<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended September 10, 1999 Commission File No. 1-13881
MARRIOTT INTERNATIONAL, INC.
Delaware 52-2055918
(State of Incorporation) (I.R.S. Employer Identification Number)
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-3000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Shares outstanding
Class at October 8, 1999
- ------------------------------- ----------------------------
Class A Common Stock,
$0.01 par value 245,128,223
1
<PAGE>
MARRIOTT INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
----------
<S> <C> <C>
Forward-Looking Statements...................................................... 3
Part I. Financial Information (Unaudited):
Condensed Consolidated Statements of Income -
Twelve and Thirty-Six Weeks Ended September 10, 1999 and
September 11, 1998.......................................................... 4
Condensed Consolidated Balance Sheet -
as of September 10, 1999 and January 1, 1999................................ 5
Condensed Consolidated Statement of Cash Flows -
Thirty-Six Weeks Ended September 10, 1999 and September 11, 1998............ 6
Notes to Condensed Consolidated Financial Statements.......................... 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 13
Quantitative and Qualitative Disclosures About Market Risk.................... 21
Part II. Other Information and Signatures:
Legal Proceedings............................................................. 22
Changes in Securities......................................................... 22
Defaults Upon Senior Securities............................................... 22
Submission of Matters to a Vote of Security Holders........................... 22
Other Information............................................................. 22
Exhibits and Reports on Form 8-K.............................................. 23
Signatures.................................................................... 24
</TABLE>
2
<PAGE>
Forward-Looking Statements
When used throughout this report, the words "believes," "anticipates,"
"expects," "intends," "estimates," "projects," and other similar expressions,
which are predictions of or indicate future events and trends, identify forward-
looking statements. Such statements are subject to a number of risks and
uncertainties which could cause actual results to differ materially from those
projected, including: competition within each of our business segments; business
strategies and their intended results; the balance between supply of and demand
for hotel rooms, timeshare units, senior living accommodations and corporate
apartments; our ability to obtain new operating contracts and franchise
agreements; our ability to develop and maintain positive relations with current
and potential hotel and senior living community owners; the effect of
international, national and regional economic conditions; the availability of
capital to allow us and potential hotel and senior living community owners to
fund investments; our ability, and that of other parties upon which our
businesses also rely, to modify or replace on a timely basis, their computer
software and other systems in order to function properly prior to, in and
beyond, the year 2000; and other risks described from time to time in our
filings with the Securities and Exchange Commission, including those set forth
on Exhibit 99 filed herewith. Given these uncertainties, you are cautioned not
to place undue reliance on such statements. We also undertake no obligation to
publicly update or revise any forward-looking statement to reflect current or
future events or circumstances.
3
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve weeks ended Thirty-six weeks ended
--------------------------------- -----------------------------------
September 10, September 11, September 10, September 11,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SALES......................................... $ 1,995 $ 1,804 $ 5,932 $ 5,446
OPERATING COSTS AND EXPENSES.................. 1,807 1,640 5,335 4,933
--------------- --------------- --------------- ---------------
OPERATING PROFIT BEFORE CORPORATE EXPENSES AND
INTEREST..................................... 188 164 597 513
Corporate expenses............................ (30) (25) (87) (74)
Interest expense.............................. (12) (6) (34) (15)
Interest income............................... 7 7 20 25
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES.................... 153 140 496 449
Provision for income taxes.................... 57 54 186 173
--------------- --------------- --------------- ---------------
NET INCOME.................................... $ 96 $ 86 $ 310 $ 276
=============== =============== =============== ===============
DIVIDENDS DECLARED PER SHARE.................. $ .055 $ .05 $ .16 $ .15
=============== =============== =============== ===============
EARNINGS PER SHARE
Basic Earnings Per Share................. $ .39 $ .34 $ 1.25 $ 1.09
=============== =============== =============== ===============
Diluted Earnings Per Share............... $ .36 $ .32 $ 1.16 $ 1.02
=============== =============== =============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
($ in millions)
<TABLE>
<CAPTION>
September 10, January 1,
1999 1999
---------------- ----------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets
Cash and equivalents............................................... $ 324 $ 390
Accounts and notes receivable...................................... 681 605
Other.............................................................. 382 338
----------- -------------
1,387 1,333
----------- -------------
Property and equipment.................................................. 2,697 2,275
Intangibles............................................................. 1,846 1,712
Investments in affiliates............................................... 262 228
Notes and other receivables............................................. 504 434
Other................................................................... 294 251
----------- -------------
$ 6,990 $ 6,233
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable................................................... $ 539 $ 497
Other.............................................................. 1,043 915
----------- -------------
1,582 1,412
----------- -------------
Long-term debt.......................................................... 1,125 944
Other long-term liabilities............................................. 1,119 984
Convertible subordinated debt........................................... 333 323
Shareholders' equity
Class A common stock, 255.6 million shares issued.................. 3 3
Additional paid-in capital......................................... 2,740 2,713
Retained earnings.................................................. 400 218
Treasury stock, at cost............................................ (279) (348)
Accumulated other comprehensive income............................. (33) (16)
----------- -------------
2,831 2,570
----------- -------------
$ 6,990 $ 6,233
=========== =============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
MARRIOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
($ in millions)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-six weeks ended
----------------------------------
September 10, September 11,
1999 1998
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 310 $ 276
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization................................ 103 93
Income taxes and other....................................... 136 104
Timeshare activity, net...................................... (15) 41
Working capital changes...................................... 48 (65)
------------- --------------
Cash provided by operations...................................... 582 449
------------- --------------
INVESTING ACTIVITIES
Acquisitions..................................................... (62) (48)
Dispositions..................................................... 270 116
Capital expenditures............................................. (667) (566)
Note advances.................................................... (111) (24)
Note collections and sales....................................... 40 165
Other............................................................ (106) (113)
------------- --------------
Cash used in investing activities................................ (636) (470)
------------- --------------
FINANCING ACTIVITIES
Issuance of long-term debt....................................... 292 881
Repayment of long-term debt...................................... (156) (463)
Issuance of Class A common stock................................. 36 7
Dividends paid................................................... (38) (24)
Purchase of treasury stock....................................... (146) (291)
Advances to Old Marriott......................................... - (117)
------------- --------------
Cash used in financing activities................................ (12) (7)
------------- --------------
DECREASE IN CASH AND EQUIVALENTS...................................... (66) (28)
CASH AND EQUIVALENTS, beginning of period............................. 390 208
------------- --------------
CASH AND EQUIVALENTS, end of period................................... $ 324 $ 180
============= ==============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying condensed consolidated financial statements present the
results of operations, financial condition and cash flows of Marriott
International, Inc. (together with its subsidiaries, we, us or the Company),
formerly New Marriott MI, Inc., as if we were a separate entity for all
periods presented. Until March 27, 1998, we were a wholly-owned subsidiary of
the former Marriott International, Inc. (Old Marriott).
The accompanying condensed consolidated financial statements have not been
audited. We have condensed or omitted certain information and footnote
disclosures normally included in financial statements presented in accordance
with generally accepted accounting principles. We believe the disclosures
made are adequate to make the information presented not misleading. However,
you should read the condensed consolidated financial statements in
conjunction with the consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K (the Annual Report) for the fiscal
year ended January 1, 1999. Capitalized terms not otherwise defined in this
quarterly report have the meanings specified in the Annual Report.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, and the reported amounts of sales and expenses
during the reporting period. Accordingly, ultimate results could differ from
those estimates.
In our opinion, the accompanying condensed consolidated financial statements
reflect all adjustments necessary to present fairly our financial position as
of September 10, 1999 and January 1, 1999, the results of operations for the
twelve and thirty-six weeks ended September 10, 1999 and September 11, 1998,
and cash flows for the thirty-six weeks ended September 10, 1999 and
September 11, 1998. Interim results may not be indicative of fiscal year
performance because of seasonal and short-term variations. We have eliminated
all material intercompany transactions and balances between entities included
in these financial statements.
In November 1997, the Emerging Issues Task Force (EITF) of the Financial
Accounting Standards Board reached a consensus on EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management
Arrangements." EITF 97-2 addresses the circumstances in which a management
entity may include the sales and expenses of a managed entity in its
financial statements. As a result of EITF 97-2, and related discussions with
the staff of the Securities and Exchange Commission, in our 1998 fourth
quarter we changed our accounting policy to no longer include in our
financial statements the working capital and sales of managed hotels and
managed senior living communities. Our financial statements for prior periods
have been restated. This change in accounting policy resulted in reductions
in each of sales and operating expenses of $459 million and $1,548 million
for the twelve and thirty-six weeks ended September 11, 1998, respectively,
with no impact on operating profit, net income, earnings per share, debt or
shareholders' equity.
7
<PAGE>
2. Spinoff
-------
On March 27, 1998, Old Marriott distributed our common stock, on a pro rata
basis, as a special dividend (the Spinoff) to holders of Old Marriott's
common stock. We have carried over Old Marriott's historical cost basis in
our assets and liabilities. Old Marriott received a private letter ruling
from the Internal Revenue Service that the Spinoff would be tax-free to it
and its shareholders. For each share of common stock in Old Marriott,
shareholders received one share of our Common Stock and one share of our
Class A Common Stock. On May 21, 1998, all outstanding shares of our Common
Stock were converted, on a one-for-one basis, into shares of our Class A
Common Stock. For further discussion of the Spinoff, please refer to our
Annual Report.
8
<PAGE>
3. Earnings Per Share
------------------
For periods prior to March 27, 1998, the number of weighted average shares
outstanding and the effect of dilutive securities used in the earnings per
share calculations are based upon the weighted average number of Old Marriott
shares outstanding, and the Old Marriott effect of dilutive securities for
the applicable period, adjusted (1) for the distribution ratio in the Spinoff
of one share of our Common Stock and one share of our Class A Common Stock
for every share of Old Marriott common stock, and (2) to reflect the
conversion of our Common Stock into our Class A Common Stock on May 21, 1998.
The following table reconciles the earnings and number of shares used in the
basic and diluted earnings per share calculations (in millions, except per
share amounts).
<TABLE>
<CAPTION>
Twelve weeks ended Thirty-six weeks ended
---------------------------------- ----------------------------------
September 10, September 11, September 10, September 11,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Computation of Basic Earnings Per Share
Net income.................................. $ 96 $ 86 $ 310 $ 276
Weighted average shares outstanding......... 248.1 249.8 247.8 252.5
---------------- ---------------- ---------------- ----------------
Basic Earnings Per Share.................... $ .39 $ .34 $ 1.25 $ 1.09
================ ================ ================ ================
Computation of Diluted Earnings Per Share
Net income.................................. $ 96 $ 86 $ 310 $ 276
After-tax interest expense on
convertible subordinated debt.............. 2 2 5 5
---------------- ---------------- ---------------- ----------------
Net income for diluted earnings per share... $ 98 $ 88 $ 315 $ 281
================ ================ ================ ================
Weighted average shares outstanding......... 248.1 249.8 247.8 252.5
Effect of Dilutive Securities
Employee stock purchase plan............... 0.1 0.1 0.2 0.1
Employee stock option plan................. 8.1 8.4 9.1 8.8
Deferred stock incentive plan.............. 5.4 5.7 5.4 5.7
Convertible subordinated debt............... 9.5 9.5 9.5 9.5
---------------- ---------------- ---------------- ----------------
Shares for diluted earnings per share....... 271.2 273.5 272.0 276.6
================ ================ ================ ================
Diluted Earnings Per Share.................. $ .36 $ .32 $ 1.16 $ 1.02
================ ================ ================ ================
</TABLE>
We compute the effect of dilutive securities using the treasury stock
method and average market prices during the period. We use the if-converted
method for convertible subordinated debt.
9
<PAGE>
4. Acquisitions
------------
The Ritz-Carlton Hotel Company LLC. On March 19, 1998, we increased our
ownership interest in The Ritz-Carlton Hotel Company LLC to approximately 98
percent for consideration of approximately $90 million. We expect to acquire
the remaining ownership interest within the next several years. We accounted
for the acquisition using the purchase method of accounting. Prior to March
19, 1998, we accounted for our investment in The Ritz-Carlton Hotel Company
LLC using the equity method of accounting and we received distributions based
on an annual, cumulative preferred return on invested capital.
ExecuStay Corporation. On February 17, 1999, we completed a cash tender offer
for approximately 44 percent of the outstanding common stock of ExecuStay
Corporation (ExecuStay), a leading provider of leased corporate apartments in
the United States. On February 24, 1999, substantially all of the remaining
common stock of ExecuStay was converted into nonvoting preferred stock of
ExecuStay which we acquired, on March 26, 1999, for approximately 2.1 million
shares of our Class A Common Stock. Our aggregate purchase price totaled $116
million. We consolidated the operating results of ExecuStay from February 24,
1999, and have accounted for the acquisition using the purchase method of
accounting. We are amortizing the resulting goodwill on a straight-line basis
over 30 years.
5. Comprehensive Income
--------------------
Total comprehensive income was $90 million for each of the twelve weeks ended
September 10, 1999 and September 11, 1998, and $293 million and $291 million,
respectively, for the thirty-six weeks ended September 10, 1999 and September
11, 1998. The principal difference between net income and total comprehensive
income relates to foreign currency translation adjustments.
6. New Accounting Standards
------------------------
In 1999 we adopted Statement of Position (SOP) 98-5, "Reporting on the Costs
of Start-Up Activities," issued by the American Institute of Certified Public
Accountants, by expensing pre-opening costs for Company owned lodging and
senior living communities as incurred. The adoption of SOP 98-5 resulted in
pretax expenses of $4 million and $12 million, respectively, for the twelve
and thirty-six weeks ended September 10, 1999.
We will adopt FAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which we do not expect to have a material effect on our
consolidated financial statements, in or before the first quarter of 2001.
7. Business Segments
-----------------
We are a diversified hospitality company operating in three business
segments: Lodging, which includes the development, ownership, operation and
franchising of lodging properties including vacation timesharing resorts;
Senior Living Services, which consists of the development, ownership and
operation of senior living communities; and Distribution Services, which
operates a wholesale food distribution business. We evaluate the performance
of our segments based primarily on operating profit before corporate expenses
and interest. We do not allocate income taxes at the segment level.
10
<PAGE>
The following table shows our sales and operating profit by business segment
for the twelve and thirty-six weeks ended September 10, 1999 and September
11, 1998.
<TABLE>
<CAPTION>
Twelve weeks ended Thirty-six weeks ended
---------------------------------- ----------------------------------
September 10, September 11, September 10, September 11,
1999 1998 1999 1998
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SALES
Lodging...................... $ 1,606 $ 1,428 $ 4,788 $ 4,288
Senior Living Services....... 128 112 372 325
Distribution Services........ 261 264 772 833
-------------- --------------- --------------- ---------------
$ 1,995 $ 1,804 $ 5,932 $ 5,446
============== =============== =============== ===============
OPERATING PROFIT BEFORE CORPORATE
EXPENSES AND INTEREST
Lodging...................... $ 180 $ 156 $ 577 $ 492
Senior Living Services....... 3 4 6 10
Distribution Services........ 5 4 14 11
-------------- --------------- --------------- ---------------
$ 188 $ 164 $ 597 $ 513
============== =============== =============== ===============
</TABLE>
Sales of Distribution Services do not include sales (made at market terms
and conditions) to our other business segments of $36 million and $35
million for the twelve weeks ended September 10, 1999 and September 11,
1998, respectively, and $112 million and $105 million for the thirty-six
weeks ended September 10, 1999 and September 11, 1998, respectively.
