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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 3, 2000
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
U.S. FRANCHISE SYSTEMS, INC.
(Name of Subject Company)
U.S. FRANCHISE SYSTEMS, INC.
(Name of Person Filing Statement)
CLASS A COMMON STOCK, $.01 PAR VALUE
(Title of Class of Securities)
902956309
(CUSIP Number of Class of Securities)
------------------------
STEPHEN D. ARONSON, ESQ.
VICE PRESIDENT, GENERAL COUNSEL,
AND SECRETARY
U.S. FRANCHISE SYSTEMS, INC.
13 CORPORATE SQUARE, SUITE 250
ATLANTA, GEORGIA 30329
(404) 235-7463
(Name, address, and telephone number of person authorized
to receive notices and communications on behalf of the person(s) filing
statement)
WITH COPIES TO:
ROBERT B. SCHUMER, ESQ.
PAUL D. GINSBERG, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
/ / Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
NAME AND ADDRESS. The name of the subject company is U.S. Franchise Systems,
Inc., a Delaware corporation (the "Company"). The address of the principal
executive offices of the Company is 13 Corporate Square, Suite 250, Atlanta,
Georgia 30329 and its telephone number is (404) 235-7463.
SECURITIES. The title of the class of equity securities registered pursuant
to Section 12 of the Securities Exchange Act of 1934, as amended, to which this
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Statement")
relates is the Class A Common Stock, par value $.01 per share (the "Class A
Common Stock"), of the Company. As of October 2, 2000, there were 17,245,834
shares of Class A Common Stock issued and outstanding. As of October 2, 2000 the
Company also had outstanding 2,707,919 shares of its Class B Common Stock, par
value $.01 per share (the "Class B Common Stock" and, together with the Class A
Common Stock, the "Shares"). This Statement also relates to the Class B Common
Stock, which together with the Class A Common Stock, is the subject of the Offer
referred to in Item 2.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
NAME AND ADDRESS. The name, business address and business telephone number
of the Company, which is the person filing this Statement, is set forth in
Item 1 above.
TENDER OFFER. This Statement relates to the tender offer by USFS Acquisition
Co., a Delaware corporation (the "Purchaser") and wholly-owned subsidiary of
Pritzker family business interests ("Parent"), to purchase all of the
outstanding Shares at a price of $5.00 per Share, net to the seller in cash,
without interest thereon (the "Offer Price"), upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated October 3, 2000 (the "Offer
to Purchase") and in the related Letter of Transmittal (which, as they may be
amended or supplemented from time to time, together constitute the "Offer"),
copies of which are filed as Exhibits (a)(1) and (a)(2) hereto, respectively,
and are incorporated herein by reference. The Offer is described in a Tender
Offer Statement on Schedule TO (which includes the information required to be
reported under Rule 13e-3 under the Securities Exchange Act of 1934, as amended)
dated October 3, 2000 (the "Schedule TO"), which was filed with the Securities
and Exchange Commission on October 3, 2000.
The Offer is being made pursuant to an Acquisition Agreement, dated as of
September 18, 2000 (the "Acquisition Agreement"), by and among SDI, Inc., a
Nevada corporation, Purchaser, HSA Properties, Inc., a Delaware corporation,
Meridian Associates, L.P., an Illinois corporation, and the Company. Pursuant to
the Acquisition Agreement, as promptly as practicable following the consummation
of the Offer and upon satisfaction of the other conditions contained in the
Acquisition Agreement, Purchaser will be merged with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation. In the
Merger, each outstanding Share (other than Shares held by Purchaser or Shares
qualifying as dissenting Shares pursuant to the Delaware General Corporation
law) will be converted into the right to receive an amount of cash equal to the
Offer Price. A copy of the Acquisition Agreement is filed as Exhibit (e)(1) to
this Statement and is incorporated herein by reference.
The Schedule TO states that the principal executive offices of Parent and
Purchaser are 200 West Monroe Street, Suite 3800, Chicago, Illinois 60606.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
Except as described or referred to in this Item 3, there exists on the date
hereof no agreement, arrangement or understanding relating to the Offer or the
Merger and no actual or potential conflict of interest between the Company or
its affiliates and either (i) the Company, its executive officers, directors or
affiliates or (ii) the Purchaser or any of its executive officers, directors or
affiliates.
