<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CANDLEWOOD HOTEL COMPANY, INC.
- --------------------------------------------------------------------------------
(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:
----------------------------------------------------------------------------
(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):
----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[Company Logo]
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 17, 1999
----------------------
The 1999 Annual Meeting of the Stockholders of Candlewood Hotel Company,
Inc. (the "Company") will be held at 10:00 a.m. local time, on May 17, 1999, at
the Company's executive offices at 8621 East 21st Street North, Suite 200,
Wichita, Kansas 67206, for the following purposes:
1. To elect a board of twelve directors for the ensuing year or until
the election and qualification of their respective successors; and
2. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 6, 1999,
the record date, will be entitled to notice of, and to vote at, the 1999 Annual
Meeting of Stockholders and any adjournment thereof.
By Order of the Board of Directors,
/s/ Warren D. Fix
------------------------------------
Warren D. Fix
Secretary
Wichita, Kansas
Dated: April 15, 1999
<PAGE> 3
[Candlewood Logo]
8621 East 21st Street North, Suite 200
Wichita, Kansas 67206
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 17, 1999
-----------------
PROXY STATEMENT
-----------------
SOLICITATION OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors
of Candlewood Hotel Company, Inc., a Delaware corporation (the "Company"), for
use at the Annual Meeting of Stockholders to be held at the Company's executive
offices located at 8621 East 21st Street North, Suite 200, Wichita, Kansas
67206, on May 17, 1999 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 the election of the twelve nominees to the
Board of Directors listed herein.
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 15, 1999. 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 (the "Common Stock"), the 65,000 shares of the Company's Series A
Preferred Stock (the "Series A Preferred Stock") and the 42,000 shares of the
Company's Series B Preferred Stock (the "Series B Preferred Stock", together
with the Series A Preferred Stock, the "Preferred Stock") outstanding at the
close of business on the record date, April 6, 1999, 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, 1999 (the "Record Date"). Accordingly, an aggregate of 20,288,158 votes
may be cast on each matter to be considered at the Meeting.
In order to constitute a quorum for the conduct of business at the
Meeting, 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 19, 1999, the amount and
percentage of the outstanding shares of the Company's Common Stock, Preferred
Stock and Common Share Equivalents (the Common Stock together with the Preferred
Stock on an as-converted basis) which, according to the information supplied to
the Company, are beneficially owned by (i) each person who, to the knowledge of
the Company, is the beneficial owner of more than 5% of such securities, (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 9 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.
2
<PAGE> 5
<TABLE>
<CAPTION>
Shares Beneficially Owned
------------------------------------- Common Share
Series A Preferred Series B Preferred Common Equivalents(3)
------------------ ------------------ -------------------- --------------------
NAME AND ADDRESS OF Percent Percent Percent Percent
BENEFICIAL OWNER (1) Number of Class Number of Class Number(2) of Class Number of Class
- -------------------- ------- -------- ------ -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIRECTORS/NOMINEES AND
NAMED EXECUTIVE OFFICERS:
Gary E. Costley (4)............. 0 -- 0 -- 6,000 * 6,000 *
Robert J. Cresci (5)(6)......... 0 -- 0 -- 2,500 * 2,500 *
Jack P. DeBoer (6)(7)........... 1,000 1.54% 0 -- 2,087,149 23.13% 2,192,412 10.81%
Richard J. Ferris (8)........... 0 -- 0 -- 2,500 * 2,500 *
Warren D. Fix (6)(9)............ 250 * 0 -- 299,965 3.31 326,281 1.61
Jeffrey F. Hitz (10)............ 0 -- 0 -- 14,300 * 14,300 *
Thomas L. Keltner (6)........... 0 -- 0 -- 0 -- 0 --
Thomas R. Kennalley (11)........ 0 -- 0 -- 6,250 * 6,250 *
Robert S. Morris (6)(12)........ 0 -- 0 -- 2,500 * 2,500 *
Thomas H. Nielsen............... 0 -- 0 -- 0 -- 0 --
Frank J. Pados, Jr. (6)(13)..... 0 -- 0 -- 2,500 * 2,500 *
William L. Perocchi............. 0 -- 0 -- 3,000 * 3,000 *
James E. Roos (14).............. 0 -- 0 -- 25,000 * 25,000 *
Tony M. Salazar (15)............ 0 -- 0 -- 7,000 * 7,000 *
Thomas L. Storey (6)............ 0 -- 0 -- 0 -- 0 --
All directors and executive
officers as a group
(18 persons)(4)(5)(7)(8)(9)
(10)(11)(12)(13)(14)(15)...... 1,250 1.92 0 -- 2,487,019 27.21 2,669,448 12.84
5% BENEFICIAL HOLDERS:
Stockholders Group (6).......... 64,250 98.85 41,790 99.50% 5,414,460 57.70 16,576,565 80.28
Doubletree Corporation
("Doubletree") (6)(16)........ 0 -- 0 -- 2,587,500 28.67 2,587,500 12.75
410 N. 44th Street
Phoenix, Arizona 85008
Olympus Growth Fund, II,
L.P.(6)(17)................... 9,900 15.23 4,841 11.53 38,728 * 1,590,412 7.82
One Station Place
Stamford, Connecticut 06430
Whiting & Co. (6)(18)........... 10,000 15.38 0 -- 0 -- 1,052,632 5.19
c/o J.P. Morgan
Investment Mgmt.
522 Fifth Avenue,
6th Floor
New York, New York 10036
Chase Venture Capital
Associates (6)(18)............ 7,000 10.77 0 -- 0 -- 736,842 3.63
380 Madison Avenue,
12th Floor
New York, New York 10017
LNR Candlewood Holdings,
Inc. (6)(19).................. 7,000 10.77 0 -- 0 -- 736,842 3.63
Leisure Colony Management Corp.
LNR Property Corporation
760 N.W. 107th Avenue,
Suite 300
Miami, Florida 33172
Pecks Management Partners
Ltd.(6)(20)................... 7,000 10.77 7,900 18.81 63,200 * 1,631,621 8.02
One Rockefeller Plaza,
Suite 900
New York, New York 10020
Private Equity Investors III,
L.P.(6)(21)................... 3,500 5.38 12,000 28.57 96,000 1.05 1,727,578 8.48
540 Madison Avenue,
36th Floor
New York, New York 10022
Equity-Linked Investors-II,
L.P.(6)(22)................... 3,500 5.38 12,000 28.57 96,000 1.05 1,727,578 8.48
540 Madison Avenue,
36th Floor
New York, New York 10022
Advance Capital Associates,
L.P. (23) .................... 3,250 5.00 2,000 4.76 16,000 * 568,630 2.8
Advance Capital Management, LLC
660 Madison Avenue,
15th Floor
New York, New York 10021
The FFJ Nominee Trust (6)(18).... 3,250 5.00 0 -- 0 -- 342,105 1.69
Samuel T. Byrne, Trustee
c/o Boston Capital
Institutional Advisors
One Boston Place
Boston, Massachusetts
02108-4406
Mutual Life Insurance Company
of New York(6)(24)............. 3,250 5.00 3,000 7.14 24,000 * 681,895 3.36
1740 Broadway
New York, New York 10019
Allied Capital Corporation (25).. 3,250 5.00 0 -- 0 -- 342,105 1.69
1666 K. Street, N.W.
9th Floor
Washington, DC 20006
</TABLE>
3
<PAGE> 6
- -----------------
* Less than one percent.
