<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>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
EQUITY INNS, 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
PRELIMINARY PROXY MATERIALS
EQUITY INNS, INC.
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 29, 1997
------------------------
The annual meeting of shareholders (the "Annual Meeting") of Equity
Inns, Inc. (the "Company") will be held at the Homewood Suites, 7855 Wolf River
Parkway, Germantown, Tennessee, on Tuesday, April 29, 1997 at 10:00 a.m.,
Central Time, for the following purposes:
1. To elect one Class III director to serve on the Board of
Directors until the Company's annual meeting of shareholders
in 2000 or until his successor has been duly elected and
qualified;
2. To consider and vote upon a proposal to amend Article 14 of
the Company's Amended and Restated Charter (the "Charter") to
provide, in effect, that nothing contained therein will
prohibit the settlement of any transaction entered into
through the facilities of any national securities exchange
registered under the Securities Exchange Act of 1934 (the
"Exchange Act") or on the national market system of a national
securities association registered under the Exchange Act
("Proposal Two");
3. To consider and vote upon a proposal to amend the Company's
1994 Stock Incentive Plan (the "1994 Plan") to increase the
maximum aggregate number of shares of Common Stock that may be
issued under the 1994 Plan pursuant to awards of restricted
stock and in full or partial settlement of awards of
performance shares from 100,000 to 350,000 ("Proposal Three");
and
4. 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 10, 1997 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 of Annual Meeting, a Proxy
Statement, which contains further information regarding the Annual Meeting, the
nominee for election as Class III director to the Board of Directors and
Proposal Two and Proposal Three.
BY ORDER OF THE BOARD OF DIRECTORS
HOWARD A. SILVER, SECRETARY
Memphis, Tennessee
March 26, 1997
IMPORTANT
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE
ANNUAL MEETING ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ACCOMPANYING PROXY
IN THE ENCLOSED ENVELOPE. SHAREHOLDERS WHO
ATTEND THE ANNUAL MEETING MAY VOTE IN PERSON
EVEN IF THEY HAVE ALREADY SENT IN A PROXY.
<PAGE> 3
PRELIMINARY PROXY MATERIALS
EQUITY INNS, INC.
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 29, 1997
GENERAL INFORMATION
This Proxy Statement and the accompanying Form of Proxy and Notice of
Annual Meeting is provided in connection with the solicitation of proxies by the
Board of Directors of Equity Inns, Inc. (the "Company"), for use at the annual
meeting of the Company's shareholders (the "Annual Meeting") to be held at the
Homewood Suites, 7855 Wolf River Parkway, Germantown, Tennessee, on Tuesday,
April 29, 1997 at 10:00 a.m., Central Time and at any adjournments thereof. The
mailing address of the principal executive offices of the Company is 4735
Spottswood, Suite 102, Memphis, Tennessee 38117. This Proxy Statement and the
Proxy Form and Notice of Annual Meeting, all enclosed herewith, are first being
mailed to the shareholders of the Company on or about March 26, 1997.
THE COMPANY
The Company is a Tennessee corporation organized as a self-administered
real estate investment trust ("REIT") to acquire equity interests in hotel
properties. The Company completed its initial public offering ("IPO") of its
common stock, $.01 par value (the "Common Stock") on March 1, 1994 and completed
three follow-on public offerings of Common Stock (the "Follow-On Offerings") in
July 1994, July 1995 and April 1996. The Company contributed the net proceeds
from the IPO and the Follow-On Offerings to Equity Inns Partnership, L.P. (the
"Partnership"). Effective January 1, 1995, the Company transferred its
then-92.3% equity interest in the Partnership to Equity Inns Trust, a
wholly-owned subsidiary of the Company (the "Trust"), and the Trust became the
sole general partner of the Partnership. The Company presently owns, through the
Trust, an approximately 96.7% equity interest in the Partnership.
The Company has elected to be taxed as a real estate investment trust
("REIT") beginning with the year ended December 31, 1994. In order to qualify as
a REIT under federal tax provisions, neither the Company, the Partnership nor
the Trust can operate hotels. Prior to November 15, 1996, the Company's hotels
were leased to Trust Leasing, Inc. (formerly named McNeill Hotel Co., Inc.)
("Trust Leasing"). Effective November 15, 1996, all of the leases for the
Company's hotels were assigned to Crossroads/Memphis Partnership, L.P. The
Partnership currently owns 52 hotels, 48 of which are leased to
Crossroads/Memphis Partnership, L.P. (the "New Lessee") and four of which are
leased to Crossroads/Future Company, L.L.C. (the "Future Lessee") (the New
Lessee and Future Lessee being, collectively, the "Lessees") pursuant to
separate percentage lease agreements which provide for rent payments equal to
the greater of (i) fixed base rent or (ii) percentage rent based in part on the
revenues of the hotels (the "Percentage Leases"). The Lessees are wholly owned
subsidiaries of Interstate Hotels Company, a publicly owned hotel management
company ("Interstate").
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 the
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 Company has retained Corporate
Communications, Inc. to aid in the solicitation of proxies and to verify certain
records related to the solicitation of proxies at a fee of approximately $4,000
plus reimbursement of normal expenses.
<PAGE> 4
The shareholder of record giving the proxy has the power to revoke it
either by delivering written notice of such revocation to the Secretary of the
Company before the Annual Meeting or by attending the Annual 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
favor of the nominee for director and Proposal Two and Proposal Three. In voting
by proxy in regard to the election of one Class III director to serve until the
annual meeting of shareholders in 2000 or until his successor is duly elected
and qualified, shareholders may vote in favor of the nominee or withhold their
votes as to the nominees. Shareholders may not abstain with respect to the
election of directors. With regard to the proposal to amend Article 14 of the
Company's Charter ("Proposal Two") and the proposal to amend the Company's 1994
Stock Incentive Plan (the "1994 Plan") ("Proposal Three"), shareholders may vote
in favor of the proposal, against the proposal or abstain from voting with
respect to each proposal.
Management of the Company requests that each shareholder promptly vote,
sign and return a proxy card as soon as possible. Beneficial owners of the
Company's shares of Common Stock held in the name of a broker or other
intermediary may vote and revoke a previous vote only through, and in accordance
with, procedures established by the record holder(s) or their agent(s).
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 is entitled to one
vote. Only shareholders of record at the close of business on March 10, 1997
(the "Shareholders") will be entitled to notice of, and to vote at, the Annual
Meeting and any adjournments thereof. At the close of business on March 10,
1997, the Company had outstanding 23,693,278 shares of Common Stock.
REQUIRED VOTE
Under Tennessee law and the Company's Charter and Bylaws, if a majority
of the votes entitled to be cast are present at the Annual Meeting, in person or
by proxy, so as to constitute a quorum, (1) with respect to Proposal One
concerning the election of the Class III director, a plurality of all the votes
cast voting in favor of the nominee will elect the nominee for director and (2)
with respect to Proposal Two and Proposal Three, if the votes cast in favor of
the proposal exceed the votes cast in opposition to the proposal, the proposal
will be approved. Shareholders may not abstain from voting with respect to the
election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE FOR CLASS III
DIRECTOR AND FOR PROPOSAL TWO AND PROPOSAL THREE.
No specific provisions of the Tennessee Business Corporation Act or the
Company's Charter or Bylaws address the issue of abstentions or broker
non-votes. Abstentions will not be counted "for" or "against" proposals, but
will be counted for the purpose of determining the existence of a quorum.