8. Contingencies
-------------
We issue guarantees to lenders and other third parties in connection with
financing transactions and other obligations. These guarantees are limited,
in the aggregate, to $152 million at September 10, 1999. New World
Development and another entity affiliated with Dr. Cheng, a member of our
Board of Directors, have severally indemnified us for guarantees by us of
leases with minimum annual payments of approximately $59 million.
Letters of credit outstanding on our behalf at September 10, 1999 totaled
$72 million, the majority of which related to our self-insurance program. At
September 10, 1999, we had a repurchase obligation of $86 million related to
notes receivable from timeshare interval purchasers that have been sold with
limited recourse.
In addition to the foregoing, we are from time to time involved in legal
proceedings which could, if adversely decided, result in losses to the
Company. Although we believe that the lawsuits described below are without
merit, and we intend to vigorously defend against the claims being made
against us, we cannot assure you as to the outcome of these lawsuits nor can
we currently estimate the range of any potential loss to the Company.
Courtyard by Marriott II Limited Partnership (CBM II)
A group of partners in CBM II filed a lawsuit, Whitey Ford, et al. v. Host
Marriott Corporation, et al., Case No. 96-CI-08327, on June 7, 1996, in the
285/th/ Judicial District Court of Bexar County, Texas against Host
Marriott, the Company and others alleging breach of fiduciary duty, breach
of contract, fraud, negligent misrepresentation, tortious interference,
violation of the Texas Free Enterprise and Antitrust Act of 1983 and
conspiracy in connection with the formation, operation and management of CBM
II and its hotels. The plaintiffs are seeking
11
<PAGE>
unspecified damages. On January 29, 1998, two other limited partners, A.R.
Milkes and D.R. Burklew, filed a petition in intervention seeking to convert
the lawsuit into a class action. The defendants have filed an answer, the
class has been certified, class counsel has been appointed, and discovery is
underway. On March 11, 1999, Palm Investors, L.L.C., the assignee of a
number of limited partnership units acquired through various tender offers,
filed a plea in intervention to bring additional claims relating to the 1993
split of Marriott Corporation and to the 1995 refinancing of CBM II's
indebtedness. The original plaintiffs subsequently filed a second amended
complaint on March 19, 1999 and in a third amended complaint, filed May 24,
1999, asserted as derivative claims some of the claims previously asserted
as individual claims. On March 25, 1999, Equity Resource, an assignee,
through various of its funds, of a number of limited partnership units, also
filed a plea in intervention. A trial date of January 3, 2000 has been set.
On August 17, 1999, the general partner of CBM II appointed an independent
special litigation committee to investigate the derivative claims described
above and to recommend to the general partner whether it is in the best
interests of CBM II for the derivative litigation to proceed. The general
partner has agreed to adopt the recommendation of the committee. Under
Delaware law, the recommendation of a duly appointed independent litigation
committee is binding on the general partner and the limited partners. On
August 30, 1999, the court held a hearing to consider the defendant's motion
to stay these proceedings until the committee makes its recommendation. The
court has not yet ruled on this motion. On October 11, 1999, the special
litigation committee filed a motion requesting a six-month postponement of
the scheduled trial date, and asking that the committee be allowed to
participate in the discovery process. The court has not yet heard or ruled
on this motion.
Courtyard by Marriott Limited Partnership I (CBM I) and CBM II Derivative
Action.
After intervening in the CBM II class action, Palm Investors and
Equity Resource, together with Repp Properties, joined in a complaint filed
in April 1999, Equity Resource Fund X et al. v. CBM One Corporation et al.,
Case No. 99-CI-04765, in the 57/th/ Judicial District Court of Bexar County,
Texas. This action asserted as derivative claims, on behalf of CBM I and CBM
II, the same kind of claims asserted individually in the Ford and Milkes
actions described above. In September 1999, this complaint was withdrawn by
the plaintiffs.
Texas Multi-Partnership Lawsuits
On March 16, 1998, limited partners in several limited partnerships
sponsored by Host Marriott or its subsidiaries filed a lawsuit, Robert M.
Haas, Sr. and Irwin Randolph Joint Tenants, et al. v. Marriott
International, Inc., et al., Case No. 98-CI-04092, in the 57/th/ Judicial
District Court of Bexar County, Texas, alleging that the defendants
conspired to sell hotels to the partnerships for inflated prices and that
they charged the partnerships excessive management fees to operate the
partnerships' hotels. The plaintiffs further allege that the defendants
committed fraud, breached fiduciary duties and violated the provisions of
various contracts. A Marriott International subsidiary manages each of the
hotels involved and, as to some properties, the Company is the ground lessor
and collects rent. The Company, several Marriott subsidiaries and J.W.
Marriott, Jr. are among the several named defendants. The plaintiffs are
seeking unspecified damages. Those allegations concerning CBM II have been
transferred to the CBM II lawsuit described above. No trial date has been
set.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of our operations for
each of the twelve and thirty-six weeks ended September 10, 1999 and September
11, 1998. Comparable REVPAR, room rate and occupancy statistics used throughout
this report are based upon U.S. properties operated by us, except that data for
Fairfield Inn also include comparable franchised units.
In the fourth quarter of 1998, we changed our accounting policy to no longer
include the working capital and sales of managed hotels and managed senior
living communities in our financial statements. Instead, our sales include fees
earned plus costs recovered from owners of managed hotels and managed senior
living communities. We have restated prior periods and all references in the
discussion below refer to financial statement data prepared under our new
accounting policy. This new accounting policy reflects reductions in sales of
$529 million and $459 million for the twelve weeks ended September 10, 1999 and
September 11, 1998, respectively and $1,852 million and $1,548 million for the
thirty-six weeks ended September 10, 1999 and September 11, 1998 respectively,
compared to sales as previously calculated for those periods.
Twelve Weeks Ended September 10, 1999 Compared to Twelve Weeks Ended September
- ------------------------------------------------------------------------------
11, 1998
- --------
We reported net income of $96 million for the 1999 third quarter, on sales of
$1,995 million. This represents a 12 percent increase in net income and an 11
percent increase in sales over the third quarter of 1998. Diluted earnings per
share of $.36 for the quarter increased 13 percent over the 1998 amount.
Systemwide sales increased 11 percent, to $4.0 billion.
Marriott Lodging reported a 15 percent increase in operating profit on 12
percent higher sales. The results reflect average REVPAR growth of three percent
across our lodging brands, strong performance from Marriott Vacation Club
International and contributions from new units. Systemwide lodging sales
increased 12 percent to $3.6 billion.
We added a net total of 48 lodging properties (5,753 units) during the third
quarter of 1999, increasing our total properties to 1,812 (344,958 units).
Properties by brand (excluding 6,300 rental units relating to ExecuStay) are as
indicated in the following table.
13
<PAGE>
<TABLE>
<CAPTION>
Properties as of September 10, 1999
------------------------------------------------------------
Company-operated Franchised
---------------------------- ----------------------------
Properties Units Properties Units
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites............. 225 98,867 137 39,381
Ritz-Carlton.................................... 35 11,585 - -
Renaissance..................................... 75 30,079 15 5,715
Ramada International............................ 7 1,325 19 4,221
Residence Inn................................... 136 18,296 183 19,928
Courtyard....................................... 254 38,980 199 24,769
TownePlace Suites............................... 22 2,260 26 2,553
Fairfield Inn................................... 51 7,138 353 30,906
SpringHill Suites............................... 4 438 26 2,623
Marriott Vacation Club International............ 38 4,367 - -
Marriott Executive Apartments and other......... 7 1,527 - -
------------ ------------ ------------ ------------
Total..................................... 854 214,862 958 130,096
============ ============ ============ ============
</TABLE>
Marriott Hotels, Resorts and Suites posted a REVPAR increase of three percent
due to a four percent increase in average room rates, to $131, partially offset
by a slight decrease in occupancy to 80 percent. Profit margins increased as
cost controls generated higher incentive management fees at many hotels.
Renaissance hotels posted a REVPAR increase of one percent due to a two percent
increase in average room rates to $120, partially offset by a one percentage
point decrease in occupancy, to 71 percent.
Ritz-Carlton reported an increase in average room rates of four percent, to
$197, with occupancy up six percentage points to 80 percent, resulting in a 12
percent increase in REVPAR.
Residence Inn, our quality tier extended-stay brand, posted a slight increase in
REVPAR, due to a one percent increase in average room rates, to $100, and a one
percentage point decrease in occupancy to 86 percent. Residence Inn opened 10
properties during the quarter.
Courtyard, our moderate-price lodging brand, increased average room rates by
four percent to $91, and occupancy decreased slightly to 82 percent, resulting
in a REVPAR increase of three percent. Courtyard opened 14 properties during
the quarter.
Fairfield Inn, our economy lodging brand, posted a decrease in REVPAR of four
percent due to a decrease in average room rates of one percent to $59, and a two
percentage point decrease in occupancy to 77 percent. Fairfield Inn opened 12
properties during the quarter.
Marriott Vacation Club International posted substantial profit growth in the
1999 quarter. We generated a 17 percent increase in contract sales, reflecting
strong sales activity at timeshare resorts in Florida, California, South
Carolina, Spain and Hawaii.
Marriott Senior Living Services (SLS) posted 14 percent sales growth in the 1999
third quarter. Operating profit before corporate expenses and interest declined
as pre-opening costs of $4 million and start up losses associated with new
properties more than offset gains from property sales and profit growth from
established communities. Occupancy for comparable communities decreased by
14
<PAGE>
one percentage point to 90 percent for the quarter. At September 10, 1999, SLS
operated 131 independent full-service and assisted living communities totaling
approximately 23,200 units.
Marriott Distribution Services (MDS) achieved higher profits in the quarter,
despite slightly lower sales. The division benefited from realization of cost
economies in transportation and warehouse operations, as well as higher gross
margins per case. See "Liquidity and Capital Resources" below for a discussion
of the possible future impact of the bankruptcy filing by a major MDS customer.
Corporate activity. Interest expense increased by $6 million in the 1999 third
quarter, primarily due to share repurchases and other investing activities.
Corporate expenses increased due to Year 2000 modification costs of $3 million
compared to $2 million in the 1998 quarter, and higher net costs associated with
tax-oriented investments. The effective income tax rate decreased from 38.5
percent to 37.5 percent primarily due to the increased proportion of operations
in countries with lower effective tax rates.
Thirty-Six Weeks Ended September 10, 1999 Compared to Thirty-Six Weeks Ended
- -----------------------------------------------------------------------------
September 11, 1998
- ------------------
We reported net income of $310 million for the first three quarters of 1999, on
sales of $5,932 million. This represents a 12 percent increase in net income and
a nine percent increase in sales over the same period in 1998. Diluted earnings
per share of $1.16 increased 14 percent over the 1998 amount. Systemwide sales
increased 10 percent, to $11.9 billion.
Marriott Lodging reported a 17 percent increase in operating profit on 12
percent higher sales. The results reflect average REVPAR growth of three percent
across our lodging brands, strong results from Marriott Vacation Club
International and contributions from new units. Systemwide lodging sales
increased 12 percent to $10.7 billion.
Marriott Hotels, Resorts and Suites posted a three percent increase in average
room rates, to $139, and a slight increase in occupancy to 79 percent, which
generated a REVPAR increase of three percent.
Renaissance hotels posted a REVPAR increase of two percent due to a one
percentage point increase in occupancy to 72 percent, and a one percent increase
in average room rates to $130.
Ritz-Carlton reported an increase in average room rates of five percent, to
$219, with occupancy up five percentage points to 80 percent, resulting in an 11
percent increase in REVPAR.
Residence Inn posted slightly higher REVPAR, due to a small increase in
occupancy to 85 percent, and a slight increase in average room rates to $99.
Operating results include contributions from new units and gains related to the
disposition of six properties during the 1999 period. We retained long-term
operating agreements on these properties. Residence Inn opened 68 properties
since the beginning of fiscal year 1998.
Courtyard increased average room rates by two percent to $92, and occupancy
increased slightly to 81 percent, resulting in a REVPAR increase of three
percent. Courtyard opened 87 properties since the beginning of fiscal year
1998.
15
<PAGE>
Fairfield Inn posted an increase in average room rates of one percent to $58,
which was offset by a two percentage point decrease in occupancy to 74 percent,
resulting in a decrease in REVPAR of one percent. Fairfield Inn opened 64
properties since the beginning of fiscal year 1998.
Marriott Vacation Club International posted substantial profit growth in the
first three quarters of 1999, reflecting a 21 percent increase in contract
sales.
Marriott Senior Living Services reported 15 percent higher sales in the first
three quarters of 1999. Operating profit before corporate expenses and interest
declined as pre-opening costs of $12 million and start-up costs of new
communities more than offset gains from property sales and improved performance
at established communities. Occupancy for comparable communities increased by
one percentage point to 90 percent for the period.
Marriott Distribution Services achieved higher profits in the period, despite
seven percent lower sales, reflecting increased operating efficiencies.
Corporate activity. Interest expense increased by $19 million in the 1999
period, primarily due to investing activities and share repurchases since the
Spinoff. Corporate expenses increased primarily due to Year 2000 modification
costs of $15 million compared to $8 million in the first three quarters of 1998.
The effective income tax rate decreased from 38.5 percent to 37.5 percent
primarily due to the increased proportion of operations in countries with lower
effective tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents totaled $324 million at September 10, 1999, a decrease of
$66 million from year end. Cash provided by operations of $582 million
increased 30 percent over 1998. Net income is stated after recording
depreciation expense of $55 million and $49 million for the thirty-six weeks
ended September 10, 1999 and September 11, 1998, respectively, and after
amortization expense of $48 million and $44 million for the thirty-six weeks
ended September 10, 1999 and September 11, 1998, respectively. EBITDA for the
thirty-six weeks ended September 10, 1999 increased by $76 million, or 14
percent, to $633 million. EBITDA is an indicator of operating performance which
can be used to measure the Company's ability to service debt, fund capital
expenditures and expand its business. However, EBITDA is not an alternative to
net income, operating profit, cash from operations, or any other operating or
liquidity measure prescribed by generally accepted accounting principles.
Net cash used in investing activities totaled $636 million for the thirty-six
weeks ended September 10, 1999, and included our acquisition of ExecuStay,
expenditures for developing limited-service lodging properties and senior living
communities, together with note advances. Cash generated from dispositions of
$270 million resulted primarily from the sales of limited-service lodging
properties and senior living communities under master transactions initiated in
1998. We continue to operate these properties under long-term agreements.
We continue to grow our businesses, in part, by investing in new units. We
expect our principal investments to continue to include notes, minority equity
interests, business acquisitions and direct development and ownership of certain
lodging and senior living services projects. We expect to sell certain lodging
and senior living service properties currently under development, or to be
developed, while continuing to operate them under long-term agreements.
16
<PAGE>
We believe that cash generated by operations, together with our borrowing
capacity and proceeds from the sale of assets, will be sufficient to finance our
planned growth and capital requirements. Nonetheless, our ability to sell
properties that we develop, and the ability of hotel and senior living community
developers to build or acquire new Marriott properties, both of which are
important components of our growth plans, are to some extent dependent on the
availability and price of capital. We continually monitor the status of the
capital markets, and other conditions which could affect our ability to execute
our announced growth plans.
