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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
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)
Harold S. Handelsman
Meridian Associates, L.P.
200 West Monroe, Suite 3800
Chicago, IL 60606
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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(e), (f) or (g), check the following box /X/.
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7 for other parties
to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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SCHEDULE 13D
CUSIP NO. 902 956 30 9 PAGE 2 OF 12 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Meridian Associates, L.P.
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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*
N/A
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(E) /X/
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Illinois
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7 SOLE VOTING POWER
2,099,775
NUMBER OF --------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 4,511,307
EACH --------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
2,099,775
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10 SHARED DISPOSITIVE POWER
2,099,318
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,611,082
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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)
33.1 %
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14 TYPE OF REPORTING PERSON*
PN
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SCHEDULE 13D
CUSIP NO. 902 956 30 9 PAGE 3 OF 12 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
HSA Properties, Inc.
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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*
N/A
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(E) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
22,447
NUMBER OF --------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH --------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
22,447
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10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
22,447
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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)
less than 1%
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14 TYPE OF REPORTING PERSON*
CO
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SCHEDULE 13D
CUSIP NO. 902 956 30 9 PAGE 4 OF 12 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SDI, Inc.
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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*
N/A
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(E) / /
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Nevada
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7 SOLE VOTING POWER
0
NUMBER OF --------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 0
EACH --------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
0
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10 SHARED DISPOSITIVE POWER
0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
0
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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)
0%
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14 TYPE OF REPORTING PERSON*
CO
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ITEM 1. SECURITY AND ISSUER
This Statement on Schedule 13D (the "Schedule 13D") relates to
shares of Class A Common Stock, par value $0.01 per share, including Class A
Common Stock issuable upon conversion of the Class B Common Stock (the
"Common Stock"), of U.S. Franchise Systems, Inc. ("USFS"), which has its
principal executive office at 13 Corporate Square, Suite 250, Atlanta, GA
30329.
ITEM 2. IDENTITY AND BACKGROUND
Meridian Associates, L.P., an Illinois limited partnership ("Meridian"),
SDI, Inc., a Nevada corporation ("SDI") and HSA Properties, Inc., a Delaware
corporation ("HPI" and with Meridian and SDI, the "Reporting Entities") were
each formed solely for the purposes of holding interests in other entities.
Except as otherwise indicated below, the business address and principal
office address of each Reporting Entity is 200 West Madison Street, Suite
3800, Chicago, IL 60606.
Meridian Investments, Inc. is the general partner of Meridian
and is a Delaware corporation. Its executive officers are: (i)
Nicholas J. Pritzker, President, (ii) Thomas J. Pritzker, Vice
President and Secretary, (iii) Glen Miller, Vice President,
Treasurer and Assistant Secretary, (iv) John Kevin Poorman,
Vice President, and (v) Harold S. Handelsman, Vice President.
Meridian Investment, Inc.'s board of directors consists of
Nicholas J. Pritzker, Thomas J. Pritzker and Glen Miller.
The following individuals are the executive officers of SDI:
(i) Thomas J. Pritzker, President, (ii) Harold S. Handelsman,
Vice President, Secretary and Treasurer, (iii) Paul A. Bible,
Vice President, having a business address at 201 West Liberty
Street, Reno, NV 89501, and (iv) Kirk Rose, Vice
President. SDI's board of directors consists of Thomas J.
Pritzker, Harold S. Handelsman and Paul A. Bible.
The following individuals are the executive officers of HPI:
Nicholas J. Pritzker, President, (ii) Glen Miller, Vice
President, Treasurer and Assistant Secretary, (iii) Thomas J.
Pritzker, Vice President and Secretary, (iv) John Kevin
Poorman, Vice President and (v) Harold S. Handelsman, Vice
President. HPI's board of directors consists of
Nicholas J. Pritzker, Glen Miller, Thomas J. Pritzker, and
John Kevin Poorman.
