<PAGE> 1
SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Candlewood Hotel Company, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(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
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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<PAGE> 2
[CANDLEWOOD LOGO]
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 18, 1998
----------------------
The 1998 Annual Meeting of the Stockholders of Candlewood Hotel Company,
Inc. (the "Company") will be held at 10:00 a.m. local time, on May 18, 1998, 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 nine directors for the ensuing year or until the
election and qualification of their respective successors;
2. To consider and vote upon on an amendment to the 1996 Equity
Participation Plan of Candlewood Hotel Company, Inc. to increase the number of
shares of Common Stock authorized for issuance thereunder from 900,000 to
1,676,710; and
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 6, 1998,
the record date, will be entitled to notice of, and to vote at, the 1998 Annual
Meeting and any adjournment thereof.
By Order of the Board of Directors,
/s/ WARREN D. FIX
Warren D. Fix
Secretary
Wichita, Kansas
Dated: April 13, 1998
<PAGE> 3
[Candlewood Logo]
Lakepoint Office Park
9342 East Central
Wichita, Kansas 67206
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 18, 1998
-----------------
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 18, 1998 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 nine nominees to
the Board of Directors listed herein; and (ii) the amendment to the 1996 Equity
Participation Plan of Candlewood Hotel Company, Inc. that will increase the
number of shares of Common Stock authorized for issuance thereunder from 900,000
to 1,676,710.
Any stockholder has the power to revoke his or her proxy at any time
before it is voted. A proxy may be revoked by delivering a written notice of
revocation to the Secretary of the Company at the address set forth above, by
presenting a later-dated proxy executed by the person who executed the prior
proxy, or by attendance at the meeting and voting in person by the person who
executed the prior proxy.
This proxy statement is being mailed to the Company's stockholders on or
about April 17, 1998. 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.
1
<PAGE> 4
OUTSTANDING SHARES AND VOTING RIGHTS
Only holders of record of the 9,025,000 shares of the Company's Common
Stock and 65,000 shares of the Company's Series A Preferred Stock (the
"Preferred Stock") outstanding at the close of business on the record date,
April 6, 1998, will be entitled to notice of and to vote at the Meeting or any
adjournment or postponement thereof. On each matter to be considered at the
Meeting, each stockholder will be entitled to cast one vote for each share of
the Company's Common Stock, and 105.26316 votes for each share of Preferred
Stock held of record by such stockholder on April 6, 1998. Accordingly, an
aggregate of 15,867,105 votes may be cast on each matter to be considered at the
Meeting. The approval of each matter to be considered at the Meeting will
require the affirmative vote of the majority of the shares of Common Stock and
Preferred Stock outstanding on the record date and present and entitled to vote,
in person or by proxy, voting together on an as-converted basis.
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.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of March 16, 1998, the amount and
percentage of the outstanding shares of the Company's Common Stock, Preferred
Stock and Common Share Equivalents (Common Stock together with Preferred Stock
on an as-converted basis) 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 8 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>
Shares Beneficially Owned
----------------------------------------
Preferred Common(2) Common Share Equivalents(3)
----------------- ------------------- ---------------------------
NAME AND ADDRESS OF Percent Percent
BENEFICIAL OWNER(1) Number of Class Number of Class Number Percent
- ------------------- ------ -------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS/NOMINEES AND
NAMED EXECUTIVE OFFICERS
Gary E. Costley .................... 0 * 3,500 * 3,500 *
Robert J. Cresci(4)(5).............. 0 * 0 * 0 *
Jack P. DeBoer(5)(6)................ 1,000 1.54% 2,181,525 24.17% 2,286,788 14.41%
Richard J. Ferris(5)(7)............. 0 * 0 * 0 *
Warren D. Fix(5)(8)................. 250 * 400,625 4.4% 426,941 2.69%
Robert S. Morris(5)(9).............. 0 * 0 * 0 *
Frank J. Pados, Jr.(5)(10).......... 0 * 0 * 0 *
William L. Perocchi(5)(7)........... 0 * 3,000 * 3,000 *
Tony M. Salazar..................... 0 * 4,500 * 4,500 *
Larry D. Bowers .................... 0 * 6,550 * 6,550 *
James E. Korroch.................... 0 * 25,000 * 25,000 *
James E. Roos....................... 0 * 0 * 0 *
All directors and executive
officers as a group
(16 persons)(4)(5)(6)(7)(8)(9)(10).. 1,250 1.92% 2,648,742 29.13% 2,780,321 17.45%
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
5% BENEFICIAL HOLDERS
Stockholders Group(5)......... 65,000 100% 5,172,650 56.89% 12,014,755 75.40%
Doubletree Corporation(5)(11). 0 * 2,587,500 28.67% 2,587,500 16.31%
410 N. 44th Street
Phoenix, AZ 85008
Olympus Growth Fund, II,
L.P.(5)(12)................... 10,000 15.38% 0 * 1,052,632 6.63%
Olympus Executive Fund, L.P.
One Station Place
Stamford, CT 06430
Whiting & Co.(15)............. 10,000 15.38% 0 * 1,052,632 6.63%
c/o J.P. Morgan Investment
Mgmt.
522 Fifth Avenue, 6th Floor
New York, NY 10036
J.P. Morgan & Co., Inc.(13)... 0 * 956,400 10.60% 956,400 6.03%
60 Wall Street
New York, NY 10260
Chase Venture Capital
Associates(15)............... 7,000 10.77% 0 * 736,842 4.64%
380 Madison Avenue, 12th Floor
New York, NY 10017
LNR Candlewood Holdings,
Inc.(15)..................... 7,000 10.77% 0 * 736,842 4.64%
760 N.W. 107th Avenue, Suite 400
Miami, Florida 33172
Pecks Management Partners
Ltd.(5)(14)................... 7,000 10.77% 0 * 736,842 4.64%
9432 East Central
Wichita, KS 67026-2555
Private Equity Investors III,
L.P.(15)..................... 3,500 5.38% 0 * 368,421 2.32%
c/o Desai Capital Management
Inc.
540 Madison Avenue
New York, NY 10022
Equity-Linked Investors-II,
L.P.(15)..................... 3,500 5.38% 0 * 368,421 2.32%
c/o Desai Capital Management
Inc.
540 Madison Avenue
New York, NY 10022
The FFJ Nominee Trust(15).... 3,250 5.00% 0 * 342,105 2.16%
Samuel T. Byrne, Trustee, c/o
Boston Capital Institutional
Advisors
One Boston Place
Boston, MA 02108-4406
J. Romeo & Co.(15)........... 3,250 5.00% 0 * 342,105 2.16%
1740 Broadway
New York, NY 10019
Attn: MONY Capital Mgmt. Unit
</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) Includes options exercisable within 60 days of December 31, 1997.
(3) Assumes conversion of Preferred Stock into Common Stock.
(4) Excludes 7,000 shares of Preferred Stock owned by Pecks Management
Partners, Ltd. Mr. Cresci is a Managing Director of Pecks Management
Partners, Ltd. and disclaims beneficial ownership of such shares.
3
<PAGE> 6
(5) On September 22, 1997, the Company, Messrs. DeBoer and Fix, Doubletree and
all of the original purchasers of the Company's Series A Preferred Stock
(collectively, the "Stockholders Group") entered into a Stockholders
Agreement. The Stockholders Group may be deemed to be a "group" for
purposes of 13(d)(3) of the Exchange Act. Messrs. DeBoer, Fix, Cresci
(through his association with Pecks Management Partners Ltd.), Morris
(through his association with Olympus Growth Fund II, L.P. and Olympus
Executive Fund, L.P.), Pados (through his association with Private Equity
Investors III, L.P. and Equity-Linked Investors-II, L.P.) and Perocchi
(through his association with Doubletree) and Doubletree and the other
parties to the Stockholders Agreement may therefore be deemed to
beneficially own those shares listed as beneficially owned by the
Stockholders Group. The Stockholders Agreement provides for certain rights
and obligations regarding the nomination and election of directors. See
"Stockholders Agreement." The listed holders disclaim beneficial ownership
of these shares except to the extent that they have a pecuniary interest
therein.