We purchased 4.5 million shares of our Class A Common Stock in the thirty-six
weeks ended September 10, 1999, at a cost of $158 million. On September 30,
1999, our Board authorized the repurchase of an additional 10 million shares,
resulting in a total authorization of 10.6 million shares as of September 30,
1999.
In April 1999, we filed a "universal shelf" registration statement with the
Securities and Exchange Commission. That registration statement, which became
effective on May 4, 1999, originally allowed us to offer to the public up to
$500 million of debt securities, Class A Common Stock and/or preferred stock.
This "universal shelf" format provides us with additional flexibility to meet
our financing needs.
On September 20, 1999, we sold $300 million principal amount of 7-7/8 percent
Series C Notes, which mature in 2009, in a public offering made under our shelf
registration statement. We received net proceeds of approximately $296 million
from this offering, after paying underwriting discounts, commissions and
offering expenses.
On October 7, 1999, we delivered a mandatory redemption notice to the holders of
the LYONs indicating our plan to redeem them on November 8, 1999 for $619.65 in
cash per LYON. Holders may elect to convert each LYON into 17.52 shares of our
Class A Common Stock and 2.19 shares of SMS common stock at any time prior to
the close of business on November 8, 1999. If none of the holders of the
540,200 outstanding LYONs elect to convert, the aggregate redemption payment
would total $335 million. Pursuant to the LYONs Allocation Agreement entered
into with SMS as part of the Spinoff, SMS is obligated to fund nine percent of
the aggregate LYONs redemption payment. Our 91 percent share of the redemption
payment would then be $305 million, which we plan to fund with commercial paper
borrowings.
In 1996, MDS became the exclusive provider of distribution services to Boston
Chicken Inc. (BCI). On October 5, 1998, BCI and its Boston Market-controlled
subsidiaries filed voluntary bankruptcy petitions in the U.S. Bankruptcy Court
(the Court) for protection under Chapter 11 of the Federal Bankruptcy Code. The
bankruptcy resulted in the closing of approximately 21 percent of the
restaurants in the Boston Market chain. MDS continues to distribute to BCI and
has been receiving payment of post-petition balances in accordance with the
terms of its contracts with BCI. In addition, the Court has approved, and MDS
has received, payment for substantially all of its pre-petition accounts
receivable balances. However, the final effect on our future results of
operations and financial position depends on the final resolution of BCI's
bankruptcy. Under certain circumstances, if the contract were to terminate, or
if BCI were to cease or further curtail its operations: (1) MDS may be unable to
recover some or all of an aggregate of approximately $32 million in contract
investment, receivables and inventory; and (2) MDS could have excess warehouse
capacity and rolling stock.
17
<PAGE>
Year 2000 Readiness Disclosure
The "Year 2000 problem" has arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19." If not corrected, many computer applications
could fail or create erroneous results.
State of Readiness. We have adopted the following eight-step process toward
Year 2000 readiness:
1. Awareness: fostering understanding of, and commitment to, the problem and its
potential risks;
2. Inventory: identifying and locating systems and technology components that
may be affected;
3. Assessment: reviewing these components for Year 2000 compliance, and
assessing the scope of Year 2000 issues;
4. Planning: defining the technical solutions and labor and work plans necessary
for each affected system;
5. Remediation/Replacement: completing the programming to renovate or replace
the problem software or hardware;
6. Testing and Compliance Validation: conducting testing, followed by
independent validation by a separate internal verification team;
7. Implementation: placing the corrected systems and technology back into the
business environment; and
8. Quality Assurance: utilizing an internal audit team to review significant
projects for adherence to quality standards and program methodology.
We have grouped our systems and technology into three categories for purposes of
Year 2000 compliance:
1. Information resource applications and technology (IT Applications) --
enterprise-wide systems supported by the Company's centralized information
technology organization (IR);
2. Business-initiated systems (BIS) -- systems that have been initiated by an
individual business unit, and that are not supported by IR; and
3. Building Systems -- non-IT equipment at properties that use embedded computer
chips, such as elevators, automated room key systems and HVAC equipment.
We are prioritizing our efforts based on how severe an effect noncompliance
would have on customer service, core business processes or revenues, and whether
there are viable, non-automated fallback procedures (System Criticality).
18
<PAGE>
We measure completion of each phase based on documentation and quantified
results weighted for System Criticality. The table below reflects the status of
our Year 2000 readiness process at September 10, 1999. Based on progress
achieved to date for areas under our control, we expect minimal business
disruptions to arise as a result of the Year 2000 readiness for the categories
reflected in the table. Nonetheless, we have prepared contingency plans
(described in more detail below) which address unforeseen circumstances and
events beyond our control.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
Step IT Applications BIS Building Systems
=========================================================================================================================
<S> <C> <C> <C>
Awareness Complete Complete Complete
-------------------------------------------------------------------------------------------------------------------------
Inventory Complete Complete Complete
-------------------------------------------------------------------------------------------------------------------------
Assessment Complete Complete Complete
-------------------------------------------------------------------------------------------------------------------------
Planning Complete Complete Complete
-------------------------------------------------------------------------------------------------------------------------
Remediation/ Over 95 percent Over 95 percent complete Over 95 percent
Replacement complete complete
-------------------------------------------------------------------------------------------------------------------------
Testing and Testing over 95 percent Testing is approximately Initial testing is over
Compliance Validation complete; Compliance 80 percent complete.* 95 percent complete.*
Validation completed for Compliance Validation is Compliance validation
over 90 percent of key in progress* is in progress
systems, with most
remaining work in its
final stage
-------------------------------------------------------------------------------------------------------------------------
Implementation Approximately 85 percent Approximately 85 percent Over 95 percent complete
of implementation complete **
projects complete.
Additionally, for the
remaining projects
involving rollout to
business locations, we
have made substantial
progress and we expect to
complete by year end 1999
-------------------------------------------------------------------------------------------------------------------------
Quality Assurance In progress for In progress In progress
approximately 80 percent
of IT applications
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Testing for third party BIS and Building Systems may consist of our receipt
and evaluation of vendor compliance documentation and, where appropriate,
further verification by us of compliance.
** Completion of certain BIS items is dependent on third party software
patches which we have not yet received.
Year 2000 compliance communications with our significant third party suppliers,
vendors and business partners, including our franchisees, are ongoing. Our
efforts are focused on the connections most critical to customer service, core
business processes and revenues, including those
19
<PAGE>
third parties that support our most critical enterprise-wide IT Applications,
franchisees generating the most revenues, suppliers of the most widely used
Building Systems and BIS, the top 100 suppliers, by dollar volume, of non-IT
products and services, and financial institutions providing the most critical
payment processing functions. We have received responses from a majority of the
firms in this group. A majority of these respondents have either given
assurances of timely Year 2000 compliance or have identified the necessary
actions to be taken by them or by us to achieve timely Year 2000 compliance for
their products. Where we have not received satisfactory responses we are
addressing the potential risks of failure through our contingency planning
process.
We have established a common approach for testing and addressing Year 2000
compliance issues for our managed and franchised properties. This includes
guidance for properties we operate, and a Year 2000 "Toolkit" for franchisees
containing relevant Year 2000 compliance information. We are also utilizing a
Year 2000 best-practices sharing system. We are monitoring the progress of the
managed and franchised properties towards Year 2000 compliance.
Costs. Many of the costs of Year 2000 compliance will be reimbursed to us or
otherwise paid directly by owners and clients pursuant to existing contracts.
We estimate that we will bear approximately $35 million to $40 million of the
pretax costs to address the Year 2000 problem. Some of these costs relate to
internal resources which will be redeployed in 2000, and, as such, represent
costs which we will continue to incur in future years. The Year 2000 costs,
approximately $27 million (on a pretax basis) of which have been incurred
through September 10, 1999, have been and will be expensed as incurred.
In addition, we had previously planned and/or begun implementing several system
replacement projects to modernize and improve our systems. The Year 2000
problem heightened the need for timely completion and some project schedules
have been accelerated. These project costs have been included in our budgeting
process and internal forecasts and already form part of our financial plans.
Like the Year 2000 costs referred to in the preceding paragraph, many of these
systems replacement costs will be reimbursed to us or otherwise paid directly by
owners and clients pursuant to existing contracts. We estimate that we will
bear approximately $45 million to $50 million of the pretax costs of these
systems replacements, most of which will be capitalized and amortized over the
useful lives of the assets.
The amount of costs we will actually incur depends on a number of factors which
cannot be accurately predicted, including the extent and difficulty of the
Remediation and other work to be done, the availability and cost of consultants,
the extent of testing required to demonstrate Year 2000 compliance, and our
ability to timely collect all payments due to us under existing contracts.
Year 2000 Contingency Plans. Our centralized services and the properties we
operate already have contingency plans in place covering a variety of possible
events, including natural disasters, interruption of utility service, general
computer failure, and the like. We have reviewed these contingency plans and
have made appropriate modifications to address specific Year 2000 issues. The
modification of master contingency plans is complete, with conforming changes
added to individual unit contingency plans during the third quarter.
Contingency drills and preparations are being conducted.
In addition, to provide support and coordination during the actual turn of the
century, we have established information and coordination centers to collect and
report status and track and address problems as they occur.
20
<PAGE>
Risks Posed By Our Year 2000 Issues. We currently believe that the Year 2000
problem will not have a material adverse effect on us, our business or our
financial condition. However, we cannot assure you that our Year 2000
remediation or remediation by others will be completed properly and on time, and
failure to do so could materially and adversely effect us. We also cannot
predict the actual effects of the Year 2000 problem on us, which depend on a
number of uncertainties such as:
. the factors listed above under "Costs";
. whether our franchisees and other significant third parties address the Year
2000 issue properly and on time;
. whether broad-based or systemic economic failures may occur, which could
include:
. disruptions in passenger transportation or transportation systems
generally;
. loss of utility and/or telecommunications services;
. errors or failures in financial transactions or payment processing
systems such as credit cards;
. the severity and duration of such failures; and
. whether we are sued or become subject to other proceedings regarding any Year
2000-related events and the outcome of any such suit or proceedings.
As part of our contingency planning, we have analyzed the most reasonably likely
worst-case scenario that could result from Year 2000-related failures. Our best
estimate of this scenario, based on current information, follows. Failure by
others to achieve Year 2000 compliance could cause short-term disruptions in
travel patterns, caused by actual or perceived problems with travel systems, and
temporary disruptions in the supply of utility, telecommunications and financial
services, which may be local or regional in scope. These events could lead
travelers to accelerate travel to late 1999, postpone travel to later in 2000 or
cancel travel plans, which could in turn affect lodging occupancy patterns.
Such failures could be more pronounced in some areas outside the U.S. where we
understand that Year 2000 compliance efforts may not be as advanced. In
addition, failure by us or others to achieve Year 2000 compliance could cause
short-term operational inconveniences and inefficiencies for us. This may
temporarily divert management's time and attention from ordinary business
activities. We will, to the extent reasonably achievable, seek to prevent
and/or mitigate these effects through our compliance and contingency planning
efforts.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
There have been no material changes to our exposures to market risk since
January 1, 1999.
21
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Incorporated by reference to the description of legal proceedings in the
"Contingencies" footnote in the financial statements set forth in Part I,
"Financial Information."
Item 2. Changes in Securities
- ------------------------------
None.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
Item 5. Other Information
- --------------------------
None.
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
4.1 Amended and Restated Rights Agreement, dated as of August 9,
1999, with the Bank of New York, as Rights Agent.
12 Statement of Computation of Ratio of Earnings to Fixed
Charges.
27 Financial Data Schedule for the Company.
99 Forward-Looking Statements.
(b) Reports on Form 8-K
None.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARRIOTT INTERNATIONAL, INC.
October 25, 1999
/s/ Arne M. Sorenson
____________________________
Arne M. Sorenson
Executive Vice President and
Chief Financial Officer
/s/ Linda A. Bartlett
____________________________
Linda A. Bartlett
Senior Vice President, Finance and
Corporate Controller
(Principal Accounting Officer)
24
<PAGE>
EXHIBIT 4.1
MARRIOTT INTERNATIONAL, INC.
and
THE BANK OF NEW YORK,
Rights Agent
AMENDED AND RESTATED
RIGHTS AGREEMENT
Dated as of March 27, 1998
(Amended and Restated as of August 9, 1999)
<PAGE>
AMENDED AND RESTATED
RIGHTS AGREEMENT
----------------
AMENDED AND RESTATED RIGHTS AGREEMENT, dated as of March 27, 1998,
between Marriott International, Inc., a Delaware corporation (the "Company"),
and The Bank of New York, a New York banking corporation (the "Rights Agent"),
and amended and restated as of August 9, 1999.
WITNESSETH
----------
WHEREAS, on March 9, 1998 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one Right for each share of Common Stock, par value $0.01 per
share, of the Company (the "MAR Common Stock") and one Right for each share of
Class A Common Stock, par value $0.01 per share, of the Company (the "MAR-A
Common Stock" and, together with the MAR Common Stock, the "Common Stock";
provided, that for all dates and periods subsequent to May 21, 1998, "Common
Stock" shall mean only the MAR-A Common Stock) outstanding at the close of
business on March 27, 1998 (the "Record Date"), which includes all shares issued
as a result of the special dividend of MAR Common Stock and MAR-A Common Stock
effected by Marriott International, Inc. (n/k/a Sodexho Marriott Services, Inc.)
on March 27, 1998, and the Board of Directors has authorized the issuance of one
Right (as such number may hereinafter be adjusted pursuant to the provisions of
Section 11(p) hereof) for each share of Common Stock issued between the Record
Date (whether originally issued or delivered from the Company's treasury) and
the Distribution Date (as defined in Section 3 hereof), each Right initially
representing the right to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock of the Company having the rights, powers
and preferences set forth in the excerpt from the Company's Third Amended and
Restated Certificate of Incorporation attached hereto as Exhibit A, upon the
terms and subject to the conditions hereinafter set forth (the "Rights"); and
WHEREAS, the Board of Directors of the Company wishes to amend and
restate this Agreement to reflect the conversion of each outstanding share of
MAR Common Stock into MAR-A Common Stock on May 21, 1998, the elimination of the
MAR Common Stock in the Company's Third Amended and Restated Certificate of
Incorporation, and to effect certain other changes.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
"Acquiring Person" means any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
20% or more of all shares of MAR-A Common Stock then outstanding, but shall not
include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee
benefit plan of the Company or of any
2
<PAGE>
Subsidiary of the Company or (iv) any Person organized, appointed or established
by the Company for or pursuant to the terms of any such employee benefit plan.
"Act" means the Securities Act of 1933, as amended.
"Adjustment Shares" has the meaning set forth in Section
11(a)(ii) hereof.
"Affiliate" and "Associate" have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act.
"Agreement" means this Rights Agreement as originally executed or
as it may from time to time be supplemented or amended pursuant to the
applicable provisions hereof.