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The information set forth in the "Introduction," "Special
Factors--Background of the Offer; Contacts with USFS," "--Recommendation of the
Independent Directors and the Board of Directors of USFS; Fairness of the Offer
and the Merger," "--Plans for the Company After the Offer and the Merger;
Certain Effects of the Offer," "--The Acquisition Agreement and Related
Agreements--Exchange Agreement," "--Stockholders Agreement," "--Aronson
Agreement," " --Separation Agreement," "--New Leven Employment Agreement,"
"--Romaniello Employment Agreement," "--Transactions and Arrangements Concerning
the Shares of Common Stock," "--Interests of Certain Persons in the Offer and
the Merger" and "--Certain Other Relationships and Related Party Transactions"
of the Offer to Purchase is incorporated herein by reference.
The Board of Directors of the Company (the "Board") was aware of these
actual and potential conflicts of interest and considered them along with the
other matters described in Item 4.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
RECOMMENDATION. The Board, based upon the recommendation of the independent
directors on the Board who are not employed by the Company or affiliated with
Parent or Purchaser (the "Independent Directors") (other than Dean Adler, an
independent director who was not in attendance at the meeting in which the
Independent Directors made their recommendation), (i) approved and adopted the
Acquisition Agreement and approved the Offer, the Merger and the related
transactions, (ii) determined that the Offer and the Merger are fair to the
unaffiliated stockholders of the Company (which does not include, among others,
the "Interested Stockholders" referred to in the Offer to Purchase) and
(iii) resolved to recommend that the stockholders of the Company accept the
Offer and tender their Shares pursuant to the Offer.
ACCORDINGLY, THE BOARD RECOMMENDS THAT THE STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
A letter to the Company's stockholders, a letter to brokers, dealers,
commercial banks, trust companies and other nominees, a letter to clients for
use by brokers, dealers, commercial banks, trust companies and other nominees
communicating the Board's recommendation and a press release announcing the
Offer and the Merger are filed as Exhibits (a)(3), (a)(4), (a)(5) and (a)(7),
respectively, and are incorporated herein by reference.
REASONS. The information set forth in the "Introduction," "Special
Factors--Background of the Offer; Contacts with USFS," "--Recommendation of the
Independent Directors and the Board of Directors of USFS; Fairness of the Offer
and the Merger" and "--Opinion of the Financial Advisor to the Company" of the
Offer to Purchase is incorporated herein by reference.
INTENT TO TENDER. To the knowledge of the Company, after making reasonable
inquiry, each of the Company's executive officers, directors, affiliates and
subsidiaries currently intends to tender pursuant to the Offer all Shares held
of record or beneficially owned by them and over which they have dispositive
power (other than (i) to the extent their Shares are Restricted Shares (as
defined in the Acquisition Agreement) and (ii) Shares to be exchanged by
Michael A. Leven, the Company's chief executive officer and chairman of the
board, and members of his family, and by affiliates of Parent, pursuant to the
Exchange Agreement filed as Exhibit (e)(6)). Neal K. Aronson, the Company's
current chief financial officer, has entered into the Aronson Agreement, filed
as Exhibit (e)(7), pursuant to which he has agreed to tender pursuant to the
Offer 1,509,453 Shares, which represents all of his Shares other than his
589,865 Restricted Shares.
ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED.
Banc of America Securities LLC ("Banc of America Securities") has been
retained as the sole financial advisor to the Company in connection with the
Offer and the Merger. Pursuant to the terms
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of Banc of America Securities' engagement, the Company has agreed to pay Banc of
America Securities for its services in connection with the Offer and the Merger
a financial advisory fee of $1.9 million. The Company has also agreed to
reimburse Banc of America Securities for its out-of-pocket expenses, including
the reasonable fees and disbursements of its legal counsel, and to indemnify
Banc of America Securities against liabilities, including liabilities under the
federal securities laws, arising out of Banc of America Securities' engagement.
