Dear Stockholder: March 19, 1999
You are cordially invited to attend the 1999 Annual General Meeting of
Stockholders of Cavanaughs Hospitality Corporation at 9:00 a.m. on
Monday, April 19, 1999, at Cavanaughs Ridpath Hotel, 515 W. Sprague
Avenue, Spokane, Washington.
The accompanying Notice of 1999 Annual General Meeting of Stockholders
and the Proxy Statement describe the matters to be presented at the
meeting.
Whether or not you plan to attend the meeting, we hope you will have
your stock represented by completing, signing, dating and returning
your proxy card in the enclosed postage-paid envelope as soon as
possible. Your stock will be voted in accordance with the
instructions you have given in your proxy.
Sincerely,
Donald K. Barbieri
Chairman of the Board,
President and Chief Executive Officer
IMPORTANT
A Proxy Statement and proxy card are enclosed. All stockholders are
urged to complete and mail the proxy card promptly. The enclosed
envelope for return of the proxy card requires no postage. Any
stockholder attending the meeting may personally vote on all matters
that are considered, in which event the signed proxy will be revoked.
IT IS IMPORTANT THAT YOUR STOCK BE VOTED.
<PAGE>
NOTICE OF ANNUAL GENERAL MEETING OF STOCKHOLDERS
APRIL 19, 1999
To the Stockholder:
The 1999 Annual General Meeting of Stockholders of Cavanaughs
Hospitality Corporation will be held at the 9:00 a.m. on Monday,
April 19, 1999, at Cavanaughs Ridpath Hotel, 515 W. Sprague Avenue,
Spokane, Washington for the following purposes:
(1) To elect two directors to hold office until the expiration of
their respective terms three year terms and until their
respective successors are elected and qualified;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as
auditors for Cavanaughs Hospitality Corporation for 1999; and
(3) To transact such other business as may properly come before the
meeting and any adjournment and postponement thereof.
Nominees for directors are named in the enclosed Proxy Statement.
March 5, 1999 has been set as the record date for the meeting. Only
stockholders of record at the close of business on that date will be
entitled to notice of and to vote at the meeting.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING IN PERSON, BUT EVEN
IF YOU EXPECT TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE POSTAGE-PAID ENVELOPE PROVIDED TO ENSURE YOUR
REPRESENTATION. STOCKHOLDERS ATTENDING THE MEETING MAY VOTE IN PERSON
EVEN IF THEY HAVE PREVIOUSLY SENT IN A PROXY.
By Order of the Board of Directors
Richard L.Barbieri
General Counsel
Spokane, Washington
March 19, 1999
The 1998 Annual Report of Cavanaughs Hospitality Corporation
accompanies this Proxy Statement.
<PAGE>
1999 PROXY STATEMENT
GENERAL
The enclosed proxy is solicited by the Board of Directors of
Cavanaughs Hospitality Corporation (the "Company") for use at the 1999
Annual General Meeting of Stockholders to be held at 9:00 a.m. on
Monday, April 19, 1999, at Cavanaughs Ridpath Hotel, 515 W. Sprague
Avenue, Spokane, Washington, and at any adjournment or postponement
thereof (the "Meeting"). Only holders of record of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), at the
close of business on March 5, 1999 will be entitled to notice of and
to vote at the Meeting. On that date, the Company had 12,660,847
shares of Common Stock outstanding. Each share of Common Stock
outstanding on the record date is entitled to one vote.
The address of the Company's principal executive offices is 201 West
North River Drive, Suite 100, Spokane, Washington 99201.
This Proxy Statement and the accompanying proxy are being mailed to
the Company's stockholders on or about March 19, 1999.
VOTING
Shares of Common Stock for which proxies are properly executed and
returned will be voted at the Meeting in accordance with the
directions noted thereon or, in the absence of directions to the
contrary, will be voted (i) "FOR" the election of the two nominees for
the Board of Directors named on the following pages, provided that if
any one or more of such nominees should become unavailable for
election for any reason, such shares will be voted for the election of
such substitute nominee or nominees as the Board of Directors may
propose, and (ii) "FOR" the ratification of the appointment of
PricewaterhouseCoopers LLP as auditors for the Company for 1999.
Under Washington law, the Company's Articles of Incorporation and By-
Laws, the presence at the Meeting, in person or by duly authorized
proxy, of the holders of a majority of the outstanding shares of
Common Stock entitled to vote constitutes a quorum for the transaction
of business. The two nominees for the Board of Directors who receive
the greatest number of votes cast for the election of directors by the
shares present in person or represented by proxy at the Meeting and
entitled to vote shall be elected directors. The affirmative vote of
a majority of shares entitled to vote and present in person or by
proxy at the Meeting is required for approval of any other matters
submitted to a vote of the shareholders. In the election of
directors, an abstention or broker non-vote will have no effect on the
outcome. In the case of any other matter, abstention from voting
will have the practical effect of voting against such matter. Broker
non-votes will be included in determining the presence of a quorum at
the Meeting but will have no effect on the outcome of any matters,
other than to reduce the number of "FOR" votes necessary to approve
such matters.
<PAGE>
REVOCATION
Any stockholder giving a proxy may revoke it at any time before it is
voted by delivering to the Company's General Counsel a written notice
of revocation or a duly executed proxy bearing a later date, or by
attending the Meeting and electing to vote in person.
PROPOSAL 1: ELECTION OF DIRECTORS
In accordance with the Company's By-Laws, the Board of Directors has
fixed the number of directors constituting the Board at seven, with
all of the directors assigned to a classification based on the time
for which they hold office. Two of the initial directors were
assigned to hold office for a term expiring at the 1999 annual meeting
of shareholders. Two of the initial directors were assigned to hold
office for a term expiring at the 2000 annual meeting of shareholders.
