UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(RULE 14a-101)
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 ss. 240.14a-11(c) or ss. 240.14a-12
Arlington Hospitality, Inc.
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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:
----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
3) Filing Party:
----------------------------------------------------------------------
4) Date Filed:
----------------------------------------------------------------------
ARLINGTON HOSPITALITY, INC.
2355 S. ARLINGTON HEIGHTS ROAD
SUITE 400
ARLINGTON HEIGHTS, ILLINOIS 60005
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Notice is hereby given that the Annual Meeting of Stockholders of Arlington
Hospitality, Inc. will be held on October 29, 2003, at 9:00 a.m., local time, at
our headquarters, 2355 S. Arlington Heights Road, Suite 400, Arlington Heights,
Illinois 60005, to act upon the following matters:
1. To elect our directors who will serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified.
2. To ratify the appointment of KPMG LLP as our independent auditors for
the year ending December 31, 2003.
3. To approve our 2003 Non-Employee Director Restricted Stock Plan.
4. To approve our 2003 Long-Term Incentive Plan.
5. To approve a 1-for-100 reverse stock split, immediately followed by a
100-for-1 forward stock split, as a means of reducing our
administrative costs and allowing holders of less than 100 of our
shares to receive cash for their shares without incurring transaction
costs.
Please refer to the attached proxy statement and proxy, which forms a part
of this notice and is incorporated herein by reference, for further information
with respect to the business to be transacted at the annual meeting.
Only holders of record of our common stock at the close of business on
September 22, 2003 will be entitled to notice of and to vote at the meeting and
at any adjournment or postponement of the meeting. You may inspect a complete
list of stockholders eligible to vote at the meeting at our offices during the
ten days prior to the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ JERRY H. HERMAN
-------------------------------
Jerry H. Herman, President and Chief
Executive Officer
Arlington Heights, Illinois
September 26, 2003
Table of Contents
Page
----
INFORMATION ON VOTING AND SOLICITATION OF PROXIES .............. 1
PROPOSAL ONE -- ELECTION OF DIRECTORS .......................... 2
PROPOSAL TWO -- RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS ...................................................... 16
PROPOSAL THREE -- APPROVAL OF 2003 NON-EMPLOYEE DIRECTOR
RESTRICTED STOCK PLAN ......................................... 17
PROPOSAL FOUR -- APPROVAL OF LONG-TERM INCENTIVE PLAN .......... 21
PROPOSAL FIVE -- APPROVAL OF REVERSE/FORWARD SPLIT ............. 26
STOCK PRICE PERFORMANCE GRAPH .................................. 33
CERTAIN TRANSACTIONS ........................................... 34
PRINCIPAL STOCKHOLDERS ......................................... 35
STOCKHOLDER PROPOSALS .......................................... 37
OTHER MATTERS .................................................. 37
"HOUSEHOLDING" OF PROXY MATERIALS .............................. 37
APPENDIX:
---------
AUDIT COMMITTEE CHARTER ........................................ A-1
COMPENSATION COMMITTEE CHARTER ................................. B-1
CORPORATE GOVERNANCE/NOMINATING COMMITTEE CHARTER .............. C-1
2003 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN ............... D-1
2003 LONG-TERM INCENTIVE PLAN .................................. E-1
SEVENTH CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF
INCORPORATION OF ARLINGTON HOSPITALITY, INC. .................. F-1
EIGHTH CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF
INCORPORATION OF ARLINGTON HOSPITALITY, INC. .................. G-1
i
ARLINGTON HOSPITALITY, INC.
PROXY STATEMENT
INFORMATION ON VOTING AND SOLICITATION OF PROXIES
General Information
This proxy statement is being sent to you in connection with our Annual
Meeting of Stockholders to be held at 9:00 a.m. on October 29, 2003, at our
headquarters located at 2355 S. Arlington Heights Road, Suite 400, Arlington
Heights, Illinois 60005. This proxy statement and accompanying proxy were
initially mailed to stockholders on or about September 26, 2003. The proxy
statement and our annual report are also available on our website at
www.arlingtonhospitality.com.
Record Date/Outstanding Shares
Only stockholders of record at the close of business on September 22, 2003,
are entitled to vote at the meeting or any adjournment thereof. As of that date
there were 5,034,579 shares of our common stock outstanding. Our shares are
quoted on The Nasdaq National Market under the symbol "HOST." The closing price
on September 22, 2003 was $3.50 per share. The record list of our holders of
common stock will be available for inspection at our offices by any record
holder for any purpose related to the annual meeting for a period of ten days
prior to the annual meeting.
Voting
Each share of our common stock is entitled to one vote on all matters voted
upon at the annual meeting. Holders of common stock are not entitled to cumulate
their votes. A majority of our outstanding shares, represented in person or by
proxy, will constitute a quorum at the meeting. Directors will be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. The
affirmative vote of the holders of a majority of the shares voting at the
meeting is necessary to approve the proposals to ratify the appointment of our
independent auditors, approve our 2003 Director Restricted Stock Plan and
approve our 2003 Employee Long-Term Incentive Plan. The proposal to amend our
certificate of incorporation to effect a reverse/forward stock split requires
the affirmative vote of a majority of our outstanding shares. If any other
matters are properly presented at the annual meeting, the persons named on the
proxy card will be entitled to vote on these matters for you. As of the date of
this proxy statement, we were not aware of any other matters to be raised at the
meeting.
Votes cast by proxy or in person at the annual meeting will be counted by
the persons that we appoint to act as inspectors for the meeting. The inspectors
will treat properly signed proxies that are marked "abstain" as "abstentions"
and properly signed proxies that are held in "street name" by brokers and not
voted on one or more of the items as "broker non-votes." Abstentions and broker
non-votes will have no effect on the voting on the first four proposals
discussed in this proxy statement. With respect to the proposal to amend our
certificate of incorporation to effect a reverse/forward stock split,
abstentions and broker non-votes will have the effect of a no vote. Abstentions
and broker non-votes will be treated as present for purposes of determining the
presence of a quorum.
We have been advised by our officers and directors that they will vote the
shares of common stock they own, directly or indirectly, or have authority to
vote, in favor of the election of each person nominated for election to our
board of directors, and in favor of each of the other four proposals described
in this proxy statement. These shares represent approximately 24% of our
outstanding common stock.
Revocation of Proxies
A proxy may be revoked at any time prior to its exercise, by written notice
to our Secretary, by signing a later-dated proxy that is received before the
annual meeting or by attending the meeting and voting in person.
Solicitation of Proxies
The enclosed proxy is solicited on behalf of our board of directors. In
addition to the solicitation of proxies by mail, proxies may be solicited by our
directors, officers and employees by personal interview, telephone or telegram.
We will ask brokers and other fiduciaries that are holders of record of our
common stock to forward proxy soliciting material to the beneficial owners. We
will pay all expenses associated with the annual meeting, including printing and
mailing this proxy statement and proxy and soliciting proxies for use at the
meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
General
At our annual meeting, stockholders will be asked to elect seven
individuals to serve as directors until our next annual meeting, or until their
successors are elected and qualified. The proxies duly signed and returned
pursuant to this solicitation will be voted by the persons named on the proxies
in favor of the nominees listed below. If a proxy is signed but no directions
are specified in the proxy, the proxy will be voted for the election of the
nominees listed below. We do not anticipate that any nominee will be unable or
unwilling to serve as a director if elected. If any nominee is unable or
unwilling to serve, the persons named as proxies will be authorized to elect
such other persons as they shall determine.
Nominees
The following table sets forth the names and ages for each person nominated
for election to our board of directors:
Name Age
---- ---
Steven J. Belmonte ..................................... 51
Salomon J. Dayan ....................................... 57
Kenneth M. Fell ........................................ 45
Jerry H. Herman ........................................ 50
Gerald T. LaFlamme ..................................... 64
Thomas J. Romano ....................................... 51
Andrew E. Shapiro ...................................... 42
Each nominee is also a current director. Messrs. Belmonte, Dayan, Fell,
LaFlamme, Romano and Shapiro are considered "independent directors" under the
provisions of our by-laws described under the heading "Director Independence"
below. Information on the business experience of each of our directors appears
below.
Steven J. Belmonte. Mr. Belmonte has been a director since 2002, and is the
chairman of our compensation committee and a member of our audit committee. Mr.
Belmonte has been president and chief executive officer of Hospitality
Solutions, L.L.C., a consulting firm for the hospitality industry focusing on
hotels, since April 2002. From 1991 to April 2002, Mr. Belmonte was the
president and chief executive officer of Ramada Franchise Systems, Inc. and
executive vice president of the hotel division of Cendant Corporation. From 1983
to 1991, Mr. Belmonte was the president and chief executive officer of Equity
Hotel Corporation.
Dr. Salomon J. Dayan. Dr. Dayan has been a director since 1996. Dr. Dayan
is a physician certified in internal and geriatric medicine. Dr. Dayan has been
an assistant professor of medicine at Rush Medical Center in Chicago since 1994.
He was formerly the chief executive officer of Salomon J. Dayan Ltd., a
multi-specialty medical group he founded in 1976. From 1986 to 1998, Dr. Dayan
was the medical director and executive director of Healthfirst, a corporation
which he founded in 1986 which operated multiple medical ambulatory facilities
in the Chicago, Illinois area. Dr. Dayan is the chairman of the board of
directors of J.D. Financial, a bank holding company owning Pan American Bank.
Kenneth M. Fell. Mr. Fell has been a director since 2002, is the chairman
of our board of directors and a member of our audit, compensation and corporate
governance/nominating committees. Mr. Fell has been the
2
president and sole owner of KF, Inc., a financial derivatives trading
corporation, since 1986. Mr. Fell has also been an independent floor trader on
the Chicago Mercantile Exchange since 1983.
Jerry H. Herman. Mr. Herman has been a director since 2003 and has served
as our president and chief executive officer since January 2003. From 1992 to
2002, Mr. Herman was chief executive officer and a member of the board of
directors of City Hotels USA, the U.S. holding company of a company
headquartered and publicly-traded in Belgium which owned, developed and managed
assets in Europe and the United States. Mr. Herman was also a member of the
board of directors of the Belgian company from 2001 to 2002. As the chief
executive officer of City Hotels USA, Mr. Herman oversaw the acquisition,
disposition, development, construction and management activities with respect to
approximately fifteen hotels with approximately 2,500 rooms over this period of
time. From 1984 to 1991, Mr. Herman was general counsel and then senior vice
president of hotel acquisitions for C.R.I., Inc., a national real estate
investment and management firm with multi-family, hotel, and commercial
properties and mortgage portfolios. Mr. Herman is admitted to practice law in
the District of Columbia, is a member of the American Bar Association and
recently served as a founding member of the national franchise advisory boards
of the "Doubletree" and "Homewood Suites" brands.
Gerald T. LaFlamme. Mr. LaFlamme has been a director since 2002 and is the
chairman of our audit committee. Mr. LaFlamme has been the senior vice president
and chief financial officer of Davidson Communities, LLC, a real estate
development company, since 2001. From 1997 to 2001, Mr. LaFlamme was retired.
From 1978 to 1997, Mr. LaFlamme was a managing partner of Ernst & Young LLP and
a predecessor accounting firm with responsibility for managing the firm's real
estate group in San Diego, CA. Mr. LaFlamme is a certified public accountant and
is a member of the board of directors of Senior Resource Group, LLC, and Integra
Biotechnical, LLC.
Thomas J. Romano. Mr. Romano has been a director since 1999 and is a member
of our audit and corporate governance/nominating committees. Mr. Romano has been
executive vice president of Bridgeview Bank Group since 1997 and is a member of
the bank's executive management committee responsible for all of the bank's
lending activities. From 1979 to 1997, Mr. Romano was employed by First of
America Bank and predecessor banks, where his responsibilities included managing
commercial lending functions and numerous branch locations. Mr. Romano is a
member of both the Lake County Muscular Dystrophy Association and Robert Morris
Associates. Mr. Romano is a member of the board of directors of Laserage
Technology Corporation and Bridgeview Bank Oklahoma City, N.A.
Andrew E. Shapiro. Mr. Shapiro has been a director since 2002, is vice
chairman of our board of directors, chairman of our corporate
governance/nominating committee and a member of our compensation committee. Mr.
Shapiro is the managing member and president of Lawndale Capital Management,
LLC, an investment advisory firm specializing in small- and micro-cap companies,
and since 1992 chairman and president of a predecessor investment advisor,
Lawndale Capital Management, Inc., which is now a private investment company.
Mr. Shapiro has served as a board observer of Earl Scheib, Inc. since August
2002, and is a member of the National Association of Corporate Directors.
Executive Officers
The following is information on the business experience of our other
executive officers.
James B. Dale. Mr. Dale has been our chief financial officer since 1998,
and our corporate secretary since 1999. From 1994 to 1998, Mr. Dale was our
corporate controller. From 1990 to 1994, Mr. Dale was an audit manager with BDO
Seidman, LLP. Mr. Dale is a certified public accountant and a member of the
American Institute of Certified Public Accountants and the Illinois CPA Society.
Richard Gerhart. Mr. Gerhart has been our senior vice president of hotel
operations since January 2000. From 1997 to 2000, Mr. Gerhart was senior vice
president of operations for MOA Hospitality, a hotel company with a portfolio of
135 limited and full service properties, representing ten hotel brands with
annual sales in excess of $215 million. At MOA Hospitality, Mr. Gerhart's
responsibilities included overseeing the management of the company's hotels. Mr.
Gerhart's hotel experience includes employment with Motel 6 Corporation,
Remington Hotel Corporation, La Quinta Motor Inns, Inc., Registry Resort and
Marriot Corporation.
3
Stephen Miller. Mr. Miller has been our senior vice president, real estate
and business development since August 2003. From January 2003 to August 2003,
Mr. Miller provided services as a consultant to companies in the hospitality
industry. From 1999 to 2002, Mr. Miller was executive vice president of
development and acquisition for Carlson Hotels Worldwide, responsible for
acquiring, constructing and designing properties. In this position, Mr. Miller
oversaw a $500 million acquisition fund, and established development policies,
investment guidelines and closing procedures. From 1989 to 1999, Mr. Miller was
a vice president for Wyndham International, an owner and operator of hotels,
where he directed the expansion of the Wyndham brand in the Eastern United
States, Canada and the Caribbean. Mr. Miller has also worked in a senior
development capacity for Interstate Hotel Corporation, Embassy Suites Hotels and
Holiday Inns, Inc.
Director Independence
Our by-laws require at least two-thirds of the members of our board of
directors to be "independent." In addition, board action, to be valid, requires
that at least one-half of the directors present and eligible to vote at any
meeting to be "independent" directors. An "independent" director is defined in
our by-laws as a person who:
(a) has not been an employee of ours or any of our subsidiaries for the
previous three years;
(b) is not affiliated with a "significant" customer or supplier of ours, with
"significant" meaning representing more than 1% of annual sales for
either party;
(c) apart from service as a director, has not had, and is not employed by an
entity that has had, during the past two years, any interest in any
significant transaction with us or any of our executive officers, or any
business or financial relationship with us or any of our executive
officers, or any affiliate of ours, which we are required to disclose
under rules promulgated by the Securities and Exchange Commission;
(d) is not a relative of an executive officer or director of ours;
(e) receives no compensation from us other than as a director;
(f) does not personally receive, and is not an employee, director, or trustee
of a foundation, university, or other institution that receives, grants
or endowments from us that are material to us or to the recipient,
foundation, university or institution; and
(g) is not employed by an entity of which either an executive officer of ours
serves as a director or trustee, or a director of ours serves in a senior
executive capacity.
This by-law provision became effective on June 27, 2002 and when adopted,
the prior board deemed anyone who was a member of the board on that date
"independent" until December 31, 2004. Any nominees for board positions who were
not members of our board on June 27, 2002 must satisfy the criteria described
above. After December 31, 2004, all directors, including those who were members
of the board on June 27, 2002, must satisfy the above criteria to be considered
independent. Of our current directors, Messrs. Belmonte, Fell, LaFlamme, Romano
and Shapiro satisfy the criteria. Dr. Dayan was a director on June 27, 2002 but
does not otherwise satisfy the criteria, as a result of transactions within the
past two years involving us and entities in which Dr. Dayan had, but no longer
has, an interest. We do not anticipate entering into transactions of this nature
with any of our directors in the future. Mr. Herman, as our president and chief
executive officer, is not considered independent. Neither Dr. Dayan nor Mr.
Herman is a member of any board committees required to be composed entirely of
independent directors.
Corporate Governance
Since the beginning of 2002, our board of directors has taken several steps
designed to enhance long-term stockholder value. On June 27, 2002, our board of
directors amended our by-laws to add several "corporate governance provisions."
One provision mandates that at least two-thirds of our directors be
"independent" as described above. Some of the other provisions require:
o the audit committee to be composed entirely of independent directors, to be
delegated the responsibility for overseeing our financial reporting process
and internal controls, reviewing compliance with laws and
4
accounting standards, engaging the independent auditors and providing a
direct channel of communication to our board of directors for independent
and internal auditors and our finance officers;
o our board to have a compensation committee composed entirely of independent
directors, responsible for ensuring that senior management is accountable
to the board through the effective application of compensation policies and
by monitoring the effectiveness of senior management;
o the compensation committee to conduct written reviews of, at a minimum, our
chief executive officer and chief financial officer;
o our board to have a corporate governance committee, composed entirely of
independent directors, with responsibility for reviewing all related party
transactions and considering and making recommendations to the board with
regard to any transaction involving a "change of control" or the purchase
or sale of assets constituting more than 10% of our assets;
o the corporate governance committee to evaluate prospective board members
and review all board members annually;
o approval by either our stockholders or two-thirds of the board of directors
to amend or repeal any of the corporate governance provisions of our
by-laws, including the definition of "independent."
Our by-laws were further amended in October 2002 to, among other things,
provide that the position of chairman is not an executive officer position,
enabling the individual holding the position of chairman to maintain his or her
qualification as "independent" under the governance provisions of our by-laws.
In November, 2002, our board of directors adopted a policy of having an
independent director serve as chairman, thereby separating the chairman and
chief executive officer positions, and elected Mr. Fell chairman, effective
December 12, 2002. The vice-chairman of our board of directors, Mr. Shapiro, was
elected to our board in September 2002 and elected as our independent
vice-chairman in February 2003. Our audit, compensation and corporate
governance/nominating committees are comprised solely of independent directors.
We have adopted several measures designed to improve our corporate
governance that are described in more detail in the "Report of the Corporate
Governance/Nominating Committee" below. Included in these measures are the
adoption of insider trading and enhanced disclosure policies, formation of an
internal disclosure control committee, and the adoption by our board, subject to
stockholder approval, of our 2003 Non-Employee Director Restricted Stock Plan
and our 2003 Long-Term Incentive Plan, both of which are described elsewhere in
this proxy statement.
Attendance
The board of directors held ten meetings during the year ended December 31,
2002. Each director attended at least 75% of the meetings of the board and
committees on which the director served during that year.
Compensation of Directors
For services rendered for the year ended December 31, 2002, each
non-employee director received a retainer of $9,000, payable at the person's
option, in cash or shares of restricted stock, plus $250 for each board meeting
attended in person, $150 for each meeting conducted by telephone and $150 for
each committee meeting attended in person or by phone. Each non-employee
director was also reimbursed for all out-of-pocket expenses related to attending
board or committee meetings. Our non-employee directors include any directors
who are not employed by us, whether or not they are considered independent under
our by-laws. Each non-employee director elected at our annual meeting in 2002
also received an option to purchase 1,000 shares of common stock at an exercise
price of $3.80 per share on the date of the meeting. Mr. Shapiro joined our
board in September 2002, after the date of this meeting, and therefore did not
receive this option award. The options were granted under our "1996 Stock Option
Plan for Non-Employee Directors," which we refer to as the "1996 Director Plan."
Our board of directors has unanimously voted to terminate 1996 Director Plan,
although terminating this plan will not affect any options previously granted
under the plan. In 2002, each non-employee director also received options to
purchase 2,500 shares of our common stock which vested only if we met certain
performance criteria in 2002, including certain levels of earnings per share,
earnings before interest, taxes and depreciation/amortization, and net operating
income.
5
We did not satisfy the performance criteria and, therefore, none of these
options vested and all have lapsed. All director stock options granted in 2002
were issued with exercise prices equal to "fair market value," as defined in the
1996 Director Plan, at the date of the grant.
In February, 2003 our board of directors approved a new compensation
package for our non-employee directors that: (1) changes the mix of director
annual retainer compensation from predominately cash compensation to
predominately equity compensation; (2) grants restricted stock instead of
options as the preferred form of equity compensation; (3) provides an increase
in annual retainer compensation to our chairman and vice chairman, and (4)
increases certain of the meetings fees paid to our non-employee directors and
increases meeting fees for chairs who lead various board and committee meetings.
The grants of restricted stock are contingent upon approval of our "2003
Non-Employee Director Restricted Stock Plan," which is described below, and will
take effect upon approval of this plan. Under the new compensation package, the
total annual retainer to directors, including the cash and equity portions, has
been increased, and the equity portion consists of a grant of restricted stock
rather than stock options. The cash portion of the annual retainer remains at a
rate of $9,000 per year paid monthly, except that Mr. Fell and Mr. Shapiro now
receive cash retainer payments at an annual rate of $13,500 and $11,250,
respectively, for serving as chairman and vice-chairman of the board,
respectively. Non-employee directors will continue to be reimbursed for
out-of-pocket expenses relating to attendance at board meetings. The revised
meeting fees for non-employee directors, which have already taken effect, are
summarized in the following tables:
Board of Director Meeting Fees
Telephone In-Person
--------- ---------
Meetings of 1.5 hours or less .......... $250 $1,500
Meetings over 1.5 hours ................ $500 $1,500
The above fees for each meeting of the full board are increased by 50% for
the chairman when he presides and 25% for the vice chairman in the event he
presides over a board meeting.
Committee Meeting Fees
Telephone In-Person
--------- ---------
Meetings of 1.5 hours or less .......... $150 $ 500
Meetings over 1.5 hours ................ $300 $1,000
The above fees for each committee meeting are increased by 50% for the
chairman of the audit committee and 30% for the individuals who chair other
committee meetings.
As noted elsewhere in this proxy statement, we are proposing that
stockholders approve our "2003 Non-Employee Director Restricted Stock Plan." If
the plan is approved, as part of their compensation for the year ending December
31, 2003, our non-employee directors will each receive 6,000 shares of our
common stock on the date of the annual meeting, except for Messrs. Fell and
Shapiro, who will receive 9,000 and 7,500 shares of our common stock reflecting
the same 50% and 25% increases described above, for serving as chairman and
vice-chairman of the board, respectively. These shares may not be transferred
for a one-year period, except in the case of a "change of control." After this
one-year period, the shares may not be transferred until the earlier of a
"change of control," five years from the date of the grant, or the date the
director ceases to be a director. "Change of control" is defined in the plan to
cover various circumstances in which 50% or more of the beneficial ownership of
our issued and outstanding stock, either directly or by merger or other
extraordinary transaction is acquired by others, and is more fully defined in
the "Change in Control" section of the description of our Non-Employee Director
Restricted Stock Plan, below. Recipients of these shares will be required to
forfeit one-quarter of the shares received if they are no longer a director on
September 30th. Awards of restricted shares for future years have not been
determined.
6
Committees
The board of directors has established three permanent standing committees
and from time to time forms ad hoc committees to address specific issues. The
three standing committees are:
1. Audit Committee -- This committee consists of four independent directors:
Messrs. Belmonte, Fell, LaFlamme, who is the chairman, and Romano.