Banc of America Securities has advised the Company that Banc of America
Securities and its affiliates have certain lending arrangements with certain
entities ("Pritzker Controlled Entities") controlled by Parent, have in the past
provided services for a Pritzker Controlled Entity, and as of September 18, 2000
(the date of the Banc of America Securities' opinion referred to below) were
under discussions regarding a potential transaction with Parent. In addition,
the Company has been advised that Parent was a significant shareholder in
Montgomery Securities, a predecessor of Banc of America Securities. In the past,
Banc of America Securities or its affiliates have provided financial advisory
and financing services for the Company and have received fees for the rendering
of these services. In the ordinary course of business, Banc of America
Securities and its affiliates may actively trade or hold the securities of the
Company for their own account or for the account of customers and, accordingly,
may at any time hold a long or short position in such securities. A copy of Banc
of America Securities' opinion is attached hereto as Annex A and is incorporated
herein by reference.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated, or currently intends to employ,
retain or compensate, any person to make solicitations or recommendations to the
stockholders of the Company on its behalf with respect to the Offer.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
Except as set forth in this Statement with respect to the Offer and the
Merger, no transactions in the Shares during the past 60 days has been effected
by the Company or, to the Company's knowledge, by any executive officer,
director, affiliate or subsidiary of the Company.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
Except as set forth in this Statement with respect to the Offer and the
Merger, the Company is not undertaking or engaged in any negotiation in response
to the Offer that relates to (i) a tender offer or other acquisition of the
Shares by the Company, any of its subsidiaries, or any other person, (ii) an
extraordinary transaction, such as a merger, reorganization or liquidation,
involving the Company or any of its subsidiaries, (iii) a purchase, sale, or
transfer of a material amount of assets by the Company or any of its
subsidiaries, or (iv) any material change in the present dividend rate or
policy, or indebtedness or capitalization of the Company. Additionally, the
information set forth in "Special Factors--Plans for the Company After the Offer
and the Merger; Certain Effects of the Offer" of the Offer to Purchase is
incorporated herein by reference.
Except as set forth in this Statement with respect to the Offer and the
Merger, there are no transactions, board resolutions, agreements in principle,
or signed contracts in response to the Offer that would relate to one or more of
the matters referred to in this Item 7.
ITEM 8. ADDITIONAL INFORMATION.
The information contained in the Offer to Purchase filed as
Exhibit (a)(1) is incorporated herein by reference.
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ITEM 9. EXHIBITS.
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<CAPTION>
EXHIBIT NO. DESCRIPTION
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<C> <S>
(a)(1) Offer to Purchase dated October 3, 2000.*+
(a)(2) Letter of Transmittal.*+
(a)(3) Notice of Guaranteed Delivery.*+
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust
Companies, and Other Nominees.*+
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies, and Other Nominees to Clients. *+
(a)(6) Guidelines for Certification of Taxpayer Identification on
Substitute Form W-9.*+
(a)(7) Text of Press Release dated September 19, 2000.**
(a)(8) Opinion of Banc of America Securities LLC (attached hereto
as Annex A).+
(e)(1) Acquisition Agreement, dated as of September 18, 2000, by
and among U.S. Franchise Systems, Inc., SDI, Inc., USFS
Acquisition Co., HSA Properties, Inc. and Meridian
Associates, L.P.**
(e)(2) Hawthorn Termination Agreement, dated as of September 18,
2000, by and among U.S. Franchise Systems, Inc., Meridian
Associates, L.P., HSA Properties, Inc., Michael A. Leven
and Neal K. Aronson.**
(e)(3) Separation Agreement, dated as of September 18, 2000,
between U.S. Franchise Systems, Inc. and Neal K.
Aronson.**
(e)(4) Employment Agreement, dated as of September 18, 2000, by and
between U.S. Franchise Systems, Inc. and Michael A.
Leven.**
(e)(5) Employment Agreement, dated as of September 18, 2000, by and
between U.S. Franchise Systems, Inc. and Steven
Romaniello.**
(e)(6) Exchange Agreement, dated as of September 18, 2000, by and
among USFS Acquisition Co., Meridian Associates, L.P., HSA
Properties, Inc., Michael A. Leven, Andrea Leven, Jonathan
Leven, Robert Leven and Adam Leven.**
(e)(7) Aronson Agreement, dated as of September 18, 2000, among
USFS Acquisition Co., Meridian Associates, L.P. and
Neal K. Aronson.**
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* Incorporated by reference to Schedule TO filed by Purchaser, SDI, Inc., HSA
Properties, Inc., Meridian Associates, L.P., Michael Leven, Andrea Leven,
Jonathan Leven, Robert Leven, Adam Leven, Steven Romaniello and the Company.
