<PAGE>
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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MARRIOTT INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials:
$483,188
..........................................................................
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
.........................................................................
(2) Form, Schedule or Registration Statement no.:
.........................................................................
(3) Filing Party:
.........................................................................
(4) Date Filed:
.........................................................................
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<PAGE>
MARRIOTT INTERNATIONAL, INC.
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
February , 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of Marriott International, Inc. (the "Company") to be held
on March 17, 1998 at 10:00 a.m. at the Westfield Conference Center, 14750
Conference Center Drive, Chantilly, Virginia. Enclosed are a Notice of Special
Meeting of Stockholders and a Proxy Statement relating to the Special Meeting.
At the Special Meeting you will be asked to consider and vote upon a group
of related proposals that provide for, among other things, the tax-free
distribution (the "Spinoff") to stockholders of the Company, on a pro rata
basis, of all outstanding shares of a wholly owned subsidiary of the Company
("New Marriott"). After the Spinoff, New Marriott will conduct all businesses
(other than the food service and facilities management business) that were
operated by the Company prior to the Spinoff, which include the lodging
business (including timeshare resort development and operation), the senior
living services business and the distribution services business. The food
service and facilities management businesses will be retained by the Company.
Immediately after the Spinoff, the Company will acquire the North American
food service and facilities management operations of Sodexho Alliance, S.A.
("Sodexho") in exchange for stock of the Company, and the Company will operate
the combined food service and facilities management business under its new
corporate name--Sodexho Marriott Services, Inc. ("SMS"). In addition to
transferring its North American operations (which the Company estimates as
having a value of approximately $275 million) to the Company, Sodexho will
make a $304 million cash payment to the Company, for total merger
consideration of approximately $579 million. Simultaneously with the Spinoff,
SMS will incur replacement indebtedness that is being arranged by Sodexho, the
proceeds of which will be used to refinance certain existing indebtedness.
Sodexho will own approximately 49 percent of SMS upon the consummation of
these transactions, and stockholders of the Company immediately prior to the
Spinoff will continue to own approximately 51 percent of SMS. Stockholders of
the Company on the record date for the Spinoff will own all of the stock of
New Marriott. As is the case today with the Company, approximately 19% of the
New Marriott stock will be beneficially owned by directors and officers of New
Marriott. Neither SMS nor New Marriott will issue fractional shares in
connection with the Spinoff, and cash received in lieu of such fractional
shares will be taxable to stockholders.
The Company believes that New Marriott's ability to participate aggressively
in the global consolidation of the lodging industry, as well as the senior
living services industry within the United States, will be significantly
enhanced following the Spinoff. The Company also believes that New Marriott's
borrowing and investment capacity will be substantially greater after the
Spinoff than the Company's is today. In furtherance of New Marriott's
objective to aggressively participate in the lodging and senior living
services industry consolidations, the Board of Directors has determined that
New Marriott will have two classes of common stock--one class that will have
one vote per share and one class that will have ten votes per share. The Board
of Directors believes that this dual class equity structure will give New
Marriott additional flexibility through the use of lower-voting common stock
as consideration for acquisition opportunities that may be substantial in
size. At the same time, New Marriott will be able to maintain one of its most
important attributes--continuity in the leadership, involvement and
substantial voting interests of the Marriott family. In the Spinoff, each
stockholder of the Company will receive one share of each class of New
Marriott common stock for each share of Company common stock that they own,
thus maintaining the relative voting power of the initial stockholders of New
Marriott.
After careful consideration, the Board of Directors believes that the
proposed Spinoff and related transactions (the "Transactions") will enhance
growth opportunities for the Company's businesses. New
<PAGE>
Marriott will have a strong balance sheet and greater investment capacity to
execute its growth plans and pursue strategic acquisitions. The Company's
stockholders will have an ongoing interest in a strong, well focused management
services company that has excellent growth prospects and will be affiliated
with one of the premier management services companies in the world. We are
excited about the future prospects for both New Marriott and SMS as separate
public companies.
THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTIONS ARE IN THE BEST
INTERESTS OF STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO
APPROVE THEM. You should be aware, however, that certain members of the Board
may be deemed to have conflicts of interest in connection with the
Transactions.
Details of the proposals to be considered at the Special Meeting (the
"Proposals"), as well as important information relating to the Proposals, are
set forth in the accompanying Proxy Statement and should be considered
carefully. Approval of the Proposals requires the affirmative vote of
stockholders of the Company. The Proposal addressing the principal elements of
the Transactions requires the affirmative vote of two-thirds (or
66 2/3 percent) of the total shares entitled to be voted at the Special
Meeting. Other related Proposals require a majority vote. The Board of
Directors considers all of the Proposals to be important to the Transactions.
Accordingly, although you will vote for each Proposal separately, the
effectiveness of each of the Proposals is conditioned upon the approval of all
of the Proposals. Because of the significance of the Transactions to the
Company, your participation in the meeting, in person or by proxy, is
especially important.
Please complete, sign, date and return the enclosed card promptly in the
accompanying envelope, which requires no postage if mailed in the United
States. You are, of course, welcome to attend the Special Meeting and vote in
person, even if you have previously returned your proxy card.
Sincerely yours,
J.W. Marriott, Jr. William J. Shaw
Chairman of the Board and President and Chief Operating
Chief Executive Officer Officer
<PAGE>
MARRIOTT INTERNATIONAL, INC.
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 17, 1998
February , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Marriott
International, Inc. (the "Company") will be held on March 17, 1998, at 10:00
a.m. at the Westfield Conference Center, 14750 Conference Center Drive,
Chantilly, Virginia. Doors to the meeting will open at 9:00 a.m.
The meeting will be conducted:
1. To consider and to vote upon several related proposals (collectively,
the "Proposals") described in the accompanying Proxy Statement. THE
EFFECTIVENESS OF EACH OF THE PROPOSALS IS CONDITIONED UPON THE APPROVAL OF
ALL OF THE PROPOSALS. The Proposals provide for:
PROPOSAL ONE
. The Spinoff of New Marriott. Approval of (x) the contribution by the
Company to its wholly owned subsidiary, New Marriott MI, Inc. ("New
Marriott"), of all businesses of the Company other than the food service
and facilities management business, and (y) a special dividend (the
"Spinoff") to the holders of the Company's outstanding shares of common
stock, par value $1.00 per share (the "Company Common Stock," which is
referred to as "SMS Common Stock" after consummation of the Spinoff and
related transactions), of all outstanding shares of capital stock of New
Marriott, to be effected in accordance with the terms of a Distribution
Agreement dated as of September 30, 1997, as amended, between New
Marriott and the Company;
. The Acquisition of Sodexho North America. Approval of (x) the
acquisition by the Company (the "Acquisition" and, together with the
Spinoff and related transactions, the "Transactions") of International
Catering Corporation ("ICC") and Sodexho Financiere du Canada, Inc.
(together, "Sodexho North America"), which are wholly owned subsidiaries
of Sodexho Alliance, S.A. ("Sodexho") in the United States and Canada,
respectively, and (y) the issuance by the Company of a number of shares
of SMS Common Stock to Sodexho equal to approximately 49 percent of the
SMS Common Stock to be outstanding after giving effect to such issuance;
. Amendment of the Company's Certificate of Incorporation and
Bylaws. Approval of the amendment and restatement of the certificate of
incorporation and bylaws of the Company, which will, among other things,
(i) change the name of the Company to "Sodexho Marriott Services, Inc."
(the Company is referred to as "SMS" for periods after the Spinoff),
(ii) delete certain provisions that require actions of stockholders to
be taken by two-thirds vote, (iii) delete certain provisions that impose
restrictions on business combinations involving SMS, (iv) provide for a
one-for-four reverse stock split of SMS Common Stock, (v) provide for
the annual election of all directors, (vi) permit stockholder action by
written consent and (vii) for three years after the Spinoff, generally
prohibit any person or group of related persons from owning 50 percent
or more of the SMS Common Stock; and
. Amendment of New Marriott's Certificate of Incorporation and
Bylaws. Ratification of the amendment and restatement of the certificate
of incorporation and bylaws of New Marriott, which, among other things,
(i) changes the name of New Marriott to "Marriott International, Inc.,"
(ii) provides for two classes of common stock of New Marriott: Common
Stock, par value $0.01 per share, with one vote per share ("New MAR
Common Stock") and Class A Common Stock, par value $0.01 per share, with
ten votes per share ("New MAR-A Common Stock" and together with the New
MAR Common Stock, the "New Mariott Common Stock") which will be
distributed effective as of the date
<PAGE>
of the Spinoff on a pro rata basis to stockholders of the Company on the
record date for the Spinoff and (iii) contains provisions otherwise
substantially similar to those contained in the Company's certificate of
incorporation and bylaws as in effect on the date hereof;
PROPOSAL TWO
Ratification of Pierre Bellon, Bernard Carton, Edouard de Royere, William
J. Shaw, Charles D. O'Dell, John W. Marriott III, Doctor R. Crants and
Daniel J. Altobello as directors of SMS, effective upon the consummation
of the Transactions;
PROPOSAL THREE
Ratification of Gilbert M. Grosvenor, Richard E. Marriott and Harry J.
Pearce, as directors of New Marriott whose terms will expire in 1998;
J.W. Marriott, Jr., W. Mitt Romney and William J. Shaw, as directors of
New Marriott whose terms will expire in 1999; and Dr. Henry Cheng Kar-
Shun, Floretta Dukes McKenzie, Roger W. Sant and Lawrence M. Small as
directors of New Marriott whose terms will expire in 2000;
PROPOSAL FOUR
Ratification of the New Marriott 1998 Comprehensive Stock and Cash
Incentive Plan and the reservation of 35 million shares of New MAR
Common Stock and 21 million shares of New MAR-A Common Stock for
issuance pursuant to such plan;
PROPOSAL FIVE
Ratification of the appointment of Price Waterhouse LLP as independent
auditors of SMS, such appointment to be effective upon consummation of
the Transactions; and
PROPOSAL SIX
Ratification of the appointment of Arthur Andersen LLP as independent
auditors of New Marriott.
2. To transact such other business as may properly come before the
meeting.
Stockholders of record at the close of business on January 28, 1998 will be
entitled to notice of and to vote at this meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE TO APPROVE THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING. Certain
members of the Board, however, may be deemed to have conflicts of interest in
connection with the Transactions.
---------------------------------------
W. David Mann
Secretary
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IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY, WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE
REVOCABLE, EITHER IN WRITING OR BY VOTING IN PERSON AT THE SPECIAL
MEETING, AT ANY TIME PRIOR TO ITS EXERCISE.
PLEASE DO NOT SEND IN ANY SHARE CERTIFICATES AT THIS TIME.
REFER TO THE NOTE ON THE OUTSIDE OF THE BACK COVER FOR INFORMATION ON
PARKING AND PUBLIC TRANSPORTATION.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
CAUTIONARY STATEMENTS....................................................... 1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS................................ 2
SUMMARY..................................................................... 5
Special Meeting........................................................... 5
The Transactions.......................................................... 6
Business and Properties of SMS............................................ 7
Business and Properties of New Marriott................................... 8
Recommendation of the Company Board....................................... 8
Certain Federal Income Tax Consequences................................... 8
No Appraisal Rights....................................................... 9
Risk Factors.............................................................. 9
Conflicts of Interest..................................................... 9
Summary of Selected Historical Financial Data............................. 10
Summary of Unaudited Selected Pro Forma Financial Data.................... 11
RISK FACTORS................................................................ 12
THE SPECIAL MEETING......................................................... 19
Date, Time and Place of Special Meeting................................... 19
Matters for Consideration at Special Meeting.............................. 19
Special Meeting Record Date............................................... 20
Votes Required............................................................ 20
Voting and Revocation of Proxies.......................................... 21
Solicitation of Proxies................................................... 21
BACKGROUND AND REASONS...................................................... 22
Background of the Transactions............................................ 22
Reasons for the Recommendation of the Company Board....................... 24
Opinions of Financial Advisors............................................ 25
THE TRANSACTIONS............................................................ 33
Overview.................................................................. 33
Effect on Persons in the Transactions..................................... 34
Debt Refinancing.......................................................... 35
Certain Post-Closing Adjustments.......................................... 36
No-Shop Provisions; Termination of the Transactions ...................... 37
Termination Fees; Expenses................................................ 38
Regulatory Approvals; Other Conditions to the Transactions................ 39
Certain Covenants......................................................... 40
Arrangements Between SMS and New Marriott................................. 41
Arrangements Between SMS and Sodexho...................................... 46
Accounting Treatment...................................................... 48
No Appraisal Rights....................................................... 48
Manner of Effecting the Transactions; Book-Entry System................... 48
BUSINESS AND PROPERTIES OF SMS.............................................. 51
Description of SMS Business............................................... 51
Industry and Marketplace for SMS.......................................... 51
Market Position of SMS.................................................... 51
Competition............................................................... 52
Business and Properties of MMS............................................ 52
Business and Properties of Sodexho North America.......................... 54
BUSINESS AND PROPERTIES OF NEW MARRIOTT..................................... 56
General................................................................... 56
Employees................................................................. 56
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Properties.............................................................. 56
Lodging................................................................. 56
Contract Services....................................................... 61
SODEXHO NORTH AMERICA SELECTED FINANCIAL DATA............................. 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- SODEXHO NORTH AMERICA...................................... 65
SMS UNAUDITED PRO FORMA COMBINED FINANCIAL DATA........................... 67
Unaudited Pro Forma Combined Balance Sheet.............................. 68
Unaudited Pro Forma Combined Statement of Income........................ 69
Notes to Unaudited Pro Forma Combined Financial Data.................... 73
NEW MARRIOTT SELECTED FINANCIAL DATA...................................... 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- NEW MARRIOTT............................................... 77
NEW MARRIOTT UNAUDITED PRO FORMA COMBINED FINANCIAL DATA.................. 85
Unaudited Pro Forma Combined Balance Sheet.............................. 86
Unaudited Pro Forma Combined Statement of Income........................ 87
Notes to Unaudited Pro Forma Combined Financial Data.................... 91
MANAGEMENT OF SMS......................................................... 92
SMS Board of Directors.................................................. 92
Committees of the SMS Board............................................. 94
Compensation of Directors............................................... 94
Executive Officers...................................................... 95
SMS Stock Plans......................................................... 96
Compensation Committee Interlocks and Insider Participation............. 99
MANAGEMENT OF NEW MARRIOTT................................................ 100
New Marriott Board of Directors......................................... 100
Committees of the New Marriott Board.................................... 103
Compensation of Directors............................................... 103
Executive Officers...................................................... 104
Executive Officer Compensation.......................................... 106
New Marriott Stock Plan................................................. 110
Vote Required........................................................... 113
Compensation Committee Interlocks and Insider Participation............. 113
Company Board .......................................................... 113
Section 16(a) Beneficial Ownership Reporting Compliance ................ 114
CONFLICTS OF INTEREST..................................................... 115
FINANCING................................................................. 119
Replacement SMS Debt.................................................... 119
New Marriott Credit Facility............................................ 121
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS TO THE COMPANY
AND ITS STOCKHOLDERS..................................................... 122
Consequences of the Spinoff............................................. 122
Consequences of the Acquisition......................................... 123
Consequences of SMS Reverse Stock Split................................. 123
MARKETS AND MARKET PRICES................................................. 124
SECURITY OWNERSHIP OF THE COMPANY AND SMS................................. 125
DESCRIPTION OF THE SMS CAPITAL STOCK...................................... 127
General................................................................. 127
Common Stock............................................................ 127
Preferred Stock......................................................... 128
Comparison of Stockholders' Rights Upon Amendment of the Company Charter
and Company Bylaws..................................................... 128
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SMS Reverse Stock Split................................................ 131
CERTAIN ANTITAKEOVER PROVISIONS APPLICABLE TO SMS........................ 134
General................................................................ 134
Charter and Bylaw Provisions........................................... 134
Section 203 of the DGCL................................................ 134
SMS Rights Plan........................................................ 135
SECURITY OWNERSHIP OF NEW MARRIOTT....................................... 137
DESCRIPTION OF THE NEW MARRIOTT CAPITAL STOCK............................ 139
General................................................................ 139
Common Stock........................................................... 139
Preferred Stock ....................................................... 143
Rights Plan and Junior Preferred Stock................................. 143
Reasons for the Proposed Dual Class Capitalization of New Marriott..... 146
Certain Potential Disadvantages of the Dual Class Capitalization....... 148
CERTAIN ANTITAKEOVER PROVISIONS APPLICABLE TO NEW MARRIOTT............... 149
General................................................................ 149
New Marriott Certificate and Bylaws.................................... 150
New Marriott Rights Plan............................................... 153
Section 203 of the DGCL................................................ 154
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF NEW MARRIOTT.. 155
Limitation of Liability for Directors.................................. 155
Indemnification of Directors and Officers.............................. 156
APPOINTMENT OF INDEPENDENT AUDITORS...................................... 157
Appointment of Price Waterhouse LLP as SMS's Independent Auditors...... 157
Appointment of Arthur Andersen LLP as New Marriott's Independent
Auditors.............................................................. 157
SUBMISSION OF STOCKHOLDER PROPOSALS...................................... 157
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........................ 158
FORM 10-K ANNUAL REPORT.................................................. 158
INDEX OF DEFINED TERMS................................................... 159
INDEX OF FINANCIAL STATEMENTS............................................ F-1
New Marriott Historical Financial Statements........................... F-2
Sodexho North America Historical Financial Statements.................. F-22
APPENDIX A --Distribution Agreement..................................... A-1
APPENDIX B --Acquisition Agreement...................................... B-1
APPENDIX C --Omnibus Agreement.......................................... C-1
APPENDIX D --Amendment Agreement........................................ D-1
APPENDIX E --Form of Tax Sharing Agreement.............................. E-1
APPENDIX F --Merrill Lynch Fairness Opinion............................. F-1
APPENDIX G --American Appraisal Solvency Opinion........................ G-1
APPENDIX H --Form of Amended and Restated Certificate of Incorporation
of SMS....................................................... H-1
APPENDIX I --Form of Amended and Restated Bylaws of SMS................. I-1
APPENDIX J --Form of Amended and Restated Certificate of Incorporation
of New Marriott.............................................. J-1
APPENDIX K --Form of Amended and Restated Bylaws of New Marriott........ K-1
APPENDIX L --New Marriott Comprehensive Stock Plan...................... L-1
</TABLE>
iii
<PAGE>
WHERE TO FIND INFORMATION CONCERNING THE PROPOSALS
Information concerning Proposal One is contained throughout this Proxy
Statement, and stockholders are encouraged to read it in its entirety.
Specific information with respect to other Proposals may be located as
follows:
<TABLE>
<CAPTION>
PROPOSAL PRINCIPAL SECTION PAGE
-------- ----------------- ----
<C> <S> <C>
Two MANAGEMENT OF SMS--SMS Board of Directors 92
Three MANAGEMENT OF NEW MARRIOTT--New Marriott Board of Directors 100
Four MANAGEMENT OF NEW MARRIOTT--New Marriott Comprehensive Stock 110
Plan
Five APPOINTMENT OF INDEPENDENT AUDITORS--Appointment of Price 157
Waterhouse LLP As SMS's Independent Auditors
Six APPOINTMENT OF INDEPENDENT AUDITORS--Appointment of Arthur 157
Andersen LLP As New Marriott's Independent Auditors
</TABLE>
iv
<PAGE>
CAUTIONARY STATEMENTS
This Proxy Statement contains statements relating to future results of
Marriott International, Inc. (prior to the consummation of the transactions
described herein, the "Company," and after the consummation of such
transactions, Sodexho Marriott Services, Inc. ("SMS")) and New Marriott MI,
Inc. ("New Marriott"), including certain projections and business trends, that
are forward-looking statements. All statements regarding the Company's, SMS's
or New Marriott's expected future financial positions, results of operations,
cash flows, dividends, financing plans, business strategies, budgets,
projected costs and capital expenditures, competitive positions, growth
opportunities for existing services, plans and objectives of management for
future operations and markets for stock are forward-looking statements.
Moreover, when used in this Proxy Statement with respect to the Company, SMS
or New Marriott, the words "believe," "anticipate," "hope," "estimate,"
"project," "intend," "expect" and similar expressions are intended to identify
forward-looking statements. Although the Company and New Marriott believe such
expectations reflected in such forward-looking statements are based on
reasonable assumptions, no assurance can be given that such expectations will
prove to have been correct.
With respect to New Marriott, important factors that could cause actual
results to differ materially from the expectations reflected in the forward-
looking statements herein include, among others, dependence on arrangements
with present and future property owners, contract terms offered by
competitors, competition within each of New Marriott's business segments, the
balance between supply of and demand for hotel rooms, timeshare units and
senior living accommodations, New Marriott's continued ability to renew
existing operating contracts and franchise agreements and obtain new operating
contracts and franchise agreements (in each case on favorable terms), New
Marriott's relations with current and potential hotel and retirement community
owners and senior living services and distribution services clients, the
effects of international, national and regional economic conditions, the
availability of capital to fund investments in New Marriott's several
businesses, New Marriott's ability to successfully integrate recent
acquisitions and costs or difficulties relating to the establishment of New
Marriott as a separate entity.
With respect to SMS, important factors that could cause actual results to
differ materially from the expectations reflected in the forward-looking
statements herein include, among others, competition in SMS's business, SMS's
continued ability to renew existing management contracts and obtain new
management contracts (in each case on favorable terms), SMS's relations with
current and potential management services clients, the reaction of clients and
potential clients to the transactions described herein, the effects of
international, national and regional economic conditions, the availability of
capital to fund investments in SMS's businesses, fluctuations in interest
rates to the extent that SMS's indebtedness bears interest at variable rates
and costs or difficulties relating to the establishment of SMS as a separate
entity and the integration of Sodexho North America into SMS.
In the event that the transactions described herein are not consummated, the
factors described above will be deemed to refer to the Company rather than New
Marriott and SMS. Readers are cautioned not to place undue reliance on the
forward-looking statements contained herein, which speak only as of the date
hereof. None of the Company, SMS or New Marriott undertakes any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
For purposes of all of the foregoing, SMS is deemed to include Sodexho North
America.
----------------
This Proxy Statement is first being mailed to stockholders of the Company on
or about February , 1998.
1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS
Q: WHAT ARE THE TRANSACTIONS?
A: Your Board of Directors proposes to spin off to its stockholders a new
company that will conduct the Company's lodging (including timeshare),
senior living services and distribution services businesses. Immediately
thereafter, the Company will acquire the North American food service and
facilities management operations of France-based Sodexho Alliance, S.A.
("Sodexho"), one of the premier management services companies in the world.
We will combine Sodexho's North American business with the Company's food
service and facilities management business. For this, Sodexho will receive
approximately 49 percent of the stock of the Company.
The Company (Marriott International, Inc.) will be renamed Sodexho Marriott
Services, Inc. after the Transactions. In this Proxy Statement, we refer to
it as the "Company" for periods before the Transactions occur and "SMS" for
periods after the Transactions occur. The new company that will be spun off
to the Company's stockholders will be renamed "Marriott International,
Inc." after the Transactions and is referred to in this Proxy Statement as
"New Marriott." "Sodexho North America" refers to the companies that own
and operate Sodexho's North American food service and facilities management
business.
Q: WHY ARE WE PROPOSING THE TRANSACTIONS?
A: We believe that the Transactions will significantly enhance stockholder
value. The spinoff and acquisition will create two focused companies, both
of which will have leadership positions in growing industries. SMS will be
affiliated with Sodexho. New Marriott will have a strong balance sheet and
greatly enhanced investment capacity to execute its growth plans and pursue
strategic acquisitions.
Q: WHAT IS SODEXHO MARRIOTT SERVICES?
A: SMS will be the largest food service and facilities management company in
North America. It will serve more than 4,800 clients in business, health
care and education. SMS will have over 100,000 employees and projected
annual sales in excess of $4 billion.
Q: WHAT IS THE "NEW" MARRIOTT INTERNATIONAL?
A: New Marriott will be one of the world's leading hospitality companies, with
more than 1,500 operating units, including hotels, vacation club
(timeshare) resorts, senior living communities and food distribution
centers. New Marriott will have 140,000 employees and projected 1997 sales
in excess of $9 billion.
Q: WHEN WILL THE TRANSACTIONS OCCUR?
A: We plan to complete the Transactions as soon as possible after the Special
Meeting, if the conditions to the Transactions are met. Currently the
Company anticipates completing the Transactions on March 27, 1998 if the
conditions to the Transactions are satisfied at that time.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible so that your shares may
be represented at the Special Meeting. If you sign and send in your proxy
and do not indicate how you want to vote, your proxy will be counted as a
vote in favor of the Transactions. If you do not vote or you abstain, it
will have the effect of a vote against the Transactions.
The Special Meeting will take place on March 17, 1998. You may attend the
Special Meeting and vote your shares in person rather than signing and
mailing your proxy card. In addition, you may take back your
2
<PAGE>
proxy up to and including the date of the Special Meeting by following the
directions on page 21 and either change your vote or attend the Special
Meeting and vote in person.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING IN FAVOR OF THE
TRANSACTIONS. You should be aware, however, that certain members of the
Board may be deemed to have conflicts of interest in connection with the
Transactions.
Q: IF MY SHARES ARE HELD IN "STREET" NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Without instructions, your shares will
not be voted.
Q: SHOULD I SEND IN ANY STOCK CERTIFICATES NOW?
A: Not at this time. You will receive instructions that will outline the
method to exchange your existing Company stock certificates at the
appropriate time, which must be done in order for you to receive dividends,
if and when declared, on SMS Common Stock following consummation of the
Transactions. Both SMS and New Marriott will adopt a "book-entry" share
registration system under which share ownership records are maintained by
the Transfer Agent. Physical stock certificates will no longer be required
but may be requested by stockholders at any time. After the Transactions
are completed, stockholders will receive a mailing from the Transfer Agent
requesting that they return their certificates of Company Common Stock to
the Transfer Agent, and permitting stockholders to complete a "request for
physical certificates" if they wish to obtain physical certificates instead
of having their shares held in book-entry form. The Transfer Agent will
register the appropriate number of shares of SMS Common Stock upon receipt
of a stockholder's existing certificates for Company Common Stock, and will
register the appropriate number of shares of New Marriott Common Stock and
New Marriott Class A Common Stock upon the spinoff. The Transfer Agent will
mail each stockholder an account statement reflecting his or her ownership
of shares of SMS Common Stock, New Marriott Common Stock and New Marriott
Class A Common Stock, or, if requested, physical certificates representing
such shares. For more information, see pages 48-50.
Stockholders who continue to hold share certificates of "Marriott
Corporation," which changed its name to Host Marriott Corporation in
October 1993, should retain these certificates, which continue to represent
Host Marriott Corporation shares.
Q: WHAT WILL I RECEIVE IN THE TRANSACTIONS?
A: For every share of Company Common Stock you own of record on the record
date for the Transactions, you will receive one share of New Marriott
Common Stock (having one vote per share) and one share of New Marriott
Class A Common Stock (having ten votes per share). In addition, you will
retain ownership of your shares of Company Common Stock, which will
represent shares of SMS following the spinoff, but those shares will
undergo a one-for-four reverse stock split. In the reverse stock split
every four shares of SMS Common Stock will be combined into one share. The
aggregate value of your shares of SMS Common Stock will not change--you
will have fewer shares that trade at a higher per share price.
We will not issue fractional shares, except that fractional shares of New
Marriott Common Stock or New Marriott Class A Common Stock that result from
fractional shares held in the Company's dividend reinvestment plan will
remain in fractional form. Stockholders will receive cash for any other
fractional share of SMS Common Stock owed to them based on the market value
on a date close to the date the Transactions occur.
Example:
If you currently own 100 shares of Company Common Stock, then after the
Transactions you will own 100 shares of New Marriott Common Stock, 100
shares of New Marriott Class A Common Stock and 25 shares of SMS Common
Stock.
3
<PAGE>
Q: WHY WILL THERE BE TWO CLASSES OF NEW MARRIOTT STOCK?
A: The Board of Directors believes that having two classes of common stock
will give New Marriott additional flexibility, both to raise capital for a
variety of corporate purposes, and as a valuable currency to be used to
consummate strategic acquisitions. This additional flexibility is
especially important given the ongoing global consolidation of the lodging
industry as well as the accelerating rate of consolidation of the senior
living services industry within the United States.
The Board of Directors believes that this dual class equity structure will
enable New Marriott to use lower-voting common stock as consideration to
pursue larger acquisition opportunities than those financeable solely with
incremental debt, without jeopardizing New Marriott's anticipated
investment grade credit rating. At the same time, New Marriott would be
able to maintain one of its most important attributes--continuity in the
leadership, involvement and substantial voting interests of the Marriott
family. In the spinoff, each stockholder of the Company will receive one
share of each class of New Marriott Common Stock for each share of Company
Common Stock that they own, thus maintaining the relative voting power of
the initial stockholders of New Marriott.
Q: WHAT WILL BE THE TRADING VALUE OF THE SECURITIES I RECEIVE?
A: The marketplace will determine the prices at which shares of the New
Marriott Common Stock, New Marriott Class A Common Stock and SMS Common
Stock will trade.
Although we believe that initially the value of all the securities you
receive in the transaction will, in the aggregate, approximate the value of
your investment in the Company before the transactions are consummated, you
should be aware that the total value of your investment in the Company will
be divided among New Marriott Common Stock, New Marriott Class A Common
Stock and SMS Common Stock.
Q: HOW WILL THE TRANSACTIONS AFFECT ME?
A: Following the Transactions, stockholders of the Company will own
approximately 51 percent of the common stock of SMS and 100 percent of the
New Marriott Common Stock and New Marriott Class A Common Stock.
Q: WHAT WILL HAPPEN TO MY DIVIDENDS?
A: New Marriott expects to pay quarterly dividends comparable to those
historically paid by the Company, subject to the judgment of its board of
directors. SMS expects to pay quarterly dividends, subject to the judgment
of its board of directors and subject to the restrictive covenants in its
debt agreements limiting the payment of dividends. See page 14 for a
description of these restrictive covenants.
Q: DO I HAVE TO PAY TAXES ON THE RECEIPT OF NEW MARRIOTT COMMON STOCK?
A: We have applied to the Internal Revenue Service for a ruling that the
Transactions will be tax free to the Company's stockholders for U.S.
federal income tax purposes, except for any tax payable because of any cash
stockholders may receive instead of fractional shares. To review the tax
consequences to stockholders in greater detail, see pages 122 and 123.
Q. WHAT WILL BE MY NEW TAX BASIS IN THESE SECURITIES?
A. Each stockholder's original tax basis in Company stock will be allocated
between the shares of SMS Common Stock, New Marriott Common Stock and New
Marriott Class A Common Stock, based on their relative fair market values.
Q: WHERE WILL MY STOCK BE TRADED?
A: New Marriott will apply to list the New Marriott stock on the New York
Stock Exchange. New Marriott intends to request "MAR" as its trading symbol
for the New Marriott Common Stock (having one vote per share) and "MAR-A"
for the New Marriott Class A Common Stock (having ten votes per share).
SMS plans to continue to list the SMS stock on the New York Stock Exchange.
The symbol for SMS Common Stock will be "SDH."
4
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in all
respects by the more detailed information included in this Proxy Statement, the
Appendices hereto and the documents incorporated herein by reference. Marriott
International, Inc. is referred to as the "Company" prior to the consummation
of the transactions described herein and as "SMS" following the consummation of
such transactions. Similarly, common stock of the Company prior to the
consummation of the transactions described herein is referred to as the
"Company Common Stock" and thereafter is referred to as the "SMS Common Stock."
Unless otherwise indicated, numbers of shares of SMS Common Stock give effect
to the one-for-four reverse stock split described below. References herein to
"the Company," "SMS," "New Marriott," and "Sodexho North America" include their
respective subsidiaries unless the context otherwise requires. Stockholders are
urged to read carefully this Proxy Statement, including the Appendices hereto
and the documents incorporated herein by reference, in their entirety.
SPECIAL MEETING
Date, Time and Place
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Company from holders of shares of Company Common Stock for
use at a special meeting of Company stockholders to be held at the Westfield
Conference Center, 14750 Conference Center Drive, Chantilly, Virginia at 10:00
a.m. on March 17, 1998 and at any adjournments or postponements thereof (the
"Special Meeting").
Matters for Consideration
At the Special Meeting, the stockholders of the Company will be asked to
consider and vote on six related proposals (the "Proposals"). THE EFFECTIVENESS
OF EACH OF THE PROPOSALS IS CONDITIONED UPON THE APPROVAL OF ALL OF THE
PROPOSALS. ACCORDINGLY, FAILURE OF THE STOCKHOLDERS TO APPROVE ANY ONE OR MORE
OF THE PROPOSALS WILL RESULT IN THE INEFFECTIVENESS OF ALL OF THE PROPOSALS.
The Proposals are as follows:
(1) approval of (a) a special dividend (the "Spinoff") to the holders of
Company Common Stock of all outstanding shares of common stock of the
Company's wholly owned subsidiary, New Marriott, (b) the acquisition by the
Company (the "Acquisition," and together with the Spinoff and related
transactions, the "Transactions") of International Catering Corporation
("ICC") and Sodexho Financiere du Canada, Inc. ("Sodexho Canada" and,
together with ICC, "Sodexho North America"), each of which is a wholly
owned subsidiary of Sodexho Alliance, S.A. ("Sodexho"), in exchange for
Company Common Stock, and (c) the amendment and restatement of the
certificate of incorporation and bylaws of the Company; and ratification of
the amendment and restatement of the certificate of incorporation and
bylaws of New Marriott;
(2) ratification of the directors of SMS;
(3) ratification of the directors of New Marriott;
(4) ratification of the New Marriott 1998 Comprehensive Stock Incentive
Plan and the reservation of shares pursuant to such plan;
(5) ratification of the appointment of Price Waterhouse LLP as
independent auditors of SMS, such appointment to be effective upon
consummation of the Transactions; and
(6) ratification of the appointment of Arthur Andersen LLP as independent
auditors of New Marriott.
For additional information with respect to the Proposals, see "THE SPECIAL
MEETING--Matters for Consideration at Special Meeting."
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF THE PROPOSALS. Certain members of
the Company Board, however, may be deemed to have conflicts of interest in
connection with the Transactions. See "CONFLICTS OF INTEREST."
5
<PAGE>
Special Meeting Record Date
The Company Board has fixed the close of business on January 28, 1998 as the
record date (the "Special Meeting Record Date") for the determination of the
holders of Company Common Stock entitled to receive notice of and to vote at
the Special Meeting.
Votes Required
Each stockholder of record as of the Special Meeting Record Date is entitled
at the Special Meeting to one vote for each share held. The affirmative vote of
the holders of at least two-thirds (or 66 2/3 percent) of the outstanding
shares of Company Common Stock is required to approve the Proposal concerning
the approval of the Spinoff and the Acquisition. The affirmative vote of the
holders of at least a majority of the outstanding shares of Company Common
Stock is required to approve the other Proposals. As of January 28, 1998, there
were 125,415,165 shares of Company Common Stock outstanding and entitled to
vote at the Special Meeting.
For additional information relating to the Special Meeting, see "THE SPECIAL
MEETING."
THE TRANSACTIONS
Overview
The Proposals contemplate that the Company's lodging business (including
timeshare resort development and operation), senior living services business
and distribution services business (together, the "New Marriott Business") be
separated from the Company's food service and facilities management business
(the "MMS Business"). Immediately thereafter, the Company will acquire Sodexho
North America. The principal components of the Transactions are as follows:
The Spinoff. The Company will transfer all of the assets and liabilities
of the New Marriott Business to New Marriott and will spin off all of the
outstanding shares of capital stock of New Marriott to the holders of
Company Common Stock in a transaction intended to qualify as tax free for
U.S. federal income tax purposes.
The Acquisition. The Company will acquire Sodexho North America, and
Sodexho will pay $304 million to the Company, in exchange for approximately
49 percent of the shares of SMS Common Stock that will be issued and
outstanding immediately after the Transactions. Following the Acquisition,
the Company will change its name to "Sodexho Marriott Services, Inc.," and
New Marriott will change its name to "Marriott International, Inc."
The Refinancing. The Company and its indirect subsidiary, RHG Finance
Corporation ("RHG Finance"), will tender for a total of $720 million
principal amount of their respective outstanding publicly held debt, and
the Company will refinance its commercial paper and indebtedness
outstanding under its revolving credit bank facility (the "Existing Bank
Facility"). Such tender offers and refinancing will be financed by new
indebtedness incurred by SMS ("Replacement SMS Debt"). The Company and New
Marriott have agreed that the post-Spinoff indebtedness retained by SMS
(and for which New Marriott will not be responsible) will total $1.444
billion, a portion of which will be repaid shortly after the Acquisition
with the $304 million cash payment from Sodexho made simultaneously with
the Acquisition. Following the consummation of the Transactions, assuming
the tender offers and refinancings described above are successful, it is
expected that the long-term debt of SMS and New Marriott will be
approximately $1.2 billion and $400 million, respectively. The consummation
of the Transactions is not conditioned on the success of the tender offers,
and the receipt of financing is not a condition to the obligation of
Sodexho to consummate the Transactions. However, if such financing is not
obtained, and funds in such amount are not otherwise available to SMS, the
Transactions will not be consummated. See "FINANCING."
The Company will not effect the Spinoff in the event that the Transactions
are not approved at the Special Meeting. The Spinoff, the Acquisition and the
refinancing will be deemed by the parties, as between themselves,
6
<PAGE>
to have occurred at the same time. The date on which the Transactions are
consummated is referred to as the "Effective Date."
Following the Transactions, it is expected that shares of New Marriott Common
Stock will be listed on the New York Stock Exchange, Inc. (the "NYSE") under
the symbols "MAR" and "MAR-A," and shares of SMS Common Stock will continue to
be listed on the NYSE under a new symbol, "SDH."
Effect on Stockholders
Shares of Company Common Stock had a closing price in NYSE composite trading
on February , 1998 of $ per share. In the Transactions, each stockholder of
the Company will retain its shares of Company Common Stock (referred to herein
as SMS Common Stock for periods following the Transactions) and, for each share
of Company Common Stock held on the Special Meeting Record Date, will be
entitled to receive one share of Common Stock, par value $0.01 per share, of
New Marriott with one vote per share ("New MAR Common Stock") and one share of
Class A Common Stock, par value $0.01 per share, of New Marriott with ten votes
per share ("New MAR-A Common Stock"). New MAR Common Stock and New MAR-A Common
Stock are sometimes referred to together herein as "New Marriott Common Stock."
The reasons for two classes of New Marriott Common Stock are set forth in
"DESCRIPTION OF THE NEW MARRIOTT CAPITAL STOCK--Common Stock." Immediately
after the Spinoff, every four shares of SMS Common Stock will be combined into
one share of SMS Common Stock pursuant to a reverse stock split. The closing
price of the Company Common Stock on February , 1998 will only bear an
indirect relationship to the prices at which shares of New Marriott Common
Stock and SMS Common Stock will trade. As a result of the issuance of new
shares of SMS Common Stock to Sodexho in connection with the Acquisition, the
stockholders who owned 100 percent of the Company prior to the Transactions
will retain approximately 51 percent of the SMS Common Stock, and SMS will own
Sodexho North America. See "THE TRANSACTIONS--Effect on Persons in the
Transactions."
BUSINESS AND PROPERTIES OF SMS
After the Transactions, SMS will be the largest food service and facilities
management company in North America. It will serve more than 4,800 clients in
business, health care and education. SMS will have over 100,000 employees and
annual sales in excess of $4 billion. SMS will be approximately 49 percent
owned by Sodexho, one of the premier management service companies in the world,
operating in 62 countries with approximately 142,000 employees and revenues of
approximately $5 billion in fiscal 1997.
Food services provided by SMS will include food and beverage procurement,
preparation, menu planning and the operation and maintenance of food service
and catering facilities, generally in an institutional setting. Facilities
management services include plant maintenance and operations, energy
management, groundskeeping, housekeeping and custodial services. For additional
information, see "BUSINESS AND PROPERTIES OF SMS."
The contract food service and facilities management industry is rapidly
changing as a result of customers' focus on profitability and quality of
service. Industry trends include (i) the continued growth in customer
outsourcing, particularly to a single supplier, of food service and facilities
management, (ii) increasing market penetration by large, well capitalized
participants that can provide a broad range of cost-effective services and
(iii) an increase in the retail orientation of contract catering. SMS's market
leadership and broad service offering make it well positioned to compete in
this changing industry. In particular, SMS will have a unique opportunity as
the market leader in food service to cross-sell facilities management services
to existing food service clients.
SMS's address is 10400 Fernwood Road, Bethesda, Maryland 20817, and its
telephone number is (301) 380-3000.
7
<PAGE>
BUSINESS AND PROPERTIES OF NEW MARRIOTT
New Marriott will conduct the lodging (including timeshare resort development
and operation), senior living services and distribution services businesses
that are currently conducted by the Company and its subsidiaries. New Marriott
will be one of the world's leading hospitality companies with more than 1,500
operating units, over 140,000 employees and projected 1997 sales in excess of
$9 billion.
In its Lodging segment, which will represent approximately 80 percent of
sales, New Marriott will operate and franchise over 1,400 lodging facilities
under ten separate brand names and develop and operate vacation timesharing
resorts.
The Contract Services segment, which will represent approximately 20 percent
of sales, will consist of Marriott Senior Living Services, which develops and
operates over 80 retirement communities offering independent living, assisted
living and skilled nursing care for seniors in the United States, and Marriott
Distribution Services, which supplies food and related products to internal
operations and to third-party customers (including, after the Transactions,
SMS) throughout the United States. For further information, see "BUSINESS AND
PROPERTIES OF NEW MARRIOTT."
New Marriott's address is 10400 Fernwood Road, Bethesda, Maryland 20817, and
its telephone number is (301) 380-3000.
RECOMMENDATION OF THE COMPANY BOARD
The Company believes that the Transactions will significantly enhance
stockholder value and provide stockholders with an ongoing stake in a strong
and well focused management services company with excellent growth prospects.
In light of the consolidation and increasing globalization of the food service
and facilities management industry, the MMS Business will benefit from its
affiliation with Sodexho, one of the largest and most successful management
services organizations in the world. The Transactions will also provide New
Marriott with substantial investment capacity, which will enable New Marriott
to pursue additional growth opportunities in its businesses. See "BACKGROUND
AND REASONS--Reasons for the Recommendation of the Company Board."
In connection with approval of the Transactions, the Company Board has
received an opinion from Merrill Lynch, Pierce Fenner & Smith Incorporated
("Merrill Lynch") that, in the opinion of that firm, the terms of the
Transactions, taken as a whole, were fair, from a financial point of view, to
the holders of the Company Common Stock as of the date of Merrill Lynch's
opinion. The Company Board has also received an opinion from American Appraisal
Associates ("American Appraisal") that prior to and upon consummation of the
Transactions each of New Marriott and SMS will be "solvent" entities. Such
opinions are described herein under "BACKGROUND AND REASONS," and the opinions
of Merrill Lynch and American Appraisal are set forth in full in Appendix F and
Appendix G hereto, respectively.
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS APPROVAL OF THE PROPOSALS. Certain
members of the Company Board, however, may be deemed to have conflicts of
interest in connection with the Transactions. See "CONFLICTS OF INTEREST."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Transactions is conditioned on the receipt of a
satisfactory ruling from the Internal Revenue Service (the "IRS") to the effect
that the contribution of the New Marriott Business to New Marriott and the
Spinoff will qualify as tax-free transactions such that neither the Company's
stockholders, the Company nor New Marriott will recognize any income, gain or
loss as a result of such transactions. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE TRANSACTIONS TO THE COMPANY AND ITS STOCKHOLDERS." The
Company, New Marriott and Sodexho have made certain representations and agreed
to certain restrictions on their future actions to provide further assurances
that the Spinoff will qualify as tax-free. See "THE TRANSACTIONS--Arrangements
Between SMS and New Marriott--Tax Sharing Agreement."
8
<PAGE>
NO APPRAISAL RIGHTS
Stockholders of the Company will not be entitled to appraisal rights under
the Delaware General Corporation Law (the "DGCL") in connection with the
Transactions.
RISK FACTORS
In deciding whether to approve the Proposals, stockholders should carefully
evaluate the matters set forth under "RISK FACTORS," in addition to other
matters described herein.
CONFLICTS OF INTEREST
A number of agreements between SMS and New Marriott, and SMS and Sodexho,
respectively, will be entered into if the Transactions are consummated. If the
Transactions are consummated, certain employment and other arrangements with
executives of SMS will be entered into and certain employee stock incentive
plans will be adopted by SMS and New Marriott. In addition, William J. Shaw,
who will be the chairman of the Board of Directors of SMS (the "SMS Board"),
will serve as the President and Chief Operating Officer of New Marriott.
Finally, after the Effective Date, certain directors, officers and substantial
stockholders of Sodexho will be members of the SMS Board, and certain officers
of the Company will be executive officers of SMS. See "CONFLICTS OF INTEREST."
9
<PAGE>
SUMMARY OF SELECTED HISTORICAL FINANCIAL DATA
The following table presents summary selected historical financial data for
the Company, Marriott Management Services Corp. ("MMS") and Sodexho North
America. In the case of the Company and MMS, this data has been derived from
their financial statements as of and for the 36 weeks ended September 12, 1997
and September 6, 1996, and the three fiscal years ended January 3, 1997. In the
case of Sodexho North America, this data has been derived from its financial
statements as of and for the three months ended November 30, 1997 and November
30, 1996 and the three fiscal years ended August 31, 1997.
<TABLE>
<CAPTION>
(IN MILLIONS)
---------------------------------------------------------------
THIRTY-SIX WEEKS ENDED FISCAL YEAR ENDED
-------------------------- ------------------------------------
SEPTEMBER 12, SEPTEMBER 6, JANUARY 3, DECEMBER 29, DECEMBER 30,
1997 1996 1997/1/ 1995 1994
------------- ------------ ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
THE COMPANY
INCOME STATEMENT DATA
Sales....................... $8,158 $6,725 $10,172 $8,961 $8,415
Operating Profit Before
Corporate Expenses and
Interest................... 498 404 629 490 413
Net Income.................. 227 196 306 247 200
BALANCE SHEET DATA (AT END
OF PERIOD)
Total Assets................ 6,324 5,211 5,075 4,018 3,207
Long-Term and Convertible
Subordinated Debt.......... 1,739 1,285 1,307 806 506
MMS
INCOME STATEMENT DATA
Sales....................... $2,281 $2,133 $3,310 $3,031 $2,961
Operating Income Before MMS
Corporate Administrative
Expenses and the Company's
Corporate Expenses and
Interest................... 86 76 146 126 121
Net Income.................. 37 31 66 55 52
BALANCE SHEET DATA (AT END
OF PERIOD)
Total Assets................ 848 849 887 843 801
Long-Term Debt.............. 7 9 9 10 11
<CAPTION>
(IN MILLIONS)
---------------------------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30, FISCAL YEAR ENDED AUGUST 31,
-------------------------- ------------------------------------
1997 1996 1997 1996 1995/2/
------------- ------------ ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SODEXHO NORTH AMERICA
INCOME STATEMENT DATA
Sales....................... $ 265 $ 240 $ 882 $ 834 $ 599
Operating Income ........... 11 10 20 16 5
Net Income.................. 6 5 7 5 -
BALANCE SHEET DATA (AT END
OF PERIOD)
Total Assets................ 308 279 265 263
Long-Term Debt.............. 66 67 81 94
</TABLE>
- --------
/1/Fiscal year 1996 for the Company and MMS includes 53 weeks.
/2/Reflects the acquisition of Gardner Merchant Holdings, Inc. as of February
1, 1995.
10
<PAGE>
SUMMARY OF UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following table presents summary unaudited selected pro forma financial
data of New Marriott and SMS as of and for the 36 weeks ended September 12,
1997, and for the fiscal year ended January 3, 1997, derived from the unaudited
pro forma combined financial data included elsewhere in this Proxy Statement.
The unaudited pro forma combined balance sheet as of September 12, 1997 gives
effect to the Transactions as if they had occurred on that date, and the
unaudited pro forma combined income statement data gives effect to the
Transactions as if they had occurred at the beginning of the period noted.
THE PRO FORMA INFORMATION PRESENTED IS FOR INFORMATIONAL PURPOSES ONLY AND
DOES NOT NECESSARILY REFLECT FUTURE RESULTS OF OPERATIONS OR FINANCIAL POSITION
OR WHAT THE RESULTS OF OPERATIONS OR FINANCIAL POSITION WOULD HAVE BEEN HAD THE
TRANSACTIONS OCCURRED AS OF THE DATE AND DURING THE PERIODS INDICATED. THIS
INFORMATION DOES NOT NECESSARILY REFLECT FUTURE FINANCIAL PERFORMANCE WHEN THE
TRANSACTIONS ACTUALLY OCCUR.
<TABLE>
<CAPTION>
THIRTY-SIX FIFTY-THREE
WEEKS ENDED WEEKS ENDED
SEPTEMBER 12, 1997 JANUARY 3, 1997
------------------ ---------------
<S> <C> <C>
NEW MARRIOTT
INCOME STATEMENT DATA
Sales..................................... $6,177 $7,267
Operating Profit Before Corporate Expenses
and Interest............................. 430 508
Net Income................................ 227 271
BALANCE SHEET DATA (AT END OF PERIOD)
Total Assets.............................. 5,608
Long-Term and Convertible Subordinated
Debt..................................... 413
SMS
INCOME STATEMENT DATA/1/
Sales..................................... $2,724 $4,020
Operating Profit Before Corporate Expenses
and Interest............................. 72 129
Net (Loss) Income......................... (3) 10
BALANCE SHEET DATA (AT END OF PERIOD)
Total Assets.............................. 1,299
Long-Term Debt............................ 1,222
</TABLE>
/1/ SMS's business is characterized by seasonal fluctuations in overall
demand for services, particularly in the education sector where sales are
stronger during the academic year. Consequently, substantially higher profits
may be earned in the fourth quarter compared to other quarters.
11
<PAGE>
RISK FACTORS
The following risk factors, in addition to the other information contained
in this Proxy Statement, should be carefully considered.
SIGNIFICANT LEVERAGE OF SMS
The allocation of debt and other liabilities, including contingent
liabilities, between SMS and New Marriott reflects the economic arrangements
reached, on an arm's-length basis, among New Marriott, the Company and Sodexho
in connection with the Transactions. Following the Transactions, SMS will be
substantially more leveraged on a relative basis than the Company was prior to
the Transactions, and New Marriott will have significantly less debt than the
Company had prior to the Transactions. Assuming the Transactions had been
consummated as of September 12, 1997, (i) on a pro forma basis SMS would have
had total long-term debt of $1,222 million and a stockholders' deficit of $542
million and (ii) on a pro forma basis New Marriott would have had total long-
term and convertible subordinated debt of $413 million and total stockholders'
equity of $2,549 million, in each case compared with the Company's actual
long-term and convertible subordinated debt of $1,739 million and total
stockholders' equity of $1,486 million as of September 12, 1997.