(1) The address of each of the directors and officers listed in the table is
8621 E. 21st Street North, Suite 200, Wichita, Kansas 67206.
(2) Includes options exercisable within 60 days of March 19, 1999 and assumes
the conversion of certain warrants issued by the Company in connection
with the issuance of the Series B Preferred Stock (the "Series B
Warrants") for Common Stock on a one-to-one basis.
(3) Includes Common Stock (including options exercisable within 60 days of
March 19, 1999), shares of Series A Preferred Stock and Series B Preferred
Stock after giving effect to the conversion at an initial ratio of
105.26316 shares of Common Stock per share of Preferred Stock, and Series
B Warrants exercisable for Common Stock on a one-to-one basis.
(4) Includes 5,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999.
(5) Represents 2,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999. Excludes 7,000 shares of Series A
Preferred Stock, 7,900 shares of Series B Preferred Stock and 63,200
Series B Warrants beneficially owned by Pecks Management Partners, Ltd.
("Pecks"). Mr. Cresci is a Managing Director of Pecks and disclaims
beneficial ownership of such shares.
(6) On July 10, 1998, an Amended and Restated Stockholders Agreement (the
"Stockholders Agreement") was executed by and between the Company, Messrs.
DeBoer and Fix, Doubletree and certain other parties signatory thereto in
connection with the issuance of the Company's Series B Preferred Stock
(collectively, the "Stockholders Group"). The Stockholders Group may be
deemed to be a "group" for purposes of 13(d)(3) of the Securities Exchange
Act of 1934, as amended. Messrs. DeBoer, Fix, Cresci (through his
association with Pecks), Morris (through his association with Olympus
Growth Fund II, L. P. ("OGF-II") and Olympus Executive Fund, L.P.
("OEF")), Pados (through his association with Private Equity Investors
III, L.P. ("PEI-III") and Equity-Linked Investors-II ("ELI-II")), and
Keltner and Storey (through their association with Promus), Doubletree and
the other parties to the Stockholders Agreement may therefore be deemed to
beneficially own those shares listed as beneficially owned by the
Stockholders Group. The Stockholders Agreement provides for certain rights
and obligations regarding the nomination and election of directors. See
"Stockholders Agreement." The listed holders disclaim beneficial ownership
of the shares except to the extent that they have a pecuniary interest
therein.
(7) Excludes 99,676 shares of Common Stock held by the Alexander John DeBoer
Trust dated March 14, 1995 and the Christopher Scott DeBoer Trust dated
March 14, 1995 (collectively, the "DeBoer Trusts"). Mr. DeBoer has no
interest in the DeBoer Trusts and disclaims beneficial ownership of such
shares.
(8) Represents 2,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999.
(9) Includes 250 shares of Series A Preferred Stock held by Mr. Fix as Trustee
for the Warren D. Fix Defined Benefit Plan Trust. Includes 274,965 shares
of Common Stock held by the Warren D. Fix Family Partnership, L.P. (the
"Fix Partnership"). Mr. Fix disclaims beneficial ownership of these shares
except to the extent of his interest in the Fix Partnership. Includes
25,000 shares of Common Stock subject to options exercisable within 60
days of March 19, 1999.
(10) Includes 12,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999.
(11) Represents 6,250 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999.
4
<PAGE> 7
(12) Represents 2,500 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999. Excludes 100 shares of Series A
Preferred Stock, 49 shares of Series B Preferred Stock and 392 Series B
Warrants beneficially owned by OEF. Excludes 9,900 shares of Series A
Preferred Stock, 4,841 shares of Series B Preferred Stock and 38,728
Series B Warrants beneficially owned by OGF-II. Mr. Morris is an executive
officer of the general partners of both OEF and OGF-II and disclaims
beneficial ownership of the shares held by such entities.
(13) Represents 2,500 shares of Common Shares subject to options exercisable
within 60 days of March 19, 1999. Excludes 3,500 shares of Series A
Preferred Stock, 12,000 shares of Series B Preferred Stock and 96,000
Series B Warrants beneficially owned by ELI-II. Excludes 3,500 shares of
Series A Preferred Stock, 12,000 shares of Series B Preferred Stock and
96,000 Series B Warrants beneficially owned by PEI-III. Mr. Pados is an
executive officer of Desai Capital Management Incorporated ("DCMI") and
disclaims beneficial ownership of such shares. DCMI acts as an investment
advisor to PEI-III and ELI-II and, with the respective general partners of
PEI-III and ELI-II, has the power to vote or to direct the vote and to
dispose or to direct the disposition of such shares under an investment
and advisory agreement between PEI-III and ELI-II.
(14) Represents 25,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999.
(15) Includes 5,000 shares of Common Stock subject to options exercisable
within 60 days of March 19, 1999.
(16) Doubletree is a wholly-owned subsidiary of Promus Hotel Corporation
("Promus"). (17) Based on Schedule 13D filed October 23, 1997 and Schedule
13D/A filed December 11, 1998 by OGF-II and OEF. OEF, an affiliate of
OGF-II, beneficially owns an additional 100 shares of Series A Preferred
Stock, 49 shares of Series B Preferred Stock and 392 Series B Warrants,
and, as a party to the Stockholders Agreement, may therefore be deemed to
beneficially own those shares listed as beneficially owned by the
Stockholders Group.
(18) The listed holder is known by the Company to have purchased shares of the
Company's Preferred Stock and to have entered into the Stockholders
Agreement. The Company is unaware of any other stockholdings of the
holder.
(19) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by LNR Candlewood Holdings, Inc. ("LNR"), Leisure
Colony Management Corp. ("Leisure") and LNR Property Corporation ("LNR
Property"). The shares beneficially owned by LNR, Leisure and LNR Property
are issued to LNR. Leisure, as the sole shareholder of LNR, and LNR
Property, as the sole shareholder of Leisure, each has shared power to
vote or to direct the vote and to dispose of, or direct the disposition
of, the shares issued to LNR.
5
<PAGE> 8
(20) Based on Schedule 13D filed on June 4, 1998, and Schedule 13D/A filed on
September 10, 1998 by Pecks Management Partners, Ltd.
(21) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by ELI-II, PEI-III, DCMI and Rohit Mujilal Desai ("Mr.
Desai"). The power to vote or to direct the vote and to dispose of, or to
direct the disposition of, the shares held by PEI-III is vested in its
general partner Rohit M. Desai Associates-III, LLC ("RMDA-III"), however,
such decisions may also be made by DCMI under an investment and advisory
agreement between PEI-III and DCMI. Accordingly, RMDA-III and DCMI may be
deemed to beneficially own the shares held by PEI-III. Mr. Desai is the
managing member of RMDA-III and the Chairman, President and Treasurer of
DCMI, and may be deemed to share the power to vote or to direct the vote
and to dispose of, or to direct the disposition of, the shares held by
PEI-III.
