SCHEDULE 14A
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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 (S) 240.14a-11(c) or (S) 240.14a-12
Host Marriott Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
[LOGO] Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817-1109
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, MAY 16, 2002
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders 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,
May 16, 2002 at 11:00 a.m. Doors to the meeting will open at 10:30 a.m. At the
meeting, shareholders will be asked to consider and vote on the following
proposals:
Proposal 1: Election of John G. Schreiber as a Director for a three-year term expiring at the
2005 Annual Meeting;
Proposal 2: Consideration of a shareholder 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.
Shareholders will also transact other business if any is properly brought
before the annual meeting.
If you were a shareholder of record at the close of business on March 29,
2002, 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. With this proxy statement we are also
including copies of our 2001 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. We encourage you to read the proxy statement
and the other information carefully.
By order of the Board of Directors,
/s/ Elizabeth A. Abdoo
Elizabeth A. Abdoo
Corporate Secretary
April 5, 2002
Please promptly complete, date, sign and return the enclosed proxy card
whether or not you plan to attend the meeting.
Refer to the note on the outside of the back cover for information on
accommodations and for directions to the hotel.
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 will be held in Salon III at The Ritz-Carlton, Tysons
Corner, located at 1700 Tysons Boulevard, McLean, Virginia, on Thursday, May
16, 2002 at 11:00 a.m. Doors to the meeting will open at 10:30 a.m. Please
refer to the outside back cover of this proxy statement for information on
accommodations and for directions to the hotel.
INFORMATION ABOUT THE PROXY STATEMENT
Our Board of Directors has sent you this proxy statement to solicit your
vote at the annual meeting (including any adjournment or postponement of the
annual meeting). In this proxy statement we summarize information that we are
required to provide to you under the Securities and Exchange Commission rules.
This proxy statement is designed to assist you in voting your shares. On April
5, 2002 we began mailing the Proxy Materials to all shareholders of record at
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:
Proposal 1: Elect John G. Schreiber as a Director for a three-year term expiring at the 2005
Annual Meeting;
Proposal 2: Consider a shareholder proposal regarding the annual election of all Directors;
Proposal 3: Consider a shareholder proposal regarding the nomination process for Directors; and
Proposal 4: Consider a shareholder proposal regarding the re-incorporation of the Company in
Delaware from Maryland.
INFORMATION ABOUT VOTING
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, as follows:
. By Proxy: You can vote 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
. at the discretion of your proxies on any other matters that may be
properly brought 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.
The mailing address for EquiServe is P.O. Box 8611, Edison, New Jersey
08818-9119.
If your shares are registered in different names or are in more than one
account, you will receive more than one 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 common stock must be
present at the meeting, in person or by proxy, for a quorum to be present. 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 shareholder vote. If there is a shareholder vote to adjourn, the
named proxies will vote all shares of common stock for which they have voting
authority in favor of adjournment.
Shares of our common stock represented by proxies that are marked "withhold
authority" (with respect to the election of the nominee for election as a
Director), or marked "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) 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" or marked "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 of Director--The person nominated for Director
receiving the most votes will be elected. Shares not voted will not affect the
election of the Director except to the extent that failure 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 of 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--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 this proxy statement are being solicited by
the Company. The Company will bear the entire cost of this proxy solicitation.
We have retained MacKenzie Partners, Inc., 156 Fifth Avenue, New York, New York
10010, to be our proxy solicitation agent 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. 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
Materials to those beneficial owners.
INFORMATION TO RELY UPON WHEN CASTING YOUR VOTE
You should rely only on the information contained in this proxy statement
or incorporated by reference when voting on these matters. We have not
authorized anyone to give any information or to make any representation in
connection with this proxy solicitation 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.
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PROPOSAL ONE:
ELECTION OF DIRECTOR
One Director will be elected at the 2002 annual meeting. John G. Schreiber
has been nominated to stand for re-election at the meeting to serve as a
Director until the 2005 annual meeting of shareholders. Mr. Schreiber is an
incumbent Director. The table below contains certain biographical information
about him as well as our other Directors. He has consented to serve if
re-elected, but should he be unavailable to serve, 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 recommends that you vote FOR Mr. Schreiber as a
Director in Proposal One.
NOMINEE FOR DIRECTOR
John G. Schreiber Mr. Schreiber is President of Centaur Capital Partners, Inc. and a
Director since 1998 senior advisor and partner of Blackstone Real Estate Advisors L.P.,
Age: 55 an affiliate of The Blackstone Group L.P. He serves as a Trustee of
AMLI Residential Properties Trust and as a Director of JMB Realty
Corporation, The Rouse Company, The Brickman Group, Ltd. and a
number of mutual funds advised by T. Rowe Price Associates, Inc.
[PHOTO] Prior to his retirement as an officer of JMB Realty Corporation in
1990, Mr. Schreiber was Chairman and Chief Executive Officer of
John G. Schreiber JMB/Urban Development Company and an Executive Vice President
of JMB Realty Corporation. Mr. Schreiber's term as a Director
expires at the 2002 annual meeting of shareholders.
