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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
Felcor Lodging Trust Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
- --------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
NOTICE OF ANNUAL MEETING (FELCOR LODGING TRUST LOGO)
ON MAY 13, 2003
AND PROXY STATEMENT
FELCOR LODGING TRUST INCORPORATED
545 E. John Carpenter Frwy., Suite 1300
Irving, Texas 75062-3933
April 1, 2003
Dear Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders
on May 13, 2003, in Irving, Texas. The meeting will be held in our corporate
offices located at 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas at
9:00 a.m. local time. At the meeting, you will hear a report on our 2002 results
of operations.
This booklet includes the formal notice of the meeting and the Proxy
Statement. The Proxy Statement tells you about the matters to be addressed and
the procedures for voting at the meeting. It also describes how our Board
operates, gives personal information about our officers, continuing directors
and director candidates, and provides other information about FelCor.
Your vote is very important. Even if you have only a few shares, we
want your shares to be represented. I urge you to vote promptly in order to be
certain your shares are represented at the meeting.
I look forward to seeing you at the meeting.
Sincerely,
/s/ LAWRENCE D. ROBINSON
Lawrence D. Robinson
Executive Vice President
General Counsel & Secretary
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OF FELCOR LODGING TRUST INCORPORATED
Time: 9:00 a.m., Local Time
Date: May 13, 2003
Place: FelCor Lodging Trust Incorporated
545 E. John Carpenter Freeway
Suite 1300
Irving, Texas 75062-3933
Purposes: o To elect three Class III directors to three-year
terms;
o To ratify the selection of PricewaterhouseCoopers LLP
as FelCor's independent auditors; and
o To conduct any other business that may be properly
raised.
Who may vote: Stockholders of record on March 17, 2003.
Annual Report: A copy of our Annual Report is enclosed.
Date of Mailing: This notice and the accompanying Proxy Statement and Annual
Report are first being mailed to stockholders on or about
April 1, 2003.
Sincerely,
/s/ LAWRENCE D. ROBINSON
Lawrence D. Robinson
Secretary
April 1, 2003
PROXY STATEMENT
FELCOR LODGING TRUST INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 2003
<Table>
<Caption>
TABLE OF CONTENTS PAGE
GENERAL INFORMATION ....................................................... 1
PROPOSAL 1 - ELECTION OF DIRECTORS ........................................ 2
Nominees for Election as Class III Directors ......................... 3
Continuing Directors ................................................. 4
Director Compensation ................................................ 6
Board Committees ..................................................... 6
STOCK OWNERSHIP ........................................................... 8
Principal Stockholders ............................................... 8
Security Ownership of Management ..................................... 8
MANAGEMENT ................................................................ 10
Executive Officers of FelCor ......................................... 10
Executive Compensation Tables ........................................ 12
Compensation Committee Report ........................................ 15
Compensation Committee Interlocks and Insider Participation .......... 17
Certain Relationships and Related Transactions ....................... 17
Section 16(a) Beneficial Ownership Reporting Compliance .............. 18
Report of the Audit Committee ........................................ 18
Corporate Governance Issues .......................................... 19
STOCK PERFORMANCE GRAPH ................................................... 20
PROPOSAL 2 - RATIFICATION OF INDEPENDENT AUDITORS ......................... 20
ADDITIONAL INFORMATION .................................................... 22
</Table>
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of FelCor Lodging Trust Incorporated of proxies to be voted
at the Annual Meeting of Stockholders being held on Tuesday, May 13, 2003, and
at any adjournment of the meeting. The following questions and answers provide
important information about the Annual Meeting and this Proxy Statement.
WHAT AM I VOTING ON?
o The election of three Class III directors, each for a three-year term;
o The ratification of PricewaterhouseCoopers LLP (PwC) as our independent
auditors for 2003; and
o Any other matters properly brought before the meeting.
WHO IS ENTITLED TO VOTE?
Holders of record of FelCor common stock at the close of business on March 17,
2003, are entitled to vote at the meeting. Each stockholder is entitled to cast
one vote for each share of common stock owned on each matter presented.
HOW DO I VOTE?
You may vote in person at the meeting or by proxy. We recommend you vote by
proxy even if you plan to attend the meeting. You can always change your vote at
the meeting. If you have shares of FelCor common stock held by a broker or other
nominee, you may instruct your broker or nominee to vote your shares by
following the instructions that the broker or nominee provides you. Most brokers
offer voting by mail, telephone and Internet.
HOW DO PROXIES WORK?
The Board of Directors of FelCor is asking for your proxy. Giving your proxy to
the persons named by us, means you authorize them to vote your shares at the
meeting in the manner you direct. You may vote for all, some, or none of our
director candidates and you may vote for or against, or abstain from voting on,
the ratification of our independent auditors.
If you sign and return the enclosed proxy card but do not specify how your
shares are to be voted, your shares will be voted FOR the election of all of our
director candidates and FOR the ratification of PwC as our independent auditors.
You may receive more than one proxy or voting card depending on how you hold
your shares. Shares registered in your name are covered by one card. If you also
hold shares through a broker or other nominee, you may also get material from
them asking how you want to vote. To be sure that all of your shares are voted,
we encourage you to respond to each request you receive.
HOW DO I REVOKE A PROXY?
You may revoke your proxy before it is voted by submitting a new proxy with a
later date; by voting in person at the meeting; or by notifying FelCor's
Secretary in writing at the address listed under "Questions" on page 22.
WILL MY SHARES BE VOTED IF I DON'T SIGN A PROXY?
If you hold your shares directly in your own name, they will not be voted unless
you provide a proxy. Under certain circumstances, shares that you own that are
held by a broker may be voted even if you do not provide voting instructions to
the broker. Brokerage firms have the authority under the New York Stock Exchange
rules to vote customers' unvoted shares on certain "routine" matters, including
the election of directors and the ratification of auditors.
WHAT CONSTITUTES A QUORUM?
In order to carry on the business of the meeting, we must have a quorum. This
means that at least a majority of the outstanding shares eligible to vote must
be represented at the meeting, either by proxy or in person. Shares owned by
FelCor are not voted and do not count for this purpose. On the record date, we
had 58,849,159 shares of common stock outstanding and entitled to vote at the
meeting.
-1-
HOW MANY VOTES ARE NEEDED FOR APPROVAL?
The three director candidates receiving the most "FOR" votes will be elected to
the three seats on the Board to be filled at the meeting. The selection of PwC
as our independent auditors for 2003 will be ratified if more votes are cast FOR
than are cast AGAINST their ratification. Abstentions, withholding authority to
vote for a candidate and broker non-votes will only reduce the number of votes a
candidate or proposal receives.
A "broker non-vote" occurs when a broker submits a proxy but does not vote for
or against a matter. This will occur when the beneficial owner has not
instructed the broker how to vote and the broker does not have discretionary
authority to vote in the absence of instructions.
WHAT SHOULD I DO IF I WANT TO ATTEND IN PERSON?
Only stockholders of record, their proxy holders, and invited guests may attend
the meeting. If you wish to vote in person and your shares are held by a broker
or nominee, you will need to obtain a proxy from the broker or nominee
authorizing you to vote your shares held in their name.
PROPOSAL 1 - ELECTION OF DIRECTORS
At the recommendation of the Corporate Governance and Nominating Committee, the
Board of Directors of FelCor has nominated the three director candidates named
below.
Our Board of Directors oversees the management of FelCor on your behalf. The
Board reviews FelCor's long-term strategic plans and exercises direct
decision-making authority on key issues, such as the declaration of dividends,
the selection of the Chief Executive Officer, setting the scope of his authority
to manage our day-to-day operations, and evaluation of his performance.
All but one of FelCor's directors, assuming the election of our three nominees,
will be "Independent Directors," as defined in FelCor's Charter. Our three
nominees and five of our seven continuing directors will be "Independent
Directors," as defined by the New York Stock Exchange.