+ Included in copies mailed to the Company's stockholders.
** Incorporated by reference to Form 8-K filed by the Company on September 20,
2000.
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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.
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U.S. FRANCHISE SYSTEMS, INC.
By: /s/ STEPHEN D. ARONSON
-----------------------------------------
Stephen D. Aronson
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
</TABLE>
Dated: October 3, 2000
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Annex A
[LOGO]
September 18, 2000
Board of Directors
U.S. Franchise Systems, Inc.
13 Corporate Square
Suite 250
Atlanta, Georgia 30329
Members of the Board:
We understand that U.S. Franchise Systems, Inc., a Delaware corporation
(the "Company"), had proposed to engage in a series of transactions contemplated
by the Recapitalization Agreement dated June 2, 2000 (the "Recapitalization
Agreement") among the Company, SDI, Inc. ("SDI"), HSA Properties, Inc. ("HSA
Properties") and Meridian Associates, L.P. ("Meridian"). We also understand that
the Company has been advised by the other parties to the Recapitalization
Agreement that they may not be prepared to proceed with the transactions
contemplated thereby. We further understand that the Company and the other
parties to the Recapitalization Agreement have agreed to terminate the
Recapitalization Agreement and that the Company now proposes to enter into an
Acquisition Agreement to be dated September 18, 2000 (the "Acquisition
Agreement") with SDI, USFS Acquisition Co. ("Newco"), HSA Properties and
Meridian. Pursuant to the Acquisition Agreement, Newco will make a tender offer
(the "Offer") to acquire all of the outstanding shares of the outstanding Class
A and Class B Common Stock of the Company (the "Shares") at a cash price of
$5.00 per share. Shares not acquired pursuant to the Offer will also be
converted into the right to receive $5.00 per share in cash pursuant to a merger
contemplated by the Acquisition Agreement (the "Merger"). Options to acquire
shares of Class A Common Stock, whether or not exercisable, will be converted
into the right to receive in the Merger the excess of $5.00 per share over the
exercise price per option. All shares of restricted stock will vest upon the
completion of the Offer and be acquired in the Merger at a cash price of $5.00
per share. The terms and conditions of the Offer and the Merger are more fully
set forth in the Acquisition Agreement.
You have requested our opinion as to whether, on the date hereof, the
consideration proposed to be received by the holders of Shares (other than SDI,
HSA Properties, Meridian, Michael Leven, Andrea Leven, Neal Aronson, Steven
Romaniello, and any affiliate of the foregoing or any natural person otherwise
related to the foregoing by virtue of being a spouse, a descendent, or an
ancestor of such natural person or a trust solely for the benefit of such
natural persons and/or such natural person's spouse, descendent or ancestor) is
fair to such holders from a financial point of view.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and
other business and financial information of the Company;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by
the management of the Company;
(iii) analyzed certain financial forecasts of the Company prepared by
the management of the Company;
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U.S. Franchise Systems, Inc.