OTHER DIRECTORS CURRENTLY IN OFFICE
Robert M. Baylis Mr. Baylis is the retired Vice Chairman of CS First Boston. Prior to
Director since 1996 his retirement, he was Chairman and Chief Executive Officer of CS
Age: 63 First Boston Pacific, Inc. Mr. Baylis is also a Director of New York
Life Insurance Company, Covance, Inc., Gildan Activewear, Inc.,
PartnerRe Ltd. and Credit Suisse First Boston (USA), Inc. In addition,
he is an overseer of the University of Pennsylvania Museum, a
[PHOTO] director of The International Forum, an executive education program
of the Wharton School, and a member of the Advisory Council of the
Robert M. Baylis Economics Department of Princeton University. Mr. Baylis's term as
a Director expires at the 2003 annual meeting of shareholders.
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Terence C. Golden Mr. Golden served as our President and Chief Executive Officer from
Director since 1995 1995 until his retirement in May 2000. He serves as Chairman of
Age: 57 Bailey Capital Corporation. In addition, Mr. Golden is a Director of
Cousins Properties, Inc., Potomac Electric Power Company,
American Classic Voyages Co. and The Morris and Gwendolyn
[PHOTO] Cafritz Foundation. He is also Chairman of the Federal City Council.
Prior to coming to Host Marriott, Mr. Golden had served as chief
Terence C. Golden financial officer of The Oliver Carr Company and was a Founder and
National Managing Partner of Trammel Crow Residential Companies.
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. Mr. Golden's term as a Director expires at the 2003
annual meeting of shareholders.
Ann McLaughlin Korologos Ms. Korologos is Senior Advisor to Benedetto, Gartland & Company,
Director since 1993 Inc., an investment banking firm in New York, and is Vice Chairman
Age: 60 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
[PHOTO] served with distinction in several United States Administrations in
such positions as Secretary of Labor and Under Secretary of the
Ann McLaughlin Korologos 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.
Ms. Korologos's term as a Director expires at the 2003 annual
meeting of shareholders.
J.W. Marriott, Jr.* Mr. J.W. Marriott, Jr. is Chairman of the Board and Chief Executive
Director since 1964 Officer of Marriott International, Inc., and a Director of General
Age: 70 Motors Corporation and the Naval Academy Endowment Trust. He
also serves on the Board of Trustees of the National Geographic
Society. He serves on the Executive Committee of the World Travel
[PHOTO] & Tourism Council and is a member of the Business Council.
Mr. Marriott's term as a Director expires at the 2002 annual meeting
J. W. Marriott, Jr. of shareholders, and he has announced that he will not stand for re-
election to the Board of Directors.
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Richard E. Marriott* Mr. Richard E. Marriott is our Chairman and is also a Director of the
Chairman of the Board Polynesian Cultural Center and of Marriott International, Inc. (from
Director since 1979 which he has announced that he will resign in May 2002), and he is
Age: 63 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
[PHOTO] Young University. He is a past President of the National Restaurant
Association. In addition, Mr. Marriott is the President and a Trustee
Richard Marriott of the Marriott Foundation for People with Disabilities. Mr.
Marriott's term as a Director expires at the 2004 annual meeting of
shareholders.
Christopher J. Nassetta Mr. Nassetta is our President and Chief Executive Officer. He also
President and Chief serves on the Board of Trustees of Prime Group Realty Trust and as a
Executive Officer member of the McIntire School of Commerce Advisory Board for the
Director since 1999 University of Virginia. Mr. Nassetta joined our Company in 1995 as
Age: 39 Executive Vice President and was elected our Chief Operating Officer
in 1997. He became our President and Chief Executive Officer in
[PHOTO] May 2000. Prior to joining us, Mr. Nassetta served as President of
Bailey Realty Corporation from 1991 until 1995, and he had
Christopher J. Nassetta 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 shareholders.
Harry L. Vincent, Jr. Mr. Vincent is a retired Vice Chairman of Booz-Allen & Hamilton,
Director since 1969 Inc. He also served as a Director of Signet Banking Corporation from
Age: 82 1973 until 1989. Mr. Vincent's term as a Director expires at the 2002
annual meeting of shareholders, at which time he will retire from the
[PHOTO] Board of Directors.
Harry L. Vincent, Jr.
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* Richard E. Marriott and J.W. Marriott, Jr. are brothers.
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THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Presently, there are eight members on our Board of Directors, six of whom
currently are neither officers nor employees of the Company. 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; Class II Directors, consisting
of Robert M. Baylis, Terence C. Golden and Ann McLaughlin Korologos, will hold
office until the 2003 annual meeting of shareholders; and Class III Directors,
consisting of Richard E. Marriott and Christopher J. Nassetta, 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.
The Board met six times in 2001. Each Director attended 75% or more of the
meetings held during 2001.
The Board has three standing committees: (i) Audit Committee, (ii)
Compensation Policy Committee and (iii) Nominating and Corporate Governance
Committee. Each committee is composed entirely of outside Directors.