Three of the initial directors were assigned to hold office for a term
expiring at the 2001 annual meeting of shareholders. At each annual
meeting of shareholders, the successors of the members of the class of
directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of shareholders held
in the third year following the year of their election. It is
proposed that two directors be elected as the successors of the
members of the class of directors whose term expires at the 1999
annual meeting of shareholders. The two directors to be elected will
hold office for a term expiring at the annual meeting of shareholders
held in the third year following the year of their election and until
their successors shall have been elected and qualified. It is
intended that votes will be cast pursuant to the accompanying proxy
for the election of the two nominees named below, each of whom is
currently a director of the Company whose term expires at the 1999
annual meeting of shareholders. If any nominee should become
unavailable for any reason, it is intended that votes will be cast for
a substitute nominee designated by the Board of Directors. The Board
of Directors has no reason to believe that the nominees named will be
unable to serve if elected. The two nominees who receive the greatest
number of votes cast by stockholders present in person or by proxy and
certified to vote at the Meeting, a quorum being present, shall be
elected directors.
NOMINEES FOR THE BOARD OF DIRECTORS
Richard L. Barbieri has been a Senior Vice President of the Company
since September 1997, full-time General Counsel of the Company since
1995 and a Director of the Company since 1978. His most recent term
of office as a Director began in 1998, when he was elected to the
class of Directors whose term of office expires in 1999. From 1994 to
1997, Mr. Barbieri served as a Vice President of the Company. From
1978 to 1995, Mr. Barbieri served as outside counsel and Secretary of
the Company, during which time he was engaged in the practice of law
at Edwards and Barbieri, a Seattle law firm, and then at Riddell
Williams (now Graham & James/Riddell Williams), a Seattle law firm,
<PAGE>
where he chaired the real estate practice group. Mr. Barbieri has
also served as chairman of various committees of the State and County
Bar Association and as a member of the governing board of the King
County Bar Association. He also served as vice chairman of the
Citizens' Advisory Committee to the Major League Baseball Stadium
Public Facilities District in Seattle in 1996 and 1997. Mr. Barbieri
is the brother of Donald and Thomas Barbieri and the brother-in-law of
David Bell.
Robert G. Templin became a Director of the Company upon consummation
of the initial public offering of the Company, when he joined Mr.
Barbieri in the class of Directors whose term of office expires in
1999. Mr. Templin has had 50 years of continuous experience in
ownership, acquisition and disposition, transaction counseling,
development, construction and management work in the lodging industry
in the Northwest. From 1962 to 1983, he was Chief Executive Officer
of Western Frontiers, a hotel operator. Since 1986, Mr. Templin has
served as governor for District II for Best Western, Inc. In 1986, he
built Templin's Resort and Conference Center. He served as president
of the Idaho Inn Keepers Association from 1975 to 1976 and president
of the Coeur d'Alene Chamber of Commerce in 1963. Mr. Templin also
served on the Government Affairs Committee of Holiday Inn, Inc. from
1981 to 1982. In addition to his responsibilities as a Director of
the Company, Mr. Templin will continue to represent the Company on the
board of the Idaho Travel Council.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met eight times in 1998. All directors
attended all of the meetings of the Board of Directors and its
Committees on which they serve, with the exception of one excused
absence due to a conflict in schedule.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established standing committees of its Board of
Directors, including an Audit and a Compensation Committee. Each of
these Committees is responsible to the full Board of Directors, and
its activities are therefore subject to Board approval. The functions
performed by these Committees are summarized below:
AUDIT COMMITTEE. The Audit Committee is responsible for making
recommendations concerning the engagement of the Company's independent
public accountants, reviewing with the independent public accountants
the plans and results of the audit engagement, approving professional
services provided by the independent public accountants, considering
the range of audit and non-audit fees and reviewing the adequacy of
the Company's internal accounting controls. The members of the Audit
Committee are Peter Stanton and Ronald Taylor. The Audit Committee
was formed in April of 1998 following the initial public offering of
the Company. The audit committee met once during 1998 to review the
audit plan.
<PAGE>
COMPENSATION COMMITTEE. The Compensation Committee establishes
salaries, incentives and other forms of compensation for directors,
officers and other executives of the Company. This Committee also
administers the Company's various incentive compensation and benefit
plans and recommends the establishment of policies relating to such
plans. The members of the Compensation Committee are Ronald Taylor
and Peter Stanton. The Compensation Committee met three times in
1998.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company do not receive any fees for
their service on the Board of Directors or any committee thereof. The
Company pays each of its non-employee Directors an annual fee equal to
$6,000, 50% of which is payable in cash and 50% of which is payable in
shares of Common Stock. In addition, each non-employee Director is
paid $500 for attendance at each meeting of the Board of Directors and
$250 for attendance at each meeting of a committee of the Board of
Directors of which such Director is a member. In addition, the
Company reimburses Directors for their out-of-pocket expenses incurred
in connection with their service on the Board of Directors. At the
initial public offering of the Company, each of the non-employee
directors was granted options to purchase 10,000 shares of Common
Stock of the Company at $15/share, on terms more fully described below
(see "1998 Employment Contracts, Grants of Stock and Stock Options and
Exercises" below).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common
Stock as of February 28, 1999, by (i) each stockholder known by the
Company to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each director, (iii) the named executive officers
and (iv) all directors and named executive officers as a group. The
business address of each shareholder is 201 W. North River Drive,
Suite 100, Spokane, Washington, 99201, with the exception of Eagle
Asset Management, the address for which is: 880 Carillon Parkway, St.
Petersburg, FL 33716.
