<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>
INNKEEPERS USA TRUST
- --------------------------------------------------------------------------------
(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
INNKEEPERS USA TRUST
---------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 5, 1999
---------------------------------------------------------
The annual meeting of the shareholders (the "Annual Meeting") of
Innkeepers USA Trust (the "Company") will be held at the Courtyard by Marriott,
2440 W. Cypress Creek Road, Ft. Lauderdale, FL 33309, on Wednesday, May 5, 1999
at 9:00 a.m., local time, for the following purposes:
1. To elect two Class II trustees to serve on the Board of
Trustees until the annual meeting of shareholders in 2002 or
until their successors have been duly elected and qualified
("Proposal One");
2. To consider and vote upon an Amendment to the Amended and
Restated Declaration of Trust of the Company to permit the
Board of Trustees to amend the Declaration of Trust from time
to time to increase or decrease the aggregate number of shares
of beneficial interest in the Company or the number of shares
of beneficial interest of any class the Company is authorized
to issue ("Proposal Two"), as permitted by Maryland law; and
3. 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 12, 1999 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.
BY ORDER OF THE BOARD OF TRUSTEES:
MARK A. MURPHY
General Counsel and Secretary
Palm Beach, Florida
March _____, 1999
- --------------------------------------------------------------------------------
IMPORTANT
MANAGEMENT SEEKS TO HAVE YOUR SHARES REPRESENTED AT THE ANNUAL MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU MAY HOLD. 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 AS PROMPTLY AS POSSIBLE.
SHAREHOLDERS WHO ATTEND THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE
ALREADY SENT IN A PROXY.
- --------------------------------------------------------------------------------
<PAGE> 3
INNKEEPERS USA TRUST
PROXY STATEMENT
GENERAL INFORMATION
Introduction
This Proxy Statement and the accompanying proxy card and Notice of
Annual Meeting are provided in connection with the solicitation of proxies by
the Board of Trustees of Innkeepers USA Trust, a Maryland real estate investment
trust (the "Company"), for use at the annual meeting of shareholders to be held
at the Courtyard by Marriott, 2440 W. Cypress Creek Road, Ft. Lauderdale, FL
33309, on Wednesday, May 5, 1999 at 9:00 a.m. local time (the "Annual Meeting")
and any adjournments thereof. The mailing address of the principal executive
offices of the Company is 306 Royal Poinciana Way, Palm Beach, Florida 33480.
This Proxy Statement and the accompanying proxy card and Notice of Annual
Meeting, all enclosed herewith, are first being mailed on or about March __,
1999 to shareholders of record at the close of business on March 12, 1999 (the
"Record Date").
The Company
The Company is a Maryland real estate investment trust which was formed
in 1994 for the purpose of acquiring equity interests in hotel properties and
has elected to be taxed as a real estate investment trust ("REIT") under the
Internal Revenue Code of 1986, as amended (the "Code"). The Company, through
Innkeepers USA Limited Partnership (with its subsidiary partnerships, the
"Partnership"), owned a total of 63 hotels (the "Hotels") with an aggregate of
7,639 rooms in 23 states at December 31, 1998. In order to qualify as a REIT,
neither the Company nor the Partnership can operate hotels. Fifty-six of the
Hotels are leased to Innkeepers Hospitality, Inc. (or other entities under
common ownership, collectively, the "IH Lessee") and seven of the Hotels are
leased to affiliates of Patriot American Hospitality, Inc. (collectively, the
"Summerfield Lessee" and, collectively with the IH Lessee, the "Lessees"), in
each case pursuant to percentage leases (the "Percentage Leases"). The
Percentage Leases provide for rent payments based, in substantial part, on the
room revenues of the Hotels. At December 31, 1998, the IH Lessee operated 31 of
the Hotels, affiliates of the Summerfield Lessee operated seven of Hotels, 23 of
the Hotels were managed by Residence Inn by Marriott, Inc., a wholly-owned
subsidiary of Marriott International, Inc., and two of the Hotels were managed
by another independent operator.
The Proxy
The proxy will be voted as specified by the shareholder of record in
the spaces provided on the Proxy Card or, if no specification is made, it will
be voted in favor of the proposals set forth on the first page hereof. The
solicitation of proxies is being made primarily by the use of the mails. 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
prior to the Annual Meeting or by attending the Annual Meeting and voting in
person. Management respectfully requests that each shareholder promptly mark,
sign and return a proxy card as soon as possible. Management is recommending a
vote FOR the proposals discussed in this Proxy Statement. Beneficial owners of
the Company's Common Shares held of record 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.
<PAGE> 4
Each Common Share is entitled to one vote in person or by proxy.
Cumulative voting is not permitted. Only shareholders of record at the close of
business on the Record Date (the "Shareholders") 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 1, 1999, the Company had outstanding 34,676,586 Common
Shares and 4,630,000 Series A Preferred Shares.
The solicitation of the proxy is being made by the Company. 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 may reimburse brokers, custodians and
nominees for their expenses in sending proxies and proxy material to beneficial
owners. The Company has retained Harris Trust and Savings Bank to aid in the
solicitation of proxies and to verify certain records related to the
solicitation for a cost not expected to exceed $5,000, plus expenses. To the
extent necessary in order to ensure sufficient representation at the meeting,
the Company may request by telephone or otherwise the return of proxies. The
extent to which this will be necessary will depend on the rate at which proxies
are returned. Shareholders are urged to return their proxies without delay.
REQUIRED VOTE
Under Maryland law and the Company's Declaration of Trust 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 two Class II trustees, an affirmative
vote of a plurality of all the votes cast will elect each nominee for trustee
and, (2) with respect to Proposal Two, the affirmative vote of the holders of a
majority of the outstanding Common Shares is required for approval of Proposal
Two. For purposes of the election of trustees, abstentions will not be counted
as votes cast and will have no effect on the result of the vote, although they
will count toward the presence of a quorum.
No specific provisions of the Maryland General Corporation Law, as
applicable to Maryland real estate investment trusts, or the Company's
Declaration of Trust or Bylaws, address the issue of abstentions or "broker non-
votes" (defined below). Abstentions and "broker non-votes" will be counted for
the purpose of determining the existence of a quorum. For purposes of the
election of trustees (i.e., Proposal One), abstentions will not be counted as
votes cast and will have no effect on the result of the vote. For proposals
requiring approval by a certain percentage of the shares outstanding or entitled
to be cast (i.e., Proposal Two), the effect of an abstention would be the same
as a vote against the proposal.
Brokers holding shares for beneficial owners are required to provide
proxy material to the beneficial owners and to seek instructions with respect to
the voting of the securities and must vote those shares according to the
specific instructions they receive from the owners. If brokers do not receive
specific instructions from the owners, they may vote the shares at their
discretion on all but certain non-routine matters. In the case of a non-routine
matter for which the broker has received no voting instructions, the broker may
not vote on the proposals. This results in what is known as a "broker non-vote."
"Broker non-votes" will be counted for the purpose of determining the existence
of a quorum for the Annual Meeting.
3
<PAGE> 5
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under federal securities laws, the Company's trustees and executive
officers, and any persons beneficially owning more than ten percent (10%) of a
registered class of the Company's equity securities, are required to report
their ownership of the Common Shares 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 during the 1998 fiscal year. Filings were made in March 1998
relating to January 1998 acquisitions of an aggregate of 20,000 shares in the
open market by Messrs. Fisher and Shaw. Other than as set forth above, based on
information available to the Company, the Company believes that all required
filings for executive officers and trustees in 1998 were timely made.
OWNERSHIP OF THE COMPANY'S COMMON SHARES
Security Ownership of Certain Beneficial Owners
The following table sets forth information, as of December 31, 1998,
regarding (a) each person known to the Company to be the beneficial owner of
more than five percent (5%) of its Common Shares, (b) each trustee, (c) each
executive officer and (d) all trustees and executive officers as a group. Unless
otherwise indicated, such shares are owned directly and the indicated person has
sole voting and investment power.