Audit Committee. The Audit Committee:
. recommends the appointment of independent auditors to the Board of
Directors;
. approves the scope of audits and other services to be performed by the
independent and internal auditors;
. considers whether the performance 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 are Robert M. Baylis (Chair), Ann McLaughlin
Korologos, John G. Schreiber and Harry L. Vincent, Jr. R. Theodore Ammon also
served on the Audit Committee as its Chairman until his death in October
7
2001. The Board of Directors has determined that each member of the Audit
Committee is independent and financially literate in accordance with paragraph
303 of the New York Stock Exchange Listed Company Manual. The Board of
Directors has also determined that at least one member of the Audit Committee
has accounting or related financial management expertise. The independent and
internal auditors have unrestricted access to the Audit Committee. The Audit
Committee met six 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 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.
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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. The
Nominating and Corporate Governance Committee will consider qualified nominees
for Director recommended by shareholders. 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's qualifications, and the candidate's signed consent to serve as
a Director if elected.
The Board of Directors may from time to time form other committees as
circumstances warrant. Such committees will have authority and responsibility
as delegated by the Board.
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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, 2002 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.
Information about the ownership of operating partnership units is included
because the operating partnership units are redeemable for cash or, at our
election, for shares of our common stock on a one-for-one basis. As of February
28, 2002, no person or entity is the beneficial owner of 5% or more of the
operating partnership units.
% of
% of Common
Number of Shares Number of Stock and
Shares of of Operating Operating
Common Common Partnership Partnership
Name Stock Stock(1) Units Units(2)
---- ---------- -------- ----------- -----------
Directors:
Robert M. Baylis(3)........................................ 35,892 * 0 *
Terence C. Golden(3)....................................... 314,008 0.1 0 0.1
Ann McLaughlin Korologos(3)................................ 22,848 * 0 *
J.W. Marriott, Jr.(4)(5)................................... 15,429,612 5.9 583,625 6.1
Richard E. Marriott(5)(6)(7)............................... 18,294,539 6.9 580,982 7.1
Christopher J. Nassetta(7)................................. 949,743 0.4 0 0.4
John G. Schreiber(3)....................................... 9,879 * 1,191,324 0.5
Harry L. Vincent, Jr.(3)................................... 41,648 * 0 *
Non-Director Executive Officers:
Robert E. Parsons, Jr.(7).................................. 660,614 0.3 0 0.3
James F. Risoleo(7)........................................ 311,780 0.1 0 0.1
W. Edward Walter(7)........................................ 473,735 0.2 0 0.2
All Directors and Executive Officers as a group (13 persons,
including the foregoing)(7)(8)(9)......................... 29,535,117 11.2 1,789,351 11.8
Certain Beneficial Owners:
Southeastern Asset Management Inc.(10)..................... 42,807,995 16.2 0 16.2
Wallace R. Weitz & Company(11)............................. 29,145,800 11.1 0 11.1
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* Reflects ownership of less than 1/10th of 1%.
(1) Any descriptions of ownership or aggregations of ownership of our common
stock within this proxy statement are based upon the disclosure
requirements of the federal securities laws. They do not indicate ownership
of our common stock under the Internal Revenue Code of 1986, as amended, or
for purposes of the ownership limitations set forth in our Articles of
Incorporation.
(2) This column assumes that all operating partnership units held by the named
person 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 which are awarded annually to non-employee Directors
(other than J.W. Marriott, Jr.) under our Non-Employee Directors' Deferred
Stock Compensation Plan, plus reinvested dividend equivalents relating
thereto. This number also includes the special one-time award in 1997 of
common stock equivalents to Mr. Baylis, Ms. Korologos and Mr. Vincent under
the Plan, plus reinvested dividend equivalents relating thereto.
(4) The number of shares of our common stock listed here includes: (1)
1,643,751 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) 715,847 shares held in trust for which the wife of J.W. Marriott, Jr.
is the trustee or a co-trustee; (4) 4,219,649 shares held by the J. Willard
and Alice S. Marriott Foundation, of which J.W. Marriott, Jr. is a
co-trustee; (5) 1,247,889 shares held by the J. Willard Marriott, Sr.
Charitable Trust, of which J.W. Marriott, Jr.
10
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 shareholder; and (8) 86,960
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.
(5) 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 27,760,019 shares, or
10.5% of the total shares outstanding of our common stock, as of February
28, 2002.
(6) The number of shares of our common stock listed here includes: (1)
1,903,440 shares held in trust for which Richard E. Marriott is the trustee
or a co-trustee; (2) 74,154 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) 4,219,649 shares held by the J. Willard
and Alice S. Marriott Foundation, of which Richard E. Marriott is a
co-trustee; (5) 1,247,889 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) 1,565,300 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 shareholder. It does not include shares held by the
adult children of Richard E. Marriott; Richard E. Marriott disclaims
beneficial ownership of all such shares.
(7) The number of shares of our common stock listed here includes (1) the
shares of restricted stock granted under our 1993 Comprehensive Stock
Incentive Plan and 1997 Comprehensive Stock and Cash Incentive Plan, which
are voted by the holder thereof, and (2) the following number of shares
which could be acquired through the exercise of stock options: for Mr.
