UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Host Marriott Corporation
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(Name
(Name of Registrant as Specified In Its Charter)
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[LOGO] Host Marriott Corporation
10400 Fernwood Road
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| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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6903 Rockledge Drive, Suite 1500
Bethesda, Maryland 20817-1109
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
STOCKHOLDERS
TO BE HELD THURSDAY,TUESDAY, MAY 16, 2002
13, 2003
To Our Shareholders:
Stockholders:
You are cordially invited to attend the Annual Meeting of ShareholdersStockholders of Host Marriott Corporation, which will be held in Salon III at The Ritz-Carlton, Tysons Corner, located at 1700 Tysons Boulevard, McLean, Virginia, on Thursday,Tuesday, May 16, 200213, 2003 at 11:00 a.m. Doors to the meeting will open at 10:30 a.m. At the meeting, shareholdersstockholders will be asked to consider and vote on the following proposals:
Proposal 1: | Election of | |
Proposal 2: | Ratification of the appointment of KPMG LLP as independent auditors of the Company to serve for the 2003 calendar year; and | |
Proposal 3: | Consideration of a |
Stockholders will also transact other business if any is properly brought before the annual meeting.
If you were a shareholderstockholder of record at the close of business on March 29,
2002,26, 2003, you may vote at the annual meeting. Whether or not you plan to attend the meeting, please take the time to vote by completing and mailing the enclosed proxy card to us in the envelope provided.
This proxy statement provides you with detailed information about the proposals to be voted on at the meeting and the procedures for the meeting. WithIt also describes how the Company’s Board of Directors operates and gives certain information about the Company. Also included with this proxy statement we are also
including copiesis a copy of our 20012002 Annual Report to shareholders and our Form 10-K
for 2001 (collectively, the "Proxy Materials") in order to provide you with
additional information about us.Stockholders. We encourage you to read the proxy statement and the other informationannual report carefully.
By order of the Board of Directors,
/s/
/s/ ELIZABETH A. ABDOO
Elizabeth A. Abdoo
Elizabeth A. Abdoo
Corporate Secretary
April 5, 20027, 2003
Your vote is important to us. Please promptly complete, date, sign and return the enclosed proxy card whether or not you plan to attend the meeting.
Refer
Please refer to the note on the outsidereverse side of the back coverthis notice for information on accommodations and for directions to the hotel.
ANNUAL MEETING OF STOCKHOLDERS
OF HOST MARRIOTT CORPORATION
10400 Fernwood Road
Bethesda, Maryland 20817-1109
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 16, 2002
INFORMATION ABOUT THE ANNUAL MEETING
Our annual meeting
The 2003 Annual Meeting of Stockholders of Host Marriott Corporation will be held in Salon III at The Ritz-Carlton, Tysons Corner, located at 1700 Tysons Boulevard, McLean, Virginia, on Thursday,Tuesday, May 16, 200213, 2003, at 11:00 a.m. Doors to the meeting will open at 10:30 a.m. Please
refer
A special “Stockholder Annual Meeting” rate is offered at the hotel for Monday, May 12, 2003, the night before the meeting. A limited number of rooms are available for this special rate of $219, single or double occupancy. To receive this special rate, please call the hotel directly and ask for the Host Marriott Corporation “Stockholder Annual Meeting” rate for May 12. Applicable taxes and gratuities will be additional, and reservations are required in advance. This discount may not be used in conjunction with any other discount, coupon or group rate.
The Ritz-Carlton, Tysons Corner
1700 Tysons Boulevard
McLean, Virginia 22102
Telephone: (703) 506-4300
Directions to the outside back coverhotel:
From Ronald Reagan Washington National Airport:Take the George Washington Parkway north to I-495 South. Then exit on Tysons Corner/Route 123 South (Exit 11B). Turn right at the first light onto Tysons Boulevard. The Ritz-Carlton Hotel is on the left.
From Dulles International Airport:Take the Dulles Access Road East to Exit 17, Spring Hill Road. Please stay in the far right lane. After paying the toll, turn right onto Spring Hill Road and proceed straight through the traffic light. Spring Hill Road becomes International Drive. Turn left at the third light onto Tysons Boulevard. The Ritz-Carlton Hotel is on the right, next to the MCI Building.
West on I-66 from Downtown Washington, D.C.: Take I-66 West to Exit 67, I-495 toward Baltimore/Dulles. Then exit on Tysons Corner/Route 123 South, Exit 10A. Continue on Route 123 South, bearing right at the fourth light onto Tysons Boulevard. The Ritz-Carlton Hotel is on the left.
PROXY STATEMENT
Table of Contents
Page | ||
Attendance and Voting Matters | 1 | |
Proposal One—Election of Directors | 4 | |
Proposal Two—Ratification of Appointment of Independent Auditor | 6 | |
Proposal Three—Stockholder Proposal Regarding Annual Election of All Directors | 7 | |
The Board of Directors and Committees of the Board | 8 | |
Compensation of Directors | 11 | |
Security Ownership of Certain Beneficial Owners and Management | 12 | |
Executive Officer Compensation | 14 | |
Aggregated Stock Option/SAR Exercises and Year-End Value | 16 | |
Equity Compensation Plan Information | 17 | |
Employment Arrangements | 17 | |
Report of the Compensation Policy Committee on Executive Compensation | 19 | |
Performance Graph | 22 | |
Compensation Committee Interlocks and Insider Participation | 22 | |
Report of the Audit Committee | 23 | |
Auditor Fees | 25 | |
Certain Relationships and Related Transactions | 26 | |
Section 16(a) Beneficial Ownership Reporting Compliance | 28 | |
Stockholder Proposals and Director Nominations | 28 | |
Other Matters | 29 | |
Appendix A - Audit Committee Charter | A-1 |
HOST MARRIOTT CORPORATION
6903 Rockledge Drive, Suite 1500
Bethesda, Maryland 20817-1109
PROXY STATEMENT
ATTENDANCE AND VOTING MATTERS
Introduction
The annual meeting will be held on Tuesday, May 13, 2003, at 11:00 a.m. in Salon III at The Ritz-Carlton, Tysons Corner, located at 1700 Tysons Boulevard, McLean, Virginia. You are entitled to vote at our 2003 annual meeting because you were a stockholder at the close of business on March 26, 2003, the record date for this year’s annual meeting. That is why you were sent this proxy statement, forwhich contains information about the items to be voted upon at our annual stockholders meeting.
Q: What is a proxy?
A proxy is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. When you return the enclosed proxy card, you are giving us your permission to vote your shares of common stock at the annual meeting as you designate on accommodationsthe proxy card. The people who will vote your shares of common stock at the annual meeting are Christopher J. Nassetta and for directions to the hotel.
INFORMATION ABOUT THE PROXY STATEMENT
Our Board of Directors hasElizabeth A. Abdoo.
Q: What is a proxy statement?
We sent you this proxy statement and the enclosed proxy card because our Board of Directors is soliciting your proxy to solicitvote your voteshares at the annual meeting (including any adjournment or postponement of the
annual meeting). In thisstockholders meeting. This proxy statement we summarizesummarizes information that we are required to provide to you under the rules of the Securities and Exchange Commission, rules.
This proxy statementor SEC, when we ask you to sign a proxy. It is designed to assist you in voting.
Q: What does it mean if I get more than one proxy card?
You should vote on each proxy card you receive. You will receive separate proxy cards for all of the shares you hold in different ways, such as jointly with another person, or in trust, or in different brokerage accounts. If you hold shares in a stock brokerage account, you will receive a proxy card or information about other methods of voting from each broker, and you must send your shares. On April
5, 2002 we began mailingvote to your broker according to the Proxy Materials to all shareholders of record atbroker’s instructions.
Q: What may I vote on?
You may vote on the close of business on March 29, 2002.
PROPOSALS TO BE CONSIDERED BY YOU AT THE ANNUAL MEETING
At the annual meeting, we will ask you to:
following proposals
| (1) | Election of Robert M. Baylis, Ann McLaughlin Korologos and Terence C. Golden as directors for three-year terms expiring at the 2006 annual meeting and Judith A. McHale as a |
| (2) | the ratification of the appointment of KPMG LLP as independent auditors of the Company for 2003; |
| (3) | a |
| (4) | any other business as may properly come before the |
Q: Who is entitled to vote?
Anyone who owned common stock of the Company at the close of business on Wednesday, March 26, 2003, the record date, is entitled to vote at the annual meeting.
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We are first sending the proxy solicitation materials, together with the Company’s 2002 Annual Report, on April 7, 2003 to all stockholders entitled to vote at the meeting.
Q: How do I vote?
You may vote your shares if you were a shareholder of record of our common stock as of the close of business on March 29, 2002. Each share is entitled to
one vote at the meeting. At the close of business on March 29, 2002, there were
264,561,792 shares of our common stock issued and outstanding. You may vote
your shares either by proxy or in person. You may vote in person as follows:
. By Proxy:by attending the annual meeting and voting in person. You can vote by proxy by completing, signing and dating the enclosed proxy card and returning it to us by mail in the envelope provided. The instructions for voting are contained on the enclosed proxy card. The individuals named on the card are your proxies. They will vote your shares as you indicate. If you sign your card without indicating how you wish to vote, all of your shares will be voted:
. FOR Mr. Schreiber as a Director;
. AGAINST the shareholder proposal regarding the annual election of
all Directors;
. AGAINST the shareholder proposal regarding the nomination process
for Directors;
. AGAINST the shareholder proposal regarding the re-incorporation of
the Company in Delaware from Maryland; and
.
| (1) | FOR the nominees as directors; |
| (2) | FOR the ratification of the appointment of KPMG LLP as independent auditors of the Company for 2003; |
| (3) | AGAINST the stockholder proposal regarding the annual election of all directors; and |
| (4) | at the discretion of your proxies on any other matters that may be properly brought before the annual meeting. |
Q: What if I return my proxy card and then change my mind?
You have the right to revoke your proxy at any time before the annual meeting.
. In Person: You may attend the annual meeting and vote in person.
You may revoke your proxy before it is voted at the meeting if you:
. file a written notice of revocation dated after the proxy date with
EquiServe Trust Company, N.A. (formerly First Chicago Trust Company of
New York), in its capacity as our transfer agent; or
. send EquiServe a later-dated proxy for the same shares of common stock;
or
. attend the annual meeting AND vote in person there.
| (1) | File a written notice of revocation dated after the proxy date with EquiServe Trust Company, N.A., or EquiServe (formerly First Chicago Trust Company of New York), in its capacity as our transfer agent; or |
| (2) | send EquiServe a later-dated proxy for the same shares of common stock; or |
| (3) | attend the annual meeting AND vote there in person. |
The mailing address for EquiServe is P.O. Box 8611, Edison, New Jersey 08818-9119.
If your
Q: How many shares of common stock may vote at the annual meeting?
At the close of business on March 26, 2003, there were 267,431,110 shares of our common stock issued and outstanding. Every stockholder is entitled to one vote for each share of common stock held.
Q: What vote is required to approve each proposal?
Directors are registeredelected by a plurality of the votes cast. Of all nominees, the top four in different namesterms of “for” votes received will be elected directors. Shares not voted will not affect the election of the directors except to the extent that failure to vote for an individual results in another individual’s receiving a larger proportion of votes.
The proposal to ratify the approval of KPMG LLP as independent auditors for 2003 will require approval by a majority of votes cast at the annual meeting.
Under our Articles of Incorporation, the stockholder proposal regarding the annual election of all directors must receive the affirmative vote of the holders of at least two-thirds of the total number of outstanding shares of our common stock as of the record date, March 26, 2003.
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Q: What is a “quorum”?
A quorum is the presence at the annual meeting, in person or are in more than one
account, you will receive more than oneby proxy, card. To ensure that all your
shares are voted, please sign and return all proxy cards. We encourage you to
have all accounts registered in the same name and address, whenever possible.
You can accomplish this by contacting our transfer agent, EquiServe, at (800)
311-4816.
INFORMATION ABOUT A QUORUM
Holders of a majority of the outstanding shares of our common stock. Since there were 267,431,110 shares of common stock must be
presentoutstanding at the meeting, in person or by proxy, forclose of business on March 26, 2003, the presence of holders of 133,715,556 shares is a quorum. We must have a quorum to be present.conduct the meeting. If a quorum is not present or if we decide that more time is necessary for the solicitation of proxies, we may adjourn the annual meeting. We may do this with or without a shareholderstockholder vote. If there is a shareholderstockholder vote to adjourn, the named proxies will vote all shares of common stock for which they have voting authority in favor of adjournment.
Q: How are abstentions and broker non-votes treated?
Shares of our common stock represented by proxies that are marked "withhold
authority"“withhold authority” (with respect to the election of the nomineenominees for election as a Director)director), or marked "abstain,"“abstain,” or which constitute broker non-votes, will be counted as present at the meeting for the purpose of determining a quorum. Broker non-votes occur when a nominee holding shares of our common stock for a beneficial owner has not received voting instructions from the beneficial owner and such nominee does not possess or does not choose to exercise discretionary authority with respect to such shares.
With respect to any matter to be decided by a plurality (such as the election of a Director)director) or by a majority or by a supermajority, as the case may be, of the votes cast at the meeting, none of the proxies marked "withhold authority"“withhold authority” or marked "abstain,"“abstain,” or which constitute broker non-votes, will be counted for the purpose of determining the number of votes cast at the meeting.
VOTES NECESSARY FOR EACH PROPOSAL TO BE APPROVED
Proposal One: Election
Q: How will voting on any other business be conducted?
Although we do not know of Director--The person nominated for Director
receivingany other business to be considered at the most votes will be elected. Shares not voted will not affectannual meeting other than the election of directors and the Director exceptadditional proposals described in this proxy statement, if any other business is properly presented at the annual meeting, your signed proxy card gives authority to the extent that failureChristopher J. Nassetta and Elizabeth A. Abdoo, or either of them, to vote for an
individual results in another individual's receiving a larger proportion of
votes.
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Proposal Two: Shareholder Proposal regarding the Annual Election of all
Directors--Under our Articles of Incorporation, the shareholder proposal urging
the Board of Directors to instate the annual election of all Directors must
receive the affirmative vote of the holders ofon such matters at least two-thirds of the total
number of outstanding shares of our common stock as of the record date.
Proposal Three: Shareholder Proposal regarding the Nomination Process for
Directors--Under our Articles of Incorporation, the shareholder proposal urging
the Board of Directors to nominate at least two candidates for each open
position on the Board must receive the affirmative vote of the holders of at
least two-thirds of the total number of outstanding shares of our common stock
as of the record date.
Proposal Four: Shareholder Proposal regarding the Re-incorporation of the
Company in Delaware from Maryland--Under our Articles of Incorporation, the
shareholder proposal urging the Board of Directors to take the measures
necessary to change the Company's jurisdiction of incorporation from Maryland
to Delaware must receive the affirmative vote of the holders of at least
two-thirds of the total number of outstanding shares of our common stock as of
the record date.
Other Matters--Unlesstheir discretion. Unless otherwise required by our Articles of Incorporation or Bylaws or by applicable Maryland law, any other matter properly presented for a vote at the meeting will require the affirmative vote from a majority of the shares of our common stock present and voting on such proposal.
COSTS OF PROXY SOLICITATION
The proxies being solicited by
Q: Who will count the votes?
Representatives of EquiServe, our transfer agent, will act as the inspectors of election and will tabulate the votes.
Q: Who pays the cost of this proxy statement are being solicited by
the Company. The Companysolicitation?
We will bear the entire cost of this proxy solicitation. We have retainedhired the firm of MacKenzie Partners, Inc., 156 Fifth Avenue, New York, New York 10010, to beassist in the solicitation of proxies on behalf of our proxy solicitation agentBoard. MacKenzie Partners has agreed to perform these services for a fee of $6,500, plus certain reimbursable expenses. Officers and regular employees of the Company may
solicit proxies by further mailing or personal conversations, or by telephone,
facsimile, telex or other electronic means. WeIn addition, we will, upon request, reimburse brokerage firms, banks and other nominees who hold our stock on behalf of other beneficial owners for their reasonable expenses related to forwarding our Proxy
Materialsproxy materials to those beneficial owners.
INFORMATION TO RELY UPON WHEN CASTING YOUR VOTE
You should rely only on the information contained in
Q: Is this proxy statement or incorporated by reference when voting onthe only way that proxies are being solicited?
No. In addition to mailing these matters. We have not
authorized anyone to give any information or to make any representation in
connection with this proxy solicitation materials, our officers and employees may solicit proxies by further mailings or personal conversations, or by telephone, facsimile, telex or other than those contained in or
incorporated by reference in this proxy statement. You should not rely on such
information or representation as having been authorized by us. You should not
infer under any circumstances that because this proxy statement has been
delivered to you, there has not been a change in the facts set forth in this
proxy statement or in our affairs since the date on this proxy statement.
electronic means.
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PROPOSAL ONE: ELECTION OF DIRECTOR
One DirectorDIRECTORS
Four directors will be elected at the 2003 annual meeting of stockholders. Judith A. McHale is nominated for election as a Class I director to serve until the annual meeting of stockholders in 2005. Ms. McHale was approved by our Board of Directors in December 2002 annual meeting. John G. Schreiber
has been nominatedto fill a vacancy on our Board. Ms. McHale is required to stand for re-electionelection at thethis annual meeting to serve as a Directordirector until the 2005 annual meeting of shareholders.stockholders in 2005, when all Class I directors will stand for election. The other Class I Director is John G. Schreiber, who was re-elected last year.
In addition, Robert M. Baylis, Ann McLaughlin Korologos and Terence C. Golden are each nominated for election as Class II directors to serve until the annual meeting of stockholders in 2006. Mr. Schreiber is an
incumbent Director. Baylis, Ms. Korologos, and Mr. Golden are all currently directors of the Company.
