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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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Candlewood Hotel Company, Inc.
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(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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[Company Logo]
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 15, 2001
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The 2001 Annual Meeting of the Stockholders of Candlewood Hotel Company,
Inc. (the "Company") will be held at 10:00 a.m. local time, on May 15, 2001, at
the Company's executive offices at 8621 East 21st Street North, Suite 200,
Wichita, Kansas 67206, for the following purposes:
1. To elect a board of thirteen directors for the ensuing year or until
the election and qualification of their respective successors;
2. To consider and vote upon on an amendment to the Company's 1996
Equity Participation Plan, as amended, (the "1996 Equity Participation Plan") to
increase the number of shares of Common Stock authorized for issuance thereunder
from 1,676,710 to 2,676,710; and
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 2, 2001,
the record date, will be entitled to notice of, and to vote at, the 2001 Annual
Meeting of Stockholders and any adjournment thereof.
By Order of the Board of Directors,
Warren D. Fix
Secretary
Wichita, Kansas
Dated: April 18, 2001
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[Candlewood Logo]
8621 East 21st Street North, Suite 200
Wichita, Kansas 67206
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 15, 2001
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PROXY STATEMENT
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SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors
of Candlewood Hotel Company, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held at the Company's executive
offices located at 8621 East 21st Street North, Suite 200, Wichita, Kansas
67206, on May 15, 2001 at 10:00 a.m. local time, and at any and all adjournments
or postponements thereof (the "Meeting").
All shares represented by each properly executed, unrevoked proxy
received in time for the Meeting will be voted in the manner specified therein.
If the manner of voting is not specified in an executed proxy received by the
Company, the proxy will be voted FOR (i) the election of the thirteen nominees
to the Board of Directors listed herein, and (ii) the amendment to the 1996
Equity Participation Plan of the Company that will increase the number of shares
of Common Stock authorized for issuance thereunder from 1,676,710 to 2,676,710.
Any stockholder has the power to revoke his or her proxy at any time
before it is voted. A proxy may be revoked by delivering a written notice of
revocation to the Secretary of the Company at the address set forth above, by
presenting a later-dated proxy executed by the person who executed the prior
proxy, or by attendance at the meeting and voting in person by the person who
executed the prior proxy.
This proxy statement is being mailed to the Company's stockholders on or
about April 18, 2001. The expense of soliciting proxies will be borne by the
Company. Expenses include reimbursement paid to brokerage firms and others for
their expenses incurred in forwarding solicitation material regarding the
Meeting to beneficial owners of the Company's voting stock. Solicitation of
proxies will be made by mail. Further solicitation of proxies may be made by
telephone or oral communication by the Company's regular employees, who will not
receive additional compensation for such solicitation.
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OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 9,025,000 shares of the Company's common
stock (the "Common Stock"), the 65,000 shares of the Company's Series A
Preferred Stock (the "Series A Preferred Stock") and the 42,000 shares of the
Company's Series B Preferred Stock (the "Series B Preferred Stock", together
with the Series A Preferred Stock, the "Preferred Stock") outstanding at the
close of business on the record date, April 2, 2001, will be entitled to notice
of and to vote at the Meeting or any adjournment or postponement thereof. On
each matter to be considered at the Meeting, each stockholder will be entitled
to cast one vote for each share of the Company's Common Stock and 105.26316
votes for each share of Preferred Stock held of record by such stockholder on
April 2, 2001 (the "Record Date"). Accordingly, an aggregate of 20,288,158 votes
may be cast on each matter to be considered at the Meeting.
In order to constitute a quorum for the conduct of business at the
Meeting, shares representing a majority of the votes entitled to be cast at the
Meeting must be represented at the Meeting. Shares represented by proxies that
reflect abstentions or "broker non-votes" (i.e., shares held by a broker or
nominee which are represented at the meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of March 19, 2001, the amount and
percentage of the outstanding shares of the Company's Common Stock, Preferred
Stock and Common Share Equivalents (the Common Stock together with the Preferred
Stock on an as-converted basis) which, according to the information supplied to
the Company, are beneficially owned by:
- each person who, to the knowledge of the Company, is the
beneficial owner of more than 5% of such securities,
- each person who is a director of the Company (each of whom,
except for Gary E. Costley, is also a nominee for election as a
director of the Company),
- each Named Executive Officer (as defined on page 10), and
- all current directors and executive officers of the Company as a
group.
Except to the extent indicated in the footnotes to the following table, the
person or entity listed has sole voting or dispositive power with respect to the
shares that are deemed beneficially owned by such person or entity.
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Shares Beneficially Owned
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Series A Preferred Series B Preferred Common
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NAME AND ADDRESS OF Percent Percent Percent
BENEFICIAL OWNER (1) Number of Class Number of Class Number(2) of Class
- -------------------- ------ -------- ------ -------- --------- --------
DIRECTORS/NOMINEES AND
NAMED EXECUTIVE OFFICERS:
Mariel C. Albrecht (4) ................... 0 -- 0 -- 0 --
Gary E. Costley (5) ...................... 0 -- 0 -- 13,000 *
Robert J. Cresci (6)(7) .................. 0 -- 0 -- 7,500 *
Jack P. DeBoer (7)(8) .................... 1,000 1.54% 0 -- 2,153,599 23.73%
Warren D. Fix (7)(9) ..................... 250 * 0 -- 352,465 3.87
Jeffrey F. Hitz (10) ..................... 0 -- 0 -- 44,300 *
Thomas L. Keltner (4)(7) ................. 0 -- 0 -- 0 --
Robert S. Morris (7)(11) ................. 0 -- 0 -- 7,500 *
Thomas H. Nielsen (12) ................... 0 -- 0 -- 5,000 *
Frank J. Pados, Jr. (7)(13) .............. 0 -- 0 -- 7,500 *
William L. Perocchi (14) ................. 0 -- 0 -- 8,000 *
David A. Redfern (15) .................... 0 -- 0 -- 33,605 *
James E. Roos (16) ....................... 0 -- 0 -- 102,500 *
Tony M. Salazar (17) ..................... 0 -- 0 -- 12,000 *
Seth E. Schofield ........................ 0 -- 0 -- 0 --
Thomas L. Storey (7)(18) ................. 0 -- 0 -- 2,500 --
All directors and executive officers as a
group (20 persons) (4)(5)(6)(8)(9)(10)
(11)(12)(13)(14)(15)(16)(17)(18) ...... 1,250 1.92 0 -- 2,852,219 31.42
5% BENEFICIAL HOLDERS:
Stockholders Group (7) ................... 64,250 98.85 41,790 99.50% 5,542,360 58.42
Doubletree Corporation (7) ............... 0 -- 0 -- 2,587,500 28.67
Hilton Hotels Corporation
World Headquarters
9336 Civic Center Drive
Beverly Hills, California 90210
Olympus Growth Fund, II, L.P. (7)(19) ... 9,900 15.23 4,841 11.53 38,728 *
One Station Place
Stamford, Connecticut
Whiting & Co. (7)(20) ................... 10,000 15.38 0 -- 0 --
c/o J.P. Morgan Investment Mgmt
522 Fifth Avenue, 6th Floor
New York, New York
Chase Venture Capital Associates (7)(20) . 7,000 10.77 0 -- 0 --
380 Madison Avenue, 12th Floor
New York, New York
Arbor Lake Club, Ltd. (7)(21) ............ 7,000 10.77 0 -- 0 --
760 N.W. 107th Avenue, Suite 300
Miami, Florida
Pecks Management Partners Ltd. (7)(22) ... 7,000 10.77 7,900 18.81 63,200 *
One Rockefeller Plaza, Suite 900
New York, New York 10020
Private Equity Investors III, L.P.(7)(23) 3,500 5.38 12,000 28.57 96,000 1.05
540 Madison Avenue, 36th Floor
New York, New York
Equity-Linked Investors-II, L.P.(7)(24) .. 3,500 5.38 12,000 28.57 96,000 1.05
540 Madison Avenue, 36th Floor
New York, New York 10022
Advance Capital Associates, L.P. (25) .... 3,250 5.00 2,000 4.77 16,000 *
660 Madison Avenue, 15th Floor
New York, New York 10021
Common Share
Equivalents(3)
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NAME AND ADDRESS OF Percent
BENEFICIAL OWNER (1) Number of Class
- -------------------- ---------- --------
DIRECTORS/NOMINEES AND
NAMED EXECUTIVE OFFICERS:
Mariel C. Albrecht (4) ................... 0 --
Gary E. Costley (5) ...................... 13,000 *
Robert J. Cresci (6)(7) .................. 7,500 *
Jack P. DeBoer (7)(8) .................... 2,258,862 11.11%
Warren D. Fix (7)(9) ..................... 378,781 1.86
Jeffrey F. Hitz (10) ..................... 44,300 *
Thomas L. Keltner (4)(7) ................. 0 --
Robert S. Morris (7)(11) ................. 7,500 *
Thomas H. Nielsen (12) ................... 5,000 *
Frank J. Pados, Jr. (7)(13) .............. 7,500 *
William L. Perocchi (14) ................. 8,000 *
David A. Redfern (15) .................... 33,605 *
James E. Roos (16) ....................... 102,500 *
Tony M. Salazar (17) ..................... 12,000 *
Seth E. Schofield ........................ 0 --
Thomas L. Storey (7)(18) ................. 2,500 --
All directors and executive officers as a
group (20 persons) (4)(5)(6)(8)(9)(10)
(11)(12)(13)(14)(15)(16)(17)(18) ...... 2,983,798 14.67
5% BENEFICIAL HOLDERS:
Stockholders Group (7) ................... 16,704,465 80.50
Doubletree Corporation (7) ............... 2,587,500 12.75
Hilton Hotels Corporation
World Headquarters
9336 Civic Center Drive
Beverly Hills, California 90210
Olympus Growth Fund, II, L.P. (7)(19) ... 1,590,412 7.82
One Station Place
Stamford, Connecticut 06430
Whiting & Co. (7)(20) ................... 1,052,632 5.19
c/o J.P. Morgan Investment Mgmt
522 Fifth Avenue, 6th Floor
New York, New York 10036
Chase Venture Capital Associates (7)(20) . 736,842 3.63
380 Madison Avenue, 12th Floor
New York, New York 10017
Arbor Lake Club, Ltd. (7)(21) ............ 736,842 3.63
760 N.W. 107th Avenue, Suite 300
Miami, Florida 33172
Pecks Management Partners Ltd. (7)(22) ... 1,631,621 8.02
One Rockefeller Plaza, Suite 900
New York, New York 10020
Private Equity Investors III, L.P.(7)(23) 1,727,579 8.48
540 Madison Avenue, 36th Floor
New York, New York 10022
Equity-Linked Investors-II, L.P.(7)(24) .. 1,727,579 8.48
540 Madison Avenue, 36th Floor
New York, New York 10022
Advance Capital Associates, L.P. (25) .... 568,631 2.80
660 Madison Avenue, 15th Floor
New York, New York 10021
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Shares Beneficially Owned
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Series A Preferred Series B Preferred Common
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NAME AND ADDRESS OF Percent Percent Percent
BENEFICIAL OWNER (1) Number of Class Number of Class Number(2) of Class
- -------------------- ------ -------- ------ -------- --------- --------
The FFJ Nominee Trust (7)(20) .......... 3,250 5.00 0 -- 0 --
Samuel T. Byrne, Trustee
c/o Boston Capital Institutional
Advisors
One Boston Place
Boston, Massachusetts 02108-4406
Mutual Life Insurance Company of
New York (7)(26) .................... 3,250 5.00 3,000 7.14 24,000 *
1740 Broadway
New York, New York 10019
Allied Capital Corporation (27) ....... 3,250 5.00 0 -- 0 --
1919 Pennsylvania Avenue, Third Floor
Washington, DC 20006
Common Share
Equivalents(3)
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NAME AND ADDRESS OF Percent
BENEFICIAL OWNER (1) Number of Class
- -------------------- ---------- --------
The FFJ Nominee Trust (7)(20) .......... 342,105 1.69
Samuel T. Byrne, Trustee
c/o Boston Capital Institutional
Advisors
One Boston Place
Boston, Massachusetts 02108-4406
Mutual Life Insurance Company of
New York (7)(26) .................... 681,895 3.36
1740 Broadway
New York, New York 10019
Allied Capital Corporation (27) ....... 342,106 1.68
1919 Pennsylvania Avenue, Third Floor
Washington, DC 20006
- ----------
* Less than one percent.
