of the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws are attached to the Plan of Merger as Exhibits A and B, respectively. Approval of the conversion proposal will also constitute approval of the Amended and Restated Articles of Incorporation and the Amended and Restated Bylaws.

Both the conversion proposal and the membership termination bylaw proposal must be approved or neither the conversion proposal nor the membership termination bylaw proposal will be adopted.

If both the conversion proposal and the membership termination bylaw proposal are approved, the membership termination bylaw proposal will be adopted with immediate effectiveness.

Recommendation of Our Board of Directors

A majority of our board of directors has determined that the conversion proposal, including the Merger and the Amended and Restated Articles of Incorporation inherent in the conversion proposal, and the membership termination bylaw proposal are advisable and in the best interest of the Company and its Members and recommends that the Voting Members vote “FOR” the conversion proposal and “FOR” the membership termination bylaw proposal.

Record Date; Persons Entitled to Vote

The Record Date is 1:00 p.m., Phoenix, Arizona time, on the day immediately prior to the date of this information statement/prospectus for determining the Voting Members entitled to notice of and to vote in the Special Ballot Initiative. Each Voting Member as of the Record Date will have one vote for each Member that it represents. On the Record Date, there were                Voting Members entitled to cast votes in the Special Ballot Initiative. Votes must be submitted by no later than 2:00 p.m., Phoenix, Arizona time, on                 , 2019 to count in the Special Ballot Initiative. If you vote by paper ballot, it must be received by the Voting Deadline for your vote to be counted.

 

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Quorum

To have a quorum allowing the Special Ballot Initiative to go forward, Voting Members representing 10% of the Company’s Voting Members as of the Record Date, or                Voting Members, must submit ballots in the Special Ballot Initiative. Proxy voting by Members is expressly prohibited.

Vote Required

The approval of each of the conversion proposal and the membership termination bylaw proposal will require approval by the affirmative vote of the lesser of two-thirds (23) of the votes cast or a majority of the voting power; provided, at least thirty-three and one-third percent (3313%) of the voting power vote in favor. Each Voting Member as of the Record Date will have one vote for each Member that it represents.

Abstentions and Non-Votes

If you do not vote, it could affect adoption of a proposal, since the success of a proposal may depend on a majority of the Company’s voting power voting in favor of it, and at least thirty-three and one-third percent (3313%) of the Company’s voting power voting in favor of it. If you do not vote on the proposal, and the success of the proposal is determined by a majority of the Company’s voting power voting in favor of it, with at least thirty-three and one-third percent (3313%) of the Company’s voting power voting in favor, your failure to vote would have the same effect as voting “AGAINST” the proposal.

Voting Your Membership Interests

You may vote on the proposals contemplated by the Special Ballot Initiative by means of secure website to be provided to Members or by paper ballot, upon request. Please read the ballot instructions included on the secure website or paper ballot carefully before voting on the proposals contemplated by the Special Ballot Initiative. Links to the Company’s current bylaws and articles of incorporation, and the Company’s Rules & Regulations will be available on the secure website. You may direct your request for a paper ballot by mail at: Best Western International, Inc., 6201 N. 24th Parkway, Phoenix, Arizona 85016 or facsimile at: (602) 957-5966, attention: Secretary.

Paper ballots may be returned by U.S. mail or facsimile as provided in the ballot instructions. Pursuant to the Company’s bylaws, the responses of Voting Members representing 10% of the Voting Members as of the Record Date, or                Voting Members, are needed to meet the quorum requirements for this ballot.

At 2:00 p.m., Phoenix, Arizona time, on                 , 2019, the voting shall close and the voting system data and any paper ballots shall be securely and confidentially provided to the Designated Accountant for certification. The Designated Accountant will rule on any challenges to the procedure for or certification of the vote and such ruling of the Designated Accountant will be final. Please allow yourself sufficient time to review and consider the proposals and to submit your votes before the deadline. Only ballots that have been submitted prior to that date and time shall be counted. You are invited to be present at the certification of the results of the vote.

Revoking Your Vote

There are no procedures to revoke your vote, once you have voted.

Who Can Answer Your Questions About Voting Your Membership Interests

You may call the Company’s toll-free hotline at 800-428-7234 to answer your questions. You may contact your District Manager regarding your Voting Member status. You may also contact the Company for more

 

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information regarding your District Manager. Additionally, you may also direct your written questions by mail to the Company at:

Best Western International, Inc.

6201 N. 24th Parkway

Phoenix, Arizona 85016

Attn: Secretary

Appraisal Rights

Members do not have appraisal rights in connection with the Conversion or the membership termination bylaw proposal under Arizona law for nonprofit corporations.

Interest of Certain Persons in Matters to be Acted Upon

When you consider the recommendation of our board of directors in favor of approval of the conversion proposal, you should keep in mind that the Company’s Directors and executive officers may have interests in such proposal that are different from, or in addition to, your interests as a Member. Each member of our board of directors is also a Member. Our board of directors will participate in the Conversion on the same terms as any other Member of the Company. Our Directors and executive officers serving the Company prior to the Conversion will continue serving the Company following the Conversion and will be entitled to compensation for their service following the Conversion.

 

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THE CONVERSION PROPOSAL

The Plan of Merger is attached to this information statement/prospectus in Appendix A.

Background of the Conversion Proposal

Over the past several years, our board of directors and senior management have carefully analyzed the Company’s business and structure. As a result of that analysis, we believe that, despite continued success, significant structural changes to our Company are necessary in order to continue to operate and expand our business.

In recent years, our Company has faced competitive challenges to its business. These challenges have included the effect of the ever-growing OTAs, large online portal and search engine websites, such as Google, Facebook and Amazon, which we refer to as “disruptors,” and growth by our competitors across a portfolio of lodging options, which allow them to increase market penetration and achieve synergy through guest loyalty programs. To combat each of these challenges, and to protect and grow our market share, our board of directors determined that capital investment is necessary to increase advertising and marketing for brand awareness, including through OTAs and disruptors, to provide increased investment in technology and support for our reservation and loyalty reward systems, and to expand our number of hotels and brands. In addition, the board of directors has reviewed the effect of the terms of our current membership structure on our ability to maintain and grow our business and access capital resources.

In order to achieve greater scale and to access the capital resources necessary for growth, in 2017 our board of directors commenced a review of several strategic alternatives, including whether continuing to remain as a nonprofit corporation or becoming a for-profit corporation, investment by one or more financial investors, entering into a joint venture with a strategic partner, a merger or sale involving a competitor or an initial public offering. In the fall of 2017, the Company discussed with several large financial investors the possibility of a significant strategic capital investment in the Company. These discussions were very preliminary in nature and did not result in any definitive, binding proposals. The board of directors believed the interest of these investors in a potential transaction was impacted significantly by the current nonprofit membership arrangement, including the uncertainty of a process in which the Company may convert to a for-profit enterprise. The board of directors, in consultation with a financial advisor engaged by the board of directors, concluded that the value that an investor or joint venture partner would place on the Company in connection with such a transaction is likely, at present, very low given that, as a nonprofit corporation, the Company does not have a demonstrated history of earnings. For the same reason, the board of directors determined that the Company was unlikely to receive a compelling price in a sale. A sale to a competitor was also viewed unfavorably by the board of directors as they believe the Company and its Members would likely be required to give up control over the future of the Best Western brands and such a sale could materially and adversely affect the rights that Members enjoy with respect to development protection, automatic transfer and brand support. As a result, the board of directors did not pursue these alternatives. The board of directors determined that an initial public offering was also not feasible in light of the current low level of historical earnings of the Company as a nonprofit corporation. The board of directors determined that conversion to a for-profit corporation is a necessary step for growth, as monetizing the ownership of the Company will align the interests of hotel owners, as shareholders, with the interests of the Company in improving overall brand performance, and as it will allow the Company to raise and retain capital to increase scale. After carefully exploring these alternatives, our board of directors and senior management have determined that it is in the best interests of the Company and its Members for the Company to convert to a for-profit corporation.

Following the review of potential strategies, the board of directors and senior management obtained feedback from representatives of the Members (e.g., Governors) and discussed the prospects for conversion of the Company to a for-profit corporation. Following those discussions, the board of directors has finalized the proposed terms of the Plan of Merger which are set forth herein and described below.

 

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General

Structure of the Conversion

The Plan of Merger is attached to this information statement/prospectus in Appendix A and includes as attachments thereto the following: Exhibit A—the Amended and Restated Articles of Incorporation and Exhibit B—the Amended and Restated Bylaws. We will convert from an Arizona nonprofit corporation to an Arizona for-profit corporation pursuant to a corporate transaction whereby our wholly owned, for-profit subsidiary BW Merger Sub, will merge with and into the Company, with BW Inc. as the surviving entity.

The Conversion will be effective upon the filing of the statement of merger by an officer of the Company with the Arizona Corporation Commission, or at such later time as specified in the statement of merger. On and after the effectiveness of the Conversion, the Company shall continue its existence in the organizational form of an Arizona for-profit corporation. All of the rights, privileges and powers of the Company, as a nonprofit corporation, and all property and all debts due to the Company, as a nonprofit corporation, as well as all other things and causes of action belonging to the Company, as a nonprofit corporation, shall remain vested in the Company, as a for-profit corporation, and shall be the property of the Company, as a for-profit corporation. All rights of creditors and all liens upon any property of the Company, as a nonprofit corporation, shall be preserved unimpaired, and all debts, liabilities and duties of the Company, as a nonprofit corporation, shall remain attached to the Company, as a for-profit corporation, and may be enforced against the Company, as a for-profit corporation, to the same extent as if said debts, liabilities and duties had originally been incurred or contracted by the Company, as a for-profit corporation.

Completion of the Conversion is conditioned on approval of the conversion proposal and approval of the membership termination bylaw proposal, and other customary closing conditions.

Assuming the fulfillment of these conditions, we expect to complete the Conversion on December 1, 2019 or as soon as practicable following such date. If the completion of the Conversion is delayed significantly beyond December 1, 2019, our board of directors would analyze the facts and circumstances at that time in order to determine whether it is necessary or advisable to update the information provided to Voting Members or to seek again Voting Member approval of the Conversion, taking into account all applicable state and federal laws. Subject to any limitations under Arizona law, the Plan of Merger may be amended or terminated, and the Plan of Merger may be abandoned by our board of directors at any point in time prior to the Conversion Date, notwithstanding any requisite prior approval and adoption of the Plan of Merger by the Members.

The Company will retain the name “Best Western International, Inc.” after the Conversion.

Consideration to Members

As of the effectiveness of the Conversion, all outstanding membership interests of the Company, as a nonprofit corporation, held immediately prior to the effectiveness of the Conversion will convert into newly issued shares of Common Stock of the Company, as a for-profit corporation, and, as of the Conversion Date, each Member will receive the number of shares of Common Stock in exchange for each individual membership interest held by such Member determined by a formula as described in this information statement/prospectus. See “Important Notes.” Pursuant to our Amended and Restated Articles of Incorporation, our Common Stock will be classified into seven series, designated as Series A-1 through A-7, and each membership interest will be converted into shares of the Series of Common Stock as corresponds to the District in respect of which such converted membership interest was issued.

Amendments to the Company’s Restated Articles of Incorporation

Upon the effectiveness of the Conversion, the Amended and Restated Articles of Incorporation will become the articles of incorporation of the Company, concurrent with the filing of the statement of merger. Our Amended

 

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and Restated Articles of Incorporation will permit the Company to engage in any lawful act or activity for which for-profit corporations may be organized under the Arizona Business Corporation Act. Initially, the Company intends to foster the interest of its shareholders and those which are in any way related to the hotel industry as conducted by the Company by common business interest.

See “Description of Capital Stock Following the Conversion—Common Stock” for a description of the material terms of our Common Stock that will be issued upon the Conversion pursuant to our Amended and Restated Articles of Incorporation. Dividends may be declared and paid on our Common Stock out of the assets of the Company that are by law available therefor at such times and in such amounts as our board of directors in its discretion shall determine. See “Description of Capital Stock Following the Conversion—Liquidation and Dissolution” for a description of the distribution of remaining assets of the Company upon the occurrence of a liquidation or dissolution. In order to preserve the relationship between our shareholders and Best Western-branded properties and to maintain the scale of Best Western-branded properties, our Common Stock may not be sold, exchanged or otherwise transferred, other than as expressly approved in advance by our board of directors, and as described in “Description of Capital Stock Following the Conversion—Share Transfer Restrictions and Redemption” of this information statement/prospectus. No holder of shares of our Common Stock shall be entitled to preemptive or subscription rights.

Subject to certain limitations under Arizona law, our Amended and Restated Articles of Incorporation will permit our shareholders to take action without a meeting, without prior notice and without a vote if consent in writing is signed by the number of shareholders that would otherwise be necessary to authorize or take such action at a meeting.

Subject to certain limitations under Arizona law, our Amended and Restated Articles of Incorporation authorize our board of directors to manage the business and affairs of the Company. See “Management—Composition of the Board of Directors” for a description of the number, classes, and terms of Directors, as well as the terms governing their removal and resignation. See “Description of Capital Stock Following the Conversion—Classified Board” for an explanation of the classification of the board of directors based upon a Series of Common Stock.

For a description of the limitations of liability and indemnification provisions in our Amended and Restated Articles of Incorporation, see “Description of Capital Stock Following the Conversion—Limitations on Liability and Indemnification of Officers and Directors” of this information statement/prospectus. The Amended and Restated Articles of Incorporation will also provide that the private property of each shareholder, officer and Director shall be exempt from the debts and liabilities of the Company.

As of the effective date of the Conversion, our newly elected directors with terms of office that otherwise were commencing on December 9, 2019 and our other directors with terms that otherwise were extending beyond such date shall be the initial directors of the Company following the effectiveness of the Conversion. Our Directors may serve consecutive terms, however, under our Amended and Restated Articles of Incorporation, no Director may serve more than three terms, whether or not consecutive (other than (i) Directors elected to fill a vacancy and (ii) the terms of the Class I Directors that expire at the 2020 annual meeting of shareholders). See “Description of Capital Stock Following the Conversion—Removal of Directors; Vacancies” for a description of the process to fill open seats on our board of directors.

Our Amended and Restated Articles of Incorporation establish the quorum for all meetings of the shareholders as 10% of the voting power of the outstanding Common Stock entitled to vote at the meeting. When a quorum has been established, (a) the election of Directors shall be determined by receipt of the plurality of the vote, (b) the amendment of the articles of incorporation or proposed amendments of the bylaws, or any other matters for which the affirmative vote of a majority of the total voting power is required under the Arizona Business Corporation Act, shall be determined by the affirmative vote of the majority of the total voting power of our Common Stock, and (c) all other matters shall be determined by the affirmative vote of a majority of the votes

 

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cast in person or by proxy at such meeting and entitled to vote on the subject matter, provided, at least thirty-three and one-third percent (3313%) of the voting power of our Common Stock vote in favor. Each shareholder entitled to vote may authorize another person to act as such shareholder’s proxy.

The Company is expressly electing not to be subject to the business combination act under Arizona law in our Amended and Restated Articles of Incorporation. See “Description of Capital Stock Following the Conversion—Business Combinations” for a description of the business combinations provisions set forth in the Amended and Restated Articles of Incorporation that will apply to the Company following the effectiveness of the Conversion.

Our Amended and Restated Articles of Incorporation may be amended by the affirmative vote of the holders of at least a majority of the voting power of the outstanding shares of Common Stock entitled to vote generally in an election of Directors, voting together as a single class, at a meeting of shareholders.

Under Arizona law and pursuant to the Amended and Restated Articles of Incorporation, our shareholders will be entitled to vote on major corporate matters, such as amendments to the Articles of Incorporation, any amendments to our bylaws, and certain fundamental transactions, such as mergers or consolidations of the Company and the pursuit of an IPO by the Company.

Under our Amended and Restated Articles of Incorporation, the exclusive forum for claims made against the Company is a federal district court located in Maricopa County, Arizona, unless the claims are not subject to the federal court’s jurisdiction, in which event such claims shall be filed in a state court in Maricopa County, Arizona. See “Description of Capital Stock Following the Conversion—Exclusive Forum” of this information statement/prospectus for a complete description of the exclusive forum provision.

Amendments to the Company’s Bylaws

Upon the effectiveness of the Conversion, the Amended and Restated Bylaws shall become the bylaws of the Company. Our Amended and Restated Bylaws contain many provisions analogous to our current bylaws, but eliminate provisions pertaining to membership (e.g., qualifications, fees, cancellation) and will not govern the relationship between the Company and franchisees (e.g., fees, Member market areas, impact studies), which terms are contained in the New Franchise Agreements described in “Business of the Company—New Franchise Agreements” of this information statement/prospectus.

Our Amended and Restated Bylaws authorize our board of directors to designate the time and place for the annual meeting of the shareholders. Special meetings of the shareholders may be called by the board of directors or the chairman of the board of directors by the affirmative vote of the majority of the total number of directors of the Company if there were no vacancies, or by the holders of at least 10% of the outstanding shares of our Common Stock. Notice of a shareholder meeting must include the place, date, time and, in the case of a special meeting, the purpose(s) for which the meeting is called, and shall be given not less than ten nor more than 60 days before the date of such meeting, in writing or as otherwise permitted under the Arizona Business Corporation Act, including by electronic transmission (which notice may be waived). The Company will make available, within two days of giving such meeting notice to shareholders, a complete list of the shareholders entitled to vote at such meeting. The Amended and Restated Bylaws establish an advance notice procedure for shareholder proposals, including proposed amendments to the Amended and Restated Bylaws, to be brought before an annual meeting of the shareholders, as described in “Description of Capital Stock Following the Conversion—Advance Notice Procedures” of this information statement/prospectus.

Our Amended and Restated Bylaws establish the procedures for the nominations of Directors by our shareholders, including qualifications for candidates and Directors, which are generally preserved from our current bylaws. Directors must certify annually their continued qualification to serve as a Director. Nominations for Directors may be made at the annual meeting of the shareholders only by a shareholder of record both at the time of the nomination and the annual meeting and who is entitled to vote for such nominee based on the Series

 

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of Common Stock held by such shareholder. The nominating shareholder (who may be the candidate) must give notice to the Company between 90 and 120 days prior to the first anniversary date of the preceding years’ annual meeting of the shareholders or, if the date of the annual meeting is not scheduled to be held within a period that commences 30 days before such anniversary date and ends 30 days after such anniversary date, or if no annual meeting was held in the preceding year, such notice shall be delivered, by the later of the 10th day after the meeting is announced or 90 days prior to the date of such meeting. The Amended and Restated Bylaws prescribe specific information regarding the nominating shareholder and the nominee shareholder that must be provided for a nomination to be valid, which are generally preserved from our current bylaws.

Our Amended and Restated Bylaws set forth procedures for the meetings of our board of directors. An agenda setting forth each item to be presented at any regular meeting shall be provided to each Director and made available to any shareholder upon request. All meetings of our board of directors shall be open to any shareholder, and shareholders shall have the right to address the board of directors at each regular meeting, except that the board of directors may convene a closed executive session for certain matters that require confidential treatment. At all meetings of the board of directors, a majority of the total number of directors shall constitute a quorum for the transaction of business. Unless by express provision of applicable law, the Amended and Restated Articles of Incorporation or the Amended and Restated Bylaws a different vote is required, the vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the board of directors. The vote of at least five of the seven members of the board of directors representing Districts shall be required to approve a new franchisee. Our board of directors may create one or more committees. Any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board of directors or such committee, as the case may be, consent thereto in writing.

Our shares of Common Stock shall not be certificated unless our board of directors provides by resolution that some or all classes or series of Common Stock shall be certificated. The Amended and Restated Bylaws prescribe the requirements for any such certificated shares.

Our Amended and Restated Bylaws contain provisions continuing our practices of maintaining advisory committees, regional Governors, District meetings and an annual convention for the benefit of our hotel franchisees, to participate in the direction of the Company’s business following the Conversion. See “Description of Capital Stock Following the Conversion—Provisions in our Amended and Restated Bylaws to Continue Certain Member Rights.”

Our Amended and Restated Bylaws provide that amendments to our Amended and Restated Bylaws may be, proposed by our shareholders or our board of directors, and approved by the affirmative vote of the holders of at least a majority of the voting power of the outstanding shares of Common Stock entitled to vote generally in an election of Directors, voting together as a single class.

Preservation of Member Rights Post-Conversion

The rights of Existing Members under the Member’s Bill of Rights will largely be preserved for shareholders of the Company and franchisees under our post-Conversion structure in the Amended and Restated Bylaws and the New Franchise Agreements. The Member’s Bill of Rights will be cease to be effective upon the effectiveness of the Plan of Merger.

 

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Set forth below is a table containing the terms of our existing Member’s Bill of Rights and how such rights are addressed under our proposed post-Conversion structure for Members who become shareholders. A more detailed summary of the terms of the New Franchise Agreements is set forth in the Franchise Disclosure Document provided to each potential franchisee.

 

Existing Right:

  

How Addressed:

The right to receive an agenda of the regular board of directors’ meetings prior to each meeting, to attend board of directors meetings and to address the board of directors at such meetings.

 

   This provision is retained in the Amended and Restated Bylaws.
The right to receive complete minutes of meetings of the board of directors, a detailed annual budget and detailed annual financial statements.   

As a public registrant, we will file with the SEC our financial statements in accordance with SEC rules and they will be publicly available.

 

The minutes of our board of director meetings will be made available to our shareholders upon request pursuant to the Amended and Restated Bylaws.

 

The board of directors will approve an annual budget 30 days prior to the beginning of each fiscal year pursuant to the Amended and Restated Bylaws, but is not required to distribute it to shareholders.

 

The right to set one’s own property room rates and the right to vote on implementation of any programs providing for room rate discounts in excess of 10% from a Member’s published rates.