A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates
or Associates, directly or indirectly, has the right to acquire
(whether such right is exercisable immediately or only after the
passage of time or the occurrence of an event) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or
upon the exercise of conversion rights, exchange rights, rights,
warrants or options, or otherwise; provided, however, that a Person
--------
shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," (A) securities tendered pursuant to a tender or exchange offer
made by such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange,
(B) securities issuable upon exercise of Rights at any time prior to
the occurrence of a Triggering Event or (C) securities issuable upon
exercise of Rights from and after the occurrence of a Triggering Event
which Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to
Section 3(a) or Section 22 hereof (the "Original Rights") or pursuant
to Section 11(i) hereof in connection with an adjustment made with
respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates
or Associates, directly or indirectly, has the right to vote or
dispose of or has "beneficial ownership" of (as determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the Exchange
Act, as such rule was in effect on January 1, 1998, without regard to
any subsequent modification or amendment thereof), including pursuant
to any agreement, arrangement or understanding, whether or not in
writing; provided, however, that a Person shall not be deemed the
--------
"Beneficial Owner" of, or to "beneficially own," any security under
this subparagraph (ii) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable provisions of the General Rules
and Regulations under the Exchange Act and (B) would not have been
also then reportable by such Person on Schedule 13D under the
3
<PAGE>
Exchange Act, under regulations giving rise to such reporting
obligation as were in effect on January 1, 1998 (without regard to any
subsequent amendment or modification thereof); or
(iii) which are beneficially owned, directly and indirectly,
by any other Person (or any Affiliate or Associate thereof) with which
such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting (except pursuant to a
revocable proxy as described in the proviso to subparagraph (ii) of
this definition) or disposing of any voting securities of the Company;
provided, however, that nothing in this definition shall cause a
--------
person engaged in business as an underwriter of securities to be the
"Beneficial Owner" of, or to "beneficially own," any securities
acquired through such Person's participation in good faith in a firm
commitment underwriting until the expiration of forty days after the
date of such acquisition.
Notwithstanding anything contained in this definition, a
Person shall not be deemed the "Beneficial Owner" of, or to "beneficially own"
any Exempt Shares.
"Board" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday
or a day on which banking institutions in the states in which either the Rights
Agent or the Transfer Agent is located are authorized or obligated by law or
executive order to close.
"Close of Business" on any given date means 5:00 p.m., New
York City time, on such date; provided, that if such date is not a Business Day
--------
it means 5:00 p.m., New York City time, on the next succeeding Business Day.
"Common Stock" has the meaning set forth in the Recitals
hereto, except that "Common Stock" when used with reference to any Person other
than the Company means the capital stock of such Person with the greatest voting
power, or the equity securities or other equity interest having power to control
or direct the management, of such Person.
"Common Stock Equivalents" has the meaning set forth in
Section 11(a)(iii) hereof.
"Company" means the Person named as the "Company" in the
Preamble to this Agreement, until a successor Person has become such, or until a
Principal Party assumes, and thereafter is liable for, all obligations and
duties of the Company hereunder, pursuant to the applicable provisions of this
Agreement, and thereafter "Company" means such successor Person or Principal
Party.
"Current Market Price" has the meaning set forth in Section
11(d) hereof.
"Current Value" has the meaning set forth in Section
11(a)(iii) hereof.
"Distribution Date" has the meaning set forth in Section
3(a) hereof.
4
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as
amended and in effect on the date of this Agreement.
"Equivalent Preferred Stock" has the meaning set forth in
Section 11(b) hereof.
"Exempt Shares" means, as to any Person, (i) shares of
Common Stock beneficially owned (without giving effect to the last sentence of
the definition of "Beneficial Owner") by such Person on March 27, 1998,
immediately after giving effect to the Stock Distribution, and continuously
thereafter, (ii) shares of Common Stock that were acquired by such Person
pursuant to a gift, bequest, inheritance or distribution from a trust or from a
corporation or other entity controlled by such Person, where such shares of
Common Stock were Exempt Shares immediately prior to such acquisition and where
such shares of Common Stock were beneficially owned (without giving effect to
the last sentence of the definition of "Beneficial Owner") by such Person
continuously after such acquisition, (iii) shares of Common Stock acquired by
such Person as a result of a stock dividend, stock distribution or other
recapitalization, in respect of Exempt Shares only, whereby any Common Stock
received by such Person is substantially proportional to the amount of Common
Stock owned by such Person prior to such transaction (including, without
limitation, the MAR Common Stock Conversion) and where such Common Stock is
beneficially owned (without giving effect to the last sentence of the definition
of "Beneficial Owner") by such Person continuously thereafter and (iv) shares of
Common Stock acquired by such Person as a result of such Person becoming a
Beneficial Owner (without giving effect to the last sentence of the definition
of "Beneficial Owner"), pursuant solely to clauses (ii) and (iii) of the
definition of "Beneficial Owner," of Exempt Shares beneficially owned (without
giving effect to the last sentence of the definition of "Beneficial Owner") by
any other Person. For purposes of determining whether any shares of Common Stock
are Exempt Shares, any share of the Common Stock held in "street" or "nominee"
name is presumed to have been acquired by the beneficial owner subsequent to the
Record Date. The presumption is rebuttable by presentation to the Company of
satisfactory evidence that such share of Common Stock has had the same
Beneficial Owner (without giving effect to the last sentence of the definition
of "Beneficial Owner") on and continuously after March 27, 1998. Any disputes
arising pursuant to this definition will be definitively and finally resolved by
the Board, in its sole discretion.
"Expiration Date" has the meaning set forth in Section 7(a)
hereof.
"Final Expiration Date" means the Close of Business on March
26, 2008.
"MAR Common Stock Conversion" means the conversion of each
outstanding share of MAR Common Stock into one share of MAR-A Common Stock on
May 21, 1998, by action of the Board of Directors of the Company, as expressly
permitted by the then-existing Amended and Restated Certificate of Incorporation
of the Company.
"Original Rights" has the meaning set forth in the
definition of "Beneficial Owner" in Section 1 hereof.
5
<PAGE>
"Person" means any individual, firm, corporation, limited
liability company, partnership or other entity, including an unincorporated
group of persons who, by formal or informal agreement, have embarked on a common
purpose or act.
"Preferred Stock" means shares of Series A Junior
Participating Preferred Stock, no par value, of the Company.
"Principal Party" has the meaning set forth in Section 13(b)
hereof.
"Purchase Price" has the meaning set forth in Section 4(a)
hereof.
"Record Date" has the meaning set forth in the Recitals to
this Agreement.
"Redemption Price" has the meaning set forth in Section
23(a) hereof.
"Rights" has the meaning set forth in the Recitals to this
Agreement.
"Rights Agent" means the Person named as the "Rights Agent"
in the Preamble to this Agreement until a successor Rights Agent has become such
pursuant to the applicable provisions hereof, and thereafter "Rights Agent"
means such successor Rights Agent. If at any time there is more than one Person
appointed by the Company as Rights Agent pursuant to the applicable provisions
of this Agreement, "Rights Agent" means and includes each such Person.
"Rights Certificates" has the meaning set forth in Section
3(a) hereof.
"Rights Dividend Declaration Date" has the meaning set forth
in the Recitals to this Agreement.
"Section 11(a)(ii) Event" means any event described in
Section 11(a)(ii) hereof.
"Section 11(a)(ii) Trigger Date" has the meaning set forth
in Section 11(a)(iii) hereof.
"Section 13 Event" means any event described in clauses (x),
(y) or (z) of Section 13(a) hereof.
"Spread" has the meaning set forth in Section 11(a)(iii)
hereof.
"Stock Acquisition Date" means the first date of public
announcement (which, for purposes of this definition, includes any report filed
pursuant to Section 13(d) or Section 16 under the Exchange Act) by the Company
or an Acquiring Person that an Acquiring Person has become such.
"Stock Distribution" means the distribution, pursuant to the
Distribution Agreement between Marriott International, Inc. (which was renamed
Sodexho Marriott Services, Inc.) and the Company dated as of September 30, 1997,
by Marriott International, Inc. of all of
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<PAGE>
the outstanding shares of MAR Common Stock and MAR-A Common Stock to the holders
of Marriott International, Inc. common stock, in a transaction intended to
qualify as a tax-free distribution under Section 368(a) of the Internal Revenue
Code of 1986, as amended.
"Subsidiary" means, with respect to any Person, (a) any
corporation of which at least a majority in interest of the outstanding voting
stock (having by the terms thereof voting power under ordinary circumstances to
elect a majority of the directors of such corporation, irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time, directly or indirectly, owned or controlled by such Person, by
one or more Subsidiaries of such Person, or by such Person and one or more of
its Subsidiaries, or (b) any noncorporate entity in which such Person, one or
more Subsidiaries of such Person, or such Person and one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof, has
at least majority ownership interest.
"Substitution Period" has the meaning set forth in Section
11(a)(iii) hereof.
"Summary of Rights" has the meaning set forth in Section
3(b) hereof.
"Trading Day" has the meaning set forth in Section 11(d)(i)
hereof.
"Transfer Agent" means The First Chicago Trust Company of
New York until a successor Transfer Agent has become such, and thereafter
"Transfer Agent" means such successor Transfer Agent. If at any time there is
more than one Person appointed by the Company as Transfer Agent, "Transfer
Agent" means and includes each such Person.
"Trigger Event" means any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
---------------------------
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable upon ten days' prior written notice to the Rights Agent.
The Rights Agent shall have no duty to supervise, and shall in no event be
liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Rights Certificates.
----------------------------
(a) Until the earlier of (i) the Close of Business on the tenth
day after the Stock Acquisition Date or (ii) the Close of Business on the tenth
Business Day after the date that a tender or exchange offer by any Person (other
than the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any Person organized,
appointed or established by the Company for or pursuant to the terms of any such
employee benefit plan) is first published or sent or given within the meaning of
Rule 14d-2(a) of the General Rules and Regulations under the Exchange Act (or
any successor rule), if upon consummation thereof, such Person would be the
Beneficial Owner of 30% or more of all shares of MAR-A Common Stock then
outstanding (the earlier of (i) and (ii) is referred to as the
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<PAGE>
"Distribution Date"), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b)) by (1) the certificates for the MAR-A Common Stock
registered in the names of the holders of the MAR-A Common Stock (which
certificates for MAR-A Common Stock shall be deemed also to be certificates for
Rights), as the case may be, or (2) in the case of uncertificated Common Stock,
by the book-entry account that evidences record ownership of such MAR-A Common
Stock, and (y) the Rights will be transferrable only in connection with the
transfer of the underlying shares of Common Stock (including a transfer to the
Company). As soon as practicable after the Distribution Date, the Rights Agent
shall, at the expense of the Company, send by first-class, insured, postage
prepaid mail, to each record holder of the Common Stock as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
stockholder records of the Company, one or more rights certificates, in
substantially the form of Exhibit B hereto (the "Rights Certificates"),
evidencing one Right for each share of Common Stock so held, subject to
adjustment as provided herein. In the event that an adjustment in the number of
Rights per share of Common Stock has been made pursuant to Section 11(p) hereof,
at the time of distribution of the Rights Certificates, the Company shall make
the necessary and appropriate rounding adjustments (in accordance with Section
14(a) hereof) so that Rights Certificates representing only whole numbers of
Rights are distributed and cash is paid in lieu of any fractional Rights. As of
and after the Distribution Date, the Rights will be evidenced solely by such
Rights Certificates.
(b) Promptly following the Record Date, the Company caused to be
sent a copy of a Summary of Rights, in substantially the form attached hereto as
Exhibit C (the "Summary of Rights"), by postage prepaid mail, to each record
holder of the Common Stock as of the Close of Business on the Record Date, at
the address of such holder shown on the records of the Company. With respect to
certificates for outstanding Common Stock, until the Distribution Date, the
Rights will be evidenced by such certificates for the Common Stock, and the
registered holders of the Common Stock shall also be the registered holders of
the associated Rights. With respect to uncertificated shares of outstanding
Common Stock, until the Distribution Date, the Rights will be evidenced by the
book-entry account that evidences record ownership of such Common Stock, and the
registered holders of the Common Stock shall also be the registered holders of
the associated Rights. Until the earlier of the Distribution Date or the
Expiration Date, the transfer of any certificates representing shares of Common
Stock in respect of which Rights have been issued (or, in the case of
uncertificated shares of Common Stock, the transfer of Common Stock from the
book-entry account that evidences record ownership of such Common Stock) shall
also constitute the transfer of the Rights associated with such shares of Common
Stock.
(c) Rights shall be issued in respect of all shares of Common
Stock that are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date. In the case of certificated shares of Common Stock,
certificates representing such shares of Common Stock shall also be deemed to be
certificates for Rights, and shall, as promptly as practical following the
Record Date, bear the following legend:
"This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between the
Company and The Bank of New York (the "Rights Agent") dated as of
March 27, 1998, as amended and restated
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<PAGE>
on August 9, 1999 (the "Rights Agreement"), the terms of which are
hereby incorporated by reference and a copy of which is on file at the
principal offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a
copy of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, rights,
issued to, or held by, any person who is, was or becomes an Acquiring
Person or any Affiliate or Associate thereof (as such terms are
defined in the Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may become null and
void."
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates. In the case
of uncertificated shares of Common Stock, Rights shall be evidenced by the
shares of Common Stock held by the book-entry account that evidences record
ownership of such Common Stock, and the Company shall cause the Transfer Agent
to include on the book-entry account statement a notation incorporating the
Rights Agreement by reference. With respect to uncertificated shares of Common
Stock, until the earlier of (i) the Distribution Date or (ii) the Expiration
Date, the Rights associated with the Common Stock evidenced by a book-entry
account shall be evidenced by such book-entry account and the transfer of any
shares of Common Stock from such book-entry account shall also constitute the
transfer of the Rights associated with such Common Stock.
Section 4. Form of Rights Certificates.
---------------------------
(a) The Rights Certificates (and the form of election to
purchase and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. The Rights Certificates shall be in a
machine printable format and in a form reasonably satisfactory to the Rights
Agent. Subject to the provisions of Section 11 and Section 22 hereof, the Rights
Certificates, whenever distributed, shall be dated as of the Record Date, shall
show the date of countersignature, and on their face shall entitle the holders
thereof to purchase such number of one one-thousandths of a share of Preferred
Stock as shall be set forth therein at the price set forth therein (such
exercise price per one one-thousandth of a share, the "Purchase Price"), but the
amount and type of securities purchasable upon the exercise of each Right and
the Purchase Price thereof shall be subject to adjustment as provided herein.
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<PAGE>
(b) Any Rights Certificates issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect avoidance
of Section 7(e) hereof, and any Rights Certificates issued pursuant to Section 6
or Section 11 hereof upon transfer, exchange, replacement or adjustment of any
other Rights Certificates referred to in this sentence shall contain (to the
extent feasible) the following legend:
"The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person
or an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Rights Agreement. The
Company will mail to the holder of this certificate a copy of the
Rights Agreement, as in effect on the date of mailing, without charge
promptly after receipt of a written request therefor."
