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As filed with the Securities and Exchange Commission on March 17, 1997
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
LA QUINTA INNS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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or Item 22(a)(2) of Schedule 14A
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0-11.
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(3) Per unit price or other underlying value of transaction computed
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[Insert La Quinta Logo Here]
April 11, 1997
Dear Shareholder:
It is my pleasure to invite you to attend the 1997 Annual Meeting of
Shareholders of La Quinta Inns, Inc. The meeting will be held on Thursday, May
22, 1997, at the Company's corporate offices in the 3rd Floor Conference Room,
112 East Pecan Street, San Antonio, Texas at 10:00 a.m., local time.
The accompanying Notice of Annual Meeting and the Proxy Statement on
the following pages covers the formal business of the meeting, which includes
the election of directors, the approval of an adjustment to the stock option
grant limits under the 1984 Stock Option Plan to account for stock splits, and
the approval of auditors. Formal business at this meeting will also include
approval of an amendment of the Company's Articles of Incorporation increasing
the authorized stock and approval of the 1997 Equity Participation Plan. To
familiarize you with the nominees for director, all of whom served as directors
last year, the Proxy Statement contains biographical information of each
nominee.
We hope you will be able to attend the Annual Meeting of Shareholders.
In any event, in order that we may be assured of a quorum, please sign the
accompanying proxy card and return it promptly in the envelope enclosed for
your use. Your vote is important. On behalf of the management and directors
of La Quinta Inns, Inc., I want to thank you for your continued support and
confidence in 1996.
Sincerely,
Thomas M. Taylor
Chairman of the Board
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TABLE OF CONTENTS
PAGE
----
Notice of Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Solicitation and Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Election of Directors (Proposal No. 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Meetings and Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . 4
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Security Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Compensation of Executives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Report of Compensation and Stock Option Committee . . . . . . . . . . . . . . . . . . . . 9
Comparison of Five Year Cumulative Total Returns . . . . . . . . . . . . . . . . . . . . 13
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Stock Option Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Employment Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 18
Approval of Amendment to the 1984 Stock Option Plan (Proposal No. 2) . . . . . . . . . . . . . . 19
Approval of Amendment increasing authorized Common Stock (Proposal No. 3) . . . . . . . . . . . . 20
Approval of the 1997 Equity Participation Plan (Proposal No. 4) . . . . . . . . . . . . . . . . . 22
Approval of Independent Public Accountants (Proposal No. 5) . . . . . . . . . . . . . . . . . . . 28
Shareholder Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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[Insert La Quinta Logo here]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 22, 1997
The Annual Meeting of Shareholders of La Quinta Inns, Inc., a Texas
corporation (the "Company"), will be held in the 3rd Floor Conference Room of
the Company's corporate offices, 112 East Pecan Street, San Antonio, Texas, on
Thursday, May 22, 1997, at 10:00 a.m., for the purpose of considering and
acting upon the following:
1. The election of six (6) Directors of the Company;
2. The approval of an amendment to the 1984 Stock Option Plan to
adjust annual grant limits for stock splits;
3. The approval of an amendment to the Articles of Incorporation
increasing the authorized Common Stock;
4. The approval of the 1997 Equity Participation Plan;
5. The approval of the appointment of independent auditors for the
1997 fiscal year; and
6. The transaction of such other business as may lawfully come before
the meeting or any adjournment thereof.
Only shareholders of record at the close of business on March 31, 1997
(the "Record Date") are entitled to notice of and to vote at the meeting or any
adjournment thereof.
We hope you will be represented at the meeting by signing and returning
the enclosed proxy card in the accompanying envelope as promptly as possible,
whether or not you expect to be present in person. The vote of every
shareholder is important and the Board of Directors of the Company appreciates
the cooperation of shareholders in promptly returning proxies which helps to
limit expenses incident to proxy solicitation.
BY ORDER OF THE
BOARD OF DIRECTORS
John F. Schmutz
Vice President-General Counsel
and Secretary
April 11, 1997
[Insert NYSE Symbol]
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[Insert La Quinta Logo Here]
P. O. Box 2636
San Antonio, Texas 78299-2636
PROXY STATEMENT
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited on behalf of the Board of Directors of
La Quinta Inns, Inc., a Texas corporation (the "Company"), for use at the
Annual Meeting of Shareholders on Thursday, May 22, 1997, at 10:00 a.m. to be
held in the 3rd Floor Conference Room of the Company's corporate offices, 112
East Pecan Street, San Antonio, Texas, and at any adjournment thereof.
Any shareholder giving a proxy for the meeting has the power to revoke
it at any time prior to its use by granting a subsequently dated proxy, by
attending the Annual Meeting and voting in person, or by otherwise giving
notice in person or in writing to the Secretary of the Company. If a proxy
card indicates an abstention or a broker non-vote on a particular matter, then
the shares represented by such proxy will be counted for quorum purposes. If a
quorum is present, an abstention will have the effect of a vote against the
matter and broker non-votes will have no effect. The approximate date on which
this Proxy Statement and the accompanying form of proxy are first sent or given
to security holders is April 11, 1997.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of Common Stock of the Company at the close of
business on March 31, 1997 shall be entitled to vote at the meeting. There
were __________ shares of Common Stock issued and outstanding on the record
date. The Company has declared four 3-for-2 stock splits since 1993. All
share amounts in this Proxy Statement (except as otherwise specifically
indicated herein) have been adjusted retroactively to give effect to such stock
splits. Each share outstanding entitles the holder thereof to one vote.
Proposal No. 1 requires an affirmative vote of a plurality of votes cast for
approval. Proposals Nos. 2, 4 and 5 each require an affirmative vote of at
least a majority of votes cast for approval. Proposal No. 3 requires an
affirmative vote of at least two thirds of the total number of outstanding
shares entitled to vote thereon.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Board of Directors has, pursuant to the Company's Amended and
Restated By-Laws, recently fixed the number of members of the Board of
Directors at six (6) commencing with the 1997 Annual Meeting of Shareholders.
The Company's current directors are all nominated for election at the Annual
Meeting. Proxies cannot be voted for a greater number of directors than the
number of nominees named herein. Each director is to hold office until the
next Annual Meeting and until his successor is elected and qualified. The
directors will be elected by a plurality of the votes cast at the Annual
Meeting, provided a quorum is present. A quorum will be present at the Annual
Meeting if the holders of a majority of shares of the Company's Common Stock
are represented in person or by proxy.
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The proxies named in the accompanying proxy, who have been designated by
the Board of Directors of the Company, intend to vote for the following
nominees for election as directors unless otherwise instructed in such proxy.
The Board of Directors has no reason to believe that any nominee will be unable
to serve if elected. In the event any nominee shall become unavailable to
stand for election, the proxies named in the accompanying proxy intend to vote
for the election of a substitute nominee of their selection. Certain
information concerning directors and nominees is set forth below:
NOMINEE SERVED AS
FOR DIRECTOR
DIRECTOR SINCE AGE PRINCIPAL OCCUPATION
-------- -------------- --- --------------------
Dr. William H.
Cunningham 1985 53 Chancellor of The University of Texas System since
September 1992; prior thereto, President of The University
of Texas at Austin from September 1985 to September 1992;
Dean of the College of Business Administration and
Graduate School of Business of The University of Texas at
Austin from 1983 to August 1985; Director of Jefferson-
Pilot Corporation, LBJ Foundation Board, John Hancock
Advisors, Inc. and advisory director of Texas Commerce
Bank-Austin.
Gary L. Mead(1) 1992 49 Director and President and Chief Executive Officer of the
Company since March 3, 1992; Executive Vice President-
Finance of Motel 6 G.P., Inc., the sole general partner of
Motel 6, L.P., from October 1987 to January 1991.
William J. Razzouk 1996 49 Director and Chief Executive Officer of Advanta
Information Services, Inc. since September 1996; Director
Healthstream, Inc. since August 1996; prior thereto,
President & Chief Operating Officer for America Online,
Inc. February 1996 to June 1996; Executive Vice President,
World Wide Customer Operations for Federal Express from
1993 to February 1996; Senior Vice President-Sales &
Customer Service, World Wide for Federal Express from
1990-1993.
Peter Sterling 1991 55 Vice President and Chief Financial Officer of Sid R. Bass,
Inc. and Lee M. Bass, Inc. (diversified investment firms)
since September 1, 1983.
Kenneth T. Stevens 1995 45 Chairman and Chief Executive Officer of Banc One Retail
Group since May 1, 1996; President of Taco Bell
Corporation from June 1994 to April 1996; prior thereto,
Executive Vice President-Marketing & New Concepts from May
1993 to June 1994; Senior Vice President-Treasurer of
PepsiCo, Inc. from August 1992 to May 1993; Senior Vice
President-Strategic Planning from April 1991 to August
1992.
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NOMINEE SERVED AS
FOR DIRECTOR
DIRECTOR SINCE AGE PRINCIPAL OCCUPATION
-------- -------------- --- --------------------
Thomas M. Taylor 1991 54 Chairman of the Board of the Company since March 11, 1994;
President of Thomas M. Taylor & Co. (an investment
consulting firm) since May 1985; President of TMT-FW (a
diversified investment firm) since September 1989;
director of Kirby Corporation, TPI Enterprises, Inc. and
John Wiley & Sons, Inc.
(1) Pursuant to the terms of a five-year Employment Agreement entered into
between the Company and Mr. Mead on March 3, 1992, the Board of
Directors of the Company nominated him for election as a director of the
Company as part of management's slate of nominees at each annual meeting
of shareholders and appointed Mr. Mead to the Board's Executive
Committee during the term of such Employment Agreement.
Except as indicated above, none of the nominees for director is a
director of any other company which has a class of securities registered under,
or is required to file reports under, the Securities Exchange Act of 1934 or of
any company registered under the Investment Company Act of 1940.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held nine (9) meetings during the
year ended December 31, 1996. Each director attended at least 75 percent of
the aggregate of: (a) the total number of meetings of the Board held during the
period of which he was a director and (b) the total number of meetings held by
all committees of the Board on which he served during such period. Mr. Razzouk
was appointed to the Board on September 27, 1996.
The Audit Committee, currently composed of Messrs. Razzouk, Stevens and
Sterling (Chairman), met four times during 1996. The Audit Committee has the
responsibility, among other things, to recommend the selection of the Company's
independent accountants, review and approve the scope of the independent
accountants' audit activities, review the Company's financial statements which
are the subject of the independent accountants' certification, review with such
independent accountants the adequacy of the Company's basic accounting system
and the effectiveness of its internal audit activities and review related party
transactions.
The Compensation and Stock Option Committee, composed of Messrs.
Cunningham (Chairman) and Taylor met three times during 1996. The Compensation
and Stock Option Committee reviews the salaries, bonuses, stock option grants
and other direct and indirect compensation and benefits for all Company
officers and key employees. The Company's 1984 Stock Option Plan is
administered by the Compensation and Stock Option Committee, which has sole
authority to grant options to employees of the Company.
The Executive Committee of the Board is currently composed of Messrs.