In response to the public announcement of the Transactions, Standard &
Poor's Corporation placed its ratings of Sodexho on "CreditWatch" with
negative implications, and announced that it would lower Sodexho's long-term
corporate unsecured debt rating from A- to BBB+ upon completion of the
Transactions. The Company expects that, principally due to the significant
leverage of SMS following the Transactions, SMS's long-term unsecured debt
ratings, if obtained, would be below investment grade. SMS's substantial
indebtedness may limit its capacity to respond to market conditions (including
its ability to satisfy capital expenditure requirements) or to meet its
contractual or financial obligations. Furthermore, the ability of SMS to
satisfy its obligations will be dependent upon its future performance, which
will be subject to prevailing economic conditions and to financial, business
and other factors, including factors beyond the control of SMS. If SMS does
not make required payments of interest and principal when due, the Replacement
SMS Debt could be accelerated and the lenders thereunder would be entitled to
exercise their remedies, including foreclosing on collateral. These events
would have a material adverse effect on SMS. See "SMS UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA" and "NEW MARRIOTT UNAUDITED PRO FORMA COMBINED
FINANCIAL DATA."
In view of the increased leverage of SMS, any new financings and
refinancings by SMS of the Replacement SMS Debt, if available at all, may be
at higher interest rates and may contain terms significantly less advantageous
than would have been available to the Company absent the Transactions. In
addition, the Replacement SMS Debt will contain restrictive covenants and
events of default, and require grants of security and guarantees by
subsidiaries of SMS, that will limit SMS's ability to incur additional debt
and engage in other activities. There can be no assurance that such
restrictions will not adversely affect SMS's ability to finance its future
operations or capital needs or to engage in other business activities that may
be in the interest of SMS. See "FINANCING."
EFFECTS OF INTEGRATION; REALIZATION OF SYNERGIES
Immediately following the consummation of the Transactions, there may be
some short-term dislocation and inefficiencies in the operations of SMS in
connection with the integration of Sodexho North America. In addition, there
can be no assurance that the expected operating efficiencies and synergies
will be achieved.
SMS FIXED-PRICE CONTRACTS
Approximately one-half of SMS's business is provided under fixed-price
contracts. Therefore, SMS's results of operations are dependent on its ability
to estimate and control costs associated with the provision of services under
these contracts. SMS's costs are subject to increases as a result of rising
labor and supply costs, many of which are outside its control. There can be no
assurance that SMS's operating margins will not decline in the future.
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CANCELLABLE CONTRACTS
The majority of the food service and facilities management contracts of the
MMS Business and of Sodexho North America are terminable by clients on short
notice, generally from 30 to 120 days. If any clients of SMS react unfavorably
to the combination of the MMS Business and Sodexho North America, such clients
may decide to terminate their contracts with SMS, which could adversely affect
the business and operations of SMS.
ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY; LESS DIVERSIFIED OPERATIONS
The MMS Business does not have an independent operating history. Moreover,
the management of SMS after the Effective Date does not have prior experience
in operating and managing an independent public company with significant
leverage. Prior to the Spinoff, MMS benefitted from a number of corporate
services provided by the Company, which corporate services functions will be
retained by New Marriott. New Marriott has agreed to provide certain of these
services to SMS for limited periods of time after the Spinoff. However,
eventually SMS must develop the capacity to perform these corporate services
itself or obtain them from third parties. There is no assurance that when the
MMS Business and Sodexho North America are combined to form a stand-alone
publicly held company, profits will continue at historical levels.
New Marriott was formed for the purpose of effecting the Spinoff and does
not have an operating history as an independent company. Thus, the financial
information included herein may not necessarily reflect the results of
operations, financial position and cash flows of the New Marriott Business had
New Marriott been operated independently during the periods presented. There
is no assurance that as a stand-alone company, New Marriott's profits will
continue at a level similar to its profits earned while a part of the Company.
Finally, subsequent to the Transactions, each of New Marriott and SMS will
be a less diversified company than is currently the case with respect to the
Company. As a result, the results of operations of each entity will be more
susceptible to competitive and market factors specific to its core businesses.
CERTAIN ANTITAKEOVER EFFECTS
Sodexho has agreed pursuant to the Tax Sharing and Indemnification Agreement
to be entered into among the Company, New Marriott and Sodexho (the "Tax
Sharing Agreement") not to acquire 50 percent or more of the SMS Common Stock
for three years after the Spinoff, and the certificate of incorporation of SMS
will generally provide that no person may acquire 50 percent or more of the
SMS Common Stock until the end of such period. Consequently, no change in
control of SMS is expected to occur during the three years following the
Spinoff.
In addition, because Sodexho will own approximately 49 percent of the shares
of SMS Common Stock issued and outstanding immediately after the consummation
of the Transactions, Sodexho will have the ability to influence certain
actions of SMS, through its voting power and its right, under a Stockholder
Agreement with SMS to be entered into on the Effective Date, to nominate three
members of the SMS Board. This relationship may have the effect of, among
other things, preventing a change in control of SMS at any time without the
agreement of Sodexho.
Sodexho has advised the Company that it does not have any present intention
to increase its ownership interest in SMS. If in the future Sodexho were to
change its intentions and seek to increase its ownership interest,
stockholders of SMS will not have the benefits of certain fair price
provisions set forth in the certificate of incorporation and bylaws of the
Company prior to their amendment and restatement as contemplated hereby.
RELATIONSHIP WITH SODEXHO
SMS and Sodexho are entering into certain arrangements at the Effective Date
pursuant to which Sodexho will be providing SMS with a variety of consulting
and advisory services and other assistance and is guaranteeing a portion of
the debt of SMS. Sodexho is also licensing to SMS the use of the name
"Sodexho." This may have
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the effect of causing SMS to be reliant to a substantial degree on its
relationship with Sodexho. Each of these arrangements has a finite term, and
the failure to renew any such arrangements on comparable terms could
materially and adversely affect the results of operations of SMS. Similarly,
should Sodexho encounter financial or other difficulties that could prevent it
from providing such services or assistance to SMS, the results of operations
of SMS could be materially and adversely affected.
USE OF TRADENAMES
New Marriott has agreed to license the "Marriott" name to SMS in certain
limited respects for a period of four years after the Spinoff. SMS will not
have the right to use the Marriott name after the expiration of such four-year
period. In addition, Sodexho has agreed to license the "Sodexho" name to SMS
under a Royalty Agreement having a ten-year term. The "Sodexho" name, which
has been used in the food service and facilities management business in North
America for the past four years, is not as well known in that market as the
"Marriott" name. SMS may have to make additional expenditures to position its
new name in markets and cannot predict with certainty the extent to which the
substitution of a new name may adversely affect its retention and acquisition
of clients.
Furthermore, to the extent that SMS fails to perform its obligations under
its license agreements with New Marriott or Sodexho, each of New Marriott and
Sodexho could successfully prevent SMS from using their respective names,
which could adversely affect SMS's retention and acquisition of clients and
its financial performance.
DIVIDEND POLICY
Historically, the Company has paid regular quarterly dividends, and New
Marriott expects to continue to do so in amounts comparable to those
historically paid by the Company, subject to the judgment of the New Marriott
Board. SMS expects to pay quarterly dividends, subject to the restrictive
covenants contained in the Replacement SMS Debt limiting payment of dividends.
In general, these covenants will not permit SMS to pay dividends to
stockholders in an amount greater than 40 percent of SMS's net income (or, 45
percent when the ratio of SMS's consolidated debt to EBITDA (as defined in the
documentation for the Replacement SMS Debt) is less than 4 but not less than
3). This restriction will no longer apply when such ratio is less than 3. The
payment and amount of cash dividends on the SMS Common Stock after the
Transactions will be subject to the sole discretion of the SMS Board. SMS's
dividend policy will be reviewed by the SMS Board at such times as may be
deemed appropriate, and payment of dividends on the SMS Common Stock will
depend upon SMS's financial position, capital requirements, profitability and
such other factors as the SMS Board deems relevant.
SEASONAL NATURE OF THE SMS BUSINESS
The food service and facilities management business has been characterized
historically by seasonal fluctuations in overall demand for services,
particularly in the education sector where sales are stronger during the
academic year. Also, the Company has included four four-week periods in its
fourth quarter, compared to three four-week periods for the first three
quarters. Consequently, substantially higher profits may be earned in the
fourth quarter compared to other quarters.
LIMITED GEOGRAPHIC FOCUS
SMS is not currently expected to expand its international presence beyond
Canada. The Trademark License Agreement to be entered into by SMS and New
Marriott will give SMS the right to use the Marriott name in the U.S. and
Canada (and elsewhere only in extremely limited circumstances). Likewise, SMS
will enter into a Royalty Agreement with Sodexho pursuant to which Sodexho
will license the right to use the "Sodexho" name in the U.S. and Canada. As a
practical matter, since SMS will only be allowed to use its corporate name in
the U.S. and Canada, and since Sodexho controls or has significant interests
in companies competing in other countries in the food and facilities
management sector, it is unlikely that SMS will engage in significant
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operations outside the U.S. and Canada. As a result, SMS will be more
susceptible to a downturn in the U.S. and Canadian economies than a company
that is actively engaged in various other markets.
CERTAIN NEW MARRIOTT ANTITAKEOVER FEATURES
If the Transactions are consummated, the amended and restated certificate of
incorporation and bylaws of New Marriott will contain several provisions, all
of which are now in effect with respect to the Company, that may make the
acquisition of control of New Marriott difficult or expensive. In addition,
New Marriott will have two classes of common stock, New MAR Common Stock (with
one vote per share) and New MAR-A Common Stock (with ten votes per share). One
effect of two classes of New Marriott Common Stock is that existing
stockholders of the Company who will hold a substantial number of shares of
New MAR-A Common Stock could have voting power that is materially
disproportionate to their economic stake in New Marriott if they sell their
shares of New MAR Common Stock but retain their shares of New MAR-A Common
Stock. This could also have the effect of making an acquisition of New
Marriott more difficult or expensive. See "CERTAIN ANTITAKEOVER PROVISIONS
APPLICABLE TO NEW MARRIOTT."
LISTING AND TRADING OF SMS COMMON STOCK
It is expected that the SMS Common Stock will be listed and traded on the
NYSE and certain other U.S. exchanges after the Transactions. However,
following the Transactions, the trading value of the SMS Common Stock will be
based on the results of operations of SMS and its management services
business, which have not previously been independently valued and traded in
the public market. Prices at which SMS Common Stock may trade cannot be
predicted. Moreover, until orderly markets develop, the prices at which
trading in such securities occurs may fluctuate significantly. The prices at
which SMS Common Stock trades after the Transactions will be determined by the
marketplace and may be influenced by many factors, including, among others,
the continuing depth and liquidity of the market for SMS Common Stock,
investor perception of SMS, SMS's dividend policy and general economic and
market conditions. See "DESCRIPTION OF THE SMS CAPITAL STOCK." Finally, the
combined trading prices of the SMS Common Stock and the New Marriott Common
Stock held by stockholders after the Transactions may be less than, equal to
or greater than the trading price of the Company Common Stock prior to the
Transactions (after taking into account the issuance of two shares of New
Marriott Common Stock for each share of Company Common Stock, and the one-for-
four reverse stock split of the SMS Common Stock).
LISTING AND TRADING OF NEW MARRIOTT COMMON STOCK
There is currently no public market for the shares of New Marriott. While
New Marriott intends to apply to list the New Marriott Common Stock on the
NYSE and certain other U.S. exchanges, there can be no assurance that
applicable listing criteria will be satisfied, as to the volume of trading and
liquidity that will develop or as to the prices at which the New Marriott
Common Stock will trade after the Transactions. Moreover, until the New
Marriott Common Stock is fully distributed and orderly markets develop, the
prices at which trading in such securities occurs may fluctuate significantly.
The prices at which New Marriott Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others,
the depth and liquidity of the market for New Marriott Common Stock, investor
perception of New Marriott and the businesses in which New Marriott
participates, New Marriott's dividend policy and general economic and market
conditions. Certain of these factors, such as the depth and liquidity of the
market, may cause New MAR Common Stock and New MAR-A Common Stock to trade at
different prices. Such prices may also be affected by certain provisions of
New Marriott's certificate of incorporation and bylaws, as each will be in
effect following the Transactions, such as the voting and other differences
between the New MAR Common Stock and the New MAR-A Common Stock. Such
differences could affect the trading price range for each class of shares. The
New MAR-A Common Stock could trade at prices less than, equal to or greater
than the trading prices for the New MAR Common Stock. In addition, the greater
voting rights associated with the New MAR-A Common Stock could have an
antitakeover effect on New Marriott. See "DESCRIPTION OF THE NEW MARRIOTT
CAPITAL STOCK" and "CERTAIN ANTITAKEOVER PROVISIONS APPLICABLE TO NEW
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MARRIOTT." It is expected that the market prices of the New MAR Common Stock
and the New MAR-A Common Stock will reflect an effect similar to that of a
two-for-one stock split. It is possible that either the New MAR Common Stock
or New MAR-A Common Stock may trade from time to time at a premium to the
other. The minority rights protection features contained in the New Marriott
certificate of incorporation, the requirement of dividend equality, and the
flexibility afforded by the provision permitting the New Marriott Board, in
its discretion, to declare higher dividends on the New MAR Common Stock than
on the New Mar-A Common Stock are expected to reduce somewhat the reasons for
the New MAR-A Common Stock to trade at a premium compared to the New MAR
Common Stock. Should a premium on any class of New Marriott Common Stock
develop, the Company Board would be permitted to issue and sell authorized but
unissued shares of any class of New Marriott Common Stock even if the
consideration which could be obtained by issuing or selling shares of another
class may be greater. The New Marriott Board would also be expressly permitted
to authorize the purchase of shares of any class of New Marriott Common Stock
even if the consideration which would be paid for shares of another class may
be less. Finally, the combined trading prices of the SMS Common Stock and the
New Marriott Common Stock held by stockholders after the Transactions may be
less than, equal to or greater than the trading price of the Company Common
Stock prior to the Transactions (after taking into account the issuance of two
shares of New Marriott Common Stock for each share of Company Common Stock,
and the one-for-four reverse stock split of the SMS Common Stock).
CERTAIN TAX CONSIDERATIONS
Consummation of the Transactions is subject to the receipt of a satisfactory
ruling from the IRS that, among other things, the Spinoff will qualify (i) as
a tax-free transaction described in Section 368(a)(1)(D) and Section 355(a)(1)
of the Internal Revenue Code of 1986, as amended (such statute, including the
Treasury Regulations promulgated thereunder, the "Code"), (ii) as a
transaction to which Section 355(c) of the Code will not apply and (iii) as a
transaction in which the Company recognizes no income or gain other than
intercompany items or excess loss accounts taken into account pursuant to the
Treasury Regulations promulgated pursuant to Section 1502 of the Code (i.e.,
the Spinoff will have "Tax-Free Status"). Although the Company believes that
the rulings it has requested are consistent with the Code and the authorities
thereunder, it is not certain that the IRS will issue a tax ruling that is
satisfactory to the Company, Sodexho and New Marriott. The Company Board has
the discretion, which may be exercised with the consent of Sodexho, to waive
the receipt of such tax ruling as a condition to the Company's obligations to
proceed with the Transactions. In such event, the Company would resolicit
stockholders to disclose the waiver of this condition and provide stockholders
with all relevant disclosure related thereto. Even if such tax ruling is
obtained, if any factual representations and assumptions made by the Company
in the request for the ruling were incorrect in any material respect, the
ability to rely on such tax ruling would be jeopardized. Moreover, certain
actions by the parties after the Spinoff (such as the acquisition by Sodexho
of a 50 percent or greater interest in SMS within two years of the Spinoff)
could jeopardize the Tax-Free Status of the Spinoff. The Company, New Marriott
and Sodexho have agreed to certain restrictions on their future actions to
provide further assurances that the Spinoff will have Tax-Free Status. See
"THE TRANSACTIONS--Arrangements Between SMS and New Marriott--Tax Sharing
Agreement."
If the Spinoff were not to have Tax-Free Status, both the Company and its
stockholders would be liable for taxes. Each holder of Company Common Stock
who receives shares of New Marriott Common Stock in the Spinoff would be
treated as if such stockholder received a distribution in an amount equal to
the fair market value of the New Marriott Common Stock received, which would
result in (x) a taxable dividend to the extent of such stockholder's pro rata
share of the Company's current and accumulated earnings and profits, (y) a
reduction in such stockholder's basis (but not below zero) in shares of
Company Common Stock to the extent the amount received exceeds such
stockholder's share of earnings and profits and (z) taxable gain from the
exchange of Company Common Stock to the extent the amount received exceeds
both such stockholder's share of earnings and profits and such stockholder's
basis in Company Common Stock. In addition, if the Spinoff were not to have
Tax-Free Status, in general the consolidated group of which the Company is the
common parent would be liable for tax based upon the difference between the
fair market value and the adjusted basis of the New Marriott Common Stock (the
"Corporate Tax").
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The Corporate Tax would also become payable if Section 355(e) of the Code
were to apply to the Spinoff. Section 355(e), which was enacted on August 5,
1997, generally imposes a tax at the corporate (but not the stockholder) level
on distributions of controlled subsidiaries (such as New Marriott), if such
distribution is part of a plan or series of related transactions pursuant to
which one or more persons acquire a 50 percent or greater interest in the
stock of the distributing corporation (in this case, SMS) or the distributed
corporation (in this case, New Marriott). If Section 355(e) applied to the
Spinoff, the consolidated group of which the Company is the common parent
would be liable for the Corporate Tax.
Under the Tax Sharing Agreement, generally if a person unrelated to any of
the parties acquires an interest in SMS that causes the Spinoff not to have
Tax-Free Status, or if Sodexho or SMS causes the Spinoff not to have Tax-Free
Status as a result of a breach of representations or covenants relating to the
ruling request, Sodexho and SMS will indemnify and hold harmless New Marriott
and certain affiliated persons for the resulting tax and related liabilities.
If, on the other hand, an unrelated person acquires an interest in New
Marriott that causes the Spinoff not to have Tax-Free Status, or if New
Marriott causes the Spinoff not to have Tax-Free Status as a result of a
breach of representations or covenants relating to the ruling request, New
Marriott will indemnify and hold harmless SMS and certain affiliated persons
for the resulting tax and related liabilities. Holders of the Company Common
Stock will not be indemnified for any taxes payable by such holders in the
event the Spinoff does not have Tax-Free Status. See "THE TRANSACTIONS--
Arrangements Between SMS and New Marriott--Tax Sharing Agreement."
The Corporate Tax, if paid by SMS, would likely substantially exceed the
available financial resources of SMS and could result in SMS becoming
insolvent. The Corporate Tax, if paid by New Marriott, would have a material
adverse effect on the financial condition of New Marriott. Moreover, the
ability of New Marriott to realize on any claim for indemnification from
Sodexho or SMS (under the circumstances described in the preceding paragraph)
for part or all of such Corporate Tax would be contingent on the
creditworthiness of Sodexho and SMS.
CERTAIN CONSENT REQUIREMENTS
The Company has reviewed its existing debt and other contractual
arrangements to determine whether consummation of the Transactions requires
the consent of third parties. In a substantial number of situations, an
amendment, consent or waiver from one or more third parties will be required
to avoid a breach or default under these obligations. Pursuant to the
Agreement and Plan of Merger dated as of September 30, 1997, as amended, by
and among the Company, New Marriott, Marriott-ICC Merger Corp. ("Merger Sub"),
Sodexho and ICC (the "Acquisition Agreement"), the parties have agreed that
the failure of the Company to obtain certain third-party consents will not be
conditions to Sodexho's obligations so long as the parties have entered into
satisfactory arrangements with respect to those consents. Although the Company
and Sodexho have agreed to discuss prior to the consummation of the
Transactions alternative arrangements should any such consents not be
obtained, the parties have agreed in advance upon certain "fall back"
arrangements that, if satisfied by New Marriott at the Effective Date, would
fulfill the condition to the Transactions dealing with such consents. These
arrangements involve, among other things, (i) New Marriott delivering to SMS
an irrevocable standby letter of credit in an amount of up to $100 million for
the benefit of SMS should a final judgment based on the failure to obtain any
such consent or approval be rendered against SMS, and (ii) New Marriott
providing dedicated availability under a revolving credit facility of New
Marriott for the benefit of SMS to the extent such letter of credit is
insufficient to cover the agreed upon exposure to SMS arising from New
Marriott's failure to obtain specified consents.
If the Transactions were consummated without having obtained all material
third-party consents, there could be material breaches and defaults under
certain contracts and arrangements to which the Company and its subsidiaries
are parties, which could result in substantial damages and losses. New
Marriott has agreed to indemnify SMS for any losses SMS may sustain as a
result of the Company failing to have obtained such consents. Such losses
could be material to New Marriott and, if the arrangements entered into by the
parties prove to be insufficient and New Marriott otherwise fails to perform
its obligations to indemnify SMS, there could be a material adverse effect on
SMS.
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There can be no assurance whether and to what extent SMS or New Marriott
would be adversely affected if the Transactions are consummated without having
received all such consents and approvals.
FRAUDULENT TRANSFER AND RELATED CONSIDERATIONS
Under applicable law, the Transactions would constitute a "fraudulent
transfer" if (a) the Company is insolvent at the time the Transactions are
consummated, (b) the effect of the Transactions would render the Company
insolvent, (c) the Transactions would leave the Company engaged in a business
or transaction for which its remaining assets constituted unreasonably small
capital or (d) the Company intended to incur, or believed it would incur,
debts beyond its ability to pay as such debts mature. Generally, an entity is
considered insolvent if it is unable to pay its debts as they come due or if
the fair value of its assets is less than the amount of its actual and
expected liabilities. In addition, under Delaware law, the Spinoff may be made
only out of surplus (net assets minus capital) and not out of capital.
If, in a lawsuit filed by an unpaid creditor or a representative of unpaid
creditors or a trustee in bankruptcy, a court were to find that, at the time
the Transactions were consummated or after giving effect thereto, the Company
(a) was insolvent, (b) was rendered insolvent by reason of the Spinoff, (c)
was engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital or (d) intended to incur, or believed
it would incur, debts beyond its ability to pay as such debts matured, then
such court might require New Marriott to fund certain liabilities of the
Company for the benefit of the Company's creditors. The same consequences
would also apply were a court to find that the Spinoff was not made out of the
Company's surplus.
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THE SPECIAL MEETING
DATE, TIME AND PLACE OF SPECIAL MEETING
The Special Meeting of the Company will be held at 10:00 a.m. at the
Westfield Conference Center, 14750 Conference Center Drive, Chantilly,
Virginia on March 17, 1998.
MATTERS FOR CONSIDERATION AT SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will be asked to
consider and vote on the following six related Proposals. THE EFFECTIVENESS OF
EACH OF THE PROPOSALS IS CONDITIONED UPON THE APPROVAL OF ALL OF THE
PROPOSALS. ACCORDINGLY, FAILURE OF THE STOCKHOLDERS TO APPROVE ANY ONE OR MORE
OF THE PROPOSALS WILL RESULT IN THE INEFFECTIVENESS OF ALL OF THE PROPOSALS.
The Proposals are as follows:
PROPOSAL ONE
. The Spinoff of New Marriott. Approval of (x) the contribution by the
Company to New Marriott of the New Marriott Business and (y) a special
dividend to the holders of the Company Common Stock, consisting of all
outstanding shares of common stock of New Marriott, which at the time of
the Spinoff will be comprised of New MAR Common Stock and New MAR-A
Common Stock, to be effected in accordance with the terms of the
Distribution Agreement dated as of September 30, 1997, as amended,
between New Marriott and the Company (the "Distribution Agreement");
. The Acquisition of Sodexho North America. Approval of (x) the
acquisition by the Company of Sodexho North America, and (y) the
issuance by SMS of a number of shares of SMS Common Stock to Sodexho
equal to approximately 49 percent of the SMS Common Stock to be
outstanding after giving effect to such issuance;
. Amendment of the Company's Certificate of Incorporation and
Bylaws. Approval of the amendment and restatement of the certificate of
incorporation and bylaws of the Company, which will, among other things,
(i) change the name of the Company to "Sodexho Marriott Services, Inc.,"
(ii) delete certain provisions that require actions of stockholders to
be taken by two-thirds (or 66 2/3 percent) vote, (iii) delete certain
provisions that impose restrictions on business combinations involving
the Company, (iv) provide for a one-for-four reverse stock split of
Company Common Stock, (v) provide for the annual election of all
directors, (vi) permit stockholder action by written consent and (vii)
for three years after the Spinoff, generally prohibit any person or
group of related persons from owning 50 percent or more of the SMS
Common Stock; and
. Amendment of New Marriott's Certificate of Incorporation and
Bylaws. Ratification of the amendment and restatement of the certificate
of incorporation and bylaws of New Marriott, which, among other things,
(i) changes the name of New Marriott to "Marriott International, Inc.,"
(ii) provides for two classes of New Marriott Common Stock: New MAR
Common Stock with one vote per share and New MAR-A Common Stock with ten
votes per share, which will be distributed effective as of the date of
the Spinoff on a pro rata basis to Company stockholders of record as of
the record date for the Spinoff and (iii) contains provisions otherwise
substantially similar to those contained in the Company's certificate of
incorporation and bylaws as in effect on the date hereof (collectively,
"Proposal One");
PROPOSAL TWO
Ratification of Pierre Bellon, Bernard Carton, Edouard de Royere,
William J. Shaw, Charles D. O'Dell, John W. Marriott III, Doctor R.
Crants and Daniel J. Altobello as directors of SMS, effective as of the
consummation of the Transactions ("Proposal Two");
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PROPOSAL THREE
Ratification of Gilbert M. Grosvenor, Richard E. Marriott and Harry J.
Pearce, as directors of New Marriott whose terms will expire in 1998;
J.W. Marriott, Jr., W. Mitt Romney and William J. Shaw, as directors of
New Marriott whose terms will expire in 1999; and Dr. Henry Cheng Kar-
Shun, Floretta Dukes McKenzie, Roger W. Sant and Lawrence M. Small, as
directors of New Marriott, whose terms will expire in 2000 ("Proposal
Three");
PROPOSAL FOUR
Ratification of the New Marriott 1998 Comprehensive Stock and Cash
Incentive Plan and the reservation of 35 million shares of New MAR
Common Stock and 21 million shares of New MAR-A Common Stock for
issuance pursuant to such plan; ("Proposal Four");
PROPOSAL FIVE
Ratification of the appointment of Price Waterhouse LLP as independent
auditors of SMS, such appointment to be effective upon consummation of
the Transactions ("Proposal Five"); and
PROPOSAL SIX
Ratification of the appointment of Arthur Andersen LLP as independent
auditors of New Marriott ("Proposal Six").
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ALL OF
THE PROPOSALS. Certain members of the Company Board, however, may be deemed to
have conflicts of interest in connection with the Transactions. See "CONFLICTS
OF INTEREST."
For a description of the reasons for the Transactions, see "BACKGROUND AND
REASONS--Reasons for the Recommendation of the Company Board" and "THE
TRANSACTIONS--Overview."
SPECIAL MEETING RECORD DATE
The Company Board has fixed the close of business on January 28, 1998 as the
Special Meeting Record Date for the determination of the holders of Company
Common Stock entitled to receive notice of and to vote at the Special Meeting.
VOTES REQUIRED
Each stockholder of record as of the Special Meeting Record Date is entitled
at the Special Meeting to one vote for each share held. Under the certificate
of incorporation of the Company, the affirmative vote of the holders of at
least two-thirds (or 66 2/3 percent) of the outstanding shares of Company
Common Stock is required to approve Proposal One. The affirmative vote of the
holders of at least a majority of the shares of Company Common Stock present
in person or represented by proxy at the Special Meeting is required to
approve Proposals Two through Six. THE EFFECTIVENESS OF EACH OF THE PROPOSALS
IS CONDITIONED UPON THE APPROVAL OF ALL OF THE PROPOSALS. As of January 28,
1998, there were 125,415,165 shares of Company Common Stock outstanding and
entitled to vote at the Special Meeting. Certain members of the Marriott
family (including various trusts established by members of the Marriott
family) in the aggregate own approximately 19.7 percent of the number of
outstanding shares of Company Common Stock and have indicated an intention to
vote in accordance with the recommendations of the Company Board with respect
to the Proposals. See "SECURITY OWNERSHIP OF THE COMPANY AND SMS" and
"SECURITY OWNERSHIP OF NEW MARRIOTT."
Proposals Two through Six seek ratification by the stockholders of certain
matters. Even though the affirmative vote of the stockholders of the Company
is not required to approve these matters, the Company Board has proposed that
stockholders ratify these matters since they are all important components of
the Transactions. However, even though these matters would remain (or become)
effective regardless of whether or not stockholders vote in favor of one or
more of such Proposals, each of the Proposals is conditioned on the approval
of the other Proposals. Therefore, failure to approve any single Proposal will
have the effect of causing the Transactions not to be approved.
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VOTING AND REVOCATION OF PROXIES
Shares of Company Common Stock represented by a proxy properly signed and
received at or prior to the Special Meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF COMPANY COMMON
STOCK REPRESENTED BY THE PROXY WILL BE VOTED FOR THE PROPOSAL TO ADOPT AND
APPROVE THE PROPOSALS AND THE TRANSACTIONS CONTEMPLATED THEREBY.
Abstentions may be specified on all Proposals. Shares of Common Stock
represented at the Special Meeting but not voting for which proxies have been
received, but with respect to which holders of shares have abstained on any
matter, will be treated as present at the Special Meeting for purposes of
determining the presence or absence of a quorum for the transaction of all
business.
For voting purposes at the Special Meeting, only shares affirmatively voted
in favor of a proposal (including properly executed proxies not containing
voting instructions) will be counted as favorable votes for such proposal. The
failure to submit a proxy (or to vote in person) or the abstention from voting
will have the same effect as a vote against such proposal. In addition, under
the applicable rules of the NYSE, brokers who hold shares in street name for
customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote such customers' shares with respect to Proposal One in
the absence of specific instructions from such customers ("broker non-votes").
Broker non-votes will also have the same effect as votes against the
Proposals.
Company proxy holders may, in their discretion, vote shares to adjourn the
Special Meeting to solicit additional proxies in favor of such proposals.
However, shares of Company Common Stock with respect to which a proxy is
signed and returned indicating a vote against any proposal will not be so
voted to adjourn.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the proxy is voted by the filing of an instrument
revoking it or of a duly executed proxy bearing a later date with the
Secretary of the Company, for Company stockholders, prior to or at the Special
Meeting, or by voting in person at the Special Meeting. All written notices of
revocation and other communications with respect to revocation of Company
proxies should be addressed to Marriott International, Inc., c/o First Chicago
Trust Company of New York, P.O. Box 8089, Edison, New Jersey 08818-8089 (First
Chicago Trust Company of New York is referred to herein as the "Transfer
Agent"). Attendance at a Special Meeting will not in and of itself constitute
a revocation of a proxy.
The Company Board is not currently aware of any business to be acted upon at
the Special Meeting other than as described herein. If, however, other matters
are properly brought before the Special Meeting, the persons appointed as
proxies will have discretion to vote or act thereon according to their best
judgment.
Company stockholders will not be entitled to present any matters for
consideration at the Special Meeting.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
the Company, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of the Company, personally or by
telephone, telecopy or telegram or other forms of communication. Brokers,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners.
In addition, the Company has retained MacKenzie Partners, Inc. to assist in
the solicitation of proxies. The fees to be paid to such firm for such
services by the Company are not expected to exceed $22,500, plus reasonable
out-of-pocket costs and expenses. The Company will pay the costs incurred in
printing this Proxy Statement.
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BACKGROUND AND REASONS
BACKGROUND OF THE TRANSACTIONS
The Company, directly and through its subsidiaries, currently engages in the
New Marriott Business (consisting of the Company's lodging (including
timeshare), senior living services and distribution services businesses) and
the MMS Business (consisting of the Company's food service and facilities
management business). The Company Board has decided, for the reasons set forth
below, (i) to spin off to the Company's stockholders all of the outstanding
stock of New Marriott, which will conduct the New Marriott Business, (ii)
immediately after the Spinoff, to have the Company acquire Sodexho North
America in exchange for newly issued SMS Common Stock that will represent
approximately 49 percent of the outstanding SMS Common Stock after
consummation of the Transactions and (iii) to undertake the other actions
contemplated by the Transactions. After the consummation of the Transactions,
the Company will be renamed "Sodexho Marriott Services, Inc." and will conduct
the MMS Business and the operations of Sodexho North America (the "Sodexho
North America Business"), and New Marriott will be renamed "Marriott
International, Inc." and will conduct the New Marriott Business.
Prior to late 1996, the Company had not actively considered any significant
business combination involving the MMS Business that would result in a third
party having a substantial ownership interest in the MMS Business. In late
1996, Societe Generale Securities Corporation, acting as financial advisor to
Sodexho, approached the Company about the possibility of a business
relationship, or areas of mutual interest, involving Sodexho and the MMS
Business. An initial meeting was held on December 4, 1996 between the Company,
represented by William J. Shaw, its then Executive Vice President (currently
Mr. Shaw serves as President and Chief Operating Officer), and Michael A.
Stein, its Executive Vice President and Chief Financial Officer, and Sodexho,
represented by Pierre Bellon, its Chairman and Chief Executive Officer and
Bernard Carton, its Senior Vice President and Chief Financial Officer. At the
meeting the parties discussed possible areas of mutual interest involving
their food service and facilities management business, and the Sodexho
representatives inquired as to whether the Company would be interested in an
alliance or other business relationship in North America. The Company
representatives replied that the MMS Business was not for sale but that any
Sodexho proposal would be given due consideration.
Subsequent meetings among the same representatives were held in January and
February 1997 concerning a possible business combination with Sodexho
involving the MMS Business. The discussions involved preliminary valuations of
the MMS Business and preliminary examinations of possible transaction
structures including a tax-free spinoff of the Company's non-MMS Business and
a subsequent tax-free combination of the MMS Business and Sodexho North
America. These initial meetings also involved discussions of debt allocation
and refinancing issues associated with a possible transaction. On February 26,
1997, Sodexho and the Company signed a confidentiality agreement and exchanged
certain financial and other information regarding their North American food
services and facilities management businesses. Based on the preliminary
valuations of the MMS Business by Sodexho, the Company's representatives
informed the Sodexho representatives that the Company was not interested in
pursuing a transaction. On May 6, 1997, Sodexho sent a letter to the Company
setting forth a new proposal containing a valuation of the MMS Business
substantially higher than the value previously proposed by Sodexho and within
the range of values at which management of the Company would consider a
business combination involving the MMS Business. Although management believed
that the value was sufficient to warrant further discussions with Sodexho, in
April 1997 tax legislation had been proposed in the U.S. Congress that created
uncertainty regarding the tax treatment of the proposed transaction.
Therefore, the Company determined not to pursue a transaction with Sodexho
until there was further clarification of the proposed tax legislation.
At that time, the Company also determined to explore other structures and
alternatives relating to the MMS Business in order to maximize value for its
stockholders. The Company retained Merrill Lynch, as a financial advisor, to
assist in evaluating the desirability and feasibility of alternatives. Merrill
Lynch prepared a confidential memorandum in July 1997 describing the MMS
Business to be used in connection with locating partners for a strategic
business combination with the MMS Business. At that time, the Company was
contacted by another party that was interested in exploring a business
combination involving the MMS Business.
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During the period from June 1997 through August 1997, management of the
Company and its advisors considered various alternative transactions involving
the MMS Business and held discussions with Sodexho and the other party that
had expressed interest in a business combination. Each transaction proposal
involved complicated structures and contingencies that the Company and its
advisors considered during this period.
Sodexho and the Company signed a confidentiality agreement on July 17, 1997
that replaced the earlier confidentiality agreement signed in February 1997.
At that time, the Company also entered into a confidentiality agreement with
the other interested party.
On July 16 and 17, 1997, Sodexho, the Company and their respective
representatives met in Falls Church, Virginia to discuss the most recent
proposal by Sodexho. Although no agreement was reached between the parties,
lawyers for the Company commenced drafting documentation that could be used in
case an agreement was reached between the parties. At the meeting, Sodexho
made it clear that its interest in the transaction was conditioned on a
spinoff by the Company of its non-MMS Business assets. The parties met on July
31, 1997 in Bethesda, Maryland to discuss the debt allocation and refinancing
issues associated with a possible transaction. Thereafter, the parties
continued to have discussions without reaching an agreement on the principal
business terms of a transaction. The principal issues that were not resolved
at this time included the allocation of certain costs and expenses related to
the transaction (including costs related to refinancing of indebtedness), the
treatment of stock options to be retained by officers and employees of the
Company after the consummation of the transaction, the value of the operations
of the MMS Business in the United Kingdom and whether certain liabilities of
the MMS Business related to insurance claims and deferred compensation would
reduce the consideration to be paid by Sodexho. During this period, the
Company conducted a due diligence review of Sodexho North America, and Sodexho
conducted a due diligence review of the MMS Business.
In August 1997, the U.S. Congress enacted final tax legislation that removed
the uncertainties from the structures being discussed with Sodexho. On August
6, 1997, representatives of Sodexho and the Company met in Boston,
Massachusetts in an effort to resolve open business issues between the
parties. At this meeting the Company was represented by William J. Shaw,
Michael A. Stein, Raymond G. Murphy, Senior Vice President, Finance and
Treasurer of the Company, and certain legal and financial advisors. Sodexho
was represented by Pierre Bellon, Bernard Carton, Denis Robin, Sodexho's
Director of Acquisitions, and certain legal and financial advisors. Even
though the parties made progress on some aspects of the business issues that
were unresolved prior to that meeting, substantially all of these issues
remained unresolved after the meeting, including the allocation of certain
costs and expenses, the treatment of stock options, the value of the United
Kingdom operations and the treatment of certain liabilities of the MMS
Business described above.
While these discussions were taking place with Sodexho, the Company was also
engaged in discussions with the other interested party. At the end of August
1997, the Company determined to work solely with Sodexho to determine whether
the parties could reach an agreement on a business combination. The Company's
decision was based on a combination of several factors that in the aggregate
favored the Sodexho proposal, including management's opinion as to the
likelihood that each proposed transaction would be completed, risks and
contingencies involved in each proposed transaction and the after-tax value to
be received by the Company's stockholders in each proposed transaction.
Beginning in early September 1997, representatives of the Company and
Sodexho met in Washington, D.C. to discuss the documentation drafted by the
Company's lawyers and to attempt to resolve open business issues. Meetings
continued throughout the month as the parties sought to negotiate definitive
documentation and resolve open issues. On September 18, 1997, an article was
published in The Financial Times that discussed the possibility that the
Company and Sodexho were negotiating a business combination involving the MMS
Business. In response to this article, each of the Company and Sodexho issued
press releases on September 18, 1997, confirming that discussions were being
held. Thereafter, the parties continued to meet in Washington, D.C. to discuss
documentation and open business issues.
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The proposal to effect the Transactions was presented to and approved by the
Company Board on September 19, 1997, subject to negotiation of final
definitive documentation and resolution of certain open business issues. At
that time most of the business issues that were unresolved at the meetings in
July and early August of 1997 had been resolved. The issues that had not yet
been agreed upon by the parties as of September 19 included the treatment of
certain pre-closing taxes of the MMS Business, whether the failure to obtain
certain third party consents would be a condition to the consummation of the
transactions and who would bear the cost of any dilution associated with stock
options held by employees of Sodexho North America. Thereafter, the parties
continued to meet until all issues were resolved and the necessary
documentation was agreed to.
On the evening of September 30, 1997, the Company and Sodexho executed the
definitive documentation described in this Proxy Statement. On October 1,
1997, the Company and Sodexho publicly announced their agreement and held a
joint analyst and investor conference in New York City.
REASONS FOR THE RECOMMENDATION OF THE COMPANY BOARD
The Company Board believes that the Transactions will significantly enhance
stockholder value and provide stockholders with an ongoing stake in a strong
and well focused management services company with excellent growth prospects.
In light of the consolidation and increasing globalization of the food service
and facilities management industry, the MMS Business will benefit from its
alignment with Sodexho, one of the largest and most successful management
services organizations in the world.
The Transactions will also provide New Marriott with substantial investment
capacity through a reduction in outstanding debt. This will enable New
Marriott to pursue additional growth opportunities in its businesses,
extending New Marriott's global leadership in the hospitality industry.
SMS will be the largest provider of management services to the corporate,
health care and education markets in North America, with over 4,800 accounts
and annual sales in excess of $4 billion. SMS's clients will benefit from the
combination of the best food and facility programs and operating systems of
the two separate entities, as well as the broader range of value-added
services SMS will be able to provide. The Sodexho name is known in Europe for
its commitment to quality and a strong tradition of service. SMS's affiliation
with worldwide leader Sodexho is expected to create significant synergies that
will enhance SMS's competitiveness and accelerate its growth. SMS expects to
realize annual pretax cost savings of approximately $60 million within a
three-year period, largely through greater purchasing economies, and
elimination of duplicative functions and facilities. SMS expects to be well
positioned to grow at above-average rates, and expects to capture a major
share of new business as more organizations recognize the cost savings and
performance gains that SMS can help them achieve through outsourcing. The
extent of any synergies that are actually realized by SMS, as well as the
timing of attaining such synergies, if any, is subject to a number of risks
and uncertainties. See "SMS UNAUDITED PRO FORMA COMBINED FINANCIAL DATA."
In the past, as a division of the Company, MMS was one of several priorities
of the Company. In the new organization, SMS's core businesses will be
management services, and its core function will be serving clients and
customers. This focus is intended to create new business opportunities and
better alignment with client needs.
In addition, the Company believes that MMS has not been fully valued in the
equity market. The investment community tends to perceive and categorize the
Company as a lodging company. Among major stockholders and security analysts
who follow the Company, there is a great deal of interest in each of the
Company's lodging brands, and in its timeshare and senior living services
businesses, but considerably less interest in its management services
division. As a result, MMS's successes may have been overshadowed by the
achievements of the Company's hospitality businesses. As a separate company,
SMS will be able to develop its own following on Wall Street and in the
financial community, and its value should be more readily apparent to
investors.
The planned capital structure of New Marriott, following the Spinoff, is
part of an integrated strategy for a focused hospitality company with
substantially increased borrowing and investment capacity, as well as
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increased flexibility to use its equity, where prudent, to participate
aggressively in the ongoing global consolidation of the lodging industry as
well as the accelerating rate of consolidation of the senior living services
industry within the United States. The Company has a history of pursuing, and
New Marriott intends to continue to pursue, strategic acquisition
opportunities, such as the Company's $1 billion acquisition of Renaissance
Hotel Group in early 1997, its $600 million acquisition of Forum Group, Inc.
("Forum Group") in early 1996 and its acquisition of 49 percent of The Ritz
Carlton Hotel Company LLC for approximately $200 million in 1995. New
Marriott's capital structure is designed to permit it to take advantage of
such opportunities, including those which may be substantial in size, that are
or may be presented in the industry consolidations.
New Marriott's lodging division expects to add more than 140,000 rooms
across its 10 lodging brands over a five-year period (1998-2002), and to
significantly expand its portfolio of vacation club resorts. During the same
period, New Marriott also plans to take advantage of significant opportunities
in the senior living services market by nearly tripling the number of
communities it operates. As the lodging and senior living services industries
consolidate, acquisitions could not only accelerate achievement of these
goals, but also enable New Marriott to exceed them.
The dual class equity structure is intended to provide New Marriott with
greater flexibility to respond to acquisition opportunities while preserving
one of its most important attributes--continuity in the leadership,
involvement and substantial voting interests of the Marriott family. The
Company Board believes that this close association with the Marriott family
has been very important to the Company, and will continue to be very important
to New Marriott--both because the name has been synonymous with high quality,
service, consistency and integrity, and because of the important role that has
been played by the Marriott family, including the Company's long-time chief
executive officer, J.W. Marriott, Jr. This additional flexibility is
especially important given the ongoing global consolidation of the lodging
industry, as well as the accelerating rate of consolidation of the senior
living services industry within the United States. The Company Board further
believes that this dual class equity structure will enable New Marriott to use
lower-voting common stock as consideration to pursue larger acquisition
opportunities than those financeable solely with incremental debt, without
jeopardizing New Marriott's anticipated investment grade credit rating.
The Company Board considered all of these factors, as well as the opinions
of its financial advisers referred to below, in connection with its decision
to proceed with the Transactions and recommend that stockholders vote in favor
of the Proposals. In this regard, the Company Board did not assign any
particular weight to specific factors, and individual directors may have
assigned different weights to different factors.
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSALS. Certain members of the Company Board, however, may be deemed to
have conflicts of interest in connection with the Transactions. See "CONFLICTS
OF INTEREST."
OPINIONS OF FINANCIAL ADVISORS
As noted above, in reaching a decision to recommend the Transactions, the
Company Board considered the advice of its financial advisors, Merrill Lynch
and American Appraisal. Summaries of the opinions rendered by the Company's
financial advisors with respect to the Transactions are set forth below. The
opinions rendered by the Company's financial advisors assume that the
Transactions are consummated substantially as described in this Proxy
Statement.
Fairness Opinion
Merrill Lynch began assisting the Company as its financial advisor in June
1997. Merrill Lynch provided financial advice to the Company with respect to
the evaluation of the desirability and feasibility of a business combination
involving the MMS Business, and the evaluation of alternative transactions
involving the MMS Business. Merrill Lynch was requested to render a fairness
opinion to the Company Board with respect to the Transactions.
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On September 19, 1997, Merrill Lynch rendered its oral opinion, which it
subsequently confirmed in writing as of November 6, 1997 (the "Fairness
Opinion"), to the Company Board that, as of such date, and based upon the
assumptions made, matters considered and limits of review as set forth in such
opinion, the terms of the Transactions, taken as a whole, are fair, from a
financial point of view, to the stockholders of the Company.
A COPY OF THE FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
MERRILL LYNCH, IS ATTACHED AS APPENDIX F TO THIS PROXY STATEMENT. MERRILL
LYNCH ADDRESSED ITS OPINION TO THE COMPANY BOARD AND SUCH OPINION IS DIRECTED
ONLY TO THE FAIRNESS OF THE TERMS OF THE TRANSACTIONS, TAKEN AS A WHOLE, FROM
A FINANCIAL POINT OF VIEW AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING
DECISION OF THE COMPANY TO ENGAGE IN THE TRANSACTIONS OR CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON
THE PROPOSED TRANSACTIONS. THE SUMMARY OF THE FAIRNESS OPINION SET FORTH IN
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE FAIRNESS OPINION, WHICH IS ATTACHED HERETO AS APPENDIX F.
In arriving at the Fairness Opinion, Merrill Lynch (i) reviewed certain
publicly available business and financial information relating to the Company
that it deemed to be relevant; (ii) reviewed certain financial forecasts
relating to the businesses, earnings, cash flow, assets, liabilities and
prospects of the Company, New Marriott and SMS, furnished to Merrill Lynch by
management of the Company (the "Company Forecast"); (iii) conducted
discussions with members of senior management and representatives of the
Company concerning the matters described in clauses (i) and (ii) above, as
well as the respective businesses and prospects of the Company, New Marriott
and SMS before and after giving effect to the Transactions; (iv) reviewed the
historical market prices and trading activity for the Company and compared
them with those of certain publicly traded companies that Merrill Lynch deemed
to be relevant; (v) reviewed the Distribution Agreement, including the
exhibits and schedules thereto; (vi) reviewed certain financial forecasts
relating to the businesses, earnings, cash flow, assets, liabilities and
prospects of Sodexho North America, provided by or derived from information
provided by Sodexho furnished to Merrill Lynch by management of the Company
(the "Sodexho North America Forecasts"), as well as information concerning the
amount and timing of the cost savings and synergies expected to result from
the Acquisition provided to Merrill Lynch by management of Sodexho and the
Company (the "Synergies"); (vii) conducted discussions with members of senior
management and representatives of the Company concerning the matters described
in clause (vi) above; (viii) reviewed the terms of the shares of New Marriott
Common Stock as set forth in the forms of the certificate of incorporation and
bylaws of New Marriott attached as Appendices hereto; (ix) compared the
historical and projected results of operations of the Company, New Marriott,
SMS and Sodexho North America with those of certain companies that Merrill
Lynch deemed to be relevant; (x) reviewed the Distribution Agreement, the
Acquisition Agreement and the other documents attached as Appendices hereto,
including the exhibits and schedules thereto; (xi) compared the proposed
financial terms of the Transactions with the financial terms of certain other
transactions that Merrill Lynch deemed to be relevant; (xii) evaluated the
potential pro forma impacts of the Transactions; and (xiii) reviewed a
preliminary version of this Proxy Statement, including the Appendices thereto.
In preparing the Fairness Opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company and Sodexho and did not independently verify such information or
undertake an independent appraisal of the assets of the Company, New Marriott,
SMS or Sodexho North America. With respect to the financial forecasts
furnished by the Company and Sodexho, Merrill Lynch assumed that they were
reasonably prepared and reflected the best currently available estimates and
judgment of the Company's or Sodexho's management as to the expected future
financial performance of the Company, New Marriott, SMS or Sodexho North
America, as the case may be. Merrill Lynch assumed no responsibility for and
expressed no view as to such forecasts or the assumptions upon which they were
based.
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In rendering the Fairness Opinion, Merrill Lynch assumed, with the Company's
consent, that the Transactions will comply with applicable United States,
foreign, federal and state laws, including, without limitation, laws relating
to the payment of dividends, bankruptcy, insolvency, reorganization,
fraudulent conveyance, fraudulent transfer or other similar laws now or
hereafter in effect affecting creditors' rights generally. Merrill Lynch also
assumed, with the Company's consent, that receipt of the shares of New
Marriott Common Stock in connection with the Spinoff will be tax-free for
federal income tax purposes to the stockholders of the Company and that none
of the Company, New Marriott, Sodexho North America and SMS will recognize
income, gain or loss as a result of the Spinoff or the Acquisition (excluding
the sale of MMS UK).
The Fairness Opinion was necessarily based upon financial, economic, market
and other conditions as they existed and could be evaluated on the date
thereof.
The following is a summary of material analyses and factors presented by
Merrill Lynch to the Company Board on November 6, 1997. As used herein, "First
Call" refers to First Call Corp., and "I/B/E/S" refers to I/B/E/S
International, Inc. First Call and I/B/E/S are on-line data services that
monitor and publish compilations of earnings and growth rate estimates
produced by selected research analysts on certain public companies. In
addition, as used herein, "FY" refers to fiscal year; the Company's fiscal
year ends on the Friday closest to December 31 and Sodexho's fiscal year ends
on August 31. "LTM" refers to the last twelve month period.
Valuation Analysis of the Company
Summary of Financial Performance. Merrill Lynch reviewed certain projected
financial performance data and other information of the Company, based on the
Company Forecast for FY 1997 through FY 2002 (assuming the Transactions had
not been consummated). Merrill Lynch reviewed and charted (i) the projected
net sales, earnings before interest, taxes, depreciation and amortization
("EBITDA"), earnings before interest and taxes ("EBIT"), net interest expense,
tax expense, net income and earnings per share ("EPS") (collectively,
"Financial Performance Data") and selected balance sheet and cash flow items
and selected credit statistics (collectively, "Selected Balance Sheet, Cash
Flow and Credit Data") for the Company for FY 1997 through FY 2002, based on
the Company Forecast.
