1. LIQUOR LICENSE TRANSITION AND DISCLOSURE ISSUES

2. SPEAKERS DIMITRI CHRISTOPOULOS (IL) – MODERATOR
RICHARD BLAU (FL) – PANELIST
STACY KULA (KY) – PANELIST
JACK MARTIN (TX) – PANELIST
CHARLES SMARR (MO) – PANELIST
ADAM STAPEN (CO) – PANELIST

3. 1. What are Interim Management Agreements (“IMA”) and are they compliant in your state?

4. FLORIDA
Interim liquor management agreements, also known as transition agreements, allow the new owner to operate under the previous owner’s liquor license during the transition of ownership (while transferring the existing liquor license or obtaining a new liquor license). Some states do not expressly prohibit and accept such agreements because of the state’s burdensome application process and the time needed to obtain a new liquor license.1 However, interim beverage agreements are not allowed in Florida. Since February 20, 2015, Florida’s Division of Alcoholic Beverages and Tobacco (the “DABT”) does not accept interim management agreements in processing transfer or new applications for hotel licenses (S licenses).2
1Buyers in states where interim management agreements are accepted should perform proper due diligence to remain in compliance with the state’s statutes, rules, and agency guidelines.
2Memorandum from Michael W. Ross, Chief Attorney, Div. of Alcoholic Beverages and Tobacco, to Marie Fraher, Licensing Bureau Chief, Div. of Alcoholic Beverages and Tobacco (Feb. 20, 2015).

5. ILLINOIS
Illinois is a dual jurisdiction state with regard to retail liquor licensees. This means that both the State and each local municipality have the authority to regulate the issuance of retail licensees. This means that whether an interim “management agreement” is compliant is up to each local municipality. Generally, an interim management agreement binds the existing liquor licensee (which may or may not be the seller in a transaction). It contemplates a scenario where the assets of an existing licensed business have been sold and thus the buyer with a new entity must apply for a new license and has to deal with its interest in commencing operations as soon as possible but waiting for a new license to issue. Or, it contemplates a new hotel owner with a new hotel operator, but the new hotel operator is not yet licensed. In this scenario, the City of Chicago does permit the existing license holder to act as a “manager” with regard to alcohol sales so as to avoid an interruption in operations. This type agreement is not as recognized in other local jurisdictions in Illinois.

6. KENTUCKY
An IMA is not currently recognized or allowed in Kentucky. A third party may not operate under another licensee’s license.

7. MISSOURI
Interim Management Agreement (“IMA”) allows Buyer to operate under Seller’s liquor license during change of ownership transition until Buyer obtains new liquor licenses. While the Missouri Division of Alcohol and Tobacco Control (“ATC”) does not accept IMAs in the processing of liquor license applications, we advise clients to utilize an IMA in ownership transition transactions. IMA holds Seller’s liquor license responsible until Buyer is licensed. Seller must remain in active ownership and management of the licensed premises until new license is issued to Buyer by State Supervisor of Alcohol and Tobacco Control.

8. TEXAS
Because TABC permits are not transferable in Texas, the purchaser and the existing permit holder typically enter into an IMA as of the closing of the transaction, whereby the permit holder is granted a concession to continue alcoholic beverage sales at the Hotel and the permit holder engages the purchaser to manage the concession for it. The combined concession/management fee is structured to transfer the profit from alcoholic beverage sales to the purchaser. The interim BCMSA typically continues until the purchaser or its designee has obtained permits to sell alcoholic beverages for its own account or agreed-upon drop dead date. Alcoholic beverage inventory is valued as of closing, but not paid for until the new permits have been issued, when the then existing inventory is transferred to the new permit holder.

9. COLORADO
Colorado is a dual licensing state: the Colorado Department of Revenue, Liquor Enforcement Division (“LED”) has jurisdiction on a state-wide basis, and the municipalities or counties have local jurisdiction as well. An IMA is a state-wide issue affecting all transfer applications, and the LED does not accept an IMA. An IMA would constitute a change in control and/or financial interest in the liquor license, which in turn requires a transfer application for disclosure and vetting purposes (ironically, this is the sole reason for an IMA). That said, Colorado does authorize a local jurisdiction to issue a “temporary permit” within five (5) business days from the filing of a transfer application (all transfer applications are filed with the local jurisdiction), and upon issuance, the buyer may operate under the temporary permit pending approval or denial of its transfer application.

