<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
[Amendment No. __]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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-11(c) or Rule 14a-12
ShoLodge, Inc.
---------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
ShoLodge, Inc.
---------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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)
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:
------------------------------------------------------------------------
[ ] 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 date of filing.
1) Amount Previously Paid: _____________________________
2) Form Schedule or Registration Statement No.: ________
3) Filing Party: _______________________________________
4) Date filed: _________________________________________
<PAGE> 2
[ON SHOLODGE, INC. LETTERHEAD]
Dear Shareholder:
It is my pleasure to extend to you a cordial invitation to attend the
Annual Meeting of Shareholders of ShoLodge, Inc. to be held at 9:00 a.m. local
time on Friday, May 28, 1999 at the Sumner Suites Hotel, 330 East Main Street,
Hendersonville, Tennessee.
You are requested to read carefully the accompanying Notice of Meeting
and Proxy Statement. At the meeting, holders of common stock will be asked to
elect two directors, Helen L. Moskovitz and Richard L. Johnson, for terms of
three years each. Ms. Moskovitz has been a director of the Company since 1995.
Mr. Johnson is an executive vice president and has been a director of the
Company since 1984. The Board of Directors recommends that you vote for both of
the nominees.
We hope you will be able to attend the meeting in person. Whether you
expect to attend or not, we request that you complete and return the enclosed
proxy card in the enclosed postage-paid envelope. Your vote is important.
I look forward to seeing you on May 28, 1999.
Sincerely,
LEON MOORE
President and Chief
Executive Officer
<PAGE> 3
SHOLODGE, INC.
130 MAPLE DRIVE, NORTH
HENDERSONVILLE, TENNESSEE 37075
---------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 28, 1999
---------------
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of ShoLodge, Inc. (the "Company") will be held at 9:00 a.m.
Central Daylight Time on Friday, May 28, 1999, at the Sumner Suites Hotel, 330
East Main Street, Hendersonville, Tennessee, for the following purposes:
(1) To elect two Class II directors, each to hold office for a term of
three years and until a successor is elected and qualified; and
(2) To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on April 7, 1999
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting.
Your attention is directed to the Proxy Statement accompanying this
notice for a more complete statement regarding matters to be acted upon at the
Annual Meeting.
By the Order of the Board of Directors
BOB MARLOWE, Secretary
Hendersonville, Tennessee
April 28, 1999
YOUR REPRESENTATION AT THE ANNUAL MEETING IS IMPORTANT. TO ENSURE YOUR
REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. SHOULD YOU DESIRE TO REVOKE
YOUR PROXY, YOU MAY DO SO AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT AT ANY
TIME BEFORE IT IS VOTED.
<PAGE> 4
SHOLODGE, INC.
130 MAPLE DRIVE, NORTH
HENDERSONVILLE, TENNESSEE 37075
(615) 264-8000
---------------
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS
---------------
The accompanying proxy is solicited by the Board of Directors of
ShoLodge, Inc. (the "Company") for use at the Annual Meeting of Shareholders
(the "Annual Meeting") to be held on May 28, 1999, and any adjournments thereof,
notice of which is attached hereto. This Proxy Statement and form of proxy are
being mailed to shareholders on or about April 28, 1999.
The purposes of the Annual Meeting are to elect two Class II directors
and to transact such other business as may properly be brought before the Annual
Meeting or any adjournment thereof.
A shareholder who signs and returns a proxy may revoke the same at any
time before the authority granted thereby is exercised by attending the Annual
Meeting and electing to vote in person, by filing with the Secretary of the
Company written revocation, or by duly executing a proxy bearing a later date.
Unless so revoked, the shares represented by the proxy will be voted at the
Annual Meeting. Where a choice is specified on the proxy, the shares represented
thereby will be voted in accordance with such specification. IF NO SPECIFICATION
IS MADE, SUCH SHARES WILL BE VOTED FOR THE ELECTION OF EACH OF THE DIRECTOR
NOMINEES.
The Board of Directors knows of no other matters which are to be
brought to a vote at the Annual Meeting. If any other matter does come before
the Annual Meeting, however, the persons appointed in the proxy or their
substitutes will vote in accordance with their best judgment on such matters.
The cost of solicitation of proxies will be borne by the Company,
including expenses in connection with preparing, assembling and mailing this
Proxy Statement. Such solicitation will be made by mail, and may also be made by
the Company's regular officers or employees personally or by telephone or
telegram. The Company may reimburse brokers, custodians and nominees for their
expenses in sending proxies and proxy materials to beneficial owners. The
Company's regularly retained investor relations firm, Corporate Communications,
Incorporated, may also be called upon to solicit proxies by telephone and mail.
VOTING SECURITIES AND PROCEDURES
The Board of Directors has fixed the close of business on April 7, 1999
as the record date for the Annual Meeting. Only record holders of the Company's
stock at the close of business on that date will be entitled to notice of and a
vote at the Annual Meeting. On the record
2
<PAGE> 5
date, the Company had outstanding 7,262,910 shares of common stock, no par
value, (the "Common Stock") held of record by approximately 59 shareholders.
Holders of the Common Stock will be entitled to one vote for each share of
Common Stock so held which may be given in person or by proxy duly authorized in
writing.
