UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed Pursuant to Section 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 12, 1998
U.S. FRANCHISE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0- 58-2361501
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification
Number)
13 Corporate Square, Suite 250
Atlanta, GA 30329
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(Address of principal executive offices)
Registrant's telephone number, including area code: (404) 235-7444
Page 1 of 9 pages
Exhibit Index begins on Page 7
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Item 2. Acquisition or Disposition of Assets
U.S. Franchise Systems, Inc., a Delaware corporation ("USFS"),
and USFS Hawthorn, Inc., a Delaware corporation (the "Company"), entered into an
Agreement and Plan of Merger dated as of December 9, 1997 (the "Merger
Agreement"). On March 12, 1998, pursuant to the Merger Agreement, (i) USFS
merged with and into the Company with the Company surviving the merger (the
"Merger"), and (ii) the Company was renamed "U.S. Franchise Systems, Inc."
On March 11, 1998, a special meeting of the stockholders of
USFS was held at which the stockholders were asked, pursuant to a Joint Proxy
Statement/ Prospectus contained within the Company's Form S-4 Registration
Statement (No. 333-46185) filed with the Securities and Exchange Commission on
February 12, 1998, to consider and vote upon, among other things, the Merger
Agreement. The stockholders of USFS approved and adopted the Merger Agreement at
their meeting. The Merger Agreement was approved and adopted by the stockholder
of the Company at a meeting held on December 8, 1998.
Subsequent to these shareholder meetings, a Certificate of
Merger was filed with the Secretary of State of the State of Delaware. This
filing was accepted and the Merger became effective on March 12, 1998.
Pursuant to the terms of the Merger Agreement, upon
consummation of the Merger, each share of Class A Common Stock, par value $0.01
per share, of USFS (the "USFS Class A Common Stock") and Class B Common Stock,
par value $0.01 per share, of USFS (the "USFS Class B Common Stock" and,
together with the USFS Class A Common Stock, collectively, the "USFS Common
Stock") issued and outstanding prior to the Merger was converted into the right
to receive one share of Class A Common Stock, par value $0.01 per share, of the
Company (the "Company Class A Common Stock") or one share of Class B Common
Stock, par value $0.01 per share, of the Company (the "Company Class B Common
Stock"), as applicable. All outstanding options to purchase USFS Class A Common
Stock (the "USFS Options") were assumed by the Company, and every USFS Option
assumed by the Company became, and represents, an option exercisable for shares
of Company Class A Common Stock. Prior to the Merger, Neal K. Aronson, the
Executive Vice President, Chief Financial Officer and a director of USFS, was
also the President and sole director of the Company. Pursuant to the Merger
Agreement, the officers and Directors of USFS became the officers and directors
of the Company, respectively. In addition, in connection with the Merger, the
Board of Directors of the Company increased the size of the Board of Directors
by one director and appointed Douglas Geoga to fill that vacancy.
The USFS Class A Common Stock was registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Pursuant to Rule 12(g)-3(a) under the Exchange Act, in connection with
the Merger, the shares of Company Class A Common Stock are deemed to be
registered under Section 12(g) of the Exchange Act. USFS will be filing a Form
15 with the
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Securities and Exchange Commission to terminate the registration under the
Exchange Act of the USFS Class A Common Stock.
Prior to the Merger, USFS business activities including
acquiring, marketing and servicing well-positioned brands in the lodging
industry with potential for rapid growth through franchising. The business of
the Company initially consists of the business conducted by USFS immediately
prior to the consummation of the Merger. The Company intends to continue to
conduct the business as it was conducted prior to the Merger.
Also in connection with the Merger, on December 9, 1997 the
Company, USFS, Hawthorn Suites Associates, an Illinois joint venture ("HSA") and
HSA Properties, Inc., a Delaware corporation ("HPI") entered into a Contribution
Agreement (the "Contribution Agreement").