10. 2. Without an Interim Management Agreement, may a buyer commence operations after closing but before obtaining approval on a license?

11. KENTUCKY
If the Purchaser does not hold an ABC license, the Purchaser may not commence operations with respect to alcohol whatsoever.
However, if a permanent ABC license cannot be obtained at closing, there are two possible work arounds, both of which require filing a complete application:
conditional approval if the Purchaser will hold the same types of ABC licenses Seller held; and
transitional license.
Theoretically, if granted, these options would allow the Purchaser to operate even through the 30 day time period for the legal notice to run has not yet expired, but practically, the Kentucky ABC is currently too busy to review an application for these options to truly be helpful.

12. MISSOURI
Without an IMA, Seller’s liquor license must be posted or the business may not sell alcohol after the closing. The change of ownership must be reported to ATC no later than within 10 days of the closing by submitting to ATC a Notice of Intent to Sell or Change Ownership form signed by Seller (see attached). The filing of the Notice of Intent to Sell or Change Ownership form will allow Buyer to operate under Seller’s liquor license until the new liquor licenses are issued to Buyer.

13. FLORIDA
Because Florida does not allow an IMA, a buyer may not commence alcohol sale operations after the transaction closing until he/she obtains approval on a transfer, temporary or new license. Transferring the existing liquor licenses or obtaining new liquor licenses is vital to the continued operation of the hotel because liquor sales are usually a significant stream of revenue. Therefore, it is crucial that the buyer perform due diligence on land use and the alcohol license that they may be planning to purchase.

14. FLORIDA
The buyer should take into consideration, among others, the following:
confirm that the hotel has a liquor license;
identify the party holding the liquor license;
confirm that the liquor license is in good standing;
verify that the liquor license is not on the delinquent list;
verify that the liquor license does not have any sales tax issues; and
verify that there are no pending notices of formal complaints nor formal complaints filed against the license. If the buyer is unable to obtain a transfer or temporary license by the scheduled closing date, the parties can either: (i) delay closing or (ii) the buyer can choose to begin operating the hotel without alcohol sales.1
1 If the previous hotel owner (holding a license) engages the buyer as the manager, the prior owner can be employed by the new owner and operations can commence before the buyer obtains approval for a temporary or transfer license, but only as a bona fide manager in compliance with Fla. Admin. Code r. 61A The test for whether a bona fide agency relationship exists is the establishment of an employee-employer or lessee-lessor relationship, not an independent contractor. The buyer can also consider: (1) hiring a caterer licensee to provide both alcohol beverage and food sales to hotel guests/customers, pursuant to Fla. Stat. § (2)(A)(5) (2016) or (2) give away, at no cost, alcohol beverage products to any individual on the hotel premises, whether or not the individual is a hotel guest.

15. TEXAS
The Texas Alcoholic Beverage Code does not provide for interim permits.

16. COLORADO
Yes, a buyer may commence operations upon receipt of a temporary permit. Most local jurisdictions require proof of closing prior to issuing the permit. A temporary permit may be suspended or revoked for violations of the liquor laws, and it does not guarantee that a final license will be issued to the buyer.

17. ILLINOIS
This simple answer is No. Generally, the local municipality would need to recognize the IMA. However, the City of Chicago provides for temporary liquor licenses for Hotels with at lease 200 rooms.

18. 3. What is the typical timeline for licensing a hotel?

19. KENTUCKY
Approximately days, but could be longer depending upon local jurisdictional requirements and difficulty in obtaining necessary information.
Application Requirements that Take Time to Accomplish: Every applicant must be formed in, or registered to do business, in Kentucky; must obtain tax accounts from the Department of Revenue (typically 10 days to receive after submitting a complete application) and local revenue department; obtain local business licenses; criminal background checks from every state certain designated persons have lived in the past 5 years only from those agencies authorized by the Kentucky ABC; provide executed lease or deed; provide local approval from local ABC once a complete application is received.
By statute, once a “substantially complete” application is on file, the Kentucky ABC must approve or deny it.