The following is the title and principal occupation of each of the
individuals who are officers or directors of the Reporting Entities. Unless
otherwise noted below, each individual has their principal business address
at 200 West Monroe, Suite 3800, Chicago, IL 60606 and is a U.S. citizen.
Nicholas J. Pritzker
Chairman of the Board and President
Hyatt Development Corporation (hotel development)
Thomas J. Pritzker
Chairman of the Board, President and CEO
Hyatt Corporation (hotel ownership and management)
Harold S. Handelsman
Sr. Vice President, General Counsel and Secretary
Hyatt Corporation (hotel ownership and management)
Glen Miller
President and CEO
Diversified Financial Management Corporation (financial management)
John Kevin Poorman
Executive Vice President and General Counsel
Pritzker Realty Group (real estate development and management)
Kirk Rose
Vice President - Finance
Hyatt hotels Corporation (hotel management)
Paul A. Bible
Attorney
Bible, Hoy & Trachok
201 West Liberty Street, Reno, NV 89501
During the last five years, none of the Reporting Entities, the general
partner of Meridian or, to the knowledge of the Reporting Entities, the
executive officers or directors of SDI, HPI or the general partner of
Meridian has (i) been convicted in a criminal proceeding (excluding traffic
violations or similar misdemeanors) or (ii) been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and
as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
Page 5 of 12
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activities subject to, federal or state securities laws or finding any
violations with respect to such laws.
SDI, Meridian and HPI may constitute a "group" within the meaning of
Rule 13d-5 under the Securities Exchange Act of 1934, as amended (the "Act"),
with respect to their beneficial ownership of shares of Common Stock
of USFS to which this Schedule 13D relates. However, each of the Reporting
Entities is of the view that the Reporting Entities are not acting as a
"group" for purposes of Section 13(d) under the Act and that they are not
otherwise required to attribute to each other the "beneficial ownership" of
securities "beneficially owned" by the other Reporting Entities within the
meaning of Rule 13d-3 promulgated under the Act, and each of the Reporting
Entities disclaims control and beneficial ownership of any Class A Common
Stock owned by the other Reporting Entities.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
N/A
ITEM 4. PURPOSE OF TRANSACTION
Execution of the Recapitalization Agreement. On June 2, 2000 the
Reporting Entities entered into a Recapitalization Agreement with USFS (the
"Recapitalization Agreement") pursuant to which USFS 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 USFS for an aggregate of $75,000,000. The Reporting
Entities 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, the Reporting Entities will
have control of the Company.
In connection with the Recapitalization Agreement, Meridian entered into
certain agreements with (i) Michael A. Leven, USFS' Chairman of the Board,
President, and Chief Executive Officer and his spouse ("Leven"), and (ii)
Neil K. Aronson ("Aronson"), USFS' Chief Financial Officer (the "Voting
Agreements"). The Reporting Entities may be deemed to have acquired
beneficial ownership of shares of Common Stock held by Leven and Aronson
because the Voting Agreements require Leven and Aronson, each a substantial
holder of USFS stock, to vote their shares, at the upcoming annual meeting of
stockholders, in favor of (i) the issuance to SDI of two new series of USFS
preferred stock and the issuance of Class A Common Stock upon the conversion
thereof in accordance with the Recapitalization Agreement and (ii) amendments
to USFS' 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
Page 6 of 12
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Voting Agreement, Aronson has agreed to tender all of his shares in the Offer
including all of his shares of Class B Common Stock which shall be converted
into shares of Class A Common Stock. All of Leven's shares of Class B Common
Stock not tendered 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 Agreements, have been
attached as an exhibit to the Current Report on Form 8-K filed by USFS on
June 6, 2000 and are hereby incorporated herein by reference.