(22) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by ELI-II, PEI-III, DCMI and Mr. Desai. The power to
vote or to direct the vote and to dispose of, or to direct the disposition
of, the shares held by ELI-II is vested in general partner Rohit M. Desai
Associates-II ("RMDA-II"), however, such decisions may also be made by
DCMI under an investment and advisory agreement between ELI-II and DCMI.
Accordingly, RMDA-II and DCMI may be deemed to beneficially own the shares
held by ELI-II. Mr. Desai is the general partner of RMDA-II and the
Chairman, President and Treasurer of DCMI, and may be deemed to share the
power to vote or to direct the vote and to dispose of, or to direct the
disposition of, the shares held by ELI-II.
(23) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by Advance Capital Associates L.P. ("Advance L.P."),
Advance Capital Management, LLC ("Advance LLC"), Advance Capital Partners,
L.P. ("Advance Capital") and Advance Capital Offshore Partners, L.P.
("Advance Offshore"). The shares beneficially owned by Advance L.P. and
Advance LLC are held by Advance Capital (2,457 shares of Series A
Preferred Stock, 1,523 shares of Series B Preferred Stock and 12,184
Series B Warrants) and Advance Offshore (793 shares of Series A Preferred
Stock, 477 shares of Series B Preferred Stock and 3,816 Series B
Warrants). With respect to the shares issued to them, respectively,
Advance Capital and Advance Offshore each has shared power to vote or to
direct the vote and to dispose of, or to direct the disposition of, the
shares beneficially owned by Advance L.P. and Advance LLC.
(24) Based on Schedule 13D filed on June 4, 1998 and Schedule 13D/A filed on
September 10, 1998 by The Mutual Life Insurance Company of New York
("MONY"). The share beneficially owned by MONY are held by J. Romeo & Co.
(25) Based on Schedule 13D filed on June 4, 1998 by Allied Capital Corporation.
REGISTRATION RIGHTS
In connection with the issuance and sale of the Company's Series B
Preferred Stock in July, 1998 (the "Series B Private Placement"), the Company,
Mr. Jack P. DeBoer, Doubletree, the Alexander John DeBoer Trust dated March 14,
1995 and the Christopher Scott DeBoer Trust dated March 14, 1995 (the "DeBoer
Trusts"), the Warren D. Fix Family Partnership, L.P. (the "Fix Partnership")
(collectively, the "Initial Stockholders") and certain other purchasers of the
Preferred Stock, entered into that certain Amended and Restated Registration
Rights Agreement dated as of July 10, 1998 (the "Registration Rights
Agreement"). The Registration Rights Agreement replaced that certain
Registration Rights Agreement dated as of September 22, 1997.
Pursuant to the terms of the Registration Rights Agreement, the parties
have two demand registration rights under which they may require (subject to
certain limitations) the Company to register under the Securities Act of 1933,
as amended, certain shares of Common Stock owned by the parties. The Company is
not required to file a registration statement upon exercise of these demand
registration rights within 180 days following any underwritten public offering
of Common Stock or securities, convertible into or exercisable or exchangeable
for Common Stock. The Company is also obligated to allow the parties to
participate in underwritten offerings originated by the Company, subject to
certain limitations. All expenses of any registration relating to securities as
provided in the Registration Rights Agreement (other than underwriting discounts
and commissions and fees and expenses of counsel for selling stockholders) are
to be borne by the Company.
6
<PAGE> 9
STOCKHOLDERS AGREEMENT
Following the completion of the Series B Private Placement, the Initial
Stockholders and certain holders of Preferred Stock entered into an Amended and
Restated Stockholders Agreement dated as of July 10, 1998 (the "Stockholders
Agreement"). The Stockholders Agreement replaced that certain Stockholders
Agreement dated as of September 22, 1997. The Stockholders Agreement provides
that, subject to certain conditions described below and so long as each entity
holds at least 20% of the Series A Preferred Stock that it originally purchased,
Olympus Growth Fund II, L.P. ("Olympus"), Desai Capital Management, Inc.
("Desai") and Pecks Management Partners Ltd. ("Pecks", collectively, the "Series
A Purchase Group") are each entitled to designate a single individual for
nomination to stand for election to the Board of Directors (for a total of three
directors selected by the Series A Purchaser Group). In addition, subject to
certain conditions described below and so long as each entity holds at least 20%
of the Series B Preferred Stock originally purchased, the holders of at least a
majority of the Series B Preferred Stock are entitled to designate a single
individual for nomination to stand for election to the Board of Directors. The
Stockholders Agreement also provides that, subject to certain conditions,
Doubletree shall be entitled to designate two individuals for nomination to
stand for election to the Board of Directors, and that Mr. DeBoer, the DeBoer
Trusts and the Fix Partnership (collectively, the "DeBoer/Fix Holders") (or a
permitted transferee) are entitled to collectively designate two individuals for
nomination to stand for election to the Board of Directors. Finally, the
Stockholders Agreement permits, subject to certain conditions, Doubletree,
together with the DeBoer/Fix Holders to designate the remaining independent
directors for nomination to stand for election to the Board of Directors and to
designate the president of the Company for nomination to stand for election to
the Board of Directors. Each of the parties to the Stockholders Agreement have
agreed to vote its shares in favor of the individuals nominated by the other
parties to the Stockholders Agreement.
The rights and obligations of the holders of the Preferred Stock under
the Stockholders Agreement terminate as follows:
o In the case of the holders of the Series A Preferred Stock, upon the
failure of all such holders to collectively hold, beneficially or of
record, at least 20% of the Series A Preferred Stock or Common Stock
equivalents purchased in the initial offering of the Series A
Preferred Stock.
o In the case of the holders of the Series B Preferred Stock, upon the
failure of all such holders to collectively hold, beneficially or of
record, at least 20% of the Series B Preferred Stock or Common Stock
equivalents purchased in the initial offering of the Series B
Preferred Stock.
o In the case of any holder of Preferred Stock, on the date that the
Common Stock resulting from the conversion of Preferred Stock held by
such holders into Common Stock have been sold pursuant to an effective
registration statement in accordance with the rules and regulations of
the Securities and Exchange Commission or a sale pursuant to Rule 144
thereof.
o In addition, the rights and obligations of any of Olympus, Desai or
Pecks under the Stockholders Agreement terminate if such entity holds,
beneficially or of record, less than 20% of the Series A Preferred
Stock or Common Stock equivalents purchased by such entity in the
initial offering of the Series A Preferred Stock.
o Finally, the rights and obligations of Doubletree and the DeBoer/Fix
Holders under the Stockholders Agreement terminate upon both the
failure of such holders or their permitted transferees, collectively,
to hold, beneficially or of record, at least 20% of the outstanding
voting interests of the Company, and the termination of the rights of
the holders of the Series A Preferred Stock and the Series B Preferred
Stock.