Analysis of Selected Comparable Publicly Traded Companies. Merrill Lynch
compared certain financial and operating information and projected financial
performance data for the Company (including MMS) with similar information and
data of five publicly traded lodging companies that Merrill Lynch deemed
comparable to the Company: Doubletree Corp., Four Seasons Hotels, Ltd., Hilton
Hotels Corp., La Quinta Inns, Inc. and Promus Hotels Corp. (the "Lodging
Comparables"). The Lodging Comparables were selected because they are the
publicly traded lodging companies that Merrill Lynch deemed to be most
comparable to the Company in terms of size, business strategy, brand name
recognition and growth rates. Merrill Lynch used earnings estimates for the
Lodging Comparables based on share price data as of October 30, 1997 and First
Call data as of October 29, 1997, except that with respect to Doubletree Corp.
and Promus Hotels Corp., such data is calculated as of August 27, 1997 (the
day prior to the public announcement of the proposed merger of Doubletree
Corp. and Promus Hotels Corp.). Merrill Lynch estimated that, with respect to
the ratio of market value to (a) current FY EPS (i) the mean was 25.6x and
(ii) the median was 26.7x for the Lodging Comparables, compared to 26.4x for
the Company and (b) next FY EPS (i) the mean was 20.3x and (ii) the median was
21.7x for the Lodging Comparables, compared to 22.5x for the Company. Merrill
Lynch estimated that, with respect to the ratio of market capitalization to
(a) LTM EBITDA (i) the mean was 12.1x and (ii) the median was 11.7x for the
Lodging Comparables, compared to 12.2x for the Company, (b) LTM EBIT (i) the
mean was 15.2x and (ii) the median was 15.1x for the Lodging Comparables,
compared to 15.7x for the Company, and (c) LTM sales (i) the mean was 4.4x and
(ii) the median was 3.9x for the Lodging Comparables, compared to 0.89x for
the Company. Merrill Lynch estimated that, based on I/B/E/S estimates, with
respect to (a) five-year EPS compound annual growth rate ("CAGR") (i) the mean
was 24 percent and (ii) the median was 24 percent for the Lodging Comparables,
compared to 18 percent for the Company, and (b) the ratio of share price to
EPS, expressed as a multiple of five-year EPS CAGR (i) the mean was 0.99x and
(ii) the median was 1.03x for the Lodging Comparables, compared to 1.44x for
the Company. No company utilized in the analysis of the Lodging Comparables is
identical to the
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Company. In evaluating the Lodging Comparables, Merrill Lynch assumed that the
relative comparability of data for the Company with data for the Lodging
Comparables would not be affected by changes in industry performance or
general business, economic, market and financial conditions. Mathematical
analysis (such as determining the mean or median) of the financial ratios of
the Lodging Comparables is not in itself a meaningful method of using
comparable company data. In addition, in certain instances the mean and median
calculations of financial ratios of the Lodging Comparables have been
performed excluding financial ratios which Merrill Lynch deemed not to be
comparable for the purposes of its analysis.
Implied Stock Price Analysis. Merrill Lynch calculated implied prices at
which the Company Common Stock would trade in the years 1997 through 1999 by
multiplying the estimated EPS of the Company for FY 1998 through FY 2000
derived from the Company Forecast by an implied forward multiple of 22.5x (the
Company's stock price at October 30, 1997 as a multiple of FY 1998 EPS). This
forward multiple was used because Merrill Lynch assumed for the purpose of its
analysis that, if the Transactions were not consummated, there would be no
material changes in the future growth rate or business strategy of the Company
and therefore that there would be a constant relationship between the
Company's EPS and stock price.
Valuation Analysis of New Marriott
Summary of Financial Performance. Merrill Lynch reviewed certain projected
financial performance data and other information of New Marriott, based on the
Company Forecast, for FY 1997 through FY 2002, assuming consummation of the
Transactions (including the retention of approximately $1.444 billion in debt
of the Company by SMS). Merrill Lynch reviewed and charted the projected
Financial Performance Data and Selected Balance Sheet, Cash Flow and Credit
Data for New Marriott on a pro forma basis for FY 1997 and as forecasted
through FY 2002, based on the Company Forecast.
Analysis of Selected Comparable Publicly Traded Companies. Merrill Lynch
performed the analysis described above under "--Valuation Analysis of the
Company--Analysis of Selected Comparable Publicly Traded Companies," comparing
data for New Marriott with the Lodging Comparables.
Implied Stock Price Analysis. Merrill Lynch calculated implied prices at
which the New Marriott Common Stock would trade in the years 1997 through 1999
by multiplying the estimated EPS of New Marriott for FY 1998 through FY 2000
derived from the Company Forecast by implied forward multiples of 22.5x, 24.0x
and 26.0x. These forward multiples were used because Merrill Lynch assumed for
the purpose of its analysis that the New Marriott Common Stock would trade
either at a comparable EPS multiple to the Company Common Stock (see "--
Valuation Analysis of the Company--Implied Stock Price Analysis" above) or at
an expanded multiple to reflect the separation of the Company's lodging
business from its contract services business and the benefits of the
substantial reduction in consolidated debt of New Marriott attributable to the
Transactions.
Valuation Analysis of SMS
Summary of Financial Performance. Merrill Lynch reviewed certain projected
financial performance data and other information of SMS for FY 1997 through FY
2002 (taking into account the Synergies and certain estimates of integration
costs provided by management of the Company and excluding financial
performance data with regard to the United Kingdom operations of MMS), based
on the Company Forecast and the Sodexho North America Forecast. Merrill Lynch
reviewed and charted the projected Financial Performance Data and Selected
Balance Sheet, Cash Flow and Credit Data for SMS for FY 1997 through FY 2002,
based on the Company Forecast and the Sodexho North America Forecast.
Analysis of Selected Comparable Publicly Traded Companies. Merrill Lynch
compared certain financial and operating information and projected financial
performance data for SMS with similar information and data of six public
contract services companies that Merrill Lynch determined are comparable to
SMS: Compass Group, Fine Host Corp., Granada Group, Morrison Health Care,
Servicemaster and Sodexho (the "Contract Services Comparables"). The Contract
Services Comparables were selected because they represent substantially
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all of the publicly traded companies of size that are engaged in the same
lines of business as SMS. Merrill Lynch used earnings estimates for the
Contract Services Comparables based on share price data as of October 30, 1997
and First Call data as of October 29, 1997. Merrill Lynch estimated that, with
respect to the ratio of market value to (a) current FY EPS, for the Contract
Services Comparables (i) the mean was 25.9x and (ii) the median was 27.1x, and
(b) next FY EPS, for the Contract Services Comparables (i) the mean was 21.4x
and (ii) the median was 21.3x. Merrill Lynch estimated that, with respect to
the ratio of market capitalization to (a) LTM EBITDA, for the Contract
Services Comparables (i) the mean was 11.9x and (ii) the median was 11.0x, (b)
LTM EBIT, (i) the mean was 15.1x and (ii) the median was 14.9x, and (c) LTM
sales, (i) the mean was 1.23x and (ii) the median was 0.98x. Merrill Lynch
estimated that, based on I/B/E/S estimates, with respect to (a) five-year EPS
CAGR, for the Contract Services Comparables (i) the mean was 22 percent and
(ii) the median was 25 percent, and (b) the ratio of share price to EPS,
expressed as a multiple of five-year EPS CAGR, for the Contract Services
Comparables (i) the mean was 1.16x and (ii) the median was 0.98x. No company
utilized in the analysis of the Contract Services Comparables is identical to
SMS. In evaluating the Contract Services Comparables, Merrill Lynch assumed
that the relative comparability of data for SMS with data for the Contract
Services Comparables would not be affected by changes in industry performance
or general business, economic, market and financial conditions. Mathematical
analysis (such as determining the mean or median) of the financial ratios of
the Contract Services Comparables is not in itself a meaningful method of
using comparable company data. In addition, in certain instances the mean and
median calculations of financial ratios of the Contract Services Comparables
have been performed excluding financial ratios which Merrill Lynch deemed not
to be comparable for the purposes of its analysis, and certain financial data
were adjusted by Merrill Lynch to conform such data to U.S. generally accepted
accounting principles. Because neither MMS nor Sodexho North America has had a
historical market capitalization, there is no comparable data for either of
those entities.
Implied Stock Price Analysis. Merrill Lynch calculated implied prices at
which the SMS Common Stock would trade in the years 1997 through 1999 by
multiplying the estimated EPS of SMS for FY 1998 through FY 2000 derived from
the Company Forecast and the Sodexho North America Forecast by implied forward
multiples of 20.0x, 22.0x, 23.0x, 24.0x and 26.0x. These forward multiples
were used for the purpose of Merrill Lynch's analysis because Merrill Lynch
believed they represented a reasonable range of EPS multiples for SMS based
upon EPS multiples for the Contract Services Comparables and comparative
financial performance data of the Contract Service Comparables and SMS.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis of SMS, based upon the Company Forecast and the Sodexho North
America Forecast and taking into account the Synergies, with respect to SMS's
(i) projected five-year stream of unlevered free cash flow and (ii) FY 2002
terminal values based upon multiples of 9.0, 10.0 and 11.0 times its projected
FY 2002 EBITDA and discount rates applying a range of weighted average cost of
capital for SMS of 9.0 percent, 9.5 percent, 10.0 percent, 10.5 percent and
11.0 percent. Such analysis yielded average per share equity values for SMS
that, when added to the average equity values derived from a discounted cash
flow analysis of shares of New Marriott that will be distributed to SMS
stockholders pursuant to the Transactions, were greater than the average per
share equity values derived from a discounted cash flow analysis of the
Company for the period if the Transactions were not consummated.
Selected Comparable Acquisitions Analysis. Merrill Lynch also reviewed the
financial terms of 13 acquisitions in the contract catering industry (the
"Comparable Acquisitions"). The Comparable Acquisitions were: (a) Seven
acquisitions by Compass Group: the catering businesses of SHRM, the
foodservice division of Daka, the dining and vending division of Service
America Corp., Sodexho's 33.3 percent ownership stake in Eurest (France),
management's 33.2 percent ownership stake in Eurest (France), Eurest
International and Canteen Corp.; (b) Rentokil's acquisition of BET; (c) the
acquisition by Sodexho and an investor group of Partena AB; (d) Sodexho's
acquisition of Gardner Merchant; (e) Gardner Merchant's acquisition of
Morrison Food Service; (f) Granada Group's acquisition of Sutcliffe Group; and
(g) the acquisition of Gardner Merchant by a management group. The Comparable
Acquisitions were selected because such transactions generally involved
strategic buyers of businesses of size engaged in the primary lines of
business conducted by MMS and Sodexho North America. Merrill Lynch analyzed
ratios comparing offer value per share and transaction value to various
financial performance data. Merrill Lynch determined that, with respect to
offer value as a multiple of latest FY net income, (i) the mean was 20.4x and
(ii) the median was 19.5x. Merrill Lynch determined that, with
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respect to offer value as a multiple of next FY estimated net income, (i) the
mean was 17.3x and (ii) the median was 18.7x. Merrill Lynch determined that,
with respect to transaction value as a multiple of LTM EBITDA, (i) the mean
was 10.4x and (ii) the median was 10.0x. Merrill Lynch determined that, with
respect to transaction value as a multiple of LTM EBIT, (i) the mean was 13.3x
and (ii) the median was 12.3x. Merrill Lynch determined that, with respect to
transaction value as a multiple of LTM sales, (i) the mean was 0.6x and (ii)
the median was 0.6x. Merrill Lynch also noted that, with respect to (i) the
LTM EBIT Margin for the Comparable Acquisitions, (a) the mean was 4.8 percent
and (b) the median was 4.5 percent and (ii) the LTM EBITDA Margin for the
Comparable Acquisitions, (a) the mean was 5.8 percent and (b) the median was
5.0 percent. Merrill Lynch noted that the implied value of the Acquisition to
the holders of Company Common Stock represented, with respect to transaction
value as a multiple of 1997 EBITDA, 10.6x, with respect to transaction value
as a multiple of 1997 EBIT, 15.4x, and with respect to transaction value as a
multiple of 1997 sales, 0.6x. Merrill Lynch noted that such multiples were
equal to or greater than the range of mean and median multiples for the
Comparable Acquisitions.
Value to Marriott Stockholders
Merrill Lynch performed an analysis with respect to the total implied value
per share of the Transactions to holders of the Company Common Stock as of FY
1997 through FY 1999, applying multiples of (i) New Marriott's estimated EPS
of 22.5x, 24.0x and 26.0x and (ii) SMS's estimated EPS of 20.0x, 22.0x, 23.0x,
24.0x and 26.0x, based on estimates of future EPS derived from the Company
Forecast and the Sodexho North America Forecast, and compared such total
implied values per share to the implied future stock prices for the Company
assuming that the Transactions were not consummated. Such analysis indicated a
range of combined values of shares of the New MAR Common Stock, New MAR-A
Common Stock and SMS Common Stock to be held in the aggregate by Company
stockholders in respect of each share of Company Common Stock outstanding
immediately prior to the Transactions that was, in each case, greater than the
implied future stock price of one share of the Company Common Stock assuming
that the Transactions were not consummated and, at the midpoint of the
estimated valuation range, represented premiums of 11.0 percent, 12.7 percent
and 15.0 percent, respectively, to the implied future stock price of one share
of Company Common Stock in the years 1997, 1998 and 1999, assuming that the
Transactions were not consummated.
Pro Forma Ownership of Sodexho Marriott Services; Relative Contribution of
Equity Values
Merrill Lynch noted that the 51 percent of the outstanding SMS Common Stock
to be held by Company stockholders immediately following consummation of the
Transactions was greater than the equity contribution to SMS by the Company as
a percentage of the total equity value of SMS which, (a) before accounting for
Synergies, ranged from (i) 30.5 percent to 47.9 percent based on the results
of the discounted cash flow analysis, (ii) 31.6 percent to 40.6 percent based
on the results of a contribution analysis (which reflected net income
contribution ranges for FY 1997 and FY 1998) and (iii) 41.8 percent to 49.0
percent based on a comparably publicly traded companies analysis, and (b)
after accounting for Synergies (51 percent of which were allocated to MMS and
49 percent of which were allocated to Sodexho North America), ranged from (i)
35.6 percent to 48.8 percent based on the results of the discounted cash flow
analysis, (ii) 35.8 percent to 42.4 percent based on the results of a
contribution analysis (which reflected net income contribution ranges for FY
1997 and FY 1998) and (iii) 42.5 percent to 48.3 percent based on a comparably
publicly traded companies analysis.
While the foregoing summary describes the material analyses and factors
presented by Merrill Lynch to the Company Board, it does not purport to be a
complete description of the analyses conducted by Merrill Lynch or of Merrill
Lynch's presentation to the Company Board. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Merrill Lynch believes that its analysis must
be considered as a whole and that selecting portions of its analysis, without
considering the analysis taken as a whole, would create an incomplete or
misleading view of the process underlying the analysis set forth in the
Fairness Opinion. In addition, Merrill Lynch considered the results of every
portion of its analysis and did not assign relative weights to any portion of
its analysis, so that the ranges of valuations resulting from any particular
analysis described above should not be taken to be Merrill Lynch's view of the
actual value of the Company.
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The analysis performed by Merrill Lynch is not necessarily indicative of
actual values, trading values or actual future results that might be achieved,
all of which may be significantly more or less favorable than suggested by
such analysis and may be affected by changes in industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of the Company, New Marriott, Sodexho and/or Sodexho North
America. In connection with its analysis, Merrill Lynch utilized estimates and
forecasts provided by the respective managements of the Company and Sodexho.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than suggested by such analyses. Because such analyses are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of the Company, Sodexho, New Marriott or SMS, none of the Company, Sodexho,
New Marriott or Merrill Lynch assume responsibility if future results or
actual values are materially different from these forecasts or assumptions.
Such analyses were prepared solely as part of Merrill Lynch's analysis of the
fairness of the terms of the Transactions and were provided to the Company
Board. Merrill Lynch's analysis does not purport to be an appraisal or to
reflect the prices at which a company might be sold. In addition, as described
above, the opinion of Merrill Lynch was one of many factors taken into
consideration by the Company Board in making its determination to approve the
Transactions. Consequently, the analysis described above should not be viewed
as determinative of the opinion of either the Company Board or management of
the Company with respect to the value of the Company, New Marriott or SMS or
whether either the Company Board or management of the Company would have been
willing to agree to different terms for the Transactions or a different
transaction.
Merrill Lynch has been retained by the Company Board as an independent
contractor to act as financial advisor to the Company with respect to the
Transactions and will receive a fee for such services. Merrill Lynch has, in
the past provided, and continues to provide, financial advisory and financing
services to the Company and has received, and continues to receive, customary
fees for the rendering of such services. In addition, in the ordinary course
of Merrill Lynch's securities business, Merrill Lynch may actively trade debt
and/or equity securities of the Company, Sodexho and, following the
Transactions, New Marriott and SMS, for its own account and for the accounts
of its customers, and, therefore, Merrill Lynch may from time to time hold a
long or short position in such securities.
The Fairness Opinion was provided for the information of the Company Board
in connection with its consideration of the Transactions, did not address the
Company Board's underlying business decision to effect the Transactions
(including the proposed issuance of New MAR Common Stock and New MAR-A Common
Stock) and did not constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote on matters relating to the
Transactions. Merrill Lynch did not express any opinion as to the prices
(i) at which shares of the Company Common Stock will trade following the
announcement of the Transactions or (ii) at which shares of either New
Marriott Common Stock or SMS Common Stock will trade following consummation of
the Transactions.
Pursuant to the terms of the engagement letter dated as of September 30,
1997, the Company has agreed to pay Merrill Lynch a fee of $4,000,000 for its
services upon consummation of the Transactions. In addition, the Company also
agreed to reimburse Merrill Lynch for its reasonable out-of-pocket expenses,
including all reasonable fees and expenses of its attorneys, and to indemnify
Merrill Lynch and certain related persons against certain liabilities,
including liabilities under securities laws, arising out of its engagement.
Merrill Lynch is an internationally recognized investment banking firm that
specializes in providing financial advisory services in connection with
mergers and acquisitions and corporate restructurings. Merrill Lynch was
retained to act as the Company's financial advisor in connection with the
Company's evaluation of transactions involving the MMS Business because of its
familiarity with the Company and its businesses and its qualifications and
expertise in providing advice to companies in the businesses in which the
Company is engaged, as well as its reputation as an internationally recognized
investment banking firm.
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Solvency Opinion
In a written opinion, dated December 22, 1997 (the "Solvency Opinion"),
American Appraisal stated that, based upon the considerations set forth
therein and on other factors it deemed relevant, it was of the opinion that,
assuming the Transactions are consummated substantially as proposed: (a) the
fair value of the aggregate assets of the Company before consummation of the
Transactions, and of each of SMS and New Marriott after consummation of the
Transactions, will exceed their respective total liabilities (including
contingent liabilities); (b) the present fair saleable value of the aggregate
assets of the Company before consummation of the Transactions, and of each of
SMS and New Marriott after consummation of the Transactions, will be greater
than their respective probable liabilities on their debts as such debts become
absolute and matured; (c) each of SMS and New Marriott, after consummation of
the Transactions, will be able to pay their respective debts and other
liabilities (including contingent liabilities and other commitments) as they
mature; (d) each of SMS and New Marriott, after consummation of the
Transactions, will not have unreasonably small capital for the business in
which they are engaged, as managements of the Company and Sodexho North
America have indicated such businesses are now conducted and as managements of
SMS and New Marriott have indicated their businesses are proposed to be
conducted following consummation of the Transactions; and (e) the excess of
the fair value of aggregate assets of the Company, before consummation of the
Transactions, over the total identified liabilities (including contingent
liabilities) of the Company is equal to or exceeds the value of the Spinoff to
stockholders plus the stated capital of the Company. The full text of the
Solvency Opinion is set forth in Appendix G, and this summary is qualified in
its entirety by reference to the text of such opinion.
In preparing its opinion, American Appraisal relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
the Company, and did not independently verify such information or undertake
any physical inspection or independent appraisal of the assets or liabilities
of the Company. Such opinion was based on business, economic, market and other
conditions existing on the date such opinion was rendered.
The Solvency Opinion is also based on, among other things, a review of the
agreements relating to the Transactions, historical and pro forma financial
information and certain business information relating to the Company,
including that contained in this Proxy Statement, as well as certain financial
forecasts and other data provided by the Company relating to the businesses
and prospects of SMS and New Marriott. American Appraisal also conducted
discussions with the Company's management with respect to the businesses and
prospects of SMS and New Marriott and conducted such financial studies,
analyses and investigations as it deemed appropriate in rendering its opinion.
American Appraisal was retained to render its opinion as to the solvency of
the Company, SMS and New Marriott because of its familiarity with the
businesses and assets of the Company and its qualifications and reputation in
appraising and valuing companies.
The Company will pay American Appraisal fees of $165,000 for services
rendered in connection with the Transactions, including services it has
conducted to render its opinion.
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THE TRANSACTIONS
The following discussion summarizes the material aspects of the proposed
Transactions, which will be consummated in accordance with the terms of the
Distribution Agreement, the Acquisition Agreement, the Omnibus Restructuring
Agreement dated as of September 30, 1997, as amended, by and among the
Company, Merger Sub, New Marriott, Sodexho and ICC (the "Omnibus Agreement")
and the Amendment Agreement by and among the Company, Merger Sub, New
Marriott, Sodexho and ICC (the "Amendment Agreement"), which are collectively
referred to hereafter as the "Restructuring Agreements." The Restructuring
Agreements and the other agreements described in this Proxy Statement that are
being entered into in connection with the Transactions are hereinafter
referred to as the "Transaction Documents." The summaries set forth below of
certain provisions of the Distribution Agreement, the Acquisition Agreement,
the Omnibus Agreement and the Amendment Agreement, each of which is attached
as an Appendix hereto, do not purport to be complete and are qualified in
their entirety by reference to such agreements, which are incorporated herein
by reference. ALL STOCKHOLDERS ARE URGED TO READ IN THEIR ENTIRETY THE
DISTRIBUTION AGREEMENT, THE ACQUISITION AGREEMENT, THE OMNIBUS AGREEMENT AND
THE OTHER AGREEMENTS AND DOCUMENTS THAT ARE ATTACHED HERETO.
OVERVIEW
The principal components of the Transactions to be effected on the Effective
Date are the Spinoff, the Acquisition and the refinancing of the debt of the
Company.
The Spinoff
The Company will transfer all of the assets and liabilities of the New
Marriott Business to New Marriott in a transaction intended to qualify as a
tax-free reorganization. The Company will spin off all of the outstanding
shares of capital stock of New Marriott to the holders of Company Common Stock
in a transaction intended to qualify as a tax-free distribution. The
Distribution Agreement is the principal document governing the terms upon
which the Company will spin off to its stockholders all of the outstanding
capital stock of New Marriott.
The Acquisition
The Company will acquire Sodexho North America, and Sodexho will pay $304
million to the Company, in exchange for approximately 49 percent of the shares
of SMS Common Stock that will be issued and outstanding immediately after the
Transactions. The number of shares issued to Sodexho will reflect the one-for-
four reverse stock split effected immediately after the Spinoff (the "SMS
Reverse Stock Split"). Following the Acquisition, the Company will change its
name to "Sodexho Marriott Services, Inc.," and New Marriott will change its
name to "Marriott International, Inc." The Acquisition will be consummated in
accordance with the terms of the Acquisition Agreement.
The Refinancing
The Company and its indirect subsidiary, RHG Finance, will tender for a
total of $720 million principal amount of their respective outstanding
publicly held debt. Prior to the Spinoff, the Company will pay off all
commercial paper with borrowings under the Existing Bank Facility, and, on or
prior to the Effective Date, the Existing Bank Facility will be refinanced by
the Company. Such tender offers and refinancings will be financed by the
Replacement SMS Debt and the $304 million cash payment from Sodexho. The
Company and New Marriott have agreed that the post-Spinoff indebtedness to be
retained by SMS (and for which New Marriott will not be responsible) will
total $1.444 billion, a portion of which will be repaid shortly after the
Acquisition with the $304 million cash payment from Sodexho made
simultaneously with the Acquisition. On the Effective Date, based on the
results of the tender offers made by the Company and RHG Finance and the
amount of indebtedness refinanced under the Existing Bank Facility, either SMS
will make a payment to New Marriott or New Marriott will make a payment to SMS
to give effect to the agreed level of debt to be retained by SMS. Following
the consummation of the Transactions, assuming the tender offers and
refinancings described above are successful, it is expected that the long-term
debt of SMS and New Marriott will be approximately $1.2 billion and $400
million, respectively. The consummation of the Transactions is not conditioned
on the success of the tender offers, and Sodexho's obligation to consummate
the Transactions is not subject to any financing condition.
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However, if such financing is not obtained, and funds in such amount are not
otherwise available to SMS, the Transactions will not be consummated. See
"FINANCING."
Following the Transactions, it is expected that shares of New Marriott
Common Stock will be listed on the NYSE under the symbols "MAR" for the New
MAR Common Stock and "MAR-A" for the New MAR-A Common Stock, and shares of SMS
Common Stock will continue to be listed on the NYSE under a new symbol, "SDH."
Effective Date
The Company will not effect the Spinoff in the event that the Transactions
are not approved at the Special Meeting. It is intended that the Transactions
be consummated as soon as possible following the Special Meeting. The parties
have agreed that all Transactions will close simultaneously as a single
closing. It is contemplated that the Effective Date will be the last day of
the Company's four-week accounting period immediately following satisfaction
of all conditions to closing, including the vote of the stockholders of the
Company at the Special Meeting, or such other time and place as the parties to
the Acquisition Agreement may agree. There can be no assurance, however, as to
whether or when the Transactions will be consummated. See "--Regulatory
Approvals; Other Conditions to the Transactions."
Transactions Prior to the Effective Date
On October 31, 1997, the Company sold to a subsidiary of Sodexho the
operations of the MMS Business located in the United Kingdom for $50 million
in cash, subject to certain post-closing adjustments.
On or prior to the Effective Date, the Company will cause the capital stock
of Marriott Corporation of Canada, Ltd. ("MMS Canada") to be distributed to it
by Marriott Worldwide Corporation ("MWC") so that MMS Canada will be a direct
subsidiary of the Company and will remain a subsidiary of SMS after the
Transactions. MWC will be a subsidiary of New Marriott prior to and following
the Spinoff.
EFFECT ON PERSONS IN THE TRANSACTIONS
In the Transactions, the Company stockholders and Sodexho will receive the
following:
Company Common Stockholders
. In the Spinoff, each holder of Company Common Stock at the record date
for the Spinoff (the "Spinoff Record Date") will receive one share of
New MAR Common Stock and one share of New MAR-A Common Stock for each
share of Company Common Stock held by such holder, before giving effect
to the SMS Reverse Stock Split.
. Each holder of Company Common Stock issued and outstanding at the
Spinoff Record Date will retain such shares of Company Common Stock, and
every four shares of such Company Common Stock will immediately after
the time of the Spinoff be combined into one share of SMS Common Stock
pursuant to the SMS Reverse Stock Split, and SMS will own Sodexho North
America. As a result of the issuance of new shares of SMS Common Stock
to Sodexho in connection with the Transactions, the stockholders who
owned 100 percent of the Company prior to the Transactions will retain
approximately 51 percent of the SMS Common Stock.
Sodexho
. Sodexho North America will be acquired by the Company pursuant to the
Acquisition Agreement in exchange for, in the aggregate, shares of SMS
Common Stock which, together with shares of SMS Common Stock that will
be subject to options to be granted to former holders of options to
acquire ICC shares pursuant to the Acquisition Agreement, will represent
49 percent of all shares of SMS Common Stock outstanding immediately
following the Transaction (approximately 48.2 percent to be issued to
Sodexho and options to acquire shares representing approximately 0.8
percent to be issued to former holders of ICC options).
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DEBT REFINANCING
Debt Tender Offers by the Company
It is the intent of the parties that the Company remain directly obligated
with respect to the four series of notes (the "Company Senior Notes") with a
principal amount of $600 million issued pursuant to the Indenture dated as of
December 1, 1993, as amended, between the Company and Chemical Bank, as
trustee (the "Company Senior Notes Indenture"). Therefore, the Company and New
Marriott have agreed under the Distribution Agreement to undertake the
following actions with respect to each series of the Company Senior Notes.
First, the Company will commence a tender offer to purchase all issued and
outstanding notes of each series of Company Senior Notes and simultaneously
therewith solicit consents to a supplemental indenture with respect to such
series containing such amendments to the Company Senior Notes Indenture as may
be determined by the Company in its sole discretion to be necessary or
appropriate. Upon consummation of the Transactions, the Company will purchase
all Company Senior Notes that have been validly tendered and not withdrawn.
If holders of a majority in outstanding principal amount of a series of
Company Senior Notes execute and deliver consents to enter into the pertinent
supplemental indenture, any Company Senior Notes that were not validly
tendered or were withdrawn will remain obligations of SMS, subject to the
terms of the Company Senior Notes Indenture, as amended by the supplemental
indenture. If holders of a majority in outstanding principal amount of a
series of Company Senior Notes do not execute and deliver consents to enter
into the supplemental indenture, New Marriott will assume all obligations of
the Company under the Company Senior Notes Indenture, as a result of which
such Company Senior Notes will become obligations of New Marriott, and the
Company will contribute cash to New Marriott, in an amount equal to the
principal amount of all Company Senior Notes of such series so assumed by New
Marriott that were not tendered for repurchase. The supplemental indenture
pursuant to which New Marriott would assume the Company Senior Notes does not
require the consent of holders of any Company Senior Notes because it will be
executed in connection with a sale or transfer of the Company's assets
substantially in their entirety, which requires the execution of a
supplemental indenture to reflect such assumption (but does not require the
consent of holders).
The sum of (i) the principal amount of the Company Senior Notes purchased in
the tender offers described above, (ii) the amount of cash contributed by the
Company to New Marriott in respect of Company Senior Notes assumed by New
Marriott as described above and (iii) the principal amount of Company Senior
Notes retained by SMS as described above, collectively, is referred to as the
"Company Senior Note Amount."
Debt Tender Offer by RHG Finance
It is the intent of the parties that the $120 million of indebtedness (the
"RHG Senior Notes") issued pursuant to the Indenture dated as of October 1,
1995, as amended, among RHG Finance, as Issuer, Renaissance Hotel Group N.V.,
a Netherlands corporation and subsidiary of the Company ("RHG"), as Guarantor,
the Company, as Additional Guarantor, and The First National Bank of Chicago,
as indenture trustee (the "RHG Senior Notes Indenture"), be refinanced. Both
RHG and RHG Finance will be subsidiaries of New Marriott after the Effective
Date and will no longer be subsidiaries of SMS after the Effective Date.
Pursuant to the Distribution Agreement, RHG Finance will commence a tender
offer to purchase all issued and outstanding RHG Senior Notes. Upon
consummation of the Transactions, RHG Finance will purchase all RHG Senior
Notes validly tendered and not withdrawn. Any RHG Senior Notes that were not
validly tendered or were withdrawn will remain obligations of RHG Finance that
are guaranteed by RHG, and New Marriott will, pursuant to a supplemental
indenture, assume the obligation of the Company to guarantee the RHG Notes.
The Company will contribute cash to New Marriott in an amount equal to the
principal amount of all RHG Senior Notes. The supplemental indenture referred
to above will not require the consent of holders of the RHG Senior Notes
because it will be executed in connection with a sale or transfer of the
Company's assets substantially in their entirety, which requires the execution
of a supplemental indenture to reflect the assumption by New Marriott of the
Company's guarantee thereunder (but does not require the consent of holders).
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The amount of cash contributed by the Company to New Marriott as described
above is referred to as the "RHG Senior Note Amount."
Liquid Yield Option Notes
The rights of holders of the Liquid Yield Option Notes of the Company (the
"LYONs") issued pursuant to the Indenture dated as of March 25, 1996 between
the Company and The Bank of New York, as indenture trustee (the "LYONs
Indenture"), will be allocated between SMS and New Marriott in the manner
described in the LYONs Allocation Agreement between New Marriott and SMS (the
"LYONs Allocation Agreement") and a supplemental indenture to the LYONs
Indenture, each of which will be entered into upon consummation of the
Transactions. The Issue Price plus Original Issue Discount (as such terms are
defined in the LYONS Indenture) accrued to the Effective Date on the share of
LYONs allocated to SMS by the LYONs Allocation Agreement is referred to as the
"LYONs Amount." See "--Arrangements Between SMS and New Marriott--LYONs
Allocation Agreement and Supplemental Indenture."
Existing Bank Facility
Prior to the Spinoff, the Company will pay off all of its commercial paper
with borrowings made under the Existing Bank Facility. On or prior to the
Effective Date, the Company will refinance all amounts outstanding under the
Existing Bank Facility. As of January 28, 1998, an aggregate of approximately
$721 million was outstanding in commercial paper and under the Existing Bank
Facility.
The principal amount of indebtedness for borrowed money under the Existing
Bank Facility outstanding immediately prior to the consummation of the
Transactions and repaid on the Effective Date as contemplated by the
Distribution Agreement is referred to as the "Existing Bank Facility Amount."
Effective Date Payment
The Company and New Marriott have agreed that the post-Spinoff indebtedness
to be retained by SMS (and for which New Marriott will not be responsible)
will total $1.444 billion. Accordingly, in connection with the consummation of
the transactions contemplated by the Restructuring Agreements, either (i) SMS
will transfer to New Marriott cash in an amount equal to the excess of (a)
$1.444 billion, over (b) the sum of the Company Senior Note Amount, the RHG
Senior Note Amount, the Existing Bank Facility Amount and the LYONs Amount, or
(ii) if the sum of the amounts set forth in clause (b) is greater than $1.444
billion, New Marriott will transfer to SMS cash in an amount equal to such
excess.
CERTAIN POST-CLOSING ADJUSTMENTS
The acquisition of Sodexho North America by the Company, and the issuance of
SMS Common Stock to Sodexho, are generally without recourse for the breach of
any representations or warranties of the parties set forth in the Acquisition
Agreement.
In accordance with procedures set forth in the Restructuring Agreements, the
parties have agreed to make certain payments based on the amount of the
adjusted net tangible assets of the Company and Sodexho North America,
determined as of the Effective Date. If the "adjusted net tangible assets" (as
defined in the Distribution Agreement) of the MMS Business at the Effective
Date is greater than $103.2 million, SMS will promptly pay to New Marriott the
amount of such excess, together with interest thereon from the Effective Date
through and including the date of such payment, and if the "adjusted net
tangible assets" of the MMS Business is less than $103.2 million, New Marriott
will promptly pay to SMS the amount of such difference, together with interest
thereon from the Effective Date through and including the date of such
payment.
If the "adjusted net tangible assets" (as defined in the Acquisition
Agreement) of Sodexho North America at the Effective Date is greater than
negative $35 million, SMS will promptly pay to Sodexho the amount of such
excess, together with interest thereon from the Effective Date through and
including the date of such payment, and if the "adjusted net tangible assets"
of Sodexho North America is less than negative $35 million,
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Sodexho will promptly pay to SMS the amount of such difference, together with
interest thereon from the Effective Date through and including the date of
such payment.
NO-SHOP PROVISIONS; TERMINATION OF THE TRANSACTIONS
Pursuant to the Acquisition Agreement, prior to the earlier of the Effective
Date and the termination of the Acquisition Agreement, the Company has agreed
not to solicit or provide confidential information to facilitate the making of
an Acquisition Proposal (as defined below), enter into any agreement with
respect to such a proposal, or participate in discussions regarding such a
proposal. With respect to an unsolicited Acquisition Proposal, however, the
Company may furnish information and participate in negotiations if the Company
Board is advised by its financial advisors that the potential acquiror has the
financial wherewithal to consummate such proposal, such proposal involves
consideration and other terms which are superior to the Transactions, and
based on advice of counsel, the Company Board determines in good faith that it
is necessary to furnish information and participate in negotiations to comply
with its fiduciary duties.
The Acquisition Agreement provides that the Company Board will recommend
approval and adoption of the Acquisition Agreement and the Transactions,
subject to its fiduciary duties under applicable law. It further provides that
the Company may terminate the Acquisition Agreement ("Fiduciary Termination")
if (i) the Company Board has determined in good faith, based on the advice of
outside counsel, that it is necessary, in order to comply with its fiduciary
duties to the Company's stockholders under applicable law, to terminate the
Acquisition Agreement to enter into an agreement with respect to or to
consummate a transaction constituting a Superior Proposal (as defined below),
(ii) the Company has given notice to Sodexho advising Sodexho that the Company
has received a Superior Proposal from a third party, specifying the material
terms and conditions (including the identity of the third party) and that the
Company intends to terminate the Acquisition Agreement and (iii) either (a)
Sodexho has not revised its acquisition proposal within ten days from the time
on which such notice is deemed to have been given to Sodexho or (b) if Sodexho
within such period has revised its acquisition proposal, the Company Board,
after receiving advice from the Company's financial advisor, has determined in
its good faith reasonable judgment that the third party's Acquisition Proposal
is superior to Sodexho's revised Acquisition Proposal.
As used above, the term "Acquisition Proposal" means any bona fide proposal,
in writing, made by a person or entity, pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock, sale of assets,
tender offer or exchange offer or similar transaction, involving the Company
or the MMS Business, including any single or multi-step transaction or series
of related transactions (other than the Transactions) which is structured to
permit such person or entity to acquire beneficial ownership (as defined under
Rule 13(d) of the Securities Exchange Act of 1934, as amended, and all rules
and regulations thereunder (the "Exchange Act")) of any material portion of
the assets of, or any material portion of the equity interest in the Company
or the MMS Business; provided that the term "Acquisition Proposal" does not
include any transaction or series of transactions which relate solely to the
New Marriott Business so long as the consummation of such transaction or
transactions (i) would not reasonably be anticipated to adversely affect or
delay the consummation of the Transactions and (ii) could not cause New
Marriott to cease to be engaged in the conduct of the active trade or
businesses relied upon for the purposes of satisfying the requirements of
Section 355(b) of the Code for purposes of the tax ruling being sought by the
Company. As used above, the term "Superior Proposal" means an Acquisition
Proposal which the Company Board determines in its good faith reasonable
judgment to be more favorable to the Company's stockholders than the
Transactions (based on advice of the Company's independent financial advisor
that the value of the consideration provided for in such proposal is superior
to the value of the consideration provided for in the Transactions), for which
financing, to the extent required, is then committed and for which the Company
Board determines, in its good faith reasonable judgment, that such proposed
transaction is reasonably likely to be consummated without undue delay.
Prior to the earlier of the Effective Date and the termination of the
Acquisition Agreement, Sodexho has agreed that it will not solicit or provide
confidential information to facilitate the making of a proposal to acquire ICC
or Sodexho Canada, enter into any agreement with respect to such a proposal,
or participate in discussions
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regarding such a proposal. Sodexho does not have the right to terminate the
Acquisition Agreement based on its fiduciary duties under applicable law.
In addition to the Fiduciary Termination described above, the Restructuring
Agreements may be terminated and the Transactions may be abandoned: (a) by
mutual written consent of the parties; (b) by any party if any court of
competent jurisdiction or other governmental entity has issued a final order,
decree or ruling or taken any other final action restraining, enjoining or
otherwise prohibiting the consummation of the Transactions, and such order,
decree, ruling or other action is or has become nonappealable; (c) by any
party if stockholders of the Company fail to approve and adopt the
Transactions at the Special Meeting (or any adjournment thereof); or (d) by
any party if the consummation of the Transactions has not occurred by June 30,
1998.
The Restructuring Agreements may also be terminated and the Transactions
abandoned by the Company, New Marriott or Merger Sub (the "Company Parties")
(a) if there has been a breach of any covenant in the Acquisition Agreement or
any related agreement on the part of Sodexho or ICC (the "Sodexho Parties")
which (x) materially adversely affects (or materially delays) the consummation
of the Transactions and (y) has not been cured prior to 30 days following
notice of such breach; or (b) if a condition to the obligations of the Company
Parties to consummate the Transactions set forth in the Acquisition Agreement
becomes incapable of being satisfied. Similarly, the Restructuring Agreements
may be terminated and the Transactions abandoned by the Sodexho Parties (a) if
there has been a breach of any covenant in the Acquisition Agreement or any
related agreement on the part of the Company Parties which (x) materially
adversely affects (or materially delays) the consummation of the Transactions
and (y) has not been cured prior to 30 days following notice of such breach;
or (b) if a condition to the obligations of the Sodexho Parties to consummate
the Transactions set forth in the Acquisition Agreement becomes incapable of
being satisfied.
In the event of termination of the Restructuring Agreements and the
abandonment of the Transactions as set forth above, other than as set forth
below under "--Termination Fees; Expenses," no party (or any of its respective
affiliates, directors, officers or stockholders) will have any liability or
further obligation to any other party, except that the Restructuring
Agreements do not relieve any party from liability for breach of any agreement
or covenant contained in any Transaction Document.
TERMINATION FEES; EXPENSES
If the Acquisition Agreement is terminated by the Company pursuant to the
Fiduciary Termination, the Company has agreed to pay promptly to Sodexho an
amount equal to the reasonable fees and expenses paid or payable by or on
behalf of Sodexho and ICC to their attorneys, accountants, consultants and
advisors in connection with the negotiation, execution and delivery of the
Acquisition Agreement; provided, that such payment in no event will exceed
$5,000,000. If following a Fiduciary Termination, the Company, within 12
months following the date of such termination, consummates an acquisition
proposal with the person that made the Superior Proposal that resulted in the
Acquisition Agreement being terminated, then the Company has agreed to
promptly pay to Sodexho a fee equal to $75,000,000.
If the Transactions are not consummated as a result of a breach of any
Transaction Document, then (i) if the breaching party is Sodexho or ICC,
Sodexho will be liable for and will promptly pay to the Company the sum of
$75,000,000 as liquidated damages (and not as a penalty), and (ii) if the
breaching party is the Company, New Marriott or Merger Sub, the Company will
be liable for and will promptly pay to Sodexho the sum of $25,000,000 as
liquidated damages (and not as a penalty). The parties have agreed that the
amounts referred to above are a reasonable estimate of the damages that would
be sustained by Sodexho or the Company, as the case may be, in the event the
closing of the Transactions does not occur.
The fees and expenses of the Company's financial advisor, its public
accountants and its legal counsel, and any costs of obtaining third-party or
regulatory consents required to be obtained by the Company or New Marriott in
connection with the Transactions will be borne by New Marriott. Except in
connection with a Fiduciary Termination of the Acquisition Agreement, any fees
and expenses of Sodexho's financial advisor, its
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public accountants and its legal counsel, and any costs of obtaining third-
party or regulatory consents required to be obtained by Sodexho or ICC in
connection with the Transactions will be borne by Sodexho. If the Transactions
are consummated, any fees and expenses of any of the foregoing firms,
accountants or investment bankers incurred in connection with the Replacement
SMS Debt, and costs of obtaining third-party or regulatory consents relating
to the MMS Business, will be, in each case, for the account of SMS.
REGULATORY APPROVALS; OTHER CONDITIONS TO THE TRANSACTIONS
The respective obligations of the parties to consummate the Transactions are
subject to certain regulatory approvals, which include the following: (a)
expiration or termination of the waiting period under the Hart-Scott- Rodino
Antitrust Improvements Act of 1976, as amended, and the rules promulgated
thereunder (the "HSR Act"); (b) any approvals required under the Exchange Act
and the Securities Act of 1933, as amended, and all rules and regulations
thereunder (the "Securities Act"); (c) the filing and recordation of the
Certificate of Merger as required by the DGCL; (d) such filings and approvals
as may be required under the "takeover" or "blue sky" laws of various states;
and (e) receipt of a private letter ruling from the IRS confirming that the
Spinoff and the contribution of the New Marriott Business to New Marriott will
have Tax-Free Status. There can be no assurance that such approvals will be
obtained.
It is a condition to the consummation of the Transactions that the waiting
period under the HSR Act has expired or been terminated. Under the HSR Act,
transactions exceeding certain monetary thresholds may not be consummated
unless certain notification and waiting period requirements have been
satisfied. The Transactions exceed those thresholds. On November 17, 1997,
each of the Company and Sodexho filed a Premerger Notification and Report Form
pursuant to the HSR Act with the U.S. Department of Justice and the Federal
Trade Commission. The required waiting period for the Transactions expired on
December 17, 1997.
A request for a private letter ruling from the IRS confirming that the
Spinoff and the contribution of the New Marriott Business to New Marriott
qualify as tax-free transactions under Sections 355 and 368 of the Code was
filed with the IRS on October 14, 1997. Certain supplemental filings with the
IRS relating to the ruling request have been made, and additional supplemental
filings may be made in the future if necessary.
The respective obligations of the parties to consummate the Transactions are
subject to certain additional conditions, including the following: (a)
approval of the Acquisition Agreement, the Distribution Agreement and the
transactions contemplated thereby by the Company's stockholders, (b) there
being in effect no statute, rule, regulation, order, decree or injunction of
any governmental entity, which prohibits the consummation of the Transactions,
and (c) consummation of the closing under the stock purchase agreement
pursuant to which MMS's operations in the United Kingdom were sold to Sodexho
(which condition was satisfied on October 31, 1997).
The obligation of the Sodexho Parties to consummate the Transactions is
subject to the satisfaction at or prior to the Effective Date of the following
conditions: (a) the representations and warranties of the Company Parties
contained in the Acquisition Agreement being true at the Effective Date,
without giving effect to any materiality qualification contained therein;
provided, however, that such representations need not be true so long as those
that are not true would not, in the aggregate, have a material adverse effect
on the combined operations of the MMS Business and the Sodexho North America
Business (a "Combined Business Material Adverse Effect"), (b) each Company
Party having complied in all material respects with all obligations required
to be performed by it under the Acquisition Agreement prior to the Effective
Date, each Transaction Document to which it is a party having been executed
and delivered, and of all obligations required to be performed by it under
each Transaction Document prior to the Effective Date having been performed in
all material respects, (c) such certificates of the Company Parties evidencing
fulfillment of conditions as the Sodexho Parties may reasonably request having
been received by the Sodexho Parties, (d) the charter documents (including
bylaws), resolutions of the Board and incumbency certificates of each Company
Party having been received by the Sodexho Parties, (e) certain third-party
consents and approvals required to be obtained by the Company Parties having
been received, unless Sodexho and the Company have entered into arrangements
satisfactory to Sodexho
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with respect to any consents that have not been received, (f) all of the
capital stock of MMS Canada being held directly by the Company, (g) the
Company Board having taken all action necessary to render the rights issued
pursuant to the terms of the Company Rights Plan inapplicable to the
Transactions and (h) the Spinoff having been consummated in accordance with
the terms of the Distribution Agreement. With respect to the condition set
forth in clause (e) above, although the Company and Sodexho have agreed to
discuss possible alternative arrangements should any such consents or
approvals not be obtained, the parties have agreed in advance upon certain
arrangements that, if satisfied by New Marriott at the Effective Date, would
fulfill the condition to the Transactions dealing with such consents. These
arrangements involve, among other things, (i) New Marriott delivering to SMS
an irrevocable standby letter of credit in an amount of up to $100 million for
the benefit of SMS should a final judgment based on the failure to obtain any
such consent or approval be rendered against SMS, and (ii) New Marriott
providing dedicated availability under a revolving credit facility of New
Marriott for the benefit of SMS to the extent such letter of credit is
insufficient to cover the agreed upon exposure to SMS arising from New
Marriott's failure to obtain specified consents.
In addition, the obligation of the Company Parties to consummate the
Transactions is subject to the satisfaction on or prior to the Effective Date
of the following conditions: (a) the representations and warranties of the
Sodexho Parties contained in the Acquisition Agreement being true at the
Effective Date, without giving effect to any materiality qualification
contained therein; provided, however, that such representations need not be
true so long as those that are not true would not, in the aggregate, have a
Combined Business Material Adverse Effect, (b) each Sodexho Party having
complied in all material respects with all obligations required to be
performed by it under the Acquisition Agreement prior to the Effective Date,
each Transaction Document to which it is a party having been executed and
delivered, and all obligations required to be performed by it under each
Transaction Document having been performed in all material respects prior to
the Effective Date, (c) such certificates of the Sodexho Parties evidencing
fulfillment of conditions as the Company Parties may reasonably request having
been received by the Company Parties, (d) the charter documents (including
bylaws), resolutions of the Board and incumbency certificates of ICC and
Sodexho Canada having been received by the Company Parties, (e) any third-
party consents and approvals required to be obtained by the Sodexho Parties
having been received, (f) the Spinoff having been consummated in accordance
with the terms of the Distribution Agreement and (g) any contracts relating to
matters covered by the Assistance Agreement and the Royalty Agreement (each as
discussed under "--Arrangements Between SMS and Sodexho") having been
terminated.
At any time prior to the Effective Date, the parties may waive any of the
respective conditions set forth above. Any such waiver must be in writing
signed on behalf of the waiving party. If the receipt of a tax ruling from the
IRS is waived, the Company will resolicit stockholders to disclose the waiver
of this condition and provide stockholders with all relevant disclosure
related thereto.
CERTAIN COVENANTS
Subject to limited exceptions, in the Acquisition Agreement, each of Sodexho
(with respect to the Sodexho North America Business) and the Company (with
respect to the MMS Business) has agreed to conduct its operations through the
Effective Date according to its ordinary course of business, consistent with
past practice; to use its commercially reasonable efforts to preserve its
business organization, material rights and franchises; to keep available the
services of its officers and key employees; and to keep in full force and
effect insurance comparable in amount and scope of coverage to that maintained
as of September 30, 1997. In addition, the Acquisition Agreement contains
certain covenants on behalf of such parties governing operations through the
Effective Date as are customary in such transactions.
The Acquisition Agreement also contains certain covenants regarding making
required securities law filings and otherwise cooperating with respect to
regulatory notifications and approvals. Each of the parties has agreed
promptly to take all actions and do or cause to be done all things necessary
to make the required filings, to comply with any requests for additional
information, and to resolve any investigation or inquiry, under the HSR Act
and any foreign antitrust laws. Each party has also agreed to take all
reasonable action as may be required to resolve any antitrust objections, so
long as such action would not reasonably be expected to substantially
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adversely affect the benefits and opportunities that such party could
reasonably expect to receive from the Transactions.
In addition, the Acquisition Agreement contains a covenant regarding making
a filing with the IRS to request a private letter ruling confirming that the
Spinoff and the contribution of the New Marriott Business to New Marriott
qualify as tax-free transactions under Sections 355 and 368 of the Code. Each
party has agreed to consider in good faith making representations, covenants,
changes to rights and obligations or changes to the structure of the
Transactions if such covenants or changes are made conditions to the receipt
of such a private letter ruling. Each party has also agreed to accept such
representations, covenants or changes unless such acceptance would be
reasonably likely to deprive such party of material benefits or impose upon
such party material burdens or risks, provided, that the parties have agreed
to make any such adjustments that are reasonably necessary in order to
reflect, to the extent practicable, the economic effect of such
representations, covenants or changes that have a reasonably identifiable
economic effect on the Transactions. The parties have further agreed to modify
the Tax Sharing Agreement as necessary to reflect any such changes in the
Transactions.