Mead (Chairman) and Taylor. The Executive Committee has the authority to
exercise substantially all the powers of the Board that may legally be
delegated to it in the management and direction of the business and affairs of
the Company during intervals between meetings of the Board of Directors, other
than matters involving a commitment in excess of $15,000,000.
The entire Board of Directors currently acts as the nominating committee
for directors and will consider nominations by shareholders for directors. Any
such nominations for the election to be considered at the next Annual Meeting,
currently scheduled for May 1998, together with a statement of the nominee's
qualifications and consent to be considered as a nominee and to serve if
elected, should be mailed to the Secretary of the Company no later than
December 15, 1997, in order for the nominee to be included in the Company's
Proxy Statement for the 1998 Annual Meeting of Shareholders.
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PRINCIPAL SHAREHOLDERS
The Company knows of no person who, as of March 3, 1997, owned
beneficially more than five percent (5%) of the Company's outstanding voting
securities, except as indicated in the table below.
SHARES OF COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED PERCENT
OF BENEFICIAL OWNER AS OF MARCH 3, 1997 OF CLASS
- ------------------- ------------------- --------
Thomas M. Taylor & Co. 3,461,280 4.5%
Portfolio C Investors, L.P. 2,558,400 *
Thomas M. Taylor 151,875(1) *
Jason Michael Taylor Trust 5,062 *
Sid R. Bass, Inc. 4,147,957 5.3%
Lee M. Bass, Inc. 4,147,957 5.3%
The Bass Management Trust 4,292,088(2) 5.5%
The Airlie Group, L.P. 487,500 *
Annie R. Bass Grandson's Trust
for Lee M. Bass 806,305 1.0%
Annie R. Bass Grandson's Trust
for Sid R. Bass 806,305 1.0%
Douglas K. and Anne Marie Bratton 8,062 *
Douglas K. Bratton 2,530 *
Miles Ellis Bratton 1991 Trust 2,530 *
Bratton Family Foundation 15,000 *
Thomas W. Briggs 25,312 *
Michael N. Christodolou 15,187 *
W. Forrest Tempel 5,062 *
Donald J. McNamara, III Trust 1,518 *
William P. Hallman, Jr. 253,125(3) *
Peter Sterling Trusts 12,655 *
Peter Sterling 491,061(4) *
Cotham Family Partners, L.P. 15,000 *
-----------
(as a Group) 21,711,771(5) 27.9%
c/o W. Robert Cotham
2600 First City Bank Tower
Fort Worth, Texas 76102
The Equitable Companies, Inc. 9,494,032(6) 12.2%
787 Seventh Avenue
New York, New York 10019
Gary L. Mead 4,424,063(7) 5.4%
112 East Pecan
San Antonio, Texas 78205
- ---------------------------
*Less than one percent (1%)
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(1) Mr. Taylor beneficially owns 121,500 shares which he presently has the
right to acquire under the Company's 1984 Stock Option Plan and 30,375
shares which he has the right to acquire on May 24, 1997 under the
Company's 1984 Stock Option Plan. In addition, Mr. Taylor may be deemed
to beneficially own the shares beneficially owned by Thomas M. Taylor &
Co., Portfolio C Investors, L.P. and The Airlie Group, L.P. The
aggregate of all of such shares which Mr. Taylor may be deemed to
beneficially own is 6,659,055.
(2) Perry R. Bass, solely in his capacities as sole trustee and as one of
two trustees, has sole voting and dispositive power with respect to the
4,292,088 shares owned by The Bass Management Trust.
(3) A January 19, 1996 Schedule 13D amendment provided to the Company
reflects that William P. Hallman, Jr., because of his position as the
trustee, also has "sole voting power" and "sole dispositive power" with
respect to the following trusts listed in the table above: (i) Annie R.
Bass Grandson's Trust for Sid R. Bass with respect to 806,305 shares,
(ii) Annie R. Bass Grandson's Trust for Lee M. Bass with respect to
806,305 shares, (iii) Peter Sterling Trusts with respect to 12,655
shares and (iv) Donald J. McNamara, III Trust with respect to 1,518
shares.
(4) Mr. Sterling beneficially owns 121,500 shares which he presently has the
right to acquire under the Company's 1984 Stock Option Plan and 30,375
shares which he has the right to acquire on May 24, 1997 under the
Company's 1984 Stock Option Plan.
(5) Thomas M. Taylor, Sid R. Bass, Lee M. Bass and other investors,
including the persons named above, have filed a Schedule 13D Statement,
amended through February 7, 1997, with the Securities and Exchange
Commission. The persons making the Schedule 13D filing have stated that
neither the fact of such filing nor anything contained therein shall be
deemed an admission by them that a "group" exists within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934.
(6) A February 12, 1997 amended Schedule 13G provided to the Company by The
Equitable Companies, Inc. ("Equitable") reflects that AXA, which
beneficially owns a majority interest in Equitable Companies; and the
Mutuelles AXA, as a group which beneficially own a majority interest in
AXA, is an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940.
(7) Mr. Mead has "sole voting power" and "sole dispositive power" with
respect to (i) 303,750 shares which he beneficially owns, (ii) 3,290,625
shares which he presently has the right to acquire pursuant to a
non-qualified stock option agreement dated March 3, 1992 (the "Mead
Stock Option Agreement") and (iii) 829,688 shares which he presently has
the right to acquire under the Company's 1984 Stock Option Plan.
Excluded from this table are the unvested portion of stock options
granted in 1996.
The information reflected for such groups or beneficial owners is based on
statements and reports filed with the Securities and Exchange Commission and
furnished to the Company by such groups. No independent investigation
concerning the accuracy thereof has been made by the Company.
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SECURITY OWNERSHIP OF MANAGEMENT
Based upon information received upon requests from the persons
concerned, each current director and nominee for director, each executive
officer named in the Summary Compensation Table and all directors and executive
officers of the Company as a group owned beneficially as of March 3, 1997, the
number and percentage of outstanding shares of Common Stock of the Company
indicated in the following table:
NAMES OF INDIVIDUAL SHARES BENEFICIALLY OWNED
OR IDENTITY OF GROUP AS OF MARCH 3, 1997 PERCENT OF CLASS
- -------------------- ------------------- ----------------
CURRENT DIRECTORS:
- -----------------
William H. Cunningham 121,500(1) *
Gary L. Mead 4,424,063(2) 5.4%
William Razzouk -0-(3) *
Peter Sterling 491,061(4) *
Kenneth T. Stevens 45,562(5) *
Thomas M. Taylor 6,659,055(6) 8.6%
OTHER NAMED
- ------------
EXECUTIVE OFFICERS:
- ------------------
William C. Hammett, Jr. 457,208(7) *
Stephen B. Hickey 75,000(8) *
John F. Schmutz 214,749(9) *
Steven T. Schultz 236,124(10) *
All directors and executive
officers as a group (11 persons) 12,724,322(11) 15.4%
- -------------
*Less than one percent (1%)
(1) The shares shown as beneficially owned by Dr. Cunningham represent (i)
91,125 shares which he presently has the right to acquire under the
Company's 1984 Stock Option Plan and (ii) 30,375 shares he will have
the right to acquire on May 24, 1997 under the Company's 1984 Stock
Option Plan.
(2) The shares shown as beneficially owned by Mr. Mead include (i)
3,290,625 shares which he presently has the right to acquire pursuant
to the Mead Stock Option Agreement and (ii) 829,688 shares which he
presently has the right to acquire under the Company's 1984 Stock
Option Plan. Excluded from this table are the unvested portion of
stock options granted in 1996.
(3) Mr. Razzouk received a stock option grant of 22,781 shares at the time
he was appointed to the Board in September, 1996, which he will have
the right to acquire on September 28, 1997 under the Company's 1984
Stock Option Plan. These shares are not deemed to be beneficially
owned on March 3, 1997.
(4) The shares shown as beneficially owned by Mr. Sterling include (i)
121,500 shares which he presently has the right to acquire under the
Company's 1984 Stock Option Plan and (ii) 30,375 shares which he will
have the right to acquire on May 24, 1997 under the Company's 1984
Stock Option Plan.
(5) The shares shown as beneficially owned by Mr. Stevens include (i)
15,187 shares which he presently has the right to acquire under the
Company's 1984 Stock Option Plan and (ii) 30,375 shares which he will
have the right to acquire on May 24, 1997 under the Company's 1984
Stock Option Plan.
(6) The shares shown as beneficially owned by Mr. Taylor (i) include
3,461,280 shares that Mr. Taylor may be deemed to own beneficially
because of his position as the President, sole director and sole
shareholder of Thomas M. Taylor & Co., (ii) 2,558,400 shares that Mr.
Taylor may be deeded to own beneficially because of his position as
President and sole stockholder of Trinity Capital Management, Inc.,
which is the sole general partner of TF Investors, L.P., which is the
sole general partner of Trinity I Fund, L.P., which is the
7
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sole stockholder of Portfolio Associates, Inc., which is the sole
general partner of Portfolio C. Investors, L.P., (iii) 487,500 shares
that Mr. Taylor may be deemed to own beneficially because of his
position as President and sole shareholder of TMT-FW, Inc., which is
one of two general partners of EBD L.P., which is the sole general
partner of The Airlie Group L.P., (iv) 121,500 shares which he
presently has the right to acquire under the Company's 1984 Stock
Option Plan and (v) 30,375 shares he will have the right to acquire on
May 24, 1997 under the Company's 1984 Stock Option Plan.
(7) The shares shown beneficially owned by Mr. Hammett, Senior Vice
President-Chief Financial Officer of the Company, include (i) 3,667
shares owned beneficially by Mr. Hammett, (ii) 4,455 shares held by
his wife and (iii) 449,086 shares which he presently has the right to
acquire under the Company's 1984 Stock Option Plan. Excluded from
this table are the unvested portion of stock options granted in 1996.
Mr. Hammett disclaims beneficial ownership of the 4,455 shares held by
his wife.
(8) The shares shown beneficially owned by Mr. Hickey, Senior Vice
President-Marketing of the Company reflect 75,000 shares which he
presently has the right to acquire under the Company's 1984 Stock
Option Plan. Excluded from this table are the unvested portion of
stock options granted in 1995.
(9) The shares shown beneficially owned by Mr. Schmutz, Vice
President-General Counsel of the Company reflect 214,749 shares which
he presently has the right to acquire under the Company's 1984 Stock
Option Plan. Excluded from this table are the unvested portion of
stock options granted in 1996.
(10) The shares shown beneficially owned by Mr. Schultz, Senior Vice
President-Development of the Company reflect 236,124 shares which he
presently has the right to acquire under the Company's 1984 Stock
Option Plan. Excluded from this table are the unvested portion of
stock options granted in 1996.
(11) The holdings shown for all directors and executive officers as a group
include 5,444,584 shares which the directors and executive officers
have the right to acquire under the Company's 1984 Stock Option Plan
and the Mead Stock Option Agreement. Shares acquirable pursuant to
stock options, which are exercisable either within sixty (60) days
after March 3, 1997, in the case of executive officers, or on or
before May 23, 1997, in the case of non-employee directors are shown
as being beneficially owned by members of such group in the above
table and have been considered to be outstanding for purposes of
calculating the percentage ownership of all directors and executive
officers as a group.