FelCor's Charter and Bylaws provide for three classes of directors, who serve
staggered three-year terms expiring at the annual meeting of stockholders three
years following their election to a full term. The Corporate Governance and
Nominating Committee has recommended, and the Board has nominated, for
re-election as Class III directors each of the three persons currently serving
as Class III directors, whose terms are expiring at the 2003 annual meeting of
stockholders. If elected, each of the persons nominated as a Class III director
will serve until the annual meeting of stockholders in 2006. Personal
information on each of our nominees, and on each of the other directors who will
continue to serve on FelCor's Board following the annual meeting, is given
below.
The FelCor Board of Directors met 11 times during 2002. On average, FelCor's
directors attended nearly 90% of the Board and committee meetings held during
2002. Only Mr. Ledsinger attended fewer than 75% of the meetings of the Board
and of the Board committees on which he served.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES FOR ELECTION AS CLASS III DIRECTORS DESCRIBED BELOW.
-2-
NOMINEES FOR ELECTION AS CLASS III DIRECTORS (TERMS EXPIRING IN 2006)
RICHARD S. ELLWOOD
Age 71
[PHOTO]
Mr. Ellwood, a director of FelCor since its formation in 1994, is the
founder and President of R.S. Ellwood & Co., Inc., a real estate
investment banking firm which was organized in 1987. Prior to
1987, as an investment banker, Mr. Ellwood was elected
successively in 1963 a vice president of Morgan Guaranty Trust
Company, in 1968 a general partner of White Weld & Co., in 1978
a managing director of Warburg Paribas Becker, Incorporated and
in 1984 a managing director and senior banker of Merrill Lynch
Capital Markets. Mr. Ellwood has extensive experience in hotel
financing. He was a founder of Hotel Investors Trust, a REIT, and
served as a trustee from 1970 until its merger with another REIT in
1987. He is currently a director of Apartment Investment and
Management Company and Florida East Coast Industries, Inc.
RICHARD O. JACOBSON
Age 66
[PHOTO]
Mr. Jacobson has served as a director of FelCor since its formation
in 1994 and is the Chairman of the Board of Jacobson Warehouse
Company, Inc., a privately held warehouse company with facilities
in 53 locations in 19 states, which Mr. Jacobson founded 36 years
ago. He is also Chairman of the Board of Jacobson Transportation
Company, Inc., a truckload common carrier with authority to
operate in the United States (48 states), Canada and Mexico. Mr.
Jacobson is a member of the boards of directors of Atrion
Corporation, Firstar Bank Des Moines, N.A. and Heartland
Express, Inc.
ROBERT A. MATHEWSON
Age 38
[PHOTO]
Mr. Mathewson has served as a director of FelCor since May
2002. Since 1992, Mr. Mathewson has been the President of
RGC, Inc., a privately owned real estate investment company
investing primarily in hotels and other commercial real estate.
RGC, Inc. and its affiliates have been significant investors in
FelCor and its predecessors since 1993. In addition, from
December 1999 to August 2000, Mr. Mathewson served as the
Vice President of Business Development for Televoke Inc., an
internet application service provider focusing on web, wireless and
telephony integration. Mr. Mathewson holds a bachelor's degree in
Economics and a master's degree in Business Administration from
the University of California at Berkeley, and a Juris Doctor degree
from the Hastings College of Law.
-3-
CONTINUING DIRECTORS
Continuing Class I Directors (Terms expiring in 2004)
MELINDA J. BUSH
Age 62
[PHOTO]
Mrs. Bush was elected as a director of FelCor in May 2000. She was, until
September 1996, the Executive Vice President of Reed Elsevier's Reed Travel
Group/Hotel & Travel Index, which was engaged in hotel industry marketing and
publishing activities on a global basis. From September 1996 until March 2002,
she served as the Executive Vice President, Editorial and Publishing Director of
Premier Hotels & Resorts, www.premierhotels.com, a division of Advanstar
Communications. In March 2002, Mrs. Bush became Chairman and Chief Executive
Officer of HRW Holdings, LLC/Hospitality Resources Worldwide, a company in which
she is a major shareholder. This company provides first stage funding for
enterprises in the lodging and travel industry. Mrs. Bush has more than 20 years
experience in the hospitality industry, and is also a director and trustee of
the American Hotel Foundation. She has honorary degrees from Cornell Hotel
School and Johnson & Wales Universities and carries the CHA (Certified Hotel
Administrator) designation awarded by the industry to hotel operators and
general managers. She was also named Woman of the Year in Travel by the Travel
Industry of America and is the recipient of several other industry awards for
her achievements in the industry.
CHARLES A. LEDSINGER, JR.
Age 53
[PHOTO]
Mr. Ledsinger has served as a director of FelCor since November 1997. Mr.
Ledsinger became the President and Chief Executive Officer of Choice Hotels
International in August 1998. Prior to that time, Mr. Ledsinger served as Senior
Vice President and Chief Financial Officer of St. Joe Corporation from May 1997
until his election as President and Chief Operating Officer of that corporation
in February 1998. From June 1995 until May 1997, Mr. Ledsinger was Senior Vice
President and Chief Financial Officer of Harrah's Entertainment, Inc. For more
than three years prior to that, Mr. Ledsinger served as Senior Vice President
and Chief Financial Officer of The Promus Companies Incorporated, the former
parent of Harrah's Entertainment, Inc. He is also a director of Choice Hotels
International, TBC Corporation and Friendly Ice Cream Corporation.
ROBERT H. LUTZ, JR.
Age 53
[PHOTO]
Mr. Lutz served as a director of Bristol Hotel Company from December 1995 until
its merger into FelCor in July 1998, and has served as a director of FelCor
since that time. Mr. Lutz is currently the President of R.L. Investments, Inc.,
a private investment firm. From 1994 through 2000, Mr. Lutz served as the
Chairman and Chief Executive Officer, and a member of the executive committee,
of Amresco, Inc., a financial services company. From 1991 to 1994, Mr. Lutz
served as President and Chief Operating Officer of Balcor/Allegiance Realty
Group, a subsidiary of the American Express Company engaged in real estate
ownership and management. He is a Trustee of the Urban Land Institute.
-4-
MICHAEL D. ROSE
Age 61
[PHOTO]
Mr. Rose has served as a director of FelCor since July 1998. He served as the
Chairman of the Board of Promus Hotel Corporation from April 1995 through
December 1997 and, thereafter, as a director until December 1998. Mr. Rose
served as Chairman of the Board of Harrah's Entertainment Inc. from June 1995
until his retirement as of December 31, 1996. He also served as Chairman of the
Board of The Promus Companies Incorporated from November 1989 through June 1995
and as Chief Executive Officer of that company from November 1989 to April 1994.
In May 2001, Mr. Rose was named Chairman of the Board of Gaylord Entertainment
Company, a diversified entertainment company. Mr. Rose is also a director of
First Tennessee National Corporation, Stein Mart, Inc. and Darden Restaurants,
Inc.
Continuing Class II Directors (Terms expiring in 2005)
THOMAS J. CORCORAN, JR.
Age 54
[PHOTO]
Mr. Corcoran is the President and Chief Executive Officer of FelCor and has
served in that capacity since its formation in 1994. From 1991 to 1994, Mr.
Corcoran held the same positions with the general partner of the partnerships
that were merged into FelCor at its formation. From October 1990 to December
1991, he served as the Chairman, President and Chief Executive Officer of Fiesta
Foods, Inc., a manufacturer of tortilla chips and taco shells. From 1979 to
1990, Mr. Corcoran held various positions with ShowBiz Pizza Time, Inc. (now CEC
Entertainment, Inc.), an operator and franchisor of family entertainment
center/pizza restaurants, and with Integra -- A Hotel and Restaurant Company
(formerly Brock Hotel Corporation). He served as the President and Chief
Executive Officer of Integra from 1986 to 1990.
