<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
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
</TABLE>
RFS Hotel Investors, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
RFS HOTEL INVESTORS, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 30, 1998
------------------------
The annual meeting of the shareholders (the "Annual Meeting") of RFS Hotel
Investors, Inc. (the "Company"), will be held at the Company's offices at 850
Ridge Lake Boulevard, Suite 220, Memphis, Tennessee, on Thursday, April 30,
1998, at 9:00 a.m., local time, for the following purposes:
1. To elect two Class II directors to serve until the Annual Meeting
of shareholders in 2001.
2. To transact such other business as may properly come before the
Annual Meeting and any adjournments thereof.
Only shareholders of the Company of record as of the close of business on
March 16, 1998, will be entitled to notice of, and to vote at, the Annual
Meeting and any adjournments thereof.
There is enclosed, as a part of this Notice, a Proxy Statement which
contains further information regarding the Annual Meeting and the nominees for
election to the Board of Directors of the Company.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE ANNUAL MEETING, YOU ARE
URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. IF YOU
ATTEND THE ANNUAL MEETING IN PERSON, YOU MAY VOTE PERSONALLY ON ALL MATTERS
BROUGHT BEFORE THE ANNUAL MEETING EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR
PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ MICHEAL J. PASCAL
MICHAEL J. PASCAL
Secretary
March 30, 1998
<PAGE> 3
RFS HOTEL INVESTORS, INC.
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is provided in connection with the solicitation of
proxies by the Board of Directors of RFS Hotel Investors, Inc. (the "Company")
for use at the annual meeting of shareholders to be held on April 30, 1998
("Annual Meeting") and at any adjournments thereof. The mailing address of the
principal executive offices of the Company is 850 Ridge Lake Boulevard, Suite
220, Memphis, Tennessee 38120. This Proxy Statement and the Proxy Form, Notice
of Meeting and the Company's annual report to shareholders, all enclosed
herewith, are first being mailed to the shareholders of the Company on or about
March 30, 1998.
THE PROXY
The solicitation of proxies is being made primarily by the use of the
mails. The cost of preparing and mailing this Proxy Statement and accompanying
material, and the cost of any supplementary solicitations, which may be made by
mail, telephone, telegraph or personally by officers and employees of the
Company, will be borne by the Company. The shareholder giving the proxy has the
power to revoke it by delivering written notice of such revocation to the
Secretary of the Company prior to the Annual Meeting or by attending the meeting
and voting in person. The proxy will be voted as specified by the shareholder in
the spaces provided on the Proxy Form or, if no specification is made, it will
be voted in accordance with the terms thereof. In voting by proxy in regard to
the election of the directors, shareholders may vote in favor of the nominees,
withhold their votes as to the nominees or withhold their votes as to a specific
nominee. Shareholders may not abstain with respect to the election of directors.
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement does not constitute the solicitation of a
proxy, in any jurisdiction, from any person to whom it is unlawful to make such
proxy solicitation in such jurisdiction. The delivery of this Proxy Statement
shall not, under any circumstances, imply that there has not been any change in
the information set forth herein since the date of the Proxy Statement.
Each outstanding share of the Company's Common Stock, $.01 par value (the
"Common Stock"), and each outstanding share of the Company's Series A Preferred
Stock ("Preferred Stock") is entitled to one vote. Cumulative voting is not
permitted. Only shareholders of record at the close of business on March 16,
1998 will be entitled to notice of and to vote at the Annual Meeting and at any
adjournments thereof. At the close of business on March 16, 1998, the Company
had outstanding 24,389,000 shares of Common Stock and 973,684 shares of
Preferred Stock. The Common Stock and the Preferred Stock vote together as a
class on all matters being submitted to shareholders at the Annual Meeting.
Under Tennessee law and the Company's Charter and Bylaws, if a majority of
the votes entitled to be cast is present at the Annual Meeting so as to
constitute a quorum, in person or by proxy, directors shall be elected by a
plurality of the votes cast.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES FOR CLASS
II DIRECTORS.
<PAGE> 4
No specific provisions of the Tennessee Business Corporation Act, the
Company's Charter or the Company's Bylaws address the issue of abstentions or
broker non-votes. Brokers holding shares for beneficial owners must vote those
shares according to the specific instructions they receive from the owners.
However, brokers or nominees holding shares for a beneficial owner may not have
discretionary voting power and may not have received voting instructions from
the beneficial owner with respect to voting on certain proposals. In such cases,
absent specific voting instructions from the beneficial owner, the broker may
not vote on these proposals. This results in what is known as a "broker
non-vote." A "Broker non-vote" has the effect of a negative vote when a majority
of the shares outstanding and entitled to vote is required for approval of a
proposal, and "broker non-votes" will not be counted as votes cast but will be
counted for the purpose of determining the existence of a quorum. Because the
election of directors is a routine matter for which specific instructions from
beneficial owners will not be required, no "broker non-votes" will arise in the
context of the election of directors. Votes "withheld" from a director-nominee
have the effect of a negative vote because a plurality of the shares cast at the
Annual Meeting is required for the election of each director.