The table below contains certain biographical information about himthe nominees for election as directors, as well as our other Directors. Hefor those directors continuing in office. Each nominee has consented to serve if re-elected, but should heany one be unavailable to serve (an event which our Board does not now anticipate), the proxies named on your proxy card will vote for the substitute nominee recommended by the Board of Directors.
Vote Required
The person nominated for Director who receives the most votes will be
elected.
The Board of Directors unanimously recommends that you vote FOR Mr. Schreiber as a
Director in Proposal One.
NOMINEEeach of the nominees for director.
NOMINEES FOR DIRECTOR
Robert M. Baylis Director since 1996 Age: 64
| Mr. Baylis is the retired Vice Chairman of CS First Boston. Prior to his retirement, he was Chairman and Chief Executive Officer of CS First Boston Pacific, Inc. Mr. Baylis is also a Director of New York Life Insurance Company, Covance, Inc., Gildan Activewear, Inc., and PartnerRe Ltd. In addition, he is an overseer of the University of Pennsylvania Museum, a Director of The International Forum, an executive education program of the Wharton School, and a member of the Advisory Council of the Economics Department of Princeton University. If elected as a director, Mr. Baylis’s term as a director would expire at the 2006 annual meeting of stockholders. | |
Terence C. Golden Director since 1995 Age: 58
| Mr. Golden served as our President and Chief Executive Officer from 1995 until his retirement in May 2000. He serves as Chairman of Bailey Capital Corporation. In addition, Mr. Golden is a director of Cousins Properties, Inc., Potomac Electric Power Company, and The Morris and Gwendolyn Cafritz Foundation. He is also Chairman of the Federal City Council. Prior to coming to Host Marriott, Mr. Golden had served as chief financial officer of The Oliver Carr Company and was a Founder and National Managing Partner of Trammel Crow Residential Companies. He was also a director of Prime Retail Inc. from 1994 to 2000. He has also served as Administrator of the U.S. General Services Administration and as Assistant Secretary of the U.S. Department of the Treasury from 1984 to 1985. If elected as a director, Mr. Golden’s term as a director would expire at the 2006 annual meeting of stockholders. |
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Ann McLaughlin Korologos Director since 1993 Age: 61
| Ms. Korologos is Senior Advisor to Benedetto, Gartland & Company, Inc., an investment banking firm in New York, and is Vice Chairman of the Rand Board of Trustees. She formerly served as President of the Federal City Council from 1990 until 1995 and as Chairman of the Aspen Institute from 1996 until August 2000. Ms. Korologos has served with distinction in several United States Administrations in such positions as Secretary of Labor and Under Secretary of the Department of the Interior. She also serves as a Director of AMR Corporation, Fannie Mae, Kellogg Company, Microsoft Corporation, Vulcan Materials Company and Harman International Industries, Inc. If elected as a director, Ms. Korologos’ term as a director would expire at the 2006 annual meeting of stockholders. | |
Judith A. McHale Director since 2002 Age: 56
| Ms. McHale has been President and Chief Operating Officer of Discovery Communications, Inc., the parent company of cable television’s Discovery Channel since 1995. From 1989 to 1995, she served as Executive Vice President and General Counsel of Discovery Communications, Inc. Ms. McHale is also a Director of the John Hancock Financial Services Company, Polo Ralph Lauren Corporation and Potomac Electric Power Company. Ms McHale is Chair of the Board of Directors of Cable in the Classroom and also serves on the boards of the Children’s National Medical Center Campaign Trustees Group, the Honorary Advisory Council of the Children’s Inn at National Institute of Health, Vital Voices Global Partnership, The Africa Society, and Africare. If elected as a director, Ms. McHale’s term as a director would expire at the 2005 annual meeting of stockholders. |
OTHER DIRECTORS CURRENTLY IN OFFICE
Richard E. Marriott Chairman of the Board Director since 1979 Age: 64
| Mr. Richard E. Marriott is our Chairman of the Board. He is also a Director of the Polynesian Cultural Center and is Chairman of the Board of First Media Corporation. Mr. Marriott also serves on the Federal City Council, the Board of Associates for Gallaudet University and the National Advisory Council of Brigham Young University. He is a past President of the National Restaurant Association. In addition, Mr. Marriott is the President and a Trustee of the Marriott Foundation for People with Disabilities. Mr. Marriott’s term as a director expires at the 2004 annual meeting of stockholders. |
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Christopher J. Nassetta President and Chief ExecutiveOfficer Director since 1999 Age: 40
| Mr. Nassetta is our President and Chief Executive Officer. He also serves as a Director of CoStar Group, Inc., as a Trustee of Prime Group Realty Trust and as a member of the McIntire School of Commerce Advisory Board for the University of Virginia. Mr. Nassetta joined our Company in 1995 as Executive Vice President and was elected our Chief Operating Officer in 1997. He became our President and Chief Executive Officer in May 2000. Prior to joining us, Mr. Nassetta served as President of Bailey Realty Corporation from 1991 until 1995, and he had previously served as Chief Development Officer and in various other positions with The Oliver Carr Company. Mr. Nassetta’s term as a director expires at the 2004 annual meeting of stockholders. | |
John G. Schreiber Director since 1998 Age: 56
| Mr. Schreiber is President of Centaur Capital Partners, Inc. and a |
Stockholder’s Supporting Statement
In support of the resolution, Mrs. Davis has submitted the following statement:
“The great majority of New York Stock Exchange listed corporations elect all their directors each year.
This insures that ALL directors will be more accountable to ALL stockholders each year and J.W.to a certain extent prevents the self-perpetuation of the Board.
Last year the owners of 71,493,455 shares, representing approximately 36.5% of shares voting, voted FOR my proposal.
If you AGREE, please mark your proxy FOR this proposal.”
Board of Directors’ Response
Mrs. Davis has submitted this proposal at the last seventeen annual meetings of stockholders, and it has been defeated on each occasion. The Board of Directors, as well as the Nominating and Corporate Governance Committee, has again considered the proposal and believes that the classified Board structure now in place continues to be in the best interests of the Company and its stockholders. For this reason, the Board of Directors again recommends that stockholders voteAGAINST the proposal.
Under the Company’s Articles of Incorporation, the Board is divided into three classes with directors elected to staggered three-year terms. Approximately one-third of the directors stand for election each year. This structure has been in place since it was approved by holders of 86% of our common stock in 1984 as an amendment to our then Certificate of Incorporation (as a Delaware company). In addition, at the special meeting of stockholders concerning the REIT conversion held in 1998, holders of more than 99% of the shares of our common stock voted to approve the transactions comprising the REIT conversion, including the adoption of our Articles of Incorporation for re-incorporation in Maryland. Those Articles of Incorporation similarly classify the Board of Directors into three classes, with one class being elected each year.
A classified board offers important advantages to stockholders and is the method of governance used by a majority of S&P 500 companies. Most notable among these advantages are increased stability, improved long-term planning and enhanced independence. The three-year staggered terms promote stability by ensuring that a majority of the Company’s directors at any given time will have had prior experience and familiarity with the business and affairs of the Company. Directors who have experience with the Company and knowledge about its business are a valuable resource and are better positioned to make the decisions that are best for the Company and its stockholders.
The Board also believes that electing directors to staggered three-year terms enhances long-term strategic planning. The continuity made possible by the classified structure is critical to the proper oversight of a company
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like Host Marriott, Jr.which requires that investments in its properties be made over long periods of time. The annual election of only one-third of the Board also helps to prevent abrupt changes in corporate policies, based on misplaced short-term objectives, which might result if the entire Board could be replaced in one year.
Electing directors to three-year, as opposed to one-year, terms also enhances the independence of non-management directors by providing them with a longer assured term of office. By removing the threat of imminent removal, the Board believes that directors are brothers.
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The Board of Directors also believes that directors elected to a classified Board are no less accountable to stockholders then they would be if all directors were elected annually. Since approximately one-third of the directors must stand for election each year, stockholders have the opportunity annually to withhold votes from directors as a way of expressing any dissatisfaction they may have with the Board or management. The Board notes that a majority of its directors are independent directors and only independent directors serve on the Audit Committee and the Compensation Policy Committee.
The Board also believes that a classified Board structure enhances the Board’s ability to negotiate the best results for stockholders should a takeover situation arise. A benefit of a classified Board is that it encourages a person seeking to obtain control of the Company to negotiate with the Board to reach terms that are fair and in the best interests of all stockholders. It does so by requiring two meetings of stockholders to replace a majority of the Board. This gives the incumbent directors the time and leverage necessary to evaluate the adequacy and fairness of any takeover proposal, negotiate on behalf of all stockholders, and study alternatives in order to maximize value for all stockholders. And although a classified Board enhances the ability to negotiate favorable terms with a proponent of an unfriendly or unsolicited proposal, it will not, in fact, prevent a person from accomplishing a hostile acquisition.
For these reasons, the Board believes that a classified Board is a better corporate governance vehicle than annual elections of Directors and unanimously recommends a vote AGAINST the proposal.
Vote Required
Under our Articles of Incorporation, approval of the proposed resolution requires the affirmative vote of the holders of at least two-thirds (66 2/3%) of the total number of outstanding shares of our common stock as of the annual meeting record date.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Under the Company’s Articles of Incorporation, the Board is divided into three classes. One class is elected each year to serve for a three-year term. Presently, there are eight members on ourthe Board of Directors six of whom
currentlyhas seven members. There are neither officers nor employees of the Company.three Class II directors. Following the
death of our Director R. Theodore Ammon in October 2001, the Board reduced its
size from nine members to eight members. Our Board of Directors is currently
divided into the following three classes: Class I Directors, consisting of J.W.
Marriott, Jr., John G. Schreiber and Harry L. Vincent, Jr., will hold office
until the 2002 annual meeting of shareholders;stockholders, the board reduced its size from eight members to seven, thereby reducing the size of each of Class I and Class III to two directors in each class.
The directors whose terms expire at the 2003 annual meeting are the Class II Directors, consisting
ofdirectors, Robert M. Baylis, Terence C. Golden and Ann McLaughlin Korologos, will hold
officeKorologos. In addition, Ms. McHale, who was approved by our Board in December 2002 to fill a vacancy, is required to stand for election at this annual meeting to serve as a director until the 2003 annual meeting of shareholders; andstockholders in 2005, when all Class III Directors,
consisting of Richard E. Marriott and Christopher J. Nassetta,I directors will hold office
until the 2004 annual meeting of shareholders. Each Director serves for a term
of three years.
The Board has nominated John G. Schreiber for re-election at the 2002
annual meeting of shareholders. J.W. Marriott, Jr. and Harry L. Vincent, Jr.
have announced their intention not to stand for re-election at the end of their
current terms which expire at the 2002 annual meeting of shareholders.
Following the 2002 annual meeting of shareholders, the Board will reduce its
size from eight members to seven members, thereby reducing the size of Class I
to two Directors. This action will leave one vacancy on our Board of Directors
in Class I. The Board is currently engaged in a search to fill the vacancy.
Once the new Director has been elected by the remaining Board members to fill
the vacancy, the new Director will serve until the 2003 annual meeting of
shareholders. At that time, the shareholders will be asked to re-elect the new
Director for the remainder of the term of the Class I Directors, in addition to
electing the entire slate of Class II Directors.
election.
The Board met sixfour times in 2001.2002. Each Directordirector attended 75% or more of the meetings held during 2001.
2002.
8
The New York Stock Exchange has proposed rules that include a requirement that non-management directors meet at regularly scheduled executive sessions without management. The purpose is to promote open discussions among the non-management directors. The Board of Directors has already been following this practice, and in 2002 our non-management directors met in regularly scheduled executive sessions without the presence of members of the Company’s management after each Board meeting. In March 2003, the Board of Directors adopted Corporate Governance Guidelines, which formalized existing practice. Ann McLaughlin Korologos, as chair of the Nominating and Corporate Governance Committee, will serve as the presiding director at executive sessions in 2003. Interested parties may communicate their concerns regarding the Company directly with either the presiding director or the non-management directors as a group by writing to: Presiding Director, Host Marriott Corporation, 6903 Rockledge Drive, Suite 1500, Bethesda MD 20817, Attn: General Counsel.
Committees of the Board
The Board has established three standing committees: (i)committees to assist it in carrying out its responsibilities: the Audit Committee, (ii)the Compensation Policy Committee and (iii)the Nominating and Corporate Governance Committee. Each committee is composedconsists entirely of outside Directors.
Auditnon-employee directors and committee assignments are made in May, after the annual meeting of stockholders, by the Board, upon recommendation of the Nominating and Corporate Governance Committee. The Audit Committee:
. recommends the appointment of independent auditors to the Board of Directors;
. approves the scope of auditsDirectors may from time to time form other committees as circumstances warrant. Any new committees will have authority and other services to be performedresponsibility as delegated by the independent and internal auditors;
. considers whether the performanceBoard.
Audit Committee
Number of any professional service by the
auditors other than services provided in connection with the audit
function could impair the independence of the outside auditors;
. reviews the results of internal and external audits, the accounting
principles applied in financial reporting, and financial and
operational controls;
. meets with the independent auditors, management representatives and
internal auditors;
. meets as a committee at least four times a year;
. reviews interim financial statements each quarter before the Company
files its Quarterly Report on Form 10-Q with the Securities and
Exchange Commission; and
. reviews audited financial statements each year before the Company files
its Annual Report on Form 10-K with the Securities and Exchange
Commission.
The Audit Committee is composed of four Directors who are not our
employees. These Directors areMembers: three
Members: Robert M. Baylis (Chair), Ann McLaughlin Korologos and John G. Schreiber andSchreiber. Harry L. Vincent, Jr. R. Theodore Ammonwho retired as a director at the 2002 annual meeting of stockholders, also served onwas a member of the Audit Committee as its Chairman until his death in October
7
2001. The Board of Directors has determined that eachtime. Each member of the Audit Committee is, in the business judgment of the Board, independent and financially literate in accordance with paragraph
303meets the qualifications and expertise requirements of the New York Stock Exchange Listed Company Manual. The Board of
Directors has also determined that at least one memberExchange. Robert M. Baylis, the Committee’s Chairman, is, in the business judgment of the Audit Committee
has accountingBoard, an “audit committee financial expert” within the meaning of SEC rules.
Number of Meetings held in 2002: eight - Each committee member attended 75% or related financial management expertise. Themore of the meetings held during 2002 during the period when he or she was a member, except for Ms. Korologos, who attended over 60% of the meetings.
Functions:
| · | responsible for appointing the independent auditors; |
| · | approves the scope of audits and other services to be performed by the independent and internal auditors; |
| · | reviews and approves in advance all non-audit services and related fees and assesses whether the performance of non-audit service could impair the independence of the outside auditors; |
| · | reviews the results of internal and external audits, the accounting principles applied in financial reporting, and financial and operational controls; |
| · | meets with the independent auditors, management representatives and internal auditors; |
| · | reviews interim financial statements each quarter before the Company files its Quarterly Report on Form 10-Q with the SEC; and |
| · | reviews audited financial statements each year before the Company files its Annual Report on Form 10-K with the SEC. |
9
Our independent and internal auditors have unrestricted access to the Audit Committee. TheFor additional information on the responsibilities of the Audit Committee, met six timesplease refer to the Audit Committee charter attached as Appendix A to this proxy statement. The Report of the Audit Committee appears in 2001.this proxy statement at page 23.
Compensation Policy Committee
Number of Members: two
Members: John G. Schreiber (Chair) and Ann McLaughlin Korologos. Harry L. Vincent, who retired as a director at the 2002 annual meeting of stockholders, and Robert M. Baylis were also members of the Committee until May 2002. J. W. Marriott, Jr. served on the committee until January 2002.
Number of Meetings held in 2002: three - Each committee member attended all of the meetings held during 2002 during the period when he or she was a member.
Functions:
| · | oversees compensation policies and plans for officers and employees of the Company; |
| · | reflects the compensation philosophy in structuring compensation programs; |
| · | approves the compensation of senior officers of the Company; |
| · | advises our Board on the adoption of policies that govern the Company’s annual compensation and stock ownership plans; |
| · | reviews and approves the Company’s goals and objectives relevant to the compensation of the CEO and evaluates the CEO’s performance in light of those goals and objectives; |
| · | reviews and advises the Company on the process used for gathering information on the compensation paid by other similar businesses; |
| · | reviews the Company’s succession plans relating to the CEO and other senior management; and |
| · | reviews periodic reports from management on matters relating to the Company’s personnel appointments and practices. |
The Compensation Policy Committee’s Annual Report on Executive Compensation appears in this proxy statement at page 19.
Nominating and Corporate Governance Committee
Number of Members: three
Members: Ann McLaughlin Korologos (Chair), Robert M. Baylis, and Terence C. Golden. Harry L. Vincent and John G. Schreiber were also members of the Committee until May 2002.
Number of Meetings held in 2002: four - Each committee member attended 75% or more of the meetings held in 2001during 2002 during the period in which he or she was a member.
The Audit Committee has a written charter that incorporates provisions
relating to audit committees included in Securities and Exchange Commission
regulations and New York Stock Exchange rules. Among these provisions are
requirements that proxy statements include (i) an annual report of the Audit
Committee's finding with respect to its financial reporting oversight
responsibilities and (ii) a copy of the Audit Committee's charter at least once
every three years. The Audit Committee and the Board of Directors have reviewed
and assessed the adequacy of the Audit Committee's charter and the Board of
Directors has approved the Audit Committee charter. The Audit Committee's
annual report appears in this proxy statement at page 20.