All directors and executive officers as a group beneficially own a total
of 7,279,738 shares (9.4%) of the Company's outstanding Common Stock excluding
the 5,444,584 shares referred to in note (11) above which certain directors and
executive officers have the right to acquire under the Company's Stock Option
Plan.
Except as reflected in the notes to the preceding table, each nominee for
director owns directly the number of shares indicated in the table and has the
sole power to vote and dispose of such shares.
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COMPENSATION OF EXECUTIVES
REPORT OF COMPENSATION AND STOCK OPTION COMMITTEE
ON EXECUTIVE COMPENSATION
RESPONSIBILITIES AND COMPOSITION OF THE COMMITTEE
The Compensation and Stock Option Committee (the "Committee") is
responsible for (i) implementing compensation and benefit programs for
executive officers and other key managers designed to attract, motivate and
retain those individuals responsible for the success of the Company; (ii)
maintaining, administering, and enhancing such programs in a manner which will
benefit the long-term interests of La Quinta and its shareholders; (iii)
determining the compensation of the Company's executive officers and (iv)
approving and supervising the administration of all grants of stock options,
and recommending modifications and/or additional programs to the Board of
Directors and shareholders. The Committee serves pursuant to a Grant of
Authority adopted by the Board of Directors. It is composed entirely of
independent directors who have never served as officers of the Company.
COMPENSATION PHILOSOPHY
The Committee believes that compensation of the Company's officers and
key management should be determined according to a competitive framework and
based upon overall financial results, individual contributions, and business
results that aid in building value for the Company's shareholders. Within this
overall philosophy, the Committee's specific objectives are to:
o Provide annual variable compensation awards that (i) take into account
the Company's overall performance relative to corporate objectives and
(ii) are based on individual contributions and results that help create
value for the Company's shareholders.
o Align the financial interests of executive officers and key management
with those of shareholders by providing significant equity-based
long-term incentives.
o Emphasize performance-based and equity-based compensation versus fixed
compensation at the executive level, providing a significantly greater
proportion of total compensation which is equity-based. Consequently,
executive officers have a greater proportion of total compensation at
risk, so that payment will vary depending upon the Company's overall
performance, individual contributions and business results.
BASE SALARY
The Company has maintained the philosophy that the compensation of its
executive officers and other key employees should be directly linked to
operating performance. Toward this end, base salaries of the executive
officers are set at or below median levels based upon comparative industry
data, while bonus payouts are set based upon performance. Base salaries for
new management employees are determined by evaluating the responsibilities of
the respective position and the individual's experience, and by reference to
the competitive marketplace for management talent. Annual salary adjustments
are determined by evaluating the performance of the Company, the performance of
the respective executive, other incentive based compensation, the competitive
marketplace and cost of living. Significant emphasis is placed upon stock
option grants based upon the Company's performance to reward its officers and
key employees. For 1996, based on the foregoing factors, and a review made in
December 1996, the Committee determined that Mr. Mead would not receive an
increase in base salary. The remaining highest paid executives received base
salary increases averaging 2.4 percent. In keeping with this philosophy on
management compensation, increases in salary for Company personnel generally
were maintained within a targeted average increase of three and one-half
percent for 1996.
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STOCK OPTIONS
The Company places significant emphasis on the potential of the 1984
Stock Option Plan ("1984 Plan"), its potential successor - (see Proposal to
Adopt the 1997 Equity Participation Plan of La Quinta Inns, Inc. (Proposal No.
4)), and other non-qualified stock options issued by the Board to instill
long-term incentives on the executives' part to continue the growth in
shareholder value. All key employees of the Company, as determined by the
Committee, persons designated to become key employees of the Company and
non-employee directors of the Company are eligible to receive options under the
1984 Plan. Non-employee directors of the Company are only eligible to receive
grants of options under the 1984 Plan according to the special terms,
conditions and rules established under the 1984 Plan for non-employee
directors. (See section entitled "Compensation of Directors".) On February
22, 1996, stock option grants totaling 417,500 shares under the 1984 Plan were
made to certain officers and key management personnel to provide further
incentives for these individuals in the continued growth in shareholder value.
On February 26, 1997, Mr. Mead received a grant of 250,000 shares at an
exercise price of $19.875, one fourth of which will become exercisable in
February 1998, 1999, 2000 and 2001 respectively. On the same date, certain
other officers received various grants on the same terms, totaling 420,000
shares in the aggregate. Additional grants were also made to certain
non-officer, key management personnel at this time, totaling 27,300 shares in
the aggregate, under the above terms.
INCENTIVE BONUS
The Company's incentive compensation plan rewards officers and other key
employees of the Company who are in a position to make substantial
contributions to the growth and profitability of the Company. Continuance of
the plan and the granting of bonuses are based upon Company performance
relative to its business plan. In 1996, 50% of the executive officers' bonuses
were based upon meeting financial targets set by the Committee at the beginning
of the year for increasing the Company's adjusted operating income. The
remaining 50% of the officer bonus was discretionary, to be based upon
individual performances as determined by the individual officer's performance
and contributions to the Company. Outstanding performance could result in a
bonus payment that exceeded an individual's target opportunity, but the total
discretionary pool was limited to a percentage equal to the extent the
aforesaid financial target was met. The target bonus potential ranged from 50%
of base salary for Mr. Mead, 40% for Senior Vice Presidents and 35% for Vice
Presidents, with additional discretion on the Committee's part to grant
additional awards for exceeding the Company's financial targets. Awards in
1996 were limited to 52 percent of the target bonus potential, based upon the
extent to which the aforesaid objectives were met. Bonus awards made to the
CEO and the next four highest paid executive officers are found in the "Cash
Compensation" summary under Executive Compensation. During the year ended
December 31, 1996, bonuses and awards under incentive compensation plans
accruing to all other participating officers and key corporate employees of the
Company as a group amounted to $1,418,470. Plan participants for the year
ended December 31, 1996 included 20 officers and 123 non-officer, key
management persons of the Company.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Committee subscribes to the philosophy that the overall compensation
of the CEO should be linked directly to the Company's operating performance and
growth in shareholder value. Consequently, the CEO's compensation package
places great emphasis on measurable enhancement of these dual criteria as
opposed to a higher base salary. Mr. Mead was hired in 1992 with a base salary
of $350,000, which was below that of most comparably situated chief executive
officers in the industry. Since that date, the CEO's base salary has remained
at $350,000 through 1996. In future years, Mr. Mead's base salary will be
reviewed for increases based upon Company performance as determined by the
Committee, with emphasis continuing to be placed on bonuses and other
incentives which serve to enhance the long-term growth of the Company.
10
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The target bonus potential range for the CEO's incentive bonus is 50% of
base salary, of which 50% is based upon meeting the Company's financial targets
and the other 50% is discretionary, based upon performance and contributions to
the Company during 1996. The Committee may also make a further discretionary
award for exceeding the Company's financial targets. Mr. Mead was paid a bonus
of $95,000 for 1996, which equated to 52 percent of the financial target and
56.6 percent of the discretionary target. Mr. Mead's bonus took into account
his role in directing the Company's accomplishments during 1996. The Company
achieved a 17.1 percent increase in recurring earnings per share in 1996,
together with a 7 percent increase in revenues. Recurring EBITDA increased
10.8 percent over 1995. The CEO's incentive compensation for 1997 and beyond
will be based upon the Company's performance against its business plan, as
stated above.
As previously stated, the Committee believes that the CEO's total
compensation should be weighed heavily in favor of operating performance and
growth in shareholder value. Consequently, the cornerstone of Mr. Mead's total
compensation program remains non-qualified stock options which instill
long-term incentives on the CEO's part to continue growing shareholder value.
Mr. Mead was granted options for 650,000 (3,290,625 post-split) shares under a
non-qualified stock option agreement upon joining the Company in March of 1992
(the "Mead Stock Option Agreement"). Additionally, Mr. Mead, along with most
officers of the Company, was granted additional stock options under the 1984
Plan on March 11, 1994 in recognition of the Company's achievements in 1993.
Mr. Mead's stock option grant of 225,000 (759,375 post-split) shares under the
1984 Plan vested in April 1995 when the Company's Common Stock averaged over
$26.667 ($17.778 post-split) per share for 20 consecutive trading days prior to
March 11, 1997. On February 22, 1996, the Committee approved a further grant
of 187,500 (281,250 post-split) shares to Mr. Mead under the 1984 Plan as well
as grants to certain officers and key management personnel whose existing
grants were due to become fully vested in 1996. As previously stated, Mr. Mead
received a further grant of 250,000 shares under the 1984 Plan on February 26,
1997, along with certain other officers and key management personnel.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
The 1993 Omnibus Budget Reconciliation Act ("OBRA") became law in August
1993. Under the new law, income tax deductions of publicly-traded companies in
tax years beginning on or after January 1, 1994 are limited (subject to certain
exceptions) to the extent total compensation (including base salary, annual
bonus, stock option exercises, and non-qualified benefits) for certain
executive officers exceeds $1 million (less the amount of any "excess parachute
payments" as defined in Section 280G of the Code) in any one year. Under OBRA,
the deduction limit does not apply to payments which qualify as
"performance-based." To qualify as "performance-based," compensation payments
must be based solely upon the achievement of objective performance goals and
made under a plan that is administered by a committee of outside directors. In
addition, the material terms of the plan must be disclosed to and approved by
stockholders, and the compensation committee must certify that the performance
goals were achieved before payments can be made.
In particular, stock options will satisfy the performance-based exception
if awards are made by a qualifying compensation committee, the plan sets the
maximum number of shares that can be granted to an employee within a specified
period, and the compensation is based solely on an increase in the stock price
after the grant date (i.e., the option exercise price is equal to or greater
than the fair market value of the stock subject to the award on the grant
date). The 1984 Plan was amended by stockholders at the 1994 Annual Meeting of
Shareholders in part to provide for an annual maximum limitation of 350,000 on
the number of shares subject to options which may be granted to any individual
employee under the 1984 Plan.
11
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A further amendment to the 1984 Plan is being proposed to shareholders
(see Proposal To Amend the Amended and Restated La Quinta Inns, Inc. 1984 Stock
Option Plan (Proposal No. 2)) to increase the limit on the number of shares
subject to options which may be granted to one individual employee in any one
year to 525,00 shares, which has the effect of adjusting the aforesaid 350,000
share limit to account for the July 1996 stock split in the form of a stock
dividend. This proposal would also permit the Company's Executive Vice
President and Chief Operating Officer, Ezzat S. Coutry, to retain certain
options granted in contemplation of, and conditioned upon shareholder approval.