REPORTS OF BENEFICIAL OWNERSHIP
Under federal securities laws, the Company's directors and executive
officers are required to report their ownership of the Common Stock and any
changes in ownership to the Securities and Exchange Commission (the "SEC").
These persons are also required by SEC regulations to furnish the Company with
copies of these reports. Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting persons that
no Forms 5 were required for those persons, the Company believes that during
1997 its officers and directors complied with all applicable filing
requirements.
2
<PAGE> 5
OWNERSHIP OF THE COMPANY'S COMMON STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of March 16, 1998, regarding
each person known to the Company to be the beneficial owner of more than five
percent of its Common Stock and its Preferred Stock. Unless otherwise indicated,
such shares are owned directly, and the indicated person has sole voting and
investment power.
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
COMMON STOCK PREFERRED STOCK(4)
--------------------------------- ---------------------------------
NATURE OF PERCENT OF NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS(1) BENEFICIAL OWNERSHIP CLASS(1)
- ------------------------------------ -------------------- ---------- -------------------- ----------
<S> <C> <C> <C> <C>
Boston Partners Asset Mgt., L.P........ 2,726,540(2) 11.2% -- --
One Financial Center
43rd Floor
Boston, MA 02111
Snyder Capital Management, Inc......... 1,618,100(3) 6.6% -- --
350 California Street, Suite 1460
San Francisco, CA 94104
RFS, Inc.
c/o Promus Hotel Corporation........... -- -- 973,684 100%
755 Crossover Lane
Memphis, TN 38117
</TABLE>
- ---------------
(1) Based on shares outstanding on March 16, 1998.
(2) Based on information contained in Amendment No. 2 to Schedule 13G dated
March 10, 1998 and filed with the SEC in March 1998. Boston Partners Asset
Management, L.P. reported that it has shared voting and dispositive power
with respect to the shares of Common Stock.
(3) Based on information contained in Schedule 13G dated February 12, 1997 and
filed with the SEC on February 19, 1998. Snyder Capital Management, Inc.
reported that it has sole voting power with respect to 98,300 shares of
Common Stock, shared voting power with respect to 1,414,900 shares of Common
Stock, sole depositive power with respect to 98,300 shares of Common Stock
and shared dispositive power with respect to 1,519,800 shares of Common
Stock.
(4) Each share of Preferred Stock is entitled to one vote. The Preferred Stock
and the Common Stock will vote together as a class on all matters being
submitted to shareholders at the Annual Meeting.
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of March 16, 1998 by (i) each director, (ii) each executive
officer and (iii) all directors and executive officers as a group. Unless
otherwise indicated, such shares are owned directly, and the indicated person
has sole voting and investment power.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------ -------------------- ----------
<S> <C> <C>
Robert M. Solmson(1)(2)..................................... 649,695 2.4%
J. William Lovelace(2)(3)................................... 136,100 *
Michael J. Pascal(2)(4)..................................... 108,500 *
Bruce E. Campbell, Jr.(5)(6)................................ 35,000 *
H. Lance Forsdick(5)(6)(7).................................. 448,573 1.6%
Harry J. Phillips, Sr.(7)(8)................................ 46,000 *
Michael S. Starnes(7)(8).................................... 46,600 *
John W. Stokes, Jr.(7)(8)(10)............................... 32,000 *
R. Lee Jenkins (9).......................................... 20,000 *
All Directors and Executive Officers as a Group
(9 persons)(1)(2)(3)(4)(5)(6)(7)(8)(9).................... 1,522,468 5.6%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) Includes 7,086 shares issuable to a trust of which Mr. Solmson's children
are beneficiaries and over which Mr. Solmson has sole investment and voting
power, upon the trust's exercise of rights to redeem units of partnership
interest in RFS Partnership, L.P. for shares of Common Stock (the
"Redemption Rights"), 11,500 shares owned by trusts for the benefit of Mr.
Solmson's children, 15,500 shares owned by Mr. Solmson's children, 10,000
shares owned by Mr. Solmson's wife, 5,000 shares of restricted Common Stock
which vest in October 1998 and 10,000 shares of restricted Common Stock
which vest at the rate of 5,000 shares in each of April 1998 and 1999. Prior
to vesting, Mr. Solmson is entitled to vote and receive distributions with
respect to unvested shares of restricted Common Stock. Any unvested shares
at the time Mr. Solmson ceases to be an officer will be forfeited. Also
includes 5,609 shares issuable to Mr. Solmson upon exercise of his right to
redeem units of limited partnership interest in RFS Partnership, L.P.,
155,000 shares issuable to Mr. Solmson upon exercise of vested options
granted under the Company's Amended and Restated 1993 Restricted Stock and
Stock Option Plan (the "Plan") and 20,000 shares issuable to Mr. Solmson
upon exercise of options granted under the Plan which options vest in April,
1998.
(2) Does not include 20,000, 10,000 and 5,000 shares issuable upon exercise of
options granted under the Plan in October 1993 to Messrs. Solmson, Lovelace,
and Pascal respectively, which options vest in October 1998, or 20,000,
10,000, and 10,000 shares issuable upon exercise of options granted under
the Plan in April 1994 to Messrs. Solmson, Lovelace and Pascal,
respectively, which options vest in April 1999 or 60,000, 40,000 and 60,000
shares issuable upon exercise of options granted under the Plan in February
1997 to Messrs. Solmson, Lovelace and Pascal, respectively, which options
vest at the rate of 15,000, 10,000 and 15,000 shares per year in each of
February 1999, 2000, 2001 and 2002.