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 of
the shares. 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
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<PAGE> 5
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 proposal relating to the election of
directors. Votes "withheld" from a director-nominee also have the effect of a
negative vote since 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, and any persons beneficially owning more than ten percent of a
registered class of the Company's equity securities, are required to report
their ownership of the Common Stock and any changes in that 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. Specific
due dates for these reports have been established, and the Company is required
to report in the Proxy Statement any failure to timely file such reports by
those due dates by its directors and executive officers during the 1996 fiscal
year.
Based solely upon its review of the reports furnished to the Company or
written representations from the Company's directors and executive officers that
such reports were not required from those persons, the Company believes that all
of these filing requirements were satisfied by the Company's directors and
executive officers during 1996.
OWNERSHIP OF THE COMPANY'S COMMON STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information, as of December 31, 1996
regarding each person known to the Company to be the beneficial owner of more
than five percent (5%) of its outstanding Common Stock. Unless otherwise
indicated, such shares of Common Stock are owned directly and the indicated
person has sole voting and investment power.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OF BENEFICIAL PERCENT OF
OWNER OWNERSHIP CLASS (1)
<S> <C> <C>
Heartland Advisors, Inc. 1,667,850 (2) 7.0%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
</TABLE>
- -----------------------------
(1) Based on shares of Common Stock outstanding on December 31,
1996.
(2) Based on information contained in Schedule 13G dated December
31, 1996 and filed with the SEC on February 14, 1997.
Heartland Advisors, Inc. reported that it has sole voting
power with respect to 1,418,750 shares of Common Stock and
sole dispositive power with respect to 1,667,850 shares of
Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock, as of January 31, 1997, by (i) each director and
director nominee, (ii) each executive officer and (iii) all directors
and executive
3
<PAGE> 6
officers as a group. Unless otherwise indicated, such shares of Common Stock are
owned directly and the indicated person has sole voting and investment power.
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL
OWNERSHIP
--------- PERCENT OF CLASS
----------------
<S> <C> <C>
Phillip H. McNeill, Sr. 952,724(1)(2) 3.9% (1)
James A. Thomas, III 112,575(3)(4) *
William W. Deupree, Jr. 22,000(3) *
Joseph W. McLeary 9,500(3) *
David L. Levine 84,311(5)(6) *
Howard A. Silver 35,607(7)(8) *
Phillip H. McNeill, Jr. 8,034(9) *
J. Ronald Cooper 6,070(10) *
Connie O. Parker 1,500(11) *
All directors and 1,232,321(1)(2) 5.1% (1)
executive officers as a (3)(4)(5)(6)(7)
group (9 persons) (8)(9)(10)(11)
</TABLE>
- -----------------------
* Represents less than 1% of the outstanding Common Stock.
(1) Includes 678,540 units of partnership interest in the Partnership
("Units") held by Mr. McNeill or his affiliates, which Units are
redeemable at the option of Mr. McNeill at any time pursuant to
redemption rights ("Redemption Rights"). The Units are redeemable on a
one-for-one basis for shares of Common Stock or, at the Company's
option, an equivalent amount of cash. The total number of shares
outstanding used in calculating the percentage of class assumes that
none of the Units held by other persons are redeemed for shares of
Common Stock.
(2) Includes: (a) 4,400 shares owned by Mr. McNeill's wife; (b) 6,600
shares owned by Mr. McNeill's children; (c) 15,218 shares owned by
McNeill Investment Company, Inc.; (d) 10,000 shares issued in December
1996 to Mr. McNeill under the 1994 Plan and which are subject to
certain vesting requirements over a five-year period from the date of
grant; and (e) 409,330 shares issuable to Mr. McNeill, 189,495 shares
issuable to W/S, Inc., and 79,715 shares issuable to McNeill-Sullivan
Hospitality Corporation upon the exercise of Redemption Rights. Mr.
McNeill owns 90% of the capital stock of W/S, Inc. and 100% of the
capital stock of McNeill Investment Company, Inc. and McNeill-Sullivan
Hospitality Corporation. Includes 156,000 shares issuable upon the
exercise of vested options granted under the 1994 Plan. Excludes
234,000 shares of Common Stock subject to options granted to Mr.
McNeill under the 1994 Plan, which options vest with respect to 78,000
shares in each of July 1997, 1998 and 1999.
(3) Includes an aggregate of 5,000 shares issued to each Independent
Director in March 1994 subject to certain restrictions. Such shares
began vesting with each Independent Director at the rate of 1,000
shares per year beginning in 1994. Any restricted shares not vested
when an Independent Director ceases to be a director will be forfeited.
Each Independent Director will be entitled to vote and receive the
dividends paid on such shares prior to vesting. Includes 2,000 shares
issuable upon the exercise of vested options granted to each director
under the Company's Non-Employee Directors' Stock Incentive Plan (the
"Directors' Plan"). Does not include 1,000 shares of Common Stock
subject to options granted to each Independent Director under the
Directors' Plan in each of April 1997, 1998 and 1999.
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<PAGE> 8
(4) Includes (a) 1,200 shares owned by Mr. Thomas' wife, as to which shares
Mr. Thomas disclaims beneficial ownership; (b) 7,375 shares owned by
Mr. Thomas' daughters, as to which shares Mr. Thomas disclaims
beneficial ownership; and (c) 11,030 shares in investment accounts over
which Mr. Thomas has or shares voting power and dispositive power.
(5) Includes (a) 7,500 shares issued in December 1996 to Mr. Levine under
the 1994 Plan and which are subject to certain vesting requirements
over a five-year period from the date of grant, and (b) 344 shares
owned by Mr. Levine's wife.
(6) Includes 60,000 shares issuable upon the exercise of vested options
granted under the 1994 Plan. Excludes 90,000 shares of Common Stock
subject to options granted to Mr. Levine under the 1994 Plan, which
options vest with respect to 30,000 shares in each of July 1997, 1998
and 1999.
(7) Includes (a) 7,500 shares issued in December 1996 to Mr. Silver under
the 1994 Plan and which are subject to certain vesting requirements
over a five-year period from the date of grant, and (b) 1,640 shares
owned by Mr. Silver's wife.
(8) Includes 18,000 shares issuable upon the exercise of vested options
granted under the 1994 Plan. Excludes 27,000 shares of Common Stock
subject to options granted to Mr. Silver under the 1994 Plan, which
options vest with respect to 9,000 shares in each of July 1997, 1998
and 1999.
(9) Includes 6,701 shares issuable upon the exercise of Redemption Rights.
(10) Includes 3,070 shares owned by Mr. Cooper's adult children, as to which
shares Mr. Cooper disclaims beneficial ownership.
(11) Includes 6,000 shares issuable upon the exercise of vested options
granted under the 1994 Plan. Excludes 9,000 shares of Common Stock
subject to options granted to Ms. Parker under the 1994 Plan, which
options vest with respect to 3,000 shares in each of July 1997, 1998
and 1999.
PROPOSAL ONE - 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 required 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 or
employees of the Company or affiliates of any advisor to the Company under an
advisory agreement, any lessee of the Company's property, any subsidiary of the
Company or any partnership which is an affiliate of the Company ("Independent
Directors"). There are presently four directors, including three Independent
Directors. The Board of Directors held five meetings during 1996, and all of the
Company's directors attended those meetings, except Mr. Deupree, who attended
all but one of those meetings.
