UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 17, 2011
Morgans Hotel Group Co.
(Exact name of registrant as specified in its charter)
| Delaware | 001-33738 | 16-1736884 | ||
| (State or other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 475 Tenth Avenue New York, NY |
10018 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (212) 277-4100
| Not applicable |
| (Former name or former address if changed since last report.) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01. Entry into a Material Definitive Agreement.
The Light Group Transaction
On November 17, 2011, subsidiaries of Morgans Hotel Group Co. (the “Company” or “Morgans”) entered into two separate agreements to purchase, in the aggregate, 90% of the equity interests in a group of companies known as The Light Group, an operator of restaurants, nightclubs, bars and other food and beverage venues, for a purchase price of $28.5 million in cash and up to $18 million in notes convertible into shares of the Company’s common stock subject to the achievement of certain EBITDA (earnings before interest, tax, depreciation and amortization) targets for the acquired business (“The Light Group Transaction”).
The Light Group Transaction is expected to close in the fourth quarter and is subject to satisfaction of customary closing conditions.
Purchase Agreements
As part of The Light Group Transaction, Morgans Group LLC (“MGLLC”), a wholly-owned subsidiary of the Company, TLG Acquisition LLC (“TLG Acquisition”), a newly-formed subsidiary of the Company, Sasson Masi F&B Holdings, LLC, Sasson Masi Nightlife Holdings, LLC, Andrew Sasson and Andy Masi entered into a Master Purchase Agreement (the “Sasson/Masi Purchase Agreement”), pursuant to which TLG Acquisition agreed to purchase 100% of the equity interest in The Light Group LLC, 50% of the equity interest in HHH Holdings LLC, and 50% of the equity interest in DDD Holdings, LLC. In addition, MGLLC, TLG Acquisition, Zabeel Investments (L.L.C.) and Zabeel Investments Inc. (“Zabeel”) entered into a separate Securities Purchase Agreement (the “Zabeel Purchase Agreement”), pursuant to which TLG Acquisition agreed to purchase the remaining 50% of the equity interest in HHH Holdings, LLC and DDD Holdings, LLC. The aggregate purchase price consists of the following: (i) $20 million in cash to Zabeel, (ii) $5.5 million in cash to Mr. Sasson and $3.0 million in cash to Mr. Masi, in each case, subject to customary working capital adjustments, (iii) the issuance of 10% of the equity interests in TLG Acquisition, with 5% to Mr. Sasson and 5% to Mr. Masi, (iv) promissory notes convertible into shares of the Company’s common stock for up to $18 million in potential payments, allocated $16 million to Mr. Sasson and $2 million to Mr. Masi, and (v) an annual interest payment of 8% (increasing to 18% after the third anniversary of the closing date, as described below) on the promissory notes.
The maximum payment of $18 million is based on TLG Acquisition achieving EBITDA of at least $18 million from non-Morgans business (the “Non-Morgans EBITDA”) during the 27-month period starting on January 1, 2012, with ratable reduction of the payment if less than $18 million of EBITDA is earned. The payment is evidenced by two promissory notes held individually by Messrs. Sasson and Masi, which mature on the fourth anniversary of the closing date and may be voluntarily prepaid at any time. At either Messrs. Sasson’s or Masi’s options, the notes are payable in cash or in common stock of the Company valued at $9.50 per share. Each of the promissory notes earns interest at an annual rate of 8%, provided that if the notes are not paid or converted on or before the third anniversary of the closing date, the interest rate increases to 18%. The promissory notes provide that 75% of the accrued interest is payable quarterly in cash and the remaining 25% accrues and is payable at maturity. MGLLC has guaranteed payment of the promissory notes and interest.
The Sasson/Masi Purchase Agreement provides for the seller parties, jointly and severally, and the buyer parties to provide customary indemnifications to the other parties for breaches of representations, warranties and other covenants, subject to a $5 million cap.
Copies of the Sasson/Masi Purchase Agreement and the Zabeel Purchase Agreement will be filed as exhibits to the Company’s annual report on Form 10-K for year ended December 31, 2011. The above description is a summary of the agreements and is qualified in its entirety by the complete text of the agreements.
Board Seat
In connection with The Light Group Transaction, the Company agreed to appoint Mr. Sasson to the Company’s Board of Directors and to cause Mr. Sasson to be nominated for election to the Board of Directors at the Company’s 2012 annual meeting of stockholders. In the event Mr. Sasson is not elected to the Board of Directors, both promissory notes accelerate and become immediately due and payable.
