UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)
U.S. Franchise Systems,Inc.
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(Name of Issuer)
Class A Common Stock, par value $0.01 per share
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(Title of Class of Securities)
902 956 30 9
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(CUSIP Number)
Stephen D. Aronson, Esq.
c/o U.S. Franchise Systems, Inc.
13 Corporate Square
Atlanta, GA 30329
Tel. No.: (404) 235-7463
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
June 2, 2000
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this Schedule because of Rule 13d-
1(b)(3) or (4), check the following box. [ ]
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SCHEDULE 13D
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1. Name of Reporting Person:
Michael A. Leven
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2. Check the Appropriate Box if a Member of a Group:
(a) / /
(b) /X/
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3. SEC Use Only
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4. Source of Funds: OO
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5. Check box if Disclosure of Legal Proceedings is
Required Pursuant to Items 2(e) or 2(f):
/ /
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6. Citizenship or Place of Organization: Delaware
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Number of 7. Sole Voting Power: 468,184 (See Exhibit A)
Shares --------------------------------------------------
Beneficially 8. Shared Voting Power: 406,373
Owned By --------------------------------------------------
Each 9. Sole Dispositive Power: 123,805
Reporting --------------------------------------------------
Person 10. Shared Dispositive Power: 0
With
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11. Aggregate Amount Beneficially Owned by Each
Reporting Person:
874,557 (See Exhibit A)
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12. Check Box if the Aggregate Amount in Row (11)
Excludes Certain Shares:
/ /
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13. Percent of Class Represented by Amount in Row (11): 5.1%
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14. Type of Reporting Person: IN
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<PAGE>
ITEM 4. PURPOSE OF TRANSACTION.
Item 4 of the Schedule 13D filed by Mr. Leven on March 25,
1999 (the "Schedule 13D") is hereby amended and restated to read
in its entirety as follows:
Prior to the Merger, Mr. Leven was the Chairman, President,
Chief Executive Officer and a director of USFS, and he assumed
identical positions with the Company following the Merger.
The Merger was effected in connection with the series of
transactions (the "Merger Transactions") designed to enable USFS
to acquire the entire interest in the Hawthorn Suites brand of
hotels currently owned by Hawthorn Suites Associates, an Illinois
joint venture ("HSA"), and HSA Properties, Inc., a Delaware
corporation ("HPI"), through their ownership collectively of a
99% membership interest in HSA Properties, L.L.C., a Delaware
limited liability company ("HSA LLC"). Prior to the Merger, USFS
owned the remaining 1% membership interest in HSA LLC.
Immediately prior to the Merger, pursuant to a Contribution
Agreement (the "Contribution Agreement"), dated as of December 9,
1997, by and among HSA, HPI, the Company and USFS, HSA and HPI
assigned, transferred and conveyed to the Company (the
"Transfer") all of their respective ownership interests in HSA
LLC. Pursuant to the Transfer, HPI acquired 22,447 shares of
Company Class A Common Stock, and HSA acquired 2,199,775 shares
of Company Class A Common Stock.
By virtue of the Merger and the Contribution Agreement, the
Company acquired the remaining 99% interest in HSA LLC which USFS
had not already owned. Prior to the Merger, USFS and HSA LLC were
parties to the Master Franchise Agreement, dated as of March 27,
1996 (the "Hawthorn Acquisition Agreement"), pursuant to which
USFS acquired the exclusive, worldwide rights to franchise and to
control the development and operation of the Hawthorn Suites
brand of hotels. The Hawthorn Acquisition Agreement required that
a percentage of royalties received by USFS from the franchising
of Hawthorn Suites hotels be remitted to HSA LLC and also
contained certain restrictions on USFS's operations and imposed
certain standards relating to the development of the Hawthorn
Suites brand of hotels. Accordingly, USFS acquired HSA LLC,
through the Merger and the Contribution Agreement, in order to
eliminate these restrictions.
On June 2, 2000 the Company, SDI, Inc.("SDI"), Meridian
Associates, L.P. ("Meridian") and HSA Properties, Inc. ("HSA")
entered into a Recapitalization Agreement(the "Recapitalization
Agreement") pursuant to which the Company will commence a tender
offer to purchase (the "Offer") up to an aggregate of 8,666,666
but not less than 3,000,000, shares of Common Stock and SDI will
purchase 75,000 shares of preferred stock of the Company for an
aggregate of $75,000,000. SDI, Meridian and HSA have agreed not
to tender any of the shares of Common Stock currently owned in
the Offer. Upon consummation of the transactions contemplated by
the Recapitalization Agreement, SDI, Meridian and HSA (the
"Pritzker Entities") will have control of the Company.