7
<PAGE> 10
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of April 6, 1999 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack P. DeBoer.............. 68 Chief Executive Officer and Chairman of the Board
James E. Roos............... 47 President and Chief Operating Officer
Warren D. Fix............... 60 Executive Vice President, Chief Financial
Officer, Secretary, Treasurer and Director
Jeffrey F. Hitz............. 53 Senior Vice President--Development
Thomas Kennalley............ 42 Vice President--Controller and Assistant Secretary
H. Steven Meadows........... 45 Vice President--Operations
David A. Redfern............ 33 Vice President--Sales and Marketing
Gina-Lynne Scharoun......... 28 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 and
Development for Hampton Inns, Inc., a division of Promus Companies/Holiday Inns,
Inc. From 1981 to 1987 Mr. Roos was Director of Operations for Holiday Inns,
Inc.
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., an
operator of a national chain of rent-to-own stores, including Vice President,
Development. From 1986 to 1989, Mr. Hitz was a multi-unit franchisee of two
restaurant concepts in California and Arizona.
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., an operator of a
national chain of rent-to-own stores. From 1991 to 1996, he was Treasurer of
Advantage Companies, Inc., the largest publicly held franchisor of Rent-A-Center
stores. Mr. Kennalley also has ten years of experience in the audit department
of a national firm of certified public accountants.
8
<PAGE> 11
H. STEVEN MEADOWS has served as Vice President of Operations since
November 1998. From August 1993 to November 1998, Mr. Meadows held several
positions with Posadas USA, Inc., a division of Grupo Posadas, S.A. de C.V., a
Mexico City-based Latin American hotel company, including most recently Vice
President, Operations. From August 1991 to August 1993, he served as a General
Manager for a hotel operated by Holiday Inns, Inc. From November 1990 to August
1991, Mr. Meadows served as a General Manager of a Ramada Hotel, a hotel
operated by Hospitality Unlimited Investments.
DAVID A. REDFERN has served as Vice President 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, an
up-scale extended-stay hotel chain. From June 1993 to January 1995, Mr. Redfern
served as a Task Force Manager for Summerfield Suites. From September 1991 to
June 1993, Mr. Redfern attended the University of California - Irvine, where he
received his M.B.A. degree. From January to June 1993, Mr. Redfern was also
employed by Cruttenden & Co., Inc., an investment banking firm, as a research
analyst. From August 1990 to September 1991, Mr. Redfern served as Director of
Sales for the Summerfield Suites hotel in San Francisco, California. From 1988
to August 1990, Mr. Redfern was a Sales Manager for the Residence Inn by
Marriott in La Jolla, California.
GINA-LYNNE SCHAROUN has served as Vice President of Franchise
Development of the Company since August 1997. From June 1996 to July 1997, she
held the position of Director of Franchise Development of the Company. From
January 1996 until May 1996, Ms. Scharoun held various positions in the
Company's Corporate and Franchise Development Departments. From September 1993
to December 1995, Ms. Scharoun served in various positions, including Assistant
Vice President of Community Reinvestment, for Fourth Financial Corporation, a
financial institution.
9
<PAGE> 12
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, 1996, December 31, 1997 and December 31, 1998 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 1998 fiscal year (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG
---------------------------------- TERM
OTHER AWARDS
ANNUAL STOCK ALL OTHER
COMPEN- OPTIONS COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION (SHARES) SATION
- --------------------------- ---- ------ ----- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jack P. DeBoer 1998 $211,795(1) $75,000 $3,876(2) 30,000 --
Chief Executive Officer 1997 135,500(3) 75,000 2,068(4) -- --
and Chairman of the Board 1996 96,000 -- -- -- --
James E. Roos 1998 173,658(5) 50,000 1,637(6) 12,000 --
President and Chief 1997 82,500(7) 118,675 5,541(8) 100,000 --
Operating Officer
Warren D. Fix 1998 157,986(9) 50,000 12,612(10) 12,000 --
Executive Vice President, 1997 120,000(11) 50,000 7,101(12) -- --
Chief Financial Officer 1996 96,000 -- 6,117 50,000 --
and Secretary
Jeffrey F. Hitz 1998 121,233(13) 50,000 1,375(14) 6,500 --
Senior Vice President - 1997 89,538 16,000 1,187 -- --
Development 1996 47,692 -- -- 25,000 --
Thomas R. Kennalley 1998 95,000 20,000 l,096(15) -- --
Vice President - 1997 3,654(16) 8,000 -- 25,000 --
Controller
</TABLE>
- -------------------
(1) Represents a base salary of $175,000 from January 1, 1998 to July 26, 1998
and a base salary of $260,000 from July 27, 1998 to December 31, 1998 on
an annualized basis.
(2) Includes $1,765 in matching contributions to the executive officer's
401(k) plan and $2,111 for an annual physical.
(3) 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.
(4) Includes $1,425 in matching contributions to the executive officer's
401(k) plan and $643 for an annual physical.
(5) Represents a base salary of $165,000 from January 1, 1998 to July 26, 1998
and a base salary of $185,000 from July 27, 1998 to December 31, 1998 on
an annualized basis.
(6) Includes $1,637 in matching contributions to the executive officer's
401(k) plan.
10
<PAGE> 13
(7) Represents a base salary of $165,000 on an annualized basis. Mr. Roos
commenced employment with the Company in June 1997 as President and Chief
Operating Officer.
(8) Includes $5,181 for lodging.
(9) Represents a base salary of $145,000 from January 1, 1998 to July 26, 1998
and a base salary of $175,000 from July 27, 1998 to December 31, 1998 on
an annualized basis.
(10) Includes $11,072 for automobile expenses and $1,540 in matching
contributions to the executive officer's 401(k) plan.
(11) 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.
(12) 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.
(13) Represents a base salary of $100,000 from January 1, 1998 to February 24,
1998 and a base salary of $125,000 from February 25, 1998 to December 31,
1998 on an annualized basis.
(14) Includes $1,375 in matching contributions to the executive officer's
401(k) plan.
(15) Includes $1,096 in matching contributions to the executive officer's
401(k) plan.
(16) Mr. Kennalley commenced employment with the Company in December 1997 as
Vice President-Controller and Assistant Secretary
The following table sets forth certain information with respect to
grants of stock options during 1998 to the Named Executive Officers pursuant to
the Company's 1996 Equity Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
PERCENTAGE REALIZABLE VALUE AT
OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS EXERCISE RATES OF STOCK PRICE
SECURITIES GRANTED TO OR BASE APPRECIATION
UNDERLYING EMPLOYEES PRICE FOR OPTION TERM(2)
OPTIONS IN FISCAL (PER EXPIRATION --------------------
NAME GRANTED(1) YEAR SHARE) DATE 5% 10%
- ---- ---------- ---------- -------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jack P. DeBoer 30,000 -- $9.50 7/27/08 $179,235 $454,217
James E. Roos 12,000 -- 9.50 7/27/08 71,694 181,687
Warren D. Fix 12,000 -- 9.50 7/27/08 71,694 181,687
Jeffrey F. Hitz 6,500 -- 9.50 7/27/08 38,834 98,414
Thomas R. Kennalley -- -- -- -- -- --
</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.