Under the Contribution Agreement, each of HPI and HSA
(together the "Assignors") agreed to sell, assign, transfer, convey, grant and
set over to the Company all of its rights, title, and interest in and to their
one percent (1%) and ninety-eight percent (98%) membership interests,
respectively, in HSA Properties, L.L.C., a Delaware limited liability company
("HSA LLC"), a single purpose entity that owns all of the trademarks, copyrights
and other intellectual property related to the Hawthorn Suites hotel brand,
(collectively, the "Equity Interests"), other than the right to receive
allocations of income, gain, loss, deduction, credit and similar items and
distributions in respect of the period prior to the closing date (the "Closing
Date"). Correspondingly, the Company agreed to accept, assume, take over and
succeed to all of the Assignors' right, title and interest in and to the Equity
Interests and agreed to assume and perform and discharge in full, when due, all
of the obligations and commitments of the Assignors related thereto pursuant to
the terms of the Operating Agreement of HSA Properties L.L.C., dated as of March
27, 1996 ("HSA LLC Agreement"), and to be bound by all of the provisions of the
HSA LLC Agreement. Pursuant to the Contribution Agreement, in exchange for the
Equity Interests, on the Closing Date, March 12, 1998, the Company issued to the
Assignors an aggregate of 2,222,222 shares of Company Class A Common Stock,
which were valued at $17,777,776 on the date the Merger was publicly announced
(based on the closing price of USFS's Class A Common Stock on such date) and
$28,888,886 based on the closing price of USFS's Class A Common Stock as of
March 12, 1998. The Company arrived at this valuation based, in part, on certain
financial analysis prepared by management consisting of a determination of the
present value based on a discounted cash flow analysis of the royalty payment
that management projected that the Company would have otherwise paid to HSA LLC.
Item 5. Other Events.
In connection with the Merger, On March 12, 1998, HSA, HPI,
Michael A. Leven, Neal K. Aronson and the Company, entered into a Shareholders
Agreement (the "Shareholders Agreement").
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Pursuant to the Shareholders Agreement, HSA and HPI were
granted certain customary registration rights and "tag along" rights and HSA and
HPI agreed not to enter into certain transactions with regard to the Company's
ownership or management and, for a specified period of time and subject to
certain exceptions, not to transfer the shares of Company Class A Common Stock
they had acquired under the Contribution Agreement. Furthermore, the
Shareholders Agreement provided that a representative of HSA, initially Douglas
Geoga, will be nominated for election to the Company's Board of Directors
provided that HSA and HPI maintain a specified level of ownership in the
Company.
Pursuant to the Merger, the Certificate of Incorporation of
USH was amended to change the name of USH to "U.S. Franchise Systems, Inc."
Item 7. Financial Statements and Exhibits
(a) Financial Statements of businesses acquired.
(i) Financial Statements (audited) of U.S. Franchise
Systems, Inc. and Subsidiaries for the year ended December 31, 1996 and
for the period from August 28, 1995 (inception) to December 31, 1995
(incorporated by reference to pages F-6 to F-19 to the Definitive Proxy
Statement on Schedule 14A filed by U.S. Franchise Systems, Inc. with
the Securities and Exchange Commission on February 12, 1998 (File No.
0-29808)).
(ii) Financial Statements (unaudited) of U.S.
Franchise Systems, Inc. and Subsidiaries for the three months and nine
months ended September 30, 1997 and 1996 (incorporated by reference to
pages F-2 to F-5 to the Definitive Proxy Statement on Schedule 14A
filed by U.S. Franchise Systems, Inc. with the Securities and Exchange
Commission on February 12, 1998 (File No. 0-29808)).
(iii) Statement and Royalties and Other Payments
(unaudited) of HSA Properties, L.L.C. (incorporated by reference to
page F-23 to the Definitive Proxy Statement on Schedule 14A filed by
U.S. Franchise Systems, Inc. with the Securities and Exchange
Commission on February 12, 1998 (File No. 0-29808)).
(iv) Financial Statements (audited) of USFS Hawthorn,
Inc. as of December 12, 1997 (incorporated by reference to pages F-20
to F-22 to the Definitive Proxy Statement on Schedule 14A filed by U.S.