Compensation Policy Committee. The Compensation Policy Committee
recommends policies and procedures relating to executive officers' compensation
and employee stock and cash incentive plans. It also approves individual salary
adjustments and stock awards in those areas. The Compensation Policy Committee
is composed of four Directors who are not our employees. These Directors are
John G. Schreiber (Chair), Robert M. Baylis, Ann McLaughlin Korologos and Harry
L. Vincent, Jr. R. Theodore Ammon also served on the Compensation Policy
Committee until his death in October 2001, and J.W. Marriott, Jr. served on the
Compensation Policy Committee until January 2002. The Compensation Policy
Committee met four times in 2001. Each member attended 75% or more of the
meetings held in 2001 during the period in which he or she was a member.
The Compensation Policy Committee's annual Report on Executive Compensation
appears in this proxy statement at page 15.
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee:
. considers candidates for election as Directors;
. keeps abreast of and makes recommendations with respect to corporate
governance in general; and
. fulfills an advisory function with respect to a range of matters
affecting the Board of Directors and its committees, including the
making of recommendations with respect to:
. qualifications of Director candidates,
. compensation of Directors,
. the selection of committee chairs,
. committee assignments, and
. related matters affecting the functioning of the Board.
8
The Nominating and Corporate Governance Committee is composed of four
Directors who are not our employees. These Directors are Ann McLaughlin
Korologos (Chair), Robert M. Baylis, John G. Schreiber and Harry L. Vincent,
Jr. R. Theodore Ammon also served on the Nominating and Corporate Governance
Committee until his death in October 2001, and J.W. Marriott, Jr. served on the
Nominating and Corporate Governance Committee until January 2002. The
Nominating and Corporate Governance Committee met twice in 2001. Each member
attended both meetings, other than Mr. Ammon, who attended one meeting.
Functions:
| · | considers candidates for election as directors; |
| · | makes recommendations with respect to corporate governance matters and is responsible for keeping abreast of corporate governance developments; |
| · | fulfills an advisory function with respect to a range of matters affecting the Board and its committees, including making recommendations with respect to: |
| – | qualifications of director candidates; |
| – | compensation of directors; and |
| – | selection of committee chairs and committee assignments. |
10
The Nominating and Corporate Governance Committee will consider qualified nominees for Directordirector recommended by shareholders.stockholders. Recommendations must be submitted in writing to the Corporate Secretary and must include the name and address of the candidate, a brief biographical description of the candidate, a statement of the candidate'scandidate’s qualifications, and the candidate'scandidate’s signed consent to serve as a Directordirector if elected. See “Stockholder Proposals and Director Nominations” at page 28 of this proxy statement for additional information.
COMPENSATION OF DIRECTORS
Directors are compensated partially in cash and partially in our common stock to align their interests with those of our stockholders. Directors who are also our employees receive no additional compensation for their service as directors.
Annual Retainer and Attendance Fees. Directors who are not also our employees receive an annual retainer fee of $30,000, as well as an attendance fee of $1,250 for attendance at any stockholders’ meeting, meeting of the board of directors or meeting of a committee of the board of directors. If the director attends more than one meeting on a given day, an attendance fee is paid for each meeting. The chair of each committee of the Board receives an additional annual retainer fee of $6,000.
Annual Stock Awards. Under the Non-Employee Directors’ Deferred Stock Compensation Plan, directors who are not also our employees receive an annual award of common stock equivalents, which are converted into shares of our common stock only after a director stops serving on our Board. The annual award of such common stock equivalents is equal in value to the annual retainer fee (currently $30,000) paid to non-employee directors and is credited to such directors immediately following the annual meeting of stockholders. In 2002, each such award was for 2,575 common stock equivalents. The plan also permits participants to be credited with dividend equivalents that are equal in value to the dividends paid on our common stock.
Deferral of Payment. Directors may from timeelect to time formdefer payment of all or any portion of their annual retainer and attendance fees under our Executive Deferred Compensation Plan and/or our Non-Employee Directors’ Deferred Stock Compensation Plan. Fees that are deferred under the Non-Employee Directors’ Deferred Stock Compensation Plan are credited as common stock equivalents, which are then converted into shares of our common stock only after a director stops serving on our Board. The common stock equivalents are credited with dividend equivalents, which are equal in value to the dividends paid on our common stock.
Other. Directors are reimbursed for travel expenses and other committees as
circumstances warrant. Such committees will have authorityout-of-pocket costs incurred in attending meetings. Directors also receive complimentary rooms, food and responsibility
as delegatedbeverage and other hotel services when they stay at properties owned by us or managed by Marriott International, Inc. or its affiliates, and the Board.
9
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of our common stock and of the partnership units of Host Marriott, L.P. (which we call the operating partnership) that were beneficially owned as of February 28, 20022003 by:
. each Director and Director nominee;
. each executive officer named in the Summary Compensation Table below;
. all of our Directors and executive officers as a group; and
. beneficial owners of 5% or more of our common stock.
| · | each director and director nominee; |
| · | each executive officer named in the Summary Compensation Table below; |
| · | all of our directors and executive officers as a group; and |
| · | beneficial owners of 5% or more of our common stock. |
Information about the ownership of operating partnership units is included because the operating partnership units are redeemable by holders for cash or, at our election, for shares of our common stock on a one-for-one basis. The Company owns approximately 90% of the operating partnership units. As of February 28, 2002,2003, no other person or entity is the beneficial owner of 5% or more of the operating partnership units.
Name | Number of Shares of Common Stock | % of Shares of Common Stock(1) | Number of Operating Partnership Units | % of Common Stock and Operating Partnership Units(2) | ||||
Directors: | ||||||||
Robert M. Baylis(3) | 27,735 | * | 0 | * | ||||
Terence C. Golden(3) | 316,583 | 0.1 | 0 | 0.1 | ||||
Ann McLaughlin Korologos(3) | 14,691 | * | 0 | * | ||||
Richard E. Marriott(4) (5) (6) | 17,978,753 | 6.8 | 140,296 | 6.8 | ||||
Judith A. McHale | 0 | 0 | 0 | |||||
Christopher J. Nassetta(6) | 2,125,664 | 0.8 | 0 | 0.8 | ||||
John G. Schreiber(3) | 12,454 | * | 1,089,261 | 0.4 | ||||
Non-Director Executive Officers: | ||||||||
Robert E. Parsons, Jr.(6) (7) | 452,353 | 0.2 | 0 | 0.2 | ||||
James F. Risoleo(6) | 603,834 | 0.2 | 0 | 0.2 | ||||
W. Edward Walter(6) | 1,165,075 | 0.4 | 0 | 0.4 | ||||
All Directors and Executive Officers as a group | ||||||||
(15 persons, including the foregoing)(6) (7) | 23,195,936 | 8.8 | 1,229,557 | 9.2 | ||||
Certain Beneficial Owners: | ||||||||
J. W. Marriott, Jr. (4) (8) | 15,249,048 | 5.8 | 205,886 | 5.8 | ||||
Morgan Stanley Investment Management, Inc. (9) | 13,866,394 | 5.2 | 0 | 5.2 | ||||
Stichting Pensioenfonds ABP (10) | 22,149,300 | 8.4 | 0 | 8.4 | ||||
Wallace R. Weitz & Company (11) | 28,212,000 | 10.7 | 0 | 10.7 | ||||
Wellington Management Co., LLP (12) | 15,861,189 | 6.0 | 0 | 6.0 |
| * | Reflects ownership of |
| (1) | Any descriptions of |
| (2) | This column assumes that all operating partnership units held by the named person or group of persons are redeemed for shares of our common stock on a one-for-one basis, but that none of the operating partnership units held by others are redeemed for shares of our common stock. |
| (3) | The number of shares of our common stock listed here includes the common stock equivalents that are awarded annually to non-employee directors under our Non-Employee Directors’ Deferred Stock Compensation Plan, plus reinvested dividend equivalents relating thereto. |
12
| (4) | J.W. Marriott, Jr., Richard E. Marriott and other members of the Marriott family and various trusts and foundations established by members of the Marriott family owned beneficially an aggregate of 27,354,384 shares, or 10.4% of the total shares outstanding of our common stock, as of February 28, 2003. |
| (5) | The number of shares of our common stock listed here includes: (1) 1,866,439 shares held in trust for which Richard E. Marriott is the trustee or a co-trustee; (2) 75,364 shares held by the wife of Richard E. Marriott; (3) 603,828 shares held in trust for which the wife of Richard E. Marriott is the trustee or a co-trustee; (4) 4,974,849 shares held by the J. Willard and Alice S. Marriott Foundation, of which Richard E. Marriott is a co-trustee; (5) 492,689 shares held by the J. Willard Marriott, Sr. Charitable Trust, of which Richard E. Marriott is a co-trustee; (6) 63,623 shares held by the Alice S. Marriott Lifetime Trust, of which Richard E. Marriott is a co-trustee; (7) 1,515,300 shares held by the Richard E. and Nancy P. Marriott Foundation of which Richard E. Marriott is a co-trustee; and (8) 2,503,066 shares held by a corporation of which Richard E. Marriott is the controlling stockholder. It does not include shares held by the adult children of Richard E. Marriott; Richard E. Marriott disclaims beneficial ownership of all such shares. |
| (6) | The number of shares of our common stock listed here includes the shares of restricted stock granted under our 1997 Comprehensive Stock and |
| (7) | The number of shares of |
| (8) | Mr. J. W. Marriott, Jr. served as a member of our Board of Directors from 1964 until May 2002. The number of shares of our common stock listed here includes: (1) 1,606,750 shares held in trust for which J.W. Marriott, Jr. is the trustee or a co trustee; (2) 68,426 shares held by the wife of J.W. Marriott, Jr.; (3) 693,847 shares held in trust for which the wife of J.W. Marriott, Jr. is the trustee or a co-trustee; (4) 4,974,849 shares held by the J. Willard and Alice S. Marriott Foundation, of which J.W. Marriott, Jr. is a co-trustee; (5) 492,689 shares held by the J. Willard Marriott, Sr. Charitable Trust, of which J.W. Marriott, Jr. is a co-trustee; (6) 63,623 shares held by the Alice S. Marriott Lifetime Trust, of which J.W. Marriott, Jr. is a co-trustee; (7) 2,707,590 shares held by a limited partnership whose general partner is a corporation of which J.W. Marriott, Jr. is the controlling stockholder; and (8) 3,500,000 shares held by a limited partnership whose general partner is J.W. Marriott, Jr. This amount does not include shares held by the adult children of J.W. Marriott, Jr.; J.W. Marriott, Jr. disclaims beneficial ownership of all such shares. |
| (9) | The number of shares of our common stock listed here represents shares of our common stock held by Morgan Stanley Investment Management Inc. Morgan Stanley Investment Management Inc. has reported in a 13G filed with the Securities and Exchange Commission shared dispositive power over 13,866,394 shares of common stock and sole dispositive power over none of these shares. Of these shares, Morgan Stanley Investment Management Inc. has reported shared voting power over 11,515,720 shares and sole voting power over none of these shares. The principal address of Morgan Stanley Investment Management Inc. is 1221 Avenue of the Americas, New York, New York 10020. |
| (10) | The number of shares of our common stock listed here represents shares of our common stock held by Stichting Pensioenfonds ABP, an entity established under the laws of The Kingdom of the Netherlands, which invests funds on behalf of certain employees of The Kingdom of the Netherlands. Stichting Pensioenfonds ABP has reported in a 13D filed with the Securities and Exchange Commission sole dispositive power and sole voting power over the entire 22,149,300 shares. The principal business address of Stichting Pensioenfonds ABP was reported as: Oude Lindestratt 70, Postbus 2889, 6401 DL Heerlen, The Netherlands. |
| (11) | The number of shares of our common stock listed here represents shares of our common stock held by Wallace R. Weitz & |
| (12) | The number of shares of our common stock listed here represents shares of our common stock held by Wellington Management Company, LLP, which acts as an investment advisor for certain investment funds. Wellington Management Company, LLP has reported in a 13G filed with the Securities and Exchange Commission shared dipositive power of 15,861,189 shares and sole dispositive power over none of the shares. Of the shares, Wellington Management Company LLP has reported shared voting power over 12,880,200 shares and sole voting power over none of these shares. The principal business address of Wellington Management Company is 75 State Street, Boston, Massachusetts 02109. |
13
EXECUTIVE OFFICER COMPENSATION
Summary of Compensation
The table below sets forth a summary of the compensation we paid for the last three fiscal years to our Chief Executive Officer and to the four additional most highly compensated persons serving as executive officers at the end of our last fiscal year.
SUMMARY COMPENSATION TABLE
Annual Compensation | Long-Term Compensation | |||||||||||||||
Name and Principal Position | Fiscal Year | Salary(1) ($) | Bonus(2) ($) | Other Annual Compensation ($) | Restricted Stock Awards ($) | LTIP Payouts ($) | All Other Compensation(6) ($) | |||||||||
Richard E. Marriott | 2002 | 336,000 | 168,000 | 506,432 | (3) | 0 |
| 0 | 13,015 | |||||||
Chairman of the | 2001 | 336,000 | 84,000 | 320,878 | (3) | 0 |
| 0 | 16,821 | |||||||
Board | 2000 | 320,000 | 192,000 | 440,221 | (3) | 312,947 | (4) | 0 | 28,980 | |||||||
Christopher J. Nassetta | 2002 | 800,000 | 890,000 | 0 |
| 5,000,000 | (5) | 0 | 34,522 | |||||||
President and Chief | 2001 | 800,000 | 350,720 | 0 |
| 0 |
| 0 | 47,696 | |||||||
Executive Officer | 2000 | 624,584 | 794,684 | 0 |
| 2,586,763 | (4) | 0 | 69,271 | |||||||
W. Edward Walter | 2002 | 467,250 | 478,371 | 0 |
| 2,000,000 | (5) | 0 | 20,362 | |||||||
Executive Vice | 2001 | 429,810 | 211,466 | 0 |
| 764,902 | (4) | 0 | 23,192 | |||||||
President and Chief | 2000 | 330,209 | 348,300 | 0 |
| 1,506,058 | (4) | 0 | 30,625 | |||||||
Financial Officer | ||||||||||||||||
Robert E. Parsons, Jr. | 2002 | 467,250 | 465,007 | 0 |
| 500,000 | (5) | 0 | 20,533 | |||||||
Executive Vice | 2001 | 467,250 | 217,178 | 0 |
| 0 |
| 0 | 30,012 | |||||||
President, | 2000 | 445,000 | 534,000 | 0 |
| 812,991 | (4) | 0 | 53,995 | |||||||
Special Projects | ||||||||||||||||
James F. Risoleo | 2002 | 365,000 | 367,300 | 0 |
| 400,000 | (5) | 0 | 15,842 | |||||||
Executive Vice | 2001 | 346,233 | 163,076 | 0 |
| 399,900 | (4) | 0 | 13,587 | |||||||
President, Acquisitions | 2000 | 279,296 | 296,000 | 0 |
| 990,704 | (4) | 0 | 33,546 | |||||||
and Development | ||||||||||||||||
| (1) | Salary amounts include base salary earned and |
| (2) | The bonus consists of the cash bonus earned pursuant to the performance criteria for annual incentive awards established by our Compensation Policy Committee. It was either paid subsequent to the end of each fiscal year or deferred under the Executive Deferred Compensation Plan. |
| (3) | The amounts set forth in this column for Mr. Marriott include $194,885, $132,150 and $125,100 in 2002, 2001 and 2000, |
| (4) | The Company’s long-term incentive stock awards are generally made as a multi-year grant that vests over a three-year period based on achievement of performance criteria and continued employment over the period. Although it is a multi-year grant and portions may not ultimately be earned, the Company reflects the total value of the award in the year it was authorized. The Company authorized such a grant in 1998 for a three-year program covering 1999-2001, and the value of the grant was reported in 1998. For 1999, |
14
reflected his promotion to Chief Executive Officer and President. In 2001, |
Total Shares Available 2000–2002 | Total Shares Vested | Total Shares Forfeited | |||||
Mr. Marriott | 170,173 |
| 110,613 | 59,560 | |||
Mr. Nassetta | 810,000 |
| 512,500 | 297,500 | |||
Mr. Walter | 467,382 | * | 298,705 | 168,677 | |||
Mr. Parsons | 522,817 |
| 339,831 | 182,986 | |||
Mr. Risoleo | 265,000 | * | 168,749 | 96,251 | |||
| * | For Messrs. Walter and Risoleo, the total shares available amount for 2000—2002 reflects the additional allocation of shares in 2001. |
| (5) | This is the market value of restricted stock awards to Messrs. Nassetta, Walter, Parsons and Risoleo on August 1, 2002, the date on which the shares were granted. The shares of restricted stock were granted to these executives in recognition of the work performed in positioning and restructuring the Company leading up to and after the events of September 11, 2001 |
| (6) | This column represents our matching contributions made under our Retirement and Savings Plan and our Executive |
15
AGGREGATED STOCK OPTION/SAR Exercises and Year-End Value
EXERCISES AND YEAR-END VALUE
The table below sets forth, on an aggregated basis:
. information regarding the exercise of options to purchase our common
stock (and shares of common stock of Marriott International, Inc.,
which we have previously spun off) by each of the named executive
officers listed above on the Summary Compensation Table;
. information regarding the exercise of stock appreciation rights
("SARs") in our common stock by each of the named executive officers
listed above on the Summary Compensation Table; and
. the value on December 31, 2001 of all unexercised options and stock
appreciation rights held by such individuals.
Christopher J.
| · | information regarding the exercise of options to purchase our common stock (and shares of common stock of Marriott International, Inc., which we have previously spun off) by each of the named executive officers listed above on the Summary Compensation Table; |
| · | information regarding the exercise of stock appreciation rights (SARs) in our common stock by each of the named executive officers listed above on the Summary Compensation Table; and |
| · | the value on December 31, 2002 of all unexercised options and SARs held by such individuals. |
Messrs. Nassetta, W. Edward Walter and James F. Risoleo do not have any options to purchase stock or SARs in either of the companies listed in the following table. Richard E. Marriott is the only executive officer who holds stock appreciation rights in our common stock. In 1998, Mr. Marriott entered into an agreement with our Company which canceled all of his then outstanding options to purchase our common stock and replaced them with stock appreciation rights on equivalent economic terms.