The directors shall be elected by a plurality of the votes cast in the
election by the holders of the Common Stock represented and entitled to vote at
the Annual Meeting. Any other matters submitted to the shareholders shall be
approved by the affirmative vote of a majority of the shares represented and
entitled to vote at the Annual Meeting. Thus, an abstention from voting on the
directors' election will not affect the outcome of that vote while an abstention
on any other matter submitted to a shareholder vote is equivalent to a vote
against the matter. Non-votes by brokers holding shares as nominees are
disregarded in determining the number of affirmative votes required for a
matter's approval.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of April 1, 1999
(except as otherwise noted) concerning persons who are the beneficial owners of
more than five percent of the outstanding shares of the Company's Common Stock
and the Company's directors, its executive officers named in the Summary
Compensation Table, below, and all directors and executive officers as a group.
Unless otherwise indicated, each of the persons listed below has sole voting and
investment power with respect to the shares beneficially owned.
3
<PAGE> 6
<TABLE>
<CAPTION>
========================================================================================================
COMMON STOCK
- --------------------------------------------------------------------------------------------------------
NUMBER OF SHARES
NAME OF OWNER BENEFICIALLY OWNED(1) PERCENT OF OUTSTANDING SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Leon Moore(2)(3) 2,644,999 34.9%
130 Maple Drive, North
Hendersonville, Tennessee 37075
- --------------------------------------------------------------------------------------------------------
Massachusetts Financial Service Company(4) 916,209 12.3
500 Boylston Street
Boston, Massachusetts 02116
- --------------------------------------------------------------------------------------------------------
Heartland Advisors, Inc.(5) 896,632 12.0
790 North Milwaukee Street
Milwaukee, WI 53202
- --------------------------------------------------------------------------------------------------------
Richard L. Johnson(2)(6) 728,352 10.0
130 Maple Drive, North
Hendersonville, Tennessee 37075
- --------------------------------------------------------------------------------------------------------
Wellington Management Company(7) 664,656 8.9
75 State Street
Boston, Massachusetts 02109
- --------------------------------------------------------------------------------------------------------
FMR Corporation (8) 570,669 7.6
82 Devonshire Street
Boston, MA 02109-3614
- --------------------------------------------------------------------------------------------------------
Brinson Partners, Inc.(9) 435,300 5.8
209 South LaSalle Street
Chicago, IL 60604-1295
- --------------------------------------------------------------------------------------------------------
Steven P. Birdwell - -
- --------------------------------------------------------------------------------------------------------
Earl H. Sadler 100,000 1.4
- --------------------------------------------------------------------------------------------------------
Bob Marlowe(10) 66,833 0.9
- --------------------------------------------------------------------------------------------------------
Helen L. Moskovitz(11) 10,332 0.1
- --------------------------------------------------------------------------------------------------------
James M. Grout(12) 32,000 0.4
- --------------------------------------------------------------------------------------------------------
John C. Buttolph(13) 19,166 0.3
- --------------------------------------------------------------------------------------------------------
All executive officers and directors
as a group (8 persons) (2)(3)(6)(10)(11)(12)(13) 2,898,330 37.6%
========================================================================================================
</TABLE>
(1) Pursuant to applicable rules promulgated by the Securities and Exchange
Commission, a person is deemed the beneficial owner of those shares not
outstanding which are subject to options, warrants, rights or commission
privileges if that person can exercise such options, warrants, rights or
privileges within 60 days. Any such shares are deemed to be outstanding for
the purpose of computing the percentage of outstanding Common Stock owned
by such persons individually, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Includes 703,352 shares which Mr. Johnson held the presently exercisable
option to acquire from Mr. Moore at a purchase price of $5.91 per share as
of April 1, 1999. The option from Mr. Moore is exercisable at any time
through December 11, 1999, but terminates earlier in certain events.
(3) Includes 323,333 shares as to which Mr. Moore held presently exercisable
options at April 1, 1999 out of a total of 408,333 shares covered by
options granted to Mr. Moore under the Company's 1991 Stock Option Plan.
(4) As of December 31, 1998, based upon a Schedule 13G provided to the Company
by Massachusetts Financial Service Company on behalf of various investment
management subsidiaries which have acquired the shares for investment
purposes for certain of their advisory clients. Includes 900,110 shares as
to which the reporting person had sole voting power and 916,209 shares as
to which the reporting person had sole dispositive power.
(5) As of December 31, 1998, based upon a Schedule 13G provided to the Company
by Heartland Advisors which has acquired the shares for investment purposes
for certain of their advisory clients. Includes 115,187 shares as to which
the reporting person had sole voting power and 896,632 shares as to which
the reporting person had sole dispositive power.
(6) Includes 25,000 shares as to which Mr. Johnson held presently exercisable
options at April 1, 1999 out of a total of 25,000 shares covered by options
granted to Mr. Johnson under the Company's 1991 Stock Option Plan.
(7) As of December 31, 1998, based upon a Schedule 13G provided to the Company
by Wellington Management Company on behalf of various investment management
subsidiaries which have acquired the shares for investment purposes for
certain of their advisory clients. Includes
4
<PAGE> 7
zero shares as to which the reporting person had sole voting power and zero
shares as to which the reporting person had sole dispositive power.