Messrs. LaFlamme and Romano have been designated as the committee's
financial experts pursuant to the rules promulgated under Section 407 of
the Sarbanes-Oxley Act of 2002. Mr. Belmonte will not continue as a
member of the audit committee after the annual meeting to dedicate
additional time to the ad hoc committees of which he is a member. The
audit committee is responsible for, among other things, retaining our
independent auditor, meeting with the independent auditor to review the
scope and results of its audit, overseeing our financial reporting
process and internal controls, reviewing compliance with laws and
accounting standards, and providing a direct channel of communication to
the board of directors for the independent auditor, internal auditors and
finance officers. This committee met five times during the year ended
December 31, 2002.
2. Compensation Committee -- This committee consists of three independent
directors: Messrs. Belmonte, who is the chairman, Fell and Shapiro. This
committee is responsible for establishing and reviewing executive
compensation, administering all incentive equity-based plans established
by us, other than plans governing compensation payable to our
non-employee directors, and reporting on our executive compensation
policies in our annual proxy statement. This committee met twenty-one
times during the year ended December 31, 2002. The majority of these
meetings involved interviews of executive search firms and candidates in
connection with our search for a chief executive officer.
3. Corporate Governance/Nominating Committee -- This committee consists of
three independent directors: Messrs. Fell, Romano and Shapiro, who is the
chairman. The committee was formed in April 2002 to replace our
directors' affairs committee. This committee is responsible for
considering and making recommendations to the board of directors
concerning the appropriate size, function and needs of the board. The
committee is responsible for recommending nominees for board positions,
recommending ways to enhance services to, and improve communications
with, our stockholders, reviewing all related party transactions,
reviewing candidates for our board of directors recommended by
stockholders and considering all proposals involving a "change in
control" or the purchase or sale of assets constituting more than 10% of
our assets. The existing members of this committee have served since
September 2002. The current members of this committee met two times
during the year ended December 31, 2002.
Report of the Audit Committee
Purpose of Audit Committee. The audit committee assists the board of
directors in fulfilling its responsibilities to oversee the company's accounting
policies and internal controls, financial reporting practices, and legal and
regulatory compliance. The committee also assists in maintaining a line of
communication between the board of directors and the company's internal and
independent auditors. The audit committee is composed of four directors, all of
whom are "independent" under the company's by-laws and the rules promulgated by
The Nasdaq Stock Market. The audit committee has reviewed the definition of
"financial expert" promulgated under the Sarbanes-Oxley Act of 2002 and
determined that Mr. LaFlamme and Mr. Romano satisfy the criteria for a financial
expert under the Act.
The audit committee operates under a written charter approved by the board
on June 1, 2000 and amended on February 24, 2003. A copy of the charter, as
amended, is attached to this proxy statement as Appendix A.
Responsibilities of the Audit Committee. The audit committee reviews the
company's financial reporting process on behalf of the board of directors. The
company's management has primary responsibility for preparing financial
statements in accordance with generally accepted accounting principles, and the
company's internal controls and financial reporting process. The independent
auditors are responsible for performing an audit of the company's consolidated
financial statements in accordance with generally accepted auditing standards
and issuing a report on the audited financial statements. The members of the
audit committee are neither professionally engaged in the practice of accounting
or auditing, nor, with the exception of Messrs. LaFlamme and Romano, are we
experts in the fields of accounting or auditing. The audit committee relies,
without independent verification, on the information provided
7
to us and on the representations made by management that the financial
statements have been prepared with integrity and objectivity and on the
representations of management and the opinion of the independent auditors that
the financial statements have been prepared in conformity with generally
accepted accounting principles.
The audit committee met with management and the independent auditors to
review and discuss the financial statements as of, and for the twelve months
ended, December 31, 2002. The audit committee also discussed the matters
required by Statement on Auditing Standards No. 61 (Communication with Audit
Committees) ("SAS61") with the independent auditors. SAS 61 requires the
independent auditors to provide the company with additional information
regarding the scope and results of the audit of the company's financial
statements.
The audit committee also received written disclosures from the company's
independent auditors, KPMG LLP, required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). The audit
committee discussed with KPMG the firm's independence, and KPMG has confirmed in
these discussions, that in its professional judgment, KPMG is independent of the
company within the meaning of the securities laws administered by the Securities
and Exchange Commission and the requirements of the Independence Standards
Board. The audit committee approved the retention of KPMG as the company's
independent auditors for the fiscal year ended December 31, 2002 and has
recommended retaining KPMG for the fiscal year ending December 31, 2003.
The audit committee has advised the board of directors that the committee
has determined that the non-audit services rendered by KPMG during the company's
fiscal year ended December 31, 2002 are compatible with maintaining KPMG's
independence.
Based upon the audit committee's discussions with management and the
independent auditors, and the committee's review of the representations of
management and the independent auditors, the audit committee recommended that
the board of directors include the audited consolidated financial statements in
the company's annual report on Form 10-K for the year ended December 31, 2002,
filed with the Securities and Exchange Commission.
Members of the Audit Committee:
Gerald T. LaFlamme, Chairman
Steven J. Belmonte
Kenneth M. Fell
Thomas J. Romano
Report of Compensation Committee on Executive Compensation
Purpose of Compensation Committee. The compensation committee discharges
the responsibility of the board of directors relating to the compensation of the
company's chief executive officer and other executive officers and administers
all incentive compensation plans adopted by the company, other than plans
governing compensation payable to our non-employee directors. The charter
governing the compensation committee is attached to this proxy statement as
Appendix B.
Executive Compensation Philosophy. The committee believes that the focus of
all executive compensation should be to align the interests of the company's
executive officers with the objective of maximizing long-term stockholder value.
The committee's compensation philosophy is designed to emphasize long-term
performance-based compensation. As part of this philosophy, the committee grants
primarily restricted stock, rather than options, as a means of providing
long-term incentive to executive officers. Under this system of compensation,
employees typically pay taxes on the grant and therefore have an immediate
economic interest in their shares, and thus the company. The committee believes
that, as a result, a decline in the company's stock price has the same negative
impact on the executive officer as on other stockholders. In contrast, with
options, taxes are not typically paid until sale of the underlying stock and a
decline in stock price does not exact an economic penalty on the option
recipient. Moreover, the committee believes that, unlike options whose exercise
price may be well above the company's stock price, restricted stock retains its
motivational value even if the stock price declines significantly, because any
incremental increase in the company's stock price will still benefit the
executive officer. The committee also prefers restricted stock to options
because in many cases price declines lead to a request from option recipients to
"reprice" the option to a lower exercise price. Finally, grants of restricted
stock are immediately charged as compensation
8
expense. Although the company has recently adopted a policy of expensing options
at the time they are granted, the amount of the expense charged in connection
with an option grant is not as easily and predictably measured.
The committee believes that a substantial portion of each executive's
annual compensation should be related to, and be contingent on, the company's
financial performance. The committee believes that a majority of bonus and
incentive compensation should be based on performance. In determining the
long-term incentive component of the compensation of the company's executive
officers, the committee will generally consider the company's performance and
relative stockholder return and the value of similar incentive awards to chief
executive officers and other executive officers at companies deemed comparable
by the committee. Whenever possible, the committee uses vesting schedules under
which vesting occurs proportionately, rather than using "cliff-vesting," where
disproportionate rewards are paid for small marginal improvements. The committee
believes that avoiding cliff vesting ensures that payments made are closely
correlated to increases in corporate performance, on a more steady continuum, as
opposed to altering short term results in order to achieve the desired "cliff"
criteria, to the detriment of long-term performance of the company. The
company's compensation program for executive officers consists of, and is
intended to balance, three elements:
o Base salaries which are based principally on the committee's evaluation of
each executive's job performance and an assessment of the base salaries and
total compensation mix paid to executives with comparable companies holding
similar positions.
o Cash bonuses which are performance based, primarily on the correlation
between company performance and certain qualitative and quantitative
financial measures.
o Long-term incentive performance based awards consisting of grants of
restricted stock and, in limited circumstances, options.
During the last year, the committee spent significant time conducting a
search for the company's chief executive officer, which culminated in the hiring
of Jerry H. Herman, who succeeded Michael Holtz, the prior chief executive
officer who resigned effective December 12, 2002. The committee negotiated a
compensation package with Mr. Herman reflected in a contract which, in the
committee's view, provides a competitive salary with the potential for
significant bonus and incentive compensation upon achievement of performance
targets. Mr. Herman's contract was executed in December 2002, and he joined the
company in January 2003. The contract is described elsewhere in this proxy
statement and is included as an exhibit to a Form 8-K/A filed by the company on
December 23, 2002.
The company has also entered into employment agreements with James Dale,
the company's senior vice president finance, secretary, treasurer and chief
financial officer, and Richard Gerhart, the company's senior vice president of
hotel operations. During 2002, each of Mr. Dale's and Mr. Gerhart's salary and
bonus increased in accordance with the terms of his contract. Following Mr.
Holtz's resignation, we entered into supplemental retention agreements with Mr.
Dale and Mr. Gerhart designed to: (a) incrementally incentivize performance to
ensure their focus on productive endeavors rather than concerns related to the
transitions in board and CEO composition; and (b) provide for incremental
severance protection during 2003. These agreements provided Mr. Dale and Mr.
Gerhart with the opportunity to earn bonus payments tied to various performance
criteria set forth in the agreements, as described in more detail under the
heading "Employment Agreements" below. The compensation of our other executive
officers is shown in the compensation table included elsewhere in this proxy
statement.
Compensation Committee:
Steven J. Belmonte, Chairman
Kenneth M. Fell
Andrew E. Shapiro
9
Report of the Corporate Governance/Nominating Committee
Our board formed a "Corporate Governance/Nominating Committee" in April,
2002 and in August, 2002, our stockholders overwhelmingly supported and elected
the slate of independent nominees proposed by the "Committee to Enhance
Shareholder Value." We subsequently directed our attention to designing and
implementing significant reforms focusing on establishing director independence
and enhancing accountability and oversight within all levels of the
organization. We operate pursuant to a written charter which we recently adopted
and which is attached to this proxy statement as Appendix C.
This focus on independence, accountability and oversight starts with our
board which has dramatically changed its makeup. Five of our seven directors
have joined us since August 2002 adding new and diverse ideas. As a whole, our
board now holds a meaningful ownership position in our stock. Plus, we now have
two new hotel industry experts on our board, and two "financial experts" as
defined in the Sarbanes-Oxley Act. Our CEO joined us in January 2003 following
an extensive nationwide search and began remaking the company's culture and
operating practices. During the year, we adopted a new corporate governance by
law, mandating that a supermajority of our board of directors (at least
two-thirds) be independent and that this committee and our audit and
compensation committees be composed entirely of independent directors. Further,
in the past year, we have eliminated or moved to eliminate all related-party
transactions.
Since September, 2002, our independent directors have met in executive
session at every board meeting, including every telephonic meeting. We separated
the office of chairman and CEO and named Mr. Fell our new chairman. We also
subsequently appointed Mr. Shapiro our new independent vice chairman. In the
past year, we also adopted an insider trading policy and, related to that
policy, an enhanced disclosure policy, requiring us to issue operating and
development/sales pipeline update press releases on a monthly basis and conduct
quarterly earnings calls open to analysts and our stockholders. Transcripts from
these calls are posted on our website. We also directed management to form an
internal disclosure control committee headed by our general counsel and
reporting to our CEO and audit committee. We reviewed and improved our ability
to recruit and retain directors through up-to-date director compensation
programs, reviewing and revising our director and officer insurance and
designing the proposed 2003 Non-Employee Director Restricted Stock Plan
described in greater detail in this proxy statement. All of these steps were
aimed at realigning director and stockholder interests.
We maintain an open door policy for our stockholders and will consider
prospective stockholder nominees to our board and welcome third-party input. Our
committee has met with many of our major stockholders to solicit their advice
and input on our business. We plan to conduct annual director reviews, so that
not only management, but board members as well, will be reviewed and evaluated.
We expect to continue enhancing these and other governance practices and
principles with a view toward establishing a clear pathway for open minded,
proactive achievements in the future, all designed to enhance long-term
stockholder value.
Corporate Governance/Nominating Committee
Andrew E. Shapiro, Chairman
Kenneth M. Fell
Thomas J. Romano
Other Committees
Our board has, from time to time, formed ad hoc committees to address
specific strategic or operational issues. For example, we formed an ad hoc
committee in 2002 to address the issues surrounding Mr. Holtz's resignation as
chairman, president and chief executive officer. In connection with Mr. Holtz's
resignation, this committee retained independent counsel and negotiated
separation agreements with Mr. Holtz to settle outstanding rights and
obligations regarding his employment contract. The agreements included the
simultaneous sale of two hotels to Mr. Holtz at prices not less than appraised
value. These sales resulted in a net profit to us, the payment by Cendant
Corporation of certain fees to us upon closing and an ongoing stream of
franchise royalty fees from Cendant. The separation agreements with Mr. Holtz
are described elsewhere in this proxy statement.
10
We later formed several other ad hoc committees. For example, we have
formed an ad hoc investment committee to assist in evaluating acquisition and
disposition strategies. Another ad hoc committee has been formed to assist in
evaluating financing options. A third ad hoc committee is focusing on our
ongoing business relationships with Cendant Corporation, the franchisor of the
AmeriHost Inn brand. In each case, a majority of the particular ad hoc
committee's membership is composed of independent directors.
Executive Compensation
The following table sets forth certain information concerning the annual
and long-term compensation for the fiscal years ended December 31, 2002, 2001
and 2000, respectively, of each person who served as our chief executive officer
during 2002 or was one of our four other most highly-compensated executive
officers, other than the chief executive officer, earning total annual salary
and bonus exceeding $100,000.
Summary Compensation Table
Long-Term
Compensation
Annual Compensation ----------------------
------------------------------- Securities All Other
Name and Principal Position Year Salary Bonus (1) Underlying Options (2) Compensation (3)
- --------------------------- ---- ------- --------- ---------------------- ----------------
Michael P. Holtz, (4) ......... 2002 316,250 -- 100,000 464,315
Chairman of the Board, 2001 325,000 -- 100,000 23,422
President and Chief 2000 325,000 -- 100,000 17,500
Executive Officer
James B. Dale, (5) ............ 2002 145,000 17,850 21,000 2,036
Senior Vice President 2001 132,115 9,000 21,000 2,214
Finance, Secretary, 2000 125,000 5,000 21,000 1,300
Treasurer and Chief
Financial Officer
- ------------
(1) Mr. Dale's 2002 bonus includes options, a cash bonus of $13,600 paid to Mr.
Dale in 2003, a cash bonus of $1,700 to be paid in September, 2003, and a
bonus in the form of 750 shares of restricted stock, valued at
approximately $2,550, to be paid in September 2003.
(2) Includes options to purchase 50,000 shares issued to Mr. Holtz in each of
2002, 2001 and 2000 which did not vest and were forfeited. In December
2002, Mr. Holtz exercised options to purchase 50,000 shares issued in 2002
and options to purchase 50,000 shares issued in 2001. Options to purchase
50,000 shares issued to Mr. Holtz in 2000 were not exercised and have
lapsed. Also includes options to purchase 7,000 shares issued to Mr. Dale
in 2001 which did not vest and were forfeited, and options to purchase
14,000 shares issued in 2002, which were based on our meeting certain
performance criteria, and did not vest and were forfeited.
(3) Includes severance compensation and benefits in the amount of $440,200 paid
to Mr. Holtz in 2002 in accordance with the terms of his separation
agreements. Also includes life and disability insurance premiums paid by us
on behalf of Mr. Holtz and Mr. Dale and our 401(k) matching contributions
of $2,750, $2,625 and $2,500 for Mr. Holtz, and $1,586, $1,764 and $1,300
for Mr. Dale, for 2002, 2001 and 2000, respectively.
(4) On August 15, 2002, Mr. Holtz announced his intention to resign as our
chairman of the board, president and chief executive officer, which became
effective on December 12, 2002. On December 19, 2002, we entered into an
employment agreement with Jerry H. Herman, who became our president and
chief executive officer on January 7, 2003. A summary of Mr. Herman's
employment agreement appears below.
(5) Mr. Dale also served as our interim chief executive officer from December
12, 2002 to January 6, 2003.
11
Stock Options
We have recently adopted a policy of expensing all stock options when they
are granted. The following table summarizes the number and terms of stock
options granted to each of the executive officers named above during the year
ended December 31, 2002.
Option Grants In Last Fiscal Year
Potential
Individual Grants Realizable Value
---------------------------------------------------------- at Assumed
% of Total Annual Rates of
Number of Options Stock Price
Securities Granted to Appreciation for
Underlying Employees in Exercise or Option Term
Options Fiscal Base Price Expiration -------------------
Name Granted (1) Year ($/Sh) Date 5% ($) 10% ($)
- ---- ----------- ------------ ----------- ---------- ------- -------
Michael P. Holtz ......... 100,000 51.8% $ 2.02 Jan. 2012 335,878 617,249
James B. Dale ............ 21,000 10.9% $ 3.51 May 2012 41,593 105,471
- ------------
(1) Of the options to purchase 100,000 shares granted to Mr. Holtz in 2002,
options to purchase 50,000 shares issued in 2002 to Mr. Holtz did not vest
because we did not satisfy financial performance criteria for 2002, and
were forfeited. During 2002, Mr. Holtz exercised options, on a cashless
basis, to purchase 100,000 shares, including options on the remaining
50,000 shares granted in 2002. He received a total of 16,811 shares from
this cashless exercise. Options to purchase 14,000 shares issued in 2002 to
Mr. Dale did not vest and were forfeited because the relevant company and
departmental criteria for 2002 were not achieved.
The following table provides information concerning the exercise of stock
options during 2002, and the year-end value of unexercised options for each
executive officer named above and each of our directors.
Option Exercises in Last Fiscal Year and Year-End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options Held at in-the-Money Options at
Shares December 31, 2002 December 31, 2002 (1)
Acquired Value ------------------------------- -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
Salomon J. Dayan ............. -- -- 71,000 3,500 $ 797 $ --
Thomas J. Romano ............. -- -- 4,500 3,500 797 --
Kenneth M. Fell .............. -- -- -- 3,500 -- --
Andrew E. Shapiro ............ -- -- -- 2,500 -- --
Gerald T. LaFlamme ........... -- -- -- 3,500 -- --
Steven J. Belmonte ........... -- -- -- 3,500 -- --
James B. Dale (2) ............ -- -- 73,500 21,000 8,367 --
Michael P. Holtz (2) ......... 100,000 $50,000 470,000 -- 96,438 --
- ------------
(1) The closing sale price of our common stock on December 31, 2002 on The
Nasdaq National Market was $3.46 per share.
(2) See also footnote 1 in the "Option Grants in Last Fiscal Year" table above.
Employment Agreements
On January 7, 2003, Jerry H. Herman became our president and chief
executive officer under the terms of an employment agreement dated as of
December 19, 2002. The agreement expires on December 31, 2005, unless terminated
earlier. Under the agreement, we pay Mr. Herman a base salary of $300,000 per
year and Mr. Herman is eligible to earn a bonus consisting of a cash portion and
restricted stock portion subject to his and our satisfying certain performance
criteria. The budget for the performance criteria are established each year by
the board of directors. The criteria consist of a pre-tax income benchmark, an
adjusted stockholder equity per share benchmark, and a third benchmark comprised
of up to two components relating to development of franchises or joint ventures,
growth of the AmeriHost brand or construction and development of hotels. In each
case, there are limits on the
12
amount of cash and equity performance bonus that Mr. Herman may earn each year.
Mr. Herman has the right under the agreement to sell shares received as part of
the stock portion of the bonus, some of which would otherwise had been
restricted from transfer, to us in an amount necessary to pay income taxes, with
the number of shares allowed to be sold determined according to a formula
specified in the agreement but no less than fair market at the time of grant.
Mr. Herman is also entitled to bonuses upon the occurrence of specified capital
events, such as the assignment, conveyance, sale or termination of our
agreements with Cendant, a merger of us into another corporation, a sale of our
assets, a sale of all of our stock to a new purchaser or the bulk sale of
fifteen or more of our hotels to a new purchaser which result in consideration
to us above certain levels. Mr. Herman also participates in our employee benefit
plans and is reimbursed for business expenses. The agreement granted Mr. Herman
the right to purchase up to 75,000 restricted shares of our common stock for two
consecutive thirty-day periods beginning January 7, 2003, with the price for
each period determined according to a formula specified in the agreement. On
January 17, 2003, Mr. Herman exercised this right with regard to 40,000
restricted shares of our common stock, which he purchased at a price of $3.16
per share. We also agreed to nominate Mr. Herman during the term of his
employment for election to our board of directors and to recommend that
stockholders vote in favor of his election.
Mr. Herman's employment agreement may terminate, at Mr. Herman's option, on
a "change in control," which is defined as a sale of all or substantially all of
our assets, a merger resulting in the ownership of over 50% of our voting stock
by parties unaffiliated with us before the transaction or the sale of over 50%
of our shares or other equity interests to parties unaffiliated with us before
the transaction. If Mr. Herman is terminated without cause, or resigns as the
result of a change in control or for "good reason," as defined in the agreement,
he is entitled to severance compensation equal to the base salary for the
remaining term of the agreement but no less than twelve months and no greater
than twenty-four months. "Good reason" is defined in the agreement to include,
among other things, a material reduction in Mr. Herman's responsibilities not
consistent with the agreement, a material decrease in Mr. Herman's salary or
benefits, our failure to nominate and recommend Mr. Herman for election to the
board of directors and any material breach by us of the agreement.
Our senior vice president of finance and chief financial officer, James B.
Dale, provides services to us under the terms of an employment agreement dated
January 12, 2001. The agreement originally expired January 12, 2004, but its
term has since been extended to January 12, 2005, as discussed below. Under the
agreement, we pay Mr. Dale a base salary equal to $145,000, which automatically
increases 5% per year, and cash bonuses based on the sale of AmeriHost Inn
hotels and the timing of our financial reporting. Mr. Dale received some, but
not all of the performance bonuses. Mr. Dale's employment agreement entitles him
to receive severance payments equal to six months salary if his employment is
terminated by us "without cause," as defined in the agreement. In addition, if
we are sold, Mr. Dale is entitled to receive the sum of six months base salary,
at his salary level at the time of sale.
Our senior vice president of hotel operations, Richard A. Gerhart, provides
services to us under the terms of an employment agreement dated July 1, 2002.
The agreement has a three-year term. Under the agreement, we pay Mr. Gerhart a
base salary equal to $132,500 for the first year of the agreement, $137,800 for
the second year, and $144,000 for the third year. In addition, Mr. Gerhart is
entitled to cash bonuses if various company performance criteria are achieved.
These criteria relate to increases in revenue for AmeriHost Inns owned by us for
at least thirteen months, gross operating profit for AmeriHost Inns as compared
with budgeted and prior year amounts, gross operating profit of non-AmeriHost
Inn hotels and sales of AmeriHost Inn hotels. The performance criteria also
include achieving certain levels of net income, income before taxes,
depreciation and amortization or cash flow. If we terminate Mr. Gerhart "without
cause," he is entitled to receive his salary and bonus for six months from the
date of termination.