(3) Includes 3,000 shares of restricted Common Stock which vest in October 1998
and 6,000 shares of restricted Common Stock which vest at the rate of 3,000
shares in each of April 1998 and 1999. Prior to vesting, Mr. Lovelace is
entitled to vote and receive distributions with respect to unvested shares
of
4
<PAGE> 7
restricted Common Stock. Any unvested shares at the time Mr. Lovelace ceases
to be an officer will be forfeited. Also includes 80,000 shares issuable to
Mr. Lovelace upon exercise of vested options granted under the Plan and
10,000 shares issuable to Mr. Lovelace upon exercise of options granted
under the Plan which options vest in April 1998.
(4) Includes 2,000 shares of restricted Common Stock which will vest in October
1998 and 4,000 shares of restricted Common Stock which vest at the rate of
2,000 shares per year in each of April 1998 and 1999. Prior to vesting, Mr.
Pascal is entitled to vote and receive distributions with respect to
unvested shares of restricted Common Stock. Any unvested shares at the time
Mr. Pascal ceases to be an officer will be forfeited. Also includes 65,000
shares issuable to Mr. Pascal upon exercise of vested options granted under
the Plan and 10,000 shares issuable to Mr. Pascal upon exercise of options
granted under the Plan which options vest in April 1998.
(5) Includes 1,000 shares of restricted Common Stock which will vest in August
1998 for Messrs. Campbell, Starnes and Stokes and January 1999 for Mr.
Phillips. Also includes 2,000 shares of restricted Common Stock issued under
the Plan which shares vest at the rate of 1,000 shares per year in each of
April 1998 and 1999 for Messrs. Campbell, Forsdick, Starnes, Stokes and
Phillips. Prior to vesting, the director is entitled to vote and receive
distributions with respect to unvested shares. Any unvested shares at the
time a director ceases to be a director will be forfeited.
(6) Includes 15,000 shares issuable upon exercise of vested options granted
under the Plan and an additional 5,000 shares issuable to each non-employee
director upon exercise of options granted under the Plan which options vest
in April 1998. Does not include 5,000 shares issuable upon exercise of
options granted under the Plan to each non-employee director which options
vest in April 1999.
(7) Includes 20,573 shares issuable to Mr. Forsdick upon exercise of his right
to redeem units of limited partnership interest in RFS Partnership, L.P.
Also includes 1,000 shares owned by Mr. Forsdick's wife.
(8) Includes 1,000 shares owned by Mr. Stokes' wife.
(9) Includes 8,000 shares of restricted Common Stock which vest at a rate of
2,000 shares in each of September 1998, 1999, 2000 and 2001. Prior to
vesting, Mr. Jenkins is entitled to vote and receive distributions with
respect to unvested shares. Any unvested shares at the time a director
ceases to be a director will be forfeited. Also includes 5,000 shares
issuable upon exercise of vested options granted under the Plan. Does not
include 20,000 shares issuable upon exercise of options granted under the
Plan, which options vest at the rate of 5,000 shares in each of September
1998, 1999, 2000 and 2001.
ELECTION OF CLASS II DIRECTORS
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
Director Meetings. The business of the Company is under the general
management of its Board of Directors as provided by the Company's Bylaws and the
laws of Tennessee, the Company's state of incorporation. The Company's Charter
requires that a majority of the Company's directors must not be officers,
directors or employees of the Company or affiliates of any advisor to the
Company, lessee of the Company's properties, or any entity which is an affiliate
of the Company ("Independent Directors"). There are presently seven directors,
including six Independent Directors. The Board of Directors holds regular
quarterly meetings during the Company's fiscal year. The Board of Directors held
nine meetings during 1997. All directors attended more than 75% of the aggregate
number of meetings of the Board of Directors and its committees on which they
served in 1997, except Messrs. Campbell and Stokes, who each attended six of
nine meetings of the Board of Directors and the meetings of the committees on
which they served.
5
<PAGE> 8
The Company presently has an Audit Committee and a Compensation Committee
of its Board of Directors. The Company may, from time to time, form other
committees as circumstances warrant. Such committees have authority and
responsibility as delegated by the Board of Directors.
Audit Committee. The Board of Directors has established an Audit
Committee, which currently consists of Messrs. Stokes and Campbell. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls. The Audit Committee
met once in 1997, with both members in attendance at that meeting.
Compensation Committee. The Board of Directors has established a
Compensation Committee, which currently consists of Messrs. Campbell, Phillips
and Starnes. Messrs. Solmson and Forsdick act as a special compensation
committee for the purpose of awarding compensation and benefits to Independent
Directors. The Compensation Committee determines compensation for the Company's
executive officers and administers the Plan as it relates to executive officers
and key employees. The Compensation Committee met twice in 1997, and all members
were present.
