SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A ===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment
(Amendment No. )
Filed by the Registrant [_]
¨
Filed by a Party other than the Registrant [X]
x
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
¨ PreliminaryProxy 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 Under Rule 14a-12 |
Marriott International, Inc.
- --------------------------------------------------------------------------------
(Name
(Name of Registrant as Specified Inin Its Charter)
Marriott International, Inc.
- --------------------------------------------------------------------------------
(Name
(Name of Person(s) Filing Proxy Statement, if other thanOther Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
Corporate Headquarters: Mailing Address:
10400 Fernwood Road Marriott Drive
Bethesda, Maryland 20817 Washington, D.C. 20058
[LOGO]
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| 1. | Title of each class of securities to which transaction applies: |
| 2. | Aggregate number of securities to which transaction applies: |
| 3. | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| 4. | Proposed maximum aggregate value of transaction: |
| 5. | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials: |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| 1. | Amount previously paid: |
| 2. | Form, Schedule or Registration Statement No.: |
| 3. | Filing Party: |
| 4. | Date Filed: |
Corporate Headquarters: | Mailing Address: | |
10400 Fernwood Road | Marriott Drive | |
Bethesda, Maryland 20817 | Washington, D.C. 20058 |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 3, 2002
-----------------
2, 2003
To our Shareholders:
March 28, 2002
27, 2003
The 20022003 annual meeting of shareholders of Marriott International, Inc. (the "Company"“Company”) will be held at the J.W. Marriott Hotel, 1331 Pennsylvania Avenue, N.W., Washington, D.C. on Friday, May 3, 2002,2, 2003, beginning at 10:30 a.m. Doors to the meeting will open at 9:30 a.m. At the meeting, shareholders will act on the following matters:
(1) Election of four directors, each for a term of three years;
(2) Ratification of the restatement of the Marriott International, Inc.
1998 Comprehensive Stock and Cash Incentive Plan including an increase
of 9 million shares of the Company's Class A common stock authorized
for issuance;
(3) Consideration of 6 shareholder proposals; and
(4) Any other matters that properly come before the meeting.
| (1) | Election of three directors, each for a term of three years; |
| (2) | Ratification of the appointment of Ernst & Young LLP as the Company’s independent auditor for fiscal 2003; |
| (3) | Ratification of an increase of 5 million shares of the Company’s Class A common stock authorized for issuance under the Marriott International, Inc. Employee Stock Purchase Plan; |
| (4) | Consideration of 3 shareholder proposals, if properly presented at the meeting; and |
| (5) | Any other matters that properly come before the meeting. |
Shareholders of record at the close of business on March 12, 200211, 2003 will be entitled to notice of and to vote at this meeting.
For the convenience of our shareholders, proxies may be given either by telephone, electronically through the Internet, or by completing, signing and returning the enclosed proxy card. In addition, shareholders may elect to receive future shareholder communications, including proxy materials, through the Internet. Instructions for each of these options can be found in the enclosed materials.
By order of the Board of Directors,
/s/ DOROTHY M. INGALLS
Dorothy M. Ingalls
Secretary
PLEASE REFER TO THE OUTSIDE BACK COVER FOR DIRECTIONS TO THE MEETING
AND INFORMATION ON PARKING, PUBLIC TRANSPORTATION AND LODGING.
i
Page | ||
31 | ||
32 | ||
34 | ||
36 | ||
Other | 36 | |
A-1 |
ii
[LOGO] Marriott
MARRIOTT INTERNATIONAL, INC.
10400 FERNWOOD ROAD, BETHESDA, MARYLAND 20817
-----------------
PROXY STATEMENT
-----------------
This proxy statement contains information related to the annual meeting of shareholders of Marriott International, Inc. ("(“we," "us,"” “us,” or the "Company"“Company”) to be held on Friday, May 3, 2002,2, 2003, beginning at 10:30 a.m., at the J.W. Marriott Hotel, 1331 Pennsylvania Avenue, N.W., Washington, D.C., and at any postponements or adjournments thereof.of the meeting. This proxy statement is first being mailed to shareholders on March 28, 2002.
We became a public company in March 1998, when we were "spun off" as a
separate entity by the company formerly named "Marriott International, Inc."
(the "Spin-Off"). Our company, the "new" Marriott International, was formed to
conduct the lodging, senior living and distribution services businesses
formerly conducted by "old" Marriott International. "Old" Marriott
International ("Old Marriott"), now called Sodexho, Inc., is a provider of food
service and facilities management in North America.
27, 2003.
What is the purpose of the annual meeting?
At our annual meeting, shareholders will act upon the matters described in the accompanying notice of meeting. This includes the election of fourthree directors, ratification of the Company's amendment and restatementappointment of the independent auditor, ratification of an increase of 5 million shares of Class A common stock authorized for issuance under our 1998
ComprehensiveEmployee Stock and Cash IncentivePurchase Plan and, if properly presented at the meeting, consideration of 6three shareholder proposals. In addition, our management will report on the Company’s performance of the
Company during fiscal 20012002 and respond to questions from shareholders.
Only shareholders of record at the close of business on the record date, March 12, 2002,11, 2003, are entitled to receive notice of and to vote at the meeting, or any postponement or adjournment of the meeting. Each outstanding share of the Company'sCompany’s Class A common stock entitles its holder to cast ten votes on each matter to be voted upon. Each outstanding share of the Company ESOP
Convertible Preferred Stock votes together with the Company's Class A common
stock on all matters and entitles State Street Bank & Trust Company, as the
Investment Manager of the Marriott Employees' Profit Sharing, Retirement and
Savings Plan and Trust (the "401(k) Plan"), to cast one vote on each matter to
be voted upon. State Street is to exercise these voting rights in its sole
discretion as fiduciary with respect to the 401(k) Plan.
All shareholders as of the record date, or their duly appointed proxies, may attend the meeting. Cameras, recording devices and other electronic devices will not be permitted at the meeting.
Directions
You will find directions to the meeting, and information on parking, public transportation and lodging, can be found on the back cover of this proxy statement.
The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of Class A common stock of the Company outstanding on the record date and entitled to vote will constitute a quorum. A quorum is required for business to be conducted at the meeting. As of the record date, 242,573,589233,051,764 shares of Class A common stock of the Company were entitled to vote
and 7,396 shares of the ESOP Convertible Preferred Stock were entitled to vote. If you submit a properly executed proxy card, even if you abstain from voting, then you will be considered part of the quorum. However, abstentions are not
counted in the tally of votes FOR or AGAINST a proposal. A WITHHELD vote is
treated the same as an abstention.
Mark, sign and date each proxy card you receive and return it in the prepaid envelope. Your shares will be voted as you indicatedindicate on the proxy card. If you return your signed proxy card but do not mark the boxes indicating how you wish to vote, your shares will be voted FOR items 1, 2 and 23 and AGAINST items 3, 4, 5 6, 7 and 8.
6.
Can I vote by telephone or electronically?
You may vote by telephone or electronically through the Internet by following the instructions attached to your proxy card.
The telephone and Internet voting procedures are designed to authenticate votes cast by use of a personal identification number. The procedures, which are designed to comply with Delaware law, allow shareholders to appoint a proxy to vote their shares and to confirm that their instructions have been properly recorded.
Can I change my vote after I return my proxy card, or after I vote by telephone or electronically?
Yes. Even after you have submitted your proxy, you may change your vote at any time before the proxy is exercised at the meeting. Regardless of the way in which you submitted your original proxy, you may change it by:
(1) Returning a later-dated signed proxy card;
(2) Delivering a written notice of revocation to EquiServe Trust Company,
N.A., P.O. Box 8089, Edison, New Jersey 08818-9355;
(3) Voting by telephone or the Internet; or
(4) Voting in person at the meeting.
| (1) | Returning a later-dated signed proxy card; |
| (2) | Delivering a written notice of revocation to EquiServe Trust Company, N.A., P.O. Box 8089, Edison, New Jersey 08818-9355; |
| (3) | Voting by telephone or the Internet; or |
| (4) | Voting in person at the meeting. |
If your shares are held through a broker or other nominee, you will need to contact that institution if you wish to change your voting instructions.
2
How do I vote my 401(k) shares?
If you participate in the Marriott Employees’ Profit Sharing, Retirement and Savings Plan and Trust (the “401(k) Plan”) or the Sodexho Employee Savings Plan, you may give voting instructions as to the number of share equivalents allocated to your account as of the record date. You may provide voting instructions to the trustee under the applicable plan by completing and returning the proxy card accompanying this proxy statement. The trustee will vote your shares in accordance with your duly executed instructions received by 12:00 p.m. Eastern Time, April 30, 2003. If you do not send instructions, the trustee will vote the number of shares equal to the share equivalents credited to your account in the same proportion that it votes shares for which it did receive timely instructions.
What aredoes the Board's recommendations?
Board recommend?
The Board'sBoard’s recommendations are set forth after the description of each item in this proxy statement. In summary, the Board recommends a vote:
. FOR election of the nominated directors (see Item 1 on page 9);
. FOR ratification of the restatement of the Marriott International, Inc.
1998 Comprehensive Stock and Cash Incentive Plan, including an increase
of 9 million shares of the Company's Class A common stock authorized for
issuance (see Item 2 on page 28);
. AGAINST the shareholder proposal regarding cumulative voting (see Item 3
on page 34).
. AGAINST the shareholder proposal to set a goal of establishing a Board of
Directors with at least two-thirds of its members being "independent
directors" as defined in the shareholder proposal (see Item 4 on page 35).
. AGAINST the shareholder proposal to establish a policy providing for a
transition to a Nominating and Corporate Governance Committee composed
entirely of "independent directors" as defined in the shareholder
proposal (see Item 5 on page 36).
. AGAINST the shareholder proposal to create a committee of independent
directors to prepare a report describing risks to shareholders of
operating and/or franchising hotels in Myanmar (see Item 6 on page 37).
. AGAINST the shareholder proposal to adopt, implement and enforce a
workforce code of conduct based on the International Labor Organization's
Conventions on workplace human rights (see Item 7 on page 39).
. AGAINST the shareholder proposal to adopt a policy that in the future
independent accountants will provide only audit services to the Company
and no other services (see Item 8 on page 41).
| · | FOR election of the nominated directors (see Item 1 on page 9); |
| · | FOR ratification of the appointment of the independent auditor (see Item 2 on page 30); |
| · | FOR ratification of the increase of 5 million shares of Class A common stock authorized for issuance under our Employee Stock Purchase Plan (see Item 3 on page 30); |
| · | AGAINST the shareholder proposal on cumulative voting (see Item 4 on page 31). |
| · | AGAINST the shareholder proposal to establish a policy of expensing future stock options (see Item 5 on page 32). |
| · | AGAINST the shareholder proposal to adopt a policy that in the future independent accountants will provide only audit services to the Company and no other services (see Item 6 on page 34). |
Unless you give other instructions, on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board of Directors.
Board’s recommendations.
What vote is required to approve each item?
In the election of directors, the fourthree nominees who receive the highest number of "FOR"“FOR” votes will be elected. A "WITHHELD"“WITHHELD” vote does not affect the election of directors. For each other item, the affirmative vote of the holders of a majority of the shares of Class A common stock represented in person or by proxy and entitled to vote on the item will be required for approval. A
properly executed proxy marked "ABSTAIN"Instructions to “ABSTAIN” with respect to any item will not be voted on that item, although it will be counted for purposes of determining the number of shares represented and entitled to vote. Accordingly, an abstention will have the effect ofas a negative vote.
vote “AGAINST.”
If you hold your shares in "street name"“street name” through a broker or other nominee, your broker or nominee may not be permitted to exercise voting discretion with
respect toon some of the items to be acted upon. Thus, if you do not give your broker or nominee specific instructions, your shares may not be voted on those items and will not be counted in determining the number of shares necessary for approval for each item. Shares represented by such "broker non-votes"“broker non-votes” will, however, be counted in determining whether there is a quorum.
3
Representatives of EquiServe Trust Company, N.A., our independent stock transfer agent, will count the votes and act as the inspector of election.
What shares are included on my proxy card(s)?
The shares on your proxy card(s) represent ALL of your shares of Class A common stock that the Company'sCompany’s stock transfer records indicate that you hold, including (i) any shares you may hold through the DirectSERVICE Investment Program administered by EquiServe Trust Company, N.A., and,; (ii) if you are a Marriott employee, any shares that may be held for your account by Bankers Trust CompanyT. Rowe Price as custodian for the 401(k) Plan; and (iii) if you are a Sodexho Inc. employee, any shares that may be held for your account by State Street Bank and Trust Company as trustee for the Sodexho Employee Savings Plan. If you have shares in the 401(k) Plan or the Sodexho Employee Savings Plan and do not vote by proxy, or return your proxy card with an unclear voting designation or no voting designation at all, then Bankers Trustthe 401(k) Plan trustee or State Street, as applicable, will vote your 401(k) Plan shares in proportion to the way the other 401(k) Plan participants or Sodexho Employee Savings Plan participants, as applicable, voted their shares in the 401(k) Plan.shares. If you hold shares through a broker or other nominee, you will receive a separate voting instruction card for those shares.
What does it mean if I receive more than one proxy card?
If your shares are registered under 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, sign and return all proxy cards, or if you choose, vote by telephone or through the Internet using the personal identification number printed on each proxy card. 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 Trust Company, N.A., at (800) 311-4816.
How will voting on any other business be conducted?
Although we currently do not know of any business to be considered at the 20022003 annual meeting other than the proposals described in this proxy statement, if any other business is properly presented at the Annual Meeting, your proxy gives authority to J.W. Marriott, Jr. and Richard E. MarriottWilliam J. Shaw to vote on such matters at their discretion.
When are shareholder proposals for the 20032004 annual meeting of shareholders due?
Our 20032004 annual meeting of shareholders is scheduled for May 2, 2003.April 30, 2004. To be considered for inclusion in our proxy statement for that meeting, shareholder proposals must be received at our offices no later than November 28, 2002.2003. Proposals must be in compliancecomply with Rule 14a-8 under the Securities Exchange Act of 1934 and our bylaws, and must be submitted in writing delivered or mailed to the Secretary, Marriott International, Inc., Department 52/862, Marriott Drive, Washington, D.C. 20058.
In addition, our bylaws require that, if a shareholder desires to introduce a shareholder proposal or nominate a director candidate from the floor of the 20032004 annual meeting of shareholders, such proposal or nomination must be submitted in writing to the Company'sCompany’s Secretary at the above address not later than February 2, 2003.January 30, 2004. The written proposal or nomination must be in compliance with our bylaws. The Chairman of the meeting may refuse to acknowledge or introduce any shareholder proposal or the nomination of any person made later than February 2, 2003,January 30, 2004, or not in compliance with our bylaws. If a shareholder fails to meet these deadlines or fails to satisfy the requirements of Rule 14a-4 under the Securities Exchange Act of 1934, we may exercise discretionary voting authority under proxies we solicit to vote on such proposals as we determine appropriate.
Can a shareholder nominate someone to be a director of the Company?
As a shareholder, you may recommend any person for consideration as a nominee for director by writing to the Nominating and Corporate Governance Committee of the Board of Directors, c/o Marriott International, Inc., Marriott Drive, Department 52/862, Washington, D.C. 20058. Recommendations must be 4
February 2, 2003January 30, 2004 for the 20032004 annual meeting of shareholders, and must comply with the requirements in our bylaws.
How much did this proxy solicitation cost?
We hired MacKenzie Partners, Inc. to assist in the distribution of proxy materials and solicitation of votes for $7,500, plus reimbursement of certain out-of-pocket expenses. We also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to shareholders. Proxies will be solicited by mail, telephone, or other means of communication. Our directors, officers and regular employees who are not specifically employed for proxy solicitation purposes may also solicit proxies.
Can I receive future shareholder communications electronically through the Internet?
Yes. You may elect to receive future notices of meetings, proxy materials and annual reports electronically through the Internet. If you have previously consented to electronic delivery, your consent will remain in effect until withdrawn. To consent to electronic delivery:
. If your shares are registered in your own name, and not in "street name"
through a broker or other nominee, fill out the consent form at the
Internet site maintained by our transfer agent, EquiServe Trust Company,
N.A., at www.econsent.com/mar.
. If your shares are registered in "street name" through a broker or other
nominee, you must first vote your shares using the Internet, at
www.proxyvote.com, and immediately after voting, fill out the consent
form that appears on-screen at the end of the Internet voting procedure.
| · | If your shares are registered in your own name, and not in “street name” through a broker or other nominee, fill out the consent form at the Internet site maintained by our transfer agent, EquiServe Trust Company, N.A., atwww.econsent.com/mar. |
| · | If your shares are registered in “street name” through a broker or other nominee, you must first vote your shares using the Internet, atwww.proxyvote.com, and immediately after voting, fill out the consent form that appears on-screen at the end of the Internet voting procedure. |
You may withdraw this consent at any time and resume receiving shareholder communications in print form. MoreAn insert accompanying this proxy statement provides more information on electronic delivery of materials is set forth in an insert accompanying this proxy statement.
5
Stock Ownership of our Directors and Executive Officers
The following table sets forth the beneficial ownership of Class A common stock by our directors and executive officers as of January 31, 2002,2003, as well as additional information about beneficial owners of 5% or more of the Company'sCompany’s Class A common stock. Ownership consists of sole voting and sole investment power, except as indicated in the notes below, and except for shares registered in the name of children sharing the same household or subject to any community property laws.
Name | Shares | Percent of | |||
Directors: | |||||
J.W. Marriott, Jr. | 31,172,765 | (2)(3) | 13.2 | ||
Ann M. Fudge | 1,000 | (4) | * | ||
Gilbert M. Grosvenor | 1,600 | (4) | * | ||
Lawrence W. Kellner | 0 | (5) | * | ||
John W. Marriott III | 6,885,738 | (6)(7)(8) | 2.9 | ||
Floretta Dukes McKenzie | 1,308 | (4)(7) | * | ||
George Muñoz | 0 |
| * | ||
Harry J. Pearce | 10,000 | (4) | * | ||
Roger W. Sant | 25,372 | (4)(7) | * | ||
William J. Shaw | 1,358,743 | (6)(7) | * | ||
Lawrence M. Small | 80,573 | (4)(7)(9) | * | ||
Other Named Executive Officers: | |||||
Joseph Ryan | 384,103 | (6)(7) | * | ||
Arne M. Sorenson | 284,638 | (6)(7) | * | ||
James M. Sullivan | 529,514 | (6)(7) | * | ||
All Directors and Executive Officers as a Group: | |||||
(22 persons including the foregoing) | 35,035,975 | (10)(11) | |||
Other 5% Beneficial Owners: | |||||
Richard E. Marriott | 29,566,590 | (2)(12) | 12.6 | ||
Southeastern Asset Management, Inc. | 18,961,963 | (13) | 8.0 |
| * | Less than 1 percent. |
| (1) | Based on the number of |
| (2) | Includes: (i) 3,150,040 shares held by J.W. Marriott, |
| (3) | Includes, in addition to the shares referred to in footnote (2): (i) 2,568,887 shares subject to options exercisable within 60 days after January 31, 2003; (ii) 139,735 shares owned by J.W. Marriott, Jr.’s wife (Mr. Marriott disclaims beneficial ownership of such shares); (iii) 1,340,534 shares owned by four trusts for the benefit of J.W. Marriott, Jr.’s children, in which his wife serves as a co-trustee, (iv) 48,728 shares owned by six trusts for the benefit of J.W. Marriott, Jr.’s grandchildren, in which his wife serves as a co-trustee; (v) 160,000 shares owned by JWM Associates Limited Partnership, whose general partner is J.W. Marriott, Jr.; (vi) 5,413,980 shares owned by JWM Family Enterprises, L.P., whose general partner is a corporation in which J.W. Marriott, Jr. is a controlling shareholder; and (vii) 6,600,000 shares owned by JWM Argent Family Limited Partnership, whose general partner is J.W. Marriott, Jr. J.W. Marriott, Jr.’s address is Marriott International, Inc., 10400 Fernwood Road, Bethesda, Maryland 20817. |
| (4) | The indicated shares do not include non-employee director annual deferred share awards or stock units representing fees that non-employee directors have elected to defer under our 2002 Comprehensive Stock and Cash Incentive Plan. The combined number of shares (i) subject to deferred share awards and (ii) in stock unit accounts of non-employee directors as of January 3, 2003, were as follows: Ms. Fudge: 867; Mr. Grosvenor: 20,343; Dr. McKenzie: 13,816; Mr. Pearce: 16,773; Mr. Sant: 15,368; and Mr. Small: 14,459. Share awards and stock units do not carry voting rights and are not transferable. Dividend equivalents are credited to stock unit accounts in the form of additional stock units. Share awards and stock units are distributed following retirement as a director. |
| (5) | Lawrence W. |
| (6) | Includes shares of unvested restricted stock awarded under the 2002 Comprehensive Stock and Cash Incentive Plan as follows: John W. |
| (7) | Includes shares subject to options exercisable within 60 days after January 31, 2003, as follows: John W. Marriott III: 76,704 shares; Dr. McKenzie 438 shares; Mr. Sant 5,372 shares; Mr. Shaw: 1,136,700 shares; Mr. Small: 5,810 shares; Mr. Ryan: 302,375 shares; Mr. Sorenson: 213,008 shares; and Mr. Sullivan: 448,445 shares. |
| (8) | Includes (i) 5,413,980 shares owned by JWM Family Enterprises, L.P.; whose general partner is a corporation in which John W. Marriott III is the president; (ii) 160,000 shares owned by JWM Associates Limited Partnership, whose limited partner is John W. Marriott III; (iii) 393,480 shares held as beneficiary of two trusts, in which Richard E. Marriott and J.W. Marriott, Jr. serve as co-trustees; (iv) 337,360 shares held as beneficiary of a trust in which J.W. Marriott, Jr.’s wife serves as co-trustee; and (v) 24,522 shares owned by three trusts, for the benefit of John W. Marriott III’s children, in which his spouse and J.W. Marriott, Jr.’s wife are co-trustees. J.W. Marriott, Jr. and John W. Marriott III report these shares as beneficially owned but these shares are included only once in reporting the number of shares owned by all directors and executive officers as a group. Includes, in addition to the shares referred to above (i) 15,605 shares owned by John W. Marriott III’s wife (Mr. Marriott disclaims beneficial ownership of such shares); and (ii) 53,211 shares held as trustee of three trusts for the benefit of John W. Marriott III’s children. |
| (9) | Includes 5,400 shares held by Lawrence M. |
| (10) | All |
| (11) | Includes 26,890 shares held by a limited liability company in which one of the Executive Officers is managing member. |
| (12) | Includes, in addition to the shares referred to in footnote (2): (i) 122,634 shares subject to options exercisable within 60 days after January 31, 2003; (ii) 136,743 shares owned by Richard E. Marriott’s wife; (iii) 1,207,656 shares owned by four trusts for the benefit of Richard E. Marriott’s children, in which his wife serves as a |
| (13) | Based on a Schedule 13G filed with the Securities and Exchange Commission (“SEC”) on February 14, 2003, reflecting ownership of Class A common stock as of December 31, 2002, and total outstanding shares of Class A common stock as of December 31, 2002. We have taken the following information from that filing. The Schedule 13G was filed by Southeastern Asset Management, |
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of filings with the Securities and Exchange CommissionSEC and written representations that no other reports were required, we believe that all of our directors and all of our officers who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 complied with such reporting requirements during fiscal 20012002 other than (i) one untimely Form 3 filing by Michael J. Green; (ii) one transaction reported on an untimely basis by Richard E. Marriott; (iii) one transaction reported on an untimely basis with regard to the withholding of shares to pay taxes for the vesting of restricted stock or deferred bonus stock by each of the following: Edwin Fuller (380 shares), Brendan M. Keegan (1,452 shares), Joseph Ryan (3,197 shares), James M. Sullivan (1,816 shares) and Stephen P. Weisz (627 shares); and (iv) transactions reported on an untimely basis with regard to grants of stock units in payment of directors fees by each of the following: Gilbert M. Grosvenor William T. Petty(four monthly grants totaling 587 stock units), Floretta Dukes McKenzie (four monthly grants totaling 140 stock units), Harry J. Pearce (four monthly grants totaling 552 stock units), Roger W. Sant (two quarterly grants totaling 213 stock units) and JamesLawrence M. Sullivan.
