<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] 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 (S) 240.14a-11(c) or (S) 240.14a-12
SUNBURST HOSTPITALITY CORPORATION
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
SUNBURST HOSPITALITY CORPORATION
10770 Columbia Pike
Silver Spring, Maryland 20901
NOTICE OF ANNUAL MEETING
To Be Held May 10, 2000
--------------------------------
To the Stockholders of
SUNBURST HOSPITALITY CORPORATION
The 2000 Annual Meeting of Stockholders (the "Annual Meeting") of Sunburst
Hospitality Corporation, a Delaware corporation ("Sunburst") will be held at the
Quality Suites Hotel, 3 Research Court, Rockville, Maryland 20850 at 11:00 a.m.
(E.D.T.) on Wednesday, May 10, 2000 for the following purposes:
1. To elect three Class I directors to hold office for a three-year term
ending at the 2003 Annual Meeting of Stockholders and their successors are
elected and qualified; and
2. To transact such other business as may properly come before the Annual
Meeting.
Holders of record of Sunburst common stock at the close of business on
March 30, 2000, will be entitled to notice of, and to vote at, the Annual
Meeting or any adjournment(s) or postponement(s) thereof. Stockholders are
reminded that your shares of Sunburst common stock cannot be voted unless you
properly execute and return the enclosed proxy card or make other arrangements
to have your shares represented at the meeting. A list of stockholders will be
available for inspection at the office of Sunburst located at 10770 Columbia
Pike, Silver Spring, Maryland, at least 10 days prior to the Annual Meeting.
By Order of the Board of Directors
SUNBURST HOSPITALITY CORPORATION
Douglas H. Verner
Secretary
April 10, 2000
Silver Spring, Maryland
TO VOTE YOUR SHARES, PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
SUNBURST HOSPITALITY CORPORATION
10770 COLUMBIA PIKE
SILVER SPRING, MARYLAND 20901
_________________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 2000
__________________________
GENERAL INFORMATION
This proxy statement ("Proxy Statement") is furnished in connection with
the solicitation of proxies by the Board of Directors of Sunburst Hospitality
Corporation, a Delaware corporation ("Sunburst"), for use at the 2000 Annual
Meeting of Stockholders of Sunburst to be held at 11:00 a.m. (E.D.T.) on May 10,
2000, at the Quality Suites Hotel, 3 Research Court, Rockville, Maryland and at
any adjournment(s) or postponement(s) thereof (the "Annual Meeting"). This Proxy
Statement and proxy card are being mailed to Sunburst's stockholders on or about
April 10, 2000.
Sunburst's Annual Report on Form 10-K (including certified financial
statements) for the twelve-month period ended December 31, 1999 accompanies this
Proxy Statement, but is not part of the proxy solicitation material.
Voting of Proxies
Your vote is important. Shares can be voted at the Annual Meeting only if
you are present in person or represented by proxy. Even if you plan to attend
the meeting, you are urged to sign, date and return the accompanying proxy card.
When the enclosed proxy card is properly signed, dated and returned, the
stock represented by the proxy will be voted in accordance with your directions.
You can specify your voting instructions by marking the appropriate box on the
proxy card. If your proxy card is signed and returned without specific voting
instructions, your shares of Sunburst common stock will be voted as recommended
by the directors: "FOR" the election of the three nominees for director named on
the proxy card. Abstentions marked on the proxy card are voted "against" the
directors' proposals but are counted in the determination of a quorum.
You may revoke your proxy at any time before it is voted at the meeting by
(i) filing with American Stock Transfer & Trust Company in its capacity as
transfer agent for Sunburst (the "Transfer Agent"), at or before the Annual
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) executing a later-dated proxy relating to the same shares of Sunburst
Common Stock and delivering it to the Transfer Agent at or before the Annual
Meeting, or (iii) attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not, without voting, constitute a
revocation of a proxy). Any written notice revoking a proxy should be sent to
American Stock Transfer & Trust Company, 40 Wall Street, New York, New York
10005.
Votes Required
The close of business on March 30, 2000 has been fixed as the record date
for determination of holders of Sunburst common stock entitled to notice of and
to vote at the Annual Meeting. On that date, there were outstanding and entitled
to vote 15,358,837 shares of Sunburst common stock. The presence, either in
person or by proxy, of persons entitled to cast a majority of such votes
constitutes a quorum for the transaction of business at the Annual Meeting.
Abstentions and broker "no"-votes on returned proxies are counted as shares
present in the determination of whether the shares of stock represented at the
Annual Meeting constitute a quorum.
Stockholders are entitled to one vote per share on all matters submitted
for consideration at the Annual Meeting. With regard to the election of
directors, votes may be cast in favor of, or withheld from, one or all nominees.
Votes that are withheld will be excluded entirely from the vote and will have no
effect. Abstentions are counted towards a quorum in tabulations of the votes
cast on proposals presented to the stockholders. Broker non-
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votes are not counted for purposes of determining whether a proposal has been
approved. A broker "non-vote" occurs when a nominee holding shares of Sunburst
common stock for a beneficial owner does not vote on a particular item and has
not received instructions from the beneficial owner.
The affirmative vote of a plurality of shares of Sunburst common stock
present in person or represented by proxy at the Annual Meeting is required to
elect the directors nominated. "Plurality" means that the individuals who
receive the largest number of votes cast are elected as directors up to the
maximum number of directors to be chosen at the meeting.
Certain members of the Bainum family (including various trusts,
partnerships and corporations established by members of the Bainum family) in
the aggregate have the right to vote approximately 46.46% of the number of
outstanding shares of Sunburst common stock. Stewart Bainum, Jr., who
beneficially holds 17.93% of the outstanding shares of Sunburst common stock
has indicated an intention to vote in accordance with the recommendations of the
Board of Directors. Other members of the Bainum family have not been polled as
to how they intend to vote.
Solicitation of Proxies
Sunburst will bear the cost of the solicitation. In addition to
solicitation by mail, Sunburst will request banks, brokers and other custodian
nominees and fiduciaries to supply proxy material to the beneficial owners of
Sunburst common stock of whom they have knowledge, and will reimburse them for
their expenses in so doing. Directors, officers and other employees of Sunburst,
not specially employed for the purpose, may solicit proxies without additional
remuneration therefore, by personal interview, mail, telephone or telegraph.
ELECTION OF CLASS III DIRECTORS
The Board of Directors currently consists of three classes of directors, as
nearly equal in number as possible. Directors hold office for staggered terms of
three years (or less if they are filling a vacancy) and until their successors
are elected and qualified. One of the three classes, comprising approximately
one-third of the directors, is elected each year to succeed the directors whose
terms are expiring. The directors in Class I will be elected at the 2000 Annual
Meeting to serve for a term expiring at Sunburst's Annual Meeting of
Stockholders in the year 2003. The directors in Classes II have terms expiring
in 2001, and the directors in Class III have terms expiring at Sunburst's Annual
Meeting of Stockholders 2002.
Sunburst's Board of Directors has proposed the following nominees for
election as directors at the annual meeting:
Nominees for Class I Directors
With Terms Expiring at the Annual Meeting in the Year 2003:
Christine A. Shreve
Carole Y. Prest
Keith P. Pitts
The Board of Directors recommends a vote "FOR" the election of the above-
named nominees as directors for a term of three years. Proxies solicited by the
Board of Directors will be voted "FOR" the election of the nominees, unless
otherwise instructed on the proxy card.
Information is provided below with respect to each nominee for election and
each director continuing in office. Should one or more of these nominees become
unavailable to accept nomination or election as a director, the individuals
named as proxies on the enclosed proxy card will vote the shares that they
represent for the election of such other persons as the Board may recommend,
unless the Board reduces the number of directors. The Board of Directors knows
of no reason why any of the nominees will be unavailable or unable to serve.
Nominees for Election as Directors
Class I -- Nominees for Terms Expiring 2003
Christine A. Shreve, 42, Member of the Board of Sunburst since June 1998.
President, Shreve, Bowersox, P.C., an independent accounting firm, since 1992.
Director: Realty Investment Company.
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Carole Y. Prest, 48, Member of the Board of Sunburst since November 1997.
President, Maridea LLC, a strategy consulting firm, since December 1998; Senior
Vice President, Strategy, Marketing and Product Development for Manor Care from
September 1997 to November 1998; President and Chairman of the Board, Manor Care
Foundation, April 1997 to November, 1998; Vice President, Corporate Strategic
Planning, September 1995, through September 1997; Vice President and General
Manager and various other positions at Genrad 1985 through 1994. Director: Board
of Advisors - Integrated Health Networks, Operation Smile - Washington, D.C.
Board of Governors, and Greater Washington Board of Directors - Arthritis
Foundation.
Keith B. Pitts, 42, Member of the Board of Sunburst since November 1997.
Executive Vice President, Vanguard Heath Systems from July, 1999 to present;
Chairman and Chief Executive Officer of the Mariner Post-Acute Network, Inc.
from November 1997 to June, 1999; Consultant to Apollo from August 1997 to
November 1997; Consultant to Tenant Healthcare Corp. ("Tenant") from February
1997 to August 1997; Executive Vice President and Chief Financial Officer of
OrNda Health Corp. from August 1992 until its merger with Tenet in January 1997.