Franchise Systems, Inc. with the Securities and Exchange Commission on
February 12, 1998 (File No. 0-29808)).
(b) Pro forma financial information.
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Pro Forma Condensed Financial Statements of the surviving
company incorporated by reference to pages 71-75 to the Definitive Proxy
Statement on Schedule 14A filed by U.S. Franchise Systems, Inc. with the
Securities and Exchange Commission on February 12, 1998 (File No. 0-29808).
(c) Exhibits.
EXHIBIT DESCRIPTION
NO.
2.1 -- Agreement and Plan of Merger, dated December 9, 1997, between
U.S. Franchise Systems, Inc. and USFS Hawthorn, Inc. (incorporated by
reference to Exhibit 2.1 of the Company's Registration Statement on
Form S-4 (Registration Number 333-46185)).
2.2 -- Contribution Agreement, dated December 9, 1997, among Hawthorn Suites
Associates, HSA Properties, Inc., USFS Hawthorn, Inc. and U.S.
Franchise Systems Inc. (incorporated by reference to Exhibit 2.2 of the
Company's Registration Statement on Form S-4 (Registration Number
333-46185)).
4.1 -- Certificate of Incorporation of USFS Hawthorn, Inc., as in effect
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-4 (Registration Number 333-46185)).
4.2 -- Form of 10% Subordinated Debenture due September 29, 2007 (incorporated
by reference to Exhibit A to Exhibit 3.1 of the Company's Registration
Statement on Form S-1 (Registration No. 333-11427)).
4.3 -- Specimen Class A Common Stock Certificate of USFS Hawthorn, Inc.
(incorporated by reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-4 (Registration Number 333-46185)).
4.4 -- Specimen Class B Common Stock Certificate of USFS Hawthorn, Inc.
(incorporated by reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-4 (Registration Number 333-46185)).
99.1 -- Press Release Issued by U.S. Franchise Systems, Inc. on March 12, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
U.S. FRANCHISE SYSTEMS, INC.
Date: March 23, 1998 By: /s/ Neal K. Aronson
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Name: Neal K. Aronson
Title: Executive Vice President
and Chief Financial Officer
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Exhibit Index
<TABLE>
<CAPTION>
Page Number in
Rule 0-3(b) Sequential
Numbering System
EXHIBIT DESCRIPTION where Exhibits
NO. can be found
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<S> <C> <C> <C>
2.1 -- Agreement and Plan of Merger, dated December 9, 1997, between
U.S. Franchise Systems, Inc. and USFS Hawthorn, Inc.
(incorporated by reference to Exhibit 2.1 of the Company's N/A
Registration Statement on Form S-4 (Registration Number 333-
46185)).
2.2 -- Contribution Agreement, dated December 9, 1997, among
Hawthorn Suites Associates, HSA Properties, Inc., USFS
Hawthorn, Inc. and U.S. Franchise Systems Inc. (incorporated by N/A
reference to Exhibit 2.2 of the Company's Registration Statement
on Form S-4 (Registration Number 333-46185)).
4.1 -- Certificate of Incorporation of USFS Hawthorn, Inc., as in effect
(incorporated by reference to Exhibit 3.1 of the Company's N/A
Registration Statement on Form S-4 (Registration Number 333-
46185)).
4.2 -- Form of 10% Subordinated Debenture due September 29, 2007
(incorporated by reference to Exhibit A to Exhibit 3.1 of the N/A
Company's Registration Statement on Form S-1 (Registration
No. 333-11427)).
4.3 -- Specimen Class A Common Stock Certificate of USFS Hawthorn,
Inc. (incorporated by reference to Exhibit 4.3 of the Company's N/A
Registration Statement on Form S-4 (Registration Number 333-
46185)).
4.4 -- Specimen Class B Common Stock Certificate of USFS Hawthorn,
Inc. (incorporated by reference to Exhibit 4.4 of the Company's N/A
Registration Statement on Form S-4 (Registration Number 333-
46185)).