 

   This provision is retained in the New Franchise Agreement.
The right to vote on any amendment of or additions to the bylaws of the Company.   

Pursuant to the Amended and Restated Articles of Incorporation, shareholders will have the sole right to amend the Amended and Restated Bylaws by an affirmative vote of the holders of at least a majority of the voting power of the outstanding shares of our Common Stock entitled to vote generally in an election of Directors, voting together as a single class.

 

The right to vote on any change in the Company’s Rules & Regulations, as defined in our current bylaws.   

Certain rules will be contained in the Amended and Restated Bylaws and New Franchise Agreement and will be subject to shareholder or franchisee votes, as the case may be, as set forth in such documents. The Rules & Regulations of the Company as a non-profit corporation will cease to be effective upon effectiveness of the Plan of Merger.

 

The right to vote on increases in Member dues, fees or assessments in excess of the lesser of (a) 5%, and (b) the rate of inflation for the previous year.   

Increases in dues, fees or assessments in excess of such levels will require an affirmative vote of a majority of the votes cast provided at least 33 1/3% of the franchisees vote in favor of the proposal.

 

The right to receive notice of a minimum of 24 hours before any property inspection.   

This provision is retained in the New Franchise Agreement.

 

 

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Existing Right:

  

How Addressed:

The right to request an impact analysis (including an independent analysis of market effect) prior to the approval of a new Membership.

 

   This provision is retained in the New Franchise Agreement.
The right to transfer a membership interest to a purchaser of a property in accordance with Article II, Section 7 of our current bylaws.   

Transfers of franchise rights are addressed in the New Franchise Agreement. See “Business of the Company—New Franchise Agreements.

 

Transfers of shares are addressed in the Amended and Restated Articles of Incorporation. See “Description of Capital Stock Following the Conversion—Share Transfer Restrictions and Redemption.

 

The right to have impartial, standardized and non-discriminatory inspection procedures applied to each Member property.

 

   This provision is retained in the New Franchise Agreement.

The right to continue Membership in the Company except where termination or cancellation is provided for pursuant to the fair application of established bylaws and Rules & Regulations, which shall provide that cancellation may not occur until after a hearing before the board of directors, if requested by the Member.

 

   The right to a hearing is retained in the New Franchise Agreement.
The right to receive all Member services until Membership is cancelled or terminated, except in the following cases, Membership services may be restricted: (i) when grounds for cancellation are found by the board of directors to exist, after opportunity for a hearing has been provided, and the board of directors has granted a conditional extension in lieu of cancellation of Membership, (ii) when the Member scores less than 600 points for guest rooms and public areas, and (iii) when a Member’s fees, dues or any other account are not paid within the time set by board of directors policy.    This provision is retained in the New Franchise Agreement.

Rules & Regulations

The existing Rules & Regulations of the Company will cease to be effective upon the effectiveness of the Plan of Merger. Provisions of the Rules & Regulations that are relevant to the Company as a for-profit corporation are contained in the brand manual of the Company and the New Franchise Agreements.

Related Agreements

Existing Members must have satisfied the Existing Member Participation Condition; otherwise the membership interest of such Existing Member will be cancelled prior to the Conversion Date and such Existing Member will not receive shares of Common Stock. Our Members who execute the New Franchise Agreement will be able to cancel the New Franchise Agreement without paying liquidated damages on the first and second anniversaries of the agreement (i.e., November 30, 2020 and 2021). Contingently-Approved Applicants must have satisfied the

 

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New Member Participation Condition to become Members and participate in the Conversion and receive Common Stock on the Conversion Date. A Contingently-approved Applicant or New Franchisee must satisfy the Post-Conversion Participation Condition to receive Common Stock on a post-Conversion basis. The New Franchise Agreements will have an effective date of December 1, 2019. See “Business—New Franchise Agreements” for a comparison of the material terms of the New Franchise Agreements and the existing membership agreements.

Our Board of Directors’ Reasons for Approval of the Conversion

Our board of directors and senior management determined the structure and terms of the Conversion after extensive investigation of the anticipated business, tax and other effects on the Company and its Members, including whether to convert to another form of entity or continuing to operate on a nonprofit basis. As discussed below, the decision to effect the conversion of the Company into a for-profit, ordinary business corporation is the result of extensive internal discussion and research among the board of directors and senior management of the Company taking into account the advice of outside legal, accounting and investment banking advisers and private discussions of members of the board of directors and senior management with certain Members and representatives of Members (e.g., Governors).

Ultimately, the board of directors and senior management based its final decision to effect the Conversion on a number of factors, including those summarized below.

 

   

Given the competitive nature of the industries in which we do business, we believe that the Company will need significant capital resources to fund ongoing and future activities. Under the current fee structure, our ability to raise capital is limited. In particular, reliance on such fee structure, which has not effectively increased over the last five fiscal years on an aggregate basis, has prohibited the Company and its Members from achieving sufficient funding in key areas such as sales, marketing and technology. Our board of directors believes that the Conversion will help us to grow our scale and funding primarily by adding and retaining more hotels, having greater flexibility in raising capital, more closely aligning brand and hotel interests, more effectively competing with other lodging companies and creating value in the ownership interests of our Members.

 

   

We are facing increasing competition from established and emerging online sellers of travel-related services, including online travel agencies, disruptors such as large online portal and search websites, travel metasearch websites, mobile platform travel applications, social media websites, e-commerce websites and group buying websites and alternative accommodation websites. Following the Conversion, the Company will align brand and hotel interests, and increase funding capabilities, which will allow for increased investment to compete with aforementioned online sellers of travel-related services.

 

   

We believe the increased access to capital will allow the Company to more effectively compete with other lodging companies by growing the number of hotels across the brands we offer, which will increase market penetration and guest loyalty through additional BWR earnings and redemption options across all levels with the objective of creating leverage with OTAs to negotiate more advantageous commercial terms, such as lower commissions, commensurate with that paid by competitors of larger scale, and the ability to increase investments driving revenue and support by spreading our costs over more hotels.

 

   

We believe the Conversion will enhance and monetize the value of the ownership interests of our Members by converting such interests into Common Stock which will have an investment value more directly related to the value of the Company and overseeing the transferability of franchises to transferees with appropriate lodging experience and sufficient capital resources.

 

   

As part of the Conversion, we will migrate to a market based franchise agreement length from the current membership terms. Our Members are being offered the opportunity to maintain in all material

 

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respects the current terms of their membership arrangement for a period of at least two years; however, new franchisees will enter into long-term franchise agreements (e.g., 15 years) with the payment of market based fees and liquidated damages for termination of the agreement, along with reasonable market area restrictions that will allow for the growth of Company brands.

 

   

Under the current membership auto-transfer provisions, approximately 40% of hotels that have transferred within the first two years have failed, and many properties that are transferred may not be in top condition and transferees are not fully aware of the funds needed to meet brand requirements. We believe that retaining the auto transfer is a viable benefit; however, transferees will be required to enter into a franchise agreement with the Company with a term of up to 15 years and with terms similar to those that are offered to non-Member/non-shareholder owners with the exception of discounted fees in certain circumstances.

 

   

The board of directors and senior management considered that the Conversion of the Company to for-profit corporation is expected not to be taxable to the Company and our Members, and the additional costs of being a publicly reporting entity are acceptable, given the expected benefits to both the business enterprise and the Members.

This discussion of factors considered by our board of directors and senior management is not intended to be exhaustive, but is believed to include the material factors they considered. In reaching its determination to approve and recommend the Conversion, the board of directors considered the above issues and factors collectively without quantifying or assigning a greater weight to any one factor.

Interests of the Company’s Directors and Officers in the Conversion

Each member of our board of directors is also a Member of our Company. Members of our board of directors will participate in the Conversion on the same terms as any other Member of the Company. Our Directors and executive officers serving the Company prior to the Conversion will continue serving the Company following the Conversion and will be entitled to compensation for their service following the Conversion. Our executive officers are not receiving shares of capital stock of the Company in the Conversion.

Recommendation of Our Board of Directors

A majority of our board of directors has determined that the conversion proposal is advisable and in the best interest of the Members and in the best interest of the Company’s long-term going concern, and recommends that the Voting Members vote “FOR” the conversion proposal.

Material Income Tax Consequences of the Conversion to Members.

See “Material U.S. Federal Income Tax Consequences” and “Material Canadian Income Tax Consequences” in this information statement/prospectus.

Anticipated Accounting Treatment

The Conversion should not change the accounting for assets and liabilities. The only material impact should be to provide for a new issue of various Series of Common Stock in exchange for existing membership interests. The amount assigned to the new Common Stock will be equal to the amounts of Net Assets as of November 30, 2019. For a discussion of the anticipated accounting treatment, see “Selected Historical and Unaudited Pro Forma Financial Information.”

Regulatory Matters

The Company is required to make filings with and obtain the approval of various state regulatory agencies of the franchise disclosure documents in respect of the New Franchise Agreement. Currently, all applications have been

 

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made to the applicable state regulatory agencies and have either been approved or are pending approval. The Company expects to have made such filings and obtained such approvals prior to November 30, 2019. For more information regarding state regulatory actions, see “Business of the Company—Legal Proceedings.

Required Vote

Adoption of the conversion proposal requires approval by the affirmative vote of the lesser of two-thirds (23) of the votes cast or a majority of the voting power, provided that at least thirty-three and one-third percent (3313%) of the voting power vote in favor. Adoption of the conversion proposal is also conditioned upon the approval of the membership termination bylaw proposal.

OUR BOARD OF DIRECTORS RECOMMENDS THAT VOTING MEMBERS VOTE “FOR” THE APPROVAL OF THE CONVERSION PROPOSAL.

 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following selected historical financial and unaudited pro forma data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this information statement/prospectus. The unaudited statements of operations data for the three months ended February 28, 2019 and 2018 and the balance sheet data as of February 28, 2019 were derived from our unaudited consolidated financial statements that are included elsewhere in this information statement/prospectus. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and results of operations for those periods. The consolidated statements of operations data for the fiscal years ended November 30, 2018 and 2017 and the balance sheet data as of November 30, 2018 and 2017 were derived from our audited consolidated financial statements that are included elsewhere in this information statement/prospectus. The unaudited pro forma earnings per share for the three months ended February 28, 2019 and for the fiscal year ended November 30, 2018 and shareholders’ equity as of February 28, 2019 reflect adjustments to (i) issue an estimated 55.0 million shares of our Common Stock, without par value and (ii) reclassify the Company’s net assets on the Conversion Date to “Common stock” and “Additional paid-in capital.” Authorized capital stock consists of 100.0 million shares of Common Stock, without par value. Our historical results and pro forma data do not necessarily indicate results that may be expected for any future period.

 

     Three Months Ended
February 28,
    Years Ended
November 30,
 
     2019     2018     2018     2017  
(in thousands, except per share data)                         

REVENUES:

        

Fees, dues and assessments

   $ 47,152     $ 40,425     $ 188,168     $ 159,095  

Other revenues

     11,098       9,706       46,939       43,641  

Program revenues

     42,446       40,456       198,426       177,021  
  

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL REVENUES

     100,696       90,587       433,533       379,757  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES:

        

Compensation, taxes and benefits

     38,296       33,600       147,253       135,831  

Advertising and promotion

     12,400       14,841       81,028       84,263  

Depreciation and amortization

     3,069       2,774       12,145       14,593  

General and administrative

     19,279       17,899       82,223       69,888  

Program cost of sales

     13,321       18,166       77,493       65,323  
  

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL EXPENSES

     86,365       87,280       400,142       369,898  
  

 

 

   

 

 

   

 

 

   

 

 

 

Excess of revenues over expenses before income taxes

     14,331       3,307       33,391       9,859  

Income tax provision

     (3,977     (1,475     (9,991     (4,376
  

 

 

   

 

 

   

 

 

   

 

 

 

Excess of revenues over expenses

     10,354       1,832       23,400       5,483  

Excess of revenues over expenses attributable to non-controlling interests

     7       —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Excess of revenues over expenses attributable to controlling interests

   $ 10,361     $ 1,832     $ 23,400     $ 5,483  
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro Forma Earnings Per Share:

        

Basic

   $ 0.19       $ 0.43    

Diluted

     0.19       $ 0.43    

Selected Balance Sheet Data:

        

Cash, restricted cash and cash equivalents

   $ 86,514       $ 111,666     $ 76,315  

Working capital(1)

     53,159         87,004       57,390  

Net assets

     74,443         64,051       40,651  

Pro Forma Shareholders’ Equity:

        

Common stock

   $ —         $ —      

Additional paid-in capital

     74,443         64,051    

Retained earnings

     —           —      
  

 

 

     

 

 

   

Total shareholders’ equity

   $ 74,443       $ 64,051    
  

 

 

     

 

 

   

 

(1)

We define working capital as current assets less current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this information statement/prospectus. The discussion contains forward-looking statements that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed below and elsewhere in this information statement/prospectus, particularly in the sections entitled “Risk Factors” and “Forward-Looking Statements.”

Overview

Best Western Hotels & Resorts, headquartered in Phoenix, Arizona, is a privately held hotel brand with a global network of over 3,600 open and operating hotels in nearly 100 countries and territories worldwide. We offer 13 hotel brands to suit the needs of developers and guests in every market: Best Western, Best Western Plus, Best Western Premier, Executive Residency by Best Western, Vīb, GLō, Sadie, Aiden, BW Premier Collection and BW Signature Collection; as well as the following recently launched franchise offerings: SureStay, SureStay Plus and SureStay Collection. Now celebrating more than 70 years of hospitality, we provide our hoteliers with global operational, sales and marketing support, and award-winning online and mobile booking capabilities. Through the WorldHotels Acquisition in February 2019, the Company also now offers WorldHotels Luxury, WorldHotels Elite and WorldHotels Distinctive brands under license.

On the Acquisition Date, we consummated the WorldHotels Acquisition. The unaudited financial statements include the impact of WorldHotels from the Acquisition Date forward. See Footnote 12 to our unaudited Consolidated Financial Statements that are included elsewhere in this information statement/prospectus for more information. Through the WorldHotels Acquisition, we have expanded our upscale, upper-upscale and luxury hotels presence. Additionally, the WorldHotels Acquisition has broadened our soft brand offerings and further expanded the reach of our international operations. As a result, we believe that by integrating WorldHotels into our platform, we will be able to drive increased revenue to our hotels and enhance our brand equity.

Key Business Metrics Evaluated by Management

We use a variety of financial and other information in monitoring the financial condition and operating performance of the business. Some of this information is financial information that is prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), while other information may be financial in nature and may not be prepared in accordance with GAAP. Our management also uses other information that may not be financial in nature, including statistical information and comparative data that are commonly used within the lodging industry to evaluate hotel financial and operating performance. Our management uses this information to measure the performance of hotel properties and our business as a whole. Historical information is periodically compared to our internal budgets, as well as against industry-wide information. We use this information for planning and monitoring our business, as well as in determining management and employee compensation.

The Company’s vision is to lead the industry in superior customer care and the Company’s mission is to enhance brand equity and increase value to our hoteliers. We focus on three key strategic business metrics:

Ensure customer experience increases brand loyalty. We believe hotels that deliver superior guest satisfaction drive repeat business and increased revenue to our hotels. We use our Guest Satisfaction Survey—Overall Social Media Experience results to track customer experience.

 

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Improve the Company’s image in order to appeal to broader customer and development bases. With a focus on improving the performance of our hotels and broadening our brand portfolio through new strategic brands, we believe that we will drive increased revenue to our hotels. We believe that performance, along with the development of new, relevant brands, will result in greater developer demand. We track performance through guest surveys, industry ratings and the achievement of hotel development goals.

Achieve superior RevPAR. RevPAR is the product of the average daily room rate and the average daily occupancy percentage. RevPAR does not include non-room revenues, which consist of ancillary revenues generated by a hotel property, such as food and beverage, parking, telephone and other guest service revenues. Our management uses RevPAR to identify trend information with respect to room revenues from comparable properties and to evaluate hotel performance on a chain scale basis. RevPAR is a commonly used performance measure in our industry.

We use RevPAR index to evaluate brand performance. RevPAR index measures a hotel’s or group of hotels’ fair market share of a competitive set’s revenue per available room. We calculate RevPAR index by comparing the brand’s RevPAR to the aggregate RevPAR of the competing brands in our respective chain scales (i.e., midscale, upper midscale, and upscale). We subscribe to STR, a well-recognized and universally accepted benchmarking service for the hospitality industry, which collects and compiles the data used by the Company to calculate RevPAR index. The chain scale segments are defined by STR. Management uses RevPAR index and changes in RevPAR index, particularly year-over-year percentage changes, to evaluate the performance of Best Western brands relative to other competing brands.

Other key business metrics evaluated by management include the following:

Excess of Revenues over Expenses

Excess of revenues over expenses represents the total earnings or profits generated by our business. Historically, as a nonprofit membership association we focused on driving superior revenue to Best Western-branded hotels, and our objective was to generate sufficient revenues to cover expenses and maintain financial stability. We expect that the Conversion will aid us as we grow our scale, increase the amount and source of funding for our business, and focus on the growth of our brand, while also continuing to drive superior revenue to our Best Western-branded hotels.

Earnings Before Interest Expense, Taxes, Depreciation, and Amortization (“EBITDA”)

EBITDA and Adjusted EBITDA (as hereinafter defined) are commonly used measures in many industries, including our industry. As a nonprofit membership association, our goal has not historically been to maximize EBITDA. Following the Conversion, we intend to use non-GAAP measures such as EBITDA and Adjusted EBITDA as additional supplemental measures of our performance.

We adjust EBITDA (“Adjusted EBITDA”) when evaluating our performance when we believe that certain non-recurring items are not indicative of ongoing operating performance (e.g., restructuring, impairment, etc.). Adjusted EBITDA provides useful supplemental information to management regarding our ongoing operating performance and we believe it will provide the same to shareholders following the Conversion.

We believe that EBITDA and Adjusted EBITDA will provide useful information to shareholders about our performance, our financial condition, and results of operations for the following reasons: (i) EBITDA and Adjusted EBITDA would be among the measures used by our management team to evaluate our operating performance and make day-to-day operating decisions and (ii) EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors, lenders and other interested parties as a common performance measures to compare results or estimate valuations across companies in our industry. EBITDA and Adjusted EBITDA are not recognized terms under GAAP, have limitations as analytical tools and should not be considered either in

 

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isolation or as a substitute for net income, cash flow or other methods of analyzing our results as reported under GAAP. Some of these limitations are:

 

   

EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for working capital needs;

 

   

EBITDA and Adjusted EBITDA do not reflect interest expense or the cash requirements necessary to service interest or principal payments on indebtedness;

 

   

EBITDA and Adjusted EBITDA do not reflect tax expense or the cash requirements to pay taxes;

 

   

EBITDA and Adjusted EBITDA do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

EBITDA and Adjusted EBITDA do not reflect the impact on earnings or changes resulting from matters that are considered not to be indicative of our future operations;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and

 

   

other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as discretionary cash available to us to reinvest in the growth of our business or as measures of cash that will be available to us to meet our obligations.

Principal Factors Affecting Our Results of Operations

Revenues

We generate revenues from the collection of monthly fees, annual dues, assessments and other fees from our Best Western Members, soft brand hotels and SureStay franchisees and through self-funding programs such as BWR and Best Western Supply and Design.

We primarily derive our revenues from the following sources:

 

   

Fees, dues and assessments: Consists of monthly fees, annual dues, assessments and affiliation fees.

 

   

Monthly fees: Represent revenues derived from Members, soft brand hotels and SureStay franchisees in North America. For Members whose memberships were approved by our board of directors prior to January 1, 2018, there are two different methods by which monthly fees are calculated: (1) a per room per day method or (2) a percentage of room revenue method. The method applicable to each Member is based upon when the membership was approved by our board of directors and the ownership structure of the property at such time. All other memberships approved by our board of directors on or after January 1, 2018 are calculated as a percentage of room revenue. For soft brand hotels, fees are generally calculated as a percentage of revenue delivered. For SureStay franchisees, fees are calculated as a percentage of room revenue.

 

   

Annual dues: Represent revenues derived from Members in North America that are calculated based on a per room fee, nonrefundable, and charged each fiscal year. For applications accepted during the year, annual dues are prorated from the date the property is activated on the Best Western reservation system. Annual dues also includes a fixed annual renewal fee derived from soft brand hotels.

 

   

Assessments: Prior to the Conversion, represent revenues derived from Members in North America that consist of three assessments: advertising, sales and marketing and technology. The

 

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advertising assessment is calculated based on a rate per room per month and is charged to cover annual advertising campaigns. The sales and marketing assessment is charged to cover sales and marketing efforts and is calculated as a percentage of room revenue. The technology assessment is charged to cover technology investments and costs and is calculated as a percentage of room revenue.

Since December 1, 2018, a fourth assessment referred to as the “Technology and Marketing Assessment” has been charged to cover investments in our technology platform and assets, and marketing investments, and is calculated as a percentage of room revenue.

 

   

Affiliation fees: Represent revenues derived from Members, soft brand hotels and SureStay franchisees in North America that consist of one-time initial application fees to affiliate as a Member or join as a soft brand hotel or franchisee.

 

   

Other revenues: There are two primary sources for other revenues.

 

   

International fees: Outside North America, we license trademarks and provide reservation and other services to hotels through the following: (i) Property Direct Relationships (“PDRs”) with hotels in specific international countries through the use of sub-license agreements, (ii) affiliation agreements with country-specific organizations, which are formed for the sole purpose to initiate, plan, coordinate and execute joint marketing activities and otherwise advance the interests of their Best Western-branded hotels, and (iii) master license agreements with country-specific organizations. International fees are derived from these sources with the exception of PDRs (see “—Program revenues”) to cover reservations and other services, generally on a cost-recovery basis as a rate per room per month and as a percentage of room revenue.