8
ITEM 1--ELECTION1—ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with approximately one-third of the directors standing for election each year for a three-year term. Sterling D. Colton holds the title of director emeritus.
Directors Standing for Election
Four
Three directors are standing for election: J.W. Marriott, Jr., AnnFloretta Dukes McKenzie, Roger W. Sant and Lawrence M. Fudge,
W. Mitt Romney and William J. Shaw.Small. Each of these nominees currently serves on the Board and has consented to serve for an additional term ending at the 20052006 annual meeting of shareholders.
Ifshareholders, or when their successor is duly elected and qualified.
We do not know of any reason why one of the nominees would be unable to serve. However, if any of the nominees should become unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee designated by the Board.
Richard E. Marriott has announced his intention to resignresigned as director ineffective May 9, 2002. Mr. Marriott has servedW. Mitt Romney resigned as a director of the Company or its
predecessors since 1979. The Board wishes to thank Mr. Marriott for his
dedicated and loyal service to the Company.effective April 22, 2002. Henry Cheng Kar-Shun resigned as director effective January 4, 2002. Dr.
Cheng served as a director of the Company or its predecessor since 1997. The Board wishes to thank Dr. ChengMr. Marriott and Mr. Romney for histheir service to the Company.
The Board recommends a vote FOR the nominees.
The following are the nominees for director for three-year terms ending in 2005:
2006:
Floretta Dukes McKenzie Age: 67
| Dr. McKenzie is the founder of The McKenzie Group, Inc. (an |
Roger W. Sant Age: 71
| Mr. Sant is Chairman of the Board of The AES Corporation, a global power company, which he co-founded in 1981. He chairs the Board of The Summit Foundation, serves as a Regent of the Smithsonian Institution and as a Board member of World Wildlife Fund-US, and The National Symphony Orchestra. He was Board Chairman of the World Wildlife Fund-US from 1994 to 2000. Mr. Sant has served as a director of the Company or its predecessors since 1993. | |
Lawrence M. Small Age: 61
| Mr. Small is the Secretary of the Smithsonian Institution, the world’s largest combined museum and research complex, a position he assumed in January, 2000. Prior to becoming the 11th Secretary, he served as President and Chief Operating Officer of Fannie Mae since 1991. Before joining Fannie Mae, Mr. Small had served as Vice Chairman and Chairman of the Executive Committee of the Boards of Directors of Citicorp and Citibank, N.A., since January 1990. He had been associated with Citibank since 1964. He is also a director of The Chubb Corporation, New York City’s Spanish Repertory Theatre, the John F. Kennedy Center for the Performing Arts, the National Gallery of Art, the Woodrow Wilson International Center for Scholars and Mt. Sinai-NYU Medical Center and Health System. Mr. Small has served as a director of the Company or its predecessors since 1995. |
Directors Continuing in Office
J.W. Marriott, Jr. (Chairman of the Board) Age: 71
| Mr. Marriott is Chairman of the Board and our Chief Executive Officer. He joined Marriott Corporation in 1956, became President and a director in 1964, Chief Executive Officer in 1972 and Chairman of the Board in 1985. Mr. Marriott also is a director of the National Urban League and the Naval Academy Endowment Trust. He serves on the Board of Trustees of the National Geographic Society, The J. Willard & Alice S. Marriott Foundation, and is a member of the Executive Committee of the World Travel & Tourism Council and the Business Council. If the sale of stock of Marriott Senior Living Services Inc. to Sunrise Assisted Living Inc. (“Sunrise”) is consummated, upon the closing, we anticipate that Mr. Marriott will join the Sunrise Board of Directors. Mr. Marriott has served as our Chairman and Chief Executive Officer since the Company’s inception in 1997, and served as Chairman and Chief Executive Officer of the Company’s predecessors from 1985. He is the father of John W. Marriott III. He is currently serving a three-year term expiring at the 2005 Annual Meeting of Shareholders. |
Ann M. Fudge Age: 51
| Ms. Fudge is the former President of Kraft’s Beverages, Desserts and Post Division and Group Vice President of Kraft Foods, Inc. Ms. Fudge joined General Foods USA in 1986 and held several planning and marketing positions before being appointed Executive Vice President and General Manager of the Dinners and Enhancers Division in 1991. In 1994, she was named President of Kraft General Foods’ Maxwell House Coffee Company. In 1995, Ms. Fudge assumed the position of Executive Vice President of Kraft Foods, Inc. while continuing to head the Maxwell House Coffee Division as General Manager. She became President of Kraft’s Maxwell House and Post Division in 1997. In September 2000 she became President of Kraft’s Beverages, Desserts and Post Division, a position she held until March 2001. Ms. Fudge is a director of General Electric Company and Honeywell International. She serves on the Board of Governors of Boys and Girls Clubs and is a trustee of The Brookings Institution. She has served as a director of the Company since December 2001. She is currently serving a three-year term expiring at the | |
Gilbert M. Grosvenor Age: 71
| Mr. Grosvenor has served as Chairman of the Board of the National Geographic Society (a publisher of books and magazines and producer of television documentaries) since 1987. He is a director or trustee of Chevy Chase Federal Savings Bank, Ethyl Corporation, B.F. Saul REIT and Saul Centers, Inc. He is on the Board of Visitors of the Nicholas School of the Environment and Earth Sciences of Duke University. Mr. Grosvenor has served as a member of the Board of Directors of the Company or its predecessors since 1987. He is currently serving a three-year term expiring at the 2004 Annual Meeting of Shareholders. | |
Lawrence W. Kellner Age: 43
| Mr. Kellner is President and Chief Operating Officer of Continental Airlines, Inc. He was appointed Chief Operating Officer of Continental Airlines in March 2003 and has served as President and a member of the Board of Directors since 2001. He joined the airline in 1995 as Senior Vice President and Chief Financial Officer. Prior to joining Continental Airlines, he was Executive Vice President and Chief Financial Officer of American Savings Bank and, prior to American Savings Bank, he was Executive Vice President and Chief Financial Officer of The Koll Company. Mr. Kellner is a director of Belden & Blake Corporation and ExpressJet Holdings, Inc. He is currently serving a term expiring at the 2004 Annual Meeting of Shareholders. |
John W. Marriott III Age: 41
| Mr. Marriott joined Marriott Corporation in 1977 and became Executive Vice President—Lodging for Marriott International in January 2003. He is responsible for leading Global Sales and Marketing, Brand Management and North American Lodging Operations. Prior to his current position, Mr. Marriott served as Executive Vice President of Global Sales and Marketing, as well as Senior Vice President for Marriott’s Mid-Atlantic Region. Mr. Marriott has served on the Board of Directors for Marriott International since August 2002. In April 2002, Mr. Marriott was named by the U.S. Department of Commerce and the Japanese government to co-chair a special taskforce to promote travel between the United States and Japan. John W. Marriott III is the son of J.W. Marriott, Jr. He is currently serving a term expiring at the 2004 Annual Meeting of Shareholders. | |
George Muñoz Age: 51
| Mr. Muñoz is principal and co-founder of Muñoz Investment Banking Group, LLC. Prior to that he served as President and Chief Executive Officer of Overseas Private Investment Corporation from 1997 to January 2001. Mr. Muñoz was Chief Financial Officer and Assistant Secretary of the U.S. Treasury Department from 1993 until 1997. Mr. Muñoz is a CPA and an attorney with an extensive background in international business. He is a member of the Board of Directors of MWH Global, Inc. and of Certified Financial Planner Board of Standards, Inc. He is currently serving a term expiring at the 2005 Annual Meeting of Shareholders. | |
Harry J. Pearce Age: 60
| Mr. Pearce was elected |
William J. Shaw Age: 57
| Mr. |
The Board of Directors met sevenfive times in 2001.2002. No director attended fewer than 75% of the total number of meetings of the Board and Committees on which such director served.
Committees of the Board of Directors
The Board of Directors has four standing committees: Audit; Compensation Policy; Nominating and Corporate Governance; and Executive.
Audit Committee
. The members of the Committee are not Company employees and are
independent as defined under New York Stock Exchange Rules. The Audit
Committee met three times in 2001.
. The Audit Committee has unrestricted access to both our independent
auditors and internal auditors.
. The Audit Committee has considered whether the independent auditor's
provision of information technology services and other non-audit services
to the Company is compatible with auditor independence.
. The full text of the Audit Committee Charter is set forth in Appendix A
to this proxy statement.
| · | The members of the Committee are not employees of the Company. The Board of Directors has determined that the members of the Committee are independent as defined under (i) the current New York Stock Exchange (“NYSE”) Listing Standards, (ii) the proposed changes to the NYSE Listing Standards submitted by the NYSE to the SEC on August 16, 2002, and (iii) proposed rule 10A-3 issued by the SEC on January 8, 2003. The Committee met four times in person and three times telephonically in 2002. |
| · | The Audit Committee, the independent auditor and internal auditors have unrestricted access to one another. |
| · | The Board of Directors has designated the following Audit Committee members as financial experts as defined by the SEC: |
| · | Lawrence M. Small |
| · | Lawrence W. Kellner |
| · | George Muñoz |
| · | Roger W. Sant |
| · | The full text of the Audit Committee Charter is set forth in Appendix A to this proxy statement. |
Functions include:
. Meeting with our independent auditors, management representatives and
internal auditors.
. Reviewing the results of internal and external audits, the accounting
principles applied in financial reporting and the financial and
operational controls.
. Approving the scope of audits to be performed by the independent and
internal auditors.
. Recommending to the Board the appointment of independent auditors
considering whether any circumstance, including the performance of any
professional services, would impair their independence.
| · | Appointing, overseeing and determining the compensation of the Company’s independent auditor. |
| · | Pre-approving all audit fees, the terms of all audit services, and any permissible non-audit services to be provided by the Company’s independent auditor. |
| · | Considering whether any circumstance, including the performance of any permissible non-audit services, would impair the independence of the Company’s independent auditor. |
| · | Overseeing the accounting, reporting and financial practices of the Company and its subsidiaries, including the integrity of the Company’s financial statements. |
| · | Overseeing the Company’s internal control environment and compliance with legal and regulatory requirements. |
| · | Overseeing the performance of the Company’s internal audit function. |
Members: Lawrence M. Small (Chair), Gilbert M. Grosvenor, Ann M. Fudge, Lawrence W. Mitt Romney,Kellner, George Muñoz, and Roger W. Sant. Ann M. Fudge became a member of the Committee in February 2002. Compensation Policy Committee
. The membersLawrence W. Kellner became a member of the Committee are not Company employees. The in July 2002. George Muñoz became a member of the Committee in August 2002.
Compensation Policy Committee met four times in 2001.
| · | The members of the Committee are not Company employees and are independent as defined under (i) the current NYSE Listing Standards, (ii) the proposed changes to the NYSE Listing Standards submitted by the NYSE to the SEC on August 16, 2002, and (iii) proposed rule 10A-3 issued by the SEC on January 8, 2003. The Compensation Policy Committee met five times in 2002. |
Functions include:
. Recommending to the Board policies and procedures relating to senior
officers' compensation and various employee benefit plans.
. Approving senior officer salary adjustments, bonus payments and stock
awards.
| · | Recommending to the Board policies and procedures relating to senior officers’ compensation and various employee benefit plans. |
| · | Approving senior officer salary adjustments, bonus payments and stock awards. |
Members: Floretta Dukes McKenzie (Chair), Harry J. Pearce,Lawrence W. Kellner, Roger W. Sant W.
Mitt Romney, and Lawrence M. Small. Lawrence W. Kellner became a member of the committee in February 2003. Harry J. Pearce served on the Committee until February 2003.
Nominating and Corporate Governance Committee
. The members of the Committee are not Company employees. The Nominating
and Corporate Governance Committee met once in 2001.
13
| · | The members of the Committee are not Company employees and are independent as defined under (i) the current NYSE Listing Standards, (ii) the proposed changes to the NYSE Listing Standards submitted by the NYSE to the SEC on August 16, 2002, and (iii) proposed rule 10A-3 issued by the SEC on January 8, 2003. The Nominating and Corporate Governance Committee met twice in 2002. |
Functions include:
. Making recommendations to the Board regarding corporate governance
matters and considering nominees for election as directors.
. Advising the Board on a range of matters affecting the Board and its
committees, including the making of recommendations with respect to
qualifications of director candidates, compensation of directors,
selection of committee chairs, committee assignments and related matters
affecting the functioning of the Board.
| · | Making recommendations to the Board regarding corporate governance matters and considering nominees for election as directors. |
| · | Advising the Board on a range of matters affecting the Board and its committees, including the making of recommendations with respect to qualifications of director candidates, compensation of directors, selection of committee chairs, committee assignments and related matters affecting the functioning of the Board. |
Members: Gilbert M. Grosvenor (Chair), Floretta Dukes McKenzie and George Muñoz. George Muñoz became a member of the Committee in February 2003. Harry J. Pearce.
Pearce served on the Committee until February 2003.
Executive Committee
. The Executive Committee did not meet in 2001.
Function:
. Exercises the powers of the Board when the Board is not in session,
subject to specific restrictions as to powers retained by the full Board.
Powers retained by the full Board include those relating to amendments to
the certificate of incorporation and bylaws, mergers, consolidations,
sales or exchanges involving substantially all of the Company's assets,
declarations of dividends and issuances of stock.
| · | The Executive Committee did not meet in 2002. |
Functions include:
| · | Exercises the powers of the Board when the Board is not in session, subject to specific restrictions as to powers retained by the full Board. Powers retained by the full Board include those relating to amendments to the certificate of incorporation and bylaws, mergers, consolidations, sales or exchanges involving substantially all of the Company’s assets, declarations of dividends and issuances of stock. |
Members: J. W. Marriott, Jr. (Chair) and Roger W. Sant.
For information about our Long Range Planning Process, including the Board'sBoard’s involvement in suchthat process, please visit
Marriott.com/www.Marriott.com/investor/information.asp.
Directors'information.asp.
We compensate directors partially in cash and partially in Marriott common stock to align their interests with those of shareholders. Our officers are not paid for their service as directors.
Annual Retainer and Attendance Fees.Fees. For 2001,2002, each non-employee director received a retainer fee of $37,500, together with an attendance fee of $1,250 per Board, Committee or shareholder meeting.
Annual Stock Awards.Awards. Each non-employee director also receives an annual director stock award under our 19982002 Comprehensive Stock and Cash Incentive Plan (the "1998 Plan"“2002 Plan”). We award a number of shares having an aggregate market value as of the date of grant of approximately the amount of the annual directors'director’s retainer fee. We grant this award immediately prior to our annual meeting of shareholders. In 20012002 each award was for 823867 shares.
Deferral of Payment.Payment. Any director may elect to defer payment of all or any portion of his or her directors'directors’ fees pursuant to our Executive Deferred Compensation Plan and/or our 19982002 Plan. Gilbert M. Grosvenor, Floretta Dukes McKenzie, Harry J. Pearce, W. Mitt Romney, Roger W. Sant, and Lawrence M. Small currently participate in one or both of these plans.
Other.
Other. We also reimburse directors for travel expenses and other out-of-pocket costs they incur when attending meetings. To encourage our directors to visit and personally evaluate our properties, the directors also receive complimentary rooms, food and beverages at Company owned, operated or franchised hotels when on personal travel.
Compensation Committee Interlocks and Insider Participation
During 2001,2002, the Compensation Policy Committee'sCommittee’s members were Floretta Dukes McKenzie (Chair), Harry J. Pearce, Roger W. Sant, W. Mitt Romney and Lawrence M. Small.
14
J. W. Marriott, Jr. servesserved on the Executive Compensation Committee of the Board of Directors of General Motors Corporation.Corporation until June 2002. Harry J. Pearce, a director of the Company, was an executive officer of General Motors Corporation until May 25, 2001 and a director of General Motors Corporation until June 5, 2001.
Independent Auditors
Shareholder’s Derivative Action Against Our Directors
On January 16, 2003, Daniel and Raizel Taubenfeld filed a shareholder’s derivative action in Delaware state court against each member of our Board of Directors and against Avendra LLC. The Audit Committee recommendedCompany is named as a nominal defendant. The individual defendants are accused of exposing the Company to accusations and lawsuits which allege wrongdoing on the part of the Company. The complaint alleges that, as a result, the Company’s reputation has been damaged leading to business losses and the compelled renegotiation of some management contracts. The substantive allegations of the complaint are derived exclusively from prior press reports. No damage claim is made against us and no specific damage number is asserted as to the Board that Arthur Andersen LLP serve
as our independent auditors for 2002. Before making its recommendation to the
Board, the Audit Committee carefully considered Arthur Andersen's
qualifications as our independent auditors. The Board approved the appointment
on February 7, 2002. Although historically we have submitted the appointment of
our independent auditors for shareholder approval, given the uncertainty and
the pace of developments related to Arthur Andersen's recent challenges, the
Board does not believe it is appropriate to seek shareholder approval of the
appointment of Arthur Andersen at this time. The Audit Committee, however, will
continue to closely monitor Arthur Andersen's response to its challenges and
will consider the possibility that a change of independent auditors may be
appropriate.
Representatives of Arthur Andersen LLP are expected to be present at the
annual meeting and are expected to be available to respond to questions.
individual defendants.
The Audit Committee reviews the Company'sCompany’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process. The Company'sCompany’s independent auditors areauditor is responsible for expressing an opinion on the conformity of our audited financial statements to generally accepted accounting principles.
In this context, the Audit Committee has reviewed and discussed the audited financial statements with management and the independent auditors the Company's audited financial
statements for the three fiscal years ended December 28, 2001.auditor. The Audit Committee has discussed with the independent auditorsauditor the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees)., as amended. In addition, the Audit Committee has received from the independent auditorsauditor the written disclosures required by Independence Standards Board No. 1 (Independence Discussions with Audit Committees) and discussed with them their independence from the Company and its management. Finally, the Audit Committee has considered whether the independent auditorsauditor’s provision of non-audit services to the Company is compatible with the auditors'auditor’s independence.
Relying on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the Company's audited financial statements for the three fiscal years
ended December 28, 2001 be included in the Company'sCompany’s Annual Report on SEC Form 10-K for the year ended December 28, 2001,January 3, 2003, for filing with the Securities and
Exchange Commission.
SEC.
Members of the Audit Committee
Lawrence M. Small, Chair
Ann M. Fudge
Gilbert M. Grosvenor
Lawrence W. Mitt Romney
Kellner
George Muñoz
Roger W. Sant
15
Independent Auditors Fee Disclosure
The following table presents Audit Fees, Financial Information Systems Design and Implementation Fees, and All Other Fees (including Audit-Related and Income-Tax Compliance fees) paid to our independent auditors for fiscal 2001.
2002. On May 3, 2002, we named Ernst & Young LLP to replace Arthur Andersen LLP as our independent auditor.
Arthur Andersen LLP(1) | Ernst & Young LLP | |||||||||
Audit Fees | $ | 50,000 | $ | 2,792,500 | ||||||
Financial Information Systems Design and Implementation Fees |
| — |
| — | ||||||
Other Fees | ||||||||||
Total audit-related fees(2) | 1,566,401 | 1,955,400 | ||||||||
Income Tax Compliance and Other | 2,671,045 | 990,500 | ||||||||
Total Other Fees |
| 4,237,446 |
| 2,945,900 | ||||||
Total Fees | $ | 4,287,446 | $ | 5,738,400 | ||||||
| (1) | Includes fees paid to Arthur Andersen LLP prior to May 3, 2002. Although not yet arranged, we anticipate that Ernst and Young LLP will perform similar services in the future. |
| (2) | Audit |
Some of the information below refers to stock issuances, stock option issuances and other actions taken by our two predecessor companies: In 1998 we were “spun off” as a separate entity (the “1998 Spin-Off”) by the company formerly named “Marriott International, Inc.” (“Old Marriott,” which is now called Sodexho Inc. and is a provider of food service and facilities management in North America). In 1993 Old Marriott was itself “spun off” as a separate entity (the “1993 Spin-Off”) by Marriott Corporation, which was renamed Host Marriott Corporation.
The following Summary Compensation Table shows the compensation we paid in 2002, 2001, 2000, and 1999,2000, to our Chief Executive Officer and to our other four most highly compensated executive officers (other than the Chief Executive Officer)
as of December 28, 2001.
January 3, 2003.
Name | Fiscal Year | Annual | Long Term Compensation | All Other Compensation (5)(6)($) | ||||||||||
Salary | Bonus | Other Compensation | Restricted Stock | Stock Options (#) | ||||||||||
J.W. Marriott, Jr. | 2002 | 1,019,231 | 1,202,285 | 80,572 | 0 | 400,000 | 35,920 | |||||||
Chairman and Chief | 2001 | 760,969 | 0 | 59,326 | 0 | 350,000 | 120,605 | |||||||
Executive Officer | 2000 | 1,000,000 | 1,166,600 | 63,067 | 233,310 | 0 | 139,758 | |||||||
William J. Shaw | 2002 | 789,904 | 818,972 | 0 | 0 | 175,000 | 8,500 | |||||||
President and Chief | 2001 | 775,000 | 311,783 | 0 | 2,286,750 | 125,000 | 74,089 | |||||||
Operating Officer | 2000 | 735,000 | 702,954 | 0 | 140,583 | 0 | 58,748 | |||||||
James M. Sullivan | 2002 | 524,904 | 448,268 | 0 | 0 | 110,000 | 8,500 | |||||||
Executive Vice President | 2001 | 515,000 | 131,737 | 0 | 1,372,050 | 80,000 | 46,315 | |||||||
Lodging Development | 2000 | 470,000 | 366,835 | 0 | 864,766 | 0 | 30,965 | |||||||
Arne M. Sorenson | 2002 | 524,904 | 444,489 | 0 | 979,000 | 110,000 | 8,500 | |||||||
Executive Vice President | 2001 | 515,000 | 149,608 | 0 | 1,600,725 | 80,000 | 47,255 | |||||||
and Chief Financial Officer | 2000 | 450,000 | 346,725 | 0 | 69,338 | 0 | 36,232 | |||||||
Joseph Ryan | 2002 | 495,000 | 419,166 | 0 | 783,200 | 90,000 | 8,500 | |||||||
Executive Vice President | 2001 | 491,192 | 142,692 | 0 | 0 | 65,000 | 45,881 | |||||||
and General Counsel | 2000 | 470,000 | 357,435 | 0 | 71,494 | 0 | 35,617 | |||||||
| (1) | Salary |
| (2) | During 2002, Mr. Marriott |
| (3) | Includes restricted stock, deferred bonus stock and deferred stock contracts, as follows: |
Restricted Stock. Restricted stock awards are subject to general restrictions, such as continued employment and non-competition, and in some cases, additional performance restrictions such as attainment of financial objectives. Holders of restricted stock receive dividends and exercise voting rights on their restricted shares. Shares are released from restrictions over a 5- or 10-year period.