4
<PAGE> 6
<TABLE>
<CAPTION>
AMOUNT AND
NATURE
OF PERCENT
BENEFICIAL OF
OWNERSHIP(1) CLASS(1)
------------ --------
<S> <C> <C>
Jeffrey H. Fisher 1,740,274(2) 4.8%
Frederic M. Shaw 698,970(3) 2.0%
David Bulger 144,836(4) *
Gregory M. Fay 108,298(5) *
Mark A. Murphy 126,950(6) *
Miles Berger 26,424(7) *
Thomas J. Crocker 9,660(8) *
Jack P. DeBoer 2,473,494(9) 6.7%
9342 East Central
Wichita, Kansas 67206
C. Gerald Goldsmith 23,462(7) *
Rolf P. Ruhfus 749,817(10) 2.1%
Bruce Zenkel 25,500(7) *
Franklin Resources, Inc. 6,550,293(11) 17.3%
777 Mariners Island Boulevard
San Mateo, CA 94404
The Equitable Companies Incorporated 2,569,200(12) 7.4%
c/o 1290 Avenue of the Americas
New York, NY 10104
FMR Corp. 2,017,871(13) 5.7%
82 Devonshire Street
Boston, MA 02109
Brinson Partners 2,029,600(14) 5.9%
c/o 209 South LaSalle Street
Chicago, Il 60604-1295
All trustees and executive officers as a group (11 persons) 6,161,475(2)-(10) 15.5%
</TABLE>
- -----------------------------
* Represents less than 1% of the outstanding Common Shares.
5
<PAGE> 7
(1) For each named person, assumes that (a) all units of limited
partnership interest in the Partnership ("Units") held by the named
person are redeemed for Common Shares, (b) that the named person
exercised all options held by him which are currently exercisable or
which become exercisable on or before July 2, 1999 and (c) that the
named person exercised his right to convert all of his Series A
Cumulative Convertible Preferred Shares of Beneficial Interest of the
Company ("Series A Preferred Shares") into Common Shares. The total
number of Common Shares used in calculating the percent of class owned
by each named person assumes that none of (x) the Units held by other
persons are redeemed for Common Shares, (y) the options held by other
persons are exercised and (z) the Series A Preferred Shares held by
other persons are converted. Outstanding Units may be tendered for
redemption by the limited partners (in some cases after a specified
holding period which has not yet expired) on a one-for-one basis for
Common Shares or, if the redeeming limited partner would then be deemed
to own in excess of 9.8% of the outstanding Common Shares or otherwise
at the election of the Company, an equivalent amount of cash
("Redemption Rights"). Outstanding Series A Preferred Shares may be
converted into Common Shares at a rate of 1.4811 Common Shares for each
Series A Preferred Share converted. Holders of restricted shares have
the power to vote, and receive distributions on, their restricted
shares prior to vesting. Any Common Shares or options described herein
which have not vested when a trustee ceases to be a trustee or when an
officer ceases to be an employee generally will be forfeited.
(2) Includes 188,213 shares owned by the IH Lessee (including 30,363 Common
Shares into which 20,500 Series A Preferred Shares owned by the IH
Lessee may be converted), in which Mr. Fisher owns 80% of the capital
stock. Mr. Fisher disclaims beneficial ownership of 37,643 (20%) of the
Common Shares owned (or beneficially owned) by the IH Lessee. Also
includes (A) 205,358 restricted shares, 41,071 of which will vest in
each of 2000-2003 and 41,074 of which will vest in 2004, (B) Common
Shares issuable to Mr. Fisher and his affiliates upon exercise of
Redemption Rights - Mr. Fisher owns 348,289 Units directly and
affiliates of Mr. Fisher own 65,306 Units - and (c) 767,416 Common
Shares issuable to Mr. Fisher upon the exercise of options granted to
Mr. Fisher under the 1994 Plan. Does not include 341,084 Common Shares
issuable to Mr. Fisher upon the exercise of additional options granted
under the 1994 Plan, (x) 70,000 of which vest in September 1999, (y)
50,000 of which will vest at the rate of 10,000 shares per year in
September of each of 2000-2003 and on January 1, 2004 and (z) 221,084
of which will vest at the rate of 125,084 in February 2000 and 48,000
in February of each of 2001 and 2002.
(3) Includes 187,213 shares owned by the IH Lessee (including 30,363 Common
Shares into which 20,500 Series A Preferred Shares owned by the IH
Lessee may be converted), in which Mr. Shaw owns 20% of the capital
stock. Mr. Shaw disclaims beneficial ownership of 150,570 (80%) of the
Common Shares owned (or beneficially owned) by the IH Lessee. Also
includes (A) 146,133 restricted shares, 29,225 of which will vest in
each of 2000-2003 and 29,233 of which will vest in 2004, (B) 80,725
Common Shares issuable to Mr. Shaw upon exercise of Redemption Rights
and (c) 232,332 Common Shares issuable to Mr. Shaw upon the exercise of
options granted to Mr. Shaw under the 1994 Plan. Does not include
77,668 Common Shares issuable to Mr. Shaw upon the exercise of
additional options granted under the 1994 Plan, which will vest at the
rate of 53,668 in February 2000 and 12,000 in each of February 2001 and
2002.
(4) Includes (A) 38,460 restricted shares, 7,692 of which will vest in each
of 2000-2004, (B) 86,666 Common Shares issuable upon the exercise of
options granted under the 1994 Plan and (c) 1,481 Common Shares into
which 1,000 Series A Preferred Shares owned by Mr. Bulger may be
converted. Does not include 13,334 Common Shares issuable upon the
exercise of additional options granted under the 1994 Plan, which will
vest in February 2000.
(5) Includes (A) 37,768 restricted shares, 461 of which will vest in 1999,
7,461 of which will vest in each of 2000-2003 and 7,463 of which will
vest in 2004, (B) 66,667 Common Shares issuable upon the exercise of
options granted under the 1994 Plan and (c) 741 Common Shares into
which 500 Series A Preferred Shares owned by Mr. Fay may be converted.
Does not include 33,333 Common Shares issuable upon the exercise of
additional options granted under the 1994 Plan, which will vest in
August of each of 1999 and 2000.
6
<PAGE> 8
(6) Includes (A) 37,307 restricted Common Shares, 7,461 of which will vest
in each of 2000-2003 and 7,463 of which will vest in 2004, (B) 83,333
Common Shares issuable upon the exercise of options granted under the
1994 Plan and (c) 741 Common Shares into which 500 Series A Preferred
Shares owned by Mr. Murphy may be converted. Does not include 16,667
Common Shares issuable upon the exercise of additional options granted
under the 1994 Plan, which will vest in April 2000.
(7) Includes 8,000 Common Shares issuable upon the exercise of options
granted under the Trustees' Plan. Also includes, for Mr. Berger, 5,924
Common Shares, and for Mr. Goldsmith, 2,962 Common Shares, into which
Series A Preferred Shares held, respectively, by Mr. Berger and a trust
of which Mr. Goldsmith is a trustee and beneficiary may be converted.
Does not include 2,000 Common Shares issuable upon the exercise of
additional options that will be granted and immediately vested on the
date of each annual meeting beginning in 2000.
(8) Includes (A) 2,264 restricted shares, 1,132 of which will vest in
February of each of 2000 and 2001, and (B) 4,000 Common Shares issuable
upon the exercise of options granted under the Trustees' Plan. Does not
include 2,000 Common Shares issuable upon the exercise of additional
options that will be granted and immediately vested in February of each
year beginning in 2000.
(9) Includes an aggregate of 2,457,188 Common Shares issuable upon the
exercise of Redemption Rights, to Mr. DeBoer, Mr. DeBoer's wife and
adult children and a corporation controlled by Mr. DeBoer. Mr. DeBoer
disclaims beneficial ownership of 690,152 Common Shares issuable upon
redemption of Units owned by his wife and adult children. Also includes
(A) 2,554 restricted shares issued to Mr. DeBoer under the Trustees
Plan, 1,276 of which will vest in November 1999 and 1,278 of which will
vest in November 2000, (B) 4,000 Common Shares issuable upon the
exercise of options granted under the Trustees' Plan and (c) 5,924
Common Shares into which 4,000 Series A Preferred Shares owned by Mr.
DeBoer may be converted. Does not include (i) 1,000 Common Shares
issuable upon the exercise of additional options granted under the
Trustees' Plan, which will vest in November 1999, or (ii) Common Shares
issuable upon the exercise of additional options that will be granted
and immediately vested in November of each year, which will cover 1,000
Common Shares in 1999 and 2,000 Common Shares in each subsequent year.
(10) Includes (A) 3,104 restricted shares, 1,034 of which will vest in June
of each of 1999 and 2000 and 1,036 of which will vest in June 2001, (B)
729,537 Common Shares issuable to Mr. Ruhfus, or a trust of which he is
the sole trustee and beneficiary, upon the exercise of Redemption
Rights, (c) 4,000 Common Shares issuable upon the exercise of options
granted under the Trustees' Plan and (D) 11,108 Common Shares into
which 7,500 Series A Preferred Shares held by a partnership controlled
by Mr. Ruhfus may be converted. Does not include 2,000 Common Shares
issuable upon the exercise of additional options that will be granted
and immediately vested in June of each year beginning in 2000.