(1) The address of each of the directors and officers listed in the table is
c/o Candlewood Hotel Company, 8621 E. 21st Street North, Suite 200,
Wichita, Kansas 67206.
(2) Includes options exercisable within 60 days of March 19, 2001 and
assumes the conversion of certain warrants issued by the Company in
connection with the issuance of the Series B Preferred Stock (the
"Series B Warrants") for Common Stock on a one-to-one basis.
(3) Includes Common Stock (including options exercisable within 60 days of
March 19, 2001), shares of Series A Preferred Stock and Series B
Preferred Stock after giving effect to the conversion at an initial
ratio of 105.26316 shares of Common Stock per share of Preferred Stock,
and the conversion of the Series B Warrants on a one-to-one basis into
shares of Common Stock.
(4) Excludes 2,587,500 shares of Common Stock held by Doubletree Corporation
("Doubletree"), a wholly-owned subsidiary of Hilton Hotels Corporation
("Hilton"). Ms. Albrecht and Mr. Keltner are officers of Hilton and
disclaim beneficial ownership of such shares.
(5) Includes 10,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(6) Represents 7,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001. Excludes 7,000 shares of Series A
Preferred Stock, 7,900 shares of Series B Preferred Stock and 63,200
Series B Warrants beneficially owned by Pecks Management Partners, Ltd.
("Pecks"). Mr. Cresci is a Managing Director of Pecks and disclaims
beneficial ownership of such shares.
(7) On July 10, 1998, an Amended and Restated Stockholders Agreement (the
"Stockholders Agreement") was executed by and between the Company,
Messrs. DeBoer and Fix, Doubletree and certain other parties signatory
thereto in connection with the issuance of the Company's Series B
Preferred Stock (collectively, the "Stockholders Group"). The
Stockholders Group may be deemed to be a "group" for purposes of
13(d)(3) of the Securities Exchange Act of 1934, as amended. Messrs.
DeBoer, Fix, Cresci (through his association with Pecks), Morris
(through his association with Olympus Growth Fund II, L. P. ("OGF-II")
and Olympus Executive Fund, L.P. ("OEF")), Pados (through his
association with Private Equity Investors III, L.P. ("PEI-III") and
Equity-Linked Investors-II ("ELI-II")), and Albrecht and Keltner
(through their association with Hilton), Doubletree and the other
parties to the Stockholders Agreement may therefore be deemed to
beneficially own those shares listed as beneficially owned by the
Stockholders Group. The Stockholders Agreement provides for certain
rights and obligations regarding the nomination and election of
directors. See "Stockholders Agreement." The listed holders disclaim
beneficial ownership of the shares except to the extent that they have a
pecuniary interest therein.
(8) Includes 50,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001. Excludes 114,476 shares of Common
Stock held by the Alexander John DeBoer Trust dated March 14, 1995 and
the Christopher Scott DeBoer Trust dated March 14, 1995 (collectively,
the "DeBoer Trusts"). Mr. DeBoer has no interest in the DeBoer Trusts
and disclaims beneficial ownership of such shares.
(9) Includes 250 shares of Series A Preferred Stock held by Mr. Fix as
Trustee for the Warren D. Fix Defined Benefit Plan Trust. Includes
274,965 shares of Common Stock held by the Warren D. Fix Family
Partnership, L.P. (the "Fix Partnership"). Mr. Fix disclaims beneficial
ownership of these shares except to the extent of his interest in the
Fix Partnership. Includes 77,500 shares of Common Stock subject to
options exercisable within 60 days of March 19, 2001.
(10) Includes 42,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(11) Represents 7,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001. Excludes 100 shares of Series A
Preferred Stock, 49 shares of Series B Preferred Stock and 392 Series B
Warrants beneficially owned by OEF. Excludes 9,900 shares of Series A
Preferred Stock, 4,841 shares of Series B Preferred Stock and 38,728
Series B Warrants beneficially owned by OGF-II. Mr. Morris is an
executive officer of the general partners of both OEF and OGF-II and
disclaims beneficial ownership of the shares held by such entities.
(12) Represents 5,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(13) Represents 7,500 shares of Common Shares subject to options exercisable
within 60 days of March 19, 2001. Excludes 3,500 shares of Series A
Preferred Stock, 12,000 shares of Series B Preferred Stock and 96,000
Series B Warrants beneficially owned by ELI-II. Excludes 3,500 shares of
Series A Preferred Stock, 12,000 shares of Series B Preferred Stock and
96,000 Series B Warrants beneficially owned by PEI-III. Mr. Pados is an
executive officer of Desai Capital Management Incorporated ("DCMI") and
disclaims beneficial ownership of such shares. DCMI acts as an
investment advisor to PEI-III and ELI-II and, with the respective
general partners of PEI-III and ELI-II, has the power to vote or to
direct the vote and to dispose or to direct the disposition of such
shares under an investment and advisory agreement between PEI-III and
ELI-II.
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(14) Includes 5,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(15) Includes 33,250 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(16) Represents 102,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(17) Includes 10,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(18) Includes 2,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 2001.
(19) Based on Schedule 13D filed October 23, 1997 and Schedule 13D/A filed
December 11, 1998 by OGF-II and OEF. OEF, an affiliate of OGF-II,
beneficially owns an additional 100 shares of Series A Preferred Stock,
49 shares of Series B Preferred Stock and 392 Series B Warrants, and, as
a party to the Stockholders Agreement, may therefore be deemed to
beneficially own those shares listed as beneficially owned by the
Stockholders Group.
(20) The listed holder is known by the Company to have purchased shares of
the Company's Preferred Stock and to have entered into the Stockholders
Agreement. The Company is unaware of any other stockholdings of the
holder.
(21) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by LNR Candlewood Holdings, Inc. ("LNR"), Leisure
Colony Management Corp. and LNR Property Corporation ("LNR Property").
According to information provided to the Company by its stock transfer
agent, the shares issued to LNR were transferred to Arbor Lake Club,
Ltd. ("Arbor"). Both LNR and Arbor are indirectly wholly-owned and
controlled by LNR Property.
(22) Based on Schedule 13D filed on June 4, 1998, and Schedule 13D/A filed on
September 10, 1998 by Pecks Management Partners, Ltd.
(23) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by ELI-II, PEI-III, DCMI and Rohit Mujilal Desai
("Mr. Desai"). The power to vote or to direct the vote and to dispose
of, or to direct the disposition of, the shares held by PEI-III is
vested in its general partner Rohit M. Desai Associates-III, LLC
("RMDA-III"), however, such decisions may also be made by DCMI under an
investment and advisory agreement between PEI-III and DCMI. Accordingly,
RMDA-III and DCMI may be deemed to beneficially own the shares held by
PEI-III. Mr. Desai is the managing member of RMDA-III and the Chairman,
President and Treasurer of DCMI, and may be deemed to share the power to
vote or to direct the vote and to dispose of, or to direct the
disposition of, the shares held by PEI-III.
(24) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by ELI-II, PEI-III, DCMI and Mr. Desai. The power to
vote or to direct the vote and to dispose of, or to direct the
disposition of, the shares held by ELI-II is vested in general partner
Rohit M. Desai Associates-II ("RMDA-II"), however, such decisions may
also be made by DCMI under an investment and advisory agreement between
ELI-II and DCMI. Accordingly, RMDA-II and DCMI may be deemed to
beneficially own the shares held by ELI-II. Mr. Desai is the general
partner of RMDA-II and the Chairman, President and Treasurer of DCMI,
and may be deemed to share the power to vote or to direct the vote and
to dispose of, or to direct the disposition of, the shares held by
ELI-II.
(25) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by Advance Capital Associates L.P. ("Advance L.P."),
Advance Capital Management, LLC ("Advance LLC"), Advance Capital
Partners, L.P. ("Advance Capital") and Advance Capital Offshore
Partners, L.P. ("Advance Offshore"). The shares beneficially owned by
Advance L.P. and Advance LLC are held by Advance Capital (2,457 shares
of Series A Preferred Stock, 1,523 shares of Series B Preferred Stock
and 12,184 Series B Warrants) and Advance Offshore (793 shares of Series
A Preferred Stock, 477 shares of Series B Preferred Stock and 3,816
Series B Warrants). With respect to the shares issued to them,
respectively, Advance Capital and Advance Offshore each has shared power
to vote or to direct the vote and to dispose of, or to direct the
disposition of, the shares beneficially owned by Advance L.P. and
Advance LLC.
(26) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by The Mutual Life Insurance Company of New York
("MONY"). The shares beneficially owned by MONY are held by J. Romeo &
Co.
(27) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by Allied Capital Corporation.
REGISTRATION RIGHTS
In connection with the issuance and sale of the Company's Series B
Preferred Stock in July, 1998 (the "Series B Private Placement"), the Company,
Mr. Jack P. DeBoer, Doubletree, the Alexander John DeBoer Trust dated March 14,
1995 and the Christopher Scott DeBoer Trust dated March 14, 1995 (the "DeBoer
Trusts"), the Warren D. Fix Family Partnership, L.P. (the "Fix Partnership")
(collectively, the "Initial Stockholders") and certain other purchasers of the
Preferred Stock, entered into that certain Amended and Restated Registration
Rights Agreement dated as of July 10, 1998 (the "Registration Rights
Agreement"). The Registration Rights Agreement replaced that certain
Registration Rights Agreement dated as of September 22, 1997.
Pursuant to the terms of the Registration Rights Agreement, the parties
have two demand registration rights under which they may require (subject to
certain limitations) the Company to register under the Securities Act of 1933,
as amended, certain shares of Common Stock owned by the parties. The Company is
not required to file a registration statement upon exercise of these demand
registration rights within 180 days following any underwritten public offering
of Common Stock or securities, convertible into or exercisable or exchangeable
for Common Stock. The Company is also obligated to allow the parties to
participate in underwritten offerings originated by the Company, subject to
certain limitations. All expenses of any registration relating to securities as
provided in the Registration Rights
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Agreement (other than underwriting discounts and commissions and fees and
expenses of counsel for selling stockholders) are to be borne by the Company.
STOCKHOLDERS AGREEMENT
Following the completion of the Series B Private Placement, the Initial
Stockholders and certain holders of Preferred Stock entered into an Amended and
Restated Stockholders Agreement dated as of July 10, 1998 (the "Stockholders
Agreement"). The Stockholders Agreement replaced that certain Stockholders
Agreement dated as of September 22, 1997. The Stockholders Agreement provides
that, subject to certain conditions described below and so long as each entity
holds at least 20% of the Series A Preferred Stock that it originally purchased,
Olympus Growth Fund II, L.P. ("Olympus"), Desai Capital Management, Inc.
("Desai") and Pecks Management Partners Ltd. ("Pecks", collectively, the "Series
A Purchase Group") are each entitled to designate a single individual for
nomination to stand for election to the Board of Directors (for a total of three
directors selected by the Series A Purchaser Group). In addition, subject to
certain conditions described below and so long as each entity holds at least 20%
of the Series B Preferred Stock originally purchased, the holders of at least a
majority of the Series B Preferred Stock are entitled to designate a single
individual for nomination to stand for election to the Board of Directors. The
Stockholders Agreement also provides that, subject to certain conditions,
Doubletree shall be entitled to designate two individuals for nomination to
stand for election to the Board of Directors, and that Mr. DeBoer, the DeBoer
Trusts and the Fix Partnership (collectively, the "DeBoer/Fix Holders") (or a
permitted transferee) are entitled to collectively designate two individuals for
nomination to stand for election to the Board of Directors. Finally, the
Stockholders Agreement permits, subject to certain conditions, Doubletree,
together with the DeBoer/Fix Holders to designate the remaining independent
directors for nomination to stand for election to the Board of Directors and to
designate the president of the Company for nomination to stand for election to
the Board of Directors. Each of the parties to the Stockholders Agreement have
agreed to vote its shares in favor of the individuals nominated by the other
parties to the Stockholders Agreement.