Mr. Coutry received two grants on October 1, 1996 upon his employment with the
Company, one for 350,000 shares, and the other for 150,000 shares, conditioned
upon shareholder approval of Proposal No. 2. Another proposal for which
shareholder approval is being sought would replace and terminate the 1984 Plan,
and would set a limit on the number of shares subject to options which may be
granted to any one individual employee in any one year at 500,000 shares, to be
automatically adjusted for stock splits and certain other corporate
transactions as defined in the plan (See Proposal To Adopt the 1997 Equity
Participation Plan of La Quinta Inns, Inc. (Proposal No. 4)).
In structuring the Company's compensation programs and in determining the
appropriateness of awards, the Committee's primary consideration is the
achievement of the Company's strategic business goals, taking into
consideration competitive practice, market economics and other factors. To the
extent fulfilling these goals is consistent with favorable tax treatment, the
Committee intends to design the Company's compensation programs to conform with
the OBRA legislation and related regulations so that total compensation paid to
any employee will not exceed $1 million in any one year, except for awards as
part of executive compensation that are performance-based and thus deductible
by the Company. However, this commitment does not rule out the ability to make
awards or to approve compensation that may not qualify for the compensation
deduction, if there exists sound corporate reasons for so doing.
COMPENSATION AND STOCK OPTION COMMITTEE
Dr. William H. Cunningham, Chairman
Thomas M. Taylor
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PERFORMANCE OF COMPANY'S COMMON STOCK
Set forth below is a line graph comparing the total cumulative return
of the Company's Common Stock to (a) the Dow Jones Equity Market Index, and (b)
a group of peer issuers with similar businesses. The graph assumes
reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS AMONG
LA QUINTA INNS, INC.,
DOW JONES EQUITY INDEX AND LODGING PEER GROUP
1991 1992 1993 1994 1995 1996
LODGING GROUP 100 116.06 180.73 191.74 206.88 326.74
LA QUINTA 100 140.71 376.99 498.78 651.11 676.49
DOW JONES 100 108.61 119.41 120.33 166.31 205.57
* This peer group consists of Hilton Hotels Corporation during all years and
Marriott Corporation from January 1, 1991 to October 7, 1993, Marriott Host and
Marriott International from October 8, 1993 to December 28, 1995 and Host
Marriott, Marriott International and Host Marriott Services from December 29,
1995.
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SUMMARY COMPENSATION
SUMMARY COMPENSATION TABLE
The following table contains information with respect to compensation for
services rendered in all capacities to the Company during the year ended
December 31, 1996, for each of the five most highly compensated executive
officers of the Company.
LONG-TERM
---------
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES
UNDERLYING ALL OTHER
NAME/POSITION YEAR SALARY BONUS(a) OPTIONS/SARS COMPENSATION(b)
- ------------- ---- ------ -------- ------------ ---------------
Gary L. Mead 1996 $350,000 $ 95,000 281,250(c) $ 3,968
President and CEO 1995 350,000 255,000 -- 3,968
1994 350,000 250,000 759,375(c) 3,968
William C. Hammett, Jr 1996 $210,000 $ 44,800 52,500(d) $ 2,088
Senior Vice President 1995 205,000 98,400 -- 2,088
Chief Financial Officer 1994 200,000 88,000 67,500(d) 2,088
Stephen B. Hickey 1996 $210,000 $ 41,900 -- $ 3,456
Senior Vice President 1995 110,385 56,400 300,000(e) 2,016
Marketing 1994 -- -- -- --
John F. Schmutz 1996 $159,000 $ 29,000 15,000(f) $ 1,618
Vice President 1995 155,000 63,000 -- 1,566
General Counsel 1994 150,000 60,000 21,937(f) 1,566
Steven T. Schultz 1996 $210,000 $ 44,800 52,500(d) $ 2,088
Senior Vice President 1995 205,000 98,400 -- 1,827
Development 1994 175,000 88,000 67,500(d) 1,827
- ----------------
(a) These amounts are the cash awards under the Incentive Compensation Plan
previously described.
(b) All Other Compensation for named individuals consists of the value of
life insurance premiums. Other Annual Compensation for Messrs. Mead,
Hammett, Hickey, Schmutz and Schultz consists of personal benefits
including automobile allowance, relocation and closing costs on the
purchase of homes, and in certain cases, income tax preparation. For the
years 1994, 1995 and 1996, amounts of Other Annual Compensation for each
individual named above aggregated less than (a) 10% of the total annual
salary and bonus for each individual or (b) $50,000, whichever was lower.
Accordingly, no such amounts are included in the Table.
(c) On March 11, 1994, Mr. Mead received options for the purchase of 759,375
shares. On April 26, 1995, these options vested, with an exercise price
of $11.96 when the Company's Common Stock averaged $17.778 per share for
20 consecutive trading days. On February 22, 1996, Mr. Mead received
options for the purchase of 281,250 shares at an option price of $18.417.
Of these options, 70,313 shares have vested, with the remaining
three-fourths vesting in February 1998, February 1999 and February 2000.
(d) Messrs. Hammett and Schultz received grants to purchase 67,500 shares on
March 11, 1994. On April 26, 1995, these options vested, with an
exercise price of $11.96 when the Company's Common Stock averaged $17.778
per share for 20 consecutive trading days. On February 22, 1996, Messrs.
Hammett and Schultz received grants to purchase 52,500 shares at an
option price of $18.417. Of these options, 13,125 shares have vested,
with the remaining three-fourths vesting in February 1998, February 1999
and February 2000.
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(e) Mr. Hickey received a grant to purchase 300,000 shares of Common Stock at
$18.917 per share on June 5, 1995. Of these options, 75,000 shares
vested in June 1996, with the remaining three-fourths vesting in June
1997, June 1998 and June 1999.
(f) Mr. Schmutz received a grant to purchase 21,937 shares on March 11, 1994.
On April 26, 1995, these options vested, with an exercise price of $11.96
when the Company's Common Stock averaged $17.778 per share for 20
consecutive trading days. On February 22, 1996, Mr. Schmutz received a
grant to purchase 15,000 shares at an option price of $18.417. Of these
options, 3,750 have vested, with the remaining three-fourths vesting in
February 1998, February 1999 and February 2000.
PENSION PLAN TABLE
The Company has, since 1969, maintained a non-contributory defined
benefit pension plan (the "Retirement Plan"), which is a qualified plan under
Federal income tax laws, for all of its full-time employees who have attained
the age of 21, which is designed to provide annual retirement benefits to
employees, subject to age and period-of-employment conditions. During the
fiscal year ended May 31, 1989, the Board established a Supplemental Executive
Retirement Plan for highly compensated employees, which constitutes a
non-qualified plan under Federal income tax laws (the "SERP").
Using estimated Social Security benefits of $15,912 (the Estimated Annual
Primary Insurance Amount for an age 65 retiree in 1997 with maximum Social
Security earnings in all years), the estimated annual retirement benefits under
both the Retirement Plan and the SERP are set forth in the following table:
YEARS OF SERVICE AT RETIREMENT
AVERAGE
ANNUAL
COMPENSATION 15 20 25 30 35
- ------------ -- -- -- -- --
175,000 69,000 92,000 92,000 92,000 92,000
200,000 80,000 107,000 107,000 107,000 107,000
225,000 92,000 122,000 122,000 122,000 122,000
250,000 103,000 137,000 137,000 137,000 137,000
300,000 125,000 167,000 167,000 167,000 167,000
350,000 148,000 197,000 197,000 197,000 197,000
400,000 170,000 227,000 227,000 227,000 227,000
450,000 193,000 257,000 257,000 257,000 257,000
500,000 215,000 287,000 287,000 287,000 287,000
550,000 238,000 317,000 317,000 317,000 317,000
600,000 260,000 347,000 347,000 347,000 347,000
650,000 283,000 377,000 377,000 377,000 377,000
700,000 305,000 407,000 407,000 407,000 407,000
750,000 328,000 437,000 437,000 437,000 437,000
800,000 350,000 467,000 467,000 467,000 467,000
"Compensation" under both the Retirement Plan and the SERP includes normal
base pay plus overtime and bonus during a plan year, but not compensation
resulting from the exercise of stock options or deferred compensation. The
table set forth above illustrates estimated benefits payable determined on a
straight-life annuity basis. There are no offsets in the amounts above for
Social Security benefits.
The years of credited service under the Company's Retirement Plans for the
persons named in the Summary Compensation Table are as follows: Mr. Mead, 5
years; Mr. Hammett, 5 years; Mr. Schultz, 5 years; Mr. Schmutz 5 years; and Mr.
Hickey 2 years.
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STOCK OPTIONS
The following table summarizes as to each of the five most highly
compensated executive officers of the Company, the number and terms of stock
options granted during the year ended December 31, 1996:
STOCK OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
OF ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------- ---------------
PERCENT OF
TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE
OPTIONS IN PRICE$/ EXPIRATION
NAME GRANTED FISCAL YEAR SHARE DATE 5% 10%
- ---- -------- ----------- -------- ---------- ------------ --------------
Gary L. Mead 281,250 21.8% $ 18.417 02/22/2006 $ 3,257,537 $ 8,255,237
William C. Hammett 52,500 4.1% $ 18.417 02/22/2006 $ 608,073 $ 1,540,978
Stephen B. Hickey -- -- -- -- -- --
John F. Schmutz 15,000 1.2% $ 18.417 02/22/2006 $ 173,735 $ 440,279
Steven T. Schultz 52,500 4.1% $ 18.417 02/22/2006 $ 608,073 $ 1,540,978
All Stockholders N/A N/A N/A N/A $934,129,519 $2,367,267,606
All Optionees 1,288,531 100.00% $ 19.054(1) N/A $ 15,440,413 $ 39,129,038
All Optionees as % of
All Stockholders' Gain N/A N/A N/A N/A 1.65% 1.65%
- ---------------
(1) Represents the weighted average exercise price of options granted to all
optionees.
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The following table provides information concerning the exercise of stock
options during 1996, and the year-end value of unexercised options for each of
the five most highly compensated executive officers of the Company.
AGGREGATED STOCK OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END STOCK OPTION VALUES
NUMBER OF
SHARES SECURITIES UNDERLYING
ACQUIRED UNEXERCISED VALUE OF UNEXERCISED
ON VALUE STOCK OPTIONS IN-THE-MONEY STOCK OPTIONS
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- -------- -------- ------------------------- ----------------------------
Gary L. Mead -- -- 4,050,000/281,250 $ 58,370,775/$181,781
William C. Hammett 62,779 $1,060,154 435,961/ 52,500 $ 6,184,976/$ 33,933
Stephen B. Hickey -- -- 75,000/225,000 $ 10,975/$ 32,925
John F. Schmutz 65,000 $1,098,843 210,999/ 15,000 $ 3,088,986/$ 9,695
Steven T. Schultz 275,750 $4,235,872 222,999/ 52,500 $ 2,869,312/$ 33,933
(1) These amounts were calculated by subtracting the exercise price from the
market value of underlying securities at year-end based on a price per
share of $19.063 which represents an average of the high and low of the
Company's Common Stock on December 31, 1996, the last trading day of the
year.