DONALD J. MCNAMARA
Age 50
[PHOTO]
Mr. McNamara was the Chairman of the Board of Bristol Hotel Company from
November 1994 until its merger into FelCor in July 1998. Since the merger, he
has served as the Chairman of the Board of FelCor. Mr. McNamara previously
served as a director of FelCor from July 1994 until November 1997. He is also
the Chairman of The Hampstead Group, LLC, a private equity real estate
investment company. Mr. McNamara also serves as a director of Omega Healthcare
Investors, Inc. and Franklin Covey Co.
RICHARD C. NORTH
Age 53
[PHOTO]
Mr. North served as a director of Bristol Hotel Company from 1997 until its
merger into FelCor in July 1998, and has served as a director of FelCor since
that time. Mr. North has been the Group Finance Director of Six Continents PLC
since 1994 and was appointed Chief Executive Officer of the Six Continents
Hotels Division in October 2002. Six Continents PLC is the parent of Six
Continents Hotels, Inc., which operates or franchises more than 3,000 hotels in
more than 75 countries under various brands, including Inter-Continental(R) ,
Crowne Plaza(R) and Holiday Inn(R) . Prior to 1994, Mr. North served as the
Group Finance Director of The Burton Group. Mr. North currently serves as a
Non-Executive Director of LogicaCMG PLC, and has previously served as a
Non-Executive Director of Asda PLC and of Leeds United PLC.
-5-
DIRECTOR COMPENSATION
In lieu of cash compensation for their services during 2002, FelCor has issued
to each director, except as described below, that number of shares of FelCor
common stock determined by dividing (i) the sum of a base amount of $35,000
plus, if a director attended more than five Board meetings during the year,
$1,000 for each additional meeting attended in person and $500 for each
additional telephonic meeting in which he participated, by (ii) $10.98, the
closing price of the common stock on January 23, 2003, the date the issuance was
authorized by the Board, and rounding to the nearest whole lot of 100 shares. In
addition to such compensation, each director is reimbursed for out-of-pocket
expenses incurred in connection with his or her service on the FelCor Board. No
additional compensation was paid to directors for service on various Board
committees.
The number of shares of FelCor common stock issued to each director for his or
her services during 2002 is set forth below:
<Table>
<Caption>
NAME NUMBER OF SHARES
- ---- ----------------
Donald J. McNamara 3,400
Melinda J. Bush 3,500
Richard S. Ellwood 3,500
Richard O. Jacobson 3,500
Charles A. Ledsinger, Jr. 3,300
Robert H. Lutz, Jr. 3,500
Michael D. Rose 3,400
</Table>
Mr. North is not permitted by his employer to accept any compensation for his
services as a director of FelCor. Mr. Corcoran, who receives compensation as the
President and Chief Executive Officer of FelCor, did not receive any additional
or separate compensation for his services as a director in 2002.
Director compensation will be determined in a manner similar to that described
above for service during 2003, except that the base amount will be increased
from $35,000 to $40,000 for members of the Audit Committee.
BOARD COMMITTEES
The Board appoints committees to help carry out its duties. In particular, Board
committees work on key issues in greater detail than would be practicable at a
full Board meeting. Each committee reviews the results of its meetings with the
full Board. Donald J. McNamara, the Chairman of the Board, is an ex-officio
member of all committees.
The Executive Committee was established to exercise broad powers on behalf of
the Board. In practice, the committee only meets when it is impractical to call
a meeting of the full Board. The Executive Committee consists of Donald J.
McNamara (Chairman), Thomas J. Corcoran, Jr. and Robert H. Lutz, Jr.
The Executive Committee held no meetings and took no action during 2002.
The Audit Committee oversees audits, accounting, financial reporting, and
internal control matters. The Audit Committee selects the independent public
accountants to audit FelCor's financial statements. The committee consults with
the independent accountants and reviews their audit and other work. The
committee also consults with FelCor's Chief Financial Officer and Chief
Accounting Officer, and reviews FelCor's internal controls and compliance with
policies.
During 2002, the committee met prior to each release of earnings by FelCor to
review the earnings to be reported and to examine any issues relating to the
report of such earnings. The directors currently serving on the Audit Committee
are Charles A. Ledsinger, Jr. (Chairman), Richard S. Ellwood and Richard O.
Jacobson.
The Audit Committee held nine meetings during 2002.
-6-
The Compensation Committee determines the compensation to be paid to FelCor's
senior executive officers and advises the Board on the adoption of, and
administers, employee benefit and compensation plans. During 2002, the
Compensation Committee consisted of Michael D. Rose (Chairman), Melinda J. Bush,
Robert H. Lutz, Jr. and Robert A. Mathewson.
The Compensation Committee held one meeting during 2002.
The Corporate Governance and Nominating Committee recommends to the Board
candidates for election to FelCor's Board of Directors, establishes criteria for
membership on the Board and Board committees, and considers other corporate
governance issues. Although no formal procedure currently exists, the
recommendation of director candidates by stockholders will be considered, if
sent to our corporate secretary with detailed information concerning the
qualifications of the proposed candidate. This committee consists of Richard S.
Ellwood (Chairman), Charles A. Ledsinger, Jr. and Michael D. Rose.
The Corporate Governance and Nominating Committee met once during 2002.
The Capital Approval Committee currently consists of four of FelCor's officers,
Thomas J. Corcoran, Jr. (President and Chief Executive Officer), Lawrence D.
Robinson (Executive Vice President, General Counsel and Secretary), Richard J.
O'Brien, (Executive Vice President and Chief Financial Officer) and Michael A.
DeNicola (Executive Vice President and Chief Investment Officer). The Board has
delegated to this committee the authority to approve, and authorize actions
taken in connection with, the acquisition, improvement, disposition or financing
of hotel assets by FelCor within specified limits.
The Capital Approval Committee did not meet or take action during 2002.
-7-
STOCK OWNERSHIP
PRINCIPAL STOCKHOLDERS
The following table shows how much FelCor common stock was beneficially owned on
March 17, 2003, by each person known to FelCor to beneficially own more than 5%
of its common stock.
<Table>
<Caption>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
- -------------------- ----------- ----------
Six Continents PLC.......................... 10,032,428(2) 17.0%
20 North Audley Street
London, England W1Y1WE
</Table>
- ----------
(1) Based upon 58,849,159 shares outstanding as of March 17, 2003.
(2) Based upon a Schedule 13D (Amendment No. 2) filed on October 11, 2002.
Six Continents PLC shares voting and dispositive power with respect to
these shares with certain of its subsidiaries.
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows how much FelCor common stock, Series A Preferred Stock
and Series B Preferred Stock was beneficially owned on March 17, 2003, by the
executive officers named in the Summary Compensation Table appearing on pages 12
and 13, each nominee and continuing director, and all directors and executive
officers as a group. Unless otherwise indicated, each person owns directly the
number of shares shown after his or her name in the table below.
<Table>
<Caption>
AMOUNT AND AMOUNT AND
AMOUNT AND NATURE OF NATURE OF
NATURE OF BENEFICIAL BENEFICIAL
BENEFICIAL PERCENT OWNERSHIP OF PERCENT OWNERSHIP OF PERCENT
NAME OF OWNERSHIP OF OF SERIES A OF SERIES B OF
BENEFICIAL OWNER COMMON STOCK CLASS(1) PREFERRED STOCK CLASS(1) PREFERRED STOCK CLASS(1)
- ---------------- ------------ -------- --------------- -------- --------------- --------
Melinda J. Bush ................. 9,800(2) * 0 * 4,100 *
Thomas J. Corcoran, Jr. ......... 1,162,974(3) 1.9% 3,000 * 800 *
Richard S. Ellwood .............. 22,800(4) * 0 * 0 *
Richard O. Jacobson ............. 49,258 * 0 * 0 *
Charles A. Ledsinger, Jr. ....... 10,875 * 0 * 0 *
Robert H. Lutz, Jr. ............. 33,714(5) * 0 * 0 *
Robert A. Mathewson ............. 1,159,457(6) 1.9% 10,000 * 0 *
Donald J. McNamara .............. 821,784(7) 1.4% 0 * 1,800 *
Richard C. North ................ 0 * 0 * 0 *
Michael D. Rose ................. 53,425(8) * 0 * 30,000(14) *
Michael A. DeNicola ............. 34,587(9) * 0 * 0 *
June C. McCutchen ............... 83,921(10) * 0 * 0 *
Richard J. O'Brien .............. 56,503(11) * 0 * 0 *
Lawrence D. Robinson ............ 212,245(12) * 0 * 1,593(15) *
All executive officers and
directors as a group
(18 persons) .................... 4,073,473(13) 6.6% 13,000 * 38,293 *
</Table>
- ----------
* Represents less than 1% of the outstanding shares of such class.