Deferred Bonus Stock. The deferred bonus stock program was eliminated for the 2001 fiscal year and beyond. For fiscal years 1999 andyear 2000, the amount of a deferred bonus stock award equaled 20 percent of each individual'sindividual’s annual cash bonus award, based on the stock price on the first trading day for the next fiscal year. Holders of deferred bonus stock awards do not receive dividends or exercise voting rights on their deferred bonus stock until it is distributed to them. The recipient can designate an award as current, which is distributed in 10 annual installments beginning one year after the award is granted, or deferred, which is distributed in a lump sum or in up to 10 installments following termination of employment. Deferred bonus stock contingently vests in ten equal annual installments beginning one year after we make the award. The deferred bonus stock
program was eliminated for the 2001 fiscal year and beyond.
Deferred Stock Contracts. Deferred stock contracts are subject to general restrictions, such as continued employment and non-competition. Holders of deferred stock contracts do not receive dividends or exercise voting rights on their deferred awards until they are distributed to them. 17
(3) The following table shows the total number of restricted shares held by,
and the number ofDuring 2002, deferred bonus shares or deferred shares (vested and
unvested) awarded to, each Named Executive as of the end of the 2001 fiscal
year, and the aggregate value of these shares. The value is based on a per
share price for our stock of $40.925, reflecting the average of the high
and low trading price on the New York Stock Exchange on December 28, 2001:
Shares
- -------------------------------------
Deferred Restricted Deferred Aggregate Value
Named Executive Bonus Stock Stock Contract Stock at 12/28/01 ($)
--------------- ----------- ---------- -------------- ---------------
Mr. Marriott.. 31,629 0 0 1,294,417
Mr. Shaw...... 30,116 20,402 105,042 6,366,293
Mr. Sorenson.. 5,461 49,000 22,018 3,129,903
Mr. Sullivan.. 25,283 44,404 47,018 4,776,152
Mr. Ryan...... 12,715 41,419 22,018 3,116,521
(4) This column represents matching contributions we made under the 401(k) Plan
and our Executive Deferred Compensation Plan (the "Deferred Plan") for
fiscal 2001. For J.W. Marriott, Jr., it also includes the amount described
in footnote (5) below.
(5) In 1996, J. W. Marriott, Jr. waived his vested right to receive
post-retirement distributions of cash under the Deferred Plan and Old
Marriott Common Stock under the Old Marriott 1993 Comprehensive Stock
Incentive Plan (the "1993 Plan"). The payments and stock distributions
waivedcontracts were awarded to Mr. MarriottSorenson and Mr. Ryan for 25,000 shares and 20,000 shares, respectively, with each vesting in 1995 and prior years and were
disclosed as required in earlier proxy statements of Old Marriott or of
Marriott Corporation. In connection with this waiver, Old Marriott agreed
to purchase life insurance policies for the benefit of a trust established
by Mr. Marriott. We assumed this agreement to purchase life insurance
policies from Old Marriott. The cost of the life insurance policies to us
will not exceed the expected after-tax cost to Old Marriott had it made the
payments and stock distributions that Mr. Marriott waived. For 2001, the
taxable economic benefit to Mr. Marriott as a result of these life
insurance policies was $24,799. Mr. Marriott also received $48,000 in
personal financial services and $11,326 in personal use of the Company jet.
5 equal annual installments.
| (4) | The following table shows the total number of restricted shares held by, and the number of deferred bonus shares or deferred contract shares (vested and unvested) held by, each named executive as of the end of the 2002 fiscal year, and the aggregate value of these shares. The value is based on a per share price for our stock of $34.20, reflecting the average of the high and low trading price on the NYSE on January 3, 2003: |
Shares | ||||||||
Named Executive | Deferred Bonus Stock | Restricted Stock | Deferred Contract Stock | Aggregate Value at 01/03/03($) | ||||
J.W. Marriott, Jr. | 31,629 | 0 | 0 | 1,081,712 | ||||
William J. Shaw | 25,491 | 8,000 | 105,042 | 4,737,829 | ||||
James M. Sullivan | 24,956 | 31,202 | 47,018 | 3,528,619 | ||||
Arne M. Sorenson | 4,799 | 40,000 | 47,018 | 3,140,141 | ||||
Joseph Ryan | 12,715 | 27,612 | 42,018 | 2,816,199 | ||||
| (5) | This column represents matching contributions we made under the 401(k) Plan and our Executive Deferred Compensation Plan (the “Deferred Plan”) for fiscal 2002. For J.W. Marriott, Jr., it also includes the amount described in footnote (5) below. |
| (6) | In 1996, J. W. Marriott, Jr. waived his vested right to receive post-retirement distributions of cash under the Deferred Plan and Old Marriott common stock under the Old Marriott 1993 Comprehensive Stock Incentive Plan (the “1993 Plan”). The payments and stock distributions waived were awarded to Mr. Marriott in 1995 and prior years and were disclosed as required in earlier proxy statements of Old Marriott or of Marriott Corporation. In connection with this waiver, Old Marriott agreed to purchase life insurance policies for the benefit of a trust |
established by Mr. Marriott. We assumed this agreement to purchase life insurance policies from Old Marriott. The cost of the life insurance policies to us will not exceed the expected after-tax cost to Old Marriott had it made the payments and stock distributions that Mr. Marriott waived. For 2002, the taxable economic benefit to Mr. Marriott as a result of these life insurance policies was $27,420. |
The following two tables show information concerningabout options to purchase our Class A common stock granted to the named executive officers in fiscal 20012002 under the 19982002 Plan.
Stock Option Grants in Last Fiscal Year
Name | Stock Options Granted(#) | % of Total Stock Options Granted To Employees in Fiscal Year (1) | Exercise Price ($/Sh) | Expiration Date (2) | Grant Date Present Value (3)($) | ||||||
J. W. Marriott, Jr. | 400,000 | 5.1 | % | 37.68 | 02/19/2012 | 5,696,000 | |||||
William J. Shaw | 175,000 | 2.2 | % | 37.68 | 02/19/2012 | 2,492,000 | |||||
James M. Sullivan | 110,000 | 1.4 | % | 37.68 | 02/19/2012 | 1,566,400 | |||||
Arne M. Sorenson | 110,000 | 1.4 | % | 37.68 | 02/19/2012 | 1,566,400 | |||||
Joseph Ryan | 90,000 | 1.1 | % | 37.68 | 02/19/2012 | 1,281,600 |
| (1) | These values represent the options granted as a percentage of |
| (2) | All options vest over four years on the anniversary date of the grant at a rate of 25% per year and have a 10-year term. Options |
| (3) | These values were established using the Black-Scholes stock option valuation model. Assumptions used to calculate the grant date present value of option shares granted for fiscal 2002 were in |
| (a) | Expected Volatility – The standard deviation of the continuously compounded rates of return calculated on the average daily stock price over a period of time immediately preceding the grant and equal in length to the expected life of the option. The volatility was 32.1%. |
| (b) | Risk-Free Interest Rate – The risk-free interest rate was 3.63%. |
| (c) | Dividend Yield – The expected dividend was $0.28 based on our historical dividend policy over the expected life of the option. |
| (d) | Expected Life – The expected life of the option was 7.15 years, calculated based on the historical expected life of previous grants. |
| (e) | Per Share Value |
Aggregated Stock Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Option Values
Shares Acquired on Exercise (#) | Value Realized ($) | Number of Shares Underlying Unexercised Options at Fiscal Year End (2) | Value of Unexercised In-the-Money Stock Options at Fiscal Year End (3) | |||||||||||
Name | Company (1) | Exercisable (#) | Unexercisable (#) | Exercisable ($) | Unexercisable ($) | |||||||||
J.W. Marriott, Jr. | MI | 0 | 2,381,387 | 1,232,865 | 43,794,634 | 4,827,490 | ||||||||
HMC | 0 | 0 | 372,110 | 0 | 2,481,179 | 0 | ||||||||
William J. Shaw | MI | 0 | 0 | 1,061,700 | 630,243 | 16,166,191 | 3,198,754 | |||||||
HMC | 0 | 0 | 205,041 | 0 | 1,334,919 | 0 | ||||||||
James M. Sullivan | MI | 0 | 0 | 400,945 | 364,880 | 4,953,977 | 1,708,181 | |||||||
Arne Sorenson | MI | 0 | 0 | 165,506 | 238,750 | 698,431 | 318,634 | |||||||
Joseph Ryan | MI | 0 | 0 | 263,625 | 333,630 | 1,563,185 | 1,708,181 | |||||||
| (1) | “MI” represents options to purchase our Class A common stock, including options to purchase Old Marriott Common Stock which were converted into options to purchase our Class A common stock as part of |
| (2) | The number and terms of |
| (3) | We have based the value of the unexercised stock options on a per share price for Company stock of $34.20; and a per share price for Host Marriott |
REPORT ON EXECUTIVE COMPENSATION BY
THE COMPENSATION POLICY COMMITTEE
The Compensation Policy Committee (the "Committee"“Committee”) is responsible for establishing basic principles related to the compensation programs of the Company and for providing oversight for compensation programs for senior executive officers. The principles include building a strong relationship between shareholder return and executive compensation, providing incentives to achieve both short and long-term goals, and providing an overall level of remuneration which is competitive and reflective of performance. The Committee met fourfive times during 2001.2002. The Chief Executive Officer and other senior executive officers are not present at the meetings unless requested by the Committee.
Compensation Philosophy and Programs
The Committee'sCommittee’s objective is to establish a total compensation program for the Company that appropriately balances compensation costs with salaries and incentives sufficient to retain and motivate key executives. Senior human resources management of the Company presents proposals and recommendations on senior executive officer compensation to the Committee for their review and evaluation. To establish compensation levels, the Committee uses data provided by the Company that is obtained from independent consultants. The Committee may, at its own discretion, also retain and make use of independent consultants. The data reflects compensation practices with companies of approximately Marriott'sMarriott’s size (the comparison group) who participate in a variety of compensation surveys. The Committee believes that targeting compensation between the median and the 75/75th percentile of other large companies appropriately reflects the conditions of the labor market for Company executives. Companies in the comparison group may be included in the S&P Hotel/Motel Index used in the performance chart included in this Proxy Statement; however, the comparison group is not made up exclusively of companies used in that Index.index. As the Company is comprised of both lodging
and service lines of businesses and also recruits senior executives from outside the hospitality industry, the Committee believes that the broad-based comparison group is a morean appropriate basis for establishing comparablecompetitive pay programs. /
Base Salary
The Company has an executive compensation salary structure approved by the Committee, which includes salary ranges established around a salary grade
midpoint.for each executive level. Each position'sposition’s salary and target bonus opportunity is established based on targeted levels of total cash compensation for similar positions in the survey data. Actual base salaries are set within the prescribed salary range, based on a subjective assessment of factors including tenure, experience, and individual performance. This assessment is not subject to weightings or formulas. Individual annual salary increases reflect the position within the salary range, the merit increase guidelines established by the Company, and individual performance over the prior year. The Committee establishes merit increase guidelines based on survey information of annual salary increase budgets for the comparison group, along with an assessment of the Company'sCompany’s labor costs for management employees.
Annual Cash Incentives
The Company has established the 19982002 Plan, which is focused on financial objectives. In addition, the Company maintains the Executive Officer Individual Performance Plan, which is focused on human resource and other business requirements, to help motivate the attainment of annual objectives.
21
Under each plan, goals and specific objectives are established for a minimum level, target level, and a maximum level of performance. Senior human resources management of the Company provided the Committee with recommended individual performance objectives for the Chief Executive Officer and each of the other named executives for the Committee'sCommittee’s review and input. For each objective, actual performance is measured against these levels in order to determine the actual payment. No payment is made if performance fails to meet the minimum level for a particular objective.
The 20012002 incentive plans for the Chief Executive Officer and other senior executive officers included objectives related to Company financial performance, individual performance, customer satisfaction, and lodging growth objectives.
Stock Incentives
The Committee believes that stock ownership by senior executive management is essential for aligning management'smanagement’s interest with that of shareholders. To emphasize this principle, in February 1999, the Company established stock ownership guidelines for the Company'sCompany’s senior management. The guidelines require the top 6570 executives in the Company to own a multiple of their individual salary grade midpoint in Company stock. Executives have five years in which to meet this goal. The majority of the executives have met their goals. Each of the named senior executive officers has met his goal.
The Company grants stock options as the primary long-term incentive of the Company. The number of shares subject to options granted to each executive officer is related to a guideline number established for each eligible level based on the survey data described above. The Committee establishes a competitive range of share awards per eligible position, and individual awards are determined based on a subjective assessment of individual performance, contribution and future potential.
Under the terms of the Company's 1998Company’s 2002 Plan, awards of restricted stock and deferred stock contracts are also made to key management employees. These awards tend to be relatively infrequent and are used to recognize special performance of key executives or as an employment inducement. The Company considers a number of factors when determining stock grants such as individual performance, the size of competitive long-term awards, key contributions, and previous share grants.
In January 2001, sixteen senior executives, including Mr. Marriott,
received a grant of Restricted Stock that was subject to release from
restrictions based on the achievement of performance goals related to the
Company's Return on Invested Capital. Due to extreme changes in the economic
environment and our industry, these grants were later cancelled.
2001
2002 Compensation of the Chief Executive Officer and Reported Executive Officers
The Committee reviewed the 20012002 salaries for J.W. Marriott, Jr., and all other executive officers in February 2002. Following September 2001, Mr. Marriott elected to forgo his salary for the fourth quarter of 2001. For 2002, Mr. Marriott'sMarriott’s base pay was maintained at $1,000,000, resulting in no base pay increase. The Company’s 2002 fiscal year included 53 weeks resulting in an additional week of salary. This salary is within the median range for the comparison group. In light of the economic events following September 2001, Mr. Marriott elected to forgo his salary forcircumstances in 2002, the fourth quarter of 2001. Mr. Shaw received a 5.4% base salary increase, Mr.
Ryan a 5.3% increase, Mr. Sullivan a 9.6% increase, and Mr. Sorenson a 14.4%
increase. All salary increases for theother named senior executive officers were made to
better approximate the median of the comparison group.
22
Under the 19982002 Plan, Mr. Marriott'sMarriott’s maximum annual incentive opportunity as a percentage of base salary was 75% based on attaining an earnings per share objective. Under the Executive Officer Individual Performance Plan, his maximum opportunity was 25% related to individual objectives, 12.5% on growth objectives, and 12.5% related to customer satisfaction. For 2001, Mr. Marriott electeddid not achieve
the maximum level of performance for earnings per share and customer satisfaction objectives. Mr. Marriott accomplished the majority of his individual objectives and growth objectives. The aggregate target level of bonus award for Mr. Marriott was 90% and the maximum level of bonus award was equal to forgo125% of eligible fiscal year salary. The total award payment of $1,202,285 corresponded to 117.96% of salary. Mr. Marriott’s annual cash incentive payment was at the median for the comparison group. From a total cash compensation perspective (base plus bonus), his bonus in light ofannual compensation is at the economic events of September 2001.
median for the comparison group.
The other named senior executive officers are also participants in the 19982002 Plan. Measures utilized include Company and, in some cases, business-group cash
flow,earnings per share, customer satisfaction, lodging rooms growth objectives and individual objectives. The aggregate target payments for other named executives were set at 60% to 80% of salary and the maximum aggregate payments from 90% to 110% of salary. Actual total award payments for 20012002 ranged from 25%84.68% to 40%103.78% of salary.
Based on outstanding contributions during the year, and to continue to offer a competitive total compensation program, Mr. ShawSorenson received a deferred stock contract in 20012002 of 50,00025,000 shares, and Mr. Ryan received a deferred stock contract in 2002 of 20,000 shares, each vesting in equal annual installments over 5 years, assuming continued employment. Mr. Sullivan received a restricted
stock grant in 2001 of 30,000 shares, and Mr. Sorenson received a restricted
stock grant in 2001 of 35,000 shares, each subject to release from restrictions
in equal annual amounts over 5 years, assuming continued employment.
In 2001,2002, stock option grants were made to Mr. Marriott and the other named executive officers. Mr. Marriott received an option in February 20012002 to acquire 350,000400,000 shares, with vesting over four years. This grant, as well as similar grants to the other named executive officers, was within guideline ranges established for their specific salary grade.
executive level.
Impact of Internal Revenue Code Section 162(m)
Under the Omnibus Budget Reconciliation Act of 1993, provisions were added to the Internal Revenue Code under Section 162(m) that limit the tax deduction for compensation expense in excess of one million dollars paid to each of certain executive officers. However, performance-based compensation can be excluded from the limit so long as it meets certain requirements. The Committee believes the 19982002 Plan satisfies the requirements for exemption under the Internal Revenue Code Section 162(m). Payments made under this Plan qualify as performance-based compensation and constitute the majority of aggregate annual incentive amounts payable for Mr. Marriott and all other named executive officers.
The Executive Officer Individual Performance Plan does not meet the requirement necessary for exemption as performance-based compensation; however, the Committee believes that incentives for performance relative to certain Company objectives, such as personnel planning, customer satisfaction and other non-financial business requirements are relevant and appropriate. For 2001,2002, the annual salary plus the bonus paid to named executive officers were in each case less than one million dollars after allowing for amounts deferred into the Executive Deferred Compensation Plan. The Committee reserves the right to pay non-deductible compensation if it considers that to be in the best interest of the shareholders and the Company. Due to the Company'sCompany’s focus on performance-based compensation plans and continued deferral of compensation by certain executive officers, the Committee expects that the vast majority of compensation paid to the group will be tax deductible.
23
Summary
The Compensation Policy Committee believes that the compensation programs of the Company are well structured to encourage attainment of objectives and foster a shareholder perspective in management. The Committee feels that the awards made in 20012002 were competitive and appropriate and serve shareholders'shareholders’ long-term interest.
Members of the Compensation Policy Committee
Floretta Dukes McKenzie, Chair
Harry J. Pearce
Roger W. Sant
W. Mitt Romney
Lawrence M. Small
24
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the performance of the Company'sCompany’s Class A common stock from the March 27, 1998 Spin-Off to the end of fiscal 2001,2002, and prior to the Spin-Off, the performance of Old Marriott'sMarriott’s common stock since January 4, 1997,2, 1998, with the performance of the Standard & Poor'sPoor’s Corporation Composite 500 Index and the Standard and Poor'sPoor’s 500 Hotels, Resorts and Cruise Lines Index. The graph assumes an initial investment of $100 on January 4, 1997,2, 1998, and reinvestment of dividends. In addition, we have assumed that the Sodexho Marriott Services, Inc. shares received in connection with the Spin-Off were sold on March 27, 1998, and immediately reinvested in the Company'sCompany’s Class A common stock.
We believe that this shareholder return information has only limited relevance to an understanding of our compensation policies during the indicated periods and does not reflect all matters that we considered appropriate in developing our respective compensation strategies.
Performance Graph
[CHART]
Marriott S&P Lodging-Hotels Index S&P 500 Index
International Inc.
1/3/97 100.00 100.00 100.00
1/2/98 170.90 163.10 179.30
1/1/99 159.50 134.10 235.50
12/31/99 174.70 134.00 285.10
12/29/00 235.10 110.80 261.70
12/28/01 236.70 110.80 240.00
1/3/97 1/2/98 1/1/99 12/31/99 12/29/00 12/28/01
------ ------ ------ -------- -------- --------
Marriott International, Inc. 100.0 170.9 159.5 174.7 235.1 236.7
S&P Lodging-Hotels Index.... 100.0 163.1 134.1 134.0 110.8 110.8
S&P 500 Index............... 100.0 179.3 235.5 285.1 261.7 240.0
25
1/2/98 | 1/1/99 | 12/31/99 | 12/29/00 | 12/28/01 | 1/3/03 | |||||||
Marriott International, Inc. | 100.0 | 83.3 | 91.2 | 122.9 | 120.5 | 101.2 | ||||||
S&P Hotels, Resorts and Cruise Lines Index | 100.0 | 118.3 | 111.3 | 113.6 | 107.7 | 109.7 | ||||||
S&P 500 Index | 100.0 | 128.6 | 155.6 | 141.5 | 124.6 | 97.1 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
JWM Family Enterprises, L.P. ("(“Family Enterprises"Enterprises”) is a Delaware limited partnership majority owned by J.W. Marriott, Jr., our Chairman and Chief Executive Officer, and members of his immediate family.family including John W. Marriott III, one of our directors and executive officers. Family Enterprises indirectly holds varying percentages of ownership interests in a Courtyard hotel in Long Beach, California, a Residence Inn in San Antonio, Texas, a Fairfield Inn in Anaheim, California, a SpringHill Suites hotel in Herndon, Virginia, a Courtyard hotel in Novato, California, a Courtyard hotel and a TownePlace Suites hotel in Milpitas, California and a Residence Inn in Washington, DC. Our subsidiaries operate each of these properties pursuant to management agreements with entities controlled by Family Enterprises. We are negotiating to enter into a management agreement to operate a full service hotel in West Palm Beach, Florida owned by an entity controlled by Family Enterprises. In fiscal 2001,2002, we received management fees of approximately $3.7$3.3 million, plus reimbursement of certain expenses, from our operation of these hotels. Other than in our role as manager, we have no financial involvement in the hotels listed above or in Family Enterprises.
Transactions with Host Marriott Corporation
In 1993, Old Marriottour predecessor company was spun off as a separate public company from its former parent company, Marriott Corporation (which changed its name to Host Marriott Corporation) ("(“Host Marriott"Marriott”). Host Marriott retained the ownership of lodging properties and certain other assets. Old Marriott continued the businesses of lodging management, senior living services, distribution services and certain other businesses.
Host Marriott reorganized its business operations in 1998 to qualify as a real estate investment trust ("REIT"(“REIT”); acquired a portfolio of luxury hotels for $1.5 billion; and completed partnership roll-ups representing new hotel property acquisitions approximating $650 million; and divested newly created lease and sublease interests in substantially all of Host Marriott'sMarriott’s lodging properties, including the properties in its newly acquired portfolio. Effective as of January 1, 2001, a Host Marriott taxable subsidiary reacquired the lease and sublease interests that it had divested as part of the 1998 REIT conversion.
In December 2000, we acquired, through an unconsolidated joint venture (the "Courtyard“Courtyard Joint Venture"Venture”) with an affiliate of Host Marriott, 120 Courtyard by Marriott hotels. The acquisition was made pursuant to a settlement of litigation in which we, Host Marriott, and certain of our and their subsidiaries and affiliates were defendants. The joint venture was financed with approximately $200 million in mezzanine debt loaned to the joint venture by us and with equity contributed in equal shares by us and by Host Marriott. Our total investment in the joint venture, including the mezzanine debt, is approximately $300 million. One of our subsidiaries manages these 120 hotels under long-term agreements.
In recognition of the significantevolving changes in the lodging industry over the last ten years and the age of our agreements with Host Marriott, many provisions of which predatepredated our 1993 Spin-Off,Spin-off, and the need to provide clarity on a number of points and consistency on contractual terms over the large portfolio of Host Marriott owned hotels, we and Host Marriott concluded that we could mutually enhance the long term strength and growth of both companies by updating our existing relationship. Accordingly, in 2002 we are currently
negotiatingnegotiated certain changes to our management agreements for Host Marriott-owned hotels. The
modifications under discussion would, if made, bewere completed during the third quarter of 2002 and are effective as of the beginning of our 2002 fiscal year and would remain subject
to the consent of various lenders to the properties and other third parties. If
made, theseyear. These changes, would, among other things,
. Provide Host Marriott with additional approval rights over budgets and
capital expenditures;
. Extend the effective management agreement termination dates for several
hotels;
26
. Expand the pool of hotels that Host Marriott could sell with franchise
agreements to one of our approved franchisees and revise the method of
determining the number of hotels that may be sold without a management
agreement or franchise agreement;
. Lower the incentive management fees payable to us by amounts dependent in
part on underlying hotel profitability at eight hotels;
. Reduce certain expenses to the properties and lower Host Marriott's
working capital requirements;
. Confirm that we and our affiliates may earn a profit (in addition to what
we earn through management fees) on certain transactions relating to Host
Marriott-owned properties, and establish the specific conditions under
which we may profit on future transactions; and
. Terminate our existing right to purchase up to 20 percent of Host
Marriott's outstanding common stock upon certain changes of control and
clarify our rights in each of our management agreements to prevent either
a sale of the hotel to our major competitors or specified changes in
control of Host Marriott involving our major competitors.