COMPENSATION OF DIRECTORS
The Company's 1984 Stock Option Plan permits non-employee directors of
the Company to receive stock options for 30,375 shares of the Company's common
stock annually in lieu of annual retainers and all meeting fees previously paid
by the Company to non-employee directors. These options are granted annually
following the election of directors at each Annual Meeting of Shareholders.
Options granted to directors are for ten-year terms at per share exercise
prices of not less than the fair market value of the Company's stock on the
date of each annual grant and are exercisable (except under the general
acceleration provisions of the 1984 Plan upon an offer that results in the
acquisition of 40% or more of the Company's outstanding stock) on the
anniversary date of each grant. Such grants are in lieu of all annual
retainers or directors' fees, and assist in ensuring that directors will be
closely aligned with the equity interests of shareholders, thereby promoting
the Board's continued focus on further enhancement of shareholder value.
In the event a non-employee director ceases to be a director of the
Company for any reason, any such option granted to such a director expires one
(1) year from the date that the person ceased to be a director of the Company.
The Board of Directors may grant an option for 30,375 shares (or a pro rata
portion thereof) to any new non-employee director elected to fill a vacancy on
the Board or newly created Board seat between Annual Meetings of Shareholders
in lieu of a retainer and meeting fees.
The provisions relating to the grant of stock options to non-employee
directors may not be amended more than once every six months, except to conform
the 1984 Plan to any changes that may have occurred in the Internal Revenue
Code, the Employee Retirement Income Security Act, or the rules thereunder.
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EMPLOYMENT ARRANGEMENTS
EMPLOYMENT AGREEMENT WITH GARY L. MEAD
On March 3, 1992, the Board of Directors elected Gary L. Mead as
President and Chief Executive Officer of the Company. In connection therewith,
the Board determined it would be in the best interests of the Company to retain
Mr. Mead's services for a five-year period under the terms of an Employment
Agreement, dated as of March 3, 1992, between the Company and Mr. Mead (the
"President's Employment Agreement"). The President's Employment Agreement
expired by its terms on March 3, 1997.
Under this agreement, Mr. Mead was entitled to receive an annual salary
of $350,000, and such greater annual salary after the first year of employment
as the Compensation and Stock Option Committee of the Board of Directors (the
"Committee") in its sole discretion may determine. Mr. Mead was further
entitled to participate in the Company's bonus or incentive compensation plans
as established by the Committee from time to time.
The President's Employment Agreement also provided, among other things,
that (i) Mr. Mead is entitled to participate in all employee benefit plans that
the Company may establish for senior executives, (ii) a country club membership
in Mr. Mead's name, for his and his family's use, and (iii) severance pay in
the amount of three (3) times his highest annual salary as in effect during the
term of the agreement period, plus three (3) times the average of actual bonus
paid to Mr. Mead over the life of the agreement if the Company terminates Mr.
Mead's employment without cause or if he resigns for good reason. The Company
also purchased and paid premiums on a life insurance policy covering Mr. Mead
in the amount of $1 million at standard rates.
In connection with his employment as President and Chief Executive Officer
of the Company, Mr. Mead was initially granted non-qualified options to
purchase up to 3,290,625 shares, exercisable at an adjusted option price of
$2.962. The Company entered into a registration rights agreement, dated March
3, 1992, under the terms of which the Company agreed to register on behalf of
Mr. Mead the offer and sale of shares of common stock covered by the Option
Agreement under the Securities Act of 1933, upon certain limitations and
conditions, of which all expenses of such registration will be borne by the
Company.
UNTIMELY REPORTS OF BENEFICIAL OWNERSHIP BY INSIDERS
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the
"Act"), directors, certain officers and shareholders beneficially owning in
excess of 10% of the outstanding shares of the Company's common stock are
required to file various reports with the Securities and Exchange Commission
("SEC").
The Company believes that all reports on Forms 3, 4 and 5 have been filed
with the appropriate regulatory authorities in a timely manner, or
confirmations of reportable transactions have been received by copy of such
Forms indicating compliance with the required filings in a timely manner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LA QUINTA INNS, INC. PURCHASES COMMON STOCK
The Airlie Group L.P. ("Airlie") is an investment limited partnership
whose general partner is EBD, L.P. One of the two general partners of EBD,
L.P. is TMT-FW, Inc., of which Mr. Taylor is President. One of Airlie's
institutional limited partners decided in January 1996 to sell its interest in
the limited partnership, which included 1,700,000 shares of the Company's
Common Stock. As a result thereof, 1,200,000 shares of Airlie's holding in the
Company's Common Stock were purchased by Portfolio C Investors, L.P. Mr.
Taylor is the President of Trinity Capital Management, Inc., which is the sole
general partner of TF Investors, L.P., which is the sole general partner of
Trinity I Fund, L.P., which is the sole stockholder of Portfolio Associates,
Inc., which is the sole general partner of Portfolio C Investors, L.P. The
Company was offered the opportunity to participate in this transaction, and on
January 23, 1996, the Company purchased 500,000 shares of its Common Stock held
by Airlie for a purchase price of $23.00 per share in cash. The negotiated
purchase price took into account a block discount off the market price per
share. On the date of purchase, the fair market value per share of the
Company's stock (the average of the high and
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22
low price) was $24.50. This transaction was approved by the independent
members of the Board of Directors on January 2, 1996.
PURCHASE OF LAND FROM CITYVIEW PARTNERS, L.P.
The Company purchased 3.193 acres of unimproved commercial property
located in Fort Worth, Tarrant County, Texas, for construction of a 128 room La
Quinta Inn & Suites on June 27, 1996. The purchase price of the property was
$938,837.25. The property was purchased from Cityview Partners, L.P., a Texas
limited partnership comprised of Kolba Management, Inc., a Texas corporation
and sole general partner and Lee M. Bass, Inc., a Texas corporation and sole
limited partner. Lee M. Bass, Inc. is a significant shareholder of the
Company. Mr. Sterling, a director of the Company, is the Vice President and
Chief Financial Officer of Lee M. Bass, Inc.
ADVANCEMENT OF LEGAL DEFENSE EXPENSES ON BEHALF OF CERTAIN DIRECTORS
In September 1993, a former officer of the Company filed suit against the
Company and certain of its directors and their affiliate companies. Certain
expenses for the named directors' defense are being advanced pursuant to a
written Indemnification Agreement between the Company and said individuals, the
Company's By-Laws and an action of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Directors Cunningham and Taylor comprised the Company's Compensation and
Stock Option Committee during 1996. Both are non-employee directors, and
neither are former officers of the Company or any of its subsidiaries.
PROPOSAL TO AMEND THE AMENDED AND RESTATED
LA QUINTA INNS, INC. 1984 STOCK OPTION PLAN
(PROPOSAL NO. 2)
GENERAL
The Board of Directors has recommended shareholder approval of certain
amendments to the La Quinta Inns, Inc. 1984 Stock Option Plan (the "1984
Plan"), as amended and restated as of May 23, 1996, that would: (a) set the
limit on the number of shares subject to options which may be granted to any
individual employee in any one year at 525,000 shares, and (b) automatically
increase the number of shares for which stock options may be granted annually
to individual employees to reflect adjustments for future stock splits in the
form of stock dividends or otherwise. In Proposal No. 4, the Board of
Directors has further recommended that the 1984 Plan be terminated and replaced
with the 1997 Equity Participation Plan of La Quinta Inns, Inc. (the "1997
Plan").
The principal features of the proposed amendment are summarized below,
but the summary is qualified in its entirety by reference to the proposed
amendment itself. Copies of the proposed amendment can be obtained by making a
written request to the Company's Secretary.
PROPOSED CHANGES TO 1984 PLAN
Prior to approval of this amendment, the 1984 Plan set the limit on
the number of shares subject to options which may be granted to any individual
employee in any one year at 350,000 shares. This limitation on the maximum
option grant was adopted by the shareholders on May 26, 1994, and it does not
contain a provision allowing for adjustments in said number to take into
account certain events, including stock splits (in the form of stock dividends
and otherwise).
Subsequent to the adoption of this limitation, the Board of Directors
declared two three-for-two splits of the Company's Common Stock on September
21, 1994 and June 13, 1996. All outstanding options held by non-employee
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directors and employees participating in the 1984 Plan, as well as the number
of shares available for issuance pursuant to future option grants under the
1984 Plan, were proportionately adjusted to reflect the three-for-two split of
the Company's Common Stock pursuant to the terms of the outstanding stock
options and the 1984 Plan. Despite these three-for-two splits of the
Company's Common Stock, however, the 1984 Plan still provides for a limit on
annual grants of stock options of 350,000 shares.
The proposed amendment to the 1984 Plan would correct this anomalous
situation by increasing the limit on the number of shares subject to options
which may be granted to any individual employee from 350,000 to 525,000,
thereby reflecting part of the three-for-two splits of the Company's Common
Stock, which occurred since the date of the amendment to the Plan which set the
limit of annual grants of stock options to non-employee directors at 350,000
shares. The proposed amendment would also provide that the number of shares
subject to the annual grants of stock options to individual employees provided
for under the 1984 Plan would be adjusted in the future upon the occurrence of
certain events, such as stock splits and stock dividends. Further, approval of
the proposed amendment would permit the Company's Executive Vice President and
Chief Operating Officer, Ezzat S. Coutry, to whom the Board has already granted
options in contemplation of, and conditioned upon shareholder approval of, the
proposed amendment, to retain such options.
REASONS FOR ADOPTION OF THE 1984 PLAN AMENDMENT
The Board of Directors believes it is advisable and appropriate to
amend the 1984 Plan to (i) correct this anomalous situation by increasing the
limit on the number of shares subject to options which may be granted to any
individual employee from 350,000 to 525,000, thereby reflecting part of the two
three-for-two splits of the Company's Common Stock, which occurred since the
date of the amendment to the Plan which set the limit of annual grants of stock
options to non-employee directors at 350,000 shares; (ii) specifically provide
that the number of shares subject to the annual grants of stock options to
individual employees provided for under the 1984 Plan shall be adjusted in the
future upon the occurrence of certain events, such as stock splits and stock
dividends; and (iii) permit the Company's Executive Vice President and Chief
Operating Officer, Ezzat S. Coutry, to whom the Board has already granted
options in contemplation of, and conditioned upon shareholder approval of, the
proposed amendment, to retain such options. In Proposal No. 4, the Board of
Directors has further recommended that the 1984 Plan be terminated and replaced
with the 1997 Plan.
REQUIRED VOTE FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of votes cast on the proposed
amendment to the 1984 Plan is required to approve the amendment, provided that
the total vote cast on the amendment represents over fifty percent in interest
of all securities entitled to vote on the amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
PROPOSAL NO. 2 TO APPROVE THE AMENDMENT TO THE 1984 PLAN.
PROPOSED AMENDMENT TO ARTICLES OF INCORPORATION
INCREASING AUTHORIZED COMMON STOCK
(PROPOSAL NO. 3)
At its meeting held on February 26, 1997, the Board of Directors voted
to recommend to the shareholders that the number of shares of Common Stock, par
value $.10 per share, of the Company be increased from 100 million shares to
200 million shares by amendment of the Company's Restated Articles of
Incorporation (the "Amendment").