(1) Based upon 58,849,159 shares of common stock, 5,980,475 shares of
Series A Preferred Stock and 6,775,800 Depository Shares representing
67,758 shares of Series B Preferred Stock outstanding as of March 17,
2003.
-8-
(2) Includes 3,000 shares held by her IRA and 6,800 shares credited to her
account in the FelCor Deferred Compensation Plan.
(3) Includes 503,249 shares that FelCor, Inc. has the right to receive upon
redemption of FelCor Lodging Limited Partnership Units. Mr. Corcoran is
a 50% stockholder and director of FelCor, Inc. and may be deemed to
beneficially own all of the Units owned by FelCor, Inc. In February
2002, FelCor, Inc. entered into forward purchase contracts with respect
to an aggregate of 269,125 shares of FelCor common stock and may be
required to deliver up to 269,125 of the Units held by it to satisfy
such contracts. Also includes (i) an aggregate of 115,599 shares issued
pursuant to stock grants which vest over a five-year period from the
date of grant at 20% annually and of which 70,162 shares are fully
vested, including 34,962 shares that are held in the FelCor Deferred
Compensation Plan, (ii) 489,953 shares issuable pursuant to stock
options that are currently exercisable or become exercisable within 60
days, (iii) 2,325 shares issuable upon conversion of 3,000 shares of
Series A Preferred Stock, (iv) 510 shares owned by his spouse, (v)
4,855 shares owned by his children, (vi) 2,135 shares held by his IRA,
and (vi) 500 shares owned by Corcoran Investments, L.L.C., a limited
liability company wholly-owned by him.
(4) Includes (i) 2,200 shares held by trusts of which Mr. Ellwood is a
beneficiary and trustee, (ii) 1,500 shares held by R. S. Ellwood & Co.,
Inc., of which Mr. Ellwood is the sole stockholder, and (iii) 1,000
shares held by his IRA.
(5) Includes (i) 15,414 shares issuable pursuant to currently exercisable
stock options, and (ii) 18,300 shares owned by Lutz Investments, L.P.,
a family partnership of which Mr. Lutz is a beneficiary.
(6) Includes an aggregate of 1,025,438 shares of common stock issuable upon
redemption of FelCor Lodging Limited Partnership Units, and 118,945
shares of common stock, held by corporations of which Mr. Mathewson is
the President, a director and stockholder. Also includes 7,752 shares
of common stock issuable upon conversion of 10,000 shares of Series A
Preferred Stock.
(7) Includes 16,184 shares held by a partnership for the benefit of certain
members of Mr. McNamara's family. Mr. McNamara does not have investment
control over the partnership and disclaims any beneficial ownership of
the shares held by it.
(8) Includes (i) 21,600 shares owned by a trust for which Mr. Rose is the
trustee, (ii) 21,275 shares owned by a corporation controlled by Mr.
Rose, (iii) 750 shares owned by Mr. Rose's spouse, and (iv) 9,800
shares credited to his account in the FelCor Deferred Compensation
Plan.
(9) Includes (i) 24,587 shares issued pursuant to stock grants, which vest
over a five-year period from the date of grant at 20% annually and of
which 3,729 shares are fully vested and held in the FelCor Deferred
Compensation Plan, and (ii) 10,000 shares issuable pursuant to stock
options that are currently exercisable or become exercisable within 60
days.
(10) Includes (i) 39,117 shares issued pursuant to stock grants, which vest
over a five-year period from the date of grant at 20% annually and of
which 12,600 shares are fully vested and held in the FelCor Deferred
Compensation Plan, and (ii) 44,804 shares issuable pursuant to stock
options that are currently exercisable or become exercisable within 60
days.
(11) Includes (i) 36,503 shares issued pursuant to stock grants, which
shares vest over a five-year period from the date of grant at 20%
annually and of which 5,875 shares are fully vested and held in the
FelCor Deferred Compensation Plan, and (ii) 20,000 shares issuable
pursuant to stock options that are currently exercisable or become
exercisable within 60 days.
(12) Includes (i) 67,503 shares issued pursuant to stock grants, which
shares vest over a five-year period from the date of grant at 20%
annually and of which 36,675 shares are fully vested, including 28,675
shares that are held in the FelCor Deferred Compensation Plan, (ii)
137,262 shares issuable pursuant to stock options that are currently
exercisable or become exercisable within 60 days, and (iii) 2,740
shares held by his IRA.
(13) See notes 2 through 12.
(14) Represents shares held by a corporation controlled by Mr. Rose.
(15) Represents shares held Mr. Robinson's IRA.
-9-
MANAGEMENT
EXECUTIVE OFFICERS OF FELCOR
The current executive officers of FelCor, their ages, positions held and tenure
are set forth in the table below.
<Table>
<Caption>
OFFICER
NAME AGE POSITION(S) WITH FELCOR SINCE
- ---- --- ----------------------- -------
Thomas J. Corcoran, Jr. ...... 54 President, Chief Executive Officer 1994
and Director
Michael A. DeNicola .......... 44 Executive Vice President and Chief 2001
Investment Officer
Richard J. O'Brien ........... 41 Executive Vice President and Chief 2001
Financial Officer
Lawrence D. Robinson ......... 59 Executive Vice President, General 1996
Counsel and Secretary
Jack Eslick .................. 51 Senior Vice President, Director of 1996
Asset Management
Lester C. Johnson ............ 50 Senior Vice President, Controller and 1995
Principal Accounting Officer
June C. McCutchen ............ 47 Senior Vice President, Director of 1995
Design and Construction
Larry J. Mundy ............... 52 Senior Vice President, Director of 1998
Administration and Business
Initiatives and Assistant General
Counsel
Andrew J. Welch .............. 41 Senior Vice President and Treasurer 1998
</Table>
Business Experience of Executive Officers
Information concerning the business experience of THOMAS J. CORCORAN, JR. is set
forth above under "Election of Directors- Continuing Class II Directors."
MICHAEL A. DENICOLA joined FelCor in December 2001, as its Executive Vice
President and Chief Investment Officer. Mr. DeNicola has more than 20 years
experience in the hospitality industry. Prior to joining FelCor, he was a
Principal and the Head of the Lodging and Leisure Group for Lend Lease Real
Estate Investments. From 1992 to 2000, Mr. DeNicola held a number of leadership
positions with Carlson Hospitality Worldwide, including Executive Vice President
of Carlson Vacation Ownership, Senior Vice President of Planning, Mergers and
Acquisitions, and Vice President of Operations. Prior to 1992, he served as
Senior Manager and Director of Hospitality Services for Kenneth Leventhal and
Company and Vice President of Hotel Investments for VMS Realty Partners.
RICHARD J. O'BRIEN began work at FelCor in June 2001, as its Executive Vice
President and Chief Financial Officer. Mr. O'Brien has more than 18 years of
finance experience. Prior to joining FelCor, he was a Managing Director with GE
Capital Real Estate, where
-10-
in various positions, he was responsible for the development of strategic
alliances and new programs, E-commerce investments and debt program management.
Prior to being promoted to Managing Director in 1998, he served as the Chief
Financial Officer of the Americas business unit of GE Capital Real Estate. From
1994 to 1996, he served as a Technical Advisor within GE Capital Corporation's
Office of the Controller, working on finance and accounting issues related to
various GE Capital Corporation business units. Prior to his tenure with GE
Capital Corporation, Mr. O'Brien held management positions with J.P. Morgan
Incorporated from 1992 to 1994 and with KPMG Peat Marwick from 1984 to 1992.
