<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[X] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
CANDLEWOOD HOTEL COMPANY, 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] Fee not 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:
------------------------------------------------------------------------
<PAGE> 2
[CANDLEWOOD LOGO]
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1997
------------------------
The 1997 Annual Meeting of the Stockholders of Candlewood Hotel Company,
Inc. (the "Company") will be held at 10:00 a.m. local time, on May 19, 1997, at
the Company's executive offices at Lakepoint Office Park, 9342 East Central,
Wichita, Kansas 67206, for the following purposes:
1. To elect a board of seven directors for the ensuing year or until
the election and qualification of their respective successors;
2. To ratify the selection of KPMG Peat Marwick LLP as the Company's
independent auditors; and
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 7, 1997, the
record date, will be entitled to notice of, and to vote at, the 1997 Annual
Meeting and any adjournment thereof.
By Order of the Board of Directors,
[SIG]
Warren D. Fix
Secretary
Wichita, Kansas
Dated: April 14, 1997
<PAGE> 3
[CANDLEWOOD LOGO]
------------------------
LAKEPOINT OFFICE PARK
9342 EAST CENTRAL
WICHITA, KANSAS 67206
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 19, 1997
------------------------
PROXY STATEMENT
------------------------
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors of
Candlewood Hotel Company, Inc. (the "Company") for use at the Annual Meeting of
Stockholders to be held at the Company's executive offices at Lakepoint Office
Park, 9342 East Central, Wichita, Kansas 67206, on May 19, 1997 at 10:00 a.m.
local time, and at any and all adjournments or postponements thereof (the
"Meeting").
All shares represented by each properly executed, unrevoked proxy received
in time for the Meeting will be voted in the manner specified therein. If the
manner of voting is not specified in an executed proxy received by the Company,
the proxy will be voted FOR (i) the election of the seven nominees to the Board
of Directors listed herein; and (ii) the ratification of the selection of KPMG
Peat Marwick LLP as the Company's independent auditors.
Any stockholder has the power to revoke his or her proxy at any time before
it is voted. A proxy may be revoked by delivering a written notice of revocation
to the Secretary of the Company at the address set forth above, by presenting a
later-dated proxy executed by the person who executed the prior proxy, or by
attendance at the meeting and voting in person by the person who executed the
prior proxy.
This proxy statement is being mailed to the Company's stockholders on or
about April 14, 1997. The expense of soliciting proxies will be borne by the
Company. Expenses include reimbursement paid to brokerage firms and others for
their expenses incurred in forwarding solicitation material regarding the
Meeting to beneficial owners of the Company's voting stock. Solicitation of
proxies will be made by mail. Further solicitation of proxies may be made by
telephone or oral communication by the Company's regular employees, who will not
receive additional compensation for such solicitation.
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 9,025,000 shares of the Company's Common
Stock outstanding at the close of business on the record date, April 7, 1997,
will be entitled to notice of and to vote at the Meeting or any adjournment or
postponement thereof. On each matter to be considered at the Meeting, each
stockholder will be entitled to cast one vote for each share of the Company's
Common Stock held of record by such stockholder on April 7, 1997.
In order to constitute a quorum for the conduct of business at the Meeting,
a majority of the outstanding shares of the Company entitled to vote at the
Meeting must be represented at the Meeting. Shares represented by proxies that
reflect abstentions or "broker non-votes" (i.e., shares held by a broker or
nominee which are represented at the meeting, but with respect to which such
broker or nominee is not empowered to vote on a particular proposal) will be
counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum.
1
<PAGE> 4
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of March 31, 1997, the amount and
percentage of the outstanding shares of the Company's Common Stock which,
according to the information supplied to the Company, are beneficially owned by
(i) each person who, to the knowledge of the Company, is the beneficial owner of
more than 5% of the Company's outstanding Common Stock, (ii) each person who is
currently a director of the Company (each of whom is also a nominee for election
as a director of the Company), (iii) each Named Executive Officer (as defined on
page 6 hereof) and (iv) all current directors and executive officers of the
Company as a group. Except to the extent indicated in the footnotes to the
following table, the person or entity listed has sole voting or dispositive
power with respect to the shares which are deemed beneficially owned by such
person or entity.
<TABLE>
<CAPTION>
PERCENT OF
SHARES OF
COMMON STOCK
NAME AND ADDRESS OF NUMBER OF BENEFICIALLY
BENEFICIAL OWNER(1) SHARES OWNED
- ------------------- ---------- ------------
<S> <C> <C>
DIRECTORS/NOMINEES AND NAMED EXECUTIVE OFFICERS
Jack P. DeBoer(2).................................................. 2,108,299 23.4%
Richard J. Ferris(3)............................................... -- --
Peter V. Ueberroth(3).............................................. -- --
Warren D. Fix(4)................................................... 388,125 4.3%
Russell W. Meyer, Jr............................................... -- --
Tony M. Salazar.................................................... -- --
Gary E. Costley.................................................... 1,000 *
Larry D. Bowers.................................................... 300 *
James E. Korroch................................................... -- --
All directors and executive officers as a group (9
persons)(2)(3)(4)................................................ 2,497,724 27.7%
5% BENEFICIAL HOLDERS
Doubletree Corporation ("Doubletree").............................. 2,587,500 28.7%
410 N. 44th Street
Phoenix, AZ 85008
J.P. Morgan & Co., Inc.(5)......................................... 765,900 8.4%
60 Wall Street
New York, NY 10260
Strong Capital Management, Inc.(6)................................. 503,100 5.6%
100 Heritage Reserve
Menomonee Falls, WI 53051
Franklin Advisers, Inc.(7)......................................... 485,000 5.4%
777 Mariners Island Blvd.
San Mateo, CA 94404
Provident Investment Counsel, Inc.(8).............................. 456,600 5.1%
300 North Lake Avenue,
Pasadena, CA 91101-4022
</TABLE>
- ---------------
* Less than one percent.