As of March 3, 1997, there were 77,578,705 shares of Common Stock
outstanding, exclusive of 6,162,290 shares held in treasury. As of that date,
there were reserved, out of authorized but unissued shares, 5,069,120 shares
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for issuance to employees upon exercise of options under the Company's 1984
Stock Option Plan (the "1984 Plan"). Also as of March 31, 1997, there were
reserved out of treasury shares 3,290,625 shares of Common Stock for issuance
to Mr. Mead under his Non-Qualified Stock Option Agreement dated March 3, 1992
(the "Mead Plan"). After giving effect to authorized but unissued shares
reserved for issuance in connection with the 1984 Plan and the Mead Plan,
474,425 authorized but unissued shares of Common Stock of the Company and
2,871,665 treasury shares were available for issuance as of that date.
The Board of Directors considers it advantageous, desirable and
prudent to increase the number of authorized shares of Common Stock of the
Company at this time so that adequate shares of Common Stock will be available
for issuance for any proper corporate purpose, such as acquisitions other than
for cash, stock dividends or splits and future employee benefit plans. The
Board of Directors believes that increasing the additional authorized shares of
Common Stock available for issuance would provide management with the
flexibility needed for future expansion of the Company's activities. Having
additional authorized shares of Common Stock available would permit the Company
to benefit from advantageous market conditions for the sale of additional
Common Stock, for acquisition of desirable properties or companies, or for
other proper corporate purposes.
If the Amendment contained in the Proposal No. 3 is approved and
adopted by the shareholders, the additional authorized shares of Common Stock
would be available for issuance by the Board of Directors without further
shareholder authorizations, except as may otherwise be required by law or by
the rules and regulations of the New York Stock Exchange or any other stock
exchange on which the Company's shares might be listed. Holders of the
Company's Common Stock have no pre-emptive or other rights to subscribe for any
additional shares that might be issued. Moreover, any such issuance of
additional authorized shares of Common Stock could have the effect of diluting
the earnings per share and book value per share of existing shares of Common
Stock. Except as stated above, the Company currently has no specific plans,
agreements, understandings or commitments with respect to the issuance of any
additional shares of Common Stock. Although the Board of Directors has no
present intention of so doing, additional authorized shares of Common Stock
could (within the limits imposed by applicable law and the rules of the New
York Stock Exchange) be issued in one or more transactions, which could be used
to dilute the stock ownership of persons seeking to obtain control of the
Company or otherwise make more difficult and, therefore, less likely a takeover
of the Company.
Proposal No. 3 is not being recommended in response to any specific
effort of any person, of which the Company is aware, to obtain control of the
Company.
At its meeting held on February 26, 1997, the Board of Directors
adopted the following resolution for submission to the shareholders:
RESOLVED: That ARTICLE FOUR of the Restated Articles of Incorporation
of the Company, be and hereby is, amended in its entirety to read as follows:
"The aggregate number of shares of Common Stock which the Corporation
has authority to issue is Two Hundred Million (200,000,000) of a par value of
Ten Cents ($.10) per share."
The Persons named in the accompanying proxy will vote as directed by
the shareholders with respect to the proposed Amendment to the Restated
Articles of Incorporation to increase the authorized shares of Common Stock of
the Company, or, in absence of such direction, will vote for the adoption of
the Amendment to the Restated Articles of Incorporation. Adoption of the
Amendment contained in this Proposal No. 3 requires the affirmative vote of at
least two-thirds of the total number of outstanding shares entitled to vote
thereon.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
PROPOSAL NO. 3 TO ADOPT THE AMENDMENT TO INCREASE THE COMPANY'S AUTHORIZED
COMMON STOCK.
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PROPOSAL TO ADOPT THE 1997 EQUITY PARTICIPATION PLAN
OF LA QUINTA INNS, INC.
(PROPOSAL NO. 4)
GENERAL
The Board of Directors ("Board") has recommended shareholder approval
of adoption of the 1997 Equity Participation Plan of La Quinta Inns, Inc. (the
"1997 Plan") that would replace and terminate the Amended and Restated 1984
Stock Option Plan (the "1984 Plan") and continue to provide stock-based
incentive compensation to certain employees, consultants and directors.
On February 26, 1997, the Board adopted the 1997 Plan. The principal
purposes of the 1997 Plan are to provide incentives for officers, key employees
and consultants of the Company and its subsidiaries through granting of
options, stock appreciation rights ("SARs") and other awards ("Awards"),
thereby stimulating their personal and active interest in the Company's
development and financial success, and inducing them to remain in the Company's
employ. In addition to Awards made to officers, key employees or consultants,
the 1997 Plan provides for the granting of options ("Director Options") to the
Company's independent non-employee directors pursuant to a formula, as
described in further detail below.
Under the 1997 Plan, not more than 4,000,000 shares of Common Stock
(or the equivalent in other equity securities), plus the remaining number of
shares available pursuant to the 1984 Plan, are authorized for issuance upon
exercise of options, SARs and other Awards, or upon vesting of other Awards.
Such number includes the remaining number of shares available pursuant to the
1984 Plan, upon which no further grants will be made. Furthermore, the maximum
number of shares which may be subject to options, SARs or other Awards granted
under the 1997 Plan to any individual in any calendar year cannot exceed
500,000 (subject to adjustment as provided in the 1997 plan). As of March 3,
1997, a total of 5,069,120 shares were subject to outstanding stock options
held by approximately 97 officers, directors and key employees under the 1984
Plan, and 474,425 shares remained available for the grant of new stock options
under the 1984 Plan. On March 3, 1997, the average between the high and the
low reported sales price of a share of the Company's Common Stock on the New
York Stock Exchange was $19.750 per share.
The shares available under the 1997 Plan upon exercise of options,
SARs and other Awards may either be previously authorized but unissued shares
or treasury shares, and may be equity securities of the Company issued or
authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock. The Committee
(or the Board with respect to Director Options) will make appropriate
adjustments in the number and kind of securities subject to the 1997 Plan and
to outstanding Awards thereunder to reflect dividends or other distributions; a
recapitalization, reclassification, stock split, reverse stock split, or
reorganization, merger or consolidation of the Company; the split-up, spin-off,
combination, repurchase, liquidation or dissolution of the Company; the sale,
transfer, exchange of Common Stock or other securities of the Company, issuance
of warrants or other rights to purchase Common Stock or other Securities of the
Company; or any other similar corporate transaction or event (an "extraordinary
corporate event").
If any portion of an option, SAR or other Award expires or is canceled
without having been fully exercised, or is exercised for cash (as permitted
under the 1997 Plan), the shares which were subject to the unexercised portion
of such option, SAR or other Award will continue to be available for issuance
under the 1997 Plan.
The principal features of the 1997 Plan are summarized below, but the
summary is qualified in its entirety by reference to the 1997 Plan itself.
Copies of the 1997 Plan can be obtained by making written request of the
Company's Secretary.
ADMINISTRATION
The Compensation and Stock Option Committee of the Board or a
subcommittee thereof (the "Committee") will administer the 1997 Plan with
respect to grants to employees or consultants of the Company, and the full
Board
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will administer the 1997 Plan with respect to Director Options. The Committee
will consist solely of at least two members of the Board, each of whom is a
"non-employee director" for purposes of Rule 16b-3 under the Exchange Act
("Rule 16b-3") and, with respect to options, SARs and other Awards which are
intended to constitute performance-based compensation under Section 162(m) of
the Code, an "outside director" for purposes of Section 162(m) of the Code.
Subject to the terms and conditions of the 1997 Plan, the Committee has the
authority to select the persons to whom Awards are to be made, to determine the
number of shares to be subject thereto and the terms and conditions thereof,
and to make all other determinations and to take all other actions necessary or
advisable for the administration of the 1997 Plan. Similarly, the Board has
discretion to determine the terms and conditions of Director Options and to
interpret and administer the 1997 Plan with respect to Director Options,
consistent with the specific formula terms described in more detail below. The
Committee (and the Board) are also authorized to adopt, amend and rescind rules
relating to the administration of the 1997 Plan.
PAYMENT FOR SHARES
The exercise or purchase price for all options, SARs and other Awards
that provide a right to acquire Common Stock, together with any applicable tax
required to be withheld, must be paid in full in cash at the time of exercise
or purchase or may, with the approval of the Committee (or the Board with
respect to Director Options), be paid in whole or in part in Common Stock owned
by the recipient (or issuable upon exercise of the option) valued at its fair
market value on the date of exercise or through delivery of other property
which constitutes good and valuable consideration, through delivery of a
recourse promissory note bearing interest payable to the Company, or through
delivery of a notice that the optionee has placed a market sell order with a
broker with respect to shares of Common Stock then issuable upon exercise of
the option, and that the broker has been directed to pay the net proceeds of
the sale to the Company in satisfaction of the exercise price, or by a
combination of the foregoing. In addition, the Committee (or the Board with
respect to Director Options) may in its discretion allow a delay in payment up
to thirty (30) days from the date the option, or portion thereof, is exercised.
AMENDMENT AND TERMINATION
Amendments of the 1997 Plan to increase the number of shares as to
which options, SARs or other Awards may be made or to modify the maximum number
of shares which may be subject to options, SARs or other Awards granted under
the 1997 Plan to any individual in any fiscal year (except for adjustments
resulting from stock splits and the like, and mergers, consolidations and other
corporate transactions), require the approval of the Company's stockholders.
In all other respects, the 1997 Plan can be wholly or partially amended or
otherwise modified, suspended or terminated at any time or from time to time by
the Board or the Committee, unless such action would otherwise require
stockholder approval as a matter of applicable law, regulation or rule.
Amendments of the 1997 Plan will not, without the consent of the participant,
alter or impair any rights or obligations under any option, SAR or other Award
previously awarded, unless the agreement governing such option, SAR or other
Award itself otherwise expressly so provides. No termination date is specified
for the 1997 Plan.
ELIGIBILITY
Options, SARs and other Awards under the 1997 Plan may be granted to
individuals who are then officers or other employees of the Company or any of
its present or future subsidiaries and who are determined by the Committee to
be key employees. Such Awards also may be granted to consultants of the
Company selected by the Committee for participation in the 1997 Plan.
Approximately 97 officers and other employees are eligible to participate in
the 1997 Plan. More than one option, SAR or other Award may be granted to an
employee or consultant, but the aggregate fair market value (determined at the
time of grant) of shares with respect to which an ISO (as defined herein) is
first exercisable by an optionee (i.e. "vests") during any calendar year cannot
exceed $100,000. In addition, non-employee directors of the Company will be
granted NQSOs (as defined herein) by the Board under the 1997 Plan. Five
directors are currently eligible for Director Options in the 1997 Plan.
AWARDS UNDER THE 1997 PLAN
The 1997 Plan provides that the Committee may grant or issue stock
options, SARs, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments and other stock related benefits, or any
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combination thereof. Each Award will be set forth in a separate agreement with
the person receiving the Award and will indicate the type, terms and conditions
of the Award.