20. MISSOURI
The typical timeline for licensing a hotel is approximately days, depending on the timeframe for obtaining the city licenses and depending on how long it takes for the Missouri Department of Revenue to issue Buyer’s new Retail Sales Tax License. The City of St. Louis has a property owner/tenant consent requirement for change of ownership transactions. The city requires Buyer to obtain signatures from a simple majority of surrounding property owners and a simple majority of tenants within a 350’ radius from the front door of the business. Therefore, the City of St. Louis may take days.

21. FLORIDA
Prior to filing the license application, the timeline differs depending on whether the buyer purchased an existing hotel or a new hotel. New Hotel: The buyer must obtain zoning approval,1 Department of Revenue clearance, and health approval from the Division of Hotels and Restaurants. In addition, the buyer must submit a legible and executed copy of the Right of Occupancy, lease agreement, or deed; and when applicable, the hotel franchise agreement, management contract, concession agreement, any agreement which requires a percentage payment from the business operation. Existing Hotel: The buyer must obtain the aforementioned clearances and documents; however, zoning approval is not required. In either of the above situations, the buyer may need to factor in time for submitting required fingerprinting and completing personal questionnaires.2 The buyer may also need to consider the following factors, which will require a better prepared, and more lengthy, application: (i) whether the buyer is at least 21 years old;3 (ii) is a person of good moral character;4 (iii) has a conviction history, including pleas of “guilty;”5 and/or (iv) has an indirect or direct interest in any manufacturer, wholesaler, or brand owner.6
1Zoning approval can be a lengthy process, so you should meet with the city or county zoning authority as early as possible.
2See Question 5 below.
3Fla. Stat. § (1) (2016).
4Id.
5Fla. Stat. § (2) (2016).
6Fla. Stat. § (2)(a) (2016).

22. FLORIDA
Upon filing a license application, DABT will examine the application, and within 10 days of receipt, will either issue a temporary license or a 14-day letter stating that required documents or information were omitted. Once the license application is complete, DABT is required to process a completed application within 90 days of receipt and acceptance.1 If DABT does not reject the application within the 90 days, the application is approved by operation of law.2 It normally takes DABT between 60 and 90 days to issue a permanent alcohol beverage license. Processing time for obtaining an alcohol beverage license can be decreased by filing a complete and accurate application.
1Fla. Stat. § (1) (2016).
2Id.

23. TEXAS
7-10 weeks depending upon the complexity of the local licensing process. If a Specific or Special Use Permit is required from the City, the process can require several additional months.

24. COLORADO
For a “new to industry license”, approximately 7-12 weeks.  The local jurisdiction is responsible for conducting the public hearing, and upon approval, the local jurisdiction will deliver the application to the LED for its review.  For a transfer application, approval and issuance of the final license could take as long as 180 days, which, coincidently, is the maximum number of days that a buyer may operate under a temporary permit.  The LED may issue a conditional license if additional time is required to review the application.

25. ILLINOIS
The City of Chicago takes the longest. Applications may take 4-6 months. While the Chicago Liquor Dealer’s Ordinance provides that a license may be issued days after the application is filed, there has to be a zoning approval of floor plans, which can take anywhere from 2 or 3 weeks to 2 or 3 months. Municipalities outside of Chicago are much faster because the requirements are less stringent. It is an average of about 90 days, assuming there are no political obstacles like community issues or required legislative action.

26. 4. How do different deal structures implicate licensing?

27. KENTUCKY
Generally, they do not. In either a 100% stock or 100% asset sale, the Purchaser must be newly licensed.
If there is a sale of less than 10% of the stock of an ABC licensed business to a new owner or less than 100% of the stock to an existing owner, only a notice filing is required.
However, if the license being transferred is a quota license, and there are no more quota license readily available in that territory, the Seller can generally demand a higher purchase price for that business.

28. MISSOURI
If there is a greater than 50% change in ownership, directly or indirectly, a new application with new license fees is required. The persons that have a financial interest in the business must be disclosed on the liquor license application, whether it is stock/interest purchase or an asset purchase.

29. FLORIDA
Different deal structures substantially implicate licensing. A stock acquisition is a more seamless deal structure than an asset purchase. In a stock acquisition of an existing licensee transaction, the purchased entity holding the alcohol beverage license remains; thus, there is no interruption of business. Stock acquisition deal structures do not require pre-approval. Per division policy, an amendment to an existing license must be filed with DABT within 20 days. The buyer must also determine whether or not the officer will be changed, and if so, the officer must submit fingerprints and a personal questionnaire.