LAWRENCE D. ROBINSON, who has served as Senior Vice President, General Counsel
and Secretary of FelCor since May 1996, was named Executive Vice President ,
General Counsel and Secretary in March 2001. From 1972 to 1989, Mr. Robinson was
a partner in the Kansas City-based law firm of Stinson, Mag & Fizzell, for which
he founded and managed a Dallas, Texas office from 1982 to 1989. From 1989
through April 1996, Mr. Robinson was a partner in the Houston-based law firm of
Bracewell & Patterson, L.L.P., where he served as the managing partner of its
Dallas office until 1992, as the head of that office's corporate and securities
law section and as chairman of its firm-wide hospitality group.
JACK ESLICK joined FelCor in April 1996 as its Vice President, Director of Asset
Management. He was named Senior Vice President, Director of Asset Management in
1998. Mr. Eslick has more than 20 years experience in hotel operations. From
April 1991 until he joined FelCor, Mr. Eslick served as Vice President of
Operations of Promus Hotel Corporation, where he had direct responsibility for
all operations in a region that grew from 14 hotels to 26 hotels. Prior to April
1991, he served in various capacities with Holiday Inns, Inc., including serving
as general manager of various hotels and as a Regional Director of Operations.
LESTER C. JOHNSON, who was named Senior Vice President and Controller in March
2001, joined FelCor in September 1995 as its Vice President and Controller.
Prior to joining FelCor, Mr. Johnson held various positions with Integra -- A
Hotel and Restaurant Company and Show Biz Pizza Time, Inc. (now CEC
Entertainment, Inc.) from 1981 to 1995. He served as the Vice President and
Controller of Integra from 1991 to 1995.
JUNE C. MCCUTCHEN joined FelCor in October 1995 as Vice President, Director of
Design and Construction, and was named Senior Vice President, Director of Design
and Construction in 1998. Prior to her engagement by FelCor, she was an Account
Executive for Hospitality Restoration & Builders, Inc. From 1992 to 1994 she was
Project Manager for American General Hospitality, Inc. where she managed all
capital improvement work for more than 35 properties. Prior to 1992, Ms.
McCutchen was Project Manager for Hilton Hotels, Inc. from 1987 to 1992, and
prior to 1987, she served as design coordinator and purchasing manager for
Embassy Suites, Inc.
LARRY J. MUNDY joined FelCor in January 1998 as Senior Vice President, Director
of Administration and Business Initiatives, and was named Senior Vice President,
Assistant General Counsel in December 2001. From 1995 until he joined FelCor, he
was Vice President of Franchise Development for Motel 6(R) . From 1987 to 1995,
he was Vice President of Development in the South/Southeast for Hilton Hotels
and prior to 1987 he served as corporate counsel for Residence Inns(R) and
Embassy Suites.
ANDREW J. WELCH joined FelCor in July 1998 as its Vice President and Treasurer.
He was named Senior Vice President and Treasurer in March 2001. Prior to joining
FelCor, Mr. Welch had served as Vice President and Treasurer of Bristol Hotel
Company from August 1997. For 13 years prior to joining Bristol, Mr. Welch was
responsible for originating investment banking and corporate banking business
for Bank of America, N.A., Citibank, N.A. and NationsBank, N.A.
-11-
Terms of Office and Relationships
The officers of FelCor are elected annually by the Board of Directors at a
meeting held following each annual meeting of stockholders, or as soon
thereafter as necessary and convenient in order to fill vacancies or newly
created offices. Each officer holds office until his successor is duly elected
and qualified or until death, resignation or removal, if earlier. Any officer or
agent elected or appointed by the Board of Directors may be removed by the Board
of Directors whenever in its judgement the best interests of FelCor will be
served thereby, but such removal shall be without prejudice to the contractual
rights, if any, of the person so removed.
There are no family relationships among any of the current directors or
executive officers of FelCor. Except as described under "Election of Directors"
above, none of FelCor's director nominees or continuing directors hold
directorships in any company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act") or
pursuant to Section 15 (d) of the Exchange Act or any company registered as an
investment company under the Investment Company Act of 1940.
There are no arrangements or understandings between any nominee for election as
a director or officer and any other person pursuant to which that director was
nominated or officer was selected.
EXECUTIVE COMPENSATION TABLES
The following tables show the compensation of FelCor's Chief Executive Officer
and the four other most highly paid executives. See the Compensation Committee
Report beginning on page 15 for an explanation of our compensation philosophy.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------------- -------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSATION STOCK OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($)(2) SARS(#) ($)(16)
- --------------------------- ---- --------- --------- ------------ ------------ ----------- ------------
Thomas J. Corcoran, Jr. ......... 2002 422,712 None None 105,546(3) None 16,500
President and Chief Executive 2001 412,000 60,000 None 723,850(4) None 15,750
Officer 2000 400,000 336,830 None 543,150(5) 25,000 15,750
Lawrence D. Robinson ........... 2002 307,800 38,213 None 76,851(6) None 16,500
Executive Vice President, 2001 274,459 125,000 None 420,300(7) 25,000 15,750
General Counsel & Secretary 2000 231,750 228,325 None 417,125(8) None 15,750
Richard J. O'Brien ............. 2002 307,800 38,213 None 76,851(6) None 16,500
Executive Vice President and 2001 175,000(9) 120,000 None 588,500(10) 125,000 95,580
Chief Financial Officer 2000 None None None None None None
</Table>
-12-
<Table>
<Caption>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------- -------------------------
SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSATION STOCK OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) AWARDS($)(2) SARS(#) ($)(16)
- --------------------------- ---- --------- --------- ------------ ------------ --------- ------------
Michael A. DeNicola ............ 2002 256,500 31,844 None 64,040(11) None 82,006
Executive Vice President and 2001 20,833(12) None None 240,750(13) None None
Chief Investment Officer 2000 None None None None None None
June C. McCutchen ............. 2002 217,697 27,027 None 54,352(14) None 16,500
Senior Vice President, Director 2001 212,180 50,000 None 373,600(15) 20,000 15,750
of Design and Construction 2000 206,000 177,725 None 417,125(8) None 15,750
</Table>
- ----------
(1) The aggregate amount of perquisites and other personal benefits,
securities or property, did not exceed the lesser of either $50,000 or
10% of the total annual salary and bonus reported for the named
executive officer.
(2) There were 21,518 shares of restricted stock awarded to the above-named
officers during the 2002 fiscal year. Holders of restricted stock are
entitled to vote and receive dividends on such shares from the date of
grant. The amount reported in this table represents the market value of
the shares awarded on the date of grant, determined by the closing
price of the common stock on such date, without giving effect to the
diminution of value attributable to the restrictions on such stock. As
of December 31, 2002, the aggregate unvested restricted stock holdings
by the named executive officers consisted of 152,078 shares as set
forth below, with a then current aggregate market value, determined in
the same manner as of December 31, 2002, of $1,739,772, as follows: Mr.
Corcoran, 49,174 shares ($562,551 in value); Mr. Robinson, 32,879
shares ($376,136 in value); Mr. O'Brien, 24,379 shares ($278,896 in
value); Mr. DeNicola, 15,649 shares ($179,025 in value); and Ms.
McCutchen, 29,997 shares ($343,166 in value).
(3) Represents an award of 6,014 shares of restricted stock on January
24, 2002, which becomes vested over a five-year period at the rate of
20% per year. The value is based upon the closing price of the common
stock on the date of grant of $17.55 per share.
(4) Represents an award of 31,000 shares of restricted stock on March
15, 2001, which becomes vested over a five-year period at the rate of
20% per year. The value is based upon the closing price of the common
stock on the date of grant of $23.35 per share.
(5) Represents an award of 30,600 shares of restricted stock on April 3,
2000, which become vested over a five-year period at the rate of 20%
per year. The value is based upon the closing price of the common stock
on the date of grant of $17.75 per share.