AGGREGATED STOCK OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTIONOPTION/SAR VALUES
Name | Company(1) | Shares Acquired on Exercise (#) | Value Realized ($) | Number of Shares Underlying Unexercised Options/SARs at Fiscal Year End(2) (#) | Value of Unexercised In-the-Money Options/SARs at Fiscal Year End(3) ($) | |||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||||||
Richard E. Marriott | HM | 0 | 0 | 66,685 | 0 | 459,002 | 0 | |||||||
MI | 0 | 0 | 122,634 | 0 | 3,429,314 | 0 | ||||||||
TOTAL | 0 | 0 | 189,319 | 0 | 3,888,316 | 0 | ||||||||
Robert E. Parsons, Jr. | HM | 0 | 0 | 14,637 | 0 | 98,849 | 0 | |||||||
TOTAL | 0 | 0 | 14,637 | 0 | 98,849 | 0 | ||||||||
| (1) | “HM” represents options to purchase our common stock or SARs in our common stock. “MI” represents options to purchase Marriott International, Inc. common stock. |
| (2) | The number and terms of |
| (3) | These figures are based on a per share price for our common stock of $8.77 and a per share price for Marriott International, Inc. common stock of $33.02. These prices reflect the average of the high and low trading prices on the New York Stock Exchange on December 31, 2002. |
16
EQUITY COMPENSATION PLAN INFORMATION
(as of December 31, 2002)
Plan Category | Number of securities (in millions) to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities (in millions) remaining available for future issuance under equity compensation plans (excluding securities reflected in the 1st column) | |||
Equity compensation plans approved by security holders(1) | 5.4 | $6.50 | 14.9 | |||
Equity compensation plans not approved by security holders | 0 ________ | 0 ________ | 0 ________ | |||
TOTAL | 5.4 ________ | $6.50 ________ | 14.9 ________ |
| (1) | Shares indicated are the aggregate of those issuable under the Host Marriott Corporation and Host Marriott, L.P. 1997 Comprehensive Stock and Cash Incentive Plan, as amended, whereby we may award to officers and key employees (i) options to purchase our common stock, (ii) deferred shares of our common stock, and (iii) restricted shares of our common stock. |
EMPLOYMENT ARRANGEMENTS
We do not maintain employment agreements with any of our executive officers.
Split-Dollar Life Insurance
The Company maintains split-dollar life insurance agreements with the REM Insurance Trust, a trust established by Richard E. Marriott, our Chairman of the Board. Under those agreements, the Trust has acquired life insurance policies on behalf of Mr. Marriott and his wife, Nancy Marriott. The Company pays certain premiums in connection with those policies and is entitled to be repaid all premiums from the death benefit or the cash surrender value of the options.
(3) These figures arepolicy. This repayment obligation is secured by an assignment of an interest in the policies from the Trust to the Company.
This split-dollar program was put in place in exchange for the termination of Mr. Marriott’s accrued interest, as of November 30, 1996, in awards of deferred bonus stock to him under The Host Marriott Corporation 1993 Comprehensive Stock Incentive Plan.
Host Marriott reports taxable income to Mr. Marriott on an annual basis, the amount of income being determined based on a per share price for our common stock of $9.26
and a per share price for Marriott International, Inc. common stock of
$40.96. These prices reflect the averagevalue of the highlife insurance coverage in force insuring the life of Mr. and low trading prices
on the New York Stock Exchange on December 31, 2001.
14
EMPLOYMENT ARRANGEMENTS
Our written "Key Executives/Termination of Employment" policy governs
certain terms and conditionsMrs. Marriott. No premiums were paid for 2002, however, pending clarification of the employmentcontinued use of our executive officers,
including all of those executive officers named insplit-dollar life insurance policies following the Summary Compensation
Table above. The termspassage of the policy are subject toSarbanes-Oxley Act of 2002.
Severance Plan
The Compensation Policy Committee recently approved the approvaladoption of the Host Marriott Severance Plan for members of senior management, including Messrs. Nassetta, Walter and Risoleo. Our Chairman of the Board, Mr. Marriott, is not covered by the plan. The plan provides for the payment of Directorsseverance compensation upon termination as follows:
| · | Termination for Cause: an executive terminated for cause receives no severance and forfeits any unvested long-term incentive stock compensation; |
17
| · | Termination as a Result of Death or Disability: upon death or disability an executive receives a prorated annual bonus through the month of death or disability and all long-term incentive stock compensation vests. In addition, the executive would be entitled to benefits under the Company’s life insurance and disability plans applicable to all employees. The Company has purchased life insurance with respect to each of Messrs. Nassetta, Walter, and Risoleo to fund the cost to the Company of the long-term incentive stock compensation that would vest and would be payable in the event of the executive’s death; |
| · | Voluntary Termination by Executive Without Good Reason: an executive who resigns in this manner receives no severance compensation and the executive’s unvested long-term incentive stock compensation is forfeited; |
| · | Termination Without Cause or Voluntary Termination by Executive With Good Reason Following aChange in Control: an executive terminated in this manner receives a payment equal to a multiple of the executive’s current base pay and average bonus over the prior three-year period. Mr. Nassetta is entitled to three times his current base salary plus three times his average bonus. All other members of senior management covered by the plan are entitled to two times their current base salary plus two times their average bonus. All long-term incentive stock compensation vests, and the Company will pay for the executive’s benefits under the Company’s standard benefit plans for 18 months or until the executive is re-employed, whichever time period is shorter. These provisions remain in effect for a period of one year following a change in control of the Company; and |
| · | Termination Without Cause or Voluntary Termination by Executive With Good Reason Not Followinga Change in Control: an executive terminated in this manner receives a payment equal to a multiple of the executive’s current base pay and average bonus over the prior three-year period. Mr. Nassetta is entitled to two times his current base salary plus two times his average bonus. All other members of senior management covered by the plan are entitled to a payment equal to their current base salary plus their average annual bonus. One year’s worth of the executive’s time-based and performance-based portions (assuming achievement of target performance goals) of long-term incentive stock compensation is subject to accelerated vesting, and the Company will pay for the executive’s benefits under the Company’s standard benefit plans for 18 months or until the executive is re-employed, whichever time period is shorter. |
The plan also provides for a one-year non-compete/non-solicitation period and allows each executive a period of one year after termination to exercise any options to which the Chief Executive Officer/President, as applicable.
executive may be entitled due to the accelerated vesting of long-term incentive compensation. The Company intends to seek qualification of the cash and benefit provisions of the Severance Plan under the Employee Retirement Income Security Act of 1974.
18
REPORT OF THE COMPENSATION POLICY COMMITTEE
ON EXECUTIVE COMPENSATION
To Our Shareholders
Stockholders:
The Compensation Policy Committee of the Board of Directors oversees and administers theour executive compensation program on behalf of the Board and, by extension, our shareholders.stockholders. This report provides details and background information regarding the executive compensation program.
The Committee
The Compensation Policy Committee is composed of fourtwo independent members of the Board of Directors. It approves theour executive compensation programs, and
policies and sets performance targets, and then evaluates the performance of our Company and its senior management.executive officers. The Committee met fourthree times during 2001. R. Theodore Ammon was a member of the Committee until his death in
October 2001, and J.W. Marriott, Jr. was a member of the Committee until
January 2002. Neither Mr. Ammon nor Mr. Marriott was a member at the time the
Committee made the decisions on executive compensation discussed below.
Goals of the Program
The Committee has established three primary objectives for the executive compensation program:
. to provide annual and long-term incentives that emphasize
performance-based compensation dependent upon achieving corporate and
individual performance goals;
. to foster a strong relationship between shareholder value and executive
compensation programs by having a significant portion of compensation
comprised of equity-based incentives; and
. to provide overall levels of compensation that are competitive in order
to attract, retain and motivate highly qualified executives.
| · | to foster a strong relationship between stockholder value and executive compensation programs by having a significant portion of compensation comprised of equity-based incentives; |
| · | to provide annual and long-term incentives that emphasize performance-based compensation dependent upon achieving corporate and individual performance goals; and |
| · | to provide overall levels of compensation that are competitive in order to attract, retain and motivate highly qualified executives to continue to enhance long-term stockholder value. |
Competitiveness Targets
To establish compensation targets, the Committee uses data fromgathered by independent consultants that reflectwhich reflects the compensation practices for a large group of general industry, lodging and real estate companies. These surveys are based on a broader group of companies than the comparison group used in the performance graph below because the Committee believes that targeting compensation of a diverse group of companies better reflects the labor market for our executives. The Committee reviewsBased on information collected, the data
15
provided by these surveys with a focus on the median level of compensation to
determine base salary and annual incentive levels. The Committee then makes decisions forregarding individual executives based on competitive levels of compensation and the need to retain an experienced and effective management team. The Company’s compensation for Executive Officers consists of cash and restricted stock. Consistent with the philosophy of aligning executive compensation with shareholderstockholder value, long-term incentive awards represent a substantial portion of the total pay package for executive officers. The maximum incentive awards are targeted at
levels higher than the median for achievement of outstanding business
performance as determined by the Committee.
Base Salary
The Committee reviews each senior executive's base salary on an annual
basis. Actual base salaries fall in the mid-range for similar positions, based
on tenure, experience and individual performance. Base salary increases are
determined primarily by individual performance and the general salary increase
guidelines that we have established for the Company. No specific weightings are
applied to the factors considered by the Committee in making salary
determinations.
Stock Incentives
We provide long-term incentives through our Comprehensive Stock and Cash
Incentive Plan, which establishes awards of restricted stock, stock options,
deferred stock and other stock-based remuneration as part of the Company's
compensation program. The Committee believes that management's interest should
be aligned with that of our shareholders, and that stock ownership is an
efficient and effective way to accomplish this goal. Consequently, a
significant portion of the compensation of our executives is comprised of
equity-based incentives.
Compensation of the Chief Executive Officer and other Executive Officers
Components of Executive Compensation
The primary components of executive compensation are:
.
| · | Annual Cash Compensation including base salary and annual incentive awards; and |
| · | Long-Term Incentive Compensation, which currently is comprised solely of restricted stock. |
Annual Cash Compensation including base salary and annual incentive
awards; and
. Long-Term Incentive Compensation, which currently is comprised of
restricted stock.
Annual Cash Compensation
Base Salary.Salary. Mr. Nassetta'sNassetta’s salary for 20012002 was $800,000. This salary was
determined after evaluating competitive companies in related industries and
reviewing data prepared by an independent compensation consulting firm in a
compensation study previously conducted for the Committee. Due to the significant decline in business in the lodging industry as a result of the effects of the economic recession, and the September 11, 2001 terrorist attacks,
the Committee decided to continue the base pay freeze instituted at the end of 2001 and did not to increase Mr. Nassetta'sNassetta’s salary for 2002. Similarly, no senior executives, including Mr. Richard Marriott, Mr. Parsons, Mr. Risoleo and Mr. Walter, receiveddid not receive salary increases for 2002.
19
Annual Incentive Awards.Awards. The Committee determines the performance criteria that apply to the annual incentive awards at the beginning of each year. Fifty percent of each annual incentive award is linked to the Company'sCompany’s performance, and the remaining fifty percent of the award is linked to an executive'sexecutive’s individual performance. The Company performance measures adopted by the Committee 16
20012002 were based on theour actual financial performance in the areas of funds from operations per share, capital productivity and liquidity. Each of these Company performance measures was weighted equally in 2001.2002. The Committee also set the individual performance criteria for each executive based on specific objectives for such executive. The annual incentive awards earned by the executives are paid in cash and appear in the Summary Compensation Table on page 14 under the "Bonus"“Bonus” column.
As noted above, the lodging industry has experienced a significant decline
in business as a result of the effects of the economic recession
Based on Company and the
September 11, 2001 terrorist attacks. Consequently, none of the Company
performance measures that were adopted by the Committee for 2001 and described
above were achieved in 2001. Accordingly, the fifty-percent portion of the
annual incentive awards based on those Company performance measures was not
paid to any of the named executive officers. Annual incentive awards for 2001
were earned by those executives based solely on the individual performance criteria set for each executive.by the Committee, Mr. Nassetta had an opportunity to receive between 45% – 130% of his base salary as bonus. Mr. Nassetta received an annual incentive award of $350,720$890,000 for 2001.2002. This award was 43.8%111.3% of his fiscal year base salary earnings. The other named executive officers had an opportunity to receive between 37% – 120% of their base salary in bonus based on the performance criteria set by the Committee. They received annual incentive awards for 20012002 ranging from 25.0%50% to 49.2% of their base salaries for 2001.
102%.
The Committee may also, on occasion, grant special cash bonuses to executive officers in recognition of exemplary contributions to the Company and/or for the completion of special projects on behalf of the Company. The amountamounts of any such grantscash bonuses are included in the "Bonus"“Bonus” column in the Summary Compensation Table. The Committee did not grant any such cash bonuses to any of the named executive officers in 2001.
2002. In August 2002, the Committee recommended, and the Board approved, a special grant of restricted stock to members of senior management in recognition of work performed in positioning and restructuring the Company leading up to and after the events of September 11, 2001 and the economic downturn, including the restructuring of a majority of the Company’s management and other corporate agreements, and to provide the executives with a strong incentive to continue to increase the value of the Company during their employment. The awards vest in one-third increments annually, with one-third vesting on August 2002. Mr. Nassetta received an award of 476,644 shares.
Long-Term Incentive Compensation
Restricted Stock.Stock. Restricted stock is our primary long-term incentive vehicle for senior executives. ItNo executives or members of senior management receive stock options for their long-term compensation. We believe that restricted stock creates an incentive for senior executives to manage our Company in a manner that creates significant long-term value for shareholders.stockholders. The Comprehensive Stock and Cash Incentive Plan permitsallows the Committee to make awards of stock with restrictions relating to either continued employment ("time-based"(“time-based” awards) or to performance standards that are set by the Committee ("performance-based"(“performance-based” awards). The Committee emphasizes performance-based awards. In November 1998, the Committee made a three-year grant of restricted stock awards to senior executives of the Company, with 70% of each award subject to performance-based criteria and 30% of each award subject to general restrictions based on continued employment. In 2000, the Committee extended the restricted stock award program by one additional year (i.e.(i.e., through 2002) for the same group of key executives on the same terms and conditions as the existing restricted stock awards. The performance-based criteria for these awards of restricted stock are linked to the measurement of the total return to the Company's shareholdersCompany’s stockholders and to the growth of the Company'sCompany’s earnings measured against a predetermined target.
The executives had the opportunity to earn 900,817 shares in 2002 based on continued employment and achievement of these performance targets. In 2001, none of2002, the performanceearnings-based portion criteria set bywas met, but the Committee were met
and, consequently,total stockholder value measure was not met. Consequently, none of the restrictions for thatthe stockholder value portion of the awards were released. Only the restrictions for the time-based and earnings-based awards were released for
2001.
20
2002, and 315,286 shares of the 900,817 shares (35%) potentially available to senior executives were forfeited. For the period 2000-2002, executives (Marriott, Nassetta, Walter, Parsons and Risoleo) forfeited 804,974 (36%) of the 2,235,372 shares available over that performance period.
Stock Ownership Guidelines. A significant portion of executive compensation is comprised of equity-based incentives. Host Marriott strongly encourages its executives and officers to retain Host Marriott stock to closely align their interests with those of the stockholders. The Committee has established stock ownership guidelines for officers and senior management based on a multiple of salary as follows: five times base salary for the CEO, three times base salary for Executive Vice Presidents, and two times base salary for Senior Vice Presidents. The Committee monitors compliance with these guidelines.
CEO Evaluation. The Committee considers the task of CEO evaluation as important and valuable. The Committee considers both quantitative and qualitative measures in assessing the performance of the CEO. In May 2001,2002, the Committee granted increases incompleted a thorough evaluation process, which included gathering information from both Board members and senior management. The CEO’s individual objectives set forth by the numberCommittee and later used to determine bonus for 2002, included specific recommendations as a result of shares of
restricted stock to Mr. Walter upon his promotion to Chief Operating Officer of
the Company, and to Mr. Risoleo in recognition of his contributions to the
Company. The values at the date of grant of such new awards are listed in the
"Restricted Stock Awards" column in the that evaluation.
Summary Compensation Table for 2001.
17
Summary
The Committee believes that the caliber and motivation of our employees, and their leadership, are critical to our success in a competitive marketplace, particularly at a time when our industry faces several challenges. Effective and motivational compensation programs are essential ingredients to success. The Committee believes that our compensation programs are effective in serving us and our shareholdersstockholders in the short and long term.
The Compensation Policy Committee
John G. Schreiber, Chairman
Robert M. Baylis
Ann McLaughlin Korologos
Harry L. Vincent, Jr.
18
21
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in thefive-year cumulative total shareholderstockholder return on our common stock against the cumulative total returns of the Standard & Poor'sPoor’s Corporation Composite 500 Index (the
"S&P 500") and a peer group index for the period from December 31, 1996 through
December 31, 2001.index. The graph assumes an initial investment of $100 in our common stock and in each of the indexes, and also assumes the reinvestment of all dividends including(including our distribution of Crestline Capital Corporation common stock on December 29, 1998 to shareholders.
stockholders).
Comparisons of Five-Year Cumulative Total Stockholder Returns
The peer group index consists of Boykin Lodging Company (BOY), Felcor Lodging Trust Inc. (FCH), Hilton Hotels Corporation (HLT), Hospitality Properties Trust (HPT), LaSalle Hotel Properties (LHO), MeriStar Hospitality Corporation (MHX), Starwood Hotels & Resorts Worldwide, Inc. (HOT) and Wyndham International, Inc. (WYN).