Parsons, 14,637 shares; and for all Directors and executive officers as a
group, 44,328 shares. For additional information, see the Tables under the
caption "Executive Officer Compensation." This amount does not include any
other shares reserved, contingently vested or awarded under the above-named
plans.
(8) The number of shares of our common stock listed here includes the total
number of shares held by trusts for which both J.W. Marriott, Jr. and
Richard E. Marriott are co-trustees. Beneficial ownership of such shares is
attributable to both J.W. Marriott, Jr. and Richard E. Marriott in the
table above under the "Directors" subheading. These shares, however, are
included only once in reporting the total number of shares owned by all
Directors and executive officers as a group. All Directors and executive
officers as a group (other than members of the Marriott family) owned
beneficially an aggregate of 2,980,117 shares, or 1.1% of the total shares
outstanding of our common stock as of February 28, 2002. In addition, our
Retirement and Savings Plan owned 102,264 shares, or less than 0.1% of the
total shares outstanding of our common stock, as of February 28, 2002.
(9) The number of operating partnership units listed here includes units held
by a partnership of which both J.W. Marriott, Jr. and Richard E. Marriott
are general partners. Beneficial ownership of such operating partnership
units is attributable to both J.W. Marriott, Jr. and Richard E. Marriott in
the table above under the "Directors" subheading. These units, however, are
included only once in reporting the total number of operating partnership
units owned by all Directors and executive officers as a group.
(10) The number of shares of our common stock listed here represents shares of
our common stock held by Southeastern Asset Management, Inc., which acts
as an investment adviser for certain investment funds. Southeastern Asset
Management, Inc. has reported in a Schedule 13G filed with the Securities
and Exchange Commission sole dispositive power over 27,545,947 shares,
shared dispositive power over 15,206,250 shares and no dispositive power
over 55,798 shares. Of these shares, Southeastern Asset Management, Inc.
has reported sole voting power over 22,474,591 shares, shared voting power
over 15,206,250 shares and no voting power over 4,854,154 shares. The
principal business address of Southeastern Asset Management, Inc. is 6410
Poplar Avenue, Suite 900, Memphis, Tennessee 38119.
(11) The number of shares of our common stock listed here represents shares of
our common stock held by Wallace R. Weitz & Company, which acts as an
investment adviser for certain investment funds. Wallace R. Weitz &
Company has reported in a Schedule 13G filed with the Securities and
Exchange Commission sole dispositive power over the entire 29,145,800
shares. Of these shares, Wallace R. Weitz & Company has reported sole
voting power over 28,945,800 shares, and shared voting power over none of
the shares. The principal business address of Wallace R. Weitz & Company
is 1125 South 103rd Street, Suite 600, Omaha, Nebraska 68124-6008.
COMPENSATION OF DIRECTORS
Directors are compensated partially in cash and partially in our common
stock to align their interests with those of our shareholders. Directors who
are also our employees receive no additional compensation for their services 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 any shareholders' meeting, meeting of the Board of Directors
or meeting of a committee of the Board of Directors, regardless of the number
of meetings held on a given day that they attend. The chair of each committee
of the Board of Directors receives an additional annual retainer fee of $1,000,
except for the chair of the Compensation Policy Committee, who receives an
additional annual retainer fee of $6,000. The chair of the Compensation Policy
Committee receives a higher annual retainer fee because of additional duties,
which include, for example, the performance appraisal of the chief executive
officer on behalf of the Board, although the final performance appraisal is
determined by the Board.
11
Annual Stock Awards. Under the Non-Employee Directors' Deferred Stock
Compensation Plan, Directors who are not also our employees (other than J.W.
Marriott, Jr.) receive an annual award of common stock equivalents, which are
converted into shares of our common stock only after termination of service on
the 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 distributed to such Directors immediately following the annual meeting
of shareholders. In 2001, each such award was for 2,250 common stock
equivalents. The plan also permits participants to be credited with dividend
equivalents which are equal in value to the dividends paid on our common stock.
Deferral of Payment. Directors may elect to defer 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 converted into shares of our common stock only after termination of
service on the 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
out-of-pocket costs incurred in attending meetings, and they also receive, with
certain exceptions, complimentary rooms, food and beverage and other hotel
services when visiting properties owned by us or managed by Marriott
International, Inc.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Federal securities laws require Directors, executive officers, and owners
of more than ten percent of our common stock to file reports with the
Securities and Exchange Commission and with the New York Stock Exchange. These
reports relate to the number of shares of our common stock that each of those
persons beneficially owns, and any changes in their ownership. Except as set
forth below, all persons required to file such forms have done so during 2001.
Due to an oversight, J.W. Marriott, Jr. did not file a timely report in May
2001 with respect to a sale of shares of our common stock by a trust for which
Mr. Marriott's wife serves as co-trustee. Neither Mr. Marriott nor his wife is
a beneficiary under the trust, but because Mr. Marriott's wife shares the
voting and investment power over the shares held by the trust, the shares of
our common stock are deemed to be beneficially owned by Mr. Marriott under the
federal securities laws. The report was filed promptly upon the discovery of
this oversight.