(6) Excludes 87,976 shares of Common Stock 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.
(7) Excludes 2,587,500 shares held by Doubletree, of which Mr. Ferris is a
Co-Chairman and Mr. Perocchi is an officer. Messrs. Ferris and Perocchi
disclaim beneficial ownership of such shares.
(8) Includes 388,125 shares of Common Stock 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. Includes 250 shares
of Preferred Stock held by Mr. Fix as trustee for the Warren D. Fix
Defined Benefit Plan Trust.
(9) Excludes 9,900 shares of Preferred Stock owned by Olympus Growth Fund II,
L.P. and 100 shares of Preferred Stock owned by Olympus Executive Fund,
L.P. Mr. Morris is an executive officer of the General Partners of both
partnerships and disclaims beneficial ownership of such shares.
(10) Excludes 7,000 shares of Preferred Stock owned by Private Equity Investors
III, L.P. and Equity-Linked Investors-II, L.P. Mr. Pados disclaims
beneficial ownership of such shares.
(11) Doubletree Corporation is a wholly owned subsidiary of Promus Hotel
Corporation.
(12) Based on Schedule 13D filed by Olympus Growth Fund, II, L.P. and Olympus
Executive Fund, L.P. on October 23, 1997.
(13) Based on Schedule 13G/A filed by J.P. Morgan & Co., Inc. on February 13,
1998.
(14) Based on Schedule 13G filed by Pecks Management Partners Ltd. on February
13, 1998. The shares listed as owned by Pecks Management Partners Ltd. are
owned by four of its investment advisory clients which receive dividends
and the proceeds from the sale of such shares. One such client, the
Delaware State Employees' Retirement Fund, is claimed by Pecks Management
Partners Ltd. to own more than 5% of such shares.
(15) The listed holder is known by the Company to have purchased the listed
shares of Preferred Stock and to have entered into the Stockholders
Agreement (see Note 5, above, regarding the Stockholders Group). The
Company is unaware of any other stockholdings of the listed holder.
REGISTRATION RIGHTS
In connection with the issuance and sale of the Company's Series A
Preferred Stock in September, 1997 (the "Private Placement"), the Company, Mr.
Jack P. DeBoer ("DeBoer"), Doubletree Corporation ("Doubletree"), the Alexander
John DeBoer Trust dated March 14, 1995 and the Christopher Scott DeBoer Trust
dated March 14, 1995 (the "DeBoer Trusts"), and the Warren D. Fix Family
Partnership, L.P. (the "Fix Partnership") (collectively, the "Initial
Stockholders"), and certain other purchasers of the Series A Preferred Stock,
entered into that certain Registration Rights Agreement dated as of September
22, 1997 (the "Registration Rights Agreement"). The Registration Rights
Agreement replaces that certain Incorporation and Registration Rights Agreement
dated September 1, 1996.
Pursuant to the terms of the Registration Rights Agreement, the parties
have demand registration rights under which they may require (subject to certain
limitations) the Company to register under the Securities Act certain shares of
Common Stock owned by the parties. The Company is not required to file a
registration statement upon exercise of these demand registration rights within
180 days following any underwritten public offering of Common Stock or
securities, convertible into or exercisable or exchangeable for Common Stock.
The Company is also obligated to allow the parties to participate in
underwritten offerings originated by the Company, subject to certain
limitations. All expenses of any registration relating to securities as provided
in the Registration Rights Agreement (other than underwriting discounts and
commissions and fees and expenses of counsel for selling stockholders) are to be
borne by the Company.
4
<PAGE> 7
STOCKHOLDERS AGREEMENT
Following the completion of the Private Placement, the Original Parties
and certain holders of Preferred Stock (the "Preferred Holders") entered into a
Stockholders Agreement, dated September 22, 1997 (the "Stockholders Agreement").
The Stockholders Agreement provides that, subject to certain conditions
described below, and so long as each entity holds at least 20% of the Preferred
Stock that it originally purchased, Olympus Growth Fund II, L.P. ("Olympus"),
Desai Capital Management, Inc. ("Desai Capital") and Pecks Management Partners
Ltd. ("Pecks") (collectively, the "Purchaser Group") shall each be entitled to
designate a single director for election to the Board of Directors (for a total
of three directors selected by the Purchaser Group). The Stockholders Agreement
also provides that, subject to certain conditions, Doubletree shall be entitled
to designate two directors for election to the Board, and allows the holders of
the common stock owned of record or beneficially by Mr. DeBoer, the DeBoer
Trusts and the Fix Partnership (collectively, the "DeBoer/Fix Holders") to
collectively designate two directors for election to the Board. Finally, the
Stockholders Agreement permits, subject to certain conditions, Doubletree (or
any permitted transferee of Doubletree, together with Doubletree, referred to
herein as the "Doubletree Holders"), together with the DeBoer/Fix Holders to
designate for nomination by the Board the President of the Company and the
remaining independent directors for election to the Board. Each of the parties
to the Stockholders Agreement have agreed to vote its shares in favor of the
individuals nominated by the other parties to the Stockholders Agreement.
The rights and obligations of any holder of Preferred Stock shall
terminate as to any member of the Purchaser Group or any holder of Preferred
Stock upon failure of all Preferred Stockholders to collectively hold at least
20% of the shares of Preferred Stock or share equivalents (a "Termination"). The
rights and obligations of the Doubletree Holders or the DeBoer/Fix Holders shall
terminate upon both the failure of such holders or their permitted transferees,
collectively, to hold, beneficially or of record, at least 20% of the
outstanding voting interests of the Company, and the Termination of the rights
of the holders of Preferred Stock. In addition, the rights of the holders of
Preferred Stock to nominate and elect directors and the corresponding
obligations of related parties shall terminate on the date that the shares of
Preferred Stock purchased by such holders are converted into common stock or
purchased by the Company.
Pursuant to the terms of the Stockholders Agreement and following the
Private Placement in September, 1997, Robert J. Cresci (as a nominee of Pecks),
Robert S. Morris (as a nominee of Olympus Growth Fund II, L.P.) and Frank J.
Pados, Jr. (as a nominee of Desai Capital) were elected to serve as directors.
Additionally, following the resignation of Peter V. Ueberroth in October, 1997,
William L. Perocchi was elected to serve as a director (as a nominee of
Doubletree). There are currently nine directors on the Board and one vacancy
remains unfilled.
The Stockholders Agreement replaces that certain Stockholders Agreement
entered into in September 1996 (the "Previous Stockholders Agreement"). Under
the Previous Stockholders Agreement, each of Mr. DeBoer and the Fix Partnership,
acting jointly, and Doubletree was entitled to nominate one-half of the number
of directors, other than the unaffiliated directors who were to be agreed upon
by the parties. Each of the Original Parties had agreed to vote its shares of
Common Stock in favor of individuals nominated by the other parties to the
Previous Stockholders Agreement. Under the Previous Stockholders Agreement,
Messrs. DeBoer and Fix had been nominated by Mr. DeBoer and the Fix Partnership,
acting jointly, Messrs. Ferris and Ueberroth had been nominated by Doubletree,
and Messrs. Costley, Meyer and Salazar had been agreed upon by the parties as
unaffiliated directors.
5
<PAGE> 8
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 6, 1998 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack P. DeBoer.............. 66 Chief Executive Officer and Chairman of the Board
James E. Roos............... 46 President and Chief Operating Officer
Warren D. Fix............... 59 Executive Vice President, Chief Financial
Officer, Secretary and Director
Jeffrey F. Hitz............. 52 Senior Vice President--Development
Larry D. Bowers............. 45 Vice President--Construction
Thomas Kennalley............ 41 Vice President--Controller and Assistant
Secretary
James E. Korroch............ 31 Vice President--Operations
David A. Redfern............ 31 Vice President--Sales and Marketing
Gina-Lynne Scharoun......... 27 Vice President--Franchise Development
</TABLE>
- ---------------
For a description of the business background of Messrs. DeBoer and Fix,
see "Proposal 1--ELECTION OF DIRECTORS."