The Company shall instruct the Rights Agent in writing of the Rights which
should be so legended and shall supply the Rights Agent with such legended
Rights Certificates.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by an
authorized signatory of the Rights Agent, which need not be the same authorized
signatory for all of the Rights Certificates, and shall not be valid for any
purpose unless so countersigned. In case any officer of the Company who shall
have signed any of the Rights Certificates shall cease to be such officer of the
Company before countersignature by the Rights Agent and issuance and delivery by
the Company, such Rights Certificates, nevertheless, may be countersigned by an
authorized signatory of the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates had not ceased to be such officer of the Company; and any Rights
Certificates may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Rights Certificate, shall be a proper
officer of the Company to sign such Rights Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
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<PAGE>
(b) Following the Distribution Date, the Rights Agent shall keep
or cause to be kept, at its principal trust office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the Close of Business on the Distribution
Date, and at or prior to the Close of Business on the Expiration Date, any
Rights Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a share of
Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Certificates shall make
such request in writing delivered to the Rights Agent, and shall surrender the
Rights Certificate or Certificates to be transferred, split up, combined or
exchanged, along with a signature guarantee and such other and further
documentation as the Rights Agent may reasonably request, at the principal
corporate trust office or offices of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the Rights
Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Certificates, as the case may be, as so requested. The Company may require
payment by the holder of a Rights Certificate of a sum sufficient to cover any
tax or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to each of them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to each of them, and
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, along with a signature guarantee and such
other and further documentation as the Rights Agent may reasonably request, the
Company will execute and deliver a new Rights Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Rights Certificate so lost, stolen, destroyed or mutilated.
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<PAGE>
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Rights.
- ------
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein, including the restrictions on exercisability set
forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or
in part at any time after the Distribution Date upon surrender of the Rights
Certificate, with the form of election to purchase and the certificate on the
reverse side thereof duly executed, to the Rights Agent at the principal office
or offices of the Rights Agent designated for such purpose, along with a
signature guarantee and such other and further documentation as the Rights Agent
may reasonably request, together with payment of the aggregate Purchase Price
with respect to the total number of one one-thousandths of a share of Preferred
Stock (or other securities, cash or other assets, as the case may be) as to
which such surrendered Rights are then exercisable, at or prior to the earliest
of (i) the Final Expiration Date, (ii) the time at which the Rights expire as
provided in Section 13(d) hereof or (iii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the earliest of (i), (ii) and (iii)
being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-thousandth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $175, and
shall be subject to adjustment from time to time as provided in Section 11 and
13(a) hereof and shall be payable in accordance with Section 7(c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase and the certificate
duly executed, accompanied by payment, with respect to each Right so exercised,
of the Purchase Price per one one-thousandth of a share of Preferred Stock (or
other shares, securities, cash or other assets, as the case may be) to be
purchased as set forth below and an amount equal to any applicable transfer tax,
the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly
(i)(A) requisition from any Transfer Agent of the shares of Preferred Stock (or
make available, if the Rights Agent is the Transfer Agent for such shares)
certificates for the total number of one one-thousandths of a share of Preferred
Stock to be purchased and the Company hereby irrevocably authorizes its Transfer
Agent to comply with all such requests or (B) if the Company shall have elected
to deposit the total number of shares of Preferred Stock issuable upon exercise
of the Rights hereunder with a depositary agent, requisition from the depositary
agent depositary receipts representing such number of one one-thousandths of a
share of Preferred Stock as are to be purchased (in which case certificates for
the shares of Preferred Stock represented by such receipts shall be deposited by
the Transfer Agent with the depositary agent) and the Company shall direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder and (iv) after receipt thereof, deliver such
cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
check, cashier's check or bank draft payable to the order of the Company. In the
event that the Company is obligated to issue other securities (including Common
Stock) of the Company, pay cash and/or distribute other property pursuant to
Section
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<PAGE>
11(a) hereof, the Company will make all arrangements necessary so that such
other securities, cash and/or other property are available for distribution by
the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, which the Board, in its sole discretion, determines is or was
involved in or caused or facilitated, directly or indirectly (including through
any change in the Board), such Section 11(a)(ii) Event, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of any
such Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from such Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
the Company and the Rights Agent shall have no liability to any holder of Rights
Certificates or other Person as a result of the Company's failure to make any
determinations with respect to an Acquiring Person or any of its Affiliates,
Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
--------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for
13
<PAGE>
cancellation and retirement, and the Rights Agent shall so cancel and retire,
any other Rights Certificate purchased or acquired by the Company otherwise than
upon the exercise thereof. The Rights Agent shall deliver all cancelled Rights
Certificates to the Company or to a designee of the Company.
Section 9. Reservation and Availability of Capital Stock.
---------------------------------------------
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement, including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, or any other exchange outside the United States on which
the Common Stock may at any time be listed, the Company shall use its best
efforts to cause, from and after such time as the Rights become exercisable, all
shares reserved for such issuance to be listed on such exchange upon official
notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as soon
as practicable following the earliest date after the first occurrence of a
Section 11(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section 11(a)(iii) hereof, a registration statement under the Act, with respect
to the securities purchasable upon exercise of the Rights on an appropriate
form, (ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Act) until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities and (B) the date of the expiration of the
Rights. The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days after
the date set forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect, in each case with simultaneous
written notice to the Rights Agent. In addition, if the Company shall determine
that a registration statement is required following the Distribution Date, the
Company may temporarily suspend the exercisability of the Rights until such time
as a registration statement has been declared effective. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction if the requisite qualification in such jurisdiction shall
not have been obtained, the exercise thereof shall not be permitted under
applicable law or a registration statement shall not have been declared
effective. The Rights
14
<PAGE>
Agent may assume that any Right exercised is permitted to be exercised under
applicable law and shall have no liability for acting in reliance upon such
assumption.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all one one-thousandths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-thousandths of a
share of Preferred Stock (or Common Stock and/or other securities, as the case
may be) upon the exercise of Rights. The Company shall not, however, be required
to pay any transfer tax which may be payable in respect of any transfer or
delivery of Rights Certificates to a Person other than, or the issuance or
delivery of a number of one one-thousandths of a share of Preferred Stock (or
Common Stock and/or other securities, as the case may be) in respect of a name
other than that of the registered holder of the Rights Certificates evidencing
Rights surrendered for exercise or to issue or deliver any certificates for a
number of one one-thousandths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in a name other than that of the
registered holder upon the exercise of any Rights until such tax shall have been
paid (any such tax being payable by the holder of such Rights Certificate at the
time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name
---------------------------
any certificate for a number of one one-thousandths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of such fractional shares of Preferred Stock (or Common Stock
and/or other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
--------
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of a
Rights Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
-------------------------------------------------------
or Number of Rights. The Purchase Price, the number and kind of shares covered
- -------------------
by each Right
15
<PAGE>
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Preferred Stock or capital stock, as the case may
be, issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Stock (or other capital stock, as the case may be) transfer books of
the Company were open, such holder would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification. If an event occurs which would require an adjustment under
both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided
for in this Section 11(a)(i) shall be in addition to, and shall be made prior
to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event:
(A) any Acquiring Person or any Associate or
Affiliate of any Acquiring Person, at any time after the date of this
Agreement, directly or indirectly, shall merge into the Company or
otherwise combine with the Company and the Company shall be the continuing
or surviving corporation of such merger or combination and the Common Stock
of the Company shall remain outstanding and unchanged, or
(B) any Person (other than the Company, any Subsidiary
of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any Person organized, appointed or established
by the Company for or pursuant to the terms of any such employee benefit
plan), alone or together with its Affiliates and Associates, shall, at any
time after the Stock Distribution, become the Beneficial Owner of 30% or
more of all shares of MAR-A Common Stock then outstanding, unless the event
causing the 30% threshold to be crossed is (x) a transaction set forth in
Section 13(a) hereof or (y) an acquisition of shares of Common Stock
pursuant to a tender offer or an exchange offer for all outstanding shares
of Common Stock at a price and on terms determined by at least a majority
of the members of the Board and who are not representatives, nominees,
Affiliates or Associates of an Acquiring Person, after receiving advice
from one or more investment banking firms, to be (1) at a price which is
fair to stockholders (taking into account all factors which such members of
the Board deem relevant, including prices which could reasonably be
achieved if the Company or its assets were sold on an orderly basis
designed to realize
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<PAGE>
maximum value) and (2) otherwise in the best interests of the Company and
its stockholders;
then, promptly following five (5) days after the date of the occurrence of an
event described in Section 11(a)(ii)(B) hereof and promptly following the
occurrence of an event described in Section 11(a)(ii)(A) hereof, proper
provision shall be made so that (1) each holder of a Right (except as provided
below and in Section 7(e) hereof) shall thereafter have the right to receive,
upon exercise thereof at the then current Purchase Price in accordance with the
terms of this Agreement, in lieu of a number of one one-thousandths of a share
of Preferred Stock, such number of shares of MAR-A Common Stock as shall equal
the result obtained by (I) multiplying the then current Purchase Price by the
then number of one one-thousandths of a share of Preferred Stock for which a
Right was exercisable immediately prior to the first occurrence of a Section
11(a)(ii) Event and (II) dividing that product (which, following such first
occurrence, shall thereafter be referred to as the "Purchase Price" for each
Right and for all purposes of this Agreement) by 50% of the Current Market Price
per share of MAR-A Common Stock on the date of such first occurrence (such
number of shares being referred to as the "Adjustment Shares").
(iii) In the event that the number of shares of MAR-A Common
Stock which are authorized by the Company's certificate of incorporation
but not outstanding or reserved for issuance for purposes other than upon
exercise of the Rights is not sufficient to permit the exercise in full of
the Rights in accordance with the foregoing subparagraph (ii) of this
Section 11(a), the Company shall: (A) determine the excess of (1) the value
of the Adjustment Shares issuable upon the exercise of a Right (the
"Current Value") over (2) the Purchase Price (such excess being referred to
as the "Spread") and (B) with respect to each Right, make adequate
provision to substitute for the Adjustment Shares, upon payment of the
applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price,
(3) Common Stock or other equity securities of the Company (including
shares, or units of shares, of preferred stock which the Board has deemed
to have the same value as shares of MAR-A Common Stock (such shares of
preferred stock being referred to as "Common Stock Equivalents")), (4) debt
securities of the Company, (5) other assets or (6) any combination of the
foregoing, having an aggregate value equal to the Current Value, where such
aggregate value has been determined by the Board based upon the advice of a
nationally recognized investment banking firm selected by the Board;
provided, however, if the Company shall not have made adequate provision to
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deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Section 11(a)(ii)
Event and (y) the date on which the Company's right of redemption pursuant
to Section 23(a) expires (the later of (x) and (y) being referred to herein
as the "Section 11(a)(ii) Trigger Date"), then the Company shall be
obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of MAR-A Common
Stock (to the extent available) and then, if necessary, cash, which shares
and/or cash have an aggregate value equal to the Spread. If the Board shall
determine in good faith that it is likely that sufficient additional shares
of MAR-A Common Stock could be authorized for issuance upon exercise in
full of the Rights, the thirty-day period set forth above may be extended
to the extent necessary, but not more than ninety (90) days after the
Section
17
<PAGE>
11(a)(ii) Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such period, as
it may be extended being referred to herein as the "Substitution Period").
To the extent that the Company determines that some action need be taken
pursuant to the first and/or second sentences of this Section 11(a)(iii),
the Company (I) shall provide, subject to Section 7(e) hereof, that such
action shall apply uniformly to all outstanding Rights and (II) may suspend
the exercisability of the Rights until the expiration of the Substitution
Period in order to seek any authorization of additional shares and/or to
decide the appropriate form of distribution to be made pursuant to such
first sentence and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect,
in each case with simultaneous written notice to the Rights Agent. For
purposes of this Section 11(a)(iii), the value of the MAR-A Common Stock
shall be the Current Market Price per share on the Section 11(a)(ii)
Trigger Date, and the value of any Common Stock Equivalent shall be deemed
to have the same value as the MAR-A Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance
of rights, options or warrants to all holders of Preferred Stock entitling them
to subscribe for or purchase (for a period expiring within forty-five (45)
calendar days after such record date) Preferred Stock (or shares having the same
rights, privileges and preferences as the shares of Preferred Stock ("Equivalent
Preferred Stock")) or securities convertible into Preferred Stock or Equivalent
Preferred Stock at a price per share of Preferred Stock or per share of
Equivalent Preferred Stock (or having a conversion price per share, if a
security convertible into Preferred Stock or Equivalent Preferred Stock) less
than the Current Market Price per share of Preferred Stock on such record date,
the Purchase Price to be in effect after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of shares of Preferred
Stock which the aggregate offering price of the total number of shares of
Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such Current Market Price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date, plus the number of additional shares of Preferred Stock and/or
Equivalent Preferred Stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a
18
<PAGE>
consolidation or merger in which the Company is the continuing corporation) of
evidences of indebtedness, cash (other than a regular quarterly cash dividend
out of the earnings or retained earnings of the Company), assets (other than a
dividend payable in Preferred Stock, but including any dividend payable in stock
other than Preferred Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the Current Market Price per share of Preferred Stock on such record
date, less the fair market value (as determined in good faith by the Board,
whose determination shall be described in a statement filed with the Rights
Agent) of the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a share of
Preferred Stock and the denominator of which shall be such Current Market Price
per share of Preferred Stock. Such adjustments shall be made successively
whenever such a record date is fixed, and in the event that such distribution is
not so made, the Purchase Price shall be adjusted to be the Purchase Price which
would have been in effect if such record date had not been fixed.