Nonqualified Stock Options ("NQSOs") will provide for the right to
purchase Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m) of
the Code, may be less than fair market value on the date of grant (but not less
than 85 percent of fair market value) and usually will become exercisable (in
the discretion of the Committee) in one or more installments after the grant
date, subject to the satisfaction of individual or Company performance targets
established by the Committee. NQSOs may be granted for any term specified by
the Committee.
Director Options are NQSOs granted to non-employee directors of the
Company pursuant to a formula. Under the formula in the 1997 Plan, all persons
who, as of the effective date of the 1997 Plan, are non-employee directors, and
any person who, during the term of the 1997 Plan, is initially elected to the
Board and who is a non-employee director at the time of such initial election,
automatically shall be granted an option to purchase 30,375 shares of Common
Stock (subject to adjustment as provided in the 1997 Plan) on the effective
date of the 1997 Plan or the date of such initial election, as applicable.
During the term of the 1997 Plan, each then current non-employee director shall
automatically be granted a NQSO to purchase 30,375 shares of Common Stock
(subject to adjustment as provided in the 1997 Plan) at each subsequent annual
meeting at which he is reelected to the Board. In addition, the Board shall
have discretion to make grants to non-employee directors who take office
between annual meetings of the stockholders. Further stockholder action is not
required with respect to such option grants. The exercise price of the
Director Options shall be 100% of the fair market value of a share of Common
Stock on the date of grant. The period during which the right to exercise a
Director Option in whole or in part vests in the optionee will be set by the
Board. No portion of a Director Option shall be exercisable prior to the first
anniversary of the date of grant or after the tenth anniversary of the date of
grant.
Incentive Stock Options ("ISOs") will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Common Stock on the date of grant, may
only be granted to employees, must expire within a specified period of time
following the optionee's termination of employment, and must be exercised
within ten years after the date of grant; but may be subsequently modified to
disqualify them from treatment as ISOs. In the case of an ISO granted to an
individual who owns (or is deemed to own) at least 10% of the total combined
voting power of all classes of stock of the Company, the 1997 Plan provides
that the exercise price must be at least 110% of the fair market value of a
share of Common Stock on the date of grant and the ISO must expire no later
than the fifth anniversary of the date of its grant.
Restricted Stock, subject to a maximum of 1,500,000 shares, may be
sold to participants at various prices (but not below par value) and made
subject to such restrictions as may be determined by the Committee. Restricted
stock, typically, may be repurchased by the Company at the original purchase
price if the conditions or restrictions are not met. In general, restricted
stock may not be sold, or otherwise transferred or hypothecated, until
restrictions are removed or expire. Purchasers of restricted stock, unlike
recipients of options, will have voting rights and will receive dividends prior
to the time when the restrictions lapse.
Deferred Stock may be awarded to participants, typically without
payment of consideration, but subject to vesting conditions based on
performance criteria established by the Committee. Like restricted stock,
deferred stock may not be sold, or otherwise transferred or hypothecated, until
vesting conditions are removed or expire. Unlike restricted stock, deferred
stock will not be issued until the deferred stock Award has vested, and
recipients of deferred stock generally will have no voting or dividend rights
prior to the time when vesting conditions are satisfied.
Stock Appreciation Rights may be granted in connection with stock
options or other Awards, or separately. SARs granted by the Committee in
connection with stock options or other Awards typically will provide for
payments to the holder based upon increases in the price of the Company's
Common Stock over the exercise price of the related option or other Awards, but
alternatively may be based upon criteria such as book value. Except as
required by Section 162(m) of the Code with respect to an SAR intended to
qualify as performance-based compensation as described in Section 162(m) of the
Code, there are no restrictions specified in the 1997 Plan on the exercise of
SARs or the amount of gain realizable therefrom, although restrictions may be
imposed by the
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Committee in the SAR agreements. The Committee may elect to pay SARs in cash
or in Common Stock or in a combination of both.
Dividend Equivalents represent the value of the dividends per share
paid by the Company, calculated with reference to the number of shares covered
by the stock options, SARs or other Awards held by the participant.
Performance Awards may be granted by the Committee to employees or
consultants based upon, among other things, the contributions, responsibilities
and other compensation of the particular employee or consultant. Generally,
these Awards will be based upon specific performance targets and may be paid in
cash or in Common Stock or in a combination of both. Performance Awards may
include "phantom" stock awards that provide for payments based upon increases
in the price of the Company's Common Stock over a predetermined period.
Performance Awards may also include bonuses granted by the Committee and which
may be payable in cash or in Common Stock or in a combination of both.
Stock Payments may be authorized by the Committee in the form of
shares of Common Stock or an option or other right to purchase Common Stock as
part of a deferred compensation arrangement in lieu of all or any part of
compensation, including bonuses, that would otherwise be payable in cash to the
key employee or consultant.
The Committee may designate key employees as "Section 162(m)
Participants," whose compensation for a given fiscal year may be subject to the
limit on deductible compensation imposed by Section 162(m) of the Code. The
Committee may grant to Section 162(m) Participants restricted stock, deferred
stock, SARs, dividend equivalents, performance awards and stock payments that
vest or become exercisable upon the attainment of performance targets for the
Company which are related to one or more of the following performance goals:
(i) pre-tax income; (ii) operating income; (iii) cash flow; (iv) earnings per
share; (v) earnings before interest, taxes, depreciation and amortization, (vi)
return on equity, (vii) return on invested capital or assets, (viii) cost
reduction or savings and (ix) the market price of a share of the Company's
Common Stock.
1997 PLAN BENEFITS
The benefits, amounts and values to be received by the Named Executive
Officers, individually and as a group, and by other employees and consultants
of the Company under the 1997 Plan are not determinable. On date of the next
annual meeting of stockholders after the effective date of the 1997 Plan at
which the Company's non-employee directors are elected to the Board, options
for 151,875 shares in the aggregate of Common Stock will automatically be
granted to those non-employee directors who are elected at such meeting.
MISCELLANEOUS PROVISIONS
The Committee (or Board with respect to Director Options) has
discretion under the 1997 Plan to provide that options and other rights to
acquire Common Stock will expire at specified times following, or become
exercisable in full upon, the occurrence of certain specified extraordinary
corporate events; but in such event the Committee may also give optionees and
other grantees the right to exercise their outstanding options or rights in
full during some period prior to such events, even though the options or other
Awards have not yet become fully exercisable, and the Committee may also
provide that all restrictions imposed on some or all shares of restricted stock
and/or deferred stock shall lapse, and some or all shares of restricted stock
may cease to be subject to the Company's right to repurchase after such event.
The 1997 Plan specifies that the Company may make loans to key
employees to enable them to exercise options, purchase shares or realize the
benefits of other Awards granted under the 1997 Plan. The terms and conditions
of any such loan are to be set by the Committee.
The dates on which options or other Awards under the 1997 Plan first
become exercisable and on which they expire will be set forth in individual
Award agreements setting forth the terms of the Awards. The Agreements of
employees and consultants generally will provide that options and other Awards
expire upon termination of the participant's status as an employee or
consultant, although the Committee may provide that such options or other
Awards continue to be exercisable following a termination, or following a
Change in Control of the Company (as defined in the 1997 Plan), or because of
the grantee's retirement, death, disability or otherwise. The Agreements of
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directors will provide that options granted to directors continue to be
exercisable for one year after the termination or the participant's status as a
director, and after such one year period, expire. Similarly, restricted stock
granted under the 1997 Plan which has not vested generally will be subject to
repurchase by the Company in the event of the grantee's termination of
employment or consultancy, although the Committee may make exceptions, based on
the reason for termination or on other factors.
In the event of a "Change in Control" of the Company (as such term is
defined in the Plan), outstanding options automatically vest. Upon a "Corporate
Transaction" (as such term is defined in the Plan), the Committee may determine
the conditions upon which outstanding options vest.
No option, SAR or other Award granted under the 1997 Plan may be sold,
pledged, assigned or transferred in any manner other than by will or the laws
of descent and distribution, unless and until such rights or awards have been
exercised, or the shares underlying such rights or awards have been issued, and
all restrictions applicable to such shares have lapsed. During the lifetime of
the holder of any option or right, the option or right may be exercised only by
the holder.
As a condition to the issuance or delivery of stock or payment of
other compensation pursuant to the exercise or lapse of restrictions of any
option or other Award granted under the 1997 Plan, the Company requires
participants to discharge applicable withholding tax obligations. Shares held
by or to be issued to a participant may also be used to discharge tax
withholding obligations related to exercise of options or receipt of other
Awards, subject to the discretion of the Committee (or the Board with respect
to Directors Options) to disapprove such use.
The 1997 Plan must be approved by the stockholders within twelve
months of the date of its adoption. Options, SARs and other Awards under the
1997 Plan may be granted prior to such approval, provided that such options,
SARs or other Awards may not vest or become exercisable prior to the
stockholders' approval of the 1997 Plan and that if such approval is not
received within the twelve month period, all such options, SARs and other
Awards shall become null and void.
SECURITIES LAWS
The 1997 Plan is intended to conform to the extent necessary with all
provisions of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. The 1997 Plan will be
administered, and options will be granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, the 1997 Plan and options granted thereunder shall
be deemed amended to the extent necessary to conform to such laws, rules and
regulations.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The tax consequences of the 1997 Plan under current federal law are
summarized in the following discussion which deals with the general tax
principles applicable to the 1997 Plan, and is intended for general information
only. In addition, the tax consequences described below are subject to the
limitation of Section 162(m) of the Code ("Section 162(m)"), as discussed in
further detail below. Alternative minimum tax and state and local income taxes
are not discussed. Tax laws are complex and subject to change and may vary
depending on individual circumstances and from locality to locality. The tax
information summarized is not tax advice.
Nonqualified Stock Options. For federal income tax purposes, an
optionee generally will not recognize taxable income on the grant of an NQSO
under the 1997 Plan, but will recognize ordinary income, and the Company
generally will be entitled to a deduction, upon the exercise of an NQSO. The
amount of income recognized (and the amount generally deductible by the
Company) generally will be equal to the excess, if any, of the fair market
value of the shares at the time of exercise over the aggregate exercise price
paid for the shares, regardless of whether the exercise price is paid in cash
or in shares or other property. An optionee's basis for the stock for purposes
of determining his or her gain or loss upon a subsequent disposition of the
shares generally will be the fair market value of the stock on the date of
exercise of the NQSO, and any subsequent gain or loss will generally be taxable
as capital gain or loss.
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Incentive Stock Options. An optionee generally will not recognize
taxable income upon either the grant or exercise of an ISO; however, the amount
by which the fair market value of the shares at the time of exercise exceeds
the exercise price will be an "item of tax preference" for the optionee.
Generally, upon the sale or other taxable disposition of the shares of Common
Stock acquired upon exercise of an ISO, the optionee will recognize income
taxable as capital gains in an amount equal to the excess, if any, of the
amount realized in such disposition over the option exercise price, provided
that no disposition of the shares has taken place within either (a) two years
from the date of grant of the ISO or (b) one year from the date of exercise.
If the shares of Common Stock are sold or otherwise disposed of before the end
of the one-year and two-year periods specified above, the difference between
the ISO exercise price and the fair market value of the shares on the date of
exercise generally will be taxable as ordinary income; the balance of the
amount realized from such disposition, if any, generally will be taxed as
capital gain. If the shares of Common Stock are disposed of before the
expiration of the one-year and two-year periods and the amount realized is less
than the fair market value of the shares at the date of exercise, the
optionee's ordinary income generally is limited to excess, if any, of the
amount realized in such disposition over the option exercise price paid. The
Company (or other employer corporation) generally will be entitled to a tax
deduction with respect to an ISO only to the extent the optionee has ordinary
income upon sale or other disposition of the shares of Common Stock.
Stock Appreciation Rights. No taxable income is generally recognized
upon the receipt of an SAR, but upon exercise of the SAR the fair market value
of the shares (or cash in lieu of shares) received generally will be taxable as
ordinary income to the recipient in the year of such exercise. The Company
generally will be entitled to a compensation deduction for the same amount
which the recipient recognizes as ordinary income.
Restricted Stock and Deferred Stock. An employee to whom restricted
or deferred stock is issued generally will not recognize taxable income upon
such issuance and the Company generally will not then be entitled to a
deduction, unless, in the case of restricted stock, an election is made under
Section 83(b) of the Code. However, when restrictions on shares of restricted
stock lapse, such that the shares are no longer subject to a substantial risk
of forfeiture, the employee generally will recognize ordinary income and the
Company generally will be entitled to a deduction for an amount equal to the
excess of the fair market value of the shares at the date such restrictions
lapse over the purchase price therefor. Similarly, when deferred stock vests
and is issued to the employee, the employee generally will recognize ordinary
income and the Company generally will be entitled to a deduction for the amount
equal to the fair market value of the shares at the date of issuance. If an
election is made under Section 83(b) of the Code with respect to qualifying
restricted stock, the employee generally will recognize ordinary income at the
date of issuance equal to the excess, if any, of the fair market value of the
shares at that date over the purchase price therefor and the Company will be
entitled to a deduction for the same amount. The Code does not permit a
Section 83(b) election to be made with respect to deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award
generally will not recognize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. When a dividend
equivalent is paid, the participant generally will recognize ordinary income,
and the Company will be entitled to a corresponding deduction.
Performance Awards. A participant who has been granted a performance
award generally will not recognize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. When an award is
paid, whether in cash or Common Stock, the participant generally will recognize
ordinary income, and the Company will be entitled to a corresponding deduction.
Stock Payments. A participant who receives a stock payment in lieu of
a cash payment that would otherwise have been made will generally be taxed as
if the cash payment has been received, and the Company generally will be
entitled to a deduction for the same amount.
Deferred Compensation. Participants who defer compensation generally
will recognize no income, gain or loss for federal income tax purposes when
NQSOs are granted in lieu of amounts otherwise payable, and the
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Company will not be entitled to a deduction at that time. When and to the
extent such NQSOs are exercised, the rules regarding NQSOs outlined above will
generally apply.
Section 162(m) Limitation. In general, under Section 162(m), income
tax deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) in any one year. However, under Section 162(m), the deduction
limit does not apply to certain "performance-based compensation" established by
an independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options and SARs will satisfy
the "performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a specified period and the
compensation is based solely on an increase in the stock price after the grant
date (i.e. the option exercise price is equal to or greater than the fair
market value of the stock subject to the award on the grant date). Performance
or incentive awards granted under the 1997 Plan may qualify as "qualified
performance-based compensation" for purposes of Section 162(m) if such awards
are granted or vest upon the preestablished objective performance goals
described above.
The Company has attempted to structure the 1997 Plan in such a manner
that the Committee can determine the terms and conditions of stock options,
SARs and performance and incentive awards granted thereunder such that
remuneration attributable to such awards will not be subject to the $1,000,000
limitation. The Company has not, however, requested a ruling from the IRS or
an opinion of counsel regarding this issue. This discussion will neither bind
the IRS nor preclude the IRS from adopting a contrary position.
REASONS FOR ADOPTION OF THE 1997 PLAN
As of March 3, 1997, approximately 474,425 shares remained available
for future awards under the 1984 Plan. Also on that date, options held by
approximately 91 officers, directors and key employees and covering
approximately 5,069,120 shares were outstanding under the 1994 Plan, of which
2,999,031 were exercisable. The Board has determined that it is advisable to
continue to provide stock-based incentive compensation to the Company's key
employees and consultants, thereby continuing to align the interests of such
employees and consultants with those of the stockholders, and that awards under
the 1997 Plan are an effective means of providing such compensation. The Board
has also determined that it is advisable to provide non-employee directors of
the Company with the additional incentive to further the growth, development
and financial success of the Company by personally benefiting through the
ownership of Company stock and/or rights which recognize such growth,
development and financial success. In addition, the Board has determined that
it is advisable to terminate the 1984 Plan and to replace the compensation
provided under said plan with the 1997 Plan. In order to accomplish said
objectives, the Board has determined that it would be advisable to terminate
the 1984 Plan and replace it with the 1997 Plan.
REQUIRED VOTE FOR APPROVAL AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The affirmative vote of a majority of votes cast on the proposal to
adopt the 1997 Plan is required to approve the Proposal, provided that the
total vote cast on the proposal represents over fifty percent in interest of
all securities entitled to vote on the proposal.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" PROPOSAL NO. 4 TO APPROVE THE 1997 EQUITY PARTICIPATION PLAN.
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 5)
The Board of Directors of the Company, adopting the recommendation of
its Audit Committee, has unanimously appointed the firm of KPMG Peat Marwick,
LLP as independent auditors to examine the combined
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financial statements of the Company for the year ending December 31, 1997.
This firm has acted as independent accountants of the Company since 1971.
A representative of KPMG Peat Marwick is expected to be present at the
Annual Meeting of Shareholders with the opportunity to make a statement, if
that person desires to do so, and is expected to be available to respond to
appropriate questions.
Approval of the appointment of independent accountants is not a matter
which is required to be submitted to a vote of shareholders, but the Board of
Directors considers it appropriate for the shareholders to express or withhold
their approval of the appointment. If shareholder approval should be withheld,
the Board of Directors would consider an alternative appointment for the
succeeding fiscal year. The affirmative vote of a majority of votes cast on
the proposal is required.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS
VOTE "FOR" PROPOSAL NO. 5 TO APPROVE THE APPOINTMENT OF INDEPENDENT
ACCOUNTANTS.
SHAREHOLDER PROPOSALS
It is anticipated that the 1998 Annual Meeting of Shareholders will be
held in May 1998. Shareholder proposals intended to be presented at the 1998
Annual Meeting and included in the Company's proxy statement therefor must be
received in writing by the Secretary of the Company at its principal executive
offices, 112 East Pecan Street, Suite 200, San Antonio, Texas 78205, not later
than December 15, 1997.
OTHER MATTERS
No business other than the matters set forth in this Proxy Statement is
expected to come before the meeting, but should any other matters requiring a
vote of shareholders arise, including a question of adjourning the meeting, and
including any shareholder proposal omitted from this Proxy Statement pursuant
to SEC Rule 14a-8, the persons named in the accompanying proxy will vote
thereon according to their best judgment in the interests of the Company. In
the event that any of the nominees for director should withdraw or otherwise
become unavailable for reasons not presently known, the persons named as
proxies in the accompanying proxy will vote for other persons in their place in
what they consider the best interests of the Company.
ADDITIONAL INFORMATION
The cost of soliciting proxies in the enclosed form will be borne by the
Company. The Company has retained Georgeson & Co., 100 Wall Street, New York,
New York 10005, to aid in the solicitation of proxies. For these services,
the Company will pay Georgeson & Co. a fee of $7,000 and reimburse it for
certain out-of-pocket expenses. In addition, the Company will reimburse its
transfer agent, Boston EquiServe, L.P., for charges and expenses in connection
with the distribution of proxy material to brokers or other persons holding
stock in their names or in the names of their nominees and for charges and
expenses in forwarding proxies and proxy material to the beneficial owners.
Solicitations may also be made by officers and regular employees of the
Company, without additional compensation, by use of mail, telephone, telegraph
or personal calls.
The foregoing Notice of Annual Meeting and Proxy Statement are sent by
order of the Board of Directors.
JOHN F. SCHMUTZ
Vice President-General Counsel and
Secretary
April 11, 1997
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DETACH HERE
Please mark
votes as in
X this example.
- ----
This proxy will be voted as you direct below. In the absence of such
direction, it will be voted FOR Directors and FOR the Proposals below. As to
such other matters as properly may come before this meeting, this proxy will be
voted by the persons named herein according to their best judgment in the
interest of the Company.
1. THE ELECTION OF DIRECTORS: 4. APPROVAL OF THE 1997 EQUITY
W. CUNNINGHAM, G. MEAD, W. RAZZOUK, PARTICIPATION PLAN.
P. STERLING, K. STEVENS AND T. TAYLOR --- ------- -------
For Against Abstain
--- --------
For Withheld 5. APPROVAL OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
____________________________________________________ FOR 1997.
--- ------- -------
(INSTRUCTION: To withhold authority to vote for any For Against Abstain
individual nominee write that nominee's name on the
line provided above.)
6. IN THEIR DISCRETION, UPON SUCH OTHER MATTERS
2. APPROVAL OF AMENDMENT TO 1984 AS PROPERLY MAY COME BEFORE THE MEETING.
STOCK OPTION PLAN TO ADJUST ANNUAL
GRANT LIMITS.
--- --------
For Withheld MARK HERE
FOR ADDRESS
3. APPROVAL OF AMENDMENT TO THE CHANGE AND
ARTICLES OF INCORPORATION INCREASING NOTE AT LEFT
AUTHORIZED COMMON STOCK. -----------
--- -------- PLEASE DO NOT FOLD OR MUTILATE THIS CARD.
For Withheld
NOTE: Please sign as name appears. Joint owners should each
sign. When signing as Attorney, Executor, Administrator or
Guardian, please give full title as such. If signer is a
corporation, please sign with the full corporation name by
duly authorized officer or officers.
Signature: Date: Signature: Date:
----------------- ----------- --------------------------- ------------
34
DETACH HERE
LA QUINTA INNS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Gary L. Mead, Thomas M. Taylor and John F. Schmutz, or any of them,
with power of substitution to each, are hereby authorized to represent the
undersigned at the Annual Meeting of Shareholders of La Quinta Inns, Inc., to
be held in the 3rd Floor Conference Room of the Company's Corporate Offices,
112 East Pecan Street, San Antonio, Texas, on May 22, 1997.
To vote in accordance with the Board of Directors' recommendations
just sign the reverse side; no boxes need to be checked.
SEE REVERSE SIDE
(Continued and to be signed on other side)