Comparisons of Five-Year Cumulative Total
Shareholder Returns
[CHART]
Host Marriott Corporation S&P 500 Index Peer Group Index
1996 $100.00 $100.00 $100.00
1997 $122.66 $131.01 $120.45
1998 $ 96.07 $165.95 $ 61.92
1999 $ 57.38 $198.35 $ 53.36
2000 $ 89.98 $178.24 $ 64.08
2001 $ 62.60 $154.99 $ 56.55
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
As indicated above, the following directors served as members of the Compensation Policy Committee is currently composed ofduring 2002: John G. Schreiber Robert M. Baylis,(Chair) and Ann McLaughlin KorologosKorologos. Messrs. Vincent and Harry L. Vincent, Jr.
No current member of the Committee is or ever was an officer or employee of the
Company. No current member of the Committee is, or was during 2001, an
executive officer of another company whose board of directors has a comparable
committee on which one of our executive officers serves. J.W.Baylis also served until last year’s annual meeting in May 2002. In addition, J. W. Marriott, Jr. was a memberdirector of the 19
during 2001, but he was not a member when the Committee made the
decisions on executive compensation described above in the Committee's Report
on Executive Compensation. He is Chairman and Chief Executive Officer of
Marriott International, Inc., on whose board of directorsuntil January 2002. Richard E. Marriott, our Chairman currently serves. Richard E.of the Board, was a director of Marriott isInternational, Inc. until May 2002, a company where J. W. Marriott, Jr. serves as Chairman and Chief Executive Officer. J. W. Marriott, Jr. was not a member of the Compensation Policy Committee at the time the Committee made any decisions on executive compensation committeefor 2001, which was discussed in last year’s Report of Marriott International. For more information about
the Company's relationship with Marriott International, please see the section
entitled "Certain RelationshipsCompensation Policy Committee, and Related Transactions" laterdid not participate in this proxy
statement.
any executive compensation matters during 2002.
22
Except as noted above, during 2002:
| · | none of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries; |
| · | none of the members of the Compensation Committee entered into (or agreed to enter into) any transaction or series of transactions with the Company or any of its subsidiaries in which the amount involved exceeds $60,000; |
| · | none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions) of any entity where one of that entity’s executive officers served on the Company’s compensation committee; |
| · | none of the Company’s executive officers was a director of another entity where one of that entity’s executive officers served on the Company’s compensation committee; and |
| · | none of the Company’s executive officers served on the compensation committee (or another board committee with similar functions) of another entity where one of that entity’s executive officers served as a director on the Company’s Board of Directors. |
REPORT OF THE AUDIT COMMITTEE
The Committee
To Our Stockholders:
The Audit Committee serves as the representative of the Board of Directors is composedfor general oversight of four
independent directorsthe Company’s financial accounting and operates under a charter adopted byreporting, systems of internal control and audit processes. Management of the Board of
Directors.
To Our Shareholders
The Audit CommitteeCompany has reviewed and discussed with managementresponsibility for preparing the Company's auditedCompany’s financial statements, as well as for the Company’s financial reporting process and internal controls. KPMG LLP, acting as independent auditor, is responsible for performing an independent audit of the Company’s financial statements and for expressing an opinion on the year ended December
31, 2001, including the quality, not just the acceptability,conformity of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in theCompany’s financial statements. Management represented that the
audited consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles,principles. The Audit Committee is responsible for monitoring and overseeing these processes. The Audit Committee members are not professional accountants or auditors, and the Audit
Committee has expressedCommittee’s functions are not intended to bothduplicate or certify the activities of management and the independent auditors its
general preference for conservative policies when a range of accounting options
is available.
Theauditors. In this context, the Audit Committee discussed with the independent auditors, Arthur
Andersen LLP, the matters required to be discussed by Statement on Auditing
Standards No. 61, Communication with Audit Committees, as amended by the
Auditing Standards Board of the American Institute of Certified Public
Accountants.
The Audit Committee received and reviewed the written disclosures and the
letter from the independent auditors required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended by the Independence
Standards Board, and have discussed with the auditors the auditors'
independence. The Audit Committee considered whether the provision of
non-financial audit services was compatible with Arthur Andersen LLP's
independence in performing financial audit services.
Basedhas:
| · | reviewed and discussed with management the audited financial statements for the year ended December 31, 2002, including discussions of the quality, not merely the acceptability, of the Company’s accounting principles, the reasonableness of significant estimates and judgments, and the clarity of disclosure in the Company’s financial statements; |
| · | discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61,Communications with Audit Committees; |
| · | received the written disclosures and the letter from the independent auditors, KPMG LLP, required by Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees; and |
| · | discussed with the independent auditors their independence from the Company and its management. |
In reliance on the reviews, reports and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board of Directors has approved, that the audited financial statements referred to
above be included in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2001.
Robert M. Baylis, Chairman
Ann McLaughlin Korologos
John G. Schreiber
Harry L. Vincent, Jr.
20
INDEPENDENT AUDITORS
We have not yet appointed an independent auditor for2002. This report was filed with the 2002 fiscal year.
Securities and Exchange Commission on March 31, 2003.
23
The Audit Committee operates under a written charter that is currently monitoring litigation involving Arthur
Andersen LLP andreviewed annually. Following the investigations by regulatory agencies into the financial
reporting practices of the companies audited by Arthur Andersen LLP, our
independent public accountants since our inception. In view of the rapid pace
of these ongoing developments,annual review, the Audit Committee has decided that it is in
the best interests of the Company and its shareholdersrecommended to defer the selection
of the Company's independent public accountants this year until further
information becomes known about the status of Arthur Andersen LLP, and to allow
adequate time for the Audit Committee to carefully consider alternative
accounting firms. The selection of our independent public accountants is not
expected to be decided until after the annual meeting. Accordingly, the Board of Directors, will not request thatand the shareholders ratifyBoard of Directors adopted, an amended and restated Audit Committee Charter effective as of March 19, 2003. The revised charter strengthens the selectionrole of the Company's independent public accountantsAudit Committee in a number of respects and provides that:
| · | the Committee is directly responsible for the appointment, compensation, and oversight of the work of the Company’s outside auditor, that the outside auditor reports directly to the Committee, and that the Committee retains and may terminate the services of the outside auditor; |
| · | the Committee must approve in advance all audit engagement fees and terms, and all audit and non-audit services to be provided by the outside auditor; |
| · | the Committee must establish procedures for the handling of complaints regarding accounting, internal controls, or auditing matters and for the confidential, anonymous submission of concerns by employees regarding accounting and auditing matters; |
| · | the Committee must establish policies and procedures for the engagement of the outside auditor to perform non-audit services, including pre-approval of all non-audit services as noted above; |
| · | the Committee will review and discuss the adequacy and effectiveness of “disclosure controls and procedures” in addition to other internal controls already reviewed by the Committee; |
| · | the Committee has the authority and funding to engage accountants and other advisers and experts as it deems necessary (in addition to the ability to retain legal counsel already provided by the existing charter); |
| · | the Committee’s responsibilities include obtaining and reviewing, at least annually, a report by the outside auditor describing the outside auditor’s internal quality-control procedures, any issues raised by the most recent internal quality-control review, or peer review, of the outside auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, with respect to independent audits carried out by the outside auditor, and any steps taken to deal with any such issues; and the Committee’s responsibilities include establishing clear hiring policies for employees or former employees of the Company’s outside auditor. |
A copy of the amended and restated Audit Committee Charter is attached as Appendix A to this Proxy Statement. The above summary of amendments to the charter is qualified by reference to the complete charter, which should be read in its entirety.
The Audit Committee
Robert M. Baylis, Chairman
Ann McLaughlin Korologos
John G. Schreiber
24
AUDITOR FEES
Principal Accountant Fees and Services
For the fiscal year ending December 31, 2002.
Representatives of Arthur Andersen LLP are expected to be present at2002, the annual meeting. They will have an opportunity to make a statement if they
desire to do so and are expected to be available to respond to appropriate
questions.
Our internal auditor is PricewaterhouseCoopers LLP, which has served as our
internal auditor forCompany was billed the past several years.
Audit Fees
We paid Arthur Andersen LLP $1,276,000following amounts for professional services rendered
by Arthur Andersen during 2001 for the audit of our and our consolidated
subsidiaries' annual financial statements for the fiscal year 2001 and for
reviews of the financial statements included in our Quarterly Reports on Form
10-Q for the fiscal year 2001.
Financial Information Systems Design and Implementation Fees
Arthur AndersenKPMG LLP did not render to us any professional services with
respect to operating or managing our information systems or local area network
in 2001.
All Other Fees
We paid Arthur Andersen LLP $1,245,000 for all other professional services
rendered by Arthur Andersen LLP in 2001, which included tax out-sourcing, tax
and insurance consulting, due diligence for acquisitions and dispositions, and
financing transactions consulting.
(its independent auditor since May 22, 2002):
Audit fees (annual financial statements and review of quarterly financial statements for the year ended December 31, 2002) (1) | $1,697,000 | |
Audit related fees (2) | $458,100 | |
Tax fees | — | |
All other fees | — | |
Total fees | $2,155,100 |
| (1) | This includes $470,000 for 2002 audits, $635,000 for 2001 and 2000 re-audits, as well as $592,000 for subsidiary audits. |
| (2) | Audit related fees consisted principally of fees for compliance audits, audits of financial statements of our employee benefit plan, and consultation on accounting issues. |
The Audit Committee determinedconcluded that the provision of these other professionalnon-audit services wasis compatible with maintaining the independence of KPMG LLP.
Arthur Andersen LLP's
independenceLLP, the Company’s auditors prior to May 22, 2002, billed the Company in 2002 approximately $962,000 for audit and audit related services, $316,000 for tax services and $319,000 for other fees pertaining to insurance matters for our World Trade Center and Financial Center properties.
Other Company Auditors
Currently, the conductCompany has engaged Ernst & Young LLP for tax consultation and tax compliance services. Since 1996, the Company has engaged PriceWaterhouseCoopers LLP as its internal auditor. The purpose of the internal audit program is to review the effectiveness and design of internal controls at our properties, to test compliance with our contractual agreements and to identify any unrecorded liabilities.
On May 22, 2002, on the recommendation of the Audit Committee, our Board dismissed Arthur Andersen LLP as independent auditor and appointed KPMG LLP to serve as the Company’s independent auditors for the year ended on December 31, 2002.
Arthur Andersen’s reports on the Company’s consolidated financial statements for each of the past two fiscal years did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles.
During the two fiscal years ended December 31, 2000 and 2001 through to May 22, 2002, the date Arthur Andersen was dismissed, there were: (i) no disagreements with Arthur Andersen LLP on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Arthur Andersen’s satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for such years; and there were no “reportable events” as defined by SEC rules.
We provided Arthur Andersen LLP with a copy of the foregoing statements and, in a letter dated May 16, 2002, Arthur Andersen LLP stated its auditing functions.
21
THE REIT CONVERSION
We mergedagreement with these statements. A copy of this letter is included in our report on Form 8-K, filed with the former Host Marriott Corporation (a Delaware
corporation)SEC on May 24, 2002.
25
During the two fiscal years ended December 29, 1998, in order31, 2000 and 2001 and through to re-incorporate in Maryland. The
mergerMay 22, 2002, the date Arthur Andersen LLP was part of a series of transactions in whichdismissed, we and our subsidiaries
converted our business operations to qualify as a real estate investment trust
or "REIT" for federal income tax purposes (the "REIT conversion").
As a result of the REIT conversion, we now conduct our business primarily
through Host Marriott, L.P., a Delaware limited partnership (the "operating
partnership"). We are the sole general partner of the operating partnership and
currently hold 92% of the operating partnership interest units. As part of the
REIT conversion, we and our subsidiaries contributed substantially all of our
assetsdid not consult KPMG LLP with respect to the operating partnershipapplication of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and its subsidiaries. In exchange, we received their ownership interests in the operating partnership, and the
operating partnership and its subsidiaries assumed substantially all of our and
our subsidiaries' liabilities. In addition, all of our employees employed at
the time of the REIT conversion became employees of the operating partnership.
did not consult with KPMG LLP on any other matters or “reportable events” as defined by SEC rules.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship between Marriott International, Inc. and Host Marriott
Prior to October 8, 1993, we and Marriott International, Inc. were operated as a single consolidated company. On October 8, 1993, in connection with the issuance of a special dividend, the consolidated company'scompany’s businesses were split between Host Marriott Corporation and Marriott International. Thereafter, we retained the lodging real estate business and the airport/toll road concessions business, while Marriott International took the lodging and service management businesses. On December 29, 1995, we distributed the airport/toll road concessions business to our shareholders.stockholders.
Our ongoing relationships with Marriott International can be divided into three general categories:
| · | distribution agreement and the related agreements stemming from our separation into two separate companies; |
| · | lodging management and franchise agreements relating to our properties; and |
| · | acquisition financing and joint ventures. |
As of February 28, 2003, Richard E. Marriott, the Chairman of our Board, beneficially ownsowned approximately 12.3%12.7% of the outstanding shares of common stock of Marriott International, and J.W. Marriott, Jr., who is currentlywas one of our Directors
(although he has announced that he will not stand for re-election todirectors until his retirement from our Board at the end of his current term, which expires in May 2002),2002, beneficially ownsowned approximately 12.7%12.4% of the outstanding shares of common stock of Marriott International. In addition, J.W. Marriott, Jr. serves as Chairman of the Board and Chief Executive Officer of Marriott International, and Richard E. Marriott servesserved as a director of Marriott International although he has announced that
he will resign from Marriott International's board of directors inuntil May 2002. By reason of their ownership of such shares of common stock and their current and former positions as directors of Marriott International, they could be deemed in control of Marriott International within the meaning of the federal securities laws. Other members of the Marriott family might also be deemed control persons of Marriott International by reason of their ownership of shares of Marriott International and/or their relationship to other family members.
Our ongoing relationships with Marriott International can be divided into
three general categories:
. The distribution agreement and the related agreements stemming from our
separation into two separate companies;
. The lodging management and franchise agreements relating to our
properties; and
. Acquisition financing and joint ventures.
22
Distribution Agreement and Related Agreements
In connection with the separation of our business from that of Marriott International, we entered into a distribution agreement with Marriott International whichthat allocated the assumption of liabilities and cross-indemnities so that each company shouldered the financial and legal responsibility for its respective business. This distribution agreement has been amended from time to time. Under thisIn connection with our renegotiation of our management agreements with Marriott International, we have amended the distribution agreement to terminate Marriott International has theInternational’s right to purchase up to 20% of each class of our outstanding voting stock (determined after assuming full exerciseshares upon certain changes of the right) at its then fair
market value (based on an average of trading prices during a specified period).
This purchase right is effective until June 2017, but only upon the occurrence
of certain specified events generally involving a change or potential change in
our control. This purchase right can be exercised for a 30-day period following
the date on which a person or group of affiliated persons has (1) become the
beneficial owner of 20% or more of the total voting power of the then
outstanding shares of our common stock, or (2) announced a tender offer for 30%
or more of the total voting power of the then outstanding shares of our common
stock. We have granted Marriott International an exception to the ownership
limitations in our charter so that it can fully exercise its purchase right,
but the purchase right remains subject to certain ownership limitations
applicable to REITs generally. In connection with our negotiations with
Marriott International on changes to our lodging management agreements
described below, however, we are discussing the termination of this purchase
right and the clarification of the existing provisions in the management
agreements that currently limit our ability to sell a hotel or the Company to a
competitor of Marriott International.
We have entered into other agreements with Marriott International in connection with the business separation, which govern our ongoing relationships. These other agreements include:
Tax Sharing Agreement. We entered into a tax sharing agreement with Marriott International that definesallocates the parties'parties’ rights and obligations with respect to: .(1) deficiencies and refunds of federal, state and other income or franchise taxes relating to our businesses for tax years prior to the separation; and .(2) certain of our tax attributes after the separation. We have agreed to cooperate with each other and to share information in preparing tax returns and in dealing with other tax matters.
26
License Agreement. We entered into a license agreement with Marriott International that grants us a non-exclusive, royalty-free, worldwide license to use the Marriott mark for corporate or partnership name purposes and only in connection with our activities relating directly to our business of developing, purchasing, leasing, selling and owning hotel properties. The license is subject to certain conditions, most significantly that the majority of all hotels owned by us are managed by or operated pursuant to a franchise granted by Marriott International or its affiliates.
Administrative Services Agreements and Office Space Lease. We have entered into certain agreements with Marriott International inpursuant to which Marriott International has agreed to provideprovided certain continuing administrative services for us and our subsidiaries. In addition,subsidiaries and by which we subleasesubleased office space from Marriott International. These services and the sublease arewere provided on market terms and conditions. In 2001,August 2002, we terminated the sublease and related administrative services agreements when we relocated to our current office space. Through August 2002 we paid Marriott International $2$1 million for such services and office space. In general, the administrative services
agreements continue from year to year unless terminated by either party, and
therefore they remain in place at least through the end of 2002. We plan to
terminate the sublease in August 2002 upon our relocation to new office space.
Lodging Management and Franchise Agreements
Marriott International and certain of its subsidiaries entered into management agreements with us and certain of our subsidiaries to manage the Marriott Hotels, ResortsMarriott- and Suites, Ritz-Carlton Hotels, CourtyardRitz-Carlton-branded full-service hotels and Residence InnsCourtyard-branded limited service hotels owned or leased by us and our subsidiaries. Marriott International
23
subsidiaries.
The franchise agreementssubsidiaries that allow us to use the Marriott brand, associated trademarks, reservation systems and other related items in connection with ninefor seven Marriott hotels for which we have entered into operating agreements with hotel management companies other than Marriott International. In 2001,2002, we and our subsidiaries paid $168$150 million in the aggregate in management and franchise fees to Marriott International.