(d)(i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the "Current
Market Price" per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices per share of such Common Stock for
the thirty (30) consecutive Trading Days immediately prior to such date,
and for purposes of computations made pursuant to Section 11(a)(iii)
hereof, the Current Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices per share of
such Common Stock for the ten (10) consecutive Trading Days immediately
following such date; provided, however that in the event that the Current
--------
Market Price per share of the Common Stock is determined during a period
following the announcement by the issuer of such Common Stock of (A) a
dividend or distribution on such Common Stock payable in shares of such
Common Stock or securities convertible into shares of such Common Stock
(other than the Rights) or (B) any subdivision, combination or
reclassification of such Common Stock, and prior to the expiration of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set
forth above, after the ex-dividend date for such dividend or distribution,
or the record date for such subdivision, combination or reclassification,
then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. The closing price for
each day shall be the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Common Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Common Stock are listed or
admitted to trading or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or such
other system then in use, or, if on any such date the shares of Common
Stock are not quoted by any such organization, the average of the closing
bid and asked prices as
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<PAGE>
furnished by a professional market maker making a market in the Common
Stock selected by the Board. If on any such date no market maker is making
a market in the Common Stock, the fair value of such shares on such date as
determined in good faith by the Board shall be used. The term "Trading Day"
means a day on which the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading is open for
the transaction of business or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, a
Business Day. If the Common Stock is not publicly held or not so listed or
traded, Current Market Price per share means the fair value per share as
determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the
"Current Market Price" per share of Preferred Stock shall be determined in
the same manner as set forth above for the Common Stock in clause (i) of
this Section 11(d) (other than the last sentence thereof). If the Current
Market Price per share of Preferred Stock cannot be determined in the
manner provided above or if the Preferred Stock is not publicly held or
listed or traded in a manner described in clause (i) of this Section 11(d),
the Current Market Price per share of Preferred Stock shall be conclusively
deemed to be an amount equal to 1,000 (as such number may be appropriately
adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date
of this Agreement) multiplied by the Current Market Price per share of the
Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, Current Market Price per share of the
Preferred Stock means the fair value per share as determined in good faith
by the Board, whose determination shall be described in a statement filed
with the Rights Agent and shall be conclusive for all purposes. For all
purposes of this Agreement, the Current Market Price of one one-thousandth
of a share of Preferred Stock shall be equal to the Current Market Price of
one share of Preferred Stock divided by 1,000.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
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11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest ten-thousandth of a share of
Common Stock or other share or one ten-millionth of a share of Preferred Stock,
as the case may be. Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later than the
earlier of (i) three (3) years from the date of the transaction which mandates
such adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h),
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<PAGE>
(i), (j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and 14 hereof
with respect to the Preferred Stock shall apply on like terms to any such other
shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a share of Preferred Stock (calculated to the nearest one
ten-millionth) obtained by (i) multiplying (x) the number of one one-thousandths
of a share covered by a Right immediately prior to this adjustment, by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (ii) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment
of the Purchase Price to adjust the number of Rights, in lieu of any adjustment
in the number of one one-thousandths of a share of Preferred Stock purchasable
upon the exercise of a Right. Each of the Rights outstanding after the
adjustment in the number of Rights shall be exercisable for the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least ten (10) days later than
the date of the public announcement. If Rights Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
21
<PAGE>
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Purchase Price per one one-
thousandth of a share and the number of one one-thousandths of a share which
were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then-stated value, if any, of the number
of one one-thousandths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action that may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable such number of one one-thousandths of a share
of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one one-thousandths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
- --------
other appropriate instrument evidencing such holder's right to receive such
additional shares (fractional or otherwise) or securities upon the occurrence of
the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding,
the Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in its good faith judgment the Board shall determine to be
advisable in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less
than the Current Market Price, (iii) issuance wholly for cash of shares of
Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance
of rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof) or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer) in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish
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<PAGE>
or otherwise eliminate the benefits intended to be afforded by the Rights or (y)
prior to, simultaneously with or immediately after such consolidation, merger or
sale, the stockholders of the Person who constitutes, or would constitute, the
"Principal Party" for purposes of Section 13(a) hereof shall have received a
distribution of Rights previously owned by such Person or any of its Affiliates
and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 26
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
(p) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the Stock
Distribution and prior to the Distribution Date (i) declare a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of
---------------------------------------------------
Shares. Whenever an adjustment is made as provided in Section 11 and Section 13
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hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each Transfer Agent for the
Preferred Stock and the Common Stock, a copy of such certificate and (c) mail a
brief summary thereof to each holder of a Rights Certificate (or, if prior to
the Distribution Date, to each holder of a certificate representing shares of
Common Stock or to each holder of uncertificated shares of Common Stock
evidenced by a book-entry account) in accordance with Section 25 hereof. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
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(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such
23
<PAGE>
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property or (z) the Company shall sell or otherwise transfer (or one or more of
its Subsidiaries shall sell or otherwise transfer), in one transaction or a
series of related transactions, assets or earning power aggregating more than
50% of the assets or earning power of the Company and its Subsidiaries (taken as
a whole) to any Person or Persons (other than the Company or any Subsidiary of
the Company in one or more transactions each of which complies with Section
11(o) hereof), then, and in each such case (except as may be contemplated by
Section 13(d) hereof), proper provision shall be made so that: (i) each holder
of a Right, except as provided in Section 7(e) hereof, shall thereafter have the
right to receive, upon the exercise thereof at the then-current Purchase Price
in accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, nonassessable and freely tradeable shares of
Common Stock of the Principal Party, not subject to any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then-current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section
13 Event, multiplying the number of such one one-thousandths of a share for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase Price"
for each Right and for all purposes of this Agreement) by (2) 50% of the Current
Market Price per share of the Common Stock of such Principal Party on the date
of consummation of such Section 13 Event; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company pursuant to this Agreement; (iii)
the term "Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal Party following the first occurrence of a Section
13 Event; (iv) such Principal Party shall take such steps (including the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" means: (i) in the case of any
transaction described in clause (x) or (y) of the first sentence of Section
13(a), the Person that is the issuer of any securities into which shares of
Common Stock of the Company are converted in such merger or consolidation and if
no securities are so issued, the Person that is the other party to such merger
or consolidation and (ii) in the case of any transaction described in clause (z)
of the first sentence of Section 13(a), the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions; provided, however, that in any such case, (1) if
--------
the Common Stock of such Person is not at such time and has not been
continuously over the preceding twelve-month period registered under Section 12
of the Exchange Act, and such Person is a direct or indirect Subsidiary of
another Person any class of the Common Stock of which is and has been so
registered, "Principal Party" shall refer to such
24
<PAGE>
other Person; and (2) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Stock of two or more of which
are and have been so registered, "Principal Party" refers to whichever of such
Persons is the issuer of the Common Stock having the greatest aggregate market
value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior thereto the Company and such Principal
Party shall have executed and delivered to the Rights Agent a supplemental
agreement providing for the terms set forth in Sections 13(a) and 13(b) and
further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in Section 13(a), the
Principal Party will: (i) prepare and file a registration statement under the
Act, with respect to the Rights and the securities purchasable upon exercise of
the Rights on an appropriate form, and will use its best efforts to cause such
registration statement to (A) become effective as soon as practicable after such
filing and (B) remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and (ii) will deliver to
holders of the Rights historical financial statements for the Principal Party
and each of its Affiliates which comply in all respects with the requirements
for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13
Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event,
the Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the
contrary, the provisions of this Section 13 shall not apply to a transaction
described in subparagraphs (x) and (y) of Section 13(a) if (i) such transaction
is consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or an exchange offer for all outstanding shares of
Common Stock which was determined by the Board to have been at a fair price and
otherwise in the best interests of the Company, as required by Section
11(a)(ii)(B) (or a wholly owned subsidiary of any such Person or Persons), (ii)
the price per share of Common Stock offered in such transaction is not less than
the price per share of Common Stock paid to all holders of shares of Common
Stock whose shares were purchased pursuant to such tender offer or exchange
offer and (iii) the form of consideration being offered to the remaining holders
of shares of Common Stock pursuant to such transaction is the same as the form
of consideration paid pursuant to such tender offer or exchange offer. Upon
consummation of any such transaction contemplated by this Section 13(d), all
Rights hereunder shall expire. In no event shall the Rights Agent have any
liability in respect of any such Principal Party transactions, including the
propriety thereof. The Rights Agent may rely and be fully protected in relying
upon a certificate of the Company stating that the provisions of this Section 13
have been fulfilled. Notwithstanding anything in this Agreement to the contrary,
the prior written consent of the Rights Agent must be obtained in connection
with any supplemental agreement which alters the rights or duties of the Rights
Agent.
25
<PAGE>
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates which evidence fractional Rights.
In lieu of such fractional Rights, there shall be paid to the registered holders
of the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For purposes of this Section 14(a), the
current market value of a whole Right shall be the closing price of the Rights
for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable. The closing price of the Rights for
any day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Rights are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Rights are listed or
admitted to trading, or if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or such other system then in use or, if on any such date the
Rights are not quoted by any such organization, the average of the closing bid
and asked prices as furnished by a professional market maker making a market in
the Rights selected by the Board. If on any such date no such market maker is
making a market in the Rights the fair value of the Rights on such date as
determined in good faith by the Board shall be used.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-thousandth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-thousandth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
the one one-thousandth of a share of Preferred Stock shall be one one-thousandth
of the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of MAR-A Common Stock
upon exercise of the Rights or to distribute certificates which evidence
fractional shares of MAR-A Common Stock. In lieu of fractional shares of MAR-A
Common Stock, the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of one share of
MAR-A Common Stock. For purposes of this Section 14(c), the current market value
of one share of MAR-A Common Stock shall be the closing price of one share of
MAR-A Common Stock (as determined
26
<PAGE>
pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights
expressly waives his or her right to receive any fractional Rights or any
fractional shares upon exercise of a Right, except as permitted by this Section
14.
Section 15. Rights of Action. All rights of action in respect of
----------------
this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in that holder's own behalf and
for that holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of, that holder's right to exercise the Rights evidenced by such Rights
Certificate in the manner provided in such Rights Certificate and in this
Agreement. Without limiting the foregoing, or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
shall be entitled to specific performance of the obligations hereunder and
injunctive relief against actual or threatened violations of the obligations
hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
---------------------------
accepting the same consents agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal corporate office or offices of the Rights Agent designated for
such purposes, along with a signature guarantee and such other and further
documentation as the Rights Agent may reasonably request, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate forms
and certificates duly executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the Person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other
27
<PAGE>
Person as a result of its inability to perform any of its obligations under this
Agreement by reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any statute,
rule, regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, the Company must use its best efforts to have any
- --------
such order, decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
--------------------------------------------------
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one one-
thousandths of a share of Preferred Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in Section 24 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Rights Certificate shall
have been exercised in accordance with the provisions hereof and certificates
evidencing securities acquired upon such exercise shall have been issued and
authenticated.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent such
compensation as shall be agreed in writing between the Rights Agent and the
Company for all services rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any and all loss, liability, damage, claim or expense,
incurred without gross negligence, bad faith or willful misconduct on the part
of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of ability in the
premises. The provisions of this Section 18(a) shall survive the expiration of
the Rights and the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to be signed and executed by
the proper Person or Persons.
28
<PAGE>
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided, however, that such
--------
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes only
----------------------
the duties and obligations expressly imposed by this Agreement (and no implied
duties or obligations shall be read into this Agreement against the Rights
Agent) upon the following terms and conditions, by all of which the Company and
the holders of Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its
selection (who may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including the identity of any Acquiring Person and the determination of
Current Market Price) be proved or established by the Company prior to taking or
suffering any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by the Chairman of
the Board, the President, any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary or any Assistant Secretary of the Company and delivered
to the Rights Agent; and such certificate shall
29
<PAGE>
be full authorization to the Rights Agent for any action taken or suffered in
good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after the Rights Agent's receipt of actual
notice of any such adjustment); nor shall it by any act hereunder be deemed to
make any representation or warranty as to the authorization or reservation of
any shares of Common Stock or Preferred Stock to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any shares of Common Stock
or Preferred Stock will, when so issued, be validly authorized and issued, fully
paid and nonassessable, nor shall the Rights Agent be responsible for the
legality of the terms hereof in its capacity as an administrative agent.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any damage, loss or expense incurred in
respect of any action taken or suffered to be taken by it in good faith in
accordance with instructions of any such officer, or in respect of any delay in
acting while waiting for those instructions, or in respect of any action taken
following the nonreceipt of instructions. At any time the Rights Agent may apply
to such officer for written instructions with respect to any matter arising in
connection with the Rights Agent's duties and obligations under this Agreement.
Such application by the Rights Agent for written instructions may, at the Rights
Agent's option, set forth in writing any action proposed to be taken or omitted
by the Rights Agent with respect to its duties or obligations under this
Agreement, without the consent of the Company, and the date on and/or after
which such action shall be taken or omitted in accordance with a proposal
included in any such application, which date shall be not less than five
Business
30
<PAGE>
Days after the officer receives such application, unless, prior to taking or
omitting any such action, the Rights Agent has received written instructions in
response to such application specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent from acting in any other capacity for the Company or for any other legal
entity.
(i) The Rights Agent may execute and exercise any of the
rights or power hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; provided, however, reasonable care was
--------
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company. The
Rights Agent shall incur no liability in connection with its actions pursuant to
this subparagraph (k).
(l) In addition to the foregoing, the Rights Agent shall be
protected and shall incur no liability for, or in respect of, any action taken
or omitted by it in connection with its administration of this Agreement if such
acts or omissions are in reliance upon (i) the proper execution of the
certification concerning beneficial ownership appended to the form of assignment
and the form of election to exercise attached hereto unless the Rights Agent
shall have actual knowledge that, as executed, such certification is untrue or
(ii) the non-execution of such certification, including any refusal to honor any
otherwise permissible assignment or election by reason of such non-execution.
(m) The Company agrees to give the Rights Agent prompt
written notice of any event or ownership which would prohibit the exercise or
transfer of the Rights Certificates.
Section 21. Change of Rights Agent. The Rights Agent or any
----------------------
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30)
31
<PAGE>
days' notice in writing mailed to the Company, and to each Transfer Agent of the
Common Stock and Preferred Stock, by registered or certified mail, such
resignation to be effective upon the thirtieth day after the Company receives
such notice. The Company may remove the Rights Agent or any successor Rights
Agent upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each Transfer Agent of the
Common Stock and Preferred Stock, by registered or certified mail, such removal
to be effective upon the thirtieth day after the Rights Agent or successor
Rights Agent receives such notice. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent, but such resignation or removal shall be
effective whether or not a successor Rights Agent is appointed. If the Company
shall fail to make such appointment within a period of thirty (30) days after
giving notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then any registered holder of
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. If no successor Rights Agent shall have been
appointed within thirty (30) days from effectiveness of such removal or
resignation, and no registered holder of any Rights Certificates have applied
pursuant to this Agreement for the appointment of a new Rights Agent, the
Company shall be automatically designated as successor Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a corporation organized and doing business under the laws of the
United States or of any state of the United States so long as such corporation
is authorized to do business as a banking institution in such state and is in
good standing, and which is authorized under such laws to exercise corporate
trust powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $100,000,000 or (b) an Affiliate of a
corporation described in clause (a) of this sentence. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each Transfer Agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
-----------------------------------
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by the Board to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the issuance
or sale of shares of Common Stock following the Distribution Date and prior to
the redemption or expiration of the Rights, the Company (a) shall, with respect
to shares of Common Stock so issued or sold pursuant to the exercise of stock
options or under any employee plan or
32
<PAGE>
arrangement, granted or awarded as of the Distribution Date, or upon the
exercise, conversion or exchange of securities hereinafter issued by the Company
and (b) may, in any other case, if deemed necessary or appropriate by the Board,
issue Rights Certificates representing the appropriate number of Rights in
connection with such issuance or sale; provided, however, that (i) no such
--------
Rights Certificate shall be issued if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
--------------------------
(a) The Board, pursuant to a duly adopted resolution, may at its
option, at any time prior to the earlier of (i) the Close of Business on the
tenth day following the Stock Acquisition Date (or, if the Stock Acquisition
Date shall have occurred prior to the Record Date, the Close of Business on the
tenth day following the Record Date) or (ii) the Final Expiration Date, direct
the Company to, and if so directed, the Company shall, redeem all but not less
than all of the then-outstanding Rights at a redemption price of $.01 per Right,
as such amount may be appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price"). If, following
the occurrence of a Stock Acquisition Date and following the expiration of the
right of redemption hereunder but prior to any Triggering Event, (i) a Person
who is an Acquiring Person shall have transferred or otherwise disposed of a
number of shares of Common Stock in one transaction or series of transactions,
not directly or indirectly involving the Company or any of its Subsidiaries,
which did not result in the occurrence of a Triggering Event such that such
Person is thereafter a Beneficial Owner of 10% or less of the outstanding shares
of MAR-A Common Stock, (ii) there are no other Persons, immediately following
the occurrence of the event described in clause (i), who are Acquiring Persons
and (iii) the Board shall so approve, then the right of redemption shall be
reinstated and thereafter be subject to the provisions of this Section 23.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption hereunder has expired. The
Company may, at its option, pay the Redemption Price in cash, shares of Common
Stock (based on the Current Market Price of the Common Stock at the time of
redemption) or any other form of consideration deemed appropriate by the Board.
Notwithstanding the foregoing, the Rights shall become nonredeemable on and
following any merger to which the Company is a party and which has not been
approved by stockholders at an annual or special meeting of the Company, if
within the period of thirty (30) days prior to such a merger an event set forth
in Section 11(a)(ii) or Section 13 hereof shall have occurred.