(6) Represents an award of 4,379 shares of restricted stock on January
24, 2002, which becomes vested over a five-year period at the rate of
20% per year. The value is based upon the closing price of the common
stock on the date of grant of $17.55 per share.
(7) Represents an award of 18,000 shares of restricted stock on March
15, 2001, which becomes vested over a five-year period at the rate of
20% per year. The value is based upon the closing price of the common
stock on the date of grant of $23.35 per share.
(8) Represents an award of 23,500 shares of restricted stock on April
3, 2000, which become vested over a five-year period at the rate of 20%
per year. The value is based upon the closing price of the common stock
on the date of grant of $17.75 per share.
(9) Includes compensation only during the period from the date of
commencement of Mr. O'Brien's employment with FelCor (June 1, 2001)
through December 31, 2001.
(10) Represents an award of 25,000 shares of restricted stock on June
4, 2001, which become vested over a five-year period at the rate of 20%
per year. The value is based upon the closing price of the common stock
on the date that Mr. O'Brien accepted employment with FelCor, or $23.54
per share.
-13-
(11) Represents an award of 3,649 shares of restricted stock on January 24,
2002, which becomes vested over a five-year period at the rate of 20%
per year. The value is based upon the closing price of the common stock
on the date of grant of $17.55 per share.
(12) Includes compensation only during the period from the date of
commencement of Mr. DeNicola's employment with FelCor (December 1,
2001) through December 31, 2001.
(13) Represents an award of 15,000 shares of restricted stock on December 3,
2001, which becomes vested over a five-year period at the rate of 20%
per year. The value is based on the closing price of the common stock
on the date of grant of $16.05 per share.
(14) Represents an award of 3,097 shares of restricted stock on January 24,
2002, which becomes vested over a five-year period at the rate of 20%
per year. The value is based upon the closing price of the common stock
on the date of grant of $17.55 per share.
(15) Represents an award of 16,000 shares of restricted stock on March 15,
2001, which becomes vested over a five-year period at the rate of 20%
per year. The value is based upon the closing price of the common stock
on the date of grant of $23.35 per share.
(16) These amounts represent FelCor's contributions to the FelCor employee
savings and investment plan in the amount of up to $16,500 in 2002, and
$15,750 in 2000 and 2001, for each executive officer and, in the case
of Mr. O'Brien and Mr. DeNicola, a moving allowance of $79,830 and
$65,506, respectively, paid to him in connection with the commencement
of his employment. The executive officers receive health and disability
insurance benefits, which do not exceed 10% of their respective
salaries. These benefits are also made available to other employees of
FelCor.
No stock options or stock appreciation rights were granted to any of Felcor's
named executive officers during the 2002 fiscal year. The unexpired stock
options to purchase Felcor common stock held by named executive officers of
Felcor at December 31, 2002, are summarized in the table below.
FISCAL YEAR END OPTION VALUES
<Table>
<Caption>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2002 DECEMBER 31, 2002(1)
----------------------------- --------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Thomas J. Corcoran, Jr................ 478,077 21,876 $0 $0
Lawrence D. Robinson.................. 134,623 27,639 $0 $0
Richard J. O'Brien.................... 20,000 105,000 $0 $0
Michael A. DeNicola................... 10,000 40,000 $0 $0
June C. McCutchen..................... 42,165 22,639 $0 $0
</Table>
- ---------
(1) The option exercise price for all outstanding options was greater than
the closing sale price of the common stock on the New York Stock
Exchange on December 31, 2002, which was $11.44 per share.
-14-
COMPENSATION COMMITTEE REPORT
Compensation Philosophy
The Compensation Committee works with senior management to develop and implement
FelCor's executive compensation philosophy. Historically, FelCor's philosophy on
executive compensation had been to provide a base cash compensation that was at
or below the average of other equity hotel REITs, and to provide additional
incentive compensation in the form of discretionary cash bonuses and grants of
options and restricted stock based on the realization of stated objectives, such
as acquisitions, financings, renovations, improvements in funds from operations
and other similar criteria expected to result in improvements in total
stockholder return.
The current compensation program consists of a base salary, a cash bonus
component and a long-term incentive element, in the form of grants of restricted
stock that vest over a five-year period at 20% per year. The cash bonus
component for all executive officers is tied, in whole or in part, to corporate
EBITDA performance and, for certain officers, in part to the achievement of
specific objectives within their control. The amount of cash bonuses is
determined based upon the attainment of one of three levels of performance.
FelCor believes that the award of significant incentive compensation in the form
of restricted stock provides management with incentives consistent with the
interests of stockholders. As a result of this philosophy, executive
compensation may be at or below other equity hotel REITs during periods of
average performance and above that of the competitive set during periods of
above average growth or performance. The competitive set that has been used by
the committee to measure performance includes other equity hotel REITs,
particularly those whose capitalization, revenues, assets, market value and
total stockholder returns are most nearly comparable to those of FelCor. Since
REITs do not pay taxes at the corporate level, no policy has been established
with respect to qualifying compensation paid to executive officers under Section
162(m) of the Internal Revenue Code.
Executive Compensation
During 2002, Mr. Corcoran, FelCor's President and Chief Executive Officer,
received a base salary of $422,712. This base cash compensation, like that paid
to other executive officers, is related primarily to competitive factors and is
not tied to FelCor's financial performance or the achievement of specific goals.
The base compensation of FelCor's executive officers was increased 2.6% in 2002,
over 2001, consistent with inflation.
In addition to base salary, FelCor's executive officers were eligible to receive
cash bonuses based upon their attainment of the performance criteria established
by the committee for 2002. FelCor's performance was substantially below
expectations in 2002, due in large part to the continued economic slowdown,
which began in early 2001 and which was exacerbated by the terrorist attacks of
September 11, 2001, that has resulted in declines in RevPAR and earnings
performance during both 2001 and 2002, compared to prior years. As a result of
the decreased performance, substantially all of the executive officers would not
have received cash bonuses, since the minimum bonus criteria was not met.
The committee took into consideration the current operating environment, in
which the lodging industry has experienced declines in RevPAR for two
consecutive years, and the effect of those declines on the lodging industry as a
whole and on FelCor in particular, including the negative effect on FelCor's
stock price and dividend policy. To the extent a substantial part of past
compensation paid to executive officers was comprised of grants of restricted
stock, the committee noted that the decline in FelCor's common stock prices and
dividends has resulted in a significant decrease in the overall value of
previous compensation and in the income of the executive officers. The committee
determined that the executive officers had continued to perform well, in
-15-
spite of the continued industry decline, and that a small cash bonus should be
paid to certain executive officers, even though those officers did not meet the
minimum criteria originally established under the bonus program. For these
reasons, the committee approved cash bonuses in the aggregate amount of $186,393
to be paid to executive officers for 2002. Mr. Corcoran, FelCor's President and
Chief Executive Officer, requested that none of this bonus be paid to him and,
accordingly, the committee did not authorize any bonus for Mr. Corcoran for
2002.
It is expected that future cash bonuses, if any, paid to FelCor's executive
officers will be based again upon the attainment by both FelCor and the
individual of performance objectives established by the committee each year. In
this regard, the committee is in the process of developing performance criteria
for 2003 based upon performance expectations for FelCor and for certain
individual officers in 2003.
Other Incentive Compensation
Routine annual awards of an aggregate of 31,022 shares of restricted stock were
made to the executive officers during 2002. These awards were made consistent
with the committee's belief that grants of restricted stock should be a
significant component of compensation for executive officers, notwithstanding
the committee's recognition that grants of restricted stock are not as
meaningful given the reduction of dividend payments on FelCor's common stock.
Although there is no generally applicable policy or formula for these or future
grants, these grants were made, and the committee anticipates that future grants
will be made, generally in relation to base salary.
Employment Arrangements
FelCor has entered into an employment agreement with Mr. Corcoran that continues
in effect until December 31, 2003, and automatically renews for successive
one-year terms, unless otherwise terminated. Under this agreement, Mr. Corcoran
serves as the President and Chief Executive Officer of FelCor. The agreement
provides that Mr. Corcoran be paid a salary in excess of a stated minimum and
that a comprehensive medical plan be maintained for the benefit of Mr. Corcoran
and his dependents. None of the other officers of FelCor has an employment
agreement.