(1) The address of each of the directors and officers listed in the table is
Lakepoint Office Park, 9342 East Central, Wichita, Kansas 67206.
(2) Excludes 87,976 shares held by certain trusts, the beneficiaries of which
are grandchildren of Mr. DeBoer (the "DeBoer Trusts"). Mr. DeBoer has no
interest in such trusts and disclaims beneficial ownership of such shares.
(3) Excludes 2,587,000 shares held by Doubletree, the Co-Chairmen of which are
Messrs. Ferris and Ueberroth. Messrs. Ferris and Ueberroth disclaim
beneficial ownership of such shares.
2
<PAGE> 5
(4) Includes 388,125 shares held by Warren D. Fix Family Partnership. Mr. Fix
disclaims beneficial ownership of these shares except to the extent of his
interest in the Fix Partnership.
(5) Based on Schedule 13G filed by J.P. Morgan & Co., Inc.
(6) Based on Schedule 13G filed by Strong Capital Management, Inc.
(7) Based on Schedule 13G filed by Franklin Advisers, Inc.
(8) Based on Schedule 13G filed by Provident Investment Counsel, Inc.
REGISTRATION RIGHTS
As part of the August 1996 reorganization (the "Reorganization"), whereby
the Company succeeded to the business of Candlewood Hotel Company, L.L.C., a
Delaware limited liability company ("Candlewood LLC"), the Initial Stockholders
(Doubletree, Mr. DeBoer, the DeBoer Trusts and the Fix Partnership) entered into
an Incorporation and Registration Rights Agreement (the "Registration Rights
Agreement"). The Registration Rights Agreement provides the Initial Stockholders
with certain rights with respect to the registration under the Securities Act of
shares of Common Stock issued to them in the Reorganization, including rights
(subject to certain limitations) to include such shares in any registration
under the Securities Act effected for the benefit of the Company or at the
request of another holder. Doubletree has demand registration rights pursuant to
which it may require (subject to certain limitations) the Company to register
the shares received in the Reorganization under the Securities Act. In general,
the Company is only required to effect two such demand registrations. Upon the
exercise of a demand registration, the Company may, at its option and in lieu of
effecting such registration, purchase from Doubletree the shares requested to be
registered for a cash amount equal to the estimated net proceeds (as defined in
the Registration Rights Agreement) Doubletree would have received upon the
registered public sale of such shares. The Company is not required to file a
registration statement upon exercise of these demand registration rights within
180 days following any underwritten public offering of Common Stock or
securities, convertible into or exercisable or exchangeable for Common Stock.
All expenses of any registration relating to securities as provided in the
Registration Rights Agreement (other than underwriting discounts and commissions
and fees and expenses of counsel for selling stockholders) are to be borne by
the Company.
STOCKHOLDERS AGREEMENT
The Stockholders Agreement among the Company and the Initial Stockholders
entitles the Initial Stockholders, among other things, to nominate directors to
the Company's Board of Directors. Prior to the Offering, the Company's Board of
Directors consisted of four directors, of which two were nominated by the Fix
Partnership and JPD Corporation, a corporation controlled by Mr. DeBoer, and two
were nominated by Doubletree. Pursuant to the Stockholders Agreement, following
the completion of the Offering, the Board of Directors was expanded to include
three directors who are not affiliated with any Initial Stockholder, which
individuals were initially appointed by unanimous agreement of the directors
then in office. Each of Mr. DeBoer and the Fix Partnership, acting jointly, and
Doubletree is entitled to nominate one-half of the number of directors, other
than the unaffiliated directors. Each of the Initial Stockholders has agreed to
vote its shares of Common Stock in favor of individuals nominated pursuant to
the Stockholders Agreement. Each of these stockholders has agreed to vote for
the removal of a director if the Initial Stockholder that nominated such
director so requests.
The Stockholders Agreement also provides the Initial Stockholders with
certain "veto rights" with respect to specified actions by the Company and its
subsidiaries. In general, without the written approval of the Initial
Stockholders, the Company may not amend its certificate of incorporation or
bylaws or declare or pay any dividends or make any other distributions with
respect to its capital stock, and neither the Company nor any of its
subsidiaries may engage in certain acquisitions or dispositions, or make capital
expenditures, involving consideration in excess of $10 million, purchase or
redeem any of its capital stock, issue or sell any capital stock, options or
similar derivative securities or file any registration statement with respect
thereto, authorize or effect any stock dividend or stock split, incur or assume
any indebtedness in excess of $10 million,
3
<PAGE> 6
engage in any business not significantly related to the business in which
Candlewood LLC was engaged at the time the Company was incorporated, enter into
certain related party transactions, change accountants or accounting principles
or practices, establish arrangements for compensating officers, directors of
employees in excess of certain levels or enter into other transactions or
arrangements not in the ordinary course of business. In addition, without the
written approval of each of the Initial Stockholders, the Company may not engage
in certain transactions involving a merger, consolidation or liquidation of the
Company, engage in certain acquisitions or dispositions, increase the size of
its Board of Directors or engage in certain transactions involving the
liquidation or sale of certain of its subsidiaries.