(8) As of December 31, 1998, based upon Schedule 13G provided to the Company by
FMR Corporation which has acquired the shares for investment purposes for
certain of their advisory clients. Includes zero shares as to which the
reporting person had sole voting power and 570,669 shares as to which the
reporting person had sole dispositive power.
(9) As of December 31, 1998, based upon a Schedule 13G provided to the Company
by Brinson Partners, Inc. on behalf of various investment management
subsidiaries which have acquired the shares for investment purposes for
certain of their advisory clients. Includes zero shares as to which the
reporting person had sole voting power and zero shares as to which the
reporting person had sole dispositive power.
(10) Includes 55,833 shares as to which Mr. Marlowe held presently exercisable
options at April 1, 1999 out of a total of 90,833 shares covered by options
granted to Mr. Marlowe under the Company's 1991 Stock Option Plan and 1,000
shares owned by Mr. Marlowe's wife, as to which Mr. Marlowe disclaims
beneficial ownership.
(11) Includes 7,332 shares owned by Mrs. Moskovitz's husband, as to which Mrs.
Moskovitz disclaims beneficial ownership.
(12) Includes 28,000 shares as to which Mr. Grout held presently exercisable
options at April 1, 1999 out of a total of 70,000 shares covered by options
granted to Mr. Grout under the Company's 1991 Stock Option Plan.
(13) Shares as to which Mr. Buttolph held presently exercisable options at April
1, 1999 out of a total of 33,166 shares covered by options granted to Mr.
Buttolph under the Company's 1991 Stock Option Plan.
5
<PAGE> 8
ELECTION OF DIRECTORS
Under the terms of the Company's Amended and Restated Charter, the members
of the Board of Directors are divided into three classes, each of which serves a
term of three years. The terms of the two Class II directors expire at this
Annual Meeting, while the term of the Class III director expires at the next
annual meeting and the terms of the Class I directors expire at the annual
meeting of shareholders in the following year. Helen L. Moskovitz and Richard L.
Johnson currently serve as the Class II directors. They have been nominated for
election to a three-year term expiring at the annual meeting of shareholders to
be held in 2002.
Unless contrary instructions are received, the enclosed proxy will be voted
in favor of the election as directors of the Class II nominees. They have
consented to be candidates and to serve, if elected. While the Board has no
reason to believe that either of the nominees will be unable to accept
nomination or election as a director, if such an event should occur, the proxy
will be voted with discretionary authority for a substitute as shall be
designated by the current Board of Directors.
The following table contains certain information concerning the current
directors and executive officers of the Company, including each nominee, which
information has been furnished to the Company by the individuals named.
<TABLE>
<CAPTION>
Position (Expiration of Term as Year First Elected
Name Age Director) Director
---- --- --------- --------
<S> <C> <C> <C>
Leon Moore(1)............................... 58 President, Chief Executive Officer, 1976
Director (2000)
Richard L. Johnson.......................... 58 Executive Vice President, Director 1984
(1999)
Bob Marlowe................................. 60 Chief Accounting Officer, 1984
Secretary and Treasurer, Director
(2001)
Earl H. Sadler(1)(2)(3)..................... 76 Director (2001) 1992
Helen L. Moskovitz(1)(2)(3) ................ 62 Director (1999) 1995
James M. Grout.............................. 54 Executive Vice President N/A
Steven P. Birdwell.......................... 40 Senior Vice President and Chief N/A
Financial Officer
John C. Buttolph............................ 70 Vice President - Franchising and N/A
Development
</TABLE>
- ----------------------
(1) Executive Committee member.
(2) Audit Committee member.
(3) Compensation Committee member.
6
<PAGE> 9
The following is a brief summary of the business experience of each of the
current directors and executive officers of the Company, including the nominee.
LEON MOORE founded the Company in 1976 and has served as its
President and Chief Executive Officer and a director since that time. Mr. Moore
serves as Chairman of the Executive Committee. Mr. Moore has more than 25 years
of experience in developing and operating lodging facilities and restaurants. He
is also a director of Community Financial Group, Inc.
RICHARD L. JOHNSON has been Executive Vice President and a
director of the Company since 1984. Before joining the Company in 1984, Mr.
Johnson was a Vice President and Manager of the Industrial and Commercial Group
- -- Municipal Finance Section with J.C. Bradford & Co.
BOB MARLOWE has been Chief Accounting Officer, Secretary and
Treasurer since November 1995 and a director of the Company since 1984. From
1984 to November 1995 and from April 1, 1998 until October 1998 he served as
Chief Financial Officer, Secretary and Treasurer. Mr. Marlowe is a certified
public accountant.
EARL H. SADLER has been an owner of Sadler Brothers Trucking
and Leasing Company, Inc. since 1948. Mr. Sadler joined the Company's Board of
Directors in 1992, and is Chairman of the Compensation Committee.
HELEN L. MOSKOVITZ has been the President of Helen L.
Moskovitz & Associates, Inc., a destination management company, since 1979. Mrs.
Moskovitz joined the Company's Board of Directors in 1995.