Class II - Terms Expire 2001
Stewart Bainum, Jr., 55, Chairman of the Board of Sunburst from November
1996 to July 1998 and since December 1998; a member of the Board of Sunburst's
predecessors from 1982 to July 1998; Chairman of the Board of Choice Hotels
International, Inc. from March 1987 to November 1996 and since October 1997;
Chairman of the Board of Manor Care since September 1998; Chairman of the
Board and Chief Executive Officer of Manor Care and Manor Care Health Services,
Inc. ("MCHS") from March 1987 to September 1998, Chief Executive Officer of
Manor Care since March 1987 and President since June 1989; Vice Chairman of the
Board of Vitalink Pharmacy Services, Inc. ("Vitalink") since December 1994; Vice
Chairman of the Board of Manor Care and subsidiaries from June 1981 to March
1987; Director of Manor Care since August 1981, of Vitalink since September 1991
and of MCHS since 1976; President of MCHS from May 1990 to May 1991; Chairman of
the Board and Chief Executive Officer of Vitalink from September 1991 to
February 1995 and President and Chief Executive Officer from March 1987 to
September 1991. Director: Manor Care, Inc.; Choice Hotels International, Inc.;
John Hopkins University.
Paul A. Gould, 54, Managing Director of Allen & Company Incorporated
(investment banking firm) for more than five years and other positions at Allen
& Company Incorporated since 1973; Director of Sunburst since November 1996.
Director: Liberty Media Corporation and Ascent Entertainment Group.
Class III --Terms Expire in 2002
Donald J. Landry, 51, Chief Executive Officer, President and Vice Chairman
of Sunburst since July 1999, Chief Executive Officer and Vice Chairman of
Sunburst Hospitality Corporation since October 1997; President of Choice Hotels
International, Inc. from January 1995 to October 1997; President of Manor Care
Hotel Division ("MCHD") from March 1992 to November 1996; various executive
positions with Richfield Hotel Management, Inc. and its predecessors for more
than 16 years, including President of MHM Corporation.
Leland C. Pillsbury, 53, Founder, Chairman and CEO of Thayer Lodging Group,
Inc. (one of the 10 largest private owner/developer of hotels in the U.S.) He
has held those positions with Thayer since 1989. Director of Sunburst since
April, 1999.
The Board of Directors
The Board of Directors is responsible for overseeing the overall
performance of Sunburst. Members of the board are kept informed of Sunburst's
business through discussions with the Chairman, the Chief Executive Officer and
other members of Sunburst's management, by reviewing materials provided to them
and by participating in board and committee meetings. The Board of Directors
consists of seven directors. Five of the directors are not, and have never been,
officers of Sunburst.
For the twelve-months ended December 31, 1999, the Board of Directors held
five meetings. In 1999, each director attended all of the meetings of the Board
of Directors and of the committees of the Board of Directors on which such
director served since the time that such director joined the Board of Directors.
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Committees of the Board
The standing committees of the Board of Directors include the Audit, Ethics
and Compliance Committee, the Compensation/Key Executive Stock Option Plan
Committee, and the Nominating and Corporate Governance Committee. The current
members of the standing committees are as follows:
Compensation/Key Executive Stock Option Nominating & Corporate
Plan Committee Governance Committee
Keith B. Pitts, Chair Carole Y. Prest, Chair
Leland C. Pillsbury Paul A. Gould
Audit, Ethics and Compliance
Committee
Paul A. Gould, Chair
Carole Y. Prest
Christine A. Shreve
The Compensation/Key Executive Stock Option Plan Committees administer
Sunburst's stock option plans and grant stock options thereunder, review
compensation of officers and key management employees, recommend development
programs for employees such as training, bonus and incentive plans, pensions and
retirement, and review other employee fringe benefit programs. The
Compensation/Key Executive Stock Option Plan Committees held four meetings
during the twelve-months ended December 31, 1999.
The Nominating and Corporate Governance Committee is responsible for
administering the Sunburst Corporate Governance Guidelines, assessing the
functioning of the Board, determining size and composition of the Board,
recommending candidates to fill vacancies on the Board, determining actions to
be taken with respect to directors who are unable to perform their duties,
setting Sunburst's policies regarding the conduct of business between Sunburst
and any other entity affiliated with a director and determining the compensation
of non-employee directors. The Nominating and Corporate Governance Committee met
once during the twelve-month period ended December 31, 1999. This Committee will
consider nominees submitted by security holders. To make a nomination for
director at the Annual Meeting of Stockholders to be held in 2001, security
holders should submit a name, and brief biography of the nominee, to Sunburst's
corporate secretary by March 10, 2001.
The Audit, Ethics and Compliance Committee reviews the scope and results of
the annual audit, reviews and approves the services and related fees of
Sunburst's independent public accountants, reviews Sunburst's internal
accounting controls and reviews Sunburst's Internal Audit Department and its
activities. It also reviews telephone calls to the Sunburst ethics hotline, and
oversees the implementation of the Sunburst corporate compliance program. The
Audit Committee met twice during the twelve-month period ended December 31,
1999.
Compensation of Directors
Sunburst compensates its directors under two programs:
(1) The Sunburst Hospitality Corporation Non-Employee Director Stock Option and
Deferred Compensation Stock Purchase Plan. Part A of the Plan provides that
eligible non-employee directors are granted options to purchase 5,000
shares of Sunburst's common stock on their first date of election and are
granted options to purchase 1,000 shares on their date of election in
subsequent calendar years. Part B of the Plan provides that eligible non-
employee directors may elect to defer a minimum of 25% of committee fees
earned during the ensuing fiscal year. The fees which are so deferred will
be used to purchase Sunburst's common stock on the open market within 15
days after December 1, February 28 and May 31 of such fiscal year. Pending
such purchases, the funds will be credited to an Interest Deferred Account,
which will be interest bearing. Stock, which is so purchased, will be
deposited in a Stock Deferred Account pending distribution in accordance
with the Plan.
(2) The Non-Employee Director Stock Compensation Plan. Eligible non-employee
directors will receive annually, in lieu of cash, restricted shares of
Sunburst's common stock, the fair market value of which at the time of
grant will be equal to $30,000, which will represent the Board of Directors
retainer and meeting fees. In addition, all non-employee directors receive
$1,610 per diem for Committee meetings attended on a date other than a date
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that the Board of Directors meets. Directors are reimbursed in cash for
travel expenses and other out-of-pocket expenses.
Directors who are employees of Sunburst receive no separate remuneration
for their services as directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the amount of Sunburst's common stock
beneficially owned by (i) each director of Sunburst, (ii) Sunburst's chief
executive officer and the other four most highly compensated executive officers
(the "Named Officers"), (iii) all officers and directors of Sunburst as a group
and (iv) all persons who are known by Sunburst to own beneficially more than 5%
of Sunburst's common stock, as of March 30, 2000. Unless otherwise specified,
the address for each of them is 10770 Columbia Pike, Silver Spring, Maryland,
20901.
<TABLE>
<CAPTION>
Shares of
Common Stock Percent of Shares
Name of Beneficial Owner Beneficially Owned Outstanding(1)
------------------------ ------------------ ----------------
<S> <C> <C>
Stewart Bainum, Jr.+........................................ 2,754,008 (2) 17.93%
Antonio DiRico.............................................. 140,532 (3) *
Paul A. Gould............................................... 139,906 (4) *
Kevin P. Hanley++........................................... 114,405 (5) *
Donald J. Landry++.......................................... 749,862 (6) *
James A. MacCutcheon++...................................... 367,559 (7) *
Gregory Miller++............................................ 77,874 (8) *
Leland Pillsbury............................................ 5,549 (9) *
Keith B. Pitts.............................................. 5,318(10) *
Carole Y. Prest............................................. 15,700(11) *
Christine A. Shreve......................................... 12,340(12) *
All Directors and Officers as a Group (11 persons).......... 4,383,053(13) 28.53%
Barbara Bainum+............................................. 2,475,707(14) 16.11%
Bruce Bainum+............................................... 3,128,348(15) 20.36%
Stewart Bainum+............................................. 3,579,931(16) 23.30%
Roberta Bainum+............................................. 1,805,934(17) 11.75%
Ronald Baron................................................ 1,105,960(18) 7.20%
Eric S. Dobbin.............................................. 893,650(19) 5.82%
</TABLE>
___________________________________
* Less than 1% of class.
+ The Bainum family and affiliated companies together control approximately
46.46% of Sunburst stock.
++ On February 16, 2000, the Board of Directors passed a resolution authorizing
Sunburst to offer current employees the opportunity to terminate stock options
with a strike price of $5.25 (the then current fair market price) or higher, and
replace the terminated options with an award of restricted stock to be based
upon a Black-Scholes valuation of the stock options terminated. As of March 16,
2000, all current employees elected to terminate the above market-value stock
options.
(1) Percentages are based on 15,358,837 shares outstanding on March 30, 2000
(the "Record Date") plus, for each person, the shares which would be issued
assuming that such person exercises all options he or she holds which are
exercisable on such date or become exercisable within 60 days thereafter.
(2) Includes 18,135 shares owned directly by Mr. Bainum, Jr. and 874,729 shares
owned directly by the Stewart Bainum, Jr. Declaration of Trust dated March
13, 1996, the sole trustee and beneficiary of which is the reporting
person. Also includes 1,189,290 shares held directly by Realty Investment
Company, Inc. ("Realty"), a real estate management and investment company
in which Mr. Bainum, Jr. has shared voting authority; 593,209 shares owned
by Mid Pines Associates Limited Partnership ("Mid Pines"), in which Mr.
Bainum, Jr. is managing general partner and has shared voting authority,
and 3,533 shares owned by the Foundation for Maryland's Future, in which
Mr. Bainum, Jr. is the sole director. Also includes 75,112 shares which Mr.
Bainum, Jr. has the right to acquire pursuant to stock options which are
presently exercisable or which become exercisable within 60 days after the
Record Date.
(3) Mr. DiRico resigned from the Company on June 2, 1999. Pursuant to an
Agreement, Mr. DiRico is entitled to continue to vest in his stock options
until July 2, 2000. Includes 5,392 shares held directly by Mr. DiRico. Also
includes 133,309 shares, which Mr. DiRico has the right to acquire pursuant
to stock options, which are currently exercisable or become exercisable
within 60 days of the Record Date and 1,831 shares of restricted stock
which are not vested but which Mr. DiRico has the right to vote.
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(4) Includes 125,641 shares held directly by Mr. Gould, 8,118 shares of
restricted stock granted under the Non-Employee Director Stock Compensation
Plan to Mr. Gould which are not vested but which Mr. Gould has the right to
vote and 6,147 shares which Mr. Gould has a right to acquire pursuant to
stock options which are currently exercisable or become exercisable within
60 days of the Record Date.
(5) Includes 5,510 shares held directly by Mr. Hanley and 108,895 shares of
restricted stock which are not vested but which Mr. Hanley has the right to
vote.
(6) Includes 29,774 shares owned directly by Mr. Landry and 297,730 shares Mr.
Landry has the right to acquire pursuant to stock options which are
presently exercisable or which become exercisable within 60 days after the
Record Date and 398,603 shares of restricted stock which are not vested but
which Mr. Landry has the right to vote. Also includes 3,495 shares which
Mr. Landry has the right to receive on termination of his employment
pursuant to the terms of the 401(k) Plan.
(7) Includes 24,166 shares owned directly by Mr. MacCutcheon and 1,084 and
1,167 shares, respectively, which Mr. MacCutcheon has the right to receive
upon termination of his employment pursuant to the 401(k) Plan and the Non-
Qualified Plan. Also includes 100 shares held by minor children. Beneficial
ownership of such shares is disclaimed. Also includes 104,064 shares Mr.
MacCutcheon has the right to acquire pursuant to stock options which are
presently exercisable or which become exercisable within 60 days after the
Record Date and 235,252 shares of restricted stock which are not vested but
which Mr. MacCutcheon has the right to vote.
(8) Includes 4,253 held directly by Mr. Miller and 269 and 521 shares,
respectively, which Mr. Miller has the right to receive upon termination of
his employment pursuant to the terms of the 401(k) Plan and the Non-
Qualified Plan. Also includes 72,029 shares of restricted stock which are
not vested but which Mr. Miller has the right to vote.
(9) Consists of 5,549 shares granted under the Non-Employee Director Stock
Compensation Plan which are not vested. Mr. Pillsbury has the right to vote
all 5,549 shares.
(10) Consists of 9,256 restricted shares granted under the Non-Employee Director
Stock Compensation Plan which are not vested. Mr. Pitts has the right to
vote all 9,256 shares. Also includes 1,667 shares Mr. Pitts has the right
to acquire pursuant to stock options which are presently exercisable or
which become exercisable within 60 days after the Record Date.
(11) Includes 11,006 restricted shares granted under the Non-Employee Director
Stock Compensation Plan which are not vested. Ms. Prest has the right to
vote all 11,006 shares. Also includes 4,694 shares Ms. Prest has the right
to acquire pursuant to stock options which are presently exercisable or
which become exercisable within 60 days after the Record Date.
(12) Includes 1,599 shares held directly by Ms. Shreve and 10,741 restricted
shares granted under the Non-Employee Director stock Compensation Plan
which are not vested. Ms. Shreve has the right to vote all 10,741 shares.
(13) Includes a total of 4,383,053 shares which the officers and directors
included in the group have the right to acquire pursuant to stock options
which are presently exercisable, or exercisable within 60 days of the
Record Date, and a total of 4,848 shares and 1,688 shares, respectively,
which such directors and officers have the right to receive upon
termination of their employment with Sunburst pursuant to the terms of the
401(k) Plan and the Non-Qualified Savings Plan.
(14) Includes 326 shares held directly by Ms. Bainum and 98 restricted shares
granted under the Non-Employee Director Stock Compensation Plan which are
not vested, but which Ms. Bainum has the right to vote. Also includes
593,209 shares owned by Mid Pines, in which Ms. Bainum is a general partner
and has shared voting authority, 1,189,290 shares owned by Realty in which
Ms. Bainum's trust has voting stock and shared voting authority, 23,435
shares owned by Commonweal Foundation, in which Ms. Bainum is a Director
and has shared voting authority and 669,349 shares owned directly by
Barbara Bainum Declaration of Trust dated December 20, 1996, the sole
trustee and beneficiary is the reporting person.
(15) Includes 31,500 shares held directly by Mr. Bainum and 635,457 shares owned
directly by the Bruce Bainum Declaration of Trust dated March 13, 1997, the
sole trustee and beneficiary is the reporting person. Also includes 593,209
shares owned by Mid Pines, in which Mr. Bainum is a general partner and has
shared voting
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authority, 1,189,290 shares owned by Realty in which Mr. Bainum's trust has
voting stock and shared voting authority, and 23,435 shares owned by
Commonweal Foundation, in which Mr. Bainum is a Director and has shared
voting authority. Also includes 655,457 shares owned by the Roberta Bainum
Irrevocable Trust in which Mr. Bainum is the trustee and has sole voting
authority.
(16) Includes 414 shares held directly by Mr. Bainum and 2,011,636 shares held
directly by the Stewart Bainum Declaration of Trust, dated May 23, 1995, of
which Mr. Bainum is the sole trustee and beneficiary, his interest in
85,000 shares owned by Cambridge Investment, LLC in which Mr. Bainum is the
managing member with sole authority to vote the shares; 1,189,290 shares
held directly by Realty, in which Mr. Bainum and his wife have shared
voting authority; and 23,435 shares held by the Commonweal Foundation of
which Mr. Bainum is Chairman of the Board of Directors and has shared
voting authority. Also includes 266,237 shares held by the Jane L. Bainum
Declaration of Trust, the sole trustee and beneficiary of which is Mr.
Bainum's wife, and 621 shares which Mr. Bainum has the right to acquire
pursuant to stock options which are presently exercisable or which become
exercisable within 60 days after the Record Date. Also includes 3,298
shares of restricted stock granted under Sunburst's Non-Employee Director
Stock Compensation Plan ("Non-Employee Director Stock Compensation Plan")
to Mr. Bainum which are not vested but which Mr. Bainum has the right to
vote.
(17) Includes 1,189,290 shares held directly by Realty in which Ms. Bainum has
shared voting authority as a director; 593,209 shares owned by Mid-Pines in
which Ms. Bainum is a general partner and has shared voting authority; and
23,435 shares owned by Commonweal Foundation of which Ms. Bainum is a
director and has shared voting authority.
(18) As of December 31, 1999, based on a Schedule 13-D, filed by Mr. Baron with
the Securities and Exchange Commission (the "Commission"). Mr. Baron's
address is 450 Park Avenue, Suite 2800, New York, New York 10022.
(19) As of December 31, 1999, based on a Schedule 13-G filed by Mr. Dobbin with
the Commission. Mr. Dobbin filed on behalf of Hamilton Partners Limited.
Mr. Dobbin's address is 415 Madison Avenue, New York, New York 10017.
THE FOLLOWING COMPENSATION COMMITTEE REPORT AND THE PERFORMANCE GRAPH THAT
APPEARS IMMEDIATELY AFTER SUCH REPORT SHALL NOT BE DEEMED TO BE SOLICITING
MATERIAL OR TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY
REFERENCE IN ANY DOCUMENT SO FILED.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation/Key Executive Stock Option Plan Committee, (the "Committee") is
comprised of "outside directors" as defined in Section 162(m)(3) of the Code,
who approve awards under the 1996 Long-Term Incentive Plan to the Chief
Executive Officer and the Named Officers defined below. During 1999, the members
of the Committee were Messrs. Pitts (Chairman), and Pillsbury.
The following philosophy and principles have been set forth as a framework
within which the Committee operates.
Compensation Committee Philosophy and Guiding Principles
. Attract and retain talented management;
. Closely align management's interests and actions with those of
shareholders through the establishment of appropriate award
vehicles;
. Reward employees for enhancing stockholder value through
sustained improvement in revenues, customer satisfaction and
earnings before interest, taxes, depreciation, and amortization
("EBITDA"); and
-7-
<PAGE>
. Position base pay at market so that Sunburst can vary total
compensation based on performance.
Executive Compensation Policies
Compensation Levels
The Committee relates total compensation levels for Sunburst's executive
officers to the total compensation paid to similarly situated executives based
on various independently published compensation surveys, primarily conducted and
evaluated by independent consultants. Summary data on companies of similar size
in the hotel industry are used as the primary comparison and companies in the
service sector are used as a secondary comparison.
Total compensation is targeted to approximate the median of the competitive
market data and comparison companies. However, because of the performance-
oriented nature of the incentive programs, total compensation may exceed market
norms when Sunburst's targeted performance goals are exceeded. Similarly, total
compensation may lag the market when performance goals are not achieved. For the
twelve-months ended December 31, 1999, total compensation for the executive
officers, as a group, was below the median for the primary comparison group
(eleven hotel companies).
Policy with Respect to Qualifying Compensation for Deductibility
Sunburst's policy with respect to the deductibility limit of Section 162(m)
of the Internal Revenue Code generally is to preserve the federal income tax
deductibility of compensation paid when it is appropriate and is in the best
interests of Sunburst and its stockholders. However, Sunburst reserves the right
to authorize the payment of nondeductible compensation if it deems that is
appropriate. The Committee intends to monitor Sunburst's compensation programs
with respect to such laws.
Annual Compensation
The base salary pay practice is to target at the 55th percentile of the
market range among the comparison groups for a particular position and to adjust
as appropriate for experience and performance.
Awards under the annual cash bonus program for the twelve-months ended
December 31, 1999 were based on certain performance measurements, which were
based 60% on achieving targeted EBIDTA, 20% on customer satisfaction goals and
20% on revenue. For the twelve-months ended December 31, 1999, actual
performance exceeded the measurement goals for customer satisfaction, and was
below the measurement goals for the EBIDTA and revenue components.
Long-Term Incentives
Sunburst will award long-term incentives under the 1996 Long-Term Incentive
Plan. That plan gives the Compensation Committee the latitude of awarding
Incentive Stock Options, non-qualified stock options, restricted stock, and
other types of long-term incentive awards. The recommended awards were developed
by analyzing peer group average market data and Sunburst's past practice. In
June 1997, the Compensation Committee approved a Stock Option Guide Chart for
Sunburst's executives. The Stock Option Guide Chart was reviewed and revised in
February 1998. It utilizes a market-based salary multiple to establish a
competitive range of stock options from which executive awards can be
determined.
Compensation of the Chief Executive Officer
Donald J. Landry was Chief Executive Officer and President throughout 1999.
He is compensated pursuant to an employment agreement effective October 15,
1997, as amended on January 6, 2000. The terms of the agreement are described
below under "Executive Compensation -- Employment Agreements." Compensation
levels for Mr. Landry under the Employment Agreement is based on the
compensation paid to Mr. Landry's predecessor. Mr. Landry's bonus, stock option
grants, and restricted stock awards for 1999 were based on the 1998 performance
of Sunburst.
-8-
<PAGE>
THE COMPENSATION COMMITTEE
Leland Pillsbury, Chair
Keith B. Pitts
PERFORMANCE GRAPH
The following graph compares the performance of Sunburst's common stock
with the performance of the New York Stock Exchange Composite Index ("NYSE
Composite Index") and a peer group index (the "Peer Group Index") by measuring
the changes in common stock prices from October 16, 1997 (when Sunburst started
trading in its present form as owner and operator, but not franchisor of
hotels), plus assumed reinvested dividends. The Commission's rules require that
Sunburst select a peer group in good faith with which to compare its stock
performance by selecting a group of companies in lines of business similar to
its own. Accordingly, Sunburst has selected a peer group that includes companies
which are actively traded on the New York Stock Exchange or the NASDAQ Stock
Market and which are in the hotel franchising and/or hospitality industry. The
common stock of the following companies has been included in the Peer Group
Index: Prime Hospitality Corp., Homestead Village, Inc., Candlewood Hotel
Company, Inc., and Lodgian, Inc. (formerly known as Servico)./1/
The graph assumes that $100 was invested on October 16, 1997, in each of
Sunburst common stock, the NYSE Composite Index and the Peer Group Index, and
that all dividends were reinvested. In addition, the graph weighs the
constituent companies on the basis of their respective capitalization, measured
at the beginning of each relevant time period.
[GRAPH APPEARS HERE]
________________________
/1/ The Peer Group has changed from the group included in past year's
Performance Graph by the deletion of one member, Red Roof Inns, Inc., and the
addition of Homestead Village, Inc. Red Roof Inns, Inc. was acquired in 1999 by
a global hospitality company and its shares are no longer separately traded.
Homestead Village, Inc. competes in the mid-priced extended-stay suite market.
That market comprises an increasing share of Sunburst's business.
-9-
<PAGE>
<TABLE>
-----------------------------------------------------------------------------
10/16/97 12/31/97 6/30/98 12/31/98 6/30/99 12/31/99
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sunburst 100.00 95.8 67.3 41.2 59.4 54.5
- ----------------------------------------------------------------------------------------------------------
NYSE Composite Index 100.00 102.4 117.3 122.9 134.5 134.7
- ----------------------------------------------------------------------------------------------------------
Peer Group Index 100.00 93.4 79.2 39.9 41.2 29.9
- ----------------------------------------------------------------------------------------------------------
</TABLE>
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation(1) Long-Term compensation
---------------------- ----------------------
Fiscal Restricted Stock Stock Option All Other
Name and Principal Position Year(1) Salary Bonus Other Awards ($)(2) Shares (#)(3) Compensation(4)
- --------------------------- -------- ------ ----- ----- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald J. Landry (7) 1999 432,232 89,871 729,810.00 -- 19,100
Vice Chairman and Chief 1998 424,463 198,533 95,077.85 110,000 19,631
Executive Officer 1997A 421,975 200,508 106,000 (7) 6,035
1997B 404,250 200,508 (5) -- 100,000 (8) 6,035
James A. MacCutcheon (9) 1999 325,490 62,608 324,360.00 -- 19,378
Executive Vice 1998 322,980, 141,196 52,542.01 50,000 20,304
President, 1997A 312,900 52,263 -- 46,500 (10) 18,682
Chief Financial Officer 1997B 313,578 158,953 (5) -- 67,500 (11) 18,682
& Treasurer
Antonio DiRico (16) 1999 284,472 50,300 -- -- 11,677
President & Chief 1998 259,500 100,120 35,194.56 65,000 8,360
Operating Officer 1997A 259,499 86,524 -- 80,600 (12) 3,043
1997B 196,200 86,584 (5) -- 25,000 (13) 3,043
Kevin D. Hanley 1999 187,500 27,764 243,270.00 525
Senior Vice President 1998 175,000 51,594 27,750.79 45,000 --
Real Estate Development 1997A 174,999 84,452 -- 51,200 (14) --
1997B 144,890 51,776 (5) -- 2,727 (15) --
Gregory Miller 1999 166,000 25,384 189,210.00 7,125
Senior Vice President 1998 158,350 66,538 (5) 20,297.20 20,000 7,110
Human Resources 1997A -- -- -- -- --
1997B -- -- -- -- --
</TABLE>
(1) On September 16, 1997, Sunburst changed its fiscal year end on May 31 to
December 31. Accordingly, the summary compensation information presented is
for the twelve-months ended December 31, 1997 ("1997A"), the fiscal year
ended May 31, 1997 ("1997B"). Summary compensation data paid to the Named
Officers during the period between January 1, 1997 and May 31, 1997 is
reflected in each of the 1997A and 1997B periods.
(2) On June 29, 1998, Sunburst issued restricted stock to officers in lieu of
merit increases for calendar year 1998, which vest over three (3) years. On
June 16, 1999, Sunburst issued restricted stock to officers as part of the
long-term compensation program, which vest over five (5) years.
(3) For all of the Named Officers, except for Mr. MacCutcheon, the grants in
1997B represent options to purchase shares of Manor Care common stock. In
connection with the Manor Care Spin-off, the options to purchase Manor Care
common stock were converted, in some cases 100%, to options to purchase
Sunburst common stock. For Mr. MacCutcheon and with respect to grants in
1997B and for all of the Named Officers with respect to grants in 1997A,
represents options to acquire shares of Sunburst common stock. In
connection with the Choice Spin-off, the options to purchase Sunburst
common stock were converted to successor options to purchase Sunburst
common stock and Choice common stock. In all cases, however, the exercise
prices were adjusted to maintain the same financial value to the option
holder before and after the Manor Care Spin-off and the Choice Spin-off.
(4) Represents amounts contributed by Sunburst for 1999, 1998, 1997A and 1997B
under their respective 401(k) Plan and Non-Qualified Savings Plan, which
provide retirement and other benefits to eligible employees,
-10-
<PAGE>
including the Named Officers. The value of the amounts contributed in stock
by Sunburst for 1999, 1998, 1997A and 1997B under the 401(k) Plan and Non-
qualified Savings Plan, respectively, for the Named Offices were as
follows: Mr. Landry, $19,150, $19,631, $2,375 and $3,660; Mr. MacCutcheon,
$19,378, $20,304, $6,240 and $12,443; Mr. DiRico, $11,677, $8,360, $966 and
$2,077; Mr. Hanley $525 and Mr. Miller $7,125, $7,110.
(5) The value of perquisites and other compensation does not exceed the lesser
of $50,000 or 10% of the amount of annual salary and bonus paid as to any
of the Named Officers.
(6) Mr. Landry was appointed Vice Chairman and Chief Executive Officer upon the
Spin-off. Prior to the Spin-off, he was President of Sunburst.
(7) In connection with the Spin-off, Mr. Landry converted his previously issued
Choice options into options to purchase 124,631 shares of Sunburst common
stock at an exercise price of $7.8815 and 53,000 shares of Choice common
stock at an exercise price of $13.2791.
(8) In connection with the Spin-off, Mr. Landry converted his previously issued
Choice options into options to purchase 291,795 shares of Sunburst common
stock at an exercise price of $7.1894 and 153,497 shares of Choice common
stock at an exercise price of $12.113.
(9) For 1996 and part of 1997B, Mr. MacCutcheon was Senior Vice President,
Chief Financial Officer and Treasurer of Manor Care and Sunburst. On
November 1, 1996, Mr. MacCutcheon resigned from Manor Care and assumed the
position of Executive Vice President, Chief Financial Officer and Treasurer
of Sunburst. The compensation reflected for 1996 and 1997B are total
compensation received for services rendered to both Manor Care and
Sunburst. For the period of 1997B after the Manor Care Spin-off, the amount
of compensation paid solely by Sunburst was $209,052 for salary and
$103,690 for bonus. In connection with the Spin-off, Sunburst and Choice
entered into a Consulting Agreement whereby Choice would reimburse Sunburst
for 30% of Mr. MacCutcheon's base salary and bonus from October 15, 1997
through November 1, 2001. See "Certain Relationships and Related
Transactions."
(10) In connection with the Spin-off, Mr. MacCutcheon converted his previously
issued Choice options into options to purchase 54,673 shares of Sunburst
common stock at an exercise price of $7.835 and 23,250 shares of Choice
common stock at an exercise price of $13.2008.
(11) In connection with the Spin-off, Mr. MacCutcheon converted his previously
issued Choice options into options to purchase 138,806 shares of Sunburst
common stock at an exercise price of $6.884, 47,082 shares of Sunburst
common stock at an exercise price of $7.1894, 30,308 shares of Choice at an
exercise price of $11.5986 and 15,642 shares of Choice common stock at an
exercise price of $12.113.
(12) In connection with the Spin-off, Mr. DiRico converted his previously issued
Choice options into options to purchase 111,739 shares of Sunburst common
stock at an exercise price of $7.835 and 30,225 shares of Choice common
stock at an exercise price of $13.2008.
(13) In connection with the Spin-off, Mr. DiRico converted his previously issued
Choice options into options to purchase 82,498 shares of Sunburst common
stock at an exercise price of $7.1894 and 32,706 shares of Choice common
stock at an exercise price of $12.113.
(14) In connection with the Spin-off, Mr. Hanley converted his previously issued
Choice options into options to purchase 70,981 shares of Sunburst common
stock at an exercise price of $7.835 and 19,200 shares of Choice common
stock at an exercise price of $13.2008.
(15) In connection with the Spin-off, Mr. Hanley converted his previously issued
Choice options into options to purchase 3,779 shares of Sunburst common
stock at an exercise price of $7.1894 and 1,024 shares of Choice common
stock at an exercise price of $12.113.
(16) Mr. DiRico resigned from Sunburst effective June 2, 1999. Pursuant to the
terms of an Agreement Mr. DiRico is entitled to receive salary and other
benefits through September 6, 2000.
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<PAGE>
Stock Options
The following tables set forth certain information at December 31, 1999 and
for the twelve-months then ended concerning options to purchase Sunburst common
stock granted to Named Officers. All common stock figures and exercise prices
have been adjusted to reflect stock dividends and stock splits effective in
prior fiscal years. With the Choice Spin-off, existing Sunburst stock options
were subject to certain adjustments or conversions into options to purchase
shares of Sunburst common stock and Choice common stock. The table below
represents the options grants on a post-conversion basis.
STOCK OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------
Potential Realizable
Value of Assumed
Percentage of Rate of Stock Price
Number of Total Options Appreciation for
Options Granted to all Exercise Base Expiration Option Term (2)
--------------------
Name Granted Employees in 1999 Price Per Share Date 5% 10%
------------------------------------------- ------- ----------------- --------------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr........................... 0 -- -- -- -- --
Donald J. Landry (1)......................... 0 -- -- -- -- --
James A. MacCutcheon (1)..................... 0 -- -- -- -- --
Antonio DiRico (1)........................... 0 -- -- -- -- --
Kevin P. Hanley (1).......................... 0 -- -- -- -- --
Gregory Miller (1)........................... 0 -- -- -- -- --
</TABLE>
(1) No options were granted in 1999.
(2) The dollar amounts under these columns are the result of calculations at
the 5% and 10% rates set by the Securities and Exchange Commission and
therefore are not intended to forecast future possible appreciation, if
any, of the stock price. Since options are granted at market price, a zero
percent gain in the stock price will result in no realizable value to the
optionees.
AGGREGATED OPTION EXERCISES IN 1999
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Unexercised Value of Unexercised in-the-money
Acquired on Value Options at December 31, 1999 (2) Options at December 31, 1999 (1)
-------------------------------- --------------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
Name $ $ $ $ $ $
-------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stewart Bainum, Jr. ....... 75,112 486,801 135,182.10 12,197.08
Donald J. Landry............ 454,766 19,889 469,185.29 275,828.98
James A. MacCutcheon........ 277,208 198,359 301,797.93 37,560.51
Antonio DiRico (3).......... 133,308 60,300 10,570.08 705.79
Kevin P. Hanley............. 39,660 80,100 -- --
Gregory Miller.............. 25,478 48,214 -- --
</TABLE>
(1) The closing prices of Sunburst common stock as reported by the New York
Stock Exchange on December 31, 1999 were $5.625. The value is calculated on
the basis of the difference between the option exercise price and such
closing price multiplied by the number of shares of Sunburst common stock
underlying the option.
(2) On February 16, 2000, the Board of Directors passed a resolution
authorizing Sunburst to offer current employees the opportunity to
terminate stock options with a strike price of $5.25 (the then current fair
market price) or higher, and replace the terminated options with an award
of restricted stock to be based upon a Black-Scholes valuation of the stock
options terminated. As of March 16, 2000, all current employees elected to
terminate the above market-value stock options.
(3) Pursuant to the terms of an Agreement with Mr. DiRico, all stock options
awarded prior to June 2, 1999 shall continue to vest until July 2, 2000.
Vested options may be exercised on or before August 1, 2000. All unvested
options and/or unexercised options will then be cancelled.
-12-
<PAGE>
Employment Agreements
On October 15, 1997, Sunburst amended and restated an employment agreement
with Stewart Bainum, Jr., providing for Mr. Bainum, Jr.'s employment as Chairman
of Sunburst's Board of Directors. The agreement had a term of three years. The
Agreement terminated on July 15, 1998 when Mr. Bainum, Jr. resigned from the
Board. Mr. Bainum, Jr. rejoined the Board on December 4, 1998, as a non-employee
director, he became an employee director (without an employment agreement) in
January 1999.
Sunburst entered into an Employment Agreement with Donald J. Landry on June
25, 1997, effective upon the Spin-off on October 15, 1997 as amended on January
6, 2000. The agreement has a term of three years from October 15, 1997 with
automatic one year extensions unless notice to not renew given one year prior to
the expiration date and provides for a base salary of $424,462 per annum,
subject to annual adjustments, and an annual bonus of up to 60% of his base
compensation, based upon Sunburst's performance. In the event of a change in
control, as defined in the agreement, Mr. Landry has the right to terminate the
agreement within six months.
Sunburst entered into an Employment Agreement with James A. MacCutcheon on
October 31, 1996, effective November 1, 1996. The agreement has a term of five
years and provides for a base salary of $313,578 per annum, subject to annual
adjustments, and an annual bonus of up to 55% of his base compensation, based
upon Sunburst's performance.
Sunburst adopted an Officer Retention and Severance Plan (the "Plan")
effective January 21, 1999, which provides that any officer who is terminated
(i) due to a Change of Control as that term is defined in the Second Amendment
to the 1996 Long-Term Incentive Plan; (ii) without cause; or (iii)
constructively through a significant reduction in compensation and
responsibilities measured as of the date of the Plan and, who is not under
contract with Sunburst, shall receive base salary for twelve-months plus two
weeks for each year of service with Sunburst and its predecessor companies, to
be paid bi-weekly. Payments will be reduced by any salary earned from other
employment by the officer. Any officer under contract will be covered by the
terms of the individual contract.
Retirement Plans
Sunburst has adopted the Sunburst Hospitality Corporation Supplemental
Executive Retirement Plan (the "SERP"). Participants are Senior Vice Presidents
and other officers selected by the Board of Directors to participate.
Participants in the SERP receive a monthly benefit for life based upon
final average salary and years of service. Final average salary is the average
of the monthly base salary, excluding bonuses or commissions, earned in a 60
month period which produces the highest average out of the last 120 months of
employment, prior to the first occurring of the early retirement date or the
normal retirement date. The nominal retirement age is 65, and participants must
have a minimum of 15 years of service. Participants may retire at age 60 and may
elect to receive reduced benefits commencing prior to age 65, subject to Board
approval. All of the Named Officers who are participants are age 55 or younger,
so that none of their compensation reported above would be included in the final
average salary calculation.
Assuming that the following officers continue to be employed by Sunburst
until they reach age 65, their credited years of service are as follows:
<TABLE>
<CAPTION>
Current Years Years of Service
Name of Individual of Service at Age 65
------------------ ---------------------------------------------------
<S> <C> <C>
Donald J. Landry 8 21
James A. MacCutcheon 12 29
Kevin P. Hanley 5 27
Gregory Miller 8 23
Douglas H. Verner 2 19
</TABLE>
The table below sets forth estimated annual benefits payable upon
retirement to persons in specified compensation and years of service
classifications. These benefits are straight life annuity amounts, although
participants have the option of selecting a joint and 50% survivor annuity or
ten-year certain payments. The benefits are not subject to offset for social
security and other amounts.
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<PAGE>
Years of Service/Benefit as
Percentage of Final Average Salary
----------------------------------
Remuneration 15/15% 20/22.5% 25 or more/30%
------------ -------- --------- --------------
$ 300,000 $45,000 $ 67,500 $ 90,000
350,000 52,500 78,750 105,000
400,000 60,000 90,000 120,000
450,000 67,500 101,250 135,000
500,000 75,000 112,500 150,000
600,000 90,000 135,000 180,000
In November 1996, Sunburst established the Sunburst Hospitality Corporation
Retirement Savings and Investment Plan (the "401(k) Plan"). The 401(k) Plan is a
defined contribution retirement, savings and investment plan qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and includes a cash or deferred arrangement under Section 401(k) of the Code.
All employees age 21 or over and who have worked for Sunburst for a twelve month
period during which such employee completed at least 1,000 hours will be
eligible to participate. Subject to certain non-discrimination requirements,
each employee will be able to contribute an amount to the 401(k) Plan on a pre-
tax basis up to 15% of the employee's salary, but not more than the current
Federal limit of $10,000. Sunburst will match contributions made by its
employees subject to certain limitations. The amount of the match will be equal
to a percentage of the amount of salary reduction contribution made on behalf of
a participant during the plan year based upon a formula that involves the
profits of Sunburst for the year and the number of years of service of the
participant. Amounts contributed by Sunburst pursuant to its 401(k) Plan for
Named Officers are included in the Summary Compensation Table under the column
headed "All Other Compensation."
Sunburst also adopted the Sunburst Hospitality Corporation Non-Qualified
Retirement Savings and Investment Plan ("Non-Qualified Savings Plan"). Certain
select highly compensated members of management of Sunburst will be eligible to
participate in the Non-Qualified Savings Plan. The Non-Qualified Savings Plan is
structured so as to provide the participants with a pre-tax savings vehicle to
the extent that pre-tax savings are limited under the 401(k) Plan as a result of
various governmental regulations, such as non-discrimination testing. Amounts
contributed by Sunburst under its Non-Qualified Savings Plan for fiscal year
1999 for the Named Officers are included in the Summary Compensation Table under
the column headed "All Other Compensation."
The Sunburst match under the 401(k) Plan and the Non-Qualified Savings Plan
is limited to a maximum aggregate of 6% of the annual salary of a participant.
Likewise, participant contributions under the two plans will not exceed the
aggregate of 15% of the annual salary of a participant.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship with Manor Care
Stewart Bainum, Jr. is the Chairman of Sunburst's Board of Directors and of
Manor Care's Board of Directors.
Manor Care Lease Agreements
Sunburst was part of Manor Care, Inc. ("Manor Care") until November 1,
1996, when the stock of Sunburst was distributed as a dividend to Manor Care
stockholders. That distribution is referred to as the Manor Care Spin-off.
In connection with the Manor Care Spin-off, Sunburst and Manor Care entered
into a lease agreement with respect to the complex at 10750 and 10770 Columbia
Pike, Silver Spring, Maryland (the "Silver Spring Complex") at which Sunburst's
principal executive offices were located (the "Silver Spring Lease"). After the
Spin-off, Sunburst remained obligated under the Silver Spring Lease and had
subleased space at 10750 Columbia Pike to Choice Hotels International, Inc.
("Choice") pursuant to a sublease. In June 1998, Manor Care sold the Silver
Spring Complex and Sunburst enter into a new lease with the new owner. The
sublease was terminated.
Sunburst and Manor Care also entered into (i) a sublease agreement with
respect to certain office space in Gaithersburg, Maryland (the "Gaithersburg
Lease") pursuant to which Sunburst was obligated to rent from Manor
-14-
<PAGE>
Care, certain additional space as such space became available during the 30
month period following the date of the Manor Care Spin-off. The Gaithersburg
lease was terminated in February 1999.
In addition, at the time of the Manor Care Spin-off, the parties entered
into a sublease agreement with respect to the Comfort Inn N.W., Pikesville,
Maryland, pursuant to which Sunburst subleases the property from Manor Care on
the same terms and conditions that govern Manor Care's rights and interests
under the lease relating to such property. No payments are made to Manor Care
under the sublease.
During the twelve-month period ended December 31, 1999, there were no
payments made by Sunburst to Manor Care under the Gaithersburg Lease and the
Silver Spring Lease. A payment of $4,000,000 was paid to Manor Care Inc. to
settle previous balances owed under all outstanding Agreements, including the
Gaithersburg Lease.
Corporate Services Agreement
Sunburst and Manor Care entered into the Corporate Services Agreement (the
"Corporate Services Agreement") which provides for the provision, by Manor Care,
of certain corporate services, including administrative, accounting, systems
and, for a fixed annual fee of $1.0 million, certain consulting services. The
term of the Consulting Services Agreement is 30 months from November 1, 1996.
Sunburst terminated all services except the consulting services under the
Corporate Service Agreement in the first quarter of 1998. In February 1999, this
Sunburst entered into a release with Manor Care which effectively terminated the
consulting services payment obligation.
Relationship with Choice
On October 16, 1997, Sunburst distributed as a dividend to its stockholders
the stock of Choice Hotels. That distribution is known as the Choice Spin-off.
In connection with the Choice Spin-off, Sunburst and Choice entered into certain
agreements intended to govern the relationship between the parties after the
Choice Spin-off. In addition, Sunburst is Choice's largest franchisee. The
material terms of certain of these agreements and other arrangements, entered
into between Sunburst and Choice, including the franchise agreements with
respect to Sunburst's hotels, are described below.
Distribution Agreement
In connection with the Choice Spin-off, Sunburst and Choice entered into a
Distribution Agreement which provided for, among other things, the principal
corporate transactions required to effect the Choice Spin-off, the assumption by
Choice of all liabilities relating to its business and the allocation between
Sunburst and Choice of certain other liabilities, certain indemnification
obligations of Sunburst and Choice and certain other agreements governing the
relationship between Sunburst and Choice with respect to or in consequence of
the Choice Spin-off.
Subject to certain exceptions, Choice has agreed to indemnify Sunburst and
its subsidiaries against any loss, liability or expense incurred or suffered by
Sunburst or its subsidiaries arising out of or related to the failure by Choice
to perform or otherwise discharge liabilities allocated to and assumed by Choice
under the Distribution Agreement, and Sunburst has agreed to indemnify Choice
against any loss, liability or expense incurred or suffered by Choice arising
out of or related to the failure by Sunburst to perform or otherwise discharge
the liabilities retained by Sunburst under the Distribution Agreement. The
foregoing cross-indemnities do not apply to indemnification for tax claims and
liabilities, which are addressed in the Tax Sharing Agreement described below.
To avoid adversely affecting the intended tax consequences of the Choice
Spin-off, each of Choice and Sunburst will agree to comply in all material
respects with each representation and statement made to any taxing authority in
connection with the IRS tax ruling or any other tax ruling obtained by Choice
and Sunburst in connection with the Choice Spin-off.
Under the Distribution Agreement, each of Choice and Sunburst will be
granted access to certain records and information in the possession of the
other, and requires the retention of such information in its possession for
specified periods and thereafter requires that each party give the other prior
notice of its intention to dispose of such information. In addition, the
Distribution Agreement provides for the allocation of shared privileges with
respect to certain information and requires each of Choice and Sunburst to
obtain the consent of the other prior to waiving any shared privilege.
In accordance with the Distribution Agreement, Choice agreed to assume and
pay certain liabilities of Sunburst, subject to Choice maintaining a minimum net
worth of $40 million, at the date of the Choice Spin-off. As of
-15-
<PAGE>
December 31, 1997, Sunburst reflected a $19.9 million payable due to Choice on
its consolidated balance sheet plus other accounts payable to Choice of
approximately $5.1 million. In 1998, net payments of approximately $8 million
were paid in cash to Choice. On December 28, 1998, Sunburst and Choice amended
the Strategic Alliance Agreement (defined below). As part of that amendment,
Choice exchanged the remaining $17 million balance in return for, among other
things, the termination of Sunburst's option for the exclusive rights to the
MainStay Suites brand and a commitment by Sunburst to build a total of 25
MainStay Suites.
Strategic Alliance Agreement
At the time of the Choice Spin-off, Choice and Sunburst entered into a
Strategic Alliance Agreement pursuant to which: (i) Sunburst granted a right of
first refusal to Choice to franchise any lodging property that Sunburst develops
or acquires and intends to operate under franchise; (ii) Sunburst has also
agreed, barring a material change in market conditions, to continue to develop
Sleep Inns and MainStay Suites hotels so that it will have opened a total of 14
Sleep Inns and 15 MainStay Suites hotels by October 15, 2001 (48 months of the
Distribution Date); (iii) Choice has granted to Sunburst an option, exercisable
under certain circumstances, to purchase the brand names, marks, franchise
agreements and other assets of the MainStay Suites hotel system; (iv) Choice and
Sunburst have agreed to continue to cooperate with respect to matters of mutual
interest, including new product and concept testing for Choice in hotels owned
by Sunburst; and (v) Sunburst has authorized Choice to negotiate with third
party vendors on Sunburst's behalf for the purchase of certain items. The
Strategic Alliance Agreement extends for a term of 20 years. Either party had
the right to terminate the Strategic Alliance Agreement on its fifth, tenth, and
fifteenth anniversaries.
On December 28, 1998, Choice and Sunburst amended the Strategic Alliance
Agreement to: (i) cancel Sunburst's option to acquire the MainStay Suites
system; (ii) reduce or eliminate liquidated damages with respect the termination
of franchise agreements entered into before December 12, 1998 (except for
MainStay Suites and Sleep Inn franchise agreements); (iii) cap liquidated
damages for termination of MainStay Suites and Sleep Inn franchise agreements;
(iv) change Sunburst's development obligations to 13 Sleep Inns and 25 MainStay
Suites by October 15, 2001; and (v) provide certain other global amendments to
Sunburst's franchise agreements.
On February 29, 2000, Choice and Sunburst again amended the Strategic
Alliance Agreement to (i) clarify that liquidated damages in the event of
termination of the MainStay Suites and Sleep Inn license agreements would be
$100,000; (ii) prevent Sunburst from terminating the MainStay Suites license
agents before October 15, 2002; (iii) provide Sunburst a credit for MainStay
Suites franchise fees if certain financial performance criteria are not achieved
by Sunburst's MainStay Suites as a group; (iv) terminate the Non-Competition
Agreement (discussed below) between Choice Hotels and Sunburst; (v) eliminate
Choice's right of first refusal on Sunburst hotels; (vi) permit Sunburst to
build non-Choice branded hotels provided that expenditure on those hotels does
not exceed expenditure on the last four MainStay Suites hotels Sunburst has
committed to build; (vii) provides a put/call option for Choice to acquire three
of Sunburst's poorer performing MainStay Suites hotels in 2000 at a price equal
to Sunburst's original cost, with the proceeds used to reduce the balance of
Sunburst's term note to Choice, and (viii) provide for payment in full of the
term note in the event of a change in control of Sunburst.
Amendment and Guaranty
In connection with the Choice Spin-off, Choice entered into the Amendment
and Guaranty for the purpose of adding Choice as a party to certain agreements
entered into between Sunburst and Manor Care in connection with the Manor Care
Spin-off and adding Choice as a guarantor of certain payment obligations of
Sunburst to Manor Care pursuant to agreements between Sunburst and Manor Care.
Virtually all these obligations have now been satisfied. For a discussion of the
Amendment and Guaranty, see "Certain Relationships and Related Transactions--
Relationship with Manor Care" and "--Lease Agreements."
Term Note
In connection with the Choice Spin-off, Choice loaned to Sunburst
approximately $115 million which was used by Sunburst to repay approximately $96
million outstanding under Former Choice's credit facility and to repay that
portion of the former choice indebtedness under a note to Manor Care allocated
to Sunburst in connection with the Manor Care Spin-off (approximately $37
million).
This loan is represented by a Term Note in an aggregate principal amount of
$115 million (the "Term Note"). The Term Note has a maturity of five years and
accrues interest at a rate equal to 500 basis points above the interest rate on
a 5-year U.S. Treasury Note. The Term Note is subordinated to all senior debt of
Sunburst and contains
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certain restrictive covenants comparable to those contained in Sunburst's senior
credit facility (including restrictions on Sunburst's ability to make certain
investments, incur debt, pay dividends, dispose of assets and create liens on
its assets).
Corporate Services Agreement
Sunburst and Choice entered into a Corporate Service Agreement which
provides that Choice will provide to Sunburst certain corporate support
services, including human resources, accounting, tax and computer systems
support, and Sunburst will provide to Choice certain services including asset
management and accounts payable processing. As of March 31, 1999, all services
provided by either party under the Corporate Services Agreement, except for
human resources and tax services provided by Choice, was terminated. During
fiscal year 1999, Choice paid Sunburst $42,165.00 and Sunburst paid Choice
$494,004.00 for services under the Corporate Services Agreement.
Consulting Agreement
Sunburst and Choice entered into a Consulting Agreement in which Sunburst
will provide consulting and advisory services to Choice related to financial
issues affecting Choice. The term of the agreement commences October 15, 1997
and terminates on November 1, 2001. Sunburst is entitled to an annual retainer
fee equal to 30% of the annual compensation (including base salary, incentive
bonus and fringe benefits) paid to James A. MacCutcheon by Sunburst during such
period. If Mr. MacCutcheon ceases to be employed by Sunburst, the agreement can
be terminated by either party, but if terminated by Choice, then Choice shall
pay Sunburst a termination fee equal to 30% of any amount due by Sunburst to Mr.
MacCutcheon under his employment agreement as a result of his separation. During
fiscal year 1999, Choice paid Sunburst $157,726.00 pursuant to the Consulting
Agreement.
Tax Sharing Agreement
Choice and Sunburst have entered into a Tax Sharing Agreement for purposes
of allocating tax liabilities of Former Choice from before the Choice Spin-off
among Choice and Sunburst and their respective subsidiaries. In general,
Sunburst will be responsible for (i) filing consolidated federal income tax
returns for Sunburst affiliated group and combined or consolidated state tax
returns for any group that includes a member of Sunburst affiliated group,
including in each case Choice and its subsidiaries for the periods of time that
such companies were members of the applicable group and (ii) paying the taxes
relating to such tax returns to the applicable taxing authorities (including any
subsequent adjustments resulting from the redetermination of such tax
liabilities by the applicable taxing authorities). Choice will reimburse
Sunburst for the portion of such taxes that relates to Choice and its
subsidiaries, as determined based on their hypothetical separate Sunburst income
tax liabilities. Choice and Sunburst have agreed to cooperate with each other,
and to share information, in preparing such tax returns and in dealing with
other tax matters.
Employee Benefits Allocation Agreement
In connection with the Choice Spin-off, Choice and Sunburst entered into an
Employee Benefits and Other Employment Matters Allocation Agreement (the
"Employee Benefits Allocation Agreement"). The Employee Benefits Allocation
Agreement provides for the allocation subsequent to Choice Spin-off of employee
benefits, as they relate to employees who remained employed by Sunburst or its
subsidiaries ("Sunburst Employees") after the Spin-off and employees who are
employed by Choice or its subsidiaries after the Spin-off ("Choice Employees").
Pursuant to the Employee Benefits Allocation Agreement, Sunburst will continue
sponsorship of the various Sunburst profit sharing plans, stock plans and health
and welfare plans with respect to Sunburst Employees. Choice has established a
number of plans which allow it to provide to its employees substantially the
same benefits currently provided to them as employees of Sunburst. The Employee
Benefits Allocation Agreement provides for cross-guarantees between Choice and
Sunburst with respect to the payment of benefits under certain plans and for
cross-indemnification with respect to employment-related claim relating to prior
to the Choice Spin-off.
The Employee Benefits Allocation Agreement also provided for the adjustment
of outstanding options to purchase shares of Sunburst common stock held by
Sunburst Employees, Choice Employees and employees of Manor Care who held such
options as a result of the Manor Care Spin-off.
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Transitional Service Agreements
Choice and Sunburst have entered into a number of agreements pursuant to which
Choice provides, or will provide, certain continuing services to Sunburst for a
transitional period. Such services will be provided on market terms and
conditions. Subject to the termination provisions of the specific agreements,
Sunburst will be free to procure such services from outside vendors or may
develop an in-house capability in order to provide such services internally. The
primary transitional services agreements are summarized below.
Pursuant to the Employee Benefits Administration Agreement, Choice provides
certain benefits, compensation and other services. Such other services may
include benefit plan administration and accounting, COBRA administration,
regulatory compliance and certain fiduciary services. Pursuant to the Tax
Administration Agreement, Choice provides certain sales, use, occupancy, and
personal property tax return administration, audit and appeals services for
Sunburst. All such Service Agreements were terminated as of December 31, 1999.
Franchise Agreements
The Clarion, Comfort, Econo Lodge, Sleep Inn, Quality, MainStay Suites and
Rodeway marks are each owned by Choice. Each hotel property owned by Sunburst is
subject to a franchise agreement between Choice and Sunburst, as franchisee (the
"Franchise Agreements"). (The material terms of such agreements are described
below.) Total fees paid to Choice for franchising, royalty, marketing and
reservation fees for fiscal year 1999 were $10.2 million.
Term
Each Franchise Agreement has an initial term of 20 years, except the
agreement for the Rodeway Inn in Tempe, Arizona which is a year to year
agreement. The Rodeway Inn was sold in September, 1999. The Franchise Agreements
have varying original dates, from 1982 through 1996. Certain Franchise
Agreements allow for unilateral termination by either party on the 5th, 10th, or
15th anniversary of the Franchise Agreement. In addition, all franchise
agreements allow for early termination by Sunburst, subject to liquidated damage
provisions which range from zero dollars to a maximum of $100,000 per property.
Termination by Sunburst
Sunburst (except with respect to one property as described below) may
terminate a Franchise Agreement if Choice defaults on its material obligations
under such Franchise Agreement and fails to cure such defaults within 30 days
following written notice. The Franchise Agreement with respect to the Quality
Hotel--Arlington (the "Non-Standard Franchise Agreement") does not allow such a
termination.
Termination by Choice
Choice (except with respect to the Non-Standard Franchise Agreement) may
suspend or terminate a Franchise Agreement at any time, if, among other things,
Sunburst (a) fails to submit reports when due; (b) fails to pay amounts due
under such Franchise Agreement; (c) fails to pay its debts generally as they
become due; or (d) receives two or more notices of default for similar reasons
for any 12 month period. Choice (except with respect to the Non-Standard
Franchise Agreement) may terminate a Franchise Agreement immediately upon notice
to Sunburst if, among other things, (a) certain bankruptcy events occur with
respect to Sunburst; (b) Sunburst loses possession or the right to possession of
the Property; (c) Sunburst breaches transfer restrictions in the related
Franchise Agreement; (d) any action is taken to dissolve or liquidate Sunburst;
or (e) there is a threat or danger to the public health and safety in the
continued operation of the Property.
The Non-Standard Franchise Agreement has termination provisions similar to
those in the other Franchise Agreements. Choice may terminate the Non-Standard
Franchise Agreement immediately upon notice to Sunburst if, among other things,
(a) certain bankruptcy events occur with respect to Sunburst; (b) certain
breaches of the related agreements are not remedied; (c) any action is taken to
dissolve or liquidate Sunburst; or (d) legal proceedings against Sunburst are
not dismissed within a certain period of time.
Fees
The Franchise Agreements require the payment of certain fees and charges,
including the following: (a) a royalty fee of between 1.93% to 5.0% of monthly
gross room revenues; (b) a marketing fee of between 0.7% and
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2.5% plus $0.28 per day multiplied by the specified room count; and (c) a
reservation fee of 0.88% to 1.75% of monthly gross room revenues (or 1% of
monthly gross room revenues plus $1.00 per room confirmed through Choice's
reservation system). The marketing fee and the reservation fee are subject to
reasonable increases during the term of the franchise if Choice raises such fees
uniformly among all its franchisees, generally. Late payments (i) will be a
breach of the Franchise Agreement and (ii) will accrue interest from the date of
delinquency at a rate of 1.5% per month or portion thereof.
In December 1998, Sunburst and Choice entered into an agreement which
provides that (i) Sunburst shall pay an application fee of $20,000 on all future
MainStay Suites franchise agreements, and (ii) no royalties, marketing or
reservation fees shall be payable for a period of two years for the next ten
MainStay Suites franchise agreements entered into after the amendment.
Certain Covenants
The Franchise Agreements impose certain affirmative obligations upon Choice
including: (a) to lend the Franchisee an operations manual; (b) to utilize money
collected from marketing and reservation fees to promote those aspects of the
franchise business; and (c) to periodically inspect the Property. The Franchise
Agreements also impose affirmative obligations upon Sunburst including: (a) to
participate in a specified reservation system; (b) to keep and comply with the
up-to-date version of Choice's rules and regulations for properly running the
specified franchise; (c) to prepare monthly financial and other records; (d) to
not interfere with the franchised mark(s) and Choice's rights thereto; and (e)
to maintain certain specified insurance policies.
Assignments
Sunburst is prohibited from directly or indirectly selling, assigning,
transferring, conveying, pledging or mortgaging its interest in the Franchise
Agreement, or any equity interest in such franchise interests without the
consent of Choice except that, among other things, certain percentages of
ownership interests in Sunburst may be transferred without Choice's consent.
Choice's consent to such transfers, will not be given unless, among other
things: (a) all monetary obligations due under the Franchise Agreement are paid
to Choice; (b) no defaults under the Franchise Agreement remain uncured; (c) the
transferee agrees in writing to upgrade the related Property to the then-current
standards; and (d) the transferee agrees to remain liable for all obligations
under the Franchise Agreement so transferred.
Choice is permitted to assign all or any part of its rights or obligations
under the Franchise Agreements. However, the Franchise Agreements (with the
exception of the Non-Standard Franchise Agreement) do not permit Choice to
absolve itself from the obligations that it transfers under the Franchise
Agreement. Upon the assignment of Choice's obligations under the Non-Standard
Franchise Agreement, Choice will no longer be liable with respect to the
obligations it so transfers.
Non-Competition Agreement
Choice and Sunburst entered into a non-competition agreement that defines
the rights and obligations with respect to certain businesses to be operated by
Choice and Sunburst. Under the non-competition agreement, for a period of five
years from the date of the Spin-off, Sunburst will be prohibited from conducting
any business that competes with the franchise business operated by Choice.
Sunburst will also be prohibited from acquiring any entity conducting a business
that competes with the Choice. During the term of the non-competition agreement,
Choice will be prohibited from conducting any business that competes with the
business operated by Sunburst. Choice is also prohibited from acquiring any
entity conducting a business that competes Sunburst.
On February 29, 2000, the Non-Competition Agreement was terminated.
Potential Conflict in Choice Relationship
The ongoing relationship between Choice and Sunburst resulting from the
agreements and arrangements described above may potentially give rise to
conflict of interest between Choice and Sunburst. With respect to the agreements
between the parties, the potential exists for disagreements as to the quality of
the services provided by the parties and as to contract compliance.
Stewart Bainum, Jr. serves as Chairman of the Boards of Directors of both
Sunburst and Choice. As a result of the Choice Spin-off, Mr. Bainum, Jr. and
certain other officers and directors of Sunburst and Choice, own shares and/or
options or other right to acquire shares in each of Sunburst and Choice.
Appropriate policies and procedures
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are followed by the Boards of Directors of Choice and Sunburst to limit the
involvement of the overlapping directors (and, if appropriate, relevant officers
of such companies) in conflict situations, including requiring them to abstain
from voting as directors of either Choice or Sunburst on certain matters which
present a conflict between the two companies.
Relationship With Independent Public Accountants
Since 1996, Arthur Andersen LLP has served as Sunburst's independent public
accounting firm. It is expected that representatives of Arthur Andersen will be
present at the annual meeting. They will be given an opportunity to make a
statement if they desire to do so, and it is expected that they will be
available to respond to appropriate questions.
Other Relationships
During the twelve-months ended December 31, 1999, Sunburst paid to Allen &
Company Incorporated a total of $46,975.00 in brokerage commissions in
connection with the repurchase of Sunburst common stock by Sunburst. Paul A.
Gould, a director of Sunburst, is a Managing Director of Allen & Company. From
January 1, 2000 through March 30, 2000, an additional $3,547.50 was paid to
Allen & Company in brokerage commissions for such stock repurchases.
MISCELLANEOUS ADMINISTRATIVE MATTERS
Procedures for Stockholder Proposals and Nominations
Under Sunburst's Bylaws, nominations for director may be made only by the
Board of Directors or a committee of the board, or by a stockholder entitled to
vote who has delivered notice to Sunburst not less than 60, nor more than 90,
days before the first anniversary of the preceding year's annual meeting, unless
the meeting is advanced by more than 30 days. The deadline for submitting
stockholder nominations for the 2001 Sunburst annual meeting is March 10, 2001.
The Bylaws also provide that no business may be brought before an annual
meeting except as specified in the notice of meeting (which includes stockholder
proposals that Sunburst is required to set forth in its proxy statement under
Commission Rule 14a-8) or as otherwise brought before the meeting by or at the
direction of the board or by a stockholder entitled to vote who has delivered
notice to Sunburst (containing certain information specified in the Bylaws)
within the time limits described above for a nomination for the election of a
director. These requirements are separate and apart from, and in addition to,
the Commission's requirements that a stockholder must comply with in order to
have a stockholder proposal included in Sunburst's proxy statement under
Commission Rule 14a-8.
Stockholder Proposals for 2001 Annual Meeting
Stockholder proposals intended to be presented at Sunburst's 2001 Annual
Meeting of Stockholders must be received by Sunburst's Corporate Secretary no
later than March 10, 2001. Such proposals must meet the requirements set forth
in the rules and regulations of the Commission in order to be eligible for
inclusion in Sunburst's 2001 proxy materials.
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Other Matters to Come Before the Meeting
The Board of Directors does not know of any matters which will be brought
before the 2000 annual meeting other than those specifically set forth in the
notice of meeting. If any other matters are properly introduced at the meeting
for consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time or place, the individuals named on the
enclose proxy card will have discretion to vote in accordance with their best
judgment.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires Sunburst's reporting officers and directors, and
persons who own more than ten percent of Sunburst's common stock, to file
reports of ownership and changes in ownership on Forms 3, 4 and 5 with the
Securities and Exchange Commission (the "Commission"), the New York Stock
Exchange and Sunburst. Sunburst believes that all of its reporting officers,
directors and greater than ten percent beneficial owners complied with all
filing requirements applicable to them during the fiscal year ended December 31,
1999.
By Order Of The Board of Directors
_______________________________
Douglas H. Verner, Secretary
Silver Spring, Maryland
April ____, 2000
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SUNBURST HOSPITALITY CORPORATION
10770 Columbia Pike, Silver Spring, Maryland 20901
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR WITH THE ANNUAL MEETING OF THE SHAREHOLDERS
The undersigned hereby appoints Leland Pillsbury and Donald Landry, or each of
them, the true and lawful attorneys and proxies, with full power of substitution
to attend the Annual Meeting of Shareholders of Sunburst Hospitality Corporation
(the "Company") to be held on May 10, 2000 at 11:00 a.m. at the Quality Suites
Hotel, 3 Research Court, Rockville, Maryland and at any adjournment thereof, and
to vote all shares of common stock held of record which the undersigned could
vote, with all the powers the undersigned would possess if personally present at
such meeting, as desginated on the reverse side of this proxy.
All shares of Company common stock that are represented at the Annual Meeting by
property executed proxies received prior to or at the Annual Meeting and not
revoked will be voted at the Annual Meeting in accordance with the instructions
indicated herein. If no instructions are indicated for Item 1, such proxies
will be voted in accordance with the Board of Directors' recommendations as set
forth herein with respect so such proposal(s).
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
SUNBURST HOSPITALITY CORPORATION
May 10, 2000
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<CAPTION>
Please Detach and Mail in Envelope Provided
- -------------------------------------------------------------------------------------------------------------------------------
--- Please mark your
A | X | votes as in this
--- example.
<S> <C> <C>
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to to vote for nominees
the category below) Issued at right
1 Election of --- --- ---
lines | | | | Nominees: Keith B. Pins If you plan to attend the Annual Meeting of | |
directors --- --- Carole Y. Preas Shareholders, please mark the following box ---
Christine A. Shrove and promptly return the Proxy Card
Instructions: to withhold authority to vote for any
individual nominees(s): write that nominee's name
in the space provided below)
---------------------------------------
Signature _______________________ Signature _______________________________________________ DATE ____________________________
NOTE: (Signatures should correspond exactly with the name or names appearing above. Attorneys, trustees, executors,
administrators, guardians and owners signing in a representative capacity should designate their institutions. If the signature to
corporation, please sign the full corporate name by a duly authorized officer.)
</TABLE>