99.1 -- Press Release Issued by U.S. Franchise Systems, Inc. on 8
March 12, 1998.
</TABLE>
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Exhibit 99.1
[GRAPHIC OMITTED]
For More Information:
AT U.S. FRANCHISE SYSTEMS, INC. AT THE FINANCIAL RELATIONS
BOARD:
Barbara Wiener Bill Murphy Susan Steidle
(404) 235-7400 (312) 266-7800 (312) 266-7800
FOR IMMEDIATE RELEASE
THURSDAY, MARCH 12, 1998
U.S. Franchise Systems CLOSES ACQUISITION of Hawthorn Suites Brand
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Atlanta, March 12, 1998 - U.S. Franchise Systems, Inc. (Nasdaq: USFS) today
announced that it has acquired full ownership of its Hawthorn Suites brand from
HSA, the company controlled by Pritzker family business interests that owned the
Hawthorn Suites brand, following shareholder approval of the transaction on
March 11, 1998. Hawthorn Suites is an upper-end extended stay hotel chain that
has grown significantly under U.S. Franchise Systems, Since acquiring the
Hawthorn Suites brand less than 2 years ago, USFS has expanded the chain from 18
to 30 properties open, with 18 under construction and an additional 84 under
development.
In the transaction, U.S. Franchise Systems issued 2.222 million shares of its
Class A common stock to HSA's successor, bringing total Class A and Class B
common shares outstanding to a total of 14.775 million. As a result of the
transaction, Pritzker family business interests have become one of USFS' three
largest shareholders, with approximately 15 percent of the fully diluted
outstanding shares. Among its holdings, Pritzker family business interests own
Hyatt Hotels. In addition, Doug Geoga, president of Hyatt Hotels Corporation
(age 42), joins U.S. Franchise Systems' board of directors, raising the number
of board members to eight.
The acquisition eliminates royalties that U.S. Franchise Systems would have owed
HSA under the original agreement's royalty-sharing arrangement, and removes
restrictions on U.S. Franchise Systems' ability to purchase other hotel brands.
Mike Leven, president and CEO of U.S. Franchise Systems, said, "With this
transaction, USFS gains more than $2 million of franchise royalty fees from the
30 Hawthorn Suites properties currently open. While that revenue will be offset,
in part, by non-cash amortization expenses related to the transaction, we do not
incur any additional operating expenses. As a result, the transaction is
immediately accretive."
more.../
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U.S. Franchise Systems Close Acquisition of Hawthorn...2/
About U.S. Franchise Systems
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Based in Atlanta, Georgia, U.S. Franchise Systems, Inc. was formed in August
1995 by Michael A. Leven, who has 37 years of experience in the lodging
industry, and Neal K. Aronson, former principal of the New York investment firm
Odyssey Partners, L.P. The company purchased the franchise system rights to
Microtel Inn, Microtel Suites and Microtel Inn & Suites in September 1995.
Microtel properties are all newly constructed, interior corridor, budget hotels
with an average daily rate between $35 and $45. In April 1996, the company
acquired the franchise rights to Hawthorn Suites, which offers side-by-side
living and sleeping rooms and fully equipped kitchens, complimentary daily hot
breakfast buffet and evening refreshments. It introduced the mid-market brand
extension, Hawthorn Suites LTD., for extended stay and overnight travel, in
1997. Earlier this month, Hawthorn became one of the first extended-stay hotel
chains to expand to international markets with the opening of a property in Tel
Aviv, Israel. U.S. Franchise Systems, which completed its initial public
offering in October 1996, is traded on the Nasdaq National Market System using
the symbol USFS.
Certain of the above statements are forward looking statements that involve
risks and uncertainties. Actual results could differ materially as a result of a
variety of factors, including competitive developments, and risk factors listed
from time to time in the Company's SEC reports.
for more information on u.s. franchise systems, inc. via facsimile at no cost,
simply dial 1-800-pro-info and enter the ticker symbol usfs.
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