The Stockholders Agreement also provides to Doubletree certain purchase
rights with respect to future sales of Common Stock or securities convertible
into or exchangeable for Common Stock. In general, if the Company intends to
sell such securities for cash, subject to certain exceptions with respect to
sales to employees, the Company must first offer to sell such securities to
Doubletree in proportion to the number of Subject Shares (as defined therein)
held by Doubletree.
The Stockholders Agreement will terminate on November 5, 2006 or at such
time as the Initial Stockholders hold less than 50% of the outstanding Common
Stock of the Company.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack P. DeBoer........... 65 Chairman of the Board, Chief Executive Officer and
President
Warren D. Fix............ 58 Executive Vice President, Chief Financial Officer
and Secretary
Larry D. Bowers.......... 44 Vice President -- Construction
Kent L. Brown............ 49 Vice President -- Controller and Assistant
Secretary
Jeffrey F. Hitz.......... 51 Vice President -- Real Estate
James E. Korroch......... 30 Vice President -- Operations
David A. Redfern......... 30 Vice President -- Sales and Marketing
</TABLE>
For a description of the business background of Messrs. DeBoer and Fix, see
"Proposal 1 -- ELECTION OF DIRECTORS."
Larry D. Bowers has served as Vice President of Construction of the Company
since March 1996. From September 1991 to March 1996, Mr. Bowers owned and
operated Bowers Construction & Development, Inc., a general contracting and
consulting company. From February 1984 to September 1991, Mr. Bowers served as a
Division President of Robertson Homes. From November 1981 to February 1984, Mr.
Bowers owned and operated Construction Management Services, a general
contracting company.
Kent L. Brown has served as Vice President -- Controller and Assistant
Secretary of the Company since August 1996. From September 1993 to August 1996,
Mr. Brown held the position of Manager -- Financial Analysis for THORN Americas,
Inc., and from September 1990 to September 1993, he served as Director of
Financial Reporting and Taxes for Foodbrands America, Inc. From September 1982
to September 1990, Mr. Brown served in various positions with the accounting
firm of Ernst & Young, most recently as Senior Manager in the auditing
department. Mr. Brown is a certified public accountant.
Jeffrey F. Hitz has served as Vice President of Real Estate of the Company
since May 1996. From July 1995 to May 1996, Mr. Hitz was a consultant to several
retail chains on site selection and concept development. From October 1994 to
July 1995, Mr. Hitz was Senior Vice President, Operations for EZCorp, Inc., a
publicly traded retail chain. From August 1989 to October 1994, Mr. Hitz held
several positions with THORN Americas, Inc., including most recently, Vice
President, Development. From 1986 to 1989, Mr. Hitz was a multi-unit franchisee
of two restaurant concepts in California and Arizona.
4
<PAGE> 7
James E. Korroch has served as Vice President of Operations of the Company
since its inception. From April 1990 to June 1995, Mr. Korroch held sales,
marketing and operations positions with Summerfield Hotel Corporation, most
recently as General Manager of the Summerfield Suites Hotel in Schaumburg,
Illinois. Mr. Korroch also served as Chairman of the Committee on Technology and
the Committee on Corporate Communications at Summerfield.
David A. Redfern has served as Vice President of Sales and Marketing of the
Company since December 1995. From August 1994 to December 1995, Mr. Redfern
served as the National Sales Director for the Summerfield Suites Hotel chain.
From June 1993 to January 1995, Mr. Redfern served as a Task Force Manager for
Summerfield Suites. From September 1991 to June 1993, Mr. Redfern attended the
University of California -- Irvine, where he received his MBA degree. From
January to June 1993, Mr. Redfern was also employed by Cruttenden & Co., Inc. as
a research analyst. From August 1990 to September 1991, Mr. Redfern served as
Director of Sales for the Summerfield Suites hotel in San Francisco, California.
From 1988 to August 1990, Mr. Redfern was a Sales Manager for the Residence Inn
by Marriott in La Jolla, California.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1995 and December 31, 1996 of those persons who
were either (i) the chief executive officer of the Company, (ii) one of the
other most highly compensated executive officers of the Company whose annual
salary and bonuses exceeded $100,000 or (iii) any other executive officer who
would have qualified under sections (i) or (ii) of this paragraph but for the
fact that the individual was not serving as an executive officer of the
registrant at the end of the 1996 fiscal year (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION OTHER STOCK
------------ ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION (SHARES) COMPENSATION
- --------------------------------------- ----- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Jack P. DeBoer......................... 1996 $ 96,000 -- -- --
President and Chief Executive 1995 24,000(1) -- -- $ 645
Officer
Warren D. Fix.......................... 1996 96,000 -- 50,000 6,117
Chief Financial Officer and 1995 24,000(1) -- -- --
Secretary
Larry D. Bowers........................ 1996 81,560 42,500 25,000 1,995
Vice President -- Construction
James D. Korroch....................... 1996 80,000 23,750 100,000 --
Vice President -- Operations
</TABLE>
- ---------------
(1) Represents a base salary of $96,000 on an annualized basis.