JAMES M. GROUT was elected Executive Vice President of the
Company on April 27, 1995. From March 13, 1995 until April 27, 1995, Mr Grout
was employed by the Company as director of development. He was employed by
Shoney's, Inc. from 1980 until January 1995 in its hotel operating division,
most recently as President of Shoney's Division from February 1994 until January
1995.
STEVEN P. BIRDWELL has been Senior Vice President and Chief
Financial Officer of the Company since October 5, 1998. Prior to joining the
Company, Mr. Birdwell was most recently Chief Financial Officer of Sea Pines
Associates, Inc., a publicly held owner and operator of resort facilities on
Hilton Head Island, South Carolina. Prior to his position with Sea Pines
Associates, Inc., he served as Corporate Controller for The Landmark Group in
Atlanta, Georgia where he was responsible for financial and accounting
functions. Mr. Birdwell is a certified public accountant who has over 8 years of
public accounting experience.
JOHN C. BUTTOLPH was elected Vice President--Franchising and
Development for the Company in May 1993. Prior to that time he was Vice
President of Suites of America, Inc. from September 1991. Before joining Suites
of America, Inc., he was Vice President of Prime Motor Inns, Inc. from April
1989 to September 1991. Prime Motor Inns, Inc. filed for protection
7
<PAGE> 10
under Chapter XI of the United States Bankruptcy Code in 1990 and emerged from
the proceeding in 1992 as Prime Hospitality Corp. From December 1986 to June
1990 he was senior vice president of Howard Johnson Franchise Systems, Inc., a
subsidiary of Prime Motor Inns, Inc.
The Company pays Mr. Sadler and Mrs. Moskovitz, its
non-employee directors, each an annual retainer of $5,000 and $1,000 for each
Board of Directors' and committee meeting they attend.
The Board of Directors has an Audit Committee for the purpose
of recommending the Company's auditors, reviewing the scope of their engagement,
consulting with such auditors, reviewing the results of the audit examination,
acting as a liaison between the Board and the internal auditors and reviewing
various Company policies including those related to accounting and internal
controls matters. The Committee met four times in the fiscal year ended December
27, 1998.
The Board of Directors has a Compensation Committee for the
purpose of setting officers' salaries, formulating bonuses for the Company's
management and administering the Company's stock incentive plans. The Committee
met three times in the fiscal year ended December 27, 1998.
The Board of Directors held eight meetings and took action by
unanimous written consent without a meeting, as permitted by the Company's
Bylaws and the Tennessee Business Corporation Act, two times during the fiscal
year ended December 27, 1998. All incumbent directors attended more than 75% of
the aggregate number of meetings of the Board and of the committee or committees
on which they served that were held during the year.
8
<PAGE> 11
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table summarizes compensation earned by or paid to
the Company's Chief Executive Officer and the Company's four other executive
officers who earned $100,000 or more for the Company's last three fiscal years
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation Awards
Name and Principal Position Year Salary ($) Bonus ($) Options (#)
--------------------------- ---- ---------- --------- -----------
<S> <C> <C> <C> <C>
Leon Moore, 1998 $365,000 0 408,333(1)
President, Chief Executive Officer 1997 365,000 $160,000 75,000
1996 348,333 125,000 83,333(2)
Richard L. Johnson, 1998 $130,000 0 25,000(1)
Executive Vice President 1997 130,000 0 0
1996 123,333 0 0
John C. Buttolph, 1998 $120,000 0 33,166(1)
Vice President, Franchising and 1997 120,000 $35,000 10,000
Development 1996 114,120 25,000 23,166(2)
Bob Marlowe, 1998 $120,000 0 90,833(1)
Secretary, Treasurer and 1997 120,000 $50,000 25,000
Chief Accounting Officer 1996 113,928 25,000 40,833(2)
James M. Grout, 1998 $135,000 0 70,000(1)
Executive Vice President 1997 135,000 $30,000 25,000
1996 125,891 25,000 45,000(2)
</TABLE>
- -----------------------
(1) Includes previously granted options which were repriced on
September 23, 1998.
(2) Includes previously granted options which were repriced on
July 31, 1996.
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<PAGE> 12
The following table sets forth the number of stock options
granted to the Named Executive Officers during the fiscal year ended December
27, 1998 and the potential realizable value of the options granted, assuming the
market price of the Common Stock appreciates from the date of the options' grant
to their expiration date at the specified annual rates.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- -----------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation for
Underlying Granted to Exercise Option Term
Options Employees in Price Expiration ------------------------
Name Granted(1) Fiscal Year ($/Share) Date 5%($) 10%($)
---- ------- ----------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Leon Moore 250,000 34.6% 3.75 2/11/02 169,162 358,803
33,333 4.6% 3.75 12/7/03 33,758 74,404
25,000 3.5% 3.75 4/27/05 35,616 82,108
25,000 3.5% 3.75 7/31/06 43,416 103,417
75,000 10.4% 3.75 5/30/07 148.721 363,229
Richard L. Johnson 25,000 3.5% 3.75 2/11/02 16,916 35,880
Bob Marlowe 25,000 3.5% 3.75 2/11/02 16,916 35,880
13,333 1.8% 3.75 12/7/03 13,503 29,761
7,500 1.0% 3.75 4/27/05 10,685 24,633
20,000 2.8% 3.75 7/31/06 34,733 82,734
25,000 3.5% 3.75 5/30/07 49.574 121,076
John C. Buttolph 10,666 1.5% 3.75 12/7/03 10,803 23,809
7,500 1.0% 3.75 4/27/05 10,685 24,633
5,000 0.7% 3.75 7/31/06 8,683 20,683
10,000 1.4% 3.75 5/30/07 19,830 48,431
James M. Grout 25,000 3.5% 3.75 4/27/05 35,616 82,108
20,000 2.8% 3.75 7/31/06 34,733 82,734
25,000 3.5% 3.75 5/30/07 49,574 121,076
</TABLE>
- ---------------------
(1) All options were repriced on September 23, 1998, pursuant
to the Company's 1991 Stock Option Plan, but retained the original expiration
dates. The options have an original term of 10 years and vest at the rate of 20%
per year, commencing one year from the date of grant. Although the 1991 Stock
Option Plan allows the grant of stock appreciation rights, no such rights have
been granted to date.