The Company has agreed in the Acquisition Agreement to take, at Sodexho's
request, all actions necessary to amend the Rights Agreement dated as of
October 8, 1993, as amended, between the Company and The Bank of New York (the
"Company Rights Plan"), the effect of which would be to terminate the Company
Rights Plan or cause the rights issued under the Company Rights Plan to be
extinguished, canceled, redeemed or otherwise made inapplicable. Prior to
entering into the Restructuring Agreements, the Company amended the Company
Rights Plan so that the Company Rights Plan would not be applicable to the
Transactions.
ARRANGEMENTS BETWEEN SMS AND NEW MARRIOTT
Pursuant to the Distribution Agreement, the Company and New Marriott have
agreed upon the allocation of assets and liabilities related to the MMS
Business and the New Marriott Business. In this regard, SMS has agreed
generally to indemnify New Marriott against liabilities that relate to the MMS
Business, and New Marriott has agreed generally to indemnify SMS against
liabilities that relate to the New Marriott Business. The Company and New
Marriott have also agreed to enter into a number of Transaction Documents
governing their relationship after the Effective Date. These Transaction
Documents are described below.
Tax Sharing Agreement
The Tax Sharing Agreement by and among the Company, New Marriott and Sodexho
provides that New Marriott will be liable for all taxes of the Company (other
than sales, use and property taxes, which will be borne by the entities filing
such returns) for all periods up to and including the Effective Date. For all
periods following the Effective Date, SMS will be liable for all taxes of the
MMS Business and for all Sodexho North America taxes. The agreement also
provides mechanisms for cooperation in preparing returns and provides for an
indemnity if either New Marriott (or an affiliate) or SMS or Sodexho (or their
affiliates) cause the contribution of the New Marriott Business or the Spinoff
to become taxable transactions.
In addition, the parties have agreed for certain specified periods after the
Spinoff not to take specific actions that could cause the Spinoff not to have
Tax-Free Status. In particular, (i) for a period of two years after the
Effective Date, each of New Marriott and SMS will not cease to be engaged in
any trade or business relied upon for purposes of obtaining the tax ruling and
(ii) for a period of three years after the Effective Date, each of New
Marriott and SMS have agreed not to commence or support a tender offer for its
securities or approve a transaction which would result in a person acquiring
50 percent or more of its securities. Likewise, for a three-year period after
the Effective Date, Sodexho has agreed not to acquire or permit the
acquisition of a 50 percent or greater interest in SMS. Finally, SMS has
agreed not to sell or otherwise issue equity securities during the three-year
period after the Effective Date (with the exception of shares issued pursuant
to the LYONs and shares issued to employees or directors pursuant to
compensatory award plans). Under the Tax Sharing Agreement generally, if a
person unrelated to any of the parties acquires an interest in SMS that causes
the Spinoff not to have Tax-Free Status, or if Sodexho or SMS causes the
Spinoff not to have Tax-Free Status, Sodexho and SMS
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will indemnify and hold harmless New Marriott and certain affiliated persons
for the resulting tax and related liabilities. If, on the other hand, an
unrelated person acquires an interest in New Marriott that causes the Spinoff
not to have Tax-Free Status, or if New Marriott causes the Spinoff not to have
Tax-Free Status, New Marriott will indemnify and hold harmless SMS and certain
affiliated persons for the resulting tax and related liabilities. The Tax
Sharing Agreement will not be binding on the IRS or any other taxing authority
and will not affect the several liability of the Company, New Marriott and SMS
and their respective subsidiaries to the IRS for all U.S. Federal and certain
state income taxes of the Company's consolidated group relating to the periods
ending on or prior to the Effective Date (including any tax liability
resulting from a failure of the Spinoff to have Tax-Free Status). See "RISK
FACTORS--Certain Tax Considerations" and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF THE TRANSACTIONS TO THE COMPANY AND ITS STOCKHOLDERS."
Employee Benefits Allocation Agreement
On September 30, 1997, the Company and New Marriott entered into an Employee
Benefits and Other Employment Matters Allocation Agreement (the "Employee
Benefits Allocation Agreement") providing for the allocation of employees of
the Company and obligations and responsibilities regarding compensation,
benefits and labor matters. Under the Employee Benefits Allocation Agreement,
effective as of the Effective Date, SMS and New Marriott will allocate all
employees of the Company and its subsidiaries as of the Effective Date to
either New Marriott (the "New Marriott Employees") or SMS (the "SMS
Employees"), based upon whether each employee's employment duties before the
Effective Date relate to the New Marriott Business or the business of SMS (the
"SMS Business") and upon various other factors as applicable.
Subject to the exceptions discussed below, the Employee Benefits Allocation
Agreement provides that SMS will be responsible for historical liabilities and
obligations under the Company employee benefit plans on behalf of SMS
Employees and Former Employees (as defined below) whose employment related to
the SMS Business, and that New Marriott will be responsible for historical
liabilities and obligations under the Plans on behalf of New Marriott
Employees and Former Employees whose employment related to the New Marriott
Business. "Former Employees" refers to employees who terminate employment with
the Company prior to the Effective Date. New Marriott and SMS will each assume
and continue to administer benefit plans maintained at the division level by
the New Marriott Business (in the case of New Marriott) or the SMS Business
(in the case of SMS) before the Effective Date. New Marriott will assume each
collective bargaining agreement covering New Marriott Employees, and SMS or a
subsidiary of SMS will retain each collective bargaining agreement covering
SMS Employees. SMS and New Marriott may amend and/or terminate any of the
benefit plans covering their employees at any time.
Specific provisions of the Employee Benefits Allocation Agreement include
the following:
Company Profit Sharing Plan. New Marriott will assume sponsorship of the
Marriott International, Inc. Profit Sharing Plan (the "Company Profit Sharing
Plan") as of the Effective Date (the "New Marriott Profit Sharing Plan") and
SMS will establish or designate a separate profit sharing plan (the "SMS
Profit Sharing Plan"). Plan accounts of New Marriott Employees and Former
Employees will remain in the New Marriott Profit Sharing Plan, and plan
accounts of SMS Employees will be transferred from the New Marriott Profit
Sharing Plan to the SMS Profit Sharing Plan.
Company Deferred Compensation Plan. New Marriott will establish a deferred
compensation plan under which New Marriott will assume the liabilities and
obligations with respect to the undistributed account balances of all
individuals other than SMS Employees accrued under the Marriott International,
Inc. Executive Deferred Compensation Plan (the "Company Deferred Compensation
Plan") as of the Effective Date. SMS will continue the Company Deferred
Compensation Plan on and after the Effective Date (the "SMS Deferred
Compensation Plan") and be responsible for the undistributed account balances
of SMS Employees accrued under that plan as of the Effective Date.
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Company Stock Plans. The Company has outstanding awards in the form of stock
options, restricted stock, deferred stock agreements and deferred bonus stock
under the Marriott International, Inc. 1993 Comprehensive Stock Plan (the
"Company 1993 Stock Plan"), the Marriott International, Inc.
1996 Comprehensive Stock Plan (the "Company 1996 Stock Plan") and the Marriott
International, Inc. 1995 Non-Employee Directors' Deferred Stock Compensation
Plan (the "Company 1995 Directors Plan," and together with the Company 1993
Stock Plan and the Company 1996 Stock Plan, the "Company Stock Plans").
Pursuant to the Employee Benefits Allocation Agreement, SMS will maintain the
Company 1993 Stock Plan and the Company 1996 Stock Plan on and after the
Effective Date. For a description of such plans, see "MANAGEMENT OF SMS--SMS
Stock Plans." Effective as of the Effective Date, the awards under such plans
held by SMS Employees (other than deferred bonus stock awards) will be
adjusted and denominated in SMS Common Stock and will take into account the
Spinoff and the SMS Reverse Stock Split. Vested deferred bonus stock awards
held by SMS Employees will be distributed in shares of Company Common Stock
before the Spinoff Record Date; unvested awards held by SMS Employees will be
paid in cash before the Spinoff, which payment may be deferred at the election
of an eligible award holder.
New Marriott will establish a separate comprehensive stock plan, the New
Marriott 1998 Comprehensive Stock and Cash Incentive Plan, effective as of the
Effective Date. For a description of the New Marriott Stock Plan, see
"MANAGEMENT OF NEW MARRIOTT--New Marriott Stock Plan." Awards under the
Company Stock Plans held by persons other than SMS Employees will be converted
into awards denominated in New MAR Common Stock and New MAR-A Common Stock
under the New Marriott 1998 Comprehensive Stock Incentive Plan with terms and
conditions substantially similar to the terms and conditions applicable to the
predecessor awards.
The conversion of awards under the Company Stock Plans into awards under the
SMS Stock Plans or the New Marriott Stock Plan will involve adjustments
pursuant to formulas designed to preserve the financial value of the awards.
Pursuant to such formulas, the number of shares subject to awards (including
options) and the exercise price of options under the SMS Stock Plans and the
New Marriott Stock Plan following the Spinoff will be adjusted so that the
aggregate value of the awards remains the same before and after the conversion
of the awards. For awards other than options, the per share value of the
awards is the value of the stock underlying the award based on NYSE trading
prices. For options, the per share value of the awards is the "spread" (i.e.,
the difference between the exercise price of the option and the value of the
stock underlying the option). The exercise price of an adjusted option will
bear the same ratio to the per share value of the shares underlying the option
after the conversion as the exercise price bears to the per share value of the
shares underlying the option before the conversion. Using these formulas, it
is anticipated that the number of shares subject to awards following the
conversion will be increased and the exercise price of options will be
decreased as a result of the Spinoff.
Medical and other Welfare Benefits Plans. On the Effective Date, New
Marriott will assume sponsorship of the Company's medical, dental, short-term
disability, vacation and group term life insurance plans and be responsible
for all claims under the Company's plans incurred before the Effective Date by
New Marriott Employees, SMS Employees and Former Employees. SMS will maintain
separate medical, dental, short-term disability, vacation and group term life
insurance plans for SMS Employees following the Effective Date. On the
Effective Date, New Marriott will assume sponsorship of the Company's long-
term disability plan to cover New Marriott Employees and Former Employees
whose employment related to the New Marriott Business, and SMS will establish
a long-term disability plan to cover SMS Employees and Former Employees whose
employment related to the SMS Business. On the Effective Date, New Marriott
will assume and be responsible for providing post-retirement benefits with
respect to those Former Employees who became entitled to the benefits before
the Effective Date.
Trademark License Agreement
As part of the contribution of assets to New Marriott, the Company will
transfer and assign to New Marriott all of the Company's right, title and
interest in certain trademarks, including the trademarks "Marriott,"
"Courtyard," "Residence Inns by Marriott" and "Fairfield Inns by Marriott."
Pursuant to the terms of a Trademark and Trade Name License Agreement (the
"Trademark License Agreement") to be entered into
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among New Marriott, SMS and MWC, New Marriott will grant to SMS (with respect
to the United States) and MWC will grant to SMS (with respect to Canada) a
limited nonexclusive right to use the "Marriott" name solely in connection
with the "Management Services Business" as defined in such agreement. For four
years after the Effective Date, SMS will be permitted to use the "Marriott"
name as part of its corporate name and the names of its principal business
divisions, subject to certain further limitations at senior living facilities
and conference centers. SMS will also be granted certain rights in connection
with existing joint-venture agreements and will have a transitional right to
phase out the existing uses of the "Marriott" name for nine months after the
Effective Date. During the term of the license, SMS will pay New Marriott a
license fee of $1,000,000 per year, payable quarterly in advance. SMS is
subject to certain limitations on use and quality control restrictions. New
Marriott and MWC may terminate the Trademark License Agreement prior to the
expiration of its term: (i) upon a Change in Control (as defined below), (ii)
upon certain bankruptcy events of SMS, (iii) if SMS attempts to transfer or
license any rights to the "Marriott" name in violation of the Trademark
License Agreement or (iv) if SMS breaches any term of the Trademark License
Agreement and such breach is not cured within 30 days. In addition, SMS may
terminate the Trademark License Agreement upon 180 days' prior written notice
to New Marriott and MWC. A "Change of Control" under the Trademark License
Agreement generally occurs if (a) the SMS Board does not include William J.
Shaw or John W. Marriott III (or their chosen successors) for any consecutive
45-business day period, (b) any person or group of persons (other than
Sodexho, in the case of SMS) have acquired beneficial ownership of more than
50 percent of the voting stock of Sodexho or SMS or (c) Pierre Bellon and his
affiliates cease to own at least 25 percent of the voting stock of Sodexho.
Noncompetition Agreement
SMS and New Marriott will enter into a Noncompetition Agreement (the
"Noncompetition Agreement") that will prohibit New Marriott from competing in
the core business of MMS (the "Core MMS Business") in the United States,
Canada and the United Kingdom for a period of four years after the Effective
Date. Nothing in the Noncompetition Agreement will prevent New Marriott from
engaging in the New Marriott Business, including any of the Company's
activities prior to the Effective Date that do not involve use of the assets
retained by SMS after the Spinoff. However, New Marriott will be permitted to
acquire less than a 5 percent capital stock or other equity interest in a
public company that operates a business that competes with the Core MMS
Business. Likewise, New Marriott will be permitted to acquire a company that
engages or has an ownership interest in a business that competes with the Core
MMS Business, but if the competing activities represent more than $10 million
or 10 percent of gross sales of such company, then the competing activities
must account for less than $10 million or 10 percent of gross sales within one
year after the relevant transaction and New Marriott must provide SMS with a
right of first offer with respect to the competing portion of the business
acquired. New Marriott also has the right to engage in other activities that
compete with the Core MMS Business that, in the aggregate, do not result in
revenues in excess of $5 million.
LYONs Allocation Agreement and Supplemental Indenture
The Company has issued $540 million face amount of LYONs, with an accreted
value as of January 2, 1998 of approximately $310 million. Pursuant to the
LYONs Allocation Agreement and a supplemental indenture to the LYONs
Indenture, New Marriott will assume responsibility for all of the debt
obligations evidenced by the LYONs by becoming a successor to the "Company" in
accordance with the terms of the LYONs Indenture. SMS will assume
responsibility for a portion of the LYONs equal to its pro rata share of the
relative equity values of SMS and New Marriott, as determined in good faith by
the Company Board shortly prior to the Spinoff (the "SMS Allocable Portion"),
although New Marriott will remain liable for any payments that SMS fails to
make on the SMS Allocable Portion. In the event that New Marriott makes any
payments in respect of the SMS Allocable Portion on SMS's behalf, Sodexho will
reimburse New Marriott for such payments, pursuant to a guarantee by Sodexho.
LYONs holders exercising their conversion rights after the Effective Date will
be entitled to receive 8.76 shares of New MAR Common Stock and 8.76 shares of
New MAR-A Common Stock, plus 2.19 shares of SMS Common Stock (after giving
effect to the SMS Reverse Stock Split) in exchange for each $1,000 principal
amount of LYONs. Accordingly, New Marriott and SMS will share, in accordance
with the foregoing allocations, responsibility for all increases in the
accreted value of LYONs following the Effective Date and all payment
obligations at maturity or
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pursuant to an exercise of issuer call rights or holder put rights, and each
of New Marriott and SMS will issue shares of its own stock in satisfaction of
any exercise by the LYONs holders of their conversion rights.
Notwithstanding SMS's assumption of such obligation, however, all payments
made by SMS on the LYONs will be deemed to have been made on account of New
Marriott's obligations to the holders of the LYONs and will be subject to the
subordination provisions of the LYONs Indenture with respect to the relative
rights of the holders of the LYONs and the holders of the New Marriott's
Senior Indebtedness (as defined in the LYONs Indenture). The LYONs Allocation
Agreement further provides that SMS cannot initiate a call of LYONs for
redemption.
Additional Agreements Between SMS and New Marriott
In connection with the Distribution Agreement, SMS and New Marriott (or a
subsidiary of New Marriott) will enter into a number of additional Transaction
Documents providing for the delivery of certain transitional and other
services from New Marriott to SMS and from SMS to New Marriott substantially
in accordance with the scope of such services as currently provided. The terms
and conditions of these Transaction Documents were negotiated by the parties
bargaining at arm's length in the context of negotiation of the Restructuring
Agreements. The anticipated payments from New Marriott to SMS and from SMS to
New Marriott associated with the performance of services (excluding pass-
through product costs) are approximately $3 to $4 million and approximately
$70 to $80 million, respectively, on an annual basis. These agreements are
summarized below.
Procurement Agreement. Pursuant to the Procurement Agreement, New
Marriott and SMS will agree to maximize their purchasing leverage through
coordination of purchases from and negotiations with vendors, and the
sharing among the parties of purchasing strategies and information. The
Procurement Agreement will be effective for the seven-year period beginning
on the Effective Date, and will continue to be effective thereafter
indefinitely until terminated by either party on 60 days' notice.
Distribution Services Agreement. Marriott Distribution Services, Inc.
("MDS"), a wholly owned subsidiary of the Company, will be transferred to
New Marriott in connection with the Transactions. Pursuant to the
Distribution Services Agreement, which will be entered into by MDS and SMS,
MDS will purchase, warehouse and distribute for, and sell certain food
products to, SMS for a three-year term, automatically renewable for one-
year periods thereafter unless terminated by either party on 90 days'
notice.
Casualty Claims Administration Agreement. Pursuant to the Casualty Claims
Administration Agreement, New Marriott will review all casualty claims
existing at the Effective Date ("Covered Claims") and follow its standard
procedures in disposing of such claims. New Marriott will endeavor to
obtain SMS's approval of certain settlements. The agreement terminates upon
the earlier of the (i) the satisfaction of all Covered Claims or (ii) the
mutual agreement of New Marriott and SMS. SMS will reimburse New Marriott
for all claims paid by New Marriott pursuant to the Agreement. SMS will pay
New Marriott a fixed fee per covered claim for the administration of such
claims.
Employee Benefits Transition Administration Services Agreement. Pursuant
to the Employee Benefits Transition Administration Services Agreement, New
Marriott will provide, at SMS's request, certain services, including
accounting, employee benefit and compensation, welfare and other benefit
plan services, from the Effective Date through the end of the 1998 fiscal
year, with an option by SMS to extend the term through the end of the 1999
fiscal year on the same terms and conditions, subject to certain
adjustments. SMS will pay all of New Marriott's start-up costs incurred in
connection with providing the covered services, as well as a base service
fee.
Marrpay(R) Services Agreement. Pursuant to the Marrpay(R) Services
Agreement, New Marriott will provide SMS with various payroll services and
access to related software for SMS's United States locations, effective
from the execution date of such agreement until the last payroll check-stub
date in December 1999, with automatic one-year renewal periods, but not
beyond December 31, 2002. SMS will be charged a fixed fee for each employee
work week submitted for payment through December 1998, plus additional
charges, including costs incurred by New Marriott, for additional services
requested by SMS.
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Headquarters Sublease Agreement. Prior to the Effective Date, the Company
will assign its master lease of the Marriott corporate headquarters in
Bethesda, Maryland ("Headquarters") to New Marriott. New Marriott will then
sublease certain portions of the Headquarters to SMS for a term of three
years beginning on the Effective Date, with an option to renew by SMS for
two additional terms of three years each. SMS will pay an amount of rent
that will be calculated based upon the rent due under the master lease,
taking into account the amount of subleased space, plus additional
assessments relating to copier usage and heating, ventilating and air
conditioning costs. SMS will have the right to sublease all of such space
upon New Marriott's prior approval, not to be unreasonably withheld.
Headquarters Food Services Agreement. SMS will continue to provide food
services to New Marriott at Headquarters, and maintenance personnel, parts
and supplies to maintain the food services areas, for a period of three
years beginning on the Effective Date. The Headquarters Food Services
Agreement will automatically continue after the three-year period if the
Headquarters sublease is renewed, for the term of such renewal, or if such
sublease is not renewed, until terminated by either party on 90 days'
notice. The prices to be charged by SMS for food and other products served
by SMS will be as reasonably determined by SMS, consistent with then-
prevailing market prices for food and other products of like quality and
portion.
Headquarters Management Services Agreement and Print Services
Agreement. For a period of three years following the Effective Date, SMS
will continue to provide management services at Headquarters and at 7300
Crestwood Boulevard, Frederick, Maryland, including maintenance,
administrative and security services. At New Marriott's request, SMS will
also provide New Marriott with various printing and related distribution
services at Headquarters. The agreements will automatically continue after
the three-year period if the Headquarters sublease is renewed, for the term
of such renewal, or if such sublease is not renewed, until terminated by
either party. SMS will be reimbursed for all net operating expenses
incurred in providing such headquarters management services, and will
receive a fee for providing such services. SMS will not pay rent for its
use of the printing facilities but will be entitled to retain its profit
from providing such print services. SMS will pay all costs relating to such
print services.
Information Resources Agreement. New Marriott will provide SMS with
various computing, telecommunications and information systems services. For
telecommunications services during the 1998 calendar year, SMS will pay New
Marriott a fee based on specified rates. SMS will also reimburse New
Marriott for any out-of-pocket costs it incurs in providing the services,
including fees paid to third-party vendors. For calendar years after 1998,
the parties will agree to a fee schedule no later than the November 1
preceding such calendar year. Except for the telecommunications services,
all services will continue to be provided by New Marriott until either
party terminates the agreement. New Marriott's obligation to provide
telecommunications services will terminate upon the termination of the
Headquarters sublease agreement.
Other Agreements. SMS and New Marriott will also enter into a Risk
Management Consulting Agreement, an Employee Relocation Agreement and a
Miscellaneous Services Agreement, under which New Marriott will provide
certain services to SMS.
ARRANGEMENTS BETWEEN SMS AND SODEXHO
Royalty Agreement and Assistance Agreement
SMS and Sodexho will enter into a Royalty Agreement and an Assistance
Agreement each of which will be effective from and after the Effective Date.
Pursuant to the Royalty Agreement, SMS will have the right to use the name
"Sodexho" in connection with SMS's operations in the United States and Canada
for a period of 10 years, subject to earlier termination as described below.
SMS will pay to Sodexho as compensation for the right to use the "Sodexho"
name an annual royalty payment equal to a 0.05 percent of the annual gross
revenues of SMS during the first three years of the Royalty Agreement.
Thereafter, Sodexho and SMS will negotiate in good faith to determine the
royalty fee, based on fair market value. Any such subsequent royalty fee or
material amendment to the Royalty Agreement must be approved by the
independent directors of SMS who are not otherwise affiliated with SMS,
Sodexho or New Marriott (the "Designated Directors"). The Royalty Agreement
may be terminated by SMS at any time after Sodexho owns less that 10 percent
of the outstanding SMS Common
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Stock. Sodexho may terminate the Royalty Agreement prior to the expiration of
its term: (i) upon certain bankruptcy events of SMS, (ii) if SMS attempts to
transfer or license any rights to the "Sodexho" name in violation of the
Royalty Agreement and (iii) upon a material breach of the Royalty Agreement
(subject to a 30-day cure period).
The Assistance Agreement to be entered into between Sodexho and SMS will set
forth certain services that will be provided by Sodexho to SMS, including
services related to purchasing activities, catering and site support services,
marketing, management and administration, legal and fiscal matters, human
relations, communications and cash management. In exchange for these services,
SMS will pay to Sodexho a fee equal to a percentage of the annual gross
revenues of SMS and its subsidiaries. During the initial term of the
Assistance Agreement, there will not be a fee through August 31, 1998. The fee
for the period from September 1, 1998 through August 31, 1999 will be 0.05
percent of gross revenues and the fee for all periods thereafter will be 0.15
percent of gross revenues. Any amendment to the Assistance Agreement must be
approved by the Designated Directors.
Promptly after the end of each fiscal year, the managements of Sodexho and
SMS will prepare a joint report for the SMS Board describing the services
provided by Sodexho to SMS during such fiscal year and estimating the fair
market value of the benefits received by SMS from such services. The
Designated Directors will review such report with a view towards assessing
whether the fee under the Assistance Agreement for such fiscal year plus the
royalty fee under the Royalty Agreement for such fiscal year (the "Combined
Fee") exceeds the fair market value of the benefits received from such
services. Sodexho's remuneration for the services provided under the Royalty
Agreement and the Assistance Agreement in respect of any fiscal year will be
the lesser of (i) the Combined Fee and (ii) the fair market value of the
benefits received by SMS from such services during such fiscal year as
determined by the Designated Directors. If the Combined Fee exceeds the fair
market value of the benefits received as so determined, Sodexho will reimburse
SMS for such excess, plus interest. The anticipated payments from SMS to
Sodexho associated with the performance of services are approximately $5
million on an annual basis.
Stockholder Agreement
The Stockholder Agreement to be entered into between Sodexho and SMS upon
consummation of the Transactions will cover certain corporate governance
matters and will grant to Sodexho certain registration rights with respect to
stock of SMS held by Sodexho.
The Stockholder Agreement will grant Sodexho certain rights to nominate
members of the SMS Board. So long as Sodexho owns at least 20 percent of the
outstanding SMS Common Stock, Sodexho may nominate three directors. If
Sodexho's ownership interest falls to less than 20 percent (but equals or
exceeds 10 percent), or at any time that the Royalty Agreement remains in
effect, Sodexho may nominate two directors. If Sodexho's ownership interest
decreases to less than 10 percent and the Royalty Agreement has terminated,
Sodexho will cease to have the right to nominate any members of the SMS Board.
Prior to the third anniversary of the consummation of the Transactions, the
SMS Board will consist of eight members; thereafter, Sodexho's right to
nominate directors will be proportionately adjusted in the event that the SMS
Board consists of other than eight members. As described under "MANAGEMENT OF
SMS," the initial designees of Sodexho are Pierre Bellon, Bernard Carton and
Edouard de Royere.
The Stockholder Agreement will impose additional restrictions on the
composition of the SMS Board for the three-year period following the Spinoff.
During such period, the SMS Board will consist of eight members. At least two
(and in certain cases, up to four) of such members must (i) not be employees
of SMS, Sodexho or New Marriott, (ii) not be receiving, directly or
indirectly, material compensation for services from SMS, Sodexho or New
Marriott, (iii) not be immediate family members of persons described under
clauses (i) and (ii), and (iv) qualify as "outside directors" for NYSE
purposes. An additional member of the SMS Board will be the Chief Executive
Officer of SMS, who initially will be Charles O'Dell. During such three-year
period, Sodexho will not take action by written consent to remove without
cause any SMS director.
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The Stockholder Agreement will also grant to Sodexho certain rights to cause
SMS to register the SMS Common Stock held by Sodexho for sale under the
Securities Act, both pursuant to registrations initiated by Sodexho and in
connection with registrations initiated by SMS or other entities that have
registration rights.
Other Arrangements
Sodexho has agreed pursuant to the Omnibus Agreement to guarantee the
following: (i) the payment when due of any deferred compensation amounts
payable by SMS under the SMS Deferred Compensation Plan to SMS Employees, (ii)
the obligations of SMS under the LYONs Allocation Agreement and the LYONs
Indenture and (iii) SMS's obligations with respect to certain insurance costs
that are set forth in the Distribution Agreement.
ACCOUNTING TREATMENT
Upon receipt of stockholder approval of the Transactions, SMS will restate
its consolidated financial statements to reflect the Lodging business of New
Marriott as discontinued operations. The Acquisition will be accounted for
using the purchase method of accounting with SMS as the acquiror. In the
separate financial statements of New Marriott, the assets and liabilities
contributed to New Marriott will be recorded at the Company's historical
basis.
NO APPRAISAL RIGHTS
Stockholders of the Company will not be entitled to appraisal rights under
the DGCL in connection with the Transactions.
MANNER OF EFFECTING THE TRANSACTIONS; BOOK-ENTRY SYSTEM
In the event that the Company's stockholders approve the Proposals and all
other conditions to the Transactions are satisfied, the Spinoff will be
effected on a pro rata basis to holders of record of issued and outstanding
Company Common Stock on the Spinoff Record Date. The Spinoff Record Date will
be selected by the Company Board.
New Marriott and SMS have elected to use a book-entry system. The book-entry
form of share ownership permits stockholders to hold and transfer their shares
in a new way. This procedure, also called the Direct Registration System for
securities ("DRS"), has the support and approval of both the Securities and
Exchange Commission ("SEC") and the NYSE. Under DRS, no physical certificates
are issued to stockholders; instead, the stockholder is provided with a
statement that reflects the number of shares registered in his or her name on
SMS's and New Marriott's books. Stockholders will be given the option,
however, to request and receive physical certificates at any time.
The book-entry form of share ownership provides benefits to stockholders and
to SMS and New Marriott. Some of these benefits are:
. elimination of problems associated with paper documents, such as the need
for safe storage;
. elimination of the requirements for physical movement of stock
certificates at time of sale and the accompanying potential for loss; and
. reduction of costs associated with the issuance and delivery of physical
stock certificates.
Receiving a statement reflecting ownership of book-entry shares, in lieu of
receiving a stock certificate, is not a new concept. Book-entry ownership has
become the standard means of share ownership in the mutual fund industry and
in other forms of investment. However, mutual fund investors are not the only
investors to own book-entry shares. Transfer agents have recorded dividend
reinvestment plan shares in book-entry form for many years.
Commencing on or about the Effective Date, the Transfer Agent will send
materials to each stockholder describing the book-entry system in more detail,
instructing stockholders to return to the Transfer Agent the stock
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certificates they now hold of Company Common Stock (the "old certificates"),
providing a letter of transmittal therefor and providing information on
allocating the tax basis in their shares. Stockholders will also be sent an
account statement showing their ownership of shares of New Marriott Common
Stock and SMS Common Stock, and a request for physical certificates ("Request
for Physical Certificates") entitling them to obtain physical certificates in
lieu of book-entry registration. The Request for Physical Certificates will
contain instructions for stockholders to request and receive three
certificates evidencing, respectively, the number of shares of (i) SMS Common
Stock represented by such old certificate (giving effect to the SMS Reverse
Stock Split), (ii) New MAR Common Stock issued as a distribution with respect
to the shares of Company Common Stock represented by such old certificate and
(iii) New MAR-A Common Stock issued as a distribution with respect to the
shares of Company Common Stock represented by such old certificate. Such
mailing will also include instructions on how to effect trades in shares held
in book-entry form, which will include the ability to initiate trades by
telephone. If a stockholder wishes to trade a share of SMS Common Stock after
the Effective Date, and such stockholder has not yet surrendered his or her
old certificate(s), then such stockholder will be required either to surrender
the old certificate(s) to the Transfer Agent, or to deliver the old
certificate(s) to his or her broker or other intermediary in the usual manner.
Such broker or other intermediary will then be required to surrender the old
certificate(s) to the Transfer Agent for the trade to be settled. This
procedure is not expected to delay the settlement of trades.
On or before the Effective Date, the Company will transfer to the Transfer
Agent, for the benefit of holders of record of shares of Company Common Stock
as of the Spinoff Record Date, all shares of New Marriott Common Stock then
held by the Company. As of the Effective Date, the Transfer Agent will
register the number of shares of SMS Common Stock (giving effect to the SMS
Reverse Stock Split) held by each holder of record of shares of Company Common
Stock as of the Spinoff Record Date, as well as the number of shares of New
MAR Common Stock and New MAR-A Common Stock to be distributed to such
stockholder in the Spinoff, at which time the old certificates shall become
void and ownership of the New Marriott Common Stock shall automatically
transfer from the Company to the holders of Company Common Stock as of the
Spinoff Record Date. Shares of SMS Common Stock will only be registered in
book-entry form by the Transfer Agent upon receipt of a holder's old
certificate representing shares of Company Common Stock.
No dividends that may be declared or paid on SMS Common Stock after the
Effective Date will be paid to any person holding an old certificate until
such old certificate is surrendered to the Transfer Agent. Subject to the
effect of applicable laws, following surrender of any such old certificate by
any holder thereof, there will be paid to the holder of the SMS Common Stock
issued in exchange therefor, without interest, (a) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Date theretofore payable with respect to the SMS Common
Stock represented thereby and not paid, less the amount of any withholding
taxes which may be required thereon, and (b) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Date but prior to the time of such surrender and a payment date
subsequent to the time of such surrender payable with respect to the SMS
Common Stock represented thereby, less the amount of any withholding taxes
which may be required thereon.
The Transfer Agent, on behalf of SMS, will be entitled to deduct and
withhold from the consideration otherwise payable to any holder of Company
Common Stock such amounts as may be required to be deducted and withheld with
respect to the making of such payment under any provision of federal, state,
local or foreign tax law. To the extent that amounts are so withheld and paid
over to the appropriate taxing authority, such withheld amounts will be
treated as having been paid to the holder of the Company Common Stock in
respect of which such deduction and withholding was made.
No fractional shares of New Marriott Common Stock or SMS Common Stock will
be issued in the Transactions, except that fractional shares held in the
Company's dividend reinvestment plan that would result in fractional shares of
New MAR Common Stock or New MAR-A Common Stock being issued in the Spinoff,
will be maintained in fractional form in a dividend reinvestment plan to be
instituted by New Marriott. SMS does not intend to maintain a dividend
reinvestment plan. In lieu of any such fractional shares, each person who
would otherwise have been entitled to a fraction of a share of SMS Common
Stock (as a result of fractional shares in the Company's dividend reinvestment
plan or due to the SMS Reverse Stock Split) will be paid an
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amount in cash (without interest) equal to such holder's proportionate
interest in the net proceeds from the sale or sales in the open market by the
Transfer Agent, on behalf of all such holders, of the aggregate fractional
shares of SMS Common Stock. As soon as practicable following the Effective
Date the Transfer Agent will determine the excess of (a) the number of full
shares of SMS Common Stock outstanding after giving effect to the SMS Reverse
Stock Split delivered to the Transfer Agent over (b) the aggregate number of
full shares of SMS Common Stock to be distributed in respect of Company Common
Stock (such excess being herein called the "Excess Shares"), and the Transfer
Agent, as agent for the holders of such shares, will sell the Excess Shares at
the prevailing prices on the open market. The sale of the Excess Shares by the
Transfer Agent will be executed on a public exchange through one or more firms
and will be executed in round lots to the extent practicable. SMS will pay all
commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Transfer Agent, incurred in
connection with such sale of Excess Shares. Until the net proceeds of such
sale or sales have been distributed, the Transfer Agent will hold such
proceeds in trust for such stockholders. As soon as practicable after the
determination of the amount of cash to be paid in lieu of any fractional
interests, the Transfer Agent will make available such amounts to such
stockholders.
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BUSINESS AND PROPERTIES OF SMS
DESCRIPTION OF SMS BUSINESS
SMS will be the leading provider in North America of contract food and
facilities management services, with about 4,800 clients, including
businesses, health care facilities, colleges and universities, and primary and
secondary schools. Food services include food and beverage procurement,
preparation, menu planning and service, as well as the operation and
maintenance of food service and catering facilities, generally in an
institutional setting. Facilities management services include plant
maintenance, energy management, groundskeeping, housekeeping and custodial
services.
INDUSTRY AND MARKETPLACE FOR SMS
The contract food service and facilities management industry is rapidly
changing as a result of clients' focus on profitability and quality of
service. Major industry dynamics are:
. Stable industry revenues from an existing client base.
. Continued growth in the outsourcing of food service and facilities
management as a result of (i) focus by customers on core competencies
and outsourcing of their non-core services, (ii) general economic
growth, and (iii) increasing cost pressures.
. Increasing market penetration by large, well capitalized participants
due to their ability to provide (i) more cost-effective services as a
result of economies of scale, (ii) a broader range of services than
local and regional participants, and (iii) national and international
coverage to large clients.
. An increase in the retail orientation of contract catering due to the
proliferation of alternative retail outlets, including fast food
operations for consumers.
. Strong industry dynamics towards a "one stop shopping" alternative
for all outsourcing needs, including food service and facilities
management, for which no market leader has yet emerged.
. Minimal capital requirements due to several factors, including low
capital expenditures because operations are generally conducted at
client sites using client equipment; low fixed costs, permitting rapid
response to market conditions; and predictable cash flow from client
payments, reducing or eliminating working capital needs.
MARKET POSITION OF SMS
SMS will have its origins in two well established food service providers.
Since Marriott Corporation opened its first contract food service account in
1939, MMS has steadily expanded its array of services and number of clients.
During the 1980s, MMS grew rapidly by making a number of significant
acquisitions of service companies in North America. Sodexho, formed in 1966 in
Marseille, France, has grown to be the number one food service provider in
Europe. The last three years have been the most dynamic for Sodexho, led by
the acquisition of Gardner Merchant Holdings Inc. ("Gardner Merchant") on
February 1, 1995 (the "Gardner Merchant Acquisition") which boosted Sodexho to
the number two position in the global management services business.
SMS will be the market leader in the North American contract food services
industry, which management of SMS believes is generally underpenetrated by
contractors. Market leadership will make SMS well positioned to grow faster
than the overall market. SMS will have a unique opportunity to leverage its
position as the market leader in food service to cross-sell facilities
management services to existing food-service-only clients. Management of SMS
believes that the facilities management industry remains even more
underpenetrated by contractors than the contract food services industry.
With these roots, as well as the similar and complementary businesses of the
two combining operations, SMS will have the capabilities to continue its
market leadership.
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SMS will operate primarily in four sectors:
. Health Care--The health care industry continues its transformation
from a fee-for-service to a managed care and capitated rate
environment. This market dynamic has shifted the risk and burden of
cost control from insurance providers to the health care institutions
themselves, forcing them to focus not only on the cost component of
clinical care, but also on the cost of all services including food and
facilities management. These cost pressures are driving the trend
toward consolidation of health care institutions and guaranteed cost
contracts for hospital services. Management of SMS believes that the
health care market remains significantly underpenetrated.
. Corporate--Although the market for food service in business and
industry is relatively highly penetrated, customers are responding
favorably to the growth in retail orientation by food service
contractors. The market for multi-service national providers (food and
facilities) is growing as corporations are moving toward outsourcing
all of their non-core services on a multi-site and multi-service
basis. This represents an opportunity to leverage from food
contracting to the less developed facilities management market. The
government market is expected to increase as federal departments and
agencies implement large-scale outsourcing of non-core functions.
. Education--The campus dining marketplace continues to shift from
residential board plans to more retail-oriented operations driven by
(i) the growing proportion of non-resident day and evening students on
campus, (ii) the taste and service preferences of today's young
consumers and (iii) colleges' desires to provide their students with
greater flexibility. Traditional straight-line cafeterias are being
replaced by scatter systems and food courts. These trends, coupled
with cost pressures, are causing public and private institutions to
consider outsourcing as a viable choice.
. Schools--The current fiscal climate is forcing school districts to
minimize costs while improving the performance of non-instructional
areas. Over the last several years, 150-200 school systems per year
have decided to begin outsourcing their food services. Also, new
federal laws require that school meals meet more stringent food
specifications and production techniques to comply with "Dietary
Standards" guidelines. Most school districts have obtained waivers of
compliance with the new guidelines until July 1998. Thereafter, some
school districts may turn to contractors to help comply with
guidelines.
COMPETITION
The food and facilities management services business in North America is
comprised of a large number of local, regional and national service providers.
SMS's strongest competition will come from large, well capitalized
participants due to their ability to provide (i) cost-effective services as a
result of economies of scale, (ii) a broader range of services than local and
regional participants and (iii) national coverage to large clients.
Many educational institutions, health care providers and businesses consider
cost to be an important factor when selecting companies to provide food and
facilities management services. SMS expects to be a successful low-cost
services provider due to its (i) significant purchasing economies of scale for
food service and facilities management supplies, (ii) sophisticated site labor
management controls, (iii) low administrative overhead and (iv) strong
information and accounting systems which will allow SMS management and clients
to monitor costs. These attributes are expected to be enhanced by the
Acquisition. The timing and realization of additional synergies will be
dependent on the successful integration of the two businesses.
Clients also consider the quality of food and facilities management services
to be an important factor in addition to price. Accordingly, SMS's competitive
profile will also depend on its ability to maintain a level of quality in
keeping with client expectations.
BUSINESS AND PROPERTIES OF MMS
General
MMS is a leading provider of food and facilities management services, with
approximately 3,400 clients in the United States and Canada. These services
are provided at client facilities under contracts generally
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cancellable by either party on 30 to 120 days' notice. Income earned by MMS is
based upon a negotiated fee, the profit of the account or both.
Operations of MMS
MMS operates as a single business segment aligning its services by its
clients' lines of business.
Marriott Health Care Services ("MHCS") focuses primarily on hospitals,
providing multiple facility management services, including plant operations,
energy management, housekeeping, laundry and groundskeeping. MHCS targets
health care facilities with a minimum of 150 beds. There are 2,500 hospitals
in this target market in the United States, which represents about 40 percent
of the total number of hospitals in the U.S. Management believes that there
are significant opportunities for penetration into this targeted market by
contract providers. At September 12, 1997, MHCS operated approximately 960
accounts.
Marriott Corporate Services ("MCS") provides a variety of dining services,
as well as assorted facilities services such as custodial services, plant
maintenance, groundskeeping, mail-rooms and on-site convenience stores, to
corporations and government agencies. MCS's customer base of approximately
1,000 clients at September 12, 1997 includes national and multi-site corporate
clients, single-tenant commercial sites, government agencies, museums and
amusement parks and approximately 15 conference centers. MCS is generating
strong customer loyalty with "Crossroads Cuisine," a major new retail program
featuring a wide variety of proprietary food concepts organized around
multiple-themed stations.
Marriott Education Services ("MES") provides services to approximately 540
college and university clients as of September 12, 1997. Food services are
provided at resident dining halls, on-campus retail locations and athletic
facilities. MES also provides custodial services, plant operations,
groundskeeping and maintenance services on college campuses. Because of the
academic calendar, MES's results tend to be more favorable in the fall and
spring than during winter and summer. MES currently features a variety of
nationally known franchised food service names, including Burger King, Pizza
Hut and Taco Bell.
Marriott School Services ("MSS") provides a variety of services to primary
and secondary schools, including food and facility operations services.
Similar to MES, the academic calendar tends to impact the results of MSS, with
more favorable results during fall and spring. MSS targets its food services
at school districts with enrollments greater than 5,000 students (over 1,750
school districts) and facilities management services at school districts with
more than 3,000 students (nearly 3,200 school districts). MSS had
approximately 370 clients at September 12, 1997.
MMS Canada delivers food and facilities services to many clients in Canada.
MMS also operates laundry services throughout the United States. These other
accounts totaled approximately 150 at September 12, 1997.
MMS United Kingdom ("MMS UK") was formed through the acquisitions of
Taylorplan Services in November 1995 and Russell and Brand in June 1996. MMS
UK provides food service, cleaning and other services to hospitals,
universities, private secondary schools and government, as well as business
and industry. MMS UK was sold to Sodexho for $50 million in cash (subject to
certain post-closing adjustments) on October 31, 1997 in anticipation of the
Transactions. MMS UK contributed sales of $126 million and $78 million in
fiscal years 1996 and 1995, respectively.
MMS regards its trademarks as having significant value and as being
important in marketing to its clients. Registered food service trademarks
include PANINI PETITES, ROLLER SNACKS, CAFE OLE, FINISHING TOUCHES, LA
VINCITA, THE COPPER POT and POLLO RUSTICA. Pending food service trademarks
include CAFE FRESCA EXPRESS, CHARCUTERIE SALADS, CHARLESTOWN MARKET, CHEF'S
FEATURES, CROSSROADS CUISINES, CUTLER'S, CYBER WRAPS, EAT IT LIKE IT MATTERS,
MESA DEL SOL, PACIFIC TRADERS, SALSA TABLA, SELONA GRILL, SENSE*SATIONS, SOUP-
ERLICIOUS, SPICE & ICE, SUNCREEK BREAKFAST COMPANY, UNDER WRAPS, FRESH
INSPIRATIONS and ALL
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THAT JAZZ SALADS. Other significant registered trademarks include SELECT
EXPRESS and WELLNESS & YOU!. Other significant pending trademarks include
NORTHWEST VOYAGE AND DESIGN, NORTHWEST VOYAGE and SUPPORT SERVICES PATHWAYS.
MMS also has franchise or license arrangements with the following nationally
recognized franchise concepts: Pizza Hut, Taco Bell, Tim Horton's Donuts,
Subway, Chick-fil-A, Burger King, Sbarro's Pizza, A&W Restaurant, Rally's,
Dunkin Donuts, Manchu Wok, Panda Express, Carl's Jr., TCBY, Baskin Robbins,
Starbucks, Mrs. Fields and Hot Dog Construction Company.
Employees
MMS has over 70,000 employees on its payroll in the U.S. and Canada, and
manages approximately 50,000 people on its clients' payrolls. MMS's corporate
headquarters, located near Washington, D.C., has approximately 140 employees.
An estimated 7,000 non-management employees are represented by organized labor
unions under approximately 200 collective bargaining agreements. MMS believes
relations with its employees are positive.
Competition
MMS competes with other large national and international companies as well
as local and regional competitors. MMS has a proven track record at winning
new clients and retaining existing business. Over the last three years, MMS's
company-wide success rate on contract bids was over 40 percent, representing
the number of contracts awarded to MMS as a percentage of the total number of
contracts for which it bid. During the 36 weeks ending September 12, 1997, MMS
has maintained this percentage. MMS has achieved an average annual company-
wide retention of clients representing over 95 percent of its profits over the
last three years and is on target to achieve a similar level of annual
retention for 1997.
Properties
MMS occupies approximately 41,300 square feet for its headquarters office
space in Bethesda, Maryland in a building leased by the Company. In connection
with the Transactions, this lease will be assigned to New Marriott, and SMS
will sublease the portions of the headquarters currently occupied by MMS. In
addition, all of MMS's operating divisions lease their headquarters office
space in Avon, Connecticut (MHCS); Bethesda, Maryland (MCS); Altamonte
Springs, Florida (MES) and Downers Grove, Illinois (MSS). These operating
division leases generally run for initial terms of three to five years, and
generally have renewal options. MMS also has a long-term lease for its office
facility in Buffalo, New York where all of the centralized accounting and
processing activities for North America take place.
MMS owns three laundry facilities (Walla Walla, Washington; Tuscon, Arizona;
Phoenix, Arizona) and leases an additional three laundry facilities
(Birmingham, Alabama; Gilroy, California; Compton, California). MMS also
leases laundry equipment for certain of these facilities.
Litigation
There is no material litigation pending against MMS.
BUSINESS AND PROPERTIES OF SODEXHO NORTH AMERICA
The Sodexho North America Business is comprised of the operations of
Sodexho's wholly owned subsidiaries in the United States (ICC) and Canada
(Sodexho Canada).
General
Sodexho North America is one of the leading providers of food and facilities
management services in the United States and Canada, with about 1,500 clients,
principally at health care, educational and corporate facilities. The services
are provided at client facilities under negotiated contracts generally
cancellable by either
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party on 30 to 120 days' notice. Income earned from these contracts is based
upon the profit of the account, a negotiated fee or both.
Operations of Sodexho North America
Sodexho North America has grown significantly through a combination of
acquisitions, new accounts and new service offerings. Sodexho North America is
pursuing additional growth opportunities in these existing businesses through
cross-selling of services to existing clients and obtaining food services and
facilities management accounts at colleges, hospitals and other institutions
that are currently self-operated. Sodexho North America provides multiple
services, including: purchasing food and other products; housekeeping and
custodial services; and operating, maintaining and servicing building
equipment and systems.
ICC focuses primarily on education and corporate services, organized
geographically into three regions, and health care as one national division.
ICC serves approximately 950 accounts in the corporate market, focusing on a
variety of dining services to corporate and industrial facilities. ICC serves
approximately 380 accounts in the college and university market, and
approximately 370 accounts in the health care market, including acute care
hospitals and skilled nursing facilities. Sodexho Canada provides food and
facilities management to approximately 130 clients in the education, health
care and corporate markets.
Competition
ICC competes with other large national and international companies as well
as local and regional competitors. ICC was awarded approximately 27 percent of
the new contracts on which it competitively bid in fiscal 1997 and retained
clients representing approximately 97 percent of its profits.
Employees
Sodexho North America employs approximately 15,300 full-time and 10,800
part-time employees in the United States, and approximately 800 full-time and
400 part-time employees in Canada. Approximately 1,800 of ICC's employees are
represented by unions for collective bargaining purposes. No single union
contract covers a significant number of employees. Sodexho North America
believes its relations with employees are positive.
Properties
As of November 30, 1997, ICC occupied approximately one-half of an 80,000
square-foot office building that it owns in Waltham, Massachusetts. ICC also
occupies approximately 25,000 square feet of office and warehouse space in
Trumbull, Connecticut; approximately 15,000 square feet of office space in
Mobile, Alabama; approximately 20,000 square feet of building space in
Sunnyvale, California; and approximately 15,000 square feet of building space
in Alston, Massachusetts. There are smaller regional offices throughout the
United States that are leased. At November 30, 1997, Sodexho Canada owned a
30,000 square foot office building in Montreal.
Litigation
There is no material litigation pending against Sodexho North America.
Headquarters
The principal executive offices of Sodexho North America are located at 153
Second Avenue, Waltham, Massachusetts, 02254. The telephone number is (617)
890-6200.
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BUSINESS AND PROPERTIES OF NEW MARRIOTT
GENERAL
New Marriott is a newly established, wholly owned subsidiary of the Company
established to conduct the Company's lodging businesses and a portion of the
Company's management services businesses subsequent to the Spinoff. New
Marriott's operations are grouped in two business segments, Lodging and
Contract Services, which represented 77 percent and 23 percent, respectively,
of total sales of the New Marriott Business in the 36 weeks ended September
12, 1997.
In its Lodging segment, New Marriott will operate and franchise lodging
facilities under 10 separate brand names and develop and operate vacation
timesharing resorts.
In the Contract Services segment, New Marriott will consist of two
businesses. Marriott Senior Living Services develops and presently operates 81
retirement communities offering independent living, assisted living and
skilled nursing care for seniors in the United States. Marriott Distribution
Services supplies food and related products to internal operations and to
third-party customers throughout the United States.
Financial information by industry segment and geographic area as of January
3, 1997 and for the three fiscal years then ended, appears in the New Marriott
Combined Statement of Income, the Business Segments note and International
Operations note to the New Marriott Combined Financial Statements included
elsewhere in this Proxy Statement.
EMPLOYEES
At September 12, 1997, New Marriott had approximately 140,000 employees,
including approximately 4,000 who are subject to collective bargaining
agreements. New Marriott believes its relations with employees are positive.
PROPERTIES
In addition to the operating properties discussed below, New Marriott leases
an 870,000 square foot office building, located in Bethesda, Maryland, which
serves as New Marriott's headquarters. This lease has an initial term which
expires in 2004, and includes options for an additional 15 years.
New Marriott believes its properties are in generally good physical
condition with need for only routine repair and renovation.