The following table sets forth certain information with respect to grants
of stock options during 1996 to the Named Executive Officers pursuant to the
Company's 1996 Equity Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
PERCENTAGE REALIZABLE VALUE AT
OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS EXERCISE RATES OF STOCK PRICE
SECURITIES GRANTED TO OR BASE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERM
OPTIONS IN FISCAL (PER EXPIRATION ---------------------
NAME GRANTED(1) YEAR SHARE) DATE 5% 10%
- ---------------------------------- ---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack P. DeBoer.................... -- -- -- -- -- --
Warren D. Fix..................... 50,000 14% $10.00 11/5/2006 $314,447 $ 796,871
Larry D. Bowers................... 25,000 7 10.00 11/5/2006 157,224 398,436
James D. Korroch.................. 100,000 29 10.00 11/5/2006 628,895 1,593,742
</TABLE>
6
<PAGE> 9
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 1996
pursuant to the Company's 1996 Equity Plan. No options were exercised or
exercisable by any of the Named Executive Officers during 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
--------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack P. DeBoer................... -- -- $-- $--
Warren D. Fix.................... -- 50,000 -- --
Larry D. Bowers.................. -- 25,000 -- --
James E. Korroch................. -- 100,000 -- --
</TABLE>
- ---------------
(1) Based on the average of the high and low sales price of the Company's Common
Stock ($8.94) on the Nasdaq National Stock Market on December 31, 1996,
minus the exercise price of the option, multiplied by the number of shares
to which the option relates.
DIRECTOR COMPENSATION
The Company's Independent Directors receive directors' fees of $4,000 for
each Board of Directors meeting attended, provided, however, that no Independent
Director shall receive a fee for any Board of Directors meeting conducted by
unanimous written consent. In addition, each Independent Director receives
$1,000 for each committee meeting attended on a day the Board of Directors is
not otherwise meeting. Pursuant to the Company's 1996 Equity Plan, each of the
Company's existing directors (other than Messrs. DeBoer and Fix) was entitled to
receive immediately prior to the commencement of the Offering a grant of
non-qualified stock options to purchase 10,000 shares of Common Stock at the
initial public offering price. Messrs. Ueberroth and Ferris waived their right
to receive such grants. Also pursuant to the 1996 Equity Plan, each person who
becomes a director subsequent to the Offering will receive a grant of
non-qualified stock options to purchase 10,000 shares of Common Stock at the
fair market value of the Common Stock on the date such person becomes a member
of the Board of Directors. Each director may be reimbursed for certain expenses
incurred in connection with attendance at Board and committee meetings.
AGREEMENTS RELATING TO EMPLOYMENT
The Company has entered into an employment agreement with Mr. DeBoer under
which he has agreed, subject to certain conditions, to continue to serve as the
Company's President and Chief Executive Officer until August 1999. Mr. DeBoer
will receive annual cash compensation pursuant to the employment contract, which
is renewable from year to year thereafter. Mr. DeBoer shall be eligible for a
bonus to be set by the Compensation Committee. The contract provides that upon a
change of control of the Company or termination of employment under certain
circumstances, Mr. DeBoer will be entitled to a payment equal to three times his
average annual salary for the previous three years. The contract provides that,
during the term of the contract, except with respect to certain passive
investments in lodging companies and hotel properties and activities related to
properties held at the time of the offering, Mr. DeBoer will not engage in the
acquisition, founding, development, operation or management of any hotel
companies or chains. For two years after Mr. DeBoer's contract ends, subject to
the aforementioned exceptions, Mr. DeBoer will not engage in the acquisition,
founding, development, operation, or management of any new hotel companies or
chains.
COMPENSATION COMMITTEE REPORT ON COMPENSATION
Compensation and benefit practices of the Company are established and
governed by the Compensation Committee comprised exclusively of independent
members of the Board of Directors. The Compensation
7
<PAGE> 10
Committee establishes the general compensation policy of the Company, reviews
and approves compensation of the senior executive officers of the Company and
administers the Company's Stock Option Plan and any other employee benefit plans
established by the Company. The Compensation Committee reviews the overall
compensation program of the Company to assure that it (i) is reasonable in
consideration of all the facts, including practices of comparably sized
corporations engaged in the extended-stay hotel business, (ii) adequately
recognizes performance tied to creating shareholder value, (iii) is responsive
to current tax, accounting and Securities and Exchange Commission guidelines,
and (iv) meets overall Company compensation and business objectives.
The Compensation Committee will attempt to promote financial and
operational success by attracting, motivating and assisting in the retention of
key employees who demonstrate the highest levels of ability and talent. In
addition, the Compensation Committee will attempt to promote teamwork,
initiative and resourcefulness on the part of key employees whose performance
and responsibilities directly affect Company profits. To this end, the
compensation program will be designed to balance short and long-term incentive
compensation to achieve desired results and pay for performance. The Company's
compensation policy is to reward performance as measured by the creation of
value for stockholders. The Compensation Committee will utilize base salary,
certain annual bonus awards, annual cash incentive awards, and long-term
incentive compensation pursuant to the 1996 Equity Participation Plan (the "1996
Equity Plan") as part of its program.
Prior to the Offering, the Company did not have a Compensation Committee
and all compensation decisions were made by Messrs. DeBoer and Fix, except for
compensation decisions with respect to Messrs. DeBoer and Fix, which were made
by Messrs. Ferris and Ueberroth. The Compensation Committee was formed in
February, 1997 and its first meeting is scheduled to occur in connection with
the Annual Meeting of Stockholders.
Base Salary. Salaries for executives will be reviewed annually by the
Compensation Committee based upon a variety of factors, including individual
performance, general levels of market salary increases and the Company's overall
financial results. Base salaries for the Company's executives through December
31, 1996 were determined in connection with the Company's initial public
offering of Common Stock and not by the Compensation Committee. The base salary
for each of the five highest paid officers for 1997 will be reviewed by the
Compensation Committee in connection with the Meeting, and may be adjusted if
the Compensation Committee believes that such adjustment would be reasonable in
view of competitive practices, the Company's performance and the contribution of
those officers to that performance.
LONG-TERM INCENTIVE COMPENSATION.