In connection with the Recapitalization Agreement, Mr. Leven
and his wife, Andrea Leven ("Mrs. Leven"), entered into an
agreement with Meridian(the "Voting Agreement"). The Pritzker
Entities may be deemed to have acquired beneficial ownership of
shares of Common Stock held by Mr. Leven and Mrs. Leven because
the Voting Agreement requires Mr. and Mrs. Leven to vote their
shares, at the upcoming annual meeting of stockholders, in favor
of (i) the issuance to SDI of two new series of the Company's
preferred stock and the issuance of Class A Common Stock upon the
conversion thereof in accordance with the Recapitalization
Agreement and (ii) amendments to the Company's Certificate of
Incorporation which shall result in (1) the elimination of the
provisions prohibiting stockholder action by written consent, (2)
the elimination of the provisions requiring supermajority voting
and (3) the addition of various protections for minority
stockholders of the Company after consummation of the Offer,
including (a) the inclusion of at least three independent
directors on the Board of Directors, and (b) a minimum price at
which the Company may purchase Shares on the open market,
pursuant to a tender offer or exchange, or by any other
transaction. In addition, pursuant to the Voting Agreement, Mr.
and Mrs. Leven have agreed to sell no more than half of their
shares in the Offer. All of Mr. and Mrs. Leven's shares of Class
B Common Stock not purchased in the Offer shall remain shares of
Class B Common Stock. The complete text of the Recapitalization
Agreement and the documents executed in connection therewith,
including the Voting Agreement, have been attached as an exhibit
to the Current Report on Form 8-K filed by the Company on June 6,
2000 and are hereby incorporated herein by reference.
Pursuant to the Voting Agreement, Mr. and Mrs. Leven have
agreed to vote their shares as described above and therefore may
be deemed to have granted to the Pritzker Entities beneficial
ownership over 874,557 shares of Class A Common Stock and
1,509,473 shares of Class B Common Stock. Shares of Class B
Common Stock have the right to vote 10 votes per share. Although
the Pritzker Entities share beneficial ownership with respect to
shares held by Mr. Leven, Mr. Leven does not have any voting or
dispositive power over any shares held by any of the Pritzker
Entities. Mr. Leven does not believe that he is a part of any
"group" consisting of the Pritzker Entities under Section 13(d) and
therefore Mr. Leven is not required to consider shares
beneficially owned by the Pritzker Entities in the calculation of
his beneficial ownership of shares.
Of the shares of preferred stock to be purchased by SDI,
10,000 shares of Series B Preferred Stock will be
convertible/exchangeable into shares of Class A Common Stock. The
holders of Series B Preferred Stock may, at their option,
convert/exchange their shares of Series B Preferred Stock into
shares of Class A Common Stock at any time prior to redemption.
The Series B Preferred Stock has an initial conversion/exchange
price of $7.50 per share which may be adjusted downward upon
certain events as described in the certificate of designation
attached as an exhibit to the Recapitalization Agreement which
was filed as an exhibit to the Company's Current Report on Form
8-K filed on June 6, 2000 (the "Conversion Price"). The number of
shares of Class A Common Stock issuable upon conversion/exchange
of the Series B Preferred Stock, assuming no adjustment to the
initial conversion price, shall be 10,000,000 shares of Class A
Common Stock. After its issuance, the Series B Preferred Stock
shall vote on an as-converted basis.
One of the conditions to the closing of the Recapitalization
Agreement is that all of the members of the Board of Directors of
the Company, other than Mr. Leven, Stephen N. Romaniello and
Douglas G. Geoga, shall have resigned. The remaining members of
the Board of Directors will then take all necessary steps to
cause the Board of Directors to consist of eleven members
immediately following the effective time of the resignations. The
three remaining members of the Board of Directors shall then
appoint three independent directors and five other directors as
will be designated by the Pritzker Entities.