Pursuant to the Voting Agreements, Leven and Aronson have agreed to vote
their shares as described above and therefore may be deemed to have granted
to the Reporting Entities beneficial ownership over 1,803,388 shares of Class
A Common Stock and 2,707,919 shares of Class B Common Stock. Shares of Class
B Common Stock have the right to vote 10 votes per share. Although the
Reporting Entities share beneficial ownership with respect to shares held by
Leven and Aronson, the Reporting Entities do not believe that Leven and
Aronson constitute part of their "group" under Section 13d and therefore
Leven and Aronson are not required to consider shares beneficially owned by
the Reporting Entities in the calculation of their beneficial ownership of
shares.
Preferred Stock. 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 USFS' 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.
Changes to the Board of Directors. One of the conditions to the closing
of the Recapitalization Agreement is that all of the members of the Board of
Directors of USFS, other than Michael A. 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 Reporting Entities.
Restrictions on Stock Acquisitions. In connection with the execution of
the Recapitalization Agreement, the Reporting Entities have agreed to refrain
from purchasing shares of USFS 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
Reporting Entities may not purchase shares of USFS Common Stock will be
adjusted for any stock split, stock dividend, reclassification, or any other
action with respect to the outstanding shares of USFS 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.
Delisting or deregistration of the Company's Class A Common Stock. The
Reporting Entities 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. The transactions contemplated by
the Recapitalization Agreement may cause USFS to become eligible for
termination of registration pursuant to Section 12(g)(4) of the Act. However,
under the Recapitalization Agreement, the Reporting 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. There can be no assurance, however, that
consummation of such transactions will not result in such delisting or
deregistration.
Page 7 of 12
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ITEM 5. INTERESTS IN SECURITIES OF ISSUER
All information regarding beneficially ownership was provided by
USFS.
(a) Aggregate Amount Beneficially Owned and Percent of Class: The
aggregate number of shares of Common Stock owned beneficially by
the Reporting Entities is 6,633,529, representing (i) 2,099,775
shares of Class A Common Stock which Meridian Associates, L.P.
holds directly, (ii) 22,447 shares of Class A Common Stock which
HSA Properties, Inc. holds directly, (iii) 1,803,388 shares of
Class A Common Stock which Meridian shares the power to direct the
vote on certain matters pursuant to the Voting Agreements, and (iv)
2,707,919 shares of Class A Common Stock issuable upon the
conversion of the Class B Common Stock of Leven and Aronson which
Meridian shares the power to direct the vote on certain matters
pursuant to the Voting Agreements. SDI, Inc. does not own shares of
Common Stock of USFS.
(b) Number of shares of Common Stock as to which Reporting Entities
hold:
With respect to Meridian Associates, L.P.
(i) Sole power to vote or to direct the vote - 2,099,775
votes which Meridian has the sole power to vote
consisting of shares of Class A Common Stock which are
held directly by Meridian.
(ii) Shared power to vote or to direct the vote - 4,511,307
votes which Meridian shares the power to direct the vote
consisting of (1) 1,803,388 shares of Class A Common
Stock which Meridian shares the power to direct the vote
on certain matters pursuant to the Voting Agreements, and
(2) 2,707,919 shares of Class A Common Stock issuable
upon the conversion of the Class B Common Stock which
Meridian shares the power to direct the vote on certain
matters pursuant to the Voting Agreements. Class B Common
Stock is super-voting stock and has the power to vote 10
votes for each one share of Class B Common Stock.
(iii) Sole power to dispose or direct the disposition
- 2,099,775 shares of Class A Common Stock which Meridian
has the sole power to vote.
(iv) Shared power to dispose or direct the disposition
- 2,099,318 shares of Class A Common Stock held by Aronson
which Aronson has agreed to tender in the Offer in
connection with the Voting Agreement with Aronson.
With respect to HSA Properties, Inc.
(i) Sole power to vote or to direct the vote - 22,447 shares
of Class A Common Stock held directly by HPI.
(ii) Shared power to vote or to direct the vote - 0
Page 8 of 12
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(iii) Sole power to dispose or direct the disposition - 22,447
shares of Class A Common Stock.
(iv) Shared power to dispose or direct the disposition - 0.