 

   

Other: Represent revenues derived from Members, soft brand hotels and SureStay franchisees in North America that consist primarily of fees from Member meetings, training, QA inspections, and other services.

 

   

Program revenues: Represent revenues from various self-funding programs and services such as BWR, Supply and Design, GDS/Switch, performance-based marketing and other self-funding programs provided to Members, soft brand hotels, SureStay franchisees and international organizations. Fees for each program vary to cover costs of services, generally on a cost-recovery basis as a percentage of room revenue or as a rate per transaction. In addition, PDRs are structured as a self-funding program with fees generally set on a cost-recovery basis as a rate per room per month, as a percentage of room revenue or rate per transaction.

Expenses

Our consolidated expenses consist of our selling, general and administrative operating and overhead costs associated with our corporate business units and self-funding programs such as BWR, Supply and Design, GDS/Switch, and performance-based marketing.

We primarily incur the following expenses:

 

   

Compensation, taxes and benefits: These expenses are associated with our corporate staff, including those supporting our self-funding programs.

 

   

Advertising and promotion: These expenses include advertising costs associated with general promotion of our Best Western-branded hotels and specific promotions to drive revenues to our Best Western-branded hotels.

 

   

Depreciation and amortization: These expenses are non-cash charges that relate to the acquisition of property, equipment and computer software.

 

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General and administrative expenses: These expenses include outside services, rentals: software licensing, travel, professional fees, meeting related costs and other support costs associated with corporate business units and program costs.

 

   

Program cost of sales: These expenses primarily pertain to two self-funding programs: BWR to cover the cost of BWR points redemption and GDS/Switch to cover transaction costs.

Results of Operations

The following table summarizes our financial results for the unaudited three months ended February 28, 2019 and 2018:

 

     Three Months Ended February 28,  
(in thousands)    2019     2018     Change 2019 vs.
2018
 

Revenues:

        

Fees, dues and assessments

   $ 47,152     $ 40,425     $ 6,727       16.6

Other revenues

     11,098       9,706       1,392       14.3

Program revenues

     42,446       40,456       1,990       4.9
  

 

 

   

 

 

   

 

 

   

Total revenues

     100,696       90,587       10,109       11.2
  

 

 

   

 

 

   

 

 

   

Expenses:

        

Compensation, taxes and benefits

     38,296       33,600       4,696       14.0

Advertising and promotion

     12,400       14,841       (2,441     (16.4 )% 

Depreciation and amortization

     3,069       2,774       295       10.6

General and administrative

     19,279       17,899       1,380       7.7

Program cost of sales

     13,321       18,166       (4,845     (26.7 )% 
  

 

 

   

 

 

   

 

 

   

Total expenses

     86,365       87,280       (915     (1.0 )% 
  

 

 

   

 

 

   

 

 

   

Excess of revenues over expenses before income taxes

     14,331       3,307       11,024       333.4

Income tax provision

     (3,977     (1,475     (2,502     169.6
  

 

 

   

 

 

   

 

 

   

Excess of revenues over expenses

   $ 10,354     $ 1,832     $ 8,522       465.2
  

 

 

   

 

 

   

 

 

   

Three months ended February 28, 2019 compared to three months ended February 28, 2018

Excess of revenues over expenses

Through the first three months of fiscal 2019, we were a membership organization incorporated as an Arizona nonprofit corporation. As a membership organization, we focused on driving superior revenue to Best Western-branded hotels and our objective was to generate sufficient revenues to cover expenses and maintain financial stability. In accordance with this business model, we reported excess of revenues over expenses after income taxes of $10.4 million for the three months ended February 28, 2019, as compared to $1.8 million for the corresponding period in 2018. The increase in excess of revenues over expenses after income taxes was primarily attributable to an increase in revenues and a slight decrease in expenses, as further described below.

Revenues

Total revenues were $100.7 million for the three months ended February 28, 2019 as compared to $90.6 million for the corresponding period in 2018, an increase of $10.1 million, or 11.2%. Revenue highlights for the three months ended February 28, 2019 and changes from the corresponding periods in 2018 are described below:

Fees, dues and assessments increased $6.7 million, or 16.6%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. The increase was primarily attributable to the technology and marketing assessment that began in 2019, the sales and marketing assessment that began in January 2018, an increase in fees based on the Consumer Price Index and growth in the number of SureStay franchisees.

 

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Other revenues increased $1.4 million, or 14.3%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. The increase was primarily attributable to higher interest income from higher interest rates and higher investment balances and an increase in international fees.

Program revenues increased $2.0 million, or 4.9%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. The increase was primarily attributable to new PDRs in Australia and Mexico.

Expenses

Total expenses were $86.4 million for the three months ended February 28, 2019 as compared to $87.3 million for the same period in 2018, a decrease of $0.9 million, or 1.0%. Expense summaries for the three months ended February 28, 2019 and changes from the corresponding periods in 2018 are described below:

Compensation, taxes and benefits increased $4.7 million, or 14.0%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. The increase was primarily attributable to increased expenditures for resources needed to drive revenue to our Best Western-branded hotels, support operations and support growing self-funding programs. Additionally, there was a general increase in resources over the prior year.

Advertising and promotion decreased $2.4 million, or 16.4%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. While continuing to promote our brands and drive revenues to Best Western-branded hotels, soft brand hotels and SureStay franchises, the decrease was primarily attributable to lower promotion costs, partially offset by an increase in advertising activity.

Depreciation and amortization increased $0.3 million, or 10.6%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. The increase was primarily attributable to assets which were placed in service in 2018. We anticipate increases in depreciation and amortization in future periods as we expect to make continued investments in capital assets and infrastructure to drive revenue to hotels and enhance systems.

General and administrative expenses increased $1.4 million, or 7.7%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. The increase was primarily attributable to WorldHotels expenses, higher technology support costs and other corporate expenses.

Program cost of sales decreased $4.8 million, or 26.7%, for the three months ended February 28, 2019, as compared to the corresponding period in 2018. The decrease was primarily attributable to lower BWR redemption costs. During the second quarter of 2018, the Company identified and corrected a consistent one-month lag in its recognition of the redemption of free night vouchers, which resulted in a $2.4 million overstatement of accounts receivable as of November 30, 2017 and a net $0.1 million overstatement of program cost of sales during the six months ended May 31, 2017, based on the rollover impact of prior periods. The Company concluded that the effect of the overstatement was not material to prior period financial statements, nor is the correction material to annual operating results for fiscal 2018 and; therefore, we corrected the overstatement in the financial statements for the second quarter of 2018, which resulted in $2.4 million of program cost of sales being recorded in the second quarter of 2018 that related to prior periods.

Income taxes

Income tax provision was $4.0 million for the three months ended February 28, 2019, as compared to $1.5 million, for the corresponding period in 2018. Our effective income tax rate from operations was 28%, for the three months ended February 28, 2019 and 45%, for the corresponding period in 2018. The effective income tax rate from operations for the three months ended February 28, 2019 was higher than the United States federal

 

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income tax rate of 21% primarily due to state income taxes and non-deductible items. The effective income tax rate from operations for the three months ended February 28, 2018 was higher than the United States federal income tax rate of 21% primarily due to state income taxes and non-deductible items. The effective income tax rate for the three months ended February 28, 2018 was also negatively affected by the re-measurement of net deferred tax assets, which was required due to the passage of the TCJ Act.

Results of Operations

The following table summarizes our financial results for the fiscal years ended November 30, 2018 and 2017:

 

     Years Ended November 30,  
(in thousands)    2018     2017     Change 2018 vs.
2017
 

Revenues:

        

Fees, dues and assessments

   $ 188,168     $ 159,095     $ 29,073       18.3

Other revenues

     46,939       43,641       3,298       7.6

Program revenues

     198,426       177,021       21,405       12.1
  

 

 

   

 

 

   

 

 

   

Total revenues

     433,533       379,757       53,776       14.2
  

 

 

   

 

 

   

 

 

   

Expenses:

        

Compensation, taxes and benefits

     147,253       135,831       11,422       8.4

Advertising and promotion

     81,028       84,263       (3,235     (3.8 )% 

Depreciation and amortization

     12,145       14,593       (2,448     (16.8 )% 

General and administrative

     82,223       69,888       12,335       17.6

Program cost of sales

     77,493       65,323       12,170       18.6
  

 

 

   

 

 

   

 

 

   

Total expenses

     400,142       369,898       30,244       8.2
  

 

 

   

 

 

   

 

 

   

Excess of revenues over expenses before income taxes

     33,391       9,859       23,532       238.7

Income tax provision

     (9,991     (4,376     (5,615     128.3
  

 

 

   

 

 

   

 

 

   

Excess of revenues over expenses

   $ 23,400     $ 5,483     $ 17,917       326.8
  

 

 

   

 

 

   

 

 

   

Fiscal Year ended November 30, 2018 compared to fiscal year ended November 30, 2017

Excess of revenues over expenses

Throughout fiscal 2018, we were a membership organization incorporated as an Arizona nonprofit corporation. As a membership organization, we focused on driving superior revenue to Best Western-branded hotels, and our objective was to generate sufficient revenues to cover expenses and maintain financial stability. In accordance with this business model, the Company reported excess of revenues over expenses after income taxes of $23.4 million in fiscal 2018 and $5.5 million in fiscal 2017. The increase in excess of revenues over expenses after income taxes was primarily attributable to revenues increasing at a faster rate than expenses as further described below.

Revenues

Total revenues were $433.5 million for fiscal 2018 as compared to $379.8 million for fiscal 2017, an increase of $53.8 million, or 14.2%. Revenue highlights for fiscal 2018 and changes from fiscal 2017 are described below:

Fees, dues and assessments increased $29.1 million, or 18.3%, for fiscal 2018 as compared to fiscal 2017. The increase was primarily attributable to the sales and marketing assessment that began in fiscal 2018, the technology assessment increase from 0.4% to 0.5% of room revenue in fiscal 2018, the growth in the number of SureStay franchisees and an increase in affiliations of Best Western brands.

 

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Other revenues increased $3.3 million, or 7.6%, for fiscal 2018 as compared to fiscal 2017. The increase was primarily attributable to higher interest income from higher interest rates and investment balances and an increase in international fees.

Program revenues increased $21.4 million, or 12.1%, for fiscal 2018 as compared to fiscal 2017. The increase was primarily attributable to the continued growth of self-funding programs, especially the continued strength of the BWR program.

Expenses

Total expenses were $400.1 million for fiscal 2018 as compared to $369.9 million for fiscal 2017, an increase of $30.2 million, or 8.2%. Expense summaries for fiscal 2018 and changes from fiscal 2017 are described below:

Compensation, taxes and benefits increased $11.4 million, or 8.4%, for fiscal 2018 as compared to fiscal 2017. The increase was primarily attributable to increased expenditures for resources needed to drive revenue to our Best Western-branded hotels, support operations and support growing self-funding programs. Additionally, there was a general increase in salaries and benefit costs in fiscal year 2017.

Advertising and promotion decreased $3.2 million, or 3.8%, for fiscal 2018 as compared to fiscal 2017. While continuing to promote our brands and drive revenues to Best Western-branded hotels, the decrease was primarily attributable to lower promotion costs, partially offset by an increase in advertising.

Depreciation and amortization decreased $2.4 million, or 16.8%, for fiscal 2018 as compared to fiscal 2017. The decrease was primarily attributable to assets which were fully depreciated in fiscal 2017. We anticipate increases in depreciation and amortization in future periods as we expect to make continued investments in capital assets and infrastructure to drive revenue to hotels and enhance systems.

General and administrative expenses increased $12.3 million, or 17.6%, for fiscal 2018 as compared to fiscal 2017. The increase was primarily attributable to higher technology support costs and legal and audit fees related to the Conversion.

Program cost of sales increased $12.2 million, or 18.6%, for fiscal 2018 as compared to fiscal 2017. The increase was primarily attributable to the continued growth of the BWR program. During 2018, the Company identified and corrected a consistent one-month lag in its recognition of the redemption of free night vouchers, which resulted in a $2.4 million overstatement of accounts receivable as of November 30, 2017 and a net $0.1 million overstatement of program cost of sales during the six months ended May 31, 2017, based on the rollover impact of prior periods. The Company concluded that the effect of the overstatement was not material to prior period financial statements, nor is the correction material to annual operating results for fiscal 2018 and; therefore, we corrected the overstatement in the financial statements for the second quarter of 2018, which resulted in $2.4 million of program cost of sales being recorded in the second quarter of 2018 that related to prior periods.

Income taxes

Income tax provision was $10.0 million for fiscal 2018 as compared to $4.4 million for fiscal 2017. The Company’s effective income tax rates for operations were 30% and 44%, for fiscal 2018 and fiscal 2017, respectively. The effective income tax rate from operations for fiscal 2018 was higher than the United States federal income tax rate of 21% primarily due to state income taxes and non-deductible items. The effective income tax rate was also negatively affected by the re-measurement of net deferred tax assets, which was required due to the passage of the TCJ Act. The effective income tax rate from operations for fiscal 2017 was higher than the United States federal income tax rate of 34% primarily due to state income taxes and non-deductible items.

 

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Liquidity and capital resources

Overview

We finance our business primarily with existing cash, return on investments and cash generated from our operations. Cash and cash equivalents include highly liquid money market instruments that have original maturities of three months or less at the date of purchase. Restricted cash primarily relates to funds remitted by Members in payment of annual dues for the subsequent year. Such funds are held in a custodial account and not available to the Company until December 1 of the following fiscal year.

As of February 28, 2019, we had total cash, restricted cash and cash equivalents of $86.5 million, including $0.2 million of restricted cash, as compared to $111.7 million cash, restricted cash and cash equivalents, including $9.6 million of restricted cash, as of November 30, 2018, or a $25.1 million decrease. The decrease, described more fully below, is primarily attributable to purchases of investments.

As of November 30, 2018, we had total cash, restricted cash and cash equivalents of $111.7 million, including $9.6 million of restricted cash, as compared to $76.3 million cash, restricted cash and cash equivalents, including $8.9 million of restricted cash, as of November 30, 2017, or a $35.4 million increase.

The following table summarizes our primary sources of cash in the periods presented:

 

     Three Months Ended
February 28,
     Years Ended
November 30,
 
(in thousands)    2019      2018      2018     2017  

Cash flows provided by operating activities

   $ 12,728      $ 5,392      $ 48,536     $ 38,312  

Cash flows used in investing activities

     (37,909      1,373        (13,185     (18,317
  

 

 

    

 

 

    

 

 

   

 

 

 

Net change in cash, restricted cash and cash equivalents

   $ (25,181    $ 6,765      $ 35,351     $ 19,995  
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating Activities

Net cash flows provided by operating activities were $12.7 million for the three months ended February 28, 2019 as compared to $5.4 million for the corresponding period in 2018. The increase was primarily attributable to an $8.5 million increase in excess of revenues over expenses, offset in part by a decrease in net cash, primarily due to a $1.2 million net increase in cash paid for working capital and other assets and liabilities.

Net cash flows provided by operating activities were $48.5 million for fiscal 2018 as compared to $38.3 million for fiscal 2017. The increase was primarily attributable to a $17.9 million increase in excess of revenues over expenses, offset in part by a $0.3 million net decrease in non-cash adjustments to excess of revenues over expenses and a $7.4 million decrease in net cash primarily due to an increase in cash paid for working capital and other assets and liabilities.

Investing Activities

For the three months ended February 28, 2019, net cash used in investing activities was $37.9 million and consisted of $2.3 million of capital expenditures in property, equipment and computer software, $45.4 million purchases of investments and $2.5 million paid for the WorldHotels Acquisition, net of cash acquired, offset in part by $12.2 million proceeds from maturity of investments.

For the three months ended February 28, 2018, net cash provided by investing activities was $1.4 million, and consisted of $9.5 million proceeds from maturity of investments, offset in part by $2.1 million of capital expenditures in property, equipment and computer software and $6.0 million of purchases of investments.

 

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For fiscal 2018, net cash used in investing activities was $13.2 million and consisted of $10.3 million of capital expenditures in property, equipment and computer software and $38.0 million purchases of investments, offset in part by $35.1 million proceeds from maturity of investments.

For fiscal 2017, net cash used in investing activities was $18.3 million, and consisted of $11.5 million of capital expenditures in property, equipment and computer software and $43.1 million purchases of investments, offset in part by $36.3 million proceeds from maturity of investments.

Our short-term and long-term investments are primarily in U.S. Federal Deposit Insurance Corporation insured certificates of deposit, U.S. treasury and government agency bonds and corporate bonds. We maintain a cash investment policy that emphasizes maximization of investment income while preserving its principal capital. Short-term and long-term investments were $109.9 million, $76.8 million and $74.0 million as of February, 28, 2019, November 30, 2018 and November 30, 2017, respectively. We have not recognized any impairment during the three months ended February 28, 2019, fiscal 2018 or fiscal 2017.

Our capital project expenditures primarily include software and hardware and are intended to deliver revenue to our Best Western-branded hotels, enhance our web-based reservation system and upgrade our infrastructure and business systems.

Liquidity arrangements

Historically, the primary sources of liquidity for our business were cash flows from operations, while our significant uses of cash and capital funding needs have historically been working capital, operating expenses and capital expenditures.

Following the Conversion, we expect the primary sources of liquidity for our business will continue to be cash flows from operations. We expect that our primary liquidity requirements will continue to be for working capital, operating expenses and capital expenditures. As of February 28, 2019 and November 30, 2018, we had no outstanding long-term debt. We historically have not incurred long term debt, though we could do so in the future if we determine it is in the interests of us to do so, especially as we make investments in our brands and consider other new investment opportunities.

From time to time, our board of directors authorizes specific transactions and general programs which permit us to provide financing, investment and guarantees and similar credit support to qualified Members, as well as to acquire and resell real estate to incent Best Western hotel development and accelerate growth in strategic markets and locations. Over the next five years, depending on market and other conditions, we expect to deploy capital in support of our brands. The annual pace of future financial support activities will depend upon market and other conditions including among others, our future sales results and the market for new construction hotel development and hotel lending. Our support of the Best Western brand’s growth is expected to be primarily in the form of key money loans, joint venture investments, wholly owned investments, mezzanine lending, and guarantees of debt. With respect to our lending and investments, we generally expect to recycle these loans and investments within a five to seven year period. We had approximately $15.6 million as of February 28, 2019 outstanding pursuant to these financial support activities. See —“Off-balance sheet arrangements.”

We expect that cash on hand, return on short term investments and operating cash flows will provide sufficient working capital to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements in the next twelve months. We expect to use cash provided by operations in excess of amounts needed for capital expenditures and for other general corporate purposes. Our ability to meet future working capital, capital expenditure and other general corporate purposes will depend on our future financial performance, which will be affected by a range of economic, competitive and business factors and any changes in our industry, many of which are outside of our control.

 

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Contractual obligations and commercial commitments

The following table summarizes our contractual obligations as of February 28, 2019 (in thousands):

 

     Payment Due By Period  
Contractual Obligations    Total      Less
than

1 Year
     1—3
Years
     3—5
Years
     More
than

5 Years
 

Operating lease obligations(1)

   $ 7,300      $ 2,352      $ 4,395      $ 320      $ 233  

Other long-term liabilities(2)

     19,107        1,695        2,381        —          15,031  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 26,407      $ 4,047      $ 6,776      $ 320      $ 15,264  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

We lease certain office space, equipment and software under various operating leases, which expire on various dates through September 2026. Rental expenses on operating leases are recorded on a straight-line basis.

(2)

Other long-term liabilities consist of liabilities for a deferred compensation plan and long-term incentive plan for key executives.

The following table summarizes our contractual obligations as of November 30, 2018 (in thousands):

 

     Payment Due By Period  
Contractual Obligations    Total      Less
than

1 Year
     1—3
Years
     3—5
Years
     More
than

5 Years
 

Operating lease obligations(1)

   $ 8,222      $ 3,451      $ 4,222      $ 318      $ 231  

Other long-term liabilities(2)

     17,736        1,695        1,883        —          14,158  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total contractual obligations

   $ 25,958      $ 5,146      $ 6,105      $ 318      $ 14,389  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The Company leases certain office space, equipment and software under various operating leases, which expire on various dates through September 2026. Rental expenses on operating leases are recorded on a straight-line basis.

(2)

Other long-term liabilities consist of liabilities for a deferred compensation plan and long-term incentive plan for key executives.

Off-balance sheet arrangements

Under certain Best Western membership agreements, we are committed to provide certain payments to prospective hoteliers as an incentive to become a new Member. These payments are due and payable to a new Member when the contract terms are met and refundable back to us, pursuant to contract terms, if the Member terminates membership within a pre-defined period of time. We had approximately $15.6 million outstanding, as of February 28, 2019 and November 30, 2018, pursuant to these financial support activities expected to be advanced in the next three years generally as hotels open and activate as a Best Western hotel.

Effect of inflation

We believe inflation has not had a material effect on our financial condition or results of operations in recent years, but does materially affect our revenues from monthly fees and annual dues. Generally, monthly fees based on per room per day method and annual dues derived from Members may be increased by the Company annually and no such increase shall exceed the lesser of (1) 5% or (2) the rate of inflation for the previous year, as measured by the United States Bureau of Labor Statistics Consumer Price Index (all items for all urban areas). As a result, the annual increase of monthly fees and annual dues has not kept pace with increasing costs of operating the Company, which has resulted in funding challenges that has led to the membership approving new assessments (e.g., technology assessments, sales and marketing assessments) in recent years. There can be no

 

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assurance that we will not be affected by inflation in the future. A 1% increase or decrease in monthly fees and annual dues for a fiscal year is equivalent to approximately $1.1 million based on fiscal 2018 operating results.

Critical accounting policies and pronouncements

Our accounting policies comply with GAAP. We have described below the policies that we believe are critical and require the use of complex judgment or significant estimates in their application. Additional discussion of these policies is included in Note 1 to our Consolidated Financial Statements that are included elsewhere in this information statement/prospectus.