LODGING
New Marriott's Lodging businesses included 1,420 operated or franchised
hotels with 289,304 rooms at September 12, 1997 under 10 brands, serving seven
distinct segments of the lodging industry: Marriott Hotels, Resorts and Suites
(full-service); Ritz-Carlton (luxury); Renaissance (full-service); New World
(full-service); Ramada International (moderate-price); Residence Inn
(extended-stay); Courtyard hotels (moderate-price); Fairfield Inn and Suites
(economy); TownePlace Suites (moderate-price, extended-stay) and Marriott
Executive Residences (extended-stay, international). New Marriott is also a
leading developer and operator of vacation timesharing properties (Marriott
Vacation Club International).
New Marriott-Operated Lodging Properties
At September 12, 1997, New Marriott operated a total of 709 properties
(187,291 rooms) across its 10 lodging brands under long-term management or
lease agreements with property owners (the "Operating Agreements").
Terms of New Marriott's Operating Agreements vary, but typically include
base and incentive management fees and reimbursement of costs (both direct and
indirect) of lodging operations. Such agreements are generally
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for initial periods of 20 to 30 years, with options to renew for up to 50
additional years. Many of the Operating Agreements are subordinated to
mortgages or other liens securing indebtedness of the owners. Additionally, a
number of the Operating Agreements permit the owners to terminate the
agreement if financial returns fail to meet defined levels and the operator
has not cured such deficiencies.
New Marriott's responsibilities for units it operates include hiring,
training and supervising the managers and employees required to operate the
facilities. New Marriott provides centralized reservation services, and
national advertising, marketing and promotional services, as well as various
accounting and data processing services. New Marriott prepares and implements
annual budgets for lodging facilities under its management. Additionally, New
Marriott is responsible for allocating funds, generally a fixed percentage of
revenue, provided by the property owners for periodic renovation of buildings
and replacement of furnishings. New Marriott believes that its ongoing
refurbishment program is adequate to preserve the competitive position and
earning power of the hotels.
Franchised Lodging Properties
New Marriott has franchising programs that permit the use of its brand names
and its lodging systems by other hotel owners and operators. Under these
programs, New Marriott receives an initial application fee and continuing
royalty fees, which typically range from four percent to six percent of room
revenues for all brands, plus two percent to three percent of food and
beverage revenues for full-service hotels. In addition, franchisees contribute
to the national marketing and advertising programs, and pay fees for use of
New Marriott's centralized reservation systems. At September 12, 1997, New
Marriott had 711 franchised properties (102,013 rooms).
Summary of Hotels by Brand
The table below shows the distribution of hotels by brand as of September
12, 1997.
<TABLE>
<CAPTION>
COMPANY-OPERATED FRANCHISED
------------------ -------------
BRAND UNITS ROOMS UNITS ROOMS
- ----------------------------------------------- ------------------ ----- -------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites............ 201 86,598 122 37,101
Ritz-Carlton................................... 30 10,229 - -
Renaissance.................................... 63 24,404 8 2,587
New World...................................... 15 7,387 - -
Ramada International........................... 33 7,047 41 7,438
Residence Inn.................................. 111 14,529 137 15,056
Courtyard...................................... 204 29,869 126 15,471
Fairfield Inn and Suites....................... 51 7,133 277 24,360
TownePlace Suites.............................. 1 95 - -
------ ---------- --- -------
Total.......................................... 709 187,291 711 102,013
====== ========== === =======
</TABLE>
A significant proportion of hotels operated or franchised by New Marriott at
September 12, 1997 were located outside the U.S., as follows:
<TABLE>
<CAPTION>
U.S. NON-U.S.
------------- ------------
BRAND UNITS ROOMS UNITS ROOMS
- ------------------------------------------------- ----- ------- ----- ------
<S> <C> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites.............. 253 101,390 70 22,309
Ritz-Carlton..................................... 20 7,166 10 3,063
Renaissance...................................... 31 14,145 40 12,846
New World........................................ - - 15 7,387
Ramada International............................. - - 74 14,485
Residence Inn.................................... 244 29,034 4 551
Courtyard........................................ 319 44,404 11 936
Fairfield Inn and Suites......................... 328 31,493 - -
TownePlace Suites................................ 1 95 - -
----- ------- --- ------
Total............................................ 1,196 227,727 224 61,577
===== ======= === ====== ===
</TABLE>
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Marriott Hotels, Resorts and Suites primarily serves business and pleasure
travelers and meeting groups at locations in downtown and suburban areas, near
airports and at resort locations. Most Marriott full-service hotels contain
from 300 to 500 rooms. However, the 19 convention hotels (18,500 rooms) are
larger and contain up to 1,900 rooms. Marriott full-service hotel facilities
typically include swimming pools, gift shops, convention and banquet
facilities, a variety of restaurants and lounges and parking facilities. The
33 Marriott resort hotels (14,500 rooms) have additional recreational
facilities, such as tennis courts and golf courses. The 10 Marriott Suites
(2,600 rooms) are full-service suite hotels that typically contain about 250
suites, each consisting of a living room, bedroom and bathroom. These
properties have only limited meeting space.
New Marriott operates 25 conference centers, with approximately 4,400 guest
rooms, located throughout the United States. Some of the centers are used
exclusively by employees of the sponsoring organization, while others are
marketed to outside meeting groups and individuals. The centers typically
include meeting room space, dining facilities, guest rooms and recreational
facilities. New Marriott receives management fees for operating the conference
centers under contracts which typically range from one to five years.
Management fees are generally based on a fixed amount or a percentage of
revenues, and some of the management contracts provide for New Marriott to
earn incentive fees if certain financial targets are exceeded.
Room revenues for Marriott full-service hotels contributed approximately 61
percent of New Marriott's full-service hotel sales for the 36 week period
ended September 12, 1997, with the remainder coming from food and beverage
operations, recreational facilities and other services. Individual business
and pleasure travelers accounted for approximately 62 percent of occupied room
nights at New Marriott full-service hotels for the 36 week period ended
September 12, 1997, with group meetings representing another 38 percent.
Although business at many resort properties is seasonal depending on location,
overall hotel profits have been relatively stable and include only moderate
seasonal fluctuations.
As of September 12, 1997, there were 323 Marriott Hotels, Resorts and Suites
located in 40 states, the District of Columbia and 32 other countries. New
Marriott expects to add 29 operated or franchised Marriott Hotels, Resorts and
Suites (approximately 8,200 rooms) by the end of fiscal 1998. Of these hotel
rooms, approximately 41 percent will be located outside the United States.
At September 12, 1997, 70 Marriott hotels operated or franchised by New
Marriott were located outside the U.S. in the United Kingdom (23 hotels),
Continental Europe (13 hotels), the Americas (17 hotels) and the rest of the
world (17 hotels).
Ritz-Carlton Hotels and Resorts are renowned for their distinctive
architecture and the quality of their facilities, dining and guest service.
Most Ritz-Carlton hotels have 200 to 500 guest rooms and typically include
meeting and banquet facilities, a variety of restaurants and lounges, gift
shops, swimming pools and parking facilities. Resort guests will usually have
access to additional recreational amenities, such as tennis courts and golf
courses.
As of September 12, 1997, there were 30 Ritz-Carlton luxury hotels and
resorts in the United States and nine other countries. It is expected that
five more Ritz-Carlton hotels (approximately 1,600 rooms) will be opened by
the end of fiscal 1998.
Renaissance is a global quality-tier brand which targets business travelers,
group meetings and leisure travelers. Renaissance hotels are generally located
in downtown locations of major cities, in suburban office parks, near major
gateway airports and in destination resorts. Most hotels contain 300 to 500
rooms; however, a few of the convention hotels are larger in size, and some
hotels in non-gateway markets, particularly in Europe, are closer to 200
rooms. Renaissance hotels typically include an all-day dining restaurant, a
specialty restaurant, club floors and lounge, boardrooms, convention and
banquet facilities. There are 15 Renaissance Resorts which have additional
recreational facilities including golf, tennis and water sports. As of
September 12, 1997, there were 71 Renaissance hotels located in 15 states, the
District of Columbia and 22 other countries.
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New World primarily targets international business travelers. New World
hotels are located exclusively in the Asia-Pacific region and are concentrated
in the major business districts of gateway cities in China and Southeast Asia.
With hotels in the key gateway markets to China of Hong Kong, Beijing and
Shanghai, New World has expanded into China's secondary business centers. New
World hotels typically range in size from 300 to 600 rooms and offer multiple
restaurants and lounges, executive floors, a variety of recreational
facilities, banquet and meeting facilities. As of September 12, 1997, there
were 15 New World hotels located in 7 countries outside of the U.S.
Ramada International is a three- and four-star international brand targeted
at business and leisure travelers seeking a moderately priced, full-service
hotel. Each full-service Ramada property includes a restaurant, a cocktail
lounge and full-service meeting and banquet facilities. Ramada hotels are
located primarily in Europe in major and secondary cities, near major
international airports and suburban office park locations. The brand is
expanding in Asia where a growing middle class is creating increased demand
and new markets for mid-priced hotel accommodations. Subsidiaries of New
Marriott also receive royalty fees from Cendant Corporation (successor of HFS,
Inc.) and Ramada Franchise Canada Limited for the use of the Ramada name in
the United States and Canada, respectively. As of September 12, 1997, there
were 74 Ramada hotels located in 23 countries outside of the U.S. and Canada.
New Marriott expects to add 24 hotels (approximately 5,400 rooms) to the
Renaissance, New World and Ramada International brands by the end of fiscal
1998.
Courtyard hotels is New Marriott's moderate price hotel product. Aimed at
individual business and pleasure travelers as well as families, Courtyard
hotels maintain a residential atmosphere and scale and typically have 80 to
150 rooms. Well landscaped grounds include a courtyard with a pool and
socializing areas. Most hotels feature meeting rooms, limited restaurant and
lounge facilities, and an exercise room. The operating systems developed for
these hotels allow Courtyard to be price competitive while providing better
value through superior facilities and guest service.
As of September 12, 1997, there were 330 Courtyard hotels located in 41
states, the District of Columbia, Canada and the United Kingdom. New Marriott
expects to add 53 properties (approximately 6,900 rooms) to its Courtyard
hotel system before the end of fiscal 1998, primarily through franchising.
Residence Inn is the U.S. market leader in the extended-stay lodging
segment, which caters primarily to business, governmental and family travelers
who stay more than five consecutive nights. Residence Inns generally have 80
to 130 studio and two-story penthouse suites. Most inns feature a series of
residential style buildings with landscaped walkways, courtyards and
recreational areas. The inns do not have restaurants but offer complimentary
continental breakfast, and most provide a complimentary evening hospitality
hour. Each suite contains a fully equipped kitchen, and many suites have wood-
burning fireplaces.
As of September 12, 1997, there were 248 Residence Inns located in 43
states, Canada and Mexico. New Marriott expects to add 43 inns (approximately
5,000 rooms) to its Residence Inn system by the end of fiscal 1998, primarily
through franchising.
Fairfield Inn and Fairfield Suites is New Marriott's economy lodging product
which competes directly with major national economy motel chains. Aimed at
cost-conscious individual business and pleasure travelers, a typical Fairfield
Inn has 63 to 135 rooms and offers a swimming pool, complimentary continental
breakfast and free local phone calls. Fairfield Suites are designed to meet
the needs of travelers who require more space and amenities. They feature
suites that are 25 percent larger than the typical Fairfield Inn room, and
offer a broader range of amenities.
As of September 12, 1997, there were 328 Fairfield Inn and Fairfield Suites
located in 47 states. The Company expects to add 54 franchised Fairfield Inn
and Fairfield Suites (approximately 4,700 rooms) to its system by the end of
fiscal 1998.
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TownePlace Suites is a new brand of moderately priced, extended-stay hotel
that is designed to appeal to business and leisure travelers. The standard
TownePlace Suites hotel will consist of two interior-corridor buildings
containing 95 units consisting of high-quality one- and two-bedroom studio
suites. Each suite will have a fully equipped kitchen and separate living
area. Each hotel will provide housekeeping services and will have on-site
exercise facilities, an outdoor pool, 24-hour staffing and laundry facilities.
New Marriott plans to open 21 TownePlace Suites by the end of fiscal 1998.
Marriott Executive Residences was introduced in February 1997 and is being
developed specifically for the long-term international traveler. Marriott
Executive Residences will provide temporary housing for business executives
and others who need quality accommodations outside their home country for 30
or more days.
Marriott Vacation Club International develops, sells and operates vacation
timesharing resorts. Earnings are generated from three primary sources: (1)
selling fee simple and other forms of timeshare interests, (2) operating the
resorts and (3) financing consumer purchases of timesharing intervals.
Some timesharing resorts are located adjacent to Marriott hotels and
timeshare owners have access to certain hotel facilities during their
vacation. Owners can trade their annual interval for intervals at another
Marriott timesharing resort or for intervals at certain timesharing resorts
not otherwise sponsored by New Marriott through an unaffiliated exchange
company. Owners also can trade their unused interval for points in the
Marriott Rewards program, enabling them to stay at Marriott hotels worldwide.
In 1996, New Marriott began selling intervals at its first European
timeshare project located in Marbella, Spain. In addition, New Marriott began
selling intervals at its first urban project, the historic Custom House in
Boston, Massachusetts, as well as in Ft. Lauderdale, Florida, and at its fifth
resort location in Orlando, Florida.
As of September 12, 1997, New Marriott operated 32 timeshare resorts located
in the Continental U.S. (28 resorts), Hawaii (one resort), the Bahamas (one
resort), Europe (one resort) and Aruba (one resort).
Other Activities
Marriott Golf manages 17 golf course facilities for New Marriott and other
golf course owners.
New Marriott has provided event planning and management services since 1996
under the brand name of Marquis Events International by Marriott. In 1996, New
Marriott was awarded a contract by the National Football League to be the
official sponsor of hospitality services such as catering, beverage services,
entertainment and decor to the NFL's corporate clientele for the 1997, 1998
and 1999 Super Bowls.
New Marriott operates systemwide hotel reservation centers in Omaha,
Nebraska; Salt Lake City, Utah; Atlanta, Georgia; Los Angeles, California; and
London, England that handle reservation requests for all Marriott lodging
properties worldwide, including franchised units, Ritz-Carlton and Renaissance
hotels. New Marriott owns the Omaha facility and leases the other facilities.
New Marriott's Architecture and Construction Division assists in the design,
development, construction and refurbishment of lodging properties and
retirement communities.
Competition
New Marriott encounters strong competition both as a hotel operator and a
franchisor. There are over 500 hotel management companies in the United
States, including several that operate more than 100 properties. These
operators are primarily private management firms, but also include several
large national chains that own and operate their own hotels and also franchise
their brands. Hotel management contracts are typically long-term in nature,
but most allow the hotel owner to replace the management firm if certain
financial or performance criteria are not met.
60
<PAGE>
Affiliation with a national or regional brand is prevalent in the U.S.
lodging industry. In 1997, the majority of U.S. hotel rooms were brand-
affiliated. Most of the branded properties are franchises, under which the
operator pays the franchisor a fee for use of its hotel name and reservation
system. The franchising business is fairly concentrated, with the three
largest franchisors operating multiple hotel brands accounting for a
significant proportion of all U.S. rooms.
Outside the United States, branding is much less prevalent, and most markets
are served primarily by independent operators. New Marriott believes that
chain affiliation will increase in overseas markets as local economies grow,
trade barriers are reduced, international travel accelerates and hotel owners
seek the economies of centralized reservation systems and marketing programs.
New Marriott has approximately a six percent share of the U.S. lodging
market and less than a one percent share of the lodging market outside the
United States. New Marriott's brands are attractive to hotel owners seeking a
management company or franchise affiliation, because its hotels typically
generate higher occupancies and revenue per available room ("REVPAR") than
direct competitors in most market areas. New Marriott attributes this
performance premium to its success in achieving and maintaining strong
customer preference. New Marriott believes its superior facilities, national
marketing programs and reservation systems and its emphasis on guest service
and satisfaction are contributing factors.
New Marriott's properties are regularly upgraded to maintain their
competitiveness. The vast majority of rooms in the Marriott lodging system
either opened or have been refurbished in the past five years. New Marriott
also strives to continually update and improve the products and services
offered. New Marriott believes that by operating a number of hotels in each of
its brands, it stays in direct touch with customers and reacts to changes in
the marketplace more quickly than chains which rely exclusively on
franchising.
Repeat guest business is enhanced by the Marriott Rewards and Marriott Miles
programs, which reward frequent travelers with free stays at Marriott hotels
or free travel on participating airlines. Marriott Rewards, introduced in the
spring of 1997, is a multi-brand frequent guest program and replaces the
Company's 14-year-old Honored Guest Awards program. In addition to the
participation of six Marriott Brands, Marriott Rewards has formed a
partnership with select Ritz-Carlton hotels and also allows members to
exchange points for frequent flyer miles with nine partner airlines. New
Marriott also operates a preferred travel card for its major business
accounts. The preferred card accumulates a traveler's award points in all
frequent stay programs of Marriott's lodging brands. Management believes that
the frequent stay programs generate substantial repeat business that might
otherwise go to competing hotels.
The resort timesharing industry also is very competitive. Formerly dominated
by real estate development companies and entrepreneurs, the industry has
recently begun to attract well capitalized corporations with significant
experience in lodging and hospitality-related businesses. New Marriott
currently has about a five percent share of this rapidly growing industry's
annual worldwide sales of about $6 billion. New Marriott competes by offering
premium quality products at attractive locations to prospective timeshare
buyers, many of whom are familiar with New Marriott's strong commitment to
customer satisfaction through its hotel properties. Approximately 40 percent
of New Marriott's ownership resort sales come from additional purchases by or
referrals from existing owners.
CONTRACT SERVICES
The Contract Services segment includes two businesses: Marriott Senior
Living Services (development and operation of retirement communities and
related senior care services) and Marriott Distribution Services (distribution
of food and supplies).
Marriott Senior Living Services
Through its Senior Living Services business, New Marriott will develop and
operate both "independent full-service" and "assisted living" retirement
communities and provide related senior care services. Most are rental
61
<PAGE>
communities with daily rates that depend on the amenities and services
provided. New Marriott will be, upon the Spinoff, the largest U.S. operator of
retirement communities in the quality tier.
As of September 12, 1997, the Senior Living Services business operated 44
independent full-service retirement communities, which offer both independent
living apartments and personal assistance units for seniors. Most of these
communities also offer licensed nursing care.
As of September 12, 1997, the Senior Living Services business also operated
37 assisted living retirement communities under the names "Brighton Gardens by
Marriott," "Village Oaks" and "National Guest Homes." Assisted living
retirement communities are for seniors who presently require personal
assistance with hygiene, administration of medication, mobility and other
daily activities which do not require skilled nurses. The Brighton Gardens
concept is quality tier assisted living which generally have 100 single
resident assisted living suites and 30 to 40 nursing beds in a community.
Several communities also provide Alzheimer care units. Village Oaks and
National Guest Homes are moderately priced assisted living concepts which
emphasize non-family companion living and generally have 70 two-person suites
in a community. These concepts are geared for the cost-conscious senior who
enjoys the companionship of another unrelated individual.
All of the assisted living concepts typically include three meals per day,
linen and housekeeping services, security, transportation, and social and
recreational activities. Additionally, skilled nursing and therapy services
are generally available to Brighton Garden residents.
Terms of the senior living services management agreements vary but typically
include base management fees, ranging from four to five percent of revenues,
central administrative services reimbursements and incentive management fees.
Such agreements are generally for initial periods of five to 30 years, with
options to renew for up to 25 additional years. Under the terms of the lease
agreements covering 18 of the communities, New Marriott will pay the owner
fixed annual rentals and additional rentals equal to a percentage of annual
revenues in excess of a fixed amount. The leases initially expire in 2013,
with renewals for an additional 20 years at New Marriott's option.
The senior living services market is one of the faster-growing segments of
the U.S. economy. New Marriott is expanding its Senior Living Services
division to meet this growing demand and by the end of 1998 expects to operate
approximately 122 retirement communities.
As of September 12, 1997, New Marriott operated 81 retirement communities in
20 states.
<TABLE>
<CAPTION>
COMMUNITIES UNITS/1/
----------- --------
<S> <C> <C>
Independent full-service
--owned.............................................. 3 1,074
--operated under long-term agreements................ 41 10,943
--- ------
44 12,017
--- ------
Assisted living
--owned.............................................. 11 828
--operated under long-term agreements................ 26 3,269
--- ------
37 4,097
--- ------
Total retirement communities at September 12, 1997... 81 16,114
=== ======
</TABLE>
- --------
/1/ Units represent independent and assisted living apartments plus beds in
nursing centers.
Marriott Distribution Services
MDS is a United States limited-line distributor of food and related
supplies, carrying an average of 3,000 product items per distribution center.
This business unit originally focused on purchasing, warehousing and
62
<PAGE>
distributing food and supplies to other Company businesses. In recent years,
however, MDS has steadily increased its third-party business to about 65
percent of total sales volume in the 36 weeks ended September 12, 1997,
compared to less than 15 percent in fiscal year 1988.
MDS operated a nationwide network of 16 distribution centers as of September
12, 1997, including three centers opened during 1997. Leased facilities are
generally built to MDS's specifications, and utilize a narrow aisle concept
and technology to enhance productivity.
MDS plans to aggressively pursue new business by leveraging its purchasing
economies, quality assurance programs and operating systems.
Competition
New Marriott will encounter strong competition in each of its Contract
Services businesses. Marriott Senior Living Services competes mostly with
local and regional providers of long-term health care and retirement living,
although some national providers are emerging in the assisted living market.
Marriott Senior Living Services is able to compete by operating well
maintained facilities and by providing quality health care, food service and
other services at reasonable prices. Additionally, Marriott Senior Living
Services has focused on developing relationships with professionals who often
refer seniors to retirement communities, such as hospital discharge planners
and ministers. By educating these groups on the assisted living concept, and
familiarizing them with the Marriott product and personnel, Marriott Senior
Living Services referrals that help its retirement communities to quickly
achieve high, stabilized occupancy levels.
MDS competes with numerous national, regional and local distribution
companies in the $130 billion U.S. food distribution business. MDS attracts
and retains clients by adopting competitive pricing policies and by
maintaining one of the highest order fill rates in the industry. In addition,
MDS uses its advanced technology, purchasing leverage and limited product
lines to provide a favorable cost structure.
63
<PAGE>
SODEXHO NORTH AMERICA
SELECTED FINANCIAL DATA
The following table presents certain selected financial data of Sodexho
North America which has been derived from the Sodexho North America Combined
Consolidated Financial Statements as of and for the three months ended
November 30, 1997 and 1996 and the five most recent fiscal years ended August
31, 1997. The information set forth below should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--SODEXHO NORTH AMERICA" which follows and the Sodexho North America
Combined Consolidated Financial Statements and Notes thereto included
elsewhere in this Proxy Statement. Per share data has not been presented
because Sodexho North America was not a publicly held company during the
periods presented below.
<TABLE>
<CAPTION>
(IN MILLIONS)
-----------------------------------------------
THREE MONTHS ENDED
NOVEMBER 30 FISCAL YEAR ENDED AUGUST 31
------------------- ---------------------------
1997 1996 1997 1996 1995/1/ 1994 1993
--------- --------- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales......................... $265 $240 $882 $834 $599 $348 $334
Operating Income.............. 11 10 20 16 5 4 4
Net Income.................... 6 5 7 5 - 2 2
BALANCE SHEET DATA (AT END OF
PERIOD)
Total Assets.................. 308 279 265 263 102 98
Long-Term Debt................ 66 67 81 94 5 -
</TABLE>
- --------
/1/ Reflects the acquisition of Gardner Merchant Holdings, Inc. as of February
1, 1995.
64
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- SODEXHO NORTH AMERICA
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of operations of
Sodexho North America for fiscal years ended August 31, 1997, 1996 and 1995
and the three months ended November 30, 1997 and November 30, 1996. Forward-
looking comments do not contemplate the impact of the Transactions that are
the subject of this Proxy Statement.
Fiscal 1997 Compared To Fiscal 1996
Net income increased 53 percent to $7 million on sales growth of six percent
to $882 million. Operating income was up 28 percent to $20 million.
Unit level performance reflected sales improvements across all markets, as
the business and industry, education and health care divisions all benefited
from the impact of new accounts and increases in the level of services
provided to on-going clients. These top-line improvements resulted in slightly
lower profit margins principally due to expected start-up costs at the new
accounts.
The increase in operating income was primarily attributable to lower
selling, general and administrative expenses than in fiscal 1996, when
significant transition costs were incurred in connection with the Gardner
Merchant Acquisition offset by the slightly reduced profit margins described
above.
Selling, general and administrative expenses decreased one percent to $92
million and by one percentage point as a percentage of sales, reflecting the
impact of transition costs in fiscal 1996 relating to the Gardner Merchant
Acquisition. Depreciation and amortization expense decreased by four percent
primarily due to certain assets becoming fully depreciated during the year.
Interest expense decreased three percent to $7 million as a result of
principal reductions on borrowings assumed in the Gardner Merchant
Acquisition.
The effective income tax rate increased to 44 percent in fiscal 1997,
compared to 43 percent in fiscal 1996. The increase is primarily attributable
to an increase in permanent differences arising from the nondeductible portion
of meals and entertainment expenses.
Fiscal 1996 Compared To Fiscal 1995
Net income was $5 million in fiscal 1996 compared to a slight loss in fiscal
1995. Sales grew 39 percent to $834 million, reflecting a full year of
operations of Gardner Merchant, as compared to seven months in fiscal 1995.
Operating income nearly tripled to $16 million. This increase was largely
attributable to a full year of operations of Gardner Merchant as compared to
seven months, including the three summer months, which are considered "off-
season" in the industry, in fiscal 1995.
Unit level performance in fiscal 1996 reflected a full year of revenues of
the Gardner Merchant as compared to seven months in fiscal 1995, as well as
sales improvements across all markets, as the business and industry, education
and health care divisions all benefited from the impact of new accounts and
increases in the level of services provided to on-going clients. However, the
timing of the Gardner Merchant Acquisition during fiscal 1995 resulted in
lower margins during that year.
Selling, general and administrative expenses rose 67 percent to $93 million
in fiscal 1996, reflecting a full year of operations of Gardner Merchant and
the impact of transition costs pertaining to the Gardner Merchant Acquisition.
The increase of 44 percent in depreciation and amortization reflected a full
year of expense on the tangible and intangible assets acquired.
65
<PAGE>
Interest expense increased 38 percent to $7 million in fiscal 1996,
reflecting a full year of interest on borrowings assumed in the Gardner
Merchant Acquisition.
The effective income tax rate decreased to 43 percent in fiscal 1996,
compared to 257 percent in fiscal 1995, due to the relatively lower pretax
income in fiscal 1995 in relation to the nondeductible permanent items in that
year.
Three Months Ended November 30, 1997 and November 30, 1996
Net income increased 15 percent to $6 million for the three months ended
November 30, 1997, on sales growth of 10 percent to $265 million as compared
to the same period in 1996.
Unit level performance improved across all markets, as the business and
industry, education and health care divisions all benefited from the impact of
new accounts and increases in the level of services provided to on-going
clients.
Selling, general and administrative expenses increased 14 percent to $26
million for the three months ended November 30, 1997 as compared to $23
million for the same period in fiscal 1996, roughly in line with the increase
in sales but also reflecting costs related to the Transactions.
Interest expense decreased seven percent as a result of principal reduction
on borrowings assumed in the Gardner Merchant Acquisition.
The effective income tax rate of 43 percent for the three months ended
November 30, 1997, is the same percentage as for the three months ended
November 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $23 million at August 31, 1997 as compared
to $21 million and $25 million at August 31, 1996 and 1995, respectively. Cash
and cash equivalents totaled $22 million at November 30, 1997. Cash provided
by operations of $14 million, $18 million and $16 million for fiscal 1997,
1996 and 1995, respectively, reflected significantly higher net income in both
fiscal 1997 and 1996, offset somewhat in fiscal 1997 by a higher net change in
working capital. Cash provided by operations of $6 million and $32 million for
the three months ended November 30, 1997 and 1996, respectively, reflected a
significant decrease in changes in working capital. During fiscal 1997,
Sodexho North America centralized certain cash management accounts which
enabled it to reduce its outstanding overdrafts.
Cash used in investing activities totaled $6 million and $7 million in
fiscal 1997 and 1996, respectively, primarily reflecting capital expenditures
of $7 million and $9 million, respectively, which consisted primarily of
purchases of computer equipment and vending equipment. Similar expenditures
were made during fiscal 1995, but were more than offset by cash and
equivalents acquired in the Gardner Merchant Acquisition. Cash used in
investing activities totaled $2 million for the three months ended November
30, 1997 and were negligible for the three months ended November 30, 1996. The
increase was primarily attributable to capital expenditures for new computer
equipment and vending machines.
Cash used in financing activities of $7 million, $14 million and $7 million
in fiscal 1997, 1996 and 1995, primarily reflects repayments of long-term
debt, which was refinanced during fiscal 1996. During fiscal 1996 and 1995,
dividends of $3 million and $2 million, respectively, were paid to Sodexho,
the parent company. During fiscal 1997, Sodexho North America utilized $6
million of its $31 million available credit line. Cash used in financing
activities increased to $5 million for the three months ended November 30,
1997 as compared to negligible amounts for the same period during fiscal 1997,
primarily due to repayment of the line of credit.
Sodexho North America expects that cash generated by operations as well as
borrowing capacity under the Replacement SMS Debt will be sufficient to
finance its planned growth and capital requirements. See "FINANCING."
66
<PAGE>
SMS UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The unaudited Pro Forma Combined Balance Sheet of SMS as of September 12,
1997 presents the financial position of SMS as if the Transactions had been
completed as of such date. The unaudited Pro Forma Combined Statements of
Income of SMS for the 36 weeks ended September 12, 1997, the 53 weeks ended
January 3, 1997, the 52 weeks ended December 29, 1995 and the 52 weeks ended
December 30, 1994 present the results of operations of SMS as if the
Transactions had been completed at the beginning of each period presented. The
adjustments required to reflect the Transactions are set forth in the pro
forma Spinoff adjustments and pro forma Acquisition and refinancing
adjustments columns and are discussed in the accompanying Notes.
The unaudited pro forma combined financial data of SMS and Notes thereto
should be read in conjunction with the Marriott International, Inc.
Consolidated Financial Statements, contained in the Marriott International,
Inc. Annual Report on Form 10-K for the fiscal year ended January 3, 1997, the
Marriott International, Inc. Quarterly Report on Form 10-Q for the fiscal
quarter ended September 12, 1997, which are incorporated herein by reference,
and the audited Sodexho North America Combined Consolidated Financial
Statements and Notes thereto, which are included elsewhere in this Proxy
Statement.
THE PRO FORMA INFORMATION PRESENTED IS FOR INFORMATIONAL PURPOSES ONLY AND
MAY NOT NECESSARILY REFLECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL
POSITION OR WHAT THE RESULTS OF OPERATIONS OR FINANCIAL POSITION WOULD HAVE
BEEN HAD THE TRANSACTIONS OCCURRED AS OF THE DATE AND DURING THE PERIODS
INDICATED. THIS INFORMATION DOES NOT NECESSARILY REFLECT THE FUTURE FINANCIAL
PERFORMANCE OF SMS.
For the purposes of preparing the financial statements of SMS, management of
SMS will undertake a study to establish the fair value of the acquired assets
and liabilities of Sodexho North America. The allocation of the purchase price
to the assets and liabilities acquired reflected in this pro forma combined
financial data is preliminary. Accordingly, the actual financial position and
results of operations may differ from these pro forma amounts.
67
<PAGE>
SMS
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 12, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
SODEXHO ACQUISITION
PRO FORMA NORTH AND
THE COMPANY SPINOFF AMERICA REFINANCING PRO FORMA
HISTORICAL ADJUSTMENTS SUBTOTAL HISTORICAL ADJUSTMENTS SMS
----------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents... $ 359 $ 48 (A) $ 68 $ 23 $ 304 (G) $ 24
(339)(C) (365)(H)
20 (D) (6)(I)
(20)(F)
Accounts and notes re-
ceivable.............. 1,041 (22)(A) 288 84 372
(731)(C)
Other current assets... 468 (2)(A) 112 24 3 (I) 139
19 (B)
(373)(C)
------ ------- ------- ---- ------- -------
1,868 (1,400) 468 131 (64) 535
------ ------- ------- ---- ------- -------
Property and equipment.. 1,496 (11)(A) 58 24 82
(1,427)(C)
Intangible assets....... 1,773 (70)(A) 232 97 255 (J) 584
(1,471)(C)
Other assets............ 1,187 (1,140)(C) 47 27 24 (H) 98
------ ------- ------- ---- ------- -------
$6,324 $(5,519) $ 805 $279 $ 215 $ 1,299
====== ======= ======= ==== ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities
Accounts payable....... $1,011 $ (24)(A) $ 159 $ 59 $ 20 (J) $ 238
(825)(C)
(3)(D)
Other current liabili-
ties.................. 1,109 (8)(A) 334 78 (171)(H) 239
65 (B) (2) (I)
(939)(C)
107 (D)
------ ------- ------- ---- ------- -------
2,120 (1,627) 493 137 (153) 477
------ ------- ------- ---- ------- -------
Long-term debt.......... 1,433 (1)(A) 1,325 67 1,150 (H) 1,222
(107)(C) (1,320)(H)
Other long-term liabili-
ties................... 979 (898)(C) 107 8 27 (J) 142
24 (E)
2 (F)
Convertible subordinated
debt................... 306 (306)(C) - - -
------ ------- ------- ---- ------- -------
4,838 (2,913) 1,925 212 (296) 1,841
------ ------- ------- ---- ------- -------
Common stock............ 129 129 7 (74)(J) 62
Additional paid-in capi-
tal.................... 678 (2)(A) 671 54 223 (J) 948
(5)(F)
Retained earnings (defi-
cit)................... 744 (22)(A) (1,855) 6 304 (G) (1,552)
(46)(B) (1)(I)
(2,406)(C) (6)(J)
(84)(D)
(24)(E)
(17)(F)
Treasury stock, at
cost................... (65) (65) - 65 (J) -
------ ------- ------- ---- ------- -------
Total stockholders' eq-
uity (deficit)......... 1,486 (2,606) (1,120) 67 511 (542)
------ ------- ------- ---- ------- -------
$6,324 $(5,519) $ 805 $279 $ 215 $ 1,299
====== ======= ======= ==== ======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
68
<PAGE>
SMS
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
THIRTY-SIX WEEKS ENDED SEPTEMBER 12, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SODEXHO ACQUISITION
THE PRO FORMA NORTH AND
COMPANY SPINOFF AMERICA REFINANCING PRO FORMA
HISTORICAL ADJUSTMENTS SUBTOTAL HISTORICAL ADJUSTMENTS SMS
---------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SALES................... $8,158 $ (126)(K) $2,155 $569 $2,724
(6,177)(L)
300 (M)
OPERATING COSTS AND
EXPENSES............... 7,660 (129)(K) 2,084 561 $ 6 (P) 2,652
(5,747)(L) 1 (Q)
300 (M)
------ ------- ------ ---- ---- ------
Operating profit before
corporate expenses and
interest.............. 498 (427) 71 8 (7) 72
Corporate expenses...... (64) 60 (L) (4) - (5)(S) (9)
Interest expense........ (77) 18 (L) (59) (5) 59 (N) (64)
(59)(R)
Interest income......... 19 (19)(L) - 1 1
------ ------- ------ ---- ---- ------
INCOME BEFORE INCOME
TAXES.................. 376 (368) 8 4 (12) -
Provision for income
taxes.................. 149 (145)(L) 4 2 (3)(O) 3
------ ------- ------ ---- ---- ------
NET INCOME (LOSS)....... $ 227 $ (223) $ 4 $ 2 $ (9) $ (3)
====== ======= ====== ==== ==== ======
Primary shares.......... 134.1 62.1 (T)
====== ======
PRIMARY EARNINGS (LOSS)
PER SHARE.............. $ 1.70 $(0.05)
====== ======
Fully diluted shares.... 139.4 62.1 (T)
====== ======
FULLY DILUTED EARNINGS
PER SHARE.............. $ 1.67
======
RESTATED FULLY DILUTED
EARNINGS (LOSS) PER
SHARE.................. $ 6.68 (T) $(0.05)
====== ======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
69
<PAGE>
SMS
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIFTY-THREE WEEKS ENDED JANUARY 3, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SODEXHO ACQUISITION
THE PRO FORMA NORTH AND
COMPANY SPINOFF AMERICA REFINANCING PRO FORMA
HISTORICAL ADJUSTMENTS SUBTOTAL HISTORICAL ADJUSTMENTS SMS
---------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SALES................... $ 10,172 $ (136)(K) $ 3,175 $ 845 $ 4,020
(7,267)(L)
406 (M)
OPERATING COSTS AND
EXPENSES............... 9,543 (135)(K) 3,055 828 $ 7 (P) 3,891
(6,759)(L) 1 (Q)
406 (M)
-------- ------- ------- ----- ---- -------
Operating profit before
corporate expenses and
interest.............. 629 (509) 120 17 (8) 129
Corporate expenses...... (79) 73 (L) (6) - (6)(S) (12)
Interest expense........ (85) 37 (L) (48) (7) 47 (N) (93)
(85)(R)
Interest income......... 37 (37)(L) - - -
-------- ------- ------- ----- ---- -------
INCOME BEFORE INCOME
TAXES.................. 502 (436) 66 10 (52) 24
Provision for income
taxes.................. 196 (165)(L) 31 4 (21)(O) 14
-------- ------- ------- ----- ---- -------
NET INCOME.............. $ 306 $ (271) $ 35 $ 6 $(31) $ 10
======== ======= ======= ===== ==== =======
Primary shares.......... 135.2 63.9 (T)
======== =======
PRIMARY EARNINGS PER
SHARE.................. $ 2.26 $ .16
======== =======
Fully diluted shares.... 139.2 63.9 (T)
======== =======
FULLY DILUTED EARNINGS
PER SHARE.............. $ 2.24
========
RESTATED FULLY DILUTED
EARNINGS PER SHARE..... $ 8.96 (T) $ .16
======== =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
70
<PAGE>
SMS
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIFTY-TWO WEEKS ENDED DECEMBER 29, 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SODEXHO ACQUISITION
THE PRO FORMA NORTH AND
COMPANY SPINOFF AMERICA REFINANCING PRO FORMA
HISTORICAL ADJUSTMENTS SUBTOTAL HISTORICAL ADJUSTMENTS SMS
---------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SALES................... $8,961 $(6,255)(L) $3,031 $746 $3,777
325 (M)
OPERATING COSTS AND
EXPENSES............... 8,471 (5,865)(L) 2,931 733 $ 8 (P) 3,673
325 (M) 1 (Q)
------ ------- ------ ---- ---- ------
Operating profit before
corporate expenses and
interest.............. 490 (390) 100 13 (9) 104
Corporate expenses...... (64) 59 (L) (5) - (7)(S) (12)
Interest expense........ (53) 9 (L) (44) (8) 44 (N) (93)
(85)(R)
Interest income......... 39 (39)(L) - - -
------ ------- ------ ---- ---- ------
INCOME (LOSS) BEFORE
INCOME TAXES........... 412 (361) 51 5 (57) (1)
Provision for income
taxes.................. 165 (142)(L) 23 2 (21)(O) 4
------ ------- ------ ---- ---- ------
NET INCOME (LOSS)....... $ 247 $ (219) $ 28 $ 3 $(36) $ (5)
====== ======= ====== ==== ==== ======
Primary shares.......... 131.9 61.1 (T)
====== ======
PRIMARY EARNINGS (LOSS)
PER SHARE.............. $ 1.87 $(0.08)
====== ======
Fully diluted shares.... 132.3 61.1 (T)
====== ======
FULLY DILUTED EARNINGS
PER SHARE.............. $ 1.87
======
RESTATED FULLY DILUTED
EARNINGS (LOSS) PER
SHARE.................. $ 7.48 (T) $(0.08)
====== ======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
71
<PAGE>
SMS
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIFTY-TWO WEEKS ENDED DECEMBER 30, 1994
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
SODEXHO ACQUISITION
THE PRO FORMA NORTH AND
COMPANY SPINOFF AMERICA REFINANCING PRO FORMA
HISTORICAL ADJUSTMENTS SUBTOTAL HISTORICAL ADJUSTMENTS SMS
---------- ----------- -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
SALES................... $8,415 $(5,746)(L) $2,961 $344 $3,305
292 (M)
OPERATING COSTS AND
EXPENSES............... 8,002 (5,430)(L) 2,864 339 $ 13 (P) 3,217
292 (M) 1 (Q)
------ ------- ------ ---- ---- ------
Operating profit before
corporate expenses and
interest.............. 413 (316) 97 5 (14) 88
Corporate expenses...... (68) 63 (L) (5) -- (6)(S) (11)
Interest expense........ (32) 7 (L) (25) -- 25 (N) (85)
(85)(R)
Interest income......... 29 (29)(L) -- -- --
------ ------- ------ ---- ---- ------
INCOME BEFORE INCOME
TAXES.................. 342 (275) 67 5 (80) (8)
Provision for income
taxes.................. 142 (113)(L) 29 2 (30)(O) 1
------ ------- ------ ---- ---- ------
NET INCOME (LOSS)....... $ 200 $ (162) $ 38 $ 3 $(50) $ (9)
====== ======= ====== ==== ==== ======
Primary shares.......... 132.3 60.8 (T)
====== ======
PRIMARY EARNINGS (LOSS)
PER SHARE ............. $ 1.51 $(0.16)
====== ======
Fully diluted shares.... 132.3 60.8 (T)
====== ======
FULLY DILUTED EARNINGS
PER SHARE.............. $ 1.51
======
RESTATED FULLY DILUTED
EARNINGS (LOSS) PER
SHARE.................. $ 6.04 (T) $(0.16)
====== ======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
72
<PAGE>
SMS
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
A. Represents the sale of MMS UK to Sodexho for $50 million in cash. Such sale
is assumed to have closed as of the balance sheet date. Assets and
liabilities of the UK operations removed from the balance sheet include $2
million of cash held in the UK at closing.
B. Represents anticipated tender offer costs, consent costs and accrued but
unpaid interest for the public debt of the Company and its subsidiaries,
net of related tax benefits.
C. Represents the removal of the assets and liabilities of New Marriott as a
result of the Spinoff.
D. Represents anticipated payments from New Marriott to SMS of $50 million as
a net tangible assets closing adjustment, and the allocation of cash for
the $20 million deferred bonus stock less payment to New Marriott of $50
million related to the MMS UK sale and $107 million payable by SMS to New
Marriott in relation to the agreed-upon level of Company debt to be
refinanced or repaid by SMS ($1.444 billion) as provided in the
Distribution Agreement. Additionally, reflects removal of $3 million of SMS
liabilities to be assumed by New Marriott under the Employee Benefits
Allocation Agreement.
E. Represents the allocation to SMS of the pro-rata share of the LYONs based
upon the estimated relative equity values of SMS and New Marriott on the
Effective Date as provided in the LYONs Allocation Agreement. However, New
Marriott will be liable for the full obligation evidenced by the LYONs.
This allocation to other long-term liabilities represents SMS's liability
for its pro-rata share of the LYONs.
F. Represents approximately 0.3 million shares of the Company's unvested
deferred bonus stock paid out in cash, prior to the Spinoff.
G. Represents Sodexho's cash payment to SMS concurrent with the Acquisition.
The cash will be used to pay down existing indebtedness.
H. Represents repayment of Company debt, anticipated tender offer costs,
consent costs and accrued interest with proceeds from borrowings under new
SMS credit facilities as well as the net cash impact of these refinancing
transactions. The following summarizes the pro forma net cash outflow for
financing transactions (in millions):
<TABLE>
<CAPTION>
INFLOW/(OUTFLOW)
------------------
<S> <C> <C>
Borrowings under new SMS credit facilities $ 1,150
Refinancing of existing public debt and commercial paper
(excluding $5 existing premium) (1,315)
Debt issuance costs relating to the new SMS borrowings
($5 will be expensed related to the existing public
debt) (29)
Payment of accrued interest on tendered public debt $ (18)
Costs associated with tendered public debt (46)
Payment to New Marriott in relation to the agreed upon
level of SMS debt (107)
-------
Effect on other current liabilities (171)
---------
Net cash outflow $ (365)
=========
</TABLE>
I. Represents the cash settlement by ICC of 42 percent of its pre-Acquisition
stock options and the redenomination of the remaining ICC options into
options to acquire shares in SMS.
J. Represents the purchase accounting for the acquisition of Sodexho North
America by SMS. The acquisition will be consummated by issuing shares of
SMS Common Stock to Sodexho as consideration. The acquisition will be
accounted for by the purchase method of accounting. The purchase price will
be allocated to the
73
<PAGE>
identifiable assets (both tangible and intangible) and liabilities assumed
based on their estimated fair values. The preliminary pro forma purchase
price allocation resulted in the following adjustments to historical amounts
(in millions):
<TABLE>
<S> <C> <C>
Net assets of Sodexho North America $ 67
Liabilities assumed upon Acquisition (including anticipated $5
payment to Sodexho as an ICC net tangible asset closing
adjustment) (20)
Deferred income taxes (27)
Customer contracts $ 68
Goodwill 187
----
Total intangible assets 255
----
Pro forma purchase price $275
====
</TABLE>
Goodwill and customer contracts will be amortized over 30 year and 15 year
periods, respectively.
As part of the Transactions, treasury stock is canceled and the one-for-four
SMS Reverse Stock Split is effected. The effect on stockholder's equity to
record the Transactions is summarized below (in millions):
<TABLE>
<S> <C> <C>
Elimination of Sodexho North America's historical common stock $ (7)
Effect of one-for-four SMS reverse stock split (67)
----
Reduction in common stock $(74)
====
Elimination of Sodexho North America's historical additional
paid-in capital $(54)
Cancellation of Treasury Stock (65)
Effect of the one-for-four SMS reverse stock split 67
Purchase cost 275
----
Increase in additional paid-in capital $223
====
Elimination of Sodexho North America's historical retained
earnings $ (6)
====
</TABLE>
K. Represents MMS UK, which is assumed to be sold at the beginning of the
period.
L. Represents the results of New Marriott's businesses (Lodging, which will be
treated as discontinued operations, as well as Senior Living Services and
Marriott Distribution Services).
M. Represents the historical intercompany sales activity between MDS and MMS,
which has been eliminated in the Company's consolidated financial statements
prior to the Spinoff.
N. Reflects the elimination of interest expense associated with (i) the
Company's tendered outstanding public debt of $720 million and (ii) the
repayment of $595 million of commercial paper borrowings. The fixed rate
public debt had a weighted average interest rate of approximately 7.5
percent, resulting in interest of $46 million and $36 million for the 53
weeks ended January 3, 1997 and the 36 weeks ended September 12, 1997,
respectively. The weighted average commercial paper rate was approximately
5.76 percent and 5.79 percent, respectively, for the 53 weeks ended January
3, 1997 and the 36 weeks ended September 12, 1997, respectively, resulting
in interest expense of $1 million and $23 million, for the 53 weeks ended
January 3, 1997 and the 36 weeks ended September 12, 1997, respectively.
O. Represents the income tax effect of the pro forma adjustments.
P. Reflects the increase in amortization expense associated with the goodwill
and identifiable intangible assets as if the Transactions were consummated
on the first day of the period presented. Annual depreciation and
amortization for SMS is estimated to be $74 million.
74
<PAGE>
Q. Represents license fee payable to New Marriott.
R. Reflects the interest expense associated with SMS's allocated share of
LYONs and SMS's new credit facilities of $1.36 billion, of which $1.15
billion is assumed to be drawn at closing. The average interest rate for
this new debt is assumed to be approximately 7 percent. Interest expense
will increase by $81 million and $56 million, for the 53 weeks ended
January 3, 1997 and the 36 weeks ended September 12, 1997, respectively.
Debt issuance costs of approximately $29 million will be amortized over a
seven year life, resulting in an additional increase in interest expense of
$4 million and $3 million, for the 53 weeks ended January 3, 1997 and the
36 weeks ended September 12, 1997, respectively.
S. Represents estimated additional corporate expenses expected to be incurred
for SMS to operate as a separate public company. These costs include a
treasury department, investor relations function, expanded financial
reporting group, internal audit function, Board of Directors and external
reporting requirements.
T. Restated fully diluted earnings per share of the Company reflects the one-
for-four SMS Reverse Stock Split. Pro forma primary and fully diluted
earnings per share are computed based on (i) common shares outstanding
after issuances to Sodexho and the SMS Reverse Stock Split, (ii) the
dilutive impact of common equivalent shares issuable to SMS employees and
(iii) the dilutive impact of the LYONs. Pro forma net income for fully
diluted earnings per share represents pro forma net income plus the after-
tax amount of interest on the LYONs.
NOTE 1--The pro forma adjustments do not reflect any operating efficiencies
and cost savings which may be achievable with respect to the combined
companies. SMS expects to realize annual pretax cost savings of
approximately $60 million within a three-year period, largely through
greater purchasing economies, and elimination of duplicate functions and
facilities. There can be no assurance, however, as to the amount and timing
of these cost savings, which could be adversely impacted by unforeseen
delays or difficulties in integrating the two companies or the inability to
realize anticipated purchasing economies. Nonrecurring pretax integration
costs of $24 million have not been included in the pro forma statements of
income.
NOTE 2--SMS's business is characterized historically by seasonal fluctuations
in overall demand for services, particularly in the education sector where
sales are stronger during the academic year. Also the Company has included
four four-week periods in the fourth quarter compared to three four-week
periods in each of its first three quarters. Consequently, substantially
higher profits may be earned in the fourth quarter compared to other
quarters.
NOTE 3--On February 1, 1995 Sodexho North America acquired Gardner Merchant
Holdings, Inc. and its subsidiaries (GMH). The results of GMH are included
in the results of Sodexho North America from the date of acquisition.
75
<PAGE>
NEW MARRIOTT
SELECTED FINANCIAL DATA
The following table presents certain selected financial data of New Marriott
which has been derived from the New Marriott Combined Financial Statements as
of and for the 36 weeks ended September 12, 1997 and September 6, 1996 and the
five most recent fiscal years ended January 3, 1997. The information set forth
below should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--NEW MARRIOTT" which follows
and the New Marriott Combined Financial Statements and the Notes thereto
included elsewhere in this Proxy Statement. Per share data has not been
presented because New Marriott was not a publicly held company during the
periods presented below.
<TABLE>
<CAPTION>
(IN MILLIONS)
THIRTY-SIX WEEKS ENDED FISCAL YEAR
-------------------------- -----------------------------------
SEPTEMBER 12, SEPTEMBER 6,
1997 1996 1996/2/ 1995 1994 1993 1992
------------- ------------ ------- ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Sales................... $6,177 $4,850 $7,267 $6,255 $5,746 $4,665 $4,238
Operating Profit Before
Corporate Expenses and
Interest............... 430 345 508 390 316 267 249
Income Before Cumulative
Effect of a Change in
Accounting
Principle/1/........... 226 185 270 219 162 125 105
Net Income.............. 226 185 270 219 162 95 105
BALANCE SHEET DATA (AT
END OF PERIOD)
Total Assets............ 5,481 4,369 4,198 3,179 2,401 2,285 1,771
Long-Term and
Convertible
Subordinated Debt...... 413 679 681 180 102 113 102
</TABLE>
- --------
/1/ Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" was adopted in the first fiscal quarter of 1993.