We entered into a supplemental retention and performance agreements with
Mr. Dale and Mr. Gerhart as of December 1, 2002, following Mr. Holtz's
resignation. Under these agreements, Mr. Dale and Mr. Gerhart are entitled to
severance payments of $50,000 in addition to the severance payments described
above, payable in five monthly installments, if their employment is terminated
before December 31, 2003 other than because of death, disability, voluntary
termination or "for cause." In addition, under the agreements we agreed to pay
each of Mr. Dale and Mr. Gerhart a performance retention bonus in the form of
cash and restricted stock if various performance criteria were satisfied, and
they remained employed with us through January 1, 2004. The performance criteria
in Mr. Dale's agreement relate primarily to the timely preparation of financial
statements, periodic reports and meeting minutes,
13
sales of hotels, and assistance in our obtaining financing within certain time
periods. The performance criteria in Mr. Gerhart's agreement relate primarily
to hotel revenue and profitability results. Mr. Dale's supplemental agreement
also extended the term of Mr. Dale's employment agreement with us to January
12, 2005.
On August 15, 2002, our former president and chief executive officer,
Michael P. Holtz announced his intention to resign. His resignation became
effective December 12, 2002. Mr. Holtz provided services to us under the terms
of an employment agreement originally dated January 1, 1995, as amended. Under
the agreement, Mr. Holtz received a base salary of $325,000 per year, and
options to purchase 100,000 shares each year, with options to purchase 50,000
shares vesting 90 days from the date of issuance and options to purchase 50,000
shares vesting only if we attained certain financial performance criteria. The
agreement also provided for a cash bonus based upon financial and hotel
operating performance. In 2001 and 2002, we did not meet the financial
performance criteria, and options to purchase 50,000 shares issued to Mr. Holtz
in each of 2001 and 2002 therefore did not vest and were forfeited. Mr. Holtz
did not receive a cash bonus in 2002.
We entered into a series of separation agreements with Mr. Holtz requiring
us to pay Mr. Holtz one year's base salary of $325,000 plus his regular salary
through February 15, 2003, plus certain fringe benefits including health
insurance, disability insurance, and life insurance for a one year period. We
also agreed to sell two AmeriHost Inn hotels to entities controlled by Mr. Holtz
at no less than their appraised value. Mr. Holtz resigned as a director, officer
and employee effective December 12, 2002.
Equity Compensation Plan Information
The following table sets forth, for each of our equity compensation plans,
the number of shares of common stock subject to outstanding awards, the
weighted-average exercise price of outstanding options, and the number of shares
remaining available for future award grants as of December 31, 2002. If our 2003
Long-Term Incentive Plan is approved, we do not intend to issue any options, or
make any awards of restricted stock, to employees outside of equity compensation
plans approved by our stockholders.
Number of shares
of common stock
remaining
Number of shares of available for
common stock to be Weighted average future issuance
issued upon exercise of exercise price of under equity
outstanding options, outstanding options, compensation
Plan Category warrants and rights warrants and rights plans
- ------------- ----------------------- -------------------- ----------------
Equity compensation plans approved by
stockholders ........................ 800,100 (1) $ 4.54 273,291 (2)
Equity compensation plans not approved
by stockholders ..................... 1,122,458 (3) $ 4.19 N/A
--------- ------ -------
Total ................................ 1,922,558 $ 4.33 273,291
========= ====== =======
- ------------
(1) Includes 27,000 shares issuable upon the exercise of options previously
granted under our 1996 Director Plan and 773,100 shares issuable upon the
exercise of options previously granted under our 1996 Omnibus Incentive
Stock Plan, which we refer to as the "1996 Omnibus Plan." Of the 773,100
shares issuable upon the exercise of options, 62,000 shares were issuable
upon the exercise of options granted to employees which were based on our
meeting certain performance criteria, and did not vest and were forfeited.
At the annual meeting we will seek approval of our 2003 Non-Employee
Director Restricted Stock Plan and our 2003 Long-Term Incentive Plan. Our
1996 Director Plan has been terminated, although options granted under that
plan may still be exercised unless they have expired. See "PROPOSAL
THREE-APPROVAL OF 2003 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN." Our
1996 Omnibus Plan will terminate on the earlier of adopting the 2003
Long-Term Incentive Plan or the date of our annual meeting in 2004. See
"PROPOSAL FOUR-APPROVAL OF LONG-TERM INCENTIVE PLAN."
(2) Consists of 273,291 shares available for future issuance under our 1996
Omnibus Plan. The 1996 Omnibus Plan has an annual limit on the number of
shares to be issued upon exercise of options granted under the plan for
each fiscal year in which the plan is in existence, but does not have a
limit on shares that may be issued
14
upon the exercise of options over the life of the plan. The annual limit is
equal to three percent of the number of shares used to calculate our fully
diluted earnings per share for the previous year, plus the number of shares
issuable upon the exercise of options issued in previous years that have
expired, been forfeited or terminated. As of December 31, 2002, there were
273,291 shares available for issuance during the year ended December 31,
2003. We cannot predict the number of shares that will be available for
issuance in future years, but as noted above the 1996 Omnibus Plan will
terminate on the earlier of adopting the 2003 Long-Term Incentive Plan or
the date of our annual meeting in 2004.
(3) Includes shares issuable upon the exercise of options issued before
adopting our 1996 Director Plan and our 1996 Omnibus Plan, and shares
issuable upon the exercise of options issued after adopting these plans but
outside of the plans. Does not include a grant of a total of 2,750
restricted shares which we intend to make to employees in September 2003 as
part of their bonuses for the year ended December 31, 2002. If our 2003
Long-Term Incentive Plan is approved, we do not intend to issue any
options, or make any awards of restricted stock, to employees except for
awards under plans approved by our stockholders.
---------------------
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" ALL NOMINEES.
SHARES REPRESENTED BY SIGNED PROXIES RECEIVED BY US WILL BE VOTED "FOR" THE
ELECTION OF THE NOMINEES UNLESS STOCKHOLDERS OTHERWISE SPECIFY IN THEIR PROXIES.
---------------------
15
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The audit committee of our board has selected KPMG LLP as our independent
auditors for the fiscal year ending December 31, 2003. A representative of KPMG
will attend the annual meeting, have an opportunity to make a statement if he or
she so desires, and be available to respond to appropriate questions from
stockholders.
Fees Paid to KPMG
The following table presents fees for professional audit services rendered
and fees billed for other services rendered by KPMG for the fiscal years ended
December 31, 2002 and 2001, respectively:
2002 2001
-------- --------
Audit Fees ................................... $179,500 $127,050
Audit-Related Fees ........................... 0 0
Tax Fees ..................................... 87,000 38,300
All Other Fees ............................... 0 0
-------- --------
Total Fees: ............................... $266,500 $165,350
======== ========
Audit Fees. This category includes fees paid for the audit of our annual
financial statements and review of financial statements included in our
quarterly reports on Form 10-Q. This category also includes advice on audit and
accounting matters that arose during, or as a result of, the audit or the review
of our interim financial statements, including the application of proposed
accounting rules and the preparation of an annual "management letter" containing
observations and discussions on internal control matters.
Audit-Related Fees. KPMG did not perform any services in this category for
us in 2002.
Tax Fees. This category consists of professional services rendered by KPMG
for tax compliance and tax advice. The services for the fees disclosed under
this category include tax advisory services associated with our ongoing business
and business ventures.
All Other Fees. KPMG did not perform any services in this category for us
in 2002.
---------------------
OUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT
OF KPMG AS OUR INDEPENDENT AUDITORS.
---------------------
16
PROPOSAL THREE
APPROVAL OF 2003 NON-EMPLOYEE
DIRECTOR RESTRICTED STOCK PLAN
Background and Purposes of the 2003 Plan
The purpose of the stock compensation plan is to assist us in attracting
and retaining highly-qualified non-employee directors and further aligning the
interests of the non-employee directors and our stockholders.
In 2002, our corporate governance/nominating committee undertook a review
of non-employee director compensation with a view toward determining whether the
compensation paid to our non-employee directors is appropriate in type and
amount, competitive with director compensation provided by other companies of
similar size and in similar businesses and commensurate with the increased
responsibilities being borne by our board and its committees under recent
legislation and regulation.
In particular, the committee noted that in past years a portion of
non-employee director compensation was paid in the form of stock options. Under
our 1996 Director Plan, each non-employee director elected at our annual meeting
received an annual grant of options to purchase 1,000 shares of our common
stock. In addition, certain option grants were performance based, where the
performance targets were set by the board of directors and which were
substantially similar to the targets established for management's options which
we believe weakened oversight controls. Accordingly, we chose to terminate the
1996 Director Plan, which will not affect options already granted, and replace
it with our 2003 Non-Employee Director Restricted Stock Plan. See "PROPOSAL
THREE -- APPROVAL OF 2003 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN --
Background and Purposes of the 2003 Plan." In determining that stock options
should be eliminated as a form of director compensation the committee considered
various factors, including its belief that stock options may not provide the
best means of aligning the interests of non-employee directors with those of
stockholders.
The committee reviewed data concerning the compensation provided to
non-employee directors by other companies of comparable size and in similar
businesses. The purpose of this review was to determine the appropriate amount
of total compensation to be provided to our non-employee directors and whether
that amount would be comparable to and competitive with the compensation levels
provided by those other companies. In addition, we determined that by
establishing a plan in which the recipient is taxed on the fair market value of
the stock grant and where the recipient has a vested interest in the outcome of
the stock, irrespective of its trading price, we more closely align directors
with the interests of the stockholders and with the means in which we seek to
provide incentives to our salaried employees.
As a result of the above review, the committee recommended to our board
that the compensation package for our non-employee directors should consist of a
cash retainer of $9,000, cash payments for meetings attended depending on the
type and length of the meeting, and a grant of restricted stock in an amount
determined by the board of directors or any committee delegated responsibility
by the board. In addition, the committee recommended to the board that a modest
premium should be provided to the chairman and vice-chairman of the board of
directors to compensate these individuals for the increased time commitment
entailed by their positions, and that the chairmen of committees should receive
a modest premium over the standard meeting fees for meetings of the committees
they chair. The committee believes that the total value of the compensation
package for non-employee directors falls at or near the average compensation
provided by companies deemed comparable by the committee, with the cash
compensation portion anticipated to fund primarily taxes due on the stock grant
portion, thereby heavily weighting the award toward the equity portion of the
grant. Our board of directors accepted the committee's recommendations with
regard to the compensation package for non-employee directors.
We are asking our stockholders to approve our 2003 Director Restricted
Stock Plan. Our board of directors has approved the plan, subject to approval
from our stockholders at the annual meeting. Approval of the plan requires the
affirmative vote of the holders of a majority of the shares of our common stock
that are present in person or by proxy and entitled to vote at the annual
meeting. As of September 23, 2003, there are no outstanding awards granted under
that plan.
17
Summary of the Plan
Some key features of the 2003 Director Restricted Stock Plan are:
o the granting of awards of restricted shares of our common stock,
rather than awards of options;
o only our non-employee directors are entitled to receive awards of
restricted shares under the plan;
o the maximum number of shares of our common stock that can be issued
under the plan is 200,000;
o the plan is administered by our corporate governance/nominating
committee, which is composed solely of independent directors;
o the maximum number of shares that can be issued under the plan in any
year cannot exceed 2% of our outstanding stock at the beginning of the
year in question; and
o the plan has a ten-year term.
The following summary focuses on the principal features of the plan and its
operation. This summary is qualified in its entirety by reference to the plan,
which is set forth in Appendix D.
Administration of the Plan
Our corporate governance/nominating committee, which is composed solely of
independent directors, administers the plan. The committee has the sole
discretion, subject to the rules and regulations of the SEC or The Nasdaq Stock
Market, to interpret the plan and to adopt any rules or take any actions it
deems necessary for the proper operation of the plan.
Limitations on Shares Issuable under the Plan
The maximum number of shares that may be issued under the plan is 200,000.
The number of shares issued in any plan year may not exceed 2% of the sum of our
outstanding shares of common stock at the beginning of the year and any shares
of common stock issuable upon the exercise of convertible securities such as
preferred stock or convertible debt, but excluding shares issuable upon the
exercise of options.
Awards/Eligibility
The awards granted under the plan are of restricted shares of our common
stock. Each of our non-employee directors is entitled to receive a grant of
restricted stock under the plan. We currently have six non-employee directors.
Employee directors are not entitled to receive share awards under the plan. The
number of shares awarded to each non-employee director is determined by our
board of directors. Under the plan, the chairman of the board receives an award
that is increased by 50% compared to the award to the other non-employee
directors, and the vice-chairman of the board receives an award that is
increased by 25% compared to the award made to the other non-employee directors.
Non-employee directors other than the chairman or vice-chairman are to receive
equal awards except that the board, in its discretion, may award additional
compensation to a non-employee director for assuming additional responsibilities
such as serving on ad hoc committees.
Plan Years
Awards are issued for a twelve-month period, known as a "plan year." The
corporate governance/nominating committee can change the plan year, which could
result in a plan year of less than twelve months. However, awards for any plan
year of less than twelve months will be pro-rated to prevent non-employee
directors from receiving additional shares solely as a result of a change in the
plan year. For example, the initial plan year is the 2003 calendar year. If the
committee decided to change the start of the plan year to May 1, this would
create a four-month transition plan year for which non-employee directors would
receive a share award equal to one-third of the award they would otherwise
receive.
18
Vesting
The shares issued to a non-employee director under the plan vest at the
rate of one quarter on the last day of each quarter of the plan year for which
the award was made, subject to the non-employee director's remaining as a
director on the vesting date. If a share award is made after the first quarter
of the plan year, vesting will occur as if the award had been made on the first
day of the plan year. If a new director joins the board, he or she will receive
a share award prorated as if he or she had joined the board as of the first day
of the quarter in which he or she joined the board, and vesting for the share
award will begin on the last day of the quarter in which he or she joined the
board. If a director dies, vesting of the shares allocated to the director
continues through the last day of the last quarter on which the director served
on the board. If a director ceases to serve as a director for any reason other
than death, the director will be fully vested as to all shares that would have
vested as of the end of the last quarter in which the director served for any
part of such quarter as a director, and all other shares granted to the director
under the plan will be forfeited, unless the committee otherwise allows.
Restrictions on Transfer
Shares issued under the plan may not be transferred for a minimum of one
year after vesting occurs except in the case of a "change of control," which is
defined as a transaction in which 50% of the beneficial ownership of our shares
is acquired by a single person or entity. If a change of control occurs before
the expiration of this one-year period, transfer is permitted as of the
effective date of the change of control. After the expiration of this one-year
period, the shares are generally non-transferable until the earliest of:
o a change of control;
o the first day of the fifth calendar year following the date of grant;
or
o the date the non-employee director ceases to be a director.
The committee has the ability to permit a transfer before the expiration of
the above periods in its sole discretion.
Anti-dilution Adjustments
The committee may make adjustments to the plan that it considers
appropriate to account for stock dividends, stock splits, mergers,
consolidations and similar transactions.
Amendment and Termination of the Plan
The plan has a ten-year term, unless the board decides to terminate it
earlier. The board may amend the plan, but no amendment may be made without
stockholder approval if it would:
o increase the number of shares available for issuance under the plan,
except in connection with an anti-dilution adjustment;
o cause the plan to fail to comply with SEC Rule 16b-3; or
o materially modify the plan's eligibility requirements.
The board may terminate the plan at any time.
New Plan Benefits Under the Non-Employee Directors Plan
No outstanding award under the 2003 Non-Employee Director Restricted Stock
Plan is subject to stockholder approval of the plan. Except as indicated below,
future awards under the plan cannot be determined at this time. Our board of
directors has approved grants of restricted stock to non-employee directors for
2003 as reflected in the following table:
19
New Plan Benefits Table
2003 Director Restricted Stock Plan
2003 Grants Approved Subject to
Stockholder Approval of Plan
-------------------------------------
Number of Shares of
Name and Position Dollar Value Restricted Stock
- ----------------- ------------ -------------------
Non-Employee Director Group ......... $140,535(1) 40,500
- ------------
(1) The dollar value of the grants of stock to be made under the plan if it is
approved by stockholders was calculated by multiplying the number of shares
to be granted by the closing price of our common stock on The Nasdaq
National Market on September 2, 2003.
Federal Tax Aspects
We will generally be entitled to a tax deduction in connection with a share
award under the plan in an amount equal to the ordinary income realized by a
non-employee director at the time the non-employee director recognizes the
income. The non-employee director generally will be treated as receiving
compensation, taxable as ordinary income, at the time that the shares vest equal
to the excess of the fair market value over the amount, if any, paid for the
shares on the vesting date. If, however, the shares cannot be sold without
incurring liability under Section 16(b) of the Exchange Act, the vesting date
will be treated as the date the shares can be sold without incurring such
liability. In the alternative, if the non-employee director files an election
with the Internal Revenue Service pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended, referred to herein as the "Code" within thirty
days of receiving the shares, an amount equal to the excess of the fair market
value of the shares at the time of receipt, determined without regard to any
restrictions other than those that by their terms never lapse, over the amount
paid for the shares, will be taxed as ordinary income in the year the shares are
received. If the shares are later forfeited, the non-employee director generally
will recognize a capital loss equal to the excess of the amount paid, if any,
for the shares over the amount received, if any, on forfeiture.
---------------------
OUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" APPROVAL OF THE
2003 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN.
---------------------
20
PROPOSAL FOUR
APPROVAL OF LONG-TERM INCENTIVE PLAN
Background and Purposes of the 2003 Long-Term Incentive Plan
We currently grant options to our employees under our 1996 Omnibus Plan. In
2003, our newly constituted compensation committee reviewed the 1996 Omnibus
Plan with a view toward determining whether the eligible recipients, form of
compensation and terms and limitations under the 1996 Omnibus Plan provided
proper incentives to our employees with regard to maximizing long-term
stockholder value, and were otherwise appropriate in light of the new
compensation committee's philosophy.
The compensation committee noted in particular that: (1) the 1996 Omnibus
Plan had no outside date for termination, thereby denying stockholders the
ability to revisit the plan; (2) there was no limit on the aggregate number of
shares that could be granted under the plan; (3) re-pricing of options was
allowed, thereby providing the possibility to compensate management when we
failed to achieve targeted goals; and (4) the plan did not call for the grant of
restricted stock, which the board feels can be a better way to provide
incentives to management than stock options or stock appreciation rights.
Accordingly, the board unanimously voted to terminate the 1996 Omnibus Plan on
the earlier of adopting the 2003 Long-Term Incentive Plan or the date of our
annual meeting in 2004. Any options previously granted under the 1996 Omnibus
Plan will not be impacted by terminating the plan.
We are asking our stockholders to approve our 2003 Long-Term Incentive
Plan. Our board of directors has approved the plan. Approval of the plan
requires the affirmative vote of the holders of a majority of the shares of our
common stock that are present in person or by proxy and entitled to vote at the
annual meeting. As of September 30, 2003, there are no outstanding awards
previously granted under the 2003 Long-Term Incentive Plan.
Summary of the Plan
Some key features of the 2003 Long-Term Incentive Plan include:
o the plan provides for the granting of awards of restricted shares of
our common stock or other stock-based awards, in addition to awards of
options;
o the maximum number of shares of our common stock that can be issued
upon the exercise of options, or restricted shares or other
stock-based awards granted under the plan is 550,000;
o the plan is administered by our compensation committee, which is
composed solely of independent directors;
o the plan has a ten-year term.
The following summary focuses on the principal features of the plan and its
operation. The summary is qualified in its entirety by reference to the plan,
which is set forth in Appendix E.
Administration of the Plan
Our compensation committee, which is composed solely of independent
directors, administers the plan. Subject to the terms of the plan and the rules
and regulations adopted by the SEC or The Nasdaq Stock Market, the committee has
the sole discretion to interpret the plan, amend or waive any provision or
limitation of an option or award of restricted stock made under the plan,
approve the forms of agreement to be used under the plan and take any other
actions it deems necessary for the proper operation of the plan.
Limitations on Shares Issuable under the Plan
The maximum number of shares that may be issued under the plan, either as
restricted shares, upon the exercise of options granted under the plan or in
connection with other stock-based awards, is 550,000. No individual may receive
grants of options during a particular calendar year that allow him or her to
purchase more than 100,000 shares. If an option granted under the plan expires
or is terminated, the shares subject to the option are available for future
issuance under the plan, but count against the annual limit for the holder of
the expired or terminated option. To the extent any award is purchased through a
cashless exercise, any shares or options used to effect the cashless exercise
are not eligible for reissuance under the plan.
21
Awards/Eligibility
The awards granted under the plan may be of restricted shares of our common
stock, options to purchases shares of our common stock, or other stock-based
awards, such as awards valued by reference to the value of our common stock.
Other stock-based awards may be settled in cash, shares of our common stock or
some combination of cash and shares. Our compensation committee will determine
which of our employees are eligible to receive awards under the plan. Awards may
also be granted to our directors, or to consultants, independent contractors or
others who provide bona fide services to us so long as the services are not in
connection with the offer and sale of our securities and do not promote or
maintain a market for our securities.
The committee will determine the number of shares to be subject to options
granted under the plan, the exercise price of the options, terms of restriction
and the other terms and conditions of the options. The committee also will
determine the number of shares to be included in awards of restricted shares
under the plan, the terms of the restrictions on these shares, the form of other
stock-based awards, the number of shares awarded under or related to a
stock-based award, whether a stock-based award settles in cash or stock, and all
other terms and conditions of stock-based awards.
Grants of Options under the Plan
Options may be granted under the plan as incentive stock options, or
"ISOs," within the meaning of Section 422 of the Internal Revenue Code or as
nonqualified options. ISOs may only be granted to our employees or employees of
our subsidiaries. Options granted under the plan will vest and become
exercisable at such times as our compensation committee specifies in the
applicable grant agreement entered into with a plan participant, except that in
the event of a "change in control," as discussed under the heading "change in
control" below. Upon vesting of an option, it may be exercised in whole or in
part during the period the option is exercisable.
Prohibition on Re-pricing; Prohibition on Certain Actions
Options granted under the plan may not be repriced. In addition, while the
compensation committee has the discretion to amend the terms of options or
awards of restricted stock or other stock-based awards after they are granted,
it cannot take any action that would have the effect of amending the plan in a
manner that would otherwise require stockholder approval.
Terms of Options
The maximum option period specified by the plan is generally five years,
but the committee may specify a shorter or longer period for any individual
award, except that no option granted under the plan may have a term greater than
ten years. In the case of ISOs, the maximum option period is five years for
awards to a participant who owns more than 10% of the total combined voting
power of all classes of our stock.
Exercise of Options in Event of Termination of Employment
If an employee's employment with us is terminated for any reason, any
options held by the employee may be exercised for a period specified in the
relevant option agreement.
Exercise Price of Options Granted under the Plan
The exercise price of ISOs granted under the 2003 Long-Term Incentive Plan
may be no less than 100% of the "fair market value," as defined in the plan, of
our common stock on the grant date. The exercise price of options not intended
to be ISOs must be at least equal to the par value of our common stock, which is
$.005 per share. No ISO may be granted to a participant owning more than 10% of
the total combined voting power of all classes of our stock unless the exercise
price is at least 110% of the fair market value of the shares issuable on
exercise of the ISO, determined as of the date the ISO is granted. The plan
defines "fair market value" to mean, the final closing price as quoted on The
Nasdaq Stock Market, for so long as our shares are included for quotation on
Nasdaq; otherwise, if our shares are listed on an established stock exchange,
the closing price on the relevant market or, if there is no closing price, the
mean between the highest bid and lowest ask price. If our shares are not listed
on an exchange or included on Nasdaq, the committee will determine the fair
market value.