In addition, certainsome of our subsidiaries are partners in several
unconsolidated partnershipsa joint venture that owned 161120 Courtyard by Marriott lodging properties as of December 31, 2001.2002. These properties are operated by Marriott International or certain of
its subsidiaries under long-term agreements. Our subsidiaries typically serve
as the generalare co-general partners in such partnerships. In 2001,2002, those partnerships paid fees of $40$26 million to Marriott International under those agreements. The partnerships also paid $22$21 million in rent to Marriott International in 20012002 for leases of land upon which certainsome of the partnerships'partnerships’ hotels are located.
We are currently negotiating
On July 25, 2002, we completed our negotiations with Marriott International certain changes to theamend our management and other agreements for substantially all our Marriott-managedMarriott- and Ritz-Carlton-managed hotels. If made, theThese changes which remain subject to the consent of various lenders to the
properties and other third parties, would bewere effective as of December 29, 2001. There can be no assurance that the negotiations will be successful, that theThe management contract changes will be made in substantially the form described below or that we will
receive the necessary consents to implement the amendments. The amendments to
the management agreements that are under discussion include the following:
. Providing additional approval rights relating to the annual operating
budgets and estimates for expenditures;
. Reducing certain expenses to the properties and lowering our working
capital requirements;
. Clarifying the circumstances and conditions under which Marriott
International and its affiliates may earn a profit on transactions with
our properties,
| · | expanded approval rights over hotel operating budgets, capital budgets, shared service programs, and changes to certain system-wide programs; |
| · | a reduction in the amount of working capital requirements, and the expansion of an existing agreement that allows us to fund FF&E expenditures as incurred from one account that we control rather than depositing funds into individual escrow accounts at each hotel, which collectively increased cash available to us in July 2002 for general corporate purposes by approximately $125 million; |
| · | a reduction in incentive management fees payable on Marriott-managed hotels; |
| · | a gradual reduction in the amounts payable with respect to various centrally administered programs; |
| · | additional territorial restrictions for certain hotels in 10 markets; and |
| · | clarification of existing provisions that limit our ability to sell a hotel or our Company to a competitor of Marriott International. |
In addition to the amounts that Marriott International
and its affiliates earn through their base and incentive management
fees;
. Enhancing territorial restrictions on Marriott International and its
affiliates with respect to certain of our properties;
. Reducing the incentive management fees thatthese modifications, we pay on our portfolio of
Marriott-managed hotels;
. Expandingexpanded the pool of hotels that are subject to an existing agreement that allows us to sell certain assets withoutunencumbered by a Marriott International
management agreement without the payment of termination fees. The revised pool includes 46 assets, 75% (measured by Earnings Before Interest Expense, Taxes, Depreciation and revising the method for determining the
numberAmortization, or EBITDA) of hotels thatwhich may be sold withoutover approximately a Marriott International
management agreementten-year or a franchise agreement and, in each case,greater period without the payment of a termination fee; and
. Terminatingfee (22.5% (measured by EBITDA) of which can be sold unencumbered by the Marriott International's right to purchase up to 20% of
each class of our outstanding voting shares upon certain changes of
control and clarifying existing provisions in the management agreements
that limit our ability to sell a hotel or the Company to a competitor
of Marriott International.
brand).
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Acquisition Financing and Joint Venture
Marriott International has provided financing to us financing for a portion of the cost of acquiring properties to be operated or franchised by Marriott International. It is possible that Marriott International may from time to time provide this type of financing in the future. In 2001,2002, Marriott International did not
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20012002 was $25$21 million.
During 2000, we, through our affiliates,subsidiaries, formed a joint venture with Marriott International, the "Courtyard“Courtyard Joint Venture,"” to acquire the partnership interests in Courtyard by Marriott Limited Partnership and Courtyard by Marriott II Limited Partnership for an aggregate payment of approximately $372 million plus interest and legal fees, of which we and one of our subsidiaries paidcontributed approximately $90 million. The Courtyard Joint Venture acquired 120 Courtyard by Marriott properties totaling 17,559 rooms and financed the acquisition with $200 million in non-recourse mezzanine indebtedness borrowed from Marriott International and with cash and other assets contributed by our affiliates and by Marriott International. A subsidiary of Marriott International continues to manage these 120 hotels under long-term management agreements. This investment was consummated in settlement of litigation involving these two limited partnerships, in which we, through our affiliates, served as general partner, rather than as a strategic initiative.
Relationship between Crestline Capital Corporationwith Bracewell & Patterson LLP
During 2002 we retained the law firm of Bracewell & Patterson LLP for consultation and Host Marriott
As partlobbying services primarily associated with the passage of the REIT conversion, we made certain taxable distributionsTerrorism Risk Insurance Act of 2002. Edwin R. Bethune, a partner at the firm, is the father-in-law of Christopher Nassetta, our Chief Executive Officer. Total fees paid to our shareholders on December 29, 1998, including the distributionBracewell & Patterson LLP were approximately $187,000 during 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Federal securities laws require directors, executive officers, and owners of substantially allmore than ten percent of the shares ofour common stock of Crestline Capital
Corporation, which was formerly one of our wholly owned subsidiaries. Crestline
became a separate publicly traded company at that time.
Richard E. Marriott, the Chairman of our Board of Directors, and J.W.
Marriott, Jr., one of our Directors, beneficially own approximately 5.5% and
4.5%, respectively, of the outstanding shares of common stock of Crestline. In
addition, John G. Schreiber, one of our Directors, is a senior advisor and
partner of Blackstone Real Estate Advisors L.P., an affiliate of Blackstone
Real Estate Associates. A series of partnerships, persons and entities
affiliated with Blackstone Real Estate Associates owns in the aggregate 8.8% of
the outstanding shares of common stock of Crestline.
In connection with this distribution of Crestline common stock, we entered
into a distribution agreement with Crestline, which provided for, among other
things:
. the distribution of shares of Crestline to our shareholders;
. the division of certain assets and liabilities between Crestline and us;
. the contribution to Crestline of our interest in 31 senior living
communities;
. the transfer to Crestline of our 25% interest in Swissotel Management
(USA) L.L.C., which we had acquired from the Blackstone Entities;
. a guarantee by us on certain Crestline debt obligations;
. the contingent right for a period of ten years to allow us to purchase
Crestline's interest in Swissotel Management (USA) L.L.C. at fair
market value if the tax laws are changed so that we could own such
interest without jeopardizing our status as a REIT;
. subject to certain exceptions, the assumption of liabilities and
cross-indemnities designed to allocate to Crestline financial and legal
responsibilities arising out of or in connectionfile reports with the business ofSecurities and Exchange Commission and with the senior living communities; and
. certain other agreements governing the relationship between Crestline
and us following the Crestline distribution.
Under the federal tax law in effect at the time of the REIT conversion, a
REIT could not earn income from the operation of hotels but could receive
rental income by leasing hotels. Therefore, the
25
operating partnership and its subsidiaries leased virtually all of their hotel
properties to certain subsidiaries of Crestline. Generally, there was a
separate Crestline hotel lessee for each hotel property; however, there was a
separate lessee for each group of hotel properties if that group had a separate
mortgage financing or had additional partners in its ownership structure. Each
of the lessees was a limited liability company or limited partnership, whose
purpose was limited to acting as lessee under an applicable lease. Our or our
subsidiaries' hotel management agreements, therefore, were assignedNew York Stock Exchange. These reports relate to the Crestline hotel lessees for the termnumber of the applicable leases. Although the
lessees had primary liability under the management agreements while the leases
were in effect, the operating partnership retained primary liability for
certain obligations and contingent liability under the management agreements
for all other obligations that the lessees did not perform.
In December 1999, the REIT Modernization Act was passed, effective for
taxable years beginning after December 31, 2000, which significantly amended
the REIT laws applicable to us. As discussed above, prior to that time, REITs
were restricted from deriving revenues directly from the operations of hotels.
Under the REIT Modernization Act, however, beginning January 1, 2001 (i) we
were permitted to lease our hotels to a subsidiary that is taxable as a
corporation and that elects to be treated as a "taxable REIT subsidiary" rather
than to a third party such as Crestline, and (ii) we could own all of the
voting stock of such taxable REIT subsidiary. Consequently, effective January
1, 2001, through an indirect taxable REIT subsidiary, we purchased from
Crestline for $207 million the Crestline lessee entities that owned the
leasehold interests with respect to all but one of our full-service hotels that
were leased to Crestline. In June 2001, we acquired from Crestline the one
remaining lessee entity.
Limited-Service Hotel Subleases. We lease 71 limited-service hotels under
the Residence Inn and Courtyard brands from Hospitality Properties Trust, Inc.
These leases have initial terms expiring through 2010 for the Residence Inn
properties and 2012 for the Courtyard properties. They are renewable at our
option. In connection with the Crestline distribution, subsidiaries of
Crestline entered into sublease agreements with us for these limited-service
hotels. The terms of the subleases will expire simultaneously with the
expiration of the initial term of the Hospitality Properties Trust leases. If
we elect to renew the leases, Crestline can elect to renew the subleases for
the corresponding renewal term.
Each sublease contains generally the same terms as the Hospitality
Properties Trust leases. The Hospitality Properties Trust leases require the
lessee to pay rent equal to:
. a fixed minimum rent, less the cost of any repairs, maintenance,
renovations or replacements of the hotel; and
. an additional rent based upon a specified percentage of gross revenues
to the extent they exceed gross revenues from a base year.
In addition, the leases require the lessee to pay all repair and
maintenance costs, impositions, utility charges, insurance premiums and all
fees payable under the hotel management agreements. Under the subleases,
subsidiaries of Crestline are required to pay us rent equal to the minimum rent
due under the leases plus an additional rent based on a percentage of revenues.
To the extent the reserves for replacements to furnishings, fixtures and
equipment are insufficient to meet the hotel's capital expenditure
requirements, Hospitality Properties Trust is required to fund the shortfall.
Crestline guarantees the rent payable under the subleases up to a maximum of
$30 million. The Crestline subsidiaries that are parties to the subleases were
capitalized with $30 million in notes from
26
Crestline payable on demand. In 2001, Crestline paid us an aggregate amount of
$77 million in rent under the subleases, out of which amount we paid
Hospitality Properties Trust $72 million in rent under the principal leases.
We may terminate all of the subleases upon payment of a termination fee.
This fee is equal to the fair market value of Crestline's leasehold interests
in the remaining term of the subleases using a discount rate of five percent.
The subleases currently remain in place, however, and were unaffected by our
acquisition of the Crestline lessee entities.
Tax Sharing Agreement. We entered into a tax sharing agreement with
Crestline which defines each party's rights and obligations with respect to:
. deficiencies and refunds of federal, state and other income or
franchise taxes relating to Crestline's business for taxable years
before the Crestline distribution; and
. certain tax attributes of Crestline after the Crestline distribution.
Generally, the result is that we are responsible for filing consolidated
returns and paying taxes for periods until the date of the Crestline
distribution. Crestline is responsible for filing returns and paying taxes for
later periods. The tax sharing agreement remains in place and was unaffected by
our acquisition of the Crestline lessee entities.
Relationship between the Blackstone Entities and Host Marriott
In conjunction with the REIT conversion, in December 1998 the operating
partnership acquired 12 upscale and luxury full-service hotels, a mortgage loan
secured by a thirteenth hotel, and certain other assets from The Blackstone
Group L.P. and a series of partnerships, persons and other entities affiliated
with Blackstone Real Estate Associates. We refer to this group of entities as
the Blackstone Entities. As part of the Blackstone acquisition, we and the
operating partnership entered into a contribution agreement with the Blackstone
Entities. This agreement provided that an affiliate of the Blackstone Entities
had the right to designate one person to be included in the slate of Directors
nominated for election to our Board of Directors as long as the Blackstone
Entities owned at least 5% of all of the outstanding operating partnership
units (including those operating partnership units held by us and our
subsidiaries). The Blackstone Entities designated John G. Schreiber, one of our
Directors who was re-elected to the Board at the 1999 annual meeting of
shareholders. Mr. Schreiber is a senior advisor and partner of Blackstone Real
Estate Advisors L.P., an affiliate of the Blackstone Entities.
In addition, the Blackstone contribution agreement provides that the
operating partnership units beneficially owned by the Blackstone Entities (and
their permitted transferees) are redeemable for cash or, at our election, for
our common stock. We granted to the Blackstone Entities (and their permitted
transferees) certain registration rights with respect to shares of our common stock obtained upon conversionthat each of the Blackstone operating partnership units.
In a series of transactions during the first half of 2001, the Blackstone
Entities exercised these conversionthose persons beneficially owns, and registration rights with respect to a
very large majority of the operating partnership units they previously held,
and they simultaneously disposed of the shares of common stock obtained upon
the conversion of the operating partnership units. After completion of this
series of transactions, the Blackstone Entities held less than 1.1% of all of
the outstanding operating partnership units. Consequently, the Blackstone
Entities no longer have the right to designate one person to be included in the
slate of Directors nominated for election to our Board of Directors. The Board
has decided, however, to nominate Mr. Schreiber for re-election at the 2002
annual meeting of shareholders because of his outstanding service as a Director.
27
The Blackstone contribution agreement also grants the Blackstone Entities
an exemption from the ownership limitations contained in the operating
partnership's partnership agreement. It also contains standstill provisions
which prohibit the Blackstone Entities from engaging in certain activities with
respect to the operating partnership and us. For example, the Blackstone
Entities may not take any actions in opposition to our Board of Directors. In
addition, the Blackstone Entities' ability to acquire and dispose of our voting
securities is restricted.
In addition to the contribution agreement, we entered into another
agreement with the Blackstone Entities which restricts our ability, without the
consent of the Blackstone Entities, to transfer our interests in the hotels and
other assets acquired from the Blackstone Entities if such a transfer would
create adverse tax consequences to the Blackstone Entities. These restrictions
terminate on December 30, 2003 with respect to 50% of the assets acquired from
the Blackstone Entities, and they terminatechanges in their entirety on the earlierownership. Except as set forth below, all persons required to file such forms have done so during 2002.
Due to an oversight, Richard E. Marriott did not file a timely report for four separate transactions that were effected in December 2002. Mr. Marriott transferred gifts of (i) December 30, 2008 or (ii) the date on which the Blackstone Entities have
redeemed all of their operating partnership units pursuant to the contribution
agreement.
PROPOSAL TWO:
SHAREHOLDER PROPOSAL REGARDING
ANNUAL ELECTION OF ALL DIRECTORS
Shareholder Proposal
Mrs. Evelyn Y. Davis of Watergate Office Building, 2600 Virginia Avenue,
N.W., Suite 215, Washington, D.C. 20037, owns 317120,576 shares, of our common stock.
As a shareholder, Mrs. Davis has notified us of her intention to propose the
following resolution at the 2002 Annual Meeting of Shareholders:
"RESOLVED: That the shareholders31,460 shares and 1,210 shares, respectively, of Host Marriott recommend thatcommon stock on December 2, 2002. A distribution of 755,200 shares was also made from the BoardJWM Sr. Charitable Trust on this date, of Directors takewhich Mr. Marriott is deemed to be a beneficial owner of such shares. A report was filed promptly upon the necessary stepsdiscovery of this oversight.
Due to reinstatean oversight, Mr. Donald D. Olinger, the electionCompany’s former Senior Vice President and Corporate Controller, did not file a timely report for the mandatory forfeiture of Directors
ANNUALLY, instead79,725 shares of restricted stock shares upon his departure from the stagger system whichCompany on December 3, 2002. A report was recently adopted."
Shareholder's Supporting Statement
In supportfiled promptly upon the discovery of this oversight.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
If you would like to submit the resolution, Mrs. Davis has submitted the following
statement:
"The great majorityname of New York Stock Exchange listed corporations elect
all their Directors each year.
"This insures that ALL Directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the self-perpetuation
of the Board.
"Last year the owners of 63,261,564 shares, representing approximately
34.0% of shares voting, voted FOR this proposal.
"If you AGREE, please mark your proxy FOR this proposal."
The Company's Statement in Opposition
Mrs. Davis has submitted this proposal at the last sixteen annual meetings
of shareholders, and it has been defeated on each occasion. The Board of
Directors has again considered the proposal (as has
28
Committee)Committee to consider as a nominee for director, you may send your recommendation and again recommends that
shareholders vote AGAINST it for the following reasons:
. at the 1984 annual meeting of shareholders, holders of more than 86%a description of the shares of our common stock approved an amendment to our then
Certificate of Incorporation (as a Delaware corporation) to classify
the Board of Directors into three classes, with one class being elected
each year; and
. at the special meeting of shareholders concerning the REIT conversion
held on December 15, 1998, holders of more than 99% of the shares of
our common stock voted to approve the transactions comprising the REIT
conversion, including the adoption of our Articles of Incorporation for
our re-incorporation in Maryland. Those Articles of Incorporation
similarly classify the Board of Directors into three classes, with one
class being elected each year, and they were described in detail and
included in full in the proxy statement relatingperson’s qualifications to the special meeting
of shareholders.
Because we have a classified Board of Directors,attention of: Corporate Secretary, Host Marriott Corporation, 6903 Rockledge Drive, Suite 1500, Bethesda, Maryland 20817-1109. Recommendations may be sent at least two shareholder
meetings are required to effect a change of control of the Board of Directors.
It is therefore more difficult to change the membership of the Board of
Directors.any time. The Board of Directors believes that the longer time required to
elect a majority of a classified Board of Directors helps to assure continuity
and stability of our management and policies since a majority of the Directors
will always have prior experience as Directors of our company. Another benefit
of the existing arrangement is to enhance management's ability to negotiate
with the proponent of a proposed corporate takeover or restructuring. The Board
of Directors therefore believes that the proposed resolution would, if
implemented, be detrimental to the best interests of our shareholders.