The Company presently has an Audit Committee and a Compensation
Committee of its Board of Directors. The Company has no standing Nominating
Committee of the Board of Directors, with the entire Board of Directors acting
in such capacity. 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 the three Independent Directors, Messrs.
Thomas, Deupree, and McLeary. The Audit Committee makes
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<PAGE> 9
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 1996, and all of its members attended that meeting.
Compensation Committee. The Board of Directors has established a
Compensation Committee which currently consists of the three Independent
Directors. The Compensation Committee determines compensation for the Company's
executive officers, establishes salaries of and awards of performance-based
bonuses to the Company's executive officers, and determines awards of restricted
stock and grants of stock options under the Company's stock plans. The
Compensation Committee met once in 1996, and all of its members attended that
meeting.
COMPENSATION OF DIRECTORS
The Company currently pays no cash compensation to its directors. Each
non-employee director receives, upon being elected a director, 5,000 shares of
Common Stock subject to certain restrictions. Such shares vest with each
director at the rate of 1,000 shares per year of service, beginning with the
commencement of service as a director. Each non-employee director is entitled to
vote and receive dividends paid with respect to the restricted shares of Common
Stock prior to vesting. Any non-employee director who ceases to be a director
will forfeit any restricted shares not previously vested. Messrs. Thomas,
Deupree and McLeary each has received 5,000 restricted shares of Common Stock
which vest at the rate of 1,000 shares per year. In addition, effective April
18, 1995 under the Directors' Plan, each non-employee director receives an
option to purchase 1,000 shares effective the date of the first meeting of the
Board of Directors following each annual meeting of the Company's shareholders.
The option price is the fair market value of the Common Stock on the effective
date of grant. The Company reimburses directors for their out-of-pocket expenses
in connection with their service on the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE FOR CLASS III
DIRECTOR.
NOMINEE FOR CLASS III DIRECTOR
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. One class of directors is elected by the shareholders of the Company at
each annual meeting. The Board of Directors has set at four the number of
directors constituting the current Board of Directors, one of whom will be
elected at the Annual Meeting.
The Company has no Nominating Committee of its Board of Directors, with
the entire Board of Directors acting in such a capacity. The Board of Directors
has nominated the present Class III director, Joseph W. McLeary, to serve as
Class III director for a three-year term expiring at the Company's annual
meeting of shareholders in 2000. 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 elected and qualified.
If the 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 the nominee, and he has expressed his willingness to serve as a
director of the Company if elected by the shareholders at the Annual Meeting.
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<PAGE> 10
NOMINEE FOR ELECTION AS CLASS III DIRECTOR
(TERM EXPIRING 2000)
- --------------------------------------------------------------------------------
JOSEPH W. MCLEARY, age 57, is Chairman and Chief Executive Officer of
Midland Financial Group, Inc., a publicly owned automobile insurance company,
positions he has held since 1987. From 1984 to 1987, he was president of McLeary
& Co., a company organized to manage a privately-held investment fund engaged in
the acquisition of small businesses in the Memphis, Tennessee area. From 1969 to
1983, he was President and Chief Financial Officer and a Director of Cook
International, Inc., a publicly owned agricultural commodities firm. Prior to
1969, he was employed by the Federal Reserve Bank of Atlanta. He has been a
director of SCB Computer Technology, Inc., a computer consulting corporation
whose shares are traded on the Nasdaq Stock Market, since January 1996. Mr.
McLeary has been a director of the Company since February 1994.
COMMITTEES: Audit, Compensation
- --------------------------------------------------------------------------------
INCUMBENT DIRECTORS - CLASS II
(TERMS EXPIRING 1999)
- --------------------------------------------------------------------------------
JAMES A. THOMAS, III, age 56, is Chairman of the Board of NewSouth
Capital Management, Inc., a registered investment advisory firm in Memphis,
Tennessee which manages approximately $1.6 billion in investment assets, a
position he has held since January 1985. He is a director of First Commercial
Bank of Memphis and a member of the Board of Trustees of Rhodes College. Mr.
Thomas has been a director of the Company since February 1994.
COMMITTEES: Audit, Compensation
- --------------------------------------------------------------------------------
WILLIAM W. DEUPREE, JR., age 55, is a Managing Director of Morgan
Keegan & Company, Inc. and its parent company Morgan Keegan, Inc., a New York
Stock Exchange listed company, positions he has held since 1985. Mr. Deupree
joined Morgan Keegan & Company, Inc. in 1972 and served as its President from
1985 to 1996. He is also a director of NSA International, Inc., a provider of
water filtration devices. He is a member of the Regional Firms Advisory
Committee of the New York Stock Exchange, as well as a member of the Board of
Directors for the Securities Industry Association. Mr. Deupree has been a
director of the Company since February 1994.
COMMITTEES: Audit, Compensation
- --------------------------------------------------------------------------------
INCUMBENT DIRECTOR -- CLASS I
(TERM EXPIRING 1998)
- --------------------------------------------------------------------------------
PHILLIP H. MCNEILL, SR., age 58, is Chairman of the Board of Directors
and Chief Executive Officer of the Company and has been President of McNeill
Investment Company, Inc., a diversified real estate firm, since 1977. Mr.
McNeill has also been Chairman of McNeill Hospitality Corporation since 1984.
From 1963 to 1977, he served in various capacities, including President and
Chief Executive Officer, with Schumacher Mortgage Company, Inc., a mortgage
banking firm and subsidiary of Time, Inc. Mr. McNeill has served as President
and Director of the Memphis Mortgage Bankers Association and the Tennessee State
Mortgage Bankers Association and has been a director of National Bank of
Commerce since January 1997. He has been Chairman of the Board, Chief Executive
Officer and Director of the Company since its founding in 1993. Mr. McNeill has
been a director of the Company since February 1994.
COMMITTEES: None
8
<PAGE> 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS BETWEEN COMPANY AND DIRECTOR
Mr. Deupree, who is a Director of the Company, is a Managing Director
of Morgan Keegan & Company, Inc. ("Morgan Keegan") and was President of Morgan
Keegan from 1985 to 1996. Morgan Keegan was the lead managing underwriter of the
Company's IPO and first two Follow On Offerings and was a co-managing
underwriter of the third Follow-On Offering and received investment banking fees
and other compensation in connection with those public offerings. Morgan Keegan
has also received fees in connection with providing financial advisory services
to the Company.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Company and the Partnership have entered into a number of
transactions with affiliates of Phillip H. McNeill, Sr., Chairman of the Board
and Chief Executive Officer of the Company.
Trust Leasing. Prior to November 15, 1996, Mr. McNeill was the sole
shareholder of Trust Leasing (formerly known as McNeill Hotel Company, Inc.)
which was the lessee of all of the hotel properties owned by the Partnership.