22
Limitation on Value of ISOS Granted to Individual
ISOs granted under the plan are subject to the restriction that the total
fair market value, determined as of the date of grant, of the shares of common
stock underlying ISOs awarded under the plan, plus the shares of common stock
underlying stock options awarded under any other stock option plans we maintain
that satisfy the requirements of Section 422 of the Code, which first become
exercisable by a participant in any calendar year cannot exceed $100,000.
Transferability of Options
In general, options granted under the plan will be transferable only by
will or the laws of descent and distribution.
Vesting of Restricted Shares
Restricted shares issued to an employee under the plan will vest as
determined in the relevant grant agreement. The committee may waive the vesting
requirement with regard to any grant of restricted shares.
Restrictions on Transfer of Restricted Shares
Shares issued to employees under the 2003 Long-Term Incentive Plan are
transferable as determined in the relevant grant agreement. The committee has
the ability to permit a transfer before the expiration of the period specified
in the agreement in its sole discretion.
Change in Control
The plan provides that unless otherwise provided in the applicable award
agreement at the time of grant, on the effective date of termination of
employment of an employee of ours "without cause," as defined in the relevant
option agreement, within one year following a "change in control," all
time-based options granted under the plan will vest in full and become
immediately exercisable, any restrictions imposed on restricted shares will
lapse, and the maximum payout opportunities attainable under all other
time-based stock-based awards will be deemed to have been fully earned. To the
extent the awards are performance based, then in the year following a change in
control if the employee's employment is terminated without cause, the employee
will be entitled to vest as to that percentage of the performance-based award
that would have been earned based upon the assumption that the annualized rate
of performance for all completed quarters in that year had been achieved, with
the award being that level of achievement multiplied by the percentage of four
calendar quarters that were completed in that year prior to termination of
employment. Payments in the event of discharge without cause in one year
following a change in control may be made in cash or in common stock. If a
change in control occurs, but the employee is not terminated within one year,
the vesting provisions associated with each option will not accelerate.
Under the plan a "change in control" occurs in the following circumstances:
o When any individual, entity or group becomes the beneficial owner of
over 50% of either our outstanding common stock or the combined voting
power of our outstanding voting securities entitled to vote generally
in the election of directors, or "voting power," unless the shares or
voting power are acquired directly from us, or acquired by us, our
subsidiaries, an employee benefit plan sponsored or maintained by us
or our subsidiaries, or an underwriter temporarily holding securities
in connection with an offering. Any acquisition as part of a merger or
similar transaction that would not result in a change of control under
paragraph 3 below also will not be considered a change of control;
o Upon completion of a merger, consolidation, asset sale, stock
acquisition or similar transaction involving us or our subsidiaries
unless, immediately following the business combination, substantially
all of persons who were the beneficial owners of our outstanding stock
or voting power, beneficially own 50% or more of the outstanding
shares and the total voting power of the surviving corporation, in
substantially the same proportion as their ownership, immediately
before the business combination, of our outstanding common stock or
total voting power; no person, other than an employee benefit plan
sponsored by the surviving corporation, is the beneficial owner of 50%
or more of the outstanding shares of common stock and the total voting
power of the surviving corporation; or
o Upon approval by our stockholders of our complete liquidation or
dissolution.
23
Notwithstanding the above, a change in control will not be deemed to occur
with respect to a particular participant if the acquisition of the 50% or
greater interest referred to above is by a group, acting in concert, that
includes the participant or if at least 40% of the outstanding common stock or
combined voting power of the surviving corporation is beneficially owned,
immediately after the transaction, by a group, acting in concert, that includes
the participant.
Anti-dilution Adjustments
The committee may make adjustments to the plan that it considers
appropriate to account for stock dividends, stock splits, mergers,
consolidations and similar transactions.
Amendment and Termination of the Plan
The plan has a ten-year term, unless it is terminated earlier by our board.
The board may amend the plan and may amend awards granted under the plan, but no
amendment may be made without stockholder approval if it would:
o increase the number of shares available for issuance under the plan,
except in connection with an anti- dilution adjustment;
o cause the plan to fail to comply with SEC Rule 16b-3;
o materially modify the plan's eligibility requirements; or
o have the effect of creating a right which could not have been granted
in the first instance without stockholder approval.
The board may terminate the plan at any time; awards in place as of the
date of termination of the plan will survive its termination.
New Plan Benefits Under the Long-Term Incentive Plan
No outstanding award under the 2003 Long-Term Incentive Plan is subject to
stockholder approval of the plan. Future awards under the plan cannot be
determined at this time. However, we have hired certain key employees with the
undertaking to cause stock-based awards to be provided in 2003 with the
intention that such awards, as well as additional awards to other existing
employees of ours, will be granted in 2003 under the plan, assuming its approval
by stockholders.
Federal Tax Aspects
This subsection summarizes the general federal income tax consequences to
U.S. taxpayers and to us of awards of restricted shares, options or other
equity-based awards under our 2003 Long-Term Incentive Plan. The tax
consequences for any particular individual may be different.
ISOs. Generally, a participant in the plan will not realize taxable
compensation income at the time an ISO is granted or exercised. However, except
in the event of death, if an ISO is exercised more than three months or, in the
case of termination as a result of permanent and total disability, more than one
year, following the participant's termination of employment, i.e., a
"disqualifying exercise," the participant will be treated as receiving
compensation and will recognize ordinary income in an amount equal to the excess
of the fair market value of the shares on the date of exercise over the option
exercise price. In addition, the excess of the fair market value of the shares
received upon exercise of the ISO over the option exercise price is potentially
subject to the alternative minimum tax.
At the time that shares of common stock underlying an ISO are sold, the
excess of the sales price over the exercise price will be taxed as long-term
capital gain. If the participant has held the shares for at least one year after
exercise of the ISO and two years after the date the ISO was granted. If a
participant sells shares of common stock underlying an ISO in a disqualifying
disposition, i.e., within one year after the exercise of the ISO or within two
years after the grant of the ISO, regardless of whether the ISO is being
exercised with previously acquired shares of common stock, the participant will
be treated as receiving compensation, taxable as ordinary income, in the year of
the disqualifying disposition in the amount of the excess of the option exercise
price over the lesser of the fair market value of the stock on the date of
exercise and the sales price of the stock. Any amount recognized
24
as ordinary income upon the exercise of an ISO is added to the option exercise
price in determining the participant's tax basis in the shares sold, and the
participant will recognize short-term or long-term capital gain, as applicable,
on the amount of the excess, if any, of the amount realized on sale and the
participant's adjusted tax basis in the shares sold. In addition, in these
circumstances, there may be an adjustment in the calculation of the
participant's alternative minimum tax.
We are generally not entitled to a deduction as a result of the grant or
exercise of an ISO. However, if the participant recognizes ordinary income as a
result of a disqualifying exercise or disposition, we are entitled to a
deduction of an equivalent amount in the year in which the disqualifying
exercise or disposition occurs, subject to the deduction limitations under
Section 162(m) of the Code. The ISOs are designed to qualify for the
"performance-based compensation" exemption from the $1 million compensation
limit of Section 162(m) of the Code. Therefore, ordinary income recognized by a
participant on a disqualifying disposition will be exempt from the deductibility
limitations of Section 162(m) of the Code.
Nonqualified Options
Generally, a plan participant will not realize taxable income at the time a
nonqualified option is granted, nor will we be entitled to a deduction at that
time. Upon exercise of a nonqualified option, the participant generally will be
treated as receiving compensation, taxable as ordinary income, in an amount
equal to the excess of the fair market value of the shares at the time of
exercise over the option exercise price. At that time, subject to the
limitations of Section 162(m) of the Code, we normally will be entitled to a tax
deduction in an amount equal to the amount included in income by the
participant. The non-qualified options are designed to qualify for the
"performance-based compensation" exemption from the $1 million compensation
limit of Section 162(m) of the Code. Therefore, ordinary income recognized by a
participant on a exercise of the non-qualified option will be exempt from the
deductibility limitations of Section 162(m) of the Code.
Upon the sale of stock acquired upon exercise of a nonqualified option, the
excess of any amount realized upon the sale over the fair market value of the
shares at the time of exercise will be treated as a long-term or short-term
capital gain or capital loss depending on whether the stock has been held for
more than a year after exercise. If the amount realized on sale is less than the
fair market value of the shares on the exercise date, the participant will
recognize capital loss in the amount of this difference. This capital loss may
be offset only against capital gains.
Restricted Shares or Other Stock-Based Awards
We will generally be entitled to a tax deduction in connection with a share
award or other stock-based award under the plan in an amount equal to the
ordinary income realized by a participant at the time the participant recognizes
the income. The participant generally will be treated as receiving compensation,
taxable as ordinary income, at the time that the shares or other stock-based
award vests equal to the excess of the fair market value over the amount, if
any, paid for the shares on the vesting date. If, however, the shares or other
stock-based award cannot be sold without incurring liability under Section 16(b)
of the Securities Exchange Act, the vesting date will be treated as the date the
share can be sold without incurring such liability. In the alternative, if the
participant files an election with the Internal Revenue Service pursuant to
Section 83(b) of the Code within thirty days of the receipt of the shares or
other stock-based award, an amount equal to the excess of the fair market value
of the shares at the time of receipt, determined without regard to any
restrictions other than those that by their terms never lapse, over the amount
paid for the shares or other stock-based award, if any, will be taxed as
ordinary income in the year the shares are received. If the shares or other
stock-based award are later forfeited, the participant generally will recognize
a capital loss equal to the excess of the amount paid, if any, for the shares or
other stock-based award over the amount received, if any, on forfeiture.
---------------------
OUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
2003 LONG-TERM INCENTIVE PLAN.
---------------------
25
PROPOSAL FIVE
APPROVAL OF REVERSE/FORWARD SPLIT
Summary
Our board of directors has authorized, and recommends that you approve, a
1-for-100 reverse stock split of our common stock, followed immediately by a
100-for-1 forward stock split. Under the reverse split, 100 shares of common
stock registered in the name of a stockholder at the effective time of the
reverse split will be converted into one share of common stock, followed
immediately by a forward stock split under which each share of common stock
outstanding upon completion of the reverse split will be converted into 100
shares of common stock. As permitted under Delaware law, shares of common stock
that would be converted into less than one share in the reverse split will
instead be converted into the right to receive a cash payment, as described
below. We will make these cash payments from our general corporate funds. Any
shares we redeem will revert to authorized but unissued shares.
If a registered stockholder holds 100 or more shares of common stock in his
or her account at the effective time of the reverse split, he or she will not
receive cash for any fractional share in his or her account resulting from the
reverse split and the total number of shares held by the holder will not change
as a result of the reverse/ forward split. Our board of directors reserves the
right to abandon the reverse/forward split even if approved by the stockholders.
We believe that the reverse/forward split will provide holders of fewer
than 100 shares with a way to dispose of their shares without incurring
transaction costs and reduce our stockholder record keeping and mailing
expenses. In many cases, holders of fewer than 100 shares would incur brokerage
commissions or other transaction costs in an amount equal to a large percentage
of the proceeds of the sale of their shares. In the reverse/forward split, these
holders will receive cash for their shares without incurring any transaction
costs. In deciding whether to proceed with the reverse/forward split, the board
will consider factors such as:
o the prevailing trading price and trading volume for our common stock
at the time the decision is made;
o the anticipated impact of the reverse/forward split on the trading
market for our common stock;
o the availability of funds required to make the cash payments to
stockholders with small holdings whose shares are to be converted into
the right to receive cash in the reverse/forward split; and
o prevailing general market and economic conditions.
If approved and implemented, the reverse/forward split will become
effective thirty days after our annual meeting upon the filing of the necessary
amendments to our certificate of incorporation with the Secretary of State of
the State of Delaware. We refer to this as the "effective date." The forms of
the proposed amendments to our certificate of incorporation necessary to effect
the reverse/forward split are attached to this proxy statement as Appendices F
and G.
Background and Purpose of the Reverse/Forward Split
We have approximately 1,932 stockholders, including 1,121 holders of record
and 811 beneficial owners holding shares in street name. As of September 2,
2003, approximately 685 registered holders of our common stock owned fewer than
100 shares, representing approximately 61% of the total number of registered
holders of our common stock, but only 2.1% of the total number of our
outstanding shares of common stock. In addition, as of September 2, 2003,
approximately 221 stockholders holding common stock in street name through a
nominee, such as a bank or broker-dealer, owned fewer than 100 shares of our
common stock, representing approximately 27% of the total number of street name
stockholders, but only .21% of the total number of outstanding shares of our
common stock held by street name stockholders. This large number of stockholders
is the result primarily of our origins predating the development of our hotel
business, when we were a public shell with a large number of small stockholders,
with relatively minor amounts of invested cash. Over time, others invested in
our stock in larger blocks.
26
The cost of administering each stockholder's account, whether registered or
in street name, is the same regardless of the number of shares held in the
account. We estimate that if we complete the reverse/forward split we will
reduce the total cost of administering stockholder accounts by at least 50% of
our total costs, or approximately $25,000 per year. Although difficult to
quantify, we anticipate that the reverse/forward split will result in additional
savings by allowing us to allocate the time of various administrative personnel
currently devoted to administering stockholder accounts to operational matters,
and may eliminate the need for us to hire additional administrative staff.
Effect on Stockholders
If approved and implemented, the reverse/forward split will have no effect
on stockholders owning 100 or more shares of common stock. The shares of
registered stockholders holding fewer than 100 shares of common stock will be
converted into the right to receive cash equal to the average official closing
price of our common stock on The Nasdaq National Market over the thirty trading
days immediately preceding the effective date.
We intend to treat stockholders holding common stock in street name through
a nominee, such as a bank or broker-dealer, in the same manner as stockholders
whose shares are registered in their names. We will instruct all nominees to
effect the reverse/forward split for their beneficial holders. These nominees
may, however, have different procedures for effecting the splits. Thus,
stockholders holding shares in street name should contact their nominees.
If stockholders holding fewer than 100 shares do not want to dispose of
their holdings of common stock, they may purchase additional shares on the open
market before the effective date of the reverse/forward stock split or, if
applicable, consolidate their accounts into an account with at least 100 shares
of common stock. Consolidation of accounts could take a substantial amount of
time, particularly if accounts are held at different financial institutions.
Even if a stockholder initiates the consolidation of his or her accounts
substantially in advance of the effective date, there is no assurance that the
accounts will be consolidated by the effective date or, even if they are
consolidated, that the financial institution holding the consolidated account
will provide notice to the transfer agent by the effective date. If the transfer
agent does not receive notice of the consolidation of accounts holding fewer
than 100 shares by the effective date, whether or not the accounts are
consolidated by this date, a stockholder will receive a cash payment with
respect to the shares in any account that held less than 100 shares before the
consolidation.
Structure of the Reverse/Forward Split
The reverse/forward split includes both a reverse stock split and a forward
stock split of our common stock. If the reverse/forward split is approved by
stockholders and implemented by our board, the reverse split is expected to
occur at 5:00 p.m. central time on the effective date and the forward split is
expected to occur at 5:01 p.m. central time on the effective date. Upon
completing the reverse split, each registered stockholder on the effective date
will receive one share of common stock for each 100 shares of common stock held
in the holder's account. If the holder owns 100 or more shares on the effective
date of the reverse split, any fractional shares resulting from the reverse
split in the account will not be cashed out.
Any stockholder holding fewer than 100 shares of common stock at the time
of the reverse split will receive a cash payment instead of fractional shares.
This cash payment will be determined based on the average official closing price
of our stock on The Nasdaq National Market over the thirty trading days
immediately preceding the effective date. On days that our stock does not trade,
if any, the official closing price will be the same as the official closing
price of the previous day. Immediately following the reverse split, all
stockholders who have not received cash for their shares will receive 100 shares
of common stock for every one share of common stock they held following the
reverse split.
The following examples illustrate the reverse/forward split for
hypothetical stockholders, assuming the cash-out price is $3.25 per share.
27
Mr. Howard is the registered owner of 55 shares. Mr. Howard's shares would be converted into the right
to receive $178.75 in cash. If Mr. Howard wants to
continue his investment in us, he can, prior to the
effective date, buy at least 45 more shares of our
common stock. Mr. Howard would have to act far
enough in advance of the reverse/forward split so that
the purchase is completed and the additional shares are
credited in his account prior to 5:00 p.m. central time,
on the effective date.
Mr. Hardy has two separate record accounts. As of the Mr. Hardy will receive cash payments equal to the
effective date, he holds 55 shares of common stock in cash-out price of his common stock in each record
one account and 50 shares of common stock in the account instead of receiving fractional shares.
other. All of his shares are registered in his name. Mr. Hardy would receive two checks totaling $341.25.
If Mr. Hardy wants to continue his investment in us, he
can consolidate or transfer his two record accounts prior
to 5:00 p.m. central time on the effective date into an
account with at least 100 shares of common stock.
Alternatively, he can buy at least 45 more shares for the
first account and 50 more shares for the second account.
He would have to act far enough in advance of the
reverse/forward split so that the consolidation or the
purchase is completed by 5:00 p.m. central time on the
effective date. Even if he does consolidate these
accounts, there is no assurance that accounts will be
consolidated by the effective date or, even if they are
consolidated, that the financial institution holding the
consolidated account will provide timely notice to the
transfer agent. If the transfer agent does not receive
timely notice, Mr. Hardy will receive a cash payment of
$341.25 and will not retain his shares.
Mr. Rice holds 125 shares of common stock as of the After the reverse/forward split, Mr. Rice will continue
effective date. to hold all 125 shares of common stock.
Mr. Holocek holds 55 shares of common stock in We intend for the reverse/forward split to treat
street name. stockholders holding common stock in street name
through a nominee, such as a bank or broker-dealer, in
the same manner as stockholders whose shares are
registered in their names. Nominees will be instructed to
effect the reverse/forward split for their beneficial
holders. Nominees may, however, have different procedures
and stockholders holding common stock in street name
should contact their nominees.
Effect of the Reverse/Forward Split on Our Stockholders
Stockholders with Fewer than 100 Shares of Common Stock. If you are a
stockholder holding fewer than 100 shares of common stock immediately before the
reverse split:
o You will receive a cash payment for your shares.
o After the reverse split, you will have no further interest in us
except the right to receive payment for your shares. Your shares will
be treated as having been redeemed and will not be treated as
outstanding for any other purpose. Thus, you will have no right to
vote as a stockholder or share in our assets, earnings, or
28
profits or in any dividends paid after the reverse split. In addition,
we will not pay any interest for the time between the effective date
and the date you receive payment.
o You will not have to pay any service charges or brokerage commissions.
o As soon as practicable after the time we effect the reverse/forward
split, you will receive a payment for the cashed-out shares you held
immediately prior to the reverse split in accordance with the
procedures described below.
Holders of Book-Entry Shares: If you are receiving cash for
registered shares in a book-entry account, you do not need to
take any action to receive your cash payment. A check will be
mailed to you at your registered address as soon as practicable
after the effective date. Signing and cashing this check will
constitute a representation on your part that you owned the
shares in question.
If You Hold Certificated Shares: If you are receiving cash for
your shares and hold a stock certificate representing the shares,
you will receive a transmittal letter as soon as practicable
after the effective date. The letter of transmittal will contain
instructions on how to surrender your certificate(s) to our
transfer agent, Affiliated Stock Transfer Company, for your cash
payment. You will not receive your cash payment until you
surrender your outstanding certificate(s), together with a
completed and executed copy of the letter of transmittal. Please
do not send your certificates until you receive your letter of
transmittal. For further information, see "Stock Certificates"
below.
o You will be subject to tax to the extent the cash you receive exceeds
your adjusted tax basis in the shares.
o All amounts owed to you will be subject to state abandoned property
laws.
If you want to continue to hold common stock after the reverse/forward
split, you may do so by taking either of the following actions far enough in
advance so that it is completed by the effective date:
1. Purchase a sufficient number of shares of common stock on the open
market so that you hold at least 100 shares of common stock in your
account prior to the reverse split; or
2. If applicable, consolidate your accounts so that you hold at least 100
shares of common stock in one account before the reverse split.
If you attempt to consolidate your accounts by the effective date, there is
no assurance that the consolidation will be completed by the effective date or,
even if it is completed, that the financial institution holding the consolidated
account will provide notice of the consolidation to the transfer agent by the
effective date. If the transfer agent does not receive notice that your accounts
have been consolidated by the effective date, whether or not your accounts are
consolidated by this date, you will receive a cash payment and will not retain
your shares
Stockholders with 100 or More Shares of Common Stock. If you are a
registered stockholder with 100 or more shares of common stock as of 5:00 p.m.
on the effective date, we will first reclassify your shares into one
one-hundredth of the number of shares you held immediately before the reverse
split. One minute after the reverse split, at 5:01 p.m., we will reclassify your
shares in the forward split into 100 times the number of shares you held after
the reverse split, which will result in your holding the same number of shares
you held before the reverse split. As a result, the reverse/forward split will
not affect the number of shares that you own. To illustrate, if you held 150
shares of common stock in your account immediately before the reverse split,
your shares would be converted into 1.5 shares in the reverse split and then
back to 150 shares in the forward split.
Current and Former Employees and Directors:
If you are a current or former employee or a director, you may own
restricted shares of our common stock or hold options to purchase our common
stock through our stock plans. With respect to restricted shares of our common
stock, you will be treated in the same manner as other stockholders. If you hold
options to purchase less than 100 shares, you will not receive a cash payment
for these options. The reverse/forward split will not affect the number of
shares issuable upon the exercise of these options.
29
Determination of Cash-Out Price
In order to avoid the expense and inconvenience of issuing fractional
shares to stockholders who hold less than one share of common stock after the
reverse split, under Delaware state law we are required to pay you "fair value"
for any fractional shares that we decide to redeem. If stockholders approve the
proposal at the annual meeting and the reverse/forward split is completed, our
board of directors has decided to pay cash for the fractional shares based on
the average official closing price of the common stock on The Nasdaq National
Market over the thirty trading days immediately preceding the effective date.
The average official closing price over these thirty trading days will be used
even if our stock does not trade on one or more of the days. On days that our
stock does not trade, if any, the official closing price will be the same as the
official closing price of the previous day. Our board believes that the closing
prices over a period of thirty trading days best approximates "fair value." The
board does not intend to obtain any appraisals or fairness opinions in
connection with the reverse/forward split.
Effect of the Reverse/Forward Split
The reverse/forward split will not affect the registration of the common
stock with the SEC under the Securities Exchange Act of 1934, as amended.
Similarly, we do not expect that the reverse/forward split will affect the
continued inclusion of the common stock in The Nasdaq Stock Market. The par
value of our common stock will remain at $.005 per share after the
reverse/forward split.
The number of authorized shares of common stock will not change as a result
of the reverse/forward split. On September 2, 2003, there were 4,997,788 shares
of common stock issued and outstanding.
The total number of shares that will be cashed-out and the total cash to be
paid by us will not be determined until after the effective date. By way of
example, if the reverse/forward split had been completed as of September 2,
2003, when the average official closing price per share of our common stock on
The Nasdaq National Market for the previous thirty trading days was $3.32, and
assuming 35,365 share were redeemed, we would have made cash payments for these
redeemed shares totaling $117,412. The trading days used to calculate the
average price of $3.32 would have included four days on which our stock did not
trade. The actual amounts will depend on the number of fractional shares
redeemed on the effective date.
Stock Certificates
The reverse/forward split will not affect any certificates representing
shares of common stock held by registered stockholders owning 100 or more shares
immediately before the reverse split. Existing certificates held by any of these
stockholders will continue to evidence ownership of the same number of shares as
set forth on the face of the certificate.