/2/ Fiscal year 1996 includes 53 weeks.
76
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--NEW MARRIOTT
RESULTS OF OPERATIONS
The following discussion presents an analysis of results of operations of
New Marriott for fiscal years ended January 3, 1997 (53 weeks), December 29,
1995 and December 30, 1994 (each 52 weeks) and the 36 weeks ended September
12, 1997 and September 6, 1996.
1996 COMPARED TO 1995
Net income increased 23 percent to $270 million in 1996, driven by
contributions from new unit expansion and strong profit growth for both the
Lodging and Contract Services segments, partially offset by higher interest
and corporate expenses.
Sales were up 16 percent to $7.3 billion in 1996. The impact of the 53rd
week on 1996 results of operations was not significant.
Lodging
Lodging operating profit was up 26 percent on 10 percent higher sales,
benefiting from favorable conditions in the U.S. lodging market and
contributions from new properties. New Marriott added a net of 146 hotels
(18,204 rooms) and opened four new vacation club resorts during the year.
Profits for Marriott Hotels, Resorts and Suites rose 24 percent in 1996 on
sales growth of nine percent, which reflects the net addition of two units
(1,006 rooms) in the U.S. and a net 17 units (3,768 rooms) internationally.
Comparable New Marriott-operated U.S. hotels posted eight percent higher sales
due to room rate growth of seven percent to $118, and a one percentage point
increase in occupancy to 78 percent. These sales gains, coupled with profit
margin improvements, generated substantially higher incentive management fees
at many properties. Profits for international hotels also were higher,
primarily because of contributions from new properties.
During 1996, the Marriott Hotels, Resorts and Suites brand evolved its
Operational Excellence strategy focused on high quality, clean guest rooms,
consistent and dependable service delivered by a friendly, attentive and
knowledgeable staff. The brand continued to improve its guest room amenities
with substantial reinvestment in furnishing and decor in conjunction with
adding "The Room That Works" enhancements of an ergonomic desk chair, work
lamp and larger desk work area. The brand continues its focus on guest
satisfaction by introducing a meeting planner satisfaction survey and
introducing the Resort Guest experience process which involves the guest in
preplanning their vacation stay prior to arrival.
The limited-service lodging brands reported 10 percent higher sales and 29
percent profit growth in 1996, also benefiting from increased incentive
management fees on New Marriott-operated properties, and expansion of
franchising programs. The three brands added a net of 125 properties (12,888
rooms), primarily franchises, during 1996.
. Courtyard, New Marriott's moderate-price brand, posted an eight percent
increase in sales for comparable New Marriott-operated units, as average
room rates were up eight percent to $78 while occupancy remained at 81
percent. In 1996, the brand continued to focus on improving guest
satisfaction with enhancements such as voice mail, new fitness
equipment, second guest room phones, new decor packages and a new
ergonomic desk chair and lamp to improve the work area in guest rooms.
. Residence Inn, New Marriott's extended-stay brand, generated eight
percent growth in sales for comparable New Marriott-operated units as
average room rates climbed seven percent to $89, while occupancy dipped
slightly to 85 percent. Residence Inn added new electronic locks and
voice mail for
77
<PAGE>
guests in 1996, while also developing a new hotel prototype featuring
interior corridors and a larger gatehouse for social activities that was
well received by guests and investors.
. Fairfield Inn and Fairfield Suites, New Marriott's economy-price brand,
achieved a six percent sales gain for comparable New Marriott-operated
units, as average room rates were boosted 10 percent to $50. Occupancy
fell four percentage points to 77 percent, reflecting the planned shift
to higher rated business. New Marriott introduced Fairfield Suites in
1996. These suites are 25 percent larger than the typical Fairfield Inn
room, with added amenities such as voice mail, in-room coffee, a
microwave oven and refrigerator.
Marriott Vacation Club International ("MVCI"), New Marriott's resort
timesharing business, posted a 25 percent increase in the number of timeshare
intervals sold and 17 percent growth in financially reported sales under the
percentage of completion method. Income from owner financing activities and
resort management also increased. Profits were flat, reflecting higher
marketing and selling costs associated with new resort locations, off-site
sales centers and establishing a European operations group.
Also contributing to 1996 lodging profit growth was higher income from New
Marriott's investment in The Ritz-Carlton Hotel Company LLC. For comparable
U.S. hotels, the luxury chain posted a 10 percent increase in sales as average
room rates increased four percent to $181 and occupancy increased to 75
percent. In addition, house profit margins improved, benefiting from
integration with Marriott Lodging systems and programs.
Contract Services
Contract Services reported a 87 percent increase in operating profit on 52
percent higher sales in 1996 primarily due to the March 1996 acquisition of
Forum Group.
Sales for Marriott Senior Living Services increased 117 percent in 1996,
while profits were up more than five fold from 1995 levels. Excluding the
impact of the Forum Group acquisition, sales increased 23 percent and profits
increased 18 percent. Overall growth was generated by a two percent increase
in average per diem rates for comparable Marriott senior living communities,
strong move-in rates at 11 communities opened since the beginning of 1995, a
consistently high 96 percent occupancy rate and contributions from the
acquired Forum Group communities.
Sales for Marriott Distribution Services grew 35 percent in 1996, as the
division opened five new distribution centers and added several major external
restaurant accounts. Profits were flat in 1996, as sales gains were offset by
start-up costs associated with the new centers and new business.
Corporate Activity
Corporate expenses rose 24 percent in 1996, reflecting higher outlays
associated with new business development and staff additions to facilitate New
Marriott's growth. Additionally, costs increased due to tax-related
investments which generated significant after-tax savings. Interest expense
increased significantly due to interest expense on debt assumed as part of the
acquisition of Forum Group. Interest income declined five percent, primarily
due to collections and sales of affiliate and other notes receivable.
New Marriott's effective income tax rate declined to 38.0 percent in 1996,
compared to 39.4 percent in 1995 and 41.1 percent in 1994. This favorable
trend, in part, reflects New Marriott's ongoing participation in jobs and
affordable housing tax credit programs.
1995 COMPARED TO 1994
New Marriott reported net income of $219 million in 1995, an increase of 35
percent compared to $162 million in 1994. The improvement was due to strong
profit growth for both the lodging and contract services groups, higher
interest income and reduced corporate expenses. Sales grew nine percent to
$6.3 billion dollars in 1995.
78
<PAGE>
Lodging
Lodging operating profit was up 19 percent in 1995 on eight percent higher
sales, as all product lines benefited from a strong U.S. lodging market.
Profits for New Marriott's full-service hotels increased 14 percent in 1995 on
sales growth of nine percent. Comparable New Marriott-operated U.S. hotels
posted a six percent sales gain primarily due to average room rate growth of
six percent to $110, and higher food and beverage sales. Occupancy increased
slightly to 77 percent. Profits for international hotels also were higher,
driven by contributions from new managed properties in Puerto Rico, Singapore
and Aruba, as well as higher franchise fees. During the year, ten properties
(5,206 rooms) were added to the Marriott full-service hotel system worldwide.
The limited-service lodging brands reported combined profit growth of 28
percent on a three percent sales increase, benefiting from higher incentive
management fees on New Marriott-operated properties, and expansion of
franchising programs. Sales growth was affected by the conversion of 26
Fairfield Inns from New Marriott-operated to franchised in the 1994 third
quarter. The three product lines added a net total of 87 properties (7,951
rooms) in 1995.
. Courtyard posted a six percent increase in sales for comparable New
Marriott-operated units, as average room rates were up seven percent to
$72 with occupancy remaining at 81 percent.
. Residence Inn achieved seven percent growth in sales for comparable New
Marriott-operated units, due to a seven percent increase in average room
rates to $83 and slightly higher occupancy of 86 percent.
. Fairfield Inn generated eight percent higher sales for comparable New
Marriott-operated units, as average room rates climbed nine percent to
$45 and occupancy declined slightly to 81 percent.
MVCI posted a 33 percent increase in sales and 23 percent higher profits in
1995. Strong sales activity in the Orlando, Florida and Palm Desert,
California core markets, and at new resort locations in Hawaii, Colorado and
Utah, resulted in a 17 percent increase in the number of timesharing intervals
sold.
Also contributing to 1995 lodging results was income from New Marriott's
investment in The Ritz-Carlton Hotel Company LLC, acquired in April 1995.
Contract Services
Contract Services more than doubled in operating profit in 1995 on 16
percent sales growth. Both businesses posted higher sales and profits for the
year.
Sales for Marriott Senior Living Services increased 18 percent in 1995,
while profits more than doubled from 1994 levels. Growth was generated by a
two percentage point increase in occupancy, to 96 percent, for comparable
retirement communities, and strong move-in rates at nine communities opened in
1994 and 1995. Average per diem rates for comparable retirement communities
were up three percent to $89 compared to 1994.
Sales for MDS grew 21 percent in 1995, as the division opened its eighth
distribution center, and added several major restaurant accounts. Profits rose
19 percent, reflecting the higher sales volumes offset somewhat by start-up
costs associated with new business.
Corporate Activity
Corporate expenses declined six percent in 1995 primarily due to income from
certain tax-advantaged investments. Interest income increased 34 percent
largely as a result of additional loans to owners of new lodging properties
operated or franchised by New Marriott.
Profit Margins
Operating profit (before corporate expenses and interest) increased 30
percent in 1996 and 23 percent in 1995 on sales increases of 16 percent in
1996 and nine percent in 1995. New Marriott expects its profits will
79
<PAGE>
continue to grow at a higher rate than sales over the next several years.
While New Marriott continues to benefit from ongoing programs to reduce
operating costs and overhead without affecting customer service, several other
factors cause profit growth to outpace sales gains:
. More hotels are generating incentive management fees. New Marriott's
hotel management contracts typically provide for New Marriott to receive
incentive fees when certain earnings and cash flow thresholds are
achieved. As the hotels added to the Marriott system in recent years
have matured, and the lodging industry has improved, additional hotels
have met these thresholds. In 1996, New Marriott earned incentive fees
on 64 percent of New Marriott-operated hotel rooms compared to 57
percent in 1995 and 51 percent in 1994.
. Franchising is a more significant portion of New Marriott's lodging
business, particularly for the limited-service brands. At December 30,
1994, 30 percent of the hotel rooms in the Marriott system were
franchised. By January 3, 1997, this percentage had increased to 37
percent, and is expected to exceed 44 percent by the year 2000. New
Marriott's combined income statement reflects total sales of New
Marriott-operated hotels, but includes only the fees earned by New
Marriott for franchised properties. As a result, the rooms added to
Marriott's franchise system in 1996 and 1995 contributed significantly
to New Marriott's growth in lodging profitability and market share, but
had a much smaller impact on reported sales.
. MVCI generates higher profit margins than New Marriott's other lodging
product lines, so sales gains for this business can have an amplified
impact on profits.
THIRTY-SIX WEEKS ENDED SEPTEMBER 12, 1997 COMPARED TO THIRTY-SIX WEEKS ENDED
SEPTEMBER 6, 1996/1/
New Marriott reported net income of $226 million for the first three
quarters of 1997, on sales of $6,177 million. This represents a 22 percent
increase in net income and 27 percent increase in sales over the same period
in 1996.
Lodging
Lodging operating profits were up 27 percent, on a sales increase of 20
percent. The revenue increase resulted from REVPAR growth across all brands
averaging eight percent, the net addition of 413 hotels since the beginning of
1996, including the Renaissance acquisition, and fewer holidays in the first
quarter of 1997. This revenue growth resulted in New Marriott earning higher
base management and franchise fees. Revenue growth also contributed to higher
house profits which resulted in higher incentive management fees. The
following table is a summary of year-to-date rate and occupancy statistics by
brand.
<TABLE>
<CAPTION>
THIRTY-SIX WEEKS ENDED
-----------------------------------
SEPTEMBER 12,
1997 SEPTEMBER 6, 1996
----------------- -----------------
BRAND RATE OCCUPANCY RATE OCCUPANCY
- --------------------------------------- ------- --------- ------- ---------
<S> <C> <C> <C> <C>
Marriott Hotels, Resorts and Suites.... $126.84 79.5% $117.01 79.2%
Ritz-Carlton........................... 184.28 80.4% 177.80 76.5%
Renaissance............................ 117.37 72.8% 112.21 72.4%
Residence Inn.......................... 95.41 85.8% 88.48 87.3%
Courtyard.............................. 83.85 82.4% 78.29 82.5%
Fairfield Inn and Suites............... 50.89 78.4% 50.26 79.8%
- --------------------
</TABLE>
/1/ Year-to-date 1996 statistics for REVPAR, occupancy and average room rates
have been adjusted for purposes of comparability with the 1997 statistics. Due
to the variations in New Marriott's fiscal year, which ends on the Friday
closest to December 31, the week including the 1996 New Year's Day holiday is
included in the first quarter of 1996, and the week including the 1997 New
Year's Day holiday is included in the fourth quarter of 1996. The adjusted
year-to-date 1996 statistics are based on the same calendar days as the 1997
statistics. Comparable statistics are used throughout this discussion, and are
based on New Marriott-operated U.S. properties. The Ramada International and
New World brands do not have any U.S. properties.
80
<PAGE>
Sales for Marriott Hotels, Resorts and Suites, which comprise over 65
percent of total lodging sales, increased nine percent for the first three
quarters of 1997 over the same period in 1996, due to strong REVPAR growth and
the addition of 54 properties since the beginning of 1996. REVPAR grew nine
percent as average room rates increased by eight percent and occupancy
increased slightly year-over-year. Profits increased as improved REVPAR
generated higher base management fees and higher house profits, resulting in
increased incentive fees at many hotels.
Ritz-Carlton reported an increase in average room rates of four percent and
occupancy increased four percentage points to 80 percent, resulting in a nine
percent increase in REVPAR.
The RHG brands contributed $360 million of sales since the March 29, 1997
acquisition. After intangible amortization and interest expense, the RHG
acquisition reduced 1997 year-to-date earnings per share by $.08. REVPAR for
New Marriott-operated U.S. Renaissance hotels, increased five percent due to
higher room rates and a slight increase in occupancy.
Limited-service brands represented over 20 percent of total lodging sales
for the first three quarters of 1997. Residence Inn, Courtyard and Fairfield
Inn and Suites represent New Marriott in the limited service segments. In
addition, New Marriott opened the first property under the TownePlace Suites
brand, which is designed to attract extended-stay travelers in the moderate
price range.
. Residence Inn posted a REVPAR increase of six percent, due to an increase
in average room rates of eight percent, to $95.41, offset by a slight
decrease in occupancy to 86 percent. In addition to REVPAR increases for
comparable properties, the net addition of 52 properties since the
beginning of fiscal year 1996, including its fourth property outside the
U.S., contributed to a 10 percent growth in sales.
. Courtyard sales increased by nine percent. Average room rates increased
seven percent, to $83.85, while occupancy remained at 82 percent, resulting
in a REVPAR increase of seven percent. Sales and profits also reflect the
net addition of 77 units from the beginning of fiscal year 1996. Courtyard
opened its 300th unit in Fort Worth, Texas during this period and expanded
its non-U.S. operations to 10 franchised Courtyard units in the United
Kingdom.
. Fairfield Inn and Suites increased sales by nine percent over last year. A
one percent increase in average room rate to $50.89 was offset by a slight
decline in occupancy, to 78 percent for New Marriott-operated units,
resulting in no material change in REVPAR. Sales increased due to the net
addition of 98 units since the beginning of fiscal year 1996, including New
Marriott's 300th unit in Minneapolis/St. Paul.
Marriott Vacation Club International sold over 16,500 timeshare intervals in
the first three quarters of 1997, an increase of 26 percent over the prior
year. New Marriott's sales increase resulted from very strong performance in
several locations, including MVCI's first European resort in Marbella, Spain,
as well as Fort Lauderdale and Orlando, Florida and Hilton Head, South
Carolina. Increased profits from resort development were offset by reduced
financing income, due to lower sales of timeshare notes receivable in the
first three quarters of 1997.
Contract Services
Contract Services reported operating profit of $35 million on sales of
$1,409 million, representing a 59 percent increase in sales, from the first
three quarters of 1996. The unchanged profit was due to (i) start-up losses
for new senior living communities and new distribution centers and accounts,
(ii) the sale-leaseback of four senior living communities in August 1996, and
(iii) the sale, subject to long-term management agreements, of 29 senior
living communities in June 1997.
Marriott Senior Living Services reported 1997 year-to-date profit growth on
sales growth of 36 percent primarily due to the acquisition of Forum Group in
the second quarter of 1996. In addition, occupancy rates on comparable
Marriott properties increased two percentage points, to 94 percent, and
average per diem rates also increased by five percent, to over $99. A net
total of 55 properties have been opened since the beginning of
81
<PAGE>
1996, including New Marriott's first properties to feature special care
centers for people with Alzheimer's and other memory disorders, and New
Marriott's first two Village Oaks communities.
Marriott Distribution Services more than doubled sales by adding several
major restaurant accounts. Three new distribution centers were opened in 1997,
an increase of five since the third quarter of last year. Profits declined due
to the start-up costs at the new centers as well as costs associated with
integration of new business within existing centers.
Corporate Activity
Interest expense decreased 33 percent over the first three quarters of 1996,
reflecting the disposition of Forum Group debt in June 1997. Interest income
decreased from $25 million to $19 million reflecting reduced loans receivable
as a result of the collection and sale of over $200 million of loans in the
second half of 1996. Corporate expenses increased due to non-cash items
associated with investments generating significant income tax benefits as well
as modest staff increases to accommodate growth and new business development.
The effective income tax rate increased from 38 percent in 1996 to 39 percent
in 1997 due to nondeductible goodwill amortization associated with the RHG
acquisition, partially offset by tax credits generated by certain investments.
LIQUIDITY AND CAPITAL RESOURCES
Growth Strategy
New Marriott expects to continue aggressively expanding its lodging and
contract services businesses, including development of new hospitality-related
products and services. Growth targets over the next five years include:
. Adding more than 140,000 rooms worldwide to its portfolio of hotel
brands, primarily through management contracts, franchising and
selective internal development of lodging properties.
. Growing its timeshare resort portfolio in the United States and abroad,
to significantly increase the number of intervals sold annually.
. Growing its senior living services business to more than 200 retirement
communities by the year 2000, primarily through management contracts and
selective internal development of assisted living and independent full-
service communities.
. Becoming the national leader in multi-unit limited line food
distribution, with third-party sales of $2 billion annually.
New Marriott believes it has access to financial resources sufficient to
finance this growth, as well as to support ongoing operations and meet debt
service and other cash requirements. New Marriott's lodging management and
franchise operations and its contract services businesses generate substantial
operating cash flow, with only modest reinvestment requirements.
Cash From Operations
Cash from operations was $504 million in 1996, $281 million in 1995 and $300
million in 1994. The increase in cash flow in 1996 reflects both higher
earnings and $148 million of proceeds from the sale of timeshare notes
receivable. Cash provided by operations for the first three quarters of 1997
of $465 million increased slightly over 1996 as higher net income was offset
by working capital changes reported due to the timing of the 1996 year end.
While New Marriott's timesharing business generates strong operating cash
flow, annual amounts are affected by the timing of cash outlays for the
acquisition and development of new resorts and cash inflows related to
purchaser financing. Interval sales financed by New Marriott are not included
in operating cash flow until cash is collected or the notes are sold for cash.
EBITDA was $561 million, $437 million and $338 million for fiscal years
1996, 1995 and 1994, respectively, representing a 28 percent increase in 1996
and a 29 percent increase in 1995. EBITDA increased
82
<PAGE>
24 percent to $474 million for the first three quarters of 1997 compared to
the same period in 1996. New Marriott considers EBITDA to be an indicative
measure of New Marriott's operating performance because EBITDA can be used to
measure New Marriott's ability to service debt, fund capital expenditures and
expand its business; such information should not be considered as an
alternative to net income, operating profit, cash flows from operations or any
other operating or liquidity measure prescribed by generally accepted
accounting principles. A substantial portion of New Marriott's EBITDA is based
on fixed dollar amounts or percentages of sales, primarily lodging base
management and franchise fees. With more than 1,100 lodging properties, no
single operation is critical to New Marriott's financial results.
New Marriott's ratio of current assets to current liabilities was .70 at
January 3, 1997, compared to .81 at December 29, 1995. Each of New Marriott's
businesses minimizes working capital through strict credit-granting policies,
aggressive collection efforts and high inventory turnover.
Working capital for managed hotels is generally advanced to New Marriott by
the hotel owners. Funds for refurbishment of these managed properties are
provided through escrow accounts, whereby an established percentage of sales
is set aside annually for such purposes.
Investing Activities Cash Flows
Acquisitions. New Marriott regularly considers acquisitions of businesses.
During 1996 and 1995, in the aggregate, New Marriott spent nearly $1 billion
on acquisitions, including associated debt, including Forum Group, a leading
provider of senior living services, and 49 percent of The Ritz-Carlton Hotel
Company LLC, one of the world's premier luxury hotel brands and management
companies. New Marriott expects to exercise its right to acquire the remaining
51 percent of The Ritz-Carlton Hotel Company LLC over the next several years
at prices based on Ritz-Carlton's cash flow. During the first three quarters
of 1997, New Marriott spent $856 million on the acquisition of RHG.
Dispositions. In 1996, New Marriott sold and leased back four senior living
communities. In 1995 New Marriott sold three senior living communities. Cash
generated from dispositions of $437 million, primarily comprised of $209
million from the sale of the 29 Forum Group properties to Host Marriott
Corporation ("Host Marriott"), as well as $103 million from the sale of Senior
Living Services communities and $99 million from the sale of limited service
hotels. New Marriott expects that, over time, it will sell certain lodging and
senior living service properties under development or to be developed, while
continuing to operate them under long-term agreements.
Investments with Host Marriott. In pursuit of its growth strategy, New
Marriott has provided and expects to provide in the future, financing to Host
Marriott for a portion of the cost of acquiring properties to be operated or
franchised by New Marriott. In this regard, New Marriott invested an aggregate
of $80 million in 1995 principally in the form of mortgage loans. In 1996, New
Marriott invested $57 million in connection with Host Marriott's acquisition
of a controlling interest in two hotels (over 900 rooms) in Mexico City, both
of which are now operated by New Marriott. In the aggregate, since the
beginning of 1994, Host Marriott has acquired and converted 12 full service
hotels (5,000 rooms) to the Marriott brand and completed construction of two
full-service hotels (1,600 rooms) operated by New Marriott.
Until its termination by mutual consent in June 1997, New Marriott provided
Host Marriott with a $225 million secured credit facility. During 1996, Host
Marriott repaid the outstanding balance of $22 million under this facility and
also repaid the $109 million outstanding under the first mortgage financing on
the Philadelphia Convention Center Marriott Hotel. New Marriott sold the $35
million loan secured by the New York Marriott East Side Hotel to an
institutional investor.
Capital Expenditures and Other Investments. Capital expenditures in 1996,
1995 and 1994 of $293 million, $127 million and $86 million, respectively, and
capital expenditures of $328 million and $157 million
83
<PAGE>
for the first three quarters of 1997 and 1996, respectively, included
construction of new senior living communities and Courtyard, Residence Inn and
TownePlace Suites properties.
New Marriott also will continue to make other investments to grow its
businesses, including development of new timeshare resorts and loans and
minority equity investments in connection with adding units to the Marriott
Lodging and Senior Living Services businesses.
New Marriott has made loans to unaffiliated owners of hotel and senior
living properties which it operates or franchises. At January 3, 1997, loans
outstanding pursuant to this program totaled $59 million and unfunded
commitments aggregated $141 million. These loans are typically secured by
mortgages on the projects. During 1996, $113 million of proceeds were received
from sales of such loans to institutional investors.
The annual capital required by New Marriott to maintain its hotels and
retirement communities is modest. Most of New Marriott's management contracts
require owners to set aside a fixed percentage of sales for renovation and
refurbishment of the properties. Aggregate reinvestment outlays by owners of
New Marriott-operated properties exceeded $350 million in 1996.
New Marriott, like most computer users, will be required to modify
significant portions of its computer software so that it will function
properly in the year 2000 and beyond. New Marriott has assembled a dedicated
team to address the year 2000 issue. This team has completed an inventory of
all systems requiring modification, and has completed the remediation of some
significant systems. Many of the costs to be incurred will be reimbursed to
New Marriott or otherwise paid directly by owners and clients, pursuant to
existing contracts. Estimated pre-tax costs to be borne by New Marriott are
approximately $20 to $25 million. These amounts are subject to numerous
estimation uncertainties including extent of work to be done, availability and
cost of consultants and the extent of testing required. These costs, for
maintenance or modification of existing systems, will be expensed as incurred.
Cash From Financing Activities
Non-interest-bearing cash advances to or from the Company are made to allow
both New Marriott and the Company to meet their respective cash requirements.
Through such advances, New Marriott has had access to funds from the Company's
$1.5 billion revolving credit facility and shelf registrations filed with the
SEC providing for issuance of up to $550 million of debt by the Company.
In 1996, New Marriott received proceeds of $288 million from the issuance of
zero coupon subordinated LYONs which will have an aggregate maturity value of
$540 million in 2011. Each $1,000 face amount of LYONs was issued at a
discount representing a yield to maturity of 4.25 percent.
Subsequent to the Spinoff, New Marriott expects to enter into a bank
revolving credit facility in the range of $1.5 billion on commercially
competitive terms. This facility would, among other things, allow New Marriott
to pursue its strategy of expanding its lodging and contract services
businesses.
INFLATION
The rate of inflation has been moderate in recent years and, accordingly,
has not had a significant impact on New Marriott's businesses.
84
<PAGE>
NEW MARRIOTT UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The unaudited Pro Forma Combined Balance Sheet of New Marriott as of
September 12, 1997 presents the financial position of New Marriott as if the
Transactions had been completed as of such date. The unaudited Pro Forma
Combined Statements of Income of New Marriott for the 36 weeks ended September
12, 1997, the 53 weeks ended January 3, 1997, the 52 weeks ended December 29,
1995, and the 52 weeks ended December 30, 1994, present the results of
operations of New Marriott as if the Transactions had been completed at the
beginning of each period presented. The adjustments required to reflect the
Transactions are set forth in the "SMS Pro Forma Adjustments" and "Pro Forma
Transactions Adjustments" columns and are discussed in the accompanying Notes.
The unaudited pro forma combined financial data of New Marriott and Notes
thereto should be read in conjunction with the Marriott International, Inc.
Consolidated Financial Statements, contained in the Marriott International,
Inc. Annual Report on Form 10-K for the fiscal year ended January 3, 1997, the
Marriott International, Inc. Quarterly Report on Form 10-Q for the fiscal
quarter ended September 12, 1997, which are incorporated herein by reference
and the audited New Marriott Combined Financial Statements and Notes thereto
which are included elsewhere in this Proxy Statement.
THE PRO FORMA INFORMATION PRESENTED IS FOR INFORMATIONAL PURPOSES ONLY AND
MAY NOT NECESSARILY REFLECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL
POSITION OR WHAT THE RESULTS OF OPERATIONS OR FINANCIAL POSITION WOULD HAVE
BEEN HAD THE TRANSACTIONS OCCURRED AS OF THE DATE AND DURING THE PERIODS
INDICATED. THIS INFORMATION DOES NOT NECESSARILY REFLECT FUTURE FINANCIAL
PERFORMANCE WHEN THE TRANSACTIONS ACTUALLY OCCUR.
85
<PAGE>
NEW MARRIOTT
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 12, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
THE SMS NEW PRO FORMA
COMPANY PRO FORMA MARRIOTT TRANSACTIONS PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS NEW MARRIOTT
---------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents... $ 359 $ (20)(A) $ 339 $ 87 (B) $ 426
Accounts and notes
receivable............ 1,041 (310)(A) 731 731
Other.................. 468 (95)(A) 373 373
------ ------ ------ ---- ------
1,868 (425) 1,443 87 1,530
------ ------ ------ ---- ------
Property and equipment.. 1,496 (69)(A) 1,427 1,427
Intangible assets....... 1,773 (302)(A) 1,471 1,471
Investments in
affiliates............. 544 (12)(A) 532 16 (D) 572
24 (C)
Notes and other
receivable............. 355 355 355
Other assets............ 288 (35)(A) 253 253
------ ------ ------ ---- ------
$6,324 $ (843) $5,481 $127 $5,608
====== ====== ====== ==== ======
LIABILITIES AND EQUITY
Current liabilities
Accounts payable....... $1,011 $ (186)(A) $ 825 $825
Other current
liabilities........... 1,109 (170)(A) 939 (16)(D) 923
------ ------ ------ ---- ------
2,120 (356) 1,764 (16) 1,748
------ ------ ------ ---- ------
Long-term debt.......... 1,433 (1,326)(A) 107 107
Other long-term
liabilities............ 979 (81)(A) 898 898
Convertible subordinated
debt................... 306 306 306
Investments and net
advances from Marriott
International, Inc..... 1,486 920 (A) 2,406 87 (B) 2,549
24 (C)
32 (D)
------ ------ ------ ---- ------
$6,324 $ (843) $5,481 $127 $5,608
====== ====== ====== ==== ======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
86
<PAGE>
NEW MARRIOTT
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
THIRTY-SIX WEEKS ENDED SEPTEMBER 12, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE SMS PRO FORMA
COMPANY PRO FORMA NEW MARRIOTT TRANSACTIONS PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS NEW MARRIOTT
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SALES
Lodging
Rooms................. $2,950 $2,950 $2,950
Food and beverage..... 1,027 1,027 1,027
Other................. 791 791 791
------ ------ ------
4,768 4,768 4,768
Contract Services...... 3,390 $(2,281)(E) 1,409 1,409
300 (F)
------ ------- ------ ------
8,158 (1,981) 6,177 6,177
------ ------- ------ ------
OPERATING COSTS AND EX-
PENSES
Lodging
Departmental direct
costs
Rooms................ 656 656 656
Food and beverage.... 780 780 780
Other operating ex-
penses, including
remittances to hotel
owners............... 2,937 2,937 2,937
------ ------ ------
4,373 4,373 4,373
Contract Services...... 3,287 (2,213)(E) 1,374 1,374
300 (F)
------ ------- ------ ------
7,660 (1,913) 5,747 5,747
------ ------- ------ ------
OPERATING PROFIT
Lodging................ 395 395 395
Contract Services...... 103 (68) 35 35
------ ------- ------ ------
Operating profit before
corporate expenses
and interest........... 498 (68) 430 430
Corporate expenses...... (64) 4 (E) (60) $ 1(G) (59)
Interest expense........ (77) 59 (E) (18) (18)
Interest income......... 19 19 19
------ ------- ------ ----- ------
INCOME BEFORE INCOME
TAXES.................. 376 (5) 371 1 372
Provision for income
taxes.................. 149 (4)(E) 145 145
------ ------- ------ ----- ------
NET INCOME.............. $ 227 $ (1) $ 226 $ 1 $ 227
====== ======= ====== ===== ======
Per share information:
Primary shares......... 267.4(H) 267.4
======
PRIMARY EARNINGS PER
SHARE.................. $ .85
======
Fully diluted shares... 278.1(H) 278.1
======
Income for fully di-
luted EPS............. $ 232
======
FULLY DILUTED EARNINGS
PER SHARE............. $ .83
======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
87
<PAGE>
NEW MARRIOTT
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIFTY-THREE WEEKS ENDED JANUARY 3, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE SMS PRO FORMA
COMPANY PRO FORMA NEW MARRIOTT TRANSACTIONS PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS NEW MARRIOTT
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SALES
Lodging
Rooms................. $ 3,619 $3,619 $3,619
Food and beverage..... 1,361 1,361 1,361
Other................. 874 874 874
------- ------ ------
5,854 5,854 5,854
Contract Services...... 4,318 $(3,311)(E) 1,413 1,413
406 (F)
------- ------- ------ ------
10,172 (2,905) 7,267 7,267
------- ------- ------ ------
OPERATING COSTS AND EX-
PENSES
Lodging
Departmental direct
costs
Rooms................ 843 843 843
Food and beverage.... 1,038 1,038 1,038
Other operating
expenses, including
remittances to hotel
owners............... 3,521 3,521 3,521
------- ------ ------
5,402 5,402 5,402
Contract Services...... 4,141 (3,190)(E) 1,357 1,357
406 (F)
------- ------- ------ ------
9,543 (2,784) 6,759 6,759
------- ------- ------ ------
OPERATING PROFIT
Lodging................ 452 452 452
Contract Services...... 177 (121) 56 56
------- ------- ------ ------
Operating profit before
corporate expenses and
interest............... 629 (121) 508 508
Corporate expenses...... (79) 6 (E) (73) $ 1(G) (72)
Interest expense........ (85) 48 (E) (37) (37)
Interest income......... 37 37 37
------- ------- ------ ------ ------
INCOME BEFORE INCOME
TAXES.................. 502 (67) 435 1 436
Provision for income
taxes.................. 196 (31)(E) 165 165
------- ------- ------ ------ ------
NET INCOME.............. $ 306 $ (36) $ 270 $ 1 $ 271
======= ======= ====== ====== ======
Per share information:
Primary shares......... 269.7 (H) 269.7
======
PRIMARY EARNINGS PER
SHARE................. $ 1.00
======
Fully diluted shares... 277.6 (H) 277.6
======
Income for fully
diluted EPS........... $ 276
======
FULLY DILUTED EARNINGS
PER SHARE............. $ .99
======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
88
<PAGE>
NEW MARRIOTT
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIFTY-TWO WEEKS ENDED DECEMBER 29, 1995
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE SMS PRO FORMA
COMPANY PRO FORMA NEW MARRIOTT TRANSACTIONS PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS NEW MARRIOTT
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SALES
Lodging
Rooms................. $3,273 $3,273 $3,273
Food and beverage..... 1,289 1,289 1,289
Other................. 765 765 765
------ ------ ------
5,327 5,327 5,327
Contract Services...... 3,634 $(3,031)(E) 928 928
325 (F)
------ ------- ------ ------
8,961 (2,706) 6,255 6,255
------ ------- ------ ------
OPERATING COSTS AND
EXPENSES
Lodging
Departmental direct
costs
Rooms................ 772 772 772
Food and beverage.... 973 973 973
Other operating
expenses, including
remittances to hotel
owners............... 3,222 3,222 3,222
------ ------ ------
4,967 4,967 4,967
Contract Services...... 3,504 (2,931)(E) 898 898
325 (F)
------ ------- ------ ------
8,471 (2,606) 5,865 5,865
------ ------- ------ ------
OPERATING PROFIT
Lodging................ 360 360 360
Contract Services...... 130 (100) 30 30
------ ------- ------ ------
Operating profit before
corporate expenses and
interest............... 490 (100) 390 390
Corporate expenses...... (64) 5 (E) (59) $ 1(G) (58)
Interest expense........ (53) 44 (E) (9) (9)
Interest income......... 39 39 39
------ ------- ------ ------ ------
INCOME BEFORE INCOME
TAXES.................. 412 (51) 361 1 362
Provision for income
taxes.................. 165 (23)(E) 142 142
------ ------- ------ ------ ------
NET INCOME.............. $ 247 $ (28) $ 219 $ 1 $ 220
====== ======= ====== ====== ======
Per share information:
Primary shares......... 263.8 (H) 263.8
======
PRIMARY EARNINGS PER
SHARE................. $ .83
======
Fully diluted shares... 264.6 (H) 264.6
======
Income for fully
diluted EPS........... $ 220
======
FULLY DILUTED EARNINGS
PER SHARE............. $ .83
======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
89
<PAGE>
NEW MARRIOTT
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIFTY-TWO WEEKS ENDED DECEMBER 30, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE SMS PRO FORMA
COMPANY PRO FORMA NEW MARRIOTT TRANSACTIONS PRO FORMA
HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS NEW MARRIOTT
---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SALES
Lodging
Rooms................. $3,036 $3,036 $3,036
Food and beverage..... 1,210 1,210 1,210
Other................. 703 703 703
------ ------ ------
4,949 4,949 4,949
Contract Services...... 3,466 $(2,961)(E) 797 797
292 (F)
------ ------- ------ ------
8,415 (2,669) 5,746 5,746
------ ------- ------ ------
OPERATING COSTS AND
EXPENSES
Lodging
Departmental direct
costs
Rooms................ 727 727 727
Food and beverage.... 922 922 922
Other operating
expenses, including
remittances to hotel
owners............... 2,998 2,998 2,998
------ ------ ------
4,647 4,647 4,647
Contract Services...... 3,355 (2,864)(E) 783 783
292 (F)
------ ------- ------ ------
8,002 (2,572) 5,430 5,430
------ ------- ------ ------
OPERATING PROFIT
Lodging................ 302 302 302
Contract Services...... 111 (97) 14 14
------ ------- ------ ------
Operating profit before
corporate expenses and
interest............... 413 (97) 316 316
Corporate expenses...... (68) 5 (E) (63) $ 1(G) (62)
Interest expense........ (32) 25 (E) (7) (7)
Interest income......... 29 29 29
------ ------- ------ ------ ------
INCOME BEFORE INCOME
TAXES.................. 342 (67) 275 1 276
Provision for income
taxes.................. 142 (29)(E) 113 113
------ ------- ------ ------ ------
NET INCOME.............. $ 200 $ (38) $ 162 $ 1 $ 163
====== ======= ====== ====== ======
Per share information:
Primary shares......... 264.6 (H) 264.6
======
PRIMARY EARNINGS PER
SHARE................. $ .62
======
Fully diluted shares... 264.6 (H) 264.6
======
Income for fully
diluted EPS........... $ 163
======
FULLY DILUTED EARNINGS
PER SHARE............. $ .62
======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Data
90
<PAGE>
NEW MARRIOTT
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
A. Represents the removal of assets and liabilities of MMS, together with
certain debt remaining with MMS.
B. Represents anticipated cash flows to (from) New Marriott as a result of
the Transactions as follows:
<TABLE>
<CAPTION>
$ MILLION
---------
<S> <C>
Net tangible assets closing adjustment.......................... (50)
Allocation of cash for deferred bonus stock..................... (20)
Payment from SMS in relation to the agreed upon level of SMS
debt........................................................... 107
Proceeds from the sale of MMS UK................................ 50
---
$87
===
</TABLE>
C. Represents the allocation to SMS of its pro rata share of the LYONs based
upon the relative equity value of SMS and New Marriott on the Spinoff
Date as provided in the LYONs Allocation Agreement.
D. Represents allocation of assets and liabilities in accordance with the
Tax Sharing Agreement and Employee Benefits Allocation Agreement.
E. Represents the operating results of MMS, together with interest expense
on certain debt remaining with MMS.
F. Represents the historical intercompany sales activity between MDS and
MMS, which has been eliminated in the Company's consolidated financial
statements prior to the Spinoff.
G. Represents license fee income earned by New Marriott from SMS.
H. Primary earnings per share is computed based on the common shares to be
issued in the Spinoff and the dilutive impact of common equivalent
shares issuable to New Marriott employees. Fully diluted earnings per
share is computed based on (i) the common shares to be issued in the
Spinoff, (ii) the dilutive impact of common equivalent shares issuable
to New Marriott employees and (iii) the dilutive impact of the LYONs.
Pro forma net income for fully diluted earnings per share represents pro
forma net income plus the after-tax amount of interest on the LYONs.
NOTE 1--Based upon the agreed upon allocation of debt between New Marriott
and SMS, on a pro forma basis New Marriott would have received $802
million, $825 million, $1,051 million and $1,023 million of cash at the
beginning of the 36 weeks ended September 12, 1997, the 53 weeks ended
January 3, 1997, the 52 weeks ended December 29, 1995 and the 52 weeks
ended December 30, 1994, respectively, due to its lower levels of debt
at those times. The unaudited pro forma combined statements of income do
not reflect any earnings on such cash balances.
91
<PAGE>
MANAGEMENT OF SMS
SMS BOARD OF DIRECTORS
The business of SMS will be managed under the direction of the SMS Board. In
connection with the Transactions, the Company will reconsitute the SMS Board
as of the Effective Date so that the eight persons identified below will
constitute the entire SMS Board. Unlike the Company Board, the SMS Board will
not be divided into classes. Each director of SMS will be elected at the
annual meeting of stockholders for a one-year term, expiring on the date of
the next annual meeting of stockholders. Directors whose election is ratified
at the Special Meeting will hold office until the 1998 annual meeting of
stockholders.
NAME AGE
William J. Shaw...... 52 On March 31, 1997, Mr. Shaw became President and
Chairman of the Chief Operating Officer of the Company. Mr. Shaw
Board joined Marriott Corporation in 1974, was elected
Corporate Controller in 1979 and a Vice President
in 1982. In 1986, Mr. Shaw was elected Senior Vice
President--Finance and Treasurer of Marriott
Corporation. He was elected Executive Vice
President of Marriott Corporation and promoted to
Chief Financial Officer in April 1988. In February
1992, he was elected President of the Marriott
Service Group, which now comprises the Company's
Contract Service Group. Mr. Shaw was elected
Executive Vice President and President--Marriott
Service Group in October 1993. Mr. Shaw is also
Chairman of the Board of Directors of Host
Marriott Services. He also serves on the Board of
Trustees of the University of Notre Dame, Loyola
College in Maryland and the Suburban Hospital
Foundation. Mr. Shaw has been a director of the
Company since May 1997. He is expected to become
President and Chief Operating Officer of New
Marriott and to serve on the New Marriott Board.
Charles D. O'Dell.... 46 Mr. O'Dell will serve as President and Chief
Executive Officer of SMS. Mr. O'Dell joined
Marriott Corporation in 1979 and became a Regional
Manager in Marriott Corporation's Roy Rogers
Division in 1981. Mr. O'Dell held several
management positions in that Division until 1985,
when he was named Division Vice President--
Education in the Food and Services Management
Division. In 1986, Mr. O'Dell became Senior Vice
President of Business Food and Auxiliary Services,
and in November 1990 he was appointed President of
Marriott Management Services. Mr. O'Dell serves as
a foundation trustee for the Educational
Foundation of the National Restaurant Association.
He also is a director of the Deafness Research
Foundation and is a board member of Second Harvest
National Food Bank Network.
Pierre Bellon........ 68 Mr. Bellon is Chairman and Chief Executive Officer
of Sodexho, a company which he founded in 1966 and
which has been listed on the Paris Bourse since
1983. In addition, he is Vice-Chairman of the
Conseil National du Patronat Francais
(Confederation of French Industries and Services),
and from 1969-1979 was a member of the Conseil
Economique et Social (Social and Economic Council)
in France. Mr. Bellon also serves as a director of
L'Air Liquide (an industrial gas company).
Bernard Carton....... 63 Mr. Carton is Senior Vice President and Chief
Financial Officer of Sodexho, a position he has
held since 1975. Prior to joining Sodexho,
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NAME AGE
Mr. Carton held positions with several French and
American companies, including Manpower, Inc. (Vice
President, Finance for European Operations 1970-
1975), Control Data Corporation (Vice President,
Finance European countries 1962-1970) and General
Electric Company (Engineer 1960-1962).
Edouard de Royere.... 65 Mr. de Royere is a director of L'Air Liquide and
its former Chairman and Chief Executive Officer, a
position he held from 1985 until his retirement in
1995. Prior to such time, Mr. de Royere served in
various capacities at L'Air Liquide, including
Vice President (1982-1985), Assistant Vice
President (1980-1982), Assistant to the Chief
Executive Officer (1979) and General Counsel and
Company Secretary (1967-1979). Mr. de Royere also
serves as a director of Sodexho, L'Oreal S.A. (a
beauty and personal care company), Groupe Danone
(a food and beverage company) and Solvay S.A. (a
chemical and pharmaceutical company).
John W. Marriott
III.................. 36 Mr. Marriott is Senior Vice President of the
Company's Mid-Atlantic Region, a position he has
held since June 1996 (and will retain with New
Marriott). He joined Marriott Corporation in 1986
as a Sales Manager and subsequently served as a
Restaurant Manager and as a director of Food and
Beverage. In 1989, Mr. Marriott served as
Executive Assistant to the Chairman, J.W.
Marriott, Jr., who is his father. He has also held
positions as Director of Corporate Planning,
Finance, Director of Marketing for a hotel and
General Manager. Since 1993, Mr. Marriott has held
successive positions as Director of Finance in the
Company's Treasury Department, Director of Finance
in the Host Marriott Finance and Development
Department, and Vice President, Lodging
Development for The Ritz-Carlton Hotel Company
LLC.
Doctor R. Crants..... 53 Doctor R. Crants, a founder of Corrections
Corporation of America ("CCA"), was elected Chief
Executive Officer and Chairman of the Board of CCA
in 1994 and President of CCA in 1998. From 1987 to
1994, he served as President, Chief Executive
Officer and Vice Chairman of the Board of
Directors of CCA. From 1983 to 1987, Mr. Crants
served as Secretary and Treasurer of CCA. Mr.
Crants has served as a director of CCA since 1983.
In 1997, Mr. Crants founded and became Chairman of
the Board of Trustees of CCA Prison Realty Trust.
Mr. Crants serves as a director of the Nashville
Area Chamber of Commerce and the Tennessee Vietnam
Leadership Program.
Daniel J. Altobello.. 56 Daniel J. Altobello is the Chairman of Onex Food
Services, Inc., the parent corporation of Caterair
International, Inc. and LSG/SKY Chefs, and the
largest airline catering company in the world.
From 1989 to 1995, Mr. Altobello served as
Chairman, President and Chief Executive Officer of
Caterair International Corporation. From 1979 to
1989, he held various managerial positions with
the food service management and in-flight catering
divisions of Marriott Corporation, including
Executive Vice President of Marriott Corporation
and President, Marriott Airport Operations Group.
Mr. Altobello began his management career at
Georgetown University, including service as Vice
President,
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Administration Services. He is a member of the
board of directors of American Management Systems,
Inc., Colorado Prime Corp. and Blue Cross Blue
Shield of Maryland, and a trustee of Loyola
Foundation, Inc., Mt. Holyoke College, Suburban
Hospital Foundation, Inc. and the Woodstock
Theological Center at Georgetown University.
Three of the above directors (Pierre Bellon, Bernard Carton and Edouard de
Royere) were nominated by Sodexho in accordance with the Stockholder Agreement.
Charles D. O'Dell was also nominated pursuant to the Stockholder Agreement
because it is expected that he will be the Chief Executive Officer of SMS. See
"THE TRANSACTIONS--Arrangements Between SMS and Sodexho--Stockholder
Agreement."
Ratification of Pierre Bellon, Bernard Carton, Edouard de Royere, William J.
Shaw, Charles D. O'Dell, John W. Marriott III, Doctor R. Crants and Daniel J.
Altobello as directors of SMS, effective as of the Effective Date in connection
with the Transactions with terms to expire at the 1998 annual meeting of
stockholders, is subject to the affirmative vote of a majority of the
outstanding shares of Company Common Stock.
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE SMS
BOARD. Certain members of the Company Board, however, may be deemed to have
conflicts of interest in connection with the Transactions. See "CONFLICTS OF
INTEREST."
COMMITTEES OF THE SMS BOARD
The SMS Board is expected to have two standing committees: Audit and
Compensation.
The members of the Audit Committee are expected to be Doctor R. Crants and
Daniel J. Altobello. The Audit Committee will meet at least two times a year
with the SMS independent auditors, management representatives and internal
auditors. The Audit Committee will recommend to the SMS Board the appointment
of independent auditors, approve the scope of audits and other services to be
performed by the independent and internal auditors, and review the results of
internal and external audits, the accounting principles applied in financial
reporting and the adequacy of financial and operational controls. The
independent auditors and internal auditors will have unrestricted access to the
Audit Committee and vice versa.
The members of the Compensation Committee are expected to be Bernard Carton,
William J. Shaw and either Mr. Altobello or Mr. Crants, who will serve as
Chair. The functions of this Committee will include determining the
compensation of senior officers and certain other employees, administering
employee compensation and benefit plans and reviewing the operations and
policies of such plans.
COMPENSATION OF DIRECTORS
[Information regarding compensation of directors will be provided in a
subsequent filing of this Proxy Statement.]
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EXECUTIVE OFFICERS
Set forth below is certain information with respect to the persons who are
expected to serve as executive officers of SMS immediately following the
Spinoff.
<TABLE>
<CAPTION>
NAME AGE
- ---- ---
<S> <C> <C>
Charles D. O'Dell.... 46 See "--SMS Board of Directors," above.
President and Chief
Executive Officer
Michel Landel........ 46 Michel Landel is President and Chief Executive
Executive Vice Officer of Sodexho North America, a position he
President has held since 1994. Mr. Landel joined Sodexho in
1984 as a Regional Manager of Sodexho Africa. In
1986, he was named President of Sodexho Africa, a
position he held until 1989, when he became
President and Chief Executive Officer of Sodexho's
United States operations. Prior to joining
Sodexho, Mr. Landel held positions with Groupe
Poliet (Plant General Manager, 1980-1984) and The
Chase Manhattan Bank (Financial Analyst and
Assistant Treasurer, 1976-1980).
Anthony F. Alibrio... 53 Anthony F. Alibrio's career has been focused on
President, Health serving the health care industry for the past 27
Care Services years of his 32 year tenure with the Company. In
the past he has held various operations, sales,
and marketing responsibilities including Division
Vice President and National Vice President of
Sales and Marketing. For the past six years, he
has served as President of the Company's Health
Care Services. A member of the Healthcare Research
and Development Institute and the American Academy
of Medical Administrators, Mr. Alibrio also serves
as a member of the board of directors for the
National Committee for Quality Health Care and
Health Insights Foundation.
Stephen J. Brady..... 53 Stephen J. Brady joined Sodexho USA in 1989 after
Senior Vice a 15-year career in the retail industry. His
President, Corporate positions with Sodexho USA were Vice President of
Communications Strategic Development, Vice President of
Healthcare Operations and Regional Vice President
of Education Operations. He currently is Vice
President of Marketing and Communications for
Sodexho USA. Mr. Brady serves on the board of
FoodChain, the national food rescue network.
Robert Drury......... 51 Robert Drury is Senior Vice President of Finance
Corporate Treasurer and Chief Financial Officer for Sodexho USA. He
joined Sodexho USA in 1995. Prior to joining
Sodexho USA, Mr. Drury held positions with
ARAMARK, including Chief Financial Officer of the
Leisure/International Sector, and had profit
responsibility for the Encore Service Division.
Previously, he was with PepsiCo in strategic
planning and with its Wilson Sporting Goods
Division in a variety of operating and financial
roles.
William W. Hamman.... 56 William W. Hamman is currently President of
President, Higher Marriott Education Services. He has supported the
Education Services higher education community for 37 years, holding
positions in Marriott Education Services that
include Regional Vice President, Area Vice
President and Division Vice President. Mr. Hamman
is active in the National Association of College
and University Business Officers (NACUBO) and
Council of Independent Colleges (CIC). He also
serves on the Western Illinois University
Foundation Board of Trustees.
</TABLE>
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<PAGE>
NAME AGE
Randall C. Harris.... 46 Randall C. Harris joined Marriott Management
Senior Vice Services in 1997. Before joining the Company, Mr.