James E. Roos has served as President and Chief Operating Officer of the
Company since June 1997. From 1993 to 1997, Mr. Roos was Executive Vice
President of Posadas USA, Inc., a division of Grupo Posadas, S.A. de C.V., a
Mexico City-based Latin American hotel Company. From 1991 to 1993, Mr. Roos
served as Vice President of Operations for the Western Region of Holiday Inns,
Inc. From 1987 to 1991, Mr. Roos was Vice President of Operations for Hampton
Inns, Inc., a division of Promus Companies/Holiday Inns, Inc. From 1981 to 1987
Mr. Roos was director of Operations for Holiday Inns, Inc.
Jeffrey F. Hitz has served as Senior Vice President of Development of
the Company since February, 1998. From May 1996 to February 1998, Mr. Hitz
served as Vice President of Real Estate of the Company. From July 1995 to March
1996, Mr. Hitz was a consultant to several retail chains on site selection and
concept development. From October 1994 to July 1995, Mr. Hitz was Senior Vice
President, Operations for EZCorp, Inc., a publicly traded retail chain. From
August 1989 to October 1994, Mr. Hitz held several positions with THORN
Americas, Inc., 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.
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.
6
<PAGE> 9
Thomas Kennalley has served as Vice President-Controller and Assistant
Secretary of the Company since December 1997. From 1996 to 1997, Mr. Kennalley
was Director of Financial Reporting for Thorn Americas, Inc. From 1991 to 1996,
Mr. Kennalley was Treasurer of Advantage Companies, Inc. From 1988 to 1990, Mr.
Kennalley served as Audit Coordinator of Meredith & Lytle, Chartered CPA's. From
1987 to 1988, Mr. Kennalley served as Vice President, Finance for Protect
Services Industries, Inc.
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.
Gina-Lynne Scharoun has served as Vice President of Franchise
Development of the Company since August 1997. From January 1996 to July 1997,
she held the position of Director of Franchise Development of the Company. From
September 1993 to December 1995, Ms. Scharoun served in various positions, most
recently as Assistant Vice President of Community Reinvestment, for the Fourth
Financial Corporation.
7
<PAGE> 10
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, December 31, 1996 and December 31, 1997 of
those persons who were either (i) the chief executive officer of the Company,
(ii) one of the other four 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 1997 fiscal year (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
-------------------------------------- -------
OTHER ANNUAL STOCK ALL OTHER
COMPENSA- OPTIONS COPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION (SHARES) SATION
- --------------------------- ---- ----------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jack P. DeBoer 1997 $135,500(1) $75,000 $2,068(2) -- --
Chief Executive Officer 1996 96,000 -- -- -- --
and Chairman of the Board 1995 24,000(3) -- 645 -- --
James E. Roos
President and Chief 1997 82,500(4) 118,675 5,541(5) 100,000 --
Operating Officer
Warren D. Fix 1997 120,000(6) 25,000 7,101(7) -- --
Executive Vice President, 1996 96,000 -- 6,117 50,000 --
Chief Financial Officer 1995 24,000(3) -- -- -- --
and Secretary
Larry D. Bowers 1997 81,560 105,000 2,161(8) -- --
Vice President - 1996 81,560 42,500 1,995 25,000 --
Construction
James E. Korroch 1997 80,000 21,000 1,277(9) -- --
Vice President - Operations 1996 80,000 23,750 -- 100,000 --
</TABLE>
- ------------------
(1) Represents a base salary of $96,000 from January 1, 1997 to June 30, 1997
and a base salary of $175,000 from July 1, 1997 to December 31, 1997 on an
annualized basis.
(2) Includes $1,425 in matching contributions to the executive officer's
401(k) plan and $643 for an annual physical.
(3) Represents a base salary of $96,000 on an annualized basis.
(4) Represents a base salary of $165,000 on an annualized basis. Mr. Roos was
employed as the Company's President and Chief Operating Officer from June
16, 1997 and received salary and bonus of $151,560.
(5) Includes $5,181 for lodging.
(6) Represents a base salary of $96,000 from January 1, 1997 to June 30, 1997
and a base salary of $144,000 from July 1, 1997 to December 31, 1997 on an
annualized basis.
8
<PAGE> 11
(7) Includes $4,295 for automobile expenses, $1,425 in matching contributions
to the executive officer's 401(k) plan and $1,381 for an annual physical.
(8) Includes $841 in matching contributions to the executive officer's 401(k)
plan and $1,320 for health insurance.
(9) Includes $1,277 in matching contributions to the executive officer's
401(k) plan.
The following table sets forth certain information with respect to
grants of stock options during 1997 to the Named Executive Officers pursuant to
the Company's 1996 Equity Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
PERCENTAGE ASSUMED ANNUAL
OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS EXERCISE PRICE
SECURITIES GRANTED TO OR BASE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERM(2)
OPTIONS IN FISCAL (PER EXPIRATION --------------------
NAME GRANTED(1) YEAR SHARE) DATE 5% 10%
- ---- ---------- ----------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jack P. DeBoer -- -- -- -- -- --
James E. Roos 100,000 33.8% $8.25 6/16/07 $519,000 $1,315,000
Warren D. Fix -- -- -- -- -- --
Larry D. Bowers -- -- -- -- -- --
James E. Korroch -- -- -- -- -- --
</TABLE>
- ------------------
(1) Represents options granted under the Company's 1996 Equity Plan.
(2) Assumed annual rates of return are for illustrative purposes only. Actual
stock price will vary from time to time based upon market factors and the
Company's financial performance. No assurance can be given that such rates
will be achieved.
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 1997
pursuant to the Company's 1996 Equity Plan. No options were exercised by any of
the Named Executive Officers during 1997.
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, 1997 December 31, 1997(1)
-------------------------- --------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack P. DeBoer....................... -- -- -- --
James E. Roos........................ -- 100,000 $0 $34,000
Warren D. Fix........................ 12,500 37,500 0 0
Larry D. Bowers...................... 6,250 18,750 0 0
James E. Korroch..................... 25,000 75,000 0 0
</TABLE>
- ------------------
(1) Based on the average of the high and low sales price of the Company's
Common Stock ($8.59) on the Nasdaq National Stock Market on December 31,
1997, minus the exercise price of the option, multiplied by the number of
shares to which the option relates.
9
<PAGE> 12
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 and shall be eligible for a bonus
to be set by the Compensation Committee. The contract provides that upon a
change of control of the Company or termination of employment under certain
circumstances, Mr. DeBoer will be entitled to a payment equal to three times his
average annual salary for the previous three years. The contract provides that,
during the term of the contract, except with respect to certain passive
investments in lodging companies and hotel properties and activities related to
properties held at the time of the offering, Mr. DeBoer will not engage in the
acquisition, founding, development, operation or management of any hotel
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.
In June of 1997 the Company entered into an employment agreement with
Mr. James E. Roos under which he agreed to serve as the Company's President.
Under the agreement, Mr. Roos receives annual cash compensation and certain
bonuses. The agreement provides that, in the event that the Company is sold in
the first 24 months of Mr. Roos's employment and, as a result of such sale, Mr.
Roos's job is eliminated, he will receive a separation payment of $200,000.
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 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 attempts to promote financial and operational
success by attracting, motivating and assisting in the retention of key
employees who demonstrate the highest levels of ability and talent. In addition,
the Compensation Committee attempts to promote teamwork, initiative and
resourcefulness on the part of key employees whose performance and
responsibilities directly affect Company profits. To this end, the compensation
program has been designed to balance short and long-term incentive compensation
to achieve desired results and pay for performance. The Company's compensation
policy is to reward performance as measured by the creation of value for
stockholders. The Compensation Committee utilizes base salary, certain annual
bonus awards, annual cash incentive awards, and long-term incentive compensation
pursuant to the 1996 Equity Plan as part of its program.