11
<PAGE> 14
The following table sets forth certain information with respect to
unexercised options held by the Named Executive Officers as of December 31, 1998
pursuant to the Company's 1996 Equity Plan. No options were exercised by any of
the Named Executive Officers during 1998.
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, 1998 December 31, 1998 (1)
------------------------------- ----------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jack P. DeBoer....................... -- 30,000 0 0
James E. Roos........................ 25,000 87,000 0 0
Warren D. Fix........................ 25,000 37,000 0 0
Jeffrey F. Hitz...................... 12,500 19,000 0 0
Thomas R. Kennalley.................. 6,250 18,750 0 0
</TABLE>
- ---------------
(1) Based on the closing sales price of the Company's Common Stock on the
Nasdaq National Stock Market on December 31, 1998 ($5.25), minus the
exercise price of the option, multiplied by the number of shares to which
the option relates.
AGREEMENTS RELATING TO EMPLOYMENT
The Company has entered into an employment agreement with Mr. DeBoer
under which he has agreed, subject to certain conditions, to continue to serve
as the Company's Chief Executive Officer 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' employment and, as a result of such sale, Mr.
Roos' job is eliminated, he will receive a separation payment of $200,000.
12
<PAGE> 15
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. For 1998, the Compensation Committee
consisted of Gary E. Costley, Frank J. Pados, Jr. and Tony M. Salazar. Mr. Fix
is a non-voting ex officio member of the Compensation Committee. Robert Morris,
an independent director, also participated as a non-voting member of the
Committee. Mr. Costley served as Chairman of the Committee during 1998.
The Compensation Committee establishes the general compensation policy
of the Company, reviews and approves compensation of the senior executive
officers of the Company and administers the Company's 1996 Equity 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 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 and long-term incentive compensation pursuant to the 1996 Equity
Plan as part of its program. The hotel and hospitality industry is characterized
by substantial competition for skilled employees. The ability of the Company to
attract, motivate and retain high caliber individuals is dependent in large part
on the compensation packages it offers.
Under the 1993 Omnibus Budget Reconciliation Act ("OBRA"), income tax
deductions of publicly-traded companies in tax years beginning on or after
January 1, 1994 may be limited to the extent total compensation (including base
salary, annual bonus, stock option exercises and non-qualified benefits) for
certain executive officers exceeds $1 million (less the amount of any "excess
parachute-payments" as defined in Section 280G of the Code) in any one year.
Under OBRA, the deduction limit does not apply to payments which qualify as
"performance-based." To qualify as "performance-based," compensation payments
must be based solely upon the achievement of objective performance goals and
made under a plan that is administered by a committee of outside directors. In
addition, the material terms of the plan must be disclosed to and approved by
shareholders, and the Compensation Committee must certify that the performance
goals were achieved before payments can be made. The Compensation Committee
attempts to design Candlewood's compensation programs to conform with the OBRA
legislation and related regulations so that total compensation paid to any
employee will not exceed $1 million in any one year, except for compensation
payments which qualify as "performance-based." Candlewood may, however, pay
compensation which is not deductible in limited circumstances when sound
management of Candlewood so requires.
13
<PAGE> 16
BASE SALARY
Salaries for executive officers are reviewed annually by the
Compensation Committee based upon a variety of factors, including individual
performance, general levels of market salary increases and the Company's overall
financial results. In 1998, the Compensation Committee chartered two studies
relating to the compensation of the Company's senior officers. Each study was
performed by an independent benefits consultant and identified a shortfall in
the overall compensation of the Company's senior officers when compared to the
fiftieth percentile (median) of a group of comparable companies. Based in part
on these studies and in an attempt to meet the median overall compensation of
the Company's peer group, the base salary for each of the five highest paid
officers for 1998 was reviewed and established by the Compensation Committee.
The Compensation Committee may further adjust these salaries in 1999 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.
INCENTIVE COMPENSATION PLAN
The Company has established an incentive compensation plan for officers
and key employees of the Company. This plan provides for the payment of an
annual bonus to participating officers and key employees if certain performance
objectives established for each individual are achieved. Each participant's
performance objectives, which are reviewed and established at the beginning of
the year by the Compensation Committee, vary from year to year and are based,
among other things, on measures of profitability, cash flow and other measures
of the Company's performance, as well as upon each individual's specific role
within the Company. Pursuant to the Company's Employment Agreement with Mr.
DeBoer, Mr. DeBoer is eligible for an annual bonus to be set by the Compensation
Committee. The bonus levels for 1998 and 1999 were established with significant
input from the two compensation studies chartered by the Compensation Committee.
Although the Company did not meet its stated targets for the 1998 Bonus
Plan, the Compensation Committee granted bonuses to the Company's executive
officers. The Compensation Committee granted these bonuses after taking other
considerations into account, including 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 potential that
certain employees may leave the Company or be hired by competitors, the
magnitude by which the Company failed to meet its stated targets, the Company's
development activity, the many variables which may have impacted performance
this past period, and certain accounting charges and non-recurring write-offs
which affected the Company's performance notwithstanding the efforts of the
officers. The Compensation Committee also considered the Company's growth rate
and the qualitative performance of each of the bonus eligible employees.
LONG-TERM INCENTIVE COMPENSATION
1996 EQUITY PARTICIPATION PLAN
The Company has established the 1996 Equity Participation Plan to
provide an additional incentive for executive officers, other key employees, the
Company's non-employee Directors ("Independent Directors") and consultants of
the Company through granting of options, restricted stock and other awards,
thereby stimulating their personal and active interests in the Company's
development and financial success, and inducing them to remain in the Company's
employ.
14
<PAGE> 17
Based in part on the findings of the two compensation studies chartered
by the Compensation Committee, in 1998 the Compensation Committee established
annual option grant award targets for the Company's executive officers. The
annual award targets are designed to bring executive compensation in line with
the median compensation paid by the Company's peer group of companies. The
option award targets do not obligate the Compensation Committee to award any
options.
During 1998, the Company granted to executive officers, other Company
employees, Independent Directors and consultants of the Company options to
purchase approximately 397,800 shares of Common Stock pursuant to the 1996
Equity Participation Plan. Of the 397,800 options issued during 1998, 20,000
were issued to directors (pursuant to formula grants under the 1996 Equity
Participation Plan), 85,500 were issued to executives and 292,300 were issued to
other Company employees. The options are exercisable at prices per share ranging
from $4.00 to $9.50. The total number of options granted to each individual was
determined primarily by the position of the participant. The Company has
historically granted options to all employees of the Company regardless of
position. Of the 899,900 options issued and outstanding as of December 31, 1998,
70,000 were issued to directors (pursuant to formula grants under the 1996
Equity Participation Plan), 435,500 were issued to executives and 394,400 were
issued to other Company employees.
401(k) PROFIT SHARING PLAN
The Company administers the Candlewood Hotel Company 401(k) Profit
Sharing Plan (the "401(k) Plan"), which is designed to be qualified under
applicable provisions of the Internal Revenue Code of 1986, as amended. The
401(k) Plan covers all employees of the Company who have attained age 21 and
have completed ninety days of service. Participants receive service credit for
employment with the predecessor of the Company.