Effective November 15, 1996, Trust Leasing assigned its rights under each of the
existing Percentage Leases to the New Lessee, and the Partnership and the New
Lessee amended and restated the Percentage Leases in a Consolidated Lease
Amendment including amendments which increased the term of each then-existing
Percentage Lease from 10 years to 15 years. The Company, the Partnership and the
Lessees also entered into a master agreement (the "Master Agreement") which
provides for, among other things, a right of first refusal for the Future Lessee
to lease hotel properties acquired by the Company through November 2001. Future
leases between the Partnership and the Future Lessee will contain provisions
substantially similar to the Consolidated Lease Amendment. Pursuant to the terms
of the Percentage Leases, Trust Leasing was required to pay to the Partnership
the greater of (i) a fixed base rent or (ii) percentage rent based on the
revenues of the hotels and certain other additional charges and is entitled to
all profits from the operation of the hotel properties after the payment of
operating and other expenses. For the period November 15, 1996 through December
31, 1996, lease payments by the Lessees to the Partnership aggregated $3,085,218
under the Percentage Leases, and the Lessees had net income for such period of
$2,116,264. For the period January 1, 1996 through November 15, 1996, lease
payments by Trust Leasing to the Partnership aggregated $31,555,981 under the
Percentage Leases. In addition, Trust Leasing paid a $750,000 consulting fee to
Trust Management, Inc., formerly named McNeill Hospitality Corporation, which is
wholly owned by Mr. McNeill.
Contribution of Assets of Lessee to Crossroads/Memphis. Effective
November 15, 1996, Trust Leasing transferred and assigned its assets, including
all leases between Trust Leasing and the Partnership, to the New Lessee pursuant
to a Contribution Agreement dated October 4, 1996 (the "Contribution Agreement")
by and among Trust Leasing, Trust Management, Inc., formerly named McNeill
Hospitality, Inc. ("Trust Management"), the New Lessee and the Future Lessee.
Such transfer was made in exchange for units of limited partnership interest in
the New Lessee. The sole general partner of the New Lessee is a wholly-owned
subsidiary of Interstate, and Trust Leasing and Trust Management are the only
limited partners of the New Lessee. With limited exceptions, the sole general
partner of the New Lessee exercises full, complete and exclusive discretion in
management and control of the New Lessee, with Trust Leasing and Trust
Management having no participation or control over the business of the New
Lessee. The 1,957,684 partnership units of the New Lessee received by Trust
Leasing and Trust Management, which are equal to an approximate 50% limited
partnership interest in the New Lessee, in exchange for the contribution of
their assets to the New Lessee are redeemable and exchangeable, at the option of
Trust Leasing and Trust Management, on a one-for-one basis, for shares of Common
Stock of Interstate. Prior to redemption Trust Leasing's and Trust Management's
interests in the New Lessee are not entitled to distributions of income from the
New Lessee. Trust Management is wholly owned by Phillip McNeill, Sr. and Trust
Leasing is majority owned by Mr. McNeill. Messrs. Levine, Silver and McNeill,
Jr. own minority interests in Trust Leasing.
9
<PAGE> 12
Rights of First Refusal and Options. The Partnership has a right of
first refusal to acquire a Homewood Suites hotel currently under development by
affiliates of Mr. McNeill in Germantown, Tennessee, and five Hampton Inn hotels
owned by affiliates of Mr. McNeill located in Destin, Florida; Southaven,
Mississippi; Highland, North Carolina; Pickwick, Tennessee; and San Antonio,
Texas. The rights of first refusal require that before a property is sold to a
person or entity other than the Partnership, the seller must first offer the
property to the Partnership on the same terms and conditions as the proposed
sale to a third party. Mr. McNeill owns a 25% or less interest in each entity
from which the Partnership has obtained such a right of first refusal. Mr.
McNeill also has agreed to grant the Partnership a similar right of first
refusal, as well as an option, on any future hotel developments controlled by
affiliates of Mr. McNeill, including a Hampton Inn hotel proposed for
development in Collierville, Tennessee. The option will provide that the Company
or the Partnership may purchase any such hotel at any time 12 months after the
opening of the hotel for a price determined by appraisal. Management currently
anticipates that any property developed by an affiliate of Mr. McNeill will have
achieved stabilized operating performance and cash flows prior to the
Partnership considering the purchase of such property. The Partnership's
decision with respect to whether to exercise its rights of first refusal or
options will be made by a majority of the Independent Directors. On March 11,
1997, the Partnership acquired the Hampton Inn-Pickwick, Tennessee (the
"Pickwick Hotel") and the Hampton Inn - Southaven, Mississippi (the "Southaven
Hotel") for purchase prices (including cash and Units paid by the Partnership in
connection with such acquisitions) of approximately $2.1 million and $4.4
million, respectively. Such hotels were constructed by partnerships in which Mr.
McNeill owned a 50% and 15% interest, respectively. The Pickwick Hotel and the
Southaven Hotel were constructed for amounts aggregating approximately $5.3
million.
Franchise Licenses. Prior to November 15, 1996, Trust Leasing held all
of the franchise licenses for the hotels owned to such date by the Partnership
and leased by Trust Leasing. Since November 15, 1996, the Lessee currently holds
all of the franchise licenses for the hotels currently owned by the Partnership
and leased by the Lessee and is expected to hold all of the franchise licenses
for hotel properties subsequently acquired by the Partnership. During the year
ended December 31, 1996, the Partnership paid franchise license application fees
to franchisors for the hotels in the aggregate amount of approximately $340,447.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid or accrued by a
wholly owned subsidiary of the Company for the last fiscal year to those persons
who (1) served as the Company's chief executive officer ("CEO") and (2) were the
Company's only other executive officers during the fiscal year ended December
31, 1996. Because none of the below-listed officers was paid cash compensation
by the Company prior to December 31, 1994, the following table reflects cash
compensation paid during each of the years ended December 31, 1995 and 1996.
Effective January 1, 1995, each of the below-listed executive officers became an
employee of a wholly-owned subsidiary of the Company.
10
<PAGE> 13
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
Name and Restricted Securities All
Principal Position (1) Year Salary($) Bonus($) Stock Underlying Other
---------------------- ---- --------- -------- Awards($) Options(5) Compensation
--------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Phillip H. McNeill, Sr. 1996 $225,000 ___ $122,500(4) 390,000 ___
Chairman of the Board
and Chief Executive Officer 1995 $175,000 $120,842(2) ___ 390,000 ___
David L. Levine 1996 $140,000(1) ___ $ 91,875(4) 150,000 $6,462(1)
President and Chief
Operating Officer 1995 $110,000 $118,957(3) ___ 150,000 ___
Howard A. Silver 1996 $135,000(1) ___ $ 91,875(4) 45,000 $6,231(1)
Vice President, Secretary,
Treasurer and Chief 45,000
Financial Officer 1995 $100,000 $118,957(3) ___ ___
</TABLE>
- ---------------
(1) Includes benefits accrued under the Equity Inns, Inc. Executive Deferred
Compensation Plan (the "Deferral Plan"). Under the Deferral Plan,
participants may defer up to 25% of their base salary, bonus or both. A
matching contribution paid by the Company, equal to the lesser of the
amount deferred or 10% of base salary, is also credited to each
participant's account. For 1996, Messrs. Levine and Silver deferred $6,462
and $6,231, respectively. For 1996, matching contributions paid by the
Company of $6,462 and $6,231 were credited to the accounts of Messrs.
Levine and Silver, respectively.
(2) A portion of this bonus, awarded to the executive officer pursuant to the
Company's 1995 bonus pool (the "1995 Bonus Pool"), was paid in shares of
the Company's Common Stock. The executive officer received 8,866 shares of
Common Stock, which had an aggregate fair market value of $104,175.50 on
the date of issuance (January 4, 1996) and a cash payment of $16,667.