With respect to SDI, Inc.
(i) Sole power to vote or to direct the vote - 0
(ii) Shared power to vote or to direct the vote - 0
(iii) Sole power to dispose or direct the disposition - 0
(iv) Shared power to dispose or direct the disposition - 0
(c) Transactions in the previous 60 days.
Except as noted above, the Reporting Entities herein have not, and
to the best knowledge of each of the Reporting Entities, none of
the general partner of Meridian or the executive officers or
directors listed in Item 1 hereto, has effected any transactions in
shares of Class A Common Stock during the past 60 days.
(d) Any other person known to have the right to receive or the power to
direct dividends.
None.
(e) Date on which the reporting person(s) ceased to be a beneficial
owner of more than five percent of the class of securities.
Not Applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER
See the information in Item 4, which is incorporated into this Item 6.
Stockholders Agreement. In connection with the execution of the
Recapitalization Agreement, the Reporting Entities, Leven, Steven Romaniello
and certain members of the Leven 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: later restrictions with
respect to the transfer of Common Stock of Leven and Romaniello, a right of
first offer, tag-along rights, co- sale rights, and an agreement to cause the
Board of Directors to elect Leven and Romaniello and six persons
designated by the Reporting Entities to the USFS Board of Directors. The
complete text of the Stockholders Agreement is attached as an exhibit to the
Recapitalization Agreement.
Page 9 of 12
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Registration Rights Agreement. In connection with the execution of the
Recapitalization Agreement, the Company will enter into a Registration Rights
Agreement effective upon the closing of the Recapitalization Agreement with
the Reporting Entities and Aronson (the "Registration Rights Agreement"). The
Registration Rights Agreement grants the Reporting Entities the right to
demand on three separate occasions that USFS, at its expense, register the
Reporting Entities' unregistered shares of Class A Common Stock under the
Securities Act of 1933, as amended. Aronson may include his shares of Class A
Common Stock in any such demand registration. The Reporting Entities and
Aronson may also include their shares of Class A Common Stock in any
registration initiated by USFS. In each case, the shares requested to be
registered are subject to limitations or reductions depending upon the
circumstances of the offering. The complete text of the Registration Rights
Agreement is attached as an exhibit to the Recapitalization Agreement.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS
Exhibit 1 Written agreement regarding joint filing pursuant to Rule
13d-1(k).
Exhibit 2 Recapitalization Agreement incorporated by reference from
Exhibit 2.1 to the Current Report on Form 8-K of USFS filed
6/6/00.
Exhibit 3 Leven Agreement incorporated by reference from Exhibit 2.1 to
the Current Report on Form 8-K of USFS filed 6/6/00.
Exhibit 4 Aronson Agreement incorporated by reference from Exhibit 2.1
to the Current Report on Form 8-K of USFS filed 6/6/00.
Exhibit 5 Stockholders Agreement incorporated by reference from Exhibit
2.1 to the Current Report on Form 8-K of USFS filed 6/6/00.
Exhibit 6 Registration Rights Agreement incorporated by reference from
Exhibit 2.1 to the Current Report on Form 8-K of USFS filed
6/6/00.
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Signature
After reasonable inquiry to the best of its knowledge and belief, each
of the undersigned certifies that the information set forth in this Statement
is true, complete and correct.
Dated: June 13, 2000
MERIDIAN ASSOCIATES, L.P.
By: MERIDIAN INVESTMENT, INC.,
ITS GENERAL PARTNER
/s/ HAROLD S. HANDELSMAN
-------------------
By: Harold S. Handelsman
Its: Vice President
Dated: June 13, 2000
SDI, INC.
/s/ HAROLD S. HANDELSMAN
--------------------
By: Harold S. Handelsman
Its: Vice President, Secretary and Treasurer
Dated: June 13, 2000
HSA PROPERTIES, INC.
/s/ HAROLD S. HANDELSMAN
--------------------
By: Harold S. Handelsman
Its: Vice President