Potential Anti-Takeover Effect
The reverse/forward split is not being proposed in response to any effort
to accumulate shares of our common stock or obtain control, nor is it part of a
plan by management to recommend to the board of directors and stockholders a
series of amendments to our certificate of incorporation that could be construed
to affect the ability of third parties to take over or gain control.
Regulatory Requirements
We do not believe that the reverse/forward split will require the approval
of any government agency. Our board of directors has not recommended the
reverse/forward split as the first step in a "going-private" transaction.
Certain Federal Income Tax Consequences
General Information. We have summarized below certain federal income tax
consequences to us and our stockholders resulting from the reverse/forward
split. This summary is based on U.S. federal income tax law existing as of the
date of this proxy statement. These laws may change, even retroactively. This
summary does not discuss all aspects of federal income taxation that may be
important to you in light of your individual circumstances. Many stockholders,
such as financial institutions, insurance companies, broker-dealers, tax-exempt
organizations, and
30
foreign persons, may be subject to special tax rules. Other stockholders may
also be subject to special tax rules, including stockholders who received common
stock as compensation for services or pursuant to the exercise of an employee
stock option. In addition, this summary does not discuss any state, local,
foreign, or other tax considerations. This summary assumes that you are a U.S.
citizen and have held, and will hold, your shares as capital assets under the
Code. You should consult your tax advisor as to the particular federal, state,
local, foreign, and other tax consequences, in light of your specific
circumstances.
We believe that the reverse/forward split will be treated as a tax-free
"recapitalization" for federal income tax purposes.
Federal Income Tax Consequences to Stockholders Who Retain All Shares of
Their Stock. If you continue to hold common stock immediately after the
reverse/forward split, and receive no cash as a result of the reverse/ forward
split, you will not recognize any gain or loss in the reverse/forward split and
you will have the same adjusted tax basis and holding period in your common
stock as you had in the stock immediately before the reverse/ forward split.
Federal Income Tax Consequences to Cashed-Out Stockholders. The federal
income tax consequences to cashed-out stockholders will depend in part on
whether, in addition to receiving cash, you or a person or entity related to you
continues to hold common stock immediately after the reverse/forward split. The
tax consequences of these alternatives are discussed below.
o If you receive cash in exchange for a fractional share as a result of
the reverse/forward split, do not continue to hold any common stock
immediately after the reverse/forward split, and are not related to
any person or entity which holds common stock immediately after the
reverse/forward split, you will recognize capital gain or loss in an
amount equal to the difference between the cash you receive for your
stock and your aggregate adjusted tax basis in the stock.
o If you are related to a person or entity who continues to hold common
stock immediately after the reverse/ forward split, you will recognize
gain in the same manner as set forth in the previous paragraph,
provided that your receipt of cash either is "not essentially
equivalent to a dividend," or is a "substantially disproportionate
redemption of stock," as described below.
o Not Essentially Equivalent to a Dividend. You will satisfy the
"not essentially equivalent to a dividend" test if the reduction
in your proportionate interest in us resulting from the
reverse/forward split is considered a "meaningful reduction"
given your particular facts and circumstances. The Internal
Revenue Service has ruled that a small reduction by a minority
stockholder whose relative stock interest is minimal and who
exercises no control over the affairs of the corporation will
meet this test.
o Substantially Disproportionate Redemption of Stock. The receipt
of cash in the reverse/forward split will be a "substantially
disproportionate redemption of stock" for you if the percentage
of the outstanding shares of common stock owned by you
immediately after the reverse/forward split is less than 80% of
the percentage of shares of common stock owned by you immediately
before the reverse/forward split.
In applying these tests, you will be treated as owning shares actually or
constructively owned by certain individuals and entities related to you. If the
taxable amount is not treated as capital gain under any of the tests, it will be
treated first as ordinary dividend income to the extent of your ratable share of
our undistributed earnings and profits, then as a tax-free return of capital to
the extent of your aggregate adjusted tax basis in your shares, and any
remaining gain will be treated as capital gain.
If you both receive cash as a result of the reverse/forward split and
continue to hold common stock immediately after the reverse/forward split, you
generally will recognize gain, but not loss, in an amount equal to the lesser of
the excess of the sum of the aggregate fair market value of your shares of
common stock plus the cash received over your adjusted tax basis in the shares,
or the amount of cash received in the reverse/forward split. In determining
whether you continue to hold common stock immediately after the reverse/forward
split, you will be treated as owning shares actually or constructively owned by
certain individuals and entities related to you. Your aggregate adjusted tax
basis in your shares of common stock held immediately after the reverse/forward
split will be equal to your aggregate adjusted tax basis in your shares of
common stock held immediately prior to the reverse/forward
31
split, increased by any gain recognized in the reverse/forward split, and
decreased by the amount of cash received in the reverse/forward split.
Any gain recognized in the reverse/forward split will be treated, for
federal income tax purposes, as capital gain, provided that your receipt of cash
either is "not essentially equivalent to a dividend" with respect to you, or is
a "substantially disproportionate redemption of stock" with respect to you,
under the tests described above. In applying these tests, you may possibly take
into account sales of shares of common stock that occur substantially
contemporaneously with the reverse/forward split. If your gain is not treated as
capital gain under any of these tests, the gain will be treated as ordinary
dividend income to you to the extent of your ratable share of our undistributed
earnings and profits, then as a tax-free return of capital to the extent of your
aggregate adjusted tax basis in your shares, and any remaining gain will be
treated as a capital gain.
You should consult your tax advisor as to the particular federal, state,
local, foreign, and other tax consequences of the reverse/forward split, in
light of your specific circumstances.
Appraisal Rights
Stockholders do not have appraisal rights under Delaware state law or under
our certificate of incorporation or by-laws in connection with the
reverse/forward split.
Reservation of Rights
We reserve the right to abandon the reverse/forward split without further
action by our stockholders at any time before the filing of the necessary
amendments to our certificate of incorporation with the Secretary of State of
the State of Delaware, even if the reverse/forward split has been authorized by
our stockholders at the annual meeting.
---------------------
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE AMENDMENT OF OUR CERTIFICATE OF INCORPORATION TO EFFECT
A REVERSE/FORWARD STOCK SPLIT.
---------------------
32
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change in
the cumulative total stockholder return on our common stock against the
cumulative total return of the Nasdaq U.S. index and the Nasdaq Non-Financial
index for the period beginning December 31, 1997 and ending December 31, 2002.
All return figures assume that dividends are reinvested.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG ARLINGTON HOSPITALITY, INC.
NASDAQ MARKET INDEX AND NASDAQ NON-FINANCIAL INDEX
[REPRESENTATION OF LINE CHART]
ASSUMES $100 INVESTED ON DEC 31, 1997
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2002
Date 12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
- ---- -------- -------- -------- -------- -------- --------
Arlington Hospitality, Inc. .......... 100.000 66.30 58.70 54.35 36.35 60.17
Nasdaq US ............................ 100.000 141.04 248.76 156.35 124.64 86.94
Nasdaq Non-Financial ................. 100.000 162.61 316.32 191.42 147.18 100.73
Assumes $100 invested on December 31, 1997 in the Common Stock of
Arlington Hospitality, Inc. and The Nasdaq Stock Market and the Nasdaq
Non-Financial Stocks. Assumes reinvestment of dividends.
33
CERTAIN TRANSACTIONS
Dr. Dayan, one of our directors, and parties related to him, have invested
approximately $3.1 million in seven joint ventures with us since 1988 on the
same terms as all other investors in the joint ventures. In three joint
ventures, we guaranteed minimum annual distributions to the partners equal to
10% of their original capital contribution. We also granted these partners the
right to convert their joint venture interests into shares of our common stock,
under certain conditions. As of January 1, 2002 two of these joint ventures
remained in existence, and since that date we have purchased the limited
partners' interests in these two joint ventures at prices previously agreed to
in September 2000 in connection with their approval of the sale of the AmeriHost
Inn brand and franchising rights to Cendant Corporation. We acquired the limited
partners' interests in one of the joint ventures in May 2002 for $815,000. In
connection with the other joint venture, we paid the limited partners a total of
$25,000 in January 2003 to extend the deadline for acquiring the limited
partners' interests. We then acquired the limited partners' interests in this
joint venture for $830,000 in September 2003. The underlying hotels for both of
these joint ventures have since been sold. As of the date of this proxy
statement Dr. Dayan and related parties are no longer investors in any joint
venture in which we participate.
Dr. Dayan is also the owner and chairman of the board of directors of the
company that owns Pan American Bank. In the past this bank has provided mortgage
financing to us and joint ventures in which we were a partner. Since January 1,
2002, we or our affiliates have repaid all remaining loans from Pan American
Bank, totaling $1.7 million, with proceeds from the sales of the two hotels
securing these loans. Since the final repayment, we have not entered into any
transactions with Pan American Bank, and we do not intend to transact any future
business with Pan American Bank so long as Dr. Dayan continues to serve as a
director and is affiliated with Pan American Bank.
Mr. Romano is an executive officer of Bridgeview Bank & Trust. This bank
provided us with a $7.5 million operating line-of-credit until February 19,
2002, when we transferred the line-of-credit to another lender. We formerly
maintained several demand deposit accounts at Bridgeview Bank & Trust, but by
December 31, 2002 had transferred all of these accounts to the bank which is now
providing our line of credit. Since December 31, 2002 we have not entered into
any transactions with Bridgeview Bank & Trust and we do not intend to transact
any future business with Bridgeview Bank & Trust for so long as Mr. Romano
continues to serve as a director and is affiliated with Bridgeview Bank & Trust.
Pursuant to separation agreements with Michael Holtz, our former president
and chief executive officer, we sold two AmeriHost Inn hotels to entities
controlled by Mr. Holtz on December 12, 2002. The agreements required, as a
condition precedent to closing, that we be released from existing mortgage
liabilities and that the hotels be sold for no less than appraised value as
determined by an independent third party appraiser. In addition, the sale
agreements provided that in the event of a resale or refinancing of either hotel
within five years of the closing at a value above certain specified levels, we
would participate in a portion of the subsequent refinancing or sale proceeds.
The two hotels sold were located in Vicksburg, Mississippi and in Freeport,
Illinois. Both of these hotels are AmeriHost Inn hotels, and as the result of
these sales, we therefore received total incentive payments under our existing
agreements with Cendant Corporation, including affiliates, in an amount greater
than the severance payments made to Mr. Holtz under the separation agreements,
and we will collect royalty payments from Cendant Corporation for as long as
these hotels remain AmeriHost Inn hotels, subject to the outside date for the
Cendant agreements. Mr. Holtz's affiliated purchasers have entered into separate
franchise agreements for each of the hotels with Cendant Corporation and are
obligated to make additional payments to us from a portion of sale or
refinancing proceeds within five years following closing if certain cash levels
are achieved.
In June, 2003, we reimbursed members of the "Committee to Enhance
Shareholder Value," for out-of-pocket expenses paid by the committee to third
parties in connection with the successful election of Messrs. Fell and Belmonte
to our board of directors at our 2002 annual meeting. The total amount
reimbursed was approximately $64,000. Messrs. Fell and Belmonte, as members of
the committee prior to its dissolution, each received their pro-rata share of
this reimbursement.
34
PRINCIPAL STOCKHOLDERS
Beneficial Ownership Table
The following table sets forth certain information regarding beneficial
ownership of our common stock as of September 2, 2003, by:
o each person who is known by us to own beneficially more than 5% of our
common stock;
o each of our directors;
o each of the executive officers for whom we have provided compensation
information under the heading "PROPOSAL ONE -- ELECTION OF DIRECTORS
-- Executive Compensation" above; and
o all directors and executive officers as a group.
A person is deemed to be the beneficial owner of securities that they can
acquire within 60 days from September 2, 2003 upon the exercise of warrants or
options. Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person, but not those held by any
other person, and which are exercisable within 60 days from September 2, 2003
have been exercised. Unless otherwise indicated, we believe that all persons
named in this table have sole voting and investment power with respect to all
shares of common stock beneficially owned by them. Common stock beneficially
owned is based on 4,997,788 shares of common stock outstanding on September 2,
2003.
Shares Beneficially Owned
Name As of September 2, 2003 Percent
- ---- ------------------------- -------
Wellington Management Company ............................... 565,000 (1) 11.31%
Kenneth M. Fell ............................................. 498,200 (2) 9.97%
Lawndale Capital Management LLC ............................. 488,700 (3) 9.78%
Andrew E. Shapiro ........................................... 488,700 (3) 9.78%
Michael P. Holtz ............................................ 470,000 (4) 8.60%
H. Andrew Torchia ........................................... 426,032 (5) 8.28%
Dimensional Fund Advisors, Inc. ............................. 395,500 (6) 7.91%
Richard A. D'Onofrio ........................................ 338,519 (7) 6.58%
Salomon J. Dayan ............................................ 304,812 (8) 6.01%
Raymond and Liliane R. Dayan ................................ 269,314 (9) 5.32%
James B. Dale ............................................... 88,775 (10) 1.75%
Richard Gerhart ............................................. 66,500 (11) 1.31%
Jerry H. Herman ............................................. 40,000 (12) *
Stephen Miller .............................................. 25,000 (13) *
Thomas J. Romano ............................................ 20,500 (14) *
Steven J. Belmonte .......................................... 15,968 (15) *
Gerald T. LaFlamme .......................................... 2,480 (16) *
All Directors and Executive Officers as a Group (10 Persons) 1,549,935 23.67%
- ------------
* Less than 1%.
(1) Based upon information provided in its Schedule 13G dated December 31,
2002, Wellington Management Company, in its capacity as investment advisor,
may be deemed the beneficial owner of 565,000 shares of our common stock
which are owned by numerous investment counseling clients. Of the shares
shown above, Wellington Management has shared voting power for 565,000
shares and shared investment power for 565,000 shares. The address of
Wellington Management is 75 State Street, Boston, Massachusetts 02109.
(2) Includes 207,170 shares held by KF, Inc. Profit Sharing Plan; 199,430
shares held by Kenneth M. Fell Trust; 88,100 shares held by Mr. Fell's IRA;
2,500 shares held by Mr. Fell's wife, Margaret A. Fell, IRA; and options to
purchase 1,000 shares of our common stock. Mr. Fell disclaims beneficial
ownership of the 2,500 shares held in his wife's IRA. Mr. Fell's address is
30 South Wacker Drive, Suite 1003, Chicago, Illinois 60606.
(3) Includes 426,200 shares beneficially held by Diamond A. Partners, L.P. and
62,500 shares held by Diamond A. Investors, L.P. Mr. Shapiro is managing
member of Lawndale Capital Management, LLC, the general
35
partner and investment advisor to these partnerships. Lawndale Capital
Management has only a pro-rata pecuniary interest in the securities with
respect to which indirect beneficial ownership is reported and disclaims
beneficial ownership in these securities, except to the extent of its
pecuniary interest. Mr. Shapiro disclaims beneficial ownership of these
shares. Both Lawndale Capital Management and Mr. Shapiro disclaim
membership in any group in connection with the ownership of these
securities. The address for each of Mr. Shapiro, Lawndale Capital
Management LLC, Diamond A. Partners, L.P. and Diamond A. Investors, L.P.
address is 591 Redwood Highway, Suite 2345, Mill Valley, California 94941.
(4) Based on information filed on Form 4 dated December 11, 2002 and
information we have received on sales of shares by Mr. Holtz since that
date. Consists of 470,000 shares issuable upon the exercise of options. Mr.
Holtz's address is 490 East Route 22, North Barrington, Illinois 60010.
(5) Based upon information provided in a 13D/A joint filing dated January 13,
2003. Consists of 80,443 shares owned directly by Mr. Torchia and 150,000
shares issuable upon the exercise of options held by Mr. Torchia. In
addition, includes 195,589 of the 383,508 shares owned by Urban 2000 Corp.
Mr. Torchia is the 51% stockholder of Urban 2000 Corp. and disclaims
beneficial ownership of all but these 195,589 shares. The address of Urban
2000 Corp. is 10300 West Higgins Road, Suite 105, Rosemont, Illinois 60018.
(6) Based upon information provided in its Schedule 13G dated December 31,
2002, Dimensional Fund Advisors, Inc., in its capacity as investment
advisor, may be deemed beneficial owner of 395,500 shares of our common
stock which are owned by numerous investment counseling clients. DFA has
sole voting and investment power for all 395,500 shares. The address of DFA
is 1299 Ocean Avenue, Santa Monica, California 90401.
(7) Based upon information provided in a 13D/A joint filing dated January 13,
2003. Consists of 600 shares owned directly by Mr. D'Onofrio and 150,000
options owned by Mr. D'Onofrio which currently are exercisable. In
addition, includes 187,919 of the 383,508 shares owned by Urban 2000 Corp.
Mr. D'Onofrio is the 49% stockholder of Urban 2000 Corp. and disclaims
beneficial ownership of all but these 187,919 shares. The address of Urban
2000 Corp. is 10300 West Higgins Road, Suite 105, Rosemont, Illinois 60018.
(8) Consists of 228,812 shares held by the Salomon J. Dayan UTD 11/08/78, and
4,000 shares held by Dr. Dayan. Also includes 72,000 shares issuable upon
the exercise of options. Dr. Dayan is the brother of Raymond Dayan, whose
beneficial ownership of our shares is also reflected in the above table.
Dr. Dayan's address is 2627 West Cermak Road, Chicago, Illinois 60608.
(9) Consists of 206,814 shares owned by trusts for which Liliane Dayan acts as
trustee, and 62,500 shares issuable upon the exercise of options held by
these trusts. Mrs. Dayan has sole voting and investment power for all
269,314 shares. Mr. Dayan is the brother of Dr. Salomon Dayan, who is one
of our directors and whose beneficial ownership of our shares is also
reflected in the above table. The address of Mr. and Mrs. Dayan is c/o
Michael Best & Friedrich LLP, 401 N. Michigan Ave., Suite 1900, Chicago,
Illinois 60611.
(10) Consists of 1,275 shares held directly, and 87,500 shares issuable upon the
exercise of options. Does not include 750 shares of restricted stock to be
issued to Mr. Dale in September 2003 as part of his bonus for 2002.
(11) Consists of 2,500 restricted shares held directly, and 64,000 shares
issuable upon the exercise of options. Mr. Gerhart became an executive
officer of ours in August 2003, and is therefore not included in the
compensation table appearing elsewhere in this proxy statement. Does not
include 971 shares of restricted stock to be issued to Mr. Gerhart in
September 2003 as part of his bonus for 2002.
(12) Consists of 40,000 shares of restricted stock.
(13) Consists of 25,000 restricted shares issuable upon the exercise of an
option. Mr. Miller became an executive officer of ours in August 2003, and
is therefore not included in the compensation table appearing elsewhere in
this proxy statement.
(14) Consists of 10,000 shares held directly and 5,000 shares held by Ashley E.
Romano UGTMA, for which Mr. Romano acts as custodian. Also includes 5,500
shares issuable upon the exercise of options.
(15) Consists of 14,968 shares held directly, and 1,000 shares issuable upon the
exercise of options.
(16) Consists of 1,480 shares held by the 1988 LaFlamme Family Trust dated
January 14, 1988, and 1,000 shares issuable upon the exercise of options.
36
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and executive officers, and persons who own more than 10% of the registered
class of our equity securities, to file with the Securities and Exchange
Commission and The Nasdaq Stock Market initial reports of ownership and reports
of changes in ownership of our common stock and other equity securities. These
persons are required by Securities and Exchange Commission regulation to furnish
us with copies of all Section 16(a) forms they file.
We believe, based solely on our review of the copies of the above reports
furnished to us and written representations to us that no other reports were
required, that all the above Section 16(a) filing requirements were complied
with during the fiscal year ended December 31, 2002.
STOCKHOLDER PROPOSALS
From time to time, stockholders present proposals which may be proper
subjects for inclusion in the proxy statement and for consideration at the
annual meeting. To be considered, proposals must be submitted on a timely basis.
Proposals for the 2004 stockholders' meeting must be received by us not later
than June 1, 2004. Any such proposals, as well as any questions related thereto,
should be directed to our Secretary.
OTHER MATTERS
Our management knows of no other business likely to be brought before the
meeting. If other matters do come before the meeting, the persons named in the
form of proxy or their substitute will vote the proxy according to their best
judgment.
"HOUSEHOLDING" OF PROXY MATERIALS
In accordance with the notices we sent to stockholders of record, we are
sending only one copy of our annual report and proxy statement to stockholders
who share the same last name and address, unless they notified us that they want
to continue receiving multiple copies. We understand that the brokerage
community has mailed similar notices to beneficial holders of our shares. This
practice, known as "householding," is permitted by the Securities and Exchange
Commission and is designed to reduce duplicate mailings and save printing and
postage costs as well as natural resources.
Stockholders who currently receive multiple copies of the annual report and
proxy statement at their address and would like to request "householding" of
their communications should contact their broker if they are a beneficial holder
or, if they are a stockholder of record, should contact us at 847-228-5401, ext.
330, or inform us in writing at 2355 S. Arlington Heights Road, Suite 400,
Arlington Heights, Illinois 60005. Stockholders who are "householding" their
communications, but who wish to begin to receive separate copies of the annual
report and proxy statement in the future may also notify us or their broker. We
will promptly deliver, upon written or oral request, a separate copy of the
annual report and proxy statement at a shared address to which a single copy was
delivered.
By the order of the Board of Directors
/s/ JAMES B. DALE
JAMES B. DALE
Secretary
Arlington Heights, Illinois
September 26, 2003
37
APPENDIX A
ARLINGTON HOSPITALITY, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee is appointed by the Board of Directors for the primary
purposes of:
o Assisting the Board of Directors in fulfilling its oversight
responsibilities as they relate to the Company's accounting policies
and internal controls, financial reporting practices and legal and
regulatory compliance, and
o Maintaining, through regularly scheduled meetings, a line of
communication between the Board of Directors and the Company's
financial management and independent accountants.
COMPOSITION AND QUALIFICATIONS
The Audit Committee shall be appointed by the Board of Directors and shall
be comprised of three or more Directors (as determined from time to time by the
Board), all of whom shall meet the independence requirements of the Nasdaq Stock
Market, Inc. and the Sarbanes-Oxley Act of 2002. Each member of the Audit
Committee shall have the ability to understand fundamental financial statements.
In addition, at least one member of the Audit Committee shall be a "financial
expert" as determined in compliance with the Sarbanes-Oxley Act of 2002.
RESPONSIBILITIES
The Audit Committee will:
(1) Review the annual audited financial statements with management and the
independent accountants. In connection with such review, the Audit
Committee will:
o Discuss with the independent accountants the matters required to
be discussed by Statement on Auditing Standards No. 61 relating
to the conduct of the audit.
o Review changes in accounting or auditing policies, including
resolution of any significant reporting or operational issues
affecting the financial statements.
o Inquire as to the existence and substance of any significant
accounting accruals, reserves or estimates made by management
that had or may have a material impact on the financial
statements.
o Review with the independent accountants any problems encountered
in the course of their audit, including any change in the scope
of the planned audit work and any restrictions placed on the
scope of such work, any management letter provided by the
independent accountants, and management's response to such
letter.
o Review with the independent accountants and the Chief Financial
Officer the adequacy of the Company's internal controls, and any
significant findings and recommendations.
(2) Review (by full Committee or Chair) with management and the
independent accountants the Company's quarterly financial statements
in advance of SEC filings, including the CEO and CFO certifications
and their support.