1996 EQUITY PARTICIPATION PLAN
The Company has established the 1996 Equity Plan to provide an additional
incentive for executive officers, other key employees, Independent Directors and
consultants of the Company by personally benefitting them through the ownership
of Company stock. The 1996 Equity Plan is designed to attract and retain
executive officers, other key employees, Independent Directors and consultants
of the Company. The 1996 Equity Plan provides for the award to executive
officers, other key employees, Independent Directors and consultants of the
Company of a broad variety of stock-based compensation alternatives such as
nonqualified stock options, incentive stock options, restricted stock and
performance awards. A maximum of 900,000 shares have been reserved for issuance
under the 1996 Equity Plan.
The 1996 Equity Plan will be administered by the Compensation Committee,
which is authorized to select from among the eligible participants the
individuals to whom options, restricted stock purchase rights and performance
awards are to be granted and to determine the number of shares to be subject
thereto and the terms and conditions thereof, including the exercise or sale
price, the number of shares subject to the award and the exercisability thereof.
The Compensation Committee is also authorized to adopt, amend and rescind rules
relating to the administration of the 1996 Equity Plan.
Effective upon the closing of the Offering, the Company issued to executive
officers, other key employees, Independent Directors and consultants of the
Company options to purchase approximately 355,200 unregis-
8
<PAGE> 11
tered shares of Common Stock pursuant to the 1996 Equity Plan. The options are
exercisable at a price per share equal to $10, the initial public offering price
of the Company's Common Stock. The total number of options granted to each
individual was determined primarily by the position of the participant.
401(k) Profit Sharing Plan
Effective as of June 1, 1996, the Company adopted the Candlewood Hotel
Company 401(k) Profit Sharing Plan (the "401(k) Plan"). The 401(k) Plan is a
profit sharing plan designed to be qualified under applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The 401(k) Plan covers
all employees of the Company who have attained age 21 and have completed 1,000
hours of service, as that term is defined in the 401(k) Plan, and who have
twelve months of service with the Company. Participants receive service credit
for employment with the predecessor of the Company.
A participant in the 401(k) Plan may contribute up to 15% of his or her
compensation on a pre-tax basis under the 401(k) Plan. Also, under the 401(k)
Plan, the Company may, in its discretion, make matching contributions based on
the pre-tax contributions of a participant that are not in excess of 6% of
compensation. The Company did not make any matching contributions during 1996.
Incentive Compensation Plan
The Company intends to establish an incentive compensation plan for
officers and key employees of the Company. This plan will provide for the
payment of an annual bonus to participating officers and key employees if
certain performance objectives established for each individual are achieved.
Each participant's performance objectives, to be established at the beginning of
the year by the Compensation Committee, will vary from year to year and may be
based on measures of profitability, cash flow and other measures for the Company
and various segments of the Company, as well as upon each individual's specific
role within the Company. Pursuant to the Company's Employment Agreement with Mr.
DeBoer, Mr. DeBoer shall be eligible for an annual bonus to be set by the
Compensation Committee. The Company did not have an incentive compensation plan
during 1996.
Chief Executive Compensation. In 1996, Mr. DeBoer, the Company's President
and Chief Executive Officer, received base compensation of $96,000 pursuant to a
written employment agreement, the terms of which were determined at the time of
the Offering and not by the Compensation Committee. Mr. DeBoer's salary for 1997
has not yet been determined.
The foregoing report has been approved by all the members of the
Compensation Committee.
Date: April 14, 1997 Russell W. Meyer, Jr.
Tony M. Salazar
Peter V. Ueberroth
The above report of the Compensation Committee will not be deemed to be
incorporated by reference to any filing by the Company under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates same by reference.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Offering, the Company did not have a Compensation Committee
and all compensation decisions were made by Mr. DeBoer and Mr. Fix, except for
compensation decisions with respect to Messrs. DeBoer and Fix, which were made
by Messrs. Ferris and Ueberroth.
The Company has implemented a policy requiring any material transaction or
agreement with a related party to be approved by a majority of the directors not
interested in such transaction or agreement, provided that they determine that
the terms of any such transaction or agreement are no less favorable to the
Company than those that could be obtained from an unaffiliated third party. In
addition, pursuant to the terms of the Stockholders Agreement among the Initial
Stockholders, the Company may not enter into any related party transactions (as
defined therein) without the prior approval of the Initial Stockholders.
9
<PAGE> 12
STOCKHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total stockholder
return of the Company's Common Stock with the cumulative total return of the S&P
500 Stock Index and the S&P Lodging-Hotels Index for the period from November 5,
1996, the date of the Company's initial public offering, to December 31, 1996.
COMPARISON OF THE CUMULATIVE TOTAL RETURN*
AMONG CANDLEWOOD HOTEL COMPANY, INC., THE S&P 500 INDEX
AND THE S&P HOTEL-MOTEL INDEX
<TABLE>
<CAPTION>
Measurement Period Candlewood S&P Lodging -
(Fiscal Year Covered) Hotel Inc. S&P 500 Hotels
- --------------------- ---------- ------- -------------
<S> <C> <C> <C>
11/05/96 100 100 100
12/31/96 96 105 95
</TABLE>
- ---------------
* Assumes $100 invested in the Common Stock of Candlewood Hotel Company, the S&P
500 Stock Index and the S&P Lodging-Hotels Index on November 5, 1996 and the
reinvestment of any and all dividends.
CERTAIN TRANSACTIONS
The Company leases the office space for its corporate headquarters in
Wichita, Kansas from MSI Building, LLC ("MSI Building"), a limited liability
company. The Company began occupying its office space on February 23, 1996 and
as of December 31, 1996 had paid rent in the amount of $70,173 to MSI Building.