(11) Based on information contained in a Schedule 13-G dated January 27,
1999, and jointly filed with the Securities and Exchange Commission
("SEC") by Franklin Resources, Inc., Franklin Advisers, Inc., Charles
B. Johnson and Rupert H. Johnson, with respect to shares owned by one
or more open or closed-end investment companies or other managed
accounts which are advised by direct and indirect subsidiaries of
Franklin Resources, Inc. Includes 3,221,393 Common Shares into which
2,175,000 Series A Preferred Shares owned by the investment companies
and/or accounts may be converted. Each of the filers has disclaimed
beneficial ownership of any of the shares covered by the Schedule 13-G.
(12) Based on information contained in a Schedule 13-G dated February 10,
1999, and jointly filed with the SEC by The Equitable Companies
Incorporated, AXA Conseil Vie Assurance Mutuelle, AXA Assurances
I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurance
Mutuelle and AXA, with respect to shares owned by client discretionary
investment advisory accounts advised by Alliance Capital Management
L.P. Each of the filers other than The Equitable Companies Incorporated
has disclaimed beneficial ownership of any of the shares covered by the
Schedule 13-G.
(13) Based on information contained in a Schedule 13-G dated February 1,
1999, and jointly filed with the SEC by FMR Corp., Fidelity Management
& Research Company, Edward C. Johnson 3d and Abigail P. Johnson, with
7
<PAGE> 9
respect to shares owned by various mutual funds and accounts advised
and/or managed by the filers. Includes 736,847 Common Shares into which
497,500 Series A Preferred Shares owned by such funds and accounts may
be converted.
(14) Based on information contained in a Schedule 13-G dated February 3,
1999 and jointly filed with the SEC by Brinson Partners, Inc. and UBS
AG with respect to shares owned by accounts managed on a discretionary
basis by the filers. Each of the filers has disclaimed beneficial
ownership of any of the shares covered by the Schedule 13-G.
PROPOSAL ONE - ELECTION OF TRUSTEES
Nominees for Class II Trustees
The Company's Declaration of Trust divides the Board of Trustees into
three classes as nearly equal in number as possible and requires that a majority
of the Company's trustees 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 Trustees"). The term of the
current Class II trustees, Mr. Miles Berger and Mr. C. Gerald Goldsmith, expires
at the Annual Meeting. At each annual meeting of shareholders, the successors to
the class of trustees whose term expires will be elected for a three-year term.
The Board of Trustees has set at seven the number of trustees constituting the
current Board of Trustees, two of whom will be elected at the Annual Meeting.
The Company has no Nominating Committee of its Board of Trustees, with
the entire Board of Trustees acting in such capacity. The Board of Trustees has
nominated the present Class II trustees, Messrs. Berger and Goldsmith, to serve
as Class II trustees for three-year terms expiring at the Company's annual
meeting in 2002 or until their successors are elected and qualified. The
remaining members of the Board of Trustees will continue as members thereof
until their respective terms expire.
Unless a shareholder specifies otherwise, each shareholder's shares
represented by the enclosed proxy will be voted FOR the election of the Class II
nominees to serve as trustees until the 2002 annual meeting or until their
successors are elected and qualify. The nominees have indicated their
willingness to serve if elected. While not anticipated, if any nominee shall
become unavailable or unwilling to serve the Company as a trustee for any
reason, the persons named as proxies in the Proxy Form may vote for any
substitute nominee proposed by the Board of Trustees.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE
FOR EACH OF THE NOMINEES FOR CLASS II TRUSTEES
The following table sets forth information as of March 1, 1999 with
respect to the nominees and each other trustee whose term of office will
continue after the Annual Meeting.
8
<PAGE> 10
- --------------------------------------------------------------------------------
NOMINEES FOR ELECTION AS CLASS II TRUSTEES
(TERMS EXPIRING 2002)
MILES BERGER, age 68, has been engaged in various real estate and
banking activities since 1950. In 1998, Mr. Berger became Chairman and Chief
Executive Officer of Berger Management Services Ltd., a real estate and
financial consulting and advisor services company. Previously, Mr. Berger served
as Vice Chairman of the Board of Heitman Financial Ltd., a real estate
investment management firm, with which Mr. Berger was employed for more than
five years. He is Chairman of the Board of Mid-Town Bank and Trust Company of
Chicago, Vice Chairman of Columbia National Bank Corp. and a director of
Franklin Capital Corporation. He has served on the boards of numerous real
estate and banking organizations and philanthropic organizations.
Committees: Audit, Compensation
C. GERALD GOLDSMITH, age 70, has been an independent investor and
financial advisor since 1976. He is currently a director of Meditrust, Palm
Beach National Bank and Trust, U.S. Banknote and Nine West Group, Inc. and is
Chairman of Property Corp. International, a private real estate investment
company. He has served as a director of several banks and New York Stock
Exchange-listed companies. He holds an A.B. from the University of Michigan and
an M.B.A. from Harvard Business School.
Committees: Audit, Compensation
- --------------------------------------------------------------------------------
INCUMBENT CLASS I TRUSTEES
(TERMS EXPIRING 2001)
JACK P. DEBOER, age 68, has served as Chairman of the Board, President
and Chief Executive Officer of Candlewood Hotel Company, Inc. since its
inception. From October 1993 to September 1995, Mr. DeBoer was self-employed and
was engaged in the development of the Candlewood extended-stay hotel concept.
From 1988 to 1993, Mr. DeBoer co-founded and developed Summerfield Hotel
Corporation, an upscale extended-stay hotel chain. Mr. DeBoer founded and
developed the Residence Inn franchise prior to selling the franchise to Marriott
International, Inc. in 1987.
BRUCE ZENKEL, age 67, is a partner of Zenkel Schoenfeld, an investment
banking firm he co-founded in 1990. From 1986 to 1990, he was director of
merchant banking for McKinley Allsopp. He served as a director of Jonathan
Logan, Inc. and Mr. Coffee, Inc. and currently serves on the boards of several
philanthropic organizations. He holds a B.B.A. from the University of Michigan.
Committees: Compensation
9
<PAGE> 11
- --------------------------------------------------------------------------------
INCUMBENT CLASS III TRUSTEES
(TERMS EXPIRING 2000)
JEFFREY H. FISHER, age 43, is Chairman of the Board, Chief Executive
Officer and President of the Company, positions he has held since the Company's
formation in 1994. Between 1986 and 1994 he served as President and Chief
Operating Officer of JF Hotel Management, Inc., an affiliate of the IH Lessee,
which leases 56 and operates 31 of the Company's hotels. Mr. Fisher holds a B.S.
degree in Business Administration from Syracuse University, a J.D. degree from
Nova University, and an L.L.M in Taxation from the University of Miami.
THOMAS J. CROCKER, age 45, was Chairman of the Board of Crocker Realty
Trust, Inc., one of the largest office-based real estate investment trusts in
the southeast U.S., from that company's inception until June 30, 1996. Crocker
Realty Trust, Inc. owns approximately 5.7 million square feet in 70 buildings in
seven states, plus more than 200 acres of developable land. Prior to forming
Crocker Realty Trust, Inc., Mr. Crocker headed Crocker & Co., a privately-held
firm responsible for development, leasing and property management services to
approximately 1.71 million square feet of commercial property and 272
residential units. Prior to 1984, Mr. Crocker was a real estate lending officer
at Chemical Bank. Mr. Crocker is a Board Member of the National Conference of
Christians and Jews and a Member-Elect of the National Board thereof. He is the
recipient of the 1992 Ernst & Young and South Florida Business Journal's Best
Overall Real Estate Deal of the Year Honors; 1991 Sun-Centennial Excalibur Award
for Palm Beach County; 1991 NAIOP Developer of the Year; 1989 Boca Raton,
Florida Chamber of Commerce Industrialist of the Year; 1989 Anti-Defamation
League Torch of Liberty Award; 1988 Junior Achievement Business Hall of Fame
Laureat; past Chairman of the Boca Raton, Florida Chamber of Commerce; and a
Member of the National Association of Industrial and Office Parks.
Committee: Audit
ROLF E. RUHFUS, age 54, has served as a Board member of, and a
consultant to, Wyndham International, Inc. since 1998, and since that time has
also served as the non-executive Chairman of Wyndham's all-suites division.