A participant in the 401(k) Plan may contribute up to 15% of his or her
compensation on a pre-tax basis under the 401(k) Plan. The Company may, but is
not obligated to, make contributions on behalf of each participant 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, 1998, the Company
matched employee contributions in the amount of $94,000.
CHIEF EXECUTIVE COMPENSATION
In 1998, Mr. DeBoer, the Company's Chief Executive Officer and Chairman
of the Board, received base compensation of $211,795. The Compensation Committee
increased Mr. DeBoer's salary in 1998 from $175,000 to $260,000 and his 1998
base compensation represents a base salary of $175,000 from January 1, 1998 to
July 26, 1998 and a base salary of $260,000 from July 27, 1998 to December 31,
1998 on an annualized basis. Mr. DeBoer also received a bonus of $75,000 and
30,000 stock options pursuant to the 1996 Equity Plan for 1998.
In establishing Mr. DeBoer's compensation, the Compensation Committee
followed its established compensation philosophy and process described above. In
particular, the Compensation Committee noted the Company's results and Mr.
DeBoer's several initiatives to focus and align the Company's strength and
objectives to varying market conditions. In addition, relying largely on the two
compensation studies it chartered, the Compensation Committee also considered
the median compensation paid by a peer group of companies as well as market
trends as they related to compensation of chief executive officers in the
Company's industry.
15
<PAGE> 18
The foregoing report has been approved by all the members of the
Compensation Committee.
Date: April 2, 1999 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has implemented a policy requiring any material transaction
or agreement with a related party to be approved by a majority of the directors
not interested in such transaction or agreement, provided that they determine
that the terms of any such transaction or agreement are no less favorable to the
Company than those that could be obtained from an unaffiliated third party. Mr.
Fix is a non-voting ex officio member of the Compensation Committee.
16
<PAGE> 19
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, 1998 to December 31, 1998.
COMPARISON OF 26 MONTH CUMULATIVE TOTAL RETURN*
AMONG CANDLEWOOD HOTEL COMPANY, INC., THE S & P 500 INDEX
AND THE S & P LODGING-HOTELS INDEX
11/5/96 12/96 12/97 12/98
------- ----- ----- -----
CANDLEWOOD HOTEL COMPANY, INC. 100 96 88 53
S & P 500 100 105 141 181
S & P LODGING - HOTELS 100 95 133 108
- ------------------
* $100 INVESTED ON 11/5/96 IN STOCK OR ON 10/31/96 IN INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
17
<PAGE> 20
CERTAIN TRANSACTIONS
In March 1999, the Company moved its corporate headquarters to 8621 East
21st Street North, Suite 200, Wichita, Kansas 67206, and began leasing this
space from Vantage Point Properties, Inc. During 1998 and the first quarter of
1999, the Company leased office space in Wichita, Kansas from MSI Building, LLC
("MSI Building"), a limited liability company. From February 1996 to March 1999,
the Company leased office space and certain equipment from MSI Building. In
1998, the costs incurred by the Company for such office space and equipment
totaled approximately $118,000. Mr. DeBoer is a minority member of MSI Building.
The Company obtains business insurance, such as property, liability,
workers' compensation and group medical coverages, through Manning & Smith
Insurance. The Company believes that the types and amounts are consistent with
those obtained by similar businesses. The Company has compared the rates
received from Manning & Smith and believes that they are competitive with the
rates available from other carriers. For 1998, the expenses incurred by the
Company for such coverages totaled approximately $1.3 million, including
commissions paid to Manning & Smith in the approximate amount of $147,000. Mr.
DeBoer owns a minority interest in Manning & Smith Insurance.
The Company purchases corporate travel through Wichita Air Services,
owned by Mr. DeBoer. For 1998, the Company incurred costs from Wichita Air
Services in the approximate amount of $396,000. The Company may purchase a .01%
interest in Wichita Air Services for a nominal fee during 1999.
Doubletree has agreed to guarantee portions of certain loans made to the
Company and its franchisees in excess of 60% of the hotel cost, up to a maximum
of 80% of the cost of hotels that the Company manages and 75% of the costs of
hotels not managed by the Company. It is anticipated that the guarantee will
remain in effect until the loan has been repaid. Upon an event of default,
Doubletree will have the option to meet any shortfalls or pay down the loan
principal. In exchange for the guarantee, Doubletree will receive a 5% interest
in the cash flows of the hotels and a 0.25-0.50% fee on the total loan amount
outstanding. During 1998, Richard J. Ferris, a director of the Company, served
as a Director and member of the Executive Committee of Promus. William L.
Perocchi, a director of the Company, served as the Chief Financial Officer of
Promus during 1998 and currently serves as a consultant to Promus. Thomas L.
Keltner, a director of the Company, served as Executive Vice President and Chief
Development Officer of Promus during 1998 and currently serves as President,
Brand Performance and Development Group of Promus. Thomas W. Storey, a director
of the Company, served as Executive Vice President, Marketing of Promus during
1998 and currently serves as Executive Vice President, Corporate Strategic
Planning and Venture Operations 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 1998, the Company incurred interest totaling approximately
$1.8 million related to the credit facility. A significant portion of this
amount was capitalized as construction period interest.
18
<PAGE> 21
To help finance the continued development of Candlewood-owned hotels,
the Company completed a private placement whereby it issued 42,000 shares of
Series B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock")
at a price of $1,000 per share, raising net proceeds of $39.4 million. The
Company also issued the holders of the Series B Preferred Stock, at no
additional cost, warrants to purchase an aggregate of 336,000 shares of Common
Stock at $12.00 per share. The private placement of the Series B Preferred Stock
and accompanying warrants was completed in two separate closings on July 13,
1998 ($39.4 million) and August 3, 1998 ($2.6 million). The purchasers of the
Series B Preferred Stock (the "Purchasers") consisted of a group of
institutional investors and accredited investors, including entities affiliated
with Robert J. Cresci, Robert S. Morris and Frank J. Pados, Jr., each of whom
are members of the Company's Board of Directors. The Purchasers are entitled to
a preferential dividend equal to 7.5%, payable quarterly. The Certificate of
Designation provides for the conversion of the Series B Preferred Stock into
Common Stock upon the election of the holders, at a price of $9.50 per share of
Common Stock, subject to certain anti-dilution adjustments.
In connection with the placement of its Series B Preferred Stock, the
Company entered into a Registration Rights Agreement and the Stockholders
Agreement. See "Voting Securities and Principal Holders Thereof -- Registration
Rights," "-- Stockholders Agreement." On June 30, 1998, the Board of Directors
amended the Bylaws so as to increase the size of the Board of Directors from ten
to twelve members. Pursuant to the Stockholders Agreement, the Purchasers of the
Series B Preferred Stock are entitled to nominate one individual to serve on the
Company's Board of Directors, which the Purchasers have temporarily waived. The
holders of the Series A Preferred Stock are also entitled to nominate three
individuals to serve on the Company's Board of Directors. During 1998 to the
present, Robert J. Cresci, Robert S. Morris and Frank J. Pados, Jr. serve on the
Board of Directors as nominees of the holders of the Series A Preferred Stock.