(3) Oversee the external audit coverage. The Company's independent
accountants are ultimately accountable to the Audit Committee, which
has the sole authority and responsibility to select, evaluate and,
where appropriate, replace the independent accountants. In connection
with its oversight of the external audit coverage, the Audit Committee
will:
o Recommend to the Board the appointment of the independent
accountants.
o Approve the engagement letter and the audit fees to be paid to
the independent accountants.
o Pre-approve all non-audit services and fees.
A-1
o Obtain confirmation and assurance as to the independent
accountants independence, including ensuring that they submit on
a periodic basis (not less than annually) to the Audit Committee
a formal written statement delineating all relationships between
the independent accountants and the Company. The Audit Committee
is responsible for actively engaging in a dialogue with the
independent accountants with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the independent accountants and for recommending
that the Board of Directors take appropriate action in response
to the independent accountants' report to satisfy itself of their
independence.
o Meet with the independent accountants prior to the annual audit
to discuss planning and staffing of the audit.
o Review and evaluate the performance of the independent
accountants, as the basis for a recommendation to the Board of
Directors with respect to reappointment or replacement.
o Review the auditor's report on (i) critical accounting policies
and practices, (ii) all alternative accounting treatments of
financial information within GAAP that have been discussed with
management, including the ramifications of the use of such
alternative treatments and disclosures and the treatment
preferred by the independent auditor, and (iii) other material
written communications between the independent auditor and
management such as any management letter and schedule of adjusted
differences.
o Resolve any differences on financial reporting between management
and the auditor.
(4) Review with the independent accountants and the chief financial
officer the adequacy of the Company's internal controls, and any
significant findings and recommendations with respect to such
controls.
(5) Meet periodically with management to review and assess the Company's
major financial risk exposures and the manner in which such risks are
being monitored and controlled.
(6) Meet at least annually in separate executive session with each of the
chief financial officer and the independent accountants.
(7) Review periodically with the Company's General Counsel (i) legal and
regulatory matters which may have a material affect on the financial
statements, and (ii) corporate compliance policies or codes of
conduct.
(8) Report regularly to the Board of Directors with respect to Audit
Committee activities.
(9) Prepare the report of the Audit Committee required by the rules of the
Securities and Exchange Commission to be included in the proxy
statement for each annual meeting.
(10) Establish procedures for (i) receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters, and (ii) the confidential,
anonymous submission by employees of concerns regarding questionable
accounting or auditing matters.
(11) Review and reassess annually the adequacy of this Audit Committee
Charter and recommend any proposed changes to the Board of Directors.
The Audit Committee has the authority to engage independent counsel and
other advisors as it determines necessary to carry out its duties.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent accountants. Nor is
it the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent accountants or to
assure compliance with laws and regulations and the Company's corporate
policies.
A-2
APPENDIX B
COMPENSATION COMMITTEE CHARTER
OF ARLINGTON HOSPITALITY, INC.
The Compensation Committee's responsibilities and powers as delegated by
the board of directors are set forth in this Charter. The Committee relies to a
significant extent on information and advice provided by management and
independent advisors. Whenever the Committee takes an action, it exercises its
independent judgment on an informed basis that the action is in the best
interests of the company and its stockholders.
STATUS
o The Compensation Committee (the "Committee") is a committee of the
board of directors.
PURPOSE
o As set forth herein, the Committee shall, among other things,
discharge the responsibilities of the board of directors relating to
the compensation of the corporation's CEO and other executive
officers, the administration of (except for non-employee director
plans administered by the Corporate Governance/Nominating Committee)
incentive compensation plans and equity-based plans (collectively, the
"Plans") and the production of an annual report on executive
compensation for inclusion in the company's proxy statement in
accordance with applicable rules and regulations.
MEMBERSHIP
o The Committee shall consist of at least three members of the board of
directors, as determined from time to time by the board. Each member
shall be: (i) a "non-employee director" as that term is defined for
purposes of Rule 16b-3 under the Securities Exchange Act of 1934, as
amended; (ii) an "outside director" as that term is defined for
purposes of Section 162(m) of the Internal Revenue Code, as amended;
(iii) "independent" as that term is defined by the listing standards
of the Nasdaq Stock Market, as amended from time to time; and (iv)
"independent" as that term may be defined in the company's by-laws, as
amended from time to time.
o The board of directors shall elect the members of this Committee at
the first board meeting practicable following the annual meeting of
stockholders and may make changes from time to time pursuant to the
provisions below. Unless a chair is elected by the board of directors,
the members of the Committee shall designate a chair by majority vote
of the full Committee membership.
o A Committee member may resign by delivering his or her written
resignation to the chairman of the board of directors, or may be
removed by majority vote of the board of directors by delivery to such
member of written notice of removal, to take effect at a date
specified therein, or upon delivery of such written notice to such
member if no date is specified.
MEETINGS AND COMMITTEE ACTION
o The Committee shall meet at least as often as may be required by the
corporation's by-laws, as amended from time to time, and at such times
as it deems necessary to fulfill its responsibilities. Meetings of the
Committee shall be called by the chairman of the Committee upon such
notice as is provided in the by-laws of the company with respect to
meetings of the board of directors. A majority of the members shall
constitute a quorum. Actions of the Committee may be taken in person
at a meeting or in writing without a meeting. Actions taken at a
meeting, to be valid, shall require the approval of a majority of the
members present and voting. Actions taken in writing, to be valid,
shall be signed by all members of the Committee. The actions by the
majority may be expressed either by a vote at a meeting or in writing
without a meeting. The Committee shall report its minutes from each
meeting to the board of directors.
o The chairman of the Committee shall establish such rules as may from
time to time be necessary or appropriate for the conduct of the
business of the Committee. At each meeting, the chairman shall appoint
as secretary a person who may, but need not, be a member of the
Committee or be eligible for benefits under
B-1
one or more of the Plans. A certificate of the secretary of the
Committee setting forth the names of the members of the Committee or
actions taken by the Committee shall be sufficient evidence at all
times as to the persons constituting the Committee, or such actions
taken.
DUTIES AND RESPONSIBILITIES
The Committee shall have the following duties and responsibilities:
o To assist the board in developing and evaluating potential candidates
for executive positions, including the CEO, to oversee the development
of executive succession plans and to review and approve corporate
goals and objectives relevant to the compensation for the CEO and
other executive officers.
o To evaluate the performance of the CEO and other executive officers in
light of the company's goals and objectives, set the compensation
level of the CEO and other executive officers based on this
evaluation, provided, however, that CEO compensation shall be subject
to ratification by the independent members of board of directors; and
advise the board of directors on the setting of compensation for
members of the company's management whose compensation is not
otherwise set by the Committee.
o To review and make recommendations concerning the functions of senior
officers.
o To review annually with both the chairman and chief executive officer
the job performance of elected corporate officers and other senior
executives.
o To administer the Plans established or maintained by the company from
time to time, make recommendations to the board of directors with
respect to the amendment, termination or replacement of these Plans
and review the financial performance and the operations of the Plans.
o To prepare an annual performance self-evaluation of the Committee.
POWERS AND AUTHORITY
Subject to such specific constraints as may be imposed by the board of
directors, the board of directors delegates to the Committee all powers and
authority that are necessary or appropriate to fulfill its duties and
obligations hereunder, including without limitation:
o To administer the Plans, including establishing rules it finds
necessary or appropriate for implementing or conducting the Plans.
o To grant or to approve or disapprove participation of individual
employees in Plans established and maintained by the company.
o To determine the treatment for financial statement purposes of all
awards issued under the Plan and to make any valuation determination
regarding awards issued under the Plans.
o To make all other decisions and determinations required of the
Committee by the terms of the Plans or as the Committee considers
appropriate for the operation of the Plans and the distribution of
benefits thereunder.
o To retain and terminate any professionals (such as search firms,
attorneys and compensation professionals) to assist in the evaluation,
design and documentation of CEO or senior executive compensation,
including sole authority to approve the professional's fees and other
retention terms.
o To establish subcommittees for the purpose of evaluating special or
unique matters.
REPORTING
The Committee shall prepare a statement each year concerning its compliance
with this charter for inclusion in the company's proxy statement.
APPROVED: BOARD OF DIRECTORS
DATE: September 10, 2003
B-2
APPENDIX C
CORPORATE GOVERNANCE/NOMINATING
COMMITTEE CHARTER
OF ARLINGTON HOSPITALITY, INC.
The Corporate Governance Committee's responsibilities and powers as
delegated by the board of directors are set forth in this charter. The Committee
relies to a significant extent on information and advice provided by management
and independent advisors. Whenever the Committee takes an action, it exercises
its independent judgment on an informed basis that the action is in the best
interests of the company and its stockholders.
1. STATUS
o The Corporate Governance/Nominating Committee (the "Committee") is a
committee of the board of directors.
2. PURPOSE
o As set forth herein, the Committee shall, among other things,
discharge the responsibilities of the board of directors relating to
the appropriate size, functioning and needs of the board including,
but not limited to, recruitment and retention of high quality board
members, committee composition and structure, board assessment and
related party and conflicts oversight.
3. MEMBERSHIP
o The Committee shall consist of at least three members of the board of
directors as determined from time to time by the board. Each member
shall be "independent" in accordance with the listing standards of the
Nasdaq Stock Market, as amended from time to time, and as "defined in
the company's by-laws, as amended from time to time.
o The board of directors shall elect the members of this Committee at
the first board meeting practicable following the annual meeting of
stockholders and may make changes from time to time pursuant to the
provisions below. Unless a chair is elected by the board of directors,
the members of the Committee shall designate a chair by majority vote
of the full Committee membership.
o A Committee member may resign by delivering his or her written
resignation to the chairman of the board of directors, or may be
removed by majority vote of the board of directors by delivery to such
member of written notice of removal, to take effect at a date
specified therein, or upon delivery of such written notice to such
member if no date is specified.
4. MEETINGS AND COMMITTEE ACTION
o The Committee shall meet at least as often as may be required by the
company's by-laws, as amended from time to time, and at such times as
it deems necessary to fulfill its responsibilities. Meetings of the
Committee shall be called by the chairman of the Committee upon such
notice as is provided for in the by-laws of the company with respect
to meetings of the board of directors. A majority of the members shall
constitute a quorum. Actions of the Committee may be taken in person
at a meeting or in writing without a meeting. Actions taken at a
meeting, to be valid, shall require the approval of a majority of the
members present and voting. Actions taken in writing, to be valid,
shall be signed by all members of the committee. The Committee shall
report its minutes from each meeting to the board of directors.
o The chairman of the Committee shall establish such rules as may from
time to time be necessary or appropriate for the conduct of the
business of the Committee. At each meeting, the chairman shall appoint
as secretary a person who may, but need not, be a member of the
Committee. A certificate of the secretary of the Committee setting
forth the names of the members of the Committee or actions taken by
the Committee shall be sufficient evidence at all times as to the
persons constituting the Committee, or such actions taken.
C-1
5. DUTIES AND RESPONSIBILITIES
The Committee's duties and responsibilities include:
o Considering matters of corporate governance, recommending governance
matters for the board and reviewing periodically this charter and our
corporate governance principles.
o Reviewing and making recommendations to the board of directors
regarding amendments to the company's governing documents.
o Making recommendations on the structure of board meetings.
o Monitoring and making recommendations regarding committee functions,
contributions and composition.
o Developing the criteria and qualifications for membership on the
board.
o Developing programs for the continuing education of all directors and
for the orientation of new directors.
o Reviewing and making recommendations to the board of directors
regarding director compensation.
o Establishing and periodically reviewing director retirement policies
and making recommendations to the board of directors, regarding these
policies.
o Reviewing and making recommendations to the board of directors
regarding the appropriate level of director and officer liability
insurance and evaluating the appropriateness of providing indemnity to
the company's officers, directors or agents on a case-by-case basis,
including the appropriateness of advancing fees and expenses.
o Reviewing and making recommendations to the board of directors
regarding all related-party transactions required to be disclosed in
the company's public filings in accordance with SEC rules and
regulations and any additional transactions, whether or not required
to be disclosed between: (1) officers and the company or its
subsidiaries, (2) the company and its subsidiaries, (3) directors, (4)
one or more officers and one or more directors, and (5) officers.
o Reviewing periodically, the company's code of conduct or code of
ethics, as applicable, and evaluating and making recommendations to
the board of directors regarding requests, if any, for waivers from
these codes.
o Considering all questions regarding a conflict of interest involving
any board members, the company, its subsidiaries or their respective
officers.
o Reviewing the outside activities of senior executives.
o Reviewing all transactions or proposed transactions that trigger the
company's shareholders' rights plan, if any, and making
recommendations to the board of directors regarding the transaction or
the rights plan.
o Reviewing all proposals involving (1) a change in control, or (2) the
purchase or sale of assets constituting more than 10% of the company's
total assets and then making recommendations to the board of directors
with respect to these proposals.
o Creating a format to review each of the directors; conducting the
reviews annually in accordance with the format; and distributing the
reviews results to all board members for their review and
consideration.
o Evaluating, on an annual basis, the Committee's performance.
o Making recommendations to the board on methods for enhancing services
to, and improving communications and relations with the, company's
stockholders.
C-2
6. POWERS AND AUTHORITY
Subject to such specific constraints as may be imposed by the board of
directors, the board of directors delegates to the Committee all powers and
authority that are necessary or appropriate to fulfill its duties and
responsibilities hereunder, including but not limited to:
o Recruiting, reviewing and nominating candidates for election to the
board of directors or to fill vacancies on the board of directors.
o Reviewing candidates proposed by stockholders, and conducting
appropriate inquiries into the background and qualifications of any
such candidates.
o Administering any director compensation plans;
o Retaining and terminating any professionals (such as search firms,
attorneys and compensation professionals) to assist in evaluating,
designing and documenting of director compensation, including sole
authority to approve the professional's fees and other retention
terms.
o Establishing subcommittees for the purpose of evaluating special or
unique matters.
7. REPORTING
o The Committee shall prepare a statement each year concerning its
compliance with this charter for inclusion in the company's proxy
statement.
APPROVED: BOARD OF DIRECTORS
DATE: September 10, 2003
C-3
APPENDIX D
2003 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN
Section 1. Purposes. The Arlington Hospitality, Inc. 2003 Non-Employee
Director Restricted Stock Plan (the "Plan") is intended to assist Arlington
Hospitality, Inc. (the "Company") in attracting and retaining highly-qualified
Non-Employee Directors and, by increasing the stock ownership of the
Non-Employee Directors, to further align the interests of the Non-Employee
Directors and the Company's shareholders.
Section 2. Definitions. Whenever the following terms are used in this Plan
they shall have the meaning specified below, unless the context otherwise
requires.
"Board" means the Board of Directors of the Company.
"Change in Control" means:
(a) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1984, as amended, or
any successor thereto) (a "Person") becomes the beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Act) of 50% or more of
either (A) the then outstanding Shares (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that, for purposes of this clause (a), the following acquisitions shall not
constitute a Change in Control: (1) any acquisition directly from the
Company and approval by the Board, (2) any acquisition by the Company or
any of its subsidiaries, (3) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any of its
subsidiaries, (4) any acquisition by an underwriter temporarily holding
securities pursuant to an offering of such securities or (5) any
acquisition pursuant to a transaction that complies with clauses (b)(A) and
(B) below; or
(b) consummation of a reorganization, merger, statutory share exchange
or consolidation (or similar corporate transaction) involving the Company
or any of its subsidiaries, a sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of
assets or stock of another entity (a "Business Combination"), in each case,
unless, immediately following such Business Combination, (A) substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Stock immediately prior to such Business
Combination beneficially own, directly or indirectly, 50% or more of,
respectively, the then outstanding Shares and the total voting power of (1)
the corporation resulting from such Business Combination (the "Surviving
Corporation") or (2) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 80% or more of the
voting securities eligible to elect directors of the Surviving Corporation
(the "Parent Corporation"), in substantially the same proportion as their
ownership, immediately prior to the Business Combination, of the
Outstanding Stock and (B) no Person (other than any employee benefit plan
(or related trust) sponsored or maintained by the Surviving Corporation or
the Parent Corporation), is or becomes the beneficial owner, directly or
indirectly, of 50% or more of the outstanding Shares of common stock and
the total voting power of the outstanding voting securities eligible to
elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation); or
(c) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing provisions of this definition, a Change
in Control shall not be deemed to occur with respect to the Grantee if the
acquisition of the 50% or greater interest referred to in clause (a) is by
a group, acting in concert, that includes the participant or if at least
40% of the then outstanding common stock or combined voting power of the
then outstanding voting securities (or voting equity interests) of the
Surviving Corporation or, if applicable, the Parent Corporation shall be
beneficially owned, directly or indirectly, immediately after a Business
Combination by a group, acting in concert, that includes the participant.
"Committee" means the Corporate Governance/Nominating Committee of the
Board.
"Date of Grant" means the date upon which the Board grants a Share Award.
"Director" means a member of the Board.
D-1
"Grantee" means a Non-Employee Director to whom a Share Award is granted.
"Majority" means in excess of fifty percent (50%).
"New Director" means a Non-Employee Director who was not a Director on the
date of adoption of the Plan by the holders of a Majority of the Company's
outstanding common stock and who has not previously received a Share Award
pursuant to the Plan.
"Non-Employee Director" means each Director of the Company who is not an
employee of the Company or any of its subsidiaries.
"Non-Executive Non-Employee Director" means a Non-Employee Director other
than the Chairman or Vice Chairman of the Board.
"Outstanding Stock" shall include, in addition to Shares actually
outstanding on the date of calculation, Shares issuable upon the conversion of
securities issued by the Company and outstanding on such date, including
preferred stock or convertible debt securities (and to the extent that such
conversion rights are keyed to a floating stock price or other moving formula
shall be computed as of the last business day immediately prior to the
calculation), but shall not include options issued by the Company under the
Plan, any predecessor plan, or any stock option or similar plan governing the
issuance of options to employees.
"Plan Year" shall mean the period for which a Share Award is made under the
Plan. The initial Plan Year shall be the 2003 calendar year. The Committee shall
have the authority to change the Plan Year, provided that a Plan Year shall be a
twelve-month period except to the extent necessary to effect such change, and,
provided further, that the Share Awards for any Plan Year that is less than
twelve (12) months shall be adjusted to account for the fact that such Plan Year
is less than twelve (12) months.
"Share" or "Shares" means shares of the Company's common stock, $.005 par
value.
"Share Award" means a grant under the Plan of a specified number of Shares
in accordance with the terms of the Plan.
Section 3. Administration.
(a) The Plan shall be administered by the Committee.
(b) The Committee shall have authority, in its sole and absolute discretion
and subject to the terms of the Plan, to (A) interpret the Plan; (B) prescribe
such rules and regulations as it deems necessary for the proper operation and
administration of the Plan, and amend or rescind any rules or regulations
relating to the Plan; and (C) take any and all other action it deems necessary
or advisable for the proper operation or administration of the Plan.
(c) All determinations of the Committee shall be final, binding and
conclusive on all persons having an interest in the Plan.
(d) Any action to be taken by the Committee hereunder may be taken directly
by the Board and shall be deemed as if it were the action of the Committee.
Section 4. Eligibility to Receive a Share Award. Each Non-Employee Director
shall be granted a Share Award as compensation for the Non-Employee Director's
serving as a member of the Board. Only Non-Employee Directors shall be eligible
for the grant of a Share Award under the Plan.
Section 5. Shares Subject to Plan. A maximum of Two Hundred Thousand
(200,000) Shares may be issued under the Plan. Shares subject to the Plan may
be, at the discretion of the Committee, either authorized and unissued Shares or
Shares acquired by and belonging to the Company as treasury shares.
Section 6. Share Awards.
(a) Approval of Share Awards/Issuance of Shares. The Share Award for each
Non-Employee Director shall be established by a resolution adopted at a meeting
of the Board. Approval of such resolution shall require the affirmative vote of
a Majority of the Board. Each Non-Employee Director may cause the Share Award to
be issued directly to himself or herself or to his or her respective designees
(e.g., a family trust or otherwise), provided that any designee recipient shall
be required to enter into a restricted stock grant agreement substantially in
the
D-2
form approved by the Committee, as required by the Company as a condition
precedent to issuance of Shares to such Grantee.
(b) Vesting/Proration. The Shares issued to a Non-Employee Director under a
Share Award for a particular Plan Year shall vest at the rate of one-quarter of
such Shares on the last day of each quarter during the Plan Year. With respect
to each Plan Year applicable to the Plan, if Share Awards to the Non-Employee
Directors are made after the first quarter of the Plan Year, for vesting
purposes only the Share Awards shall be retroactive to the first day of the Plan
Year (prorated to the extent the Non-Employee Director has not served as a
Director since the first day of the Plan Year), with vesting to occur quarterly
in arrears as if the entire Share Award had been made on the first day of the
Plan Year. A New Director joining the Board shall be entitled to a Share Award
prorated as if he or she joined the Board, effective as of the first day of the
quarter in which the Director joined the Board, with vesting for such Share
Award to commence as of the last day of the quarter in which he or she joined
the Board. Should a Director die, vesting of the Shares allocated to such
Director shall continue through the last day of the last quarter on which such
Director served on the Board. Should a Director cease to serve as a Director for
any reason other than death, then the Director shall be fully vested as to all
Shares that were allocable to the Director as of the end of the last quarter in
which the Director served as a Director (for any portion of such quarter) and
all other shares allocated or granted to the Director pursuant to this Plan
shall lapse unless the Committee otherwise elects different treatment with
respect to such lapsing Shares.
(c) Number of Shares. The aggregate number of Shares awarded under the Plan
in any Plan Year shall not exceed two percent (2%) of the Company's Outstanding
Stock at the beginning of the Plan Year. Recognizing that the Chairman and Vice
Chairman of the Board shall have heightened duties in presiding over certain
proceedings of the Company, including but not limited to Board and committee
meetings, they shall be allocated Shares pursuant to this Plan with respect to
each Plan Year (prorated to the extent of fractional years' service) equal to
one hundred fifty percent (150%) in the case of the Chairman, and one hundred
twenty-five percent (125%) in the case of the Vice Chairman, of the "Base
Allocation" to Non-Executive Non-Employee Directors pursuant to this Plan with
respect to the Plan Year in question. The Share Awards of the Non-Executive
Non-Employee Directors shall be equal pursuant to the Plan (prorated for
fractional years of service) with respect to each Plan Year (i.e., their "Base
Allocation"), except that the Board in its sole discretion may, subject to the
limit on the number of Shares that may be awarded in any Plan Year described
above in this Section 6(c), award additional compensation to any Director for
taking on added duties as directed by the Board.
Section 7. Restrictions on Transferability.
(a) Subject to Section 7(b), Shares issued to Non-Employee Directors under
the Plan shall be non-transferable for a period of one (1) year from the date
such Shares vested, except in the case of a Change of Control, in which case
transfer shall be permitted as of the effective date of such Change of Control.
Following such one (1) year period, Shares shall be non-transferable until the
earliest of (i) a Change of Control; (ii) the first day of the fifth (5th)
calendar year following the Date of Grant; (iii) the date the Non-Employee
Director ceases to be a Director of the Company; (iv) the death or disability of
a Director.
(b) The Committee may, in its sole and absolute discretion, permit the
transfer of Shares prior to the expiration of the periods set forth in Section
7(a).