The rights and obligations of the holders of the Preferred Stock under
the Stockholders Agreement terminate as follows:
- In the case of the holders of the Series A Preferred Stock, upon
the failure of all such holders to collectively hold,
beneficially or of record, at least 20% of the Series A
Preferred Stock or Common Stock equivalents purchased in the
initial offering of the Series A Preferred Stock.
- In the case of the holders of the Series B Preferred Stock, upon
the failure of all such holders to collectively hold,
beneficially or of record, at least 20% of the Series B
Preferred Stock or Common Stock equivalents purchased in the
initial offering of the Series B Preferred Stock.
- In the case of any holder of Preferred Stock, on the date that
the Common Stock resulting from the conversion of Preferred
Stock held by such holders into Common Stock have been sold
pursuant to an effective registration statement in accordance
with the rules and regulations of the Securities and Exchange
Commission or a sale pursuant to Rule 144 thereof.
- In addition, the rights and obligations of any of Olympus, Desai
or Pecks under the Stockholders Agreement terminate if such
entity holds, beneficially or of record, less than 20% of the
Series A Preferred Stock or Common Stock equivalents purchased
by such entity in the initial offering of the Series A Preferred
Stock.
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- Finally, the rights and obligations of Doubletree and the
DeBoer/Fix Holders under the Stockholders Agreement terminate
upon both the failure of such holders or their permitted
transferees, collectively, to hold, beneficially or of record,
at least 20% of the outstanding voting interests of the Company,
and the termination of the rights of the holders of the Series A
Preferred Stock and the Series B Preferred Stock.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of April 2, 2001 are as
follows:
NAME AGE POSITION
---- --- --------
Jack P. DeBoer.................... 70 Chief Executive Officer and Chairman of the Board
James E. Roos..................... 49 President and Chief Operating Officer
Warren D. Fix..................... 62 Executive Vice President, Chief Financial Officer, Secretary
and Director
Jeffrey F. Hitz................... 55 Senior Vice President - Development
Charles H. Armstrong, Jr.......... 43 Vice President - Franchise Sales
Tim D. Johnson.................... 33 Vice President - Treasurer and Assistant Secretary
Thomas R. Kennalley............... 44 Vice President - Controller and Assistant Secretary
H. Steven Meadows................. 47 Vice President - Operations
David A. Redfern.................. 35 Vice President - Sales and Marketing
Gina-Lynne Scharoun............... 30 Vice President - Franchise Services
For a description of the business background of Messrs. DeBoer, Roos and
Fix, see "Proposal 1--ELECTION OF DIRECTORS."
Jeffrey F. Hitz has served as Senior Vice President - Development of the
Company since February 1998. From May 1996 to February 1998, Mr. Hitz served as
Vice President - Real Estate of the Company. From July 1995 to March 1996, Mr.
Hitz was a consultant to several retail chains on site selection and concept
development. From October 1994 to July 1995, Mr. Hitz was Senior Vice President,
Operations for EZCorp, Inc., a publicly traded retail chain. From August 1989 to
October 1994, Mr. Hitz held several positions with THORN Americas, Inc., an
operator of a national chain of rent-to-own stores, including Vice President,
Development. From 1986 to 1989, Mr. Hitz was a multi-unit franchisee of two
restaurant concepts in California and Arizona.
Charles H. Armstrong, Jr. has served as Vice President - Franchise Sales
of the Company since May 1999. From September 1997 to April 1999, he was Vice
President of Franchise Sales for Wingate Inns, a subsidiary of Cendant
Corporation. From May 1995 to August 1997, Mr. Armstrong was Director of
Franchise Sales for Wingate Inns. From April 1993 to April 1995, he was Director
of Franchise Sales for Hospitality Franchise Systems, which offers the Days Inn,
Ramada Inn and Howard Johnson brands.
Tim D. Johnson has served as Vice President - Treasurer and Assistant
Secretary of the Company since November 1999. From July 1998 to November 1999,
Mr. Johnson was Director of Strategic and Financial Planning of the Company.
From March 1997 to July 1998, he held the position of Manager of Financial
Reporting of the Company. From May 1995 to March 1997, Mr. Johnson was a
Financial Analyst for THORN Americas, Inc., an operator of a national chain of
rent-to-own stores.
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From January 1995 to May 1995, he was an accountant for RCM, a regional public
accounting firm. From May 1994 to December 1994, Mr. Johnson was an Adjunct
Instructor at the University of Oklahoma.
Thomas R. Kennalley has served as Vice President - Controller and
Assistant Secretary of the Company since December 1997. From 1996 to 1997, Mr.
Kennalley was Director of Financial Reporting for THORN Americas, Inc., an
operator of a national chain of rent-to-own stores. From 1991 to 1996, he held
the position of Treasurer of Advantage Companies, Inc., the largest publicly
held franchisor of Rent-A-Center stores. Mr. Kennalley also has ten years of
experience in the audit department of a national firm of certified public
accountants.
H. Steven Meadows has served as Vice President - Operations since
November 1998. From August 1993 to November 1998, Mr. Meadows held several
positions with Posadas USA, Inc., a division of Grupo Posadas, S.A. de C.V., a
Mexico City-based Latin American hotel company, including most recently Vice
President, Operations. From August 1991 to August 1993, he served as a General
Manager for a hotel operated by Holiday Inns, Inc. From November 1990 to August
1991, Mr. Meadows served as a General Manager of a Ramada Hotel, a hotel
operated by Hospitality Unlimited Investments.
David A. Redfern has served as Vice President - Sales and Marketing of
the Company since December 1995. From August 1994 to December 1995, Mr. Redfern
served as the National Sales Director for the Summerfield Suites Hotel chain, an
up-scale extended-stay hotel chain. From June 1993 to January 1995, Mr. Redfern
served as a Task Force Manager for Summerfield Suites. From September 1991 to
June 1993, Mr. Redfern attended the University of California - Irvine, where he
received his M.B.A. degree. From January to June 1993, Mr. Redfern was also
employed by Cruttenden & Co., Inc., an investment banking firm, as a research
analyst. From August 1990 to September 1991, Mr. Redfern served as Director of
Sales for the Summerfield Suites hotel in San Francisco, California. From 1988
to August 1990, Mr. Redfern was a Sales Manager for the Residence Inn by
Marriott in La Jolla, California.
Gina-Lynne Scharoun has served as Vice President - Franchise Services of
the Company since May 1999. From August 1997 to April 1999, she held the
position of Vice President of Franchise Development of the Company. From June
1996 to July 1997, she held the position of Director of Franchise Development of
the Company. From January 1996 until May 1996, Ms. Scharoun held various
positions in the Company's Corporate and Franchise Development Departments. From
September 1993 to December 1995, Ms. Scharoun served in various positions,
including Assistant Vice President of Community Reinvestment, for Fourth
Financial Corporation, a financial institution.
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EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual
and long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1998, December 31, 1999 and December 31, 2000 of
those persons who were either:
- the chief executive officer of the Company,
- one of the other four most highly compensated executive officers
of the Company whose annual salary and bonuses exceeded
$100,000, or
- any other executive officer who would have qualified under the
previous two categories but for the fact that the individual was
not serving as an executive officer of the registrant at the end
of the 2000 fiscal year (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------------------- AWARDS STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (SHARES) COMPENSATION(2)
- --------------------------- ---- -------- -------- ---------------- ---------------
Jack P. DeBoer 2000 $365,000 $175,000 -- $ 5,100
Chief Executive Officer and 1999 350,000 115,500 70,000 1,718
Chairman of the Board 1998 211,795 75,000 30,000 1,765
James E. Roos 2000 215,000 100,000 -- 5,100
President and Chief 1999 205,000 75,000 43,000 1,336
Operating Officer 1998 173,658 50,000 12,000 1,637
Warren D. Fix 2000 215,000 100,000 -- 5,100
Executive Vice President, 1999 205,000 75,000 43,000 1,222
Chief Financial Officer and 1998 157,986 50,000 12,000 1,540
Secretary
Charles H. Armstrong, Jr 2000 234,000(3) -- -- 4,980
Vice President - 1999 133,333(3) -- 25,000 1,370
Franchise Sales 1998 -- -- -- --
H. Steven Meadows 2000 130,000 40,000 -- 4,713
Vice President - 1999 110,000 27,500 -- 1,269
Operations 1998 18,333(4) -- 25,000 --
- ----------
(1) Amounts of other annual compensation are not shown because such
compensation did not exceed the lesser of $50,000 or 10% of the total
salary and bonus of the Named Executive Officer.
(2) For fiscal year 2000, represents matching contributions paid by the
Company under the Company's 401(k) plan of $5,100, $5,100, $5,100,
$4,980 and $4,713 for Messrs. DeBoer, Roos, Fix, Armstrong and Meadows,
respectively. For fiscal year 1999, represents matching contributions
paid by the Company under the Company's 401(k) plan of $1,718, $1,336,
$1,222, $1,370 and $1,269 for Messrs. DeBoer, Roos, Fix, Armstrong and
Meadows, respectively. For fiscal year 1998, represents matching
contributions paid by the Company under the Company's 401(k) plan of
$1,765, $1,637 and $1,540 for Messrs. DeBoer, Roos and Fix,
respectively.
(3) Represents a base salary of $125,000 on an annualized basis plus sales
commissions. Mr. Armstrong commenced employment with the Company in May
1999 as Vice President - Franchise Sales.
(4) Represents a base salary of $110,000 on an annualized basis. Mr. Meadows
commenced employment with the Company in November 1998 as Vice President
- Operations.
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There were no stock options granted to the Named Executive Officers
during 2000.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 2000
pursuant to the Company's 1996 Equity Participation Plan. No options were
exercised by any of the Named Executive Officers during 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE
Value of Unexercised
Number of Unexercised In-the-Money
Options at Options at
December 31, 2000 December 31, 2000 (1)
------------------------------ ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Jack P. DeBoer 32,500 67,500 -- --
James E. Roos 91,750 63,250 -- --
Warren D. Fix 66,750 38,250 -- --
Charles H. Armstrong, Jr 6,250 18,750 -- --
H. Steven Meadows 12,500 12,500 -- --
- ----------
(1) Based on the closing sales price of the Company's Common Stock on the
Nasdaq National Stock Market on December 31, 2000 ($2.50), minus the
exercise price of the option, multiplied by the number of shares to
which the option relates, none of the exercisable or unexercisable
options were in-the-money.
AGREEMENTS RELATING TO EMPLOYMENT
The Company has entered into an employment agreement with Mr. DeBoer
under which he has agreed, subject to certain conditions, to continue to serve
as the Company's Chief Executive Officer. The contract renews annually unless
earlier terminated. Mr. DeBoer will receive annual cash compensation and shall
be eligible for a bonus to be set by the Compensation Committee. The contract
provides that upon a change of control of the Company or termination of
employment under certain circumstances, Mr. DeBoer will be entitled to a payment
equal to three times his average annual salary for the previous three years. The
contract provides that, during the term of the contract, except with respect to
certain passive investments in lodging companies and hotel properties and
activities related to properties held at the time of the offering, Mr. DeBoer
will not engage in the acquisition, founding, development, operation or
management of any hotel company or chain. The contract also provides that for
two years after Mr. DeBoer's contract ends, subject to the aforementioned
exceptions, Mr. DeBoer will not engage in the acquisition, founding,
development, operation, or management of any new hotel company or chain.
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COMPENSATION COMMITTEE REPORT ON COMPENSATION
Compensation and benefit practices of the Company are established and
governed by the Compensation Committee comprised exclusively of independent
members of the Board of Directors. From January 2000 through May 2000, the
Compensation Committee consisted of Gary E. Costley, Frank J. Pados, Jr., Robert
S. Morris and William L. Perocchi. From May 2000 through December 2000, the
Compensation Committee consisted of Messrs. Pados and Perocchi and Thomas W.