Previously, Mr. Ruhfus served as Chairman and Chief Executive Officer of
Summerfield Hotel Corporation since its founding in 1988 until its sale to
Patriot American Hospitality, Inc. and Wyndham in 1998. Mr. Ruhfus served as
President of the Residence Inn Company from February 1983 through July 1987
(Residence Inn was acquired by Marriott in July 1987). Mr. Ruhfus joined the
Residence Inn Company after spending four years as Director of Marketing for
VARTA Battery, Europe's largest battery manufacturer. Prior to this position, he
was a management consultant for McKinsey and Company in its Dusseldorf, Germany
office. Mr. Ruhfus is a German Air Force Lieutenant, and received a bachelor's
degree from Western Michigan University in 1968. His graduate degrees include a
M.B.A. from the Wharton School in 1971 and a Ph.D. in marketing from the
University of Muenster in 1974. Mr. Ruhfus is a member of the international
chapter of The Young Presidents Organization and serves on the board of several
European companies.
Committees and Meetings of the Board of Trustees
Trustee Meetings. The business of the Company is conducted under the
general management of its Board of Trustees as required by the Company's Bylaws
and the laws of Maryland, the Company's state of organization. The Board of
Trustees holds regular quarterly meetings and special meetings as necessary. The
Board of Trustees held seven meetings during 1998. All incumbent trustees
attended more than 75% of the aggregate number of meetings of the
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<PAGE> 12
Board of Trustees and its committees on which they serve, except for Mr. Ruhfus,
who attended three of the seven Board meetings held in 1998.
The Company presently has an Audit Committee and a Compensation
Committee of its Board of Trustees. The Company has no Nominating Committee of
its Board of Trustees, with the entire Board of Trustees acting in such a
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 Trustees.
Audit Committee. The Board of Trustees has established an Audit
Committee, which currently consists of Messrs. Berger, Crocker and Goldsmith who
are neither officers nor employees of the Company or any of its subsidiaries.
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 and
practices, and reviews financial disclosures. The Audit Committee met once in
1998, and each member attended the meeting.
Compensation Committee. The Board of Trustees has established a
Compensation Committee, which currently consists of Messrs. Berger, Goldsmith
and Zenkel, who are neither officers nor employees of the Company or any of its
subsidiaries. The Compensation Committee determines compensation for the
Company's executive officers and administers the 1994 Plan. The Compensation
Committee met three times in 1998, and each member attended all of those
meetings.
Compensation of Trustees
Each non-employee Trustee is paid a cash fee of $5,000 per year, plus
$1,000 for each Board meeting attended and $500 for each committee meeting
attended. Each trustee also receives reimbursement of reasonable out-of-pocket
expenses incurred in connection with meetings of the Board or committees
thereof.
In addition, under the Trustees' Plan, each non-employee trustee who
was a member of the Board of Trustees at the time of the IPO received 7,500
restricted Common Shares. Such Common Shares vest at the rate of 1,500 shares
per year of service, with 1,500 shares having vested on the date they received
the shares and 1,500 shares vesting on the "Award Date" in each of 1995 - 1998.
For any year, an "Award Date" is the date of the first meeting of the Board of
Trustees following the annual meeting of shareholders held in such year.
Currently, each future non-employee trustee will receive, on the first Award
Date at which he is or becomes a member of the Board, Common Shares with a fair
market value of $75,000, 20% of which will vest immediately and 20% of which
will vest on each of the next four Award Dates if the trustee is a member of the
Board on the applicable vesting date. Messrs. DeBoer, Crocker and Ruhfus each
received shares pursuant to the foregoing provisions on the dates that they
joined the Board, except that their awards, like awards for other non-employee
trustees who join the Board other than at an annual meeting, vest on the date of
grant and the first four anniversaries of the date of grant if they are members
of the Board on the applicable vesting date. Each trustee is entitled to receive
dividends paid on, and to vote, all such shares, notwithstanding that all such
shares may not have vested. Any trustee who ceases to be a trustee will forfeit
any shares not previously vested.
Under the Trustees' Plan, each non-employee trustee who was a member of
the Board of Trustees at the time of the IPO was also granted options to
purchase 5,000 Common Shares. Options were granted to the other non-employee
trustees on the first Award Date after they become trustees (or on the date they
were appointed or elected other than at an annual meeting), as follows: Mr.
DeBoer received an option for 3,000 Common Shares on his appointment
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<PAGE> 13
to the Board in November 1996, Mr. Crocker received an option for 2,000 Common
Shares on his appointment to the Board in February 1997 and Mr. Ruhfus received
an option for 2,000 Common Shares on his appointment to the Board in June 1997,
all of which become exercisable as described below. The price per Common Share
purchased on the exercise of an option is the fair market value of a Common
Share on the date the option is granted. The exercise price may be paid in cash,
a cash equivalent acceptable to the Compensation Committee, Common Shares, or a
combination thereof.
Options issued under the Trustees' Plan become exercisable at a rate of
1,000 Common Shares on each Award Date after the date of the grant (or on each
anniversary of the date of grant for trustees first appointed or elected other
than at an annual meeting), in each case only if the trustee is still a member
of the Board on the applicable Award Date (or applicable anniversary of the date
of grant). Options under the Trustees' Plan are exercisable for ten years from
the date of grant. To the extent that an option has become exercisable, it can
be exercised whether or not the holder is a Trustee on the date of exercise. No
options for Common Shares may be granted and no Common Shares will be awarded
under the Trustees' Plan after the Award Date in 2007. The share authorization,
the terms of outstanding options and the number of shares for which options will
thereafter be awarded shall be subject to adjustment in the event of a share
dividend, share split, combination, reclassification, recapitalization or other
similar event.
In addition to the awards described above, (a) Messrs. Berger,
Goldsmith and Zenkel, who have served on the Board since the IPO, each received
an award of 5,000 restricted Common Shares, which vested for 1,666 shares on the
Award Date in each of 1997 and 1998 and will vest for 1,668 shares on the Award
Date in 1999, if the trustee is a Board member on the applicable vesting date,
and (b) each non-employee trustee receives a fully exercisable option to acquire
Common Shares on the date that his other options under the Trustees' Plan become
vested, if the trustee is a Board member on the applicable grant date. For 1999,
these awards cover 1,000 Common Shares and for the year 2000 and thereafter, the
awards will cover 2,000 Common Shares. All options and share awards will become
fully exercisable and vested on a change of control (as defined in the Trustee's
Plan) of the Company, and in the event a trustee ceases to serve on the Board on
account of death or disability.
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<PAGE> 14
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid or accrued by the
Company from January 1, 1996 to December 31, 1998.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
---------------------------------- ---------------------------------------
Awards Payouts
------------------------- --------------------
Restricted Securities
Name and Other Annual Share Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Options/SAR Payouts Compensation
------------------ ---- ------ ----- ------------ ------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jeffrey H. Fisher 1998 $162,374 $150,000 0 $1,573,125(1) -- -- --
Chairman of the 1997 $150,000 $150,000 0 $ 840,000(2) 702,500(3) -- --
Board, Chief Executive 1996 $150,000 $150,000 0 -- 156,000(4) -- --
Officer and President
Frederic M. Shaw 1998 $114,562(5) $105,000(5) 0 $1,087,500(1) -- -- --
Executive Vice 1997(6) $ 94,902(5) $105,000(5) - $ 700,000(2) 310,000(7) -- --
President and 1996(6) -- -- - -- -- -- --
Chief Operating Officer
David Bulger 1998 $141,265 $ 22,500 0 $ 327,352(1) -- -- --
Chief Financial 1997 $110,200 $ 26,488 0 $ 52,500(2) 80,000(8) -- --
Officer and Treasurer 1996 $ 80,000 $ 20,000 - -- -- -- --
Gregory M. Fay 1998 $139,891 $ 22,500 0 $ 322,501(1) -- -- --
Vice President of 1997 $ 45,660(6) $ 10,014(6) 0 $ 35,000(2) 100,000(9) -- --
Accounting 1996(6) -- -- - -- -- -- --
Mark A. Murphy 1998 $138,640 $ 22,500 0 $ 322,501(1) -- -- --
General Counsel and 1997 $ 92,416(6) $ 26,488(6) 0 $ 35,000(2) 100,000(10) -- --
Secretary 1996(6) -- -- - -- -- -- --
</TABLE>
- ----------------------------
(1) A portion of these shares were issued pursuant to performance share
awards made in 1997, and were issued in January 1998 based on a total
shareholder return target met in 1997. These shares vest in six equal
installments beginning in January 1999. The number of such shares
granted to each officer was: Mr. Fisher - 15,000; Mr. Shaw - 12,500;
Mr. Bulger - 938; Mr. Fay - 625; and Mr. Murphy - 625. The remainder of
these shares were granted in November 1998 and vest in five equal
installments beginning in January 2000. The number of shares granted to
each officer in November 1998 was: Mr. Fisher - 150,000; Mr. Shaw -
100,000; Mr. Bulger - 35,000; Mr. Fay - 35,000; and Mr. Murphy -
35,000. At December 31, 1998 an aggregate of 503,438 restricted shares,
with an aggregate value at such date (based on the closing market price
of the Common Shares on such date of $11.813) of $5,947,113, were held
as follows: Mr. Fisher - 225,000 shares (with a value at December 31,
1998 of $2,657,925); Mr. Shaw (with a value at December 31, 1998 of
$1,919,613); Mr. Bulger - 39,688 shares (with a value at December 31,
1998 of $468,834); and Messrs. Fay and Murphy - 38,125 each (with a
value at December 31, 1998 of $450,371 each). Of such outstanding
restricted shares, a total of 16,963 shares were vested at December 31,
1998.