12
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
Long-Term
Annual Compensation Compensation
------------------------------- ---------------------
Restricted
Other Annual Stock
Compensation Awards LTIP All Other
Fiscal Salary(1) Bonus(2) (3)(4) (5)(6) Payouts(7) Compensation(8)
Year ($) ($) ($) ($) ($) ($)
Name and Principal Position ------ --------- -------- ------------ ---------- ---------- ---------------
Richard E. Marriott 2001 336,000 84,000 320,878 0 0 16,821
Chairman of the 2000 320,000 192,000 440,221 312,947 0 28,980
Board 1999 307,008 150,434 262,548 0 0 26,111
Christopher J. Nassetta 2001 800,000 350,720 0 0 0 47,696
President and Chief 2000 624,584 794,684 0 2,586,763 0 69,271
Executive Officer 1999 500,006 536,106 0 0 947,318 48,363
Robert E. Parsons, Jr. 2001 467,250 217,178 0 0 0 30,012
Executive Vice 2000 445,000 534,000 0 812,991 0 53,995
President and Chief 1999 424,996 455,681 0 0 947,318 42,672
Financial Officer
W. Edward Walter 2001 429,810 211,466 0 764,902 0 23,192
Executive Vice 2000 330,209 348,300 0 1,506,058 0 30,625
President and Chief 1999 279,075 264,792 0 0 590,625 29,632
Operating Officer
James F. Risoleo 2001 346,233 163,076 0 399,900 0 13,587
Executive Vice 2000 279,296 296,000 0 990,704 0 33,546
President-- 1999 228,332 326,984 88,716 0 450,000 23,339
Acquisitions and
Development
--------
(1) Salary amounts include base salary earned and paid in cash during the
fiscal year as well as the amount of base salary deferred at the election
of the named executive officer under our Executive Deferred Compensation
Plan.
(2) The bonus consists of the cash bonus earned pursuant to our 1997
Comprehensive Stock and Cash Incentive Plan. 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 $132,150,
$125,100 and $110,700 in 2001, 2000 and 1999, respectively, for the
allocation of company personnel costs for non-company business, and
$152,110, $213,185 and $120,174 in 2001, 2000 and 1999, respectively, for
additional cash compensation to cover taxes payable for all other
compensation in this column.
(4) The amount set forth in this column for Mr. Risoleo represents the
forgiveness of a loan made to Mr. Risoleo related to his relocation
expenses in 1996.
(5) Restricted stock awards are subject to various general restrictions, such
as continued employment, as well as several performance restrictions.
Holders of restricted stock receive dividends and exercise voting rights on
their restricted shares. The named executive officers have agreed that any
cash dividends on the shares of restricted stock shall, after withholding
for or payment of any taxes due on the dividends, be reinvested in shares
of our common stock either through a dividend reinvestment program or
otherwise.
(6) Seventy percent of the restricted shares awarded in 1998 and 2000 have
performance restrictions and thirty percent have general restrictions
conditioned upon continued employment. The performance criteria established
by the Compensation Policy Committee are based upon (i) the measurement of
the annual total return to the Company's shareholders (Shareholder Return
Performance) and (ii) either (a) for 2001 and 2000, the Company's achieving
specific earnings targets set by the Compensation Policy Committee, or (b)
for 1999, the relative performance of our stock measured against a
published peer index. The total number of restricted and deferred shares
held by each named executive officer as of the end of the 2001 fiscal year
and the aggregate value of those shares at such time were as follows: Mr.
Marriott, 156,781 shares valued at $1,451,792; Mr. Nassetta, 600,000 shares
valued at $5,556,000; Mr. Parsons, 365,145 shares valued at $3,381,243; Mr.
Walter, 330,716 shares valued at $3,062,430; and Mr. Risoleo, 186,668
shares valued at $1,728,546.
13
(7) In 1999, the Compensation Policy Committee determined that the time and
performance criteria set forth in the long-term incentive plan established
in 1996 for Mr. Nassetta, Mr. Parsons, Mr. Risoleo and Mr. Walter had been
met. Accordingly, the restricted shares awarded under such long-term
incentive plan vested and the restrictions were released.
(8) This column represents our matching contributions made under our Retirement
and Savings Plan and our Executive Deferred Compensation Plan. Under the
Retirement and Savings Plan, we contributed $5,100 for each of the named
executive officers in 2001. The amounts contributed under the Executive
Deferred Compensation Plan for 2001 for each named executive officer were
as follows: Mr. Marriott, $10,721; Mr. Nassetta, $42,596; Mr. Parsons,
$24,912; Mr. Walter, $18,092; and Mr. Risoleo, $8,487. For Mr. Marriott,
this column also includes the amount of the taxable economic benefit to Mr.
Marriott as a result of our purchase of certain life insurance policies for
the benefit of a trust established by Mr. Marriott. For 2001, such taxable
economic benefit to Mr. Marriott was $345.