(3) A portion of this bonus, awarded to the executive officer pursuant to the
1995 Bonus Pool, was paid in shares of the Company's Common Stock. The
executive officer received 8,067 shares of Common Stock, which had an
aggregate fair market value of $94,787 on the date of issuance (January 4,
1996) and a cash payment of $24,170.
(4) As of December 11, 1996 (the "Date of Grant"), 10,000, 7,500 and 7,500
restricted shares of Common Stock were awarded to Messrs. McNeill, Levine
and Silver, respectively, subject to vesting. The awards vest with respect
to 60% of the shares on the third anniversary of the Date of Grant and at
the rate of an additional 20% per year on each of the fourth and fifth
anniversaries of the Date of Grant; provided, however, that (i) if the
total assets of the Company 30 days prior to the first anniversary of the
Date of Grant equal or exceed the total assets as of the Date of Grant,
the shares shall vest at the rate of 20% per year on each of the first
through fifth anniversaries of the Date of Grant, and (ii) if the average
fair market value (defined as being the highest closing price of the
Common Stock on the New York Stock Exchange, determined 30 days prior to
the second anniversary of the Date of Grant, equals or exceeds such fair
market value as of the first anniversary of the Date of Grant, the shares
shall vest at the rate of 40% per year on the second anniversary of the
Date of Grant and at 20% on each of the third through fifth anniversaries
of the Date of Grant. Prior to vesting, the recipients will have the right
to receive dividends with respect to such shares.
(5) The stock options were awarded pursuant to the 1994 Plan and vest at the
rate of 20% per year over a five-year period commencing on July 6, 1995.
The exercise price per share is $12.50, the closing price of the Common
Stock on the Nasdaq Stock Market (the market on which the Common Stock was
traded until September 9, 1996) on July 6, 1994, the effective date of
grant.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES IN LAST FISCAL AND YEAR-END OPTION VALUES
The following table sets forth information regarding the exercise of
options during the Company's 1996 fiscal year by its three most
highly-compensated executive officers and regarding unexercised options at
December 31, 1996. No separate stock appreciation rights ("SARs") were granted
during the Company's 1996 fiscal year.
<TABLE>
<CAPTION>
Number of Shares
Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year-End Fiscal Year-End(1)
--------------- ------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C>
Phillip H. McNeill, Sr. --- --- 156,000/234,000 $78,000/$117,000
David L. Levine --- --- 60,000/90,000 $ 30,000/$45,000
Howard A. Silver --- --- 18,000/27,000 $ 9,000/$13,500
</TABLE>
- ---------------
(1) Represents the aggregate of the number of options multiplied by the
difference between $13.00, the fair market value of the Common Stock at
December 31, 1996, and $12.50, The exercise price for the options.
No stock options were granted to the Company's executive officers during
1996. All stock options shown above were granted on July 6, 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION ON
COMPENSATION DECISIONS
Mr. Deupree, an Independent Director and a member of the Compensation
Committee of the Company, is a Managing Director of Morgan Keegan and was
President of Morgan Keegan from 1985 to 1996. Morgan Keegan was the lead
managing underwriter of the Company's IPO and first two Follow-On Offerings and
was a co-managing underwriter of the third Follow-On Offering and received
investment banking fees and other compensation in connection with those public
offerings.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for establishing and
administering compensation policies, establishing salaries of and awarding
performance-based bonuses to the Company's executive officers, and determining
awards of restricted stock and grants of stock options under the Company's stock
plans. The Compensation Committee's policy is to devise and implement
compensation for the Company's officers and employees which shall be
commensurate with their position and determined with reference to compensation
paid to similarly situated employees and officers of companies which are deemed
by the Compensation Committee to be comparable to the Company. The Compensation
Committee of the Board of Directors is comprised of Messrs. Thomas, Deupree and
McLeary. No members of the Compensation Committee are employees or officers of
the Company.
12
<PAGE> 15
BASE COMPENSATION AND BONUSES
The Compensation Committee approved the payment of annual base salaries to
the Company's executive officers, through a wholly-owned subsidiary of the
Company, effective January 1, 1996, as follows:
<TABLE>
<CAPTION>
Executive Officer Annual Base Salary
----------------- ------------------
<S> <C>
Phillip H. McNeill, Sr. $225,000
Chairman of the Board and
Chief Executive Officer
David L. Levine $150,000
President and Chief
Operating Officer
Howard A. Silver $145,000
Vice President of Finance,
Secretary and Chief
Financial Officer
</TABLE>
In addition to the above-listed annual base compensation for 1995, the
Compensation Committee approved and implemented a bonus award procedure for 1996
to grant performance shares (the "1996 Performance Shares") under the 1994 Plan,
subject to the meeting of certain performance goals, to the Company's executive
officers. The 1996 Performance Shares were to be earned, if at all, based on the
achievement of certain levels of percentage increase in the Company's funds from
operations per share ("FFO"). The National Association of Real Estate Investment
Trusts ("NAREIT") defines FFO as being net income, computed in accordance with
generally accepted accounting principles, excluding gains or losses from debt
restructurings and sales of property, plus depreciation of real property
(including furniture and equipment) and after adjustments for unconsolidated
partnerships and joint ventures). The grant of 1996 Performance Shares would be
calculated as being a number of shares of the Company's Common Stock having a
fair market value on the date of settlement equal to 125% multiplied by 20% of
the FFO in excess of the amount needed to attain an FFO level (before the grant
of such bonus) of $1.50 per share. No 1996 Performance Shares would be earned if
1996's FFO (before the grant of such bonus) is less than $1.32 per share, and
the maximum level of payout would be earned if 1996's FFO is at least $1.50 per
share. Because 1996's FFO per 1996 was equal to 1995 at $1.22 per share, no
grant of Performance Shares was earned in 1996. The Compensation Committee will
determine annually a similar bonus plan for the Company's officers, with any
future stock bonus awards to be issued to the executive officers through the
1994 Plan.
Although none of the Company's executive officers receives annual
compensation in excess of $1 million, the Company continues to study the cap on
tax deductibility of compensation in excess of that amount established under the
Omnibus Budget Reconciliation Act of 1993. The Company has taken steps to allow
for the grant of stock options and certain other stock incentive awards that
qualify as performance-based compensation exempt from the cap.
RESTRICTED STOCK AWARDS
As of December 11, 1996 (the "Date of Grant"), the Compensation Committee
awarded 10,000, 7,500 and 7,500 shares of Common Stock (the "Restricted Stock"),
subject to certain vesting requirements, to each of Messrs. Phillip H. McNeill,
Sr., Levine and Silver, respectively. The Restricted Stock awards vest with
respect to 60% on the third anniversary of the Date of Grant and at the rate of
an additional 20% per year on each of the fourth and fifth anniversaries of the
date of grant; provided, however, that (i) if the total assets of the Company 30
days prior to the first anniversary of the Date of Grant equal or exceed the
total assets as of the Date of Grant, the Restricted Stock shall vest at the
rate of 20% per year on each of the first through fifth anniversaries of the
Date of Grant, and (ii) if the average fair market value (defined as being the
highest closing price of the Common Stock on the New York Stock Exchange (the
"NYSE"), on which exchange the Common Stock is traded) as determined 30 days
prior to the second anniversary of the Date of Grant equals or exceeds such fair
market value as of the first anniversary of the Date of Grant, the Restricted
Stock shall vest at the rate of 40% per year on the second anniversary of the
Date of Grant and at 20% on each of the third through fifth anniversaries of the
Date of Grant.