30. FLORIDA
In an asset purchase transaction, there is a change of ownership and the entity previously holding the alcohol beverage license no longer exists. As a result, a new entity exists and the buyer must obtain a license prior to commencing hotel operations. The buyer must file a transfer application or new application, which requires the buyer to obtain zoning approval, Department of Revenue clearance, and health approval from the Division of Hotels and Restaurants.

31. TEXAS
Since TABC permits are not transferable, a deal structured as an asset purchase will require that new permits be obtained. If the outstanding equity of a company holding a TABC permit is obtained, this will simply require a notice filing with the TABC that must be given in advance of the effective time of the transaction (no set days of prior notice is specified). Information must be provided through four tiers of ownership and detailed information for the officers and managers/directors of the permit holder and its immediate owner will need to be provided in sworn Personal History Sheets filed with the Change Application. If the new officers and managers/directors of the permit holder have not resided in Texas for the last 12 months, they will be required to provide their Official Criminal Records from each jurisdiction where they lived during last five years. If a Wine & Beer Retailer’s Permit is held, OCR’s must be obtained for their spouses, as well.

32. COLORADO
If an acquisition occurs through a change in equity, even a 100% change, a transfer application is not required.  Instead, the licensee must file a change of corporate structure (with disclosure of the new owners) within 30 days from closing, and the licensee may continue to operate without interruption.  If an asset purchase occurs, a transfer application must be filed and the buyer may obtain a temporary permit.

33. ILLINOIS
In the City of Chicago, a purchaser may buy the stock/membership interest in an existing licensed entity and provided the buyer files an application not for a new license but to qualify to hold the existing license, the business may continue without interruption. This is the advantage of a stock/membership purchase. Of course, this does not avoid all of the company liabilities. And, many jurisdictions in Illinois do not provide for such a mechanism. It is common for smaller municipalities to require a new license even in a stock/membership purchase if the equity purchased exceeds 50% of the total equity. An asset purchase requires a new license in all jurisdictions in Illinois.

34. 5. Generally, what are the disclosure requirements and how can we minimize disclosure requirements?

35. KENTUCKY
Generally depends on the ABC Board governing, but they have the discretion to screen down to all indirect individual owners.
In a privately-held entity, all officers and 10% owners.
In a public-held entity or entity owned by a private equity company, the “top three officers”.
In Kentucky, you can request special consideration from the ABC Board in complicated business/ownership structures to provide less information than as set forth above.

36. MISSOURI
The managing officer, each officer and director, and all stockholders that own 10% or more (directly or indirectly) of the stock of the business. In Missouri, one of the few ways to minimize disclosure requirements is to request special consideration from the ATC Agent in complicated business/ownership structures. ATC Agents have limited discretion in disclosure issues.

37. FLORIDA
The DABT application process requires extensive disclosures of the buyer(s), officers, directors, shareholders, partners, and/or managers of the applicant entity. Generally, DABT requires the following disclosures: fingerprints,1 personal questionnaires for each person directly connected with the business, and if the applicant was arrested, a copy of the arrest disposition. Publicly-traded companies are exempt from submitting fingerprints and personal questionnaires disclosures; however, the names and titles of the officers, not the shareholders, must be disclosed. Trusts are only required to disclose trustees; trusts are not required to disclose the beneficiaries. Buyers should be prepared to go all the way up the ownership chart. The general rule is that the applicant must go up the ownership chart, until the last individual or publicly-traded company.
1 See Table 1. These requirements may change depending on the structure of the entity.

38. TEXAS
See the attached chart detailing the TABC’s disclosure convention for retail applicants, which requires disclosure through four tiers of ownership with the amount of information diminishing as you move up the ownership chain. The convention provides the opportunity to insulate the owners of the Hotel from disclosure by placing a series of three subsidiaries below the company that owns the Hotel as shown in the chart.