We cannot assure you that these negotiations will be successful, that the
changes will be substantially as we have described above, or that the consents
necessary to implement these changes will be obtained.
| · | Provided Host Marriott with additional approval rights over budgets and capital expenditures; |
| · | Extended the term of our management agreements for five hotels that were subject to termination in the short term, and two core system hotels that provide additional years at the end of the current term; |
| · | Changed the pool of hotels that Host Marriott could sell with franchise agreements to one of our approved franchisees and revised the method of determining the number of hotels that may be sold without a management agreement or franchise agreement; |
| · | Lowered the incentive management fees payable to us by amounts that will depend in part on underlying hotel profitability. In 2002, the reduction was $2.5 million; |
| · | Reduced certain expenses to the properties and lowered Host Marriott’s working capital requirements; |
| · | Confirmed that we and our affiliates may earn a profit (in addition to what we earn through management fees) on certain transactions relating to Host Marriott-owned properties, and established the specific conditions under which we may profit on future transactions; and |
| · | Terminated our prior right to make significant purchases of Host Marriott’s outstanding common stock upon certain changes of control and clarified our rights in each of our management agreements to prevent either a sale of the hotel to our major competitors or specified changes in control of Host Marriott involving our major competitors. |
The monetary effect of the anticipated changes will depend on future events such as the operatingfinancial results of the hotels. We do not expect these modifications to have a material financial impact on us.
At February 28, 2002,January 31, 2003, J.W. Marriott, Jr., John W. Marriott III, and Richard E. Marriott and their respective immediate family members beneficially owned approximately 5.910.4 percent and 6.9 percent, respectively, of the common stock of Host Marriott. J.W. Marriott, Jr. is presently a director ofdid not stand for reelection to the Host Marriott with aBoard of Directors when his term expiringexpired in May 2002, but is not standing for reelection.2002. Richard E. Marriott, who has announced his intention to resignresigned from our Board of Directors ineffective May 9, 2002, is the Chairman of the Board of Host Marriott.
Pursuant to agreements with Host Marriott, in 20012002 we:
| · | operated lodging properties owned or leased by Host Marriott; |
| · | guaranteed Host Marriott’s performance in connection with certain obligations; and |
| · | provided Host Marriott with various administrative and consulting services and a sublease of office space at the Marriott headquarters building. |
Lodging. operated lodging properties owned or leased by Host Marriott;
. guaranteed Host Marriott's performance in connection with certain
obligations; and
. provided Host Marriott with various administrative and consulting
services and a sublease of office space at the Marriott headquarters
building.
Lodging. We recognized sales of $2,440$2,547 million and operating profit (before corporate expenses and interest) of $162$150 million in 20012002 from our operation of lodging properties owned or leased by Host Marriott. During 2001,2002, Host Marriott also served as the general partner or managing member of several unconsolidated entities, including the Courtyard Joint Venture, that own lodging properties.properties we manage. We recognized sales of $546$494 million and operating profit (before corporate expenses and interest) of $40$28 million in 20012002 from our operation of these lodging properties. We also leased land to certain of these partnerships and recognized land rent income of $19$18 million in 2001.2002. Included above in amounts recognized from lodging properties owned by unconsolidated entities are sales of $316$313 million, operating profit (before corporate expenses and interest) of $25$13 million, and land rent income of $18 million attributable to the Courtyard Joint Venture in 2001.
27
Assuming that the modifications being negotiated with Host Marriott will be
made, our2002.
Our lodging operating agreements with Host Marriott and the Courtyard Joint Venture will continue to reflect current market terms and conditions for arrangements between managers and owners of very large hotel portfolios of similar quality.
Financing.
Financing. We have provided financing to Host Marriott for a portion of the cost of acquiring properties to be operated or franchised by us and may continue to provide financing to Host Marriott in the future. In 2001,2002, we recognized $1 million in interest and fee income from loans to Host Marriott. At December 28, 2001,January 3, 2003, the outstanding principal balance of loans to Host Marriott was $7$5 million. In addition, we recognized interest income of $26$27 million in 20012002 on the $200 million mezzanine debt provided by us to the Courtyard Joint Venture.
Guarantees.
Guarantees. We have guaranteed Host Marriott'sMarriott’s performance to certain lenders and other third parties. These guarantees were limited to $9$7 million at December 28, 2001January 3, 2003 and consisted solely of guarantees of certain self-insurance liabilities. We have not been required to make any payments under these guarantees.
Administrative Services.Services. We also provide certain administrative and consulting services to Host Marriott, and sublease space at our headquarters building to Host Marriott. In 2001,2002, we were paid approximately $3.8$2.2 million for these items, including reimbursements.
Transactions with Crestline Capital Corporation
In conjunction with its December 1998 conversion to a REIT, Host Marriott spun off, in a taxable transaction, a new company called Crestline Capital Corporation ("Crestline"(“Crestline”). After giving effect to a subsequent January 1, 2001 transaction, Host Marriott reacquired leasehold interests in the lodging properties it originally transferred to Crestline. Subsidiaries of Crestline continued to own all of the senior living communities previously owned by Host Marriott, and remained successors to Host Marriott under senior living community management agreements with us. We continue to manage the senior living communities that were owned by Crestline but sold to a third party on January 11, 2002. We believe that our senior living community operating agreements with Crestlinefor those communities reflect market terms and conditions existing at the time the agreements were entered into, and are substantially similar to operating agreements between us and other third parties for facilities of a similar type.
At March 1,
Prior to June 7, 2002, J.W. Marriott, Jr., John W. Marriott III and Richard E. Marriott and their respective immediate family members beneficially owned approximately 4.58.2 percent and 5.5 percent, respectively, of the common stock of Crestline.Crestline, and John W. Marriott III was a director of Crestline. On June 7, a wholly-owned subsidiary of Barceló Hotels & Resorts acquired Crestline in a merger in which each outstanding share of Crestline was exchanged for $34.00 in cash. The newly formed Barceló Crestline Corporation is a private company.
Certain Relationships
During fiscal year 2002, the Company employed John W. Marriott III as Executive Vice President, Sales and Marketing. John W. Marriott III was paid an aggregate salary and bonus of $516,068 for his services during the year.
The Company employs Stephen Marriott, the son of J.W. Marriott, Jr., as Senior Vice President, Culture and Special Events. Stephen Marriott was paid an aggregate salary and bonus of $228,554 for his services during fiscal year 2002.
ITEM 2—RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
The Audit Committee of the Board of Directors has appointed Ernst & Young LLP as the Company’s independent auditor for fiscal 2003. Ernst & Young LLP, a firm of independent public accountants, has served as the Company’s independent auditor since May 3, 2002. Ernst & Young LLP will examine and report to shareholders on the consolidated financial statements of the Company and its subsidiaries.
Representatives of Ernst & Young LLP will be present a the annual meeting and are expected to be available to respond to questions.
This proposal is put before the shareholders because the Board believes that it is a directorgood corporate practice to seek shareholder ratification of Crestline.
In 2001 we recognized salesthe selection of $194 million and operating profit (before
corporate expenses and interest)the independent financial auditor. If the appointment of $6 million from our managementErnst & Young LLP is not ratified, the Audit Committee will evaluate the basis for the shareholders’ vote when determining whether to continue the firm’s engagement.
The Board recommends a vote FOR ratification of senior
living communities that are owned by Crestline. We also provide certain
administrative and consulting services to Crestline, and in 2001 we were paid
approximately $246,000, including reimbursements,Ernst & Young LLP as the Company’s independent auditor for these services.
fiscal 2003.
ITEM 2--RATIFICATION3—RATIFICATION OF THE RESTATEMENT OF THE MARRIOTT INTERNATIONAL, INC.
1998 COMPREHENSIVE STOCK AND CASH INCENTIVE PLAN INCLUDING AN INCREASE OF 95 MILLION SHARES OF THE COMPANY'SCOMPANY’S CLASS A COMMON STOCK AUTHORIZED FOR ISSUANCE UNDER THE MARRIOTT INTERNATIONAL, INC. EMPLOYEE STOCK PURCHASE PLAN
At the May 20, 1998, PLAN
On February 7, 2002,Annual Meeting, the Boardshareholders approved subject to shareholder
ratification, the restatementadoption of the 1998 Plan as the Marriott International, Inc. 2002 ComprehensiveEmployee Stock Purchase Plan (the “Stock Purchase Plan”) and Cash Incentive Plan
28
(the "2002 Plan"), a copythe reservation of which is set forth in Appendix B. The 2002 Plan is
substantially the same as the 1998 Plan, except for the changes described
below. As onefive million shares of the changes, the Company is asking shareholders to ratify an
increase in the number of shares authorizedCompany’s Class A common stock for issuance under the 2002 Planplan. Subject to approval by 9the shareholders, the Board has authorized an additional 5 million shares. This amendment would increaseshares of the number of shares authorizedCompany’s Class A common stock for issuance under the 2002Stock Purchase Plan. After 5 plan years, as of February 28, 2003, the Stock Purchase Plan had approximately 929,000 shares remaining available from 71 million to 80 million. At March 1,
2002, approximately 66 million sharesthe original authorization. The administrator of the Company's Class A common stock had
been issued underStock Purchase Plan anticipates the 1998 Plan, approximately 49 millionneed for additional shares were subject
to outstanding awards and approximately 5 million shares remained available for
future issuance.
The purpose of the 2002 Plan is to promote and enhance the long-term growth
of the Company by aligning the interests of the employees and directors of the
Company with those of the Company's stockholders. The proposed share increase
will ensure that a sufficient reserve of Class A common stock is available
under the 2002 Plan to attract and retain the services of key individuals
essential to the Company's long-term growth and success. We maintain no other
plans providing for the grant of stock awards other than the 1998 Plan, which
has been amended and renamed the 2002 Plan, subject to shareholder approval.
Old Marriott shareholders approved the 1998 Plan at a special meeting on
March 17, 1998. The 1998 Plan became effective on March 28, 1998, immediately
following the Spin-Off of the Company from Old Marriott.
The principal terms of the 2002 Plan, including changes to the 1998 Plan
are summarized below.
Shares Available under the Plan
The 1998 Plan currently provides for the issuance of 71 million shares of
the Company's Class A common stock. Approximately 36.7 million shares of the
original share authorization for the 1998 Plan were used to convert
then-existing awards under Old Marriott's 1996 Comprehensive Stock Incentive
Plan following the Spin-Off, leaving approximately 19.3 million shares
available for new awards since March 28, 1998. During 1998, 1999, 2000, 2001
and 2002 awards were granted with respect to approximately 7.4 million shares,
7.8 million shares, 6.0 million shares, 5.8 million shares, and 8.0 million
shares, respectively, undereither the 1998 Plan.
The 2002 Plan provides that no employee will be eligible to receive awards
covering more than 750,000 shares of Common Stock (up from 500,000 under the
1998 Plan) in any one fiscal2003 plan year (excluding for this purpose any conversion
awards in connection with the Spin-Off described below). The number of shares
available and subject to outstanding awards, as well as this limitation will be
appropriately adjusted by the Compensation Policy Committee in the event of any
change in capitalization, such as a stock split, or a corporate transaction,
such as a merger, consolidation, separation, including a spinoff or other
distribution of stock or property of the Company, any reorganization (whether
or not taxable) or any partial or complete liquidation of the Company. The 1998
Plan required that no more than 20% of the shares available will be issued with
respect to awards other than stock options and non-employee director awards.
The 2002 Plan removes this restriction to allow greater flexibility for the
Compensation Policy Committee to design competitive compensation packages for
employees.
Administration
The 2002 Plan is administered by the Compensation Policy Committee
appointed by the Board of Directors of the Company, the members of which are
non-employee directors of the Company. The
29
Compensation Policy Committee has broad discretion to determine the employees
eligible for awards and the type of awards to be granted and to interpret the
provisions of the 2002 Plan. The 2002 Plan provides that, upon a change in
control of the Company, the Compensation Policy Committee or the Board will
provide for the substitution, vesting, distribution, exercise, cancellation or
exchange for value of the outstanding awards.
Eligibility
Employees of the Company (including employees who are also members of the
Board) are eligible to participate in the 2002 Plan. The Compensation Policy
Committee has discretion to determine which employees will receive awards.
Non-employee directors of the Company are eligible solely for purposes of
receiving certain director stock awards and making deferral elections with
respect to director fees. In addition, employees and non-employee directors of
the Company, and certain individuals who are former2004 plan year.
All active, non-temporary employees of the Company and its predecessors, received certain conversion awards in connection withparticipating subsidiaries on the Spin-Off.
Typefirst business day of Awards
Stock Option Awards. UnderJanuary of each year (with the 2002 Plan, options may be granted to
employees that either qualifylimited exception of those holding 5% or do not qualify (nonqualified awards) for tax
treatment as "incentive stock options" within the meaning of Section 422more of the Code. All outstanding stock option awards under the 2002 Plan are nonqualified.
The option price may not be less than 100 percentshares of the fair market value ofCompany) are eligible for participation in the Stock Purchase Plan, provided they customarily work more than five months per year and more than 20 hours per week. Non-employee directors are not eligible to participate. The Stock Purchase Plan provides eligible employees with an opportunity, through payroll deductions, to purchase Class A common stock on the date the option is granted. The 2002 Plan prohibits
repricing of option awards. Approximately 3,000 employees are eligible for the
management stock option awards program.
Each option may have a term of up to 15 years, as determined by the
Compensation Policy Committee. Since February 2001, stock options have been
issued with a 10-year term; stock options issued prior to that have 15-year
terms. If an optionee ceases to be an employee or goes on leave of absence for
more than 12 months (except in the case of a leave approved by the Compensation
Policy Committee) while holding an exercisable option, the option will
terminate if not exercised within the following three months. Nonqualified
options granted to optionees who subsequently become "approved retirees"
(termination of employment by reason of permanent disability or retirement with
approval from the Compensation Policy Committee after 20 years of service or
after attaining age 55 with 10 years of service and while a noncompetition
agreement is honored) will continue to vest and will not expire until the
earlier of (i) the expiration of the option in accordance with its original
term or (ii) five years from the date of termination of employment. (Prior to
amendment, the 1998 Plan provided one year for exercise of a vested option by
an employee who terminated by reason of permanent disability.) If an optionee
dies while employed by the Company more than one year after the date the
options are granted, the remaining options may be exercised until the earlier
of the expiration date for such options or one year after the optionee's death.
If an optionee dies while an approved retiree, all the optionee's options
become fully vested and may be exercised until the earlier of the expiration
date for such options or one year after the optionee's death. If an optionee
who is not an approved retiree dies after termination of employment, the
optionee's remaining options may be exercised to the same extent and during the
same period that the optionee could have exercised the options if the optionee
had not died.
Restricted Stock Awards. The 2002 Plan provides additional compensation
incentives to key employees in the form of shares of restricted stock of the
Company. Approximately 50 key employees are eligible to receive restricted
stock awards based on the Compensation Policy Committee's
30
guidelines. Delivery of shares is subject to the lapse of a restriction period,
continued employment with the Company and satisfactionthereby increase their interest in the Company’s growth and success. Under the Stock Purchase Plan, participants may elect to contribute up to 10% of such other
requirements as may be imposed by the Compensation Policy Committee, including,
but not limitedtheir base pay to achievement of specific performance objectivespurchase shares of the Company, the business unit or the individual. A percentage of the shares
subject to an award of restricted stock, as determined by the Compensation
Policy Committee, may be released from restriction following an employee's
retirement with the Committee's approval at or beyond age 55 with 10 years of
service or with 20 years of service. Shares are also released from restriction
upon the employee's death or permanent disability.
Deferred Stock Awards. Deferred shares ofCompany’s Class A common stock may be
granted to employees annually as Deferred Stock Bonus Awards or Deferred Stock
Agreements. The Compensation Policy Committee decided to suspend Deferred Stock
Bonus Awards indefinitely commencing with the 2001 fiscal year. Approximately
85 key employees are eligible for Deferred Stock Agreements.
Deferred Stock Bonus Awards previously granted representedat a part of the
annual performance bonus awards to employees. Eligible award recipients were
able to elect either a current award or a deferred award. A current award is
distributed in 10 annual installments commencing one year after the award is
granted. Any undistributed shares subject to a current award are forfeited and
the award terminated if the employee's employment with the Company is
terminated for any reason other than termination of employment at or beyond age
55 with 10 years of service, termination of employment after 20 years of
service with retirement approval from the Compensation Policy Committee,
permanent disability or death. Any undistributed shares not subject to
forfeiture continue to be paid to the employee or the employee's beneficiary
under the distribution schedule that would have applied to those shares if the
employee had not terminated employment, or over such shorter period as the
Compensation Policy Committee may determine.
A deferred award will be distributed to the recipient, as elected by such
recipient, either in a lump sum or in up to 10 installments beginning the
January following termination of employment. Deferred award shares contingently
vest pro rata in annual installments commencing one year after the award is
granted to the employee, and continuing on each January 2 thereafter until the
expiration of a 10-year period from the commencement date. All shares subject
to the deferred award will vest upon termination of employment after reaching
age 55 with 10 years of service, termination of employment after 20 years of
service with retirement approval from the Compensation Policy Committee,
permanent disability or death. Vesting will stop when employment terminates for
any other reason.
Vested deferred shares awarded pursuant to a Deferred Stock Agreement are
distributed in 10 consecutive annual installments or over such shorter period
as the Compensation Policy Committee may direct. The distribution will commence
in the January following the date the employee retires or becomes permanently
disabled or otherwise ceases to be an employee of the Company. Under some
awards, distribution is deferred to age 65 following cessation of employment.
Shares vest contingently over a specified term or in pro rata annual
installments until age 65. A percentage of the shares subject to a Deferred
Stock Agreement, as determined by the Compensation Policy Committee, will vest
following an employee's retirement with the Committee's approval at or beyond
age 55 with 10 years of service or with 20 years of service. Shares also vest
upon the employee's death or permanent disability.
Special Recognition Stock Awards. The 2002 Plan provides for awards
designed to provide recognition of employee performance for special efforts on
behalf of the Company. While all full-time, nonunion employees will be
eligible, actual awards are limited in the discretion of the Compensation
Policy Committee.
31
Other Awards. The Compensation Policy Committee may grant to employees any
other awards denominated or payable in cash, Class A common stock, a Class A
common stock equivalent or appreciation unit or security convertible into Class
A common stock or in any combination of these forms. The other share-based
awards may be issued alone or in tandem with other awards and made subject to
any terms and conditions as determined by the Compensation Policy Committee and
specified in the award agreements. The Compensation Policy Committee also may
grant cash performance-based awards not based on Class A common stock on such
terms and conditions as the Committee shall determine. No individual may
receive a payment with respect to a cash performance-based award in excess of
$4 million in any calendar year.
Performance Measures. In order to comply with the requirements for
exclusion from the limit on the tax deduction of executive compensation under
Section 162(m) of the Code, the Compensation Policy Committee may condition the
grant or payment of awards to employees on the attainment of performance
objectives. Under the 1998 Plan, the performance objectives are measured by one
or more of the following factors regarding the Company or the applicable
business unit: (i) consolidated cash flows, (ii) consolidated financial
reported earnings, (iii) consolidated economic earnings, (iv) earningsprice per share of Class A common stock, (v) business unit financial reported earnings,
(vi) business unit economic earnings, (vii) business unit cash flow, and (viii)
appreciation in the price of the Company's Class A common stock, considered
alone or as measured against the performance of a group of companies approved
by the Compensation Policy Committee. The 2002 Plan adds to this list
performance objectives measured by one or more of the following factors: (i)
return on invested capital, (ii) consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA"), and (iii) business unit EBITDA.
Directors' Stock Awards and Fee Deferral Elections. The Board may, after
each annual meeting of the shareholders, designate non-employee directors who
will receive awards of deferred shares of Class A common stock. The awards are
fully vested when granted. The awards are distributed in shares of Class A
common stock over a ten-year period following retirement from the Board.
Non-employee directors are directors who are not full-time, salaried employees
of the Company.
The 2002 Plan also provides for the deferral of fees for non-employee
directors at their election. The election must be made prior to an Annual
Meeting and remains in effect until the next Annual Meeting. The amounts
deferred are credited, as of the date of deferral, to a bookkeeping account as
stock units. The number of stock units credited to the account is equal to the fee amount divided by the per sharelower of (i) 100% of its fair market value of Class A common stock on the date
the fee amount would have been paid. The stock units are fully vested when
credited to the accounts. The accounts are credited with additional stock units
asfirst business day of each dividend payment dateJanuary or (ii) 100% of its fair market value on the Class A common stock, to reflectlast business day of the dividend payment payable onsubsequent January. Participants may withdraw at any time and receive a refund of their contributions. No participant may purchase shares of Class A common stock. Upon a non-employee
director's resignation, retirement or death (or if the non-employee director is
not re-elected), the stock units in the director's account will be paid in an
equal number of shares ofCompany’s Class A common stock in any one plan year having a lump sum orfair market value on the first day of the plan year in equal annual
installments over a periodexcess of $25,000.
The Stock Purchase Plan is intended to qualify as elected byan employee stock purchase plan under Section 423 of the director.
The 2002Internal Revenue Code of 1986, as amended. As such, the purchase of shares under the
Stock Purchase Plan also provides for non-employee directors to elect to receive
all or any part of his or her annual retainerwill not result in the form of a stock option.
The stock option, if elected, has a value, determined by the Compensation
Policy Committee based on a Black-Scholes option pricing model, equaltaxable income to the amountemployee or a deduction to the Company at the time of purchase. If the annual retaineremployee sells any shares acquired under the non-employee director elects to receive inStock Purchase plan (or transfers them by gift) within two years after the form of a stock option. The electiondate the purchase price is made on or beforeinitially fixed for each Annual
Meeting and the valuation is made as of the first full trading day following
the Annual Meetingyear (the date of theoption grant). The option becomes fully vested on
32
the date of the next Annual Meeting. The exercise price is the fair market
value of a share of Class A common stock on the date of grant.
Non-employee directors are not eligible for other stock awards.
Conversion Awards. Pursuant to agreements entered into in connection with
the Spin-Off, certain conversion awards were made under the 1998 Plan in shares
of Class A common stock, in replacement of certain awards denominated in shares
of Class A common stock of Old Marriott outstanding on the effective date of
the Spin-Off and held by individuals who were not employees of Old Marriott or within one year after the Spin-Off. These conversion awardsshares are administered under the 2002
Plan. The awards are subject to the terms and conditions substantially similar
to those governing the awards as they were in effect before the Spin-Off.
Approximately 4,000 individuals, including ten directors, received conversion
awards under the 1998 Plan, covering a total of approximately 36.7 million
shares of Class A common stock.
Federal Income Tax Consequences. The following is a brief description of
the federal income tax consequences generally arising with respect to stock
option awards that may be granted under the 2002 Plan. This discussion is
intended for the information of shareholders considering how to vote at the
Annual Meeting and not as tax guidance to participants in the 2002 Plan.