13
<PAGE> 16
CHIEF EXECUTIVE OFFICER COMPENSATION
In determining the appropriate compensation for Phillip H. McNeill, Sr.,
the Company's chief executive officer, the Compensation Committee is guided by
the Company's performance, competitive practices, and the Compensation
Committee's policy, as discussed above, of determining compensation with
reference to the compensation paid to similarly situated executives of
comparable companies. Appropriate adjustments in the compensation of the
Company's chief executive officer are considered concurrently with similar
adjustments made for the Company's other executive officers.
In reviewing and approving Mr. McNeill's total cash compensation package
for the 1996 fiscal year, the Compensation Committee reviewed cash compensation
levels for the chief executive officers of many publicly traded REITs with
comparable levels of capitalization as reported by the National Association of
Real Estate Investment Trust's 1995 Executive Compensation Survey. The
Compensation Committee proposed a base salary slightly higher than the median
range for many comparable REITs for the Company's chief executive officer for
the 1996 fiscal year. The Compensation Committee adopted and approved $225,000
as the appropriate base salary to be paid to Mr. McNeill during the 1996 fiscal
year.
The bonus award procedure discussed above under "Base Compensation and
Bonuses" will be applied to Mr. McNeill and the Company's other executive
officers in 1997.
This report has been furnished by the members of the Compensation
Committee.
James A. Thomas, III
William W. Deupree
Joseph W. McLeary
14
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the change in the Company's shareholder
return on the Company's Common Stock for the period February 23, 1994, which was
the first day the Company's Common Stock traded on the Nasdaq Stock Market,
through December 31, 1996, with the changes in the Standard & Poor's 500 Stock
Index (the "S&P 500 Index") and the National Association of Real Estate
Investment Trust Equity Index (the "NAREIT Equity Index") for the same period,
assuming a base share price of $100 for the Common Stock and each index for
comparative 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.
<TABLE>
<CAPTION>
Period Ending
------------------------------------------------------------------------------------------------------------
Index 2/22/94 6/30/94 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Inns, Inc. 100.00 140.25 113.15 117.00 115.61 119.49 133.49 133.55 151.34 139.74 155.30
S&P 500 100.00 95.21 99.86 99.85 109.57 120.03 129.57 137.37 144.74 151.22 155.90
NAREIT Equity Index 100.00 99.17 97.14 97.16 96.99 102.70 107.54 111.99 114.54 119.63 127.46
<CAPTION>
Period Ending
-------------
Index 12/31/96
- -------------------------------------
<S> <C>
Equity Inns, Inc. 164.99
S&P 500 168.77
NAREIT Equity Index 151.49
</TABLE>
15
<PAGE> 18
PROPOSAL TWO - AMENDMENT TO ARTICLE 14 OF CHARTER
The Board of Directors has approved and recommends to the Shareholders
that they adopt amendments to Article 14 of the Charter, in the form attached as
Exhibit A hereto. Article 14 of the Charter currently contains provisions (the
"Share Transfer Restrictions") that restrict the transfer of shares of the
Company's capital stock if, following such transfer, any person would own at any
time, directly or indirectly, in the aggregate more than 9.9% of the outstanding
shares of capital stock of the Company (including any shares deemed to be
constructively owned by such persons under applicable provisions of the Internal
Revenue Code). The Share Transfer Restrictions, which are similar to provisions
found in the charter documents of many REITs, are designed to help the Company
monitor compliance with certain REIT tax law requirements, which provide that
not more than 50% of the Company's outstanding capital stock can be owned,
directly or indirectly, by five or fewer persons.
The Board of Directors has approved and recommends to the Shareholders
that they approve and adopt an amendment to the Charter that would add a new
paragraph (k) to Article 14. The proposed amendment provides in its entirety as
follows:
(k) Securities Exchange Transactions. Nothing in this Article 14 or
this Charter shall prohibit the settlement of any transaction entered into
through the facilities of any national securities exchange registered
under the Securities Exchange Act of 1934 (the "Exchange Act") or of the
national market system of a national securities association registered
under the Exchange Act. The immediately preceding sentence shall not limit
the authority of the Board of Directors to take any and all actions it
deems necessary or advisable to protect the Corporation and the interests
of its shareholders in preserving the Corporation's status as a REIT, so
long as such actions do not prohibit the settlement of any transactions
entered into through the facilities of any national securities exchange
registered under the Exchange Act or of the national market system of a
national securities association registered under the Exchange Act.
In addition, the phrase "and Section 14(k)" would be added to the first sentence
in paragraph (d) of Article 14 of the Charter following the phrase "Except as
provided in Section 14(e) ...".
The proposed paragraph (k) clarifies that nothing in the Charter would
prohibit the settlement of any transaction entered into through the facilities
of any national securities exchange registered under the Exchange Act or of the
national market system of a national securities association registered under the
Exchange Act, while maintaining the authority of the Board of Directors of the
Company to take all action necessary to maintain the Company's status as a REIT
for federal income tax purposes.
Prior to September 9, 1996, the Company's Common Stock was traded on the
Nasdaq Stock Market. Since such date, the Company's Common Stock has been traded
on the NYSE. The Board of Directors believes it is important to assure the
investment community and the NYSE that the Share Transfer Restrictions in the
Charter which are designed to protect the Company's status as a REIT do not
prohibit the settlement of any transactions through the facilities of such
exchange. Furthermore, the Company has been advised that the NYSE currently
requires a REIT having share transfer restrictions to clarify that such
restrictions will not prohibit settlement of any transactions entered into
through the NYSE. Adoption of Proposal Two would place the Company in compliance
with the listing requirements of the NYSE regarding REIT share transfer
restrictions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF PROPOSAL TWO.
16
<PAGE> 19
PROPOSAL THREE - AMENDMENT TO 1994 PLAN
INCREASE SHARES ISSUABLE UNDER RESTRICTED STOCK AND PERFORMANCE SHARE AWARDS
The Board of Directors adopted the 1994 Plan to provide incentives to
attract and retain executive officers and key employees. The 1994 Plan was
approved by the Company's shareholders at the annual meeting of shareholders on
April 18, 1995. The Board of Directors adopted, and at the annual meeting of
shareholders on May 7, 1996, the shareholders of the Company subsequently
approved, an amendment to the 1994 Plan to increase the maximum aggregate number
of shares of Common Stock issuable under the 1994 Plan from 700,000 to
2,300,000. The Board of Directors proposes that the shareholders approve an
increase in the maximum number of shares of Company Stock that may be issued
under the 1994 Plan pursuant to awards of restricted stock and in full or
partial settlement of awards of performance shares from 100,000 to 350,000. The
proposed amendment does not increase the aggregate number of shares issuable
under the 1994 Plan but merely allocates within the 1994 Plan an additional
250,000 shares to be available for awards of restricted stock and performance
shares. The proposed amendment was adopted by the Board of Directors on March 5,
1997, subject to the approval of the Company's shareholders.
The proposed amendment to the 1994 Plan will be approved by the
shareholders, if a quorum is present at the Annual Meeting, if the number of
votes cast in favor of the amendment (Proposal Three) exceeds the number of
votes cast in opposition to the amendment.