(2) These shares vest in equal installments on each of the first seven
anniversaries of the date of grant - February 1997 for Messrs. Fisher
(60,000 shares), Shaw (50,000 shares) and Bulger (3,750 shares); March
1997 for Mr. Murphy (2,500 shares); and August 1997 for Mr. Fay (2,500
shares).
(3) Represents the grant of options in February 1997 covering (a) 240,000
Common Shares, 20% of which became exercisable in each of February 1998
and 1999 and 20% of which becomes exercisable in February of each
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<PAGE> 15
of 2000-2002 and (b) 462,500 Common Shares, 50% of which vested on the
date of grant, 16.66% of which became exercisable in February of each
of 1998 and 1999 and 16.66% of which will vest in February 2000. In
February 1997, the IH Lessee granted approximately 300,000 share
appreciation rights to various employees of the IH Lessee, each of
which rights remaining outstanding entitle the holder (subject to the
satisfaction of certain vesting requirements) to a cash payment equal
to any excess of the fair market value of a Common Share on the date of
exercise over $13.25, the fair market value on the date of grant. Mr.
Fisher owns 80% of the IH Lessee.
(4) Represents the grant of an option in February 1996. The option became
exercisable for 32,000 Common Shares in September of each of 1996-1998,
and will become exercisable for 60,000 Common Shares in September 1999.
(5) Mr. Shaw also receives a salary and bonus from the IH Lessee, of which
he serves as President.
(6) Messrs. Shaw, Fay and Murphy each first became officers and employees
of the Company in 1997. Salary shown for 1997 represents the pro-rata
share of annual salary provided for in the employee's employment
contract. Mr. Fay's 1997 bonus is a pro-rated portion of the annual
bonus that would have been payable for the full year under his
employment contract.
(7) Represents the grant in February 1997 of (a) an option covering 60,000
Common Shares, 20% of which became exercisable in February of each of
1998 and 1999 and 20% of which becomes exercisable in February of each
of 2000-2002, and (b) an option covering 250,000 Common Shares, 50% of
which vested on the date of grant, 16.66% of which vested in February
of each of 1998 and 1999 and 16.66% of which will vest in February
2000. In February 1997, the IH Lessee granted approximately 300,000
share appreciation rights to various employees of the IH Lessee, each
of which rights remaining outstanding entitle the holder (subject to
the satisfaction of certain vesting requirements) to a cash payment
equal to any excess of the fair market value of a Common Share on the
date of exercise over $13.25, the fair market value on the date of
grant. Mr. Shaw owns 20% of the IH Lessee.
(8) Represents the grant of an option in February 1997, 50% of which vested
on the date of grant, 16.66% of which vested in February of each of
1998 and 1999 and 16.66% of which vests in February 2000.
(9) Represents the grant of an option in August 1997, 50% of which vested
on the date of grant, 16.66% of which vested in August 1998 and 16.66%
of which vests in August of each of 1999 and 2000.
(10) Represents the grant of an option in April 1997, 50% of which vested on
the date of grant, 16.66% of which vested in April 1998 and 16.66% of
which will vest in April of each of 1999 and 2000.
14
<PAGE> 16
Option Grants
No options or separate share appreciation rights were granted during
the 1998 fiscal year to the named executives of the Company.
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 1998 fiscal year by its executive officers and
regarding unexercised options at December 31, 1998.
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
December 31, 1998 December 31, 1998
Shares Acquired Exercisable/ Exercisable/
Name On Exercise Value Realized Unexercisable Unexercisable(1)
---- ----------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Jeffrey H. Fisher -- -- 642,333/466,167 $542,518/$232,560
Frederic M. Shaw -- -- 178,666/131,334 (2)
David Bulger -- -- 73,333/26,667 $ 58,760/(2)
Gregory M. Fay -- -- 66,667/33,333 (2)
Mark A. Murphy -- -- 66,667/33,333 (2)
</TABLE>
(1) The exercise prices of the options held by Mr. Fisher as of December
31, 1997 is (a) $10.00, with respect to 250,000 of the options, (b)
$9.75, with respect to 156,000 of the options, and (c) $13.25, with
respect to 702,500 of the options. The exercise prices of the options
held by Mr. Bulger as of December 31, 1997 is (a) $8.875, with respect
to 20,000 of the options, and (b) $13.25, with respect to 80,000 of the
options. The exercise prices of the options held by Messrs. Shaw and
Murphy at December 31, 1998 is $13.25. The exercise price of the
options held by Mr. Fay at December 31, 1998 is $14.0625. The closing
price of the Common Shares on December 31, 1998 was $11.813.
(2) No options were in-the-money at December 31, 1998.
Employment and Related Contracts
The Company has entered into employment agreements with each of its
five executive officers. Each employment agreement sets forth an annual base
salary for the officer, with Mr. Fisher's base salary for 1999 set at $250,000,
Mr. Shaw's base salary for 1999 set at $175,000 and Messrs. Bulger's, Fay's and
Murphy's base salaries for 1999 set at $150,000 each. Each officer's salary is
subject to increase on January 1 of each subsequent year by a percentage of the
base salary in effect for the previous year, which percentage is equal to the
sum of (a) the percentage increase in the CPI in such prior year plus (b) five.
Each employment agreement provides for annual cash bonuses if the Company meets
certain financial goals. The amounts of the bonuses will depend on the extent to
which, if at all, the Company meets or exceeds such goals, and depends in part
on the discretion of the Compensation Committee of the Board of Trustees. The
term of each employment agreement extends until December 31, 2002.
Each agreement entitles the officer to customary fringe benefits,
including vacation, life, medical and hospital insurance, as well as the right
to participate in any other benefits or plans established for any
management-level employees. Each employment agreement provides for certain
severance payments in the event of death or disability or upon termination by
the Company in breach of the agreement (which includes, without limitation, a
material modification of duties without consent, preventing the officer from
carrying out responsibilities consistent with the officer's position or a
requirement to relocate outside of a 50-mile radius). In any such event, the
Company is responsible for three times the officer's then-current annual salary
and bonus, plus any other accrued or deferred compensation. In addition, upon
the occurrence of a "change of control," the Company is also obligated to pay
the officer the amounts referred to in the immediately preceding sentence. The
Company is also responsible for any excise tax on "excess parachute payments"
that may result from such payments. Each agreement defines a "change of
15
<PAGE> 17
control" as (a) a person (together with his affiliates) becoming, or entering
into an agreement to become, the owner of 30% of more of the Company's voting
shares (other than as a result of a Company share buy-back or share
consolidation), (b) the Company entering into an agreement involving the
transfer of 50% or more of the Company's total assets, (c) the Company entering
into an agreement to merge or consolidate, regardless of whether the Company
would be the survivor, (d) the date that current members of the board of
Trustees cease to constitute a majority of the board for any reason or (e) a
complete liquidation or dissolution of the Company.
Mr. Shaw serves as President of, and along with Mr. Fisher is the owner
of, the IH Lessee. Mr. Shaw has entered into an employment agreement with the IH
Lessee, which includes terms that are substantially similar to the terms of his
employment agreement with the Company. The significant difference between the
agreements is in the salary and bonus provided for in each agreement, which
reflects the relative time commitments Mr. Shaw has with the respective
employers. Under the IH Lessee employment agreement Mr. Shaw's base salary for
1999 is set at $75,000, subject to increase on January 1 of each subsequent year
by a percentage of the base salary in effect for the previous year, which
percentage is equal to the sum of (a) the percentage increase in the consumer
price index in the previous year plus (b) five. The IH Lessee agreement also
provides that Mr. Shaw will receive an annual cash bonus from the IH Lessee if
the Company meets or exceeds the same financial goals upon which his bonus from
the Company depends.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Berger, Goldsmith and Zenkel comprise the Compensation
Committee. None of the members of the Compensation Committee are or have been
employees of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
General
The Compensation Committee is responsible for setting and administering
compensation policies, fixing salaries of and awarding discretionary performance
bonuses to executive officers and determining awards of restricted shares,
performance share awards, share options, and other equity-based compensation.