COMPENSATION OF DIRECTORS
Each director who is not an employee of the Company has received 10,000
restricted shares of Common Stock (except H. Lance Forsdick, who has received
5,000 shares), subject to certain restrictions, and options to acquire 25,000
shares of Common Stock. Each non-employee director's rights in such restricted
Common Stock vest at the rate of 20% per year of service, beginning one year
after the date of receipt. Each director is entitled to vote and receive
dividends paid with respect to the restricted shares of such Common Stock prior
to vesting. The options vest at the rate of 20% per year. Any unvested shares or
options at the time a non-employee director ceases to be a director will be
forfeited. In addition, the Company reimburses directors for their out-of-pocket
expenses in connection with their service on the Board of Directors. The
Directors do not receive annual or per meeting cash compensation.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH OF THE
NOMINEES FOR DIRECTOR
NOMINEES FOR CLASS II DIRECTORS
The Company's Charter divides the Board of Directors into three classes as
nearly equal in number as possible, with each class serving a term of three
years. Generally, one full class of Directors is elected by the shareholders of
the Company at each annual meeting. The Board of Directors currently has set the
number of directors constituting the Board of Directors at eight.
The Company has no Nominating Committee of its Board of Directors; the
entire Board of Directors acts in such capacity. The Board of Directors has
nominated the two present Class II directors, Messrs. Campbell and Forsdick, to
serve as Class II directors for a three year-term expiring at the Company's
Annual Meeting in 2001. The remaining members of the Board of Directors will
continue as members thereof until their respective terms expire as indicated
below or until their successors are duly elected and qualified.
6
<PAGE> 9
If any nominee becomes unavailable or unwilling to serve the Company as a
director for any reason, the persons named as proxies in the Proxy Form are
expected to consult with management of the Company in voting the shares
represented by them. The Board of Directors has no reason to doubt the
availability of either nominee, and each has indicated his willingness to serve
as a director of the Company if elected.
NOMINEES FOR ELECTION AS CLASS II DIRECTORS
(TERMS EXPIRING IN 2001)
- --------------------------------------------------------------------------------
BRUCE CAMPBELL, age 66, is Chairman of the Executive Committee of the Board of
Directors of National Commerce Bancorporation, a national bank holding company.
Mr. Campbell has held that position since 1993. Prior to 1993, Mr. Campbell was
Chairman and Chief Executive Officer of National Commerce Bancorporation,
positions he held since 1977. During such period, Mr. Campbell was also Chairman
and Chief Executive Officer of National Bank of Commerce, Memphis, Tennessee, a
wholly-owned national banking subsidiary of National Commerce Bancorporation. He
has been a director of the Company since 1993.
Committees: Audit, Compensation (Chairman)
- --------------------------------------------------------------------------------
H. LANCE FORSDICK, SR., age 58, was Chairman of the Board of RFS, Inc., lessee
of the Company's hotels, from 1974 until February 1996, when RFS, Inc. was
acquired by Doubletree Corporation. Prior to 1974, Mr. Forsdick held various
positions in the real estate and hotel development and management business. He
has been a director of the Company since 1993.
Committees: Special Compensation Committee
INCUMBENT DIRECTORS -- CLASS III
(TERMS EXPIRING IN 1999)
- --------------------------------------------------------------------------------
ROBERT M. SOLMSON, age 50, is Chairman, Chief Executive Officer and President of
the Company. He has been Chairman and Chief Executive Officer since the
Company's formation in 1993 and President from 1993 to February 1996 and since
February 1998.
Committees: Special Compensation Committee
- --------------------------------------------------------------------------------
HARRY J. PHILLIPS, SR., age 68, is Chairman of the Executive Committee of the
Board of Directors of Browning-Ferris Industries, Inc., a waste disposal
company. Mr. Phillips has held that position since 1988. Prior to 1988, Mr.
Phillips was Chairman and Chief Executive Officer of Browning-Ferris, positions
he had held for several years. He is also a director of National Commerce
Bancorporation, Morgan Keegan & Company, Inc., and Buckeye Technologies. He has
been a director of the Company since January 1994.
Committees: Compensation
- --------------------------------------------------------------------------------
R. LEE JENKINS, age 67, is also a director of National Commerce Bancorporation.
He was President of Plough, Inc. and Executive Vice President-Consumer
Operations of Schering-Plough Corporation from 1976 through 1989.
Committees: None
7
<PAGE> 10
INCUMBENT DIRECTORS -- CLASS I
(TERMS EXPIRING IN 2000)
- --------------------------------------------------------------------------------
MICHAEL S. STARNES, age 52 is Chairman of the Board, President and Chief
Executive Officer of M.S. Carriers, Inc., a truckload carrier in Memphis,
Tennessee, positions he has held since 1986. He has been a director of the
Company since 1993.
Committees: Compensation
- --------------------------------------------------------------------------------
JOHN W. STOKES, JR., age 60, is Vice Chairman of Morgan Keegan & Company, Inc.,
a position he has held since 1983. He has been an employee and director of
Morgan Keegan & Company, Inc. since 1970 and President of its Equity Capital
Markets Group since 1990. He is a director of Morgan Keegan Inc. and
O'Charley's, Inc. He has been a director of the Company since 1993.