To the extent that any option does not satisfy the requirements for an
incentive stock option, itpurchased, there will be treated as a nonqualified stock option. An
option holder generallydisqualifying disposition and the employee will not recognize income for federal incomerealize ordinary income. The Company will have a corresponding tax purposesdeduction at the time a nonqualified stock option is granted and generally will
recognize ordinary income upon exercise of a nonqualified stock option in an
amountthe transfer equal to the difference between the employee’s purchase price for the shares and their fair market value of the Class A
common stock on the exercise date and the exercise price. Whenof purchase. Any gain in excess of that ordinary income will be short-term capital gain. If an employee disposes of shares acquired upon exercise ofunder the Stock Purchase Plan other than in a nonqualified stock option are sold or otherwise disposed of,disqualifying disposition, the option holder will recognizeemployee realizes a long term capital gain (or loss) equal to the difference between the amount realized and the option holder's tax basis in the shares. An option
holder's tax basis in shares of Class A common stock received upon exercise of
a nonqualified stock option generally is the sum of the exerciseemployee’s purchase price paid and
the ordinary income recognized as a result of exercising the nonqualified stock
option. The Company will be entitled to a deduction for federal income tax
purposes with respect to the exercise of a nonqualified stock option at the
same time and in the same amount as ordinary income is recognized by the option
holder.
An option holder will not recognize ordinary taxable income upon the grant
or exercise of an incentive stock option. However, the option holder may be
subject to the alternative minimum tax upon exercise of an award that qualifies
as an incentive stock option. Upon sale of the shares acquired upon exercise of
an incentive stock option, any gain recognized will be taxed as capital gain if
such shares have been held for at least two years from the date the incentive
stock option was granted and at least one year from the date the shares were
transferred to the option holder. Any sale or other disposition of the shares
acquired upon exercise of an incentive stock option prior to the expiration of
the holding period described in this paragraph is deemed a "disqualifying
disposition" unless the option is exercised after the option holder's death by
the option holder's estate or by the person who acquired the right to exercise
the option by reason of the option holder's death. Upon a disqualifying
disposition, an option holder will recognize ordinary income in an amount equal
to the lesser of (a) the excess of the fair market value of shares on the date
the option was exercised over the exercise price or (b) the excess of the
amount realized upon such disposition over the exercise price. If the amount
realized exceeds thetheir fair market value of the shares on the date of the
exercise, the excess will be treated as capital gain. An option holder's tax
basis in shares of Class A common stock received upon exercise of
33
an incentive stock option is equal to the exercise price paid. The Company will
not be entitled to a deduction for federal income tax purposes at the time an
incentive stock option is granted or exercised or, unless a disqualifying
disposition has occurred, at the time the shares acquired upon exercise of an
incentive stock option are sold. If an option holder makes a disqualifying
disposition, the Company will be entitled to take a deduction at the same time
and in the same amount as the ordinary income recognized by the option holder.
disposition.
The Board recommends a vote FOR ratification of the restatement of the
Marriott International, Inc. 1998 Comprehensive Stock and Cash Incentive Plan,
including an increase of 95 million shares of the Company'sCompany’s Class A common stock authorized for issuance under the 1998Stock Purchase Plan.
ITEM 3--SHAREHOLDER4—SHAREHOLDER PROPOSAL TO ADOPT CUMULATIVE VOTING FOR ELECTION OF DIRECTORS
Mrs. Evelyn Y. Davis (Editor of Highlights and Lowlights, Watergate Office Building, 2600 Virginia Avenue, NW, Suite 215, Washington, D.C.DC 20037), a shareholder who owns 400 shares of Company Class A common stock,Common Stock, has notified the Company of her intention to propose the following resolution at the Annual Meeting of Shareholders:
"RESOLVED:
RESOLVED: That the stockholders of Marriott International, assembled in Annual Meeting in person and by proxy, hereby request the Board of Directors to take the necessary steps to provide for cumulative voting in the election of directors, which means each stockholder shall be entitled to as many votes as shall equal the number of shares he or she owns multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single candidate, or any two or more of them as he or she may see fit."
In support of the resolution, Mrs. Davis has submitted the following statement:
"Many
Many states have mandatory cumulative voting, so do National Banks. In addition, many corporations have adopted cumulative voting.
Last year the owners of 33,321,030383,991,660 shares, representing approximately 18%20% of shares voting, voted FOR myfor this proposal.
"If
“If you AGREE, please mark your proxy FOR this resolution."
”
Board Response
The Board and the Nominating and Corporate Governance Committee have considered this proposal. The Board recommends that shareholders vote against it for the following reasons.
Each director of the Company currently is elected by the holders of a majority of the voting power of the Company'sCompany’s shares. This permits the directors to administer the affairs of the Company for the benefit of all shareholders. The Board believes that cumulative voting is undesirable, because it is directed toward the election of one or more directors by a special group of shareholders. The subset of shareholders or special group electing a director by cumulative voting may seek to have that director
represent those shareholders'shareholders’ or group'sgroup’s special interest, rather than the interests of the shareholders as a whole. This partisanship among directors and special interest voting could interfere with the effectiveness of the Board and could be contrary to the interests of the Company and its shareholders as a whole.
The majority of states, including Delaware, where the Company is incorporated, do not require cumulative voting. The Company'sCompany’s present method of electing directors is employed by over 90%89% of
34
Poor'sPoor’s 500 Index and by most companies listed on the New York Stock Exchange.NYSE. The Board believes that this method is appropriate to ensure that directors will represent all the shareholders, and not just a particular group.
The Board recommends a vote AGAINST this proposal.
ITEMS 4 AND 5--
ITEM 5—SHAREHOLDER PROPOSALS WITH RESPECTPROPOSAL TO CERTAIN ATTRIBUTESESTABLISH A POLICY OF INDIVIDUALS TO BE DIRECTORS OR MEMBERS OF THE NOMINATING AND
CORPORATE GOVERNANCE COMMITTEE
The Company received two separate but similar shareholder proposals from
EXPENSING FUTURE STOCK OPTIONS
International Brotherhood of Electrical Workers'Workers’ Pension Fund ("IBEW"(“IBEW”) and
Massachusetts Laborers' Pension Benefit Fund.
ITEM 4
IBEW (1125 15/15th Street, NW, Washington, D.C.DC 20005), a shareholder that owns 8,76910,969 shares of Company Class A common stock,Common Stock, has notified the Company of its intention to propose the following resolution at the Annual Meeting of Shareholders: /
"RESOLVED,
RESOLVED, that the shareholders of Marriott International, Inc.
("Company"Corporation (“Company”) hereby request that the Company'sCompany’s Board of Directors setestablish a goalpolicy of establishing a boardexpensing in the Company’s annual income statement the costs of directors with at least two-thirds of its members
being independent directors. The Board should pursue this goal and
transition to an independent Board through its power to nominate candidates
to stand for election by shareholders. For purposes of this resolution, a
director would not be considered independent if he or she is currently or
during the past five years has been:
. Employedall future stock options issued by the Company or an affiliate in an executive capacity;
. Employed by a firm that is one of the Company's paid advisors or
consultants;
. Employed by a significant customer or supplier;
. Employed by a tax-exempt organization that receives significant
contributions from the Company;
. Paid by the Company pursuant to any personal services contract with the
Company;
. Serving in an executive capacity or as a director of a corporation on
which the Company's chairman or chief executive officer is a board
member; or
. Related to a member of management of the Company."
In support of the resolution, IBEW has submitted the following statement:
"The board
Current accounting rules give companies the choice of directors playsreporting stock option expenses annually in the company income statement or as a critical rolefootnote in the annual report (See: Financial Accounting Standards Board Statement 123). Most companies, including ours, report the cost of stock options as a footnote in the annual report, rather than include the option costs in determining operating income. We believe that expensing stock options would more accurately reflect a company's
long-term success. A board helps meetcompany’s operational earnings.
Stock options are an important component of our Company’s executive compensation program. Options have replaced salary and bonuses as the challengemost significant element of maximizingexecutive pay packages at numerous companies. The lack of option expensing can promote excessive use of options in a company’s compensation plans, obscure and understate the cost of executive compensation and promote the pursuit of corporate strategies designed to promote short-term stock price rather than long-term corporate value through those roles attributedvalue.
A recent report issued by Standard & Poor’s indicated that the expensing of stock option grant costs would have lowered operational earnings at companies by as much as 10%. “The failure to itexpense stock option grants has introduced a significant distortion in reported earnings,” stated Federal Reserve Board Chairman Alan Greenspan. “Reporting stock options as expenses is a sensible and positive step toward a clearer and more precise accounting of a company’s worth.”Globe and Mail, “Expensing Options Is a Bandwagon Worth Joining,” Aug. 16, 2002.
Warren Buffett wrote in aNew York Times Op-Ed piece on July 24, 2002:
There is a crisis of confidence today about corporate earnings reports and the credibility of chief executives. And it’s justified.
For many years, I’ve had little confidence in the earnings numbers reported by lawmost corporations. I’m not talking about Enron and regulation.
A board serves as management monitor, working to assemble a well-qualified
senior management team. In conjunction with senior management, a board
contributesWorldCom – examples of outright crookedness. Rather, I am referring to the developmentlegal, but improper, accounting methods used by chief executives to inflate reported earnings…
Options are a huge cost for many corporations and implementationa huge benefit to executives. No wonder, then, that they have fought ferociously to avoid making a charge against their earnings. Without blushing, almost all C.E.O.’s have told their shareholders that options are cost-free…
When a company gives something of a corporation's
competitive strategies, while also serving as the architect of an executive
compensation plan that provides necessary incentives and rewardsvalue to accomplish long-term corporate success. The board of directors must operate
independently of the corporation's chief executive officer and senior
management ifits employees in return for their services, it is clearly a compensation expense. And if expenses don’t belong in the earnings statement, where in the world do they belong?
Many companies have responded to fulfill its dutyinvestors’ concerns about their failure to hire, oversee, compensate,expense stock options. In recent months, more than 100 companies, including such prominent ones as Coca Cola, Washington Post, and if necessary, replace management. Independence has been referredGeneral Electric, have decided to as "a
director's greatest virtue" (Robert Rock,
35
Chair of National Association of Corporate Directors, "Directors and
Boards," Summer edition 1996) and we believe independent boards are better
positioned to remove non-performing senior executives.
"Inexpense stock options in order to best fulfill its responsibilities and ensure the corporation's
long-term success, we believe that at least two-thirds of a board's members
should be "independent" directors. The Company's Board of Directors as
presently composed does not meet the two-thirds independence standard. Five
of ten board members are not independent. Richard Marriott is relatedprovide their shareholders more accurate financial statements. Our Company has yet to a
member of management. J.W. Marriott and Mr. Shaw are employed by the
Company in an executive capacity. Dr. Henry Cheng Kar-Shun and members of
his family, according to the Company's Proxy statement, "directly or
indirectly owns or leases hotel properties that are operated by
subsidiaries of the Company." Mr. Pearce serves as Vice Chairman of the
Board of General Motors, on whose Board J.W. Marriott also serves.
"As long-term shareholders, we believe an independent board best represents
shareholders. Adoption of this resolution would encourage our company to
work towards this goal.act. We urge you to support this resolution."
ITEM 5
Massachusetts Laborers' Pension Fund (14 New England Executive Park, Suite
200, P.O. Box 4000, Burlington, Massachusetts 01803-0900), a shareholder that
owns approximately 1,500 shares of Company Class A common stock, has notified
the Company of its intention to propose the following resolution at the Annual
Meeting of Shareholders:
"RESOLVED, that the shareholders of Marriott International, Inc.
("Company") hereby request that the Company your support.
Board of Directors adopt an
Independent Board Nominating and Corporate Governance Committee Policy that
provides for a transition to a Nominating and Corporate Governance
Committee composed entirely of independent directors as Committee openings
occur."
Massachusetts Laborers' Pension Fund included the same definition for
determining who is considered an "independent director," as the definition of
such term included in the proposal of the IBEW set forth above.
In support of the resolution, Massachusetts Laborers' Pension Fund has
submitted the following statement:
"A Board of Director's Nominating and Corporate Governance Committee is
charged with the role of selecting candidates for the corporation's board.
The board of directors fulfills the vital function of hiring, monitoring,
compensating and, when necessary, replacing senior management. It
participates with and oversees management as it first develops and then
executes the corporation's strategic plans.
"The Nominating and Corporate Governance Committee performs the important
task of seeking out, interviewing and ultimately recommending new board
nominees that will stand for election by the shareholders. Response
The Board, Nominatingthe Compensation Policy Committee should be composed entirely of directors independent
of management who can take the necessary actions to seek, nominate, and
present new director candidates to the shareholders. The definition of
"independent" director advanced in the resolution will ensure that those
members of our Company's Nominating Committee will be
36
totally independent of management and best able to undertake their
responsibilities in developing an independent Board focused on the
Company's long-term success.
"Implementation of this resolution would strengthen the process by which
director nominees are selected at our Company. At present, our Company's
Nominating and Corporate Governance Committee includes Mr. Harry Pearce.
Mr. Pearce serves on the company's Nominating and Corporate Governance
Committee, while at the same time, J. W. Marriott, Jr., the Company's CEO,
serves on the compensation Committee of General Motors. Mr. Pearce is Vice
Chairman of the Board of General Motors.
"As long-term shareholders, we urge your support of this important
corporate governance reform that we believe will contribute to the
Company's long-term success."
Board Response To Items 4 and 5
The Board, and the Nominating and Corporate Governance Committee, have
considered these proposals. The Board recommends that shareholders vote against
them for the following reasons.
We strongly believe in the importance of a diverse and highly qualified
board of directors. A sizable majority of the Board consists of persons who
would satisfy any reasonable test of independence, including the definition
used by the New York Stock Exchange. We note that there are only two Company
employees on the Board of Directors and neither is on the Nominating and
Corporate Governance Committee. In addition, Mr. Pearce resigned as an
executive officer of General Motors Corporation on May 29, 2001 and is no
longer a board member of General Motors Corporation as of June 5, 2001. We have
been well served by our present policy on board and committee membership, which
selects nominees for election based on a variety of criteria, including overall
business experience and specific expertise, and gives due consideration to any
relationships with the Company. Any material relationships between the Company
and any director are disclosed under Securities and Exchange Commission rules.
Adoption of these proposals would unduly restrict the candidates available
for service on the Board. The proposals also would limit consideration of
candidates who have sound judgment, extensive experience, and a thorough
knowledge of the operations of the Company. The proposals would, for example,
apply to highly qualified persons simply because they are employed by companies
that do business with us. The proposals could also inhibit us from obtaining
services from another company simply because one of its employees is a current
Company director. The Board believes that the Company's current policies
regarding the independence of directors and the independence of members of the
Company's Nominating and Corporate Governance Committees are appropriate.
The Board recommends a vote AGAINST Items 4 and 5.
ITEM 6--SHAREHOLDER PROPOSAL TO CREATE A COMMITTEE OF INDEPENDENT DIRECTORS TO
PREPARE A REPORT DESCRIBING RISKS TO SHAREHOLDERS OF OPERATING AND/OR
FRANCHISING HOTELS IN MYANMAR
American Federation of Labor and Congress of Industrial Organizations
("AFL-CIO") (815 16/th Street, NW, Washington, D.C. 20006), a shareholder that
owns 200 shares of Company Class A /
37
common stock, has notified the Company of its intention to propose the
following resolution at the Annual Meeting of Shareholders:
"RESOLVED: The shareholders of Marriott International, Inc. ("Marriott" or
the "Company") urge the Board of Directors to create a committee of
independent directors to prepare a report at reasonable expense describing
the risks to shareholders of operating and/or franchising hotels in Burma,
including possible risks to Marriott's brand name resulting from
association with human rights abuses in Burma."
In support of the resolution, AFL-CIO has submitted the following statement:
"According to the American Hotel and Lodging Association, Marriott operates
and/or franchises two hotels in Burma, the Renaissance Inya Lake Yangon and
the Ramada Hotel Yangon International Airport.
"Burma has been ruled for over a decade by a military dictatorship widely
condemned for human rights abuses. The U.S. government has banned new
investment in Burma, and many U.S. companies have voluntarily withdrawn
from the country. The United Nations, the U.S. Department of Labor, the
International Labor Organization and various human rights groups have
published reports on forced labor and other human rights violations in
Burma.
"In addition, numerous reports link the use of forced labor in Burma to the
development of the tourism industry, one of the few sources of foreign
exchange for the military regime. According to a 1998 report by the U.S.
Department of Labor, 'there have been numerous allegations since 1994 that
the Government of Burma has forced many thousands of people to contribute
their labor to tourism development projects. Many hotels and other tourists
facilities which the Government of Burma has built in more remote areas
were also reportedly built with forced labor.' In February 2001, the U.S.
Department of State also noted that there are 'reports that the Government
used forced labor to construct infrastructure to support tourism.'
"One of Marriott's most valuable assets is the Marriott brand name.
According to the Company's 1999 annual report, 'The Marriott business model
is focused not on bricks and mortar, but rather on building the value of
our brands.' However, by operating in Burma, our Company may run the
significant risk that the Marriott brand name may be associated with human
rights abuses of the military regime, damaging the Company's most important
asset. Indeed, Marriott is now subject to a nationwide boycott in the
United States by the Free Burma Coalition, a coalition of student groups.
"In 2000, Best Western International, one of the world's largest hotel
brand companies, announced that it was withdrawing from Burma, removing its
brand name from a hotel in Yangon. Best Western told reporters that the
hotel would 'not operate as a Best Western Hotel until the political and
social situation in [Burma] has stabilized,' and ruled out sublicensing any
new hotels in Burma until 'civil rights' issues were solved.
"Given Marriott's small investment in Burma, we are deeply concerned that
the potential benefits of operating in Burma may be outweighed by
significant risks to the Marriott brand name. Accordingly, we believe an
assessment of the risks by a committee of independent directors is
necessary.
"We urge you to vote FOR this resolution."
38
Board Response
The Board, and the Nominating and Corporate Governance Committee have considered this proposal. The Board recommends that shareholders vote against it for the following reasons.
Current accounting rules permit companies to choose whether to include the grant of stock options on its income statement as an expense, or to disclose in the notes to its financial statements the impact of expensing stock options on a company’s earnings. We havebelieve it is generally in the best interest of shareholders to follow the most widely used industry practice when considering these two permissible alternatives under the accounting rules. Therefore, in keeping with the practice followed by a strong commitment to protecting human rights,substantial majority of companies, both at home and
abroad. The Board has adopted a Statement of Public Policy that states,
"Marriott supports and respects the protection of human rights within the company's spherehospitality industry and generally, we currently do not expense stock options. Instead, we disclose the impact of influenceexpensing in the notes to our financial statements. We believe that this accounting treatment both adequately informs shareholders of the financial impact of stock options and ensuresmakes it easier to compare our financial performance to that our business operations are not
complicit in human rights abuses." Under this Statement of Public Policy, the
Company "supports and upholds the elimination of discriminatory practices with
respect to employment and occupation; the elimination of all forms of forced
and compulsory labor; [and] the effective abolition of child labor . . . ." Our
commitment to human rights transcends local politics.
We recognize that the government of Myanmar (in what formerly was known as
Burma) has been criticized for issues related to civil rights. However,other companies. Accordingly, we do not believe it would be in the best interests of shareholders to expense stock options at this time.
Moreover, we are concerned that terminatingexpensing of stock options introduces additional subjectivity into our minor business contacts in Myanmar is an
effectivefinancial statements, due to the debate over how effectively to value stock options. For example, companies that have announced that they intend to expense stock options have elected to use differing means to address this significant issue. We dovalue the options, and the valuations are based on varying assumptions regarding, among other things, the expected life of the stock options, stock price volatility and prevailing interest rates. Moreover, there are transition issues raised by changing our accounting treatment to expense stock options. For example, companies that recently have decided to expense options have not own any hotelsadopted consistent valuation methods or transition approaches. Indeed, new accounting rules specifically allow for such inconsistencies. This lack of a reliable, standard method of valuing stock options and differing methods of transitioning to expensing will further add to the difficulty of comparing financial results.
Beginning in Myanmar. Our only connection2003, we will be utilizing restricted stock units as a long-term incentive. This award will replace the annual option awards granted to this country is throughthe majority of senior management. Restricted stock units are valued and expensed as they vest with the employees. Therefore, we expect that we will use fewer options going forward.
Although a management agreement
for operationsmall percentage of two hotelscompanies recently opted to expense stock options, we are part of the vast majority of companies who continue to provide information relating to the impact of the expensing of options in the capital city of Myanmar. Our involvement innotes to their financial statements. Therefore, at this business interest resulted fromtime it would be more difficult for our 1997 acquisition of the Renaissance
Hotel Group N.V. Formerly,shareholders to compare our financial performance with our competitors if we were a party to another management agreement for
another hotelexpense our stock options.
In addition to reducing the comparability of our financial statements, we believe that expensing options would not provide shareholders with additional useful information. We already disclose in the same city, butnotes to our consolidated annual financial statements information on pro forma net earnings and earnings per share as if we have terminated that agreement. None of
these hotels are locatedhad expensed employee stock options. You can review this disclosure in the remote areas where the proposal indicates that
forced labor was used“Employee Stock Plans,” Note to develop resorts, and no forced labor has been employed
at the hotels at least since our involvement.consolidated financial statements, which can be found in our annual report on Form 10-K. We believe that such disclosure adequately informs shareholders of the employees who work atfinancial impact of stock option grants on our financial performance.
The entities responsible for establishing accounting standards, the hotels subjectFinancial Accounting Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”), currently are studying issues related to the existing management agreement benefit from our involvement with those
properties.appropriate accounting for stock options, including valuation and transition issues. We are proudsupport the adoption of the steps we take to train our employees and
advance their careers in the hospitality industry. While terminating the
management agreement would not necessarily result in the termination of these
employees' jobs, it would mean that they would not have continued access to the
benefits and opportunitiesclear, uniform rules for career advancement that we provide our employees.
In light of our favorable treatment of employees, our record of supporting
and advancingstock options in financial statements.
For these reasons, the careers of our employees everywhere, and the small size of
our business contacts in Myanmar, we do not believe that there is a risk that
we will become "associated with" human rights abuses in Myanmar. Accordingly,
we believe that the assumption underlying the proposal - that there is a risk
to the Marriott brand name from our minor contacts with Myanmar - is
ill-founded, and that endeavoring to prepare a report on any such risks is not
a useful expenditure of corporate funds or management effort.
The Board recommends a vote AGAINST this shareholder proposal.
ITEM 7--SHAREHOLDER6—SHAREHOLDER PROPOSAL TO ADOPT IMPLEMENTA POLICY THAT IN THE FUTURE INDEPENDENT ACCOUNTANTS WILL PROVIDE ONLY AUDIT SERVICES TO THE COMPANY AND ENFORCE A
WORKFORCE CODE OF CONDUCT BASED ON THE INTERNATIONAL LABOR
ORGANIZATION'S CONVENTIONS ON WORKPLACE HUMAN RIGHTS
Hotel Employees & Restaurant Employees International Union ("HERE") (1219
28/thNO OTHER SERVICES
Financial Investors Trust (370 Seventeenth Street, NW, Washington, D.C. 20007)Suite 3100, Denver, Colorado 80202-5627), a shareholder that owns 7017,324 shares of Company Class A common stock,Common Stock, has /
39
"The
RESOLVED: The shareholders of Marriott International, Inc. (the “Company”) urge the Board of Directors to adopt implement and
enforce a workplace code of conduct based onpolicy that in the International Labor
Organization's ("ILO") Conventions on workplace human rights, includingfuture the following principles:
1. All workers shall have the rightfirm that is appointed to form and join trade unions and to
bargain collectively (ILO Conventions 87 and 98).