The Compensation Committee was formed in February, 1997. 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. Messrs. Costley, Salazar, Russell W. Meyer, Jr. and Peter V.
Ueberroth comprised the Compensation Committee through October 20, 1997.
Effective October
10
<PAGE> 13
20, 1997, upon the resignations of Messrs. Meyer and Ueberroth, Messrs. Costley,
Salazar and Pados were appointed to thereafter comprise the Compensation
Committee. Mr. Fix is as a non-voting ex officio member of the Compensation
Committee.
Base Salary. Salaries for executives are reviewed annually by the
Compensation Committee based upon a variety of factors, including individual
performance, general levels of market salary increases and the Company's overall
financial results. 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 was reviewed and established
by the Compensation Committee, and may be adjusted in 1998 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 Participation Plan to
provide an additional incentive for executive officers, other key employees, the
Company's non-employee Directors ("Independent Directors") and consultants of
the Company by personally benefiting them through the ownership of Company
stock. "Proposal 2: Amendment to Equity Participation Plan" contains a summary
of the material terms and provisions of the plan.
During 1997, the Company granted to executive officers, other key
employees, Independent Directors and consultants of the Company options to
purchase approximately 185,000 shares of Common Stock pursuant to the 1996
Equity Participation Plan. The options are exercisable at prices per share
ranging from $7.875 to $11.375. The total number of options granted to each
individual was determined primarily by the position of the participant. The
Company grants options to all employees of the Company regardless of position.
Of the 605,800 options issued and outstanding as of December 31, 1997, 425,000
were issued to executives and 180,800 were issued to other Company employees.
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 ninety
days of service, as amended. Participants receive service credit for employment
with the predecessor of the Company.
A participant in the 401(k) Plan may contribute up to 15% of his or her
compensation on a pre-tax basis under the 401(k) Plan. The Company may, but is
not obligated to, make contributions on behalf of each participant at the rate
of up to 25% of the participant's contribution, not to exceed 6% of the
employee's compensation. For the year ended December 31, 1997, the Company
matched contributions in the amount of $22,000. There were no matching
contributions provided by the Company for the year ended December 31, 1996.
11
<PAGE> 14
Incentive Compensation Plan
The Company has established an incentive compensation plan for officers
and key employees of the Company. This plan provides for the payment of an
annual bonus to participating officers and key employees if certain performance
objectives established for each individual are achieved. Each participant's
performance objectives, which are reviewed and established at the beginning of
the year by the Compensation Committee, vary from year to year and are based,
among other things, on measures of profitability, cash flow and other measures
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 is eligible for an annual bonus
to be set by the Compensation Committee. The Company did not have an incentive
compensation plan during 1996.
Although the Company did not meet its stated targets for the 1997 Bonus
Plan, the Compensation Committee granted bonuses after taking other
considerations into account, such as the efforts of Company management, Mr.
DeBoer's evaluation of their performance, the relative ranking of the
compensation of the officers vis-a-vis other similarly situated companies, the
impact on morale and performance of granting no bonuses, the small variance of
the Company's performance as a percentage of total budget, the complexity of the
Company's operations during its active development stage, the many variables
which may have impacted performance this past period, and certain accounting
charges which affected the Company's performance notwithstanding the efforts of
the officers. The Compensation Committee also considered the Company's growth
rate, the lack of an historical baseline against which to measure performance,
the increase and high turn over rate in personnel and the qualitative
performance of each of the bonus eligible employees.
Chief Executive Compensation. In 1997, Mr. DeBoer, the Company's Chief
Executive Officer and Chairman of the Board, received base compensation of
$135,500. The Compensation Committee increased Mr. DeBoer's salary in 1997 from
$96,000 to $175,000 and his 1997 base compensation represents a base salary of
$96,000 from January 1, 1997 to June 30, 1998 and a base salary of $175,000 from
July 1, 1997 to December 31, 1997 on an annualized basis.
The foregoing report has been approved by all the members of the
Compensation Committee.
Date: April 3, 1998 Gary E. Costley
Tony M. Salazar
Frank J. Pados, Jr.
The above report of the Compensation Committee will not be deemed to be
incorporated by reference to any filing by the Company under the Securities Act
of 1933 or the Securities Exchange Act of 1934, except to the extent that the
Company specifically incorporates the same by reference.
12
<PAGE> 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to 1997, 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.
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 Hotel-Motel index for the period
from January 1, 1997 to December 31, 1997.
COMPARISON OF 14 MONTH CUMULATIVE TOTAL RETURN*
AMONG CANDLEWOOD HOTEL COMPANY, INC., THE S&P 500 INDEX
AND THE S&P LODGINGS-HOTELS INDEX
[GRAPH]
* $100 INVESTED ON 11/05/96 IN CANDLEWOOD STOCK OR ON 10/31/96 IN INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
CERTAIN TRANSACTIONS
The Company leases the office space for a portion of 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 incurred rent expenses in the amounts of $70,000 and
$108,000 during 1996 and 1997, respectively. The Company's lease is maintained
on a month-to-
13
<PAGE> 16
month basis. 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. Costs incurred for the periods from October 1, 1995 to
December 31, 1995 and the twelve month periods ended December 31, 1996 and 1997
totaled $10,000, $44,000 and $9,000, respectively. Mr. DeBoer is a minority
member of MSI Building. The Company currently intends to move its corporate
headquarters to a new location in Wichita, Kansas as early as 1999.
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 twelve month periods ended
December 31, 1996 and December 31, 1997, the Company incurred expenses for such
coverages in the amounts of $23,000 and $167,000, respectively. Such costs for
the period October 1, 1995 to December 31, 1995 were not significant. Mr. DeBoer
owns a minority interest in Manning and Smith Insurance. The Company has
compared the rates received from Manning & Smith and believes that they are
competitive if not better than what is available from other carriers.
The Company purchases corporate travel through Wichita Air Services,
owned by Mr. DeBoer. For the year ended December 31, 1997, the Company incurred
costs from Wichita Air Services in the amount of $41,000. There were no such
costs in 1996 and 1995.
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. Mr. Richard J. Ferris, a director of the Company, is a Director and
member of the Executive Committee of Promus. Mr. Perocchi, a director of the
Company, is the Chief Financial Officer of Promus.
Doubletree has extended to the Company a $15 million subordinated credit
facility. The credit facility is subordinated to debt incurred in the
development of hotels and will be subordinated to the Company's line of credit,
if any. Amounts outstanding under the credit facility bear interest at rates of
7% per annum for the first 12 months following contribution, 10% per annum for
the second 12 months following contribution and 15% per annum thereafter. The
Company has drawn down the full amount of this facility, which is evidenced by
long-term notes payable and which bears interest at a rate calculated based on
the date amounts were advanced to the Company or its predecessors, ranging from
7% to 15%. During 1997, the Company incurred interest totaling $1,178,000
related to the credit facility. A significant portion of this amount was
capitalized as construction period interest.
In September, 1997, Doubletree and the company then known as Promus
Hotel Corporation, a Delaware corporation (renamed "Promus Operating Company,
Inc." after the merger), merged, creating a new corporation ("Promus Hotel
Corporation" or "Promus"). Doubletree is now a wholly-owned subsidiary of
Promus. The Company does not expect this merger to materially affect its
relationship with Doubletree.
14
<PAGE> 17
In two closings, on September 23, 1997 and October 3, 1997, the Company
completed a private placement (the "Private Placement") whereby the Company
issued 65,000 shares of its Series A Cumulative Convertible Preferred Stock, par
value $0.01 per share (the "Preferred Stock"), at a price of $1,000 per share.