Committees: Audit
- --------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS BETWEEN COMPANY AND DIRECTORS
Mr. Stokes, who is a director of the Company, is President of the Equity
Capital Markets Group of Morgan Keegan & Company, Inc. ("Morgan Keegan") and is
also a director of Morgan Keegan. Mr. Phillips, who is a director of the
Company, is also a director of Morgan Keegan. Morgan Keegan was the managing
underwriter of the Company's initial public offering and three subsequent public
offerings and has performed financial advisory services for the Company and has
received investment banking fees and other compensation in connection with each
of those offerings and financial advisory assignments.
FRANCHISE LICENSES
The Lessees hold all of the franchise licenses for the hotels currently
owned by the Partnership and are expected to hold all of the franchise licenses
for any subsequently acquired hotel properties leased to the Lessees. During
1997, the Partnership paid franchise license application fees for the hotels
owned by the Partnership in the aggregate amount of approximately $34,000.
8
<PAGE> 11
EXECUTIVE COMPENSATION
SUMMARY OF COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by the
Company for the last three fiscal years to those persons who: (1) served as the
Company's chief executive officer ("CEO"); (2) were the Company's only other
executive officers; and (3) two additional individuals not serving as executive
officers but whose total annual salary and bonuses exceeded $100,000
collectively, the "Named Executive Officers."
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
------------------------
COMPENSATION RESTRICTED SECURITIES
------------------- OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
- --------------------------- ----- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Solmson......... 1997 $225,000 $112,500 -- -- 75,000(3) --
Chairman of the Board 1996 225,000 112,500 -- -- --(4) --
and Chief Executive 1995 192,500 96,250 -- -- --(4) --
Officer
Minor W. Perkins.......... 1997 $225,000 $112,500 -- -- 75,000(3) --
President 1996(1) 164,375 112,500 -- 75,000(5) 200,000(6) --
1995 -- -- -- -- -- --
J. William Lovelace....... 1997 $190,000 $ 95,000 -- -- 50,000(3) --
Executive Vice President 1996 190,000 95,000 -- -- --(4) --
1995 165,000 82,500 -- -- --(4) --
Michael J. Pascal......... 1997 $165,000 $ 82,500 -- -- 75,000(3) --
Secretary, Treasurer and 1996 165,000 82,500 -- -- --(4) --
Chief Financial Officer 1995 137,500 68,750 -- -- --(4) --
William Crosby............ 1997 $115,500 $ 20,000 -- -- 25,000(3) --
Vice President 1996 110,250 30,000 -- -- -- --
1995 93,450 15,000 -- -- 25,000(9) --
Angie Mock................ 1997 $100,000 $ 25,000 -- -- 25,000(3) --
Vice President 1996(2) 46,215 12,000 -- 5,000(7) 25,000(8) --
1995 -- -- -- -- -- --
</TABLE>
- ---------------
(1) For the period April 8, 1996 (date of hire) to December 31, 1996.
(2) For the period July 8, 1996 (date of hire) to December 31, 1996.
(3) The options vest at the rate of 20% per year over five years beginning in
February 1998. See "Security Ownership of Management." Also, see "Security
Ownership of Management" for a summary of options granted in 1993 and 1994
which vested in part in 1997.
(4) See "Security Ownership of Management" for a summary of options granted in
prior years which vested in part in 1997.
(5) The shares of restricted Common Stock began to vest at the rate of 20% per
year over five years in April 1997. See "Security Ownership of Management."
(6) The options began to vest at the rate of 20% per year over five years in
April 1997. See "Security Ownership of Management."
(7) The shares of restricted Common Stock began to vest at the rate of 20% per
year over five years in July 1997.
(8) The options began to vest at the rate of 20% per year over five years in
July 1997.
(9) The options began to vest at the rate of 20% per year in January 1996.
9
<PAGE> 12
OPTION GRANTS
The following table sets forth information regarding grants of stock
options during the 1997 calendar year pursuant to the Plan:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
------------------------- OF
NUMBER OF % OF TOTAL STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
---------- ------------ --------- ---------- -------- ----------
Robert M. Solmson...... 75,000 23% $16.875 2/26/05 $604,280 $1,447,355
Minor W. Perkins....... 75,000 23% 16.875 2/26/05 604,280 1,447,355
J. William Lovelace.... 50,000 15% 16.875 2/26/05 407,853 964,903
Michael J. Pascal...... 75,000 23% 16.875 2/26/05 604,280 1,447,355
Angie Mock............. 25,000 8% 16.875 2/26/05 201,427 482,452
William Crosby......... 25,000 8% 16.875 2/26/05 201,427 482,452
</TABLE>
----------------
(1) The exercise price per share is the closing price for the Common Stock on
the New York Stock Exchange on the effective date of grant.
(2) Represents potential realizable value at assumed annual rates of stock price
appreciation over the exercise price for the options for the option term.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of
options during the Company's 1997 fiscal year by the Named Executive Officers
and regarding unexercised options at December 31, 1997. No separate share
appreciation rights were granted during 1997:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1997 DECEMBER 31, 1997
SHARES ACQUIRED ------------------------- -------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert M. Solmson.... -- -- 175,000/100,000 $825,938/$378,750
Minor W. Perkins..... -- -- 75,000/180,000 $280,938/$536,250
J. William Lovelace.. -- -- 90,000/60,000 $420,625/$220,000
Michael J. Pascal.... -- -- 75,000/75,000 $307,188/$249,063
William Crosby....... 5,000 $23,750 15,000/30,000 $ 69,688/$115,625
Angie Mock........... -- -- 10,000/40,000 $ 36,875/$147,500
</TABLE>
- ---------------
(1) Based on a per share market price of $19.9375 at December 31, 1997.
