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SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under sec.240.14a-12
INTERSTATE HOTELS CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules O-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2)of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule O-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
O-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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INTERSTATE HOTELS CORPORATION
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
April 30, 2001
To the Stockholders:
You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of Interstate Hotels Corporation, a Maryland corporation, to be held on
Thursday, June 14, 2001 at 10:00 a.m., Eastern Time, at the Pittsburgh Marriott
City Center Hotel located at 112 Washington Place, Chatham Center, Pittsburgh,
Pennsylvania. The official Notice of Meeting, Proxy Statement and form of proxy
are enclosed with this letter. The matters listed in the Notice of Meeting are
described in the attached Proxy Statement.
The vote of every stockholder is important, and your cooperation in
completing, signing and returning your proxy promptly will be appreciated.
We hope to see you at the Annual Meeting.
Sincerely,
/s/ Thomas F. Hewitt
THOMAS F. HEWITT
Chairman of the Board
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
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INTERSTATE HOTELS CORPORATION
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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To the Stockholders:
Notice is hereby given that the 2001 Annual Meeting of Stockholders of
Interstate Hotels Corporation, a Maryland corporation, will be held at 10:00
a.m., Eastern Time, on Thursday, June 14, 2001, at the Pittsburgh Marriott City
Center Hotel located at 112 Washington Place, Chatham Center, Pittsburgh,
Pennsylvania for the following purposes, all as more fully described in the
attached Proxy Statement:
1. To elect two Class A Directors, one Class B Director and five Series B
Preferred Directors;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the
independent accountants to audit the financial statements of Interstate
Hotels Corporation for the fiscal year ending December 31, 2001; and
3. To act upon such other business as may properly come before the Annual
Meeting or any postponements or adjournments thereof.
Stockholders of record at the close of business on April 19, 2001 are
entitled to notice of, and to vote at, the Annual Meeting or any postponements
or adjournments thereof.
TIMOTHY Q. HUDAK
Secretary
April 30, 2001
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES.
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INTERSTATE HOTELS CORPORATION
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, Pennsylvania 15220
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 14, 2001
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of Interstate Hotels Corporation, a
Maryland corporation (the "Company"), of proxies from the holders of Class A
Common Stock, par value of $.01 per share (the "Class A Common Stock"), of the
Company for use at the Annual Meeting of Stockholders to be held at 10:00 a.m.,
Eastern Time, on Thursday, June 14, 2001, at the Pittsburgh Marriott City Center
Hotel located at 112 Washington Place, Chatham Center, Pittsburgh, Pennsylvania
including any postponements or adjournments thereof (the "Annual Meeting"), for
the purposes set forth in the accompanying Notice of Meeting. This Proxy
Statement, the accompanying form of proxy and the Company's 2000 Annual Report
to Stockholders are being mailed to stockholders on or about May 2, 2001.
The holders of record of shares of Class A Common Stock, Class B Common
Stock, par value of $.01 per share (the "Class B Common Stock"), and Series B
Convertible Preferred Stock, par value of $.01 per share (the "Series B
Preferred Stock"), of the Company at the close of business on April 19, 2001
(the "Record Date") are entitled to receive notice of, and to vote such shares
at, the Annual Meeting. As of the Record Date, there were 6,309,885 shares of
Class A Common Stock outstanding, 242,555 shares of Class B Common Stock
outstanding and 725,000 shares of Series B Preferred Stock outstanding. Holders
of such class of shares as of the Record Date are entitled to one vote per share
on each matter to be considered by such holders' class of shares at the Annual
Meeting.
The holders of a majority of the issued and outstanding shares of Class A
Common Stock, Class B Common Stock and Series B Preferred Stock as of the Record
Date, considered together, present in person or represented by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting,
provided that a majority of the outstanding Class A Common Stock is required for
the election of the Class A-2 Directors, a majority of the outstanding Class B
Common Stock is required for the election of the Class B Director, a majority of
the outstanding Series B Preferred Stock is required for the election of the
Series B Preferred Directors and a majority of the outstanding Class A and Class
B Common Stock, voting together as a single class, is required for the
ratification of the appointment of the independent accountants. Abstentions and
broker non-votes will be included in determining the number of shares present or
represented at the Annual Meeting for purposes of determining whether a quorum
exists. If a quorum is present: (1) the holders of the Class A Common Stock are
entitled to elect two Class A-2 Directors, with the election of directors being
determined by plurality vote, (2) the holders of the Class B Common Stock are
entitled to elect one member of the Board, with the election of the director
being determined by plurality vote, (3) the holders of the Series B Preferred
Stock are entitled to elect five members of the Board, with the election of
directors being determined by plurality vote and (4) the affirmative vote of a
majority of the Class A and Class B Common Stock, voting together as a single
class, present in person or represented by proxy and entitled to vote is
required to ratify the appointment of the independent accountants and any other
matter brought to a vote at the Annual Meeting. Abstentions and broker non-votes
with respect to any matter brought to a vote at the Annual Meeting will be
treated as shares not voted and, accordingly, will have no effect on the
election of directors but will have the effect of a vote against the
ratification of the appointment of the independent accountants. If the persons
present or represented by proxy at the Annual Meeting constitute the holders of
less than a majority of the outstanding shares of Class A Common Stock, Class B
Common Stock or Series B Preferred Stock as of the Record Date, the Annual
Meeting may be adjourned to a later date to obtain a quorum.
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All shares of Class A Common Stock represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting, unless
such proxies previously have been revoked, will be voted at the Annual Meeting
in accordance with the instructions on the proxies. If no instructions are
indicated, such shares will be voted in accordance with the recommendations of
the Board as set forth herein.
A proxy may be revoked by filing with the Secretary of the Company, prior
to the exercise of the proxy, either a written instrument revoking the proxy or
an executed subsequent proxy or by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not, in itself, constitute
revocation of a proxy.
The Company's stockholders do not have dissenters' or appraisal rights
under Title 3, Subtitle 2 of the Maryland General Corporation Law or pursuant to
the Company's charter with respect to the items set forth in this Proxy
Statement.
ELECTION OF DIRECTORS
The terms of the Company's Class A-2 Directors, Michael L. Ashner and
Benjamin D. Holloway, expire on the date of the Annual Meeting. The Nominating
Committee of the Board has nominated Mr. Holloway for re-election as a Class A-2
Director and John J. Russell, Jr. for election as the other Class A-2 Director.
If elected, the nominees will serve for a three-year term to expire at the
Company's 2004 annual meeting, and until their respective successors are duly
elected and qualified.
The Company has been advised by Marriott Hotel Services, Inc., the holder
of the Company's Class B Common Stock, that it is the intention of such holder
to vote all of its Class B shares in favor of the re-election of Stephen P.
Joyce, as the sole Class B Director for a one-year term to expire at the
Company's 2002 annual meeting, and until his successor is duly elected and
qualified.
The Series B Preferred Directors were elected to the Board pursuant to the
terms of the Series B Preferred Stock, issued for $5.0 million, and the 8.75%
Subordinated Convertible Notes (the "Notes"), issued for $25.0 million, to CGLH
Partners I LP and CGLH Partners II LP, an investor group led by Lehman Brothers
Holdings Inc. (the "Investor Group"), which investment was approved by the
Company's stockholders on October 16, 2000. The five Series B Preferred
Directors were elected to the Board and appointed to certain committees thereof
pursuant to the terms of an Investor Agreement dated October 20, 2000 (the
"Investor Agreement") among the Company and the Investor Group. The Investor
Agreement allows the Investor Group to nominate five designees to the Board and
designees to serve on one-half of the seats on each committee of the Board,
other than any committee formed to consider matters relating to the Investor
Group, for a period tied to the percentage of the Company's stock owned by the
Investor Group. The Company has been advised by all holders of the Series B
Preferred Stock that it is the intention of such holders to vote all of their
shares of Series B Preferred Stock in favor of the re-election of Karim J.
Alibhai, Joseph J. Flannery, Alan J. Kanders, Mahmood J. Khimji and Sherwood M.
Weiser, as the Series B Preferred Directors for a one-year term to expire at the
Company's 2002 annual meeting, and until their respective successors are duly
elected and qualified.
THE BOARD RECOMMENDS THAT CLASS A COMMON STOCKHOLDERS VOTE "FOR" BENJAMIN
D. HOLLOWAY AND JOHN J. RUSSELL, JR. AS THE CLASS A-2 DIRECTORS. PROXIES
SOLICITED BY THE BOARD WILL BE SO VOTED EXCEPT WHERE AUTHORITY HAS BEEN
WITHHELD. THE BOARD HAS NO REASON TO BELIEVE THAT MESSRS. HOLLOWAY OR RUSSELL
WILL NOT SERVE IF ELECTED, BUT IF EITHER OF MESSRS. HOLLOWAY OR RUSSELL SHOULD
SUBSEQUENTLY BECOME UNAVAILABLE TO SERVE AS A DIRECTOR, THE PERSONS NAMED AS
PROXIES MAY, IN THEIR DISCRETION, VOTE FOR A SUBSTITUTE NOMINEE DESIGNATED BY
THE BOARD.
NOMINEES FOR ELECTION AS CLASS A-2 DIRECTORS
BENJAMIN D. HOLLOWAY, age 76, joined the Board in May 1999. Mr. Holloway is
presently a financial consultant who serves as a member of the Board of
Directors of Alliance Capital Management L.P. Mr. Holloway served in numerous
capacities over a nearly 40-year career with Equitable Life Assurance Society,
where he most recently served as Vice Chairman of the Board (and director) from
1987 to 1990.
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Mr. Holloway also served as a director or trustee of many charitable and
educational organizations, including Duke University, The American Academy in
Rome and the Cathedral Church of St. John the Divine. Mr. Holloway's term as a
Class A-2 director expires on the date of the 2001 annual meeting of
stockholders of the Company, and upon the election and qualification of his
successor.
JOHN J. RUSSELL, JR., age 54, is presently the Chairman of the Board of the
American Hotel & Motel Association (the "AH&MA") as well as the President,
Hospitality Industry, THINKologies, Inc. Prior to serving in these positions,
Mr. Russell was Vice Chairman of the Travel Division of Cendant Corporation and
President and Chief Executive Officer of Resort Condominium International LLC
(RCI) Global Operations. Before that, he served as Chairman and Chief Executive
Officer of Cendant's Hotel Division. From 1995 to 1996, he was Executive Vice
President of Franchise Sales for the Century 21 Real Estate Corporation, and
from 1992 to 1995, he served as President of Days Inns of America. Mr. Russell
has more than 20 years of experience in the hospitality industry during which he
has held positions with, among others, Benchmark Management Company, Radisson
Hotels International and Sheraton Corporation. Mr. Russell also serves as a
member of the Board of Directors of the Educational Institute of the AH&MA, the
University of Delaware's Hotel and Restaurant Program and Hoteltools.com. Mr.
Russell is a graduate of the United States Military Academy at West Point.