<PAGE>
Names and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned (1) Common Stock (1)
--------------------------- ---------------------- ----------------
Donald K. Barbieri (2) 3,650,635 28.5
DKB and HHB Unity Trust 958,379 7.6
Eagle Asset Management 815,275 6.4
Barbieri Family Trust 652,288 5.0
Thomas M. Barbieri 559,618 4.2
David M. Bell 539,910 4.3
Richard L. Barbieri (2) 537,697 4.2
Arthur M. Coffey (3) 7,938 *
Peter F. Stanton 3,231 *
Ronald R. Taylor 18,231 *
Robert G. Templin 107,231 *
All directors and executive
officers as a group (8
persons) 5,424,490 41.4%
*Represents less than 1%
(1) For purposes of this table, a person or group of persons is
deemed to have "beneficial ownership" of shares of Common Stock
as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the
percentage of outstanding shares held by each person or group of
persons named above on a given date, any security which such
person or persons has the right to acquire within 60 days after
such date is deemed to be outstanding, but is not deemed to be
outstanding for the purpose of computing the percentage ownership
of any other person. As a result, outstanding stock includes
185,599 of Operating Partnership Units convertible to Common
Stock.
(2) Excludes 958,379 shares of Common Stock held by the DKB & HHB
Unity Trust, an irrevocable trust, of which Donald Barbieri and
his spouse Heather Barbieri are co-trustees, and Richard Barbieri
is an alternate trustee for certain tax related decisions, and
for which they disclaim beneficial ownership.
(3) Includes 3,000 shares issuable under the Restricted Stock Grant
Award which will be issued within 60 days. (See "1998 Employment
Contracts, Grants of Stock and Stock Options and Exercises"
below.)
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of Forms 3, 4 and 5 and any amendment
thereto furnished to it pursuant to Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), all such forms
were filed on a timely basis.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to November 1, 1997, all of the assets of the Company were held
by the Company and Barbieri Investment Company (BIC), a sister
corporation, directly, or indirectly through various partnerships (the
"Partnerships") and corporations wholly-owned (with one exception) by
the Company and/or BIC, as the case may be, and all of the properties
owned by the Company, BIC and the Partnerships were managed by the
Company, as the general partner of the Partnerships, or through
various management agreements with BIC or the Partnerships. Effective
November 3, 1997, BIC merged with and into the Company. The Merger
was a stock-for-stock merger, pursuant to which the holders of the
common stock of BIC and the holders of preferred and common stock of
the Company received an aggregate of 7,072,025 shares of Common Stock
of the Company pursuant to conversion ratios jointly determined by the
boards of directors of the Company and BIC and unanimously approved by
the shareholders of the Company and BIC. By effecting a merger of the
holders of the general and limited partner interests in the
Partnerships, the Merger resulted in the dissolution of, and a
transfer to the Company of all assets and property held by, the
Partnerships, with the exception of Cowley Street Limited Partnership
in which the Company is general partner with an unrelated limited
partner. Effective November 1, 1997, the Company (i) contributed
certain assets not related to its core hospitality business to Inland
Northwest Corporation, a wholly owned subsidiary of the Company
("INWC"), and (ii) distributed shares of capital stock of INWC and
Huckleberry Bay Company, another wholly-owned subsidiary of the
Company ("HBC"), on a pro rata basis, to the shareholders of the
Company (the "Spin-Off"). The Spin-Off was structured as a tax-free
transaction. If the Spin-Off is ultimately determined not to qualify
as a tax-free transaction (other than as a result of (i) actions taken
by the Company following the initial public offering that are approved
by a majority of the Company's independent directors or (ii) transfers
of a limited number of shares of Common Stock with the approval of the
INWC Board of Directors by persons who were shareholders of the
Company at the time of the Spin-Off), INWC will indemnify the Company
for any tax liability the Company incurs. As a result of the
foregoing transactions, the following assets are no longer part of the
Company's operations: recreational real estate in Priest Lake, Idaho,
a long-term residence inn operation, residential condominium
properties, an interest in a milk processing and distribution business
with associated real property, and a retail sales operation. The
Company recorded management fees and other income of approximately
$35,000, $31,000 and $27,000 during the years ended October 31, 1997,
1996 and 1995, respectively, and $17,000 for the two months ended
December 31, 1997 for performing management and administrative
functions for INWC and HBC. In addition, the Company received
commissions from INWC and HBC for real estate sales on behalf of INWC
and HBC of $87,000, $7,000 and $51,000 for the years ended October 31,
1997, 1996 and 1995, respectively, and $1,000 for the two months ended
December 31, 1997. In connection with the Spin-Off, the Company
entered into an agreement with INWC, pursuant to which it will provide
<PAGE>
management, development, accounting and other administrative services
to INWC in exchange for commissions, leasing fees, management fees,
service fees and development fees, as applicable, based on certain
percentages and costs incurred by the Company in connection with
providing such services. The agreement is automatically renewed
annually and is subject to termination at the option of either party
upon 60 days' notice before such renewal date. During 1998 the
Company recorded fees and other income from the INWC agreement in the
amount of $219,000.
The Company acquired a hotel property (Cavanaughs Templin's Resort)
from Templin's Resort and Conference Center, Inc. in February 1998.
Robert Templin, the President of Templin's Resort and Conference
Center, Inc., has become a Director of the Company upon consummation
of the initial public offering of the Company. The purchase price
paid by the Company for this Hotel was $9.5 million consisting of
cash, assumed indebtedness and a note to the seller. Mr. Templin and
members of his immediate family own 100% of equity interest in
Templins Resort and Conference Center, Inc. and are entitled to
receive all of the net proceeds of the purchase price paid for this
Hotel. The purchase price was determined through arm's-length
negotiations between the Company and Mr. Templin. The note to seller
and assumed debt were paid in full during 1998.
In connection with the acquisition of certain real property, the
Company incurred a $600,000 obligation payable to the Barbieri Family
Foundation, Inc. ("BFF"), a corporation controlled by the estate of
Louis Barbieri, the administrator of which is Kathryn Barbieri. Louis
was the father and Kathryn is mother of Donald, Richard and Thomas
Barbieri. BFF was entitled to receive a guaranteed interest payment
of approximately $67,000 annually, which, pursuant to the terms of the
obligation, increased by 3% annually. The Company had the right to
repay its obligation in full at anytime after January 1997, and BFF
had the right to require redemption in full at any time after January
1999. Interest expense of $67,000, $66,000 and $64,000 was paid by
the Company to BFF during the years ended October 31, 1997, 1996 and
1995, respectively, and $11,000 for the two months ended December 31,
1997. The Company repaid this obligation in full upon closing of the
initial public offering.
Effective January 1, 1998, the Company issued an aggregate of 150,817
OP Units to BFF, Donald Barbieri, Richard Barbieri and Thomas Barbieri
and 12,228 shares of Common Stock to Kathryn Barbieri in exchange for
such persons' partnership interests in the G&B: Lincoln Building
partnership.
The Company had a $933,333 note payable to INWC. The note was paid in
full upon closing of the initial public offering.
<PAGE>
The Company entered into employment agreements with each of Donald
Barbieri, Arthur Coffey, Richard Barbieri, David Bell and Thomas
Barbieri which provide for annual base salaries of $155,000, $130,000,
$96,000, $96,000 and $96,000, respectively. Each executive officer is
eligible to receive annual bonuses as determined by the Compensation
Committee and will be entitled to participate in all existing or
future benefit plans of the Company, on the same basis as other senior
executive officers of the Company.
At October 31, 1997, the Company had loans totaling approximately
$11.5 million with Washington Trust Bank, of which Peter Stanton, a
Director, is the Chief Executive Officer and President. As a result
of a combination of loan repayments and correction of the percentage
of participation by Washington Trust Bank in one loan, the loans with
Washington Trust Bank as of December 31, 1998 totaled $1,436,000.
With respect to future material transactions (or series of related
transactions) between the Company and related parties, the Company has
implemented a policy requiring any such transaction to be approved by
a majority of the non-employee Directors, if any, upon such directors'
determination that the terms of the transaction are no less favorable
to the Company than those that could be obtained from unrelated third
parties.
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation Committee, which consists of two non-employee
directors, implements and endorses the goals of the Company's
executive compensation program, which reflect three guiding
principles: (i) to provide compensation and benefits that allow the
Company to maintain competitive compensation to attract and retain
executives with the skills critical to the Company's long-term
success, (ii) to reward performance in attaining business objectives
and maximizing stockholder value and (iii) to encourage Company stock
ownership through officer ownership guidelines that are monitored by
the Committee on an ongoing basis.
The Committee examines data for positions with similar
responsibilities in other comparable companies of similar size.
Because total compensation for executive officers was established in
conjunction with the recent initial public offering of the Company in
April of 1998 (see "1998 Employment Contracts, Grants of Stock and
Stock Options and Exercises" below), the Committee has recommended no
change for 1999 in total compensation for executive officers or the
mix of pay elements (which include base salaries, annual incentives
and long-term incentives in the form of stock options) other than: (a)
a cost of living adjustment to base salaries of approximately 1.5%,
and (b) a change of the base salary of Thomas Barbieri, on his
promotion in 1999 to Executive Vice President, to the same base salary
as Arthur Coffey, the Company's other Executive Vice President.
<PAGE>
EXECUTIVE COMPENSATION
The following table provides information for the past two fiscal years
concerning all compensation received by those persons who were, in
1998, the Company's Chief Executive Officer and the four other most
highly compensated executive officers of the Company (the "named
executive officers").
Summary Annual Compensation Table
Name and Position Year Salary Bonus All Other (1)
-------------------------- ---- -------- -------- -------------
Donald K. Barbieri 1998 $139,110 $ 80,224 $8,404
President/CEO 1997 88,776 256,037 7,129
Arthur M. Coffey 1998 $117,246 $ 78,734 (2) $9,991
Executive V.P./CFO 1997 76,680 211,055 8,799
Thomas M. Barbieri (3) 1998 $ 88,140 $ 73,680 $8,245
Senior V.P./Operations 1997 86,645 46,926 8,289
Richard L. Barbieri 1998 $ 92,490 $ 40,018 $5,519
Senior V.P./General 1997 79,572 50,891 6,544
Counsel
David M. Bell 1998 $ 89,391 $ 40,018 $8,909
Senior V.P./Project 1997 67,530 36,136 7,667
Design, Development and
Construction
(1) Includes contributions to the Company's 401(k) plan as well as
premiums paid with respect to such executive officer's health and
disability insurance policies.
(2) Excludes value attributed to 3,000 shares of restricted stock
granted to Arthur M. Coffey at the initial public offering (see
"1998 Employment contracts, Grants of Stock and Stock optoins and
Exercises" below).
(3) Thomas M. Barbieri was named Executive Vice President/Operations
effective January 1, 1999, at the same base salary as Arthur M.
Coffey.
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information as of March 7, 1999
regarding the Company's directors and executive officers.
NAME AGE POSITION
------------------------ --- --------------------------------
Donald K. Barbieri 53 Chairman, President and Chief
Executive Officer
Arthur M. Coffey 43 Executive Vice President, Chief
Financial Officer and Director
Thomas M. Barbieri 41 Executive Vice President
Operations and Director
Richard L. Barbieri 56 Senior Vice President, General
Counsel and Director
David M. Bell 48 Senior Vice President--Project
Design, Development and
Construction
Lori L. Farnell 44 Vice President--Sales and
Marketing
John M. Taffin 35 Vice President--Hotel Operations
Jack G. Lucas 46 Vice President--Entertainment
Peter F. Stanton 42 Director
Ronald R. Taylor 51 Director
Robert G. Templin 75 Director
Donald K. Barbieri has been President and Chief Executive Officer and
a Director of the Company since 1978 and Chairman of the Board since
1996. Mr. Barbieri joined the Company in 1969 and is responsible for
the Company's development activities in commercial, residential,
hotels and entertainment areas. Mr. Barbieri served as president of
the Spokane Chapter of the Building Owners and Managers Association
from 1974 to 1975 and served as president of the Spokane Regional
Convention and Visitors Bureau from 1977 to 1979. He also served on
the Washington Tourism Development Council from 1983 to 1985 and the
Washington Economic Development Board while chairing the State of
Washington's Quality of Life Task Force from 1985 to 1989. Mr.
Barbieri is the brother of Richard and Thomas Barbieri and the
brother-in-law of David Bell.
Arthur M. Coffey has been Chief Financial Officer and Executive Vice
President of the Company since June 1997 and a Director of the Company
since 1990. Mr. Coffey served as Chief Operating Officer of the
Company from 1990 to June 1997. Mr. Coffey has been in the hotel
business since 1971 and joined the Company in 1981. Mr. Coffey is
currently a trustee of the Spokane Area Chamber of Commerce, served as
a director of the Washington State Hotel Association from 1996 to
1997, served as director of the Spokane Regional Convention and
Visitors Bureau from 1982 to 1985 and served as president of the
Spokane Hotel Association from 1989 to 1990.
<PAGE>
Thomas M. Barbieri has been Executive Vice President Operations of the
Company since January 1, 1999, and a Director of the Company since
1985. From 1985 to 1997, Mr. Barbieri served as a Vice President of
the Company. Mr. Barbieri joined the Company in 1979 and from 1987 to
the present has overseen the management, supervision, and development
of the Company's real estate portfolio. From 1982 to 1987, Mr.
Barbieri was Operations Manager of the Company's hospitality division.
From 1979 to 1981, Mr. Barbieri was the General Manager of Cavanaughs
River Inn. He served on Washington State Governor Lowery's Real
Estate Advisory Council from 1993 to 1994, as a president of the
Downtown Spokane Association from 1992 to 1994, as a director of the
Spokane Convention and Visitors Bureau from 1983 to 1987, as a trustee
of the Spokane Area Chamber of Commerce from 1987 to 1991 and as a
director of the Spokane Economic Development Council from 1991 to
1996. Mr. Barbieri is the brother of Donald and Richard Barbieri and
the brother-in-law of David Bell.
Richard L. Barbieri has been a Senior Vice President of the Company
since September 1997, full-time General Counsel of the Company since
1995 and a Director of the Company since 1978. From 1994 to 1997, Mr.
Barbieri served as a Vice President of the Company. From 1978 to
1995, Mr. Barbieri served as outside counsel and Secretary of the
Company, during which time he was engaged in the practice of law at
Edwards and Barbieri, a Seattle law firm, and then at Riddell Williams
(now Riddell Williams/Graham & James), a Seattle law firm, where he
chaired the real estate practice group. Mr. Barbieri has also served
as chairman of various committees of the State and County Bar
Association and as a member of the governing board of the County Bar
Association. He also served as vice chairman of the Citizens'
Advisory Committee to the Major League Baseball Stadium Public
Facilities District in Seattle in 1996 and 1997. Mr. Barbieri is the
brother of Donald and Thomas Barbieri and the brother-in-law of David
Bell.
David M. Bell has been Senior Vice President--Project Design,
Development and Construction of the Company since September 1997 and a
Director of the Company since 1985. From 1985 to 1997, Mr. Bell
served as Vice President of the Company. He is in charge of new
project development, property renovations and major building
construction. Since joining the Company in 1984, Mr. Bell has been
responsible for numerous projects, including the development of the
CHC Building, the Cavanaughs at Kalispell Center hotel and the
Kalispell Center Mall, two major room tower additions to Cavanaughs
Inn at the Park and the conversion of the U.S. Bank of Washington
office building in Seattle into Cavanaughs on Fifth Avenue. Mr. Bell
is a registered Professional Engineer. Mr. Bell is the brother-in-law
of Donald, Richard and Thomas Barbieri.
Lori L. Farnell has been the Vice President--Sales and Marketing since
October 1993. Ms. Farnell joined the Company in 1981 as Director of
Sales for the hospitality division. Ms. Farnell is responsible for
directing the sales and marketing activities of the Company and the
in-house advertising and art department. Prior to joining the
<PAGE>
Company, Ms. Farnell worked as Director of Sales for the Spokane
Davenport Hotel. She is a member of the Eastern Washington University
Foundation Board, the Sacred Heart Hospital Ambassadors Board, a past
President and Woman of the Year of Executive Women International and
an active member of the Washington Society of Association Executives
and the National Tour Association.
John M. Taffin has been Vice President--Hotel Operations since
September 1997. Mr. Taffin is responsible for the Company's overall
hotel operations and directs the Company's yield management strategy.
Mr. Taffin joined the Company's hospitality division in November 1995
as a regional manager. Mr. Taffin's prior lodging experience includes
13 years of service with Red Lion Hotels, during which time he was a
general manager of various full service hotels throughout the
Northwest. Prior to September 1997, Mr. Taffin was responsible for
all aspects of operations for the Hotels located in Spokane.
Jack G. Lucas has been Vice President--Entertainment Services Division
since June 1998. Mr. Lucas joined the Company in 1987 as General
Manager for G&B Select-a-Seat. Mr. Lucas is responsible for the
overall operation and direction of the Entertainment Division, which
consists of G&B Select-a-Seat, Cavanaughs Entertainment, and the 800
Call Center. Prior to joining the Company, Mr. Lucas worked on the
management staff for the private Spokane Entertainment Facilities.
Mr. Lucas graduated from Eastern Washington University. Mr. Lucas is
a member and past President of the Spokane Central Lions Club, current
Vice President, Board of Directors, Big Brothers and Sisters of
Spokane County, Board Member of the Spokane Lilac Blind Foundation, as
well as other civic organizations within the Spokane community.
Peter F. Stanton has been a Director of the Company since April 1998.
Mr. Stanton is the Chairman, Chief Executive Officer and President of
Washington Trust Bank. Mr. Stanton has been with Washington Trust
Bank since 1982 and has served as its President since 1990, Chief
Executive Officer since 1993 and Chairman since 1997. Mr. Stanton is
also Chief Executive Officer, President and a director of W.T.B.
Financial Corporation (a bank holding company) and a director of
Northern State Bank and Reardon and Rivard & Associates (a registered
investment advisor). In addition to serving on numerous civic boards,
Mr. Stanton was president of the Washington Bankers Association from
1995 to 1996 and serves as state chairman of the American Bankers
Association for 1997 and 1998.
Ronald R. Taylor has been a Director of the Company since April 1998.
He has been a General Partner of Enterprise Partners, a venture
capital firm since April, 1998. From 1996 to 1998, Mr. Taylor has
worked as an independent business consultant. From 1987 to 1996, Mr.
Taylor was chairman, president and chief financial officer of Pyxis
Corporation (a health care services provider). He is currently a
director of Watson Pharmaceuticals, Inc. (a pharmaceutical
manufacturer), and several privately held companies.
<PAGE>
Robert G. Templin has been a Director of the Company since April 1998.
Mr. Templin has had 50 years of continuous experience in ownership,
acquisition and disposition, transaction counseling, development,
construction and management work in the lodging industry in the
Northwest. From 1962 to 1983, he was Chief Executive Officer of
Western Frontiers, a hotel operator. Since 1986, Mr. Templin has
served as governor for District II for Best Western, Inc. In 1986, he
built Templin's Resort and Conference Center. He served as president
of the Idaho Inn Keepers Association from 1975 to 1976 and president
of the Coeur d'Alene Chamber of Commerce in 1963. Mr. Templin also
served on the Government Affairs Committee of Holiday Inn, Inc. from
1981 to 1982. In addition to his responsibilities as a Director of
the Company, Mr. Templin continues to serve as a representative of
Region one of the Idaho Travel Council under the Idaho Department of
Commerce.
1998 EMPLOYMENT CONTRACTS, GRANTS OF STOCK AND
STOCK OPTIONS AND EXERCISES
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Donald
Barbieri, Arthur Coffey, Richard Barbieri, David Bell and Thomas
Barbieri which provided for 1998 base salaries of $155,000 in the case
of Donald Barbieri, $130,000 in the case of Mr. Coffey, and $96,000 in
the case of Richard Barbieri, Mr. Bell and Thomas Barbieri, subject,
in each case, to periodic increases. Each executive officer will be
eligible to receive annual bonuses as determined by the Compensation
Committee and will be entitled to participate in all existing or
future benefit plans of the Company, on the same basis as other senior
officers of the Company.
The employment agreements with these Named Executive Officers (as used
below, each an "Executive") will be substantially similar and provide
as follows. Each Executive shall serve in the position described
above through December 31, 1999, unless terminated earlier in
accordance with the terms of such agreement. Thereafter, each
agreement will automatically be renewed for additional one-year
periods, unless terminated by either party upon 120 days' notice prior
to any renewal. Each agreement may be terminated by the Company for
Cause (as defined in such agreement) or by the Executive (i) for Good
Reason (as defined in such agreement) or (ii) within six months of a
Change of Control of the Company (as defined in such agreement). If
the Executive terminates the agreement for Good Reason (or the Company
terminates the agreement without Cause) or, after the initial term
ends, unilaterally determines to not renew such Executive's agreement,
the Executive will receive a severance payment equal to two times such
Executive's total compensation in the prior year, plus a continuation
of all benefits for a two-year period, and all outstanding options of
such Executive shall become fully vested. If the Executive terminates
the agreement following a Change of Control, the severance payment
will be equal to three times such Executive's total compensation for
<PAGE>
the prior year. The Executive is required to devote his full business
time and attention to the business and affairs of the Company, except
that he may devote such reasonable amount of time, as he determines,
to (i) serving, with the approval of the Board, as a director, trustee
or member of any board or committee of any organization, (ii) engaging
in charitable and community activities, (iii) managing his personal
investments and affairs, and (iv) acting as a director and officer of
Inland Northwest Corporation, previously a wholly-owned subsidiary of
the Company; provided, however, that such activities may not involve
any material conflict of interest with the interests of the Company or
interfere materially with the performance of his duties and
responsibilities under such agreement.
Each Executive is eligible to receive a bonus under the Company's
management bonus plan or such other plan adopted from time to time.
The award and amount of such bonus shall be based upon the
Compensation Committee's determination of such Executive's actual
performance as measured against established goals. The Company has
also agreed to reimburse the Executive for any federal, state or local
excise taxes ("Excise Tax"), and any additional taxes to which he may
be subject, on any payments to the Executive from the Company as a
result of accelerated vesting of his options, up to a maximum
reimbursement equal to two times the amount of such Excise Tax.
RESTRICTED STOCK AND CERTAIN STOCK OPTION GRANTS
The Company has entered into an agreement to issue an aggregate of
55,000 restricted shares of Common Stock under the 1998 Stock
Incentive Plan (described below) to five members of senior management:
Arthur Coffey (15,000 shares), John Taffin (10,000 shares), Lori
Farnell (10,000 shares), David Peterson (10,000 shares) and Shannon
Kapek (10,000 shares). Twenty percent of each recipient's stock grant
was issued on the date of the initial public offering of the Company
and an additional twenty percent will be issued on each anniversary of
such date, provided such person is an employee of the Company at that
time.
In connection with the initial public offering of the Company, options
to purchase up to 900,000 shares of Common Stock were granted pursuant
to the 1998 Stock Incentive Plan, at an exercise price equal to the
initial public offering price of $15/share. Through December 31,
1998, the following options were granted to: Donald Barbieri (90,594
shares), Arthur Coffey (55,513 shares), Richard Barbieri (45,532
shares), Thomas Barbieri (45,419 shares) and David Bell (45,452
shares). The options have a term of ten years. Fifty percent of each
recipient's options will vest on the fourth anniversary of the date of
grant and the remaining 50% will vest on the fifth anniversary of the
date of grant. This vesting schedule will change if, beginning one
year after the option grant date, the stock price of the Common Stock
remains at the following appreciation levels (measured as a percentage
increase over the stock price at the time the option was granted) for
60 consecutive trading days:
<PAGE>
PERCENT OF OPTION
SHARE PRICE INCREASE SHARES VESTED:
-------------------- --------------
25% 25%
50% 50%
75% 75%
100% 100%
Such options shall be exercisable, subject to vesting, for ten years
from the date of grant and in all other respects shall be subject to
the terms and conditions of the 1998 Stock Incentive Plan. Vesting of
such options is also conditioned upon the holder's employment with the
Company on the scheduled vesting date. No options had been exercised
or were capable of being exercised as of December 31, 1998.
1998 STOCK INCENTIVE PLAN
In January 1998, the Board adopted the 1998 Stock Incentive Plan to
attract and retain officers, key employees and consultants.
Additional options may be granted subject to Board approval. An
aggregate of 1,200,000 shares of Common Stock, subject to adjustment
for stock splits, stock dividends and similar events, has been
authorized for issuance upon exercise of options, stock appreciation
rights ("SARs"), and other awards, including restricted or deferred
stock awards under the 1998 Stock Incentive Plan. The Compensation
Committee administers the 1998 Stock Incentive Plan and determines to
whom options, SARs, restricted stock purchase rights and other awards
are to be granted and the terms and conditions, including the number
of shares and the period of exercisability, thereof. Upon
consummation of the Offering, non-employee Directors were granted
options under the 1998 Stock Incentive Plan to purchase 10,000 shares
of Common Stock, subject to one year restriction on sale and vesting
equal percentages over five years.
The 1998 Stock Incentive Plan authorizes the grant or issuance of
various options and other awards. Nonqualified stock options
("NQSOs") may be granted for any term specified by the Compensation
Committee and will provide for the right to purchase Common Stock at a
specified price which, except with respect to NQSOs intended to
qualify as performance-based compensation under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), may be less
than fair market value on the date of grant (but not less than par
value), and may become exercisable (at the discretion of the
Compensation Committee) in one or more installments after the date of
grant. Incentive stock options may be granted only to employees and
if granted will be designed to comply with the provisions of the Code
and will be subject to restrictions contained in the Code, including
having an exercise price equal to at least 100% of fair market value
of Common Stock on the grant date and ten year restriction on their
term, but may be subsequently modified to disqualify them from
treatment as an incentive stock option. The maximum fair market value
<PAGE>
(determined on the date of grant) of shares which may be issued
pursuant to incentive stock options granted under the 1998 Stock
Incentive Plan to any individual in any calendar year may not exceed
$100,000. SARs granted by the Compensation Committee in connection
with stock options or other awards typically will provide for payments
to the holder based upon increases in the price of the Common Stock
over the exercise price of the related option or other awards, but
alternatively may be based upon other criteria such as book value.
Participants may receive dividend equivalents representing 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 Compensation Committee on an individual or group basis
and may include bonus or "phantom" stock awards that provide for
payments based upon increases in the price of the Common Stock over a
predetermined period. 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 Compensation Committee.
Deferred stock awards may be granted to partiipants, typically without
payment of consideration, but subject to vesting conditions based on
continued employment or on performance criteria established by the
Compensation Committee. Whereas purchasers of restricted stock will
have voting rights and will receive dividends prior to the time when
the restrictions lapse, recipients of deferred stock generally will
have no voting or dividend rights prior to the time when vesting
conditions are satisfied.
Payments for the shares purchased upon the exercise of options may be
in cash or, if the terms of an option so provide, with shares of
Common Stock owned by the optionee (or issuable upon exercise of the
option) or with other lawful consideration, including services
rendered.
No option, SAR or other right to acquire Common Stock granted under
the 1998 Stock Incentive Plan may be assigned or transferred by the
grantee, except by will or the laws of succession, 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, such option or right may be exercised only by the
holder.
The Compensation Committee will have the right to accelerate, in whole
or in part, from time to time, including upon a change in control of
the Company, conditionally or unconditionally, the right to exercise
any option or other award granted under the 1998 Stock Incentive Plan.
Amendments of the 1998 Plan to increase the number of shares as to
which options, SARs, restricted stock and other awards may be granted
(except for adjustments resulting from stock splits and similar
events) will require the approval of the Company's shareholders. In
all other respects, the 1998 Stock Incentive Plan may be amended,
modified, suspended or terminated by the Compensation Committee,
<PAGE>
unless such action would otherwise require shareholder approval as a
matter of applicable law, regulation or rule. Amendments of the 1998
Stock Incentive Plan will not, without the consent of the participant,
affect such person's rights under an award previously granted, unless
the award itself otherwise expressly so provides. The 1998 Stock
Incentive Plan will terminate ten years after the date the 1998 Stock
Incentive Plan was adopted by the Board and approved by the Company's
shareholders.
STOCK PRICE PERFORMANCE
The following graph depicts the Company's Common Stock price
performance relative to the performance of the Russell 2000 Composite
Index and the Standard & Poor's Lodging-Hotels Index.
Comparison of Cumulative Total Returns*
(A graph depicting a comparison of Cavanaughs to the Russell 2000 and
the S&P Lodging-Hotels which indicate the following cumulative returns
at December 31, 1998)
Initial Investment
April 3, 1998 December 31, 1998
------------------ -----------------
Cavanaughs $100.00 $71.67
Russell 2000 $100.00 87.84
S&P Lodging-Hotels $100.00 73.99
*Total return is based on $100 initial investment and reinvestment
of dividends.
The graph above assumes an investment of $100 in the Company's Common
Stock, the Russell 2000 Composite Index and the Standard & Poor's
Lodging-Hotels Index commencing April 3, 1998 and ending December 31,
1998, and assumes a reinvestment of all dividends. The Company has
not paid cash dividends on its Common Stock. Note that the Company's
Common Stock price performance on the graph above is not necessarily
indicative of future stock price performance.
RETIREMENT PLAN
The Company adopted a tax-qualified employee savings and retirement
plan (the "401(k) Plan") effective as of March 1, 1989 covering all
employees who have been employed by the Company for at least 90 days
and who are at least 21 years of age. Pursuant to the 401(k) Plan,
participants may elect to reduce their current compensation by not
less than 1.0% nor more than 15.0% of eligible compensation. The
amount of each participant's contributions to the 401(k) Plan is
partially matched by the Company based on years of service and amounts
contributed, up to 3% of a participant's earnings. The trustee under
the 401(k) Plan invests the assets of the 401(k) Plan in designated
investment options. The Company may amend the 401(k) Plan to permit
participants to designate the Company's Common Stock as an investment
option; provided, however, no more than 15% of a participant's total
<PAGE>
investments in the 401(k) Plan may be allocated to the Common Stock.
The 401(k) Plan is intended to qualify under Section 401 of the Code
so that (i) contributions to the 401(k) Plan, and the income earned on
such contributions, are not taxable to participants until withdrawn
from the 401(k) Plan and (ii) contributions by the Company are
deductible by the Company when made for income tax purposes.
CHANGE OF CONTROL ARRANGEMENTS
CERTAIN PROVISIONS OF ARTICLES AND BY-LAWS AFFECTING CONTROL
The By-Laws provide for shareholder action by written consent and the
Articles reserve to the directors the exclusive right to change the
number of directors or to fill vacancies on the Board. The Articles
also provide for the Board to be divided into three classes of
directors serving staggered three year terms. As a result,
approximately one-third of the Board will be elected each year. The
purpose and intended effect of the above described provisions in the
Articles and By-Laws are to enhance the continuity and stability of
the Company's management by making it more difficult for shareholders
to remove or change the incumbent members of the Board. Such
provisions, coupled with the ownership by existing shareholders of
approximately 60% of the Common Stock following the Offering, could
also render the Company more difficult to be acquired pursuant to an
unfriendly acquisition by an outsider by making it more difficult for
such person to obtain control of the Company and replace current
management without the approval of the Board.
WASHINGTON ANTI-TAKEOVER STATUTE
Washington law contains certain provisions that may have the effect of
delaying, deterring or preventing a takeover or change in control of
the Company. Chapter 23B.19 of the Washington Act prohibits the
Company, with certain exceptions, from engaging in certain significant
business transactions with an "acquiring person" (defined as a person
who acquires 10% or more of the Company's voting securities without
the prior approval of the Board) for a period of five years after such
acquisition. The prohibited transactions include, among others, a
merger with, disposition of assets to, or issuance or redemption of
stock to or from, the acquiring person, or otherwise allowing the
acquiring person to receive any disproportionate benefit as a
shareholder. The Company may not exempt itself from coverage of this
statute.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
Unless instructed to the contrary, it is intended that votes be cast
pursuant to the accompanying proxy for the ratification of the
appointment of PricewaterhouseCoopers LLP as auditors for the Company
for 1999. PricewaterhouseCoopers LLP has audited the accounts of the
Company for 1998. Representatives of PricewaterhouseCoopers LLP are
expected to attend the Meeting and will have an opportunity to make a
statement and/or respond to appropriate questions from stockholders.
<PAGE>
The Board of Directors recommends a vote "FOR" the ratification of the
appointment of PricewaterhouseCoopers LLP as auditors for the Company
for 1999.
In the event that the ratification of the appointment of auditors is
not made by a majority of the shares entitled to vote thereon, the
selection of other auditors will be considered by the Board of
Directors.
EXPENSES OF SOLICITATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors, and the entire cost of such solicitation will be borne by
the Company. The Company will distribute proxy materials to
beneficial owners and may solicit proxies by personal interview, mail,
telephone and telegram, and will request brokerage houses and other
custodians, nominees and fiduciaries to forward soliciting material to
the beneficial owners of the Common Stock held on the record date by
such persons.
OTHER MATTERS
The Company knows of no other matters that are likely to be brought
before the Meeting. If, however, other matters that are not now known
or determined come before the Meeting, the persons named in the
enclosed proxy or their substitutes will vote such proxy in accordance
with their judgment.
PROPOSALS OF STOCKHOLDERS
Proposals of stockholders to be considered for inclusion in the Proxy
Statement and proxy for the Company's 2000 Annual General Meeting of
Stockholders must be received by the Company's General Counsel by
November 8, 1999.
ANNUAL REPORT AND ANNUAL REPORT ON FORM 10-K
A copy of the Company's 1998 Annual Report on Form 10-K for the year
ended December 31, 1998 as filed with the Securities and Exchange
Commission is being mailed with this Proxy Statement to each
stockholder of record. Stockholders not receiving a copy of such
Annual Reports may obtain one without charge by writing or calling
Stephen Barbieri, 201 West North River Drive, Suite 100, Spokane,
Washington 99201, (509) 459-6100.
By Order of the Board of Directors
Richard L. Barbieri
General Counsel
Spokane, Washington
March 19, 1999
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14 (A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 Rule 14a-111(c) or Rule 14a-12
CAVANAUGHS HOSPITALITY CORPORATION
(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:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing y registration statement number, or the Form or Schedule
and the date of its filing.
<PAGE>
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