Item 8.01 Other Events.
TLG Acquisition Operating Agreement
Concurrent with the closing of The Light Group Transaction, the TLG Acquisition operating agreement (the “TLG Acquisition Operating Agreement”) will be amended and restated to provide that MGLLC, which will hold 90% of the membership interests in TLG Acquisition, will be the managing member and that Messrs. Sasson and Masi, each of whom will hold 5% membership interests in TLG Acquisition, will be non-managing members of TLG Acquisition. Messrs. Sasson and Masi, however, will have approval rights over, among other things, certain fundamental transactions involving TLG Acquisition and, for so long as the promissory notes remain outstanding, annual budgets, amendments or terminations of management agreements and other actions that would materially and adversely affect the likelihood that TLG Acquisition would achieve $18 million in Non-Morgans EBITDA during the applicable measurement period.
Each of Messrs. Sasson and Masi will have the right to require MGLLC to purchase his equity interest in TLG at any time after the third anniversary of the closing date at a purchase price equal to seven times the Non-Morgans EBITDA for the preceding 12 months, subject to certain adjustments. In addition, MGLLC will have the right to require each of Messrs. Sasson and Masi to sell his equity interest in TLG at any time after the sixth anniversary of the closing date at a purchase price equal to seven times the Non-Morgans EBITDA for the preceding 12 months, subject to certain adjustments.
Employment and Consulting Agreements
Concurrent with the closing of The Light Group Transaction, the Company will enter into an employment agreement with Mr. Masi, pursuant to which he will serve as the Chief Executive Officer of TLG Acquisition, for an initial term through March 20, 2014. Following termination of his employment, Mr. Masi will be subject to a non-solicitation provision for a period of 12 months and a non-competition provision covering the United States and Western Europe for a period of 6 months, which period may be shorter or longer depending on the circumstances of his departure.
The Company also will enter into a one-year consulting agreement with Mr. Sasson pursuant to which he will provide consulting services in connection with food and beverage and nightclub operations in hotels managed by Morgans and other venues. Mr. Sasson will be subject to a non-competition provision for a period of 12 months from the date he enters into the consulting agreement. Mr. Sasson is also required to first offer any food and beverage opportunities to the Company for a six month period following the non-compete period.
Item 7.01. Regulation FD Disclosure.
On November 17, 2011, the Company issued a press release announcing The Light Group Transaction, as described in Item 1.01. A copy of the Company’s press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The exhibit contained in this current report on Form 8-K shall not be deemed “filed” with the Securities and Exchange Commission nor incorporated by reference in any registration statement filed by the Company under the Securities Act of 1933, as amended.
| Exhibit Number | Description | |
| 99.1 | Press Release dated November 17, 2011 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MORGANS HOTEL GROUP CO. | ||||
Date:
November 17, 2011
|
By: | /s/ Richard Szymanski | ||
| Richard Szymanski | ||||
| Chief Financial Officer | ||||
EXHIBIT INDEX
| Exhibit Number | Description | |
| 99.1 | Press Release dated November 17, 2011 |
MORGANS HOTEL GROUP TO ACQUIRE LEADING LIFESTYLE FOOD AND BEVERAGE COMPANY – THE LIGHT GROUP
Positions Company to Increase F&B Revenues, Drive ADR Growth and Win New Management Agreements
New York, November 17, 2011 – Morgans Hotel Group Co. (NASDAQ: MHGC) (“Morgans” or the “Company”), today announced that it has entered into a definitive agreement to purchase a 90% controlling interest in The Light Group (“TLG”), a leading lifestyle food and beverage company currently operating numerous venues for MGM Resorts International (“MGM”). This acquisition, while being immediately accretive to the Company’s earnings, also provides Morgans with a first class food and beverage platform, a creative and experienced management team, and renowned brand names.
“We believe the acquisition of The Light Group will position us to increase our food and beverage profits, drive average daily rate growth at existing hotels and win and service new management agreements.” said Michael Gross, Chief Executive Officer of Morgans Hotel Group. “The Light Group brings a proven track record of creating compelling food and beverage experiences that attract audiences and drive revenue. This transaction fulfills our strategic goal of having industry-leading F&B capabilities in-house. Combined with the recent improvements in our balance sheet and strong expansion pipeline, this is an important step in establishing the fundamentals we need to execute our vision and extend our position as a leader in global lifestyle hospitality management.”
Mr. Gross continued, “The Light Group’s existing business brings with it management agreements generating approximately $8 million of annual EBITDA, making this transaction immediately accretive to our EBITDA. Given The Light Group’s strong relationship with MGM, this transaction provides new opportunities to work with MGM on strategic partnerships.”