Section 8. Anti-dilution Adjustments. Notwithstanding any other provision
of the Plan, the Committee may, at any time, make or provide for such
adjustments to the Plan or to the number and class of Shares issuable thereunder
as it shall deem appropriate to prevent dilution or enlargement of rights,
including adjustments in the event of changes in the outstanding Shares by
reason of stock dividends, split-ups, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, separations,
reorganizations, liquidations and similar transactions. Any such determination
by the Committee shall be conclusive. Any fractional shares resulting from such
adjustments shall be eliminated.
Section 9. Compliance with Laws and Regulations.
(a) Laws and Regulations. The Plan and all Shares granted pursuant to it
are subject to all laws and regulations of any governmental authority which may
be applicable thereto and, notwithstanding any provisions of this Plan, a
Grantee shall not be entitled to receive or transfer Shares nor shall the
Company be obligated to issue any Shares
D-3
under the Plan to the Grantee if such issuance shall constitute a violation by
the Grantee or the Company of any provision of any such law or regulation.
(b) Securities Laws and Listing Restrictions. The Company, in its
discretion, may postpone the issuance and delivery of Shares until completion of
any stock exchange listing or registration or other qualification of such Shares
under any state or federal law, rule, or regulation as the Company may consider
appropriate and may require any Grantee to make such representations and furnish
such information as it considers appropriate in connection with the issuance of
the Shares in compliance with applicable law. Under such circumstances, the
Company shall proceed with reasonable promptness to complete any such listing,
registration or other qualification of the Shares. As a condition precedent to
any issuance of Shares pursuant to the Plan, the Committee may require a Grantee
to take any such action and to make any such covenants, agreements and
representations as the Committee, in its sole discretion, deems necessary or
advisable to ensure compliance with such laws or regulations. The Company shall
in no event be obligated to register the Shares issuable under the Plan pursuant
to the Securities Act of 1933, or to qualify or register such shares under any
securities laws of any state upon their issuance under the Plan or at any time
thereafter, or to take any other action in order to cause the issuance and
delivery of such shares under the Plan or any subsequent offer, sale or other
transfer of such shares to comply with any such law, regulation or requirement.
Grantees are responsible for complying with all applicable federal and state
securities and other laws, rules and regulations in connection with any offer,
sale or other transfer of the Shares issued under the Plan or any interest
therein including, without limitation, compliance with the registration
requirements of the Securities Act of 1933 (unless an exemption therefrom is
available), or with the provisions of Rule 144 promulgated thereunder, if
applicable, or any successor provisions.
(c) Legends. Shares issued and delivered to the Grantee shall be subject to
such restrictions on trading, including appropriate legending of certificates to
that effect as the Company, in its discretion, shall determine necessary to
satisfy applicable legal requirements and obligations. The legend to appear on
each Grantee's stock certificate for 2003 grants shall read as follows:
CERTAIN OF THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RISK
OF FORFEITURE FOR THE ONE-YEAR PERIOD ENDING ON ________________________,
AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN THE COMPANY'S
2003 NON-EMPLOYEE DIRECTOR RESTRICTED STOCK PLAN. THE SHARES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR THE STATE SECURITIES LAWS OR ANY STATE
IN THE UNITED STATES AND HAVE BEEN ISSUED PURSUANT TO AN EXEMPTION
THEREFROM. THE SHARES ARE "RESTRICTED SECURITIES" WITHIN THE MEANING OF
RULE 144 PROMULGATED UNDER THE SECURITIES ACT. THE SHARES MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(d) Representations of Grantee. Each Grantee shall, at the time the Share
Award is granted, as a condition to such award or issuance, enter into a stock
grant agreement in a form approved by the Committee.
Section 10. Reservation of Shares. The Company, during the term of this
Plan, will at all times, consistent with Section 5, reserve and keep available
such number of Shares as, in the judgment of the Committee, shall be sufficient
to satisfy the requirements of the Plan.
Section 11. Disclaimer of Liability. Inability of the Company to obtain
from any regulatory body the authority deemed by the Company's counsel to be
necessary to the lawful issuance of any Shares thereunder shall relieve the
Company of any liability relating to the failure to issue such Shares.
Section 12. Taxes. In connection with the grant of a Share Award and other
compensation under this Plan, the Grantee will be required to pay any applicable
federal, state, or local taxes. The Company will issue a Form 1099 to the
Grantee at the end of each calendar year for the value of the Shares (or the
value of Shares on the date they vest if the Grantee does not file a Section
83(b) election) and other compensation received. Each Grantee shall be
responsible for obtaining independent tax advice with respect to the tax
consequences of each Share award.
D-4
Section 13. Indemnification. Each person who is or shall have been a member
of the Board shall be indemnified and held harmless by the Company against and
from any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he may be a party or in which he may be involved by
reason of any action taken or failure to act under the Plan (in his or her
capacity as a Board or Committee member) and against and from any and all
amounts paid by him in settlement thereof, with the Company's approval, or paid
by him in satisfaction of judgment in any such action, suit or proceeding
against him; provided he shall give the Company an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and defend
it on his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such person may be
entitled under the Company's Certificate of Incorporation, By-Laws or any
indemnification agreement with the Company; as a matter of law; or otherwise; or
any power that the Company may have to indemnify him or hold him harmless.
Section 14. Effective Date/Term. This Plan shall become effective on the
date of adoption by the Company's Stockholders. The Plan shall continue until
terminated pursuant to Section 15.
Section 15. Amendment and Termination of Plan. The Board may, from time to
time, amend the Plan or any provision thereof in such respects as the Board may
deem advisable, provided that no amendment to the Plan may be made without
stockholder approval if such amendment would: (i) increase the number of Shares
available for issuance under the Plan, other than as a result of the application
of the anti-dilution adjustments as provided for in Section 8; (ii) cause the
Plan to fail to comply with Rule 16b-3 under the Securities Exchange Act of
1934, or any successor rule; or (iii) materially modify the eligibility
requirements for participation in the Plan. Any amendment or termination of the
Plan shall not adversely affect any Share Award previously granted. The Board
may, at any time, terminate the Plan.
Section 16. Termination. The Plan shall terminate upon the earlier of the
following dates or events to occur:
(a) The adoption of a resolution of the Board terminating the Plan; or
(b) The tenth anniversary of the adoption of the Plan by the Company's
Stockholders.
Section 17. Benefits of the Plan. This Plan shall inure to the benefit of
and be binding upon each successor of the Company. All rights and obligations
imposed upon a Grantee shall be binding upon the Grantee's heirs, legal
representatives and successors.
Section 18. Non-Exclusive Compensation. The Share Awards granted pursuant
to this Plan shall be in addition to any other compensation, cash or otherwise,
determined by the Directors to be paid to Non-Employee Directors.
Section 19. Governing Law. The laws of the State of Delaware shall govern
the Plan regardless of the citizenship or residence of any Grantee.
D-5
APPENDIX E
2003 LONG-TERM INCENTIVE PLAN
ARLINGTON HOSPITALITY, INC., a Delaware corporation (the "Company"), sets
forth herein the terms of the Arlington Hospitality, Inc. 2003 Long-Term
Incentive Plan (the "Plan") as follows:
1. Purpose.
The purpose of the Plan is to aid the Company and its subsidiaries in
recruiting and retaining employees and to motivate such employees and other plan
participants to exert their best efforts on behalf of the Company and its
subsidiaries by providing incentives through the granting of stock-based
incentive awards. The Company expects that it will benefit from the stock
ownership opportunities provided to such participants to encourage alignment of
their interest in the Company's success with that of other stakeholders. The
Plan shall allow eligible participants to acquire shares of the Company's Common
Stock, $.005 par value ("Shares") either directly through the grant of shares
which are restricted and subject to risk of forfeiture ("Restricted Shares") or
through the grant of options to purchase Shares ("Options"). Options granted
under the Plan may be nonqualified stock options or may be "incentive stock
options" ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended from time to time (the "Code"), or the corresponding
provision of any subsequently enacted tax statute. The Plan shall also allow the
granting of other stock-based awards ("Other Stock-Based Awards" -- together
with awards of Restricted Shares or Options, hereinafter at times collectively
referred to as "Awards" and individually referred to as an "Award"; the grantee
of an Award is hereinafter referred to as a "Participant"). Eligibility for
Awards may be based on such criteria as the Committee deems appropriate, which
may be tied to performance standards and vesting standards requiring continued
performance of services to the Company over time.
2. Administration.
2.1 Committee.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee shall be comprised of three or more members of the Board who are
"non-employee directors," as such term is described in Rule 16b-3 (if and as
such Rule is in effect), and "outside directors" within the meaning of Section
162(m) of the Code.
2.2 Action by Committee.
The Committee shall have such powers and authorities related to the
administration of the Plan as are consistent with the Certificate of
Incorporation and Bylaws of the Company and applicable law. The Committee shall
have the full power and authority to take all actions and to make all
determinations required or permitted under the Plan with respect to any Award
granted hereunder. The Committee shall have the full power and authority to take
all other actions and determination not inconsistent with the specific terms and
provisions of the Plan that the Committee deems to be necessary or appropriate
to the administration of the Plan. The Committee's powers shall include, but not
be limited to, the power to interpret the Plan and to amend, waive, or extend
any provision or limitation of any Option or the terms and conditions of any
grant of Restricted Shares or Other Stock-Based Awards, and to approve the forms
of agreement for use under the Plan. The interpretation and construction by the
Committee of any provision of the Plan, any Option granted hereunder or the
terms and conditions of any grant of Restricted Shares or Other Stock-Based
Awards shall be final and conclusive.
2.3 No Liability.
No member of the Board or of the Committee shall be liable for any action
or determination made, or any failure to take or make an action or
determination, in good faith with respect to the Plan.
2.4 Applicability of Rule 16b-3.
Those provisions of the Plan that make express reference to Rule 16b-3
shall apply only to persons who are required to file reports under Section 16(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
E-1
2.5 Tax Withholding.
The Company may withhold or require payment from the Participant of any
amount it may determine to be necessary to withhold for federal, state, local,
non-U.S. income, payroll or other taxes as a result of the exercise, grant or
vesting of an Award. Unless the Committee specifies otherwise, the Participant
may elect to pay a portion or all of such withholding taxes by: (i) delivery in
Shares; (ii) having the Company withhold Shares with a Fair Market Value or cash
equal to the amount of such taxes that would have otherwise been payable by the
Participant; or (iii) paying cash.
2.6 Nontransferability of Awards/Beneficiaries.
No Award or interest in an Award may be sold, assigned, pledged (as
collateral for a loan or as security for the performance of an obligation or for
any other purpose) or transferred by the Participant or made subject to
attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, except to the extent a Participant designates
one or more beneficiaries on a Company-approved form who may exercise the Award
or receive payment under the Award after the Participant's death. During a
Participant's lifetime, an Award may be exercised only by the Participant.
Notwithstanding the foregoing and to the extent permitted by Section 422 of the
Code or any successor thereto, the Committee, in its sole discretion, may permit
a Participant to assign or transfer an Award; provided, however, that any Award
so assigned or transferred shall be subject to all the terms and conditions of
the Plan and the agreement evidencing the Award.
A Participant may designate a beneficiary to succeed to the Participant's
Awards under the Plan in the event of the Participant's death by filing a
beneficiary form with the Company and, upon the death of the Participant, such
beneficiary shall succeed to the rights of the Participant to the extent
permitted by law and the terms of this Plan and the applicable agreement. In the
absence of a validly designated beneficiary who is living at the time of the
Participant's death, the Participant's executor or administrator of the
Participant's estate shall succeed to the Awards, which shall be transferable by
will or pursuant to laws of descent and distribution.
3. Common Stock Covered by the Plan.
The number of Shares with respect to which Options, Restricted Shares and
other Stock-Based Awards may be granted under the Plan shall not exceed five
hundred fifty thousand (550,000), subject to adjustment as provided in Section
12. The number of Shares with respect to which Awards may be granted to a
participant during any calendar year shall not exceed one hundred thousand
(100,000), subject to adjustment as provided in Section 12. The Shares to be
issued as Restricted Shares or upon exercise of Options may be authorized, but
unissued or reacquired Shares. If any Option expires, terminates or is
terminated for any reason prior to exercise in full, or any Restricted Shares
are forfeited, or any Other Stock-Based Award is terminated or forfeited, the
Shares that were subject to the unexercised portion of such Option or the
Restricted Shares or Other Stock-Based Awards that are forfeited or terminated
(collectively, "Lapsed Shares"), as the case may be, shall be available
immediately for future grants of Awards under the Plan, but will be counted
against that calendar year's limit for a given participant. To the extent an
Award under this Plan of a Lapsed Share reduces the 550,000 Shares available
under the Plan, when it becomes a Lapsed Share, this then replenishes by a like
amount the number of Shares available for issuance under the Plan as if the
Lapsed Share had not been previously granted. To the extent any Award is
exercised in whole or part through a cashless exercise pursuant to Section
6.8(c) hereof, that portion of the Award used to fund the cashless exercise
shall not be available for future issuance pursuant to this Plan.
4. Eligibility.
Awards may be granted under the Plan to an employee of the Company or any
subsidiary who is selected by the Committee to participate in the Plan. An Award
may also be granted to any director, consultant, agent, individual, company,
advisor or independent contractor who renders bona fide services to the Company
or a subsidiary that (i) is not in connection with the offer and sale of the
Company's securities in a capital-raising transaction and (ii) does not directly
or indirectly promote or maintain a market for the Company's securities. Except
where the context otherwise requires, references in this Plan to "employment"
and related terms shall apply to services in any such capacity. Individuals who
have been granted Options are referred to as "Optionees." An individual may hold
more than one Option, subject to such restrictions as are provided herein, and
may also hold more than one grant of
E-2
Restricted Shares of Other Stock-Based Awards. All references to an "employee"
of the Company shall include employees of any direct or indirect subsidiary of
the Company, 50% or more of which is beneficially owned by the Company.
The Committee may also grant Awards in substitution for options or other
equity interests held by individuals who become employees of the Company or of a
subsidiary as a result of the Company's acquiring or merging with the
individual's employer or acquiring its assets or to persons who were employees
of directors of the previous employer and received an option in that capacity
even if they do not become employees of the Company. In addition, the Committee
may provide for the Plan's assumption of options granted outside the Plan to
persons who would have been eligible under the terms of the Plan to receive a
grant. If necessary to conform the Awards to the interests for which they are
substitutes, the Committee may grant substitute Awards under terms and
conditions that vary from those the Plan otherwise requires.
5. Effective Date and Term.
5.1 Effective Date.
The Plan will become effective as of on the date of adoption by the
Company's stockholders (the "Effective Date").
5.2 Term.
The Plan shall terminate on the tenth anniversary of the Effective Date,
unless previously terminated under Section 11. All Awards granted prior to
termination of the Plan shall continue in full force and effect following the
termination of the Plan, subject to the terms and conditions upon which they
were granted.
6. Terms and Conditions of Stock Options.
6.1 Grant of Options.
Subject to the terms and conditions of the Plan, the Committee may, at any
time and from time to time prior to the termination of the Plan, grant to such
eligible Participants as the Committee may determine, Options to purchase such
number of Shares on such terms and conditions as the Committee may determine,
including any terms or conditions that may be necessary to qualify such Options
as ISOs. The Committee may grant ISOs only to employees of the Company and any
subsidiaries.
6.2 Stock Options under Code Section 422.
The date as of which the Committee approves the grant of an Option shall be
considered the date on which such Option is granted. Neither the Optionee nor
any person entitled to exercise any rights hereunder shall have any of the
rights of a stockholder with respect to the Shares subject to an Option except
to the extent that the certificates for such Shares have been issued upon the
exercise of the Option.
6.3 Limitation on Incentive Stock Options.
An Option granted to an employee shall constitute an ISO only to the extent
that the aggregate fair market value (determined at the time the Option is
granted) of the Stock with respect to which ISOs are exercisable for the first
time by the Optionee during any calendar year (under the Plan and all other
plans of the Company and any subsidiaries, within the meaning of Code Section
422(d)), does not exceed one hundred thousand dollars ($100,000). This
limitation shall be applied by taking Options into account in the order in which
such Options were granted.
6.4 Option Agreements.
All Options granted to Optionees pursuant to the Plan shall be evidenced by
written agreements in such form or forms as the Committee shall from time to
time determine. Option agreements may be amended by the Committee from time to
time and need not contain uniform provisions.
E-3
6.5 Option Price.
The purchase price of each Share subject to an Option issued under this
Section 6 shall be fixed by the Committee. No Option, once granted hereunder,
may be repriced. In the case of an Option not intended to constitute an ISO, the
option price shall be not less than the par value of the Shares covered by the
Option. In the case of an Option that is intended to be an ISO, the option price
of each Share purchasable pursuant to the Option shall be not less than the
greater of the par value of the Shares or 100% of the Fair Market Value (as
defined below) of a Share covered by the Option on the date the Option is
granted; provided, however, that in the event the employee would otherwise be
ineligible to receive an ISO by reason of the provisions of Code Sections
422(b)(6) and 424(d) (relating to owners of more than 10% of the Company's
common stock), the option price of each Share purchasable pursuant to an Option
that is intended to be an ISO shall be not less than the greater of par value or
one hundred and ten percent (110%) of the Fair Market Value of a Share covered
by the Option at the time such Option is granted.
"Fair Market Value" for purposes of this Plan in valuing the Company common
stock shall mean the last closing price of the Company's common stock as quoted
on Nasdaq immediately prior to the date of valuation in question, provided at
that time the Company's common stock is quoted on Nasdaq. If the Company's
common stock is not quoted on Nasdaq, then "Fair Market Value" shall mean, in
the event that the Company's common stock is listed on an established national
or regional stock exchange, or is publicly traded on an established securities
market, the closing price of the stock on such exchange or in such market (the
highest such closing price if there is more than one such exchange or market on
the date the Option is granted), or, if no sale of stock has been made on such
day, on the last preceding day on which any such sale shall have been made. In
the event that the Shares are not listed, quoted or publicly traded or, if their
price cannot be determined despite their being listed, quoted or publicly
traded, "Fair Market Value" shall be determined by the Committee, in its sole
discretion.
6.6 Term.
Each Option granted to an Optionee under the Plan shall terminate and all
rights to purchase Shares thereunder shall cease upon the expiration of five (5)
years from the date such Option is granted, or on such prior date or later date
(but in no event later than ten (10) years from the date such Option is granted)
as may be fixed by the Committee and stated in the option agreement relating to
such Option; provided, however, that in the event the employee would otherwise
be ineligible to receive an ISO by reason of the provisions of Code Sections
422(b)(6) and 424(d) (relating to owners of more than 10% of the Company's
common stock), an Option granted to such employee that is intended to be an ISO
shall in no event be exercisable after the expiration of five (5) years from the
date it is granted.
6.7 Option Period and Limitations on Exercise.
Each Option granted under the Plan to an Optionee shall be exercisable in
whole or in part at any time and from time to time over a period commencing on
or after the date of grant of the Option and ending upon expiration or
termination of the Option, as the Committee shall determine and set forth in the
option agreement. Without limiting the foregoing, the Committee, subject to the
terms and conditions of the Plan, may in its sole discretion provide that the
Option granted to an Optionee may not be exercised in whole or in part for any
period or periods of time during which such Option is outstanding as the
Committee shall determine and set forth in the option agreement. Any such
limitation on the exercise of an Option may be rescinded, modified or waived by
the Committee, in its sole discretion, at any time and from time to time after
the date of grant of such Option.
6.8 Exercise.
(a) Only the Optionee receiving an Option (or, in the event of the
Optionee's legal incapacity or incompetency, the participant's guardian or
legal representative, and in the case of the Optionee's death, the
participant's estate) may exercise the Option.
(b) An Option that is exercisable hereunder may be exercised by
delivery to the Company on any business day, at its principal office
addressed to the attention of the Corporate Secretary, of written notice of
exercise. Such notice shall specify the number of Shares for which the
Option is being exercised and shall be accompanied by payment in full of
the option price of the Shares for which the Option is being exercised,
unless otherwise determined by the Committee, in its sole discretion.
E-4
(c) Payment of the option price for the Shares purchased pursuant to
the exercise of an Option shall be made, as determined by the Committee and
set forth in the option agreement, as follows:
(i) in cash or by certified check payable to the order of the
Company;
(ii) in Shares having a Fair Market Value equal to the aggregate
exercise price for the Shares being purchased pursuant to the Option
and satisfying such other requirements as may be imposed by the
Committee; provided, that such Shares were purchased on the open
market or have been held by the participant for no less than six
months (or such other period as established from time to time by the
Committee in order to avoid adverse accounting treatment under
generally accepted accounting principles);
(iii) partly in cash and partly in such Shares;
(iv) if there is a public market for the Shares at such time,
through the delivery of irrevocable instructions to a broker to sell
Shares obtained upon the exercise of the Option and to deliver
promptly to the Company an amount out of the proceeds of such sale
equal to the aggregate exercise price for the Shares being purchased
pursuant to the Option; or
(v) such other method as determined by the Committee, in its sole
discretion.
(d) Notwithstanding the foregoing, the Committee may, in its
discretion, impose and set forth in the option agreement such limitations
or prohibitions on the methods of exercise as the Committee deems
appropriate. Promptly after the exercise of an Option and the payment in
full of the option price of the Shares covered thereby, the individual
exercising the Option shall be entitled to the issuance of a stock
certificate or certificates evidencing such individual's ownership of such
Shares. An individual holding or exercising an Option shall have none of
the rights of a stockholder until the Shares covered thereby are fully paid
and issued to such individual and, except as provided in Section 12, no
adjustment shall be made for dividends or other rights for which the record
date is prior to the date of such issuance.
(e) If the Optionee is not vested as to his or her entire Option at
the time of termination of employment of the Optionee pursuant to the terms
of the relevant option agreement, then the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified in
the relevant option agreement, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
7. Restricted Shares.
7.1 Grant of Restricted Shares.
Subject to the terms and conditions of the Plan, the Committee may, at any
time and from time to time prior to the termination of the Plan, grant
Restricted Shares to such eligible Participants as the Committee may determine
subject to such conditions under which they may be forfeited and such other
terms and conditions it deems appropriate.
7.2 Transfer Restrictions.
Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as provided in the Plan or the applicable Award
agreement. Shares of Restricted Stock shall be registered in the name of the
Participant and held by the Company. After the lapse of the restrictions
applicable to such Shares of Restricted Stock, the Company shall deliver such
Shares to the Participant or the Participant's legal representative.
7.3 Dividends.
Dividends or dividend equivalents paid on any Shares of Restricted Stock
may be paid directly to the Participant, withheld by the Company subject to
vesting of the Restricted Stock pursuant to the terms of the applicable Award
agreement, or may be reinvested in additional Shares of Restricted Stock, as
determined by the Committee in its sole discretion.
E-5
7.4 Rights of Unvested Restricted Shares.
Until vesting conditions of a Restricted Stock grant agreement are met, the
holder thereof shall have no rights of a shareholder thereof and shall not have
the right to receive dividends thereon or to vote said Restricted Shares, unless
otherwise provided in the Restricted Stock agreement.
7.5 Legends.
Restricted Shares issued under the Plan shall be subject to such
restrictions on trading, including appropriate legending of certificates to that
effect as the Company, in its discretion, shall determine necessary to satisfy
applicable legal requirements and obligations.
7.6 Representations of Grantee.
Each recipient of an Award of Restricted Stock under the Plan shall, at the
time of the Award, as a condition to such Award, enter into a Restricted Stock
grant agreement in a form approved by the Committee.