The Compensation Committee is composed of Messrs. Berger, Goldsmith and Zenkel,
none of whom is an employee or officer of the Company. The goals of the
compensation plan are to (1) attract and retain important managers, (2) motivate
managers to attain the goals of the Company, (3) enable the managers to share
both in the Company's risks and rewards and (4) tie managers' interests with
shareholders' interests. There are three components of the Company's executive
compensation: base salary, annual bonuses and long-term share incentive
compensation. The Compensation Committee believes that these programs will align
the compensation of the Company's key employees to the performance of the
Company and the creation of shareholder value. In 1998, the Compensation
Committee conducted a complete review of executive compensation through an
independent consultant and through internal assessment. The consultant surveyed
the industry's current compensation practices, studied the Company and the
functions of each executive officer, made recommendations with respect to the
amount and nature of the executives' compensation and consulted with the
Compensation Committee with respect to compensation issues.
In establishing the base salaries of the executives, the Compensation
Committee considered, in conjunction with the recommendations of the consultant,
(a) the responsibilities of each officer, (b) each officer's experience, (c) the
salaries of officers with similar responsibilities at real estate companies,
other REITs in general and other REITs that acquire hotels, specifically, (d)
the competitive market that existed at the time of the analysis for employees
with the experience and skill sets of the Company's officers, (e) the
responsibilities of each officer in light of the size, scope and geographic
dispersion of the Company's asset base, (f) the increasing sophistication of the
Company's systems and (g) the corresponding increase in the knowledge and time
commitment required of the officers. In considering
16
<PAGE> 18
Mr. Shaw's compensation, the Compensation Committee also considered the relative
amounts of time Mr. Shaw spends in connection with his respective duties with
the Company and the IH Lessee.
Each employment agreement establishes an annual bonus for the officers
based on the attainment of annual financial goals approved by the Compensation
Committee. Based on the analysis referred to above, the Compensation Committee
implemented a plan for 1999 and future years which sets targeted bonus amounts
for each officer based on performance goals for funds from operations. The
officers will not earn a bonus if the minimum performance threshold is not met,
and bonuses may exceed the target bonus amounts (subject to maximums) if higher
thresholds are met. Additional annual bonuses are payable in the discretion of
the Compensation Committee, subject to maximums, although to date no such
discretionary bonuses have been paid. In considering any discretionary bonus for
officers other than Mr. Fisher, the Compensation Committee may consider any
evaluation by Mr. Fisher as to the officers' responsibilities and performance.
The Compensation Committee believes that it is essential for the
Company's compensation program to maintain the flexibility to reward
contributions which may not be immediately reflected in quantitative performance
measures, but which are important to the Company's long-term success. In
determining the awards that have been made to the Company's executive officers
(including restricted shares, performance share awards and options), the
Committee considered (a) whether and to what extent the proposed grants would
further its compensation goals and (b) the incentive plans of the Company's REIT
peers (as reflected in various studies, including the annual survey compiled by
the National Association of Real Estate Investment Trusts). The Compensation
Committee intends to make non-cash compensation a significant part of the total
compensation package. The Compensation Committee believes that the awards made
to date encourage and reward performance by tying the value, or increases in the
value, of those awards directly to the creation of shareholder value as
reflected in increasing share prices. In approving awards, the Compensation
Committee has considered, in conjunction with the recommendations of the
consultant referred to above and other factors, (i) the rapid growth of the
Company, (ii) the scope of the officers' responsibilities, and (iii) awards made
to the executive officers of other REITs, and specifically other REITs which
invest in hotel properties. The Compensation Committee contemplates that
significant percentages of most awards will vest in the recipient over time -
recent restricted share grants vest over five years beginning in 2000 - if the
employee remains an employee at the time of vesting, to further its goal of
providing the employee with long-term incentives. The Company has also adopted a
policy of granting options to the Company's non-executive employees who are
employed by the Company for a pre-set tenure. While the Committee has focused on
long-term incentives, it also recognizes that short-term share incentive
compensation can be an important factor in retaining key employees and fostering
share ownership. In recognition of this principle, the Compensation Committee
has considered the benefits of dividends that may be paid on restricted share
awards, which provide additional cash annually to the recipient while he bears
the risk of forfeiture until the underlying shares have fully vested.
Although none of the Company's executive officers receives annual
compensation in excess of $1 million, the Company continues to evaluate the
limit on tax deductibility of compensation in excess of that amount established
under the Omnibus Budget Reconciliation Act of 1993. The 1994 Plan allows for
the grant of options and certain cash and share incentive awards that qualify as
performance-based compensation exempt from the limit.
The foregoing has been furnished by the members of the Compensation
Committee.
COMPENSATION COMMITTEE
Miles Berger
C. Gerald Goldsmith
Bruce Zenkel
17
<PAGE> 19
PERFORMANCE GRAPH
The following graph compares the change in the Company's total
shareholder return on Common Shares for the period September 23, 1994 through
December 31, 1998, with the changes in the Standard & Poor's 500 Stock Index
(the AS&P 500 Index) and the SNL Securities Hotel REIT Index ("Hotel REIT
Index") for the same period, assuming a base share price of $100 for the Common
Shares and the Hotel REIT Index for comparative purposes. The Hotel REIT Index
is comprised of fifteen publicly traded REITs which focus on investments in
hotel properties. Total shareholder 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.
INNKEEPERS USA TRUST
Total Return Performance
(PERFORMANCE GRAPH TO COME)
18
<PAGE> 20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions with Management
The IH Lessee. The Partnership leases 56 Hotels to the IH Lessee, which
is owned by Mr. Fisher (80%) and Mr. Shaw (20%), at December 31, 1998, with each
such lease having an initial term of at least 10 years. Pursuant to the terms of
the Percentage Leases, the IH Lessee is required to pay the greater of (a) a
fixed base rent or (b) 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 hotels after the payment of rent, operating expenses and other
expenses (including management fees). Payments of rent under the Percentage
Leases with the IH Lessee constituted approximately 85% of the Company's 1998
revenues. For the year ended December 31, 1998, the IH Lessee incurred or paid
the Partnership an aggregate of approximately $87.7 million in lease payments
under the Percentage Leases for those 56 Hotels and had combined net income of
approximately $4.1 million from the operation of the Company's hotels leased by
the IH Lessee. In addition to his 20% ownership of the IH Lessee, Mr. Shaw
serves as President of, and derives a salary and bonus from, the IH Lessee.
Franchise Licenses; Management Agreements. The IH Lessee, which is
owned by Messrs. Fisher and Shaw, holds all of the franchise licenses for the
Hotels leased by the IH Lessee (to the extent such hotels have franchise
agreements) and is expected to hold any franchise licenses required for
subsequently acquired hotel properties that are leased to the IH Lessee. The IH
Lessee pays the franchise fees for all of the Company's Hotels which are leased
to the IH Lessee and are subject to franchise fees, except for franchise license
application and transfer fees, which are paid by the Partnership. During 1998,
the Partnership incurred or paid franchise license application, transfer and
related fees for the Hotels leased to the IH Lessee in the aggregate amount of
approximately $102,000. In addition, the Partnership has loaned to the IH Lessee
an aggregate of approximately $745,000, which the IH Lessee was required to make
available to Residence Inn by Marriott, Inc. ("Marriott") for initial working
capital at 15 of the Residence Inn Hotels that are managed by Marriott under
management contracts with the IH Lessee. The Partnership's loans to the IH
Lessee for working capital at the Marriott-managed Hotels bear no interest and
are payable on demand. The Company has also entered into agreements with the
franchisors under which the Company has guaranteed certain obligations of the IH
Lessee, including obligations to pay royalties and other fees to the
franchisors, generally in exchange for the right to substitute a different
lessee as the franchisee under the relevant franchise agreement if the Company
terminates the Percentage Lease for a franchised hotel. Similarly, the Company
has executed the management agreements for certain of its Residence Inn hotels
as a third party, pursuant to which it has guaranteed certain of the obligations
of the IH Lessee under those agreements, including obligations to pay management
and other fees to Marriott. In exchange, the Company has the right, under
certain circumstances, to substitute a different lessee as party to the relevant
management agreement, if the Company terminates the Percentage Lease for a hotel
managed by Marriott.