10
<PAGE> 13
The following table summarizes certain information regarding stock
options exercised during the fiscal year ended December 27, 1998 and unexercised
stock options granted by the Company pursuant to its 1991 Stock Option Plan to
the Named Executive Officers and held by them at December 27, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options Held at Options at
Acquired December 27, December 27,
on Value 1998 1998(1)
Exercise Realized (Exercisable/ (Exercisable/
Name (#) ($) Unexercisable) Unexercisable)
---- ----- ----- -------------- --------------
<S> <C> <C> <C> <C>
Leon Moore 0 0 323,333/ $808,333/
85,000 212,500
Richard L. Johnson 0 0 25,000/ 62,500/
0 0
John C. Buttolph 0 0 19,166/ 47,915/
14,000 35,000
Bob Marlowe 0 0 55,833/ 139,583/
35,000 87,500
James M. Grout 0 0 28,000/ 117,915/
42,000 140,000
</TABLE>
- --------------------------
(1) Based on the last reported sale price as reported by The Nasdaq
Stock Market (National Market System) on December 24, 1998 ($6.25).
REPORT ON REPRICING OF OPTIONS
On September 23, 1998, the compensation committee (the "Committee")
of the board of directors approved the repricing of all outstanding stock
options which had an exercise price in excess of the market price of the
Company's common stock at the time of repricing. All of the unexercised options
that had been granted to officers and other employees in February 1992, December
1993, April 1995, July 1996 and May 1997 were repriced. The following table sets
forth certain information concerning outstanding stock options held by the
Company's executive officers that were repriced during fiscal 1998 which has
been the second repricing of options held by executive officers of the Company
during the last ten completed fiscal years:
11
<PAGE> 14
10-YEAR OPTIONS/SAR REPRICINGS
<TABLE>
<CAPTION>
Number of Length of
Securities Exercise Original Term
Name and Underlying Market Price of Price at Remaining at
Principal Date Options Stock at Time of Time of New Exercise Date of
Position Repriced Repriced Repricing Repricing Repricing Repricing
- -------- -------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leon Moore, 9-23-98 250,000 $3.75 $8.40 $3.75 3.4 years
President, 9-23-98 33,333 $3.75 $13.00 $3.75 4.9 years
Chief 9-23-98 25,000 $3.75 $13.00 $3.75 6.6 years
Executive 9-23-98 25,000 $3.75 $13.00 $3.75 7.8 years
Officer 9-23-98 75,000 $3.75 $13.25 $3.75 8.7 years
John C. 9-23-98 10,666 $3.75 $13.00 $3.75 4.9 years
Buttolph, 9-23-98 7,500 $3.75 $13.00 $3.75 6.6 years
Vice 9-23-98 5,000 $3.75 $13.00 $3.75 7.8 years
President, 9-23-98 10,000 $3.75 $13.25 $3.75 8.7 years
Franchising
and
Development
Bob 9-23-98 25,000 $3.75 $8.40 $3.75 3.4 years
Marlowe, 9-23-98 13,333 $3.75 $13.00 $3.75 4.9 years
Secretary, 9-23-98 7,500 $3.75 $13.00 $3.75 6.6 years
Treasurer 9-23-98 20,000 $3.75 $13.00 $3.75 7.8 years
and Chief 9-23-98 25,000 $3.75 $13.25 $3.75 8.7 years
Accounting
Officer
James M. 9-23-98 25,000 $3.75 $13.00 $3.75 6.6 years
Grout, 9-23-98 20,000 $3.75 $13.00 $3.75 7.8 years
Executive 9-23-98 25,000 $3.75 $13.25 $3.75 8.7 years
Vice
President
Richard L. 9-23-98 25,000 $3.75 $8.40 $3.75 3.4 years
Johnson,
Executive
Vice
President
</TABLE>
The Committee believed that the repricing of the options was
in the best interests of the Company and its shareholders. The options had
originally been issued under the Company's 1991 Stock Option Plan with exercise
prices determined based on the market value of the Company's common stock on the
date of original grant. At the time of repricing, the exercise prices ranged
from $8.40 to $13.25. At the time of repricing the market price had declined to
$3.75 per share. In the view of the Committee, the decline in the market price
of the Company's common stock was due in part to factors beyond the
12
<PAGE> 15
control of any individual option holder. The Committee felt that the market
price of the Company's common stock had decreased to a level at which the
options were no longer fulfilling the Committee's desire to provide incentives
to management in a manner that aligned management's compensation to shareholder
values. The Committee considered granting additional options, but decided that
in order to preserve the number of options available under the 1991 Stock Option
Plan it was preferable to reprice the existing options. Thus, the option
exercise prices were reset at $3.75 per share which was the market value of the
common stock on the date of repricing. The terms of the options and the number
of shares of common stock covered by the options was not revised.
April 23, 1999 Compensation Committee:
Earl H. Sadler, Chairman
Helen M. Moskovitz
KEY EMPLOYEE SUPPLEMENTAL INCOME PLAN
Richard L. Johnson and Bob Marlowe are covered by a Key
Employee Supplemental Income Plan. Under such plan, which is funded by insurance
policies for which the Company paid premiums totaling approximately $22,800 in
fiscal 1998, Messrs. Johnson and Marlowe are each to receive $40,000 per year
for the 15 years following his retirement and $40,000 per year until his sixty-
fifth birthday in case of disability, and his surviving spouse would receive
$40,000 for ten years in case of his death prior to age 65.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
To the Board of Directors:
The Company's Compensation Committee was first appointed on
January 15, 1992, in anticipation of the completion of the Company's initial
public offering of its Common Stock in February 1992. During the fiscal year
ended December 27, 1998, the Committee met three times. The purpose of the
Committee is to establish policies regarding executive compensation, to
determine executive compensation and to administer the Company's 1991 Stock
Option Plan.
The Committee maintains the philosophy that the compensation
of the Company's executives should be designed to motivate and reward executives
for both short-term and long-term success of the Company, although neither base
salaries nor bonuses are tied objectively to profits. The Company's executive
compensation program has focused on the use of cash bonuses and grants of stock
options to reward executives. Base salaries for executives, as a group, have not
been increased significantly during the last three fiscal years.
Bonuses are set annually by the Committee based upon
recommendations by the Chief Executive Officer and the Committee's subjective
perception of each individual executive's previous and anticipated contribution
to the Company's success. The Committee does not follow an objective bonus
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<PAGE> 16
program and no specific earnings or other criteria are set in advance by the
Committee for the purpose of determining bonuses. The actual individual bonus
awards are not subject to specific measurement criteria. As of the date of this
proxy statement, the Committee has not met to consider bonuses, if any, to be
awarded in 1999 for performance in fiscal 1998.
The Company has traditionally used stock options as a
long-term incentive program for its executives. Stock options are used because
they directly relate the amounts earned by the executives to the amount of
appreciation realized by the Company's stockholders. The Committee believes that
stock ownership and stock options held by executive management encourage
long-term performance, enhance shareholder value, and beneficially align
management's interests with the interests of the Company's shareholders. The
actual individual stock option awards, however, are not subject to specific
measurement criteria. They are based on the Chief Executive Officer's
recommendations and the Committee's subjective assessment of each executive's
performance. Options are generally granted at the fair market value of the
Company's common stock on the date of grant, exercisable in 20% intervals
annually, commencing with the first anniversary date from the date of the grant,
and generally expire 10 years after the grant date. Approximately 36% of the
Company's Common Stock is bene ficially owned by the executive officers.
Chief Executive Officer's Compensation. Mr. Leon Moore is the
founder of the Company and has served as the Company's President and Chief
Executive Officer since inception. Mr. Moore's compensation is based on the same
factors and in the same manner as other executive officers. In determining Mr.
Moore's compensation, the Committee relied on the same subjective criteria as
used in determining the compensation of the other executive officers. Mr. Moore
has not been paid a bonus for his performance in fiscal 1998. In September 1998
the Committee repriced Mr. Moore's options to $3.75, the market price of the
Company's outstanding common stock at that time. No additional options were
granted to Mr. Moore in 1998. While the amount of the stock options repriced
were not based on objective factors, the Committee believes that Mr. Moore's
incentive compensation package for 1998 rewarded Mr. Moore for his leadership
during fiscal 1998 and properly aligns Mr. Moore's compensation with the
interests of the Company's shareholders.
Section 162(m). Internal Revenue Code Section 162(m) limits
deductions for certain executive compensation in excess of $1 million. The
Compensation Committee believes that none of the compensation paid to the Named
Executive Officers is in excess of the limit of deductibility to the Company
under Section 162(m). Compensation as a result of options to be granted in the
future under the Company's 1991 Stock Option Plan may not be deductible under
Section 162(m). The Committee will consider the deductibility of future
compensation arrangements under Section 162(m) but deductibility will not be the
sole factor used by the Committee in determining appropriate levels of
compensation. Since corporate objectives may not always be consistent with the
requirements for full deductibility, it is conceivable that the Company may
enter into compensation arrangements in the future under which payments are not
deductible under Section 162(m).
April 24, 1998 Compensation Committee:
Earl H. Sadler, Chairman
Helen M. Moskovitz
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<PAGE> 17
PERFORMANCE GRAPH
Commencing on February 12, 1992 (the first day during which
the Company's Common Stock was publicly traded), the following graph
demonstrates an 83 month comparison of cumulative total stockholder returns, on
a dividend reinvested basis, for the Company, the Nasdaq Stock Market (National
Market) - U.S. Index and the Nasdaq Non-Financial Index. The table assumes $100
invested on February 12, 1992 in Common Stock of the Company, and the Nasdaq
Stock Market (National Market) and the Nasdaq Non-Financial Stocks, on a
dividend reinvested basis.
[CHART]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
2/12/92 12/27/92 12/26/93 12/25/94 12/31/95 12/29/96 12/28/97 12/27/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ShoLodge, Inc. $100.00 $135.71 $200.89 $235.12 $113.10 $151.79 $188.99 $ 74.40
- ----------------------------------------------------------------------------------------------------------------------------------
NASDAQ Stock
Market U.S.Index $100.00 $103.80 $117.43 $116.92 $170.44 $210.04 $247.67 $356.41
- ----------------------------------------------------------------------------------------------------------------------------------
NASDAQ Non-
Financial Index $100.00 $ 97.41 $110.44 $108.03 $154.33 $191.03 $215.48 $323.97
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTAIN TRANSACTIONS
During fiscal 1998 the Company purchased 14 vehicles from
Northlake Auto Mall, Inc., a corporation owned by Leon Moore, the President and
Chief Executive Officer and a director of the Company, for an aggregate purchase
price of approximately $327,000.
The Company purchases substantially all of its insurance,
including directors and officers liability, general liability, employment
practices liability, casualty, and automobile coverage, through Aon Risk
Services, Inc. of Tennessee, an insurance brokerage firm for whom the husband of
Helen L. Moskovitz, a director of the Company, serves as an officer.
All transactions in which any director, officer or principal
shareholder of the Company has, directly or indirectly, a material financial
interest will be for a bona fide business purpose, on terms no less favorable to
the Company than could be obtained from unaffiliated parties, and will be
authorized by the vote of a majority of the disinterested directors or
shareholders of the Company.
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<PAGE> 18
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As of the date this Proxy Statement is being mailed to
shareholders the Board of Directors has not met to select a firm to serve as the
Company's independent auditors for the 1999 fiscal year. Representatives of
Ernst & Young, LLP, the Company's independent auditors for the 1998 fiscal year,
are expected to be present at the shareholder's meeting and will be available to
respond to appropriate questions.
Resignation of Predecessor Auditors
On November 24, 1998, the firm of Deloitte & Touche LLP
verbally notified the Company that they were resigning as auditors of the
Company and confirmed such resignation in writing by letter dated November 30,
1998. A copy of that letter was attached as Exhibit 7.1 to the Company's Form
8-K filed with the Securities and Exchange Commission on December 2, 1998.
The reports of Deloitte & Touche LLP on the Company's
financial statements for the past two fiscal years did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting principles.
Disagreements:
In connection with the audits of the Company's financial
statements for the fiscal years ended December 28, 1997 and December 29, 1996,
and during the subsequent unaudited interim periods since 1997 Deloitte & Touche
LLP cited three disagreements on matters of accounting principles or practices
which if not resolved to the satisfaction of Deloitte & Touche LLP would have
caused Deloitte & Touche LLP to make reference to the matter in their report.
The disagreements as communicated to the Company's Audit Committee related to
the 1997 (i) accounting for profits on certain real estate transactions, (ii)
capitalization of general and administrative costs, and (iii) recording
intercompany revenues for rooms rented to construction workers. The matter of
accounting for profits on certain real estate transactions involved the question
of the timing of earnings recognition and also the allocation of cost basis
among various outparcels of land sold to third parties. The matter of
capitalization or general and administrative costs concerned the method of
allocating certain indirect costs, such as salaries and related employee
benefits, utilities, telephone expense, printing and supplies, and other
overhead expenses, to internal development costs to be capitalized. The matter
of recording intercompany revenues for rooms rented to construction workers
resulted from the Company's recording room revenues at the hotel properties
earned from the construction company subsidiary of the Company during renovation
or construction of Company-owned hotels. Management recorded adjustments
relating to each of these transactions and also restated its financial
statements for each of the quarters in fiscal 1997, as described in three Form
10-Q/A's filed on March 30, 1998 with the Securities and Exchange Commission;
Deloitte & Touche LLP indicated that the disagreements were satisfactorily
resolved. The Company's Audit Committee discussed each of these disagreements
with Deloitte & Touche LLP. The Company authorized Deloitte & Touche LLP to
respond fully to any successor independent auditing firm regarding each
disagreement. Deloitte & Touche LLP cited no disagreements in this two year
period regarding financial statement disclosure or auditing scope and procedures
which if not resolved to the satisfaction of Deloitte & Touche LLP would have
caused Deloitte & Touche LLP
16
<PAGE> 19
to make reference to the matter in their report. There were no disagreements on
any types of matters described in Regulation S-K Item 304 in 1996 or in the
subsequent unaudited interim periods since 1997.
Reportable Conditions
In addition, in connection with the 1997 audit there were six
"reportable conditions" as that term is described in Item 304(a)(1)(v)(A) of
Regulation S-K; that is, Deloitte & Touche LLP advised the Company that the
internal controls necessary for the development of reliable financial statements
were inadequate. The 1997 reportable conditions related to the following
matters: accounting structure and internal controls (which matter is considered
by Deloitte & Touche LLP to be a material weakness), accounting for certain real
estate transactions, capitalization of indirect costs associated with internal
development and construction, construction company accounting, capitalization of
interest on land under development, and accounts receivable allowance analysis.
There were four "reportable conditions" in connection with the 1996 audit; also
of the type described in Item 304(a)(1)(v)(A) of Regulation S-K. They related to
the accounting for capitalization of indirect costs associated with internal
development and construction, capitalization of construction period interest,
capitalization of pre-opening costs and accounting structure and the reporting
process. The Company's present accounting systems and internal controls appeared
to Deloitte & Touche LLP to be inadequate to ensure that transactions are
recorded and reported in conformity with generally accepted accounting
principles.
The Company's Audit Committee discussed each of these
"reportable conditions" with Deloitte & Touche LLP.
The Company authorized Deloitte & Touche LLP to respond fully
to any successor independent auditing firm regarding each reportable condition.
The Company requested Deloitte & Touche LLP to furnish a
letter addressed to the Commission stating whether it agreed with the above
statements. The letter from the former accountant dated December 2, 1998 was
filed as Exhibit 7.2 to the Company's Report on Form 8-K filed with the
Commission on December 2, 1998. A subsequent letter from the former accountant
dated December 18, 1998 and received by the Company on December 22, 1998 was
filed as Exhibit 7.2 to the Company's Report on Form 8-K/A filed with the
Commission on December 23, 1998.
Engagement of New Auditors
On December 7, 1998 the Board of Directors and the Audit
Committee of the Company approved the engagement of Ernst & Young LLP as its
independent auditors for the fiscal year ending December 27, 1998.
The Company did not consult with Ernst & Young LLP during the
fiscal year ended December 29, 1996, the fiscal year ended December 28, 1997 or
during the subsequent interim periods since 1997 with respect to the application
of accounting principles, the type of audit opinion that might be rendered on
the Company's financial statements or any matter that was the subject of a
disagreement or reportable event with the Company's former auditors.
17
<PAGE> 20
The Company requested Deloitte & Touche LLP to furnish a
letter stating whether it agreed with the above statements. A copy of that
letter, dated December 8, 1998 was filed as Exhibit 7.1 to the Company's Report
on Form 8-K filed with the Commission on December 8, 1998.
PROPOSALS OF SHAREHOLDERS
Shareholders intending to submit proposals for presentation at
the next Annual Meeting of the Company and inclusion in the proxy statement and
form of proxy for such meeting should forward such proposals to Bob Marlowe,
Secretary, ShoLodge, Inc., 130 Maple Drive, North, Hendersonville, Tennessee
37075. Proposals must be in writing and must be received by the Company prior to
January 1, 2000. Proposals should be sent to the Company by certified mail,
return receipt requested.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms
received by it, and written representations from certain reporting persons that
no Forms 5 were required for those persons, the Company believes that, during
fiscal 1998, all of its officers, directors, and greater than ten percent
beneficial owners complied with their filing requirements.
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<PAGE> 21
SHOLODGE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR USE AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD AT 9:00 A.M, CDT,
ON MAY 28, 1999.
The undersigned hereby appoints Bob Marlowe and James M.
Grout, and each of them, attorneys and proxies with full power of substitution
to vote in the name of, and as proxy for, the undersigned all the shares of
common stock of ShoLodge, Inc. (the "Company") held of record by the undersigned
on April 7, 1999, at the Annual Meeting of Shareholders of the Company to be
held at 9:00 a.m., CDT, on May 28, 1999, at the Sumner Suites Hotel, 330 East
Main Street, Hendersonville, Tennessee, and at any adjournment thereof.
(1) To elect the following two nominees as the Class II directors,
each to hold office for a term of three years and until his
successor is elected and qualified.
Helen L. Moskovitz
____ FOR the nominee listed above
____ WITHHOLD AUTHORITY to vote for the nominee
Richard L. Johnson
____ FOR the nominee listed above
____ WITHHOLD AUTHORITY to vote for the nominee
(2) In their discretion, the Proxies are authorized to consider
and take action upon such other matters as may properly come
before the meeting or any adjournment thereof.
PROPERLY EXECUTED PROXIES WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE
UNDERSIGNED. IF NO SUCH DIRECTIONS ARE GIVEN, SUCH PROXIES WILL BE VOTED FOR THE
ELECTION AS DIRECTORS OF THE NOMINEES REFERRED TO IN PARAGRAPH (1).
<PAGE> 22
The undersigned revokes any prior proxies to vote the shares covered by this
proxy.
Date: , 1999.
------------- -----------------------------------------------------
Signature
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Signature
(When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If shareholder is a corporation, corporate name should
be signed by an authorized officer and the corporate seal affixed. If
shareholder is a partnership, please sign in partnership name by authorized
persons. For joint accounts, each joint owner should sign.)
PLEASE SIGN, DATE, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED REPLY ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