September 18, 2000
(iv) reviewed and discussed certain information concerning the
strategic, financial, operating, key employee retention and
competitive prospects of the Company with senior executives of
the Company;
(v) reviewed and discussed with senior executives of the Company
certain published financial forecasts prepared by equity
analysts with respect to the Company;
(vi) reviewed and discussed information relating to certain
strategic, financial and operational alternatives with the
management of the Company, including pursuing the transactions
under the Recapitalization Agreement and the potential adverse
effects on the Company which could occur if the Company were
not to effect the Offer and the Merger including, among other
things, the Company's ability to retain its franchise sales
force;
(vii) discussed the past and current operations, financial condition
and prospects of the Company with senior executives of the
Company;
(viii) reviewed the reported prices and trading activity of the
Shares;
(ix) compared the financial performance of the Company and the
prices and trading activity of the Shares with the financial
performance and stock prices and trading activity of certain
other publicly traded companies we deemed relevant;
(x) compared certain financial terms of the transactions
contemplated by the Acquisition Agreement to corresponding
financial terms, to the extent publicly available, of certain
other business transactions we deemed relevant;
(xi) discussed contingent liabilities of the Company with the
management and senior executives of the Company;
(xii) participated in discussions and negotiations among
representatives of the Company and SDI and their legal
advisors;
(xiii) reviewed the Acquisition Agreement and certain related
documents; and
(xiv) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information reviewed by us
for the purposes of this opinion. With respect to the financial forecasts, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and good faith judgments of the future
financial performance of the Company. We call your attention to the fact that
management of the Company has only been able to provide financial forecasts
through December 31, 2001 and we have taken the fact that financial forecasts
were not available for periods beyond that date into account in rendering the
opinion set forth below. We have not made any independent valuation or appraisal
of the assets or liabilities of the Company, nor have we been furnished with any
such appraisals.
We have acted as sole financial advisor to the Board of Directors of the
Company in connection with this transaction and will receive fees for our
services, including a fee which is contingent and payable upon the completion of
the proposed Acquisition Agreement. In addition, the Company has agreed to
indemnify us for certain liabilities arising out of our engagement. In the
ordinary course of our trading, brokerage, investment banking, principal
investing, investment management and financing activities, Banc of America
Securities LLC or its affiliates may at any time
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U.S. Franchise Systems, Inc.
September 18, 2000
hold long or short positions or other investments, and may trade or otherwise
effect transactions, for our own account or the accounts of customers, in equity
securities of the Company. Further, we note that we and our affiliates have
certain lending relationships with certain entities ("Pritzker Controlled
Entities") controlled by the Pritzker family business interests (who directly
control SDI, HSA Properties and Meridian), have in the past acted as the agent
for a credit facility for a Pritzker Controlled Entity and are currently under
discussions regarding a potential partnership with a Pritzker Controlled Entity
in a real estate oriented debt fund. In addition, the Pritzker family business
interests were a significant shareholder in Montgomery Securities, a predecessor
of Banc of America Securities LLC. In the past, Banc of America Securities LLC
or its affiliates have provided financial advisory and financing services for
the Company and have received fees for the rendering of these services.
It is understood that this letter is solely for the benefit and use of
the Board of Directors of the Company in connection with and for the purposes of
its evaluation of the transactions contemplated by the Acquisition Agreement and
does not constitute a recommendation as to whether holders of Shares should
tender their Shares pursuant to the Offer. This opinion may not be disclosed,
referred to, or communicated (in whole or in part) to any third party for any
purpose whatsoever without our prior written consent in each instance, which
consent will not be unreasonably withheld or delayed, and except as required by
law or by a court of competent jurisdiction. However, this opinion may be
included in its entirety in any filing required to be made by the Company in
respect of the proposed Offer and the Merger with the Securities and Exchange
Commission or with any federal or state regulatory body that controls or governs
the franchise licenses of the Company, so long as this opinion is reproduced in
such filing in full and any description of or reference to a summary of this
opinion and the related analysis in such filing is in a form reasonably
acceptable to us and our counsel. Our opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made available
to us as of, the date hereof. It should be understood that subsequent
developments may affect this opinion and we do not have any obligation to
update, revise or reaffirm this opinion.
Based upon and subject to the foregoing, including all of the
assumptions and limitations set forth herein, we are of the opinion, on the date
hereof, that the consideration proposed to be received by the holders of Shares
(other than SDI, HSA Properties, Meridian, Michael Leven, Andrea Leven, Neal
Aronson, Steven Romaniello, and any affiliate of the foregoing or any natural
person otherwise related to the foregoing by virtue of being a spouse, a
descendent, or an ancestor of such natural person or a trust solely for the
benefit of such natural persons and/or such natural person's spouse, descendent
or ancestor) pursuant to the Offer and the Merger is fair to such holders from a
financial point of view.
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Very truly yours,
BANC OF AMERICA SECURITIES LLC
/s/ Gregory J. Wolkom
By: -----------------------------------------
Name: Gregory J. Wolkom
Title: Managing Director
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