Vote Required
Under our Articles of Incorporation, approval of the proposed resolution
requires the affirmative vote of the holders of at least two-thirds (66 2/3%)
of the total number of outstanding shares of our common stock as of the annual
meeting record date.
The Board of Directors of the Company unanimously recommends a vote AGAINST
such proposal.
PROPOSAL THREE:
SHAREHOLDER PROPOSAL REGARDING
THE NOMINATION PROCESS FOR DIRECTORS
Shareholder Proposal
Mr. Bartlett Naylor of 1255 N. Buchanan Street, Arlington, Virginia 22205,
owns 1,000 shares of our common stock. As a shareholder, Mr. Naylor has
notified us of his intention to propose the following resolution at the 2002
Annual Meeting of Shareholders:
"RESOLVED: The shareholders urge our board of directors to take the
necessary steps to nominate at least two candidates for each open board
position, and that the names, biographical sketches, SEC-required declarations
and photographs of such candidates shall appear in the company's
29
proxy materials (or other required disclosures) to the same extent that such
information is required by law and is our company's current practice with the
single candidates it now proposes for each position."
Shareholder's Supporting Statement
In support of the resolution, Mr. Naylor has submitted the following
statement:
"Although our company's board appreciates the importance of qualified
people overseeing management, I believe that the process for electing directors
can be improved.
"Our company currently nominates for election only one candidate for each
board seat, thus leaving shareholders no practical choice in most director
elections. Shareholders who oppose a candidate have no easy way to do so unless
they are willing to undertake the considerable expense of running an
independent candidate for the board. The only other way to register dissent
about a given candidate is to withhold support for that nominee, but that
process rarely affects the outcome of director elections. I believe the current
system thus provides no readily effective way for shareholders to oppose a
candidate who has failed to attend board meetings; or serves on so many boards
as to be unable to supervise our company management diligently; or who serves
as a consultant to the company that could compromise independence; or poses
other problems. As a result, while directors legally serve as the shareholder
agent in overseeing management, the election of directors at the annual meeting
is largely perfunctory.
"Our company should offer a rational choice when shareholders elect
directors.
"Would such a process lead to board discontinuity? Perhaps, but only with
shareholder approval. Presumably an incumbent would be defeated only because
shareholders considered the alternative a superior choice. Would such a
procedure discourage some candidates? Surely our board should not be made of
those intolerant of competition. Would such a procedure be "awkward" for
management when it recruits candidates? Presumably this would add rigor, which
I believe is justified by the responsibility of board directors. (Management
could print a nominee's name advanced by an independent shareholder to limit
any embarrassment.). The point is to remove the "final" decision on who serves
as a board director from the hands of management, and place it firmly in those
of shareholders.
"I urge you to vote FOR this proposal."
The Company's Statement in Opposition
Under our Bylaws, the Board of Directors and its Nominating and Corporate Governance Committee are responsible for annually identifying the best
candidates for electionhas full discretion in considering its nominations to the Board of Directors. These duties include
considering candidates for election as Directors, keeping abreast of, and
making recommendations with respect to, corporate governance in general and
making recommendations to the Board with respect to qualifications of Director
candidates, compensation of Directors, the selection of committee chairs,
committee assignments and related matters affecting the functioning of the
Board. In selecting a slate of candidates each year for a class of Directors,
the Committee and the Board carefully consider the performance and
qualifications not just of each individual but of the group as a whole, and
nominate the persons that they believe will together best serve the
shareholders. An election of only some of the identified candidates creates a
risk that the resulting Board would lack some types of experience, skills or
diversity.
30
The Board believes that if they followed the procedure set forth in the
proposal and nominated at least twice as many candidates to the director class
as there are seats, they would fail in their duty to our shareholders to
identify and recommend the best candidates. As the individuals responsible for
advising shareholders in making voting decisions, they have an obligation to
inform shareholders which candidates they favor. As a result, if the proposal
were implemented, the Board would need to specify "preferred" candidates. This
would put the Board in the unusual position of recommending against at least
half of the very Directors it was nominating for election. Few qualified
persons would be willing to participate in the type of contested election that
the proposal would produce, particularly if the Board did not recommend them.
Our current method for nominating candidates for election by the
shareholders is used by virtually all publicly held companies. A description of
the background and qualifications of each candidate is contained in the proxy
statement. Shareholders who are dissatisfied may register their disapproval by
withholding votes for some or all nominees or by conducting a proxy contest to
offer their own slate of nominees. By requiring the Board to supply a slate of
nominees whom it would not favor would benefit neither the shareholders nor the
election process. In short, the procedure set forth by the proposal would not
be an efficient or effective means of selecting the best Directors for Host
Marriott.
Accordingly, the Board of Directors believes that the proposed resolution
would, if implemented, be detrimental to the best interests of the company and
our shareholders.
Vote Required
Under our Articles of Incorporation, approval of the proposed resolution
requires the affirmative vote of the holders of at least two-thirds (66 2/3%)
of the total number of outstanding shares of our common stock as of the annual
meeting record date.
The Board of Directors of the Company unanimously recommends a vote AGAINST
such proposal.
PROPOSAL FOUR:
SHAREHOLDER PROPOSAL REGARDING
THE RE-INCORPORATION OF THE COMPANY
IN DELAWARE FROM MARYLAND
Shareholder Proposal
The national office of the Hotel Employees & Restaurant Employees
International Union, located at 1219 28/th Street N.W., Washington, D.C. 20007,
and Hotel Employees & Restaurant Employees Local 2 in San Francisco, located at
209 Golden Gate Avenue, San Francisco, California 94102, own in the aggregate
235 shares of our common stock. We refer to these two groups collectively as
the "Union." As a shareholder, the Union has notified us of its intention to
propose the following resolution at the Annual Meeting of Shareholders:
"RESOLVED: that the shareholders of Host Marriott Corporation urge the
Board of Directors to take the measures necessary to change our Company's
jurisdiction of incorporation from Maryland to Delaware."
31
Shareholder's Supporting Statement
In support of the resolution, the Union has submitted the following
statement:
"We believe legislative changes to Maryland corporate law, including the
1999 Unsolicited Takeovers Act (the 'Act') and the 2000 amendments to Maryland
General Corporation Law and the Maryland REIT Law, have increased anti-takeover
devices available to real estate investment trusts (REITs) incorporated in
Maryland, and eroded some important shareholder rights.
"According to one legal analysis of the 1999 Act, the law 'is an explicit
break from the Delaware model, which has subjected boards attempting to use
takeover defenses to heightened scrutiny and to increasing risks of personal
liability. The Act expressly rejects this trend in Delaware law, offering
seemingly unqualified protection for incumbent directors and management. It has
generated criticism from institutional investors and shareholder activists, who
view it as a management entrenchment tool.' [Insights, September, 1999]
"As a result of the recent legislation, there are several key ways Maryland
corporate law differs from Delaware law regarding anti-takeover issues and
shareholder rights.
"When considering the potential acquisition of the company, Maryland law
now permits directors to consider the effect of the potential acquisition on
non-shareholder constituencies. This provision allows a company to 'accept a
lower priced offer that the directors believe is more favorable to all of the
company's constituencies.' [Insights, September 1999]. Delaware law does not
contain a 'stakeholder' provision. In addition, the Act explicitly affirms that
the 'just say no' legal defense is available to directors in Maryland,
rejecting the Delaware courts' heightened scrutiny of directors' decisions to
reject unsolicited bids.
"The Act specifically validates shareholder rights plans (or 'poison
pills'), including a director 'slow hand' provision which limits new directors
from redeeming or terminating a poison pill for up to 180 days after they
become directors. Delaware courts have struck down 'slow hand' provisions.
"With the passage of the Act in 1999, Maryland also became the first state
in the nation to permit corporate charters to include a provision authorizing
the board of directors to amend the charter, without shareholder approval, to
increase the authorized shares of stock of any or all classes. Delaware
requires shareholder approval to increase authorized shares of stock.
"In light of the recent legislative changes to corporate law in Maryland,
we believe reincorporating in Delaware would offer a more appropriate balance
between the interests of shareholders, management, and directors at our
company."
The Company's Statement in Opposition
In December 1998, with the approval of holders of more than 99% of the
shares voting at a special meeting of shareholders, we merged with the former
Host Marriott Corporation, which was a Delaware corporation, in order to
re-incorporate in Maryland. This merger was part of a series of transactions in
which we and our affiliates converted our business operations to qualify as a
real estate investment trust or "REIT" for federal income tax purposes. We
chose Maryland as our state of incorporation because more publicly traded REITs
and corporations who elect to be treated as REITs
32
are formed under Maryland law than under the laws of any other state, and
because Maryland law offers significant benefits to REITs and to corporations
who elect to be treated as REITs that the laws of other states, including
Delaware, do not. Most important, to qualify as a REIT under the Internal
Revenue Code, we must comply with certain ownership limits and share transfer
restrictions imposed by the Internal Revenue Code. If we violate these limits
and restrictions, we would fail to qualify as a REIT, thereby subjecting us to
federal and state income tax on our taxable income at regular corporate rates.
The additional tax burden on us would significantly reduce the cash available
for distribution by us to our shareholders, and we would no longer be required
to make any distributions to shareholders. Moreover, our failure to qualify as
a REIT could materially reduce the value of our common stock.
Maryland law expressly permits REITs and corporations who elect to be
treated as REITs for income tax purposes to impose these ownership limits and
share transfer restrictions on holders of shares of capital stock in their
charters. Given the importance of qualifying as a REIT, many REITs and
corporations who elect to be treated as REITs, including us, have imposed
ownership limits and share transfer restrictions in their charters. Under
Delaware law, however, ownership limits and transfer restrictions are not
binding on securities issued prior to their adoption unless the holders of
these securities agree to or vote in favor of these limits and restrictions.
Consequently, our decision to incorporate in Maryland facilitated our
qualification as a REIT, and also helps to ensure that we will be able to
maintain our qualification as a REIT in the future.
In its supporting statement, the Union claims that recent legislative
changes to Maryland law, including the 1999 Unsolicited Takeovers Act (the
"1999 Act") and the 2000 amendments to the Maryland General Corporation Law,
have "eroded some important shareholder rights." We disagree.
First, the Union warns that Maryland law "now permits directors to consider
the effect of the potential acquisition on non-shareholder constituencies. This
provision allows a company to 'accept a lower priced offer that the directors
believe is more favorable to all of the company's constituencies'"-- but only
if the company's charter specifically so permits. Our Articles of Incorporation
do not. Moreover, the Union exaggerates the consequences of constituency
considerations. Maryland law does not hold Maryland corporations directly
responsible to any constituencies other than to shareholders. Constituency
considerations are best understood not as independent corporate objectives but
rather as factors that may be taken into account in pursuing the best interests
of the corporation.
Second, the Union objects that Maryland law permits a charter to include a
provision authorizing the board of directors to amend the charter, without
shareholder approval, to increase the authorized shares of stock of any or all
classes, whereas Delaware law does not. The Union fails to note, however, that
in order for a board of directors to take advantage of this flexibility, the
charter must first be amended to include a provision authorizing the board of
directors to amend the charter to increase the authorized shares of stock
without shareholder approval. Our Articles of Incorporation do not contain such
a provision; and to amend these Articles to include such a provision would
require the affirmative vote of our shareholders holding a majority of all the
votes entitled to be cast on the matter. In other words, under Maryland law, if
a charter grants the board of directors the power to increase the authorized
shares of stock without shareholder approval, it is only because the
shareholders have voted to give the board this power. Indeed, this provision of
Maryland law increases rather than erodes shareholders' rights because it
enhances the power of shareholders to establish the framework of rules
governing the rights and duties of the corporation, shareholders, directors and
officers among themselves.
33
Third, although the Union criticizes the 1999 Act and seems to view the
1999 Act as a "management entrenchment tool," it is noteworthy that Maryland
Governor Glendening introduced this legislation to further protect Maryland
corporations and REITs and their shareholders against the potential abuses of
unsolicited takeovers, which are well-known. This legislation was passed by
both the House of Delegates and the Senate of Maryland by substantial margins.
Finally, there are other benefits to incorporation in Maryland as compared
to Delaware. For example, Delaware corporations are subject to Delaware state
franchise taxes, which can be as high as $150,000 per year. Maryland does not
impose any franchise tax on Maryland corporations. Also, the actual process of
re-incorporation in Delaware would cause us to incur additional legal and
accounting costs and would burden our administrative personnel.
Accordingly, the Board of Directors believes that the proposed resolution
would, if implemented, be detrimental to the best interests of the company and
our shareholders.
Vote Required
Under our Articles of Incorporation, approval of the proposed resolution
requires the affirmative vote of the holders of at least two-thirds (66 2/3%)
of the total number of outstanding shares of our common stock as of the annual
meeting record date.
The Board of Directors of the Company unanimously recommends a vote AGAINST
such proposal.
OTHER MATTERS
We do not know of any other matters to be presented at the annual meeting
other than those discussed in this proxy statement. If however, other matters
are properly brought before the annual meeting, your proxies will be able to
vote those matters at their discretion.
SHAREHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
28
The annual meeting of shareholdersstockholders for 20032004 is tentatively scheduled to be held on May 15, 2003. In order20, 2004. If you would like to nominate a candidate for shareholder proposalsdirector or bring other business before the stockholders at the 2004 annual meeting you must comply with the following requirements:
| · | you must notify the Corporate Secretary in writing at the address above no earlier than October 7, 2003, and no later than December 6, 2003; and |
| · | your proposal must contain all of the information required under our By-laws, a copy of which is available, at no charge, from the Corporate Secretary. |
If you wish to submit a proposal to be included in the proxy statement for the 2002our 2004 annual meeting, we must receive themit no later than December 6, 2002. Shareholder proposals2003. The proposal must be in compliancecomply with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934 as amended (the "Exchange Act") and should be sent to the Corporate Secretary at the address above.
OTHER MATTERS
Our Board is not aware of any other business that will be presented at the annual meeting. If any other business is properly brought before the annual meeting, proxies received will be voted in accordance with the recommendation of our Bylaws. They must alsoBoard. Discretionary authority with respect to such other matters is granted by execution of the enclosed proxy.
It is important that the proxies be submittedreturned promptly and that your shares be represented. You are urged to sign, date and promptly return the enclosed proxy card in writingthe enclosed return envelope.
A copy of our 2002 Annual Report has been mailed concurrently with this proxy statement to all stockholders entitled to notice of and to vote at the annual meeting. The Annual Report is not incorporated into this proxy statement and is not considered proxy solicitation material.
We have filed an Annual Report on Form 10-K for the year ended December 31, 2002 with the Securities and Exchange Commission. You may obtain, free of charge, a copy of the Form 10-K (excluding exhibits) by notice deliveredwriting to the Corporate Secretary, Host Marriott Corporation, 10400 Fernwood Road,
Bethesda, Maryland 20817-1109. These notices must set forth:
. the shareholder's name and address;
. the text of the proposal to be introduced;
. the number of shares of our common stock the shareholder held of
record, owned beneficially and represented by proxy as of the date of
the notice; and
. a representation that the shareholder intends to appear in person or by
proxy at the meeting to introduce the proposal specified in the notice.
34
In addition, our Bylaws allow any shareholder who meets the requirements of
the proxy rules under the Exchange Act to nominate a candidate for Director or
to bring other business before the annual meeting of shareholders for 2003. For
such other business to be included in the proxy materials, it must meet the
additional requirements set forth in the paragraph above. In order for any such
nomination or other business to be properly brought before the 2003 annual
meeting, our Bylaws require that such nomination or other business be submitted
in writing by notice delivered to the Corporate Secretary, Host Marriott
Corporation, 10400 Fernwood Road, Bethesda, Maryland 20817-1109 not later than
December 6, 2002 nor earlier than October 6, 2002.
For Director nominations, the shareholder's notice must list all
information relating to the nominee that is required to be disclosed in
solicitations of proxies for election of Directors in an election contest, or
that is required under the Exchange Act. This includes the nominee's written
consent to serving as a Director, if elected. For other business, the
shareholder's notice must include a brief description of the business desired
to be brought before the meeting and the reasons for conducting such business
at the meeting. It must also describe any material interest that the
shareholder or beneficial owner has in that business. In both cases, the
shareholder's notice must also set forth (both as to the shareholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made):
. the name and address of such shareholder and of such beneficial owner,
as they appear on our books; and
. the number of each class of our shares which are owned beneficially and
of record by such shareholder and such beneficial owner.
ANNUAL REPORT AND FORM 10-K
We are mailing the Proxy Materials to shareholders of record at the close
of business on the annual meeting record date. Any shareholder who desires
additional copies may obtain one (excluding exhibits), without charge, by
addressing a request to the Corporate Secretary, Host Marriott Corporation,
10400 Fernwood Road,6903 Rockledge Drive, Suite 1500, Bethesda, Maryland 20817-1109. We will charge an amount equal to the reproduction cost if the exhibits are requested.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/
/s/ ELIZABETH A. ABDOO
Elizabeth A. Abdoo
Elizabeth A. Abdoo
Corporate Secretary
35
ANNUAL MEETING OF SHAREHOLDERS
OF
Dated: April 7, 2003
29
Appendix A
HOST MARRIOTT CORPORATION AUDIT COMMITTEE CHARTER
Purpose
The 2002 Annual Meetingpurpose of Shareholdersthe Audit Committee (the “Committee”) is to assist the Board of Directors (the “Board”) of Host Marriott Corporation will
be held(the “Company”) with its oversight responsibilities regarding the Company’s accounting and system of internal controls, the quality and integrity of the Company’s financial reports, the independence of the Company’s outside auditor and the performance of the Company’s outside auditor and internal audit function. In so doing, the Committee should endeavor to maintain free and open means of communication between the members of the Committee, the other members of the Board, the outside auditor, the internal auditor and the management of the Company.