TLG is a leading hospitality management company with a ten-year track record of delivering cutting-edge food and beverage experiences at world class properties. TLG operates numerous venues in Las Vegas pursuant to management agreements with MGM, including nightclubs, such as The Bank Nightclub at Bellagio Hotel and Casino and Haze at ARIA Resort and Casino at CityCenter, restaurants, such as Yellowtail Japanese Restaurant & Lounge at Bellagio Hotel and Casino and Diablos Mexican Cantina at Monte Carlo Hotel, pool lounges and bars. Over the trailing 12 months ended September 30, 2011, TLG has generated approximately $7.7 million in EBITDA, adjusted for non-recurring items.
TLG has already begun to execute a revitalization of the food, beverage and nightlife operations at Delano South Beach, which the Company expects will be substantially complete in January 2012. With MHG having taken control of both
the ownership and management of the Delano food and beverage operations in 2011, we expect to generate approximately $2 million of additional EBITDA in 2012 from these changes, before operational improvements. Morgans believes the acquisition will also allow it to recapture third party management fees and revitalize food and beverage operations at other existing and future properties and help grow its portfolio with new management contracts.
Total consideration for the acquisition is approximately $46.5 million, of which $28.5 million will be paid in cash at the close of the transaction. The remaining $18.0 million is subject to the achievement of $18.0 million of EBITDA from TLG’s existing business over the 27 months subsequent to the transactions’ closing and is represented by a convertible note that bears interest at 8%, matures four years from the date of closing and is convertible into shares of the Company at $9.50 per share.
As part of the transaction, Andrew Sasson, the founder and chairman of TLG, will join the Company’s board of directors. Andy Masi will remain as TLG’s Chief Executive Officer. The transaction is expected to close in the fourth quarter of 2011, and is subject to customary closing conditions.
About Morgans Hotel Group
Morgans Hotel Group Co. (NASDAQ: MHGC) is widely credited as the
creator of the first “boutique” hotel and a continuing leader of
the hotel industry’s boutique sector. Morgans Hotel Group operates
Morgans, Royalton and Hudson in New York, Delano and Shore Club in South Beach,
Mondrian in Los Angeles, South Beach and New York, Clift in San Francisco, Ames
in Boston, Sanderson and St Martins Lane in London, and a hotel in Playa del
Carmen, Mexico. Morgans also owns, or has ownership interests in, several
of these hotels. Morgans Hotel Group has other property transactions in various
stages of completion including a Delano in Cabo San Lucas, Mexico, a Delano in
Turkey, a Mondrian in Doha, Qatar, and a Mondrian in Nassau, The Bahamas, and a
hotel in New York to be branded with one of MHG’s existing brands. For
more information please visit www.morganshotelgroup.com.
Forward-Looking and Cautionary
Statements
This press release may contain certain
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
relate to, among other things, the operating performance of our investments and
financing needs and prediction of certain future other events. Forward-looking
statements are generally identifiable by use of forward-looking terminology
such as “may,” “expect,” “anticipate,”
“estimate” “believe,” “project,” or other
similar words or expressions. These forward-looking statements reflect our
current views about future events and are subject to risks, uncertainties,
assumptions and changes in circumstances that may cause our actual results or
other future events to differ materially from those expressed in any
forward-looking statement. Important risks and factors that could cause our
actual results to differ materially from those expressed in any forward-looking statements include, but are not limited to economic, business, competitive market and regulatory conditions such as: a sustained downturn in economic and market conditions, particularly levels of spending in the business, travel and leisure industries; continued tightness in the global credit markets; general volatility of the capital markets and our ability to access the capital markets; our ability to refinance our current outstanding debt and to repay outstanding debt as such debt matures; our ability to protect the value of our name, image and brands and our intellectual property; risks related to natural disasters, such as earthquakes, volcanoes and hurricanes; hostilities, including future terrorist attacks, or fear of hostilities that affect travel; and other risk factors discussed in Morgans’ Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and other documents filed by Morgans with the Securities and Exchange Commission from time to time. All forward-looking statements in this press release are made as of the date hereof, based upon information known to management as of the date hereof, and Morgans assumes no obligations to update or revise any of its forward-looking statements even if experience or future changes show that indicated results or events will not be realized.
Press Contact:
Rich Szymanski
Morgans Hotel Group
T. 212.277.4188
E. richard.szymanski@morganshotelgroup.com