President and Chief Harris was Senior Vice President of Cognizant
Human Resources Corporation, which was formed as a result of the
Officer restructuring of Dunn & Bradstreet Corporation.
His previous experience includes senior human
resources and general management positions with
American Express (and the subsequent IPO of First
Data Corporation) and Sprint Corporation.
Lawrence E. Hyatt.... 43 Lawrence E. Hyatt is Senior Vice President,
Senior Vice Finance and Planning for MMS. He joined the
President and Chief Company in 1981 and has been Staff Auditor for
Financial Officer Corporate Internal Audit, Manager of Financial
Analysis for Roy Rogers Restaurants, Director of
Finance for Marriott Services Group and Vice
President, Operations Planning and Control for the
Company. Previously, Mr. Hyatt was an associate in
ICF Incorporated and a financial analyst for the
US Department of Energy.
Robert J. Jantzen.... 49 Robert J. Jantzen is President, Marriott Corporate
President, Corporate Services. He joined the Company in 1984 and has
Services served as Senior Vice President of Marriott
Corporate Services and Senior Vice President of
International, Sales and Support Services for MMS.
Prior to joining the Company, Mr. Jantzen served
in operations, sales and marketing with PepsiCo
and Procter & Gamble.
David R. Smail....... 58 David R. Smail is Senior Vice President and Chief
Senior Vice Information Officer for MMS. Prior to joining MMS
President and Chief in this position in 1993, he served for 11 years
Information Officer as a Vice President in Marriott Corporation's
Information Systems Department. He joined Marriott
in 1981 after serving 4 years as an Assistant Vice
President at AMTRAK. Before that he spent 14 years
with Andersen Consulting.
Robert A. Stern...... 39 Robert A. Stern currently is Associate General
Senior Vice Counsel for the Company. He currently provides
President and legal support to MMS. Previously, he provided
General Counsel legal support to the Company's Restaurant and
Travel Plaza businesses. Mr. Stern joined the
Company in 1985 from the Washington, D.C., office
of Skadden Arps Slate Meagher & Flom.
Anthony J. Wilson.... 45 Anthony J. Wilson is Senior Vice President,
Senior Vice Marketing and Product Development for MMS. He
President, Marketing joined the Company in November 1996. Previously,
and Purchasing Mr. Wilson was Vice President and General Manager
in the Global Food Service division of Campbell
Soup Company. He also spent 13 years at ARAMARK,
where he served as Senior Vice President ARASERVE
and President of ARAMARK's Marketing Services
Group.
SMS STOCK PLANS
SMS Comprehensive Stock Plans
Prior to the Effective Date, the Company will amend and restate the Company
1993 Stock Plan and the Company 1996 Stock Plan. The amended and restated
plans will be known, respectively, as the Sodexho Marriott Services, Inc. 1993
Comprehensive Stock Incentive Plan (the "SMS 1993 Stock Plan") and the Sodexho
Marriott Services, Inc. 1998 Comprehensive Stock Incentive Plan (the "SMS 1998
Stock Plan" and, together with the SMS 1993 Stock Plan, the "SMS Stock Plans")
as of the Effective Date. The purpose of the plans is to promote and enhance
the long-term growth of SMS by aligning the interests of its employees with
the interests of its stockholders. The amendment and restatement of the SMS
1993 Stock Plan will be for the purpose of issuing and administering
conversion awards pursuant to the Employee Benefits Allocation Agreement with
respect to awards previously granted under the Company 1993 Stock Plan. Other
than these conversion awards, no new awards will be made under the SMS 1993
Stock Plan. The SMS 1998 Stock Plan will govern the issuance
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and administration of conversion awards as described below and will be
available for the issuance of new awards following the Spinoff. The principal
terms of the SMS Stock Plans are summarized below.
Administration. The SMS Stock Plans will be administered by the Compensation
Committee of SMS or any other Committee appointed by the SMS Board (the "SMS
Compensation Committee"), the members of which will be non-employee directors
of SMS. The SMS Compensation Committee will have broad discretion to determine
the SMS employees eligible for awards and the type of awards to be granted
under the SMS 1998 Stock Plan and to interpret the plan provisions of the SMS
Stock Plans. The SMS Stock Plans provide that, upon certain changes in
structure of SMS, the SMS Compensation Committee or the SMS Board may provide
for the adjustment of the outstanding awards.
Shares Available Under the SMS Comprehensive Stock Plans. As of the
Effective Date, no shares will be available for issuance under the SMS 1993
Stock Plan, other than the shares reserved for conversion awards on behalf of
SMS Employees who immediately prior to the Effective Date held awards granted
under the Company 1993 Stock Plan.
As a result of the Transactions (including the SMS Reverse Stock Split), the
Company Board, pursuant to plan provisions, is adjusting the total number of
shares available for issuance of awards under the Company 1996 Stock Plan,
which on and after the Effective Date will be the total number of shares
available for the issuance of awards under the SMS 1998 Stock Plan. The SMS
1998 Stock Plan provides that no more than 10 million shares of SMS Common
Stock will be available for issuance of awards under the SMS 1998 Stock Plan
to cover conversion awards and future awards for SMS Employees after (i)
giving effect to the Spinoff and the SMS Reverse Stock Split and (ii)
cancellation of awards to persons other than SMS Employees as a result of the
Spinoff. The SMS 1998 Stock Plan also provides that this limit will not be
increased without approval of the SMS stockholders. That number of shares will
be used for the conversion of existing awards under the Company Stock Plans
and the International Catering Corporation 1996 Stock Option Plan (the "ICC
Stock Option Plan") and for new awards following the Transactions.
The SMS 1998 Stock Plan provides that no employee will be eligible to
receive awards covering more than 500,000 shares of SMS Common Stock in any
one fiscal year (excluding for this purpose any conversion awards described
below).
These limitations will be subject to further adjustment in the event of any
future change in capitalization of SMS, such as a stock split, or a corporate
transaction such as a merger, consolidation, separation, spinoff,
reorganization (whether or not taxable) or any partial or complete liquidation
of SMS. If any award (including an award granted under the SMS 1993 Stock Plan
or the SMS 1998 Stock Plan) is canceled or terminated or expires or lapses, or
if any shares of SMS Common Stock are surrendered in connection with any such
award, the shares subject to the award and the surrendered shares will be
available for further awards under the SMS 1998 Stock Plan.
Eligibility. Non-union employees of SMS are eligible to participate in the
SMS 1998 Stock Plan. In addition, employees of SMS will receive certain
conversion awards under the SMS Stock Plans as described below. See "--
Conversion Awards."
Stock Option Awards. Under the SMS 1998 Stock Plan, options may be granted
either on a non-qualified tax basis or as "incentive stock options" within the
meaning of Section 422 of the Code. The option price may not be less than 100
percent of the fair market value of SMS Common Stock on the date the option is
granted. It is expected that approximately 500 employees will be eligible for
stock option awards.
Each option may have a term of up to 15 years, as determined by the SMS
Compensation Committee. If an optionee (other than an "approved retiree")
ceases to be an employee or has been on leave of absence for more than 12
months (except in the case of a leave approved by the SMS Compensation
Committee), unless otherwise provided for in an award agreement, the
unexercisable portion of the option will be forfeited and the exercisable
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portion will generally terminate if not exercised within the following three
months (one year in the case of a permanently disabled employee).
Under the SMS 1998 Stock Plan, unless otherwise provided in an award
agreement, nonqualified options granted to optionees who subsequently become
"approved retirees" (retirement with approval from the SMS Compensation
Committee after 20 years of service or after attaining age 55 with 10 years of
service and while a noncompetition agreement is honored) will not expire until
the earlier of (i) the expiration of the option in accordance with its
original term, or (ii) one year from the date on which the option granted
latest in time to the optionee has fully vested. Unless otherwise provided in
an award agreement, if an optionee dies while employed or while an approved
retiree, all the optionee's options become fully vested and may be exercised
until the earlier of the expiration date for such options or one year after
the optionee's death. Unless otherwise provided in an award agreement, if an
optionee who is not an approved retiree dies after termination of employment,
a legatee may exercise the remaining options to the same extent and during the
same period that the optionee could have exercised the options if the optionee
had not died.
When exercising a nonqualified option, an optionee is taxed at ordinary
income rates on the gain represented by the difference between the option
price and the market price on the day of exercise times the number of shares
exercised. SMS receives a corresponding deduction of the amount of gain.
For incentive stock options, the individual is not taxed at the time of
exercise (although the difference between the exercise price and the fair
market value of the stock subject to the option may result in alternative
minimum tax liability). If the employee subsequently sells the shares within
one year from the date of exercise, the employee recognizes ordinary income
equal to the amount of gain and SMS may take a corresponding deduction. If the
shares are held for a period in excess of one year, the gain recognized by the
employee upon sale of the shares is treated as a capital gain and SMS receives
no deduction.
Other Share-Based Awards. Under the SMS 1998 Stock Plan, the SMS
Compensation Committee may grant any other awards denominated or payable in or
in any combination of cash, SMS Common Stock, a SMS Common Stock equivalent or
appreciation unit or security convertible into SMS Common Stock. Such awards
may be issued in tandem with other awards and made subject to any terms and
conditions as determined by the SMS Compensation Committee and specified in
the award agreements.
Performance Measures. In order to comply with the requirements for exclusion
from the limit on the tax deduction of executive compensation under Section
162(m) of the Code, the SMS Compensation Committee may condition the grant or
payment of restricted stock awards to employees under the SMS 1998 Stock Plan
on the attainment of performance objectives. The performance objectives will
be measured by one or more of the following factors: (i) consolidated cash
flows, (ii) consolidated financial reported earnings, (iii) consolidated
economic earnings, (iv) earnings per share of SMS Common Stock, (v) business
unit financial reported earnings, (vi) business unit economic earnings, (vii)
business unit cash flows and (viii) appreciation in the price of SMS Common
Stock, considered alone or as measured against the performance of a group of
companies approved by the SMS Compensation Committee.
Conversion Awards.
Pursuant to the Employee Benefits Allocation Agreement, the SMS 1993 Stock
Plan and the SMS 1998 Stock Plan must provide for the issuance of certain
conversion awards denominated in shares of SMS Common Stock in replacement of
certain awards denominated in shares of Company Common Stock outstanding on
the Effective Date and held by individuals who will be SMS Employees. See "THE
TRANSACTIONS--Arrangements Between SMS and New Marriott--Employee Benefits
Allocation Agreement." The grantees of these conversion awards will be given
service credit to the extent required under the Employee Benefits Allocation
Agreement. The awards will be subject to the terms and conditions
substantially similar to those governing the awards as they were in effect
before the Spinoff. Approximately 800 employees will receive
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conversion awards under plans covering a total of approximately 1.9 million
shares of SMS Common Stock before giving effect to the Spinoff or the SMS
Reverse Stock Split.
Pursuant to the ICC 1996 Stock Option Plan, ICC currently has outstanding
options to acquire 361,200 shares of ICC common stock. Pursuant to the
Acquisition Agreement, prior to the Effective Date, 42 percent of the options
held by each holder shall be settled for cash, assuming an ICC stock price of
$46.21, and as of the Effective Date, 58 percent of the options held by each
holder shall be converted into options to purchase such number of shares of
SMS Common Stock at such exercise price as will preserve the financial value
of the options (the "ICC Conversion Options"). The exercise price of the ICC
Conversion Options will bear the same ratio to the per share value of the
shares underlying the option after the conversion as the exercise price bears
to $46.21 before the conversion. The number of shares subject to the
conversion options will be determined so that the aggregate spread after the
conversion (based on NYSE trading prices) equals the aggregate spread before
the conversion. Such ICC Conversion Options will be issued under the terms of
the SMS 1998 Stock Plan. Approximately 76 employees will receive ICC
Conversion Options covering approximately 484,100 shares of SMS Common Stock
after giving effect to the Spinoff and the SMS Reverse Stock Split.
Employee Stock Purchase Plan
The Company maintains the Company Employee Stock Purchase Plan. Prior to the
Effective Date, the Company Board will amend the Company Employee Stock
Purchase Plan to suspend the issuance of options to acquire Company Common
Stock. At this time, SMS has not determined whether any options to acquire SMS
Common Stock will be awarded under this plan following the Effective Date.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Policy Committee during the last
fiscal year were Floretta Dukes McKenzie (Chair), Roger W. Sant, W. Mitt
Romney and Lawrence M. Small. None of the members of this Committee are or
were formerly officers or employees of the Company.
The members of the SMS Compensation Committee are expected to be Bernard
Carton, William J. Shaw and either Daniel J. Altobello or Doctor R. Crants,
who will serve as Chair. Other than Mr. Shaw, who is President and Chief
Operating Officer of the Company, none of such persons is or was formerly an
officer or employee of the Company.
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MANAGEMENT OF NEW MARRIOTT
NEW MARRIOTT BOARD OF DIRECTORS
The business of New Marriott will be managed under the direction of its
Board of Directors (the "New Marriott Board"). The current directors of New
Marriott are William J. Shaw, Michael A. Stein and Joseph Ryan. Prior to the
Effective Date, the Company, as sole stockholder of New Marriott, plans to
reconstitute the New Marriott Board so that the ten persons identified below
will constitute the entire New Marriott Board effective as of the Effective
Date. Each individual listed below is currently a director of the Company and,
except for William J. Shaw, will resign from the Company Board effective as of
the Effective Date. Mr. J.W. Marriott, Jr., who will become Chairman of the
New Marriott Board, will resign from this position at the Company effective as
of the Effective Date. Like the current Company Board, the New Marriott Board
will be divided into three classes. Directors for each class will be elected
at the annual meeting of stockholders held in the year in which the term for
such class expires and will serve thereafter for three years.
<TABLE>
<CAPTION>
DIRECTOR AGE INITIAL TERM EXPIRES
-------- --- --------------------
<S> <C> <C>
Gilbert M. Grosvenor............................ 66 1998
Richard E. Marriott............................. 59 1998
Harry J. Pearce................................. 55 1998
J.W. Marriott, Jr............................... 65 1999
W. Mitt Romney.................................. 50 1999
William J. Shaw................................. 52 1999
Dr. Henry Cheng Kar-Shun........................ 51 2000
Floretta Dukes McKenzie......................... 62 2000
Roger W. Sant................................... 66 2000
Lawrence M. Small............................... 56 2000
</TABLE>
J.W. Marriott, Jr.*.. Mr.Marriott is Chairman of the Company Board and Chief
Chairman of the Board Executive Officer of the Company. He joined Marriott
Corporation in 1956 and has been a member of the Board
of Directors of Marriott Corporation / Host Marriott /
Marriott International since 1964. He became President
of Marriott Corporation in 1964, Chief Executive
Officer of Marriott Corporation in 1972 and Chairman of
the Board of Marriott Corporation in 1985. Mr. Marriott
remains a director of Host Marriott and is a director
of Host Marriott Services. He is also a director of
General Motors Corporation and the U.S.-Russia Business
Council. He serves on the Board of Trustees of the Mayo
Foundation, National Geographic Society and Georgetown
University. He is on the President's Advisory Committee
of the American Red Cross and the Executive Committee
of the World Travel & Tourism Council, and is a member
of the Business Council and the Business Roundtable.
Mr. Marriott has served as Chairman of the Board and
Chief Executive Officer of the Company since October
1993. He is expected to hold the same positions with
New Marriott.
Richard E.
Marriott*............ Mr. Marriott is Chairman of the Board of Host Marriott.
He is also Chairman of the Board of First Media
Corporation and serves as a director of Host Marriott
Services and Potomac Electric Power Company, and as a
trustee of Gallaudet University, Polynesian Cultural
Center, Primary Children's Medical Center, Boys and
Girls Clubs of America SE Region, and The J. Willard
Marriott Foundation. He also serves on the Board of
Trustees of Federal City Council, Marriott Foundation
for People with Disabilities and the Advisory Committee
for the International Hotel & Restaurant Association.
Prior to October 1993,
- --------
* Messrs. J.W. Marriott, Jr. and Richard E. Marriott are brothers.
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Mr. Marriott served as an Executive Vice President and
member of the Board of Directors of Marriott
Corporation. Mr. Marriott has been a director of
Marriott Corporation / Host Marriott / Marriott
International since 1979 (including the period before
October 1993).
Dr. Henry Cheng Kar-
Shun................. Dr. Cheng has served as Managing Director of New World
Development Company Limited ("New World Development"),
a publicly held Hong Kong real estate development and
investment company since 1989. He is the Chairman of
New World Infrastructure Limited and Tai Fook Group
Limited and a director of HKR International Limited,
all of which are publicly-held Hong Kong companies. Dr.
Cheng serves as an executive officer of Chow Tai Fook
Enterprises Limited, a privately-held family company
that controls New World Development. Dr. Cheng served
as Chairman and Director of RHG from June 1995 until
its purchase by the Company in March 1997. He is
Chairman of the Advisory Council for The Better Hong
Kong Foundation. Dr. Cheng serves as a member of the
Services Promotion Strategy Group, a unit under the
Hong Kong Financial Secretary's Office, and as a
Committee Member of the Eighth Chinese People's
Political Consultative Committee of the People's
Republic of China. Dr. Cheng has also served as a
member of the Election Committee of the Hong Kong
Special Administrative Region.
Gilbert M.
Grosvenor............ Mr. Grosvenor is Chairman of the Board of National
Geographic Society (a publisher of books and magazines
and producer of television documentaries) and a
director or trustee of Chevy Chase Federal Savings
Bank, Ethyl Corporation, B.F. Saul REIT and Saul
Centers, Inc. He is on the Board of Visitors of the
Nicholas School of the Environment of Duke University.
Before October 1993, Mr. Grosvenor served as a member
of the Board of Directors of Marriott Corporation. Mr.
Grosvenor has been a director of the Company since 1987
(including the period before October 1993).
Floretta Dukes
McKenzie............. Dr. McKenzie is the founder, Chairwoman and Chief
Executive Officer of The McKenzie Group, Inc. (an
educational consulting firm). She is also a director or
trustee of Potomac Electric Power Company (PEPCO),
National Geographic Society, Acacia Group, Group
Hospitalization and Medical Services, Inc. (GHMSI),
Howard University, White House Historical Association,
American Association of School Administrators
Leadership for Learning Foundation, Lightspan
Partnership, Inc., Impact II-The Teachers Network,
National School Board Foundation, Institute for
Educational Leadership, Inc., Forum for the American
School Superintendent, Harvard Graduate School of
Education Urban Superintendents Program and Johns
Hopkins Leadership Development Program. From 1981 to
1988, she served as Superintendent of the District of
Columbia Public Schools and Chief State School Officer.
Prior to October 1993, Dr. McKenzie served as a member
of the Board of Directors of Marriott Corporation. Dr.
McKenzie has been a director of the Company since 1992
(including the period before October 1993).
Harry J. Pearce...... Mr. Pearce is Vice Chairman of the Board of General
Motors Corporation (an automobile manufacturer) and a
director of General Motors Acceptance Corporation,
Hughes Electronics Corporation, American Automobile
Manufacturers Association and MDU Resources Group, Inc.
and is a member of the U.S. Air Force Academy's Board
of Visitors. He also serves on the Board of Trustees of
Howard University and is a member of Northwestern
University
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School of Law's Dean's Advisory Council. Mr. Pearce has
been a director of the Company since 1995.
W. Mitt Romney....... Mr. Romney is a director, President and Chief Executive
Officer of Bain Capital, Inc. (a private equity
investment firm). He is also a director of The Sports
Authority, Inc. and Staples, Inc. Mr. Romney is a
member of the Executive Board of the Boy Scouts of
America and the boards of the National Points of Light
Foundation and City Year. Before October 1993, Mr.
Romney served as a member of the Board of Directors of
Marriott Corporation. Mr. Romney has been a director of
the Company since 1993 (including the period before
October 1993).
Roger W. Sant........ Mr. Sant is Chairman of the Board and a co-founder of
The AES Corporation (a global power company). He is
also Chairman of the Board of World Wildlife Fund
(U.S.) and a member of the Board of World Resources
Institute and Worldwide Fund for Nature. Mr. Sant has
been a director of the Company since 1993.
William J. Shaw...... On March 31, 1997, Mr. Shaw became President and Chief
Operating Officer of the Company. Mr. Shaw joined
Marriott Corporation in 1974, was elected Corporate
Controller in 1979 and a Vice President in 1982. In
1986, Mr. Shaw was elected Senior Vice President--
Finance and Treasurer of Marriott Corporation. He was
elected Executive Vice President of Marriott
Corporation and promoted to Chief Financial Officer in
April 1988. In February 1992, he was elected President
of the Marriott Service Group, which now comprises the
Company's Contract Service Group. Mr. Shaw was elected
Executive Vice President and President--Marriott
Service Group in October 1993. Mr. Shaw is also
Chairman of the Board of Directors of Host Marriott
Services. He also serves on the Board of Trustees of
the University of Notre Dame, Loyola College in
Maryland and the Surburban Hospital Foundation. Mr.
Shaw has been a director of the Company since May 1997.
He is expected to become President and Chief Operating
Officer of New Marriott and will be the Chairman of the
SMS Board after the Transactions.
Lawrence M. Small.... Mr. Small is President, Chief Operating Officer and a
member of the Board of Directors of Fannie Mae (a
congressionally chartered mortgage financing
corporation). Before joining Fannie Mae, Mr. Small was
Vice Chairman and Chairman of the Executive Committee
of the Boards of Directors of Citicorp/Citibank. He
also serves as a director of The Chubb Corporation,
Chairman of the Financial Advisory Committee of Trans-
Resources International, a member of the Board of
Trustees of Morehouse College and New York University
Medical Center, and a member of the U.S. Holocaust
Memorial Council. Mr. Small has been a director of the
Company since 1995.
Dr. Cheng was appointed to the Company Board in March 1997 in connection
with the Company's acquisition of RHG.
Ratification of the action of the Company, as sole stockholder of New
Marriott, in electing Gilbert M. Grosvenor, Richard E. Marriott and Harry J.
Pearce, as directors whose terms will expire in 1998, J.W. Marriott, Jr., W.
Mitt Romney and William J. Shaw, as directors of New Marriott whose terms will
expire in 1999, and Dr. Henry Cheng Kar-Shun, Floretta Dukes McKenzie, Roger
W. Sant and Lawrence M. Small as directors of New Marriott whose terms will
expire in 2000, is subject to the affirmative vote of a majority of the
outstanding shares of Company Common Stock.
102
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THE COMPANY BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR RATIFICATION OF THE NEW
MARRIOTT BOARD. Certain members of the Company Board, however, may be deemed
to have conflicts of interest in connection with the Transactions. See
"CONFLICTS OF INTEREST."
COMMITTEES OF THE NEW MARRIOTT BOARD
The New Marriott Board is expected to have four standing committees: (i)
Executive; (ii) Audit; (iii) Compensation Policy; and (iv) Nominating and
Corporate Governance.
The members of the Executive Committee are expected to be J.W. Marriott, Jr.
(Chair) and Roger W. Sant. When the New Marriott Board is not in session, this
Committee will be authorized to exercise all powers of the New Marriott Board,
subject to specific restrictions as to powers retained by the full New
Marriott Board. Retained powers include those relating to amendments to the
certificate of incorporation and bylaws, mergers, consolidations, sales or
exchanges involving substantially all of New Marriott's assets, declarations
of dividends and issuance of stock.
The Audit Committee will comprise certain directors who are not employees of
New Marriott or any of its subsidiaries. The members of the Audit Committee
are expected to be W. Mitt Romney (Chair), Gilbert M. Grosvenor, Harry J.
Pearce, Roger W. Sant and Lawrence M. Small. The Audit Committee will meet at
least three times a year with New Marriott independent auditors, management
representatives and internal auditors. The Audit Committee will recommend to
the New Marriott Board the appointment of independent auditors, approve the
scope of audits and other services to be performed by the independent and
internal auditors, consider whether any circumstance, including the
performance of any professional service, impairs the independence of the
auditors, and review the results of internal and external audits, the
accounting principles applied in financial reporting and financial and
operational controls. The independent auditors and internal auditors will have
unrestricted access to the Audit Committee and vice versa.
The Compensation Policy Committee will comprise certain directors who are
not employees of New Marriott or any of its subsidiaries. The members of the
Compensation Policy Committee are expected to be Floretta Dukes McKenzie
(Chair), Roger W. Sant, W. Mitt Romney and Lawrence M. Small. The functions of
this Committee will include submitting recommendations on policies and
procedures relating to senior officers' compensation and various employee
stock plans, and approval of individual salary adjustments, bonus payments and
stock awards in those areas.
The Nominating and Corporate Governance Committee will comprise certain
directors who are not employees of New Marriott or any of its subsidiaries.
The members of the Nominating and Corporate Governance Committee are expected
to be Gilbert M. Grosvenor (Chair), Floretta Dukes McKenzie and Harry J.
Pearce. This Committee will make recommendations to the New Marriott Board
regarding corporate governance and consider nominees for election as
directors. The Committee will utilize the same procedure to consider nominees
recommended by stockholders as is used to consider nominees recommended by any
other source. In addition, the Committee will fulfill an advisory function
with respect to a range of matters affecting the New Marriott Board and its
committees, including the making of recommendations with respect to
qualifications of director candidates, compensation of directors, selection of
committee chairs, committee assignments, and related matters affecting the
functioning of the New Marriott Board.
COMPENSATION OF DIRECTORS
Directors who are also employees of New Marriott will receive no additional
compensation for service as directors. Directors who are not employees will
receive an annual retainer fee of $25,000, together with an attendance fee of
$1,250 per Board, Committee or stockholder meeting. The Chair of each
Committee of the New Marriott Board will receive an additional annual fee of
$1,000. Any individual director receiving these fees may elect to defer
payment of all or any portion thereof pursuant to the Company Deferred
Compensation Plan (which will become the responsibility of New Marriott) or
the New Marriott Comprehensive Stock Plan under
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which the eligible directors will receive substitute awards for the awards
that will be canceled under the Company 1995 Directors Plan as a result of the
Transactions. Gilbert M. Grosvenor, Floretta Dukes McKenzie, Harry J. Pearce,
W. Mitt Romney, Roger W. Sant and Lawrence M. Small are currently
participating in one or both of these plans. Directors are also reimbursed for
travel expenses and other out-of-pocket costs incurred when attending
meetings.
In 1996, Mr. Richard E. Marriott waived his right to receive post-retirement
distributions of cash under the Company Deferred Compensation Plan and Company
Common Stock under the Company 1993 Stock Plan. The payments and stock
distributions waived were awarded to Mr. Marriott in 1995 and prior years and
were disclosed as required in earlier proxy statements of the Company or of
Marriott Corporation. In connection with this waiver, the Company entered into
an arrangement to purchase life insurance policies for the benefit of a trust
established by Mr. Marriott. The cost of the life insurance policies to the
Company will not exceed the projected after-tax cost the Company expected to
incur in connection with the payments under the Company Deferred Compensation
Plan and the stock distributions under the Company 1993 Stock Plan that were
waived by Mr. Marriott. New Marriott will assume the rights and obligations of
the Company under the life insurance policies as of the Effective Date.
EXECUTIVE OFFICERS
Set forth below is certain information with respect to the 12 persons who
are expected to serve as executive officers of New Marriott immediately
following the Spinoff. Those persons named below who are currently officers of
the Company will relinquish their positions with the Company effective on the
Effective Date. However, William J. Shaw will continue as chairman of the SMS
Board.
AGE
J.W. Marriott, Jr.... 65 See "MANAGEMENT OF NEW MARRIOTT--New Marriott
Chairman of the Board of Directors," above.
Board and Chief
Executive Officer
Todd Clist........... 56 Todd Clist joined Marriott Corporation in 1968.
Vice President; Mr. Clist served as general manager of several
Executive Vice hotels before being named Regional Vice President,
President--Marriott Midwest Region for Marriott Hotels, Resorts &
Lodging Suites in 1980. Mr. Clist became Executive Vice
President of Marketing for Marriott Hotels,
Resorts & Suites in 1985 and Senior Vice
President, Lodging Products and Markets in 1989.
Mr. Clist was named Executive Vice President and
General Manager for Fairfield Inn in 1990, for
both Fairfield Inn and Courtyard in 1991 and for
Fairfield Inn, Courtyard and Residence Inn in
1993. In January 1994, Mr. Clist was appointed to
his current position.
Edwin D. Fuller...... 52 Edwin D. Fuller joined Marriott Corporation in
Vice President; 1972 and held several sales positions before being
Executive Vice appointed Vice President--Marketing in 1979. After
President and serving as general manager at several Marriott
Managing Director-- hotels, Mr. Fuller became a Regional Vice
Marriott Lodging President in 1985 and was promoted to Senior Vice
International President and Managing Director of Marriott
Lodging International in 1990. In January 1994,
Mr. Fuller was appointed to his current position.
Paul E. Johnson,
Jr................... 50 Paul E. Johnson, Jr. joined Marriott Corporation
Vice President; in 1983 in Corporate Financial Planning &
President--Marriott Analysis. In 1987, he was promoted to Group Vice
Senior Living President of Finance and Development for the
Services Marriott Service Group and later assumed
responsibility for real estate development for
Marriott Senior Living Services. During 1989, he
served as Vice President and
104
<PAGE>
General Manager of Marriott's Travel Plazas
division. Mr. Johnson subsequently served as Vice
President and General Manager of Marriott Family
Restaurants from December 1989 through 1991. In
October 1991, he was appointed as Executive Vice
President and General Manager of Marriott Senior
Living Services, and in June 1996 he was appointed
to his current position.
Brendan M. Keegan.... 54 Brendan M. Keegan joined Marriott Corporation in
Senior Vice 1971, in the Company's Corporate Organization
President--Human Development Department and subsequently held
Resources several human resources positions, including Vice
President of Organization Development and
Executive Succession Planning. In 1986, Mr. Keegan
was named Senior Vice President, Human Resources,
Marriott Service Group, which now comprises the
Company's Contract Services Group. In April 1997,
Mr. Keegan was appointed Senior Vice President of
Human Resources for the Company's worldwide human
resources functions, including compensation,
benefits, labor and employee relations,
employment, human resources planning and
development and employee communications.
Robert T. Pras....... 56 Robert T. Pras joined Marriott Corporation in 1979
Vice President; as Executive Vice President of Fairfield Farm
President--Marriott Kitchens, the predecessor of MDS. In 1981, Mr.
Distribution Pras became Executive Vice President of
Services Procurement and Distribution. In May 1986, Mr.
Pras was appointed to the additional position of
General Manager of Marriott Corporation's
Continuing Care Retirement Communities. He was
named Executive Vice President and General Manager
of MDS in 1990. Mr. Pras was appointed to his
current position in January 1997.
Joseph Ryan.......... 55 Joseph Ryan joined the Company in December 1994 as
Executive Vice Executive Vice President and General Counsel.
President and Prior to that time, he was a partner in the law
General Counsel firm of O'Melveny & Myers, serving as the Managing
Partner from 1993 until his departure. He joined
O'Melveny & Myers in 1967 and was admitted as a
partner in 1976.
William J. Shaw...... 52 See "MANAGEMENT OF NEW MARRIOTT--New Marriott
President and Chief Board of Directors," above.
Operating Officer
Michael A. Stein..... 48 Michael A. Stein joined Marriott Corporation in
Executive Vice 1989 as Vice President, Finance and Chief
President and Chief Accounting Officer. In 1990, he assumed
Financial Officer responsibility for Marriott Corporation's
financial planning and analysis functions. In
1991, he was elected Senior Vice President,
Finance and Corporate Controller of Marriott
Corporation and also assumed responsibility for
Marriott Corporation's internal audit function. In
October 1993, he was appointed Executive Vice
President and Chief Financial Officer of the
Company. Prior to joining Marriott Corporation,
Mr. Stein spent 18 years with Arthur Andersen LLP
(formerly Arthur Andersen & Co.) where, since
1982, he was a partner.
James M. Sullivan.... 54 James M. Sullivan joined Marriott Corporation in
Vice President; 1980, departed in 1983 to acquire, manage, expand
Executive Vice and subsequently sell a successful restaurant
President--Lodging chain, and returned to Marriott Corporation in
Development 1986 as Vice President of Mergers and
Acquisitions. Mr. Sullivan became Senior
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Vice President, Finance--Lodging in 1989, Senior
Vice President--Lodging Development in 1990 and
was appointed to his current position in December
1995.
William R. Tiefel.... 63 William R. Tiefel joined Marriott Corporation in
Executive Vice 1961 and was named President of Marriott Hotels,
President and Resorts and Suites in 1988. He had previously
President--Marriott served as resident manager and general manager at
Lodging Group several Marriott hotels prior to being appointed
Regional Vice President and later Executive Vice
President of Marriott Hotels, Resorts and Suites
and Marriott Ownership Resorts. Mr. Tiefel was
elected Executive Vice President of Marriott
Corporation in November 1989. In March 1992, he
was elected President--Marriott Lodging Group and
assumed responsibility for all of the Company's
lodging brands. In October 1993, he was appointed
to his current position.
Stephen P. Weisz..... 47 Stephen P. Weisz joined Marriott Corporation in
Vice President; 1972 and was named Regional Vice President of the
Executive Vice Mid-Atlantic Region in 1991. Mr. Weisz had
President--Marriott previously served as Senior Vice President of
Lodging and Rooms Operations before being appointed as Vice
President--Marriott President of the Revenue Management Group. Mr.
Vacation Club Weisz became Senior Vice President of Sales and
International Marketing for Marriott Hotels, Resorts and Suites
in August 1992 and Executive Vice President--
Lodging Brands in August 1994. In December 1996,
Mr. Weisz was appointed President--Marriott
Vacation Club International.
EXECUTIVE OFFICER COMPENSATION
Summary of Compensation
Table I below sets forth a summary of the compensation paid by the Company
during the last three fiscal years to the person expected to be the Chief
Executive Officer of New Marriott and the four most highly compensated
executive officers (other than the Chief Executive Officer) of New Marriott
(based on their historical compensation from the Company).
NEW MARRIOTT TABLE I
NEW MARRIOTT
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
FISCAL RESTRICTED STOCK ALL OTHER
NAME YEAR SALARY(1)(2) ($) BONUS(3) ($) STOCK(4)(5)(6) ($) OPTIONS (#) COMPENSATION(7)(8) ($)
- ---- ------ ---------------- ------------ ------------------ ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
J.W. Marriott, Jr....... 1996 840,866 809,754 161,975 71,000 32,125
Chairman and Chief 1995 800,000 696,000 139,202 100,000 7,592
Executive Officer 1994 765,000 669,375 133,888 90,000 82,043
William J. Shaw......... 1996 545,289 425,325 85,085 46,000 19,780
President and Chief 1995 520,000 342,680 589,152 52,000 35,910
Operating Officer 1994 500,000 335,000 67,000 56,000 22,615
William R. Tiefel....... 1996 545,289 393,699 1,175,020 46,000 40,323
Executive Vice 1995 520,000 341,120 365,720 52,000 35,187
President 1994 475,000 317,775 63,564 56,000 43,804
Joseph Ryan............. 1996 371,000 248,941 49,775 25,000 1,170
Executive Vice 1995 350,000 217,000 43,403 30,000 119,900
President and General 1994 26,924 16,154 1,105,761 50,000 -
Counsel
Michael A. Stein........ 1996 356,731 239,366 47,850 23,000 25,950
Executive Vice 1995 325,000 201,500 572,792 25,000 21,126
President and Chief 1994 300,000 190,500 38,110 30,000 25,863
Financial Officer
</TABLE>
106
<PAGE>
- --------
(1) Fiscal year 1996 base salary earnings were for 53 weeks.
(2) Salary amounts include base salary earned and paid in cash during the
fiscal year and the amount of base salary deferred at the election of the
executive officer under the Company Profit Sharing Plan and the Company
Deferred Compensation Plan. Mr. Ryan joined the Company as Executive Vice
President and General Counsel in December of 1994.
(3) Bonus includes the amount of cash bonus earned and accrued during the
fiscal year and paid subsequent to the end of each fiscal year. The
Company adopted the Marriott International, Inc. Executive Officer
Incentive Plan (the "Executive Officer Incentive Plan") to satisfy the
requirements for exemption under Section 162(m) of the Code. For fiscal
year 1996, the following bonus amounts were attributable to the Executive
Officer Incentive Plan and to the Marriott International, Inc. Individual
Performance Plan (the "Individual Performance Plan"): Mr. Marriott earned
$588,606 under the Executive Officer Incentive Plan and $221,148 under the
Individual Performance Plan; Mr. Shaw earned $261,738 under the Executive
Officer Incentive Plan and $163,587 under the Individual Performance Plan;
Mr. Tiefel earned $261,738 under the Executive Officer Incentive Plan and
$131,961 under the Individual Performance Plan; Mr. Ryan earned $129,850
under the Executive Officer Incentive Plan and $119,091 under the
Individual Performance Plan; Mr. Stein earned $149,827 under the Executive
Officer Incentive Plan and $89,539 under the Individual Performance Plan.
(4) All awards of restricted stock noted in the above table reflect awards of
Company Common Stock made under the Company Stock Plans for 1994, 1995 and
1996 performance, respectively. Restricted stock awards granted by the
Company are subject to general restrictions, such as continued employment
and noncompetition, and in some cases, additional performance restrictions
such as attainment of financial objectives. Holders of restricted stock
receive dividend payments and exercise voting rights with respect to such
shares. Awards of deferred bonus stock granted by the Company under the
Company Stock Plans were generally derived by dividing 20 percent of each
individual's annual cash bonus award by the average of the high and low
trading prices for a share of Company Common Stock on the last trading day
for the fiscal year. No voting rights or dividends are attributed to
deferred bonus stock until such awards are distributed. The individual
executive may elect to denominate the awards as current or deferred. A
current award is distributed in 10 annual installments commencing one year
after the award is granted. A deferred award is distributed in a lump sum
or up to 10 installments following termination of employment. Deferred
award shares contingently vest pro rata in annual installments commencing
one year after the award is granted to the employee. Awards are not
subject to forfeiture once the employee reaches age 55 with 10 years of
service with the Company, or has 20 years of service with the Company and
retires with Board approval.
(5) All shares of restricted stock shown in the table above were under the
Company Stock Plans. Awards reflected in the restricted stock column in
the above table include the following for the named individual: (i) for
Mr. Marriott for 1994, 4,792 shares of deferred bonus stock; for 1995,
3,669 shares of deferred bonus stock; for 1996, 2,945 shares of deferred
bonus stock; (ii) for Mr. Shaw for 1994, 2,398 shares of deferred bonus
stock; for 1995, 1,806 shares of deferred bonus stock and 14,000 shares of
restricted stock; for 1996, 1,547 shares of deferred bonus stock; (iii)
for Mr. Tiefel for 1994, 2,275 shares of deferred bonus stock; for 1995,
1,798 shares of deferred bonus stock and 8,000 shares of restricted stock;
for 1996, 1,432 shares of deferred bonus stock and 20,000 shares of
restricted stock; (iv) for Mr. Ryan for 1994, 116 shares of deferred bonus
stock and 40,000 shares of restricted stock; for 1995, 1,144 shares of
deferred bonus stock; for 1996, 905 shares of deferred bonus stock; (v)
for Mr. Stein for 1994, 1,364 shares of deferred bonus stock; for 1995,
1,062 shares of deferred bonus stock and 15,000 shares of restricted
stock; for 1996, 870 shares of deferred bonus stock. The aggregate number
and value of shares of Company restricted and deferred stock held by each
named executive officer as of the end of fiscal year 1996 is as follows:
Mr. Marriott, 2,945 shares valued at $161,975; Mr. Shaw, 70,149 shares
valued at $3,858,195; Mr. Tiefel, 119,425 shares valued at $6,568,375; Mr.
Ryan, 34,165 shares valued at $1,879,075; and Mr. Stein, 35,797 shares
valued at $1,968,835. These figures do not include the number or value of
restricted or deferred shares of Host Marriott common stock.
(6) Awards of restricted stock and deferred bonus stock under the Company
Stock Plans will be canceled and replaced with conversion awards under the
New Marriott Stock Plan. See "MANAGEMENT OF NEW MARRIOTT--New Marriott
Comprehensive Stock Plan."
(7) Amounts included in "All Other Compensation" represent matching Company
contribution amounts received under one or more of the Company Profit
Sharing Plan and the Company Deferred Compensation Plan. In 1996, for Mr.
Marriott, $2,806 was attributable to the Company Profit Sharing Plan and
$29,319 was attributable to the Company Deferred Compensation Plan; for
Mr. Shaw, $3,140 was attributable to the
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Company Profit Sharing Plan and $16,640 was attributable to the Company
Deferred Compensation Plan; for Mr. Tiefel, $4,638 was attributable to the
Company Profit Sharing Plan and $35,685 was attributable to the Company
Deferred Compensation Plan; for Mr. Ryan, $1,170 was attributable to the
Company Profit Sharing Plan; for Mr. Stein, $4,640 was attributable to the
Company Profit Sharing Plan and $21,310 was attributable to the Company
Deferred Compensation Plan.
(8) In 1996, Mr. J.W. Marriott, Jr. waived his vested right to receive post-
retirement distributions of cash under the Company Deferred Compensation
Plan and Company Common Stock under the Company 1993 Stock Plan. The
payments and stock distributions waived were awarded to Mr. Marriott in
1995 and prior years and were disclosed as required in earlier proxy
statements of the Company or of Marriott Corporation. In connection with
this waiver, the Company entered into an arrangement to purchase life
insurance policies for the benefit of a trust established by Mr. Marriott.
The cost of the life insurance policies to the Company will not exceed the
projected after-tax cost the Company expected to incur in connection with
the payments under the Company Deferred Compensation Plan and the stock
distributions under the Company 1993 Stock Plan that were waived by Mr.
Marriott. New Marriott will assume the rights and obligations of the
Company under the life insurance policies as of the Effective Date.
Stock Options
Grant of Options. Table II and Table III below set forth information
regarding options to purchase Company Common Stock granted in fiscal 1996
under the Company 1996 Stock Plan.
NEW MARRIOTT TABLE II
STOCK OPTION GRANTS IN LAST FISCAL YEAR (1996)(1)
<TABLE>
<CAPTION>
% OF TOTAL
STOCK OPTIONS
GRANTED TO GRANT DATE
EMPLOYEES IN TOTAL EXERCISE EXPIRATION PRESENT
NAME FISCAL YEAR STOCK OPTIONS PRICE ($/SH) DATE(2) VALUE(3) ($)
- ---- ------------- ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C>
J.W. Marriott, Jr....... 3.6 71,000 54.8125 11/7/11 1,356,810
William J. Shaw......... 2.3 46,000 54.8125 11/7/11 879,060
William R. Tiefel....... 2.3 46,000 54.8125 11/7/11 879,060
Joseph Ryan............. 1.3 25,000 54.8125 11/7/11 477,750
Michael A. Stein........ 1.2 23,000 54.8125 11/7/11 439,530
</TABLE>
- --------
(1) Under the Company 1996 Stock Plan, the Company may grant to eligible
employees stock options either on a nonqualified tax basis or as
"incentive stock options" within the meaning of Section 422 of the Code.
All options granted to Company employees in 1996 were nonqualified options
and totaled 1,975,800 shares. Options granted under the Company Stock
Plans will be canceled and replaced with conversion awards under the New
Marriott Stock Plan. See "MANAGEMENT OF NEW MARRIOTT--New Marriott
Comprehensive Stock Plan."
(2) All options granted vest over four years on the anniversary date of the
grant at a rate of 25 percent per year and have a 15-year term. Except as
set forth in the succeeding sentence, if an optionee ceases to be an
employee, other than by reason of death, while holding an exercisable
option, the option will generally terminate if not exercised within three
months of termination of employment. Options held by optionees who retire
and meet certain retirement provisions of the Company 1996 Stock Plan
(holders of nonqualified options with a combination of age and length of
service that equals or exceeds 75) will not expire until the earlier of
(i) the expiration of the option in accordance with its original term or
(ii) one year from the date on which the option granted latest in time to
the optionee has fully vested. Options are not transferable except that if
an optionee dies while an employee of the Company more than one year from
the date the option was granted, a legatee may exercise the remaining
options at any time up to one year after the date of death of the
employee.
(3) The Black-Scholes option pricing model was used to estimate the present
value of the option grant at the date of the grant. The material
assumptions and adjustments used in estimating the value of the options
include: an exercise price of $54.8125, expected volatility of 25 percent,
annual dividends, consistent with the Company's dividend policy, of $0.32
in 1996, a risk-free interest rate of 6.1 percent, an expected option life
of seven years and a 13.3 percent reduction to reflect the probability of
forfeiture due to termination prior to vesting. These inputs resulted in a
$19.11 per share fair value.
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<PAGE>
NEW MARRIOTT TABLE III
AGGREGATED STOCK OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END STOCK OPTION VALUES (1996)
<TABLE>
<CAPTION>
NUMBER OF SHARES
SHARES UNDERLYING VALUE OF UNEXERCISED IN-
ACQUIRED UNEXERCISED OPTIONS AT THE-MONEY STOCK OPTIONS
ON VALUE FISCAL YEAR END (#)(3) AT FISCAL YEAR END ($)(4)
EXERCISE REALIZED ------------------------- -------------------------
NAME COMPANY(1)(2) (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
J.W. Marriott, Jr....... MI - - 865,250 214,750 30,722,154 3,200,950
HMC - - 810,447 - 9,916,444 -
TOTAL - - 1,675,697 214,750 40,638,598 3,200,950
William J. Shaw......... MI 30,000 863,505 496,000 127,000 18,204,001 1,832,973
HMC 33,583 297,428 462,316 - 5,793,289 -
TOTAL 68,583 1,160,933 958,316 127,000 23,997,290 1,832,973
William R. Tiefel....... MI 12,950 426,872 336,000 127,000 12,298,068 1,832,973
HMC 4,702 41,643 293,006 - 3,729,734 -
TOTAL 17,652 468,515 629,006 127,000 16,027,802 1,832,973
Joseph Ryan............. MI - - 32,500 72,500 819,519 1,091,394
HMC - - - - - -
TOTAL - - 32,500 72,500 819,519 1,091,394
Michael A. Stein........ MI 30,000 1,209,219 63,775 64,125 1,825,963 939,854
HMC - - 14,386 - 184,068 -
TOTAL 30,000 1,209,219 78,161 64,125 2,010,031 939,854
</TABLE>
- --------
(1) "MI" represents options to purchase Company Common Stock. "HMC" represents
options to purchase common stock of Host Marriott ("Host Marriott Common
Stock").
(2) In connection with the 1993 distribution to stockholders of Host Marriott
of one share of Company Common Stock for each share of Host Marriott
Common Stock (the "Host Marriott Distribution") and pursuant to the
Marriott Corporation Employee Stock Option Plan (the "Marriott Corp. Stock
Plan"), all Marriott Corporation options were adjusted to reflect the Host
Marriott Distribution. Each non-qualified Marriott Corporation option was
"split" by (i) adjusting the price at which the Marriott Corporation
option (as adjusted, a "Host Marriott Option") was exercisable for common
stock of Host Marriott and (ii) providing the holder thereof with an
option to purchase an identical number of shares of Company Common Stock
(each, a "Marriott International Option"). The exercise price of the
Marriott International Option was set, and the exercise price of the
corresponding Host Marriott Option was adjusted, so as to equal, in the
aggregate, the exercise price of the Marriott Corporation option prior to
the Host Marriott Distribution. Accordingly, these adjustments merely
preserved, and did not increase or decrease, the economic value of the
outstanding Marriott Corporation option prior to the Host Marriott
Distribution. In December 1995, in connection with the distribution to
stockholders of Host Marriott of one share of Host Marriott Services
Corporation ("Host Marriott Services") common stock for each five shares
of Host Marriott Common Stock (the "Host Marriott Services Distribution")
and pursuant to the Host Marriott 1993 Comprehensive Stock Incentive Plan,
all Host Marriott Options were adjusted to reflect the Host Marriott
Services Distribution. The Host Marriott Services Distribution resulted in
a lower option price and greater number of options in Host Marriott for
all Company employees with outstanding options in Host Marriott. The
exercise price was set, and the price of the Host Marriott Options were
adjusted, so as to preserve (but not increase or decrease) the economic
value of each Host Marriott Option immediately prior to the Host Marriott
Services Distribution.
(3) Host Marriott Options will be unaffected by the Spinoff. Awards of options
under the Company Stock Plans will be canceled and replaced with
conversion awards under the New Marriott Stock Plan. See "MANAGEMENT OF
NEW MARRIOTT--New Marriott Comprehensive Stock Plan."
(4) Based on a per share price for Company Common Stock of $55.00 and a per
share price for Host Marriott Common Stock of $15.81. These prices reflect
the average of the high and low trading prices on the NYSE on January 3,
1997.
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NEW MARRIOTT STOCK PLAN
Prior to the Effective Date, the Company, as sole stockholder of New
Marriott, will approve the adoption by New Marriott of the New Marriott 1998
Comprehensive Stock and Cash Incentive Plan (the "New Marriott Stock Plan").
The purpose of the New Marriott Stock Plan is to promote and enhance the long-
term growth of New Marriott by aligning the interests of the officers and
directors of New Marriott with those of New Marriott's stockholders. The
principal terms of the New Marriott Stock Plan are summarized below; it is
qualified in its entirety by reference to the full text of the New Marriott
Stock Plan and a copy of the plan is attached hereto as Appendix L.
Administration
The New Marriott Stock Plan will be administered by the Compensation Policy
Committee or any other committee appointed by the New Marriott Board (the "New
Marriott Compensation Committee"), the members of which will be non-employee
directors of New Marriott. The New Marriott Compensation Committee will have
broad discretion to determine the New Marriott employees eligible for awards
and the type of awards to be granted and to interpret the provisions. The New
Marriott Stock Plan provides that, upon a change in control of New Marriott,
the New Marriott Compensation Committee or the New Marriott Board will provide
for the substitution, vesting, distribution, exercise, cancellation or
exchange for value of the outstanding awards.
Shares Available Under the Plan
The New Marriott Stock Plan provides for the issuance of 35 million shares
of New MAR Common Stock and 21 million shares of New MAR-A Common Stock.
Approximately 21 million shares of each of New MAR Common Stock and New MAR-A
Common Stock will be required to issue the conversion awards described below.
Approximately 14 million shares of New MAR Common Stock will be available for
new awards under the New Marriott Stock Plan after the Effective Date. The
Plan also provides that no employee will be eligible to receive awards
covering more than 500,000 shares of New Marriott Common Stock in any one
fiscal year (excluding for this purpose any conversion awards described
below). These limitations will be appropriately adjusted by the New Marriott
Compensation Committee in the event of any change in capitalization, such as a
stock split, or a corporate transaction, such as a merger, consolidation,
separation, including a spin-off or other distribution of stock or property of
New Marriott, any reorganization (whether or not taxable) or any partial or
complete liquidation of New Marriott.
Eligibility
Employees of New Marriott (including employees who are also directors of New
Marriott) are eligible to participate in the New Marriott Stock Plan. The New
Marriott Compensation Committee has discretion to determine which employees
will receive awards. Non-employee directors of New Marriott are eligible
solely for purposes of receiving certain director stock awards and making
deferral elections with respect to director fees. In addition, employees and
non-employee directors of New Marriott, and certain individuals who are former
employees of the Company and its predecessors, will receive certain conversion
awards described below.