In connection with the execution of the Recapitalization
Agreement, the Pritzker Entities have agreed to refrain from
purchasing shares of the Company's Common Stock, either on the
open market or, except under certain circumstances, in connection
with any other transaction, at a price less than (1) $7.50, if
such transaction is effected within 24 months after the closing
date of the Recapitalization Agreement, or (2) if effected after
a 24 month period at a price that is less than the highest bid
price per share for the preceding 52 week period. The price at
which the Pritzker Entities may not purchase shares of the
Company's Common Stock will be adjusted for any stock split,
stock dividend, reclassification, or any other action with
respect to the outstanding shares of the Company's stock. Any
adjustment shall be made pursuant to a resolution of the Board of
Directors with the affirmative vote of a majority of the
independent directors.
The transactions contemplated by the Recapitalization
Agreement may cause the Company to become eligible for
termination of registration pursuant to Section 12(g)(4) of the
Act. However, under the Recapitalization Agreement, the Pritzker
Entities agreed to use reasonable efforts to cause the Class A
Common Stock to continue to be listed on Nasdaq which will
require that the Class A Common Stock continue to be registered
under the Act. The Pritzker Entities have also stated in a
Schedule 13D Statement filed June 13, 2000 that they "do not
expect: (i) the issuance of the preferred stock in connection
with the Recapitalization Agreement or (ii) the purchase of up to
an aggregate of 8,666,666 shares of Class A Common Stock
including shares of Class A Common Stock issuable upon the
conversion of shares of Class B Common Stock from its
stockholders in the Offer to cause the Class A Common Stock to be
delisted from the Nasdaq National Market." There can be no
assurance, however, that consummation of such transactions will
not result in such delisting or deregistration.
Mr. Leven anticipates that he will be issued options to
purchase 200,000 shares of Class A Common Stock at the Conversion
Price pursuant to an employment agreement to be entered into upon
the consummation of the Offer.
Except as set forth in this Item 4, Mr. Leven, in his
individual capacity, does not have any plans or proposals that
relate to or would result in any of the actions specified in
clauses (a) through (j) of Item 4 of Schedule 13D.
Notwithstanding the above, Mr. Leven may, in his capacity as
an executive officer and/or director of the Company, have plans
or proposals relating to items (a) through (j) of Item 4 of
Schedule 13D and to such extent Mr. Leven declines to indicate
such plans or proposals, and disclaims any obligation to update
such disclosure, except to the extent they derive from his status
as a shareholder instead of an executive officer and/or director.
In addition, Mr. Leven may, at any time and from time to time,
and reserves the right to, acquire additional securities of the
Company, dispose of any such securities of the Company or
formulate plans or proposals regarding the Company or its
securities, to the extent deemed advisable by Mr. Leven in light
of his general investment policy, market conditions or other
factors.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
Item 5 of the Schedule 13D is hereby amended and restated to read
in its entirety as follows:
(a) Mr. Leven beneficially owns 874,557 shares of the issued
and outstanding Company Class A Common Stock and 1,509,473 shares
of the issued and outstanding Company Class B Common Stock.
Mr. Leven's shares of Company Class A Common Stock
constitute 5.1% of the issued and outstanding Company Class A
Common Stock. Each share of Company Class A Common Stock is
entitled to one vote.
Mr. Leven's 1,509,473 shares of Company Class B Common Stock
constitute 55.7% of the issued and outstanding shares of Company
Class B Common Stock. Each share of Company Class B Common Stock
is entitled to 10 votes per share.
(b) Mr. Leven has sole voting power over 468,184 shares of
Company Class A Common Stock. Pursuant to the Aronson Voting
Agreement (defined below), Neal K. Aronson ("Mr. Aronson") has
transferred voting power to Mr. Leven with respect to 111,347
shares of Company Class A Common Stock, to which Mr. Aronson has
shared voting power with Mr. Leven. Pursuant to the Leven Voting
Agreement (defined below) Mrs. Leven, has transferred voting
power to Mr. Leven with respect to 233,032 shares of Company
Class A Common Stock, to which Mrs. Leven has shared voting power
with Mr. Leven.
Mr. Aronson is Executive Vice President and Chief Financial
Officer of the Company. His address is 13 Corporate Square, Suite
250, Atlanta, GA 30329.
Mr. Aronson is a citizen of the United States. During the
last five years, Mr. Aronson has not been convicted in a criminal
proceeding(excluding traffic violations or similar misdemeanors)
nor has Mr. Aronson been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction with
the result of such proceeding being that Mr. Aronson is subject
to a judgment, decree, or final order enjoining future violations
of, or prohibiting or mandating activities subject to federal or
state securities laws or finding any violation with respect to
such laws.