8. Other Stock-Based Awards.
The Committee, in its sole discretion, may grant Other-Stock Based Awards,
including grants of Shares and awards that are valued in whole or in part by
reference to, or are otherwise based on, Shares or on the Fair Market Value
thereof. Such Other Stock-Based Awards shall be in such form, and dependent on
such conditions, as the Committee shall determine, including, without
limitation, the right to receive, or vest with respect to, one or more Shares
(or the equivalent cash value of such Shares) upon the completion of a specified
period of service, the occurrence of an event and/or the attainment of
performance objectives. Other Stock-Based Awards may be granted alone or in
addition to any other Awards granted under the Plan. Subject to the provisions
of the Plan, the Committee shall determine the number of Shares to be awarded to
a Participant under (or otherwise related to) such Other Stock-Based Awards;
whether such Other Stock-Based Awards shall be settled in cash, Shares or a
combination of cash and Shares; and all other terms and conditions of such
Awards (including, without limitation, the vesting provisions thereof and
provisions ensuring that all Shares so awarded and issued shall be fully paid
and non- assessable). Unless the Other Stock-Based Award agreement specifically
states that the Other Stock-Based Award is subject to the terms and conditions
of this Plan, it will not be considered an Award granted pursuant to this Plan.
9. Use of Proceeds.
The proceeds received by the Company from the sale of Shares pursuant to
Options shall constitute general funds of the Company.
10. Requirements of Law.
10.1 General.
The Corporation shall not be required to sell or issue any Award (or any
Shares or Option underlying the Award) if such sale or issuance would constitute
a violation by the individual exercising the Award or by the Company of any
provision of any law or regulation of any governmental authority, including,
without limitation, any federal or state securities laws or regulations or the
Company's Certificate of Incorporation. If at any time the Company shall
determine, in its discretion, that the listing, inclusion, registration or
qualification of any Award (or any Shares or Option underlying the Award) upon
any securities exchange or under any state or federal law, or the consent of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, such sale or issuance, the Award (or any Shares or Option
underlying the Award) may not be issued or exercised in whole or in part, unless
such listing, registration, inclusion, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Company, and any delay caused thereby shall in no way affect the date of
termination of or the restriction period of such Award (or any Shares or Option
underlying the Award). Specifically in connection with the Securities Act of
1933, as amended (the "Securities Act") with respect to the issuance of Shares,
upon exercise of any Award, unless a registration statement under the Securities
Act is in effect with respect to such Shares, the Company shall not be required
to sell or issue such Shares unless the Company has received evidence
satisfactory to the Company that the Participant may acquire such Shares
pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Committee
E-6
shall be final and conclusive. The Corporation may, but shall in no event be
obligated to, register any securities covered hereby pursuant to the Securities
Act. The Corporation shall not be obligated to take any affirmative action in
order to cause the exercise of an Award (or any Shares or Option underlying the
Award) or the issuance of Shares pursuant thereto to comply with any law or
regulation of any governmental authority. As to any jurisdiction that expressly
imposes the requirement that an Award shall not be exercisable unless and until
the Shares covered by such Award are registered or are subject to an available
exemption from registration, the exercise of such Award (under circumstances in
which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.
10.2 SEC Rule 16b-3.
The Plan is intended to qualify for the exemption provided by Rule 16b-3
under the Exchange Act. To the extent any provision of the Plan or action by the
Committee does not comply with the requirements of Rule 16b-3, it shall be
deemed inoperative, to the extent permitted by law and deemed advisable by the
Committee, and shall not affect the validity of the Plan. In the event Rule
16b-3 is revised or replaced, the Board may exercise discretion to modify the
Plan in any respect necessary to satisfy the requirements of the revised
exemption or its replacement.
11. Amendment and Termination.
The Board may, from time to time, amend the Plan or any provision thereof
in such respects as the Board may deem advisable, provided that no amendment to
the Plan may be made without stockholder approval if such amendment would: (i)
increase the number of Shares available for issuance under the Plan, other than
as a result of the application of the anti-dilution adjustments as provided for
in Section 12; (ii) cause the Plan to fail to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, or any successor rule; or (iii) materially
modify the eligibility requirements for participation in the Plan. Any amendment
or termination of the Plan shall not adversely affect any Award previously
granted. The Board may, at any time, terminate the Plan.
12. Anti-dilution Adjustments.
12.1 Adjustments to Plan or Number or Class of Shares or Restricted Shares
Issuable under the Plan.
Notwithstanding any other provision of the Plan, the Committee may, at any
time, make or provide for such adjustments to the Plan or to the number and
class of Shares issuable thereunder upon the exercise of Options or as
Restricted Shares or as Other Stock-Based Awards as it shall deem appropriate to
prevent dilution or enlargement of rights, including adjustments in the event of
changes in the outstanding Shares by reason of stock dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges of shares,
separations, reorganizations, liquidations and similar transactions. Any such
determination by the Committee shall be conclusive. Any fractional shares
resulting from such adjustments shall be eliminated.
12.2 Adjustments to Terms of Awards Previously Granted.
If the number of outstanding Shares is increased or decreased or changed
into or exchanged for a different number or kind of shares or other securities
of the Company by reason of any recapitalization, reclassification, stock split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company, occurring after the Effective
Date, a proportionate and appropriate adjustment shall be made by the Company in
the number and kind of Shares for which Awards are outstanding, so that the
proportionate interest of the Participant immediately following such event
shall, to the extent practicable, be the same as immediately prior to such
event. Any such adjustment in outstanding Awards shall not change the aggregate
option price payable with respect to Shares subject to the unexercised portion
of the Award outstanding but shall include a corresponding proportionate
adjustment in the option or exercise price per Share. Similar proportionate
adjustments for events referenced in this Section 12.2 shall be made as
necessary, in the sole discretion of the Committee, with respect to Other
Stock-Based Awards.
E-7
13. Change in Control.
Notwithstanding anything contained in this Plan to the contrary, unless
otherwise provided in the applicable Award agreement at the time of grant, in
the event of a Change in Control, the following shall occur as of the date of
termination of employment of any employee of the Company "without cause" (as
that term is defined in the agreement governing the Award(s) to such employee)
during the one year period following the effective date of such Change in
Control with respect to any and all Awards outstanding as of the date of
termination of employment: (i) any and all Options granted hereunder which would
vest with the passage of time were the Participant to continue as an employee
for the applicable period and the "Current Year's Percentage" (as hereinafter
defined) of any Options which are tied to performance standards that could
possibly be achieved during the calendar year in which the Participant's
employment has been terminated, shall vest in full and become immediately
exercisable, and shall remain exercisable throughout their entire term; (ii) any
restrictions imposed on Restricted Shares shall lapse with respect to Restricted
Shares which would vest with the passage of time were the Participant to
continue as an employee for the applicable period and with respect to the
"Current Year's Percentage" (as hereinafter defined) of any Options which are
tied to performance standards that could possibly be achieved during the
calendar year in which the Participant's employment has been terminated; and
(iii) the maximum payout opportunities attainable under all Other Stock-Based
Awards which would vest with the passage of time were the Participant to
continue as an employee for the applicable period and the "Current Year's
Percentage of any Restricted Shares which are tied to performance standards that
could possibly be achieved during the calendar year in which the Participant's
employment has been terminated, shall be deemed to have been fully earned for
the calendar year in which the Participant's employment has been terminated.
Such Awards shall be paid in cash, or in the sole discretion of the Committee in
Shares to Participants within thirty (30) days following the effective date of
the termination of employment of the employee without cause during the one year
period following a Change in Control, with any such Shares valued at the Fair
Market Value as of the effective date of the termination of employment without
cause. The "Current Year's Percentage" of a performance based Award for purposes
of this Section 13 shall be that percentage of the performance based Award that
would have been met for the calendar year in question based upon the product of
(i) the percentage of calendar quarters completed for the year in which the
employee is terminated without cause, multiplied by (ii) the performance based
Award that the employee would have earned had the entire four calendar quarters
of the Company's performance and the employee's performance for such year
equaled the average quarterly performance for all calendar quarters completed
prior to termination of the employee's employment for the year in question. If
termination of employment occurs before March 31 of a year, then no acceleration
of vesting of a performance based Award would be available for that year in the
event of a Change in Control. The provisions of subsections (i), (ii) and (iii)
immediately above shall not apply if employment of an employee of the Company is
not terminated "without cause" during the one-year period following a Change in
Control.
For purposes of this Section 13, "Change in Control" means:
(a) any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1984, as amended, or
any successor thereto) (a "Person") becomes the beneficial owner (within
the meaning of Rule 13d-3 promulgated under the Act) of 50% or more of
either (A) the then outstanding Shares (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that, for purposes of this clause (a), the following acquisitions shall not
constitute a Change in Control: (1) any acquisition directly from the
Company and approval by the Board, (2) any acquisition by the Company or
any of its subsidiaries, (3) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any of its
subsidiaries, (4) any acquisition by an underwriter temporarily holding
securities pursuant to an offering of such securities or (5) any
acquisition pursuant to a transaction that complies with clauses (b)(A) and
(B) below; or
(b) consummation of a reorganization, merger, statutory share exchange
or consolidation (or similar corporate transaction) involving the Company
or any of its subsidiaries, a sale or other disposition of all or
substantially all of the assets of the Company, or the acquisition of
assets or stock of another entity (a "Business Combination"), in each case,
unless, immediately following such Business Combination, (A) substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities immediately prior to such Business
E-8
Combination beneficially own, directly or indirectly, 50% or more of,
respectively, the then outstanding Shares and the total voting power of (1)
the corporation resulting from such Business Combination (the "Surviving
Corporation") or (2) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 80% or more of the
voting securities eligible to elect directors of the Surviving Corporation
(the "Parent Corporation"), in substantially the same proportion as their
ownership, immediately prior to the Business Combination, of the
Outstanding Company Common Stock and the Outstanding Company Voting
Securities, as the case may be and (B) no Person (other than any employee
benefit plan (or related trust) sponsored or maintained by the Surviving
Corporation or the Parent Corporation), is or becomes the beneficial owner,
directly or indirectly, of 50% or more of the outstanding Shares of common
stock and the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation); or
(c) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing provisions of this definition, a Change in
Control shall not be deemed to occur with respect to the Participant if the
acquisition of the 50% or greater interest referred to in clause (a) is by a
group, acting in concert, that includes the participant or if at least 40% of
the then outstanding common stock or combined voting power of the then
outstanding voting securities (or voting equity interests) of the Surviving
Corporation or, if applicable, the Parent Corporation shall be beneficially
owned, directly or indirectly, immediately after a Business Combination by a
group, acting in concert, that includes the participant.
14. Further Adjustment of Awards.
Subject to the above provisions, the Committee shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation, dissolution or Change in Control transaction to take such further
action as it determines to be necessary or advisable with respect to Awards.
Such authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Awards so as to provide for earlier, later, extended or additional time for
exercise, lifting of restrictions and other modifications, and the Committee may
take such actions with respect to all Participants, to certain categories of
Participants or only to individual Participants. The Committee may take such
action before or after granting Awards to which the action relates and before or
after any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation, dissolution or Change in Control that is the reason
for such action. Notwithstanding anything to the contrary contained herein, no
action to be taken pursuant to this Section 14 shall be taken to the extent that
it has the effect of amending this Plan in a manner that would otherwise require
shareholder approval pursuant to applicable Securities and Exchange Commission
laws or regulations, but for the terms of this Section 14.
15. Disclaimer of Rights.
No provision in the Plan or any Option, Restricted Shares or Other
Stock-Based Award agreement entered into pursuant to the Plan shall be construed
to confer upon any individual the right to remain in the service of the Company
or any subsidiary, or to interfere in any way with the right and authority of
the Company or any subsidiary either to increase or decrease the compensation of
any individual at any time, or to terminate any employment or other relationship
between any individual and the Company or any subsidiary. The obligation of the
Company to pay any benefits pursuant to the Plan shall be interpreted as a
contractual obligation to pay only those amounts described herein, in the manner
and under the conditions prescribed herein. The Plan shall in no way be
interpreted to require the Company to transfer any amounts to a third party
trustee or otherwise hold any amounts in trust or escrow for payment to any
participant or beneficiary under the terms of the Plan.
16. No Trust or Fund.
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies, other property, or
Shares, or to create any trusts, or to make any special deposits for any
immediate or deferred amounts payable to any Participant, and no Participant
shall have any rights that are greater than those of a general unsecured
creditor of the Company.
E-9
17. Nonexclusivity.
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable.
18. Indemnification.
To the extent permitted by applicable law, the Committee and Board shall be
indemnified and held harmless by the Company against and from any and all loss,
cost, liability or expense that may be imposed upon or reasonably incurred by
the Committee or Board in connection with or resulting from any claim, action,
suit or proceeding to which the Committee or Board may be a party or in which
the Committee or Board may be involved by reason of any action taken or failure
to act under the Plan, and against and from any and all amounts paid by the
Committee or Board (with the Company's written approval) in the settlement
thereof, or paid by the Committee or Board in satisfaction of a judgment in any
such action, suit or proceeding except a judgment in favor of the Company;
subject, however, to the conditions that upon the institution of any claim,
action, suit or proceeding against the Committee (or Board, as the case may be),
the Committee or Board shall give the Company an opportunity in writing, at its
own expense, to handle and defend the same before the Committee (or Board, as
the case may be) undertakes to handle and defend it on the Committee's or
Board's own behalf. The foregoing right of indemnification shall not be
exclusive of any other right to which such persons may be entitled as a matter
of law, under the Company's Certificate of Incorporation, By-Laws, or any
indemnification agreement with the Company, or otherwise, or any power the
Company may have to indemnify the Committee or Board or hold the Committee or
Board harmless.
The Committee, the Board and each officer and participant shall be fully
justified in reasonably relying or acting upon any information furnished in
connection with the administration of the Plan by the Company or any employee.
In no event shall any persons who are or were members of the Committee or Board,
or an officer or employee of the Company, be liable for any determination made
or other action taken or any omission to act in reliance upon any such
information, or for any action (including furnishing of information) taken or
any failure to act, if in good faith.
19. Severability.
In the event that any provision of the Plan shall be held illegal or
invalid for any reason, such illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
20. Governing Law.
To the extent not preempted by federal law, the Plan and all option and
restricted stock agreements hereunder shall be construed in accordance with and
governed by the laws of the State of Delaware applicable to contracts made and
to be performed entirely within the State.
E-10
APPENDIX F
SEVENTH CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF
INCORPORATION OF ARLINGTON HOSPITALITY, INC.
ARLINGTON HOSPITALITY, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a regular meeting of the members of the board of directors
of the Corporation, resolutions were duly adopted setting forth proposed
amendments to the Restated Certificate of Incorporation of the Corporation and
declaring said amendments to be advisable. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that upon approval by the requisite vote of the holders of the
Corporation's common stock, $.005 par value ("Common Stock") and the filing of
the requisite certificate of amendment to the Corporation's Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware, Section I
of Article IV of the Corporation's Restated Certificate of Incorporation be
amended to read in its entirety as follows:
"I. Common Stock
The total number of shares of Common Stock which the Corporation has
authority to issue is 25,000,000 shares, $0.005 par value per share.
1. Dividends.
The holders of the Common Stock are entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation.
In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding up of the Corporation, after distribution in
full of the preferred amounts, if any, holders of Common Stock shall be entitled
to receive all of the remaining assets of the Corporation of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively. The Board of Directors may
distribute in kind to the holders of Common Stock such remaining assets of the
Corporation or may sell, transfer or otherwise dispose of all or any part of
such remaining assets to any other corporation, trust or other entity and
receive payment therefor in cash, stock or obligations of such other
corporation, trust or other entity, or any combination thereof, and may sell all
or part of the consideration so received and distribute any balance therefore in
kind to holders of Common Stock. The merger or consolidation of the Corporation
into with any other corporation, or the merger of any other corporation into it,
or any purchase or redemption of shares of stock of the Corporation of any
class, shall not be deemed to be a dissolution, liquidation or winding up of the
Corporation for the purposes of this paragraph.
3. Voting Rights.
Except as may be otherwise required by law or this Certificate of
Incorporation, each holder of Common Stock has one non-cumulative vote in
respect of each share of stock held by him of record on the books of the
Corporation on all matters voted upon the stockholders.
4. Reverse Split.
Without regard to any other provision of this Restated Certificate of
Incorporation (including, without limitation, all of the provisions of Article
IV), all of which are hereby amended as and to the extent necessary to allow the
matters and transactions contemplated and effected hereby), each one (1) share
of Common Stock, either issued and outstanding or held by the Corporation as
treasury stock, immediately prior to the time this amendment becomes effective
shall be and is hereby automatically reclassified and changed (without any
further act) into one-hundredth (1/100th) of a fully-paid and non-assessable
share of Common Stock, without increasing or decreasing the amount of stated
capital or paid-in surplus of the Corporation, provided that no fractional
shares shall be issued to any holder of fewer than 100 shares of Common Stock
immediately prior to the time this amendment becomes
F-1
effective, and that instead of issuing such fractional shares to such holders,
the Corporation shall pay in cash the fair value of such fractions of a share as
of the time when this amendment becomes effective."
SECOND: That at the annual meeting of stockholders, said amendments were
duly adopted in accordance with the applicable provisions of Sections 242 of the
General Corporation Law of the State of Delaware.
THIRD: That the certificate shall become effective at 5:00 p.m. central
time on [EFFECTIVE DATE], in accordance with the applicable provisions of
Section 103 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Arlington Hospitality, Inc. has caused this certificate
to be signed by its Secretary this ______th day of ________________________,
2003.
By: _______________________________
Name: James B. Dale
Title: Secretary
F-2
APPENDIX G
EIGHTH CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF
INCORPORATION OF ARLINGTON HOSPITALITY, INC.
ARLINGTON HOSPITALITY, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a regular meeting of the members of the board of directors
of the Corporation, resolutions were duly adopted setting forth proposed
amendments to the Restated Certificate of Incorporation of the Corporation and
declaring said amendments to be advisable. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that upon approval by the requisite vote of the holders of the
Corporation's common stock, $.005 par value ("Common Stock") and the filing of
the requisite certificate of amendment to the Corporation's Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware, Section I
of Article IV of the Corporation's Restated Certificate of Incorporation be
amended to read in its entirety as follows:
"I. Common Stock
The total number of shares of Common Stock which the Corporation has
authority to issue is 25,000,000 shares, $0.005 par value per share.
1. Dividends.
The holders of the Common Stock are entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation.
In the event of the voluntary or involuntary liquidation, dissolution,
distribution of assets or winding up of the Corporation, after distribution in
full of the preferred amounts, if any, holders of Common Stock shall be entitled
to receive all of the remaining assets of the Corporation of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively. The Board of Directors may
distribute in kind to the holders of Common Stock such remaining assets of the
Corporation or may sell, transfer or otherwise dispose of all or any part of
such remaining assets to any other corporation, trust or other entity and
receive payment therefor in cash, stock or obligations of such other
corporation, trust or other entity, or any combination thereof, and may sell all
or part of the consideration so received and distribute any balance therefore in
kind to holders of Common Stock. The merger or consolidation of the Corporation
into with any other corporation, or the merger of any other corporation into it,
or any purchase or redemption of shares of stock of the Corporation of any
class, shall not be deemed to be a dissolution, liquidation or winding up of the
Corporation for the purposes of this paragraph.
3. Voting Rights.
Except as may be otherwise required by law or this Certificate of
Incorporation, each holder of Common Stock has one non-cumulative vote in
respect of each share of stock held by him of record on the books of the
Corporation on all matters voted upon the stockholders.
4. Forward Split.
Without regard to any other provision of this Restated Certificate of
Incorporation (including, without limitation, all of the provisions of Article
IV), all of which are hereby amended as and to the extent necessary to allow the
matters and transactions contemplated and effected hereby, each one (1) share of
Common Stock, either issued and outstanding or held by the Corporation as
treasury stock (and including each fractional share held by any stockholder and
each fractional interest held by the Corporation or its agent pending
disposition on behalf of those entitled thereto), immediately prior to the time
this amendment becomes effective shall be and hereby is automatically
reclassified and changed (without any further act) into one hundred (100)
fully-paid and nonassessable shares of Common Stock (or, with respect to such
fractional shares and interests, such lesser number of shares and
G-1
fractional shares or interests as may be applicable based upon such 1 to 100
ratio), without increasing or decreasing the amount of stated capital or paid-in
surplus of the Corporation, provided that no fractional shares shall be issued."
SECOND: That at the annual meeting of stockholders, said amendments were
duly adopted in accordance with the applicable provisions of Sections 242 of the
General Corporation Law of the State of Delaware.
THIRD: That the certificate shall become effective at 5:01 p.m. central
time on [EFFECTIVE DATE], in accordance with the applicable provisions of
Section 103 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Arlington Hospitality, Inc. has caused this certificate
to be signed by its Secretary this ______th day of ________________________,
2003.
By: _______________________________
Name: James B. Dale
Title: Secretary
G-2
[ARLINGTON HOSPITALITY LOGO]
ARLINGTON HOSPITALITY, INC. VOTE BY MAIL
ATTN: INVESTOR RELATIONS Mark, sign, and date your proxy
2355 S. ARLINGTON HEIGHTS ROAD, SUITE 400 card and return it in the postage-
ARLINGTON HEIGHTS, IL 60005 paid envelope we have provided or
return it to Arlington
Hospitality, Inc., c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
ARLHS1 KEEP THIS PORTION FOR YOUR RECORD
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
====================================================================================================================================
ARLINGTON HOSPITALITY, INC.
The board of directors recommends a vote
FOR the following proposals.
Vote On Directors
For Withhold For All To withhold authority to vote, mark "For All Except"
1. ELECTION OF DIRECTORS All All Except and write the nominee's number on the line below.
01) Steven J. Belmonte 05) Thomas J. Romano
02) Salomon J. Dayan 06) Andrew E. Shapiro [ ] [ ] [ ] ____________________________________________________
03) Kenneth M. Fell 07) Gerald T. LaFlamme
04) Jerry H. Herman
Vote On Proposals For Against Abstain
2. Proposal to ratify appointment of KPMG LLP as independent auditors for the year ending [ ] [ ] [ ]
December 31, 2003
3. Proposal to approve the 2003 Non-Employee Director Stock Compensation Plan. [ ] [ ] [ ]
4. Proposal to approve the 2003 Long-Term Incentive Plan. [ ] [ ] [ ]
5. Proposal to approve a 1-for-100 reverse stock split, followed by a 100-for-1 forward [ ] [ ] [ ]
stock split.
Please sign exactly as name appears on your stock
certificates. For joint accounts, all tenants should
sign. If signing for an estate, trust, corporation,
partnership or other entity, title or capacity should
be stated.
----------------------------------------------- -------------------------------------
=============================================== =====================================
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
====================================================================================================================================
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
================================================================================
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
Arlington Hospitality, Inc.
2355 S. Arlington Heights Road, Suite 400
Arlington Heights, Illinois 60005
The undersigned hereby appoints Jerry H. Herman and James B. Dale as proxies,
each with the power to appoint his substitute, and hereby authorizes them, each
acting alone, to represent and to vote, as designated on the reverse side, all
the common stock of Arlington Hospitality, Inc. the undersigned is entitled to
vote at the close of business on September 22, 2003, at the annual meeting of
stockholders to be held on October 29, 2003, and any adjournment thereof, with
all the powers the undersigned would possess if present.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, the proxies will vote for
all of the proposals on the reverse side. If any other matters properly come
before the meeting, the proxies will vote on these matters in their discretion.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY
USING THE ENCLOSED RETURN ENVELOPE
================================================================================