The following paragraphs summarize the more significant features of the
1994 Plan. The summary is subject, in all respects, to the terms of the 1994
Plan. The Company will provide promptly, upon request and without charge, a copy
of the full text of the 1994 Plan to each person to whom a copy of this proxy
statement is delivered. Requests should be directed to Equity Inns, Inc.,
Attention: Corporate Secretary, 4735 Spottswood, Suite 102, Memphis, Tennessee
38117.
SUMMARY OF THE 1994 PLAN
Purpose and Administration. The 1994 Plan is administered by the
Compensation Committee. The Compensation Committee may delegate its authority to
administer the 1994 Plan to one or more officers of the Company. The
Compensation Committee may not, however, delegate its authority with respect to
grants and awards to individuals subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act"). As used in this summary, the term
"Administrator" means the Compensation Committee and any delegate, as
appropriate.
The Administrator generally has the authority, within limitations
described in the 1994 Plan, (i) to establish rules and policies concerning the
1994 Plan, (ii) to determine the persons to whom stock options, stock
appreciation rights ("SARs") and awards of restricted stock and performance
shares may be granted, (iii) to fix the number of shares of Common Stock to be
covered by each award, and (iv) to set the terms and provisions of each award.
Eligibility. Each employee of the Company or an affiliate, including an
employee who is a member of the Board, is eligible to participate in the 1994
Plan. The Administrator will select the individuals who will participate in the
1994 Plan ("Participants") but no person may participate in the 1994 Plan while
he is a member of the Compensation Committee. The Administrator may, from time
to time, grant options, SARs, restricted stock awards, or performance shares to
Participants. No Participant may be granted, in any calendar year, options that
cover more than 390,000 shares of Common Stock or SARs that cover more than
390,000 shares of Common Stock. Options that are granted with related SARs shall
be treated as a single award for purposes of applying the limitation in the
preceding sentence. No Participant may be issued, in any calendar year, more
than 100,000 shares of Common Stock pursuant to an award of restricted stock or
Performance Shares with respect to more than 100,000 shares of Common Stock.
17
<PAGE> 20
Stock Options. Options granted under the 1994 Plan may be incentive stock
options ("ISOs") or nonqualified stock options. A stock option entitles a
Participant to purchase shares of Common stock from the Company at the option
price. The option price may be paid in cash, with shares of Common Stock, or
with a combination of cash and Common Stock. The option price will be fixed by
the Administrator at the time the option is granted, but the price cannot be
less than the shares' fair market value on the date of grant. The exercise price
of an ISO granted to any Participant who is a Ten Percent Shareholder (as
defined below) may not be less than 110% of the fair market of the shares of
Common Stock on the date of grant. A Participant is a Ten Percent Shareholder if
he owns, or is deemed to own, more than ten percent of the total combined voting
power of all classes of stock of the Company or an affiliate. A Participant is
deemed to own any voting stock owned (directly or indirectly) by the
Participant's spouse, brothers, sisters, ancestors and lineal descendants. A
Participant and such persons are also considered to own proportionately any
stock owned (directly or indirectly) by or for a corporation, partnership,
estate or trust of which the Participant or any such person is a shareholder,
partner or beneficiary. An ISO must expire within ten years from the date of
grant except that the term of an ISO that is granted to a Ten Percent
Shareholder may not be longer than five years. Moreover, no Participant may be
granted ISOs or related SARs (under all incentive stock option plans of the
Company and its affiliates) which are first exercisable in any calendar year for
stock having an aggregate fair market value (determined as of the date that the
ISO was granted) that exceeds $100,000.
SARs. SARs may be granted in relation to option grants ("Corresponding
SARs") or independently of option grants. The difference between these two types
of SARs is that to exercise a Corresponding SAR, the Participant must surrender
unexercised that portion of the stock option to which the Corresponding SAR
relates and vice versa. SARs entitle the Participant to receive a payment based
on a formula determined by the Administrator and set forth in an Agreement. In
the absence of such a determination, the Participant will be entitled to receive
the excess of the fair market value of a share of Common Stock on the date of
exercise over the initial value of the SAR. The initial value of an SAR that is
granted independently of an option is the fair market value of a share of Common
Stock on the date of grant. The initial value of a Corresponding SAR is the
option price per share of the related option. The amount payable upon the
exercise of an SAR may be paid in cash, Common Stock, or a combination of the
two.
Restricted Stock Awards. Participants also may be awarded shares of Common
Stock pursuant to a restricted stock award. A Participant's rights in a
restricted stock award shall be nontransferable or forfeitable or both unless
certain conditions prescribed by the Administrator, in its discretion, are
satisfied. These conditions may include, for example, a requirement that the
Participant continue employment with the Company for a specified period or that
the Company or the Participant achieve stated performance-related objectives
including, without limitation, earnings per share of Common Stock, the Company's
return on assets, or the fair market value of a share of Common Stock. In cases
where these conditions are performance-related, the vesting period shall be at
least one year. In all other cases, vesting shall not occur sooner than three
years after the award date.
Performance Share Awards. The 1994 Plan also provides for the award of
performance shares. A performance share award entitles the Participant to
receive a payment equal to the fair market value of a specified number of shares
of Common Stock if certain standards are met. The Administrator will prescribe
the requirements that must be satisfied before a performance share award is
earned. By way of example and not limitation, those standards may be based on
the fair market value of a share of Common Stock, the Company's return on assets
or earnings per share of Common Stock. To the extent that performance shares are
earned, the obligation may be settled in cash, in Common Stock, or by a
combination of the two. The period in which performance is measured shall be at
least one year.
Share Authorization. All awards made under the 1994 Plan will be evidenced
by written agreements between the Company and the Participant. A maximum of
2,300,000 shares of Common Stock may be issued under the 1994 Plan. The maximum
aggregate number of shares of Common Stock that may be issued under the 1994
Plan pursuant to awards of restricted stock and in full or partial settlement of
awards of performance shares presently
18
<PAGE> 21
is 100,000. If approved by the Company's shareholders, the proposed amendments
to the 1994 Plan would increase the maximum number of shares of Common Stock
that may be issued under the 1994 Plan pursuant to awards of restricted stock
and in full or partial settlement of awards of performance shares from 100,000
to 350,000. These share limitations and the terms of outstanding awards shall be
adjusted, as the Compensation Committee deems appropriate, in the event of a
stock dividend, stock split, combination, reclassification, recapitalization or
other similar event.
Awards. On July 6, 1994, the Compensation Committee granted options to
acquire an aggregate of 600,000 shares of Common Stock, at an exercise price of
$12.50 per share, to the following persons. Phillip H. McNeill, Sr. received an
ISO covering 37,500 shares of Common Stock and a nonqualified stock option
covering 352,500 shares of Common Stock; David L. Levine received an ISO
covering 37,500 shares of Common Stock and a nonqualified option covering
112,500 shares of Common Stock; Howard A. Silver received an ISO covering 37,500
shares of Common Stock and a nonqualified option covering 7,500 shares of Common
Stock; and Connie O. Parker received an ISO covering 15,000 shares of Common
Stock. Each option (both ISOs and nonqualified options) became exercisable for
20% of the shares covered by such option on each of July 6, 1995 and July 6,
1996, and will become exercisable with respect to an additional 20% of the
shares on July 6 in each of 1997 through 1999. All options are exercisable
until July 5, 2002.
On January 15, 1996, the Compensation Committee granted Phillip H.