(b) Immediately upon the adoption of a resolution by the Board
ordering the redemption of the Rights, evidence of which shall have been filed
with the Rights Agent and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price for each Right so
held. Promptly after the adoption of a resolution by the Board ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and the holders of the then-outstanding Rights by mailing such
notice to all such holders
33
<PAGE>
at each holder's last address as it appears upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
Transfer Agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption will state the method by which the
payment of the Redemption Price will be made.
Section 24. Notice of Certain Events.
------------------------
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision of outstanding
shares of Preferred Stock), (iv) to effect any consolidation or merger into or
with any other Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(o) hereof), or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one transaction or a series of related transactions, of more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company and/or
any of its Subsidiaries in one or more transactions each of which complies with
Section 11(o) hereof) or (v) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to the Rights
Agent and to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii)
hereof shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to the Rights Agent and to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 25 hereof, a
notice of the occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section 11(a)(ii) hereof
and (ii) all references in the preceding paragraph to Preferred Stock shall be
deemed thereafter to refer to Common Stock and/or, if appropriate, other
securities.
Section 25. Notices. Notices or demands authorized by this Agreement
-------
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed
with the Rights Agent) as follows:
34
<PAGE>
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Corporate Secretary
Subject to the provisions of Section 21, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
The Bank of New York
101 Barclay Street, 12W
New York, New York 10286
Attention: Equity Tender and Exchange Department
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution
--------------------------
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights Agent shall, if the Board so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Board so directs, supplement or amend this Agreement
without the approval of any holders of Rights Certificates in order (i) to cure
any ambiguity, (ii) to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions herein, (iii)
to shorten or lengthen any time period hereunder other than a time period
relating to when the Rights may be redeemed or (iv) to change or supplement the
provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interest of the holders of
Rights Certificates (other than an Acquiring Person or an Affiliate or Associate
of any such Person); provided, that this Agreement may not be supplemented or
--------
amended to lengthen, pursuant to clause (iii) of this sentence (A) a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. From and after the Distribution Date, the
Company and the Rights Agent shall, if the Board so directs pursuant to a duly
adopted resolution, supplement or amend this Agreement without the approval of
any holders of Rights Certificates in order to shorten or lengthen a time period
relating to when the Rights may be redeemed, provided that this Agreement may
not be supplemented or amended to lengthen such time period at such time as the
Rights are not then redeemable. Upon the delivery of a certificate from an
appropriate officer of the Company which states that the proposed supplement or
amendment is in compliance with the terms of this Section 26, the Rights Agent
shall execute such supplement or amendment. Notwithstanding anything contained
in this Agreement to the contrary, (i) no supplement or amendment shall be made
which changes the
35
<PAGE>
Redemption Price, the Final Expiration Date, the Purchase Price or the number of
one one-thousandths of a share of Preferred Stock for which a Right is
exercisable and (ii) no supplement or amendment shall be made which adversely
affects the Rights Agent without obtaining its consent. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock.
Section 27. Exchange of Rights.
------------------
(a) The Board may, at its option, at any time after any
Person becomes an Acquiring Person, authorize and direct the exchange of all or
part of the then-outstanding Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 7(e) hereof) for shares of
Common Stock at an exchange ratio (the "Section 27(a) Exchange Ratio") per
Right, equal to that number of shares of Common Stock which, as of the date of
the Board action, has a Current Market Price equal to the difference between the
Current Market Price of the Common Stock that each Holder of a Right would
otherwise have the right to receive upon the exercise of a Right on such date,
and the Purchase Price. Notwithstanding the foregoing, the Board shall not be
empowered to effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or any such Subsidiary, or any Person holding Common Stock for or pursuant to
the terms of any such employee benefit plan), together with all Affiliates or
Associates of such Person, becomes the Beneficial Owner of 50% or more of the
shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board authorizing and
directing the exchange of any Rights pursuant to Section 27(a), or at such time
and date thereafter as it may specify, and without any further action and
without any notice, the right to exercise such Rights shall terminate and the
only right thereafter of a holder of such Rights shall be to receive a number of
shares of Common Stock equal to the number of Rights held by such holder
multiplied by the Section 27(a) Exchange Ratio. The Company shall promptly give
public notice of any such exchange; provided, however, that the failure to give,
--------
or any defect in, such notice shall not affect the validity of such exchange.
The Company promptly shall mail a notice of any such exchange to all of the
holders of Rights at their last addresses as they appear upon the registry books
of the Rights Agent or, if prior to the Distribution Date, on the registry books
of the Transfer Agent for the Common Stock. Any notice that is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange shall state the method by which the
Rights will be exchanged for shares of Common Stock, and in the event of a
partial exchange, the number of Rights that will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 7(e) hereof)
held by each holder of Rights.
(c) In any exchange pursuant to this Section 27, the Board,
at its option, may substitute (i) cash, (ii) other equity securities of the
Company (including Common Stock Equivalents), (iii) debt securities of the
Company, (iv) other assets or (v) any combination of the foregoing for the
Common Stock exchangeable for Rights, as appropriately adjusted. To the extent
that the Company determines that any such substitution must be made, the Company
36
<PAGE>
shall provide, subject to Section 7(e) hereof, that such substitution shall
apply uniformly to all outstanding Rights.
(d) In the event that there shall not be sufficient shares of
Common Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 27, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock, there
shall be paid to the registered holders of the Rights Certificates (or to the
holders of the Common Stock, if such exchange shall be made prior to the
Distribution Date) with regard to which such fractional shares of Common Stock
would otherwise be issuable, an amount in cash equal to the same fraction of the
Current Market Price of a whole share of MAR-A Common Stock.
Section 28. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors,
-----------------------------------------------------
etc. For all purposes of this Agreement, any calculation of the number of
- ----
shares of Common Stock outstanding at any particular time, including for
purposes of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules
and Regulations under the Exchange Act, as such rule was in effect on January 1,
1998 (without regard to any subsequent amendment or modification thereof). The
Board shall have the exclusive power and authority to administer this Agreement
and to exercise all rights and powers specifically granted to the Board or to
the Company, or as may be necessary or advisable in the administration of this
Agreement, including the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). In making its determination that
a Person has become an Acquiring Person, the Board may rely upon the information
contained in any report filed with the Securities and Exchange Commission,
including Schedule 13D and reports filed under Section 16 under the Exchange Act
and any other publicly available reports or information that the Board deems to
be reliable. All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties and (y) not subject the Board to any liability
to the holders of the Rights.
Section 30. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this
37
<PAGE>
Agreement shall be for the sole and exclusive benefit of the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
- --------
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board determines
in its good faith judgment that severing the invalid language from this
Agreement would adversely affect the purpose or effect of this Agreement, the
right of redemption set forth in Section 23 hereof shall be reinstated and shall
not expire until the Close of Business on the tenth day following the date of
such determination by the Board.
Section 32. Governing Law. This Agreement, each Right and each
-------------
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware, except that the law of the State of New York
shall govern the rights and duties of the Rights Agent hereunder, and for all
purposes the Agreement shall be governed by and construed in accordance with the
laws of such State applicable to contracts made and to be performed entirely
within such State.
Section 33. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each or such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the
--------------------
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the date and year first above written.
Attest: MARRIOTT INTERNATIONAL, INC.
By: s/ W. David Mann By: s/ Carolyn B. Handlon
-------------------------- -----------------------
Name: W. David Mann Name: Carolyn B. Handlon
Title: Secretary Title: Senior Vice President and Treasurer
Attest: THE BANK OF NEW YORK,
as Rights Agent
By: s/ Ralph Chianese By: s/ John I. Sivertsen
-------------------------- ----------------------
Name: Ralph Chianese Name: John I. Sivertsen
Title: Vice President Title: Vice President
39
<PAGE>
EXHIBIT A
Excerpt from Third Amended and Restated Certificate of Incorporation
of the Company
RESOLVED, that pursuant to the authority vested in the board of
directors of this corporation in accordance with the provisions of its Amended
and Restated Certificate of Incorporation, a series of Preferred Stock, no par
value, stated value of $1,000 per share, of the corporation is created, and that
the designation and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are as
follows:
Section 1. Designation and Amount. The shares of such series shall
----------------------
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be 800,000.
Section 2. Dividends and Distributions.
---------------------------
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the last day of March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $10
or (b) subject to the provision for adjustment hereinafter set forth, 1,000
times the aggregate per share amount of all cash dividends, and 1,000 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Class A Common Stock,
par value $.01 per share of the corporation or a subdivision of the outstanding
shares of Class A Common Stock (by reclassification or otherwise), declared on
the Class A Common Stock, since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the corporation shall at any time
after March 9, 1998 (the "Rights Dividend Declaration Date") (i) declare any
dividend on Class A Common Stock payable in shares of Class A Common Stock, (ii)
subdivide the outstanding Class A Common Stock or (iii) combine the outstanding
Class A Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Junior Participating Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Class A Common Stock
outstanding
A-1
<PAGE>
immediately after such event and the denominator of which is the number of
shares of Class A Common Stock that were outstanding immediately prior to such
event.
(B) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
directors may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
-------------
Participating Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Junior Participating Preferred Stock shall entitle
the holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the corporation. In the event the corporation shall at any time
after the Rights Dividend Declaration Date (i) declare any dividend on Class A
Common Stock payable in shares of Class A Common Stock, (ii) subdivide the
outstanding Class A Common Stock or (iii) combine the outstanding Class A Common
Stock in a smaller number of shares, then in each such case the number of votes
per share to which holders of shares of Series A Junior Participating Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which is the number of
shares of Class A Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the holders of
shares of Class A Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of the corporation.
(C) (i) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to six (6)
quarterly dividends thereon, the occurrence of such contingency shall mark the
beginning of a period (herein called a
A-2
<PAGE>
"default period") which shall extend until such time when all accrued and unpaid
dividends for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Junior Participating
Preferred Stock then outstanding shall have been declared and paid or set apart
for payment. During each default period, all holders of Preferred Stock
(including holders of the Series A Junior Participating Preferred Stock) with
dividends in arrears in an amount equal to six (6) quarterly dividends thereto,
voting as a class, irrespective of series, shall have the right to elect two (2)
Directors.
(ii) During any default period, such voting rights of the
holders of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (iii) of this
Section 3(C) or at any annual meeting of stockholders, and thereafter at annual
meetings of stockholders, provided that neither such voting right nor the right
of the holders of any other series of Preferred Stock, if any, to increase, in
certain cases, the authorized number of Directors shall be exercised unless the
holders of one-third in number of shares of Preferred Stock outstanding shall be
present in person or by proxy. The absence of a quorum of the holders of Class A
Common Stock shall not affect the exercise by the holders of Preferred Stock of
such voting right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period, they
shall have the right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to two (2)
Directors, and if such right is exercised at an annual meeting, to elect two (2)
Directors. If the number which may be so elected at any special meeting does not
amount to the required number, the holders of the Preferred Stock shall have the
right to make such increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the holders of
Preferred Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A Junior
---- -----
Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to elect
Directors, the Board of Directors may order, or any stockholder or stockholders
owning in the aggregate not less than ten percent (10%) of the total number of
shares of Preferred Stock outstanding, irrespective of series, may request, the
calling of a special meeting of the holders of Preferred Stock, which meeting
shall thereupon be called by the President, a Vice President or the Secretary of
the corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by mailing a
copy of such notice to such holder at their last address as the same appears on
the books of the corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
A-3
<PAGE>
(iv) In any default period, the holders of Class A Common
Stock, and other classes of stock of the corporation if applicable, shall
continue to be entitled to elect the whole number of Directors until the holders
of Preferred Stock shall have exercised their right to elect two (2) Directors
voting as a class, after the exercise of which right (x) the directors so
elected by the holders of Preferred Stock shall continue in office until the
successors shall have been elected by such holders or until the expiration of
the default period, and (y) any vacancy in the Board of directors may (except as
provided in paragraph (C)(ii) of this Section 3) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders of the class of
stock which elected the Director whose office shall have become vacant.
References in this paragraph (C) to Directors elected by the holders of a
particular class of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period,
(x) the right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be such
number as may be provided for in the certificate of incorporation or by-laws
irrespective of any increase made pursuant to the provisions of paragraph
(C)(ii) of this Section 3 (such number being subject, however, to change
thereafter in any manner provided by law or in the certificate of incorporation
or by-laws). Any vacancies in the Board of directors effected by the provisions
of clauses (y) and (z) in the preceding sentence may be filled by a majority of
the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Class A Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
--------------------
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred Stock as
provided in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on shares of Series
A Junior Participating Preferred Stock outstanding shall have been paid in full,
the corporation shall not
(i) declare or pay dividends on, make any
other distributions on, or redeem, purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(ii) declare or pay dividends on or make any
other distributions on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with the
Series A Junior Participating
A-4
<PAGE>
Preferred Stock, except dividends paid ratably on the Series A Junior
Participating Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire
for consideration shares of any stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series A
Junior Participating Preferred Stock, provided that the corporation may at
any time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up) to
the Series A Junior Participating Preferred Stock;
(iv) purchase or otherwise acquire for
consideration any shares of Series A Junior Participating Preferred Stock,
or any share of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of directors)
to all holders of such shares upon such terms as the Board of directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The corporation shall not permit any subsidiary of the
corporation to purchase or otherwise acquire for consideration any shares of
stock of the corporation unless the corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Retired Shares. Any shares of Series A Junior
--------------
Participating Preferred Stock purchased or otherwise acquired by the corporation
in any manner whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or resolutions of
the board of directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
--------------------------------------
(A) Upon any liquidation (voluntary or otherwise), dissolution
or winding up of the corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred Stock
unless, prior thereto, the holders of shares of Series A Junior Participating
Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A Junior
Participating Preferred Stock unless, prior
A-5
<PAGE>
thereto, the holders of shares of Class A Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately
adjusted as set forth in subparagraph C below to reflect such events as stock
splits, stock dividends and recapitalizations with respect to the Class A Common
Stock) (such number in clause (ii) immediately above being referred to as the
"Adjustment Number"). Following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of all outstanding
shares of Series A Junior Participating Preferred Stock and Class A Common
Stock, respectively, holders of Series A Junior Participating Preferred Stock
and holders of shares of Class A Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to one (1) with respect to such Preferred Stock and Class
A Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Junior Participating Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation preferences. In the
event, however, that there are not sufficient assets available to permit payment
in full of the Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Class A Common Stock.
(C) In the event the corporation shall at any time after the
Rights Dividend Declaration Date (i) declare any dividend on Class A Common
Stock payable in shares of Class A Common Stock, (ii) subdivide the outstanding
Class A Common Stock or (iii) combine the outstanding Class A Common Stock into
a smaller number of shares, then in each such case the Adjustment Number in
effect immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of shares
of Class A Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Class A Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the corporation shall
---------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Class A Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the shares
of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Class A Common Stock is
changed or exchanged. In the event the corporation shall at any time after the
Rights Dividend Declaration Date (i) declare any dividend on Class A Common
Stock payable in shares of Class A Common Stock, (ii) subdivide the outstanding
Class A Common Stock or (iii) combine the outstanding Class A Common Stock into
a smaller number of shares, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Junior Participating Preferred Stock shall
A-6
<PAGE>
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Class A Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Class A Common
Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior
-------------
Participating Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred
-------
Stock shall rank junior to all other series of the corporation's Preferred Stock
as to the payment of dividends and the distribution of assets, unless the terms
of any such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
---------
corporation shall not be further amended in any manner which would materially
alter or change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding shares
of Series A Junior Participating Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Junior Participating
-----------------
Preferred Stock may be issued in fractions of a share but no such fraction shall
be less than one one-thousandth of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
A-7
<PAGE>
EXHIBIT B
Form of Rights Certificate
Certificate No. R- _______________Rights
NOT EXERCISABLE AFTER MARCH 26, 2008 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT
$.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME
AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE
AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES
SPECIFIED IN SECTION 7(e) OF SUCH RIGHTS AGREEMENT.]/1/
Rights Certificate
MARRIOTT INTERNATIONAL, INC.
This certifies that _________________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which the
owner thereof, subject to the terms, provisions and conditions of the Amended
and Restated Rights Agreement, dated as of March 27, 1998 and amended and
restated as of August 9, 1999 (the "Rights Agreement"), between Marriott
International, Inc. (f/k/a New Marriott MI, Inc)., a Delaware corporation (the
"Company"), and The Bank of New York, a New York banking corporation (the
"Rights Agent"), to purchase from the Company at any time prior to 5:00 p.m.
(New York City time) on March 26, 2008 at the office or offices of the Rights
Agent designated for such purpose, or its successors as Rights Agent, one one-
thousandth of a fully paid, nonassessable share of Series A Junior Participating
Preferred Stock (the "Preferred Stock") of the Company, at a purchase price of
$175 per one one-thousandth of a share (the "Purchase Price"), upon presentation
and surrender of this Rights Certificate with the Form of Election to Purchase
and related Certificate duly executed. The number of Rights evidenced by this
Rights Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Purchase Price set
_______________
/1/ The portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
B-1
<PAGE>
forth above, are the number and Purchase Price as of March 27, 1998, based on
the Preferred Stock as constituted at such date.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by (i) an Acquiring Person or an Associate or
Affiliate of any such Person (as such terms are defined in the Rights
Agreement), (ii) a transferee of any such Acquiring Person, Associate or
Affiliate who becomes a transferee after such Acquiring Person, Associate or
Affiliate becomes such or (iii) under certain circumstances specified in the
Rights Agreement, a transferee of any such Acquiring Person, Associate or
Affiliate who becomes a transferee prior to or concurrently with such Acquiring
Person becoming such, such Rights shall become null and void and no holder
hereof shall have any right with respect to such Rights from and after the
occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number
and kind of shares of Preferred Stock or other securities that may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Trigger Events (as such term is defined in the Rights Agreement).
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the Rights,
limitations of Rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of Rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the offices of the Company and are
also available upon written request to the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder to
purchase a like aggregate number of one one-thousandths of a share of Preferred
Stock as the Rights evidenced by the Rights Certificate or Rights Certificates
surrendered shall have entitled such holder to purchase. If this Rights
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Rights Certificate or Rights Certificate for the
number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate may be redeemed by the Company, pursuant to
approval by the Board of Directors of the Company, at a redemption price of $.01
per Right at any time prior to the earlier of the close of business on (i) the
tenth day following the Stock Acquisition Date (as such time period may be
extended pursuant to the Rights Agreement) and (ii) the Final Expiration Date
(as defined in the Rights Agreement). After the expiration of the redemption
period, the Company's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the outstanding shares
of MAR-A Common Stock in a transaction or series of transactions not involving
the Company, and such reinstatement is approved by the Board.
B-2
<PAGE>
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (over than fractions that are
integral multiples of one one-thousandth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of stockholders of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action or, to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Rights
Certificate shall have been exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of _______________, _____.
Attest: MARRIOTT INTERNATIONAL, INC.
_______________________________ By:_______________________________
Secretary Title:____________________________
Countersigned:
THE BANK OF NEW YORK
By: ___________________________
Authorized Signature
Date of Countersignature: ____________________, _____
B-4
<PAGE>
Form of Reverse Side of Rights Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED ______________________________ hereby sells, assigns and
transfers unto
___________________________________________________________________________
___________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ____________________________,
Attorney, to transfer the within Rights Certificate on the books of the within-
named Company, with full power of substitution.
Dated:___________________, _____.
_________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.
B-5
<PAGE>
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of any such person.
Dated:__________________, _____. ______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.
NOTICE
------
The signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
Form of Reverse Side of Rights Certificate -- continued
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise Rights represented by the Rights
Certificate.)
To MARRIOTT INTERNATIONAL, INC.:
The undersigned hereby irrevocably elects to exercise ___________
Rights represented by this Rights Certificate to purchase the shares of
Preferred Stock issuable upon the exercise of the Rights (or such other
securities of the Company or of any other person which may be issuable upon the
exercise of the Rights) and requests that such shares be credited to the book-
entry account of:
Please insert social security or other identifying number
___________________________________________________________________________
___________________________________________________________________________
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
Dated:________________, _____. ______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States.
B-7
<PAGE>
Form of Reverse Side of Rights Certificate -- continued
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ]
are not being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned,
it [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any person who is, was or became an Acquiring Person or an
Affiliate or Associate of any such person.
Dated:______________, _______. ______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc. or a commercial bank or trust company having an office or correspondent in
the United States.
NOTICE
------
The signature to the foregoing Election to Purchase and Certificate
must correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-8
<PAGE>
EXHIBIT C
Summary Of Rights To Purchase
Preferred Stock
On March 9, 1998, the Board of Directors of Marriott International,
Inc. (f/k/a New Marriott MI, Inc.) (the "Company") declared a dividend
distribution of one Right for each share of Common Stock, par value $0.01 per
share, of the Company (the "MAR Common Stock") and one Right for each share of
Class A Common Stock, par value $0.01 per share, of the Company (the "MAR-A
Common Stock" and, together with the MAR Common Stock, the "Common Stock")
outstanding at the close of business on March 27, 1998. Each Right entitles the
registered holder to purchase from the Company a unit consisting of one one-
thousandth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, no par value, stated value $1,000 per share (the "Preferred Stock") at a
Purchase Price of $175 per Unit, subject to adjustment. The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights Agreement")
between the Company and The Bank of New York, as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding and, with respect to
uncertificated shares of Common Stock, to the Common Stock evidenced by book-
entry account, and no separate Rights Certificates will be distributed. The
Rights will separate from the Common Stock and a Distribution Date will occur
upon the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has acquired,
or obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of MAR Common Stock or MAR-A Common Stock (the date of such
announcement being the "Stock Acquisition Date") or (ii) 10 business days
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 30% or more of such outstanding shares
of MAR Common Stock or 30% or more of such outstanding shares of MAR-A Common
Stock. For purposes of the Rights Agreement, a person shall not be deemed to
beneficially own "Exempt Shares," which include (i) shares of Common Stock held
by such person on March 27, 1998 and continuously thereafter, (ii) shares of
Common Stock acquired by such person by gift, bequest, and certain other
transfers, which shares were Exempt Shares immediately prior to such transfer,
and were held by such person continuously thereafter and (iii) shares acquired
by such person in connection with certain distributions of Common Stock with
respect to Exempt Shares which were held by such person continuously thereafter.
Until the Distribution Date, (i) the Rights will be evidenced by the
Common Stock certificates or the book-entry account evidencing such shares of
Common Stock, as the case may be, and will be transferred with and only with
such shares of Common Stock, (ii) new shares of Common Stock issued after March
27, 1998, if issued in certificated form, will contain a notation incorporating
the Rights Agreement by reference, or, if issued in uncertificated form, the
statement for the book-entry account evidencing such shares will contain a
notation incorporating the Rights Agreement by reference and (iii) the surrender
or transfer of any shares of Common Stock outstanding will also constitute the
transfer of the Rights associated with the Common Stock.
C-1
<PAGE>
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on March 26, 2008, unless earlier redeemed by
the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event (i) the Company is the surviving corporation in a merger
with an Acquiring Person and its Common Stock is not changed or exchanged, or
(ii) a person becomes the beneficial owner of 30% or more of the then-
outstanding shares of MAR Common Stock or 30% or more of the then-outstanding
shares of MAR-A Common Stock (except pursuant to an offer for all outstanding
shares of Common Stock which the Board determines to be fair to and otherwise in
the best interests of the Company and its stockholders), each holder of a Right
will thereafter have the right to receive, upon exercise, Common Stock (or, in
certain circumstances, cash, property or other securities of the Company) having
a value equal to two times the exercise price of the Right. Notwithstanding any
of the foregoing, following the occurrence of any of the events set forth in
this paragraph, all Rights that are, or (under certain circumstances specified
in the Rights Agreement) were, beneficially owned by an Acquiring Person will be
null and void. However, Rights are not exercisable following the occurrence of
either of the events set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $175 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an event
set forth in the preceding paragraph would entitle its holder to purchase $350
worth of Common Stock (or other consideration, as noted above) for $175.
Assuming that the Common Stock had a per share value of $35 at such time, the
holder of each valid Right would be entitled to purchase 10 shares of Common
Stock for $175.
In the event that, at any time following the Stock Acquisition Date,
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation (other than a
merger described in the second preceding paragraph or a merger which follows an
offer described in the second preceding paragraph); or (ii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a Right
(except Rights which previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right.
The Purchase Price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) if holders of the Preferred Stock are granted certain
rights or warrant to subscribe for Preferred Stock or convertible securities at
less than the current market price of the Preferred Stock, or (iii) upon the
distribution to holders of the Preferred
C-2
<PAGE>
Stock of evidences of indebtedness or assets (excluding regular quarterly cash
dividends) or of subscription rights or warrants (other than those referred to
above.)
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments mount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Preferred Stock on the last
trading date prior to the date of exercise.
In general, the Company, pursuant to approval by the majority of
Specified Directors (as defined in the Rights Agreement), may redeem the Rights
in whole, but not in part, at any time until 10 days following the Stock
Acquisition Date, at a price of $.01 per Right (payable in cash, common stock or
other consideration deemed appropriate by the majority of Specified Directors
with the concurrence of the Board of Directors). After the redemption period has
expired, the Company's right of redemption may be reinstated if an Acquiring
Person reduces its beneficial ownership to 10% or less of both the outstanding
shares of MAR Common Stock and the outstanding shares of MAR-A Common Stock in a
transaction or series of transactions not involving the Company. Immediately
upon the action of the Specified Directors ordering redemption of the Rights,
the Rights will terminate and the only right of the holders of Rights will be to
receive the $.01 per Right redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms
of the Rights or those regarding the time period for redemption, the Rights
Agreement may be amended by the Board of Directors prior to the Distribution
Date. After the Distribution Date, the provisions of the Rights Agreement may be
amended by the Board in order to cure any ambiguity, to make changes which do
not adversely affect the interests of holders of Rights (excluding the interests
of any Acquiring Person), or to shorten or lengthen any time periods under the
Rights Agreement other than the time period governing redemption. After the
Distribution Date, the time period governing redemption may be amended pursuant
to the approval of the majority of Specified Directors; provided, however, that
--------
no amendment to lengthen such time period shall be made at such time as the
Rights are not redeemable.
A copy of the Rights Agreement has been filed with the Securities and Exchange
Commission as an Exhibit to a Registration Statement on Form 8-A dated April 2,
1998. A copy of the Rights Agreement is available free of charge from the Rights
Agent. This summary description of the Rights does no purport to be complete and
is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
C-3
<PAGE>
Exhibit 12
MARRIOTT INTERNATIONAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
($ in millions, except ratio)
Thirty-six
weeks ended
September 10, 1999
------------------
Income before income taxes $496
Loss/(income) related to equity method investees 3
-----
499
Add/(deduct):
Fixed charges 98
Interest capitalized (22)
------
Earnings available for fixed charges $575
======
Fixed charges:
Interest expensed and capitalized (1) $56
Estimate of the interest within rent expense 42
------
Total fixed charges $98
======
------
Ratio of earnings to fixed charges 5.9
======
(1) "Interest expensed and capitalized" includes amortized
premiums, discounts and capitalized expenses
related to indebtedness.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 JAN-01-1999
<PERIOD-START> JAN-02-1999 JAN-03-1998
<PERIOD-END> SEP-10-1999 SEP-11-1998
<CASH> 324 0
<SECURITIES> 0 0
<RECEIVABLES> 681 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,387 0
<PP&E> 2,697 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 6,990 0
<CURRENT-LIABILITIES> 1,582 0
<BONDS> 0 0
0 0
0 0
<COMMON> 3 0
<OTHER-SE> 2,828 0
<TOTAL-LIABILITY-AND-EQUITY> 6,990 0
<SALES> 5,932 5,446
<TOTAL-REVENUES> 5,932 5,446
<CGS> 0 0
<TOTAL-COSTS> 5,335 4,933
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34 15
<INCOME-PRETAX> 496 449
<INCOME-TAX> 186 173
<INCOME-CONTINUING> 310 276
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 310 276
<EPS-BASIC> 1.25 1.09
<EPS-DILUTED> 1.16 1.02
</TABLE>
<PAGE>
Exhibit 99
Forward-Looking Statements
The following factors, among others, could cause actual results to differ
materially from those contained in forward-looking statements made in this
report or presented elsewhere by management.
Dependence on Others: Our present growth strategy for development of additional
lodging and senior living facilities entails entering into and maintaining
various arrangements with present and future property owners, including Host
Marriott Corporation, Crestline Capital Corporation and New World Development
Company Limited. There can be no assurance that any of our current strategic
arrangements will continue, or that we will be able to enter into future
collaborations.
Contract Terms for New Units: The terms of the operating contracts, distribution
agreements, franchise agreements and leases for each of our lodging facilities
and senior living communities are influenced by contract terms offered by our
competitors at the time such agreements are entered into. Accordingly, we cannot
assure you that contracts entered into or renewed in the future will be on terms
that are as favorable to us as those under existing agreements.
Competition: The profitability of hotels, vacation timeshare resorts, senior
living communities, corporate apartments, and distribution centers we operate is
subject to general economic conditions, competition, the desirability of
particular locations, the relationship between supply of and demand for hotel
rooms, vacation timeshare resorts, senior living facilities, corporate
apartments, and distribution services, and other factors. We generally operate
in markets that contain numerous competitors and our continued success will
depend, in large part, upon our ability to compete in such areas as access,
location, quality of accommodations, amenities, specialized services, cost
containment and, to a lesser extent, the quality and scope of food and beverage
services and facilities.
Supply and Demand: The lodging industry may be adversely affected by (1) supply
additions, (2) international, national and regional economic conditions, (3)
changes in travel patterns, (4) taxes and government regulations which influence
or determine wages, prices, interest rates, construction procedures and costs,
and (5) the availability of capital to allow us and potential hotel and senior
living community owners to fund investments. Our timeshare and senior living
service businesses are also subject to the same or similar uncertainties and,
accordingly, we cannot assure you that the present level of demand for timeshare
intervals and senior living communities will continue, or that there will not be
an increase in the supply of competitive units, which could reduce the prices at
which we are able to sell or rent units.
Year 2000 Compliance: Our failure or a failure by third parties with whom we do
business to successfully address the Year 2000 problem, as described in Part I,
Item 2 of this Report (Management's Discussion and Analysis of Financial
Condition and Results of Operations), could materially and adversely affect us,
our business or our financial condition.