Mrs. Leven is the wife of Mr. Leven and her address is 1142
Brookhaven Row Atlanta, GA 30319 5 West Wesley Ridge, Atlanta, GA
30329.
Mrs. Leven is a citizen of the United States. During the
last five years, Mrs. Leven has not been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors)
nor has Mrs. Leven been a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction with
the result of such proceeding being that Mrs. Leven is subject to
a judgment, decree, or final order enjoining future violations
of, or prohibiting or mandating activities subject to federal or
state securities laws or finding any violation with respect to
such laws.
(c) Mr. Leven has not effected any transactions in any
shares of Company Class A Common Stock during the past sixty (60)
days.
(d) Members of management of the Company who own an
aggregate of 406,373 shares of Company Class A Common Stock, and
who are required to vote them in the same manner as Mr. Leven
votes his shares, have the right to receive dividends from or
direct the proceeds from a sale of such securities.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR
RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
The following paragraph is hereby added at the end of Item 6
of the Schedule 13D.
See the information in Item 4, which is incorporated into
this Item 6.
In connection with the execution of the Recapitalization
Agreement, Mr. Leven, the Pritzker Entities, Steven Romaniello
and certain members of Mr. Leven's family will enter into a
Stockholders Agreement effective upon the closing of the
Recapitalization Agreement (the "Stockholders Agreement"). The
Stockholders Agreement provides for various rights and
restrictions, some of which include: restrictions with respect to
the transfer of Common Stock of Mr. Leven and Mr. Romaniello, a
right of first offer, tag-along rights, co-sale rights, and an
agreement to cause the Board of Directors to elect Mr. Leven and
Mr. Romaniello and six persons designated by the Pritzker
Entities to the Company's Board of Directors. The complete text
of the Stockholders Agreement is attached as an exhibit to the
Recapitalization Agreement. Exhibit B to the Recapitalization
Agreement is a Termination Agreement pursuant to which the
Stockholders' Agreement, dated as of March 12, 1998, by and among
Meridian, HSA, Mr. Leven, Mr. Aronson and the Company will be
terminated effective upon consummation of the transactions
contemplated by the Recapitalization Agreement. The
Recapitalization Agreement requires the Company to take all
actions as are necessary to cause all Restricted Shares to become
Unrestricted Shares immediately before the consummation of the
transactions contemplated thereby, but subject to such
consummation. Mr. Leven and his wife currently hold 356,837
Restricted Shares.
ITEM 7. ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
The following are added at the end of Item 7 of the Schedule
13D.
Exhibit G Leven Agreement incorporated by reference from
Exhibit 2.1 to the Current Report on Form 8-K of
USFS filed 6/6/00.
Exhibit H Stockholders Agreement incorporated by reference
from Exhibit 2.1 to the Current Report on Form 8-K
of USFS filed 6/6/00.
Exhibit I Recapitalization Agreement incorporated by
reference from Exhibit 2.1 to the Current Report
on Form 8-K of the Company filed 6/6/00.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
Dated: June 26, 2000
/s/ Michael A. Leven
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Michael A. Leven
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Schedule A of the Schedule 13D is hereby amended and restated to
read in its entirety as follows:
EXHIBIT A
Breakdown of Shares of Class A Common Stock
Michael A. Leven
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123,805 Restricted Shares owned directly by Mr. Leven.
233,032 Restricted Shares owned by Mr. Leven's wife Andrea, voted
by Mr. Leven pursuant to the Leven Voting Agreement. Mr. Leven
disclaims beneficial ownership of these shares.
111,347 Restricted Shares owned by Neal Aronson, voted by Mr.
Leven pursuant to the Aronson Voting Agreement. Mr. Leven
disclaims beneficial ownership of these shares
310,401 Unrestricted Shares which have been reallocated to other
members of management which are voted in the same manner as Mr.
Leven votes his shares. Mr. Leven disclaims beneficial ownership
of these shares.
95,972 Restricted Shares which have been reallocated to other
members of management which are voted in the same manner as Mr.
Leven votes his Unrestricted Shares. Mr. Leven disclaims
beneficial ownership of these shares.
Total=874,557=5.1%
(614135.4)