The purchasers of the Preferred Stock, Doubletree 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 year 1998, 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) James E. Korroch,
who is no longer with the Company, failed to timely file a Form 4 reporting his
acquisition of 850 shares of the Company's Common Stock, (ii) Tony M. Salazar
failed to timely file a Form 4 reporting his acquisition of 2,000 shares of the
Company's Common Stock, and (iii) Robert J. Cresci, Robert S. Morris and Frank
J. Pados, Jr. each failed to timely file a Form 4 reporting the acquisition of
the Company's Series B Preferred Stock and warrants to purchase shares of the
Company's Common Stock.
19
<PAGE> 22
PROPOSAL 1
ELECTION OF DIRECTORS
Directors are elected at each Annual Meeting of Stockholders and hold
office until their successors are duly elected and qualified at the next Annual
Meeting of Stockholders, unless they resign or are removed. The Company's Bylaws
authorize a Board comprised of at least seven directors and no more than twelve
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 twelve. There are currently no
vacancies and, accordingly, there are twelve nominees for election to the Board
of Directors.
In December 1998, Thomas H. Nielsen was appointed to serve as a member
of the Board of Directors to fill a vacancy on the Board. In addition, Thomas L.
Keltner and Thomas W. Storey were appointed to fill vacancies on the Board in
March 1999.
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, a majority of the
holders of the Series B Preferred Stock are entitled to designate a single
director for election to the Board of Directors. The Stockholders Agreement also
provides that, subject to certain conditions, Doubletree shall be entitled to
designate two directors, and allows the DeBoer/Fix Holders to collectively
designate two directors for election to the Board. Finally, the Stockholders
Agreement permits, subject to certain conditions, Doubletree, together with the
DeBoer/Fix Holders to designate the remaining independent directors for
election. Pursuant to the Stockholders Agreement, the holders of the Series A
Preferred Stock have nominated Robert J. Cresci, Robert S. Morris and Frank J.
Pados, Jr. to serve as directors. Doubletree has nominated Messrs. Storey and
Keltner, and the DeBoer/Fix Holders have nominated Messrs. DeBoer and Fix to
serve as directors. Doubletree, together with the DeBoer/Fix Holders, have
nominated the remaining unaffiliated directors: Gary E. Costley, Richard J.
Ferris, William L. Perocchi, Tony M. Salazar and Thomas H. Nielsen. Messrs.
Ferris and Perrochi were formerly nominees of Doubletree. The holders of Series
B Preferred Stock have temporarily waived their right to nominate an individual
to serve as a member of the Board of Directors. The Purchasers of the Preferred
Stock, Doubletree and Messrs. DeBoer and Fix have agreed to vote for each
other's nominees for the Board of Directors pursuant to the Stockholders
Agreement.
Each of the Company's nominees for election to the Board of Directors
currently serves as a director of the Company and was elected or appointed 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> <C>
Jack P. DeBoer 68 Chief Executive Officer and Chairman of the 1996
Board of the Company
Richard J. Ferris 62 Director 1996
Warren D. Fix 60 Executive Vice President, Chief Financial 1996
Officer, Secretary and Treasurer of the
Company
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
FIRST BECAME
NAME AGE PRINCIPAL OCCUPATION OR POSITION A DIRECTOR
---- --- -------------------------------- ------------
<S> <C> <C> <C>
Tony M. Salazar 47 Executive Vice President of McCormack Baron 1997
& Associates, Inc.
Gary E. Costley 55 President, Chief Executive Officer and 1997
Chairman of the Board of International
Multifoods Corporation
Robert J. Cresci 55 Managing Director of Pecks Management 1997
Partners Ltd.
Robert S. Morris 44 Managing Partner of Olympus Partners 1997
Frank J. Pados, Jr. 55 Executive Vice President of Desai Capital 1997
Management Inc.
William L. Perocchi 41 Director 1997
Thomas H. Nielsen 68 Consulting Director of U.S. Trust of 1998
California
Thomas L. Keltner 52 President, Brand Performance and Development 1999
Group of Promus
Thomas W. Storey 42 Executive Vice President, Corporate 1999
Strategic Planning and Venture Operations of
Promus
</TABLE>
JACK P. DEBOER has served as Chairman of the Board and Chief Executive
Officer of the Company since its inception. From October 1993 to September 1995,
Mr. DeBoer was self-employed and was engaged in the development of the
Candlewood extended-stay hotel concept. From 1988 to 1993, Mr. DeBoer co-founded
and developed Summerfield Hotel Corporation, an upscale extended-stay hotel
chain. In 1975, Mr. DeBoer founded the Residence Inn Company, an upscale
extended-stay chain which he built to 100 hotels before selling the company to
Marriott Corporation in 1987. Mr. DeBoer is a member of the Board of Trustees of
Innkeepers USA Trust, a publicly-held lodging real estate investment trust.
RICHARD J. FERRIS has served as a director of the Company since its
inception. From June 1992 to December 1998, Mr. Ferris 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 United Airlines
Corporation, a position he held from April 1976 to June 1987. Mr. Ferris serves
as a director of The Procter and Gamble Company, B.P. Amoco Corporation and as a
director 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, a
business management company, from December 1992 to October 1995. From 1989 to
December 1992, Mr. Fix served as President of the Pacific Company, a real estate
investment and development company. From 1964 to 1989, Mr. Fix held numerous
positions within The Irvine Company, a California-based real estate and
development company, including most recently, Chief Financial Officer.
21
<PAGE> 24
TONY M. SALAZAR has served as a director of the Company since February
1997. Mr. Salazar is the Executive Vice President and Director of McCormack
Baron & Associates, 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.
GARY E. COSTLEY has served as a director of the Company since March
1997. Since January 1997, Dr. Costley has served as the Chairman of the Board,
President and Chief Executive Officer of International Multifoods Corporation, a
food service distribution and manufacturing company. 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, Dr. Costley held numerous positions
within the Kellogg Company, including most recently, Executive Vice President
and President of Kellogg North America, President and Chairman of Kellogg USA,
Chairman of Kellogg Canada and Executive Vice President of Kellogg Company. Dr.
Costley serves on the boards of directors of International Multifoods
Corporation and Pharmacopeia, Inc.
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., Film
Roman, Inc., Quest Education Corporation, 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. Olympus manages
approximately $1 billion in capital. Mr. Morris is currently a Director of
several Olympus portfolio companies, including AMN Healthcare, Inc. and Entrust
Technologies, Inc. Mr. Morris has served on the boards of several divested
Olympus portfolio companies. He also serves on the Board of Directors of
Hamilton College Endowment Fund. Mr. Morris received his A.B. from Hamilton
College and his M.B.A. from the Amos Tuck School of Business at Dartmouth
College.
FRANK J. PADOS, JR. has served as a director of the Company since
November 1997. Mr. Pados is the Executive Vice President of Desai Capital
Management Inc., an institutionally funded private equity investment firm with
approximately $1 billion under management, a position he has held since
September 1995. From October 1983 to September 1995, he served as Managing
Director of Trust Company of the West and Senior Partner of TCW Capital, an
investment management firm. Mr. Pados 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.