The Company's lease has a term of 5 years. In addition, the Company leases
certain equipment from MSI Building and has reimbursed MSI Building for certain
leasehold improvements for the Company's office space. Such payments for the
twelve months ended December 31, 1996 totaled $44,359. There were no such
payments to MSI Building in 1995. Mr. DeBoer is a minority member of MSI
Building.
The Company obtains business insurance, such as property, liability,
workers' compensation and group medical coverages, through Manning & Smith
Insurance. The Company believes that the types and amounts are consistent with
those obtained by similar businesses. For the period from October 1, 1995 to
December 31, 1995 and the twelve months ended December 31, 1996, the Company had
paid insurance premiums to Manning & Smith for such coverages in the amounts of
$2,072 and $22,873, respectively. Mr. DeBoer owns a minority interest in Manning
and Smith Insurance.
As part of its strategic alliance with Doubletree Corporation
("Doubletree"), Candlewood enjoys the benefits of Doubletree's bulk phone rates,
in-room video and television service arrangement and bulk purchase of supplies
and other goods. The Company expects to utilize Doubletree's central reservation
system and to benefit from Doubletree's established insurance and benefit
programs. As additional Candlewood hotels
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<PAGE> 13
commence operations, the Company anticipates that it will formalize the services
to be provided by Doubletree and the cost of certain of those services. However,
for the period January 1, 1996 to December 31, 1996, the Company made no
payments to Doubletree for services. Mr. Richard J. Ferris and Mr. Peter V.
Ueberroth, directors of the Company, are each Co-Chairman of Doubletree.
The Company has arranged with a third party lender to provide construction
loans and long-term financing for up to 80% of the cost of certain Company
developed and franchised hotels, subject to approval by the Company and the
lender on an individual property basis. Doubletree has agreed to guarantee
certain portions of the loans made to the Company's franchisees and comparable
portions of loans made to the Company under this arrangement. Doubletree has
agreed to guarantee the amount of such loans in excess of approximately 56% of
the hotel cost. The amount of such loans will not exceed 75% of the hotel cost,
unless Candlewood manages the hotel, in which case such loans will not exceed
80% of the hotel cost. It is anticipated that the guarantee will remain in
effect until the loan has been repaid. Upon an event of default, Doubletree will
have the option to meet any shortfalls or pay down the loan principal. In
exchange for the guarantee, Doubletree will receive a 5% interest in the profits
and residual value of the hotel and a 0.25-0.50% fee on the total loan amount
outstanding.
Doubletree has extended to the Company a $15 million subordinated credit
facility. The credit facility is subordinated to debt incurred in the
development of hotels and will be subordinated to the Company's line of credit,
if any. Amounts outstanding under the credit facility bear interest at rates of
7% per annum for the first 12 months following contribution, 10% per annum for
the second 12 months following contribution and 15% per annum thereafter. In
connection with the Company's initial public offering, Doubletree loaned a
substantial portion of the amount which it had previously contributed to
Candlewood LLC ($12.3 million) to the Company, which is evidenced by a long-term
note payable under the credit facility and which bears interest at a rate
calculated based on the date equivalent amounts were originally contributed to
Candlewood LLC. During 1996, the Company incurred interest expense totalling
$122,932 related to the credit facility.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), requires the Company's directors and executive officers, and persons who
own more than 10% of a registered class of the Company's equity securities, to
file initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC") and The Nasdaq Stock Market. Such
persons are required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of copies of such forms received by it with
respect to fiscal 1996, or written representations from certain reporting
persons, the Company believes that all of its directors and executive officers
and persons who own more than 10% of the Company's Common Stock have complied
with the reporting requirements of Section 16(a), except that Mr. DeBoer filed
his initial statement of beneficial ownership on Form 3 in connection with the
Company's initial public offering one day late.
PROPOSAL 1
ELECTION OF DIRECTORS
Directors are elected at each Annual Meeting of Stockholders and hold
office until their successors are duly elected and qualified at the next Annual
Meeting of Stockholders. The Company's Bylaws authorize a Board comprised of at
least four directors and no more than seven directors, with the exact number set
by resolution of the Board. Pursuant to a resolution adopted by the Board of
Directors, the authorized number of members of the Board of Directors has been
set at seven. There are seven nominees for election to the Board of Directors.
11
<PAGE> 14
Each of the Company's nominees for election to the Board of Directors
currently serves as a director of the Company and was elected to his present
term of office pursuant to the Bylaws of the Company. Each nominee first became
a director of the Company in the year set forth below and has continually served
as a director of the Company since then.
<TABLE>
<CAPTION>
FIRST BECAME
NAME AGE PRINCIPAL OCCUPATION OR POSITION A DIRECTOR
---- --- -------------------------------- ------------
<S> <C> <C> <C>
Gary E. Costley 53 President, Chief Executive Officer and Chairman 1997
of the Board of International Multifoods
Corporation
Jack P. DeBoer 65 President, Chief Executive Officer and Chairman 1996
of the Board of the Company
Richard J. Ferris 60 Co-Chairman of Doubletree Corporation 1996
Warren D. Fix 58 Executive Vice President, Chief Financial 1996
Officer and Secretary of the Company
Russell W. Meyer, Jr. 64 Chief Executive Officer and Chairman of the 1997
Board of Cessna Aircraft Co.
Tony M. Salazar 45 Executive Vice President of McCormack Baron & 1997
Associates
Peter V. Ueberroth 59 Co-Chairman of Doubletree Corporation 1996
</TABLE>
Gary E. Costley has served as director of the Company since March 1997. Mr.
Costley is the Chairman of the Board, President and Chief Executive Officer of
International Multifoods Corporation, positions he has held since January 1997.