Jack P. DeBoer. In November 1996, the Company acquired seven Residence
Inn hotels (the "DeBoer Hotels") from affiliates of Jack P. DeBoer (the "DeBoer
Group"), including Rolf E. Ruhfus. Due to the potential adverse tax consequences
to members of the DeBoer Group that may result from a sale of the DeBoer Hotels,
the Company has agreed with the DeBoer Group that for a period of up to ten
years following the closing of the acquisition of the DeBoer Hotels, (i) any
taxable sale of a DeBoer Hotel will require the consent of the applicable
members of the DeBoer Group and (ii) the Company will maintain at all times
outstanding indebtedness of at least approximately $40 million, subject to
reduction upon the occurrence of certain events, including certain redemptions
or taxable transfers of Preferred Units by the applicable members of the DeBoer
Group (the "Required Indebtedness"). In the event that the Company fails to
maintain the Required Indebtedness, the Company has agreed to indemnify the
applicable members of the DeBoer Group for any resulting income tax liabilities.
Mr. DeBoer and certain of his affiliates have in the past, and continue
to be, involved in the development of hotels, including extended-stay hotels.
Mr. DeBoer is the President, Chairman of the Board and a major shareholder
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of Candlewood Hotel Company, Inc. ("Candlewood"), a public hotel company that is
the owner, operator and franchisor of Candlewood hotels, an economy
extended-stay hotel chain founded by Mr. DeBoer. Hotels developed by Mr. DeBoer
and his affiliates, including Candlewood hotels, may compete with the Company's
hotels for guests, and other hotel companies with which Mr. DeBoer is
affiliated, including Candlewood, may compete with the Company for acquisition
opportunities. Accordingly, the interests of the Company and Mr. DeBoer could be
different in connection with matters relating to the Company's Hotels or
proposed acquisitions that are competitive with hotels owned or being considered
for acquisition or development by Mr. DeBoer and his affiliates.
Each Preferred Unit held by the DeBoer Group may be redeemed for an
amount of cash equal to the then-trading value of a Common Share on the NYSE or,
at the option of the Company, one Common Share. Assuming full redemption of all
Preferred Units (and Common Units) held by the DeBoer Group and the issuance of
Common Shares in exchange therefrom, the DeBoer Group would own approximately
11.1% of the Common Shares currently outstanding. Following the acquisition of
the DeBoer Hotels, Mr. DeBoer joined the Company's Board of Trustees. The
Company has, for the last two years, placed substantially all of its insurance
(including officers' and trustees' liability, property, casualty, earthquake and
worker's compensation coverages) with Manning & Smith, Wichita, Kansas, a full
service commercial insurance broker that has developed a specialty in insuring
hotels. During that same period, the IH Lessee place substantially all of its
insurance (including workers' compensation, employment practices liability,
crime and, for the 1998, health care coverages) with Manning & Smith. Manning &
Smith is a private company of which Mr. DeBoer owns 47% of the stock. Mr. DeBoer
has informed the Company that he is not an officer of Manning & Smith and does
not participate in its management or the setting of policy. For the policy year
1998 (the twelve months ended October 1998), the gross amount of the premiums
paid for coverages placed by Manning & Smith for the Company was approximately
$930,000 and for the IH Lessee was approximately $__________.
Rolf E. Ruhfus. In June 1997, the Company acquired nine hotels (the
"Summerfield Hotels") from affiliates of Rolf E. Ruhfus (the "Summerfield
Group") for a total purchase price of approximately $118.6 million, consisting
of (i) approximately $89.5 million in cash and (ii) approximately 1.94 million
Common Units, which were assumed to have a value of $15 per Common Unit. The
Company leases the Summerfield Hotels to the Summerfield Lessee. Following the
acquisition of the Summerfield Hotels, Mr. Ruhfus joined the Company's Board of
Trustees. For the year ended December 31, 1998, the Summerfield Lessee incurred
or paid the Partnership an aggregate of approximately $15.3 million in lease
payments under the Percentage Leases for the Summerfield Hotels.
On October 23, 1998, the Company sold its three Sierra Suites hotels
for $19,950,000 to an affiliate of Rolf Ruhfus (the "Sierra Suites Buyer"), a
trustee of the Company and a director of the Summerfield Lessee. The Company
acquired two of the Sierra Suites hotels from affiliates of Mr. Ruhfus in July
1997, when it acquired six Summerfield Suites hotels, and developed the third
Sierra Suites hotel in 1998. In connection with the July 1997 acquisition, (a)
the Company negotiated for, and obtained, the right to terminate the Summerfield
Leases for its Sierra Suites hotels in certain circumstances and (b) affiliates
of Mr. Ruhfus negotiated for, and obtained, the right to acquire from the
Company any Sierra Suites hotels with respect to which the Company exercised the
above-referenced right to terminate the Summerfield Leases. Under these
provisions, if the termination right was triggered and exercised for one or more
hotels, the purchase prices to be paid by the affiliates of Mr. Ruhfus would be
equal to the Company's investment in those hotels. When the Sierra Suites brand
was acquired by affiliates of Patriot American Hospitality, Inc. in June 1998,
the Company terminated the leases for its three Sierra Suites hotels. The Sierra
Suites Buyer then exercised its right to acquire those hotels. In connection
with the sale of the three Sierra Suites hotels in October 1998 to the Sierra
Suites Buyer, 233,612 of the Common Units issued to the Summerfield Group when
the Company acquired the Summerfield Hotels in July 1997 were tendered to the
Company as a portion of the purchase price for the three Sierra Suites hotels.
Those Common Units had a deemed value of $3,568,000, which was applied to the
$19,950,000 purchase price.
Beginning in July 1998, each Common Unit held by the Summerfield Group
may be redeemed for an amount of cash equal to the then-trading value of a
Common Share on the NYSE or, at the option of the Company, one Common Share.
Assuming full redemption of all Common Units (and Preferred Units) held by the
Summerfield Group and the
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issuance of Common Shares in exchange therefor, the Summerfield Group would own
approximately 1.8% of the Common Shares currently outstanding.
Mr. Ruhfus and certain of his affiliates have in the past, and continue
to be, involved in the development of hotels, including extended-stay hotels.
Mr. Ruhfus is a Board member of Wyndham International, Inc. and the non-
executive Chairman of Wyndham's all-suites division. Wyndham and Patriot
American Hospitality, Inc., whose shares are paired and trade with Wyndham's
shares, together own, operate and franchise Summerfield Suites and Sierra Suites
hotels as well as other full and limited service hotels and hotel brands. Hotels
developed by Patriot, including Summerfield Suites and Sierra Suites hotels, may
compete with the Company's hotels for guests. Accordingly, the interests of the
Company and Mr. Ruhfus could be different in connection with matters relating to
the Company's Hotels or proposed acquisitions that are competitive with hotels
owned or being considered for acquisition or development by Patriot.
When the Summerfield Lessee was sold to Patriot, the Company required
Patriot's main operating partnership, Patriot American Hospitality Partnership,
L.P., to either be the lessee for the Company's Summerfield Hotels, or to
guarantee the obligations of the Patriot affiliate that was the lessee. In
addition, the Company required Patriot to post with the Company a letter of
credit in an amount equal to 40% of the 1998 budgeted lease payment to the
Company, as security for the obligations of Patriot under the Summerfield
Leases. Mr. Ruhfus' roles as trustee of the Company and director of Wyndham may
pose conflicts regarding when, whether and to what extent (a) obligations under
the Summerfield Leases and related guarantees are adhered to and/or (b) remedies
are pursued and obtained by the Company under the Summerfield Leases, including
draws under the letter of credit.
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PROPOSAL TWO - AMENDMENT OF THE DECLARATION OF TRUST TO
PERMIT THE BOARD OF TRUSTEES TO ALTER THE NUMBER
OF AUTHORIZED SHARES OF BENEFICIAL INTEREST OF THE COMPANY
Title 8 of the Corporations and Associations Article of the Annotated
Code of Maryland ("Title 8"), the statute under which the Company is formed,
permits the board of trustees of a Maryland real estate investment trust formed
as a trust ("REIT"), such as the Company, to include in its declaration of trust
a provision permitting the board of trustees to amend the declaration of trust
to increase or decrease the aggregate number of shares or the number of shares
of any class of beneficial interest that the trust has authority to issue.