The holders of the Preferred Stock are entitled to a preferential quarterly
dividend equal to 7.5% of the Stated Value (initially $1,000.00 per share,
subject to adjustment), payable quarterly beginning on August 31, 1998 and the
Certificate of Designation provides for conversion of the Preferred Stock into
Common Stock of the Company, upon the election of the holders, at a price of
$9.50 per share of Common Stock, subject to certain anti-dilution adjustments.
Holders of Preferred Stock have the right to vote with the Common Stock on an
as-if-converted basis. Approval of the majority of the outstanding Preferred
Stock will be required for any change in the Company's Restated Certificate of
Incorporation which would (i) adversely affect the holders of the Preferred
Stock; (ii) create any class or series of stock which is senior to or on parity
with the Preferred Stock with respect to voting rights, dividends or liquidation
preference or (iii) affect any redemption or repurchase of any capital stock of
the Company junior to the Preferred Stock. The Certificate of Designation also
provides the Holders of the Preferred Stock with protection from certain
dilutive share issuances and other events. Mr. DeBoer purchased 1,000 shares of
Preferred Stock in the Private Placement and Mr. Fix purchased 250 shares as
Trustee of the Defined Benefit Trust dated 1/1/89.
In connection with the Private Placement, the Company entered into a
Registration Rights Agreement and a Stockholders Agreement. See "Voting
Securities and Principal Holders Thereof - Registration Rights," "- Stockholders
Agreement.". The Board of Directors voted on September 19, 1997 to amend the
Bylaws so as to increase the size of the Board of Directors from seven to ten
members. Three nominees selected by certain of the Purchasers were elected to
fill the newly created positions on the Board of Directors. The Purchasers of
the Preferred Stock are entitled to nominate three individuals to serve on the
Company's Board of Directors. The Purchasers of the Preferred Stock, Doubletree
Corporation and certain members of management have agreed to vote for each
other's nominees for the Board of Directors pursuant to the Stockholders
Agreement. See "Proposal 1: Election of Directors."
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 1997, 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, (i) Thomas Kennalley,
Gary E. Costley, and Gina-Lynne Scharoun failed to timely file a Form 3
reporting their ownership of the Company's Common Stock and the acquisition of
options to purchase shares of the Company's Common Stock, (ii) Robert J. Cresci,
Robert S. Morris and Frank Pados, Jr. failed to timely file a Form 3 reporting
the acquisition of the Company's Preferred Stock and options to purchase shares
of the Company's Common Stock, (iii) Warren D. Fix and Jack DeBoer failed to
timely file a Form 4 reporting the acquisition of the Company's Preferred Stock,
and (iv) the parties to the Stockholders Agreement (who were not already
reporting persons) failed to file Form 3's to report the execution of the
Stockholders Agreement.
15
<PAGE> 18
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 seven directors and no more than ten 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 ten. There is currently one unfilled vacancy and, accordingly, there are
nine nominees for election to the Board of Directors.
As described above, the Stockholders Agreement provides that, subject to
certain conditions, Olympus, Desai and Pecks are each entitled to designate a
single director for election to the Board of Directors. The Stockholders
Agreement also provides that, subject to certain conditions, the Doubletree
Holders shall be entitled to designate two directors, and allows the DeBoer/Fix
Holders to collectively designate two directors for election to the Board.
Finally, the Stockholders Agreement permits, subject to certain conditions, the
Doubletree Holders together with the DeBoer/Fix Holders to designate the
remaining independent directors for election. Accordingly, Pecks has nominated
Mr. Cresci, Olympus has nominated Mr. Morris, Desai has nominated Mr. Pados, the
Doubletree Holders have nominated Messrs. Perocchi and Ferris, and the
DeBoer/Fix Holders have nominated Messrs. DeBoer and Fix to serve as directors.
The Doubletree Holders together with the DeBoer/Fix Holders nominated the
remaining unaffiliated directors -- Messrs. Costley and Salazar. The Purchasers
of the Preferred Stock, Doubletree Corporation and Messrs. DeBoer and Fix have
agreed to vote for each other's nominees for the Board of Directors pursuant to
the Stockholders Agreement.
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 in accordance with the Bylaws of the Company. Each nominee first
became a director of the Company in the year set forth below and has continually
served as a director of the Company since that time.
<TABLE>
<CAPTION>
FIRST BECAME
NAME AGE PRINCIPAL OCCUPATION OR POSITION A DIRECTOR
---- --- -------------------------------- ------------
<S> <C> <C>
JACK P. DEBOER 66 Chief Executive Officer and Chairman of 1996
the Board of the Company
RICHARD J. FERRIS 61 Co-Chairman of Doubletree Corporation 1996
WARREN D. FIX 59 Executive Vice President, Chief 1996
Financial Officer, and Secretary of the
Company
TONY M. SALAZAR 46 Executive Vice President of McCormack 1997
Baron & Associates
GARY E. COSTLEY 54 President, Chief Executive Officer and 1997
Chairman of the Board of International
Multifoods Corporation
</TABLE>
16
<PAGE> 19
<TABLE>
<S> <C> <C>
ROBERT J. CRESCI 54 Managing Director of Pecks Management 1997
Partners Ltd.
ROBERT S. MORRIS 42 Managing Partner of Olympus Partners 1997
FRANK J. PADOS, JR. 54 Executive Vice President of Desai 1997
Capital Management Inc.
WILLIAM L. PEROCCHI 40 Executive Vice President and Chief 1997
Financial Officer of Doubletree Corp.
</TABLE>
Jack P. DeBoer has served as Chief Executive Officer and Chairman of the
Board 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.
Tony M. Salazar has served as a director of the Company since February
1997. Mr. Salazar is the Executive Vice President and Director of MBA
Properties, Inc., a privately held real estate development and property
management company, a position which he has held since 1985. He previously
served as the Executive Director of the Kansas City Neighborhood Alliance, a
community development and financing agency. Mr. Salazar is a member of the board
of directors at the California Community Foundation.
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
Corporation and Pharmacopeia, Inc.
17
<PAGE> 20
Robert J. Cresci has served as a director of the Company since November
1997. Mr. Cresci is the Managing Director of Pecks Management Partners Ltd., an
investment management firm, a position he has held since September 1990. Mr.
Cresci currently serves on the boards of Bridgeport Machines, Inc., EIS
International, Inc., Sepracor, Inc., Arcadia Financial, Ltd., Hitox, Inc.,
Garnet Resources Corporation, HarCor Energy, Inc., Meris Laboratories, Inc.,
Film Roman, Inc., Educational Medical, Inc., Source Media, Inc., Castle Dental
Centers, Inc., SeraCare, Inc. and several private companies.
Robert S. Morris has served as a director of the Company since November
1997. Mr. Morris founded Olympus Partners in 1989 and serves as the Managing
Partner of Olympus Private Placement Fund, L.P., Olympus Growth Fund II, L.P.,
Olympus Executive Fund, and Olympus Growth Fund III L.P. Mr. Morris is currently
a Director of several Olympus portfolio companies, including: Supermarkets
Holding, L.P., AMN Healthcare, Inc., Entrust Technologies, Inc., and Mark III
Industries, Inc. He also serves on the Board of Directors of Hamilton College
Endowment Fund and TriNet Corporate Realty Trust, Inc., a publicly traded REIT.
Frank J. Pados, Jr. has served as a director of the Company since
November 1997. Mr. Pados is the Executive Vice President of Desai Capital
Management Inc., an institutionally funded private equity investment firm with
approximately $1 billion under management, a position he has held since
September 1995. From October 1983 to September 1995, he served as Managing
Director of Trust Company of the West and Senior Partner of TCW Capital. Mr.
Pados served on the boards of directors of Eyecare Centers of America and Brown
Jordan Company. TCW Capital (of which Mr. Pados was senior partner) was the
managing partner of a partnership that made an investment in Common Brothers, a
wholesale pharmaceutical drug distributor, in 1991. In 1993 and 1994, Commons
Brothers experienced financial difficulties. In 1994, Mr. Pados became Chairman
of Commons Brothers to help the Company with its problems. In August 1994, the
Company filed a petition under the Federal Bankruptcy Act.
William L. Perocchi has served as a director of the Company since
November 1997. Mr. Perocchi is the Executive Vice President and Chief Financial
Officer of Promus Hotel Corporation, a position which he has held since 1993.
From 1993 to 1997, Mr. Perocchi served as Executive Vice President and Chief
Financial Officer of Doubletree Corporation and served as director of Doubletree
Corporation from 1996 to 1997. From 1992 to 1993, Mr. Perocchi was Executive
Vice President and Chief Financial Officer of Guest Quarters Hotel Partners. Mr.
Perocchi serves on the board of directors for Red Lion Properties, Inc.
Pursuant to the terms of the Stockholders Agreement and following the
Private Placement in September, 1997, Messrs. Cresci (as nominee of Pecks),
Morris (as nominee of Olympus) and Pados (as nominee of Desai) were elected to
serve as directors. Additionally, following the resignations of Russell W.
Meyer, Jr. and Peter V. Ueberroth in October, 1997, Mr. Perocchi was elected to
serve as a director (as a nominee of the Doubletree Holders).
The Board of Directors held 13 meetings (including those held by written
consent) during the fiscal year ended December 31, 1997. Each director attended
at least 75% of the aggregate of the total number of meetings of the Board of
Directors held during such period (and for which he served as a director).
The Company did not establish standing Audit and Compensation Committees
until 1997 and has not established a Nominating Committee. Messrs. Ferris, Meyer
and Salazar comprised the Audit Committee through October 20, 1997. Effective
October 20, 1997 Messrs. Perocchi, Cresci and Morris were appointed to
thereafter comprise the entire membership of the Audit Committee. Mr. Fix is a
non-voting, ex officio member of 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,
18
<PAGE> 21
(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. The Audit Committee held one meeting during the
fiscal year ended December 31, 1997.
Messrs. Costley, Salazar, Russell W. Meyer, Jr. and Peter V. Ueberroth
comprised the Compensation Committee through October 20, 1997. Effective October
20, 1997, upon the resignations of Messrs. Meyer and Ueberroth, Messrs. Costley,
Salazar and Pados were appointed to thereafter comprise the entire membership of
the Compensation Committee. Mr. Fix is a non-voting, ex officio member of the
Compensation Committee. The Compensation Committee reviews and approves
executive salaries, considers awards to be granted under the Company's officer
bonus plan and performs other related functions upon request of the Board of
Directors. The Compensation Committee held two meetings during the fiscal year
ended December 31, 1997.
As of January, 1998, the Company established a Hotel Development
Committee to review and approve the Company's development projects.
BOARD COMPENSATION AND BENEFITS
The Company's Independent Directors receive directors' fees of $4,000
for each Board of Directors meeting attended, provided, however, that no
Independent Director receives 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. Messrs. Ferris and Perocchi waived their right to receive
directors fees for 1997. 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. Mr. Ferris waived his right to receive such
grants for 1997. Also pursuant to the 1996 Equity Plan, each person who became 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. Cresci, Morris and Pados 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 majority of the
shares of voting stock present and entitled to vote, in person or by proxy, at
the Meeting. Abstentions or broker non-votes as to the election of directors
will not affect the election of the candidates receiving the plurality of votes.
Unless instructed to the contrary, the shares represented by the proxies will be
voted FOR the election of the nine 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 NINE NOMINEES.
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<PAGE> 22
PROPOSAL 2
AMENDMENT OF EQUITY PARTICIPATION PLAN
PROPOSED AMENDMENT
The 1996 Equity Participation Plan of the Company (the "Plan") was
originally adopted by the Board of Directors on September 30, 1996 and was
approved by the stockholders on November 7, 1996. Currently, under the Plan, not
more than 900,000 shares of Common Stock (or their equivalent in other equity
securities) are authorized for issuance upon exercise of options, stock
appreciation rights ("SARs"), and other awards, or upon vesting of restricted or
deferred stock awards. The Board of Directors has approved, subject to
shareholder approval, an amendment to the Plan to increase the number of
authorized shares of Common Stock available for issuance thereunder from 900,000
to 1,676,710.
The principal purposes of the Plan are to provide incentives for
officers, employees and consultants of the Company and its subsidiaries through
granting of options, restricted stock and other awards, thereby stimulating
their personal and active interest in the Company's development and financial
success, and inducing them to remain in the Company's employ. In addition to
grants and awards made to officers, employees and consultants, the Plan provides
for automatic annual grants to non-employee directors of the Company.
Furthermore, the maximum number of shares which may be subject to
options, rights or other awards granted under the Plan to any individual in any
calendar year cannot exceed 500,000.
The shares available under the Plan upon exercise of stock options and
other awards, and for issuance as restricted or deferred stock, may be either
previously unissued shares or treasury shares, and may be equity securities of
the Company other than Candlewood Common Stock. The Plan provides for
appropriate adjustments in the number and kind of shares subject to the Plan and
to outstanding grants thereunder in the event of a stock split, stock dividend
or certain other types of recapitalizations, including restructuring.
If any portion of a stock option or other award terminates or lapses
unexercised, or is canceled upon grant of a new option or other award (which may
be at a higher or lower exercise price than the option or other award so
canceled), the shares which were subject to the unexercised portion of such
option or other award, will continue to be available for issuance under the
Plan.
DESCRIPTION OF THE PLAN
ADMINISTRATION
The Plan is administered by the Compensation Committee or a subcommittee
of the Board (for purposes of this section, the "Committee"), consisting of at
least two members of the Candlewood Board of Directors, none of whom is an
officer or employee of the Company. The Committee is authorized to select from
among the eligible employees and consultants the individuals to whom options,
SARs, restricted stock and other awards are to be granted and to determine the
number of shares to be subject thereto and the terms and conditions thereof,
consistent with the Plan. The Committee is also authorized to adopt, amend and
rescind rules relating to the administration of the Plan.
20
<PAGE> 23
PAYMENT FOR SHARES
The exercise or purchase price for all options, SARs, restricted stock
and other rights to acquire Candlewood Common Stock, together with any
applicable tax required to be withheld, must be paid in full in cash at the time
of exercise or purchase or may, with the approval of the Committee, be paid in
whole or in part in Candlewood Common Stock owned by the optionee (or issuable
upon exercise of the option) and having a fair market value on the date of
exercise equal to the aggregate exercise price of the shares so to be purchased.
The Committee may also provide, in the terms of an option or other right, that
the purchase price may be payable within thirty days after the date of exercise.
The Committee may also authorize other lawful consideration to be applied to the
exercise or purchase price of options. This may also include services rendered,
or the difference between the exercise price of presently exercisable options
and the fair market value of Candlewood Common Stock covered by such options on
the date of exercise.
AMENDMENT AND TERMINATION
Amendments to the Plan to increase the number of shares as to which
options, restricted stock and other awards may be granted (except for
adjustments resulting from stock splits and the like) require the approval of
the Company's stockholders. In all other respects the Plan can be amended,
modified, suspended or terminated by the Committee or the Candlewood Board of
Directors, unless such action would otherwise require stockholder approval as a
matter of applicable law, regulation or rule. No amendment, suspension or
termination of the Plan shall, without the consent of the holder of options or
other awards, alter or impair rights or obligations under an award previously
granted, unless the award itself otherwise expressly so provides. No termination
date is specified for the Plan.