FelCor has entered into change in control and severance agreements with each of
its executive officers and certain other key employees. Each of these agreements
currently extends until December 31, 2003, and will automatically renew for
successive one-year terms, unless terminated. In the event of a potential change
in control, each covered employee agrees to remain in the employ of FelCor until
the earlier of one year following the "potential change in control" or six
months following an actual "change in control." Following a "change in control,"
if a covered employee's employment is terminated by FelCor other than for
disability, retirement, or "cause" (or by the employee for "good reason"), then
the employee will be entitled to (i) the immediate vesting of all stock options,
awards of restricted stock and other benefits previously awarded or credited to
his account and (ii) a lump sum severance payment of between 2.99 and 0.5 times
the employee's average total annual compensation over the past three years.
FelCor will be required to "gross-up" the severance payment to cover excise
taxes on the benefits, thereby providing such benefits to the employee on a net
basis, after payment of any such excise taxes.
FelCor also maintains a 401(k) Plan, health insurance and other benefits
generally available to all employees. FelCor also provides a deferred
compensation plan that is available only to directors and qualifying employees.
FelCor makes no matching or other contributions to the deferred compensation
plan, other than the payment of its operating and administrative expenses.
-16-
This report has been furnished by the current members of the Compensation
Committee.
-----------------------
Michael D. Rose Melinda J. Bush
Robert H. Lutz, Jr. Robert A. Mathewson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the above-named members of the Compensation Committee were officers or
employees of FelCor or had any relationship with FelCor requiring disclosure
under regulations promulgated by Securities and Exchange Commission.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreements
The management agreements entered into with Six Continents Hotels in exchange
for the 88 leases acquired on July 1, 2001, generally have initial terms of 12
to 17 years, provide for both management services and the use of the brand name,
and provide for the payment of a base fee to Six Continents Hotels of 2% of the
adjusted gross revenues and 5% of the room revenues of each hotel managed. In
addition, Six Continents Hotels may receive, as an incentive fee, a percentage
of hotel profits in excess of specified returns to FelCor on its investment in
the hotels. In the event of the early termination of one of these management
agreements by FelCor, it may be obligated to pay Six Continents Hotels a
substantial replacement fee and/or liquidated damages. However, if the early
termination occurs as a result of the sale of a managed hotel, no liquidated
damages will be payable by FelCor if it reinvests the net proceeds of the sale
in one or more hotels licensed and managed by Six Continents Hotels within one
year of the date of sale. Six Continents Hotels also receives various fees from
FelCor for other services, including accounting, marketing, reservation system
and technology services, and construction management fees. In the aggregate,
FelCor paid Six Continents Hotels and its affiliates fees of approximately $60
million during 2002 for all such services.
Sharing of Offices and Employees
FelCor shares its executive offices and certain employees with FelCor, Inc., an
entity controlled by Messrs. Feldman and Corcoran. FelCor, Inc. bears its share
of the costs thereof, including an allocated portion of the rent, salaries of
certain personnel, office supplies, telephones and depreciation of office
furniture, fixtures and equipment. Any such allocation of shared expenses to
FelCor must be approved by a majority of the Independent Directors of FelCor.
During 2002, FelCor, Inc., paid approximately $46,000 of such expenses and
FelCor bore the balance of such expenses. Mr. Corcoran's salary is paid solely
by FelCor and he receives no salary from FelCor, Inc. Mr. Corcoran is the
President, Chief Executive Officer and a director of FelCor and also serves as a
director (or manager) and the President of FelCor, Inc. For a description of Mr.
Corcoran's employment agreement and of the change in control and severance
agreements between FelCor and its executive officers and certain other key
employees, please see the discussion under "Employment Arrangements" in the
Compensation Committee Report, beginning on page 15.
Loan to Executive Officer
As an inducement to Mr. DeNicola to accept employment as Executive Vice
President and Chief Investment Officer of FelCor in November 2001, a subsidiary
of FelCor agreed to extend credit to him of up to $150,000. Mr. DeNicola has
borrowed $100,000 under this arrangement. The loan is secured by a second
mortgage on Mr. DeNicola's home, bears interest at FelCor's line of credit rate
and matures on January 15, 2007. Mr. DeNicola made a payment on January 15,
2003, of $5,000, plus accrued interest, and is obligated to make a payment of
$10,000, plus accrued interest, on January 15th of each succeeding year until
maturity.
-17-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires officers and directors, and persons
who beneficially own more than 10% of FelCor's stock, to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission ("SEC"). Officers, directors and greater than 10% beneficial owners
are required by SEC regulations to furnish FelCor with copies of all Section
16(a) forms they file.
Based solely on a review of the copies furnished to FelCor and representations
from the officers and directors, FelCor believes that all Section 16(a) filing
requirements for the year ended December 31, 2002, applicable to its officers,
directors and greater than 10% beneficial owners were satisfied, except that:
Mr. Mathewson's initial report on Form 3, to report his ownership at the time he
was first elected a director on May 14, 2002, was filed late; a Form 5,
reporting the distribution to Mr. McNamara of FelCor common stock upon the
dissolution of five limited partnerships in which he had previously reported a
beneficial interest, was filed late; and Mr. Eslick was late in filing a Form 4
to report two sales of FelCor common stock in February 2001.
Based on written representations from the officers and directors, FelCor
believes that all Forms 5 for directors, officers and greater than 10%
beneficial owners that have been filed with the SEC are the only Forms 5
required to be filed for the period ended December 31, 2002.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee currently consists of three directors and operates under a
written charter adopted by the Board of Directors. FelCor considers all members
to be independent as defined by New York Stock Exchange listing standards.
Management is responsible for FelCor's internal controls and the financial
reporting process. PwC, FelCor's independent auditors, are responsible for
performing an independent audit of FelCor's consolidated financial statements in
accordance with generally accepted auditing standards. The Audit Committee's
responsibility is to monitor and oversee the financial reporting process.
In this context, the Audit Committee reviewed and discussed the audited
consolidated financial statements with both management and PwC. Specifically,
the Audit Committee has discussed with PwC matters required to be discussed by
SAS 61, 89 and 90 (Codification of Statements on Auditing Standards, AU ss.380).
The Audit Committee received from PwC the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and has discussed with PwC the issue of its
independence from FelCor.
Based on the Audit Committee's review of the audited consolidated financial
statements and its discussions with management and PwC noted above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in FelCor's Annual Report on Form 10-K for the
year ended December 31, 2002.
This report has been furnished by the current members of the Audit Committee.
-----------------
Charles A. Ledsinger, Jr. Richard S. Ellwood
Richard O. Jacobson
-18-
CORPORATE GOVERNANCE ISSUES
Board Composition
The Corporate Governance and Nominating Committee of FelCor's Board of Directors
has established the following limitations applicable to directors and nominees:
o A term limit of six consecutive full terms for non-management
directors;
o Age limits for nominees for election as directors of 75 years for
existing directors and 70 years for directors first elected at or after
the Annual Meeting of Stockholders in 2003; and
o Directors who experience a change in their primary employment status
are to tender their resignation to the Board, which may elect to accept
or reject the same.
Board Performance
The Board of Directors conducts an annual survey of its members regarding issues
of Board performance and reviews the results of the survey with a view to
improving the effectiveness of the Board.
The non-management directors meet regularly in executive session, in the absence
of Mr. Corcoran or other members of management, to discuss issues related to
management performance and other matters.
Ethics Code
FelCor has adopted a Code of Business Conduct and Ethics that is applicable to
its directors, officers and employees. A copy of this ethics code has been filed
as an exhibit to FelCor's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
-19-
STOCK PERFORMANCE GRAPH
Annual total returns to FelCor common stockholders are shown in the performance
graph appearing below. The graph shows the relative investment performance of
FelCor common stock, the S&P 500, and the NAREIT Equity Index from December 31,
1997, through December 31, 2002.