2. Workers' representatives shall not be the subject of discriminationCompany’s independent accountants will only provide audit services to the Company and shall have access to all workplaces necessary to enable them to
carry out their representation functions (ILO Convention 135)."
not provide any other services.
In support of the resolution, HEREFinancial Investors Trust has submitted the following statement:
"The success
New disclosure requirements by the Securities and Exchange Commission required corporations, starting in 2001, to disclose how much they were paying their “independent” auditors for audit work and how much they were paying them for “other” work.
The results were startling. Surveys by the Wall Street Journal and the Investor Responsibility Research Center each found that, on the average, corporations were paying their “independent” auditors three times more for “other” work than for their audit work. That raised the obvious concern as to how “independent” and objective the auditors really were. This concern was heightened by the subsequent accounting scandals at Enron and WorldCom.
In response to these accounting concerns, President Bush signed into law the Sarbanes-Oxley Act, which places restriction on the types of Marriott International's business depends on consumernon-audit services auditors can render in an effort to reduce the conflict of interests. While the new law is certainly a step in the right direction, it does contain a potential and governmental goodwill. serious loophole. The auditors can still render tax and certain other services as long as they are pre-approved by the audit committee.
According to Marriott's 2000 annual report,this Company’s 2002 proxy statement, it paid its auditors $2,960,800 million for tax services and $1,874,900 million for audit services. Such a disparity in fees does not provide comfort to shareholders concerned about auditor conflicts of interest.
It is respectfully submitted that this new Board of Directors could send a positive message to its investors and the Company's growth 'is fueledpublic at large by customer preference for our hotels and by
owner and franchisee demand for our brands.' Since the Marriott's [sic]
brand name is one of the Company's most significant assets, Marriott would
benefit from adopting and enforcing a code of conduct based on ILO
conventionspolicy that would ensure that the Company is not associated with human
rights violations in the workplace. Such actionfuture its auditors would protectdo no other work for the Company's
brand name and/or its relationships with its customers andCompany.
Board Response
The Board, the numerous
governments under which the Company operates and with which it may do
business.
"The risk that Marriott could be associated with workplace human rights
violations is potentially high. For example, Marriott International manages
and/or franchises hotels in Burma, China, Saudi Arabia, Qatar, and the
United Arab Emirates where, according to the United States Department of
State and International Confederation of Free Trade Unions, labor rights
are not adequately protected by law and/or public policy.
"In addition, Marriott's respect for labor rights has been questioned in
the United States. For example, in a report published in 2000, Human Rights
Watch cited the Company's labor dispute at the San Francisco Marriott Hotel
as a case study of 'violations of workers' freedom of association.' The San
Francisco property is currently the subject of a boycott.
"We urge you to vote FOR this resolution."
Board Response
The Board,Audit Committee and the Nominating and Corporate Governance Committee have considered this proposal. The Board recommends that shareholders vote against it for the following reasons.
We are committed to providing a fair and productive workplace through a
continuing partnership with our employees. We believe that our success in these
efforts is demonstrated by our widespread recognition as a diverse and
desirable place to work. Recent accolades for our commitment to our employees
include recognition by Fortune magazine as one of the "100 Best Companies to
Work For" as well as one of the "Top 50 Companies For Minorities," receipt of
the prestigious 2002 Catalyst Award for demonstrated success in advancing
women's leadership in the workplace, recognition as one of the 50 best
companies to work for in Canada for 2002 according to the Globe and Mail's
"Report on Business" magazine, being named one of the ten best companies for
working mothers by Working Mother magazine and being on their best companies
list for the eleventh consecutive year and
40
inclusion on the list of "The 50 Best Companies for Latinas to Work for in the
US," as compiled by LatinaStyle magazine.
In light of our existing commitment to our employees, we believe that
adoption of a workplace code of conduct based on ILO Conventions would be a
step in the wrong direction. The conventions advocated by the proposal in many
cases are not designed for private employers, such as the Company, but instead
are intended for government employees. In addition, we believe that it would be
difficult, if not impossible, to reconcile a uniform code of conduct based on
the ILO Conventions with the laws of each of the 63 countries and territories
where we operate. Finally, we believe that changing our existing employee
policies would be costly and disruptive without delivering any corresponding
benefit given the success we continue to enjoy with our existing programs.
Although this proposal refers to human rights concerns, we do not view this
proposal as questioning our commitment to human rights. In fact, the Board has
adopted a Statement of Public Policy affirming that, "Marriott supports and
respects the protection of human right within the company's sphere of influence
and ensures that our business operations are not complicit in human rights
abuses." We are committed to supporting human rights and maintaining our hotels
as diverse and desirable places to work. We believe it is no coincidence that
the proposal was submitted by the parent of a local union that is involved in
collective bargaining negotiations with us. We believe this proposal, rather
than promoting shareholder value, in fact would detract from it.
The Board recommends a vote AGAINST this proposal.
ITEM 8--SHAREHOLDER PROPOSAL TO ADOPT A POLICY THAT IN THE FUTURE
INDEPENDENT ACCOUNTANTS WILL PROVIDE ONLY AUDIT SERVICES TO
THE COMPANY AND NO OTHER SERVICES
Financial Investors Trust (370 17/th Street, Suite 3100, Denver, Colorado
80202-5627), a shareholder that owns 16,746 shares of Company Class A common
stock, has notified the Company of its intention to propose the following
resolution at the Annual Meeting of Shareholders: /
"RESOLVED: That the shareholders of Marriott International, Inc. request
that the Board of Directors adopt a policy that in the future the firm that
is appointed to be the Company's independent accountants will only provide
audit services to the Company and not provide any other services."
In support of the resolution, Financial Investors Trust has submitted the
following statement:
"The Securities and Exchange Commission passed new proxy statement rules
that took effect February 5, 2001, which require companies to disclose how
much they pay their accounting firms for audit services and non-audit
services.
"According to a Wall Street Journal article of April 10, 2001: 'The
nation's biggest companies last year paid far more money than previously
estimated to their independent accounting firms for services other than
auditing, newly disclosed figures show, renewing questions about whether
41
such fees create conflicts of interest for auditing firms....At issue: How
objective can an accounting firm be in an audit when it is also making
millions of dollars providing the client with other services.'
"That Wall Street Journal article reported that of the 307 S&P 500
companies it had surveyed, the average fees for non-audit services were
nearly three times as big as the audit fees. The Company's 2001 proxy
statement disclosed that it had paid its independent auditor - Arthur
Andersen LLP - $1 million for audit work and $30.2 million directly and
indirectly for additional work [$4.8 million directly and $25.3 million
indirectly for financial systems design and implementation fees by
Accenture (formerly Andersen Consulting) before Arthur Andersen LLP
divested Accenture].
"When the SEC was seeking comments on its accountant disclosure rules,
substantial institutional investors urged that auditors should not accept
non-audit fees from companies.
"It is respectfully submitted that it would be in the best interests of the
Company's shareholders if the Board of Directors adopts a policy that in
the future any firm appointed to be the Company's independent accountants
shall only provide audit services to the Company and not provide any other
services."
Board Response
The Board, and the Nominating and Corporate Governance Committee, have
considered this proposal. The Board recommends that shareholders vote against
it for the following reasons.
We believe that it is in our shareholders'shareholders’ best interests to maintain the flexibility to determine the most suitable vendor for services that we require. In making those determinations, we are able to consider a wide range of factors, such as cost, efficiency, expertise, familiarity with the Company, and protection of trade secrets and other confidential information. Applying these and other criteria, the Board in the past has determined that non-audit services provided by the independent accountantsauditor can be high-quality, focused and cost-efficient, especially when the independent accountants'auditor’s expertise in a particular field is coupled with its knowledge of our business operations and our financial systems. Among
In July 2002, Congress enacted and President Bush signed into law the Sarbanes-Oxley Act of 2002. As part of the Sarbanes-Oxley Act, Congress determined that independent auditors should not be permitted to provide certain non-audit services to their audit clients. Yet, after carefully considering the arguments for and against the provision of non-audit services by independent auditors, Congress rejected an absolute ban on the provision of non-audit services and instead determined that independent auditors may provide certain non-audit services so long as the services whichare approved in advance by the audit committee of a company’s Board of Directors. This determination is reflected in rules being implemented by the SEC.
Consistent with these provisions, the Board has mandated Audit Committee procedures to closely monitor audit and non-audit services provided by the independent accountants. The Board prohibits the Company from retaining the independent auditor to perform numerous non-audit services and requires that any non-audit services performed by the independent auditor be pre-approved under procedures established by the Audit Committee. The Board imposed pre-approvals and prohibitions before the Sarbanes-Oxley Act was introduced. Further, pursuant to existing standards, our Audit Committee and our independent accountants
have provided inauditor periodically discuss the past, which would fall outsideauditor’s independence as part of the Security and
Exchange Commission's narrow definition of "audit services," are tax compliance
and consultation services, statutory audits of subsidiaries, acquisition due
diligence, transaction and accounting consultation and assistance with
registration statements.
Although we recognize that by retaining our independent accountants for
non-audit services, we must address concerns about any appearance of a conflict
of interest with the audit role of the independent accountants, we already have
established and well-recognized procedures in placean ongoing effort to monitor and preserve accountants'the auditor’s independence. For example,Taking these discussions into account, the Audit Committee of the Board
receives written disclosures provided for under Independence Standards Board
Standard No. 1 (a board formed by the SEC and the American Institute of
Certified Public Accountants to address independence matters affecting public
companies' audit firms), relating to relationships that may bear on the
accountants' independence. Consistent with Standard No. 1, the Audit Committee
and the Company's accountants regularly discuss the accountants' independence
in light of those written disclosures. Taking into account these procedures,
the Audit Committee each year specifically considers whether the accountants'auditor’s provision of non-audit services is compatible with maintaining the accountants'auditor’s independence. Furthermore, as required by the rules of the Securities and
Exchange
42
Commission,SEC, we disclose the amount of fees paid to our accountants for non-audit services (See page 1617 of this proxy statement). We also provide shareholders an opportunity to provide their views on our selection of independent accountants, by seeking annual shareholder ratification of our selection. We believe these procedures facilitate Board oversight and robust
discussion onevaluation of issues that might affect the accountants'auditor’s independence.
Retaining
In light of the flexibilityability of the Audit Committee to hiredetermine that, in some circumstances, it can be appropriate to use our independent accountants forauditor to provide non-audit services, is also consistent with the position statedas permitted by the SecuritiesSarbanes-Oxley Act, and Exchange Commission in December 2000 whenbecause our Audit Committee already monitors closely the independence of our auditor, we believe it amended its auditor independence
rules. After carefully considering the arguments on all sides, the SEC rejectedis not prudent to adopt a totalcomprehensive ban on the provision of all non-audit services and continued to permit auditors to provide a
wide variety of non-audit services to their audit clients.
services.
The Board recommends a vote AGAINST this proposal.
43
The SEC allows us to deliver a single proxy statement and annual report to an address shared by two or more of our shareholders. This delivery method, referred to as “householding,” can result in significant cost savings for us. In order to take advantage of this opportunity, we and banks and brokerage firms that hold your shares have delivered only one proxy statement and annual report to multiple shareholders who share an address unless the Company has received contrary instructions from one or more of the shareholders. The Company will deliver promptly, upon written or oral request, a separate copy of the proxy statement and annual report to a shareholder at a shared address to which a single copy of the documents was delivered. A shareholder who wishes to receive a separate copy of the proxy statement and annual report, now or in the future, may obtain one, without charge, by addressing a request to the Secretary, Marriott International, Inc., Dept. 52/862, Marriott Drive, Washington, D.C. 20058. You may also obtain a copy of the proxy statement and annual report from the Company’s website at www.marriott.com/investor. Shareholders sharing an address who are receiving multiple copies of proxy materials and annual reports and wish to receive a single copy of such materials in the future should submit their request by contacting us in the same manner. If you are the beneficial owner, but not the record holder, of the Company’s shares and wish to receive only one copy of the proxy statement and annual report in the future, you will need to contact your broker, bank or other nominee to request that only a single copy of each document be mailed to all shareholders at the shared address in the future.
The Company'sCompany’s management knows of no other matters which may be presented for consideration at the 20022003 annual meeting. However, if any other matters properly come before the annual meeting, the persons named in the proxy intend to vote such proxy in accordance with their judgment on such matters.
Any shareholder who desireswould like a copy of the Company's 2001Company’s 2002 Annual Report on Form 10-K may obtain one, without charge, by addressing a request to the Secretary, Marriott International, Inc., Dept. 52/862, Marriott Drive, Washington, D.C. 20058. The Company'sCompany’s copying costs will be charged if copies of exhibits to the 10-K are requested. You may also obtain a copy of the 10-K, including exhibits, from the Company’s website at www.marriott.com/investor.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ DOROTHY M. INGALLS
Dorothy M. Ingalls
Secretary
44
MARRIOTT INTERNATIONAL, INC.
AMENDED AND RESTATED AUDIT COMMITTEE CHARTER
I. Composition
| I. | Purpose; Statement of Policy |
| A. | The purpose of the Audit Committee (the “Committee”) is to assist the Board of Directors in overseeing: (i) the accounting, reporting, and financial practices of the Company and its subsidiaries, including the integrity of the Company’s financial statements; (ii) the Company’s internal control environment and compliance with legal and regulatory requirements; (iii) the independent auditors’ qualifications and independence; and (iv) the performance of the Company’s internal audit function. The Committee shall also prepare the report for the Company’s annual proxy statement required by rules of the Securities and Exchange Commission (the “SEC”). |
| B. | The Committee has revised and amended this Charter as part of its continuing commitment to the integrity and importance of the financial reporting process and to reflect recent changes in law. The Committee recognizes that these changes are ongoing, and, accordingly, the Committee will from time to time consider such further modifications to this charter as may be necessary or appropriate in light of further changes in law, rule, regulation or best practice. |
| II. | Members and Terms of Office |
| A. | The Board of Directors appoints the members of the Committee, which shall be composed of at least three Directors, and designates one member to serve as Committee Chair. Each member of the Committee shall be financially literate, as determined by the Board of Directors, and must at all times be “independent,” as defined by the New York Stock Exchange (“NYSE”) and the SEC. At least two members of the Committee must also be a “financial expert” as defined by SEC and NYSE requirements. |
| B. | Members of the Committee serve until the next Annual Meeting of the Board of Directors or until their successors are appointed. |
| III. | Meetings |
| A. | The Committee will hold at least four (4) regular meetings each year, and telephonic meetings prior to each quarterly earnings release, as well as such additional meetings as the Committee Chair may deem necessary or appropriate. Minutes of each Committee Meeting will be submitted to the Board of Directors and the Committee Chair will report verbally to the full Board of Directors on matters discussed at the most recent Committee Meeting. Meetings may take place in person or telephonically at such times and places as the Committee Chair may determine. One-half of the members of the Committee will constitute a quorum. |
| B. | To provide access to the Committee for the internal auditors, independent auditors, and key financial management, the Committee will request the attendance at its regular meetings or otherwise, of the Chief Audit Executive (“Chief Audit Executive”) and such other members of the Company’s management as circumstances may require. |
| C. | The Committee will meet separately in executive session, at each regularly scheduled meeting, exclusively with each of the Chief Audit Executive and the Independent Auditors |
(defined below) and, at the Committee’s discretion, exclusively with its own members and/or with management. Annually, the Committee shall meet in executive session with the Disclosure Committee or more frequently at their discretion. |
| IV. | Duties and Responsibilities |
Consistent with and Terms of Office
A. The Audit Committee (the "Committee") shall be appointedsubject to applicable law and rules or listing standards promulgated by the Board
of Directors and shall be composed of at least three Directors, all of
whom have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company
("Independent"). In addition to the definition of Independent provided
here, additional restrictions apply to every Committee member as
outlined in the Corporate Governance Listing Standards of the New York
Stock Exchange and currently filed with the Securities and Exchange
Commission.
B. Each member ofSEC, NYSE, or other applicable regulatory authority, the Committee shall be financially literate as
interpreted byhave the Board of Directors, or must become financially
literate within a reasonable period of time after his or her
appointment to the Committee. At least one member of the Committee must
have accounting or related financial management expertise, as
interpreted by the Board of Directors.
C. The Chairman of the Committee shall be appointed by the Board of
Directors. Members of the Committee shall serve until the next Annual
Meeting of the Board of Directors or until their successors are
appointed.
II. Meetings
following duties and responsibilities.
| A. | Relationship with Independent Auditors |
| 1. | The Committee will appoint, oversee and determine the compensation of any registered public accounting firm (the “Independent Auditors”) employed by the Company for the purposes of preparing or issuing an audit report or related work, and the Independent Auditor shall report directly to the Committee.1 The Committee has sole authority to approve all terms and fees associated with any audit engagement.2 The Committee will review, at least annually, a report describing the Independent Auditor’s internal quality control procedures and any material issues raised by the most recent internal quality-control review, or by any inquiry or investigation by governmental or professional authorities within the preceding five (5) years3, and any steps taken to address such issues. |
| 2. | The Committee will approve in advance all audit engagement fees and terms of all audit services to be provided by the Independent Auditor. (By approving the audit engagements, the audit service shall be deemed to have been pre-approved.) |
| 3. | The Committee will establish policies and procedures for the engagement of the Independent Auditor and pre-approval of any permissible non-audit services to be performed by the Independent Auditor. The Committee will, at least annually, (i) consider the independence of the Independent Auditor and whether the performance of permissible non-audit services is compatible with the auditor’s independence, and (ii) review a report by the Independent Auditor describing any relationships between the Independent Auditor and the Company or any other relationships that may adversely affect the independence of the Independent Auditor. |
| B. | Risk Assessment and Control Environment |
The Committee shall hold at least three regular meetings each yearwill periodically review and such
additional meetings as may be deemed necessary bydiscuss the Committee Chairman.
Minutes of each Committee meeting shall be submitted toCompany’s business and financial risk management and risk assessment policies and procedures with senior management, the Board of
Directors,Independent Auditor, and the Chairman of theChief Audit Executive. The Committee will report verbally to the
full Board of Directors on matters discussed or any actions taken at the
most recent Committee meeting.
To provide access to the Committee for the internal auditors, independent
accountantsreview and key financial management, the Committee shall request, as
deemed appropriate, attendance at its regular meetings or otherwise, of
financial management, the head of Internal Audit ("Chief Audit Executive")
and such other members of the Company's management as circumstances
require. At least annually, the Committee shall meet separatelydiscuss with
management, the Chief Audit Executive the scope, progress, and results of the independent accountantsinternal audit program.
The Committee will annually:
| 1. | Obtain a report from the Independent Auditors discussing, among other items, critical accounting policies and alternative treatments of financial information discussed with management;4 |
| 1 | Sarbanes-Oxley Act, §301. |
| 2 | NYSE Proposed Standard 303A(7)(b)(ii)(A). |
| 3 | NYSE Proposed Standard 303A(7)(b)(ii)(B). |
| 4 | Sarbanes-Oxley, §204. |
| 2. | Review major issues concerning accounting policies and financial statement presentations, including any significant changes in the Company’s selection or application of such principles; and |
| 3. | Review any analyses prepared by management and/or the Independent Auditors setting forth significant financial reporting issues and related judgments. |
| C. | Internal Controls and Disclosure Controls and Procedures |
The Committee will periodically review the adequacy and effectiveness of the Company’s internal control environment, including any significant changes or deficiencies in separate executive sessions to discuss any matters thatinternal controls. The Committee will also review the annual attestation and report of the Independent Auditor on management’s evaluation of the Company’s internal controls and procedures for financial reporting. In connection with this review, the Committee or
these groups believe should be discussed privately.
III. Dutieswill obtain and Responsibilities
A. Risk Assessment and Control Environment
discuss:
| 1. | Reports from the Chief Executive Officer, the Chief Financial Officer and the Independent Auditors on any significant deficiencies in the design or operation of internal controls with the identification of any material weakness; |
| 2. | Any fraud or other irregularity (whether or not material) that involves management or other employees who have a significant role in the Company’s internal control environment; and |
| 3. | Management’s evaluation of the Company’s disclosure controls and procedures. |
| D. | Financial Reporting |
| 1. | The Committee will review the Company’s quarterly and annual results with senior management and the Independent Auditors prior to the public release of those results. |
| 2. | The Committee will review with senior management and the Independent Auditor the Company’s annual audited and quarterly financial statements. |
| 3. | The Committee will at least annually review the following with the Independent Auditors (and management, as appropriate): |
| · | The Independent Auditor’s views of the quality of the Company’s accounting principles setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements. |
| · | Any disagreements with management over the application of accounting principles. |
| · | Major issues regarding the accounting principles applied, especially significant estimates made by management or significant changes in accounting principles and financial statement presentation. |
| · | Significant related party transactions or other significant conflicts of interest. |
| · | Significant audit adjustments. |
| · | The Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” including critical accounting policies. |
| · | Any difficulties encountered during the audit, including any restrictions on the scope of work or access to information. |
| · | Any other matters related to the conduct of the audit that must be communicated to the Committee under Generally Accepted Auditing Standards. |
| · | Recommend to the Board, based on the foregoing, whether the financial statements should be included in the Annual Report on Form 10-K. |
| 4. | The Committee will meet regularly with in-house counsel to discuss legal matters that may have a material impact on the financial statements. The Committee may meet with outside counsel as the Committee deems appropriate. |
| 5. | The Committee will prepare an Audit Committee Report for inclusion in the Company’s annual proxy statement and submit the draft report to the Board of Directors for approval. |
| E. | Review of Codes of Conduct for Directors, Officers, and Employees |
The Committee shall:
1. Periodically inquire ofwill at least annually review with management, the independent accountants,General Counsel and the Chief Audit Executive about significant risks or exposures and
assess the steps management has taken to minimize such risk to the
Company.
2. Consider and review with the independent accountants and Chief Audit
Executive:
. The adequacy of the Company's internal controls including
information systems controls and security.
A-1
. Related findings and recommendations of the independent
accountants and Internal Audit together with management's
responses.
3. Review audit plans with the Chief Audit Executive and independent
accountants and evaluate adequacy of proposed audit scope.
4. Review appointment and dismissal of Chief Audit Executive.
5. Periodically review progress of the annual internal audit plan and
key findings.
6. Review with appropriate management, in-house counsel and the Chief
Audit Executive,Company’s programs to ensure compliance with the Company'sits’ Ethical Conduct Policy (CP-1) and the Business Conduct Guide. B. Financial Reporting
These policies will be posted on the Company’s public website.
| F. | Oversight of System for Complaints |
The Committee shall:
1. Reviewwill establish a procedure for the Company's Quarterly Report on Form 10-Q with financial
managementoversight and the independent accountants prior to release of
information to the public. The Committee may delegate this review
responsibility to its Chairman.
2. Review the Company's annual financial statements and, as
appropriate, any other reports or other financial information
submitted to any governmental body, or the public, including any
certification, report, opinion, or review rendered by the
independent accountants.
3. Following completion of the annual audit, review with the
independent accountants (and management, as appropriate) the
following:
. Their judgments of the quality and appropriateness of accounting
principles and financial disclosure practices of the Company
(including how the public's and shareholders' views of the
Company may be affected by its choice of accounting principles
and its financial disclosure practices).
. Any disagreements with management over the application of
accounting principles.
. Accounting principles applied, especially significant estimates
made by management or changes in accounting methods.
. Significant related party transactions or other significant
conflicts of interest.
. Significant audit adjustments.
. Any difficulties encountered during the audit, including any
restrictions on the scope of work or access to required
information.
. Any other matters related to the conduct of the audit to be
communicatedreporting to the Committee under Generally Accepted Auditing
Standards.
A-2
4. Meet regularly with in-house counsel to discuss legal matters that
may have a material impact onof the financial statements. Meet with
outside counsel as appropriate.