ELIGIBILITY
Options, SARs, restricted stock and other awards under the Plan may be
granted to individuals who are then officers or other employees of the Company
or any of its present or future subsidiaries and who are determined by the
Committee to be key employees. Such awards also may be granted to consultants of
the Company selected by the Committee for participation in the Plan; provided
that no incentive stock option ("ISO") shall be granted to any person who is not
an employee of the Company. Non-employee directors of the Company are eligible
to receive automatic grants of non-qualified stock options ("NQSOs") under the
Plan. More than one option, SAR, restricted stock grant or other award may be
granted to a plan participant, but the aggregate fair market value (determined
at the time of grant) of shares with respect to which an ISO is first
exercisable by an optionee (i.e., "vests") during any calendar year cannot
exceed $100,000.
AWARDS UNDER THE 1996 EQUITY PARTICIPATION PLAN
The Plan provides that the Committee may grant or issue stock options,
SARs, restricted stock, deferred stock, dividend equivalents, performance
awards, stock payments and other stock related benefits, or any combination
thereof. Each grant or issuance will be set forth in a separate agreement
between the Company and the award recipient, and will indicate the type, terms
and conditions of the award.
NQSOs will provide for the right to purchase Candlewood Common Stock at
a specified price which may be less than fair market value on the date of grant
(but not less than par value), and usually
21
<PAGE> 24
will become exercisable (in the discretion of the Committee) in one or more
installments after the grant date. NQSOs may be granted for any term specified
by the Committee.
Automatic Grants of NQSOs to Non-Employee Directors. During the term of
the Plan, (i) a person who is a non-employee director of Candlewood as of the
effective date of the Plan automatically shall be granted an option to purchase
ten thousand (10,000) shares of Candlewood Common Stock (subject to adjustment
in the event of certain corporate changes) on the date of such initial public
offering; and (ii) a person who is initially elected or appointed to the
Candlewood Board of Directors and non-employee director automatically shall be
granted an option to purchase ten thousand (10,000) shares of Candlewood Common
Stock (subject to adjustment in the event of certain corporate changes) on the
date of such initial election or appointment. Members of the Candlewood Board of
Directors who are employees of the Company who subsequently retire from the
Company and remain on the Candlewood Board of Directors will not receive an
initial option grant pursuant to the preceding sentence.
ISOs, if granted, will be designed to comply with the applicable
provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of the fair market value
of Candlewood Common Stock on the grant date and a ten year restriction on their
term; provided, however, that in the case of ISOs granted to an individual then
owning more than 10% of the total combined voting power of all classes of stock
of the Company or any subsidiary or parent of the Company, such exercise price
shall not be less than 110% of the fair market value of Candlewood Common Stock
on the grant date and there shall be a five year restriction on their term. ISOs
may be modified to disqualify them from treatment as an incentive stock option.
ISOs may be granted only to employees.
Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Committee. Restricted stock, typically, may be repurchased by the Company at
the original purchase price if the conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of restricted
stock, unlike recipients of options, will have voting rights and will receive
dividends prior to the time when the restrictions lapse.
Deferred stock may be awarded to participants, typically without payment
of consideration, but subject to vesting conditions based on continued
employment or on performance criteria established by the Committee. Like
restricted stock, deferred stock may not be sold, or otherwise transferred or
hypothecated, until vesting conditions are removed or expire. Unlike restricted
stock, deferred stock will not be issued until the deferred stock award has
vested, and recipients of deferred stock generally will have no voting or
dividend rights prior to the time when vesting conditions are satisfied.
Stock appreciation rights may be granted in connection with stock
options or other awards, or may be granted independent of any award. SARs
granted by the Committee in connection with stock options or other awards
typically will provide for payments to the holder based upon increases in the
price of Candlewood Common Stock over the exercise price of the related option
or other awards, but alternatively may be based upon criteria such as book
value. There are no restrictions specified in the Plan on the exercise of SARs
or the amount of gain realizable therefrom, although they can be imposed by the
Committee in the SAR agreements. The Committee may elect to pay SARs in cash or
in Candlewood Common Stock or in a combination of cash and Candlewood Common
Stock.
22
<PAGE> 25
Dividend equivalents may be credited to a participant in the Plan. They
represent the value of the dividends per share paid by the Company, calculated
with reference to the number of shares covered by the stock options, SARs or
other awards held by the participant.
Performance awards may be granted by the Committee on an individual or
group basis. Generally, these awards will be based upon specific agreements and
may be paid in cash or in Candlewood Common Stock or in a combination of cash
and Candlewood Common Stock. Performance awards may include "phantom" stock
awards that provide for payments based upon increases in the price of Candlewood
Common Stock over a predetermined period. Performance awards may also include
bonuses which may be granted by the Committee on an individual or group basis
and which may be payable in cash or in Candlewood Common Stock or in a
combination of cash and Candlewood Common Stock.
Stock payments may be authorized by the Committee in the form of shares
of Candlewood Common Stock or an option or other right to purchase Candlewood
Common Stock as part of a deferred compensation arrangement in lieu of all or
any part of compensation, including bonuses, that would otherwise be payable to
a key employee or consultant in cash.
MISCELLANEOUS PROVISIONS
The Plan specifies that the Company may make loans to Plan participants
to enable them to exercise options, purchase shares or realize the benefits of
other awards granted under the Plan. The terms and conditions of such loans, if
any are made, are to be set by the Committee.
In consideration of the granting of a stock option, SAR, dividend
equivalent, performance award, stock payment, or right to receive restricted or
deferred stock, the employee or consultant must agree in the written agreement
embodying such award to remain in the employ of, or to continue as a consultant
for, the Company or a subsidiary of the Company for at least one year after the
award is granted (or such shorter period as may be fixed by agreement or by
action of the Committee following grant of the award).
The dates on which options or other awards under the Plan first become
exercisable and on which they expire will be set forth in individual stock
options or other agreements setting forth the terms of the awards. Such
agreements generally will provide that options and other awards expire upon
termination of the optionee's status as an employee, consultant or director,
although the Committee may provide that such options continue to be exercisable
following a termination without cause, or following a change in control of the
Company, or because of the grantee's retirement, death, disability or otherwise.
Similarly, restricted stock granted under the Plan which has not vested
generally will be subject to repurchase by the Company in the event of the
grantee's termination of employment or consultancy, although the Committee may
make exceptions, based on the reason for termination or on other factors, in the
terms of an individual restricted stock agreement.
No option, SAR or other right to acquire Candlewood Common Stock granted
under the Plan may be assigned or transferred by the grantee, except by will or
the laws of intestate succession or pursuant to a qualified domestic relations
order (as defined by the Code or Title I to the Employee Retirement Income
Security Act of 1994, as amended, or the rules thereunder), although the shares
underlying such rights may be transferred if all applicable restrictions have
lapsed. During the lifetime of the holder of any option or right, the option or
right may be exercised only by the holder.
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<PAGE> 26
The Company requires participants to discharge withholding tax
obligations in connection with the exercise of any option or other right granted
under the Plan, or the lapse of restrictions on restricted stock, as a condition
to the issuance or delivery of stock or payment of other compensation pursuant
thereto. Shares held by or to be issued to a participant may also be used to
discharge tax withholding obligations related to exercise of options or receipt
of other awards, subject to the discretion of the Committee to disapprove such
use.
FEDERAL INCOME TAX CONSEQUENCES
The Federal income tax consequences of the Plan under current federal
law are summarized in the following discussion which deals with the general tax
principles applicable to the Plan, and is intended for general information only.
In addition, the Federal income tax consequences described below are subject to
the limitations of the 1993 Omnibus Budget Reconciliation Act ("OBRA"), as
discussed in further detail below. Alternative minimum taxes, employment taxes
and foreign, state and local income taxes are not discussed, and may vary
depending on individual circumstances and from locality to locality.
Nonqualified Stock Options ("NQSO's"). The recipient of NQSO's granted
under the Plan will not recognize ordinary income upon the grant of the option,
nor will the Company then be entitled to any deduction. Generally, upon exercise
of NQSO's the optionee will recognize ordinary income, and the Company will be
entitled to a deduction, in an amount equal to the difference between the option
exercise price and the fair market value of the stock at the date of exercise.