39. PHS Level of Disclosure – Beverage Company and Holding Company 1 must provide (i) FEINs and number of shares or membership units issued and (ii) all directors/managers and officers, if any, must file sworn Personal History Sheets, which includes 5 years of residential and employment history and personal information for spouses1 and anyone over the age of 18 who resides with them. The reporting executives of Beverage Company who reside in the U.S. but are not Texas residents, and their spouses must provide a copy of their official criminal records issued by the appropriate State agency in each State of residence during the past five years or, alternatively, one report from the FBI. This criminal background check requirement only applies to the Beverage Company’s executives and not its parent companies.
PI Level Disclosure – Holding Company 2 must provide its FEIN and number of shares or membership units issued. All directors/managers and officers, if any, must provide Personal Information only (i.e., full name, SSN, DL# and date of birth).
Concessionaire/Manager/Owner Level Disclosure - Hotel Owner, as owner of the property and as concessionaire, and Hotel Management Co. must identify themselves (and their general partners is structured as partnerships), provide FEINs for each of these companies, and provide Personal Information for all individuals in positions of executive authority for themselves or their general partners. Disclosure of owners is not required.
Beverage Concession & Management Agreements - Executed copies of these Agreements will need to be filed with the TABC Application.
1If a Wine & Beer Retailer's Permit or Retail Dealer's License is held or to be obtained.

40. COLORADO
The managing member or manager of an LLC, the officers and directors of a corporation, and the general partner of any type of partnership must be disclosed with individual history and fingerprints.  All owners must be disclosed, with individual history and fingerprints required for ownership of 10% or more, as may be diluted upstream.  Although all upstream ownership is generally required to be disclosed, it is truly a case by case basis when determining the limits of disclosure (ie, concession or food and beverage agreements, number of individuals disclosed at licensee, parent and grand-parent level, etc).

41. ILLINOIS
The disclosure requirements are 100% of ownership, and fingerprinting/background check of anyone with a net interest of 5% or more and two key officers (President, Secretary) or in the case of an LLC, the manager(s).

42. ILLINOIS Avoiding disclosure in hotel deals may work a few ways:
Management Company: can isolate ownership and license a management entity--generally only owners and officers/managers of the licensed entity are processed. Landlord, asset owner, hotel property owners are generally not processed.
Create a license agreement and isolate the licensee; works with lease.
There is also not a disclosure requirement for any agreements an individual owner may have back with other entities involved in the deal.

43. 6. Who should hold the liquor (and hotel) licenses and why?

44. KENTUCKY
The persons/entities that have a financial interest in the business must be the licensee. Although the exact percentage of the net profits is not defined and it is a factual determination based on the facts and circumstances of each particular situation, past ABC Boards have held that a per se receipt of 50% of the net profits requires a party to be reported on the license. The Hotel must be the licensee if the Hotel’s employees are used for the alcohol service.
Advantages of Hotel as licensee:
Potential to make more profit;
The standards/policies of Hotel will also carry into the alcohol sales;
More control over alcohol sales/services; and
May use the Hotel’s employees.

45. KENTUCKY Disadvantages of Hotel as licensee:
Greater potential liability;
Potential to lose money on alcohol service;
More investment;
Disclosure of Hotel ownership; and
Beverage alcohol management companies may do a better job with alcohol services and controls than regular Hotel employees. Management companies are often utilized by Hotels in Kentucky to run the hotels operations, including conducting the alcohol beverage operations and holding the liquor licenses.

46. MISSOURI
The persons/entities that have a financial interest in the business must be the licensee. This means any parties that receive a percentage of the net profits must have ownership of the licensed entity. The Hotel must be the licensee if the Hotel’s employees are used for the alcohol service.
Advantages of Hotel as licensee:
Potential to make more profit;
The standards/policies of Hotel will also carry into the alcohol sales;
More control over alcohol sales/services; and
May use the Hotel’s employees.

47. MISSOURI Disadvantages of Hotel as licensee:
Greater potential liability;
Potential to lose money on alcohol service;
More investment;
Disclosure of Hotel ownership; and
Beverage alcohol management companies may do a better job with alcohol services and controls than regular Hotel employees. Beverage alcohol management companies are often utilized by Hotels in Missouri to run the alcohol beverage operation and hold the liquor licenses.