Storey. Mr. Fix is a non-voting ex officio member of the Compensation Committee.
Mr. Costley served as Chairman until May 2000. Mr. Storey has served as Chairman
of the Committee since May 2000.
The Compensation Committee establishes the general compensation policy
of the Company, reviews and approves compensation of the senior executive
officers of the Company and administers the Company's 1996 Equity Participation
Plan and any other employee benefit plans established by the Company. The
Compensation Committee reviews the overall compensation program of the Company
to assure that the Company:
- has set management compensation at levels that are reasonable in
consideration of all the facts, including practices of
comparably sized corporations engaged in the hotel business,
- adequately recognizes performance tied to creating shareholder
value,
- is responsive to current tax, accounting and Securities and
Exchange Commission guidelines, and
- meets overall Company compensation and business objectives.
The Compensation Committee attempts to promote financial and operational
success by attracting, motivating and assisting in the retention of key
employees who demonstrate the highest levels of ability and talent. In addition,
the Compensation Committee attempts to promote teamwork, initiative and
resourcefulness on the part of key employees whose performance and
responsibilities directly affect Company profits. To this end, the compensation
program has been designed to balance short and long-term incentive compensation
to achieve desired results and pay for performance. The Company's compensation
policy is to reward performance as measured by the creation of value for
stockholders. The Compensation Committee utilizes base salary, certain annual
bonus awards and long-term incentive compensation pursuant to the 1996 Equity
Participation Plan as part of its program. The hotel and hospitality industry is
characterized by substantial competition for skilled employees. The ability of
the Company to attract, motivate and retain high caliber individuals is
dependent in large part on the compensation packages it offers.
The Internal Revenue Code provides a $1,000,000 deduction limit on
compensation paid to the reporting executives of publicly held corporations. An
exception to the limit applies to certain types of performance-based awards
granted under plans approved by the Company's stockholders, which may include
stock options. The Committee's policy is to qualify bonus and option grants for
the performance-based compensation exception to the $1,000,000 deduction
limitation whenever possible.
Base Salary
Salaries for executive officers are reviewed annually by the
Compensation Committee based upon a variety of factors, including individual
performance, general levels of market salary increases and the Company's overall
financial results. In 2000, the Compensation Committee chartered a study
relating to the compensation of the Company's senior officers. This study was
performed by an
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independent benefits consultant and identified a shortfall in the overall
compensation of the Company's senior officers. Based in part on this study and
in an attempt to meet the median overall compensation of the Company's peer
group, the base salary for each of the five highest paid officers for 2000 was
reviewed and established by the Compensation Committee. The Compensation
Committee may further adjust these salaries in 2001 based upon a finding that
adjustment was reasonable in view of competitive practices, the Company's
performance and the contribution of those officers to that performance.
Incentive Compensation Plan
The Company has established an incentive compensation plan for officers
and key employees of the Company. This plan provides for the payment of an
annual bonus to participating officers and key employees if certain performance
objectives established for each individual are achieved. Each participant's
performance objectives, which are reviewed and established at the beginning of
the year by the Compensation Committee, vary from year to year and are based,
among other things, on measures of profitability, cash flow and other measures
of the Company's performance, as well as upon each individual's specific role
within the Company. Pursuant to the Company's Employment Agreement with Mr.
DeBoer, Mr. DeBoer is eligible for an annual bonus to be set by the Compensation
Committee. The bonus levels for 2000 were established based in large part on the
compensation studies chartered by the Compensation Committee.
Long-term Incentive Compensation
1996 Equity Participation Plan
The Company has established the 1996 Equity Participation Plan to
provide an additional incentive for executive officers, other key employees, the
Company's non-employee Directors ("Independent Directors") and consultants of
the Company through granting of options, restricted stock and other awards,
thereby stimulating their personal and active interests in the Company's
development and financial success, and inducing them to remain in the Company's
employ.
Based in part on the compensation studies chartered by the Compensation
Committee, in 2000 the Compensation Committee established annual option grant
award targets for the Company's executive officers. The annual award targets are
designed to bring executive compensation in line with the median compensation
paid by the Company's peer group of companies. The option award targets do not
obligate the Compensation Committee to award any options.
During 2000, the Company granted to executive officers, other Company
employees, Independent Directors and consultants of the Company options to
purchase approximately 132,600 shares of Common Stock pursuant to the 1996
Equity Participation Plan. All of the 132,600 options issued during 2000 were
issued to Company employees. Executives were not issued any stock options during
the year 2000. The options are exercisable at prices per share ranging from
$1.78 to $3.25. The total number of options granted to each individual was
determined primarily by the position of the participant. Prior to 2000, the
Company granted options to all employees of the Company (including all employees
at each of the Company's hotels) regardless of position. In 2000, this practice
was modified to include only certain positions. Of the 1,223,500 options issued
and outstanding as of December 31, 2000, 80,000 had been issued to directors
(pursuant to formula grants under the 1996 Equity Participation Plan), 619,500
had been issued to executives and 524,000 had been issued to other Company
employees.
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401(k) Profit Sharing Plan
The Company administers the Candlewood Hotel Company 401(k) Profit
Sharing Plan (the "401(k) Plan"), which is designed to be qualified under
applicable provisions of the Internal Revenue Code of 1986, as amended. The
401(k) Plan covers all employees of the Company who have attained age 21 and
have completed ninety days of service. Participants receive service credit for
employment with the predecessor of the Company.
A participant in the 401(k) Plan may contribute up to 15% of his or her
compensation on a pre-tax basis under the 401(k) Plan. The Company may, but is
not obligated to, make contributions on behalf of each participant. Effective
October 1, 1999, the Company match rate was increased from 25% to 50% of all
participants' contributions, not to exceed 6% of the employee's compensation.
For the year ended December 31, 2000, the Company matched employee contributions
in the aggregate amount of $411,000.
Chief Executive Compensation
In 2000, Mr. DeBoer, the Company's Chief Executive Officer and Chairman
of the Board, received base compensation of $365,000. The Compensation Committee
increased Mr. DeBoer's salary from $350,000 to $365,000 effective January 1,
2000. As part of his compensation for 2000, Mr. DeBoer also received a bonus of
$175,000.
In establishing Mr. DeBoer's compensation, the Compensation Committee
followed its established compensation philosophy and process described above. In
particular, the Compensation Committee noted the Company's hotel operating
results and Mr. DeBoer's several initiatives to focus and align the Company's
strengths and objectives to varying market conditions. In addition, the
Compensation Committee also considered the compensation paid by a peer group of
companies as well as market trends as they related to compensation of chief
executive officers in the industry.
The foregoing report has been approved by all the members of the
Compensation Committee.
Date: March 20, 2001 Thomas W. Storey (Chair)
Frank J. Pados, Jr.
William L. Perocchi
The above report of the Compensation Committee will not be deemed to be
incorporated by reference to any filing by the Company under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates the same by reference.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has implemented a policy requiring any material transaction
or agreement with a related party to be approved by a majority of the directors
not interested in such transaction or agreement, provided that they determine
that the terms of any such transaction or agreement are no less favorable to the
Company than those that could be obtained from an unaffiliated third party.
Compensation and benefit practices of the Company are established and governed
by the Compensation Committee comprised exclusively of independent members of
the Board of Directors. From January 2000 through May 2000, the Compensation
Committee consisted of Gary E. Costley, Frank J. Pados, Jr., Robert S. Morris
and William L. Perocchi. From May 2000 through December 2000, the Compensation
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Committee consisted of Messrs. Pados and Perocchi and Thomas W. Storey. Mr. Fix
is a non-voting ex officio member of the Audit and Compensation Committees.
STOCKHOLDER RETURN PERFORMANCE GRAPH
The graph below provides an indicator of cumulative total shareowner
returns for Candlewood as compared with the S&P 500 Stock Index and the S&P
Hotel-Motel index. This graph covers the period of time beginning November 5,
1996, when Candlewood's shares were first traded, through December 31, 2000.
11/5/96 12/96 12/97 12/98 12/99 12/00
CANDLEWOOD HOTEL COMPANY, INC 100.00 95.06 86.42 51.85 17.28 24.69
S & P 500 100.00 105.43 140.60 180.78 218.83 198.90
S & P LODGING-HOTELS 100.00 95.04 132.99 108.26 108.26 87.55
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AUDIT COMMITTEE REPORT
The Audit Committee oversees the Company's financial reporting process
on behalf of the Board of Directors. Management has the primary responsibility
for the financial statements and the reporting process including the systems of
internal controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the Annual Report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of disclosures in the financial statements.
The Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of the Company's
accounting principles and such other matters as are required to be discussed
with the Committee under generally accepted auditing standards. In addition, the
Committee has discussed with the independent auditors the auditors' independence
from management and the Company including the matters in the written disclosures
required by the Independence Standards Board and considered the compatibility of
nonaudit services with the auditors' independence. The Committee has also
discussed with the independent auditors the matters required to be discussed by
SAS 61.
The Committee discussed with the Company's independent auditors the
overall scope and plans for their respective audits. The Committee meets with
the independent auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the Company's internal
controls, and the overall quality of the Company's financial reporting. The
Committee held two meetings during fiscal year 2000.
In reliance on the reviews and discussions referred to above, the
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form
10-K for the year ended December 31, 2000 for filing with the Securities and
Exchange Commission. The Committee and the Board have also recommended, subject
to shareholder approval, the selection of the Company's independent auditors.
The foregoing report has been approved by all the members of the Audit
Committee.
Date: March 27, 2001 Thomas H. Nielsen (Chair)
Mariel C. Albrecht
Robert J. Cresci
The above report of the Audit Committee will not be deemed to be incorporated by
reference to any filing by the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates the same by reference.
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FEES PAID TO INDEPENDENT AUDITORS
The fees paid to Ernst & Young LLP, the Company's independent auditor,
during the 2000 fiscal year are as follows:
Fees Paid
---------
Audit Fees(1) ...................................................... $70,500
Financial Information Systems Design and Implementation Fees(2) .... 0
All Other Fees(3) .................................................. 0
(1) Includes the aggregated fees billed for professional services rendered
by Ernst & Young LLP for the audit of the Company's annual financial
statements for the 2000 fiscal year and the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-Q for
the 2000 fiscal year.
(2) Includes the aggregate fees billed for professional services rendered by
Ernst & Young LLP for the provision of information technology services
of the type described in Rule 2-01(c)(4)(ii) of Regulation S-X during
the 2000 fiscal year.
(3) Includes the aggregate fees billed for all services rendered by Ernst &
Young LLP, other than the fees for the services which are reported under
"Audit Fees" and "Financial Information Systems Design and
Implementation Fees," during fiscal 2000.
CERTAIN TRANSACTIONS
The Company purchases property and casualty insurance, worker's
compensation coverage and builders risk insurance through Manning & Smith
Insurance, an insurance agency in which Mr. DeBoer owns a minority interest. The
insurance contracts were awarded through a competitive bid process. For 2000,
1999 and 1998 the Company paid insurance premiums to Manning & Smith Insurance
for such coverages in the amount of $990,000, $1,213,000 and $1,134,000,
respectively.
The Company purchases corporate air travel through Wichita Air Services,
a Wichita, Kansas based air travel service, owned by Mr. DeBoer. In February
1999, the Company purchased a 0.1% interest in Wichita Air Services for a
nominal amount of cash. In addition, the Company has entered into a contract to
purchase corporate travel through Wichita Air Services for a three-year period,
which expires in February 2002. For the years ended 2000, 1999 and 1998 the
Company incurred costs from Wichita Air Services in the amount of $160,000,
$199,000 and $396,000, respectively.
The Company entered into an agreement with Wichita Downtown Residence
Associates in April 1997, to provide management services to Cambridge Suites by
Candlewood, located in Wichita, Kansas. In exchange for providing all management
services as specified in the agreement, the Company receives management fees
equal to 3.0% of room revenue and 4.5% of gross operating profit. In addition,
the Company receives accounting fees equal to $500 per month. The current
agreement expires in April 2003 and is renewable for five-year terms upon mutual
consent. Mr. DeBoer is a majority partner in Wichita Downtown Residence
Associates. For 2000, 1999 and 1998 the Company received fees of $62,000,
$69,000 and $52,000, respectively.