From 1995 to 1996, he served as Dean and Professor of the Babcock Graduate
School of Management at Wake Forest University. From 1970 to 1994, Mr. Costley
held numerous positions within the Kellogg Company, including most recently,
President of Kellogg North America, President and Chairman of Kellogg USA,
Chairman of Kellogg Canada and Executive Vice President of Kellogg Company. Mr.
Costley serves on the boards of directors of International Multifoods, Inc.,
Pharmacopeia, Inc., and Bush Brothers, Inc.
Jack P. DeBoer has served as Chairman of the Board, President and Chief
Executive Officer of the Company since its inception. From October 1993 to
September 1995, Mr. DeBoer was self-employed and was engaged in the development
of the Candlewood extended-stay hotel concept. From 1988 to 1993, Mr. DeBoer
co-founded and developed Summerfield Hotel Corporation, an upscale extended-stay
hotel chain. In 1975, Mr. DeBoer founded the Residence Inn Company, an upscale
extended-stay chain which he built to 100 hotels before selling the company to
Marriott Corporation in 1987. Mr. DeBoer has consented to become a member of the
Board of Trustees of Innkeepers USA Trust, a publicly-held lodging real estate
investment trust, following the consummation of its purchase of seven hotels
which are owned by entities affiliated with Mr. DeBoer.
Richard J. Ferris has served as a director of the Company since its
inception. Since June 1992, Mr. Ferris has served as Co-Chairman of Doubletree.
From June 1987 to June 1992, Mr. Ferris was a private investor. Mr. Ferris is
the former Chairman and Chief Executive Officer of UAL Corporation, a position
he held from April 1976 to June 1987. Mr. Ferris serves as a director of The
Procter and Gamble Company, Amoco Corporation, Evanston Hospital Corporation and
as a director and Chairman of the Board of the PGA Tour Policy Board, for which
he serves as Chairman.
Warren D. Fix has served as a director and the Executive Vice President,
Chief Financial Officer and Secretary of the Company since its inception. From
July 1994 to October 1995, Mr. Fix was a Consultant to Doubletree, primarily
developing debt and equity sources of capital for hotel acquisitions and
refinancings. Additionally, Mr. Fix was a partner in The Contrarian Group from
December 1992 to October 1995. From 1989 to December 1992, Mr. Fix served as
President of the Pacific Company, a real estate investment and development
company. From 1964 to 1989, Mr. Fix held numerous positions within The Irvine
Company, including most recently, Chief Financial Officer. Mr. Fix serves on the
boards of directors of El Dorado Bank and Alexander Haagan Properties, Inc.,
both publicly traded companies.
12
<PAGE> 15
Russell W. Meyer, Jr. has served as a director of the Company since
February 1997. Mr. Meyer has served as the Chairman and Chief Executive Officer
of Cessna Aircraft Company since 1975. Mr. Meyer is a director of NationsBank
Corporation, Western Resources, Inc., both publicly traded companies, and is a
member of the Board of Trustees of Wake Forest University.
Tony M. Salazar has served as a director of the Company since February
1997. Mr. Salazar is the Executive Vice President of McCormack Baron &
Associates, a private real estate development and property management company, a
position which he has held since 1985. He previously served as the Executive
Director of the Kansas City Neighborhood Alliance, a community development and
financing agency. Mr. Salazar is a member of the board of directors at the
California Community Foundation.
Peter V. Ueberroth has served as a director of the Company since its
inception. Since June 1992, Mr. Ueberroth has served as Co-Chairman of
Doubletree. From April 1989 to the present, Mr. Ueberroth has been Managing
Director and a Principal of The Contrarian Group, a business management company.
From March 1984 to March 1989, Mr. Ueberroth served as the sixth Commissioner of
Major League Baseball. Mr. Ueberroth serves as a director of The Coca-Cola
Company, Transamerica Corporation and Ambassadors International, Inc., for which
he serves as Co-Chairman.
The Board of Directors held three meetings (including those held by written
consent) during the fiscal year ended December 31, 1996. Each director who was a
member of the Board at the date of the respective meetings attended at least 75%
of the aggregate of the total number of meetings of the Board of Directors held
during such period.
The Company did not establish standing Audit and Compensation Committees
until 1997 and has not established a Nominating Committee. During 1997, Messrs.
Ferris, Meyer and Salazar will comprise the Audit Committee. The Audit
Committee's responsibilities include (i) recommending the selection of the
Company's independent public auditors to the Board of Directors, (ii) consulting
with the independent auditors with regard to the plan and scope of audit, (iii)
reviewing in consultation with the independent auditors, their report of audit,
or proposed report of audit, and the accompanying management letter, if any, and
(iv) consulting with the independent auditors with regard to the adequacy of
internal controls, and, if need be, to consult also with management regarding
the same. During 1997, the Compensation Committee will be comprised of Messrs.
Meyer, Salazar and Ueberroth. The Compensation Committee reviews and approves
executive salaries, considers awards to be granted under the Company's officer
bonus plan and performs other related functions upon request of the Board of
Directors.