5. Prepare the Audit Committee Report for annual inclusion in the
Company's proxy statement, as required by the Securitiesreceipt, retention, treatment, and Exchange Commission. Submit the draft Reportclosure of complaints to the BoardCompany concerning (i) accounting, internal accounting controls, or auditing matters; or (ii) the confidential, anonymous submission by Company employees regarding questionable accounting or auditing matters.
| G. | Hiring Employees of Independent Auditors |
The Committee will establish policies for the hiring of Directors for approval.
6. Prepare the Written Affirmation, as required by the Corporate
Governance Listing Standardsemployees and former employees of the New York Stock Exchange,
regarding the Committee members' independence and qualifications and
the adequacy of the Audit Committee charter. Submit the draft letter
to the Board of Directors for approval.
C. Relationship with Independent Accountants
Auditors.
| H. | Periodic Review of Charter; Function of Audit Committee |
The Committee shall:
1. Review the independent accountants' letter regarding independence
(required by Independence Standards Board Standard No. 1, as it may
be modified or supplemented). Discuss with the independent
accountants their independence. Consider management's plans to
engage the independent accountants to perform management advisory
services, types of services to be rendered, estimated fees and
actual fees charged.
2. Annually confirm management's recommendation of the Company's
independent accountants. Recommend appointment of independent
accountants annually to the Board of Directors for submission to
shareholders for approval. Ascertain that the independent
accountant's annual arrangement letter, with respect to the audit of
the Company's consolidated financial statements, is addressed to the
Board of Directors.
D. Other Responsibilities
1. Institute investigations of suspected improprieties on any material
matter selected by the Committee, using special counsel or outside
experts when necessary.
2. Review with the Chief Audit Executive and appropriate management the
effectiveness of controls relating to officer expenses and
perquisites.
3. Atwill at least annually review and assess the adequacy of the Audit
Committee Charter. Submitthis Charter and will submit proposed revisions to the Charter to the Board of Directors for approval. This should occurIn addition, the Committee will at least annually evaluate its own performance.
| I. | Audit Committee Policies and Procedures |
The Committee will develop and implement any Audit Committee Policies and Procedures consistent with this Charter that it deems necessary or appropriate to carry out the Committee’s obligations as required by this Charter, by the Board of Directors, and by applicable law and by SEC and NYSE rule. Such procedures may include policies and procedures for the efficient and consistent management of the Committee’s oversight over the Independent Auditors, and will cover such matters as pre-approval of audit fees, pre-approval of permissible non-audit services to be provided by the Independent Auditor, and approval of plans relating to rotation of Independent Auditors or their personnel. The Audit Committee Policies will be construed in conjunctionconnection with the Committee's preparation of the written affirmation to the New York
Stock Exchange, as described in Section III.B.6. above.
A-3
APPENDIX B
MARRIOTT INTERNATIONAL, INC.
2002 COMPREHENSIVE STOCK AND CASH INCENTIVE PLAN
B-1
| J. | Investigations |
The Committee may investigate suspected improprieties on any material matter, using special counsel or outside experts when necessary or appropriate.
| V. | Retention of |
The Plan shall become effective as of the Effective Date, as defined below,
and shall remain in effect as provided in Section 1.3 hereof.
1.2 Purpose of the Plan. The purpose of the Plan is to promote and
enhance the long-term growth of the Company by aligning the personal interests
of Employees and Non-Employee Directors to those of Company shareholders and
allowing such Employees and Non-Employee Directors to participate in the
growth, development and financial success of the Company.
The Plan isCommittee may, without further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of key individuals.
1.3 Duration of the Plan. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
rightaction of the Board of Directors, retain for its own account and service any external advisors, attorneys, consultants, and accountants (collectively, “Advisors”) it deems necessary to amend or terminatecarry out the Plan at any time
pursuant to Article 17 hereof, until all Shares subject to it shall have been
purchased or acquired accordingCommittee’s purposes. The Company will adequately fund the costs and expenses of these Advisors under arrangements that assure the independence those Advisors and their loyalty to the Plan's provisions.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "Allocation Agreement" means the Employee Benefits and Other
Employment Matters Allocation Agreement by and between Marriott International,
Inc. (To Be Renamed Sodexho Marriott Services, Inc.) and New Marriott MI, Inc.
(To Be Renamed Marriott International, Inc.) dated as of September 30, 1997.
2.1.1 "Annual Meeting" means the annual meeting of the stockholders of the
Company at which Directors are elected.
2.2 "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock,
Deferred Stock Bonus Awards, Deferred Stock Agreements, Special Recognition
Stock Awards, 1998 Conversion Awards, Other Share-Based Awards, Other Cash
Performance-Based Awards, Non-Employee Director Share Awards, Stock Units, and
Director Options.
2.3 "Award Agreement" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to an Award
granted under this Plan.
2.4 "Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
B-3
2.5 "Beneficiary" means the person or persons designated pursuant to
Article 14 hereof.
2.6 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.7 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.8 "Committee" means the Compensation Policy Committee of the Board, as
specified in Article 3 herein, or such other Committee appointed by the Board
to administer the Plan with respect to grants of Awards.
2.9 "Company" means Marriott International, Inc., together with any and
all Subsidiaries, and any successor thereto as provided in Article 20 herein.
2.10 "Current Award" means a Deferred Stock Bonus Award granted under the
terms and conditions described in Section 8.2(c) hereof.
2.11 "Covered Employee" means a Participant who, as of the date of grant,
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.12 "Deferred Award" means a Deferred Stock Bonus Award granted under the
terms and conditions described in Section 8.2(b) hereof.
2.13 "Deferred Stock" means an Award granted to a Participant as described
in Article 8 herein.
2.14 "Deferred Stock Bonus Award" means a grant of a right to receive
Shares on a deferred basis, pursuant to Article 8.2 hereof.
2.15 "Deferred Stock Agreement" means an Award granted to a Participant as
described in Article 8.3 herein.
2.16 "Director" means any member of the Board.
2.16.1 "Director Option" means a Nonqualified Stock Option as described in
Article 12 herein.
2.17 "Disability" means a permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Committee in good faith,
upon receipt of sufficient competent medical advice from one or more
individuals, selected by or satisfactory to the Committee, who are qualified to
give professional medical advice.
2.18 "Distribution" means the distribution of all the outstanding shares
of capital stock of the Company as provided in the Distribution Agreement.
2.19 "Distribution Agreement" means the Distribution Agreement between
Marriott International, Inc. (To Be Renamed Sodexho Marriott Services, Inc.)
and the Company dated as of September 30, 1997.
2.20 "Distribution Date" means the date on which the Distribution shall be
effected pursuant to the Distribution Agreement.
B-4
2.21 "Effective Date" has the same meaning as the term Distribution Date.
2.22 "Employee" means any individual who is, or will become, a full-time,
active, non-union employee of the Company. Any Employee who, at the request of
the Company, and on the written assignment of the Company specifically
referencing this provision of the Plan, becomes an employee of another employer
shall continue to be treated as an Employee for all purposes hereunder during
the period of such assignment. Directors who are not employed by the Company
shall not be considered Employees under this Plan.
2.23 "Engaging in Competition" means (i) engaging, individually or as an
employee, consultant or owner (more than 5%) of any entity, in any business
engaged in significant competition with any business operated by the Company;
(ii) soliciting and hiring a key employee of the Company in another business,
whether or not in significant competition with any business operated by the
Company; or (iii) using or disclosing confidential Company information, in each
case, without the approval of the Company.
2.24 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.25 "Fair Market Value" means the average of the highest and lowest
quoted selling prices for the Shares on the relevant date, or (if there were no
sales on such date) the average so computed on the nearest day before or the
nearest day after the relevant date, as reported in The Wall Street Journal or
a similar publication selected by the Committee.
2.26 "Fee Deferral Election" means an election made by a Non-Employee
Director to defer the receipt of Fees, as described in Section 12.3 hereof.
2.27 "Fees" means all or part of any retainer and/or fees payable to a
Non-Employee Director in his or her capacity as such.
2.28 "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 herein, which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.29 "Insider" shall mean an individual who is, on the relevant date, an
officer, Director or more than ten percent (10%) beneficial owner of any class
of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.30 "1998 Conversion Award" means an Award made pursuant to Article 13 to
reflect the effect of the Distribution on outstanding awards which were made
under the Predecessor Plans and which were held by the grantee immediately
before the Distribution.
2.31 "Non-Employee Director" means a Director who is not an Employee of
the Company.
2.32 "Non-Employee Director Share Award" shall mean an award of Shares to
a Non-Employee Director, as described in Section 12.2 herein.
2.33 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.34 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein, or a Director Option as described in
Article 12 herein.
B-5
2.35 "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.36 "Other Cash Performance-Based Awards" means an Other Cash
Performance-Based Award, as described in Article 10 herein.
2.37 "Other Share-Based Award" means an Other Share-Based Award, as
described in Article 10 herein.
2.38 "Participant" means an individual who has an outstanding Award
granted under the Plan.
2.39 "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.40 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance objectives, or upon the occurrence of
other events as determined by the Committee, in its discretion), and the Shares
are subject to a substantial risk of forfeiture, as provided in Article 7
herein.
2.41 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.42 "Predecessor Plans" means the Marriott International, Inc. 1993
Comprehensive Stock Incentive Plan, the Marriott International, Inc. 1996
Comprehensive Stock Incentive Plan and the Marriott International, Inc. 1995
Non-Employee Directors' Deferred Stock Compensation Plan.
2.43 "Restricted Stock" means an Award granted to a Participant pursuant
to Article 7 herein.
2.44 "Shares" means shares of Class A Common Stock of the Company or of
any successor company adopting this Plan.
2.45 "Special Recognition Stock Award" means an Award granted to a
Participant pursuant to Article 9 herein.
2.46 "Stock Units" means the credits to a Non-Employee Director's Stock
Unit Account, each of which represents the right to receive one Share upon
settlement of the Stock Unit Account.
2.47 "Stock Unit Account" means the bookkeeping account established by the
Company pursuant to Section 12.3.
2.48 "Subsidiary" means any corporation, partnership, joint venture or
other entity in which the Company owns a majority of the equity interest by
vote or by value or in which the Company has a majority capital or profits
interest.
2.49 "Termination of Service" means termination of service as a
Non-Employee Director in any of the following circumstances:
(a) Where the Non-Employee Director voluntarily resigns or retires;
B-6
(b) Where the Non-Employee Director is not re-elected (or elected in
the case of an appointed Non-Employee Director) to the Board by
the shareholders; or
(c) Where the Non-Employee Director dies.
2.50 "Year of Service" means a period of twelve (12) consecutive calendar
months during which an Employee was paid for 1200 or more hours of work for the
Company.
Article 3. Administration
3.1 The Committee. The Plan shall be administered by the Compensation
Policy Committee of the Board, or by any other committee appointed by the
Board, the members of which shall be "Non-Employee Directors" within the
meaning of Rule 16b-3 under the Exchange Act, or any successor provision. The
members of the Committee shall be appointed from time to time by, and shall
serve at the discretion of, the Board of Directors.
3.2 Authority of the Committee. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees and
Directors who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent
with the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan; establish, amend, or waive rules and regulations
for the Plan's administration; and (subject to the provisions of Article 17
herein) amend the terms and conditions of any outstanding Award to the extent
such terms and conditions are within the discretion of the Committee as
provided in the Plan. Further, the Committee shall make all other
determinations that may be necessary or advisable for the administration of the
Plan. The Committee's determinations under the Plan (including without
limitation, determinations of the persons to receive Awards, the form, amount
and timing of such Awards, the terms and provisions of such Awards and the
Award Agreements evidencing such Awards) need not be uniform and may be made by
the Committee selectively among persons who receive, or are eligible to
receive, Awards under the Plan, whether or not such persons are similarly
situated. As permitted by law, the Committee may delegate its authority under
the Plan to a Director or Employee.
3.3 Decisions Binding. All determinations and decisions made by the
Committee or its designee pursuant to the provisions of the Plan and all
related orders and resolutions of the Board shall be final, conclusive and
binding on all parties.
3.4 Unanimous Consent in Lieu of Meeting. A memorandum signed by all
members of the Committee shall constitute the act of the Committee without the
necessity in such event to hold a meeting.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares. Subject to Sections 4.2 and 4.3 herein, (a) no more
than 80 million shares of Class A Common Stock of the Company may be issued
pursuant to Awards granted under the Plan, and (b) the maximum aggregate number
of Shares that may be subject to any Awards (other than 1998 Conversion Awards)
granted in any one fiscal year to any single Employee shall be 750,000.
4.2 Lapsed Awards. If any Award granted under the Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such Award
shall again be available for the grant of an Award under the Plan.
B-7
4.3 Adjustments in Authorized Shares and Awards. In the event of any
change in corporate capitalization, such as a stock split, or a corporate
transaction, such as any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368) or any partial or complete liquidation of the
Company, (a) such adjustment shall be made in the number and class of Shares
which may be delivered under Section 4.1 and the Award limits set forth in
Section 4.1 as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of
rights; and (b) the Committee or the board of directors, compensation committee
or similar body of any other legal entity assuming the obligations of the
Company hereunder, shall either (i) make appropriate provision for the
protection of outstanding Awards by the substitution on an equitable basis of
appropriate equity interests or awards similar to the Awards, provided that the
substitution neither enlarges nor diminishes the value and rights under the
Awards; or (ii) upon written notice to the Participants, provide that Awards
will be exercised, distributed, canceled or exchanged for value pursuant to
such terms and conditions (including the waiver of any existing terms or
conditions) as shall be specified in the notice. Any adjustment of an ISO under
this paragraph shall be made in such a manner so as not to constitute a
"modification" within the meaning of Section 424(h)(3) of the Code.
Article 5. Eligibility and Participation
5.1 Eligibility. Employees shall be eligible to participate in this Plan
with respect to Awards specified in Articles 6 through 10. Non-Employee
Directors shall be eligible to participate in the Plan with respect to Awards
specified in Article 12. Persons eligible to receive 1998 Conversion Awards
under the Allocation Agreement shall be eligible to participate in the Plan
with respect to Awards specified in Article 13.
5.2 Actual Participation by Employees. Subject to the provisions of the
Plan, the Committee may, from time to time, select from all eligible Employees,
those to whom Awards shall be granted and shall determine the nature and amount
of each Award.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees in such number, and upon such terms, and at
any time and from time to time as shall be determined by the Committee. Options
may include provisions for reload of Options exercised by the tender of Shares
or the withholding of Shares with respect to the exercise of the Options. An
Option, once granted, may not thereafter be amended to change the Option Price.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO whose grant is intended not to fall under the provisions of Code Section
422.
6.3 Option Price. The Option Price for each grant of an Option under this
Article 6 shall be at least equal to one hundred percent (100%) of the Fair
Market Value of a Share on the date the Option is granted.
B-8
6.4 Duration of Options. Each Option granted under this Article 6 shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than the fifteenth
(15th) anniversary date of its grant.
6.5 Exercise of Options. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for
each grant or for each Employee.
The ability of an Employee to exercise an Option is conditioned upon the
Employee not committing any criminal offense or malicious tort relating to or
against the Company.
6.6 Payment. Options granted under this Article 6 shall be exercised by
the delivery of notice of exercise to the Company by such means as the
Committee shall approve from time to time, setting forth the number of Shares
with respect to which the Option is to be exercised, accompanied by full
payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) if permitted in
the governing Award Agreement, by tendering previously acquired Shares having
an aggregate Fair Market Value at the time of exercise equal to the total
Option Price (provided that the Shares which are tendered must have been held
by the Participant for at least six (6) months prior to their tender to satisfy
the Option Price), or (c) if permitted in the governing Award Agreement, by a
combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under the
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
6.8 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed or traded, and under any blue sky or state securities laws applicable to
such Shares.
6.9 Termination of Employment or Leave of Absence. In the event that an
Employee, during the Employee's lifetime has been on leave of absence for a
period of greater than twelve (12) months (except a leave of absence approved
by the Board or the Committee, as the case may be), or ceases to be an Employee
of the Company or of any Subsidiary for any reason, including retirement, the
portion of any Option which is not exercisable on the date on which the
Employee ceased to be an Employee or has been on leave for over twelve (12)
months (except a leave of absence approved by the Board or the Committee, as
the case may be) shall expire on such date and any unexercised portion thereof
which was otherwise exercisable on such date shall expire unless exercised
within a period of three (3) months (one year in the case of a Participant
terminating by reason of a Disability) from such date, but in no event after
the expiration of the term for which the Option was granted; provided, however,
that in the case of an optionee of a NQSO who is an "Approved Retiree" (as
hereinafter defined), the Option shall continue to vest for up to five years
from the date of retirement and said optionee may exercise such NQSO until the
sooner to occur of (i) the expiration of such NQSO in
B-9
accordance with its original term; or (ii) the expiration of five years from
the date of retirement. For purposes of the proviso to the preceding sentence:
(a) An "Approved Retiree" is any optionee who (i) terminates employment
by reason of a Disability, or (ii) (A) retires from employment with
the Company with the specific approval of the Committee on or after
such date on which the optionee has completed 20 Years of Service or
has attained age 55 and completed 10 Years of Service, and (B) has
entered into and has not breached an agreement to refrain from
Engaging in Competition in form and substance satisfactory to the
Committee; and
(b) If an Approved Retiree is subsequently found by the Committee to
have violated the provisions of the agreement to refrain from
Engaging in Competition referred to in clause (a)(ii)(B) of this
section, such Approved Retiree shall have ninety (90) days from the
date of such finding within which to exercise any Options or
portions thereof which are exercisable on such date, any Options or
portions thereof which are not exercised within such ninety- (90-)
day period shall expire and any Options or portion thereof which are
not exercisable on such date shall be canceled on such date.
In the event of the death of an optionee during the three-month period
described above for exercise of an Option by a terminated optionee or one on
leave for over 12 months (except a leave of absence approved by the Board or
the Committee, as the case may be), the Option shall be exercisable by the
optionee's personal representatives, heirs or legatees to the same extent and
during the same period that the optionee could have exercised the Option if the
optionee had not died.
Notwithstanding anything in Section 6.5 to the contrary, in the event of
the death of an optionee while an Employee or Approved Retiree of the Company
or any Subsidiary, an outstanding Option held by such optionee upon death shall
become fully vested upon death and shall be exercisable by the optionee's
personal representatives, heirs or legatees at any time prior to the expiration
of one (1) year from the date of death of the optionee, but in no event after
the expiration of the term for which the Option was granted.
6.10 Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, all ISOs granted to a Participant under the
Plan shall be exercisable during his or her lifetime only by such
Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in a
Participant's Award Agreement or pursuant to policies adopted by the
Committee, no NQSO granted under this Article 6 may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in the Plan or a
Participant's Award Agreement, all NQSOs granted to a Participant
under this Article 6 shall be exercisable during his or her lifetime
only by such Participant.
Article 7. Restricted Stock
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees in such amounts as the Committee shall determine.
B-10
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted, and
such other provisions as the Committee shall determine.
7.3 Transferability. Except as provided in this Article 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified in
the Restricted Stock Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Committee in its sole discretion and set forth
in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
7.4 Other Restrictions. The Committee shall impose such conditions and/or
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted
Stock, restrictions based upon the achievement of specific performance
objectives (Company-wide, business unit, and/or individual), time-based
restrictions on vesting following the attainment of the performance objectives,
and/or restrictions under applicable Federal or state securities laws.
The Company shall retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
Distribution of Shares of Restricted Stock is conditioned upon the
Participant not committing any criminal offense or malicious tort relating to
or against the Company.
7.5 Voting Rights. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
7.6 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. Such dividends may be paid currently, accrued as
contingent cash obligations, or converted into additional shares of Restricted
Stock, upon such terms as the Committee establishes.
The Committee may apply any restrictions to the dividends that the
Committee deems appropriate. Without limiting the generality of the preceding
sentence, if the grant or vesting of Restricted Stock granted to a Covered
Employee is designed to comply with the requirements of the Performance-Based
Exception, the Committee may apply any restrictions it deems appropriate to the
payment of dividends declared with respect to such Restricted Stock, such that
the dividends and/or the Restricted Stock maintain eligibility for the
Performance-Based Exception.
7.7 Termination of Employment. In the event a Participant's employment
with the Company is terminated because of the Participant's Disability or death
during the Period of Restriction, the Period of Restriction shall end and the
Participant's rights thereunder shall inure to the benefit of his or her
Beneficiary.
B-11
In the event that a Participant's employment with the Company is terminated
during the Period of Restriction because of either the Participant's: (a)
retirement with specific approval from the Committee following attainment of
age 55 and with ten (10) Years of Service or (b) retirement with specific
approval from the Committee and with twenty (20) Years of Service, the
Committee shall have complete discretion in determining the percentage, if any,
of a Participant's outstanding Restricted Shares as to which the Period of
Restriction shall end. In the event that a Participant's employment with the
Company is terminated for any other reason during the Period of Restriction,
such Participant's outstanding Restricted Shares shall be forfeited to the
Company without payment.
Article 8. Deferred Stock
8.1 Award of Deferred Stock. Subject to the terms and provisions of the
Plan, Deferred Stock Bonus Awards or Deferred Stock Agreements may be granted
to Employees at any time and from time to time as shall be determined by the
Committee. The Committee shall have complete discretion in determining the
amount of Deferred Stock granted to each Employee (subject to Article 4 herein)
and, consistent with the provisions of the Plan, in determining the terms and
conditions pertaining to such Awards of Deferred Stock.
8.2 Deferred Stock Bonus Awards. Deferred Stock Bonus Awards may be
granted as part of a management incentive program under which part of the
annual performance bonus awarded to managers and other key Employees is made in
Deferred Stock. Subject to the terms of the Plan, Deferred Stock Bonus Awards
shall have such terms and conditions as determined by the Committee. As
determined by the Committee and subject to the terms of the Plan, Participants
selected by the Committee in its discretion may elect to receive their Deferred
Stock Bonus Award in the form of either a Current Award or a Deferred Award.
(a) Method of Election. Each Participant who is granted a Deferred Stock
Bonus Award and selected by the Committee in its discretion may elect,
in writing, on a form to be furnished by the Company, to receive a
Current Award or a Deferred Award. Notwithstanding the foregoing, any
eligible Participant who does not elect to receive a Deferred Award
within the time designated by the Company shall be granted a Current
Award.
(b) Deferred Award.
(i) Vesting. Deferred Stock granted in connection with a Deferred Award
shall contingently vest, pro rata, in annual installments commencing
one year after the date of the Deferred Stock Bonus Award and
continuing on each January 2 thereafter until the expiration of a
ten-year period from such commencement date. Notwithstanding the
foregoing, all unvested Deferred Stock subject to a Deferred Award
shall vest upon the Participant's: (1) termination of employment
following attainment of age 55 with ten (10) Years of Service; (2)
termination of employment with retirement approval from the
Committee and with twenty (20) Years of Service; (3) Disability, or
(4) death. Subject to Section 4.3 herein, unvested Deferred Stock
shall not vest following termination of employment for any other
reason.
(ii) Distribution of Shares. Vested Shares will be distributed to the
Participant in two (2) to ten (10) approximately equal annual
installments, as elected by the Participant, or over such shorter
period as determined by the Committee. Such distribution shall
commence in the month of January following the date the Participant
terminates employment; provided, however, that the Participant may
elect, at the time of grant and prior to vesting in any shares of
Deferred Stock subject to an Award, to receive his or her vested
Shares in a single distribution which shall take place in the month
of January following the year during which his or her termination of
employment occurs.