In April 1998, the Company entered into a management agreement with The
Hotel At Old Town, Inc., located in Wichita, Kansas to provide management
services to The Hotel At Old Town. The hotel opened in March 1999. In exchange
for providing all management services as specified in the agreement, the Company
receives management fees equal to 3.0% of room revenue and 4.5% of gross
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operating profit. In addition, the Company receives accounting fees equal to
$500 per month. The term of the agreement is five years and expires in March
2004. The agreement is renewable for additional multi-year terms upon mutual
consent of the parties. Mr. DeBoer is a majority partner in The Hotel at Old
Town, Inc. For 2000 and 1999 the Company received fees of $161,000 and $81,000,
respectively.
Doubletree, a wholly-owned subsidiary of Hilton Hotels Corporation, has
agreed to guarantee portions of certain loans made to the Company and its
franchisees in excess of 56.25% of the hotel cost, up to a maximum of 80% of the
cost of hotels that the Company manages and 75% of the costs of hotels not
managed by the Company. It is anticipated that the guarantee will remain in
effect until the loan has been repaid. Upon an event of default, Doubletree will
have the option to meet any shortfalls or pay down the loan principal. In
exchange for the guarantee, Doubletree will receive a 5% interest in the cash
flows of the hotels and a 0.25-0.50% fee on the total loan amount outstanding.
Thomas L. Keltner, a director of the Company, is currently Executive Vice
President of Hilton Hotels Corporation. Mariel C. Albrecht, a director of the
Company, is currently Senior Vice President and Treasurer of Hilton Hotels
Corporation.
Doubletree has extended to the Company a $15 million subordinated credit
facility. The credit facility is subordinated to debt incurred in the
development of hotels and will be subordinated to the Company's line of credit,
if any. Amounts outstanding under the credit facility bear interest at rates of
7% per annum for the first 12 months following contribution, 10% per annum for
the second 12 months following contribution and 15% per annum thereafter. The
Company has drawn down the full amount of this facility with principal of $12.5
million and $2.5 million payable at maturity in November 2001 and July 2002,
respectively. The amount bears interest at a rate calculated based on the date
amounts were advanced to the Company or its predecessors. As of December 31,
2000, the full amount of the facility bears interest at 15%. During 2000, the
Company incurred interest totaling approximately $2.2 million related to the
credit facility. A portion of this amount was capitalized as construction period
interest.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's directors and executive officers and
persons who own more than 10% of a registered class of the Company's equity
securities to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission (the "SEC") and The Nasdaq
Stock Market. Such persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it with
respect to fiscal year 2000, or written representations from certain reporting
persons, the Company believes that all of its directors and executive officers
and persons who own more than 10% of the Company's Common Stock have complied
with the reporting requirements of Section 16(a).
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PROPOSAL 1
ELECTION OF DIRECTORS
Directors are elected at each Annual Meeting of Stockholders and hold
office until their successors are duly elected and qualified at the next Annual
Meeting of Stockholders, unless they resign or are removed. The Company's Bylaws
authorize a Board of Directors comprised of at least seven directors and no more
than thirteen directors, with the exact number set by resolution of the Board.
The Stockholders Agreement provides that the maximum number of authorized
directors is thirteen. Pursuant to a resolution adopted by the Board of
Directors in April 2001, the authorized number of members of the Board of
Directors was increased from twelve to thirteen. James E. Roos, the President
and Chief Operating Officer of the Company, was elected to fill the vacancy.
Prior to the 2001 Annual Meeting, Mr. Gary E. Costley, who had served as a
director since 1997, notified management that he did not intend to stand for
reelection and would resign from the Board of Directors to pursue other
interests. The Board of Directors has accepted Mr. Costley's resignation,
effective upon the election of the thirteen nominees for election to the Board
of Directors as set forth below. There are currently no vacancies on the Board
of Directors.
The Stockholders Agreement provides that, subject to certain conditions,
Olympus, Desai and Pecks are each entitled to designate a single director for
election to the Board of Directors. The Stockholders Agreement also provides
that, subject to certain conditions, a majority of the holders of the Series B
Preferred Stock are entitled to designate a single director for election to the
Board of Directors. The Stockholders Agreement also provides that, subject to
certain conditions, Doubletree shall be entitled to designate two directors, and
allows the DeBoer/Fix Holders to collectively designate two directors for
election to the Board. Finally, the Stockholders Agreement permits, subject to
certain conditions, Doubletree, together with the DeBoer/Fix Holders to
designate the President of the Company and such number of remaining independent
directors for election. Pursuant to the Stockholders Agreement, the holders of
the Series A Preferred Stock have nominated Robert J. Cresci, Robert S. Morris
and Frank J. Pados, Jr. to serve as directors. The holders of Series B Preferred
Stock have nominated Seth E. Schofield to serve as a director. Doubletree has
nominated Mr. Keltner and Ms. Albrecht. The DeBoer/Fix Holders have nominated
Messrs. DeBoer and Fix to serve as directors. Doubletree, together with the
DeBoer/Fix Holders, have nominated James E. Roos, the President and Chief
Operating Officer of the Company, and the remaining unaffiliated directors:
William L. Perocchi, Tony M. Salazar, Thomas H. Nielsen and Thomas W. Storey.
Messrs. Perocchi and Storey were formerly nominees of Doubletree. The purchasers
of the Preferred Stock, Doubletree and Messrs. DeBoer and Fix have agreed to
vote for each other's nominees for the Board of Directors pursuant to the
Stockholders Agreement.
Twelve of the thirteen nominees for election to the Board of Directors
currently serve as directors of the Company, each having been elected or
appointed to his or her present term of office in accordance with the Bylaws of
the Company. Each nominee first became a director of the Company in the year set
forth below and has continually served as a director of the Company since that
time. One of the nominees, Seth E. Schofield, does not currently serve on the
Board of Directors.
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FIRST BECAME
NAME AGE PRINCIPAL OCCUPATION OR POSITION A DIRECTOR
- ---- --- -------------------------------- -----------
Jack P. DeBoer 70 Chief Executive Officer and Chairman of the Board of 1996
the Company
Warren D. Fix 62 Executive Vice President, Chief Financial Officer and 1996
Secretary of the Company
Tony M. Salazar 49 Executive Vice President and Director of McCormack 1997
Baron & Associates, Inc.
Robert J. Cresci 57 Managing Director of Pecks Management Partners Ltd. 1997
Robert S. Morris 46 Managing Partner of Olympus Partners 1997
Frank J. Pados, Jr. 57 Executive Vice President of Desai Capital Management 1997
Inc.
William L. Perocchi 43 Chief Executive Officer and Director of Pebble Beach 1997
Company
Thomas H. Nielsen 70 Consulting Director of U.S. Trust of California 1998
Thomas L. Keltner 54 Executive Vice President of Hilton Hotels Corporation 1999
Thomas W. Storey 44 Chief Executive Officer of Delta Squared Partners 1999
Mariel C. Albrecht 35 Senior Vice President and Treasurer of Hilton Hotels 2000
Corporation
James E. Roos 49 President and Chief Operating Officer of the Company 2001
Seth E. Schofield 61 Nominee as a Director of the Company --
Jack P. DeBoer has served as Chairman of the Board and Chief Executive
Officer of the Company since its inception. From October 1993 to September 1995,
Mr. DeBoer was self-employed and was engaged in the development of the
Candlewood extended-stay hotel concept. From 1988 to 1993, Mr. DeBoer co-founded
and developed Summerfield Hotel Corporation, an upscale extended-stay hotel
chain. In 1975, Mr. DeBoer founded the Residence Inn Company, an upscale
extended-stay chain which he built to 100 hotels before selling the company to
Marriott Corporation in 1987. Mr. DeBoer is a member of the Board of Trustees of
Innkeepers USA Trust, a publicly-held lodging real estate investment trust.
Warren D. Fix has served as a director and the Executive Vice President,
Chief Financial Officer and Secretary of the Company since its inception. From
July 1994 to October 1995, Mr. Fix was a consultant to Doubletree, primarily
developing debt and equity sources of capital for hotel acquisitions and
refinancings. Additionally, Mr. Fix was a partner in The Contrarian Group, a
business management company, from December 1992 to October 1995. From 1989 to
December 1992, Mr. Fix served as President of the Pacific Company, a real estate
investment and development company. From 1964 to 1989, Mr. Fix held numerous
positions within The Irvine Company, a California-based real estate and
development company, including most recently, Chief Financial Officer.
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Tony M. Salazar has served as a director of the Company since February
1997. Mr. Salazar is the Executive Vice President of McCormack Baron Salazar,
Inc., a privately held real estate development and property management company,
a position which he has held since 1985. He previously served as the Executive
Director of the Kansas City Neighborhood Alliance, a community development and
financing agency.
Robert J. Cresci has served as a director of the Company since November
1997. Mr. Cresci is the Managing Director of Pecks Management Partners Ltd., an
investment management firm, a position he has held since 1990. Mr. Cresci
currently serves on the board of directors of Sepracor, Inc., Aviva Petroleum
Ltd., Film Roman, Inc., Castle Dental Centers, Inc., J2 Global Communications,
Inc., SeraCare, Inc., E-Stamp Corporation and several private companies.
Robert S. Morris has served as a director of the Company since November
1997. Mr. Morris founded Olympus Partners in 1989 and serves as the Managing
Partner of Olympus Private Placement Fund, L.P., Olympus Growth Fund II, L.P.,
Olympus Executive Fund, and Olympus Growth Fund III, L.P. Olympus manages
approximately $1 billion in capital. Mr. Morris is currently a director of
several Olympus portfolio companies, including Shemin Acquisition Corporation,
Client Distribution Services, Inc. and Symmetry Medical Inc. He has served on
the boards of several divested Olympus portfolio companies. He also serves on
the Board of Directors of Hamilton College Endowment Fund. Mr. Morris received
his A.B. from Hamilton College and his M.B.A. from the Amos Tuck School of
Business at Dartmouth College.
Frank J. Pados, Jr. has served as a director of the Company since
November 1997. Mr. Pados is the Executive Vice President of Desai Capital
Management Inc., an institutionally funded private equity investment firm with
approximately $1.5 billion under management, a position he has held since
September 1995. From October 1983 to September 1995, he served as Managing
Director of Trust Company of the West and Senior Partner of TCW Capital, an
investment management firm. Mr. Pados serves on the board of directors of
Lender's Service, Inc. and Brown Jordan Company.
William L. Perocchi has served as a director of the Company since
November 1997. Mr. Perocchi is the Chief Executive Officer and a director of
Pebble Beach Company. From December 1997 to January 1999, Mr. Perocchi served as
the Executive Vice President and Chief Financial Officer of Promus Hotel
Corporation. From 1993 to 1997, Mr. Perocchi served as Executive Vice President
and Chief Financial Officer of Doubletree Corporation and served as director of
Doubletree Corporation from 1996 to 1997. From 1992 to 1993, Mr. Perocchi was
Executive Vice President and Chief Financial Officer of Guest Quarters Hotel
Partnership, a predecessor company of Doubletree. Mr. Perocchi previously served
in an executive capacity with General Electric Company.
Thomas H. Nielsen has served as a director of the Company since his
appointment in December 1998. Mr. Nielsen currently serves as Principal of The
Nielsen Company, a position he has held since 1990. From 1996 to 2000, Mr.
Nielsen served as Consulting Director of U.S. Trust of California, an investment
management and private banking firm. From 1993 to 1996, Mr. Nielsen served as
Managing Director of U.S. Trust of California. In 1978, Mr. Nielsen joined the
Irvine Company, a California-based real estate and development company, and held
several positions including President and Vice Chairman. He remains active with
the Irvine Company as a Director Emeritus.
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Thomas L. Keltner has served as director of the Company since his
appointment in March 1999. Mr. Keltner currently serves as Executive Vice
President of Hilton Hotels Corporation and President, Brand Performance &
Development Group. From February 1999 to November 1999, Mr. Keltner served as
President, Brand Performance and Development Group of Promus Hotel Corporation.