McNeill, Sr. a nonqualified stock option to acquire 35,000 shares of Common
Stock, at an exercise price of $12.50 per share. The option became exercisable
for 20% of the shares covered by the option on January 15, 1997, and will become
exercisable for an additional 20% of the shares on January 15 in each of 1998
through 2001. The option is exercisable until January 14, 2004.
On December 11, 1996 (the "Date of Grant"), the Compensation Committee
awarded 10,000, 7,500 and 7,500 shares of restricted stock, subject to certain
vesting requirements, to each of Messrs. Phillip H. McNeill, Sr., Levine and
Silver, respectively. The restricted stock awards vest with respect to 60% on
the third anniversary of the Date of Grant and at the rate of an additional 20%
per year on each of the fourth and fifth anniversaries of the date of grant;
provided, however, that (i) if the total assets of the Company 30 days prior to
the first anniversary of the Date of Grant equal or exceed the total assets as
of the Date of Grant, the restricted stock shall vest at the rate of 20% per
year on each of the first through fifth anniversaries of the Date of Grant, and
(ii) if the average fair market value (defined as being the highest closing
price of the Common Stock on the NYSE) as determined 30 days prior to the second
anniversary of the Date of Grant equals or exceeds such fair market value as of
the first anniversary of the Date of Grant, the restricted stock shall vest at
the rate of 40% per year on the second anniversary of the Date of Grant and at
20% on each of the third through fifth anniversaries of the Date of Grant.
Except for the foregoing awards of options, restricted stock and
performance shares, neither the number of individuals who will be selected to
participate in the 1994 Plan nor the type or size of awards that will be
approved by the Compensation Committee can be determined. The Company is also
unable to determine the number of individuals who would have participated in the
1994 Plan or the type or size of awards that would have been made under the 1994
Plan if the proposed amendments to the 1994 Plan had been in effect in 1995.
Termination and Amendment. No option or SAR may be granted and no
restricted stock or performance shares may be awarded under the 1994 Plan after
July 5, 2004. The Board may amend or terminate the 1994 Plan at any time, but an
amendment will not become effective without shareholder approval if the
amendment materially increases the aggregate number of shares that may be issued
under the 1994 Plan, changes the eligibility requirements, or increases the
benefits that may be provided under the 1994 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF PROPOSAL THREE.
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<PAGE> 22
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
The Board of Directors will provide for presentation of proposals by the
Company's shareholders at its annual meeting of shareholders for 1998, provided
that such proposals are submitted by eligible shareholders who have complied
with the relevant regulations of the SEC regarding shareholder proposals and the
Company's By-Laws, a copy of which is available upon written request from the
Secretary of the Company. Shareholder proposals intended to be submitted for
presentation at the Company's annual meeting of shareholders for 1998 must be in
writing and must be received by the Company at its executive offices on or
before January 7, 1998 for inclusion in the Company's proxy statement and the
form of proxy relating to the 1998 annual meeting; provided, however, that if
the 1998 annual meeting is advanced by more than 30 days or delayed for more
than 60 days from the date of the first anniversary of the 1997 annual meeting,
such written notice must be received by the Company no earlier than the 90th day
prior to the date of the 1998 annual meeting and no later than the later of the
60th day prior to such meeting or the tenth day after the first public
announcement of the date of such meeting.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P. has served as auditors for the Company and its
subsidiaries for the year ended December 31, 1996 and will continue to so serve
for the year ending December 31, 1997 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 Howard A. Silver, the
Company's Vice President of Finance, Secretary and Treasurer, at 4735
Spottswood, Suite 102, Memphis, Tennessee 38117, telephone (901) 761-9651, a
copy of the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, including the financial statements and financial statement
schedules filed by the Company with the SEC.
BY ORDER OF THE BOARD OF DIRECTORS
HOWARD A. SILVER, SECRETARY
March 26, 1997
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<PAGE> 23
EXHIBIT A
PROPOSED AMENDMENTS TO ARTICLE 14 OF THE COMPANY'S CHARTER
(a) Article 14 of the Charter is hereby amended by adding the following
Paragraph (k), providing in its entirety as follows:
(k) Securities Exchange Transactions. Nothing in this Article 14 or
this Charter shall prohibit the settlement of any transaction
entered into through the facilities of any national securities
exchange registered under the Securities Exchange Act of 1934 (the
"Exchange Act") or of the national market system of a national
securities association registered under the Exchange Act. The
immediately preceding sentence shall not limit the authority of the
Board of Directors to take any and all actions it deems necessary
or advisable to protect the corporation and the interests of its
shareholders in preserving the Corporation's status as a REIT, so
long as such actions do not prohibit the settlement of any
transactions entered into through the facilities of any national
securities exchange registered under the Exchange Act or of the
national market system of a national securities association
registered under the Exchange Act.
(b) The phrase "and Section 14(k)" is hereby added to the first sentence
in paragraph (d) of Article 14 of the Charter following the phrase "Except as
provided in Section 14(e) ...".
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<PAGE> 24
APPENDIX B
PROXY
EQUITY INNS, INC.
4735 SPOTTSWOOD, SUITE 102, MEMPHIS, TENNESSEE 38117
ANNUAL MEETING OF SHAREHOLDERS -- APRIL 29, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Phillip H. McNeill, Sr. and Howard A.
Silver, or either of them, with full power of substitution in each, proxies (and
if the undersigned is a proxy, substitute proxies) to vote all Common Stock of
the undersigned in Equity Inns, Inc. at the Annual Meeting of Shareholders to be
held at the Homewood Suites, 7855 Wolf River Parkway, Germantown, Tennessee, on
Tuesday, April 29, 1997 at 10:00 a.m., Central Time, and at any adjournments
thereof, as specified below:
1. ELECTION OF DIRECTOR
[ ] CLASS III -- TERM EXPIRING 2000 -- [ ] WITHHOLD AUTHORITY
FOR THE NOMINEE LISTED BELOW TO VOTE FOR NOMINEE LISTED
Joseph W. McLeary
2. PROPOSAL TO AMEND ARTICLE 14 OF THE COMPANY'S CHARTER TO PROVIDE, IN
EFFECT, THAT NOTHING CONTAINED THEREIN WILL PROHIBIT THE SETTLEMENT OF
ANY TRANSACTION ENTERED INTO THROUGH THE FACILITIES OF ANY NATIONAL
SECURITIES EXCHANGE REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1934
(THE "EXCHANGE ACT") OR ON THE NATIONAL MARKET SYSTEM OF A NATIONAL
SECURITIES ASSOCIATION REGISTERED UNDER THE EXCHANGE ACT ("PROPOSAL TWO")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO AMEND THE 1994 STOCK INCENTIVE PLAN (THE "1994 PLAN") TO
INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES OF COMMON STOCK THAT MAY
BE ISSUED UNDER THE 1994 PLAN PURSUANT TO AWARDS OF RESTRICTED STOCK AND
IN FULL OR PARTIAL SETTLEMENT OF AWARDS OF PERFORMANCE SHARES FROM
100,000 to 350,000 ("PROPOSAL THREE")
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[Please sign and date on reverse side of this proxy.]
4. In their discretion, the proxies (and if the undersigned is a proxy, any
substitute 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 THE NOMINEE FOR CLASS III DIRECTOR AND FOR PROPOSAL
TWO AND PROPOSAL THREE.
DATED: _____________________, 1997
PLEASE SIGN NAME EXACTLY AS IT
APPEARS ON THE 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
-------------------------------
TITLE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