Revenue Recognition

Fees, dues and assessments are established by the board of directors to compensate the Company for providing services to Members, soft brand hotels and SureStay franchisees. The Company applies ASC 952-605 to account for the fees charged to its Members as the services are interrelated to such an extent that the amount applicable to each service cannot be segregated objectively. Therefore, the ongoing services are accounted for as a single deliverable. Monthly fees and assessments (which include advertising, sales and marketing and technology) are billed monthly and recognized as revenue in the same month as the services are provided and charges become fixed or determinable. Membership annual dues are established, billed and payable each year for continuing membership during the succeeding year. Annual dues are recognized as revenue ratably in the year to which the continuing membership applies. Any Member may resign from the Company at any time but if the Member resigns or is terminated, fees and dues for the remainder of the applicable term become immediately due and payable, and are recognized as revenue when cash is received regardless of the term of the contract. New Member affiliation fee revenues are recorded upon approval of the new Member by the board of directors and acceptance of membership terms by the property owner as the Company has no further obligations with respect to those fees. New SureStay franchisee non-refundable initial fees are due and recognized upon execution of a franchise agreement.

Best Western Travel Card® (a card having no expiration date and no usage or non-usage fees) revenue is recognized when: (i) the Best Western Travel Card is redeemed; or (ii) the likelihood of the Best Western Travel Card being redeemed is remote (Best Western Travel Card breakage), and the Company determines that there is not a legal obligation to remit the unredeemed Best Western Travel Card balance to the relevant jurisdiction. The determination of the Best Western Travel Card breakage rate is based upon Company specific historical redemption patterns. Best Western Travel Card breakage is included in program revenues in the Consolidated Statements of Revenues, Expenses and Net Assets.

Other revenues in the accompanying Consolidated Statements of Revenues, Expenses and Net Assets consist of international fees and other fees from Member meetings, training, quality assurance inspections and other services, and are recognized in the month as the services are provided.

All other revenue sources, such as program fees, are recognized in the month that the product or service is provided. Revenues, including rebates from vendors, and associated costs of product sold to Members where the Company does not assume the risk and rewards of ownership of the product, is not the primary obligator, and does not possess other indicators of gross reporting, is reported as a net amount earned and included in program revenues in the Consolidated Statements of Revenues, Expenses and Net Assets.

Significant Estimates and Assumptions

Management of the Company has made certain estimates and assumptions relating to the reporting of assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these Consolidated Financial Statements that are included elsewhere in this information statement/prospectus in conformity with GAAP. Actual results could differ from those estimates.

 

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The Company offers BWR, a frequent stay program for guests of our Member and franchisee hotels. Guests who participate in the program earn points or partner rewards for each stay at a Member or franchisee hotel. The points earned never expire and can be redeemed for free room nights, merchandise, gift cards, and airline and partner rewards. The Company records a liability related to the estimated cost per point of future redemption obligations based on an incremental cost approach by analogy to ASC 605-60. This liability represents management’s estimate of the future obligation of awards for points earned but not yet redeemed by program participants. For more information, please see Note 1. Business, Organization and Summary of Significant Accounting Policies—(l) Significant Estimates and Assumptions in the Notes to Consolidated Financial Statements, included elsewhere in this information statement/prospectus.

Recent accounting pronouncements

Recent Accounting Guidance Not Yet Adopted

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15 “Intangibles—Goodwill and Other—Internal Use Software (Subtopic 350-40)” (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for fiscal years beginning after December 15, 2019 and December 15, 2020 for public and private companies, respectively, and early adoption is permitted. The Company is currently assessing the impact of the adoption of this guidance.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The standard is effective for fiscal years beginning after December 15, 2019 and December 15, 2020 for public and private companies, respectively, and early adoption is permitted. The Company is currently assessing the impact of the adoption of this guidance.

In July 2018, the FASB issued ASU 2018-11 “Targeted Improvements” (“ASU 2018-11”), amending ASU 2016-02 “Leases” (“ASU 2016-02”) which was issued in February 2016. This new guidance is intended to improve financial reporting about leasing transactions. ASU 2016-02 and ASU 2018-11 will require companies that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The accounting by companies that own the assets leased by the lessee (the lessor) will remain largely unchanged from current GAAP. The standard is effective for fiscal years beginning after December 15, 2018 and December 15, 2019 for public and private companies, respectively, and early adoption is permitted. The standard will be effective for the Company for the fiscal year beginning December 1, 2020. The Company is currently assessing the impact of the adoption of this guidance.

In November 2018, the FASB issued ASU 2018-19 “Codification Improvements” (“ASU 2018-19”), amending ASU 2016-13 “Financial Instruments—Credit Losses” (“ASU 2016-13”) which was issued in June 2016. The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The standard is effective for fiscal years beginning after December 15, 2019 and December 15, 2020 for public and private companies, respectively, and early adoption is permitted. The Company is currently assessing the impact of the adoption of this guidance.

In May 2014, as part of its ongoing efforts to assist in the convergence of GAAP and International Financial Reporting Standards, the FASB issued a new standard codified in Accounting Standards Codification (“ASC”) 606, “Revenue Recognition—Revenue from Contracts with Customers,” which amends the guidance in ASC 605, “Revenue Recognition.” Under the new standard, recognition of revenue occurs when a customer obtains

 

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control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for public companies with reporting periods beginning after December 15, 2017 and private companies for reporting periods beginning after December 15, 2018. Early adoption is permitted beginning with annual reporting periods beginning after December 15, 2016. The standard will be effective for the Company for the fiscal year beginning December 1, 2019. In connection with the adoption this new standard, the Company expects changes to its revenue recognition including, but not limited to, affiliation fees and the BWR program. The Company is continuing to evaluate the impact of the provisions of ASC 606.

 

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

We have not historically been subject to interest rate risk because we have not incurred any long-term debt obligations. In the event we determine to make investments in land and our hotel development projects in strategic markets and locations, we may incur debt or other obligations that could cause us to be exposed to interest rate risk.

Foreign currency risk

We are exposed to market risk from fluctuations in foreign currencies.

For fiscal 2018, approximately $104.0 million, or 24%, of our revenues and $9.0 million of our excess of revenues over expenses after estimated income taxes were derived from operations outside the United States. Holding other variables constant, if the U.S. dollar increased or decreased by 10% against the foreign currencies used by our operations in fiscal 2018, revenues and revenues over expenses would have been changed by approximately $1.0 million and $1.4 million, respectively.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth information regarding our Directors and executive officers as of April 12, 2019.

 

Name

   Age     

Position

David Kong

     67      President and Chief Executive Officer

Dorothy Dowling

     62      Senior Vice President and Chief Marketing Officer

Ron Pohl

     58      Senior Vice President and Chief Operating Officer

Lawrence Cuculic

     62     

Senior Vice President, General Counsel and Corporate Secretary

Mark Straszynski

     47      Senior Vice President and Chief Financial Officer

Greg Adams

     55      Senior Vice President and Chief Digital Officer

Suzi Yoder

     59      Senior Vice President, International Operations

Brad L. LeBlanc

     53     

Senior Vice President and Chief Development Officer

Anthony Klok

     58      Chairman and Director

Peter Kwong

     56      Director, Board Vice Chairman

Ishwar Naran

     67      Director, Board Secretary-Treasurer

Terrance J. Bichsel

     65      Director

John L. Kelly

     53      Director

John Daniel Lafayette III

     63      Director

L. Terry Porter

     61      Director

The following is a brief description of the business experience of the persons listed above.

David Kong joined us in June 2001 and currently serves as our President and Chief Executive Officer. Over the course of his 18-year career with us, Mr. Kong has also served as our Executive Vice President of International Operations, Senior Vice President of Marketing and Development and Senior Vice President of Strategic Services and Operations. Prior to joining us, Mr. Kong held leadership positions with KPMG Consulting, Hyatt Hotels, Omni International and Hilton Hotels. In total, Mr. Kong has over 40 years of experience in the hospitality industry. Mr. Kong is an active member of the American Hotel & Lodging Association and served as its chairman in 2010. In 2010, Mr. Kong was appointed to the United States Department of Commerce Travel and Tourism Advisory Board and served for three years. Mr. Kong earned a bachelor’s degree from the Travel Industry Management School from the University of Hawaii.

Dorothy Dowling joined us in November 2004 and currently serves as our Senior Vice President and Chief Marketing Officer. Prior to joining us, Ms. Dowling held executive-level positions with ARAMARK, Cendant (now Wyndham Hotel Group), Royal Host REIT, Forte Hotels and Laventhol and Horwath. Mrs. Dowling has over 30 years of experience in the hospitality industry. In addition, Ms. Dowling serves on the Global Business Travel Association Board, HSMAI Foundation Board, USTA board of directors and is an independent trustee on the board of directors of CubeSmart, a publicly-traded real estate investment trust and provider of self-storage facilities, and a member of its corporate governance, nominating committee and compensation committee. Ms. Dowling has a joint Masters of Arts degree in sociology and leisure studies from the University of Waterloo in Ontario.

Ron Pohl joined us in March 2007 and currently serves as our Senior Vice President and Chief Operations Officer. Prior to joining us, Mr. Pohl spent 25 years with Boykin Management Company and Marriott Corporation, where he served in a number of senior-level positions in the areas of marketing, sales, and revenue management. Mr. Pohl has over 35 years of experience in the hospitality industry. Mr. Pohl currently serves on the American Hotel & Lodging Association’s board of directors and the advisory board for Grand Canyon University. He previously served on the board of directors for the Convention & Visitors Bureau of Greater Cleveland.

 

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Lawrence “Larry” Cuculic joined us in July 2009 and currently serves as our Senior Vice President, General Counsel and Corporate Secretary. Before joining us, Mr. Cuculic was Senior Vice President, General Counsel and Corporate Secretary for Wabash National Corporation (NYSE: WNC). Previously, Mr. Cuculic served as Vice President (Legal) and Corporate Secretary for American Commercial Lines, Inc. and was a partner in the law firm Gambs, Mucker & Bauman. Before retiring from the U.S. Army, Mr. Cuculic served as a Judge Advocate General’s Corps officer in various legal positions, including appointment as a military judge. Mr. Cuculic received his B.S. from the U.S. Military Academy at West Point and his J.D. from Notre Dame Law School. He also earned an LL.M. degree from the U.S. Army Judge Advocate General’s School, and graduated from the U.S. Army Command and General Staff College.

Mark Straszynski joined us in June 2008 and currently serves as our Senior Vice President and Chief Financial Officer. Prior to joining us, Mr. Straszynski was the Corporate Controller and Treasurer for United Plastics Group, Inc., a private equity-owned global-contractor manufacturing company, and served in senior audit and consulting positions for Ernst & Young LLP and Grant Thornton LLP. Mr. Straszynski has more than 25 years of extensive experience in global finance, accounting, strategic development, risk management, restructuring and organizational change. He earned a B.S. in accountancy from Northern Illinois University and an M.B.A. from the Kellogg School of Management at Northwestern University. Mr. Straszynski is also a Certified Public Accountant.

Greg Adams joined us in November 2013 and currently serves as our Senior Vice President and Chief Digital Officer. Prior to joining us, Mr. Adams served as President and Chief Executive Officer of iMedia Vortex LLC, an e-commerce consulting company assisting businesses with their digital transformation strategies. Mr. Adams has more than 20 years of experience in technology management, marketing and sales leadership positions for Marriott International Inc., Hyatt Hotels Corp., and Starwood Hotels & Resorts Worldwide Inc. Mr. Adams studied business administration and management at the University of Nebraska at Omaha and Bellevue University.

Suzi Yoder joined us in September 1994 and currently serves as the Senior Vice President of International Operations. She is a 39-year hospitality industry veteran. In her current position Ms. Yoder is responsible for uniting our development and operations arms for all areas outside of the United States, Canada and Asia. She also oversees the management of agreements with entities sub-licensing the Best Western name in various countries around the world. She began her career with us as the director of European Reservations. In that role she oversaw the day-to-day operation of the Milan and Dublin reservation centers. Prior to joining us, Ms. Yoder had a 15-year career with Utell International where she held various senior positions and responsibility for call centers, operations and sales in Europe, the Middle East and Africa.

Brad L. LeBlanc joined us in April 2019 and currently serves as our Senior Vice President and Chief Development Officer. Prior to joining us, Mr. LeBlanc served as Senior Vice President, Franchise and Partner Development of Serendipity Labs, Inc., a company that builds hospitality-focused workspaces from 2013 to 2019. Prior thereto, Mr. LeBlanc held senior-level positions with Choice Hotels International and U.S. Franchise Systems, Inc. He has over 25 years of development experience in the hospitality industry. Mr. LeBlanc received his Bachelor of Science in Management Information Systems from Louisiana College.

Anthony Klok has served as our Chairman of the board of directors since December 2018 and a member of our board of directors since 2013. Mr. Klok is a principal and co-founder of Rebel Hospitality, which has managed and developed numerous hotel and multi-unit housing projects. Mr. Klok has an ownership interest in the Best Western Plus Hawthorne Terrace in Chicago, Illinois and three additional hotels that are not affiliated with us. Mr. Klok has more than 15 years of experience in the hospitality industry and has been a Member since 1998. He previously served as a Best Western Governor as well as a member of the QA committee, including serving as chairman, and a member of our global marketing group. In addition, Mr. Klok is an executive board member of the Illinois Hotel and Lodging Association, a special service commissioner for the City of Chicago and a member of the DePaul University School of Hospitality Advisory Board. Mr. Klok is a graduate of the University of

 

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Illinois, Urbana-Champaign, having received a B.S. in civil engineering. Mr. Klok was elected to serve as a member of our board of directors to represent the interests of Best Western-branded hotels in District 3. Mr. Klok contributes his extensive knowledge of finance and operations and experience in the hospitality industry gained throughout the course of his career to our board of directors.

Peter Kwong has served as one of our Directors since 2015 and currently serves as the Vice Chairman for our board of directors. Mr. Kwong has been a Member since 1985 with previous service as a Best Western Governor as well as a member of the District 6 marketing co-operative and our reservation technology committee. Mr. Kwong has ownership interests in two hotels, including the Best Western Plus Dragon Gate Inn in Los Angeles, California. Additionally, he is an owner in KDI—a real estate development company in Los Angeles that is not affiliated with us. In total, Mr. Kwong has more than 35 years of experience in the hospitality industry. Mr. Kwong also has extensive experience outside the hospitality industry through service as chairman and director of Golden Security Bank for 25 years and prominent positions in several professional organizations, including as director of the Los Angeles Convention and Visitors Bureau and the founding member of the Los Angeles Chinatown Business Improvement District. Mr. Kwong is a graduate of the University of Southern California’s Marshall School of Business, earning a B.S. in real estate finance and development, and a minor in music specializing in performing arts. Mr. Kwong was selected to serve as a member of our board of directors to represent the interests of Best Western-branded hotels in District 6. Mr. Kwong brings substantial operational knowledge gained through numerous leadership and advisory positions, including such positions with us, and his hospitality and real estate experience to his service on our board of directors.

Ishwar Naran is the President and CEO of Premier Resorts and Management, has served as one of our Directors since 2016 and currently serves as the Secretary-Treasurer for our board of directors. He has been a Member since 2000, serving on numerous advisory committees within the organization prior to being elected to our board of directors. Mr. Naran owns three Best Western properties—the Best Western Wesley Chapel in Wesley Chapel, Florida; the Best Western Daytona Inn Seabreeze Oceanfront in Daytona Beach, Florida; and the Best Western Plus Columbia North East in Columbia, South Carolina. Mr. Naran has more than three decades of experience in the hospitality industry, having developed, acquired and managed over 30 hotels throughout his career. Mr. Naran is currently a member of numerous economic development and hospitality professional organizations, including as member and former director on the board of the Hotel-Motel Association and as the founder and former President of the Indian Association of Greater Daytona Beach. Mr. Naran earned his degree in civil engineering from the University of Birla Vishwakarma Mahavidyalaya in India. Mr. Naran was selected to serve as a member of our board of directors to represent the interests of Best Western-branded hotels in District 4. Mr. Naran contributes his extensive management and hospitality experience to our board of directors.

Terrance “Terry” J. Bichsel has served as one of our Directors since 2014. Mr. Bichsel previously served as the Chairman of our board of directors in 2017, Vice Chairman of our board of directors in 2016, and Secretary-Treasurer of our board of directors in 2015. Prior to serving as a member of our board of directors, he served as a Best Western Governor for the northern Oregon coast and Portland metro area. Mr. Bichsel acquired the Best Western Plus Ocean View Resort in Seaside, Oregon in 2002 and developed a second independent brand hotel in Seaside, Oregon in 2007. Mr. Bichsel is a certified hotel administrator and a 40-year veteran of the hospitality industry. Mr. Bichsel has been a General Manager and Regional Vice President for multiple branded hotels. In addition, he has held executive management positions for industry leaders, including Senior Vice President, Chief Operating Officer for John Q. Hammons Hotels, Inc., President-Parks & Resorts Division for ARAMARK Corporation, and Senior Vice President-Worldwide for Holland America Cruise Line. In these capacities, Mr. Bichsel has been responsible for more than 20 new hotel openings in his career. Mr. Bichsel was elected to serve as a member of our board of directors to represent the interests of Best Western-branded hotels in District 2. Mr. Bichsel’s extensive experience in operations, strategic planning, acquisitions and divestitures, new product development, client, franchisor and partnership relations, asset management and sales and marketing is valuable to our board of directors.

John L. Kelly has served as one of our Directors since 2016 where he represents the interests of Best Western-branded hotels in District 5. Mr. Kelly has owned and operated the Best Western El Reno in El Reno, Oklahoma

 

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since 1993 and the Best Western Plus Inn & Suites in Yukon, Oklahoma since 2000. Since 1998 and prior to his election as a Director, Mr. Kelly served as a Best Western Governor. He was also a member of our reservation and technical committee from 1998 to 2003 where he served as chair for three years. In addition, he is an active member of his community, serving in leadership positions with a variety of community organizations focusing on tourism and lodging and hospitality, including the State of Oklahoma Tourism Advisory Committee. Mr. Kelly received a B.S. in chemistry from the University of Oklahoma and served as a Naval Aviator in the U.S. Navy for 12 years (active and reserve). Mr. Kelly brings a diverse experience in a variety of leadership and advisory capacities and in the hospitality industry to our board of directors.

John Daniel Lafayette III has served as one of our Directors since December 2018 where he represents the interests of Best Western-branded hotels in District 7. Mr. Lafayette has been a Member since 1982, serving as a Governor for more than 25 years and participated in numerous membership development initiatives. Mr. Lafayette has an ownership interest in two Best Western properties—the Best Western White House Inn in Bangor, Maine and the Best Western Merry Manor Inn in South Portland, Maine. He currently operates approximately 30 hotels and 15 food and beverage outlets. Mr. Lafayette is an active member of his community and he has previously served as president and director of the Maine Innkeepers Association, where he received the association’s Community Service Award and was named Innkeeper of the Year. In addition, he also has served his local community in leadership positions with organizations dedicated to the health and well-being of children and cancer patients. Mr. Lafayette is a graduate of the U.S. Military Academy at West Point and served in the U.S. Army (active and reserve). Mr. Lafayette contributes his extensive hospitality experience and professional leadership skills to our board of directors.

L. Terry Porter has served as one of our Directors since 2013. Mr. Porter previously served as Chairman of our board of directors in 2016, Vice Chairman of our board of directors in 2015, and Secretary-Treasurer of our board of directors in 2014. Mr. Porter has had an ownership interest in and operated the Best Western Town & Country Inn in Cedar City, Utah since 1989 and the Best Western Plus Cedar City in Cedar City, Utah since 2016. Before being elected to our board of directors, Mr. Porter was a Best Western Governor, representing hoteliers in central and southern Utah, including the area surrounding Bryce Canyon National Park. He has served on a variety of community organizations focusing on travel and lodging, including on the board of the Utah Travel Council. Mr. Porter is a graduate of Brigham Young University, receiving a bachelor’s degree in business management. Mr. Porter was selected to serve as a member of our board of directors to represent the interests of Best Western-branded hotels in District 1. Mr. Porter contributes his extensive leadership and hospitality experience gained throughout his career to our board of directors.

Composition of the Board of Directors

Prior to and following the Conversion, our board of directors will consist of seven Directors each of whom is considered independent pursuant to the NASAA Statement of Policy. Currently, each member of our board of directors is selected by Members in certain of the Districts in which we operate to represent the interests of those Members. Pursuant to the Plan of Merger, as described under the heading “Conversion Proposal” in this information statement/prospectus, the Members in each of our seven Districts will be issued a separate Series of our Common Stock (for example, Members in District 1 will receive Series A-1 Common Stock, Members in District 2 will receive Series A-2 Common Stock, etc.). Prior to an IPO each Series will be entitled to elect one member to our board of directors, voting as a separate class. To be nominated and elected to the board of directors, such Director nominee must meet the specified qualifications set forth in our Amended and Restated Bylaws, including that such Director nominee must have a material interest in a Best Western-branded property in the District corresponding to the Series of Common Stock for which such Director is nominated. For a description of the rights of the separate Series of Common Stock, see the description under the heading “Description of Capital Stock Following the Conversion—Common Stock” in this information statement/prospectus.

Our Amended and Restated Articles of Incorporation provides that our Directors will be elected by a plurality of the votes of the shares entitled to vote in the election of such Directors. Newly created directorships resulting

 

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from any increase in the authorized number of Directors will be filled by resolution of a majority of the Directors then in office. For a description of the processes for filling any vacancies in our board of directors resulting from death, resignation, disqualification, removal from office or any other cause, see the description under the heading “Description of Capital Stock Following the Conversion—Removal of Directors; Vacancies” in this information statement/prospectus.

Following the Conversion, our board of directors shall be divided into two classes, as nearly equal in number as possible, hereby designated Class I and Class II. The term of office of the initial Class I Directors shall expire at the annual meeting of shareholders held in 2020 and the term of office of the initial Class II Directors shall expire at the annual meeting of shareholders held in 2021. The table below sets forth our Districts, the member of our board of directors currently elected to represent that District and the number of voting Members as of February 28, 2019.

 

District

  

Location

   Class of
Director
   Series of
Common Stock
   Current Board
Representative
for District
   Number
of

Voting
Members
   Percentage
of

Total
Voting

Members

District 1

   Arizona, Colorado, Kansas, Missouri, Nebraska, New Mexico, Utah and Wyoming    Class I    Series A-1
Common Stock
   L. Terry
Porter
   227    12%

District 2

   Alaska, Washington, Oregon, Idaho, Montana, North Dakota, South Dakota, Alberta, Canada, British Columbia, Canada, Manitoba, Canada and Saskatchewan, Canada    Class I    Series A-2
Common Stock
   Terrance
J. Bichsel
   281    14%

District 3

   Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Wisconsin and Ontario, Canada    Class II    Series A-3
Common Stock
   Anthony Klok    284    14%

District 4

   Florida, Tennessee, Alabama, Georgia, South Carolina, North Carolina, Puerto Rico and Haiti    Class I    Series A-4
Common Stock
   Ishwar Naran    266    13%

District 5

   Arkansas, Louisiana, Mississippi, Oklahoma and Texas    Class I    Series A-5
Common Stock
   John L. Kelly    356    18%

District 6

   California, Nevada and Hawaii    Class II    Series A-6
Common Stock
   Peter Kwong    283    14%

District 7

   Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, West Virginia, New Brunswick, Canada, Newfoundland, Canada, Nova Scotia, Canada, Prince Edward Island, Canada and Quebec, Canada    Class II    Series A-7
Common Stock
   John Daniel
Lafayette III
   292    15%

Board Committees

Our board of directors has not established separate committees and does not anticipate establishing board committees as of the Conversion Date. The board of directors has considered establishing board committees, but believes that it operates efficiently and in the best interests of its Members by operating as a single board.

 

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Compensation Committee Interlocks and Insider Participation

The board of directors has chosen not to establish a separate compensation committee. The board of directors determines the compensation of our President and Chief Executive Officer and reviews proposals by our President and Chief Executive Officer for the compensation of his direct reports. There were no compensation committee interlocks in fiscal 2018. None of our board members are employees or officers of the Company. Each of our Directors (or an affiliate of our Directors) is a party to a membership agreement with the Company, and as a result, our Directors pay system and other fees to us based upon the terms of their respective membership agreements. Our Directors are party to such membership agreements and intend to be party to the New Franchise Agreements on the same terms and conditions as each of the other Members of the Company.

As of the Conversion Date, we do not expect any compensation committee interlocks. We expect the board of directors to determine the compensation of our President and Chief Executive Officer and our President and Chief Executive Officer to present proposals to the board of directors for the compensation of his direct reports.

Family Relationships

There are no family relationships between any of our executive officers and Directors.

Code of Business Conduct and Ethics

Our board of directors will establish a code of business conduct and ethics that applies to our officers, Directors and employees. Among other matters, our code of business conduct and ethics will be designed to deter wrongdoing and to promote:

 

   

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

   

full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications;

 

   

compliance with applicable governmental laws, rules and regulations;

 

   

prompt internal reporting of violations of the code to appropriate persons identified in the code; and

 

   

accountability for adherence to the code.

Only our board of directors will be able to approve any waiver of the code of business conduct and ethics for our executive officers or Directors, and any such waiver shall be promptly disclosed as required by law.

Corporate Governance Profile

We will structure our corporate governance in a manner that we believe closely aligns our interests with those of our shareholders. Notable features of our corporate governance structure will include the following:

 

   

after the Conversion, our seven person board of directors will be staggered, with term of office of the initial Class I Directors expiring at the annual meeting of shareholders held in 2020 and the term of office of the initial Class II Directors expiring at the annual meeting of shareholders held in 2021;

 

   

of the seven persons who will serve on our board of directors, all of the Company’s non-employee Directors are expected to be determined by our board of directors to be independent, within the meaning of the independence standards of the New York Stock Exchange, even though the Company will not be subject to such standards upon the effectiveness of the Conversion;

 

   

at least one of our Directors will qualify as an “audit committee financial expert” as defined by the SEC;

 

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prior to an IPO each of our Directors will be elected by a plurality of the votes of the shares of the applicable Series (which corresponds to the District in which such Director is a Member) entitled to vote in the election of such Directors;

 

   

we are continuing our Governor and Advisory Committee programs to ensure that the concerns of our hotel owners are heard and their feedback considered before any significant brand changes; and

 

   

we will continue to hold District meetings, and an annual convention for our hotel owners.

Our Directors will stay informed about our business by attending meetings of our board of directors and through supplemental reports and communications. Our Directors will meet regularly in executive sessions without the presence of our corporate officers. Our Amended and Restated Bylaws will also provide that shareholders may attend annual and regularly scheduled board of director meetings, as is permitted under our current bylaws.

 

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EXECUTIVE COMPENSATION

The following section provides compensation information pursuant to the scaled disclosure rules applicable to “emerging growth companies” under the rules of the SEC. We discuss the material components of our executive compensation program for our President and Chief Executive Officer and our two other most highly compensated executive officers, who we refer to as our “named executive officers.” As of the year ended November 30, 2018, our named executive officers and their positions were as follows:

 

   

David Kong, President and Chief Executive Officer;

 

   

Dorothy Dowling, Senior Vice President and Chief Marketing Officer; and

 

   

Lawrence Cuculic, Senior Vice President, General Counsel and Corporate Secretary.

Overview

Historically, our board of directors has set the compensation of our President and Chief Executive Officer and has reviewed proposals by our President and Chief Executive Officer for the compensation of his direct reports. The primary objectives of our executive compensation program have been to:

 

   

attract, engage and retain superior talent who contribute to our long-term success;

 

   

motivate, inspire and reward executive officers whose knowledge, skills and performance are critical to our business;

 

   

ensure compensation is aligned with our corporate strategies and business objectives; and

 

   

provide our executive officers with incentives that effectively align their interests with those of our Members.

Executive Compensation Design Overview

During the year ended November 30, 2018, all of our named executive officers were employees of the Company. Historically, we have not been subject to stock exchange listing standards requiring us to have a majority independent board or relating to the formation and functioning of board committees, including audit, nominating and compensation committees. Our entire board of directors has been involved in the determination of the compensation of our named executive officers. Our President and Chief Executive Officer has made recommendations to the board of directors regarding the compensation of his direct reports, which has included our named executive officers.

Historically, our executive compensation program has reflected our desire to retain top talent who are critical to our membership’s success participating in the confines of our membership association structure. The compensation of our named executive officers has consisted of a combination of base salary, performance-based cash bonuses, long-term cash bonuses and certain other benefits, as described below. Our executive officers and salaried employees also are eligible to receive health and welfare benefits consistent with our industry.

In connection with its consideration of transitioning the Company to a for-profit corporation, in January 2018 and November 2018, the board of directors retained Mercer (US) Inc. (Mercer”), a wholly owned subsidiary of Marsh & McLennan Companies, and a third party compensation consultant, to provide market based information to help our board of directors compare the compensation of our President and Chief Executive Officer and his direct reports with that of a peer group. Additionally, Mercer serves as our third party benefits broker associated with health and welfare benefits programs.

 

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The recent competitive market data provided by Mercer in 2018 was based, in part, on the following peer group developed by Mercer in consultation with Company management:

 

•  Marriott Intl Inc.

  

•  Hyatt Hotels Corp.

  

•  La Quinta Holdings Inc.

•  Hilton Worldwide Holdings

  

•  Intercontinental Hotels

  

•  Choice Hotels Intl Inc.

•  Wyndham Worldwide Corp.

  

•  Extended Stay America Inc.

  

Peer group executive compensation programs typically provide long-term equity incentive awards, while the Company’s executive compensation programs provide both short-term and long-term incentive compensation solely in cash. Also, the data provided by Mercer indicated target total direct compensation of our named executive officers was significantly below that of the peer group. The value of long-term incentive awards for our named executive officers as a percentage of base salary was also significantly below the peer group median.

The Mercer competitive market data was not considered in making any executive compensation decisions for 2018, however it has been considered in developing executive compensation plans for 2019.

Risk Assessment and Compensation Practices

We do not believe that our compensation policies and practices create risks that are reasonably likely to have a material adverse effect the Company.

Summary Compensation Table

The following table presents summary information regarding the total compensation awarded to and earned by our named executive officers.

 

            Salary      Bonus(1)      Nonequity
incentive plan
compensation(2)
     All other
compensation(3)
     Total  

David Kong

     2018      $ 984,088      $ 1,100,000      $ 1,100,000      $ 368,883      $ 3,552,971  
     2017        886,259        1,000,000        1,000,000        384,874        3,271,133  

Dorothy Dowling

     2018        517,511        243,822        243,822        156,669        1,161,824  
     2017        475,475        230,349        230,349        171,496        1,107,669  

Lawrence Cuculic

     2018        488,498        235,429        235,429        126,388        1,085,744  
     2017        428,212        217,675        217,675        127,512        991,074  

 

(1)

Represents payments under our Long-Term Incentive Plan.

(2)

Represents payments under our 2018 Executive Bonus Plan.

(3)

The following table further illustrates the components of “All other compensation:”

 

          Car
Allowance
    MERP(1)     Tax
Gross-Up(2)
    Executive
Healthcare
Allowance(3)
    401(k)
Contribution(4)
    NQDC
Plan
Contribution(5)
    Other(6)     Total  

David Kong

    2018     $ 11,292     $ 9,496     $ 32,969     $ 7,573     $ 18,750     $ 269,614     $ 19,189     $ 368,883  
    2017       11,158       8,407       58,222       7,273       18,550       261,920       19,344       384,874  

Dorothy Dowling

    2018       11,292       17,685       11,678       10,615       18,750       83,398       3,251       156,669  
    2017       11,158       26,166       25,350       10,194       18,550       77,700       2,378       171,496  

Lawrence Cuculic

    2018       11,292       4,336       4,503       7,573       18,750       77,549       2,385       126,388  
    2017       11,158       11,391       9,076       7,273       18,550       67,652       2,412       127,512  

 

(1)

Includes reimbursed medical expenses under the Company’s Medical Expense Reimbursement Program (“MERP”). See “—Medical Expense Reimbursement Program.”

(2)

Includes tax gross-up in respect of earnings under the Company’s nonqualified deferred compensation plan (“NQDC Plan”), MERP disbursements and spousal or qualified companion travel benefits.

 

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(3)

Includes premiums for health and welfare programs paid on behalf of the executive by the Company.

(4)

Includes certain nondiscretionary employer contributions and discretionary employer matching of 401(k) Plan contributions made by the executive in fiscal 2018. See “—401(k) Plan.”

(5)

Includes employer contributions under the terms of the NQDC Plan. See “—Nonqualified Deferred Compensation Plan.”

(6)

Includes premiums for group life term insurance paid on behalf of the executive by the Company and travel costs of spouses or qualified companions who accompanied executives to business meetings paid by the Company.

Base Salaries

Base salaries established for the Company’s named executive officers are intended to reflect each individual’s responsibilities, experience, historical performance and other discretionary factors deemed relevant by the board of directors with respect to the President and Chief Executive Officer and by the President and Chief Executive Officer with respect to the other named executive officers and have generally been set at levels deemed necessary to attract and retain individuals with superior talent.

Long-Term Incentive Plan

The Company established the Long-Term Incentive Plan for Key Contributors (the “LTIP”), effective July 2007. The LTIP is a discretionary cash bonus plan administered by the board of directors (or a compensation committee thereof). After the end of each fiscal year, the board of directors makes a final determination, in its discretion, of the amount of the award for each key contributor. The board of directors considers various components of the key contributor’s performance, determined in its discretion, during the fiscal year in reaching its determination of the amount of the award. The long-term incentive compensation aspect of the award is provided by deferring its payment until the third fiscal year following the performance fiscal year. The LTIP provides that upon voluntary or involuntary separation from service, the amount of unpaid awards is forfeited unless the separation from service is due to the participant’s death, disability, retirement or if terminated by the Company “without cause” or by the key contributor for “good reason,” in which case the participant will be entitled to receive all unpaid awards plus a pro rata portion of the award granted to the participant during the fiscal year when such separation occurred.

2018 Executive Bonus Program

We maintain an annual cash incentive program for our executive officers, including our named executive officers. The board of directors determines the plan performance components early in each fiscal year and makes a final determination of the cash bonus amount to be awarded at the end of the fiscal year based upon actual performance against such plan performance components. In fiscal 2018, corporate performance weighted 100% of the President and Chief Executive Officer’s bonus award as determined by our board of directors. In fiscal 2018, corporate performance weighted 55% of the bonus award as determined by our board of directors, individual performance weighted 35% of the bonus award and department performance weighted 10% of the senior vice presidents’ bonus awards as determined by the President and Chief Executive Officer. At target performance, the target bonus for our President and Chief Executive Officer was 100% of annual base salary and for our senior vice presidents was 40% of annual base salary.

401(k) Plan

Our named executive officers also participate in health and welfare plans generally available to our employees, including our 401(k) plan (the “401(k) Plan”). The Code limits the contributions our named executive officers can make to the 401(k) Plan. In fiscal 2018, we made nondiscretionary cash contributions equal to 3% of a participant’s eligible salary or wages up to a maximum employer contribution of 3% of the IRS’s employee compensation limit for calculating contributions, which was $270,000 in fiscal 2018. In fiscal 2018, we also

 

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made discretionary matching cash contributions equal to 100% of the first 4% of participants’ contributions to the 401(k) Plan up to a maximum contribution of 4% of the IRS’s employee compensation limit for calculating contributions, which was $270,000 in fiscal 2018.

Nonqualified Deferred Compensation Plan

The NQDC Plan originally effective on June 1, 1997 and as restated as of December 1, 2016, is an unfunded and unsecured deferred compensation arrangement that is designed to allow the participants to defer a specified percentage no greater than 20% of their base and bonus compensation (the “Includible Compensation”), in a manner similar to the way in which our 401(k) Plan operates, but without regard to the maximum deferral limitations imposed on 401(k) plans by the Code. It is a requirement that each participant in the NQDC Plan participates in our 401(k) Plan. As required by applicable law, participation in the NQDC Plan is limited to a group of the Company’s management employees, which group includes each of our named executive officers. Participants are 100% vested in his or her account, which will be distributed in cash following his or her separation from service from the Company at the time and in the manner specified in the plan and the participant’s election form. Each named executive officer currently participates in the NQDC Plan.

The NQDC Plan also provides for five separate types of employer contributions for eligible participants. The first contribution equals an amount determined by multiplying the participant’s Includible Compensation by (a) the percentage determined for a plan year by the Board in its sole and absolute discretion, not to exceed 6% (the “Matching Percentage”) of the participant’s Includible Compensation in the plan year. This contribution amount is reduced by any amounts already contributed to the participant’s 401(k) Plan by the Company in the same plan year and further reduced such that the contribution amount shall not exceed the elective deferral limit under Code Section 402(g) (determined without regard to catch-up contributions under Section 414(v)), or $18,000 in fiscal year 2018, provided that the participant must contribute the maximum allowable contribution to our 401(k) Plan and also must contribute to the NQDC Plan such that the total contributions to both plans equal or exceed 6% the participant’s Includible Income in the plan year.

The second contribution is an amount equal to 3% of the participant’s Includible Compensation in the plan year that exceeds the contribution limit from Code Section 401(a)(17), or $270,000 in fiscal year 2018, on compensation applicable to our 401(k) Plan, provided that the participant must have completed a year of service before the plan year ends and also must elect for a deferral of at least 2% of the participant’s Includible Compensation for the plan year.

The third contribution is an amount equal to (a) the rate of old age survivors and disability insurance tax under Code Section 3101 that is in effect at the beginning of the plan year (or 6.2% in fiscal 2018), multiplied by (b) the portion of the participant’s Includible Compensation for a plan year that exceeds the social security taxable wage base in effect at the beginning of the plan year, or $127,200 in fiscal 2018, provided that the participant must elect for a deferral of at least 2% of the participant’s Includible Compensation for the plan year.

The fourth contribution is an amount equal to (a) the Matching Percentage multiplied by (b) the participant’s Includible Compensation for the plan year subtracted by the sum of both (x) the Matching Percentage multiplied by the contribution limit from Code Section 401(a)(17) at the beginning of the plan year, or $270,000 for fiscal 2018, and (y) the elective deferral limit under Code Section 402(g) (determined without regard to catch-up contributions under Section 414(v)), or $18,000 in fiscal year 2018, for the calendar year in which the plan year ends.

The fifth contribution is an amount equal to the deemed investment earnings, which shall be the greater of: (a) the deemed rate of return earned by the participant’s deemed investments of accounts during the plan year or (b) the deemed rate of return earned by multiplying the participant’s accounts by the lesser of (x) 7% simple interest or (y) the yield for the thirty (30) year Treasury Bond issued most recently before the first day of the plan year.

 

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Medical Expense Reimbursement Program

The Company provides a MERP to its executive officers of up to $28,000 annually to help offset out-of-pocket medical expenses that are not covered by medical and health insurance plans, such as co-pays and co-insurance.

Employment Agreements

Mr. David Kong

The Company entered into an employment agreement with Mr. Kong on May 16, 2013, as amended on May 15, 2014 and March 22, 2016. Pursuant to the terms of the employment agreement, Mr. Kong was entitled to an initial base salary, subject to review and adjustment by the board of directors (or committee thereof) on an annual basis. In addition to base salary, Mr. Kong is eligible to receive a bonus, in the sole discretion of the board of directors, of up to 100% of his base salary based upon the board of directors’ (or committee thereof) evaluation of Mr. Kong’s performance. Mr. Kong’s employment agreement continues until November 30, 2021, unless earlier terminated pursuant to the terms of the agreement. If Mr. Kong’s employment is terminated without “cause” by the Company or for “good reason” by Mr. Kong, he will be entitled to receive, upon executing a waiver and release agreement and a three-year non-compete agreement, additional cash payments equal to (i) 100% of his then applicable base salary and 100% of the bonus (at the 100% rate payable), in each case, that would have been payable for the rest of the term of his employment agreement (and in any event for at least one year), plus (ii) the sum of all LTIP awards previously awarded but not yet paid to Mr. Kong and a pro rata amount of the bonus that would otherwise have been paid for that fiscal year, calculated based upon 100% of his salary for that fiscal year, plus (iii) twelve monthly COBRA premiums, less applicable withholdings.

Upon the successful completion of the term of Mr. Kong’s employment agreement, he will be entitled to receive, upon executing a waiver and release agreement and a three-year non-compete agreement, (i) 100% of the bonus (at the 100% rate payable) that would have been payable to him based on the Company’s performance plus (ii) the sum of all LTIP awards previously awarded but not yet paid to Mr. Kong and the amount of the LTIP that would otherwise have been paid to Mr. Kong for that fiscal year, plus (iii) twelve monthly COBRA premiums, less applicable withholdings.

Mr. Larry Cuculic

The Company entered into an employment agreement with Mr. Cuculic on December 17, 2012, as amended on February 26, 2016 and August 26, 2016. Pursuant to the terms of the employment agreement, Mr. Cuculic was entitled to an initial base salary, subject to adjustment from time to time by the Company in its sole discretion. In addition to base salary, Mr. Cuculic is eligible to participate in the Company’s bonus plan. Mr. Cuculic’s employment agreement continues until May 31, 2022, unless earlier terminated pursuant to the terms of the agreement. If Mr. Cuculic’s employment is terminated without “cause” by the Company or for “good reason” by Mr. Cuculic, he will be entitled to receive, upon executing a waiver and release agreement, additional cash payments equal to (i) 100% of his then applicable base salary and 100% of the bonus (at the 100% rate payable), in each case, that would have been payable for the rest of the term of his employment agreement (and in any event for at least one year), plus (ii) the sum of all LTIP awards previously awarded but not yet paid to Mr. Cuculic and a pro rata amount of the bonus that would otherwise have been paid for that fiscal year, calculated based upon 100% of his salary for that fiscal year, plus (iii) twelve monthly COBRA premiums, less applicable withholdings.

Upon the successful completion of the term of Mr. Cuculic’s employment agreement, he will be entitled to receive, upon executing a waiver and release agreement, (i) 100% of the bonus (at the 100% rate payable) that would have been payable to him based on the Company’s performance plus (ii) the sum of all LTIP awards previously awarded but not yet paid to Mr. Cuculic and the amount of the LTIP that would otherwise have been paid to Mr. Cuculic for that fiscal year, plus (iii) twelve monthly COBRA premiums, less applicable withholdings.

 

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Executive Severance Policy

November 2017, our board of directors approved the Company’s Executive Severance Policy, which we refer to as the “Executive Severance Policy.” The Executive Severance Policy applies to the Company’s Senior Vice Presidents and provides that in the event of a “qualifying event,” each executive will be entitled to receive payments equal to one year of the then applicable base salary plus a pro rata amount of such executive’s target bonus at the 100% level for the fiscal year in which the qualifying event occurs. A “qualifying event” occurs when such executive’s employment with the Company ending either in termination by the Company without “cause” or by the executive for “good reason,” as such terms are defined in the Executive Severance Policy. However, if the qualifying event occurs within two calendar years of both: (i) the Company converting to a for profit corporation and (ii) the date on which a third-party (i.e., not Company shareholders who were previously Best Western Members) purchases a majority of the Company’s outstanding equity, the event payment shall be the equivalent of two years base salary plus a pro rata amount of the executive officer’s target bonus at the 100% level for the fiscal year in which the qualifying event occurs based upon length of service in the fiscal year in which the qualifying event occurs. The Executive Severance Policy has no effect on the LTIP or the 401(k) Plan. If any Senior Vice President is party to an employment agreement with the Company, the termination and severance provisions of that employment agreement govern and not the terms of the Executive Severance Policy.

DIRECTOR COMPENSATION

The table below provides information on the compensation of our Directors for the year ended November 30, 2018. Director compensation consists of $100,000 per year in director fees, reimbursed medical expenses under our MERP program and spousal or qualified companion travel benefits.

 

Name

   Director
Fees
     MERP(1)      Spousal or
Qualified
Companion
Benefits(2)
     Total  

James Cosgrove(3)

   $ 100,000      $ 12,337      $ 724      $ 113,061  

Anthony Klok

     100,000        5,749        10,373        116,122  

Peter Kwong

     100,000        20,000        20,737        140,737  

Ishwar Naran

     100,000        5,213        17,997        123,210  

Terrance Bichsel

     100,000        11,618        13,873        125,491  

John L. Kelly

     100,000        13,646        11,751        125,397  

Terry Porter

     100,000        19,486        20,702        140,188  

John Daniel Lafayette III(4)

     —          —          —          —    

 

(1)

Includes reimbursed medical expenses under the Company’s MERP.

(2)

Includes travel costs of spouses or qualified companions who accompanied Directors to business meetings.

(3)

Term expired in December 2018.

(4)

Term commenced in December 2018.

 

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BUSINESS OF THE COMPANY

Business Overview

The Company is a leading global hospitality brand with a presence in nearly 100 countries and territories worldwide. We are among the top 10 largest global lodging brands by number of hotels (according to Hotels magazine July/August 2018) with over 3,600 total branded hotels (of which nearly 2,100 branded hotels are in North America) and a pipeline of over 600 hotel applicants to enter our brands (of which approximately 400 such hotels are in North America). Over the past five years, our prospective hotel pipeline has seen an average annual attrition rate of approximately 20% prior to such hotels entering the brand. The Company has 13 unique North American Best Western hotel brands ranging from economy to upper upscale. Ten of those 13 brands have been launched in recent years, providing new avenues for growth. The Company’s Members and franchisees operate hotels under the following proprietary brand names: Best Western, Best Western Plus, Best Western Premier, Executive Residency by Best Western, Vīb, GLō, Sadie, Aiden, BW Premier Collection, BW Signature Collection, SureStay, SureStay Plus and SureStay Collection. The Company has achieved an average RevPAR index of over 109 over the last seven years. We have also received many industry awards, including Business Travel News #1 Midprice and #1 Upper Midprice hotels in 2017, Top Ranked Guest Loyalty Program from US News & World Report from 2013 through 2018, and ten-time Hotel Partner of the Year from AAA Travel from 2009 through 2018. Through the WorldHotels Acquisition in February 2019, the Company also now offers WorldHotels Luxury, WorldHotels Elite and WorldHotels Distinctive brands under license.

The Company has a comprehensive and readily scalable platform of services that it offers to branded hotels including sales and marketing, brand management, technology and support services. Our sales and marketing team seeks to drive market share growth and to leverage our award-winning BWR program to increase revenues to our hotel brands and to increase customer satisfaction. Our brand management team provides a full range of services, including regional service manager consultation, revenue management, Supply and Design, guest satisfaction surveys and analysis, customer relations services and education and training to hotels, in addition to outsourced QA assessments, that seek to ensure high quality and guest experiences that meet or exceed expectations, in addition to profitable operations. Our technology team oversees a scalable technology platform which provides reservations systems, e-commerce, cyber security and other technology support systems. Our support services team provides an in-house shared services platform that includes our call center, accounting and finance, legal and human resources. This platform allows us to drive revenue to our hotels and to grow our scale and create synergies, efficiencies and leverage.

Company History

The Company was founded in 1946 in Long Beach, California as Western Motels, Inc. by M.K. Guertin, a hotelier with 23 years of experience in the business. We have been organized in North America as an Arizona nonprofit membership association since December 12, 1957. The chain began as an informal link between properties with each hotel recommending other lodging establishments to travelers.

All of our North American hotels remained under a single Best Western brand until 2010 when Members approved the establishment of our three core brands: Best Western, Best Western Plus, and Best Western Premier. The Company has complemented its three core brands with recent brand launches into new chain scales, which has fueled pipeline growth and broadened our product offerings.

On the Acquisition Date, we consummated the WorldHotels Acquisition. Our financial statements, related discussions and other data and business discussions in this report do not include WorldHotels’ results of operations, financial position or Legacy-WorldHotels business and brands, except where we specifically state otherwise. See Footnote 14 “Subsequent Events” to our audited Consolidated Financial Statements that are included elsewhere in this information statement/prospectus for more information.

 

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Company Business Model

The Company has an asset-light business model, which together with our platform of services provides us with a solid foundation to generate stable revenues and strong returns on capital.

North America

The Company is currently organized as a nonprofit membership organization. As a nonprofit membership organization, we manage our operations to generate sufficient revenue to cover the expenses incurred in delivering services designed to enhance brand equity and drive revenue to our hotels. The Company drives revenue primarily from fees assessed to Member hotels. These fees consist of: (i) monthly fees, (ii) affiliation fees, (iii) program revenues, (iv) international fees and other miscellaneous revenues. Members pay monthly fees on either a fixed rate per room basis or variable basis as a percentage of GRR, as well as annual dues, advertising, sales and marketing, technology, and technology and marketing assessments. Affiliation fees are non-refundable fees that are assessed as part of the application process. Program revenues are revenues associated with programs such as BWR, Supply and Design, which offers our branded hotels an online catalog platform connected to endorsed vendors with discounted pricing as well as an experienced team of design professionals focused on maintaining brand standards and a fee-based service for design needs, and GDS/Switch, which includes connections through our reservations platform for our hotels to leading distribution partners, such as OTAs, wholesalers, GDS and individual corporations.

The Company’s major expense items include (i) employee compensation, and related taxes and benefits, and third-party labor, (ii) advertising and promotions, (iii) program cost of sales, (iv) depreciation and amortization, and (v) other expenses.

The Company has a demonstrated long-term commitment from its ownership base of Members, which has historically driven consistent and predictable revenues and financial performance. Approximately 69% of Best Western-branded hotels have been Members for over ten years, and the average tenure for a Member is 18 years. Our Members have invested more than $2.0 billion since 2012 in renovating and improving their properties plus installing new signage and collateral to enhance the Best Western brand’s image, refresh their properties, remain competitive and increase customer satisfaction.

As a result of our membership structure, amendments to the Company’s bylaws and Rules & Regulations must be voted on by ballot and approved by our Members. The Company has fielded at least two ballots annually for the past three years, and each ballot has contained multiple strategic initiatives. Since 2012, over 90% of ballot initiatives have been approved by Members, highlighting owner support for brand evolution and involvement in the brand’s strategic direction. Members are able to vote electronically, and voting participation has averaged 80% over the past three years.

In North America, the Company’s relationship with branded hotels falls into one of three categories, depending on the brand: (i) full membership agreement, (ii) soft brand agreement, and (iii) franchise agreement.

 

   

Membership Agreements: For hotels with full Member agreements (which include our Best Western, Best Western Plus, Best Western Premier, Executive Residency by Best Western, Vīb, GLō, Sadie and Aiden brands), hotel licensees are Members with voting rights and access to the Best Western platform. Members pay monthly fees, annual dues, advertising, sales and marketing, technology, and technology and marketing assessments, as well as other fees and charges.

 

   

Soft Brand Agreements: For hotels with soft brand agreements (which include our BW Premier Collection and BW Signature Collection), hotel licensees are not Members, must maintain minimal branding standards, and have access to the Best Western Platform. These soft brand hotels generally pay an annual fee, a percentage based fee for revenue delivered, plus pass-through costs.

 

   

Franchise Agreements: For hotels with a franchise agreement (which include our SureStay, SureStay Plus brands and SureStay Collection brands), hotel franchisees are franchisees and not Members, must

 

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maintain minimal branding standards, and have access to the Best Western platform. Franchise hotel fees are generally a royalty fee of 5% of GRR and a marketing fee of 5% of GRR, plus pass-through costs.

International

Outside North America, the Company licenses its trademarks and provides reservation and other services to hotels through the following: (i) property direct relationships, (ii) affiliation agreements and (iii) master license agreements. In each of the three types of relationship, fees are paid to the Company for reservation and other services, generally on a cost-recovery basis.

 

   

Property Direct Relationship: Hotels with a Property Direct Relationship (“PDR hotels”) are located in specific international countries or territories and use our brand and services through a sub-license agreement. Territories with this arrangement are located in Africa, Asia (excluding China, India and South Korea), Australia, the Baltic states, Belgium, Finland, Ireland, Mexico, the Middle East, the Netherlands, Poland, South America, Spain, Turkey and other areas. To oversee these relationships, the Company has international offices in Australia, Ireland, Finland, Mexico, the Netherlands, Turkey, Poland, Peru and Thailand. These offices manage and support international operations through development, marketing and sales, revenue management, QA, brand identity and standards and other services.

 

   

Affiliation Agreements: Affiliation agreements are entered into with Affiliate Organizations, which are formed as nonprofit entities for the sole purpose to initiate, plan, coordinate and execute joint marketing activities and otherwise advance the interests of their Best Western-branded hotels. Territories that use this arrangement are Central Europe, France, Great Britain, Greece, Italy and Scandinavia. The Company provides global services and programs to Affiliate Organizations such as, reservations, marketing, brand identity and standards, and BWR loyalty.

 

   

Master License Agreement: Master License Agreements (“MLAs”) are entered into with some country-specific organizations, which are formed as for-profit entities for the sole purpose to initiate, plan, coordinate and execute joint marketing activities and otherwise advance the interests of their Best Western-branded hotels. Territories that use this arrangement are China, India and South Korea. The Company provides global services and programs to MLAs such as, reservations, marketing, brand identity and standards, and BWR loyalty.

Company Growth Strategy

The Company’s vision is to lead the industry in superior customer care and its mission is to enhance brand equity and increase value to our hoteliers. The Company’s growth strategy focuses on creating a distinctive brand portfolio that is appealing to both hoteliers and guests; delivering superior guest satisfaction and building brand loyalty; growing the Company’s brands around the world; and maintaining a continuous focus on innovation.

Distinctive and Appealing Brand Portfolio: The Company and its Members invest heavily in the Best Western brand portfolio as an integral part of the Company’s growth strategy. Beginning with adding Best Western, Best Western Plus, and Best Western Premier to the iconic Best Western brand, the Company has also engaged in a Design Excellence program, which resulted in Members investing over $2.0 billion since 2012 to meet new brand standards, and launched ten new global brands since 2015. The Design Excellence program is an on-going, multi-year evolution and adoption of brand standards intended to elevate guest experiences and our guests’ expectations for the brand. This includes a series of cutting-edge concepts catering to a new generation of travelers with our newest brands Vīb, GLō , Sadie and Aiden, as well as soft brand options for most chain scale segments: upper economy (SureStay Collection), upper midscale (BW Signature Collection) and upscale (BW Premier Collection). With Executive Residency by Best Western, the Company offers unique, dual-branded property options, which combine the best of the Best Western Plus and Executive Residency by Best Western

 

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brands. Through the WorldHotels Acquisition in February 2019, the Company also now offers WorldHotels Luxury, WorldHotels Elite and WorldHotels Distinctive brands under license. The Company believes that a distinctive and appealing brand portfolio increases the number of branded hotels and the scale of the Company.

Delivering Guest Satisfaction and Brand Loyalty: The Company strives to deliver a consistent guest experience that instills consumer confidence in the brand. The Company’s brands have enjoyed significant increases to guest satisfaction ratings in the past ten years, with scores doubling since 2007. This stems from the award-winning I Care Every Guest, Every Time hotel staff training program and the more than $2.0 billion spent by our Members on strategic renovations associated with the Design Excellence program. In 2018, nearly 2,000 Best Western-branded hotels globally received the TripAdvisor Certificate of Excellence recognition, yielding the brand’s highest level of guest satisfaction to date. To build brand loyalty, the Company has continued to make valuable enhancements to its award-winning loyalty program BWR. By offering more rewards and recognition for Elite members and generous promotions for members of all levels, BWR’s membership has grown to more than 38.1 million members globally—representing gains of nearly 15% annually, since 2007.

Growth Around the World: In addition to approximately 400 hotels entering our brands in North America, Best Western brands are also growing across the globe with approximately 200 additional hotels in the pipeline outside of North America. In particular, the Company opened 24 new hotels in Asia in 2017 and 2018, with locations in China, India, Indonesia, Japan, Korea, Myanmar, Thailand and the Philippines. These have included four brands that are entirely new to the region: BW Premier Collection, SureStay Plus, Vīb and Aiden. The Company received recognition as the “Fastest Growing Hotel Chain in India” at the 2018 India Hospitality Awards, and has plans to open six additional hotels in India and three in Bangladesh.

Continuous Innovation: The Company is committed to implementing continuous innovations that continue to position its brands as an industry leader. The Company was named to Fast Company’s coveted list of the Top Ten Most Innovative Companies in 2018 for its innovations in the AR/VR space in connection with the Best Western Virtual Reality Experience, a tool that lets potential guests visualize hotel locations’ pools, lobbies, fitness centers, and guest rooms. In addition, the Company has implemented a number of other technological advancements aimed at enhancing the guest journey from the development of an award-winning website and mobile applications to the creation of a leading mobile guest engagement platform.

Competitive Strengths

The Company is a recognized global lodging brand with established scale and a strong presence in the midscale to upper upscale segments, as well as, a new and growing presence in the economy segment. Highlights of our competitive strengths include:

 

   

Leading global hospitality company. We maintain and enhance well-recognized, established brands, as well as develop and launch new brands designed to meet guests’ needs. We believe overall guest satisfaction is very favorable based on service scores measured through guest satisfaction surveys (also known as Medallia). Our brand contributes approximately 73% of the total revenue to our North American hotels (total revenue includes central reservation system revenue plus direct-to-property revenue attributable to BWR members). As of November 30, 2018, 42% of Best Western hotels are outside of North America, which drives global brand awareness.

 

   

Comprehensive and readily scalable platform. Our fully-developed platform of services and capabilities in sales and marketing, brand management, technology and reservations, and other support services create synergies and efficiencies and allow us to significantly grow scale.

 

   

Ranked consistently as a leader in broad midscale. The Company has achieved an average RevPAR index of over 109 over the last seven years. Our BWR loyalty program hit an historic level, surpassing 38.1 million members worldwide in 2018. We have also received many industry awards, including Business Travel News #1 Midprice and #1 Upper Midprice hotels, Top Ranking Guest Loyalty Program from U.S. News & World Report from 2013 through 2018, and ten-time Hotel Partner of the Year from AAA Travel from 2009 through 2018.

 

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Supportive hotel base. The Company enjoys strong support from our long-standing and loyal hotel base. Approximately 69% of Best Western-branded hotels have been Members for more than ten years and the average tenure for a Member is 18 years. Annually, we survey our Members regarding their satisfaction with the brand and our services. Historically, Members have given the Company high marks for satisfaction, with an average over the past ten years of approximately 75% of our Members surveyed as satisfied or very satisfied with the brand.

 

   

Seasoned management team. We have a seasoned and highly regarded management team led by our President and Chief Executive Officer, David Kong. We believe our senior management team is one of the most experienced and accomplished executive teams in the travel industry. David Kong has over 40 years of hospitality industry experience, Dorothy Dowling, our Chief Marketing Officer, has over 30 years of hospitality industry experience, Ron Pohl, our Chief Operations Officer, has over 35 years of hospitality industry experience, Lawrence Cuculic, our General Counsel, has over 30 years of legal and business experience, Mark Straszynski, our Chief Financial Officer, has over 25 years of finance and accounting experience, Greg Adams, our Chief Digital Officer, has over 20 years of technology and marketing experience in the hospitality industry and Suzi Yoder, our Senior Vice President of International Operations, has over 35 years of hospitality industry experience. Through the team’s leadership, the Company has achieved significant successes, including transformative brand programs and expansion of our brand portfolio, growth of the award winning BWR loyalty program and delivering revenue to our branded hotels, achieving a RevPAR index of over 109 over the last seven years.

Company Brands

Our Best Western core brand is a trusted brand in the midscale segment, competing against brands such as La Quinta, Quality Inn and Baymont. Our Best Western Plus brand has in its competitive set Holiday Inn Express, Hampton Inn, and Fairfield Inn in the upper midscale segment. Best Western Hotels & Resorts is also well represented in the upscale space with our Best Western Premier brand. Best Western Premier competes against Hilton Garden Inn, Courtyard, and Hyatt Place. Also, we recently introduced four new brands in the upscale/upper midscale segments, Vīb, GLō, Sadie and Aiden. Vīb and Sadie compete against Element, Aloft, Indigo AC Hotels and Moxy by Marriott. GLō and Aiden compete with Wyndham Garden, Clarion, Country Inn & Suites and Tru by Hilton.

 

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The following table presents an overview of our brands, illustrating chain scale, number of rooms and estimated development pipeline as of November 30, 2018.

 

            Global      North America Only  

Brand(1)

   Chain Scale(2)      Hotels      Rooms      Hotels      Rooms      Pipeline of
Hotels
 

Best Western

     Midscale        2,037        149,399        1,101        83,367        69  

Best Western Plus

     Upper Midscale        1,202        106,623        837        75,096        134  

Best Western Premier

     Upscale        123        15,133        38        4,392        37  

BW Premier Collection

    

Upscale

(soft brand)

 

 

     91        12,687        29        8,090        9  

Sadie

     Upscale        —          —          —          —          3  

Vīb

     Upscale        2        122        1        92        14  

BW Signature Collection

    

Upper Midscale

(soft brand)

 

 

     30        2,069        3        264        9  

Executive Residency by Best Western

     Upper Midscale        6        474        5        426        10  

GLō

     Upper Midscale        2        144        2        144        30  

Aiden

     Upper Midscale        1        149        —          —          —    

SureStay

     Economy        54        2,839        30        1,690        24  

SureStay Plus

     Economy        51        4,665        49        4,560        33  

SureStay Collection

     Economy        44        2,778        4        440        2  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals

        3,643        297,082        2,099        178,561        374  
     

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Through the WorldHotels Acquisition in February 2019, the Company also now offers WorldHotels Luxury, WorldHotels Elite and WorldHotels Distinctive brands with approximately 285 hotels under license.

(2)

As defined by STR.

The following table presents an overview of our hotel counts and rooms by major region as of November 30, 2018.

 

     Number of Hotels      Number of Rooms  

North America

     2,099        178,561  

Europe

     1,184        85,575  

Asia

     106        15,718  

Australia/South Pacific

     103        8,362  

South America

     102        4,307  

Middle East

     27        2,868  

Africa

     22        1,691  
  

 

 

    

 

 

 

Total

     3,643        297,082  
  

 

 

    

 

 

 

Our brands offer consumers and developers a wide range of options, including economy hotels, midscale, upper midscale and upscale properties and are as follows:

Best Western: Best Western is a midscale market brand that appeals to leisure and business travelers. Best Western hotels provide a welcoming environment, comfortable rooms, complimentary breakfast, free Wi-Fi and great service at a high value.

Best Western Plus: Best Western Plus is an upper midscale brand that appeals to leisure and business travelers looking for upgraded or “Plus” standards and amenities that provide guests enhanced style and comfort. Best Western Plus hotels and their rooms are stylish, well-appointed and provide upgraded amenities that include a complimentary breakfast, free Wi-Fi and exceptional service.

 

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Best Western Premier: Best Western Premier is an upscale brand that appeals to leisure and business travelers looking for upgraded or “Premier” standards and amenities. These hotels offer a refined atmosphere and style, with deluxe amenities and attention to detail, along with superior comfort and service for a memorable stay. Best Western Premier hotels and their rooms are stylish and well-appointed and provide upgraded amenities that include on-site dining and cocktail bar, free Wi-Fi and exceptional service.

Executive Residency by Best Western: Executive Residency by Best Western is an upper midscale brand that appeals to leisure and business travelers looking for a combination of hotel and home for an enriching longer-term extended stay experience. Executive Residency hotels offer green spaces that invite guests outside to unwind and play, enhanced breakfast offerings, dedicated “zones” in guestrooms that help create separation between sleeping, dining, work, and relaxation, and an ample kitchenette with cooktop, sink, microwave and refrigerator.

Vīb: Vīb is an upscale brand that delivers a contemporary urban design with local inspirations designed for today’s travelers with the comfort and value associated with the Best Western brand. Vīb enriches the travel experience by offering today’s travelers a boutique hotel experience, complete with multi-functional community spaces and technology integration to keep guests connected. Hotel amenities include free Wi-Fi, gaming pods, Smart TVs with Lynk Sinc and eConcierge technology, lobby or rooftop bar, and café area serving premium coffee and food offerings.

Sadie: Sadie is an upscale brand that appeals to the adventurous traveler craving a memorable destination experience. Embodying the eclectic spirit of each hotel’s neighborhood with fun, edgy personalities – no two hotels are alike. This trendy collection of boutique-style hotels is inspired by bold designs, multi-functional spaces and meticulously curated detail that create an inviting experience. Hotel amenities include on-site dining and cocktail bar, fitness center, free Wi-Fi, Smart TV in guestrooms and more.

GLō: GLō is an upper midscale brand designed for savvy travelers who live a well-traveled lifestyle with bold options to work smarter, play harder and live healthier on the road. This hip, boutique hotel delivers an innovative lobby with technology-centric shared spaces, free Wi-Fi, complimentary breakfast and spacious guestrooms with a gel-topped signature mattress and an in-room work station. Positioned as a hub for the road warrior, a respite for families and a modern experience for everyone who stays, GLō is an attractive brand for secondary suburban and highway locations.