NOMINEE FOR ELECTION AS CLASS B DIRECTOR
STEPHEN P. JOYCE, age 41, joined the Board in May 1999. Mr. Joyce is
Executive Vice President of Franchising for Marriott International, Inc.'s
full-service brands, Marriott Hotels, Resorts and Suites, and Renaissance
Hotels. Mr. Joyce is a 19-year veteran of Marriott. Before joining Marriott
Lodging in 1988, Mr. Joyce was the senior manager of Marriott's Corporate
Finance Group and Partnership and Syndication Group, and has also served as a
financial and operational consultant. He currently serves on the Board of
Directors of the International Franchise Association. Mr. Joyce's term as a
Class B director expires on the date of the 2001 annual meeting of stockholders
of the Company, and upon the election and qualification of his successor.
NOMINEES FOR ELECTION AS SERIES B PREFERRED DIRECTORS
KARIM J. ALIBHAI, age 37, joined the Board in October 2000. Mr. Alibhai is
presently a Principal of the Gencom Group, which he rejoined in June 1999. He
served as President, Chief Operating Officer and a Director of Wyndham
International, Inc. from October 1997 through May 1999. Prior to October 1997,
Mr. Alibhai served as President and Chief Executive Officer of the Gencom Group.
Mr. Alibhai's term as a Series B Preferred Director expires on the date of the
2001 annual meeting of stockholders of the Company, and upon the election and
qualification of his successor.
JOSEPH J. FLANNERY, age 39, joined the Board in October 2000. Mr. Flannery
is a Managing Director in the Global Commercial Real Estate Finance Group in the
Fixed Income Division of Lehman Brothers Inc. Prior to joining Lehman in 1989,
Mr. Flannery held positions with Pannell Kerr Forster and Prudential Life
Insurance Company. Mr. Flannery's term as a Series B Preferred Director expires
on the date of the 2001 annual meeting of stockholders of the Company, and upon
the election and qualification of his successor.
ALAN J. KANDERS, age 36, joined the Board in October 2000. Mr. Kanders is a
Vice President in the Global Commercial Real Estate Finance Group in the Fixed
Income Division of Lehman Brothers Inc. From 1995 to 1997, Mr. Kanders was Vice
President of Development for Wingate Inns, Inc. and from 1992 to 1995, he was
Vice President of Development for Rank Hotels, N.A. Mr. Kanders' term as a
Series B Preferred Director expires on the date of the 2001 annual meeting of
stockholders of the Company, and upon the election and qualification of his
successor.
MAHMOOD J. KHIMJI, age 40, joined the Board in October 2000. Mr. Khimji
presently is a Principal of Highgate Holdings and has held that position since
1988. He is a member of the Board of Visitors of the Faculty of Law for Columbia
University and he previously served on the Board of Directors of Meristar
Hospitality Corporation. Mr. Khimji's term as a Series B Preferred Director
expires on the date of the 2001 annual meeting of stockholders of the Company,
and upon the election and qualification of his successor.
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SHERWOOD M. WEISER, age 70, joined the Board in October 2000. Mr. Weiser is
Chairman, President and Chief Executive Officer of CRC Holdings. He served as
Chairman, President and Chief Executive Officer of Carnival Resorts & Casinos
from March 1994 until April 2001. Mr. Weiser is a member of the Board of
Directors of Carnival Corp. and serves as a member of the Nominating Committee
and the Plan Administration Committee, as well as Chairman of the Compensation
Committee of the Board of Directors of Carnival Corp. He is also a member of the
Board of Directors of Mellon United National Bank, a subsidiary of Mellon Bank,
and Wyndham International, Inc., and is a trustee of the University of Miami.
Mr. Weiser's term as a Series B Preferred Director expires on the date of the
2001 annual meeting of stockholders of the Company, and upon the election and
qualification of his successor.
OTHER DIRECTORS
THOMAS F. HEWITT, age 57, became the Company's Chairman of the Board and
Chief Executive Officer in March 1999. Mr. Hewitt previously was President and
Chief Operating Officer of Carnival Resorts & Casinos, where he headed all hotel
and resort operations. At Carnival, Mr. Hewitt was responsible for over 80
hotels and 17,000 employees in the United States, South America, the Caribbean
and Mexico. Mr. Hewitt joined Carnival in 1985 (when it was known as The
Continental Companies) after a career spanning more than 20 years with Sheraton
Corporation, most recently as the President of its North American division from
1983 to 1985. Mr. Hewitt's term as a Class A-3 director expires on the date of
the 2002 annual meeting of stockholders of the Company, and upon the election
and qualification of his successor.
MICHAEL L. ASHNER, age 48, joined the Board in May 1999. Mr. Ashner
presently serves as President and Chief Executive Officer of Winthrop Financial
Associates, a real estate investment banking firm which owns and manages
approximately 6 million square feet of office and commercial space and 300 hotel
rooms, a general partner of Cecil Associates, which owns 20 Days Inns hotels,
and Chief Executive Officer of Newkirk Associates, which owns and manages more
than 40 million square feet of office and retail space. Mr. Ashner also serves
as President of Exeter Capital Corporation and from 1984 to 1994 served as
President and Chief Executive Officer of National Property Investors, Inc., a
real estate investment banking firm which owned and managed over 40,000
apartments, 5 million square feet of office and commercial space and 4,500 hotel
rooms. Mr. Ashner also serves as a member of the Boards of Directors of
Nexthealth, Inc. and NBTY, Inc. Mr. Ashner's term as a Class A-2 director
expires on the date of the 2001 annual meeting of stockholders of the Company,
and upon the election and qualification of his successor.
PHILLIP H. MCNEILL, SR., age 62, joined the Board in May 1999. Mr. McNeill
is Chairman of the Board and Chief Executive Officer of Equity Inns, Inc. and
has been Chairman and President of McNeill Investment Company, Inc. since 1977.
From 1963 to 1977, he served in various capacities, including President and
Chief Executive Officer, with Schumacher Mortgage Company, Inc., a mortgage
banking firm and subsidiary of Time, Inc. Mr. McNeill has served as President
and director of the Memphis Mortgage Bankers Association and the Tennessee State
Mortgage Bankers Association. He is currently serving as a member of the Board
of Directors of National Commerce Bancorporation, a trustee of Rhodes College
and board member of the Society of Entrepreneurs and Memphis Museum System. Mr.
McNeill's term as a Class A-3 director expires on the date of the 2002 annual
meeting of stockholders of the Company, and upon the election and qualification
of his successor.
J. WILLIAM RICHARDSON, age 53, joined the Board in July 2000 and has served
as the Company's Vice Chairman and Chief Financial Officer since July 1999.
Previously, Mr. Richardson was the Company's Chief Financial Officer and
Executive Vice President, Finance and Administration, and also served in those
capacities for Interstate Hotels Company, the predecessor company ("Old
Interstate"), from 1994 until June 1998. Before that, Mr. Richardson served as
Controller and Treasurer of Old Interstate since 1988. Prior to 1988, Mr.
Richardson was Vice President and a partner in an Atlanta-based hotel management
and development company and also worked with Marriott Corporation. His
experience in the hospitality industry spans over a period of 29 years. He
served as our acting President and Chief Executive Officer from January to March
of 1999. Mr. Richardson's term as a Class A-1 director expires on the date of
the 2003 annual meeting of stockholders of the Company, and upon the election
and qualification of his successor.
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EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
KEVIN P. KILKEARY, age 49, became the Company's President and Chief
Operating Officer in April 1999. Mr. Kilkeary previously served as Executive
Vice President and as Senior Vice President, as well as President and Chief
Operating Officer of the Company's subsidiary, Crossroads Hospitality Company.
Mr. Kilkeary joined Old Interstate in 1972 and has held a variety of other
positions in hotels and at the corporate office, including executive positions
as General Manager, Regional Vice President of Operations, Vice President of
Sales and Marketing and Vice President of Staff Operations.
HENRY L. CIAFFONE, age 60, is the Company's Executive Vice President,
International Operations and Development, a position he has held since January
1999. Mr. Ciaffone, who joined Old Interstate in 1989, previously served as
Senior Vice President and Treasurer. Prior to joining Old Interstate, Mr.
Ciaffone held positions in hotel finance and real estate development at Koala
Inns of America, Sheraton Corporation and the Howard Johnson Company.
GLYN F. AEPPEL, age 42, became the Company's Executive Vice President,
Business Development and Acquisitions in March 2001. From July 1998 to March
2001, Ms. Aeppel served as Senior Vice President of Acquisitions and Development
for FFC Hospitality, LLC. From 1995 to July 1998, she was Vice President of
Development for Old Interstate's Crossroads division. Prior to joining Old
Interstate, Ms. Aeppel held financial and development positions with Lodging
Evaluation Group, Holiday Inn Worldwide and Marriott Corporation.
CHARLES R. TOMB, age 46, is the Company's Senior Vice President,
Development and Acquisitions. He joined Old Interstate in 1992, and most
recently, he oversaw Old Interstate's development activities in the Western
Region as Vice President of Development. Mr. Tomb has approximately 20 years of
experience in the hotel industry, including prior positions with Holiday Inns
Worldwide, Americana Hotels & Resorts and Hyatt Hotels.
TIMOTHY Q. HUDAK, age 38, joined Old Interstate in 1992 as Assistant
General Counsel and now serves as our Senior Vice President and General Counsel.
Prior to joining Old Interstate, Mr. Hudak held the position of Associate
General Counsel for Cyclops Industries, Inc. and, prior to that, practiced law
at the firm of Tucker Arensberg.
ATTENDANCE AT MEETINGS
The Board held 16 meetings during 2000. Mr. Joyce attended 11 of the total
number of meetings of the Board and Board committees on which he served. Each
other director attended at least 75% of the total number of Board meetings and
the total number of Board committee meetings for each committee on which he
served.
COMMITTEES OF THE BOARD
The Board has established four committees--a Compensation Committee, an
Audit Committee, a Nominating Committee and a Capital Committee.
Compensation Committee. The Compensation Committee reviews executive
salaries, administers the bonus, incentive compensation and stock option plans
of the Company and approves the salaries and other benefits of the executive
officers of the Company. In addition, the Compensation Committee consults with
the Company's management regarding pension and other benefit plans and the
compensation policies and practices of the Company. The Compensation Committee
was formed in June 1999 in connection with the Company's spin-off from Wyndham
International, Inc. ("Wyndham") (the "Spin-Off") and is composed of Sherwood M.
Weiser (Chairman), Michael L. Ashner, Joseph J. Flannery and Stephen P. Joyce.
The members of the Compensation Committee are not employed by the Company or any
of its affiliates ("Non-Employee Directors") and are not eligible to receive
options or other rights under any employee stock or other benefit plan (other
than plans in which only directors may participate). The Compensation Committee
held one meeting during 2000.
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Audit Committee. The Audit Committee reviews the professional services
provided by the Company's independent accountants and the independence of such
accountants from the management of the Company. The Audit Committee also reviews
the scope of the audit by the Company's independent accountants, the annual
financial statements of the Company, the Company's system of internal accounting
controls and such other matters with respect to the accounting, auditing and
financial reporting practices and procedures of the Company as it finds
appropriate or as are brought to its attention, and meets from time to time with
members of the Company's internal audit staff. The Audit Committee was formed in
June 1999 in connection with the Spin-Off and is required to consist solely of
non-employee directors. The members of the Audit Committee are Benjamin D.
Holloway (Chairman), Karim J. Alibhai, Michael L. Ashner and Alan J. Kanders.
The Audit Committee held four meetings during 2000.