Under Maryland law as in effect prior to October 1, 1995, a Maryland
REIT such as the Company was required to obtain the approval of its shareholders
each time it proposed to amend its declaration of trust to increase and decrease
its number of authorized shares of beneficial interest. This process is
expensive and time-consuming. Adopting the proposed amendment to the Declaration
of Trust, as authorized by Maryland law, will enable the Board of Trustees alone
to amend the Declaration of Trust of the Company to increase or decrease the
number of authorized shares. Adding the provision authorized by Maryland law to
the Declaration of Trust requires the approval of the shareholders of the
Company.
Accordingly, the Board of Trustees has unanimously adopted a resolution
declaring that it is advisable and in the best interests of the Company to add
to Article VI, Section 1, of the Declaration of Trust the following sentence:
"The Board of Trustees, without any action by the shareholders of the Company,
may amend the Amended and Restated Declaration of Trust from time to time to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of beneficial interest of any class that the Company is
authorized to issue." The effect of this amendment will be to permit the Board
of Trustees, without shareholder action, to increase and decrease (a) the total
number of authorized shares of beneficial interest in the Company and/or (b) the
number of authorized shares of beneficial interest of any one or more classes.
Maryland law permits a REIT to have shares of beneficial interest that are
assigned to a particular class as well as shares that are not assigned to a
particular class but are available to be classified by the board of trustees at
a later time. Thus, the total number of authorized shares of beneficial interest
may exceed the total number of authorized shares of all classes.
At present, the Company is authorized to issue 120,000,000 shares, of
which 100,000,000 shares are common shares and 20,000,000 shares are preferred
shares. Of the 100,000,000 authorized common shares, there are already issued
and outstanding over 34,676,586 shares (as of March 1, 1999). Of the 20,000,000
authorized preferred shares, there are 4,630,000 shares issued and outstanding.
The Board of Trustees believes that it is in the best interests of the
Company and its shareholders to permit the Board of Trustees, without the
necessity of shareholder approval, to increase or decrease either the aggregate
number of shares of beneficial interest or the number of shares of any class of
beneficial interest that the Company has authority to issue in order to provide
the Company with maximum flexibility to meet a variety of business needs as they
may arise and to enhance the Company's flexibility in connection with possible
future opportunities. These business needs and opportunities may include share
dividends, share splits, retirement of indebtedness, employee benefit programs,
business combinations, acquisitions of property and raising cash for general
purposes. Responding to such needs or opportunities often requires quick action
and the process of obtaining shareholder approval to amend the Declaration of
Trust is both time-consuming and expensive. The Board of Trustees currently does
not have any plans to increase the aggregate number of authorized shares or the
number of shares of any class of beneficial interest or to issue any significant
number of shares.
If the proposed amendment is adopted, authorized shares of
beneficial interest of the Company as established from time to time by the Board
of Trustees in excess of those issued from time to time will be available for
issuance at such times and for such purposes as the Board of Trustees may deem
advisable without further action by
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the Company's shareholders, unless such action is otherwise required by
applicable law or the rules of the New York Stock Exchange.
As discussed above, the advantages to the Company's shareholders of the
proposed amendment include the flexibility it would give the Company in raising
capital and acquiring property and the avoidance of delay and expense. However,
shareholder approval would continue to be required under the rules of the New
York Stock Exchange for any transaction or series of related transactions (other
than a public offering for cash) in which common shares or securities
convertible into or exercisable for common shares are to be issued if (i) the
newly issued common shares have voting power equal to or in excess of 20% of the
number of outstanding common shares before such transaction (other than stock
splits or stock dividends) or (iii) the issuance would result in a change of
control of the Company.
The Board of Trustees does not intend to increase the aggregate number
of authorized shares or the number of shares of any class of beneficial interest
or to issue any shares of beneficial interest except on terms or for reasons
that the Board deems to be in the best interest of the Company. Because the
holders of common shares of the Company do not have preemptive rights, the
issuance of additional common shares (other than on a pro rata basis to all
current shareholders) would reduce current shareholders proportionate interest.
However, in such event, shareholders wishing to maintain their interests may be
able to do so through normal market purchases. Any future issuance of shares
will be subject to the rights of holders of outstanding preferred shares, if
any. While the issuance of shares by certain entities in certain instances may
have the effect of delaying, deferring or preventing a hostile takeover, the
Board of Trustees does not believe that the authority to increase or decrease
the authorized shares of beneficial interest is likely to have a significant
anti-takeover effect because of existing provisions in the Company's Declaration
of Trust restricting the concentration of ownership of the outstanding shares of
the Company in order to maintain the Company's qualification as a REIT under the
Internal Revenue Code.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE PROPOSAL TO
AMEND ARTICLE VI, SECTION 1, OF THE COMPANY'S DECLARATION OF TRUST TO PERMIT THE
BOARD OF TRUSTEES TO AMEND THE DECLARATION OF TRUST TO INCREASE OR DECREASE THE
AGGREGATE NUMBER OF SHARES OR THE NUMBER OF SHARES OF ANY CLASS OF BENEFICIAL
INTEREST THAT THE COMPANY IS AUTHORIZED TO ISSUE. Proxies will be so voted
unless specified otherwise in their proxies. The affirmative vote of holders of
a majority of the outstanding common shares is required for approval of this
proposal. Consequently, any shares not voted (whether by abstentions, broker
non-votes or otherwise) will have the same effect as votes against the proposed
amendment to the Company's Declaration of Trust. If this proposal is approved by
the shareholders, it will become effective upon the filing of Articles of
Amendment with the State Department of Assessments and Taxation of Maryland,
which will occur as soon as reasonably practicable after approval.
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SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
The Board of Trustees will provide for presentation of shareholder
proposals at the 2000 annual meeting of shareholders, provided that such
proposals are submitted by eligible shareholders who have complied with the
relevant regulations of the SEC regarding such proposals, and with requirements
of the Company's Bylaws, a copy of which is available upon written request
addressed to the Secretary of the Company. Shareholder proposals intended to be
submitted for presentation at the Company's 2000 annual meeting of shareholders
must be made in writing and must be received by the Company at its executive
offices no later than one hundred and twenty (120) days before the anniversary
of the date of the Annual Meeting for inclusion in the Company's proxy statement
and the form of proxy relating to the 2000 annual meeting.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP has served as auditors for the Company and
its subsidiaries for the year ended December 31, 1998 and will continue to so
serve for the year ending December 31, 1999 until and unless changed by action
of the Board of Trustees. A representative of PricewaterhouseCoopers LLP will be
present at the Annual Meeting.
OTHER MATTERS
The Board of Trustees 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 Shares
entitled to vote at the Annual Meeting, upon written request to David Bulger,
the Company's Chief Financial Officer and Treasurer, at the Company's executive
offices at 306 Royal Poinciana Way, Palm Beach, Florida 33480, telephone (561)
835-1800, copies of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, including the financial statements and financial
statement schedules filed by the Company with the SEC therewith.
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Appendix A
INNKEEPERS USA TRUST
306 ROYAL POINCIANA WAY
PALM BEACH, FLORIDA 33480
ANNUAL MEETING OF SHAREHOLDERS -- MAY 5, 1999
The undersigned hereby appoints Jeffrey H. Fisher and Mark A. Murphy, 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 Shares of the
undersigned in Innkeepers USA Trust at the Annual Meeting of Shareholders to be
held at the Courtyard by Marriott, 2440 W. Cypress Creek Road, Ft. Lauderdale,
FL 33309, at 9:00 a.m., local time, on Wednesday, May 5, 1999 and at any
adjournments thereof, as specified below:
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
(Continued and to be signed on reverse side)
INNKEEPERS USA TRUST
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER IN DARK INK ONLY [ ]
This proxy is solicited by the Company's Board of Trustees. If no specification
is made, this proxy will be voted FOR adoption of each of Proposals One and Two.
1. Election of Trustees ("Proposal One")-- For Withhold For All
Class II--Term Expiring 2002-- All All Except*
Nominees: Miles Berger and C. Gerald Goldsmith [ ] [ ] [ ]
----------------------------------------------
*Nominee Exception (print name)
2. Proposal to amend the Amended and Restated For Against Abstain
Declaration of Trust of the Company to permit [ ] [ ] [ ]
the Board of Trustees, from time to time, to
increase or decrease the number of shares of
beneficial interest in the Company or the
number of shares of beneficial interest of
any class the Company is authorized to issue
("Proposal Two").
3. 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.
Dated: ___________________________, 1999
Signature
-----------------------------------------------------------------------
Title
---------------------------------------------------------------------------
Please sign name exactly as it appears on share certificate. Only one of
several joint owners need sign. Fiduciaries should give full title.
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE MARK,SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE
