SCHEDULE 14A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [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
Marriott International, Inc.
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(Name of Registrant as Specified In Its Charter)
Marriott International, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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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] Marriott
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, MAY 3, 2002
-----------------
To our Shareholders:
March 28, 2002
The 2002 annual meeting of shareholders of Marriott International, Inc.
(the "Company") will be held at the J.W. Marriott Hotel, 1331 Pennsylvania
Avenue, N.W., Washington, D.C. on Friday, May 3, 2002, 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.
Shareholders of record at the close of business on March 12, 2002 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.
TABLE OF CONTENTS
Page
----
About the Meeting......................................................................... 1
What is the purpose of the annual meeting?............................................ 1
Who is entitled to vote?.............................................................. 1
Who can attend the meeting?........................................................... 2
What constitutes a quorum?............................................................ 2
How do I vote?........................................................................ 2
Can I vote by telephone or electronically?............................................ 2
Can I change my vote after I return my proxy card, or after I vote by telephone or
electronically?..................................................................... 2
What are the Board's recommendations?................................................. 3
What vote is required to approve each item?........................................... 3
Who will count the vote?.............................................................. 4
What shares are included on my proxy card(s)?......................................... 4
What does it mean if I receive more than one proxy card?.............................. 4
How will voting on any other business be conducted?................................... 4
When are shareholder proposals for the 2003 annual meeting of shareholders due?....... 4
Can a shareholder nominate someone to be a director of the Company?................... 4
How much did this proxy solicitation cost?............................................ 5
Can I receive future shareholder communications electronically through the Internet?.. 5
Stock Ownership........................................................................... 6
Stock Ownership of our Directors and Executive Officers............................... 6
Section 16(a) Beneficial Ownership Reporting Compliance............................... 8
Item 1--Election of Directors............................................................. 9
Directors Standing for Election....................................................... 9
Directors Continuing in Office........................................................ 11
Committees of the Board of Directors.................................................. 13
Directors' Compensation............................................................... 14
Compensation Committee Interlocks and Insider Participation........................... 14
Independent Auditors.................................................................. 15
Report of Audit Committee............................................................. 15
Independent Auditors Fee Disclosure................................................... 16
Executive Compensation................................................................ 17
Summary Compensation Table........................................................ 17
Stock Options..................................................................... 18
Report on Executive Compensation by the Compensation Policy Committee................. 21
Shareholder Return Performance Graph.................................................. 25
Certain Transactions.................................................................. 26
Item 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 under the 1998 Plan....... 28
Item 3--Shareholder Proposal to Adopt Cumulative Voting for Election of Directors......... 34
Items 4 and 5--Shareholder Proposals with Respect to Certain Attributes of Individuals to
be Directors or Members of the Nominating and Corporate Governance Committee............ 35
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Page
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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............................................................................. 37
Item 7--Shareholder Proposal to Adopt, Implement and Enforce a Workforce Code of
Conduct Based on the International Labor Organization's Conventions on Workplace
Human Rights........................................................................ 39
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... 41
Other Matters......................................................................... 44
Appendix A--Audit Committee Charter................................................... A-1
Appendix B--2002 Comprehensive Stock and Cash Incentive Plan.......................... B-1
ii
[LOGO] Marriott
MARRIOTT INTERNATIONAL, INC.
10400 FERNWOOD ROAD, BETHESDA, MARYLAND 20817
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PROXY STATEMENT
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This proxy statement contains information related to the annual meeting of
shareholders of Marriott International, Inc. ("we," "us," or the "Company") to
be held on Friday, May 3, 2002, 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. 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.
ABOUT THE MEETING
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 four
directors, ratification of the Company's amendment and restatement of our 1998
Comprehensive Stock and Cash Incentive Plan, and consideration of 6 shareholder
proposals. In addition, our management will report on the performance of the
Company during fiscal 2001 and respond to questions from shareholders.
Who is entitled to vote?
Only shareholders of record at the close of business on the record date,
March 12, 2002, 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'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.
Who can attend the meeting?
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 to the meeting, and information on parking, public
transportation and lodging, can be found on the back cover of this proxy
statement.
What constitutes a quorum?
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,
242,573,589 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.
How do I vote?
Mark, sign and date each proxy card you receive and return it in the
prepaid envelope. Your shares will be voted as you indicated 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 and 2 and AGAINST items
3, 4, 5, 6, 7 and 8.
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.
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.
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What are the Board's recommendations?
The Board'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).
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.
What vote is required to approve each item?
In the election of directors, the four nominees who receive the highest
number of "FOR" votes will be elected. A "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" 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 of a negative vote.
If you hold your shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to 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" will,
however, be counted in determining whether there is a quorum.
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Who will count the vote?
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's stock transfer records indicate that you hold,
including any shares you may hold through the DirectSERVICE Investment Program
administered by EquiServe Trust Company, N.A., and, if you are a Marriott
employee, any shares that may be held for your account by Bankers Trust Company
as custodian for the 401(k) Plan. If you have shares in the 401(k) 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 Trust will vote your 401(k) Plan
shares in proportion to the way the other 401(k) Plan participants voted their
shares in the 401(k) Plan. 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
2002 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. Marriott to vote on such
matters at their discretion.
When are shareholder proposals for the 2003 annual meeting of shareholders due?
Our 2003 annual meeting of shareholders is scheduled for May 2, 2003. 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.
Proposals must be in compliance 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
2003 annual meeting of shareholders, such proposal or nomination must be
submitted in writing to the Company's Secretary at the above address not later
than February 2, 2003. 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, or not in compliance with our bylaws.
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, Washington, D.C. 20058. Recommendations must be
4
received by February 2, 2003 for the 2003 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.
You may withdraw this consent at any time and resume receiving shareholder
communications in print form. More information on electronic delivery of
materials is set forth in an insert accompanying this proxy statement.
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STOCK OWNERSHIP
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, as well
as additional information about beneficial owners of 5% or more of the
Company's Class A common stock. Ownership consists of sole voting and sole
investment power, except as indicated in the notes below, shares registered in
the name of children sharing the same household or subject to any community
property laws.
Shares
Beneficially Percent of
Name Owned Class(1)
---- ------------ ----------
Directors:
J.W. Marriott, Jr.................................. 30,955,985(2)(3) 12.7
Richard E. Marriott................................ 29,696,197(2)(4) 12.3
Ann M. Fudge....................................... 0 *
Gilbert M. Grosvenor............................... 2,600(5) *
Floretta Dukes McKenzie............................ 1,308(5)(7) *
Harry J. Pearce.................................... 10,000(5) *
W. Mitt Romney..................................... 11,647(5)(7) *
Roger W. Sant...................................... 23,440(5)(7) *
William J. Shaw.................................... 1,230,627(6)(7) *
Lawrence M. Small.................................. 81,478(5)(7)(8) *
Named Executive Officers:..........................
Joseph Ryan........................................ 316,679(6)(7) *
James M. Sullivan.................................. 449,809(6)(7) *
Arne M. Sorenson................................... 210,338(6)(7) *
All Directors and Executive Officers as a Group:...
(20 persons including the foregoing)............... 50,982,285(2)(9)(10) 20.7
Other 5% Beneficial Owners:........................
Southeastern Asset Management, Inc................. 22,603,337(11) 9.4
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* Less than 1 percent.
(1) Based on the number of shares outstanding (241,570,904) on January 31,
2002, plus the number of shares acquirable by the specified person(s)
within 60 days of January 31, 2002.
(2) Includes: (i) 3,150,040 shares held by J.W. Marriott, Jr. and Richard E.
Marriott as co-trustees of 16 trusts for the benefit of their children;
(ii) 5,073,574 shares owned by The J. Willard & Alice S. Marriott
Foundation, a charitable foundation in which J.W. Marriott, Jr. and Richard
E. Marriott serve as co-trustees; (iii) 3,334,770 shares held by a
charitable annuity trust created by the will of J. Willard Marriott, Sr. in
which J.W. Marriott, Jr. and Richard E. Marriott have a remainder interest
and are co-trustees; (iv) 112,654 shares held by the Alice S. Marriott
Lifetime Trust, a trust in which J.W. Marriott, Jr. and Richard E. Marriott
serve as co-trustees; (v) 573,800 shares held as trustee of two trusts for
the benefit of Richard E. Marriott; and (vi) 389,878 shares held as trustee
of two trusts established for the benefit of J.W. Marriott, Jr. Both J.W.
Marriott, Jr. and Richard E. Marriott 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.
6
(3) Includes, in addition to the shares referred to in footnote (2): (i)
2,258,387 shares subject to options exercisable within 60 days after
January 31, 2002; (ii) 139,124 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.; and (vi) 5,415,180 shares owned by JWM Family Enterprises,
L.P., whose general partner is a corporation in which J.W. Marriott, Jr. is
a controlling shareholder. The address for J.W. Marriott, Jr. is Marriott
International, Inc., 10400 Fernwood Road, Bethesda, Maryland 20817.
(4) 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, 2002; (ii) 136,438 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 co-trustee; and (iv)
4,588,946 shares owned by First Media Limited Partners, whose general
partner is a corporation in which Richard E. Marriott is the controlling
shareholder. Richard E. Marriott's address is Host Marriott Corporation,
10400 Fernwood Road, Bethesda, Maryland 20817.
(5) 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 1998 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 December
28, 2001, were as follows: Mr. Grosvenor: 18,053; Dr. McKenzie: 12,616; Mr.
Pearce: 14,530; Mr. Romney: 14,897; Mr. Sant: 14,141; and Mr. Small:
13,141. 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.
(6) Includes shares of unvested restricted stock awarded under the 1998
Comprehensive Stock and Cash Incentive Plan as follows: Mr. Ryan: 41,419
shares; Mr. Shaw: 16,000 shares; Mr. Sorenson: 49,000 shares; and Mr.
Sullivan: 44,404 shares. Holders of restricted stock are entitled to vote
their shares. See "Executive Compensation: Summary Compensation Table" at
page 17.
(7) Includes shares subject to options exercisable within 60 days after January
31, 2002, as follows: Dr. McKenzie 438 shares; Mr. Romney 1,647 shares; Mr.
Ryan: 228,375 shares; Mr. Sant 3,440 shares; Mr. Shaw: 997,450 shares; Mr.
Small 3,878 shares; Mr. Sorenson: 135,506 shares; and Mr. Sullivan: 365,695
shares.
(8) Includes 5,400 shares held by Lawrence M. Small as trustee in two trusts
for the benefit of his two children.
(9) All directors, nominees and executive officers as a group (other than J.W.
Marriott, Jr. and Richard E. Marriott) beneficially owned an aggregate of
2,964,819 shares, or 1.2 percent of Class A common stock outstanding as of
January 31, 2002.
(10) Includes 26,890 shares held by a limited liability company in which one of
the Executive Officers is managing member.
(11) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 14, 2002, reflecting ownership of Class A common stock as of
December 31, 2001, and total outstanding shares of Class A common stock as
of December 31, 2001. We have taken the following information from that
filing. The Schedule 13G was filed by Southeastern Asset Management, Inc.,
as a registered investment advisor, and by its Chairman and Chief
Executive Officer, O. Mason Hawkins in the event he could be deemed to be
a controlling person of that firm as the result of his official position
with or ownership of its voting securities, although Mr. Hawkins disclaims
7
beneficial ownership of the shares covered by the report (together,
"Southeastern"). Southeastern's address is 6410 Poplar Avenue, Suite 900,
Memphis, TN 38119. All shares covered by the report are owned legally by
Southeastern's investment advisory clients and none are owned directly or
indirectly by Southeastern. The reporting persons reported sole voting
power over 10,444,337 shares, and shared or no voting power over 12,159,000
shares, and sole dispositive power over 12,678,005 shares, and shared
dispositive power over 9,925,332 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Based upon a review of filings with the Securities and Exchange Commission
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 2001 other than one
transaction reported on an untimely basis by each of Gilbert M. Grosvenor,
William T. Petty and James M. Sullivan.
8
ITEM 1--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 directors are standing for election: J.W. Marriott, Jr., Ann M. Fudge,
W. Mitt Romney and William J. Shaw. Each of these nominees currently serves on
the Board and has consented to serve for an additional term ending at the 2005
annual meeting of shareholders.
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 resign as director in
May 2002. Mr. Marriott has served 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.
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. Cheng for his 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:
J.W. Marriott, Jr. Mr. Marriott is Chairman of the Board and our Chief Executive
(Chairman of the Board) Officer. He joined Marriott Corporation in 1956, became President
Age: 70 and a director in 1964, Chief Executive Officer in 1972 and
Chairman of the Board in 1985. Mr. Marriott also is a director of
[PHOTO] Host Marriott Corporation, General Motors Corporation and the
Naval Academy Endowment Trust. Mr. Marriott will not stand for
J.W. MARRIOTT, JR. reelection as a director of Host Marriott Corporation or General
Motors Corporation when his terms expire in May 2002 and June
2002, respectively. 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. 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 to 1998. He is Richard E. Marriott's brother.
9
Ann M. Fudge Ann M. Fudge is the former President of Kraft's Beverages,
Age: 50 Desserts and Post Division and Group Vice President of Kraft
Foods, Inc. Ms. Fudge joined General Foods USA in 1986 and held
[PHOTO] 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, Honeywell International and
the Federal Reserve Bank of New York. 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.
W. Mitt Romney Mr. Romney was appointed President and Chief Executive Officer
Age: 55 of the Salt Lake Olympic Organizing Committee on February 11,
1999. Prior to February 1999, he was director, President and Chief
[PHOTO] Executive Officer of Bain Capital, Inc. (a private equity investment
firm). He has announced that he will run for governor of
ROMNEY Massachusetts in the 2002 election. He is also a director of Staples,
Inc. Mr. Romney is a member of the Executive Board of the Boy
Scouts of America and the board of the National Points of Light
Foundation. He has served as a director of the Company or its
predecessors since 1993.
William J. Shaw Mr. Shaw has served as President and Chief Operating Officer of
Age: 56 the Company since March 1997 (including service in the same
capacity with the Company's predecessor until March 1998). He
[PHOTO] joined Marriott Corporation in 1974, was elected Corporate
Controller in 1979 and a Vice President in 1982. In 1986, Mr. Shaw
WILLIAM J. SHAW was elected Senior Vice President--Finance and Treasurer of
Marriott Corporation. He was elected Chief Financial Officer and
Executive Vice President of Marriott Corporation in April 1988. In
February 1992, he was elected President of the Marriott Service
Group. He served as a director of Sodexho Marriott Services, Inc.
(now named Sodexho, Inc.) from 1998 until June 2001. Mr. Shaw
also serves on the Board of Trustees of the University of Notre
Dame and the Suburban Hospital Foundation. He has served as a
director of the Company or its predecessors since 1997.
10
Directors Continuing in Office
Richard E. Marriott Mr. Marriott is Chairman of the Board of Host Marriott
Age: 63 Corporation. He is also Chairman of the Board of First Media
Corporation and serves on the Federal City Council, the Board of
[PHOTO] Associates for Gallaudet University, the National Advisory Council
of Brigham Young University, the Board of Directors of the
RICHARD MARRIOTT Polynesian Cultural Center, and as a trustee of the Boys and Girls
Clubs of America. He is Chairman of the Board of Trustees of The
J. Willard & Alice S. Marriott Foundation and the Marriott
Foundation for People with Disabilities. Prior to 1993, Mr. Marriott
served as an Executive Vice President and member of the Board of
Directors of Marriott Corporation. He has been a director of the
Company or its predecessors since 1979. Mr. Marriott has
announced his intention to resign from our Board of Directors in
May 2002. He is J.W. Marriott, Jr.'s brother.
Gilbert M. Grosvenor Mr. Grosvenor has served as Chairman of the Board of the National
Age: 70 Geographic Society (a publisher of books and magazines and
producer of television documentaries) since 1987. He is a director
[PHOTO] or trustee of Chevy Chase Federal Savings Bank, Ethyl
Gilbert Grosvenor 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.
Floretta Dukes McKenzie Dr. McKenzie is the founder of The McKenzie Group, Inc. (an
Age: 66 educational consulting firm). She has served as Chairman since
1997. She is also a director or trustee of Potomac Electric Power
[PHOTO] Company (PEPCO), National Geographic Society, Acacia Group,
Group Hospitalization and Medical Services, Inc. (GHMSI),
Floretta McKenzie CareFirst (Blue Cross/Blue Shield), Howard University, White
House Historical Association, Lightspan Partnership, Inc., Forum
for the American School Superintendent, Harvard Graduate School
of Education Urban Superintendents Program and Johns Hopkins
Leadership Development Program. From 1981 to 1988, she served
as Superintendent of the District of Columbia Public Schools and
Chief State School Officer. Dr. McKenzie has served as a director
of the Company or its predecessors since 1992. She is currently
serving a three-year term expiring at the 2003 Annual Meeting of
Shareholders.
11
Harry J. Pearce Mr. Pearce was elected chairman of Hughes Electronics Corporation, a
Age: 59 subsidiary of General Motors Corporation, in May 2001. He has
served on the Hughes Electronics Corporation board since 1992. He
[PHOTO] was Vice Chairman and a director of General Motors Corporation
from 1996 until his retirement from General Motors Corporation in
PEARCE May 2001. He is Chairman of the U.S. Air Force Academy's Board of
Visitors, Chairman of the U.S. Air Force Academy's Sabre Society
and a lifetime member of the U.S. Air Force Academy's Association
of Graduates. Mr. Pearce is a director of MDU Resources Group, Inc.
and National Defense University Foundation. He is also Chairman of
the GM Cancer Research Foundation, Chairman of The Bone Marrow
Foundation and President and director of The Leukemia & Lymphoma
Society Research Foundation. He also serves on the Board of Visitors
of the Wayne State University School of Medicine and the Board of
Trustees of Howard University and Northwestern University. Mr.
Pearce has served as a director of the Company or its predecessors
since 1995. He is currently serving a three-year term expiring at the
2004 Annual Meeting of Shareholders.
Roger W. Sant Mr. Sant is Chairman of the Board of The AES Corporation, a global
Age: 70 power company, which he co-founded in 1981. He chairs the Board of
The Summit Foundation, serves as a Regent of the Smithsonian
[PHOTO] Institute and as a Board member of World Wildlife Fund-US,
Resources for The Future, and The National Symphony. He was Board
SANT 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. He is currently serving a three-year term expiring at the 2003
Annual Meeting of Shareholders.
Lawrence M. Small Mr. Small is the Secretary of the Smithsonian Institution, the world's
Age: 60 largest combined museum and research complex, a position he
assumed in January, 2000. Prior to becoming the 11/th Secretary, he
[PHOTO] served as President and Chief Operating Officer of Fannie Mae since
1991. Before joining Fannie Mae, Mr. Small had served as Vice
SMALL 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. He is
currently serving a three-year term expiring at the 2003 Annual
Meeting of Shareholders./
12
The Board of Directors met seven times in 2001. 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.
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.
Members: Lawrence M. Small (Chair), Gilbert M. Grosvenor, W. Mitt Romney,
and Roger W. Sant. Ann M. Fudge became a member of the Committee in
February 2002.
Compensation Policy Committee
. The members of the Committee are not Company employees. The Compensation
Policy Committee met four times in 2001.
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.
Members: Floretta Dukes McKenzie (Chair), Harry J. Pearce, Roger W. Sant, W.
Mitt Romney, and Lawrence M. Small.
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
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.
Members: Gilbert M. Grosvenor (Chair), Floretta Dukes McKenzie and Harry J.
Pearce.
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.
Members: J. W. Marriott, Jr. (Chair) and Roger W. Sant.
For information about our Long Range Planning Process, including the
Board's involvement in such process, please visit
Marriott.com/investor/information.asp.
Directors' Compensation
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. For 2001, 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. Each non-employee director also receives an annual
director stock award under our 1998 Comprehensive Stock and Cash Incentive
Plan (the "1998 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' retainer fee. We grant this award immediately prior to
our annual meeting of shareholders. In 2001 each award was for 823 shares.
Deferral of Payment. Any director may elect to defer payment of all or any
portion of his or her directors' fees pursuant to our Executive Deferred
Compensation Plan and/or our 1998 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. We also reimburse directors for travel expenses and other
out-of-pocket costs they incur when attending meetings.
Compensation Committee Interlocks and Insider Participation
During 2001, the Compensation Policy Committee'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. serves on the Executive Compensation Committee of the
Board of Directors of General Motors Corporation. 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
The Audit Committee recommended 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.
Report of the Audit Committee
The Audit Committee reviews the Company'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's independent
auditors are 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 with
management and the independent auditors the Company's audited financial
statements for the three fiscal years ended December 28, 2001. The Audit
Committee has discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61 (Communication with
Audit Committees). In addition, the Audit Committee has received from the
independent auditors 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 auditors provision of
non-audit services to the Company is compatible with the auditors' 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's Annual Report on SEC Form
10-K for the year ended December 28, 2001, for filing with the Securities and
Exchange Commission.
Members of the Audit Committee
Lawrence M. Small
Ann M. Fudge
Gilbert M. Grosvenor
W. Mitt Romney
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.
Audit Fees................................ $1,874,900
Financial Information Systems Design and
Implementation Fees..................... 0
All Other Fees
Audit-Related Fees(1)................. $4,293,300
Income Tax Compliance and Other Fees.. 2,960,800
----------
Total Other Fees.......................... 7,254,100
----------
Total Fees................................ $9,129,000
--------
(1) Audit-Related Fees include statutory audits of subsidiaries, benefit plan
audits, acquisition due diligence, accounting consultation, various attest
services under professional standards, and assistance with registration
statements, comfort letters and consents.
16
EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table shows the compensation we paid in
2001, 2000, and 1999, to our Chief Executive Officer and to our other four most
highly compensated executive officers (other than the Chief Executive Officer)
as of December 28, 2001.
Restricted Stock All Other
Fiscal Salary Bonus Stock Options Compensation
Name Year (1)($) ($) (2)(3)($) (#) (4)(5)($)
---- ------ --------- --------- ---------- ------- ------------
J.W. Marriott, Jr............ 2001 760,969 0 0 350,000 179,931
Chairman and Chief 2000 1,000,000 1,166,600 233,310 0 202,825
Executive Officer 1999 992,500 981,384 196,271 300,000 150,405
William J. Shaw.............. 2001 775,000 311,783 2,286,750 125,000 74,089
President and Chief 2000 735,000 702,954 140,583 0 58,748
Operating Officer 1999 700,000 537,950 107,602 125,000 58,752
Arne M. Sorenson............. 2001 515,000 149,608 1,600,725 80,000 46,315
Executive Vice President 2000 450,000 346,725 69,338 0 30,965
and Chief Financial Officer 1999 375,000 223,125 44,614 75,000 26,570
James M. Sullivan............ 2001 515,000 131,737 1,372,050 80,000 47,255
Executive Vice President 2000 470,000 366,835 864,766 0 36,232
Lodging Development 1999 444,000 315,240 63,051 75,000 35,500
Joseph Ryan.................. 2001 491,192 142,692 0 65,000 45,881
Executive Vice President 2000 470,000 357,435 71,494 0 35,617
and General Counsel 1999 444,000 301,920 928,352 75,000 35,500
--------
(1) Salary amounts include both base salary earned and paid in cash during the
fiscal year, and the amount of base salary deferred at the election of the
executive officer under certain employee benefit plans.
(2) 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. For fiscal years 1999 and 2000, the amount of a
deferred bonus stock award equaled 20 percent of each individual's annual
cash bonus award, based on the stock price on the first trading day for
the next fiscal year. Holders of deferred bonus 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
The stock typically vests in 5 or 10 equal annual installments beginning
one year after we grant the award. The recipient typically receives
awards in 10 annual installments following termination of employment.
(3) The following table shows the total number of restricted shares held by,
and the number of 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
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 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 $11,326 in personal use of the Company jet.
Stock Options
The following two tables show information concerning options to purchase
Class A common stock granted to the named executive officers in fiscal 2001
under the 1998 Plan.
Stock Option Grants in Last Fiscal Year
% of Total Stock
Stock Options Granted Exercise Expiration Grant Date
Options To Employees in Price Date Present Value
Name Granted(#) Fiscal Year (1) ($/Sh) (2) (3)($)
---- ---------- ---------------- -------- ---------- -------------
J. W. Marriott, Jr. 350,000 6.1% 45.735 02/01/2011 6,720,000
William J. Shaw.... 125,000 2.2% 45.735 02/01/2011 2,400,000
Arne M. Sorenson... 80,000 1.4% 45.735 02/01/2011 1,536,000
James M. Sullivan.. 80,000 1.4% 45.735 02/01/2011 1,536,000
Joseph Ryan........ 65,000 1.1% 45.735 02/01/2011 1,248,000
18
--------
(1) These values represent the options granted as a percentage of the total
options granted to employees for the 2001 performance year. Fiscal year
2002 grants for the executives listed on this table are expected in early
2002. Other eligible employees were awarded 2002 grants in November 2001.
Such grants are excluded for purposes of the above table.
(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 held by executive
officers may be transferred only as gifts for the benefit of specified
family members.
(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 2001 were in accordance with SFAS 123,
as follows:
(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. The volatility was 32.2%.
(b) Risk-Free Interest Rate -The risk-free interest rate was 4.89%.
(c) Dividend Yield - The expected annual dividend yield was $0.26 based on
our historical dividend yield over the expected term of the option.
(d) Expected Life - The expected life of the grant was 7.15 years,
calculated based on the historical expected life of previous grants.
(e) Per Share Value - The per share value for the February 1, 2001 grants
was $19.20.
Aggregated Stock Option/SAR Exercises in Last Fiscal
Year and Fiscal Year-End Option Values
Number of Value of Unexercised In-
Shares Underlying the-Money
Shares Unexercised Options at Stock Options
Acquired Fiscal Year End (2) at Fiscal Year End (3)
- on Value ------------------------- -------------------------
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Name Company(1) (#) ($) (#) (#) ($) ($)
---- ---------- -------- --------- ----------- ------------- ----------- -------------
J.W. Marriott, Jr. MI 0 2,170,887 1,043,365 58,028,469 9,855,750
HMC 0 0 372,110 0 2,670,955 0
--------- ---------- ---------
Total 0 60,699,424 9,855,750
William J. Shaw... MI 137,602 5,788,462 966,200 550,743 22,433,888 6,291,874
HMC 0 0 205,041 0 1,439,490 0
--------- ---------- ---------
Total 5,788,462 23,873,378 6,291,874
Arne Sorenson..... MI 0 0 115,506 178,750 1,388,350 1,069,587
James M. Sullivan. MI 55,042 2,164,956 345,695 310,130 7,160,515 3,374,066
Joseph Ryan....... MI 40,000 1,032,935 212,125 295,130 2,871,465 3,374,066
--------
(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 the Spin-Off. "HMC"
represents options to purchase shares in Host Marriott Corporation.
19
(2) The number and terms of some of these options reflect several adjustments
made as a result of the Spin-Off of Old Marriott from Marriott Corporation
in 1993, the Spin-Off of Host Marriott Services Corporation from Host
Marriott Corporation in 1995, the Spin-Off of the Company from Old Marriott
in 1998, and the conversion of Host Marriott Corporation into a real estate
investment trust (and a related Spin-Off transaction) in 1998, each in
accordance with the applicable employee benefit plans covering those
options. These adjustments preserved, but did not increase or decrease, the
economic value of the options.
(3) We have based the value of the unexercised stock options on a per share
price for Company stock of $40.925; and a per share price for Host Marriott
Corporation common stock of $9.45, the average of the respective high and
low trading prices on the New York Stock Exchange on December 28, 2001.
The following table shows information concerning performance-based
restricted stock grants awarded in fiscal 2001 under the 1998 Plan, but which
we subsequently cancelled during the latter part of 2001 in light of last
year's extraordinary political and economic events.
Long-Term Incentive Plan Awards in Last Fiscal Year (Cancelled)
Performance
Number of Period Until
Name Shares (1) Maturation
---- ---------- ------------
J. W. Marriott, Jr. 92,500 3 years
William J. Shaw.... 60,000 3 years
Arne M. Sorenson... 40,000 3 years
James M. Sullivan.. 40,000 3 years
Joseph Ryan........ 40,000 3 years
--------
(1) In the fiscal year 2001, we awarded executive officers restricted stock
grants which could be earned based on performance measures related to our
Return on Invested Capital ("ROIC") over a three-year measurement period.
ROIC is defined as our earnings during a specified period (before interest
expense and taxes, and including interest income and acquisition-related
goodwill amortization), divided by our average total capital at the end of
that period (total assets minus current liabilities plus cumulative
acquisition-related goodwill amortization).
20
REPORT ON EXECUTIVE COMPENSATION BY
THE COMPENSATION POLICY COMMITTEE
The Compensation Policy Committee (the "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 four times during 2001. 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'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 data reflects
compensation practices with companies of approximately Marriott's size (the
comparison group) who participate in a variety of compensation surveys. The
Committee believes that targeting compensation between median and the 75/th
percentile of other large companies appropriately reflects the conditions of
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. 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 more appropriate basis for establishing comparable 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. Each position'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's labor costs for management employees.
Annual Cash Incentives
The Company has established the 1998 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'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 2001 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's interest with that of shareholders. To
emphasize this principle, in February 1999, the Company established stock
ownership guidelines for the Company's senior management. The guidelines
require the top 65 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.
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 1998 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 Compensation of the Chief Executive Officer and Reported Executive Officers
The Committee reviewed the 2001 salaries for J.W. Marriott, Jr., and all
other executive officers in February 2001. Mr. Marriott's base pay was
maintained at $1,000,000, resulting in no base pay increase. 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 for
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 the named executive officers were made to
better approximate the median of the comparison group.
22
Under the 1998 Plan, Mr. Marriott'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
elected to forgo his bonus in light of the economic events of September 2001.
The other named senior executive officers are also participants in the 1998
Plan. Measures utilized include Company and, in some cases, business-group cash
flow, 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 2001 ranged from 25% to 40% of salary.
Based on outstanding contributions during the year, and to continue to
offer a competitive total compensation program, Mr. Shaw received a deferred
stock contract in 2001 of 50,000 shares 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, stock option grants were made to Mr. Marriott and the other named
executive officers. Mr. Marriott received an option in February 2001 to acquire
350,000 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.
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 1998 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, 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'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 2001 were competitive and appropriate and serve 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's Class A
common stock from the March 27, 1998 Spin-Off to the end of fiscal 2001, and
prior to the Spin-Off, the performance of Old Marriott's common stock since
January 4, 1997, with the performance of the Standard & Poor's Corporation
Composite 500 Index and the Standard and Poor's 500 Hotels Index. The graph
assumes an initial investment of $100 on January 4, 1997, 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'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
CERTAIN TRANSACTIONS
JWM Family Enterprises, L.P. ("Family 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 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. In fiscal
2001, we received management fees of approximately $3.7 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 Marriott 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"). 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"); 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'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 Joint 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 significant changes in the lodging industry over the
last ten years and the age of our agreements with Host Marriott, many
provisions of which predate our 1993 Spin-Off, 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, we are currently
negotiating certain changes to our management agreements for Host
Marriott-owned hotels. The modifications under discussion would, if made, be
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, 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. The monetary effect of
the anticipated changes will depend on future events such as the operating
results of the hotels. We do not expect these modifications to have a material
financial impact on us.
At February 28, 2002, J.W. Marriott, Jr. and Richard E. Marriott and their
respective immediate family members beneficially owned approximately 5.9
percent and 6.9 percent, respectively, of the common stock of Host Marriott.
J.W. Marriott, Jr. is presently a director of Host Marriott, with a term
expiring in May 2002, but is not standing for reelection. Richard E. Marriott,
who has announced his intention to resign from our Board of Directors in May
2002, is the Chairman of the Board of Host Marriott.
Pursuant to agreements with Host Marriott, in 2001 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. We recognized sales of $2,440 million and operating profit
(before corporate expenses and interest) of $162 million in 2001 from our
operation of lodging properties owned or leased by Host Marriott. During 2001,
Host Marriott also served as the general partner or managing member of several
unconsolidated entities, including the Courtyard Joint Venture, that own
lodging properties. We recognized sales of $546 million and operating profit
(before corporate expenses and interest) of $40 million in 2001 from our
operation of these lodging properties. We also leased land to certain of these
partnerships and recognized land rent income of $19 million in 2001. Included
above in amounts recognized from lodging properties owned by unconsolidated
entities are sales of $316 million, operating profit (before corporate expenses
and interest) of $25 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, 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. 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, we
recognized $1 million in interest and fee income from loans to Host Marriott.
At December 28, 2001, the outstanding principal balance of loans to Host
Marriott was $7 million. In
addition, we recognized interest income of $26 million in 2001 on the $200
million mezzanine debt provided by us to the Courtyard Joint Venture.
Guarantees. We have guaranteed Host Marriott's performance to certain
lenders and other third parties. These guarantees were limited to $9 million at
December 28, 2001 and consisted solely of guarantees of certain self-insurance
liabilities. We have not been required to make any payments under these
guarantees.
Administrative Services. We also provide certain administrative and
consulting services to Host Marriott, and sublease space at our headquarters
building to Host Marriott. In 2001, we were paid approximately $3.8 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"). 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 Crestline 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, 2002, J.W. Marriott, Jr. and Richard E. Marriott and their
respective immediate family members beneficially owned approximately 4.5
percent and 5.5 percent, respectively, of the common stock of Crestline. John
W. Marriott III, the son of J.W. Marriott, Jr., is a director of Crestline.
In 2001 we recognized sales of $194 million and operating profit (before
corporate expenses and interest) of $6 million from our management 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, for these services.
ITEM 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 UNDER THE 1998 PLAN
On February 7, 2002, the Board approved, subject to shareholder
ratification, the restatement of the 1998 Plan as the Marriott International,
Inc. 2002 Comprehensive Stock and Cash Incentive Plan
28
(the "2002 Plan"), a copy 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 one of the changes, the Company is asking shareholders to ratify an
increase in the number of shares authorized for issuance under the 2002 Plan by
9 million shares. This amendment would increase the number of shares authorized
for issuance under the 2002 Plan from 71 million to 80 million. At March 1,
2002, approximately 66 million shares of the Company's Class A common stock had
been issued under the 1998 Plan, approximately 49 million 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, under 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 fiscal 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 former employees of the Company
and its predecessors, received certain conversion awards in connection with the
Spin-Off.
Type of Awards
Stock Option Awards. Under the 2002 Plan, options may be granted to
employees that either qualify or do not qualify (nonqualified awards) for tax
treatment as "incentive stock options" within the meaning of Section 422 of the
Code. All outstanding stock option awards under the 2002 Plan are nonqualified.
The option price may not be less than 100 percent of the fair market value of
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 satisfaction of such other
requirements as may be imposed by the Compensation Policy Committee, including,
but not limited to, achievement of specific performance objectives 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 of 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 represented 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) earnings 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 share 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
as of each dividend payment date on the Class A common stock, to reflect the
dividend payment payable on 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 of Class A common stock in a lump sum or in equal annual
installments over a period as elected by the director.
The 2002 Plan also provides for non-employee directors to elect to receive
all or any part of his or her annual retainer 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, equal to the
amount of the annual retainer the non-employee director elects to receive in
the form of a stock option. The election is made on or before each Annual
Meeting and the valuation is made as of the first full trading day following
the Annual Meeting (the date of the 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
after the Spin-Off. These conversion awards 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, it will be treated as a nonqualified stock option. An
option holder generally will not recognize income for federal income tax
purposes at the time a nonqualified stock option is granted and generally will
recognize ordinary income upon exercise of a nonqualified stock option in an
amount equal to the difference between the fair market value of the Class A
common stock on the exercise date and the exercise price. When shares acquired
upon exercise of a nonqualified stock option are sold or otherwise disposed of,
the option holder will recognize 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 exercise 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 the 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.
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 9 million shares of the Company's Class A common stock
authorized for issuance under the 1998 Plan.
ITEM 3--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. 20037), a
shareholder who owns 400 shares of Company Class A common stock, has notified
the Company of her intention to propose the following resolution at the Annual
Meeting of Shareholders:
"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 states have mandatory cumulative voting, so do National Banks. In
addition, many corporations have adopted cumulative voting. Last year the
owners of 33,321,030 shares, representing approximately 18% of shares
voting, voted FOR my proposal.
"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'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' or group'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's present method of
electing directors is employed by over 90% of
34
companies listed in the Standard and Poor's 500 Index and by most companies
listed on the New York Stock Exchange. 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-- SHAREHOLDER PROPOSALS WITH RESPECT TO CERTAIN ATTRIBUTES OF
INDIVIDUALS TO BE DIRECTORS OR MEMBERS OF THE NOMINATING AND
CORPORATE GOVERNANCE COMMITTEE
The Company received two separate but similar shareholder proposals from
International Brotherhood of Electrical Workers' Pension Fund ("IBEW") and
Massachusetts Laborers' Pension Benefit Fund.
ITEM 4
IBEW (1125 15/th Street, NW, Washington, D.C. 20005), a shareholder that
owns 8,769 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") request that the Company's Board of Directors set a goal of
establishing a board 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:
. Employed 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 of directors plays a critical role in determining a company's
long-term success. A board helps meet the challenge of maximizing long-term
corporate value through those roles attributed to it by law and regulation.
A board serves as management monitor, working to assemble a well-qualified
senior management team. In conjunction with senior management, a board
contributes to the development and implementation of a corporation's
competitive strategies, while also serving as the architect of an executive
compensation plan that provides necessary incentives and rewards to
accomplish long-term corporate success. The board of directors must operate
independently of the corporation's chief executive officer and senior
management if it is to fulfill its duty to hire, oversee, compensate, and,
if necessary, replace management. Independence has been referred 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.
"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 related 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. 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 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. The Board
Nominating 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.
We have a strong commitment to protecting human rights, 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 sphere of influence and ensures 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, we do
not believe that terminating our minor business contacts in Myanmar is an
effective means to address this significant issue. We do not own any hotels in
Myanmar. Our only connection to this country is through a management agreement
for operation of two hotels in the capital city of Myanmar. Our involvement in
this business interest resulted from our 1997 acquisition of the Renaissance
Hotel Group N.V. Formerly, we were a party to another management agreement for
another hotel in the same city, but we have terminated that agreement. None of
these hotels are located in the remote areas where the proposal indicates that
forced labor was used to develop resorts, and no forced labor has been employed
at the hotels at least since our involvement.
We believe that the employees who work at the hotels subject to the
existing management agreement benefit from our involvement with those
properties. We are proud 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 opportunities for career advancement that we provide our employees.
In light of our favorable treatment of employees, our record of supporting
and advancing 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 proposal.
ITEM 7--SHAREHOLDER PROPOSAL TO ADOPT, IMPLEMENT 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/th Street, NW, Washington, D.C. 20007), a shareholder that owns 70 shares of
Company Class A common stock, has /
39
notified the Company of its intention to propose the following resolution at
the Annual Meeting of Shareholders:
"The shareholders urge the Board of Directors to adopt, implement and
enforce a workplace code of conduct based on the International Labor
Organization's ("ILO") Conventions on workplace human rights, including the
following principles:
1. All workers shall have the right to form and join trade unions and to
bargain collectively (ILO Conventions 87 and 98).
2. Workers' representatives shall not be the subject of discrimination and
shall have access to all workplaces necessary to enable them to
carry out their representation functions (ILO Convention 135)."
In support of the resolution, HERE has submitted the following statement:
"The success of Marriott International's business depends on consumer and
governmental goodwill. According to Marriott's 2000 annual report, the
Company's growth 'is fueled 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
conventions that would ensure that the Company is not associated with human
rights violations in the workplace. Such action would protect the Company's
brand name and/or its relationships with its customers and 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, 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' 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 accountants can be high-quality, focused
and cost-efficient, especially when the independent accountants' expertise in a
particular field is coupled with its knowledge of our business operations and
our financial systems. Among the services which our independent accountants
have provided in the past, which would fall outside 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 place to monitor and preserve
accountants' independence. For example, 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'
provision of non-audit services is compatible with maintaining the accountants'
independence. Furthermore, as required by the rules of the Securities and
Exchange
42
Commission, we disclose the amount of fees paid to our accountants for
non-audit services (See page 16 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 on issues that might affect the accountants' independence.
Retaining the flexibility to hire our independent accountants for non-audit
services is also consistent with the position stated by the Securities and
Exchange Commission in December 2000 when it amended its auditor independence
rules. After carefully considering the arguments on all sides, the SEC rejected
a total ban on non-audit services and continued to permit auditors to provide a
wide variety of non-audit services to their audit clients.
The Board recommends a vote AGAINST this proposal.
43
OTHER MATTERS
The Company's management knows of no other matters which may be presented
for consideration at the 2002 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 desires a copy of the Company's 2001 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's copying costs will be charged if copies
of exhibits to the 10-K are requested.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ DOROTHY M. INGALLS
Dorothy M. Ingalls
Secretary
44
APPENDIX A
AUDIT COMMITTEE CHARTER
I. Composition and Terms of Office
A. The Audit Committee (the "Committee") shall be appointed 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 of the Committee shall be financially literate as
interpreted by 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
The Committee shall hold at least three regular meetings each year and such
additional meetings as may be deemed necessary by the Committee Chairman.
Minutes of each Committee meeting shall be submitted to the Board of
Directors, and the Chairman of 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
accountants 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 separately with
management, the Chief Audit Executive, and the independent accountants in
separate executive sessions to discuss any matters that the Committee or
these groups believe should be discussed privately.
III. Duties and Responsibilities
A. Risk Assessment and Control Environment
The Committee shall:
1. Periodically inquire of management, the independent accountants, 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.
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. 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, programs to ensure compliance with the Company's
Ethical Conduct Policy (CP-1) and Business Conduct Guide.
B. Financial Reporting
The Committee shall:
1. Review the Company's Quarterly Report on Form 10-Q with financial
management 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
communicated to the Committee under Generally Accepted Auditing
Standards.
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4. Meet regularly with in-house counsel to discuss legal matters that
may have a material impact on 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 Securities and
Exchange Commission. Submit the draft Report to the Board of
Directors for approval.
6. Prepare the Written Affirmation, as required by the Corporate
Governance Listing Standards 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
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. At least annually, review and assess the adequacy of the Audit
Committee Charter. Submit proposed revisions to the Board of
Directors for approval. This should occur in conjunction with the
Committee's preparation of the written affirmation to the New York
Stock Exchange, as described in Section III.B.6. above.
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APPENDIX B
MARRIOTT INTERNATIONAL, INC.
2002 COMPREHENSIVE STOCK AND CASH INCENTIVE PLAN
B-1
Page
Contents ----
Article 1. Establishment, Objectives, and Duration.............................. B-3
Article 2. Definitions.......................................................... B-3
Article 3. Administration....................................................... B-7
Article 4. Shares Subject to the Plan and Maximum Awards........................ B-7
Article 5. Eligibility and Participation........................................ B-8
Article 6. Stock Options........................................................ B-8
Article 7. Restricted Stock..................................................... B-10
Article 8. Deferred Stock....................................................... B-12
Article 9. Special Recognition Stock Awards..................................... B-14
Article 10. Other Awards......................................................... B-14
Article 11. Performance Measures for Awards...................................... B-15
Article 12. Directors' Share Awards, Fee Deferral Elections, and Director Options B-16
Article 13. 1998 Conversion Awards............................................... B-18
Article 14. Beneficiary Designation.............................................. B-18
Article 15. Deferrals............................................................ B-18
Article 16. Rights of Participants............................................... B-18
Article 17. Amendment, Modification, and Termination............................. B-18
Article 18. Withholding.......................................................... B-19
Article 19. Indemnification...................................................... B-19
Article 20. Successors........................................................... B-20
Article 21. Legal Construction................................................... B-20
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MARRIOTT INTERNATIONAL, INC.
2002 COMPREHENSIVE STOCK AND CASH INCENTIVE PLAN
Article 1. Establishment, Objectives, and Duration
1.1 Establishment of the Plan. Marriott International, Inc. (the
"Company"), hereby establishes an incentive compensation plan to be known as
the "Marriott International, Inc. 2002 Comprehensive Stock and Cash Incentive
Plan" (hereinafter referred to as the "Plan"), as set forth in this document.
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 is 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
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 17 hereof, until all Shares subject to it shall have been
purchased or acquired according 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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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
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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.
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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).
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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
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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.
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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.
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2002 ANNUAL MEETING INFORMATION
Time and Location. The 2002 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, minimal
parking is expected to 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
recommended 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 local
Marriott hotels for Thursday, May 2, 2002, 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. 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--$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]