From July 1997 to January 1999, Mr. Keltner served as Executive Vice President
and Chief Development Officer of Promus. From 1993 to 1995, he served as Senior
Vice President, Development of Promus. From 1993 to 1995, he served as Senior
Vice President, Development of the Hotel Division of Promus Companies
Incorporated. From 1991 to 1993, Mr. Keltner served as President, Golf Training
Systems, Inc., a company organized to manufacture and distribute golf training
and fitness products. From 1990 to 1991, Mr. Keltner served as Senior Vice
President and Chief Operating Officer, Franchise Division of Holiday Inn
Worldwide. From 1988 to 1990, Mr. Keltner served as President and Managing
Director of Holiday Inns International.
Thomas W. Storey has served as a director of the Company since March
1999. Mr. Storey currently serves as Chief Executive Officer of Delta Squared
Partners, an internet strategy firm, and as Executive Vice President of Canadian
Pacific Hotels and Resorts. Mr. Storey has a long history in the hotel industry.
Mr. Storey served as Executive Vice President of Corporate Strategic Planning
and Venture Operations for Promus Hotel Corporation. From 1997 to 1999, Mr.
Storey served as Executive Vice president of Sales, Marketing and Reservations
of Promus. Mr. Storey served as Executive Vice President, Sales and Marketing of
Doubletree Hotels Corporation from 1994 to 1997 and Radisson Hotels
International from 1989 to 1994.
Mariel C. Albrecht has served as a director of the Company since her
appointment in February 2000. Ms. Albrecht currently serves as Senior Vice
President and Treasurer for Hilton Hotels Corporation, a position she has held
since November 1999. From March 1998 to November 1999, she held the position of
Vice President of Corporate Finance for Hilton. From April 1996 to March 1998,
Ms. Albrecht served as Vice President and Relationship Manager for Wachovia Bank
in Atlanta, Georgia. From December 1989 to April 1996, Ms. Albrecht served as
Assistant Vice President and Relationship Manager for Corestates Bank in
Philadelphia, Pennsylvania.
James E. Roos has served as a director of the Company since his
appointment in April 2001. Mr. Roos has served as President and Chief Operating
Officer of the Company since June 1997. From 1993 to 1997, Mr. Roos was
Executive Vice President of Posadas USA, Inc., a division of Grupo Posadas, S.A.
de C.V., a Mexico City-based Latin American hotel company. From 1991 to 1993,
Mr. Roos served as Vice President of Operations for the Western Region of
Holiday Inns, Inc. From 1987 to 1991, Mr. Roos was Vice President of Operations
and Development for Hampton Inns, Inc., a division of Promus Companies/Holiday
Inns, Inc. From 1981 to 1987, Mr. Roos was Director of Operations for Holiday
Inns, Inc.
Seth E. Schofield served as Chairman and owner of Base International, a
company providing executive protection, corporate investigation and
pre-employment screening, from February 1996 to July 2000. From 1960 to 1996,
Mr. Schofield held several corporate positions with USAirways, including
Chairman of the Board, President and Chief Executive Officer of USAir Group,
Inc. and USAir, Inc. from 1991 to 1996. Mr. Schofield currently serves on the
Board of Directors of USX Corporation and Calgon Carbon Corporation. Mr.
Schofield is a member of the Desai Capital Management Advisory Board.
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The Board of Directors held four meetings during the fiscal year ended
December 31, 2000. Each director attended at least 75% of the aggregate of the
total number of meetings of the Board of Directors held during such period (and
for which he or she served as a director).
The Company has an Audit Committee and a Compensation Committee, but has
not established a Nominating Committee. Nominations of directors have been made
by the full Board of Directors pursuant to the terms of the Stockholders
Agreement.
From January 2000 to May 2000, Messrs. Nielsen, Cresci and Perocchi
comprised the membership of the Audit Committee. In May 2000, Ms. Albrecht
replaced Mr. Perocchi as a member of the Audit Committee. Mr. Fix is a
non-voting, ex officio member of the Audit Committee. In accordance with its
written charter, a copy of which is attached to this proxy statement as APPENDIX
A, the Audit Committee's responsibilities include:
- recommending the selection of the Company's independent public
auditors to the Board of Directors;
- consulting with the independent auditors with regard to the plan
and scope of audit;
- reviewing in consultation with the independent auditors, their
report of audit, or proposed report of audit, and the
accompanying management letter, if any; and
- consulting with the independent auditors with regard to the
adequacy of internal controls, and, if need be, consulting with
management regarding the same.
The Audit Committee held two meetings during the fiscal year ended December 31,
2000. Each director attended at least 75% of the aggregate number of meetings of
the Audit Committee for which he or she was a member.
The Compensation Committee reviews and approves executive salaries,
considers awards to be granted under the Company's officer bonus plan and
performs other related functions upon request of the Board of Directors. The
Compensation Committee held three meetings (including one held by written
consent) during the fiscal year ended December 31, 2000, of which each member
attended at least 75% of the aggregate number of meetings of the Compensation
Committee for which he was a member.
BOARD COMPENSATION AND BENEFITS
The Company's Independent Directors receive directors' fees of (i)
$4,000 for each regularly scheduled Board of Directors meeting attended
in-person or (ii) $1,000 for each regularly scheduled Board of Directors Meeting
at which participation is by telephone; provided, however, that no Independent
Director receives a fee for any Board of Directors meeting conducted by
unanimous written consent. Each Independent Director receives directors' fees of
$500 for participation at a meeting of the Board of Directors which has not been
regularly scheduled, such fee to be paid for participation either in-person or
by telephone. In addition, each Independent Director who is also a member of the
Compensation Committee, Audit Committee or Hotel Development Committee of the
Company receives a fee of $500 for a committee meeting which has not been
regularly scheduled or is scheduled on a day the Board of Directors is not
otherwise meeting, such fee to be paid for participation either in-person or by
telephone. Mr. Keltner and Ms. Albrecht waived their right to receive directors
fees in 2000. The Company expects Mr. Keltner and Ms. Albrecht to continue to
waive their right to receive directors fees
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during 2001. Pursuant to the Company's 1996 Equity Participation Plan, each of
the Company's existing directors (other than Messrs. DeBoer and Fix) was
entitled to receive immediately prior to the commencement of the Company's
initial public offering a grant of non-qualified stock options to purchase
10,000 shares of Common Stock at the initial public offering price. Also
pursuant to the 1996 Equity Participation Plan, each person who became a
director subsequent to the Company's initial public offering will receive a
grant of non-qualified stock options to purchase 10,000 shares of Common Stock
at the fair market value of the Common Stock on the date such person becomes a
member of the Board of Directors. Mr. Keltner and Ms. Albrecht have waived their
right to receive this grant. Each director may be reimbursed for certain
expenses incurred in connection with attendance at Board and committee meetings.
VOTE AND RECOMMENDATION
Directors will be elected by a favorable vote of a plurality of the
shares of voting stock present and entitled to vote, in person or by proxy, at
the Meeting. Abstentions or broker non-votes as to the election of directors
will not affect the election of the candidates receiving the plurality of votes.
Unless instructed to the contrary, the shares represented by the proxies will be
voted FOR the election of the thirteen nominees named above as directors.
Although it is anticipated that each nominee will be able to serve as a
director, should any nominee become unavailable to serve, the proxies will be
voted for such other person or persons as may be designated by the Company's
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL THIRTEEN NOMINEES.
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PROPOSAL 2
AMENDMENT OF 1996 EQUITY PARTICIPATION PLAN
PROPOSED AMENDMENT
The 1996 Equity Participation Plan of the Company (the "Plan") was
originally adopted by the Board of Directors on September 30, 1996 and was
approved by the stockholders on November 7, 1996. On January 26, 1998 and May
18, 1998, respectively, the Board of Directors and the stockholders approved an
amendment to the Plan to increase the number of authorized shares of Common
Stock available for issuance thereunder from 900,000 to 1,676,710. Currently,
under the Plan, not more than 1,676,710 shares of Common Stock (or their
equivalent in other equity securities) are authorized for issuance upon exercise
of options, stock appreciation rights ("SARs"), and other awards, or upon
vesting of restricted or deferred stock awards. The Board of Directors has
approved, subject to shareholder approval, an amendment to the Plan to increase
the number of authorized shares of Common Stock available for issuance
thereunder from 1,676,710 to 2,676,710.
The Company currently has one stock option plan in effect under which it
may continue to grant stock options, the Plan. Under the Plan, the Board of
Directors was empowered to grant awards for up to an aggregate of 1,676,710
shares of Common Stock. On March 19, 2001, there were outstanding options for an
aggregate of approximately 1,223,100 shares of Common Stock which were granted
pursuant to the Plan. Absent the approval of the amendment to the Plan, a total
of only approximately 453,610 shares of Common Stock remain available for
issuance under the Plan, which amount has not been reduced to reflect the grant
by the Board of Directors on February 20, 2001 of additional options to purchase
an aggregate of 523,625 shares of Common Stock which are subject to the approval
of the amendment to the Plan by the stockholders. The Board of Directors
believes that in order to retain, motivate and attract key personnel essential
to the continued success of the Company it is necessary to maintain its current
practice of providing meaningful incentive awards on an annual basis. The Board
of Directors also believes that the Company's compensation objectives could not
be achieved with increasing the number of shares available for issuance under
the Plan. Accordingly, the Board believes that the amendment will further the
interests of the Company and its stockholders by strengthening our ability to
attract, motivate and retain employees, officers, consultants and directors of
training, experience and ability, and to provide a means to encourage stock
ownership and proprietary interest in the Company to valued employees, officers,
consultants and directors upon whose judgment, initiative, and efforts we
largely depend for the continued financial success and growth of the business.
The principal purposes of the Plan are to provide incentives for
officers, employees and consultants of the Company and its subsidiaries through
granting of options, restricted stock and other 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
grants and awards made to officers, employees and consultants, the Plan provides
for automatic annual grants to non-employee directors of the Company.
Furthermore, the maximum number of shares which may be subject to
options, rights or other awards granted under the Plan to any individual in any
calendar year cannot exceed 500,000.
The shares available under the Plan upon exercise of stock options and
other awards, and for issuance as restricted or deferred stock, may be either
previously unissued shares or treasury shares, and may be equity securities of
the Company other than Candlewood Common Stock. The Plan provides for
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appropriate adjustments in the number and kind of shares subject to the Plan and
to outstanding grants thereunder in the event of a stock split, stock dividend
or certain other types of recapitalizations, including restructuring.
If any portion of a stock option or other award terminates or lapses
unexercised, or is canceled upon grant of a new option or other award (which may
be at a higher or lower exercise price than the option or other award so
canceled), the shares which were subject to the unexercised portion of such
option or other award, will continue to be available for issuance under the
Plan.
DESCRIPTION OF THE PLAN
ADMINISTRATION
The Plan is administered by the Compensation Committee or a subcommittee
of the Board (for purposes of this section, the "Committee"), consisting of at
least two members of the Candlewood Board of Directors, none of whom is an
officer or employee of the Company. The Committee is authorized to select from
among the eligible employees and consultants the individuals to whom options,
SARs, restricted stock and other awards are to be granted and to determine the
number of shares to be subject thereto and the terms and conditions thereof,
consistent with the Plan. The Committee is also authorized to adopt, amend and
rescind rules relating to the administration of the Plan.
PAYMENT FOR SHARES
The exercise or purchase price for all options, SARs, restricted stock
and other rights to acquire Candlewood 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, be paid in
whole or in part in Candlewood Common Stock owned by the optionee (or issuable
upon exercise of the option) and having a fair market value on the date of
exercise equal to the aggregate exercise price of the shares so to be purchased.
The Committee may also provide, in the terms of an option or other right, that
the purchase price may be payable within thirty days after the date of exercise.
The Committee may also authorize other lawful consideration to be applied to the
exercise or purchase price of options. This may also include services rendered,
or the difference between the exercise price of presently exercisable options
and the fair market value of Candlewood Common Stock covered by such options on
the date of exercise.