Aggregated Stock Option/SAR Exercises and Year-End Value
The table below sets forth, on an aggregated basis:
. information regarding the exercise of options to purchase our common
stock (and shares of common stock of Marriott International, Inc.,
which we have previously spun off) by each of the named executive
officers listed above on the Summary Compensation Table;
. information regarding the exercise of stock appreciation rights
("SARs") in our common stock by each of the named executive officers
listed above on the Summary Compensation Table; and
. the value on December 31, 2001 of all unexercised options and stock
appreciation rights held by such individuals.
Christopher J. Nassetta, W. Edward Walter and James F. Risoleo do not have
any options to purchase stock in either of the companies listed in the
following table. Richard E. Marriott is the only executive officer who holds
stock appreciation rights in our common stock. In 1998, Mr. Marriott entered
into an agreement with our Company which canceled all of his then outstanding
options to purchase our common stock and replaced them with stock appreciation
rights on equivalent economic terms.
AGGREGATED STOCK OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
Shares Number of Value of Unexercised
Acquired Shares Underlying In-the-Money
on Value Unexercised Options/SARs Options/SARs at
Exercise Realized at Fiscal Year End(2) Fiscal Year End(3)
Name Company(1) (#) ($) (#) ($)
---- ---------- -------- -------- ------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Richard E. Marriott... HM 0 0 66,685 0 491,809 0
MI 0 0 122,634 0 4,402,838 0
- - ----------- - ----------- -
TOTAL 0 0 189,319 0 4,894,647 0
Robert E. Parsons, Jr. HM 0 0 14,637 0 102,057 0
MI 0 0 0 0 0 0
- - ----------- - ----------- -
TOTAL 0 0 14,637 0 102,057 0
--------
(1) "HM" represents options to purchase or SARs in our common stock. "MI"
represents options to purchase Marriott International, Inc. common stock.
(2) The number and terms of these options reflect several adjustments made as a
result of our spin-off of Marriott International in October 1993; our
spin-off of Host Marriott Services Corporation in December 1995; the
spin-off of Marriott International from Sodexho Marriott Services
Corporation in March 1998; and our conversion into a real estate investment
trust (and the related spin-off of Crestline Capital Corporation) in
December 1998, each in accordance with the applicable employee benefit
plans covering those options. These adjustments preserved, but did not
increase or decrease, the economic value of the options.
(3) These figures are 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 average of the high 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 conditions of the employment of our executive officers,
including all of those executive officers named in the Summary Compensation
Table above. The terms of the policy are subject to the approval of the Board
of Directors or the Chief Executive Officer/President, as applicable.
REPORT OF THE COMPENSATION POLICY COMMITTEE ON EXECUTIVE COMPENSATION
To Our Shareholders
The Compensation Policy Committee of the Board of Directors oversees and
administers the executive compensation program on behalf of the Board and, by
extension, our shareholders. This report provides details and background
information regarding the executive compensation program.
The Committee
The Compensation Policy Committee is composed of four independent members
of the Board of Directors. It approves the executive compensation programs and
policies and sets performance targets, and then evaluates the performance of
our Company and its senior management. The Committee met four 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.
Competitiveness Targets
To establish compensation targets, the Committee uses data from independent
consultants that reflect 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 reviews 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 for individual executives based on competitive levels of compensation
and the need to retain an experienced and effective management team. Consistent
with the philosophy of aligning executive compensation with shareholder 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 of
restricted stock.
Annual Cash Compensation
Base Salary. Mr. Nassetta's salary for 2001 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 not to increase Mr. Nassetta's salary for 2002.
Similarly, no senior executives, including Mr. Richard Marriott, Mr. Parsons,
Mr. Risoleo and Mr. Walter, received salary increases for 2002.
Annual Incentive 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's
performance, and the remaining fifty percent of the award is linked to an
executive's individual performance. The Company performance measures adopted by
the Committee
16
for 2001 were based on the 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. 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 under
the "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 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. Mr. Nassetta received an annual incentive
award of $350,720 for 2001. This award was 43.8% of his fiscal year base salary
earnings. The other named executive officers received annual incentive awards
for 2001 ranging from 25.0% to 49.2% of their base salaries for 2001.
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
amount of any such grants are included in the "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.
Long-Term Incentive Compensation
Restricted Stock. Restricted stock is our primary long-term incentive
vehicle for senior executives. It creates an incentive for senior executives to
manage our Company in a manner that creates significant long-term value for
shareholders. The Comprehensive Stock and Cash Incentive Plan permits the
Committee to make awards of stock with restrictions relating to either
continued employment ("time-based" awards) or to performance standards that are
set by the Committee ("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., 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 shareholders and to the growth of the
Company's earnings measured against a predetermined target.
In 2001, none of the performance criteria set by the Committee were met
and, consequently, none of the restrictions for that portion of the awards were
released. Only the restrictions for the time-based awards were released for
2001. In May 2001, the Committee granted increases in the number 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 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 shareholders in the short and long term.
John G. Schreiber, Chairman
Robert M. Baylis
Ann McLaughlin Korologos
Harry L. Vincent, Jr.
