Mail Stop 3233
May 4,
2018
Via E-mail
Lawrence M. Cuculic
Senior Vice President, General Counsel and
Corporate Secretary
Best Western International, Inc.
6201 N. 24th Parkway
Phoenix, AZ 85016
Re: Best Western International, Inc.
Draft Registration Statement on Form S-4
Submitted April 4, 2018
CIK No. 0001733381
Dear Mr. Cuculic:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so we may
better
understand your disclosure.
Please respond to this letter by providing the requested information
and either submitting
an amended draft registration statement or publicly filing your registration
statement on
EDGAR. If you do not believe our comments apply to your facts and circumstances
or do not
believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments
and your
amended draft registration statement or filed registration statement, we may
have additional
comments.
General
1. Please provide us with copies of any graphics, maps, photographs, and
related captions or
other artwork including logos that you intend to use in the prospectus.
Such graphics and
pictorial representations should not be included in any preliminary
prospectus distributed
to prospective investors prior to our review.
2. Please supplementally provide us with copies of all written
communications, as defined
in Rule 405 under the Securities Act, that you, or anyone authorized to
do so on your
behalf, present to potential investors in reliance on Section 5(d) of
the Securities Act,
whether or not they retain copies of the communications.
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 2
3. Please provide us with your legal analysis explaining the basis for
your determination
that the membership interests in BW Inc. (NP) are securities under
Section 2(a)(1) of the
Securities Act, such that Form S-4 is the appropriate registration form
for this transaction.
In the alternative, please explain the basis for your conclusion that
the membership
interests are not securities and submit any amended filing or
submission on Form S-1,
with appropriate disclosure regarding the concurrent conversion and
related bylaw
proposals, as provided in the current submission.
4. In line with the above comment, we note that current applicants for
membership may
participate in the Conversion and receive Common Stock in BW Inc. so
long as they: i)
enter into a membership agreement and New Franchise Agreement by August
31, 2018
(subject to extension by the Company); and ii) be conditionally
approved for membership
by your board of directors and have a property open and activated on
the Best Western
reservation system by November 30, 2018. To the extent the membership
interests may
be securities, please provide us with your legal analysis as to whether
or not any ongoing
communications offering new membership interests, including for
purposes of informing
any voting decision, constitutes an "offer" as to the membership
interests within the
meaning of Section 2(a)(3) of the Securities Act, and if so, whether
any exemption
exists.
5. Your disclosure indicates that a member must submit a ballot on the
conversion proposal
by June 2018, but need not enter into a new franchise agreement until
August 2018 (or
later if extended, up until November 30, 2018). Please revise to
include appropriate
disclosure about the material impact of, and/or risks associated with,
this timing, if any.
For example, to the extent a member paid for its membership interest
and votes for the
conversion proposal and membership termination bylaw intending to enter
into a new
franchise agreement, but circumstances change before entering into the
new franchise
agreement, it appears that the member would forfeit its membership
interest for no value.
We also note that the new franchise agreement appears to impose
additional burdens,
including a longer term, additional fees, and transfer restrictions.
6. You currently register one class of common stock; however, you will
issue such stock in
seven series. Our understanding is that all series are identical except
with respect to
voting on the company's board of directors. In this regard, each series
correspond to a
different geographic area and each series will separately vote to elect
one member to your
board of directors to represent the series. Please provide your legal
analysis as to whether
or not each series should be treated as a separate class of securities,
given the distinct
voting rights with respect to the company's board of directors.
7. To the extent the number of common stockholders in each series may
differ, please revise
to address this fact and the impact it will have with respect to board
representation.
Please also revise your discussion regarding composition of the board
on pages 62-63 to
quantify the current number of Members in each District.
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 3
8. We understand that for a Member to be a Voting Member, eligible to vote
on the
conversion and related bylaw proposals, such Member must have a current
voter
registration card on file with the Company. With a view toward
disclosure, please tell us
if and how Members are made aware of whether their voter registration
card is "current."
If a Member does not have a current voter registration card, please
explain how the
Member may correct this to become a Voting Member.
9. We note on the cover page you indicate by check mark that the Company
is an emerging
growth company. Please revise your cover page to also indicate by check
mark your
filing status in accordance with Rule 12b-2 of the Exchange Act.
Cover Page
10. Please revise to disclose the minimum vote required to approve the
conversion and
related bylaw amendment proposals.
11. Identify the "certain current member" that will be allowed to stand for
re-election if the
term limit bylaw provision is adopted.
12. You state that the Company may extend the time by which a member must
enter into the
new franchise agreement "on a case by case basis at the sole discretion
of the Company."
Please disclose what factors the company will consider in determining
whether to grant
an extension request.
Questions and Answers About the Proposals, page 1
13. Your question and answer section explains the reasons for the
conversion and benefits
members may receive. Please balance this discussion to highlight any
material
detriments, or significant rights a member may lose, as a result of the
conversion.
14. When discussing why the Company is proposing the Conversion and
changing its
business model, you note the board's determination that capital
investment is necessary
to expand your hotels and brands, and that your reserves are equivalent
to a few months
of expenses. You also discuss capital resource needs on page 45,
stating "the Company
will need significant capital resources to fund ongoing and future
activities" and that
"following the Conversion the Company will have the flexibility to
raise new capital in a
number of ways, including increasing its scale with new hotels that
have market based
franchise fees." Your disclosure on page 3 states that the company has
no current plans
to issue any additional shares of Common Stock and we understand the
Company has no
other class of authorized securities. Based on the above, please expand
your disclosure to
clarify, with more specificity, how the new business model will permit
the company to
raise additional capital. For example, clarify if you primarily intend
to raise new capital
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 4
through additional fees imposed under the New Franchise Agreement; we
note that some
additional fees are described on pages 82-83.
15. On page 2, when discussing who is entitled to receive shares of Common
Stock in the
Conversion, you note that the shares will be issued to the owning
Member entity that
entered into the current membership agreement and subsequently the New
Franchise
Agreement. To the extent the membership interests are securities, it is
unclear whether
the Member will be the same as the Common Stockholder to whom you will
issue stock
in the Conversion. To the extent the identity may be different, please
provide your
analysis as to how this transaction is an exchange offer, in the
traditional sense, whereby
an entity engages in a tender offer in which securities are issued as
consideration, as
opposed to a two-step transaction involving an exchange offer and
subsequent transfer of
common stock.
16. On page 2 you note that owners and licensees of branded hotels outside
of North America
will not receive shares in the Conversion nor will executive officers
of the Company.
Please clarify if such owners, licensees, and/or executive officers
will not receive shares
because they are not current Members. In the alternative, please
clarify if such persons
are Members, and if so, explain to us how this different treatment is
appropriate under
your governing documents and state law.
17. Please revise the Q&A regarding the limited ability to transfer the
Common Stock to
highlight that this is a key difference from a Member's current rights
as to transferability
of the membership interest, as more fully described on page 97.
18. On page 7 you discuss interests of your Directors and executive
officers. Please clarify
that your Directors are Members, and if your executive officers are
Members. To the
extent these insiders are Members, please disclose if such persons have
indicated an
intent to vote in favor of the conversion and related proposals and, if
material, the
aggregate percentage of vote represented by such Members.
Summary of the Information Statement/Prospectus
Company Overview, page 10
19. We note that you have a pipeline of over 500 hotels entering your
brands. Please balance
this disclosure to clarify the extent of uncertainty associated with
your pipeline and its
related potential avenue for growth.
20. Please consider moving the discussion of the company's RevPAR index
over the last six
years to the Business discussion where you can explain how the metric
is determined and
provide appropriate context. For example, you define RevPAR index on
page ii,
however, it is unclear how you determined the relative group of hotels
used for purposes
of the index. Please also clarify if the company determines this
metric, based data
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 5
obtained from STR, and if so, whether the data was prepared
specifically for the issuer or
BW Inc. (NP). To the extent STR calculates this metric, please so state
and file an expert
consent or tell us why you believe a consent is not required.
21. We note your disclosure indicating that you received many industry
awards, including
Business Travel News #1 Midprice and #1 Upper Midprice hotels, Top
Ranked Guest
Loyalty Program from US News & World Report, and nine-time Hotel
Partner of the
Year from AAA Travel. Please revise to clarify when you received these
awards.
Competitive Strengths, page 12
22. Please provide the basis for your statement that you hold the "leading
position" in the
broad midscale market.
The Conversion Proposal
Consideration to the Company, page 14
23. Please revise to combine this with your subsequent section entitled
"Consideration to our
Members" to clarify that Members will forfeit their membership interest
in BW Inc. (NP)
in consideration for the common stock to be issued by BW Inc.
Risk Factors, page 18
24. Please revise to include a risk factor that explains the limitation on
liability of directors,
as outlined on page 95. Please also revise to discuss this provision in
the section titled
"Comparison of Member Rights Before and After the Conversion,"
beginning on page
96.
Forward-Looking Statements, page 35
25. It is not clear that the safe harbor protections of the Private
Securities Litigation Reform
Act apply to forward looking statements made in connection with this
offering. Please
delete reference to the Private Securities Litigation Reform Act or
tell us why you believe
the safe harbor protections apply. Refer to Section 27A of the
Securities Act.
The Conversion Proposal
Background of the Conversion Proposal, page 39
26. Please expand to discuss why the other alternatives considered were
rejected to more
fully explain why the company is recommending this particular
transaction at this time.
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 6
General, page 39
27. Please refer to the tabular comparison of existing rights and how such
rights are
addressed in your post-Conversion structure on pages 43-44. Please
confirm that when
you simply refer to a particular document to explain how the existing
right is addressed,
such as the New Franchise Agreement, the material terms of the right
remain the same in
such document. If not, please revise or cross-reference to appropriate
disclosure
explaining the material differences.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Key Business Metrics Evaluated by Management, page 49
28. You state that the company subscribes to STR, "which collects and
compiles the data
used to calculate RevPAR index" and that "STR may calculate ADR and
RevPAR
differently than the company and its competitors do." Please explain if
the company's
methodology for calculating RevPAR varies significantly from the
methodology used by
STR. In your response, please explain to us how calculating RevPAR
index with
differing RevPAR methodologies results in a meaningful business metric.
Principal Factors Affecting Our Results of Operations, page 51
29. You disclose that you primarily derive 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." Please clarify whether any of your
international
branded hotels pay monthly fees, annual dues, assessments, and other
fees, excluding
international fees.
Business of the Company, page 72
30. You disclose that Best Western has a presence in over 100 countries and
territories
worldwide "with over 3,600 total branded hotels (of which over 2,000
branded hotels are
in North America) and a pipeline of over 500 hotels entering our brands
(of which
approximately 300 such hotels are in North America)." Please provide
more detail
concerning the significant geographic locations of your domestic and
international
branded hotels, beyond the Global and North America Only categories
currently provided
on page 77, to the extent material. In addition, to the extent
material, please address
whether your branded hotels are located near major cities, tourist
attractions, airports, etc.
Company Brands, page 76
31. You disclose on page 58 that guests who participate in the Best Western
Rewards
program earn points that never expire "and can be redeemed for free
room nights,
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 7
merchandise, gift cards, and airline and partner rewards." On page 79
you disclose
occupancy and ADR figures for your domestic franchise system. Please
explain how
your hotel occupancy figures and ADR calculation reflects the impact of
complimentary
rooms, room cancellations and attrition.
32. You provide occupancy, ADR, RevPAR, and RevPAR Index information for
your
domestic franchise system; however, you do not provide similar
information for your
international branded hotels. It appears that your fees for
international branded hotels are
based on a cost-recovery basis as a rate per room per month and as a
percentage of room
revenue. Please provide appropriate disclosure, to the extent material,
for your
international branded hotels.
Franchise Agreements, page 82
33. When discussing the term of the New Franchise Agreement, we understand
a franchisee
may terminate at certain specified times without payment of liquidated
damages. Please
confirm such termination would involve no fees, or alternatively,
explain the nature of
any cancellation or other fee that may apply, beyond the liquidated
damage provision.
Description of Capital Stock Following the Conversion
34. Where appropriate, please expand your disclosure to discuss how
transfers, redemptions,
and retirement of common stock may affect the rights of your classes of
shareholders.
For example, clarify the extent to which the aggregate voting
percentage held by
Members receiving Common Stock in the offering may fall below 55% based
on these
events, which may be important to the extent the company engages in
additional equity
financing such as an initial public offering.
Exclusive Forum, page 91
35. Please explain the reasons why management adopted the exclusive forum
provision
contained in your Amended and Restated Articles of Incorporation.
Comparison of Member Rights Before and After the Conversion, page 96
36. When discussing reporting requirements on page 103, please clarify the
extent to which
the company will or will not be required to comply with the proxy
requirements.
37. Please consider combining the redemption and termination of interest
discussions on
pages 99 and 103 since it appears such concepts overlap and the
comparative information
is necessary to fully evaluate the difference in member and shareholder
rights.
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 8
The Member Termination Bylaw Proposal, page 114
38. We note that the member termination bylaw provision will allow the
company to
terminate certain memberships without value. Please revise to clarify
if Members paid
for, or otherwise provided value in connection with, their membership
interest when
acquired.
Financial Statements
Notes to Consolidated Financial Statements
(1) Business, Organization, and Summary Of Significant Accounting Policies
(k) Revenue Recognition, page F-8
39. Please revise your disclosure to include your accounting policy for
assessments and
affiliation fees.
40. Please revise your disclosure to clarify when annual fees are
recognized as revenue (e.g.
at a point in time or ratably over the course of the year.)
Exhibits and Financial Statement Schedules, page II-1
41. Please file a form of your new franchise agreement or tell us the basis
for your conclusion
that this agreement is not required to be filed.
42. We note that you plan to file all of your exhibits to your registration
statement by
amendment. Please note that our ability to fully evaluate some of your
disclosure is
dependent upon our review of certain exhibits, such as your
organizational documents
governing member and shareholder rights before and after any exchange;
accordingly,
please submit your exhibits as promptly as possible. We will review the
exhibits prior to
granting effectiveness of the registration statement and may have
further comments after
our review.
Lawrence M. Cuculic
Best Western International Inc.
May 4, 2018
Page 9
You may contact Jeffrey Lewis, Staff Accountant, at (202) 551-6216 or
Robert Telewicz,
Branch Chief, at (202) 551-3438 if you have questions regarding comments on the
financial
statements and related matters. Please contact Joshua Lobert, Staff Attorney,
at (202) 551-7150
or me at (202) 551-3215 with any other questions.
Sincerely,
/s/ Kim McManus
Kim McManus
Senior Attorney
Office of Real Estate
and
Commodities
cc: Edward J. Schneidman, Esq.
Kirkland & Ellis LLP