AMENDMENT AND TERMINATION
Amendments to the Plan to increase the number of shares as to which
options, restricted stock and other awards may be granted (except for
adjustments resulting from stock splits and the like) require the approval of
the Company's stockholders. In all other respects the Plan can be amended,
modified, suspended or terminated by the Committee or the Candlewood Board of
Directors, unless such action would otherwise require stockholder approval as a
matter of applicable law, regulation or rule. No amendment, suspension or
termination of the Plan shall, without the consent of the holder of options or
other awards, alter or impair rights or obligations under an award previously
granted, unless the award itself otherwise expressly so provides. No termination
date is specified for the Plan.
ELIGIBILITY
Options, SARs, restricted stock and other awards under the 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
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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 Plan; provided that no incentive stock option ("ISO") shall
be granted to any person who is not an employee of the Company. Non-employee
directors of the Company are eligible to receive automatic grants of
non-qualified stock options ("NQSOs") under the Plan. More than one option, SAR,
restricted stock grant or other award may be granted to a plan participant, but
the aggregate fair market value (determined at the time of grant) of shares with
respect to which an ISO is first exercisable by an optionee (i.e., "vests")
during any calendar year cannot exceed $100,000.
AWARDS UNDER THE 1996 EQUITY PARTICIPATION PLAN
The 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 combination
thereof. Each grant or issuance will be set forth in a separate agreement
between the Company and the award recipient, and will indicate the type, terms
and conditions of the award.
NQSOs will provide for the right to purchase Candlewood Common Stock at
a specified price which may be less than fair market value on the date of grant
(but not less than par value), and usually will become exercisable (in the
discretion of the Committee) in one or more installments after the grant date.
NQSOs may be granted for any term specified by the Committee.
Automatic Grants of NQSOs to Non-Employee Directors. During the term of
the Plan, (i) a person who is a non-employee director of Candlewood as of the
effective date of the Plan automatically shall be granted an option to purchase
ten thousand (10,000) shares of Candlewood Common Stock (subject to adjustment
in the event of certain corporate changes) on the date of such initial public
offering; and (ii) a person who is initially elected or appointed to the
Candlewood Board of Directors and non-employee director automatically shall be
granted an option to purchase ten thousand (10,000) shares of Candlewood Common
Stock (subject to adjustment in the event of certain corporate changes) on the
date of such initial election or appointment. Members of the Candlewood Board of
Directors who are employees of the Company who subsequently retire from the
Company and remain on the Candlewood Board of Directors will not receive an
initial option grant pursuant to the preceding sentence.
ISOs, if granted, will be designed to comply with the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and
will be subject to restrictions contained in the Code, including exercise prices
equal to at least 100% of the fair market value of Candlewood Common Stock on
the grant date and a ten year restriction on their term; provided, however, that
in the case of ISOs granted to an individual then owning more than 10% of the
total combined voting power of all classes of stock of the Company or any
subsidiary or parent of the Company, such exercise price shall not be less than
110% of the fair market value of Candlewood Common Stock on the grant date and
there shall be a five year restriction on their term. ISOs may be modified to
disqualify them from treatment as an incentive stock option. ISOs may be granted
only to employees.
Restricted stock 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.
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Deferred stock may be awarded to participants, typically without payment
of consideration, but subject to vesting conditions based on continued
employment or 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 may be granted independent of any award. 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 Candlewood Common Stock over the exercise price of the related option
or other awards, but alternatively may be based upon criteria such as book
value. There are no restrictions specified in the Plan on the exercise of SARs
or the amount of gain realizable therefrom, although they can be imposed by the
Committee in the SAR agreements. The Committee may elect to pay SARs in cash or
in Candlewood Common Stock or in a combination of cash and Candlewood Common
Stock.
Dividend equivalents may be credited to a participant in the Plan. They
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 on an individual or
group basis. Generally, these awards will be based upon specific agreements and
may be paid in cash or in Candlewood Common Stock or in a combination of cash
and Candlewood Common Stock. Performance awards may include "phantom" stock
awards that provide for payments based upon increases in the price of Candlewood
Common Stock over a predetermined period. Performance awards may also include
bonuses which may be granted by the Committee on an individual or group basis
and which may be payable in cash or in Candlewood Common Stock or in a
combination of cash and Candlewood Common Stock.
Stock payments may be authorized by the Committee in the form of shares
of Candlewood Common Stock or an option or other right to purchase Candlewood
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 to
a key employee or consultant in cash.
MISCELLANEOUS PROVISIONS
The Plan specifies that the Company may make loans to Plan participants
to enable them to exercise options, purchase shares or realize the benefits of
other awards granted under the Plan. The terms and conditions of such loans, if
any are made, are to be set by the Committee.
In consideration of the granting of a stock option, SAR, dividend
equivalent, performance award, stock payment, or right to receive restricted or
deferred stock, the employee or consultant must agree in the written agreement
embodying such award to remain in the employ of, or to continue as a consultant
for, the Company or a subsidiary of the Company for at least one year after the
award is granted (or such shorter period as may be fixed by agreement or by
action of the Committee following grant of the award).
The dates on which options or other awards under the Plan first become
exercisable and on which they expire will be set forth in individual stock
options or other agreements setting forth the terms
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of the awards. Such agreements generally will provide that options and other
awards expire upon termination of the optionee's status as an employee,
consultant or director, although the Committee may provide that such options
continue to be exercisable following a termination without cause, or following a
change in control of the Company, or because of the grantee's retirement, death,
disability or otherwise. Similarly, restricted stock granted under the 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 terms of an individual restricted stock agreement.
No option, SAR or other right to acquire Candlewood Common Stock granted
under the Plan may be assigned or transferred by the grantee, except by will or
the laws of intestate succession or pursuant to a qualified domestic relations
order (as defined by the Code or Title I to the Employee Retirement Income
Security Act of 1994, as amended, or the rules thereunder), although the shares
underlying such rights may be transferred if all applicable restrictions have
lapsed. During the lifetime of the holder of any option or right, the option or
right may be exercised only by the holder.
The Company requires participants to discharge withholding tax
obligations in connection with the exercise of any option or other right granted
under the Plan, or the lapse of restrictions on restricted stock, as a condition
to the issuance or delivery of stock or payment of other compensation pursuant
thereto. 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 to disapprove such
use.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax consequences of the Plan under current federal
law are summarized in the following discussion which deals with the general tax
principles applicable to the Plan, and is intended for general information only.
In addition, the Federal income tax consequences described below are subject to
the limitation on deductions under Section 162(m) of the Code, as discussed in
further detail below. Alternative minimum taxes, employment taxes and foreign,
state and local income taxes are not discussed, and may vary depending on
individual circumstances and from locality to locality.
Nonqualified Stock Options ("NQSO's"). The recipient of NQSO's granted
under the Plan will not recognize ordinary income upon the grant of the option,
nor will the Company then be entitled to any deduction. Generally, upon exercise
of NQSO's the optionee will recognize ordinary income, and the Company will be
entitled to a deduction, in an amount equal to the difference between the option
exercise price and the fair market value of the stock at the date of exercise.
An optionee's basis in the stock for purposes of determining his gain or loss on
his subsequent disposition of the shares generally will be the fair market value
of the stock on the date of exercise of the NQSO.
Incentive Stock Options ("ISO's"). The recipient of ISO's granted under
the Plan will not recognize taxable income when an ISO is granted to him or when
that option is exercised, however, the difference between the option exercise
price and the fair market value of the shares on the date of exercise will
constitute an item of adjustment for purposes of alternative minimum tax. An
optionee's basis in the stock for purposes of determining his gain or loss on
his subsequent disposition of the shares generally will be the option exercise
price. The Company will not be entitled to a deduction unless the optionee
disposes of the shares within two years after the date of grant of the option or
within one year of the date the shares were transferred to the optionee. In such
event the optionee will recognize the
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difference between the option exercise price and the fair market value of the
shares on the date of the option's exercise as ordinary income; the balance of
the gain, if any, will be taxed as capital gain. The Company will be entitled to
a deduction in regard to an ISO only to the extent the employee recognizes
ordinary income. An ISO exercised more than three months after an optionee's
termination from employment, other than by reason of death or disability, will
be taxed as an NQSO.
Stock Appreciation Rights ("SARs"). The recipient of an SAR will not
recognize income upon the receipt of an SAR. Upon exercise of the SAR, the
recipient will recognize the fair market value of the shares received,
determined on the date of exercise of the SAR, or the amount of cash received in
lieu of shares, as ordinary income. The Company will be entitled to a deduction
in the amount which the recipient recognizes as ordinary income.
Restricted Stock. An recipient to whom restricted stock is issued will
not recognize income upon issuance and the Company will not then be entitled to
a deduction, unless 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 repurchase by the Company, the employee
generally will recognize ordinary income, and the Company will be entitled to a
deduction, in an amount equal to the fair market value of the shares at the date
such restrictions lapse, less the purchase price therefor. If an election is
made under Section 83(b) with respect to restricted stock, the recipient will
recognize ordinary income at the date of issuance equal to the difference
between the fair market value of the shares at that date less the purchase price
therefor, and the Company will be entitled to a deduction in the same amount.
Deferred Stock. A recipient to whom an award of deferred stock is
granted will not recognize income upon the grant and the Company will not then
be entitled to a deduction. When the aware of deferred stock vests and shares of
stock are issued to the recipient, the recipient will recognize ordinary income,
and the Company will be entitled to a deduction, in the amount equal to the fair
market value of the shares at the time of issuance. A recipient may not make a
Section 83(b) election with respect to an award of deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award will
not recognize 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 recipient
will recognize ordinary income, and the Company will be entitled to a
corresponding deduction.
Performance Awards. A recipient granted a performance award will not
recognize income at the time of grant, and the Company will not be entitled to a
deduction at that time. When an award is paid or distributed, whether in cash or
stock, the recipient will have ordinary income, and the Company will be entitled
to a corresponding deduction. If the award is distributed in stock, the
recipient will recognize ordinary income in an amount equal to the fair market
value of the stock at the time of distribution.
Stock Payments. A recipient who receives a stock payment will recognize
ordinary income in an amount equal to the fair market value of the stock
distributed, and the Company will be entitled to a corresponding deduction.
Effect of Code Section 162(m) on the 1996 Equity Participation Plan.
Under Code Section 162(m), in general, the Company's deductions may be limited
to the extent the total compensation (including, for example, salary, bonus,
stock option exercises and non-qualified benefits) for an executive officer
exceeds $1 million in any taxable year. However, under Section 162(m), the
deduction limit does not apply to certain "performance-based" compensation
established by an independent
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compensation committee which is adequately disclosed to, and approved by,
stockholders. In particular, stock options and SARs will satisfy the
performance-based 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
particular 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 option on the grant date).
ANTI-DILUTION PROTECTION OF PREFERRED STOCK
Pursuant to the anti-dilution protection provisions of the certificates
of designations for the Preferred Stock, if the Company grants any options at or
below the then applicable conversion price (i.e. the price at which the
Preferred Stock may convert into Common Stock), the conversion price of the
Preferred Stock will be proportionately reduced to reflect the option grants.
The Company expects that many of the options that will be granted under the
Plan, as amended, will trigger the anti-dilution protections of the Preferred
Stock, which will result in a decrease in the conversion price. Based upon the
grants made by the Board of Directors under the Plan subject to the
stockholders' approval of the amendment to the Plan (See "New Plan Benefits"),
the conversion price of the Preferred Stock would be decreased from $9.50 per
share to approximately $9.13 per share.
VOTE AND RECOMMENDATION
The only change the amendment makes to the Plan is to increase the
number of authorized shares of Common Stock available for issuance from
1,676,710 to 2,676,710.
The affirmative vote of a majority of the shares of voting stock present
and entitled to vote, in person or by proxy, is necessary to approve an
amendment of the Plan. Unless instructed to the contrary, the shares represented
by the proxies will be voted FOR the amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE PLAN
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NEW PLAN BENEFITS
The Compensation Committee generally makes incentive award
determinations for executive officers and other employees in the first quarter
of each year, based on the employee's and the company's performance during the
prior year. Therefore, many of the awards that are likely to be made under the
Plan are not currently determinable. The following table includes information
about anticipated awards under the Plan to the extent they are determinable.