18
PERFORMANCE GRAPH
The following line graph compares the yearly percentage change in the
cumulative total shareholder return on our common stock against the cumulative
total returns of the Standard & Poor'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. The graph assumes an initial investment of $100 in our
common stock and in each of the indexes, and the reinvestment of all dividends,
including our distribution of Crestline Capital Corporation common stock on
December 29, 1998 to shareholders.
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 Compensation Policy Committee is currently composed of John G.
Schreiber, Robert M. Baylis, Ann McLaughlin Korologos 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. Marriott, Jr. was
a member of the
19
Committee 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 directors Richard E. Marriott,
our Chairman, currently serves. Richard E. Marriott is not a member of the
compensation committee of Marriott International. For more information about
the Company's relationship with Marriott International, please see the section
entitled "Certain Relationships and Related Transactions" later in this proxy
statement.
REPORT OF THE AUDIT COMMITTEE
The Committee
The Audit Committee of the Board of Directors is composed of four
independent directors and operates under a charter adopted by the Board of
Directors.
To Our Shareholders
The Audit Committee has reviewed and discussed with management the
Company's audited financial statements as of, and for, the year ended December
31, 2001, including the quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements. Management represented that the
audited consolidated financial statements of the Company have been prepared in
conformity with generally accepted accounting principles, and the Audit
Committee has expressed to both management and the independent auditors its
general preference for conservative policies when a range of accounting options
is available.
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.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the financial statements referred to
above be included in the Company'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 for the 2002 fiscal year.
The Audit Committee is currently monitoring litigation involving Arthur
Andersen LLP and 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, the Audit Committee has decided that it is in
the best interests of the Company and its shareholders 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 that the shareholders ratify the selection of the
Company's independent public accountants for the year ending December 31, 2002.
Representatives of Arthur Andersen LLP are expected to be present at 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 for the past several years.
Audit Fees
We paid Arthur Andersen LLP $1,276,000 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 Andersen 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.
The Audit Committee determined that the provision of these other
professional services was compatible with maintaining Arthur Andersen LLP's
independence in the conduct of its auditing functions.
21
THE REIT CONVERSION
We merged with the former Host Marriott Corporation (a Delaware
corporation) on December 29, 1998, in order to re-incorporate in Maryland. The
merger was part of a series of transactions in which 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
assets to the operating partnership 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.
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'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.
Richard E. Marriott, the Chairman of our Board, beneficially owns
approximately 12.3% of the outstanding shares of common stock of Marriott
International, and J.W. Marriott, Jr., who is currently one of our Directors
(although he has announced that he will not stand for re-election to our Board
at the end of his current term, which expires in May 2002), beneficially owns
approximately 12.7% 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
serves as a director of Marriott International, although he has announced that
he will resign from Marriott International's board of directors in May 2002. By
reason of their ownership of such shares of common stock and their current
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 which 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 this distribution agreement, Marriott
International has the right to purchase up to 20% of each class of our voting
stock (determined after assuming full exercise 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 defines the parties' rights and obligations with
respect to:
. deficiencies and refunds of federal, state and other income or
franchise taxes relating to our businesses for tax years prior to the
separation; and
. 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.
Administrative Services Agreements and Office Space Lease. We have entered
into certain agreements with Marriott International in which Marriott
International has agreed to provide certain continuing administrative services
for us and our subsidiaries. In addition, we sublease office space from
Marriott International. These services and the sublease are provided on market
terms and conditions. In 2001, we paid Marriott International $2 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, Resorts and Suites, Ritz-Carlton Hotels, Courtyard hotels and
Residence Inns owned or leased by us and our subsidiaries. Marriott
International
23
also entered into franchise agreements with us and certain of our subsidiaries.
The franchise agreements allow us to use the Marriott brand, associated
trademarks, reservation systems and other related items in connection with nine
Marriott hotels for which we have entered into operating agreements with hotel
management companies other than Marriott International. In 2001, we and our
subsidiaries paid $168 million in the aggregate in management and franchise
fees to Marriott International.
In addition, certain of our subsidiaries are partners in several
unconsolidated partnerships that owned 161 lodging properties as of December
31, 2001. These properties are operated by Marriott International or certain of
its subsidiaries under long-term agreements. Our subsidiaries typically serve
as the general partners in such partnerships. In 2001, those partnerships paid
fees of $40 million to Marriott International under those agreements. The
partnerships also paid $22 million in rent to Marriott International in 2001
for leases of land upon which certain of the partnerships' hotels are located.
We are currently negotiating with Marriott International certain changes to
the management agreements for our Marriott-managed hotels. If made, the
changes, which remain subject to the consent of various lenders to the
properties and other third parties, would be effective as of December 29, 2001.
There can be no assurance that the negotiations will be successful, that the
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, 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 that we pay on our portfolio of
Marriott-managed hotels;
. Expanding the pool of hotels that are subject to an existing agreement
that allows us to sell certain assets without a Marriott International
management agreement, and revising the method for determining the
number of hotels that may be sold without a Marriott International
management agreement or a franchise agreement and, in each case,
without the payment of a termination fee; and
. Terminating 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.