In the exercise of its oversight, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements fairly present the Company’s financial position and results of operation and are in Salon III at The Ritz-Carlton, Tysons Corner, located at 1700 Tysons
Boulevard, McLean, Virginia,accordance with generally accepted accounting principles. Instead, such duties remain under the oversight of management and the outside auditor. Nothing contained in this Charter is intended to alter or impair the operation of the “business judgment rule” as interpreted by the courts under the Maryland General Corporation Law. Further, nothing contained in this Charter is intended to alter or impair the right of the members of the Committee under the Maryland General Corporation Law to rely, in discharging their oversight role, on Thursday, May 16, 2002 at 11:00 a.m. Doorsthe records of the Company and on other information presented to the meeting will open at 10:30 a.m.
A special "Shareholder Annual Meeting" rate is offeredCommittee, the Board or the Company by its officers or employees or by outside experts such at the hoteloutside auditor.
Membership
The Committee shall be composed of three or more members of the Board. The members shall be appointed by action of the Board, upon recommendation by the Nominating and Corporate Governance Committee and shall serve at the discretion of the Board. Each Committee member shall satisfy the requirements of The New York Stock Exchange. At least one member of the Committee shall satisfy the “audit committee financial expert” requirements of the Securities and Exchange Commission, as determined by the Board in its business judgment, or the Company shall disclose in its periodic reports required pursuant to the Securities Exchange Act of 1934 the reasons why at least one member of the Committee is not an “audit committee financial expert.”
Committee Organization and Procedures
1. The members of the Committee shall appoint a Chair of the Committee by majority vote. The Chair (or in his or her absence, a member designated by the Chair) shall preside at all meetings of the Committee. The Committee may also create subcommittees, as it deems appropriate, consisting of one or more members who shall report on their activities at the next meeting of the Committee.
2. The Committee shall have the authority to establish its own rules and procedures consistent with the bylaws of the Company for Wednesday, May 15, 2002,notice and conduct of its meetings, should the night beforeCommittee, in its discretion, deem it desirable to do so.
3. The Committee shall meet as often as may be deemed necessary or appropriate, but not less than four (4) times in each fiscal year, and more frequently as the meeting. A limited numberCommittee in its discretion deems desirable.
4. The Committee may, in its discretion, include in its meetings members of roomsthe Company’s financial management, representatives of the outside auditor, the senior internal auditor and other financial personnel employed or retained by the Company.
5. The Committee shall, periodically, meet with the outside auditor and the senior internal auditor in separate executive sessions to discuss any matters that the Committee believes should be addressed privately, without management’s presence. The Committee shall likewise meet privately with management, as it deems appropriate.
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6. The Committee may, in its discretion, use the services of the Company’s regular corporate legal counsel with respect to legal matters or, at its discretion, retain outside legal counsel if it determines that such counsel is availablenecessary or appropriate under the circumstances. The Committee may also, in its discretion, retain the services of any other experts, accountants, and other advisors that it deems necessary or appropriate to assist the Committee in the performance of its functions. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to any advisor retained by the Committee.
Oversight Responsibilities
Outside Auditor
7. The Committee shall be directly responsible for the appointment, compensation, retention and oversight of the work of the outside auditor in connection with the audit of the Company’s annual financial statements and related services. In this special rateregard, the Committee shall have the sole authority to appoint and retain the outside auditor and shall periodically, but at least annually, evaluate the performance of $229.00, singlethe outside auditor and, if necessary, replace the outside auditor. As appropriate, the Committee shall submit the appointment of the outside auditor for stockholder approval at any meeting of stockholders. The outside auditor shall report directly to the Committee.
8. The Committee shall approve in advance all audit engagement fees and terms of engagement and shall approve in advance all audit and non-audit services to be provided by the outside auditor. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the outside auditor. By approving the audit engagement, an audit service within the scope of the engagement shall be deemed to have been approved in advance. The Committee shall establish policies and procedures for the engagement of the outside auditor to perform non-audit services (including pre-approval of such services). The Committee may delegate authority to one or double
occupancy. Tomore members to grant pre-approvals of audit and permitted non-audit services, provided that decisions to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting.
9. The Committee shall receive this special rate, pleasefrom the outside auditor, at least annually, a written statement delineating all relationships between the outside auditor and the Company, consistent with Independence Standards Board Standard 1. The Committee shall actively engage in a dialogue with the outside auditor with respect to any disclosed relationships or services that, in the view of the Committee, may affect the objectivity and independence of the outside auditor. If the Committee determines that further inquiry is advisable, the Committee shall take any appropriate action in response to the outside auditor’s independence.
10. The Committee shall receive from the outside auditor, at least annually, a written report describing the outside auditor’s internal quality-control procedures, any issues raised by the most recent internal quality-control review, or peer review, of the outside auditor, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the outside auditor, and any steps taken to deal with any such issues.
11. The Committee shall confirm with the outside auditor that the outside auditor is in compliance with the partner rotation requirements established by the SEC. The Committee shall further consider whether the Company should adopt a rotation of the annual audit among auditing firms.
Annual Audit
12. The Committee shall meet with the outside auditor and management in connection with each annual audit to discuss the scope of the audit and the procedures to be followed.
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13. The Committee shall review[1] and discuss the audited financial statements with the management of the Company and the outside auditor, including (i) major issues regarding accounting principles and financial statement presentation, including any significant changes in the Company’s selection or application of accounting principles; (ii) any significant reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including the effects of alternative GAAP methods on the Company’s financial statements; (iii) the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the Company’s financial statements; and (iv) the Company’s disclosures under “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”
14. The Committee shall discuss with the outside auditor the matters required to be discussed by Statement on Auditing Standards No. 61 as then in effect including, among others, (i) the methods used to account for any significant unusual transactions reflected in the audited financial statements; (ii) the effect of significant accounting policies in any controversial or emerging areas for which there is a lack of authoritative guidance or a consensus to be followed by the outside auditor; (iii) the process used by management in formulating particularly sensitive accounting estimates and the basis for the auditor’s conclusions regarding the reasonableness of those estimates; and (iv) any disagreements with management over the application of accounting principles, the basis for management’s accounting estimates or the disclosures in the financial statements.
15. The Committee shall, based on the review and discussion in paragraph 13 above, and based on the disclosures received from the outside auditor regarding its independence and discussions with the auditor regarding such independence in paragraph 9 above, conclude whether the audited financial statements should be included in the Company’s Annual Report on Form 10-K for the fiscal year subject to the audit.
16. The Committee shall review and discuss with the Company’s CEO and CFO the basis for the certifications required by the rules and regulations of the Securities and Exchange Commission to be provided in the Company’s Form 10-K filing.
Quarterly Review
17. The Committee shall review and discuss the quarterly financial statements with the management of the Company, including the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
18. The outside auditor is required to review the interim financial statements to be included in any Form 10-Q of the Company using professional standards and procedures for conducting such reviews, as established by generally accepted auditing standards as modified or supplemented by the Securities and Exchange Commission, prior to the filing of the Form 10-Q. The Committee shall discuss with management and the outside auditor in person, at a meeting, or by conference telephone call, the hotel directlyresults of the quarterly review including such matters as significant adjustments, management judgments, accounting estimates, significant new accounting policies and askdisagreements with management.
19. The Committee shall review and discuss with the Company’s CEO and CFO the basis for the Host Marriott Corporation "Shareholder Annual Meeting" ratecertifications required by the rules and regulations of the Securities and Exchange Commission to be provided in the Company’s Form 10-Q filings.
| [1] | Auditing literature, particularly, Statement of Accounting Standards No. 71, defines the term “review” to include a particular set of required procedures to be undertaken by independent accountants. The members of the Audit Committee are not independent accountants, and the term “review” as used in this Audit Committee Charter is not intended to have this meaning. Consistent with footnote 47 of the SEC Release No. 34-42266, any use in this Audit Committee Charter of the term “review” should not be interpreted to suggest that the Committee members can or should follow the procedures required of auditors performing reviews of interim financial statements. |
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20. The Committee shall review and discuss with management corporate polices and procedures as to earnings press releases and financial information and earnings guidance provided to analysts and rating agencies, including the use of “non-GAAP financial measures.” The primary purpose of these discussions is to provide guidelines for May 15.
Applicable taxesthe types of information to be disclosed and gratuities willthe type of presentation to be additionalmade. The Committee may, but is not required, to discuss in advance of publication each earnings release or each instance in which the Company provides earnings guidance. The Chair (or in his or her absence, a member designated by the Chair) may represent the entire Committee for purposes of this discussion.
Internal Controls
21. The Committee shall meet as often as deemed necessary or appropriate, but not less than annually, to discuss with the outside auditor and reservations are
required in advance. This discount may not be used in conjunctionthe senior internal auditor the adequacy and effectiveness of the accounting and financial controls of the Company and the Company’s disclosure controls and procedures, and consider any recommendations for improvement of any such control procedures.
22. The Committee shall discuss with the outside auditor and with management any letter of recommendation provided by the outside auditor and any other discount, coupon or group rate.
The Ritz-Carlton, Tysons Corner
1700 Tysons Boulevard
McLean, Virginia 22102
Telephone: (703) 506-4300
Directionssignificant matters brought to the hotel:
From Ronald Reagan Washington National Airport: Take George Washington
Parkway northattention of the Committee by the outside auditor as a result of its annual audit. The Committee should allow management adequate time to I-495 South. Then exit on Tysons Corner/Route 123 South (Exit
11B). Turn right atconsider any such matters raised by the first light onto Tysons Boulevard.outside auditor. The Ritz-Carlton
Hotel is onCommittee shall also review with the left.
From Dulles International Airport: Takeoutside auditor any difficulties encountered by the Dulles Access Road East to
Exit 17, Spring Hill Road. Please stayauditor in the far right lane. After payingcourse of its audit work and shall discuss all such issues with management.
Internal Audit
23. The Committee shall discuss at least annually with the toll, turn right onto Spring Hill Roadsenior internal auditor the activities and proceed straight throughorganizational structure of the traffic
light. Spring Hill Road becomes International Drive. Turn left atCompany’s internal audit function and the third
light onto Tysons Boulevard. The Ritz-Carlton Hotel is onqualifications of the right, nextprimary personnel performing such function.
24. Management shall furnish to the MCI Building.
West on I-66 from Downtown Washington, D.C.: Take I-66 WestCommittee a summary of audit reports prepared by the senior internal auditor of the Company.
25. The Committee shall, at its discretion, meet with the senior internal auditor to Exit 67,
I-495 toward Baltimore/Dulles. Then exit on Tysons Corner/Route 123 South, Exit
10A. Continue on Route 123 South, bearing rightdiscuss any reports prepared by him or her or any other matters brought to the attention of the Committee by the senior internal auditor manager.
26. The internal auditor shall be granted unfettered access to the Committee.
Other Responsibilities
27. The Committee shall conduct an annual performance evaluation and shall similarly review and reassess the Committee’s Charter at least annually. The Committee shall submit any recommended changes to the fourth light onto Tysons
Boulevard.Board for its consideration.
28. The Ritz-Carlton Hotel is onCommittee shall provide the left.
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Preport for inclusion in the Company’s Annual Proxy Statement required by Item 306 of Regulation S-K of the Securities and Exchange Commission.
29. The Committee, through its Chair, shall report periodically, as deemed necessary or desirable by the Committee, but at least annually, to the full Board regarding the Committee’s actions and recommendations, if any.
30. The Committee shall establish clear hiring policies for employees and partners, and former employees and partners, of the Company’s outside auditor.
31. The Committee shall establish procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls, or auditing matters and for the confidential, anonymous submission of concerns by employees regarding accounting and auditing matters.
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PROXY
HOST MARRIOTT CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
R FOR THE ANNUAL MEETING OF SHAREHOLDERSSTOCKHOLDERS
TO BE HELD THURSDAY,TUESDAY, MAY 16, 2002,13, 2003, 11:00 A.M.
O
X The undersigned appoints Richard E. MarriottElizabeth A. Abdoo and Christopher J. Nassetta, or
either of them, as Proxies.proxies. Each shall have power to appoint his or her
substitute. They are
Y authorized to represent and vote, as designated on the
reverse side, all shares of Host Marriott Corporation common stock held of
record by the undersigned on March 29, 200226, 2003 at the Annual Meeting of
ShareholdersStockholders to be held on May 16, 2002,13, 2003, or any adjournment thereof.
The Board of Directors
recommends votes FOR proposal 1 and AGAINST proposals 2, 3 and 4.Nominees for election as directors for three-year terms expiring at the 2006
Annual Meeting:
Robert M. Baylis
Ann McLaughlin Korologos
Terence C. Golden
Nominee for election as a Director COMMENTS OR CHANGE OF ADDRESSdirector for a three-yeartwo-year term expiring at the 2005
Annual Meeting:
----------------------------------
John G. Schreiber ----------------------------------
----------------------------------
----------------------------------Judith A. McHale
COMMENTS OR CHANGE OF ADDRESS
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
- -------------------------------------------
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card)
-------------- ------------
SEE REVERSE
SIDE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE -------------- ------------
- --------------------------------------------------------------------------------
Detach Proxy Card Here
[LOGO][LOGO OF HOST MARRIOTT CORPORATION 10400 Fernwood RoadAPPEARS HERE]
6903 Rocklege Drive, Suite 1500
Bethesda, Maryland 20817-1109
NOTICE OF ANNUAL MEETING OF SHAREHOLDERSSTOCKHOLDERS
TO BE HELD THURSDAY,TUESDAY, MAY 16, 200213, 2003
The Annual Meeting of ShareholdersStockholders of Host Marriott Corporation will be held on
Thursday,Tuesday, May 16, 2002,13, 2003, at 11:00 a.m. in Salon III at The Ritz-Carlton, Tysons
Corner, located at 1700 Tysons Boulevard, McLean, Virginia. Doors to the meeting
will open at 10:30 a.m.
At the meeting, shareholdersstockholders will be asked to consider and vote on the following
proposals:
Proposal 1: Election of John G. SchreiberRobert M. Baylis, Ann McLaughlin Korologos and Terence
C. Golden as directors for three-year terms expiring at the 2006
Annual Meeting and Judith A. McHale as a Directordirector for a three-yearthe
remainder of the term expiring at the 2005 Annual Meeting;
Proposal 2: Ratification of the appointment of KPMG LLP as independent auditors
of the Company to serve for the 2003 calendar year; and
Proposal 3: Consideration of a shareholderstockholder proposal regarding the annual
election of all Directors;
Proposal 3: Consideration of a shareholder proposal regarding the
nomination process for Directors; and
Proposal 4: Consideration of a shareholder proposal regarding the
re-incorporation of the Company in Delaware from Maryland.
Shareholdersdirectors.
Stockholders will also transact other business if any is properly brought before
the annual meeting.Annual Meeting.
If you were a shareholderstockholder of record at the close of business on March 29, 2002,26, 2003,
you may vote at the annual meeting.Annual Meeting. Whether or not you plan to attend the
meeting, please take the time to vote by completing and mailing this proxy card
to us in the envelope provided.
By order of the Board of Directors,
Elizabeth A. Abdoo
Corporate Secretary
Please mark your |_ 3562
[ X ] votes as in this ------
example.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR election of the Director,directors, FOR
proposal 2 and AGAINST proposals 2, 3 and 4.proposal 3. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
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The Board of Directors Recommends a vote FOR proposal 1.proposals 1 and 2.
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FOR WITHHELD
1. Election of
Director [ ] [ ]Directors (see
reverse)Reverse)
For, except vote withheld from the following nominee(s):
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FOR AGAINST ABSTAIN
2. Ratification of
appointment of
KPMG, LLP as
independent auditors
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The Board of Directors Recommends a vote AGAINST proposals 2, 3 and 4.proposal 3.
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FOR AGAINST ABSTAIN
2. Shareholder3. Stockholder proposal [ ] [ ] [ ]
regardingfor
the annual election of all
Directors
FOR AGAINST ABSTAIN
3. Shareholder proposal [ ] [ ] [ ]
regarding the nomination
process for Directors
FOR AGAINST ABSTAIN
4. Shareholder proposal [ ] [ ] [ ]
regarding the
re-incorporation of
the Company in Delawaredirectors
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I WILL ATTEND THE ANNUAL MEETING
[ ]
CHANGE OF ADDRESS/
COMMENTS ON REVERSE SIDE.
[ ]
SIGNATURE(S) DATE
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NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
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- -arrow- Please carefully detach here and return
this proxy -arrow-
in the enclosed reply envelope.
Admission Ticket
Host Marriott Corporation
Annual Meeting of Shareholders
Thursday,ADMISSION TICKET
HOST MARRIOTT CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 16, 2002,13, 2003, 11:00 a.m. EDT
The Ritz-Carlton, Tysons Corner, Salon III
1700 Tysons Boulevard
McLean, Virginia
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AGENDA
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1. ELECTION OF ONE DIRECTOR
oDIRECTORS
.
2. SHAREHOLDERRATIFICATION OF KPMG LLP
AS INDEPENDENT AUDITORS
.
3. STOCKHOLDER PROPOSAL REGARDINGFOR ANNUAL
ELECTION OF ALL DIRECTORS
o
3. SHAREHOLER PROPOSAL REGARDING NOMINATION
PROCESS FOR DIRECTORS
o
4. SHAREHOLDER PROPOSAL REGARDING RE-INCORPORATION
OF COMPANY IN DELAWARE
o.
TRANSACTION OF OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
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It is important that your shares be represented at this meeting, whether or not
you attend the meeting in person. To make sure your shares are represented, we
urge you to complete and mail the proxy card above.
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If you and your guest plan on attending the Annual Meeting, please mark the
appropriate box on the proxy card above. Present this Admission Ticket to the
Host Marriott Corporation representative at the entrance.
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