NAME AND POSITION NUMBER OF SHARES
- ----------------- ----------------
Jack P. DeBoer 95,000
Chief Executive Officer and Chairman of the Board
James E. Roos 96,000
President and Chief Operating Officer
Warren D. Fix 71,000
Executive Vice President, Chief Financial Officer and Secretary
Charles H. Armstrong, Jr. 20,000
Vice President -Franchise Sales
H. Steven Meadows 20,000
Vice President -Operations
All current executive officers as a group 438,750
All current directors who are not executive officers as a group 0
All employees, including all current officers who are not executive officers 84,875
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
It is currently contemplated that Candlewood's 2002 Annual Meeting of
Stockholders will be held on or about May 14, 2002. In the event that a
stockholder desires to have a proposal considered for presentation at
Candlewood's 2002 Annual Meeting of Stockholders, and inclusion in the proxy
statement and form of proxy used in connection with such meeting, the proposal
must be forwarded in writing to the Secretary of Candlewood so that it is
received no later than December 19, 2001. Any such proposal must comply with the
requirements of Rule 14a-8 promulgated under the Securities Exchange Act of
1934.
If a stockholder, rather than placing a proposal in Candlewood's proxy
statement as discussed above, commences his or her own proxy solicitation for
the 2002 Annual Meeting of Stockholders or seeks to nominate a candidate for
election or propose business for consideration at such meeting, Candlewood must
receive notice of such proposal by at least 60 days prior to the date of the
2002 Annual Meeting of Stockholders, which is expected to be held on or about
May 14, 2002. If such notice is not received on a timely basis, such proposal
will not be acted upon at the meeting, including information regarding such
proposal in its proxy materials. Proposals should be directed to the attention
of the Secretary, Candlewood Hotel Company, Inc., 8621 East 21st Street North,
Suite 200, Wichita, Kansas 67206.
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OTHER MATTERS
As of the date of this Proxy Statement the Board of Directors knows of
no other matters which may be presented for consideration at the Meeting.
However, if any other matter is presented properly for consideration and action
at the Meeting, or any adjournment or postponement thereof, it is intended that
the Proxies will be voted with respect thereto in accordance with the best
judgment and in the discretion of the proxy holders.
By Order of the Board of Directors,
Warren D. Fix
Secretary
Dated: April 18, 2001
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APPENDIX A
CANDLEWOOD HOTEL COMPANY, INC.
AUDIT COMMITTEE CHARTER
OBJECTIVES
The Audit Committee is a committee of the Board of Directors (the "Board"). Its
primary function is to assist the Board in fulfilling its fiduciary
responsibilities by reviewing the financial information, the systems of internal
controls which management and the Board have established, and the audit process.
The objectives of the Audit Committee are as follows:
- To help directors discharge their responsibilities, especially
for accountability
- To provide communication between directors and external and
internal auditors
- To ensure the external and internal auditors' independence
- To maintain the credibility and objectivity of financial reports
CONSTITUTION
In 1999, The SEC and the Auditing Standards Board of the AICPA amended
its Audit Committee rules, requiring that all of the Audit Committee members
shall be independent directors.
1. The Audit Committee shall be appointed by the Board of Directors
and shall comprise at least (3) three directors, each of whom
are independent of management of the Company. Members of the
committee shall be considered independent if they have no
relationship that may interfere with the exercise of their
independence from management of the Company. The Board may
provide for alternate Audit Committee members who shall be
entitled to attend committee meetings in the absence of the
members of the Audit Committee.
2. Members of the Audit Committee shall all be able to read and
understand fundamental financial statements, including a
company's balance sheet, income statement, and cash flow
statement (or shall be able to do so within a reasonable time
after appointment to the Audit Committee).
3. At least one member of the Audit Committee must have past
employment experience in finance or accounting, requisite
professional certification in accounting, or any other
comparable experience or background, which results in the
individual's financial sophistication.
4. A quorum of the Audit Committee shall be a majority of the
members of the Audit Committee.
5. The members of the Audit Committee shall choose a Chairman.
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6. The Audit Committee shall meet at least two times per year or
more frequently as circumstances require. The committee may ask
members of management or others to attend the meeting and
provide pertinent information as necessary.
7. The Audit Committee will meet at least one time per year with
the external auditors of the Company to review the external
auditor's examination and management report.
8. The external auditors shall ultimately be accountable to the
Audit Committee and the Board of Directors.
FUNCTIONS AND RESPONSIBILITIES
In meeting their responsibilities, the Audit Committee should address each of
the following matters:
EXTERNAL AUDITORS
1. Together with the Board of Directors, select, evaluate, and
where appropriate, replace the external auditor (or nominate the
external auditor to be proposed for shareholder approval in any
proxy statement).
2. Approve the external auditors' compensation as negotiated by
management, and review and approve their discharge.
3. Confirm and ensure the independence of the external auditor.
4. Consider the external auditors' audit scope and plan.
5. Notify the external auditor that the external auditor's ultimate
accountability is to the Audit Committee and the Board of
Directors.
6. Consider with management and the external auditors the rationale
for employing audit firms other than the principal external
auditors on financial accounting and reporting issues.
7. Review with the external auditors the coordination of audit
effort to assure completeness of coverages, reduction of
redundant efforts, and the effective use of audit resources.
8. Review with the external auditors any impact on the financial
statements of any new or proposed changes in accounting
principles or regulatory requirements.
9. Consider and review with the external auditors:
a. The adequacy of the Company's internal controls
including computerized information system controls and
security.
b. Any related significant findings and recommendations of
the external auditors together with management's
responses thereto.
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10. Obtain from the external auditors a formal written statement
delineating all relationships between the external auditor and
the Company, consistent with Independence Standards Board
Standard 1.
11. Actively engage in a dialogue with the external auditor with
respect to any disclosed relationships or services that may
impact the objectivity and independence of the external auditor.
12. Take, or recommend that the full Board of Directors take,
appropriate action to oversee the independence of the external
auditor.
13. Meet with the external auditors in executive session to discuss
any matters that the committee members or the external auditors
believe should be discussed privately with the Audit Committee.
FINANCIAL REPORTING
1. Review with management and the external auditors at the
completion of the annual examination:
a. The Company's annual financial statements and related
footnotes.
b. The external auditors' audit of the financial statements
and their report thereon.
c. Any significant changes required in executing the
external auditor's audit plan.
d. Any serious difficulties or disputes with management
encountered during the course of the audit.
e. Other matters related to the conduct of the audit, which
are to be communicated to the committee under generally
accepted auditing standards.
f. Nature of management advisory services (including fees)
provided by the independent public accountant during the
year under audit.
2. Review with management any public interim financial reporting
and consult with external auditors on such reporting as deemed
necessary.
3. Review filings with the SEC or other regulatory bodies which
contain the Company's financial statements and consider whether
the information contained in these documents is consistent with
the information contained in the financial statements.
GENERAL RESPONSIBILITIES
1. Review, assess, and if necessary, update the Audit Committee's
charter annually.
2. Inquire of management and the external auditors about the
significant risks or exposures and assess the steps management
has taken to minimize such risk to the Company.
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3. Review policies and procedures with respect to the senior
officers' expense accounts.
4. Review legal and regulatory matters that may have a material
impact on the financial statements.
5. Meet with management in executive session to discuss any matters
that the committee members or management believes should be
discussed privately with the Audit Committee.
6. Report committee actions to the Board with such recommendations
as the committee may deem appropriate.
7. The Audit Committee shall have the power to conduct or authorize
investigations into any matter within the Audit Committee's
scope of responsibilities. The Audit Committee shall be
empowered to retain independent counsel, accountants or others
to assist it in the conduct of any investigation.
8. The Audit Committee will perform such other functions as
assigned by law, the Company's charter or bylaws or the Board.
REPORTS
1. The Audit Committee will prepare an annual "Audit Committee
Report" for inclusion in the Company's annual meeting proxy
statement, stating the following
a. Whether the Audit Committee has reviewed and discussed
the audited financial statements with management.
b. Whether the Audit Committee has discussed with the
external auditors the matters required to be discussed
by SAS 61.
c. Whether the Audit Committee has received written
disclosures from the external auditors required by
Independence Standards Board Standard No. 1., and has
discussed with the external auditors the auditors'
independence.
d. Whether, based on its discussions with management and
the auditors about the above points, the Audit Committee
recommended to the Board of Directors that the financial
statements be included in the Annual Report on Form 10-K
or 10-KSB to be filed with the SEC.
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CANDLEWOOD HOTEL COMPANY, INC.
PROXY FOR 2001 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 15, 2001
THIS PROXY IS SOLICITED BY AND ON BEHALF OF
THE BOARD OF DIRECTORS OF CANDLEWOOD HOTEL COMPANY, INC.
The undersigned stockholder of Candlewood Hotel Company, Inc., a
Delaware corporation, hereby appoints each of Jack P. DeBoer and Warren D.
Fix, with full power to act without the other and to appoint his substitute,
as Proxy and attorney-in-fact and hereby authorizes the Proxy to represent and
to vote, as designated on the reverse side, all the shares of voting stock of
Candlewood Hotel Company, Inc. held of record by the undersigned on April 2,
2001, at the 2001 Annual Meeting of Stockholders to be held on May 15, 2001,
or any adjournment or postponement thereof, with respect to:
(Continued and to be signed on reverse side)
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ANNUAL MEETING OF SHAREHOLDERS OF
CANDLEWOOD HOTEL COMPANY, INC.
MAY 15, 2001
---------------------------
PROXY VOTING INSTRUCTIONS
---------------------------
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
-----------------------
YOUR CONTROL NUMBER IS
-----------------------
WHEN PROXY PROOF IS OKAYED PLEASE SIGN & DATE IT HERE __________________________
\/ Please Detach and Mail in the Envelope Provided \/
Please mark your
A [X] votes as in this
example
FOR all thirteen nominees listed WITHHOLD AUTHORITY
at the right (except as to vote for all thirteen
marked to the contrary) nominees listed at the right
1. Election of [ ] [ ]
Directors:
(INSTRUCTION: To withhold authority to vote for any nominee, draw a line
through (or otherwise strike out) his or her name in the list
at right.)
NOMINEES:
Ms. Mariel C. Albrecht Mr. Frank J. Pados, Jr.
Mr. Robert J. Cresci Mr. William L. Perocchi
Mr. Jack P. DeBoer Mr. James E. Roos
Mr. Warren D. Fix Mr. Tony M. Salazar
Mr. Thomas L. Keltner Mr. Thomas W. Storey
Mr. Robert S. Morris Mr. Seth E. Schofield
Mr. Thomas H. Nielsen
2. Amendment to the Company's 1996 Equity FOR AGAINST ABSTAIN
Participation Plan, as amended [ ] [ ] [ ]
3. Such other matters as may come before the meeting or any adjournment of
the meeting, as to which discretionary authority is granted to said Proxy.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF THIS PROXY IS EXECUTED AND NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL THIRTEEN NOMINEES LISTED
UNDER PROPOSAL 1 AND PROPOSAL 2 AND AS THE PROXY DEEMS ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
A majority of the proxies or substitutes as shall be present and shall act at
said meeting or any adjournment (or if only one shall be present and act, then
that one) shall have and may exercise all of the powers of said proxies
hereunder.
THE UNDERSIGNED ACKNOWLEDGE RECEIPT OF THE NOTICE OF MEETING AND PROXY
STATEMENT DATED APRIL 18, 2001 AND THE 20O0 ANNUAL REPORT OF CANDLEWOOD HOTEL
COMPANY, INC.
Signature:________________________ Signature: ___________________ Dated:________
NOTE: (PLEASE SIGN EXACTLY AS NAME APPEARS ON YOUR CANDLEWOOD HOTEL COMPANY,
INC. STOCK CERTIFICATE. IF YOU ARE UNSURE HOW YOUR NAME APPEARS, PLEASE
CONTACT CANDLEWOOD HOTEL COMPANY, INC. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH MUST SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY THE PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY
AUTHORIZED PERSON.)