Acquisition Financing and Joint Venture
Marriott International has provided 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, Marriott International
did not
24
provide us with any new acquisition financing, although one of our subsidiaries
remains indebted to Marriott International for acquisition financing from prior
years. The amount of such indebtedness at December 31, 2001 was $25 million.
During 2000, we, through our affiliates, formed a joint venture with
Marriott International, the "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 paid 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 Corporation and Host Marriott
As part of the REIT conversion, we made certain taxable distributions to
our shareholders on December 29, 1998, including the distribution of
substantially all of the shares of 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 connection with the business of
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 assigned to the
Crestline hotel lessees for the term 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 conversion of the Blackstone operating partnership units.
In a series of transactions during the first half of 2001, the Blackstone
Entities exercised these conversion 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 terminate in their entirety on the earlier 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 317 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 shareholders of Host Marriott recommend that the Board
of Directors take the necessary steps to reinstate the election of Directors
ANNUALLY, instead of the stagger system which was recently adopted."
Shareholder'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
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
the Nominating and Corporate Governance Committee) and again recommends that
shareholders vote AGAINST it for the following reasons:
. at the 1984 annual meeting of shareholders, holders of more than 86% 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 relating to the special meeting
of shareholders.
Because we have a classified Board of Directors, 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. 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 election 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
The annual meeting of shareholders for 2003 is tentatively scheduled to be
held on May 15, 2003. In order for shareholder proposals to be included in the
proxy statement for the 2002 annual meeting, we must receive them no later than
December 6, 2002. Shareholder proposals must be in compliance with Rule 14a-8
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
with our Bylaws. They must also be submitted in writing by notice delivered 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, 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/ Elizabeth A. Abdoo
Elizabeth A. Abdoo
Corporate Secretary
35
ANNUAL MEETING OF SHAREHOLDERS
OF HOST MARRIOTT CORPORATION
The 2002 Annual Meeting of Shareholders 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, May 16, 2002 at 11:00 a.m. Doors to
the meeting will open at 10:30 a.m.
A special "Shareholder Annual Meeting" rate is offered at the hotel for
Wednesday, May 15, 2002, the night before the meeting. A limited number of
rooms is available for this special rate of $229.00, single or double
occupancy. To receive this special rate, please call the hotel directly and ask
for the Host Marriott Corporation "Shareholder Annual Meeting" rate for May 15.
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 hotel:
From Ronald Reagan Washington National Airport: Take 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.
------------------------------------------------------------------------
------------------------------------------------------------------------
P HOST MARRIOTT CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
R FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, MAY 16, 2002, 11:00 A.M.
O
X The undersigned appoints Richard E. Marriott and Christopher J. Nassetta
as Proxies. Each shall have power to appoint his 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, 2002 at the Annual Meeting of Shareholders to be
held on May 16, 2002, or any adjournment thereof. The Board of Directors
recommends votes FOR proposal 1 and AGAINST proposals 2, 3 and 4.
Nominee for election as a Director COMMENTS OR CHANGE OF ADDRESS
for a three-year term expiring at
the 2005 Annual Meeting: ----------------------------------
John G. Schreiber ----------------------------------
----------------------------------
----------------------------------
(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]
HOST MARRIOTT
CORPORATION
10400 Fernwood Road
Bethesda, Maryland 20817-1109
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, MAY 16, 2002
The Annual Meeting of Shareholders of Host Marriott Corporation will be held on
Thursday, May 16, 2002, 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, shareholders will be asked to consider and vote on the following
proposals:
Proposal 1: Election of John G. Schreiber as a Director for a three-year
term expiring at the 2005 Annual Meeting;
Proposal 2: Consideration of a shareholder 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.
Shareholders will also transact other business if any is properly brought before
the annual meeting.
If you were a shareholder of record at the close of business on March 29, 2002,
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 this proxy card
to us in the envelope provided.
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,
and AGAINST proposals 2, 3 and 4.
-----------------------------------------------------------
The Board of Directors Recommends a vote FOR proposal 1.
-----------------------------------------------------------
FOR WITHHELD
1. Election of Director [ ] [ ]
(see reverse)
-----------------------------------------------------------
--------------------------------------------------------------------------------
The Board of Directors Recommends a vote AGAINST proposals 2, 3 and 4.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Shareholder proposal [ ] [ ] [ ]
regarding 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 Delaware
--------------------------------------------------------------------------------
I WILL ATTEND THE ANNUAL
MEETING [ ]
CHANGE OF ADDRESS/
COMMENTS ON REVERSE SIDE. [ ]
SIGNATURE(S) DATE
--------------------------------- -----------------------
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.
--------------------------------------------------------------------------------
-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, May 16, 2002, 11:00 a.m. EDT
The Ritz-Carlton, Tysons Corner
Salon III
1700 Tysons Boulevard
McLean, Virginia
--------------------------------------------------------------------------------
AGENDA
--------------------------------------------------------------------------------
1. ELECTION OF ONE DIRECTOR
o
2. SHAREHOLDER PROPOSAL REGARDING 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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------