Nominating Committee. The Nominating Committee was formed in June 1999 in
connection with the Spin-Off and is empowered to nominate persons solely for
election as Class A directors at the annual meetings of stockholders. The
Committee will consider candidates for nominees for directors recommended by
Class A Common stockholders if such recommendations are submitted in writing to
the Secretary of the Company giving the background and qualifications of the
candidate. The Nominating Committee is composed of Thomas F. Hewitt (Chairman),
Joseph J. Flannery, Stephen P. Joyce and Mahmood J. Khimji, and held one meeting
during 2000.
Capital Committee. The Capital Committee was formed in November 2000 in
connection with the Investor Group transaction and reviews and makes
recommendations to the Board regarding acquisitions, financings and other
capital transactions. The Capital Committee is composed of Thomas F. Hewitt
(Chairman), Karim J. Alibhai, Michael L. Ashner, Joseph J. Flannery, J. William
Richardson and Sherwood M. Weiser. The Capital Committee did not hold any
meetings during 2000.
DIRECTOR NOMINATION PROCEDURES
Nominations for election of directors by the stockholders may be made by
the Board or a designated committee thereof or by any stockholder entitled to
vote in the election of directors generally.
DIRECTOR COMPENSATION
Directors who are non-employee directors are paid an annual retainer of
$15,000 plus $1,000 for each Board meeting or working session attended in
person, as well as $500 for each Board meeting in which the director
participates by telephone. In addition, members of directorate committees are
paid $1,000 for each committee meeting attended in person on days on which the
Board does not also meet, as well as $500 for each committee meeting in which
the director participates by telephone.
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EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation paid to Thomas F. Hewitt, who is the Company's Chairman of the
Board and Chief Executive Officer, and each of the four other most highly
compensated executive officers of the Company in 2000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
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ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS PAYOUTS COMPENSATION
--------------------------- ---- -------- -------- ----------- -------- -------------
Thomas F. Hewitt(1).......... 2000 $400,000 $680,000 -- $ 32,000(2) $ 596,059(3)
Chairman of the Board and 1999 338,462 450,000 225,000(4) 27,077(2) 236,722(5)
Chief Executive Officer 1998 -- -- -- -- --
J. William Richardson........ 2000 325,000 552,500 -- 26,000(2) 572,817(6)
Vice Chairman and 1999 303,654 400,000 175,000(4) 24,292(2) 140,762(7)
Chief Financial Officer 1998 265,123 397,684 -- 853,205(8) 3,292,485(9)
Kevin P. Kilkeary............ 2000 300,000 446,250 -- 24,000(2) 101,268(10)
President and 1999 287,788 325,000 150,000(4) 23,023(2) 6,700(11)
Chief Operating Officer 1998 242,844 273,199 -- -- 2,346,519(12)
Henry L. Ciaffone............ 2000 262,159 225,000 50,000(13) 18,000(2) 182,947(14)
Executive Vice President, 1999 237,404 200,000 50,000(13) 17,515(2) 101,804(15)
International Operations 1998 181,610 187,567 -- -- 2,016,934(16)
and Development
Charles R. Tomb.............. 2000 200,000 215,000 35,000(13) 16,000(2) 169,830(17)
Senior Vice President, 1999 195,885 150,000 35,000(13) 15,671(2) 149,312(18)
Development and 1998 160,284 75,000 -- -- 1,113,663(19)
Acquisitions
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(1) Mr. Hewitt became the Chairman of the Board and Chief Executive Officer in
March 1999. Mr. Hewitt's 1999 compensation is for the period from March 1,
1999 through December 31, 1999.
(2) Consists entirely of compensation under the Company's Executive Retirement
Plan (the "ERP").
(3) Consists of restricted stock compensation under the Company's Equity
Incentive Plan of $468,057, Series B Preferred Stock compensation issued in
connection with the Investor Group transaction of $56,556, dividends earned
on Series B Preferred Stock of $17,500, compensation for services as a
director of the Company's subsidiary, Northridge Insurance Company
("Northridge"), of $25,000, imputed interest on a loan by the Company of
$18,480, a car allowance of $9,000 and miscellaneous expense reimbursements
of $1,466.
(4) Consists of shares underlying options granted under the Company's Equity
Incentive Plan, with an exercise price of $4.50 per share. These options
were cancelled in connection with the Investor Group transaction in 2000.
(5) Consists of restricted stock compensation under the Company's Equity
Incentive Plan of $123,173, a reimbursement of costs for relocation of
$89,730, imputed interest on a loan by the Company of $15,400, a car
allowance of $7,615 and miscellaneous expense reimbursements of $804.
(6) Consists of restricted stock compensation under the Company's Equity
Incentive Plan of $406,250, Series B Preferred Stock compensation issued in
connection with the Investor Group transaction of $41,667, dividends earned
on Series B Preferred Stock of $13,125, compensation for services as a
director of Northridge of $25,000, amortization of loan forgiveness of
$70,804 and imputed interest on a loan by the Company of $15,971.
(7) Consists of restricted stock compensation under the Company's Equity
Incentive Plan of $81,250, compensation for services as a director of
Northridge of $25,000, amortization of loan forgiveness of $23,601 and
imputed interest on a loan by the Company of $10,911.
(8) Consists of compensation under the ERP of $34,466 and a deferred
compensation payment of $818,739.
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(9) Consists of stock option proceeds of $1,921,875, loan forgiveness of
$1,060,920, a special bonus of $300,000 and a change-in-control payment of
$9,690.
(10) Consists of Series B Preferred Stock compensation issued in connection with
the Investor Group transaction of $27,778, dividends earned on Series B
Preferred Stock of $8,750, amortization of loan forgiveness of $50,000 and
imputed interest on a loan by the Company of $14,740.
(11) Consists of entirely of imputed interest on a loan by the Company.
(12) Consists of a change-in-control payment of $1,186,394, stock option
proceeds of $1,070,125 and loan forgiveness of $90,000.
(13) Consists of shares underlying options granted under the Company's Equity
Incentive Plan, with an exercise price of $4.50 per share.
(14) Consists of a housing allowance of $98,110, a cost of living allowance of
$48,837, a car allowance of $16,443 and miscellaneous expense
reimbursements of $19,557.
(15) Consists of a housing allowance of $61,130, a cost of living allowance of
$30,429 and a car allowance of $10,245.
(16) Consists of a change-in-control payment of $955,314 with a tax gross up of
$479,120, stock option proceeds of $412,500 and loan forgiveness of
$170,000.
(17) Consists of amortization of loan forgiveness of $149,543, imputed interest
on a loan by the Company of $11,527 and a car allowance of $8,760.
(18) Consists of amortization of loan forgiveness of $74,771, a reimbursement of
costs for relocation of $44,752, imputed interest on a loan by the Company
of $21,029 and a car allowance of $8,760.
(19) Consists of a change-in-control payment of $747,713, stock option proceeds
of $155,000, a reimbursement of costs for relocation of $111,212,
restricted stock compensation of $79,844, commissions of $11,134 and a car
allowance of $8,760.
The following table sets forth information regarding the values of the
options held by the Named Executive Officers at December 31, 2000.
OPTION VALUES AT DECEMBER 31, 2000
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 2000(1) AT DECEMBER 31, 2000(1)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Thomas F. Hewitt........................... -- -- $-- $--
J. William Richardson...................... -- -- $-- $--
Kevin P. Kilkeary.......................... -- -- $-- $--
Henry L. Ciaffone.......................... 16,667 33,333 $-- $--
Charles R. Tomb............................ 11,667 23,333 $-- $--
- ---------------
(1) The options held by Messrs. Hewitt, Richardson and Kilkeary were cancelled
as part of their Amended and Restated Employment Agreements entered into in
connection with the Investor Group transaction. One-third of the options
held by the other Named Executive Officers at December 31, 2000 were
exercisable.
(2) The last sale price as reported on the Nasdaq SmallCap Market on December
29, 2000 was $1.66, which was below the then current option exercise price
of $4.50.
Repricing of Stock Options. Effective February 26, 2001, the Board of
Directors approved the repricing of all outstanding options to purchase shares
of the Company's Class A Common Stock. Each optionee was given the right to
elect to keep their options as of such date for the stated exercise price of
such options of $4.50 or to return 40% of their options, but reducing the
exercise price to $2.00 for their remaining options. The Board of Directors
approved the repricing of the options to provide an incentive to current
employees and officers of the
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Company for their continued employment. All of the stock options repriced,
totalling 939,500 options, originally contained exercise prices that were
significantly higher than the market price.
The following table sets forth information as to the repricing of stock
options for each of the Named Executive Officers.
NUMBER OF MARKET PRICE EXERCISE LENGTH OF
SECURITIES OF STOCK AT PRICE AT NEW ORIGINAL OPTION
REPRICING UNDERLYING TIME OF TIME OF EXERCISE TERM REMAINING
NAME DATE OPTIONS REPRICED REPRICING REPRICING PRICE AT DATE OF REPRICING
- ---- --------- ---------------- ------------ --------- -------- --------------------
Thomas F. Hewitt...... N/A None N/A N/A N/A N/A
J. William
Richardson.......... N/A None N/A N/A N/A N/A
Kevin P. Kilkeary..... N/A None N/A N/A N/A N/A
Henry L. Ciaffone..... 2/26/2001 50,000 $2.31 $4.50 $2.00 8 years, 5 months
Charles R. Tomb....... 2/26/2001 35,000 $2.31 $4.50 $2.00 8 years, 5 months
Outstanding Options. Pursuant to the Equity Incentive Plan, the Company has
granted stock options to purchase an aggregate of 84,500 shares of Class A
Common Stock at an exercise price of $4.50 per share, 30,000 shares of Class A
Common Stock at an exercise price of $2.25 per share and an aggregate of 563,700
shares of Class A Common Stock at an exercise price of $2.00 per share. Each of
the options has a ten-year term and becomes exercisable as to one-third of the
shares covered thereby on each of the first three anniversaries of the date of
grant so long as the holder thereof remains a full-time employee of the Company,
except that the options become immediately exercisable in the event of the
holder's death, disability or termination of employment by the Company for any
reason other than cause (as defined) or in the event a change in control occurs,
including an event in which any person or group becomes the beneficial owner of
more than 50% of the outstanding shares of common stock of the Company entitled
generally to vote in the election of directors. Unexercised options terminate 30
calendar days after the holder's termination of employment by the Company,
except that such period is 180 days in the event of disability and 360 days in
the event of death.
COMPENSATION PLANS AND ARRANGEMENTS
Management Bonus Plan. The Company has established a Management Bonus Plan
under which all key management employees who are directly involved in the
Company's growth and success (other than Messrs. Hewitt, Richardson and
Kilkeary, whose bonuses are to be determined pursuant to their employment
agreements) are eligible to receive bonuses based upon the achievement of
specified targets and goals for the Company and the individual employee. Awards
under the Management Bonus Plan are granted by the Compensation Committee of the
Board and range from zero to specified levels depending on the position of the
individual. Currently, 87 corporate employees are eligible for awards under the
Management Bonus Plan, with 84 of such employees eligible to receive a bonus
ranging from 10% to 70% of their base salaries and four of such employees
eligible to receive up to 125% of their base salaries.
Executive Loans. Pursuant to Mr. Hewitt's employment agreement, on March 1,
1999, the Company loaned Mr. Hewitt $400,000, which loan is due on the earlier
of June 18, 2005 or 30 days after termination of his employment. If Mr. Hewitt's
employment is terminated for any reason other than cause, the loan will be
forgiven. In addition, the Company has loaned Mr. Hewitt $259,254 for payment of
income tax liabilities associated with a restricted stock grant in 1999. If, on
the earlier of February 28, 2003 or the date Mr. Hewitt's employment is
terminated other than for cause, the market value of the stock granted to Mr.
Hewitt is less than $1.5 million, the Company will forgive such loan in
proportion to the amount by which the market value of the stock granted to Mr.
Hewitt is less than $1.5 million.
In 1996, Old Interstate loaned $1.0 million to Mr. Richardson. The
remaining unpaid balance of this loan was forgiven as of June 2, 1998 in
connection with the merger of Old Interstate into Wyndham and in accordance with
the change of control provisions of his severance agreement with Old Interstate.
In 1998, the Company loaned Mr. Richardson $354,018, which loan was forgiven,
pursuant to his employment agreement,
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once he remained with the Company for at least 90 days following the Spin-Off.
The loan is being amortized over a 60-month period beginning on September 16,
1999, so long as his employment agreement remains in full force and effect.
On June 2, 1998, in connection with the merger of Old Interstate into
Wyndham and in accordance with the change of control provisions of their
respective severance agreements with Old Interstate, the Company forgave loans
in the amount of $90,000 and $170,000 to Messrs. Kilkeary and Ciaffone,
respectively. Pursuant to Mr. Kilkeary's employment agreement, the Company
loaned Mr. Kilkeary $300,000, $50,000 of which was forgiven on June 17, 2000,
and the remaining balance of which will be forgiven at the rate of $125,000 per
year on June 17, 2001 and 2002, so long as his employment is not terminated by
the Company for cause or voluntarily by Mr. Kilkeary prior to such dates. Also
pursuant to his employment agreement, in October 2000, the Company loaned Mr.
Kilkeary $500,000, which loan will be forgiven over the three-year period
commencing October 16, 2001 at the rate of $166,666 per year, so long as his
employment is not terminated by the Company for cause or voluntarily by Mr.
Kilkeary prior to such dates.
Pursuant to Mr. Tomb's employment agreement, Mr. Tomb received a loan of
$373,857 from the Company, which was an amount equal to 50% of the severance
compensation he was entitled to receive under his severance agreement with Old
Interstate. This loan amortizes over a 30-month period beginning on June 18,
1999, and is automatically forgiven upon the expiration of his non-compete
period following termination of his employment. In addition, the Company also
loaned $238,000 to Mr. Tomb in 1998 to cover expenses incurred in his relocation
to Pittsburgh, which loan was repaid in full.
Executive Retirement Plan. Each of the General Managers of the Company's
hotels who are employees of the Company and other employees holding job
classifications of Vice President or above, including the Named Executive
Officers, is eligible to participate in the Company's Executive Retirement Plan.
The plan is intended to be a non-qualified and unfunded plan maintained
primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees. Actual participation in the plan
is determined by the Board or the Compensation Committee.
The Company annually contributes 8.0% of each participant's base salary to
the plan and may make discretionary contributions of up to an additional 5.0% of
each participant's base salary. These discretionary contributions are based on
the Company's net increase in earnings per share in a given year. In addition,
plan participants are eligible to designate a portion (to be specified by the
Board or the Compensation Committee) of their annual cash bonus to be
contributed to the plan.
The funds contributed by the Company or participants are held in a grantor
trust established by the Company. Unless the Board or the Compensation Committee
determines that the amounts contributed to the plan on behalf of a participant
are payable earlier, in general, a participant in the plan will receive his plan
benefits one year after his retirement or termination of employment. Plan
benefits are paid out in a lump sum and are deductible by the Company and
taxable to the plan participant as ordinary income upon receipt by the
participant.
Employee Stock Purchase Plan. Under the Employee Stock Purchase Plan, each
full-time employee who has completed 12 consecutive months of employment with
the Company or a predecessor, excluding any employee whose customary employment
is not for more than 20 hours per week or more than five months per calendar
year, is eligible to participate. A participating employee may elect to
authorize the Company to withhold a maximum of 8.0% of such employee's salary.
The withheld amount is held in the participating employee's account and used to
purchase the Company shares on a semi-annual basis at a price equal to a
designated percentage, established semi-annually by the Compensation Committee,
from 85% to 100% of the average closing sale price for the Company shares as
reported by The Nasdaq SmallCap Market on the date the shares are purchased.
Such sale price may not be less than the lesser of (i) 85% of the fair market
value of such shares on the date of the regular offering of the right to
participate in such plan and (ii) 85% of the fair market value of such shares on
the date the shares are purchased. The fair market value of the shares available
for purchase by a participating employee (determined as of the offering date)
generally may not exceed $25,000 per calendar year.
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On January 11, 2001, the Compensation Committee of the Board authorized the
Company to terminate the Employee Stock Purchase Plan due to the depletion of
the number of shares authorized for issuance under the plan and, accordingly,
the Company terminated the plan. The final allocation of 152,696 shares to the
participants, valued at $214,982, occurred on February 12, 2001 for the purchase
period ended December 31, 2000.
Equity Incentive Plan. The Company's Equity Incentive Plan is designed to
attract and retain qualified officers and other key employees. The Equity
Incentive Plan authorizes the grant of:
- options to purchase Company shares;
- restricted shares;
- unrestricted shares; and
- deferred shares.
The Compensation Committee of the Board administers the Equity Incentive
Plan and determines to whom grants will be made and the terms and conditions
thereof.
The number of Company shares that may be issued or transferred and covered
by outstanding awards granted under the Equity Incentive Plan was initially
2,300,000 shares. At December 31, 1999 and each June 30 and December 31
thereafter, an additional positive number equal to 20% of the additional shares
of Class A Common Stock issued during that six-month period will be added to the
total number of Company shares subject to the plan. Officers, directors, key
employees and consultants and those of the Company's subsidiaries may be
selected to receive benefits under the Equity Incentive Plan. Pursuant to the
Amended and Restated Employment Agreements of Messrs. Hewitt and Richardson
entered into in connection with the Investor Group transaction, all 331,917 of
the restricted shares of Class A Common Stock previously granted to Messrs.
Hewitt and Richardson have fully vested. In addition, approximately 1,370,000
shares are available for additional awards under the Equity Incentive Plan.
EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
We have entered into an employment agreement with Mr. Hewitt pursuant to
which:
-- He serves as the Company's Chairman of the Board and Chief Executive
Officer.
-- Mr. Hewitt is employed for a four-year term which began on October 20,
2000. In addition, on October 20, 2002 and every even-numbered
anniversary thereafter, Mr. Hewitt's agreement will be automatically
extended for two-years, unless either party gives 90 days' prior
written notice otherwise.
-- Mr. Hewitt was previously issued 181,917 restricted shares of the
Company's Class A Common Stock. All previously unvested shares vested
on October 20, 2000. In addition, the Company also loaned Mr. Hewitt
$259,254 for payment of his income tax liabilities associated with the
restricted stock grant. If, on the earlier of February 28, 2003 or the
date Mr. Hewitt's employment is terminated other than for cause, the
market value of the stock granted to Mr. Hewitt is less than $1.5
million, the Company will forgive this loan in proportion to the
amount by which the market value of the stock granted to Mr. Hewitt is
less than $1.5 million.
-- Additionally, the Company loaned Mr. Hewitt $400,000 which is due on
June 18, 2005 or 30 days after the termination of Mr. Hewitt's
employment, whichever is earlier. If Mr. Hewitt's employment is
terminated by the Company other than for cause, the loan will be
forgiven.
-- Mr. Hewitt was granted 100,000 shares of the Series B Preferred Stock
(the "Hewitt Preferred Stock"), subject to the vesting requirements
described below. In connection with the grant, Mr. Hewitt executed a
Stockholders Agreement with the Investor Group which provides for
certain rights and restrictions in connection with Mr. Hewitt's
ownership.
-- Mr. Hewitt was also granted a 3% partnership interest as a limited
partner ("Hewitt JV Interest") in CGLH-IHC Fund I, L.P., the joint
venture formed with the Investor Group (the "Joint Venture").
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15
-- Upon Mr. Hewitt's termination of employment, he will be entitled to
receive:
- his minimum bonus, if he resigns without good reason;
- his minimum bonus, an amount equal to twice his base pay and minimum
bonus, continuation for 24 months of his health and welfare
benefits, and immediate vesting and nonforfeiture of the Hewitt
Preferred Stock and Hewitt JV Interest, if his employment is
terminated by the Company for any reason other than cause, or death
or disability or if his employment is terminated voluntarily by Mr.
Hewitt for good reason; and
- his minimum bonus for the year of termination of his employment, his
base pay and minimum bonus for a period of 12 months following the
termination of his employment, and immediate vesting and
nonforfeiture of the Hewitt Preferred Stock and Hewitt JV Interest,
if his employment is terminated as a result of his death or
disability.
-- Upon Mr. Hewitt's termination of employment by the Company for cause
or voluntary termination by Mr. Hewitt without good reason,
- prior to October 16, 2001, Mr. Hewitt will forfeit the Hewitt
Preferred Stock and the Hewitt JV Interest;
- on or after October 16, 2001 but prior to October 16, 2002, Mr.
Hewitt will forfeit two-thirds of the Hewitt Preferred Stock and the
Hewitt JV Interest;
- on or after October 16, 2002 but prior to October 16, 2003, Mr.
Hewitt will forfeit one-third of the Hewitt Preferred Stock and the
Hewitt JV Interest;
- on or after October 16, 2003, Mr. Hewitt will not be subject to
forfeiting either the Hewitt Preferred Stock or the Hewitt JV
Interest.
-- Upon Mr. Hewitt's termination of employment for any reason, the
Company may purchase the vested Hewitt Preferred Stock, to the extent
not subject to forfeiture, for its fair market value and the Joint
Venture may purchase the vested Hewitt JV Interest for an amount which
varies based on the reason for termination.
-- If Mr. Hewitt is taxed on "excess parachute payments" under the
Internal Revenue Code as a result of a change in control of the
Company, Mr. Hewitt will be entitled to a gross-up payment.
-- Mr. Hewitt was previously entitled to certain payments on account of a
change in control of the Company. Under his amended and restated
employment agreement, Mr. Hewitt is no longer entitled to these
payments.
-- Mr. Hewitt has agreed to non-compete and non-solicitation provisions.
-- Mr. Hewitt is obligated to keep in strict confidence any trade secrets
and confidential business and technical information of the Company.
-- Mr. Hewitt is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
We have also entered into employment agreements with Mr. Richardson, Mr.
Kilkeary, Mr. Ciaffone and Mr. Tomb.
Pursuant to the terms of Mr. Richardson's employment agreement:
-- He serves as the Company's Vice Chairman and Chief Financial Officer.
-- Mr. Richardson is employed for a three-year term which began on
October 20, 2000. In addition, on October 20, 2002 and every
anniversary thereafter, Mr. Richardson's agreement will be
automatically extended for one-year, unless either party gives 90
days' prior written notice otherwise.
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-- Mr. Richardson was previously issued 150,000 restricted shares of the
Company's Class A Common Stock. All previously unvested shares vested
on October 20, 2000.
-- The Company forgave a loan in the amount of $354,018 once Mr.
Richardson had remained with the Company for at least 90 days
following the Company's spin-off. The loan forgiveness is being
amortized over a 60-month period beginning on September 16, 1999, so
long as his employment agreement remains in effect.
-- Mr. Richardson was granted 75,000 shares of the Series B Preferred
Stock (the "Richardson Preferred Stock"), subject to the vesting
requirements described below. In connection with the grant, Mr.
Richardson executed a Stockholders Agreement with the Investor Group
which provides for certain rights and restrictions in connection with
Mr. Richardson's ownership.
-- Mr. Richardson was also granted a 2.25% Partnership Interest in the
Joint Venture as a limited partner ("Richardson JV Interest").
-- Upon Mr. Richardson's termination of employment, he will be entitled
to receive:
- (1) the greater of (a) his salary and bonus for the year preceding
termination and (b) his salary and bonus for the remainder of the
term of the agreement, (2) the continuation of health and welfare
benefits for one year following termination of employment and (3)
immediate vesting and nonforfeiture of the Richardson Preferred
Stock and Richardson JV Interest, if his employment is terminated by
the Company for any reason other than cause, death or disability, or
if his employment is terminated voluntarily by Mr. Richardson for
good reason; and
- his base pay for a period of 12 months following the termination of
his employment, and immediate vesting and nonforfeiture of the
Richardson Preferred Stock and Richardson JV Interest, if his
employment is terminated as a result of his death or disability.
-- Upon Mr. Richardson's termination of employment by the Company for
cause,
- prior to October 16, 2001, Mr. Richardson will forfeit the
Richardson Preferred Stock and the Richardson JV Interest;
- on or after October 16, 2001 but prior to October 16, 2002, Mr.
Richardson will forfeit two-thirds of the Richardson Preferred Stock
and the Richardson JV Interest;
- on or after October 16, 2002 but prior to October 16, 2003, Mr.
Richardson will forfeit one-third of the Richardson Preferred Stock
and the Richardson JV Interest; and
- on or after October 16, 2003, Mr. Richardson will not be subject to
forfeiting the Richardson Preferred Stock or the Richardson JV
Interest.
-- Upon the voluntary termination of Mr. Richardson's employment by Mr.
Richardson without good reason during the nine month period ending
July 16, 2001, Mr. Richardson will forfeit the Richardson Preferred
Stock and the Richardson JV Interest.
-- Upon Mr. Richardson's termination of employment for any reason, the
Company may purchase the vested Richardson Preferred Stock, to the
extent not subject to forfeiture, for its fair market value and the
Joint Venture may purchase the vested Richardson JV Interest for an
amount which varies based on the reason for termination.
-- If Mr. Richardson is taxed on "excess parachute payments" under the
Internal Revenue Code as a result of a change in control of the
Company, Mr. Richardson will be entitled to a gross-up payment.
-- Mr. Richardson was previously entitled to certain payments on account
of a change in control of the Company. Under his amended and restated
employment agreement, Mr. Richardson is no longer entitled to these
payments.
-- Mr. Richardson has agreed to non-compete and non-solicitation
provisions.
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-- Mr. Richardson is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Richardson is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
Pursuant to the terms of Mr. Kilkeary's employment agreement:
-- Mr. Kilkeary serves as the Company's President and Chief Operating
Officer.
-- Mr. Kilkeary is employed for a three-year term which began on October
20, 2000. In addition, on October 20, 2002 and every anniversary
thereafter, Mr. Kilkeary's agreement will be automatically extended
for one-year, unless either party gives 90 days' prior written notice
otherwise.
-- The Company previously loaned Mr. Kilkeary $300,000. Fifty percent of
this loan was forgiven on June 17, 2000, and the remaining balance of
which will be forgiven at the rate of $125,000 per year on June 17,
2001 and 2002, so long as his employment is not terminated by the
Company for cause prior to such dates or voluntarily by Mr. Kilkeary
without good reason prior to October 16, 2001.
-- On October 20, 2000 the Company loaned Mr. Kilkeary $500,000. This
loan will be forgiven over the three-year period commencing on October
16, 2000, at the rate of $166,666 per year, so long as his employment
is not terminated by the Company for cause or voluntarily by Mr.
Kilkeary without good reason prior to such dates.
-- Mr. Kilkeary was granted 50,000 shares of the Series B Preferred Stock
(the "Kilkeary Preferred Stock"), subject to the vesting requirements
described below. In connection with the grant, Mr. Kilkeary executed a
Stockholders Agreement with Investor Group which provides for certain
rights and restrictions in connection with Mr. Kilkeary's ownership.
-- Upon Mr. Kilkeary's termination of employment, he will be entitled to
receive:
- (1) the greater of (a) his salary and bonus for the year preceding
termination and (b) his salary and bonus for the remainder of the
agreement, (2) the continuation of health and welfare benefits for
one year following termination of employment and (3) immediate
vesting and nonforfeiture of the Kilkeary Preferred Stock, if his
employment is terminated by the Company for any reason other than
cause, death or disability or if his employment is terminated
voluntarily by Mr. Kilkeary for good reason; and
- his base pay for a period of 12 months following the termination of
his employment, and immediate vesting and nonforfeiture of the
Kilkeary Preferred Stock, if his employment is terminated as a
result of his death or disability.
-- Upon the termination of Mr. Kilkeary's employment by the Company for
cause or by Mr. Kilkeary without good reason:
- prior to October 16, 2001, Mr. Kilkeary will forfeit the Kilkeary
Preferred Stock;
- on or after October 16, 2001 but prior to October 16, 2002, Mr.
Kilkeary will forfeit two-thirds of the Kilkeary Preferred Stock;
- on or after October 16, 2002 but prior to October 16, 2003, Mr.
Kilkeary will forfeit one-third of the Kilkeary Preferred Stock; and
- on or after October 16, 2003, Mr. Kilkeary will not be subject to
forfeiting the Kilkeary Preferred Stock.
-- Upon Mr. Kilkeary's termination of employment for any reason, the
Company, may purchase the Kilkeary Preferred Stock for its fair market
value.
-- If Mr. Kilkeary is taxed on "excess parachute payments" under the
Internal Revenue Code as a result of a change in control of the
Company, Mr. Kilkeary will be entitled to a gross-up payment.
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-- Mr. Kilkeary was previously entitled to certain payments on account of
a change in control of the Company. Under his amended and restated
employment agreement, Mr. Kilkeary is no longer entitled to these
payments.
-- Mr. Kilkeary has agreed to non-compete and non-solicitation
provisions.
-- Mr. Kilkeary is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Kilkeary is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
Pursuant to the terms of Mr. Ciaffone's employment agreement:
-- The term of Mr. Ciaffone's employment is three years, ending November
30, 2001, which will be automatically extended for additional one-year
terms unless otherwise terminated by either party by giving written
notice to the other 90 days prior to a scheduled term expiration date.
-- In the event of the termination of Mr. Ciaffone's employment for any
reason other than cause or disability, he will be entitled to: (1) the
greater of (a) his salary and bonus for the immediately preceding six
months and (b) his salary and bonus for the remainder of the term of
the agreement and (2) the continuation of health and welfare benefits
for six months following termination of employment.
-- Mr. Ciaffone has agreed to non-compete and non-solicitation
provisions.
-- Mr. Ciaffone is obligated to keep in strict confidence any trade
secrets and confidential business and technical information of the
Company.
-- Mr. Ciaffone is entitled to have his legal fees and related expenses
paid by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
Pursuant to the terms of Mr. Tomb's employment agreement:
-- The term of Mr. Tomb's employment is three years, ending June 1, 2001,
which will be automatically extended for additional one-year terms
unless otherwise terminated by either party by giving written notice
to the other 90 days prior to a scheduled term expiration date. The
Company has given notice to Mr. Tomb of its election to not renew Mr.
Tomb's employment agreement on its current terms. The Company expects
that prior to June 1, 2001, the Company and Mr. Tomb will reach
agreement on a restructured employment agreement.
-- As a result of the change in control triggered by the merger of Old
Interstate into Wyndham, Mr. Tomb received 50% of the severance
compensation he was entitled to receive under his severance agreement
with Old Interstate.
-- Mr. Tomb received a loan of $373,857, which was an amount equal to the
remaining 50% of such severance compensation, which amortizes over a
30-month period beginning June 18, 1999, and is automatically forgiven
upon the expiration of his non-compete period following termination of
his employment.
-- If Mr. Tomb terminates his employment for reasons other than a change
in control or a material change in his job responsibilities, he is
required to repay the unamortized portion of the severance loan.
-- In the event the Company terminates Mr. Tomb without cause or either
Mr. Tomb or the Company terminates his employment as the result of a
change in control or a material change in his job responsibilities
during the initial three-year term of his employment, he is entitled
both to forgiveness of the severance loan and continuation of health
and welfare benefits for the greater of 18 months or the remainder of
the term of the agreement.
-- If the Company terminates Mr. Tomb without cause or he terminates his
employment as a result of a change in control or a material change in
his job responsibilities after the expiration of the initial three-
year term of his employment, he is entitled to an amount equal to his
salary and bonus for up to a maximum of six months.
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-- Mr. Tomb has agreed to non-compete and non-solicitation provisions.
-- Mr. Tomb is obligated to keep in strict confidence any trade secrets
and confidential business and technical information of the Company.
-- Mr. Tomb is entitled to have his legal fees and related expenses paid
by the Company in connection with interpretation, enforcement or
defense of his rights under the employment agreement.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation of the Company's executives is performance-based, with the
majority of the compensation at risk in order to link compensation to corporate
performance and stockholder interests. The compensation package is comprised of
three major components: base salary, annual bonus and long-term incentives in
the form of equity rights.
An executive's base salary is determined by taking into consideration the
executive's performance, individual job responsibilities, previous experience
and mastery of the business, position in the current salary range designated for
his or her job and, where appropriate, potential for advancement. Salary ranges
are set based on external market data and internal factors, and are intended to
ensure that executive base salaries are competitive but not leading the
industry.
Increases in base salaries for key executives are reviewed and rewarded
when appropriate in January of each year based on the executive's performance in
the prior year.
Annual bonuses are awarded based on criteria established pursuant to the
Company's Management Bonus Plan, which was created to provide at-risk incentive
pay that would lead the market as a percent of base salary when the Company
meets its performance objectives, thereby moving total cash compensation for the
Company's executive management to a more competitive position compared to other
hospitality companies in circumstances in which the Company is performing well.
The Company has established a Management Bonus Plan under which all key
management employees who are directly involved in the Company's growth and
success (other than Messrs. Hewitt, Richardson and Kilkeary, whose bonuses are
to be determined pursuant to their employment agreements) are eligible to
receive bonuses based upon the achievement of specified targets and goals for
the Company and the individual employee. Awards under the Management Bonus Plan
are made by the Compensation Committee and range from zero to specified levels
depending on the position of the individual. Mr. Hewitt is entitled to receive a
bonus equal to up to 200% of his salary. Mr. Hewitt earned $680,000 for the
performance period ending December 31, 2000.
Effective as of February 26, 2001, at the recommendation of the
Compensation Committee, the Board approved the repricing of all outstanding
options to purchase shares of the Company's Class A Common Stock, including
those held by certain Named Executive Officers. The new exercise price was fixed
at $2.00 per share, which is less than the last reported sales price of the
Company's common stock on the NASDAQ SmallCap Market on that trading day. The
last reported sales price on February 26, 2001 was $2.31 per share.
In order to benefit from the repricing, the Company's optionees were
required to elect to participate in the repricing program on or before March 27,
2001 with respect to all or any portion of their outstanding options. Each
optionee was given 20 business days in which to elect to keep their existing
options for the stated exercise price of such options of $4.50 or to return 40%
of their options, but reducing the exercise price to $2.00 for their remaining
options. All of the stock options repriced, totalling 939,500 options (including
85,000 options held by Named Executive Officers), originally contained exercise
prices that were significantly higher than the market price.
Long-term incentives are awarded pursuant to the Equity Incentive Plan
through grants of restricted stock and stock options. Both the restricted stock
and the stock options vest over a three-year period from the date of grant. The
stock options have a ten-year term. Pursuant to their employment agreements,
Messrs. Hewitt and Richardson were granted restricted stock in the amounts of
181,917 shares and 150,000 shares, respectively, of the Company's Class A Common
Stock. In addition, following the Spin-Off, Messrs. Hewitt, Richardson and
Kilkeary were granted options to purchase 225,000, 175,000 and 150,000
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shares of Class A Common Stock, respectively, at an exercise price of $4.50 per
share. Pursuant to the terms of their Amended and Restated Employment Agreements
entered into in connection with the Investor Group transaction, Mr. Hewitt's and
Mr. Richardson's unvested restricted stock fully vested and Messrs. Hewitt's,
Richardson's and Kilkeary's options to purchase shares of Class A Common Stock
were cancelled. In addition, Messrs. Hewitt, Richardson and Kilkeary received
100,000, 75,000 and 50,000 shares, respectively, of Series B Preferred Stock,
subject to vesting restrictions
The Compensation Committee believes that the Company's compensation
policies and practices are consistent with the Company's goal of building
stockholder value, and the Compensation Committee intends to administer those
policies consistent with that goal.
Respectfully submitted,
Sherwood M. Weiser, Chairman
Michael L. Ashner
Joseph J. Flannery
Stephen P. Joyce
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was formed in June 1999 and currently is
composed of Sherwood M. Weiser (Chairman), Michael L. Ashner, Joseph J. Flannery
and Stephen P. Joyce.
REPORT OF THE AUDIT COMMITTEE
To the fullest extent permitted under applicable laws and regulations, the
following Report of the Audit Committee covering the Company's fiscal year ended
December 31, 2000, shall not be deemed to be "soliciting material" or to be
"filed" with the Securities and Exchange Commission (the "SEC") or subject to
Regulations 14A or 14C of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the liabilities of Section 18 of the Exchange Act. To the
fullest extent permitted under applicable laws and regulations, the Report of
the Audit Committee shall not be deemed incorporated by reference into any
filing under the Securities Act of 1933, as amended, notwithstanding any general
incorporation by reference of this Proxy Statement into any other document.
The Audit Committee is comprised of four independent directors within the
meaning of NASD Rule 4200. The Audit Committee operates under a written charter
adopted by the Board. (A copy of the Audit Committee Charter is attached as an
Appendix to this proxy statement.) The Audit Committee recommends, subject to
shareholder ratification, the election of the Company's independent public
accountants.
The Audit Committee oversees and reviews the Company's internal accounting
controls, the professional services provided by and the independence of the
Company's independent auditors and the financial reporting process. The
independent public accountants are responsible for performing an independent
audit of the Company's consolidated financial statements and issuing an opinion
on the conformity of those audited financial statements with generally accepted
accounting principles in the United States of America.
The Audit Committee has reviewed and discussed the audited financial
statements of the Company contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000 with the Company's management,
PricewaterhouseCoopers LLP, the Company's independent accountants, and the
Board. The Audit Committee also discussed with PricewaterhouseCoopers LLP the
matters required to be discussed by Statement of Accounting Standards No. 61
(Communications with Audit Committees) and discussed PricewaterhouseCoopers
LLP's independence. In addition, the Audit Committee has received the written
disclosures and the letter from PricewaterhouseCoopers LLP required by the
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees), as currently in effect, and it has discussed with the accountants
their independence from the Company. Based on the reviews and discussions
referred to above, the Audit Committee recommended to the Board that the audited
consolidated financial statements of the Company be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000, filed with the
SEC. The Audit Committee reviewed the amounts and types of non-audit services
provided by PricewaterhouseCoopers LLP and based on their review concluded that
the independence of PricewaterhouseCoopers LLP was not compromised in any way.
Respectfully submitted,
Benjamin D. Holloway, Chairman
Karim J. Alibhai
Michael L. Ashner
Alan J. Kanders
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STOCK PERFORMANCE
The following graph compares the cumulative total stockholder return on the
Company's Class A Common Stock with the Lodging Hotels SmallCap Index and the
Standard & Poor's SmallCap 600 Index from the date trading of the Common Stock
on the Nasdaq SmallCap Market commenced through December 31, 2000, assuming an
initial investment of $100.00 and the reinvestment of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURNS
AMONG INTERSTATE HOTELS CORPORATION, THE LODGING HOTELS SMALLCAP INDEX AND THE
S&P SMALLCAP 600 INDEX
INTERSTATE HOTELS S&P SMALLCAP 600 LODGING-HOTELS-
CORP. INDEX SMALL
----------------- ---------------- ---------------
6/18/99 100.00 100.00 100.00
12/31/00 33.12 96.61 99.21
JUNE 18, 1999 DECEMBER 31, 2000
------------- -----------------
Interstate Hotels Corporation........................... 100 33.12
Lodging Hotels SmallCap Index........................... 100 99.21
S&P SmallCap 600 Index.................................. 100 96.61
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial
ownership of Class A Common Stock as of the Record Date by (1) each person known
by the Company to own beneficially more than 5% of the Class A Common Stock, (2)
each director and Named Executive Officer of the Company, and (3) all directors
and executive officers of the Company as a group. The figures in the following
table are based on 6,309,885 shares of Class A Common Stock outstanding as of
the Record Date and assume that an additional 6,221,220 shares of Class A Common
Stock are outstanding upon conversion by the Investor Group of the Notes and/or
shares of Series B Preferred Stock into Class A Common Stock (See Note 7 below).
Unless indicated otherwise, the address for each of the persons named in the
table is c/o Interstate Hotels Corporation, Foster Plaza Ten, 680 Andersen
Drive, Pittsburgh, Pennsylvania 15220. For purposes of the
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table, a person or group of persons is deemed to have "beneficial ownership" of
any shares as of a given date which such person has the right to acquire within
60 days after such date.
PERCENTAGE OF
NUMBER OF CLASS A
NAME SHARES OWNED SHARES OWNED
---- ------------ -------------
Thomas F. Hewitt............................................ 191,434 1.5%
J. William Richardson(1).................................... 154,276 1.2%
Kevin P. Kilkeary........................................... 27,166 *
Henry L. Ciaffone........................................... -- --
Charles R. Tomb............................................. 123 *
Karim J. Alibhai(2)......................................... 6,251,220 49.6%
Michael L. Ashner........................................... 15,000 *
Joseph J. Flannery.......................................... -- --
Benjamin D. Holloway........................................ 4,000 *
Stephen P. Joyce............................................ -- --
Alan J. Kanders............................................. -- --
Mahmood J. Khimji........................................... -- --
Phillip H. McNeill, Sr...................................... 36,230 *
John J. Russell, Jr. ....................................... -- --
Sherwood M. Weiser(3)....................................... 6,243,977 49.5%
Odessa Limited(4)........................................... 607,000 4.8%
Gary M. Goldberg and affiliates(5).......................... 310,033 2.5%
Corporate Capital, L.L.C.(6)................................ 360,000 2.9%
CGLH Partners I LP and CGLH Partners II LP as a group(7).... 6,221,220 49.4%
All directors and executive officers as a group (16
persons)(8)............................................... 6,702,340 53.2%
- -------------------------
* Less than 1%
(1) Includes 43 shares held by Mr. Richardson's daughter.
(2) Includes 6,221,220 shares (adjusted to reflect 6,309,885 shares of
Class A Common Stock outstanding as of the Record Date) held indirectly
through Mr. Alibhai's indirect interests in CGLH Partners I LP and CGLH
Partners II LP. See Footnote (7) below.
(3) Includes 115 shares held indirectly through Mr. Weiser's interests in
W/L Tampa and 6,221,220 shares (adjusted to reflect 6,309,885 shares of
Class A Common Stock outstanding as of the Record Date) held indirectly
through Mr. Weiser's indirect interests in CGLH Partners I LP and CGLH
Partners II LP. See Footnote (7) below.
(4) As reported in a Schedule 13D filed with the SEC on August 15, 2000.
The address of Odessa Limited is International House, Victoria Road,
Douglas, Isle of Man, British Isles.
(5) As reported in an amended Schedule 13D filed with the SEC on October 5,
2000. Represents shares held in managed discretionary and
non-discretionary accounts for clients advised by Gary M. Goldberg &
Co., Inc., VIP 100, L.P. and/or Gary Goldberg VIP 100, Inc. Gary M.
Goldberg is a controlling person of all of these entities and, as such,
is deemed to be the beneficial owner of any shares of the Company's
Class A Common Stock of which these entities may be deemed to
beneficially own. This information is based solely upon the contents of
joint filings made by Mr. Goldberg and his affiliates pursuant to
Section 13 of the Securities Exchange Act of 1934. The address of the
Gary M. Goldberg group is c/o Gary M. Goldberg, Montebello Park, 75
Montebello Road, Suffern, New York 10901.
(6) As reported in a Schedule 13D filed with the SEC on April 18, 2000. The
address of Corporate Capital, L.L.C. is 909 Poydras Street, New
Orleans, Louisiana 70112.
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(7) According to the amended Schedule 13D, dated October 20, 2000, and
adjusting the percentage to reflect 6,309,885 shares of Class A Common
Stock outstanding as of the Record Date, the following entities
beneficially own the Company's Class A Common Stock that the Investor
Group has the right to acquire pursuant to the terms of the Series B
Preferred Stock and the Notes held by the Investor Group: (i) CGLH
Partners I LP (sole voting power over 1,250,000 shares); (ii) CGLH
Partners II LP (sole voting power over 6,221,220 shares); (iii) LB
Interstate GP LLC; (iv) LB Interstate LP LLC; (v) PAMI LLC; (vi)
Property Asset Management Inc.; (vii) Lehman ALI Inc.; (viii) Lehman
Brothers Holdings Inc.; (ix) MK/CG GP LLC; (x) MK/CG LP LLC; (xi) CG
Interstate Associates LLC; (xii) Continental Gencom Holdings, LLC;
(xiii) KFP Interstate, LLC; (xiv) Grosvenor, LLC; (xv) KFP Holdings,
Ltd.; (xvi) Sherwood M. Weiser (sole voting power over 22,757 shares);
(xvii) Donald E. Lefton (sole voting power over 21,505 shares); (xviii)
Karim J. Alibhai (sole voting power over 30,000 shares). Each of the
foregoing entities (other than CGLH Partners I LP and CGLH Partners II
LP) have shared voting power over 6,221,220 shares of the Company's
Class A Common Stock. CGLH Partners I LP and CGLH Partners II LP have
sole voting power over the shares listed in clauses (i) and (ii) above,
but do not have any shared voting power over any other shares. The
terms of the Series B Preferred Stock and the Notes prohibit any single
holder and its affiliates or any group of which any of them is a member
from converting into more than 49% of the Company's common stock. If
this restriction were not applicable, the Notes and Series B Preferred
Stock held by the foregoing entities initially would be convertible
into an aggregate of 7,500,000 shares of Class A Common Stock or
approximately 53% of the Company's outstanding common stock on the date
of issuance. For more information, see the amended Schedule 13D, dated
October 20, 2000. The address of CGLH Partners I LP and CGLH Partners
II LP is c/o Lehman Brothers Holdings Inc., 200 Vesey Street, 12th
Floor, New York, New York 10285.
(8) Includes 6,221,220 shares held indirectly through Mr. Alibhai's and Mr.
Weiser's indirect interests in CGLH Partners I LP and CGLH Partners II
LP.
All of the 242,555 outstanding shares of Class B Common Stock of the
Company are beneficially owned by Marriott Hotel Services, Inc. The address of
Marriott Hotel Services, Inc. is One Marriott Drive, Washington, D.C. 20058.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
VOTING AGREEMENT
General. Upon consummation of the Spin-Off, three directors and/or
executive officers of Wyndham and entities with which the directors and/or
officers are affiliated entered into a Voting Agreement with the Company. Such
directors, officers and affiliated entities are referred to as the "Voting
Stockholders."
Voting Provisions. The Voting Agreement applies to all stockholder votes
taken at any time when the Voting Stockholders, together with Wyndham and other
identified directors and executive officers of Wyndham (collectively referred to
in this section as the "Affiliated Stockholders"), own greater than 9.9% of the
outstanding shares of the Company's Class A Common Stock. The Voting Agreement
provides that, in such circumstances, the Voting Stockholders will vote their
Company shares in proportion with the results of voting on the particular matter
by all Company Class A stockholders other than the Voting Stockholders and the
Affiliated Stockholders. This proportional voting will have the effect of
nullifying the impact of voting by the Voting Stockholders on the particular
matter and reducing the impact of voting by the Affiliated Stockholders on such
matter.
Divestiture Provisions. The Voting Agreement also provides that the Voting
Stockholders will use reasonable efforts to sell or otherwise dispose of a
number of shares of the Company's Class A Common Stock such that the Voting
Stockholders and the Affiliated Stockholders will collectively own 9.9% or less
of the outstanding shares of the Company's Class A Common Stock by the first
anniversary of the Spin-Off. The Voting Stockholders are thus obligated under
the Voting Agreement to sell an aggregate of approximately 690,000 Company
shares, or 10.8% of the outstanding shares of the Company's Class A Common
Stock, by
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June 18, 2000. Thereafter, the Voting Stockholders' selling obligations will
become effective again at any time within five years after the Spin-Off that the
Voting Stockholders are informed by the Company that the Voting Stockholders and
the Affiliated Stockholders collectively own greater than 9.9% of the
outstanding shares of the Company's Class A Common Stock.
The Company's Call Right. In the event that the Voting Stockholders fail to
comply with their obligations to sell Company shares as described above within
five years after the Spin-Off, the Company has a call right to purchase from the
Voting Stockholders for fair market value the number of shares of the Company's
Class A Common Stock the Voting Stockholders were obligated to sell. Marriott
has the right to compel the Company to exercise its call right if the Company
fails to do so.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
The Company has granted loans from time to time to its senior executives,
including each of the Named Executive Officers. Such loans are payable upon
demand and, in general, do not bear interest until such demand is made. See
"--Compensation Plans and Arrangements--Executive Loans and --Employment and
Change-in-Control Agreements" for a description of loans from the Company to the
Named Executive Officers.
In August 2000, the Company acquired a 25% non-controlling equity in the
Houston Astrodome/Medical Center Residence Inn by Marriott in Houston, Texas for
a total acquisition cost of approximately $800,000. Prior to the acquisition,
Karim J. Alibhai beneficially owned a 7.53% ownership interest in the entity
that sold the hotel. Following the acquisition, Mr. Alibhai holds a 22.46%
ownership interest in the hotel.
In October 2000, the Company issued the Notes and 500,000 shares of the
Series B Preferred Stock to the Investor Group, which are entities affiliated
with Lehman Brothers Holdings Inc. and Messrs. Alibhai, Khimji and Weiser,
pursuant to a Securities Purchase Agreement dated August 31, 2000. Both the
Series B Preferred Stock and the Notes are convertible at any time into Class A
Common Stock of the Company at $4.00 per share. The terms of these securities
prevent the Investor Group or any other holder from converting the securities
into Class A Common Stock of the Company if that conversion would result in the
holder, their affiliates or any group to which they belong, owning more than 49%
of the Company's total common stock outstanding after the conversion.
In connection with the Investor Group transaction, the Company entered into
amended and restated employment agreements with Messrs. Hewitt, Richardson and
Kilkeary. These amended and restated employment agreements provided, among other
things, for the issuance of an aggregate of 225,000 shares of the Series B
Preferred Stock valued at $2.25 million to these individuals. This Series B
Preferred Stock was issued on October 20, 2000 and is subject to vesting
restrictions. Twenty-five million of the proceeds received from the issuance of
the Notes and the Series B Preferred Stock will be invested by the Company in a
newly formed joint venture (the "Joint Venture") with the Investor Group for the
acquisition of hotel properties that will be managed by the Company. The
Investor Group has committed to invest an additional $20.0 million of capital in
the Joint Venture.
Also in connection with the Investor Group transaction, CRC Holdings loaned
funds to some of the members of the Investor Group, which loan has since been
repaid. While Mr. Hewitt held an approximate 5% ownership interest in CRC
Holdings at the time of the transaction, Mr. Hewitt no longer holds such
ownership interest.
Each of Messrs. Alibhai, Flannery, Kanders, Khimji and Weiser was elected
to the Board of Directors and appointed to certain committees of the Board of
Directors pursuant to the terms of the Investor Group transaction.
In October 2000, the Company entered into a management agreement with LB
Beaumont, LLC, an entity related to Lehman Brothers Holdings Inc. and the
Investor Group, to manage the Beaumont, Texas Hilton Hotel. Messrs. Flannery and
Kanders are both employed by Lehman Brothers Holdings Inc.
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In October 2000, the Company acquired a 20% non-controlling equity interest
in the Renaissance Worldgate Hotel in Kissimmee, Florida for a total acquisition
cost of approximately $3.9 million. Prior to the acquisition, Mr. Alibhai
beneficially owned a 16.26% ownership interest, and LB Maingate I Inc., an
entity related to the Investor Group, beneficially owned a 40% interest, in the
entity that owns the hotel. Following the acquisition, Mr. Alibhai, and LB
Maingate I Inc. each holds a 40% respective ownership interest in the hotel. As
part of the transaction, the hotel owner simultaneously closed on a $37 million
non-recourse loan from Lehman Brothers Holdings Inc., an entity related to the
Investor Group, secured by the hotel. The Company guarantees certain obligations
of the hotel owner to the lender under such loan. Messrs. Flannery and Kanders
are both employed by Lehman Brothers Holdings Inc.
Pursuant to a Master Lease Termination Agreement dated September 12, 2000,
between the Company and Equity Inns, Inc., all of the lease agreements for 75
hotels leased from Equity Inns were terminated effective January 1, 2001, and
Equity Inns and the Company simultaneously entered into management agreements
for 54 of the hotels formerly leased to the Company. By virtue of his positions
as Chairman of the Board and Chief Executive Officer of Equity Inns, Phillip H.
McNeill, Sr. may have benefited from the transaction.
In March 2001, the Company acquired a non-controlling 0.5% general
partnership interest and a non-controlling 49.5% limited partnership interest in
a limited partnership (the "Partnership") that owns seven Marriott-branded
hotels and one Hampton Inn hotel. FelCor Lodging Trust Incorporated owns the
other 50% of the Partnership. As part of the transaction, the Partnership
simultaneously closed on an aggregate of $52.3 million non-recourse loans from
Lehman Brothers Bank, FSB, an entity related to Lehman Brothers Holdings Inc.
and the Investor Group, secured by the hotels. The Company guarantees certain
obligations of the borrowers to the lender under those loans. Messrs. Flannery
and Kanders are both employed by Lehman Brothers Holdings Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Based solely on a review of copies of reports furnished to the Company and
written representations signed by all directors and executive officers that no
other reports were required with respect to their beneficial ownership of Common
Stock during 2000, the Company believes that the directors and executive
officers and all beneficial owners of more than 10% of the Class A Common Stock
outstanding complied with all applicable filing requirements under Section 16(a)
of the Securities Exchange Act of 1934, as amended, with respect to their
beneficial ownership of Class A Common Stock during 2000 except that each of
Messrs. Hewitt, Richardson and Kilkeary reported a transaction on a Form 4 filed
late with the SEC.
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RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board, upon the recommendation of the Audit Committee, has appointed
the firm of PricewaterhouseCoopers LLP independent accountants to audit the
books, records and accounts of the Company, subject to ratification of such
appointment by the Company's stockholders. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the Annual Meeting and
will have the opportunity to make a statement if they desire to do so. It is
also expected that they will be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the Company's Class A
and Class B Common Stock, voting together as a single class, represented and
entitled to vote at the Annual Meeting will be required to ratify the
appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for fiscal year 2001.
FEES BILLED TO THE COMPANY BY
PRICEWATERHOUSECOOPERS LLP DURING FISCAL 2000
AUDIT FEES
Audit fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2000 fiscal year for the audit of the Company's annual financial
statements and for the review of those financial statements included in the
Company's quarterly reports on Form 10-Q totaled approximately $214,000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
Fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2000 fiscal year for providing advice to the Company regarding
financial information systems design and implementation totaled approximately
$95,000.
ALL OTHER FEES
Fees billed to the Company by PricewaterhouseCoopers LLP during the
Company's 2000 fiscal year for all other services rendered to the Company
included tax-related services fees of approximately $562,000, employee benefit
record-keeping services fees of approximately $298,000 and other non-audit
services fees of approximately $156,000.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" SUCH RATIFICATION.
PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY IN
THEIR PROXIES A CONTRARY CHOICE.
MISCELLANEOUS
OTHER MATTERS
The Board knows of no business to be presented for consideration at the
Annual Meeting other than that described herein. If any other matters properly
come before the Annual Meeting, however, the named proxies will vote on such
matters according to their discretion.
STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING
In addition to otherwise satisfying the eligibility requirements of SEC
Rule 14a-8, any proposal of a stockholder intended to be presented at the
Company's 2002 annual meeting of stockholders must be received in writing by the
Secretary of the Company by January 1, 2002 for inclusion in the Company's
proxy, notice of meeting and proxy statement relating to the 2002 annual
meeting. The Securities and Exchange Commission amended Rule 14a-4 under the
Exchange Act to provide that a proxy may confer discretionary authority to vote
on a proposal for an annual meeting of stockholders if the proponent fails to
notify the Company at least 45 days prior to the anniversary of the month and
day of mailing the prior year's proxy statement. For purposes of the Company's
2002 annual meeting of stockholders, management may use its discretionary voting
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authority to vote on any proposal with respect to which the Company receives
notice after January 1, 2002, even if such proposal is not discussed in the
proxy statement for the 2002 annual meeting of stockholders.