EMPLOYMENT AGREEMENTS
Effective November 18, 1997, Messrs. Solmson, Lovelace and Pascal, the
Company's three executive officers (collectively, the "Executives"), entered
into employment agreements (the "Employment Agreements") with RFS Managers,
Inc., a wholly owned subsidiary of the Company (the "Subsidiary") which provides
management services to the Company pursuant to a Management Services Agreement.
Each
10
<PAGE> 13
Employment Agreement provides for a three year term which is renewed for a new
three year term at the end of each year.
Under the Employment Agreements, in 1998 Messrs. Solmson, Lovelace and
Pascal will receive base salaries in the amounts of $231,750, $195,700 and
$169,950 respectively. In addition, the Employment Agreements provide that each
of Messrs. Solmson, Lovelace and Pascal is entitled to a cash bonus payable on
or before April 1, 1999 at the discretion of the Compensation Committee. In
addition, the Subsidiary may provide Messrs. Solmson, Lovelace and Pascal other
incentive compensation, including but not limited to, grants of stock options
and shares of restricted Common Stock, in accordance with rules and criteria
established by the Compensation Committee of the Company.
Under each Employment Agreement, termination of the officer without cause
or for death or disability requires the Subsidiary to pay the officer annual
base salary for the remainder of the three year term. In the event of voluntary
termination or termination with cause, the officer will remain subject to the
noncompetition clause in the Employment Agreement (described below). Termination
for cause includes the officer's conviction of a crime involving some act of
dishonesty or moral turpitude, theft or embezzlement or malicious infliction of
damage to the Subsidiary's or the Company's property or business opportunity,
material and intentional breach of the noncompetition covenant, continuous
neglect of duties or refusal to follow unambiguous duly adopted written
directions of the Board of the Company or abuse of alcohol, drugs or other
substances.
Each Employment Agreement terminates upon the death or disability of the
officer, and the officer is entitled to certain benefits in the event of a
termination resulting from disability. Each Employment Agreement provides that,
in the event of a termination of the officer's employment for cause or the
officer's voluntary termination, the officer may not own any interest in a hotel
property other than properties owned by the Company and the Partnership or
manage or in any other capacity engage in the acquisition, development,
operation or management of any hotel property located within 20 miles of any
hotel property owned by the Company or the Partnership for a period of two
years.
Under each Employment Agreement, in the event of the Company's termination
of an Executive's employment or the Executive's resignation for good reason
("Good Reason"), as defined below, following a change in control of the Company,
as defined below ("Change of Control"), the Executive will be entitled to a cash
amount equal to three times the Executive's average annual base salary and cash
bonus for the fiscal year in which the Change of Control occurs and the two
preceding fiscal years or, if the Executive has been employed by the Company for
less than this period of time, then the average annual base salary and cash
bonus paid or earned during the term of the Executive's employment (including
the fiscal year in which the Change of Control occurs) and to continuation of
insurance benefits, as in effect immediately prior to the Change of Control, for
one year following the termination of the Executive's employment by the Company
or the Executive's resignation for Good Reason. In addition, any unvested stock
options or restricted stock granted to the Executive under the Plan will vest
and become immediately exercisable upon a Change of Control.
A Change of Control is generally defined in the Employment Agreements to
mean (i) the acquisition by any person of securities representing 50% or more of
the Company's outstanding voting securities, (ii) a change in the majority of
the Board of Directors of the Company, unless the change is previously approved
by at least 80% of the members of the Board of Directors of the Company, (iii)
the merger of the Company with another corporation where immediately after such
merger, the persons holding a majority of the combined voting power of the
then-outstanding securities of the Company prior to the merger hold less than a
majority
11
<PAGE> 14
of the combined voting power of such company, (iv) the sale by the Company of
all or substantially all of its assets to another corporation or person where
immediately after such sale, the persons holding a majority of the
then-outstanding securities of the Company prior to the merger hold less than a
majority of the combined voting power of the Company, (v) the sale or transfer
by the Company to a non-affiliated business of the operations or assets that
generated at least two-thirds of the consolidated revenues of the Company and
its subsidiaries for the prior four quarters and (vi) the filing of a Form 8-K
by the company with the SEC disclosing that a change in control has occurred.