BOARD COMPENSATION AND BENEFITS
The Company's Independent Directors will receive directors' fees of $4,000
for each Board of Directors meeting attended, provided, however, that no
Independent Director shall receive a fee for any Board of Directors meeting
conducted by unanimous written consent. In addition, each Independent Director
will receive $1,000 for each committee meeting attended on a day the Board of
Directors is not otherwise meeting. Pursuant to the Company's 1996 Equity Plan,
each of the Company's existing directors (other than Messrs. DeBoer and Fix) is
entitled to receive immediately prior to the commencement of the Offering a
grant of non-qualified stock options to purchase 10,000 shares of Common Stock
at the initial public offering price. Messrs. Ueberroth and Ferris have waived
their right to receive such grants. Also pursuant to the 1996 Equity Plan, each
person who becomes a director subsequent to the Offering will receive a grant of
non-qualified stock options to purchase 10,000 shares of Common Stock at the
fair market value of the Common Stock on the date such person becomes a member
of the Board of Directors. Messrs. Costley, Meyer and Salazar each received
options to purchase 10,000 shares of Common Stock at the time of their election
to the Board of Directors. Each director may be reimbursed for certain expenses
incurred in connection with attendance at Board and committee meetings.
VOTE AND RECOMMENDATION
Directors will be elected by a favorable vote of a plurality of the shares
of voting stock present and entitled to vote, in person or by proxy, at the
Meeting. Abstentions or broker non-votes as to the election of
13
<PAGE> 16
directors will not affect the election of the candidates receiving the plurality
of votes. Unless instructed to the contrary, the shares represented by the
proxies will be voted FOR the election of the seven nominees named above as
directors. Although it is anticipated that each nominee will be able to serve as
a director, should any nominee become unavailable to serve, the proxies will be
voted for such other person or persons as may be designated by the Company's
Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL SEVEN NOMINEES.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP, the Company's independent accountants
for the Company's initial public offering and for the fiscal year ended December
31, 1996, was selected by the Board of Directors to act in the same capacity for
the fiscal year ending December 31, 1997. Neither the firm nor any of its
members has any relationship with the Company or any of its affiliates except in
the firm's capacity as the Company's auditor.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Meeting and will have the opportunity to make statements if they so desire and
respond to appropriate questions from the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION
OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
All proposals of stockholders intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be directed to the attention of the
Secretary of the Company, at the address of the Company set forth on the first
page of this Proxy Statement, by that date which is sixty days prior to the date
of the 1998 Annual Meeting of Stockholders, if they are to be considered for
possible inclusion in the Proxy Statement and form of proxy used in connection
with such meeting.
OTHER MATTERS
As of the date of this Proxy Statement the Board of Directors knows of no
other matters which may be presented for consideration at the Meeting. However,
if any other matter is presented properly for consideration and action at the
Meeting, or any adjournment or postponement thereof, it is intended that the
Proxies will be voted with respect thereto in accordance with the best judgment
and in the discretion of the proxy holders.
By Order of the Board of Directors,
[SIG]
Warren D. Fix
Secretary
Dated: April 14, 1997
14
<PAGE> 17
CANDLEWOOD HOTEL COMPANY, INC.
PROXY FOR 1997 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 19, 1997
THIS PROXY IS SOLICITED BY AND ON BEHALF OF
THE BOARD OF DIRECTORS OF CANDLEWOOD HOTEL COMPANY, INC.
The undersigned stockholder of Candlewood Hotel Company, Inc., a
Delaware corporation, hereby appoints each of Jack P. DeBoer and Warren D. Fix,
with full power to act without the other and to appoint his substitute, as
Proxy and attorney-in-fact and hereby authorizes the Proxy to represent and to
vote, as designated on the reverse side, all the shares of voting stock of
Candlewood Hotel Company, Inc. held of record by the undersigned on April 7,
1997, at the 1997 Annual Meeting of Stockholders to be held on May 19, 1997, or
any adjournment or postponement thereof, with respect to:
1. ELECTION OF DIRECTORS. [ ] [ ]
FOR all seven nominees WITHHOLD AUTHORITY
listed at the right (except to vote for all seven
as marked to the contrary) nominees listed at the
right
(INSTRUCTION: To withhold authority to vote for any nominee, draw a line
through (or otherwise strike out) his name in the list below.)
Mr. Gary E. Costley
Mr. Jack P. DeBoer
Mr. Richard J. Ferris
Mr. Warren D. Fix
Mr. Russell W. Meyer, Jr.
Mr. Tony M. Salazar
Mr. Peter V. Ueberroth
2. RATIFICATION OF KPMG PEAT MARWICK LLP AS THE AUDITORS TO EXAMINE THE
FINANCIAL STATEMENTS OF THE COMPANY FOR FISCAL YEAR 1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING OR ANY ADJOURNMENT OF THE
MEETING, AS TO WHICH DISCRETIONARY AUTHORITY IS GRANTED TO SAID PROXY.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(Continued and to be signed on reverse side)
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If this proxy is executed and
no direction is made, this proxy will be voted "FOR" all seven nominees listed
under proposal 1. "FOR" proposal 2 and as the Proxy deems advisable on such
other matters as may properly come before the meeting.
A majority of the proxies or substitutes as shall be present and shall
act at said meeting or any adjournment or adjournments thereof (or if only one
shall be present and act, then that one) shall have and may exercise all of the
powers of said proxies hereunder.
THE UNDERSIGNED ACKNOWLEDGE RECEIPT OF THE NOTICE OF MEETING AND PROXY STATEMENT
DATED APRIL 14, 1997 AND THE 1997 ANNUAL REPORT OF THE COMPANY.
Dated: ________________________________________
Signature: ____________________________________
Signature: ____________________________________
(Please sign exactly as name appears on your
Candlewood Hotel Company, Inc. Stock
Certificate. If you are unsure how your name
appears, please contact Candlewood Hotel
Company, Inc. When shares are held by joint
tenants, both must sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give full title as such. If a
corporation, please sign in full corporate name
by the President or other authorized officer.
If a partnership, please sign in partnership
name by authorized person.)