An optionee's basis in the stock for purposes of determining his gain or loss on
his subsequent disposition of the shares generally will be the fair market value
of the stock on the date of exercise of the NQSO.
Incentive Stock Options ("ISO's"). The recipient of ISO's granted under
the Plan will not recognize taxable income when an ISO is granted to him or when
that option is exercised. An optionee's basis in the stock for purposes of
determining his gain or loss on his subsequent disposition of the shares
generally will be the option exercise price. The Company will not be entitled to
a deduction unless the optionee disposes of the shares within two years after
the date of grant of the option or within one year of the date the shares were
transferred to the optionee. In such event the optionee will recognize the
difference between the option exercise price and the fair market value of the
shares on the date of the option's exercise as ordinary income; the balance of
the gain, if any, will be taxed as capital gain. The Company will be entitled to
a deduction in regard to an ISO only to the extent the employee recognizes
ordinary income. An ISO exercised more than three months after an optionee's
termination from employment, other than by reason of death or disability, will
be taxed as an NQSO.
Stock Appreciation Rights ("SARs"). The recipient of an SAR will not
recognize income upon the receipt of an SAR. Upon exercise of the SAR, the
recipient will recognize the fair market value of the shares received,
determined on the date of exercise of the SAR, or the amount of cash received in
lieu of shares, as ordinary income. The Company will be entitled to a deduction
in the amount which the recipient recognizes as ordinary income.
Restricted Stock. An recipient to whom restricted stock is issued will
not recognize income upon issuance and the Company will not then be entitled to
a deduction, unless an election is made under Section 83(b) of the Code.
However, when restrictions on shares of restricted stock lapse, such that the
shares are no longer subject to repurchase by the Company, the employee
generally will recognize ordinary income, and the Company will be entitled to a
deduction, in an amount equal to the fair market value of the shares at the date
such restrictions lapse, less the purchase price therefor. If an election is
24
<PAGE> 27
made under Section 83(b) with respect to restricted stock, the recipient will
recognize ordinary income at the date of issuance equal to the difference
between the fair market value of the shares at that date less the purchase price
therefor, and the Company will be entitled to a deduction in the same amount.
Deferred Stock. A recipient to whom an award of deferred stock is
granted will not recognize income upon the grant and the Company will not then
be entitled to a deduction. When the aware of deferred stock vests and shares of
stock are issued to the recipient, the recipient will recognize ordinary income,
and the Company will be entitled to a deduction, in the amount equal to the fair
market value of the shares at the time of issuance. A recipient may not make a
Section 83(b) election with respect to an award of deferred stock.
Dividend Equivalents. A recipient of a dividend equivalent award will
not recognize income at the time of grant, and the Company will not be entitled
to a deduction at that time. When a dividend equivalent is paid, the recipient
will recognize ordinary income, and the Company will be entitled to a
corresponding deduction.
Performance Awards. A recipient granted a performance award will not
recognize income at the time of grant, and the Company will not be entitled to a
deduction at that time. When an award is paid or distributed, whether in cash or
stock, the recipient will have ordinary income, and the Company will be entitled
to a corresponding deduction. If the award is distributed in stock, the
recipient will recognize ordinary income in an amount equal to the fair market
value of the stock at the time of distribution.
Stock Payments. A recipient who receives a stock payment will recognize
ordinary income in an amount equal to the fair market value of the stock
distributed, and the Company will be entitled to a corresponding deduction.
Effect of 1993 Omnibus Budget Reconciliation Act on the 1996 Equity
Participation Plan. Under OBRA, in general, the Company's deductions may be
limited to the extent the total compensation (including, for example, salary,
bonus, stock option exercises and non-qualified benefits) for an executive
officer exceeds $1 million in any taxable year. However, under OBRA, the
deduction limit does not apply to certain "performance-based" compensation
established by an independent compensation committee which is adequately
disclosed to, and approved by, stockholders. In particular, stock options and
SARs will satisfy the performance-based exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any particular employee within a specified period and the
compensation is based solely on an increase in the stock price after the grant
date (i.e. the option exercise price is equal to or greater than the fair market
value of the stock subject to the option on the grant date).
OPTION GRANT INFORMATION
As of December 31, 1997, grants of stock options to purchase 605,800
shares of Common Stock were outstanding (none of which are subject to
Shareholder approval). The stock options granted under the Plan are held by 78
employees and five non-employee directors. Grants of stock options (net of
forfeitures) to purchase 100,000 shares of Common Stock have been granted, in
the aggregate, to directors. The stock options that have been granted are either
immediately exercisable or are subject to periodic vesting over a period of up
to four years. As of December 31, 1997, the weighted average exercise price of
all the stock options is $9.39 per share.
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<PAGE> 28
Every Candlewood employee, including housekeepers and other hotel
employees, may participate in the Plan. Forty-two corporate employees (excluding
officers) and 28 hotel employees hold options, while five Independent Directors
and eight executives also hold options under the Plan.
OUTSTANDING OPTION GRANTS UNDER THE PLAN
The following table shows, as to the Company's Chairman and Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers") and as to
the various indicated groups, the following information with respect to stock
options granted during the fiscal year ended December 31, 1997 and during all
other Plan years which are outstanding, net of forfeitures, as of December 31,
1997: (i) the number of shares of Common Stock subject to options granted and
(ii) the weighted average exercise price per share for such options. (The
Company has not yet determined what options it will grant in 1998.)
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
----------------------------- -----------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Jack P. DeBoer -- -- -- --
Chief Executive Officer and
Chairman of the Board
James E. Roos 100,000 $8.25 -- --
President and Chief
Operating Officer
Warren D. Fix -- 50,000 $10
Executive Vice President,
Chief Financial Officer and
Secretary
Larry D. Bowers -- -- 25,000 10
Vice President - Construction
James E. Korroch -- -- 100,000 10
Vice President - Operations
All current directors who are 50,000 9.85 -- --
not executive officers
(5 persons)
All current executive officers 125,000 8.38 250,000 10
as a group (8 persons)
All employees who are not 76,600 8.46 104,200 10
executive officers (70) persons
</TABLE>
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<PAGE> 29
VOTE AND RECOMMENDATION
The only change the amendment makes to the Plan is to increase the
number of authorized shares of Common Stock available for issuance from 900,000
to 1,676,710.
The affirmative vote of a majority of the shares of voting stock present
and entitled to vote, in person or by proxy, is necessary to approve an
amendment of the Plan. Unless instructed to the contrary, the shares represented
by the proxies will be voted FOR the amendment to the Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE AMENDMENT TO THE PLAN
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
All proposals of stockholders intended to be presented at the Company's
1999 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 60 days prior to the date of
the 1999 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. The 1999 Annual Meeting is expected to be held on or about
May 17, 1999.
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,
/s/ WARREN D. FIX
Warren D. Fix
Secretary
Dated: April 3, 1998
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<PAGE> 30
CANDLEWOOD HOTEL COMPANY, INC.
PROXY FOR 1998 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 18, 1998
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 hereon, all the shares of voting stock of Candlewood Hotel
Company, Inc. held of record by the undersigned on April 6, 1997, at the 1998
Annual Meeting of Stockholders to be held on May 18, 1998, or any adjournment or
postponement thereof, with respect to:
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS.
(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. Robert J. Cresci
FOR all nine nominees listed at the right WITHHOLD AUTHORITY Mr. Jack P. DeBoer
(except as marked to the contrary) to vote for all nine nominees Mr. Richard J. Ferris
listed at the right Mr. Warren D. Fix
Mr. Robert S. Morris
Mr. Frank J. Pados, Jr.
Mr. William L. Perocchi
Mr. Tony M. Salazar
2. AMENDMENT OF THE EQUITY PARTICIPATION PLAN TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AVAILABLE FOR
ISSUANCE FROM 900,000 TO 1,676,710.
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)
</TABLE>
<PAGE> 31
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 nine 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 13, 1998 AND THE 1998 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.)