For purposes of the Employment Agreements, "Good Reason" is generally defined as
(i) a change in the Executive's status, position or responsibilities that does
not represent a promotion, (ii) a reduction in the Executive's base salary or
bonus, (iii) a required relocation to a location more than thirty miles away
from the Company's principal executive offices, (iv) failure to continue to
provide benefits to the Executive substantially similar to material benefits
enjoyed by material breach of the Employment Agreement by the Company and (v)
the failure of the Company to assume the Employment Agreement following the
Change of Control.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
There are no compensation committee interlocks or insider participation in
compensation decisions during 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee is responsible for setting and administering
compensation policies, fixing salaries of and awarding performance bonuses to
executive officers and determining awards of restricted stock and grants of
stock options to officers and key employees under the Plan. The Compensation
Committee of the Board of Directors is comprised of Messrs. Campbell, Phillips
and Starnes, each of whom is an Independent Director of the Company. The
Compensation Committee approved employment agreements between the Subsidiary and
the following four executive officers of the Company with annual base cash
compensation for 1997 as follows:
<TABLE>
<CAPTION>
1997 ANNUAL BASE
CASH COMPENSATION
-----------------
<S> <C>
Robert M. Solmson........................................ $225,000
Minor W. Perkins......................................... $225,000
J. William Lovelace...................................... $190,000
Michael J. Pascal........................................ $165,000
</TABLE>
Each executive officer received a bonus as set forth below:
<TABLE>
<S> <C>
Robert M. Solmson........................................ $112,500
Minor W. Perkins......................................... $112,500
J. William Lovelace...................................... $ 95,000
Michael J. Pascal........................................ $ 82,500
</TABLE>
12
<PAGE> 15
The Compensation Committee has approved employment agreements between the
Subsidiary and the following three executive officers of the Company with annual
base cash compensation for 1998 as follows:
<TABLE>
<CAPTION>
1998 ANNUAL BASE
CASH COMPENSATION
-----------------
<S> <C>
Robert M. Solmson........................................ $231,750
J. William Lovelace...................................... $195,700
Michael J. Pascal........................................ $169,950
</TABLE>
Mr. Perkins resigned his position as President of the Company effective
February 28, 1998.
The Compensation Committee believes incentive compensation should provide a
meaningful portion of the executive officers' total compensation. In addition to
the annual base cash compensation, for 1998, each executive officer named above
will be entitled to a cash bonus at the discretion of the Compensation
Committee. In addition, the Subsidiary may provide Messrs. Solmson, Lovelace and
Pascal other incentive compensation, including but not limited to, grants of
stock options and shares of restricted Common Stock, in accordance with rules
and criteria established by the Compensation Committee of the Company.
The Compensation Committee believes it is important in attracting and
retaining qualified executives to provide certain compensation benefits to such
persons in the event of a change in control of the Company. The Compensation
Committee has approved the change in control provisions of the Employment
Agreements which provide that the Executive Officers may be entitled to receive
a cash amount equal to three times their respective average annual base salaries
and cash bonuses for the fiscal year in which the Change of Control occurs and
the two preceding fiscal years or, if the Executive has been employed by the
Company for less than this period of time, then the average annual base salary
and cash bonus paid or earned during the term of the Executive's employment
(including the fiscal year in which the Change of Control occurs).
Because none of the Company's executive officers receives annual
compensation in excess of $1 million, the Company has not taken any position
with respect to the cap on tax deductibility of compensation in excess of that
amount established under the Omnibus Budget Reconciliation Act of 1993. The
Company has begun to study the impact of the cap on long-term and incentive
compensation of its executive officers and will consider implementing changes in
future years to its long-term and incentive compensation strategy in response to
the cap.
OPTION GRANTS AND RESTRICTED STOCK
The Compensation Committee believes that significant stock ownership by the
executive officers of the Company provides a major incentive to such officers to
adopt and follow corporate strategies that enhance shareholder value. In 1993,
the Compensation Committee approved the grant of stock options to acquire an
aggregate of 175,000 shares of Common Stock at an exercise price of $13.50, the
closing price of the Common Stock on the Nasdaq Stock Market on the date of
grant and approved the issuance of 50,000 shares of restricted Common Stock. In
1994, the Compensation Committee approved the grant of stock options to acquire
an aggregate of 200,000 shares of Common Stock at an exercise price of $16.63
per share, the closing price of the Common Stock on the Nasdaq Stock Market on
the date of grant and approved the issuance of an aggregate of 50,000 shares of
restricted Common Stock to the executive officers pursuant to the Plan. The 1993
and 1994 grants were made to the Company's three executive officers who served
during those years. In 1995, options to acquire an aggregate of 25,000 shares
were granted to a new officer at an exercise price of $14.625 per share, the
closing price of the Common Stock on the date of grant. In 1996, the
Compensation Committee approved the grant of 75,000 shares of restricted Common
Stock and options to purchase 200,000
13
<PAGE> 16
shares of Common Stock at an exercise price of $17.00 per share, the closing
price of the Common Stock on the Nasdaq Stock Market on the date of grant to the
Company's President, Mr. Perkins, and of 5,000 shares of Restricted Common Stock
and options to purchase 25,000 shares of Common Stock at an exercise price of
$15.625 per share, the closing price of the Common Stock on the Nasdaq Stock
Market on the date of grant to Ms. Mock in connection with their appointments as
executive officers. In 1997, options to acquire an aggregate of 325,000 shares
were granted to the Named Executive Officers at an exercise price of $16.875 per
share, the closing price of the Common Stock on the New York Stock Exchange on
the date of the grant. The options were allocated among the recipients based on
the relative positions held by each recipient and the Compensation Committee's
determination of their relative importance to the implementation of the
Company's long range plan and business strategy. The Compensation Committee
determined that it would be in the best interests of the Company and the
shareholders to provide an incentive to such officers to sustain increases in
shareholder value over an extended period; consequently, the options granted to
the officers become exercisable at a rate of 20% per year over five years and
expire if the officer leaves the Company voluntarily or is discharged for cause.