Aiden: Aiden is an upper midscale brand that blends cool, casual charm with an eclectic neighborly feel in a trendy collection of laid-back boutique hotels. Easy, efficient accommodations marry a hip, modern edge set in the scenic backdrop of each hotel’s neighborhood. Cool, edgy and chic amenities include a social lobby with a cocktail bar, breakfast, fitness center, free Wi-Fi and wireless secured printing in the public area.

BW Premier Collection: BW Premier Collection is an exclusive global soft brand collection of upscale hotels that share Best Western Hotels & Resorts rich history of providing guests with unique and local hotel experiences around the world.

BW Signature Collection: BW Signature Collection is a soft brand collection of upper midscale market hotels that share our commitment to delivering an exceptional and unique travel experience around the world.

SureStay: SureStay offers value in the economy market and provides amenities to ensure a restful and productive stay. Brand amenities include continental breakfast, a well-appointed guest room and free Wi-Fi.

SureStay Plus: SureStay Plus offers value in the upper economy/lower midscale market with comfortable amenities and additional on-site features to make guests feel at home. Brand amenities include breakfast with hot options to start the day, a business center, free Wi-Fi, fitness center or pool, as well as an expanded lobby.

 

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SureStay Collection: SureStay Collection is a brand of full-service economy hotels. Brand amenities include complimentary Wi-Fi and meeting space.

The following table presents key statistics related to our domestic Best Western-branded hotels over the three calendar years ended December 31, 2018.

 

     Calendar Year Ended December 31,  
         2018             2017             2016      

Domestic:

      

Best Western Brand:

      

Occupancy

     66     65     65

Average Daily Rate

   $ 106     $ 103     $ 101  

RevPAR

   $ 70     $ 68     $ 65  

RevPAR Index

     110       109       109  

Best Western:

      

Occupancy

     63     63     62

Average Daily Rate

   $ 100     $ 98     $ 95  

RevPAR

   $ 64     $ 62     $ 59  

RevPAR Index

     124       122       121  

Best Western Plus:

      

Occupancy

     68     68     67

Average Daily Rate

   $ 110     $ 108     $ 106  

RevPAR

   $ 75     $ 73     $ 71  

RevPAR Index

     98       97       97  

Best Western Premier:

      

Occupancy

     67     68     70

Average Daily Rate

   $ 128     $ 130     $ 125  

RevPAR

   $ 85     $ 89     $ 88  

RevPAR Index

     84       88       89  

Source: STR. Complimentary rooms (e.g., free night rooms through guest redemptions of BWR points) do not count toward rooms sold or room revenue reported to STR; therefore, hotel occupancy and average daily rate information is not impacted by such rooms.

Best Western brand RevPAR is indexed against the aggregate North American RevPAR of the competing brands in the Company’s respective chain scales (i.e., midscale, upper midscale, and upscale), averaging 109 over the past three years.

Best Western’s RevPAR is indexed against the North American midscale RevPAR, which is a weighted blend of U.S. and Canada midscale. Results for this index have been very strong, averaging 122 over the past three years.

Best Western Plus is indexed against the North American upper midscale RevPAR, a weighted blend of U.S. and Canada upper midscale. Results for this brand have remained steady and close to the competition, averaging 97 over the past three years.

Best Western Premier is indexed against the North American upscale RevPAR, a weighted average of the U.S. and Canada upscale performance. Best Western Premier has a relatively smaller number of properties (38 as of November 30, 2018) compared to Best Western and Best Western Plus; this smaller number of hotels results in more volatility in RevPAR and the RevPAR index. Best Western Premier’s RevPAR index has averaged 87 over the past three years.

For more information with respect to RevPAR and RevPAR index, see “Certain Financial Information.”

 

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Other Best Western brands are not represented in the above table due to those brands being newly launched and continuing to gain scale; therefore, the data is not considered representative.

Best Western Platform

The Company has a comprehensive and readily scalable platform of services that it offers to its branded hotels including sales and marketing, brand management, technology and support services to drive superior revenue to our hotels and to significantly grow our scale and create synergies, efficiencies and leverage.

Sales and marketing: The Company’s sales and marketing team leverages strategic media and consumer partnerships in the traditional and digital advertising space to build ongoing awareness of our brands and to attract and engage consumers from a variety of market segments. The Company utilizes strategic TV media spend, search engine marketing across multiple media platforms such as Google, TripAdvisor, Trivago, Bing and Kayak and digital display and native advertising with Facebook, and YouTube to build brand awareness and drive engagement and activation in our seasonal promotions.

The Company’s sales and marketing organization also manages our award winning loyalty program, BWR. BWR is continually recognized by both JD Power and U.S. News & World Report as one of the top programs in the hotel industry. Launched in 1988, BWR has more than 38.1 million members worldwide and in 2018, BWR contributed $2.0 billion, or approximately 47% of total revenue, to hotels in North America. Through the BWR platform, we offer partnerships and seasonal promotions for AAA/CAA customers and small and medium enterprise accounts. Advanced customer relationship management through our BWR database and focused data segmentation ensures timely and relevant offers and communications in order to secure repeat bookings from customers.

Best Western is a leading hotel brand in social media engagement and has a powerful team that seeks to drive engagement in our social media efforts with our macro and micro influencers and content studio key initiatives. The Company also provides property activation services focused on property performance, brand reputation and content management across intermediary partner sites to drive property placement and conversions through these websites. We have an in house agency team that develops marketing content for the brand and additionally use outside agencies for creative development, media buying and public relations support.

We have entered into agreements with the large OTAs such as Expedia, Booking.com and Priceline.com as well as travel management companies such as AMEX GBT and Carlson Wagonlit Travel, which are intended to drive revenues to our branded hotels. Other relationships include HelmsBriscoe and industry organizations such as Global Business Travel Association, US Travel Association and Association of Corporate Travel Executives.

Our global sales organization provides dedicated resources, sales tools and business intelligence to our branded properties with a goal of increasing revenue at each branded property. Tools include education and training opportunities, attendance at signature events to meet with key global clients, sales communities, guidance on negotiations with global accounts and onboarding training among many other advantages of being a part of the Best Western brand.

Due to this innovative approach in sales and marketing, Best Western has been consistently recognized by Business Travel News (“BTN”) as a best in class brand partner to travel intermediaries and buyers.

Brand Management: Our Brand Management team provides a full range of services to our branded hotels with a goal of improving quality of service and profitability. The division consists primarily of North American development, our Regional Service Managers (“RSM”), revenue management, Supply and Design, onboarding, our guest satisfaction surveys, customer relations and education and training.

RSMs are field-based across North America and provide consultative services to our members. Each RSM works directly with 40 to 50 hotels that they regularly visit and contact to help improve hotel performance through

 

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operational, consulting, coaching, quality assessments, marketing and related property support. Each RSM has been a hotel general manager and has many years of direct hotel operational experience and knowledge.

Regional revenue managers offer market positioning and pricing strategies to help improve hotel RevPAR. Property revenue managers monitor individual hotel revenue. The regional revenue manager team uses our BestREV revenue management platform, which provides dynamic forecasting, pricing and rate optimization tool and rate shopping.

Supply and Design assists our branded hotels with maintaining brand standards and incorporating the latest designs by offering turnkey interior and exterior design packages for new or existing hotels. Supply and Design also offers “studio designers,” a fee-based service available for further assistance. In addition, Supply and Design supports our online catalog platform, BW Supply powered by Birchstreet, providing connectivity to endorsed vendors at discounted prices.

Our education and training programs offer in-person education classes at our Phoenix headquarters and regionally, geared towards leadership development and customer service. The department’s online training platform provides access to leading education resources such as American Hotel and Lodging Association, Rosetta Stone, Skillsoft, University of Phoenix and Cornell University.

Our Customer Relations Department (“CRD”) call center works directly with guests and property owners and their staff to help provide solutions to accommodations, service and reservations matters.

Technology: Our technology management division is responsible for application development, operations and infrastructure, digital customer experience (“CX”), mobile solutions, security, risk assessment, digital enterprise architecture and omnichannel commerce and hotel technology.

Our technology management team develops and delivers key revenue-generating applications, supplemented by a software-as-a-service (“SAAS”) strategy for business support functions.

We connect to leading distribution partners, such as OTAs, wholesalers, GDS and individual corporations. These connections handle millions of transactions daily delivering availability, rates and inventory to strategic partners worldwide.

The Best Western global digital ecosystem, which includes the award winning bestwestern.com, is multi-lingual, supporting 30 different languages. The system provides connectivity to third-party distributors (i.e. room availability, room rates, room inventory, web hotel content and web hotel images). The contact reservation office interface includes “800 express” service, which allows properties to have their reservation line answered in the Global Operations Center (“GOC”). The team oversees a mobile guest engagement platform through Runtriz.

Our e-commerce team delivers and continuously enhances an omnichannel digital platform, including a fully responsive site (bestwestern.com) and native iOS and Android apps (Best Western to GoSM). To drive greater revenues through these digital channels, the team focuses on improving the user experience as well as growing organic traffic from search engines. During the year ended November 30, 2018, the team delivered 20 functional releases to the platform such as improved product merchandising, better accessibility for all users, and enhanced technical and security capabilities. In addition, more than 3,000 pages of unique content were added to the site to better position bestwestern.com within search engine results. These efforts resulted in a 15% year-over-year increase in gross revenue booked through the platform.

Our hotel technology team includes a 7/24/365 Service Desk team supporting multiple applications and services including: two-way property management system, point of sale (POS), an education/training platform (BWI University) and Member Web, our self-service application. The hotel technology team also offers high-speed internet access consulting and support services.

 

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Our security and risk team is responsible for cybersecurity throughout the entire enterprise, and engages in corporate level training and consulting as well as hotel-managed security services. Additionally, this team ensures compliance with global regulations such as General Data Protection Regulations and PCI standards.

Other Support Services: We also maintain an in-house shared services platform that includes U.S. and international contact centers, our international offices, plus accounting and finance, legal and human resources teams.

Best Western operates its primary contact center in Phoenix, Arizona. GOC handles global voice channel traffic in a 24/7/365 environment for reservations, BWR and customer relations. The center handles approximately four million calls per year, and supports English, Spanish, French and Portuguese languages. Our primary international contact center is located in Milan, Italy.

The Company maintains international offices in Australia, Ireland, Finland, Netherlands, Italy, Turkey, Poland, Peru and Thailand. We also have Sales offices in South Korea, China and Brazil to drive outbound business from these territories.

According to surveys conducted by an independent third party, our annual employee survey scores lead the industry in participation rates and overall engagement scores. We are ranked as a top employer by the Phoenix Business Journal and appeared on the Forbes Top Employer list in 2017.

Franchise Agreements

New Franchise Agreements with Existing Members and New Members

Our current membership agreements, together with our other governing documents (e.g., our Restated Articles of Incorporation and Bylaws currently in effect), grant our Members the limited non-exclusive right to use our name, marks and systems in the operation of Best Western-branded properties, but not “soft brand” (e.g., BW Signature Collection and BW Premier Collection) and SureStay branded hotels which are not Members. We do not participate in the management of branded properties, but Members are required to operate branded properties in accordance with our brand standards. We approve the plans for, and the location of, branded properties, and review the design and operation of these hotels to ensure our standards are maintained.

Assuming each proposal is approved, we intend that our current membership agreements will automatically be cancelled on or about November 30, 2019. In the event the proposals are not approved, we do not intend to enter into any New Franchise Agreements. Existing Members that satisfy the Existing Member Participation Condition, including the execution of the New Franchise Agreement, will be permitted to continue use of our marks generally consistent with their respective membership agreements and receive Common Stock on the Conversion Date. Contingently-Approved Applicants that satisfy the New Member Participation Condition, including the execution of the New Franchise Agreement, will become New Members prior to the Conversion, will receive membership interests, and thereafter will receive Common Stock on the Conversion Date in exchange for their membership interests. The New Franchise Agreements will have an effective date of December 1, 2019.

 

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Set forth below is a table comparing material terms of our existing membership agreements and the expected New Franchise Agreements for Existing Members and New Members that satisfy the New Member Participation Condition set forth above. A more detailed summary of the terms of the New Franchise Agreements for existing Members is set forth in the Franchise Disclosure Document provided to each potential franchisee.

 

Term

  

Existing Membership

Agreements

  

New Franchise
Agreements for
Existing Members/New Members

Annual Dues

   Annual payment based on room count.    Does not change.

Monthly Fees

   Monthly fees are either: (i) per room monthly fees; or (ii) percentage of room revenue monthly fees.    Does not change.

Advertising Assessment

   A per room per month fee (currently $13.07 per room).    Does not change.

Technology and Marketing Assessment

   The current marketing and sales assessment is 0.4% of GRR (increasing January 1, 2020 to 0.5% of GRR, and January 1, 2022 to 0.6% of GRR); the current technology assessment is 0.5% of GRR; and the current technology and marketing assessment is 0.33% of GRR (increasing December 1, 2019 to 0.66%, and December 1, 2020 to 1.0% of GRR).   

New Franchise Agreements will combine the three current assessments (i.e., the marketing and sales assessment, the technology assessment and the technology and marketing assessment). The total combined technology and marketing assessment will be as follows:

1.23% of GRR beginning December 1, 2018

1.56% of GRR beginning December 1, 2019

1.66% of GRR beginning January 1, 2020

2.00% of GRR beginning December 1, 2020

2.10% of GRR beginning January 1, 2022

Term or Length of the Agreement

  

Existing membership agreements have one year, four year, or extended length terms (e.g., ten years).

 

The existing membership agreements also provide for one-year automatic renewals after the expiration of the initial term.

  

New Franchise Agreements will provide for the later of a 12-year term or the term of the existing membership agreement.

 

A franchisee may terminate its New Franchise Agreement at the end of the first year or at the end of the second year with: (i) three-months’ prior written notice; and (ii) no liquidated damages or other termination fees. In connection with any other termination, a franchisee

 

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Term

  

Existing Membership

Agreements

  

New Franchise
Agreements for
Existing Members/New Members

      will be required to pay to the Company liquidated damages equal to two years of franchise fees (and repay the pro rata amount of a development incentive, if received by the franchisee from the Company).
     

Moreover, the New Franchise Agreement for Members will provide that any franchisee thereunder will be offered a subsequent 10-year franchise

agreement with all fees, dues and assessments unchanged with the exception of an additional royalty fee of no more than 1.5% of property room revenue, if the applicable hotel is, at the conclusion of the initial 12-year term, in good standing (e.g., current in fees), current as to brand standards (e.g., guest service, breakfast, high speed internet access, design, etc.) and meets then-current requirements for relevance and guest satisfaction in the hotel’s market, which requirements may differ in each market, considering the hotel’s RevPAR index, sentiment scores or other guest satisfaction ratings, social media ratings, and other factors then utilized by the hotel industry to determine relevance and guest satisfaction. The Area of Protection for the subsequent 10-year term will be subject to negotiation based upon then-current competitive market conditions.

Transfers and Assignments

   Existing membership agreements typically provide for automatic transferability so long as the hotel is in good standing, regardless of the experience of purchaser and/or    New Franchise Agreements will provide for automatic transferability; however transferees must execute a franchise agreement consistent with terms and conditions of

 

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Term

  

Existing Membership

Agreements

  

New Franchise
Agreements for
Existing Members/New Members

   the condition of the hotel. A transfer fee must be paid.    the form of franchise agreement approved by our board of directors prior to the beginning of each fiscal year with the exception of discounted fees in certain circumstances (such fees being either: (A) with respect to the first transferee, as applicable, the lesser of (i) 3.5% of GRR for a transferee with former Members as of July 1, 2016 having a minimum 50% financial ownership interest in the transferee property; or (ii) a percentage of GRR equal to the fees paid by the transferor expressed as a percentage of the hotel’s GRR for the twelve (12) months prior to such transfer plus one percent (1%); and (B) with respect to any subsequent transferee, the lesser of (i) 3.5% of GRR for a transferee with former Members as of July 1, 2016 having a minimum 50% financial ownership interest in the transferee property; or (ii) then-current fees for new franchisees).

Brand Standards

   The current membership agreements provide that amendments to brand standards are vetted through advisory committees and Governors and subject to approval by Members if the cost is estimated in excess of $150 per room per year and does not require hiring of a “trade person.”    The New Franchise Agreements will have the same brand standard amendment provisions.

Member Market Area

   Our current bylaws provide Member Market Area protections with respect to new hotel applications.    The existing protections for a market area will not change in the New Franchise Agreements, but instead will be called “Area of Protection.”

 

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Term

  

Existing Membership

Agreements

  

New Franchise
Agreements for
Existing Members/New Members

Impact Study Rights

   Our current bylaws provide impact study rights that ensure Member hotels will not be materially impaired by granting a new hotel application.    Such protection will also be provided in the New Franchise Agreements without change.

Assessments

   The right to vote on increases in Member dues, fees or assessments in excess of the lesser of (a) 5%, and (b) the rate of inflation for the previous year.    Increases in dues, fees or assessments in excess of such levels will require an affirmative vote of a majority of the votes cast provided at least 33 1/3% of the franchisees vote in favor of the proposal.

Post-Conversion Franchise Agreements with Post-Conversion Shareholders

In conjunction with and subject to approval of the Conversion by the Members, Common Stock is being offered on a continuous basis following the Conversion to Contingently-Approved Applicants and New Franchisees in North America (a) whose hotels are not open and active on the Best Western reservation system by November 30, 2019 and (b) who satisfy the Post-Conversion Participation Condition, including the execution of the Post-Conversion Franchise Agreement, by November 30, 2019. Prospective Post-Conversion Shareholders should review the section entitled “Risk Factors” regarding the risks associated with the business of the Company and ownership of the Common Stock.

The Post-Conversion Franchise Agreement for Contingently-Approved Applicants will have the same terms as the New Franchise Agreement except that if a Contingently-Approved Applicant’s hotel ceases for any reason to be operated as a Best Western-branded hotel within three years of being open and active on the Best Western reservation system, the Company will have the right to repurchase all Common Stock issued to such Contingently-Approved Applicant for $0.10 per share.

The Post-Conversion Franchise Agreement for New Franchisees will have the same terms as the New Franchise Agreement except that such agreement will:

 

   

have a 15-year term;

 

   

include a combined royalty and technology/marketing assessment fee of 9.5%;

 

   

area of protection and impact rights will be negotiated;

 

   

include liquidated damages for termination prior to the end of the 15-year term equal to the aggregate sum of all fees due under the franchise agreement for the lesser of four years or the length of the remaining term of the franchise agreement;

 

   

include a requirement to satisfy the Post-Conversion Participation Condition; and

 

   

provide that if the New Franchisee’s hotel ceases for any reason to be operated as a Best Western-branded hotel within three years of being open and active on the Best Western reservation system, the Company will have the right to repurchase all Common Stock issued to such New Franchisee for $0.10 per share.

Franchise Agreements with other than Shareholders

The Company expects that hotel franchisees who seek to receive a limited non-exclusive right to use our name, marks and systems in the operation of Best Western-branded properties (but not “soft brand” (e.g., BW Signature Collection and BW Premier Collection)) will enter into franchise agreements on various terms that may differ

 

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from those included in the New Franchise Agreements for Existing Members and New Members, and the terms of the Post-Conversion Franchise Agreements for Contingently-Approved Applicants and New Franchisees, each as described above. With respect to such franchise agreements entered into with such franchisees who are not shareholders, the Company will be seeking agreements with higher fees and dues and longer duration. Nonetheless, the Company reserves the right to enter into franchise agreements with terms other than those just described or otherwise described herein. Our board of directors will establish the fees, dues and assessments applicable to such franchise agreements with such franchisees in advance of the fiscal year in which such franchise agreements are executed or become effective.

Competition

We encounter significant competition in the lodging marketplace as we work to attract new membership, convert existing hotels to our brand and earn and retain business of the traveling public. Hotel developers are making a large financial commitment to their investment and are relying on returns that depend largely upon the ability of a brand to deliver customers to their doors while keeping the fees associated with the brand as low as possible.

The Company believes that hotel operators choose which brand to sign with by comparing the value, cost and quality of the services provided by each brand owner. Hotel operators consider the costs and benefits of the brand requirements from each brand owner as well as the length of the agreement terms and the ability of the hotel change brand requirements in the future. They will also consider a brand’s reputation with customers in the marketplace and their ability to drive business to their property.

Our hotels are in direct competition with other hotels in their immediate area. Customers choose hotels by weighing the property’s location and the price of a night’s stay, as well as the value offered by the guest room size and amenities, hotel meeting and public spaces, food and beverage options, guest services available and other amenities at the property. Hotel customers also compare the reputation of a brand, the ability to accumulate and redeem brand loyalty points, as well as perks earned by brand loyalty membership.

We believe that: our vision to lead the industry in superior customer care; a mission to enhance brand equity and increase value to our hoteliers; key strategies, focused on creating a distinctive brand portfolio that is appealing to both developers and guests; growing our brands around the world; improving guest satisfaction and building brand loyalty; maintaining a continuous focus on innovation and delivering exceptional support to our hoteliers, will keep us competitive in the future.

Employees and Culture

As of February 28, 2019, more than 1,500 people were employed at our global corporate locations. Since our hotels are all independently owned and operated as of February 28, 2019, we have no employees at the hotel level. None of our employees are represented by unions or covered by collective bargaining agreements. We consider our relations with our employees to be good. Scores from Best Western’s annual employee survey for overall engagement scores are among the best in class and we have been ranked as a top employer by the Phoenix Business Journal in 2018. Our human resources leads in-house employee training courses through widely recognized programs such as Covey and Blanchard and facilitates ongoing leadership development.