22
<PAGE> 25
WILLIAM L. PEROCCHI has served as a director of the Company since
November 1997. From December 1997 to January 1999, Mr. Perocchi served as the
Executive Vice President and Chief Financial Officer of Promus. From 1993 to
1997, Mr. Perocchi served as Executive Vice President and Chief Financial
Officer of Doubletree and served as director of Doubletree from 1996 to 1997.
From 1992 to 1993, Mr. Perocchi was Executive Vice President and Chief Financial
Officer of Guest Quarters Hotel Partnership, a predecessor company of
Doubletree. Previously, Mr. Perocchi was an executive with General Electric
Company.
THOMAS H. NIELSEN has served as a director of the Company since his
appointment in December 1998. Mr. Nielsen currently serves as Consulting
Director of the Orange County, California office of U.S. Trust of California, an
investment management and private banking firm, a position he has held since
1996. From 1993 to 1995, Mr. Nielsen served as Managing Director of the Orange
County, California office of U.S. Trust of California. During a career that
extended more than ten years with The Irvine Company, a California-based real
estate and development company, Mr. Nielsen held several positions, including
most recently President and Vice Chairman of The Irvine Company. Mr. Nielsen
currently serves on the boards of The Irvine Company and Avalonbay Communities,
Inc.
THOMAS L. KELTNER has served as director of the Company since March
1999. Mr. Keltner currently serves as President, Brand Performance and
Development Group of Promus, a position he has held since February 1999. From
1997 to February 1999, Mr. Keltner served as Executive Vice President and Chief
Development Officer of Promus. From 1995 to 1997, he served as Senior Vice
President, Development of Promus. From 1993 to 1995, he served as Senior Vice
President, Development of the Hotel Division of Promus Companies Incorporated.
From 1991 to 1993, Mr. Keltner served as President, Golf Training Systems, Inc.,
a company organized to manufacture and distribute golf training and fitness
products. From 1990 to 1991, Mr. Keltner served as Senior Vice President and
Chief Operating Officer, Franchise Division of Holiday Inn Worldwide. From 1988
to 1990, Mr. Keltner served as President and Managing Director, Holiday Inns
International.
THOMAS W. STOREY has served as a director of the Company since March
1999. Mr. Storey currently serves as Executive Vice President, Corporate
Strategic Planning and Venture Operations of Promus, a position that he has held
since February 1999. From 1998 to February 1999, he served as Executive Vice
President, Marketing of Promus. Mr. Storey served as Executive Vice President,
Sales and Marketing of Doubletree from 1994 to 1997 and of Radisson Hotels
International from 1989 to 1994.
The Board of Directors held eight meetings (including those held by
written consent) during the fiscal year ended December 31, 1998. Except for Mr.
Perocchi, who attended 63% of the meetings, 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 has Audit and Compensation Committees, but has not
established a Nominating Committee. Messrs. Perocchi, Cresci and Morris
comprised the Audit Committee during 1998. 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, (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, consulting with management regarding the same. The Audit Committee held
one meeting during the fiscal year ended December 31, 1998, of which each member
attended, except for Mr. Morris, who did not attend.
23
<PAGE> 26
Messrs. Costley, Salazar and Pados comprised the Compensation Committee
during the fiscal year end December 31, 1998. 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 five meetings
(including one held by written consent) during the fiscal year ended December
31, 1998, of which each member attended.
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 1998. The Company expects Mr. Perocchi to receive directors
fee during 1999. 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. 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. In May 1998, Mr. Ferris received options to purchase
10,000 shares of Common Stock pursuant to the 1996 Equity Plan. In addition, Mr.
Nielsen received options to purchase 10,000 shares of Common Stock in December
1998. The Company expects to grant Mr. Perocchi options to purchase 10,000
shares of Common Stock during 1999. Messrs. Storey and Keltner waived there
right to receive such grants. 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 twelve 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 TWELVE NOMINEES.
24
<PAGE> 27
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
All proposals of stockholders intended to be presented at the Company's
2000 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 2000 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 2000 Annual Meeting is expected to be held on or about
May 15, 2000.
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 15, 1999
25
<PAGE> 28
CANDLEWOOD HOTEL COMPANY, INC.
PROXY FOR 1999 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 17, 1999
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE
BOARD OF DIRECTORS OF CANDLEWOOD HOTEL COMPANY, INC.
The undersigned stockholder of Candlewood Hotel Company, Inc., a
Delaware corporation, hereby appoints each of Jack P. DeBoer and Warren D. Fix,
with full power to act without the other and to appoint his substitute, as Proxy
and attorney-in-fact and hereby authorizes the Proxy to represent and to vote,
as designated on the reverse side, all the shares of voting stock of Candlewood
Hotel Company, Inc. held of record by the undersigned on April 6, 1999, at the
1999 Annual Meeting of Stockholders to be held on May 17, 1999, or any
adjournment or postponement thereof, with respect to:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 29
<TABLE>
<S> <C> <C> <C>
FOR all twelve WITHHOLD AUTHORITY (INSTRUCTION: To withhold
nominees listed at to vote for all authority to vote for any nominee,
the right (except as twelve nominees draw a line through (or otherwise
marked to the contrary) listed at the right strike out) his name in the list below.)
1. Election of [ ] [ ] NOMINEES:
Directors: Mr. Gary Costley Mr. Robert S. Morris
Mr. Robert J. Cresci Mr. Thomas H. Nielsen
Mr. Jack P. DeBoer Mr. Frank J. Pados, Jr.
Mr. Richard J. Ferris Mr. William L. Perocchi
Mr. Warren D. Fix Mr. Tony M. Salazar
Mr. Thomas L. Keltner Mr. Thomas W. Storey
2. Such other matters as may come before the meeting, as to which discretionary authority is granted to said Proxy.
</TABLE>
THIS PROXY, WHEN PROPERTY 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 TWELVE NOMINEES LISTED
UNDER PROPOSAL 1 AND AS THE PROXY DEEMS ADVISABLE ON SUCH OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE MEETING.
A majority of the proxies or substitutes as shall be present and shall act at
said meeting or any adjournment (or if only one shall be present and act, then
that one) shall have and may exercise all of the powers of said proxies
hereunder.
THE UNDERSIGNED ACKNOWLEDGE RECEIPT OF THE NOTICE OF MEETING AND PROXY
STATEMENT DATED APRIL 15, 1999 AND THE 1999 ANNUAL REPORT OF CANDLEWOOD HOTEL
COMPANY, INC.
Signature: ______________________ Signature: ___________________ Dated: ________
NOTE: (PLEASE SIGN EXACTLY AS NAME APPEARS ON YOUR CANDLEWOOD HOTEL COMPANY,
INC. STOCK CERTIFICATE. IF YOU ARE UNSURE HOW YOUR NAME APPEARS, PLEASE
CONTACT CANDLEWOOD HOTEL COMPANY, INC. WHEN SHARES ARE HELD BY JOINT
TENANTS, BOTH MUST SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF
A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY THE PRESIDENT OR
OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME BY AUTHORIZED PERSON.)