B-12
All such elections made pursuant to this Section 8.2(b)(ii),
shall be made at the time the Deferred Stock Bonus Award is granted,
and shall be made, in writing, on a form prescribed by the
Committee. Upon a Participant's death, all undistributed vested
Deferred Stock will be distributed in one distribution as provided
in Article 10 herein.
(c) Current Award.
(i) Distribution of Shares. Shares subject to a Current Award will be
distributed in ten (10) consecutive, approximately equal, annual
installments, commencing in the first calendar quarter of the year
following the year in which the Deferred Stock Bonus Award is
granted. If a Participant dies prior to distribution of all Shares
to which he or she is entitled, the remaining Shares will be
distributed in one distribution as provided in Article 10 herein.
(ii) Forfeiture of Shares. Any undistributed Shares subject to a Current
Award will be forfeited and the Deferred Stock Bonus Award relating
thereto terminated, without payment, if the Participant's employment
with the Company is terminated for any reason other than the
Participant's: (1) termination of employment at or beyond age 55
with 10 Years of Service, (2) retirement after 20 Years of Service
with approval from the Committee, (3) Disability, or (4) death. Any
undistributed Shares not subject to forfeiture shall continue to be
distributed to the Participant under the distribution schedule which
would have applied to those Shares if the Participant had not
terminated employment, or over such shorter period as may be
determined by the Committee.
(d) Conditions. Distribution of Shares under Current Awards and Deferred
Awards is conditioned upon:
(i) the Participant not committing any criminal offense or malicious
tort relating to or against the Company;
(ii) the Participant not Engaging in Competition; and
(iii) the Participant having provided the Committee with a current address
where the Deferred Stock Bonus Award may be distributed.
If said conditions are not met, all undistributed Shares will be forfeited
and the Deferred Stock Bonus Award terminated, without payment.
(e) Lump Sum Payments. Notwithstanding anything in the Plan to the
contrary, any Participant entitled upon termination of employment to
receive a distribution pursuant to this Article 8 which has a total
Fair Market Value at the time of such termination of $5,000 or less
shall receive such distribution in one lump sum as soon as practicable
following termination of employment.
8.3 Deferred Stock Agreements. Deferred Stock Agreements represent
Deferred Stock granted to a Participant subject to the following conditions:
(a) Vesting. Deferred Stock granted pursuant to this Section 8.3 shall
contingently vest over a specified number of years, as determined by
the Committee. Notwithstanding the foregoing, the Committee shall have
complete discretion in determining the vested percentage, if any, of
all unvested Deferred Stock subject to a Deferred Stock Agreement upon
either the Participant's (1) termination of employment with retirement
approval from the Committee following attainment of age 55 and with ten
(10) Years of Service or (2) termination of
B-13
employment with retirement approval from the Committee and with twenty
(20) Years of Service. All unvested Deferred Stock subject to a
Deferred Stock Agreement shall immediately vest upon the Participant's
termination of employment as a result of the Participant's Disability
or death. Subject to Section 4.3 herein, unless otherwise provided in
the Deferred Stock Agreement, if the Participant's employment with the
Company is terminated for any other reason, all Deferred Stock that is
not vested before such termination of employment shall be forfeited and
the Deferred Stock Agreement terminated without payment.
(b) Distribution of Shares. Vested Deferred Stock granted pursuant to this
Section 8.3 shall be distributed to the Participant in the form of
Shares in the manner specified in the Deferred Stock Agreement, or over
such shorter period as the Committee may direct. Such distribution
shall commence in accordance with the terms of the Deferred Stock
Agreement; provided that upon the Participant's death or as soon as
practicable thereafter, all unpaid vested Deferred Stock shall be
distributed in the form of Shares, in one distribution, as provided in
Article 14 hereof.
(c) Conditions. Distribution of Shares subject to Deferred Stock
Agreements is conditioned upon:
(i) the Participant not Engaging in Competition,
(ii) the Participant not committing any criminal offense or malicious
tort relating to or against the Company; and
(iii) the Participant having provided the Committee with a current address
where the Deferred Stock may be distributed.
If said conditions are not met, all undistributed Deferred Stock
will be forfeited and the Deferred Stock Agreement terminated without
payment.
8.4 Assignment. A Participant's rights under a Deferred Stock Agreement
or Deferred Stock Bonus Award may not, without the Company's written consent,
be assigned or otherwise transferred, nor shall they be subject to any right or
claim of a Participant's creditors, provided that the Company may offset any
amounts owing to or guaranteed by the Company, or owing to any credit union
related to the Company against the value of Deferred Stock and underlying
Shares to be distributed under Deferred Stock Agreements and Deferred Stock
Bonus Awards.
Article 9. Special Recognition Stock Awards
Subject to the terms and provisions of the Plan, the Committee or its
designee, at any time and from time to time, may grant Special Recognition
Stock Awards to Employees in such amounts and upon such conditions as the
Committee or its designee shall determine.
Article 10. Other Awards
10.1 Grant of Other Share-Based Awards. The Committee may grant Other
Share-Based Awards to Participants in such number, and upon such terms, and at
any time and from time to time, as shall be determined by the Committee.
10.2 Terms of Other Share-Based Awards. Other Share-Based Awards shall
contain such terms and conditions as the Committee may from time to time
specify and may be denominated in cash, in Shares, in Share-equivalent units,
in Share appreciation units, in securities or debentures convertible into
Shares or in a combination of the foregoing and may be paid in cash or in
Shares, all as determined by the Committee. Other Share-Based Awards may be
issued alone or in tandem with other Awards granted to Employees.
B-14
10.3 Other Share-Based Award Agreement. Each Other Share-Based Award
shall be evidenced by an Award Agreement that shall specify such terms and
conditions as the Committee shall determine.
10.4 Other Cash Performance-Based Awards. The Committee may grant Other
Cash Performance-Based Awards based on performance measures set forth in
Article 11 not based on Shares upon such terms and at any time and from time to
time as shall be determined by the Committee. Each such Other Cash
Performance-Based Award shall be evidenced by an award agreement that shall
specify such terms and conditions as the Committee shall determine. An Other
Cash Performance-Based Award not based upon Shares shall not decrease the
number of Shares under Article 4 that may be issued pursuant to other Awards.
No individual shall be eligible to receive a payment with respect to cash
performance-based awards in excess of $4 million in any calendar year. Other
Cash Performance-Based Awards may relate to annual bonus or long-term
performance awards.
Article 11. Performance Measures for Awards
11.1 Performance Measures. Unless and until the Committee proposes for
shareholder vote and shareholders approve a change in the general performance
measures set forth in this Article 11, the attainment of which may determine
the degree of payout and/or vesting with respect to Awards granted to Covered
Employees which are designed to qualify for the Performance-Based Exception,
the performance measure(s) to be used for purposes of such Awards shall be
chosen from among the following alternatives:
(a) Consolidated cash flows,
(b) Consolidated financial reported earnings,
(c) Consolidated economic earnings,
(d) Earnings per share,
(e) Business unit financial reported earnings,
(f) Business unit economic earnings,
(g) Business unit cash flows,
(h) Appreciation in the Fair Market Value of Shares either alone or as
measured against the performance of the stocks of a group of companies
approved by the Committee,
(i) Return on invested capital,
(j) Consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA"), and
(k) Business unit EBITDA.
11.2 Adjustments. The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the preestablished performance
objectives; provided, however, that Awards that are designed to qualify for the
Performance-Based Exception and that are held by Covered Employees may not be
adjusted upward (the Committee shall retain the discretion to adjust such
Awards downward).
B-15
11.3 Committee Discretion. In the event that applicable tax and/or
securities laws change to permit Committee discretion to alter the governing
performance measures without obtaining shareholder approval of such changes,
the Committee shall have sole discretion to make such changes without obtaining
shareholder approval. In addition, in the event that the Committee determines
that it is advisable to grant Awards that do not qualify for the
Performance-Based Exception, the Committee may make such grants without
satisfying the requirements of Code Section 162(m).
Article 12. Directors' Share Awards, Fee Deferral Elections, and Director
Options
12.1 Eligibility. Only Non-Employee Directors shall be eligible to
receive Non-Employee Director Share Awards and Director Options and to make Fee
Deferral Elections.
12.2 Non-Employee Director Share Awards. On the first full trading day
immediately following each Annual Meeting, each Non-Employee Director
designated by the Board shall receive a Non-Employee Director Share Award of a
number of Shares determined by the Board before such Annual Meeting. Each
Non-Employee Director Share Award shall be fully vested and nonforfeitable when
granted.
12.3 Fee Deferral Elections.
(a) Elections to Defer Payment of Fees. Payment of all or any part of any
Fees payable to a Non-Employee Director may be deferred by election of
the Non-Employee Director. Each such election must be made in writing
on a form prescribed by the Committee and delivered to the Company
prior to the next Annual Meeting and must be irrevocable until the
following Annual Meeting. No election may be made under this Section
12.3(a) with respect to Fees for which an election is made under
Section 12.5.
(b) Crediting Stock Units to Accounts. Amounts deferred pursuant to a Fee
Deferral Election shall be credited as of the date of the deferral to a
Stock Unit Account in Stock Units. The number of Stock Units credited
to a Stock Unit Account with respect to any Non-Employee Director shall
equal (i) the amount deferred pursuant to the Fee Deferral Election
divided by (ii) the Fair Market Value of a Share on the date on which
the Fees subject to the Fee Deferral Election would have been paid but
for the Fee Deferral Election, with fractional units calculated to at
least three (3) decimal places.
(c) Fully Vested Stock Units. All Stock Units credited to a Non-Employee
Director's Stock Unit Account pursuant to this Section 12.3 shall be at
all times fully vested and nonforfeitable.
(d) Credit of Dividend Equivalents. As of each dividend payment date with
respect to Shares, each Non-Employee Director shall have credited to
his or her Stock Unit Account an additional number of Stock Units equal
to the product of (i) the per-share cash dividend payable with respect
to a Share on such dividend payment date multiplied by the number of
Stock Units credited to his or her Stock Unit Account as of the close
of business on the record date for such dividend, divided by (ii) the
Fair Market Value of a Share on such dividend payment date. If
dividends are paid on Shares in a form other than cash, then such
dividends shall be notionally converted to cash, if their value is
readily determinable, and credited in a manner consistent with the
foregoing and, if their value is not readily determinable, shall be
credited "in kind" to the Non-Employee Director's Stock Unit Account.
(e) Payment of Stock Units. Upon Termination of Service, the Stock Units
credited to a Non-Employee Director's Stock Unit Account shall be paid
to the Non-Employee Director in an equal number of shares of Stock in a
single lump sum or in substantially equal annual
B-16
installments over a period not to exceed ten (10) years, as elected by
the Non-Employee Director pursuant to rules established from time to
time by the Committee.
(f) Delivery of Stock Certificates. The Company shall issue and deliver to
the Non-Employee Director a stock certificate for Shares in payment of
Stock Units as soon as practicable following the date on which Stock
Units are payable, provided, however, that no stock certificate shall
be delivered with respect to the payment of any Stock Unit prior to the
expiration of six (6) months from the date such Stock Unit was credited
to the Non-Employee Director's Stock Unit Agreement.
12.4 Unfunded Status. The interest of each Non-Employee Director in any
Fees deferred under this Article 12 (and any Stock Units or Stock Unit Account
relating thereto) or in any Director Stock Award shall be that of a general
creditor of the Company. Stock Unit Accounts and Stock Units (and, if any, "in
kind" dividends) credited thereto shall at all times be maintained by the
Company as bookkeeping entries evidencing unfunded and unsecured general
obligations of the Company.
12.5 Director Options.
(a) Elections to Receive Payment of Fees in the Form of Options. A
Non-Employee Director may elect to receive payment of all or any part
of his or her cash retainer in the form of Director Options in lieu of
cash. Each such election must be made in writing on a form prescribed
by the Committee and delivered to the Company prior to each Annual
Meeting that marks the commencement of the annual period of service
during which such Fees are earned. Each election is irrevocable for
that annual period. Elections under this Section 12.5 may not be made
with respect to Fees deferred under Section 12.3.
(b) Grant of Director Options. On the first full trading day immediately
following each Annual Meeting, each Non-Employee Director who has filed
an election under Section 12.5(a) for the annual period of service that
commences with such Annual Meeting shall be granted Director Options
that have a value on the date of grant substantially equal to the
amount of Fees otherwise payable to the Director in cash but for the
election to receive Director Options. The value of Director Options
shall be determined by the Committee in its sole discretion, at a
meeting held prior to the Annual Meeting, based on a Black-Scholes
option pricing model or other valuation model that the Committee
determines to be appropriate in its sole discretion.
(c) Terms of Director Options. Each Director Option shall be evidenced by
an Award Agreement that shall specify the Option Price, the duration of
the Option, and the number of Shares to which the Option pertains. Each
Director Option shall (i) have an Option Price equal to the Fair Market
Value of a Share on the date the Option is granted; (ii) become 100%
vested and first exercisable on the last business day immediately
preceding the Annual Meeting next following the date the Option is
granted or, if earlier, upon the Director's Termination of Service due
to death or Disability; (iii) expire on the tenth (10/th) anniversary
of the date of its grant; and (iv) be nontransferable unless otherwise
specified by the Committee. /
(d) Payment. Director Options granted under this Article 12 shall be
exercised by the delivery of notice of exercise to the Company in such
manner as the Committee shall determine, setting forth the number of
Shares with respect to which the Option is to be exercised, accompanied
by full payment for the Shares. The Option Price upon exercise of any
Director Option shall be payable to the Company in full either: (i) in
cash or its equivalent, (ii) by
B-17
tendering previously acquired Shares having an aggregate Fair Market
Value at the time of exercise equal to the total Option Price (provided
that the Shares which are tendered must have been held by the Director
for at least six (6) months prior to their tender to satisfy the Option
Price), or (iii) by a combination of (i) and (ii). The Committee also
may allow cashless exercise as permitted under the Federal Reserve
Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to
be consistent with the Plan's purpose and applicable law.
Article 13. 1998 Conversion Awards
All 1998 Conversion Awards which, under the Allocation Agreement, are to be
denominated in equal numbers of shares of Class A Common Stock of the Company,
shall be issued under the Plan as provided in the Allocation Agreement. The
Committee shall administer all such 1998 Conversion Awards under this Plan,
giving service credit to the grantee of each such 1998 Conversion Award to the
extent required under the Allocation Agreement. All 1998 Conversion Awards
shall be subject to substantially similar terms and conditions as provided in
the holder's corresponding awards under the Predecessor Plan.
Article 14. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid in case of the Participant's
death before the Participant has received any or all of such benefit. Each such
designation shall revoke all prior designations by the same Participant, shall
be in a form prescribed by the Company, and will be effective only when filed
by the Participant in writing with the Company during the Participant's
lifetime. In the absence of any such designation, benefits remaining unpaid at
the Participant's death shall be paid to the Participant's estate.
Article 15. Deferrals
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option, or the payment of or the lapse or waiver of restrictions with respect
to any other Award. If any such deferral election is required or permitted, the
Committee shall, in its sole discretion, establish rules and procedures for
such payment deferrals.
Article 16. Rights of Participants
16.1 Employment or Service. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment or service at any time, nor confer upon any Participant any right to
continue in the employ or service of the Company.
16.2 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
Article 17. Amendment, Modification, and Termination
17.1 Amendment, Modification, and Termination. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part; provided, however, that the Board may, in its sole discretion,
condition the adoption of any amendment of the Plan on the approval thereof by
the requisite vote of the shareholders of the Company entitled to vote thereon.
B-18
17.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. Subject to the restriction set forth in Article 11 herein
on the exercise of upward discretion with respect to Awards which have been
designed to comply with the Performance-Based Exception, the Committee may make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4.3 hereof) affecting the Company
or the financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement of
the benefits or potential benefits intended to be made available under the Plan.
17.3 Awards Previously Granted. No termination, amendment, or
modification of the Plan or any Award shall adversely affect in any material
way any Award previously granted under the Plan, without the written consent of
the Participant holding such Award.
17.4 Compliance with Code Section 162(m). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Committee may, subject to this
Article 17, make any adjustments it deems appropriate.
17.5 Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for awards held by
employees or directors of entities who become or are about to become employees
or directors of the Company or a Subsidiary as the result of a merger,
consolidation or other acquisition of the employing entity or the acquisition
by the Company or a Subsidiary of the assets or stock of the employing entity.
The terms and conditions of any substitute awards so granted may vary from the
terms and conditions set forth herein to the extent that the Committee deems
appropriate at the time of grant to conform the substitute awards to the
provisions of the awards for which they are substituted.
Article 18. Withholding
18.1 Tax Withholding. The Company shall have the power and the right to
deduct from any amount otherwise due to the Participant, or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising as a result
of this Plan.
18.2 Share Withholding. With respect to withholding required in
connection with any Award, the Company may require, or the Committee may permit
a Participant to elect, that the withholding requirement be satisfied, in whole
or in part, by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total tax
which could be withheld on the transaction. Any election by a Participant shall
be irrevocable, made in writing, signed by the Participant, and shall be
subject to any restrictions or limitations that the Committee, in its sole
discretion, deems appropriate.
Article 19. Indemnification
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be a party or in which he or she may
be
B-19
involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit or proceeding against him or her, provided he
or she shall give the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and defend it on his or
her own behalf. The foregoing right of indemnification shall not be exclusive
of any other rights of indemnification to which such persons may be entitled
under the Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
Article 20. Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation or otherwise.
Article 21. Legal Construction
21.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural
shall include the singular and the singular shall include the plural.
21.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
21.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
21.4 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
21.5 Governing Law. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Maryland.
B-20
2002
2003 ANNUAL MEETING INFORMATION
Time and Location. The 20022003 Annual Meeting will begin at 10:30 a.m. at the J.W. Marriott Hotel. Coffee, tea, and juice will be provided to shareholders attending the meeting.
Parking. Due to anticipated needs of other hotel guests on May 3,2, we expect that minimal parking is expected towill be available to shareholders in the parking garage adjacent to the hotel. Several public lots are located within three blocks of the hotel.
Public Transportation. As parking is limited in the general area, it is
recommendedwe recommend that shareholders attending the annual meeting consider using public transportation. Two Metro subway stations, Federal Triangle and Metro Center, are located less than three blocks from the hotel, and the area is served by Metro buses.
Lodging. A "Shareholder Annual Meeting" rate will be offered at two Two local Marriott hotels will offer a “Shareholder Annual Meeting” rate for Thursday, May 2, 2002,1, 2003, the night before the meeting. To receive these rates, call the hotel directly and ask for the shareholder annual meeting rate for May 2, 2002.1, 2003. Please note that a limited number of rooms are offered at this rate. Applicable taxes and gratuities are extra and advance reservations are required. This discount may not be used in conjunction with other discounts, coupons, or group rates.
J.W. Marriott Hotel—$183 | Washington Courtyard—$125 | |
1331 Pennsylvania Avenue, N.W. | 1900 Connecticut Avenue, N.W. | |
Washington, D.C. 20004 | Washington, D.C. 20009 | |
202/393-2000 | 202/332-9300 | |
Near Federal Triangle Metro Station | Near Dupont Circle Metro Station |
Please mark 2771
your
X votes as in
this
example.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder(s). If no instruction is indicated, such
proxy will be voted "FOR" Proposals 1, 2 and 3 "AGAINST" Proposals 4, 5 and 6
and at the discretion of the Proxies on any other matter that may properly
occur.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3
FOR WITHHELD
1. Election Of [ ] [ ] 01. Floretta Dukes McKenzie
Directors: 02. Roger W. Sant
03. Lawrence M. Small
For, except vote withheld from the following nominee(s):
_______________________________________________________
FOR AGAINST ABSTAIN
2. Ratify Appointment of Ernst and Young LLP as
Independent Auditor [ ] [ ] [ ]
3. Ratify an Increase of 5 million Shares of the
Company's Class A Common Stock Authorized for
Issuance under the Marriott International, Inc.
Employee Stock Purchase Plan [ ] [ ] [ ]
Directors recommend a vote AGAINST Proposals 4, 5 and 6.
FOR AGAINST ABSTAIN
4. Shareholder Proposal to Adopt Cumulative
Voting for Election of Directors [ ] [ ] [ ]
5. Shareholder Proposal to Establish a Policy of
Expensing Future Stock Options [ ] [ ] [ ]
6. Shareholder Proposal to Adopt a Policy that in
the Future Independent Accountants Will Provide
Only Audit Services to the Company and No Other
Services [ ] [ ] [ ]
MARK FOR ADDRESS
CHANGE AND MARK ON
REVERSE SIDE [ ]
SIGNATURE(S) ____________________________________________ DATE ________________
Sign exactly as name appears hereon. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, give full title. If a corporation, sign full corporate name by
President, or other authorized officer. If a partnership, sign in partnership
name by authorized trustee or partner.
- --------------------------------------------------------------------------------
Please carefully detach here and return this proxy in the enclosed envelope.
Dear Shareholder:
Marriott International, Inc. encourages you to take advantage of new and
convenient ways by which you can vote your shares. You can vote your shares
electronically through the Internet or by telephone. This eliminates the need to
return the proxy card.
To vote your shares electronically, you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear in
the box above must be used to access the system.
1. To vote over the telephone: Using a touch-tone telephone, call 1-877-PRX-VOTE
(1-877-779-8683)
2. To vote over the Internet: Log onto the Internet and go to the web site
http://www.eproxyvote.com/mar
Your electronic vote authorizes the named proxies in the same manner as if you
marked, signed, dated and returned the proxy card.
If you choose to vote your shares electronically, there is no need for you to
mail back your proxy card.
Your vote is important. Thank you for voting.
P R O X Y
MARRIOTT INTERNATIONAL, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
on May 2, 2003, 10:30 a.m.
The undersigned appoints J.W. Marriott, Hotel--$175 Washington Courtyard--$125
1331 Pennsylvania Avenue, 1900 Connecticut Avenue,
N.W. N.W.
Washington, D.C. 20004 Washington, D.C. 20009
202/393-2000 202/332-9300
Near Federal Triangle Near Dupont Circle Metro
Metro Station Station
[MAP]Jr. and William J. Shaw as Proxies. Each
shall have the power to appoint a substitute. They are authorized to represent
and vote, as designated on the reverse side, all shares of Marriott
International, Inc. Class A common stock held of record by the undersigned on
March 11, 2003 at the Annual Meeting of Shareholders to be held on May 2, 2003,
or any adjournment or postponement thereof. The Board of Directors recommends
votes FOR Proposals 1, 2 and 3 and AGAINST Proposals 4, 5 and 6.
If the undersigned has voting rights with respect to shares of Company common
stock under the Company's 401(k) savings plan or the Sodexho 401(k) savings
plan, the undersigned hereby direct(s) the trustee of the applicable 401(k)
savings plan to vote shares equal to the number of share equivalents allocated
to the undersigned's accounts under the applicable plans in accordance with the
instructions given herein. Shares for which the trustee does not receive
instructions by 12:00 p.m. Eastern Time, Wednesday, April 30, 2003, will be
voted by the trustee in the same proportion as the shares for which valid
instructions are received from other participants in the applicable plan.
(change of address/comments)
----------------------------------
----------------------------------
----------------------------------
----------------------------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
INTERNET ACCESS TO SHAREHOLDER ACCOUNTS
Marriott International, Inc. and EquiServe Trust Company, N.A. remind you that
you can access your account information via the Internet. Visit
http://equiserve.com. You will need your account number and social security
number to access your account and a password which you can receive by calling
EquiServe Trust Company, N.A. at the toll-free number listed below.
DEDICATED TOLL FREE CUSTOMER SERVICE NUMBER
Marriott International, Inc. shareholders should call the toll-free number
indicated below for customer assistance.
1-800-311-4816