FIVE-YEAR CUMULATIVE TOTAL RETURN
Value of $100 Invested at December 31, 1997
(PERFORMANCE GRAPH)
<Table>
<Caption>
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- -------- --------
FelCor Lodging Trust 100.0 68.5 58.9 89.7 70.0 49.1
NAREIT Equity Index 100.0 82.5 78.7 99.4 113.3 117.6
S&P 500 Total Return 100.0 128.6 155.6 141.5 124.7 97.1
</Table>
PROPOSAL 2 - RATIFICATION OF INDEPENDENT AUDITORS
The firm of PricewaterhouseCoopers LLP has served as the independent auditors
for FelCor during 2002 and has been selected to serve in that capacity for 2003,
unless the Audit Committee of the Board of Directors subsequently determines
that a change is desirable. While stockholder ratification is not required for
the selection of PwC as FelCor's auditors, since the Audit Committee has the
ultimate responsibility for the selection of FelCor's independent auditors, the
selection is being submitted for ratification at the 2003 Annual Meeting of
Stockholders, solely with a view toward soliciting the stockholders' opinion
thereon, which opinion will be taken into consideration by the Audit Committee
in its future deliberations.
A representative of PwC is expected to be at FelCor's 2003 Annual Meeting of
Stockholders to respond to appropriate questions and to make a statement if
desired.
Vote Necessary to Ratify the Selection
The selection of PwC as our independent auditors will be ratified if more votes
are cast FOR than are cast AGAINST their selection. For this purpose, an
abstention or a broker non-vote will only reduce the number of votes this
proposal will receive.
-20-
Audit Fees
Fees billed by PwC for the audit of FelCor's 2001 and 2002 annual financial
statements, the reviews of the quarterly financial statements included in
FelCor's Quarterly Reports on Form 10-Q totaled $249,000 and $315,000,
respectively. Services related to other regulatory filings for these years,
totaled $550,438 and $44,000, respectively.
Audit-Related Fees
In addition to amounts set forth under Audit Fees above, an aggregate of $25,000
and $807,999 was billed by PwC during 2001 and 2002, respectively, for assurance
and related services that were reasonably related to the performance of the
audit or review of FelCor's financial statements for those years. In 2001, the
audit-related fees arose from the audit of certain subsidiaries. In 2002, the
audit-related fees arose primarily from (i) audit procedures conducted in
conjunction with a proposed acquisition and (ii) extended audit procedures
performed at FelCor's request.
Tax Fees
Fees billed to FelCor by PwC for tax compliance services, tax return
preparation, and tax planning and advice, for 2001 and 2002, totaled $721,058
and $675,193, respectively.
All Other Fees
No fees were billed to FelCor by PwC in 2001 or 2002 for other services.
Auditor Independence
In determining the independence of PwC, the Audit Committee considered whether
the provision of the non-audit services is compatible with maintaining PwC's
independence.
Audit Committee's Policy Regarding Pre-approval of Non-Audit Services
During 2002, the Audit Committee adopted a policy of pre-approving the nature
and estimated amount of any significant non-audit services to be provided to
FelCor by its auditors, taking into consideration the impact that the rendition
of such services could have on auditor independence. The Audit Committee
approved 98% of the audit-related services, and 81% of the tax services,
rendered by PwC to FelCor during 2002.
-21-
ADDITIONAL INFORMATION
Other Business
FelCor's Board does not intend to bring, and knows of no one intending to bring,
any matter before the annual meeting other than the election of the director
nominees and the ratification of PwC as FelCor's independent auditors. If any
other matter is properly brought before the meeting, the persons named as
proxies will vote them in accordance with their best judgment.
Outstanding Shares
On March 17, 2003, a total of 58,849,159 shares of FelCor common stock was
outstanding. Each outstanding share of common stock is entitled to one vote on
each matter presented.
Annual Report
FelCor's 2002 Annual Report to Stockholders is enclosed with this Proxy
Statement. FelCor's Annual Report to Stockholders, this Proxy Statement and
FelCor's Annual Report on Form 10-K may also be viewed on FelCor's website at
www.felcor.com.
WE WILL ALSO SEND YOU A COPY OF FELCOR'S ANNUAL REPORT ON FORM 10-K FOR 2002 IF
REQUESTED IN WRITING SENT TO THE CORPORATE SECRETARY AT THE ADDRESS LISTED UNDER
"QUESTIONS" BELOW.
How We Solicit Proxies
In addition to this mailing, FelCor employees may solicit proxies personally,
electronically, or by telephone. FelCor pays the costs of soliciting the
proxies. We also reimburse brokers and other nominees for their expenses in
sending these materials to you and getting your voting instructions.
Stockholder Proposals for Next Year
The deadline for stockholder proposals eligible for inclusion in next year's
proxy statement is December 2, 2003. Any stockholder proposal received after
February 15, 2004, will be considered untimely and may be voted upon by the
named proxies in accordance with their best judgment. All proposals should be
submitted to the Secretary of FelCor at the address listed under "Questions"
below. All proposals must be in writing and otherwise in compliance with
applicable SEC requirements.
Questions
If you have questions or need more information about the annual meeting, you may
write to:
Corporate Secretary
FelCor Lodging Trust Incorporated
545 E. John Carpenter Frwy., Suite 1300
Irving, Texas 75062-3933
You may also or call us at (972) 444-4900 or send us an e-mail at
information@felcor.com. We also invite you to visit FelCor's website at
www.felcor.com.
-22-
(FELCOR LODGING TRUST LOGO)
FELCOR LODGING TRUST INCORPORATED
545 E. JOHN CARPENTER FRWY., SUITE 1300
IRVING, TEXAS 75062-3933
PROXY
FELCOR LODGING TRUST INCORPORATED
545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062-3933
ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 2003
The undersigned hereby appoints Thomas J. Corcoran, Jr. and Lawrence D.
Robinson, or either of them, with full power of substitution in each, proxies
(and if the undersigned is a proxy, substitute proxies) to vote all common stock
of the undersigned in FelCor Lodging Trust Incorporated at the Annual Meeting of
Stockholders to be held at the offices of the corporation, 545 E. John Carpenter
Freeway, Suite 1300, Irving, Texas, at 9:00 a.m., Local Time, on May 13, 2003,
and at any adjournments or postponements thereof, as specified on the reverse
side.
- --------------------------------------------------------------------------------
PLEASE SIGN AND DATE ON REVERSE SIDE OF THIS PROXY
- --------------------------------------------------------------------------------
[REVERSE SIDE OF PROXY]
FELCOR LODGING TRUST INCORPORATED
VOTE ON DIRECTORS
<Table>
1. ELECTION OF THREE CLASS III DIRECTORS FOR WITHHOLD FOR ALL To withhold authority to vote, mark "For All Except"
ALL ALL EXCEPT and write the nominee's number on the line below.
Nominees: 01) Richard S. Ellwood
02) Richard O. Jacobson [ ] [ ] [ ] ------------------------------------------------------
03) Robert A. Mathewson
VOTE ON PROPOSAL
2. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS FELCOR'S
INDEPENDENT AUDITORS. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies (and if the undersigned is a proxy, any
substitute proxies) are authorized to vote upon any other matter that is
properly brought before the meeting.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES FOR CLASS III DIRECTORS AND
FOR THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
FELCOR'S INDEPENDENT AUDITORS.
Please sign exactly as name appears
at right. When shares are held by
joint tenants, all should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
THIS PROXY IS SOLICITED BY FELCOR'S BOARD
OF DIRECTORS AND THE MATTERS SET FORTH
HEREIN WERE PROPOSED BY FELCOR.
YES NO
HOUSEHOLDING ELECTION-Please indicate
if you consent to receive certain
investor communications in a single
package per household [ ] [ ]
- ---------------------------------- ---------- --------------------------------- ----------
Signature (PLEASE SIGN WITHIN BOX) Date Signature (Joint Owners) Date
</Table>