If an officer is discharged by the Company without cause, unvested options will
immediately become exercisable and will remain exercisable for a period of 30
days after such discharge, at which time they will expire. The shares of
restricted Common Stock granted to the executive officers vest at the rate of
20% per year over five years. The officers are entitled to vote and receive
distributions with respect to unvested shares of restricted Common Stock. Any
unvested shares at the time an officer ceases to be an officer will be
forfeited. Upon the resignation of Mr. Perkins, which was effective February 28,
1998, he forfeited 45,000 shares of restricted Common Stock and options to
purchase 180,000 shares of Common Stock. Upon a change of control of the
Company, any unvested shares of restricted Common Stock and any unvested options
to purchase Common Stock immediately vest.
The foregoing report has been furnished by the members of the Compensation
Committee.
COMPENSATION COMMITTEE:
Bruce E. Campbell, Jr. (Chairman)
Harry J. Phillips
Michael S. Starnes
14
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
shareholder return on the Common Stock for the period August 6, 1993 (initiation
of trading) through December 31, 1997, with the changes in the Standard and
Poor's 500 Stock Index (the "S&P 500 Index") and the SNL Securities Hotel REIT
Index for the same period, assuming a base share price of $100 for the Common
Stock and each index for comparison purposes. Total return equals appreciation
in stock price plus dividends paid, and assumes that all dividends are
reinvested. The performance graph is not necessarily indicative of future
investment performance.
The Hotel REIT Index is comprised of fourteen publicly traded REITs which
focus on investments in hotel properties.
RFS HOTEL INVESTORS, INC.
STOCK PRICE PERFORMANCE
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RFS HOTEL SNL HOTEL REITS
(FISCAL YEAR COVERED) INVESTORS, INC. S&P 500 INDEX
<S> <C> <C> <C>
08/06/93 100.00 100.00 100.00
12/31/93 141.64 105.16 147.83
12/31/94 149.19 106.54 150.23
12/31/95 187.88 146.58 197.75
12/31/96 236.84 180.09 302.17
12/31/97 258.53 240.19 396.17
</TABLE>
SHAREHOLDER PROPOSALS FOR 1999
The Board of Directors will make provision for presentation of appropriate
proposals by shareholders at the 1999 annual meeting of shareholders, provided
that such proposals are submitted by eligible shareholders who have complied
with the relevant regulations of the SEC. Shareholder proposals intended to be
submitted
15
<PAGE> 18
for presentation at the 1999 annual meeting of shareholders of the Company must
be in writing and must be received by the Company at its executive offices on or
before December 1, 1998 for inclusion in the Company's proxy statement and the
form of proxy relating to the 1999 annual meeting.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. serves as auditors for the Company and its
subsidiaries and will continue to so serve until and unless changed by action of
the Board of Directors. A representative of Coopers & Lybrand L.L.P. is expected
to be present at the Annual Meeting, will have the opportunity to make a
statement if he desires to do so and is expected to be available to respond to
appropriate questions.
OTHER MATTERS
The Board of Directors knows of no other business to be brought before the
Annual Meeting. If any other matters properly come before the Annual Meeting,
the proxies will be voted on such matters in accordance with the judgment of the
persons named as proxies therein, or their substitutes, present and acting at
the meeting.
The Company will furnish to each beneficial owner of Common Stock entitled
to vote at the Annual Meeting, upon written request to Michael J. Pascal, the
Company's Secretary, Treasurer and Chief Financial Officer, at 850 Ridge Lake
Boulevard, Memphis, Tennessee 38120, telephone (901) 767-7005, a copy of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997, including the financial statements and financial statement schedules filed
by the Company with the SEC.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ MICHAEL J. PASCAL
MICHAEL J. PASCAL
Secretary
March 30, 1998
16
<PAGE> 19
PROXY NO. OF SHARES ______
RFS HOTEL INVESTORS, INC.
850 RIDGE LAKE BOULEVARD, SUITE 220, MEMPHIS, TENNESSEE 38120
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert M. Solmson and Michael J. Pascal, or
either of them, as proxies, each with the power to appoint such person's
substitute, and hereby authorizes each of them to vote, as designated below, all
the shares of capital stock of RFS Hotel Investors, Inc. held of record by the
undersigned on March 16, 1998, at the Annual Meeting of Shareholders to be held
on April 30, 1998, or any adjournment thereof as specified below.
1. ELECTION OF DIRECTORS
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name below)
[ ]FOR ALL NOMINEES LISTED BELOW
CLASS II -- TERM EXPIRING 2001 -- BRUCE CAMPBELL AND H. LANCE FORSDICK, SR.
[ ] WITHHOLD AUTHORITY to vote for all nominees
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR DIRECTOR.
DATED: , 1998
---------------------
Please sign exactly as name
appears in left. When shares
are held by joint tenants,
both should sign. When signing
as attorney, as executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
------------------------------
Signature
------------------------------
Signature if held jointly