Seasonality

The hospitality industry is seasonal in nature. The periods during which we experience higher revenues vary from property to property, depending principally upon location and the customer base served. We generally expect our hotels’ revenues to be higher in the second and third quarters of each year than in each of the other quarters. Our principal source of revenues is monthly fees with the majority of those fees being fixed based on a per room per month model; therefore, our fee revenues tend to remain relatively flat throughout the year. Our secondary

 

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sources of revenues are advertising and technology and marketing assessments based on property room revenues; therefore, these fee revenues tend to reflect the industry’s seasonality and historically have been lower in the first and fourth quarters than in the second and third quarters. Over the past two years, our revenue in the second and third quarters combined has been 52% of the revenue for the entire year.

Cyclicality

The hospitality industry is cyclical and demand generally follows, on a lagged basis, key macroeconomic indicators. There is a history of increases and decreases in demand for hotel rooms, in occupancy levels and in room rates realized by owners of hotels through economic cycles. The combination of changes in economic conditions and in the supply of hotel rooms can result in significant volatility in results for owners of hotel properties. The costs of running a hotel tend to be more fixed than variable. As a result, in a negative economic environment the rate of decline in earnings can be higher than the rate of decline in revenues.

Intellectual Property

In the highly competitive hospitality industry in which we operate, trademarks, service marks, trade names, logos and patents are very important to the success of our business. We have a significant number of trademarks, service marks, trade names, logos and pending registrations and seek to protect our trademarks, service marks, trade names and logos throughout the world. We rely on a third-party service provider to monitor and scan usage of our trademarks and registered domain names. From time-to-time we have taken affirmative action, through our third-party service provider and otherwise, to protect against the misuse of our trademarks and registered domain names.

Legal Proceedings

From time to time, the Company has been, and expects to continue to be, subject to legal proceedings and claims in the ordinary course of business. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources, divert management’s attention from the Company’s business objectives, and adversely affect the Company’s business, results of operations, financial condition, and cash flow.

The Maryland Securities Division asserted that the Company violated the registration and disclosure provisions of the Maryland Franchise Law by entering into membership agreements. Without admitting or denying any violation of law, the Company voluntarily entered into a Consent Order with the Maryland Securities Commissioner on August 24, 2018. In the Maryland Consent Order, the Company agreed to: (i) immediately and permanently cease and desist from the offer and sale of Best Western membership agreements in Maryland unless and until it complies with the Maryland Franchise Law; (ii) reimburse the Maryland Office of the Attorney General $16,500 in unpaid franchise filing fees; (iii) within 15 days of its receipt of the fully executed Maryland Consent Order, send to seven current Maryland Members a copy of the signed Maryland Consent Order and a rescission letter offering, for a period of 30 days, to immediately rescind the Member’s membership agreement and refund the Best Western entrance fee that the Member paid; (iv) within 30 days of its receipt of the fully executed Maryland Consent Order, send to three Maryland Members who canceled their membership agreements an unconditional refund of the Best Western entrance fee that the Member paid; and (v) pay the Office of the Attorney General a civil monetary penalty in the amount of $297,000 for the alleged violations described in the Maryland Consent Order, which amount would be reduced to as low as $25,000 to account for: (x) rescission payments the Company offered to make to current Maryland Members and (y) payments to certain former Maryland Members. For purposes of clause (i), above, assuming the Conversion is approved, the Company will no longer offer membership agreements in Maryland.

The Securities Division of Department of Financial Institutions of Washington (“Washington Securities Division”) asserted that the Company violated the registration and disclosure provisions of the Washington

 

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Franchise Registration and Disclosure Law (the “Washington Franchise Law”) by entering into membership agreements. Without admitting or denying any violation of law, the Company voluntarily executed a Consent Order with Washington Chief of Enforcement, dated February 21, 2019 (the “Washington Consent Order”). In the Washington Consent Order, the Company agreed to: (i) cease and desist from the offer and sale of Best Western membership agreements in Washington unless and until we comply with the Washington Franchise Law; (ii) pay the Washington Securities Division $3,000 for unpaid franchise filing fees for the period 2012 to 2015; (iii) pay investigative costs of $5,600; and (iv) provide a copy of the Washington Consent Order to all Members who were Washington residents or operated a hotel located in Washington after January 1, 2015 within 60 days of the entry of the Washington Consent Order.

The Department of Business Oversight of the state of California (the “California DBO”) asserted that the Company violated the provisions of the California Franchise Investment Law (the “California FIL”) and the rules and regulations promulgated thereunder, which control the registration, offer and sale of franchises in the state of California, by entering into membership agreements in the state of California without filing a notice of exemption or registering its franchise offer. Without admitting or denying any violation of law, the Company voluntary entered into a Consent Order with the California DBO, dated March 29, 2019 (the “California Consent Order”). In the California Consent Order, the Company agreed to: (i) cease and desist from entering into Best Western membership agreements in California unless and until it complies with the California FIL; (ii) pay administrative penalties of $500,000 to the California DBO; and (iii) pay investigative costs of $10,000 to the California DBO.

Property

Our principal headquarters office is located at 6201 N 24th Parkway, Phoenix, Arizona 85016 and is owned by the Company. Additionally, our principal global operations, reservations, technology and call center is located at 20400 N. 29th Avenue, Phoenix, Arizona 85027 and is owned by the Company. We also lease office space for regional offices in Australia, Canada, Finland, Ireland, Italy, Mexico, the Netherlands, Peru, Poland, Thailand, Turkey and United Kingdom.

Management believes that the Company’s existing properties are sufficient to meet its present needs and does not anticipate any difficulty in securing additional or alternative space, as needed, on terms acceptable to the Company. In addition, we believe that all properties owned and leased are in generally good physical condition with the need for only routine repairs and maintenance and periodic capital improvements.

 

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BENEFICIAL OWNERSHIP OF SECURITIES

The following table sets forth information as of February 28, 2019 with respect to the holding of membership interests prior to the Conversion and pro forma beneficial ownership of shares of Common Stock after giving effect to the Conversion by each of our Directors, named executive officers and all of our Directors and executive officers as a group. We do not know of any person or entity that holds more than 5% of the outstanding membership interests as of February 28, 2019 or will beneficially own more than 5% of the outstanding shares of the Common Stock, on a pro forma basis after giving effect to the Conversion determined by a formula based on the number of Members, Contingently-Approved Applicants and New Franchisees, in each case as of November 30, 2019. Each Member will receive a number of shares of Common Stock equal to 55.0 million shares divided by the sum of (a) the number of Members as of November 30, 2019 and (b) the product of (x) the number of Contingently-Approved Applicants and New Franchisees eligible to participate on a post-Conversion basis as of November 30, 2019 and (y) 0.5. Based on approximately 2,000 Members and approximately 230 Contingently-Approved Applicants existing on the date of this information statement/prospectus, we expect that each Existing Member and New Member will receive approximately 26,000 shares of Common Stock on the Conversion Date and the Company will reserve for issuance approximately 13,000 shares of Common Stock for each Post-Conversion Shareholder after the Conversion Date.

Except as indicated in the footnotes to this table, and subject to applicable community property laws, the persons listed in the table below have sole voting and investment power with respect to all shares of our Common Stock shown as beneficially owned by them.

 

    Prior to Conversion     Pro forma Beneficial Ownership of Common Stock after  Conversion(2)  

Name and Address of

Beneficial Owner(1)

  Membership
Interests
Held
    Percentage of
Membership
Interests(3)
    Title of Series     Number of
Shares of Series
    Percentage of
Series
Outstanding(3)
    Percentage of
Common Stock
Outstanding(3)
 

David Kong

    —         —         —         —         —         —    

Dorothy Dowling

    —         —         —         —         —         —    

Lawrence Cuculic

    —         —         —         —         —         —    

Anthony Klok(4)

    1       *       Class A-3       26,000       *       *  

Peter Kwong(5)

    1       *       Class A-6       26,000       *       *  

Ishwar Naran(6)

    3       *       Class A-4       78,000       *       *  

Terrance J. Bichsel(7)

    1       *       Class A-2       26,000       *       *  

John L. Kelly(8)

    2       *       Class A-5       52,000       *       *  

John Daniel Lafayette III(9)

    2       *       Class A-7       52,000       *       *  

L. Terry Porter(10)

    2       *       Class A-1       52,000       *       *  

Executive Officers and Directors as a Group (15 persons)

    12       *         312,000       *       *  

 

*

Less than 1%.

(1)

Unless otherwise indicated, the address of each of the beneficial owners identified is c/o Best Western International, Inc., 6201 N. 24th Parkway, Phoenix, AZ 85016.

(2)

Beneficial ownership is determined under the rules and regulations of the SEC, which provide that shares of Common Stock that a person has the right to acquire within 60 days are deemed to be outstanding and beneficially owned by that person for the purpose of computing the total number of shares beneficially owned by that person and the percentage ownership of that person. However, those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

(3)

We have calculated the percentages set forth in the columns entitled “Percent of Membership Interest,” “Percentage of Series Outstanding” and “Percentage of Common Stock Outstanding” based on 1,989 outstanding membership interests as of February 28, 2019.

(4)

Represents voting membership interests and Common Stock in respect of Lake Hotel Management Co. and 618 Roscoe, LLC, of which Mr. Klok is an owner.

 

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(5)

Represents voting membership interests and Common Stock in respect of Kwong Family 2012 Irrevocable Trust, of which Mr. Kwong is a beneficiary.

(6)

Represents voting membership interests and Common Stock in respect of WC Hospitality, LLC, Daytona Hospitality, Inc. and Two Notch Hospitality, LLC, each of which Mr. Naran is an owner.

(7)

Represents voting membership interests and Common Stock in respect of Seaside Operating LLC, of which Mr. Bichsel is an owner.

(8)

Represents voting membership interests and Common Stock in respect of Hensley, LLC and RJS Motels, LLC, each of which Mr. Kelly is an owner.

(9)

Represents voting membership interests and Common Stock in respect of White House Inn and Lafayette South Portland Inc., each of which Mr. Lafayette is an owner.

(10)

Represents voting membership interests and Common Stock in respect of Town & Country Inn, Inc., of which Mr. Porter is an owner.

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Procedures for Approval of Related Party Transactions

We do not currently have a formal written policy or procedures for the review and approval of related party transactions. However, all related party transactions are currently reviewed and approved by a disinterested majority of our board of directors.

Our board of directors will adopt a written related person transaction policy, effective upon the completion of the Conversion, which sets forth the policies and procedures for the review and approval or ratification of related party transactions. This policy will be administrated by our board of directors. These policies will provide that, in determining whether or not to recommend the initial approval or ratification of a related party transaction, the relevant facts and circumstances available shall be considered, including, among other factors it deems appropriate, whether the interested transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.

We will maintain at least two independent directors on our board of directors as defined in the NASAA Statement of Policy and (1) will make all future material affiliated transactions and enter into all future loans on terms that are no less favorable to us than those that can be obtained from unaffiliated third parties, (2) a majority of our independent directors will approve all future material transactions and loans, and any forgiveness of loans, in accordance with the NASAA Statement of Policy and (3) our officers and directors will consider their due diligence and assure that there is a reasonable basis for these representations, and consider whether to embody the representations in our charter or bylaws. Historically, we have made available to all our Members, including our directors that own Best Western-branded hotels, certain identical financing terms in connection with a requirement to update branding materials and marquees. Terms of these arrangements included no-interest financing to purchase such updated branding materials and marquees. All such advances to our directors have been repaid as of the date hereof.

Membership Agreements

Each of our Directors (or an affiliate of our Directors) is a party to a membership agreement with the Company, and as a result, our Directors pay fees to us based upon the terms of their respective membership agreements. Our Directors (or an affiliate of our Directors) are party to such membership agreements and intend to be parties to the New Franchise Agreements on the same terms and conditions as each of the other Members of the Company.

 

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DESCRIPTION OF CAPITAL STOCK FOLLOWING THE CONVERSION

The following is a description of the material terms of our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws as will each be in effect upon the completion of the Conversion. The following description may not contain all of the information that is important to you. To understand the material terms of our Common Stock, you should read our Amended and Restated Articles of Incorporation and Amended and Restated Bylaws, copies of which are or will be filed with the SEC as exhibits to the registration statement, of which this information statement/prospectus is a part.

General

Upon the effectiveness of the Conversion, our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws will take effect. Our Amended and Restated Articles of Incorporation will authorize capital stock consisting of 100.0 million shares of Common Stock, without par value.

Following the Conversion, we will have 55.0 million shares of Common Stock outstanding. All shares of our Common Stock outstanding upon completion of the Conversion will be fully paid and non-assessable.

The following summary describes the material provisions of our capital stock. We urge you to read our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws, which are attached as exhibits to the Plan of Merger, which is attached as Appendix A to the registration statement of which this information statement/prospectus forms a part.

Certain provisions of our Amended and Restated Articles of Incorporation and our Amended and Restated Bylaws summarized below may be deemed to have an anti-takeover effect and may delay or prevent a tender offer or takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares of Common Stock.

Common Stock

Holders of shares of our Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders.

Holders of shares of our Common Stock will vote together as a single class on all matters presented to our shareholders for their vote or approval, except as otherwise required by applicable law, the Amended and Restated Articles of Incorporation, or the Amended and Restated Bylaws (i.e., the election of Directors by each District, with each District designated as a distinct series of stock). No shares or series of Common Stock shall be entitled to more than one vote per share in connection with any matter to be considered or acted upon by the holders thereof. Under Arizona law and pursuant to the Amended and Restated Articles of Incorporation, our shareholders will be entitled to vote on major corporate matters, such as amendments to the Articles of Incorporation, any amendments to our bylaws, and certain fundamental transactions, such as mergers or consolidations of the Company and the pursuit of an IPO by the Company (provided that the board of directors or a duly authorized committee thereof shall approve the final terms of an IPO).

Our Amended and Restated Articles of Incorporation will provide seven series of our Common Stock, designated as Series A-1 through A-7, with each Series corresponding to one of seven geographic areas in which we license our trademarks for franchise properties in North America in which the shareholder owns and operates a Best Western property. Prior to an IPO, the holders of shares of each such Series of Common Stock will be entitled to elect, voting as a separate voting group, one member to our board of directors. Each of the seven Series of Common Stock are otherwise identical and each share will participate equally on a per share basis in dividends and in all other voting matters. The holders of our Common Stock have cumulative voting rights in the election of Directors; provided, however, that such cumulative voting rights will have no effect with respect to the

 

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respective rights of holders of shares of each of Series A-1 through A-7 Common Stock to elect one member to our board of directors. Further, our Amended and Restated Articles of Incorporation authorize our board of directors, subject to limitations prescribed by law, to provide, by resolution the issuance of shares of Common Stock in one or more series or classes, and with respect to each series or class, to establish the number of shares to be included in each such series or class, and to fix the voting powers (if any), designations, powers, preferences, and relative, participating, optional or other special rights, if any, of the shares of each such series or class, and any qualifications, limitations or restrictions thereof.

Options and Warrants

As of the date of this information statement/prospectus, there are no outstanding equity options and warrants and no equity options and warrants are expected to be outstanding upon consummation of the Conversion.

Share Transfer Restrictions and Redemption

Our Amended and Restated Articles of Incorporation will provide that no share of Common Stock may be sold, exchanged or otherwise transferred, other than as expressly approved in advance by our board of directors. In the event that any outstanding shares of Common Stock are sold, exchanged or otherwise transferred other than as provided in the previous sentence, such shares of Common Stock shall automatically and without further action on the part of the Company or any holder of Common Stock be deemed to be transferred to the Company and thereupon shall be retired.

In order to preserve the relationship between our shareholders and Best Western-branded properties and to maintain the scale of Best Western-branded properties, we have the option to redeem the Series A-1 through A-7 Common Stock of any shareholder that ceases to operate its hotel as a Best Western-branded property, or if notice has been given by such shareholder or by us that such property will cease to be operated as a Best Western-branded property (each, a “Redemption”), for $0.10 per share plus the amount of any dividend with respect to such share that is declared but is unpaid (multiplied by the number of shares to be redeemed, the “Redemption Price”), until the earlier of (x) the third anniversary of the effectiveness of our Amended and Restated Articles of Incorporation and (y) an IPO. If our board of directors approves the transfer of a shareholder’s property to a new owner with franchise terms and conditions generally applicable to new applicants but for market discounted fees, such shareholder shall be entitled to retain ownership of its Series A-1 through A-7 Common Stock, provided that such shares of Series A-1 through A-7 Common Stock shall be subject to redemption by us in the event the transferee of such property subsequently ceases to operate (or notice to such effect has been given) as a Best Western-branded property within the period described above.

At least 15 days prior to the date of each Redemption (each, a “Redemption Date”), written notice shall be mailed by us to the shareholder of record of the Series A-1 through A-7 Common Stock to be redeemed specifying the number of shares to be redeemed from such shareholder, the Redemption Date, the Redemption Price and the place at which payment can be obtained. On the Redemption Date, we shall pay to the shareholder of such Series A-1 through A-7 Common Stock being redeemed on such Redemption Date an amount in cash equal to the Redemption Price.

From and after each Redemption Date all rights of the shareholder of shares of Series A-1 through A-7 Common Stock to be redeemed shall cease with respect to such shares and all such shares shall be automatically and immediately retired.

In the event we consummate an IPO, the transfer restrictions and redemption provisions described above will terminate upon the completion of such offering.

We will retire and not reissue any shares of the seven designated Series of Common Stock acquired by us, including shares of the seven designated Series of Common Stock that may be redeemed by us subject to the

 

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redemption provisions described above. In addition, the number of authorized shares of Common Stock will be reduced proportionately by the number of shares so acquired or redeemed, to the extent there are authorized but unissued shares that are not then reserved for issuance, so that at least 55% of the aggregate number of authorized shares of Common Stock will have been issued to the then-existing shareholders of the Company holding the seven designated Series of Common Stock. Such reduction will be effective on the filing of a statement pursuant to Section 10-631 of the Arizona Business Corporation Act, which constitutes an amendment of the Amended and Restated Articles of Incorporation and will not require shareholder action pursuant to the Arizona Business Corporation Act. As noted above, the Company will be authorized to issue 100.0 million shares of Common Stock, with a total of 55.0 million shares issued to our Members in the Conversion and reserved for issuance to the Post-Conversion Shareholders, and with the remaining 45.0 million shares of Common Stock available for issuance at the discretion of our board of directors. In the event of any redemption or repurchase by the Company of any shares of the seven designated Series of Common Stock, we will retire and not reissue those shares and any shares of Common Stock that have been reserved for issuance to Contingently-Approved Applicants and new Best Western franchisees that do not satisfy the Post-Conversion Participation Condition will also be retired and not available for issuance. In addition, following any such redemption or repurchase or the determination that the Company is no longer obligated to issue shares that were reserved for issuance to Contingently-Approved Applicants and New Franchisees, we will proportionately reduce the number of authorized shares, to the extent there are authorized but unissued shares that are not then reserved for issuance, so that 55% of the aggregate number of authorized shares have been issued to the then-existing holders of the seven designated Series of Common Stock. However, in the event that at the time of any such redemption or repurchase of shares or termination of reservation of shares, all or a significant portion the remaining 45.0 million authorized shares of Common Stock have been issued or otherwise reserved for issuance, the ownership percentage of the Company of the then-existing holders of the seven designated Series of Common Stock will be reduced below 55% in the aggregate.

Preemptive and Subscription Rights

No holder of shares of Common Stock shall be entitled to preemptive or subscription rights.

Dividends

Dividends may be declared and paid on the Common Stock out of the assets of the Company that are by law available therefor at such times and in such amounts as our board of directors in its discretion shall determine.

Liquidation and Dissolution

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, after payment or provision for payment of the debts and other liabilities of the Company as required by law, the holders of all outstanding shares of Common Stock shall be entitled to receive the remaining assets of the Company available for distribution ratably in proportion to the number of shares held by each such shareholder.

Exclusive Forum

Unless the Company consents in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any Director, officer, employee or shareholder of the Company to the Company or the Company’s shareholders, (iii) any action asserting a claim against the Company or any Director, officer, employee, agent or shareholder of the Company arising pursuant to any provision of the Arizona Business Corporation Act, the Amended and Restated Articles of Incorporation or the Amended and Restated Bylaws, or (iv) any action asserting a claim against the Company or any Director, officer or other employee of the Company governed by the internal affairs doctrine, in each case shall be the federal district court located in Maricopa County, Arizona, unless the claims are not subject to the federal district court’s jurisdiction, in which event such claims must be brought in a state court located in Maricopa County, Arizona.

 

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The Company included the foregoing exclusive forum provision in our Amended and Restated Articles of Incorporation for several reasons. In the event of litigation covered by the provision, we believe it will be most efficient to conduct such litigation in Arizona because our corporate headquarters, books and records, and executive officers are all based in Arizona. Conversely, permitting litigation in multiple jurisdictions would increase the risks of “forum-shopping” and inconsistent litigation outcomes, as well as the Company’s costs and expenses and the administrative burden on our management team. In addition, we believe the exclusive forum provision will not prevent our shareholders from asserting legitimate claims or diminish the remedies available to them.

Anti-Takeover Provisions

Our Articles of Incorporation, Amended and Restated Bylaws and the Arizona Business Corporation Act contain provisions, which are summarized in the following paragraphs, that are intended, when and if our shares of Common Stock may become freely transferable, to avoid costly takeover battles, reduce our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize shareholder value in connection with any unsolicited offer to acquire us. However, these provisions may have an anti-takeover effect and may delay, deter or prevent a merger or acquisition of us by means of a tender offer, a proxy contest or other takeover attempt that a shareholder might consider in its best interest.

These provisions include:

Business Combination

The Company shall not engage in any Business Combination (as defined below) with any Interested Shareholder (as defined below) for a period of three years following the time that such shareholder became an Interested Shareholder, unless:

 

   

prior to such time our board of directors approved either the Business Combination or the transaction which resulted in such shareholder becoming an Interested Shareholder;

 

   

upon consummation of the transaction which resulted