48. FLORIDA
The general rule is that either the hotel owner or lessee can hold the liquor (and hotel) licenses.1 The owner or lessee holding the licenses can name the operator or manager as an interested party. However, there is an exception to this general rule: if the entity holding the alcohol beverage license is a publicly-traded company and has a direct or indirect interest or which has an ownership interest in the business sought to be licensed, but does not operate that business, the buyer can choose to place the license in the name of the hotel operator or hotel manager.2 But the alcohol beverage license must be held by either the owner or operator or manager, not both. Florida does not permit a liquor license to be held by two individuals as co-licensees.
1 Fla. Stat. § (2) (2016).
2 Fla. Stat. § (3)(c) (2016).

49. TEXAS
Hotel Owners are typically reluctant to hold alcoholic beverage permits due to concerns about dram shop liability. If they are willing to do so, it greatly simplifies the structure of operations and the accounting gyrations required. However, two issues arise:
Disclosure - Hotel owners are often reluctant to provide all of the information for their management and ownership that is required in the TABC disclosure convention, which can be addressed by implementing the subsidiary structure discussed above.
Bonus structure can create issues if bonus is based on net profit from operations. The TABC takes the position that anyone who has an interest in the net profit from alcoholic beverage sales has an interest in the permit and must be shown on the permit.
This can be addressed structurally by creating a subsidiary of the hotel owner to hold the TABC permits under a concession granted by the owner, which then engages the management company to manage its alcoholic beverage sales operations for a management fee mirroring the base fee under the Hotel Management Agreement. The Hotel Management Agreement is then amended to (1) exclude alcoholic beverage sales and (2) provide that alcoholic beverage sales will be taken into account in determining if a bonus is due under the Hotel Management Agreement. (see attached Hotel Subsidiary Holds Permit diagram)

50. TEXAS
If the Hotel Owner is unwilling to hold the TABC permits, a structure must be created that will comply with the TAB Code, while providing the Hotel Owner and the Management Company with the benefits of their bargain. This can be addressed through the creation of the following structure:
The management company creates a wholly-owned subsidiary (“Bevco”) to hold the TABC permits.
Hotel owner grants a concession to sell alcohol beverages at the hotel to Bevco subject to a concession fee based upon gross receipts not to exceed 35-40%.
Bevco enters into a management agreement with the management company, its parent, to manage Bevco’s alcoholic beverage sales at the Hotel subject to a management fee mirroring the base fee under the Hotel Management Agreement.
The Hotel Management Agreement is amended to (A) exclude alcoholic beverage sales, (B) provide that alcoholic beverage sales will be taken into account in determining whether a bonus is due under the Hotel Management Agreement and (C) periodically offset any profits or losses derived by Bevco from its operations at the Hotel against the fees due the management company under the Hotel Management Agreement. (see attached Management Company Subsidiary Holds Permit diagram)

51. COLORADO
In Colorado, the persons/entities having control and/or a financial interest in the sale of alcohol beverages are required to be disclosed.  The analysis generally hinges on possession of the premises, flow of revenue, control of budget, operations and employees, share of profits, payment of taxes, procurement of insurance, and other matters involving risk of loss and opportunity for profit.  Colorado does allow for joint licensing, which means that a hotel owner and the management company could both be the “licensee” and disclosed on a single application.  If joint licensing occurs, however, please note that a violation by the management company is considered a violation by the hotel owner, and vise-versa, which could cause adverse disclosure obligations for the other party, ie, have you ever had a license suspended or revoked.

52. ILLINOIS Depends who you represent:
The Hotel owner or a management company may be licensed in Illinois.
The Hotel owner becoming licensed avoids relicensing if a Management Company is terminated.
Conversely, if the Management company is licensed, it controls the licensing.
Keep in mind that all revenue for licensed activity has to flow through the licensed entity.

53. SPEAKER CONTACT INFORMATION:
Dimitrios G. Christopoulos Christopoulos Law Group, LLC (IL) O: (312) Stacy C. Kula, Esq. Stoll Keenon Ogden PLLC (KY) O: (859) ; C: (859) , M. Jack Martin, III, Esq. Martin, Frost & Hill, PC (TX) O: (512)
Charles E. Smarr Brydon, Swearengen & England, PC (MO) O: (573) Richard M. Blau Gray | Robinson, PA (FL) O: (866) Adam P. Stapen, Esq. Dill Dill Carr Stonbraker & Hutchings, PC (CO) O: (303)