In addition, the Company's bylaws currently provide that in order for a
stockholder to nominate a candidate for election as a director at an annual
meeting of stockholders or propose business for consideration at an annual
meeting, written notice (including certain specified information) generally must
be delivered to the Secretary of the Company, at its principal executive
offices, not later that the close of business of the 75th day and not earlier
than the close of business of the 120th day prior to the first anniversary of
the preceding year's annual meeting. Accordingly, under the current bylaws, a
stockholder nomination or proposal intended to be considered at the 2002 annual
meeting must be received by the Secretary after the close of business on
February 14, 2002, and prior to the close of business on April 1, 2002. The
Secretary of the Company will provide a copy of the bylaws upon written request
and without charge. The Company's bylaws further require that the notice by the
stockholder set forth certain information concerning the stockholder and the
stockholder's nominees, including their names and addresses, a representation
that the stockholder is entitled to vote at the annual meeting and intends to
appear in person or by proxy at the annual meeting to nominate the person or
persons specified in the notice, the class and number of shares of the Company's
stock owned beneficially and of record by the stockholder, a description of all
arrangements or understandings between the stockholder and each nominee, such
other information regarding each nominee as would be required to be included in
a proxy statement soliciting proxies for the election of the nominees of such
stockholder and the consent of each nominee to serve as a director of the
Company if so elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with these requirements.
COST OF SOLICITATION
The cost of preparing, printing and mailing these proxy materials will be
borne by the Company. In addition to the solicitation of proxies by the use of
the mails, regular employees of the Company (without additional compensation)
may solicit proxies on behalf of the Board in person or by telephone. The
Company will also reimburse brokerage houses and other nominees for their
expenses in forwarding proxy materials to beneficial owners of the Class A
Common Stock.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD
AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
25
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APPENDIX A
AUDIT COMMITTEE CHARTER
FUNCTION OF THE COMMITTEE
The Committee will assist the Board in fulfilling the Board's oversight
responsibilities relating to accounting for the Corporation's financial position
and results of operations, as well as such other matters as may from time to
time be specifically delegated to the Committee by the Board.
While the Committee has the powers and responsibilities set forth in this
Charter and the Corporation's Articles of Incorporation, it is not the
responsibility of the Committee to plan or conduct audits or to determine that
the Corporation's financial statements are complete and accurate or are in
compliance with generally accepted accounting principles, which is the
responsibility of management and the outside auditors. Likewise, it is not the
responsibility of the Committee to conduct investigations, to resolve disputes,
if any, between management and the outside auditors or to assure compliance with
laws or the Corporation's corporate compliance program or code of ethics.
COMPOSITION OF THE COMMITTEE
REQUIREMENTS. The Committee will consist of at least three Board members.
No member of the Committee may be an officer or employee of the Corporation or
its subsidiaries, and each member of the Committee must be, in the opinion of
the Board, free of any relationship that would interfere with the exercise of
independent judgment in carrying out the responsibilities as a Committee member.
In determining independence, the Board will observe the requirements of Rules
4200(a)(15) and 4310(c)(26) of the NASD Manual.
Each member of the Committee must be able to read and understand
fundamental financial statements, including the Corporation's balance sheet,
income statement, and cash flow statement or must become able to do so with a
reasonable period of time after appointment to the Committee.
At least one member of the Committee must have had past employment
experience in finance or accounting, requisite professional certification in
accounting or any other comparable experience or background that results in that
individual's financial sophistication. Such experience may include being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities.
APPOINTMENT. The Board will appoint the members of the Committee. The Board
will, or will delegate to the members of the Committee the responsibility to,
appoint a Chairman of the Committee. The Chairman of the Committee will, in
consultation with the other members of the Committee, the Corporation's outside
auditors and the appropriate officers of the Corporation, be responsible for
calling meetings of the Committee, establishing agenda therefor and supervising
the conduct thereof.
OUTSIDE AUDITORS
The outside auditors for the Corporation are ultimately accountable to the
Board and the Committee. The Committee and the Board have the ultimate authority
and responsibility to select, evaluate and, where appropriate, replace the
outside auditors. Alternatively, the Committee and the Board may nominate the
outside auditors to be proposed for stockholder approval in any proxy statement.
RESPONSIBILITIES OF THE COMMITTEE
The Committee will:
1) Recommend Outside Auditors: Recommend to the Board annually, and
at other appropriate times, the firm to be retained as the
Corporation's outside auditors.
2) Review Independence of Outside Auditors: In connection with
recommending the firm to be retained as the Corporation's outside
auditors, review the information provided by management
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and the outside auditors relating to the independence of such firm,
including, among other things, information related to the non-audit
services provided and expected to be provided by the outside
auditors.
The Committee is responsible for (1) ensuring that the outside auditors submit
on a periodic basis to the Committee a formal written statement delineating all
relationships between the auditors and the Corporation consistent with
Independence Standards Board Standard No. 1, a copy of which is attached hereto,
(2) actively engaging in dialogue with the outside auditors with respect to any
disclosed relationship or service that may impact the objectivity and
independence of the outside auditors, and (3) taking, or recommending that the
Board take, appropriate action to oversee the independence of the outside
auditors.
3) Review Audit Plan: Review with the outside auditors their plans
for, and the scope of, their annual audit and other examinations.
4) Conduct of Audit: Discuss with the outside auditors the matters
required to be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit.
5) Review Audit Results: Review with the outside auditors the report
of their annual audit, or proposed report of their annual audit,
the accompanying management letter, if any, the reports of their
reviews of the Corporation's interim financial statements
conducted in accordance with Statement on Auditing Standards No.
71, if any, and the reports of the results of such other
examinations outside of the course of the outside auditors' normal
audit procedures that the outside auditors may from time to time
undertake.
6) Review Financial Statements: Review with appropriate officers of
the Corporation and the outside auditors the annual and quarterly
financial statements of the Corporation prior to public release
thereof.
7) Review Internal Audit Plans: Review with the senior internal
auditing executive and appropriate members of the staff of the
internal auditing department the plans for and the scope of their
ongoing audit activities.
8) Review Internal Audit Reports: Review with the senior internal
auditing executive and appropriate members of the staff of the
internal auditing department the annual report of the audit
activities, examinations and results thereof of the internal
auditing department.
9) Review Systems of Internal Accounting Controls: Review with the
outside auditors, the senior internal auditing executive, the
General Counsel and, if and to the extent deemed appropriate by
the Chairman of the Committee, members of their respective staffs
the adequacy of the Corporation's internal accounting controls,
the Corporation's financial, auditing and accounting organizations
and personnel and the Corporation's policies and compliance
procedures with respect to business practices.
10) Review Recommendations of Outside Auditors: Review with the senior
internal auditing executive and the appropriate members of the
staff of the internal auditing department recommendations made by
the outside auditors and the senior internal auditing executive,
as well as such other matters, if any, as such persons or other
officers of the Corporation may desire to bring to the attention
of the Committee.
11) Securities Exchange Act: Obtain assurance from the outside
auditors that Section 10A of the Securities Exchange Act has not
been implicated.
12) Review Other Matters: Review such other matters in relation to the
accounting, auditing and financial reporting practices and
procedures of the Corporation as the Committee may, in its own
discretion, deem desirable in connection with the review functions
described above.
13) Board Reports: Report its activities to the Board in such manner
and at such times as it deems appropriate.
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MEETINGS OF THE COMMITTEE
The Committee shall meet at least four times annually, or more frequently
as it may determine necessary, to comply with its responsibilities as set forth
herein. The Committee may request any officer or employee of the Corporation or
the Corporation's outside legal counsel or outside auditors to attend a meeting
of the Committee or to meet with any members of, or consultants to, the
Committee. The Committee may meet with management, the outside auditors and
others in separate private sessions to discuss any matter that the Committee,
management, the outside auditors or such other persons believe should be
discussed privately.
CONSULTANTS
The Committee may retain, at such times and on such terms as the Committee
determines in its sole discretion and at the Corporation's expense, special
legal, accounting or other consultants to advise and assist it in complying with
its responsibilities as set forth herein.
ANNUAL REPORT
The Committee will prepare, with the assistance of management, the outside
auditors and outside legal counsel, a report for inclusion in the Corporation's
proxy or information statement relating to the annual meeting of security
holders at which directors are to be elected that complies with the requirements
of the federal securities laws.
ANNUAL REVIEW OF CHARTER
The Committee will review and reassess, with the assistance of management,
the outside auditors and outside legal counsel, the adequacy of the Committee's
Charter at least annually.
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INTERSTATE HOTELS CORPORATION
Foster Plaza Ten
680 Andersen Drive
Pittsburgh, PA 15220
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE ANNUAL MEETING OF STOCKHOLDERS, JUNE 14, 2001
The undersigned hereby appoints THOMAS F. HEWITT, J. WILLIAM RICHARDSON AND
TIMOTHY Q. HUDAK, or any of them, with full power of substitution and
resubstitution, as proxies for the undersigned to represent and to vote all
shares of stock of Interstate Hotels Corporation, a Maryland corporation,
which the undersigned is entitled to vote at the Annual Meeting of Stockholders
to be held at the Pittsburgh Marriott City Center Hotel, 112 Washington Place,
Chatham Center, Pittsburgh, Pennsylvania on Thursday, June 14, 2001, at
10:00 a.m., Eastern Time, and at any postponements or adjournments thereof, upon
all matters as set forth in the Notice of Annual Meeting and Proxy Statement,
receipt of which is hereby acknowledged.
(Continued, and to be signed and dated, on reverse side)
33
1. ELECTION OF CLASS A-2 DIRECTORS 2. RATIFICATION OF THE APPOINTMENT FOR AGAINST ABSTAIN
OF PRICEWATERHOUSECOOPERS LLP
FOR all nominees WITHHOLD AUTHORITY AS INDEPENDENT ACCOUNTANTS. / / / / / /
Named below to vote for all nominees named below
/ / / / The Board of Directors recommends a vote FOR
the ratification of the appointment of
PricewaterhouseCoopers LLP.
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE
INSTRUCTIONS: To withhold authority to vote for any individual UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
nominee, place an "X" in the withhold box and strike a line THE MEETING AND ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
through the nominees name listed.
Class A-2 Nominees: Benjamin D. Holloway and John J. Russell, Jr.
THE BOARD OR DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THIS PROXY WILL BE VOTED AS DIRECTED ABOVE, OR IF RETURNED
ALL NOMINEES NAMED AS DIRECTORS. EXECUTED WITH NO DIRECTION GIVEN, WILL BE VOTED FOR THE
ELECTION OF THE NOMINEES LISTED ABOVE AND FOR THE RATIFICATION
OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT ACCOUNTANTS, AND, IN THE DISCRETION OF THE PROXY
HOLDER, ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF.
PLEASE COMPLETE, SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
THIS PROXY SHOULD BE SIGNED EXACTLY AS NAME APPEARS HEREON.
Signature of Stockholder ____________________________________________________ Dated: _________________________, 2001
(NOTE: Executors, administrators, trustees, attorneys, etc., should
give full title as such. If the signer is a corporation,
partnership of limited liability company, please sign full
corporate, partnership or limited liability company name by
duly authorized person.)