Types of Awards
Restricted Stock Awards. The New Marriott Stock Plan will provide additional
compensation incentives to key employees in the form of shares of restricted
stock of New Marriott. The New Marriott Compensation Committee expects that
approximately 40 key employees will potentially receive restricted stock
awards under the plan. Delivery of shares will be subject to the lapse of a
restriction period, continued employment with New Marriott (except in the case
of death or permanent disability) and satisfaction of such other requirements
as may be imposed by the New Marriott Compensation Committee, including, but
not limited to, achievement of specific performance objectives of New
Marriott, the business unit or the individual.
Deferred Stock Awards. Deferred shares of New Marriott Common Stock may be
granted to employees annually as Deferred Stock Bonus Awards or Deferred Stock
Agreements. The New Marriott Compensation Committee expects that approximately
3,800 employees will be eligible for deferred stock awards.
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Deferred Stock Bonus Awards will represent a part of the annual performance
bonus awards to employees. Eligible award recipients will be able to elect
either a current award or a deferred award. A current award will be
distributed in 10 annual installments commencing one year after the award is
granted. If an employee dies before distribution of all shares to which the
employee is entitled, the remaining shares will be distributed in one
distribution to the employees designated beneficiaries or, in the absence of
such beneficiaries, to the employee's estate. Any undistributed shares subject
to a current award will be forfeited and the award terminated if the
employee's employment with New Marriott is terminated for any reason other
than termination of employment at or beyond age 55 with 10 years of service,
termination after 20 years of service with retirement approval from the New
Marriott Compensation Committee, permanent disability or death. Any
undistributed shares not subject to forfeiture will continue to be paid to the
employee under the distribution schedule that would have applied to those
shares if the employee had not terminated employment, or over such shorter
period as the New Marriott Compensation Committee may determine.
A deferred award will be distributed to the recipient, as elected by such
recipient, either in a lump sum or in up to 10 installments beginning the
January following termination of employment. Deferred award shares will
contingently vest pro rata in annual installments commencing one year after
the award is granted to the employee, and continuing on each January 2
thereafter until the expiration of a 10-year period from the commencement
date. All shares subject to the deferred award will vest upon termination of
employment after reaching age 55 with 10 years of service, termination of
employment after 20 years of service with retirement approval from the New
Marriott Compensation Committee, permanent disability or death. Vesting will
stop when employment terminates for any other reason.
Deferred shares awarded pursuant to a Deferred Stock Agreement will be
distributed in 10 consecutive annual installments or over such shorter period
as the New Marriott Compensation Committee may direct. The distribution will
commence on the January 2 following the date the employee retires or becomes
permanently disabled or attains at least age 65 and is not an employee of New
Marriott. Shares will vest contingently over a specified term or in pro rata
annual installments until age 65. If employment is terminated for any reason
other than death or permanent disability, all unvested shares will be
forfeited. If employment is terminated due to death or permanent disability,
all unvested shares will immediately vest.
Stock Option Awards. Under the New Marriott Stock Plan, options may be
granted to employees either on a nonqualified tax basis or as "incentive stock
options" within the meaning of Section 422 of the Code. The option price may
not be less than 100 percent of the fair market value of New Marriott Common
Stock on the date the option is granted. It is expected that approximately
1,800 New Marriott employees will be eligible for stock option awards.
No option may be exercised within one year from the date of its grant. Each
option may have a term of up to 15 years, as determined by the New Marriott
Compensation Committee. If an optionee ceases to be an employee or goes on
leave of absence for more than 12 months (except in the case of a leave
approved by the New Marriott Compensation Committee) while holding an
exercisable option, the option will generally terminate if not exercised
within the following three months (one year in the case of a permanently
disabled employee). Nonqualified options granted to optionees who subsequently
become "approved retirees" (retirement with approval from the New Marriott
Compensation Committee after 20 years of service or after attaining age 55
with 10 years of service and while a noncompetition agreement is honored) will
not expire until the earlier of (i) the expiration of the option in accordance
with its original term or (ii) one year from the date on which the option
granted latest in time to the optionee has fully vested. If an optionee dies
while employed by New Marriott more than one year after the date the options
are granted, the remaining options may be exercised until the earlier of the
expiration date for such options or one year after the optionee's death. If an
optionee dies while an approved retiree, all the optionee's options become
fully vested and may be exercised until the earlier of the expiration date for
such options or one year after the optionee's death. If an optionee who is not
an approved retiree dies after termination of employment, the optionee's
remaining options may be exercised to the same extent and during the same
period that the optionee could have exercised the options if the optionee had
not died.
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When exercising a nonqualified option, an employee is taxed at ordinary
income rates on the gain represented by the difference between the option
price and the market price on the day of exercise times the number of shares
exercised. New Marriott receives a corresponding deduction for the amount of
gain.
For incentive stock options, the individual is not taxed at the time of
exercise (although the difference between the exercise price and the fair
market value of the stock subject to the option may result in alternative
minimum tax liability). If the employee subsequently sells the shares within
the period that is one year from the date of exercise or two years from the
date of grant, the employee then recognizes ordinary income equal to the
amount of income that would have been recognized on exercise had the option
been a nonqualified option and New Marriott may take a corresponding
deduction. If the shares are sold after this period, any gain or loss
recognized by the employee upon sale of the shares is treated as a capital
gain or loss and New Marriott receives no deduction.
Special Recognition Stock Awards. The New Marriott Stock Plan provides for
awards designed to provide recognition of employee performance for special
efforts on behalf of New Marriott. While all full-time, nonunion employees
will be eligible, actual awards will be limited in the discretion of the New
Marriott Compensation Committee.
Other Awards. The New Marriott Compensation Committee may grant to employees
any other awards denominated or payable in or in any combination of cash, New
Marriott Common Stock, a New Marriott Common Stock equivalent or appreciation
unit or security convertible into New Marriott Common Stock. The other share-
based awards may be issued alone or in tandem with other awards and made
subject to any terms and conditions as determined by the New Marriott
Compensation Committee and specified in the award agreements. The New Marriott
Compensation Committee also may grant cash performance-based awards not based
on New Marriott Common Stock on such terms and conditions as such Committee
shall determine. No individual may receive a payment with respect to a cash
performance-based award in excess of $4 million in any calendar year.
Performance Measures. In order to comply with the requirements for exclusion
from the limit on the tax deduction of executive compensation under Section
162(m) of the Code, the New Marriott Compensation Committee may condition the
grant or payment of awards to employees on the attainment of performance
objectives. The performance objectives will be measured by one or more of the
following factors regarding New Marriott or the applicable business unit of
New Marriott: (i) consolidated cash flows, (ii) consolidated financial
reported earnings, (iii) consolidated economic earnings, (iv) earnings per
share of New Marriott Common Stock, (v) business unit financial reported
earnings, (vi) business unit economic earnings, (vii) business unit cash flow
and (viii) appreciation in the price of New Marriott's Common Stock,
considered alone or as measured against the performance of a group of
companies approved by the New Marriott Compensation Committee.
Directors' Stock Awards and Fee Deferral Elections. The New Marriott Board
may, after each annual meeting of the New Marriott stockholders, designate
certain non-employee directors who will receive awards of 250 shares of New
Marriott Common Stock. The awards are fully vested when granted. Non-employee
directors are directors who are not full-time, salaried employees of New
Marriott.
The New Marriott Stock Plan also provides for the deferral of fees for non-
employee directors at their election. The election must be made before the
fees would be earned. The amounts deferred will be credited, as of the date of
deferral, to a bookkeeping account as stock units. The number of stock units
credited to the account will equal the fee amount divided by the per share
value of New Marriott Common Stock on the date the fee amount would have been
paid. The stock units are fully vested when credited to the accounts. The
accounts will be credited with additional stock units as of each dividend
payment date for New Marriott Common Stock to reflect the dividend payment
payable on shares of New Marriott Common Stock. Upon a non-employee director's
resignation, retirement or death (or if the non-employee director is not re-
elected), the stock units in the director's account will be paid in an equal
number of shares of New Marriott Common Stock in a lump sum or in equal annual
installments over a period as elected by the director.
Non-employee directors will not be eligible for other stock awards.
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Conversion Awards. Pursuant to the Employee Benefits Allocation Agreement,
the New Marriott Stock Plan must provide for the issuance of certain
conversion awards denominated in shares of New Marriott Common Stock in
replacement of certain awards denominated in shares of Company Common Stock
outstanding on the Effective Date and held by individuals who will not be
employees of SMS after the Spinoff. See "THE TRANSACTIONS--Arrangements
Between SMS and New Marriott--Employee Benefits Allocation Agreement." These
conversions awards will be issued and administered under the New Marriott
Stock Plan. The grantees of these conversion awards will be given service
credit to the extent required under the Employee Benefits Allocation
Agreement. The awards will be subject to the terms and conditions
substantially similar to those governing the awards as they were in effect
before the Spinoff. Approximately 4,000 individuals, including ten directors,
will receive conversion awards under the New Marriott Comprehensive Stock
Plan, covering a total of approximately 21 million shares of each of New MAR
Common Stock and New MAR-A Common Stock.
VOTE REQUIRED
The affirmative vote of a majority of the votes cast in person or by proxy
at the Meeting will be required to approve the New Marriott Stock Plan.
Abstentions and broker non-votes do not affect the majority vote required for
approval.
THE COMPANY BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE NEW MARRIOTT STOCK
PLAN. Certain members of the Company Board, however, may be deemed to have
conflicts of interest in connection with the Transactions. See "CONFLICTS OF
INTEREST."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
New Marriott was formed in September 1997 and did not have a compensation
committee during 1997. Compensation was determined by the Company's
Compensation Policy Committee. See "MANAGEMENT OF SMS--Compensation Committee
Interlocks and Insider Participation."
COMPANY BOARD
The persons expected to become directors of New Marriott as of the Effective
Date were all directors of the Company Board prior to the Effective Date.
The Company Board met four times in 1996. No director attended fewer than 75
percent of the total number of meetings of the Company Board and committees on
which such director served. The Company Board had four standing committees:
(i) Executive; (ii) Audit; (iii) Compensation Policy; and (iv) Nominating and
Corporate Governance.
The members of the Executive Committee were J.W. Marriott, Jr. (Chair) and
Roger W. Sant. When the Board was not in session, this Committee was
authorized to exercise all powers of the Board, subject to specific
restrictions as to powers retained by the full Company Board. Retained powers
included those relating to amendments to the certificate of incorporation and
bylaws, mergers, consolidations, sales or exchanges involving substantially
all of the Company's assets, declarations of dividends, and issuances of
stock. The Executive Committee did not meet in 1996.
The members of the Audit Committee, none of whom are employees of the
Company, were: W. Mitt Romney (Chair), Gilbert M. Grosvenor, Harry J. Pearce,
Roger W. Sant and Lawrence M. Small. The Audit Committee met with the
Company's independent auditors, management representatives and internal
auditors, approved the scope of audits and other services to be performed by
the independent and internal auditors, considered whether any circumstances,
including the performance of any professional service, impaired the
independence of the auditors, and reviewed the results of internal and
external audits, the accounting principles applied in financial reporting and
financial and operational controls. The independent auditors and internal
auditors had unrestricted access to the Audit Committee and vice versa. The
Audit Committee met three times in 1996.
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The members of the Compensation Policy Committee, none of whom are employees
of the Company, were: Floretta Dukes McKenzie (Chair), Roger W. Sant, W. Mitt
Romney and Lawrence M. Small. The functions of this Committee included
submitting recommendations on policies and procedures relating to senior
officers' compensation and various employee stock plans, and approval of
individual salary adjustments, bonus payments, and stock awards in those
areas. The Compensation Policy Committee met six times in 1996.
The members of the Nominating and Corporate Governance Committee, none of
whom are employees of the Company, were: Gilbert M. Grosvenor (Chair),
Floretta Dukes McKenzie and Harry J. Pearce. This Committee made
recommendations to the Company Board regarding corporate governance and
considered nominees for election as directors. The Committee utilized the same
procedure to consider nominees recommended by stockholders as is used to
consider nominees recommended by any other source. In addition, the Committee
fulfilled an advisory function with respect to a range of matters affecting
the Company Board and its committees, including the making of recommendations
with respect to qualifications of director candidates, compensation of
directors, selection of committee chairs, committee assignments and related
matters affecting the functioning of the Company Board. The Nominating and
Corporate Governance Committee met twice in 1996.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
New Marriott's officers and directors were not required to comply with
Section 16(a) of the Exchange Act in 1996 since New Marriott was not publicly
held. Section 16(a), however, requires the Company's executive officers and
directors, and persons who own more than 10 percent of a registered class of
the Company's equity securities ("Reporting Persons"), to file reports of
beneficial ownership and changes in beneficial ownership of Company equity
securities with the SEC and the NYSE. Specific due dates for these reports
have been established, and the Company is required to report in this Proxy
Statement any failure by such persons to file such reports on a timely basis
during 1996. During 1996, the Company's Reporting Persons were in compliance
with these requirements.
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CONFLICTS OF INTEREST
GENERAL
In general, see "THE TRANSACTIONS--Arrangements between SMS and New
Marriott" and "--Arrangements between SMS and Sodexho" for a discussion of
certain arrangements with New Marriott and Sodexho, respectively, that will be
entered into if the Transactions are consummated. Also see "MANAGEMENT OF SMS"
and "MANAGEMENT OF NEW MARRIOTT" for a discussion of employee stock incentive
plans to be adopted by SMS and New Marriott.
OTHER INTERESTS IN THE TRANSACTIONS
William J. Shaw, who will be chairman of the SMS Board, will serve as the
President and Chief Operating Officer of New Marriott.
Certain directors, officers and substantial stockholders of Sodexho will be
members of the SMS Board after the Effective Date. Pierre Bellon, who will be
a director of SMS, is the Chairman and Chief Executive Officer of Sodexho.
Bellon S.A., a privately held corporation, beneficially owns approximately 42
percent of Sodexho. Mr. Bellon and members of his family beneficially own
approximately 68 percent of Bellon S.A., and subsidiaries of Sodexho
beneficially own approximately 19 percent of Bellon S.A. Bernard Carton, who
will be a director of SMS, is the Vice President, Finance of Sodexho. Edouard
de Royere, who will be a director of SMS, is a director of Sodexho.
CERTAIN TRANSACTIONS
JWM Family Enterprises, L.P. ("Family Enterprises"), a Delaware limited
partnership owned by J.W. Marriott, Jr., the Chairman and Chief Executive
Officer of the Company (who will, effective on the Effective Date, resign
these positions and become Chairman and Chief Executive Officer of New
Marriott), and members of his immediate family, owns a 216-room Courtyard
Hotel in Long Beach, California, a 120-room Residence Inn in San Antonio,
Texas and a 468-room Fairfield Inn in Anaheim, California. Subsidiaries of the
Company operate the three properties pursuant to management agreements with
Family Enterprises. These subsidiaries will be subsidiaries of New Marriott
after the Spinoff. For 1996, 1995 and 1994, the Company received management
fees totaling $527,000, $259,000 and $2,000 (for two weeks of operations),
respectively, for these properties, plus reimbursement of certain expenses.
The Company also received payments from Family Enterprises related to
construction and preopening costs for the San Antonio Residence Inn ($480,000
in 1996) and the Long Beach Courtyard and San Antonio Residence Inn ($290,000
and $2,972,000, respectively, in 1995 and $2,570,000 in 1994).
McIntosh Mill Ltd. ("McIntosh Mill"), a Utah limited partnership in which
Richard E. Marriott, a Director of the Company (who will, effective on the
Effective Date, resign this position and become a Director of New Marriott)
has a 40 percent limited partnership interest, is party to an agreement with
Marriott Ownership Resorts, Inc. ("MORI"), a subsidiary of the Company, under
which MORI purchased land in Park City, Utah from McIntosh Mill on which MORI
is constructing a mixed-use, multi-phase development. The terms of the
Agreement call for McIntosh Mill to purchase from MORI the commercial
condominium units for a cash purchase price calculated as the pro rata share
of the development and construction costs of the project allocable to the
commercial units less (i) the value of the land allocated to the residential
condominium units retained by MORI for its time share resort, and (ii) an
agreed upon development fee earned by McIntosh Mill. In 1996 MORI received
approximately $200,000 from McIntosh Mill in payment for the commercial space
in phase two. Construction of phase three was completed in 1996 and the cash
portion of the purchase price for the commercial space payable to MORI is
approximately $2.3 million. Construction of phase four was completed in 1997
and the cash portion of the purchase price for the commercial space payable to
MORI is approximately $2.5 million. MORI has secured payment of these amounts
by purchase money mortgages on the commercial condominium
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units in phases three and four until McIntosh Mill obtains long term mortgage
financing which is expected to be arranged in early 1998. MORI will be a
subsidiary of New Marriott after the Spinoff.
On March 29, 1997, the Company acquired substantially all of the outstanding
common stock of RHG, an operator and franchisor of 150 hotels in 38 countries,
for approximately $1 billion. Dr. Henry Cheng Kar-Shun, a director of the
Company (who will, on the Effective Date, resign this position and become a
Director of New Marriott), together with members of the Cheng family,
beneficially owned approximately 60 percent of the RHG shares acquired by the
Company, and Dr. Cheng became a director of the Company in connection with the
RHG acquisition. RHG operates 87 hotels in which affiliates of Dr. Cheng and
members of the Cheng family have a direct or indirect ownership or leasehold
interest. New World Development, for which Dr. Cheng serves as Managing
Director and which is 35.3 percent owned by Dr. Cheng and members of the Cheng
family, its affiliates or affiliates of Dr. Cheng have indemnified RHG, its
subsidiaries and New Marriott for certain lease, debt, guarantee and other
obligations in connection with the formation of RHG as a hotel management
company in 1995.
RELATIONSHIP BETWEEN THE COMPANY AND HOST MARRIOTT
J.W. Marriott, Jr. and Richard E. Marriott and their respective immediate
family members beneficially own approximately 6.6 percent and 6.5 percent,
respectively, of the common stock of Host Marriott. Richard E. Marriott is the
Chairman of the Board of Host Marriott, and J.W. Marriott, Jr. is a director
of Host Marriott. Certain executive officers of the Company own, in the
aggregate, less than one percent of Host Marriott.
The Company and Host Marriott are or have been party to agreements which
provide, among other things, for the Company to (i) manage lodging properties
owned or leased by Host Marriott (the "Host Marriott Lodging Management
Agreements"), (ii) manage senior living communities owned by Host Marriott
(the "Host Marriott Senior Living Management Agreements"), (iii) advance up to
$225 million to Host Marriott under a line of credit maturing in 1998 (the
"Host Marriott Credit Agreement"), (iv) provide $109 million of first mortgage
financing for the Philadelphia Marriott Hotel (the "Philadelphia Mortgage"),
(v) guarantee Host Marriott's performance in connection with certain loans or
other obligations (the "Company Guarantees") and (vi) provide Host Marriott
with various administrative and consulting services and a sublease of office
space at the Headquarters (the "Services Agreements"). Upon consummation of
the Spinoff, New Marriott will replace the Company under these agreements and
guarantees. The Company has the right to purchase up to 20 percent of the
voting stock of Host Marriott if certain events involving a change of control
of Host Marriott occur. This right will be assigned to New Marriott upon
consummation of the Spinoff.
The Host Marriott Lodging Management Agreements provide for the Company to
manage Marriott hotels, Courtyard hotels and Residence Inns owned or leased by
Host Marriott. Each Host Marriott Lodging Management Agreement, when entered
into, reflects market terms and conditions and is substantially similar to the
terms of management agreements with third-party owners regarding lodging
facilities of a similar type. The Company recognized sales of $1,787 million,
$1,274 million and $937 million and operating profit (before corporate
expenses and interest) of $95 million, $59 million and $35 million during
1996, 1995 and 1994, respectively, from the lodging properties owned or leased
by Host Marriott. Additionally, Host Marriott is a general partner in several
unconsolidated partnerships that own lodging properties operated by the
Company under long-term agreements. The Company recognized sales of $1,769
million, $1,878 million and $1,805 million and operating profit (before
corporate expenses and interest) of $121 million, $115 million and $101
million in 1996, 1995 and 1994, respectively, from the lodging properties
owned by these unconsolidated partnerships. The Company also leases land to
certain of these partnerships and recognized land rent income of $22 million,
$21 million and $20 million in 1996, 1995 and 1994, respectively.
In June 1997, the Company sold to Host Marriott all of the issued and
outstanding stock of Forum Group, which owns or leases 29 senior living
communities, for aggregate consideration of approximately $550 million,
comprised of cash, notes from Host Marriott, the Company's share of
outstanding debt of Forum Group, and approximately $87 million to be received
as expansions as certain communities are completed. Marriott Senior
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Living Services, Inc., a subsidiary of the Company, manages these communities
under the Host Marriott Senior Living Management Agreements. Each Host
Marriott Senior Living Management Agreement reflects market terms and
conditions and is substantially similar to the terms of management agreements
with third-party owners regarding senior living facilities of a similar type.
On June 19, 1997, the $225 million secured credit facility under the Host
Marriott Credit Agreement was terminated by mutual consent. Under the Host
Marriott Credit Agreement, interest on outstanding balances up to $112.5
million accrued at LIBOR plus 3 percent; interest on outstanding balances from
$112.5 million to $225 million accrued at LIBOR plus 4 percent. In December
1996, Host Marriott repaid to the Company the $109 million first mortgage loan
on the Philadelphia Marriott Hotel. The Company recognized $17 million, $23
million and $24 million in 1996, 1995 and 1994, respectively in interest and
fee income under these and other credit agreements with Host Marriott.
The Company has provided, and New Marriott expects to provide in the future,
financing to Host Marriott for a portion of the cost of acquiring properties
to be operated or franchised by the Company (or by New Marriott after the
Spinoff). In this regard, the Company invested an aggregate of $80 million in
1995, principally in the form of mortgage loans. In 1996, the Company invested
$57 million in connection with Host Marriott's acquisition of a controlling
interest in two hotels (over 900 rooms) in Mexico City, Mexico, both of which
are now operated by the Company. In the aggregate, from the beginning of 1994
through the end of fiscal year 1996, Host Marriott acquired and converted 12
full-service hotels (5,000 rooms) to the Marriott brand and completed
construction of two full-service hotels (1,600 rooms) operated by the Company.
In addition, in 1996 the Company made loans aggregating $9 million for
refurbishment of lodging properties managed by the Company and owned or leased
by Host Marriott or partnerships controlled by Host Marriott. The loans bear
interest at fixed rates ranging from 8 percent to 9 percent and generally
mature within three years.
Under the Company Guarantees, the Company has guaranteed Host Marriott's
performance to lenders and other third parties. At September 12, 1997, these
guarantees are limited to $103 million applicable to guarantees by or debt
obligations of Host Marriott and guarantees of debt obligations of Host
Marriott affiliates. No payments have been made by the Company pursuant to
these guarantees.
The Company also provides certain administrative services to Host Marriott
(including the services provided to Host Marriott Services prior to the Host
Marriott Services Distribution) for which the Company was paid approximately
$19 million in 1996, $25 million in 1995 and $28 million in 1994, including
reimbursements, pursuant to the Services Agreements.
Host Marriott owns the Leisure Park at Lakewood, New Jersey senior living
community, having purchased the Company's 50 percent interest in December 1997
for approximately $8.65 million in cash and notes. In 1996, 1995 and 1994, the
Company's subsidiary that manages this facility received management fees of
$807,000, $786,000 and $334,000, respectively, from the partnership.
RELATIONSHIP BETWEEN THE COMPANY AND HOST MARRIOTT SERVICES
Until December 29, 1995, Host Marriott Services was a wholly owned
subsidiary of Host Marriott.
On that date, Host Marriott separated the Host Marriott Services businesses
from its other businesses through the Host Marriott Services Distribution to
holders of outstanding shares of Host Marriott common stock of one share of
Host Marriott Services common stock for each five shares of Host Marriott
common stock. Upon the consummation of the Host Marriott Services
Distribution, Host Marriott Services became a separate, publicly held company.
J.W. Marriott, Jr. and Richard E. Marriott and their respective immediate
family members beneficially own approximately 7.0 percent and 7.3 percent,
respectively, of the common stock of Host Marriott Services. William J. Shaw,
President and Chief Operating Officer and a Director of the Company (who will,
effective on the
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Effective Date, resign as President and Chief Operating Officer of the Company
and will become President and Chief Operating Officer and a Director of New
Marriott), is the Chairman of the Board of Host Marriott Services, and J.W.
Marriott, Jr. and Richard E. Marriott are directors of Host Marriott Services.
Certain executive officers of the Company own, in the aggregate, less than 1
percent of Host Marriott Services shares.
In connection with the Host Marriott Services Distribution, the Company and
Host Marriott Services entered into service agreements that are similar to the
Services Agreements, and in some cases Host Marriott has assigned to Host
Marriott Services, and Host Marriott Services has assumed, the applicable
Services Agreements. The Company received payments aggregating approximately
$11 million in 1996, including reimbursements, pursuant to these agreements.
In addition, the Company provides and distributes food and supplies to Host
Marriott Services, for which the Company charged $77 million in 1996, and
(prior to the Host Marriott Services Distribution) $65 million in each of 1995
and 1994.
After the Effective Date, New Marriott expects to continue the relationships
currently existing among the Company, Host Marriott and Host Marriott Services
described above.
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FINANCING
The following summary describes the anticipated material terms of (i) the
Replacement SMS Debt and (ii) the anticipated New Marriott financing.
REPLACEMENT SMS DEBT
General
Sodexho has obtained $1.355 billion in aggregate commitments from Societe
Generale and Morgan Guaranty Trust Company of New York ("Morgan Guaranty") for
the SMS Replacement Debt. The SMS Replacement Debt will consist of two
facilities to be provided by a syndicate of banks arranged by Societe Generale
and J.P. Morgan Securities Inc.: (i) a $735 million senior secured credit
facility (the "Secured SMS Facility") and (ii) a $620 million senior unsecured
guaranteed credit facility (the "Guaranteed SMS Facility"). Availability of
funds under the bank facilities is subject to customary closing conditions,
including consummation of the Transactions.
Secured SMS Facility
The Secured SMS Facility will consist of a $235 million revolving credit
facility (the "Revolving SMS Facility") and a $500 million amortizing term
loan (the "Term SMS Facility"). A subsidiary of SMS (the "Special Purpose
Subsidiary"), which after the transactions will hold the stock of MMS and ICC,
will be the borrower under the Secured SMS Facility. The Secured SMS Facility
will be secured (i) by accounts receivable and inventory of the Special
Purpose Subsidiary and certain of its subsidiaries that will guaranty the
Secured SMS Facility (the "Subsidiary Guarantors") and (ii) by a pledge of the
stock of the Special Purpose Subsidiary and the Subsidiary Guarantors. The
Revolving SMS Facility will be available to the Special Purpose Subsidiary on
a revolving basis and will terminate and be payable in full six years after
the initial funding date. The Term SMS Facility will be available to the
Special Purpose Subsidiary in one or more drawdowns, but the amounts available
for borrowing thereunder will be reduced by the face amount of any Company
Senior Notes that remain outstanding as obligations of SMS after the tender
offer described under "THE TRANSACTIONS--Debt Refinancings--Debt Tender Offers
by the Company." The Term SMS Facility will be payable in quarterly
installments of: $17.5 million from November 1998 through August 1999, $20
million from November 1999 through February 2002, $25 million from May 2002
through February 2003 and $32.5 million from May 2003 through February 2004
(which amounts will be reduced pro rata if the Term SMS Facility is reduced as
described above). Mandatory principal prepayments will be required under
certain circumstances, including prepayments equal to 50 percent of net cash
proceeds from equity issuances (other than equity contributions from Sodexho)
and 50 percent of annual Excess Cash Flow (as defined in the Secured SMS
Facility) in excess of $5 million commencing in 1999 (although in these two
circumstances, such prepayments will not be required if the ratio of SMS's
consolidated debt to EBITDA (as defined in the Secured SMS Facility) is less
than 3.0 to 1 for two consecutive fiscal quarters or if SMS's senior unsecured
debt receives an investment grade rating from Standard & Poor's Corporation or
Moody's Investors Services, Inc.). In addition to customary fees payable to
the arrangers and administrative agent of the Secured SMS Facility, the
Special Purpose Subsidiary will pay to the administrative agent for the
account of the lenders a ticking fee of 25 basis points (which increases to
37.5 basis points on May 1, 1998) per annum on the full amount of commitments
under the Secured SMS Facility for the period from February 27, 1998 until the
date of initial funding. In addition, the Special Purpose Subsidiary will pay
to the administrative agent for the account of the lenders a commitment fee of
37.5 basis points per annum (which decreases to 25 basis points per annum when
SMS's consolidated debt to EBITDA (as defined in the Secured SMS Facility) is
less than 3.0) on the unused portion of the Secured SMS Facility from the date
of the initial funding. The loans outstanding under the Secured SMS Facility
will bear interest at a rate per annum equal, at the election of SMS, to
either (i) a base rate, which is the higher of Morgan Guaranty's prime rate
and 0.50 percent per annum over the federal funds rate, and (ii) the London
interbank offered rate for Eurodollar deposits ("LIBOR") plus a margin, which
ranges from 112.5 to 37.5 basis points depending on the ratio of SMS's total
consolidated debt to EBITDA (as defined in the Secured SMS Facility) but is
fixed at 112.5 basis points until the first anniversary of the initial
funding.
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Guaranteed SMS Facility
SMS will be the borrower under the Guaranteed SMS Facility, which will be
guaranteed by Sodexho. SMS will pay Sodexho a guarantee fee equal to 0.50
percent per annum of the outstanding principal amount of indebtedness under
the Guaranteed SMS Facility. The Guaranteed SMS Facility will be available for
a single drawdown on the Effective Date, with any amount undrawn at that time
to be automatically canceled, and will mature on the seventh anniversary of
the Effective Date. In addition to customary fees payable to the arrangers and
administrative agent of the Guaranteed SMS Facility, SMS will pay to the
administrative agent for the account of the lenders a ticking fee of 25 basis
points per annum (which increases to 37.5 basis points per annum on May 1,
1998) on the full amount of commitments under the Guaranteed SMS Facility for
the period from February 27, 1998 until the date of funding under the
Guaranteed SMS Facility. The amount outstanding under the Guaranteed SMS
Facility will bear interest at a rate per annum equal, at the election of SMS,
to either (i) a base rate, which is the higher of Morgan Guaranty's prime rate
and 0.50 percent per annum over the federal funds rate, and (ii) LIBOR plus a
margin, which ranges from 112.5 to 35 basis points depending on Sodexho's
senior unsecured debt rating, but which is fixed at 45 basis points until the
first anniversary of the funding date.
Depending on market conditions prior to the closing of the Transactions,
Sodexho may, instead of drawing under the Guaranteed SMS Facility, raise funds
through an offering of debt securities of SMS under Rule 144A and Regulation S
under the Securities Act (the "Rule 144A Securities"). Such debt issuance
would be expected to consist of $620 million 7-year and 10-year fixed rate
senior notes guaranteed by Sodexho.
Interest Rate Hedging
SMS expects that it, or the Special Purpose Subsidiary, will enter into
interest rate hedging arrangements with respect to a portion of the debt under
the Secured SMS Facility and, if it is drawn, the Guaranteed SMS Facility.
Covenants
The Secured SMS Facility and the Guaranteed SMS Facility (or, if applicable,
the Rule 144A Securities) will contain certain affirmative and restrictive
covenants. The Secured SMS Facility will impose limitations (subject to
certain exceptions) on SMS and its subsidiaries with respect to: (i) the
incurrence of indebtedness, liens, operating leases and guarantees; (ii)
mergers, consolidations and sales of businesses or fixed or capital assets;
(iii) formation of subsidiaries; (iv) liquidation and dissolution; (v)
dividends in certain circumstances; (vi) investments, loans and advances;
(vii) capital expenditures in excess of a specified amount; (viii)
transactions with affiliates; (ix) changes in lines of business; (x)
amendments to agreements with Sodexho; (xi) changes in fiscal year; and (xii)
negative pledge clauses. The Guaranteed SMS Facility will impose some, but not
all, of these limitations on SMS. Under the Secured SMS Facility, the Special
Purpose Subsidiary will also be required to satisfy financial covenants
measured on the basis of consolidated balance sheet and income statement
information derived from SMS's financial statements consisting of minimum
fixed charge coverage and interest coverage ratios, a minimum adjusted net
worth and a maximum ratio of debt to EBITDA (as defined in the Secured SMS
Facility). Under the Guaranteed SMS Facility, SMS will be required to satisfy
financial covenants consisting of a minimum interest coverage ratio and a
maximum ratio of debt to EBITDA (as defined in the Guaranteed SMS Facility),
while Sodexho will be required to satisfy financial covenants consisting of a
maximum ratio of net debt to equity and a minimum ratio of earnings before
interest and taxes to interest expense.
Events of Default
The Secured SMS Facility will contain customary events of default, including
nonpayment of principal or interest when due, material inaccuracy of
representations and warranties, violation of covenants, cross default to other
indebtedness of SMS or its subsidiaries and insolvency or bankruptcy of SMS or
its subsidiaries. The Guaranteed SMS Facility will contain similar events of
default relating to SMS and its subsidiaries and, to a lesser extent, Sodexho
and its subsidiaries. In addition, under both the Secured SMS Facility and the
Guaranteed SMS Facility, it is an event of default if Sodexho ceases to hold
at least 40.01 percent of the voting stock of SMS, or if any party other than
Sodexho and its subsidiaries and affiliates acquires control of more than 50
percent of the voting stock of SMS.
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Sodexho and SMS have agreed that if (i) the conditions set forth in the
Transaction Documents to the performance by Sodexho of its obligations on the
Effective Date are otherwise satisfied, (ii) the Replacement SMS Debt is not
arranged and available for the Acquisition and refinancing and (iii) the
closing of the Transactions fails to occur (other than because of a breach by
any Company Party of any Transaction Documents), the Sodexho Parties will be
in material breach of the Restructuring Agreements and the Company, New
Marriott and Merger Sub will have the remedies set forth in the Restructuring
Agreements. See "THE TRANSACTIONS--Termination Fees; Expenses."
NEW MARRIOTT CREDIT FACILITY
New Marriott has obtained commitments for a $1.5 billion multicurrency
revolving credit facility with a $500 million letter of credit sublimit (the
"New Marriott Facility") from a group of commercial banks for its use after
the Transactions. Citibank, N.A. will serve as Administrative Agent; Citicorp
Securities, Inc. will serve as Arranger; The Bank of Nova Scotia will serve as
Documentation Agent and Letter of Credit Agent; and The Chase Manhattan Bank
and The First National Bank of Chicago will serve as Managing Agents. The New
Marriott Facility will not be secured and any borrowings thereunder will be
senior indebtedness on a parity with other senior indebtedness of New
Marriott. The lenders' commitments will be for a five-year term. Advances will
bear interest at a rate per annum equal, at the option of New Marriott, to a
"base rate" equal to Citibank, N.A.'s publicly announced base rate (or if
higher, 0.5 percent above a recent average of certificate of deposit rates or
0.5 percent above the overnight federal funds rate), or LIBOR plus a margin,
which ranges from 45 to 13.5 basis points, depending on New Marriott's senior
unsecured debt ratings. A facility fee on the unused commitment will be
charged to New Marriott, ranging from 22.5 basis points to 7.5 basis points,
depending on New Marriott's senior unsecured debt ratings. The New Marriott
Facility will be evidenced by a loan agreement to which each participating
lender will be a party.
The loan agreement is expected to contain certain covenants, including
covenants that will (i) limit the incurrence of indebtedness for borrowed
money and guarantees of indebtedness and (ii) limit the amount of mortgages or
other liens securing indebtedness for borrowed money. The Company expects that
any indebtedness outstanding under the New Marriott Facility and/or any
remaining commitment under the New Marriott Facility will become due and
payable or canceled should certain events of default occur, including a
failure to pay interest and principal or commitment fees when due, certain
insolvency events, including a filing for protection under bankruptcy laws, a
failure to comply with the various covenants noted above or the occurrence of
certain events of default under other loan agreements to which New Marriott
may be subject. Such indebtedness is also expected to be prepayable in full at
the election of the lenders upon a change in control of New Marriott.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTIONS TO THE COMPANY AND
ITS STOCKHOLDERS
The following summary of the federal income tax consequences of the Spinoff
and the Acquisition is for general reference only and does not purport to
cover all federal income tax consequences that may apply to all categories of
stockholders. The treatment applicable to a stockholder may vary depending
upon the stockholder's particular situation, and certain stockholders
(including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, and persons who are not citizens or residents
of, or organized in, the United States) may be subject to special rules not
discussed below. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE
TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES IN APPLICABLE TAX LAWS.
CONSEQUENCES OF THE SPINOFF
The Company has conditioned the Spinoff, which itself is a condition to the
Acquisition, on the receipt of a satisfactory private letter ruling from the
IRS. See "RISK FACTORS--Certain Tax Considerations." The Company has requested
a ruling from the IRS to the effect that the Spinoff will qualify as a tax-
free reorganization under Section 368(a)(1)(D) of the Code and a tax-free
distribution under Section 355 of the Code, and therefore that, among other
things:
(1) No gain or loss will be recognized by (and no amount will be included
in the income of) a holder of Company Common Stock upon the receipt of New
Marriott Common Stock in the Spinoff.
(2) No gain or loss will be recognized by the Company upon its
distribution of New Marriott Common Stock in the Spinoff.
(3) The aggregate basis of the Company Common Stock and the New MAR
Common Stock and New MAR-A Common Stock in the hands of the stockholders of
the Company immediately after the Spinoff will be the same as the aggregate
basis of the Company Common Stock held immediately before the Spinoff,
allocated in proportion to the fair market value of each.
(4) The holding period of the New MAR Common Stock and New MAR-A Common
Stock received by the stockholders of the Company will include the holding
period of the Company Common Stock with respect to which the Spinoff will
be made, provided that such stockholder held the Company Common Stock as a
capital asset on the Effective Date.
Even if such a ruling is obtained, it should be noted that private letter
rulings, while generally binding upon the IRS, are subject to certain factual
representations and assumptions. If such factual representations and
assumptions were incorrect in any material respect, the ability to rely on
such a ruling would be jeopardized. The Company is not aware of any facts or
circumstances that would cause such representations and assumptions to be
untrue. The Company, New Marriott and Sodexho have agreed to certain
restrictions on their future actions to provide further assurances that the
Spinoff will have Tax-Free Status. See "THE TRANSACTIONS--Arrangements Between
SMS and New Marriott--Tax Sharing Agreement."
Although the Company believes that the rulings it has requested are
consistent with the Code and the authorities thereunder, it is not certain
whether the IRS will issue a tax ruling that is satisfactory to the Company,
Sodexho and New Marriott. The Company Board has the discretion, which may be
exercised with the consent of Sodexho, to waive the requirements for the
receipt of the tax ruling as a condition to the Company's obligations to
proceed with the Transactions. In such event, the Company will resolicit
stockholders to disclose the waiver of this condition and provide stockholders
with all relevant disclosure related thereto.
For a description of the tax consequences of the Spinoff to the Company, New
Marriott, and the stockholders if the transaction were not to qualify as tax-
free, see "RISK FACTORS--Certain Tax Considerations." For a description of the
Tax Sharing Agreement pursuant to which the Company, New
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<PAGE>
Marriott, and Sodexho have provided for various tax matters, see "THE
TRANSACTIONS--Arrangements Between SMS and New Marriott--Tax Sharing
Agreement."
CONSEQUENCES OF THE ACQUISITION
Pursuant to the Acquisition Agreement, the Company will acquire Sodexho
North America, and Sodexho will pay $304 million to the Company, in exchange
for approximately 49 percent of the outstanding stock of the Company. For
federal income tax purposes no gain or loss will be recognized by the Company
as a result of the Acquisition in exchange for shares of the Company. No
ruling or opinion has been sought with respect to any aspect of the
Acquisition.
CONSEQUENCES OF SMS REVERSE STOCK SPLIT
The receipt of shares of SMS Common Stock in the SMS Reverse Stock Split
will be a nontaxable transaction to the holders of Company Common Stock under
the Code for federal income tax purposes. Consequently, a stockholder
receiving shares of SMS Common Stock will not recognize either gain or loss,
or any other type of income, with respect to whole shares of SMS Common Stock
received as a result of the SMS Reverse Stock Split. In addition, the
aggregate tax basis of such stockholder's shares of Company Common Stock prior
to the SMS Reverse Stock Split will carry over as the tax basis of the
stockholder's shares of SMS Common Stock. Each stockholder will be required to
allocate such stockholder's basis in such stockholder's shares of Company
Common Stock ratably among the total number of shares of SMS Common Stock
owned following the SMS Reverse Stock Split. The holding period of the shares
of SMS Common Stock will also include the holding period during which the
stockholder held the Company Common Stock, provided that such Company Common
Stock was held by the stockholder as a capital asset on the Effective Date.
The receipt by an SMS stockholder of cash in lieu of a fractional share of
SMS Common Stock pursuant to the SMS Reverse Stock Split will be a taxable
transaction for federal income tax purposes. The receipt of cash in lieu of
fractional shares of SMS Common Stock will generally result in gain or loss
(rather than dividend income) measured by the difference between the amount of
cash received and the adjusted basis of the fractional share assuming, as the
Company believes, that such cash distribution is undertaken solely for the
purpose of saving the Company the expense and inconvenience of issuing and
transferring fractional shares of SMS Common Stock. Holders of fractional
shares of SMS should consult their own tax advisors about the treatment of
capital gain or loss.
Based on certain exceptions contained in regulations issued by the IRS, the
Company does not believe that it or holders of fractional shares of SMS will
be subject to backup withholding or information reporting with respect to the
cash distributed to such holders, and therefore does not intend to backup
withhold or provide information reports with respect to the cash so
distributed.
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MARKETS AND MARKET PRICES
The Company Common Stock is listed under the symbol "MAR" on the NYSE and
certain other U.S. exchanges. On January 28, 1998, there were 50,758 holders
of record of Company Common Stock. On September 30, 1997, the last trading
date prior to the joint public announcement by the Company and Sodexho of the
signing of the Restructuring Agreements, the last reported sale price on the
NYSE Composite Tape was $71 1/8 per share of Company Common Stock. On February
, 1998, the last reported sale price on the NYSE Composite Tape was $ per
share of Company Common Stock.
Application will be made by New Marriott to list the New MAR Common Stock
and the New MAR-A Common Stock on the NYSE and other U.S. exchanges. No
assurance can be given that the New MAR Common Stock or the New MAR-A Common
Stock will satisfy the listing criteria of the NYSE or another national
securities exchange. It is expected that the SMS Common Stock will continue to
be listed on the NYSE and other U.S exchanges. No assurance can be given that
the SMS Common Stock will continue to satisfy the listing criteria of the NYSE
or such other exchanges. Unless orderly markets in New Marriott Common Stock
and SMS Common Stock develop, the trading prices of such securities may
fluctuate significantly.
The following table sets forth, for the fiscal quarters indicated, the range
of high and low sale prices of, and dividends declared per share for, the
Company Common Stock as reported on the NYSE Composite Tape.
<TABLE>
<CAPTION>
STOCK PRICE DIVIDENDS
--------------- DECLARED
DATE HIGH LOW PER SHARE
---- ------- ------- ---------
<S> <C> <C> <C>
First Quarter 1996............................. $52 5/8 37 1/4 0.08
Second Quarter 1996............................ 50 44 1/4 0.08
Third Quarter 1996............................. 57 3/8 48 3/8 0.08
Fourth Quarter 1996............................ 59 7/8 51 3/8 0.08
First Quarter 1997............................. 57 1/4 49 5/8 0.08
Second Quarter 1997............................ 64 1/8 49 5/8 0.09
Third Quarter 1997............................. 71 3/4 60 0.09
Fourth Quarter 1997............................ 76 3/4 65 1/8 0.09
</TABLE>
STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR COMPANY
COMMON STOCK.
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<PAGE>
SECURITY OWNERSHIP OF THE COMPANY AND SMS
The following table sets forth information as to the shares of Company
Common Stock beneficially owned (or deemed to be beneficially owned pursuant
to the rules of the SEC) as of October 15, 1997, by each current director of
the Company, each person who will be a director of SMS after the Effective
Date, each of the executive officers of the Company in the Summary
Compensation Table included elsewhere herein (the "Named Executive Officers"),
directors and executive officers of the Company as a group, directors of SMS
as a group, and beneficial holders of five percent or more of outstanding
Common Stock of the Company and, after the Effective Date, of SMS. Share
information following consummation of the Transactions takes into account the
one-for-four SMS Reverse Stock Split.
<TABLE>
<CAPTION>
PRIOR TO TRANSACTIONS--
THE COMPANY FOLLOWING TRANSACTIONS--SMS
-------------------------------- ---------------------------------
SHARES OF
COMPANY PERCENT OF SHARES OF SMS PERCENT OF
COMMON STOCK COMMON COMMON STOCK COMMON
BENEFICIALLY STOCK BENEFICIALLY STOCK
NAME OWNED OUTSTANDING(1) OWNED OUTSTANDING(1)
- ---- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
COMPANY DIRECTORS:
J.W. Marriott, Jr...... 13,481,733(2)(3) 10.5 3,370,433(2)(3) 5.4
Richard E. Marriott.... 12,963,096(2)(4) 10.2 3,240,774(2)(4) 5.2
Dr. Henry Cheng Kar-
Shun.................. 1,300 * 325 *
Gilbert M. Grosvenor... 2,100 * 525 *
Floretta Dukes
McKenzie.............. 435 * 108 *
Harry J. Pearce........ 5,000 * 1,250 *
W. Mitt Romney......... 5,000 * 1,250 *
Roger W. Sant.......... 10,000 * 2,500 *
William J. Shaw........ 624,762(5) * 156,190(5) *
Lawrence M. Small...... 42,500(6) * 10,625(6) *
COMPANY NAMED EXECUTIVE
OFFICERS:
Joseph Ryan............ 59,819(5) * 14,954(5) *
Michael A. Stein....... 101,427(5) * 25,356(5) *
William R. Tiefel...... 440,601(5)(7) * 110,150(5)(7) *
ALL COMPANY DIRECTORS
AND EXECUTIVE OFFICERS
AS A GROUP (21
INCLUDING THE
FOREGOING)............. 24,207,398(2)(8) 19.0 6,051,849(2)(8) 9.8
SMS DIRECTORS:
William J. Shaw........ 624,762(5) * 156,190(5) *
Charles D. O'Dell...... 96,805(5) * 24,201
Pierre Bellon.......... -- -- 29,711,665(9) 48.2
Bernard Carton......... -- -- -- --
Edouard de Royere...... -- -- -- --
John W. Marriott III... 247,175(10) * 61,793 *
Daniel J. Altobello.... 16,000(11) * 4,000 *
Doctor R. Crants....... -- * -- *
ALL SMS DIRECTORS AS A
GROUP.................. 984,742 * 246,185 *
OTHER BENEFICIAL OWNERS
OF MORE THAN 5% OF THE
OUTSTANDING COMPANY OR
SMS STOCK:
Sodexho Alliance,
S.A.(12).............. -- -- 29,711,665 48.2
</TABLE>
- --------
*Less than 1 percent
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<PAGE>
(1) Based on the number of shares outstanding at, plus the number of shares
acquirable by the specified person(s) within 60 days of, October 15,
1997. Share ownership of SMS following the Transactions reflects the
issuance to Sodexho of 29,711,665 shares, after taking into account the
one-for-four SMS Reverse Stock Split. Share ownership by directors and
officers does not give effect to conversion of employee stock options and
other stock awards, which will depend on the trading prices of the
Company Common Stock immediately prior to, and the trading prices of the
New Marriott Common Stock and the SMS Common Stock immediately following,
the Spinoff.
Note: Share amounts in footnotes 2-10 do not give effect to the SMS
Reverse Stock Split.
(2) Includes: 1,575,020 shares held by J.W. Marriott, Jr. and Richard E.
Marriott as co-trustees of 16 trusts for the benefit of their children
and 2,536,787 shares owned by The J. Willard Marriott Foundation, a
charitable foundation in which J.W. Marriott, Jr., Richard E. Marriott
and their mother serve as co-trustees. These shares are reported as
beneficially owned by both J.W. Marriott, Jr. and Richard E. Marriott,
but are included only once in reporting the number of shares owned by all
directors, nominees and executive officers as a group. The shares
included herein do not include: (i) 1,964,630 shares owned and controlled
by certain other members of the Marriott family, (ii) 1,667,385 shares
held by a charitable annuity trust, created by the will of J. Willard
Marriott, in which J.W. Marriott, Jr. and Richard E. Marriott have a
remainder interest and in which their mother is trustee, or (iii) 125,401
shares held by the adult children of J.W. Marriott, Jr. and Richard E.
Marriott, as trustees of 25 trusts established for the benefit of the
grandchildren of J.W. Marriott, Jr. and Richard E. Marriott.
(3) Includes, in addition to the shares referred to in footnote (2): (i)
954,250 shares subject to options exercisable within 60 days, (ii)
402,430 shares held as trustee of two trusts for the benefit of Richard
E. Marriott, (iii) 68,213 shares owned by J.W. Marriott, Jr.'s wife (Mr.
Marriott disclaims beneficial ownership of such shares), (iv) 670,267
shares owned by four trusts for the benefit of J.W. Marriott, Jr.'s
children, in which his wife serves as a co-trustee, (v) 21,559 shares
owned by six trusts for the benefit of J.W. Marriott, Jr.'s
grandchildren, in which his wife serves as a co-trustee, (vi) 80,000
shares owned by JWM Associates Limited Partnership, whose general partner
is J.W. Marriott, Jr. and (vii) 2,707,590 shares owned by Family
Enterprises whose general partner is a corporation in which J.W.
Marriott, Jr. is a controlling stockholder.
(4) Includes, in addition to the shares referred to in footnote (2): (i)
55,700 shares subject to options exercisable within 60 days, (ii) 299,689
shares held as trustee of two trusts established for the benefit of J.W.
Marriott, Jr., (iii) 68,006 shares owned by Richard E. Marriott's wife,
(iv) 603,828 shares owned by four trusts for the benefit of Richard E.
Marriott's children, in which his wife serves as a co-trustee, and (v)
2,302,729 shares owned by First Media Limited Partners, whose general
partner is a corporation in which Richard E. Marriott is the controlling
stockholder.
(5) Includes shares of unvested restricted stock awarded under the Company
Stock Plans, as follows: Mr. Ryan: 32,000 shares; Mr. Stein: 15,000
shares; Mr. Shaw: 27,000 shares; Mr. Tiefel: 24,000 shares; and Mr.
O'Dell: 7,000 shares. Shares of restricted stock are voted by the holder
thereof.
(6) Includes 2,000 shares held by two trusts for the benefit of non-family
members in which Mr. Small is trustee and 500 shares held by Mr. Small as
custodian for a non-family member minor child. Mr. Small disclaims
beneficial ownership of all such shares.
(7) Includes 10,000 shares held by Mr. Tiefel's wife. Mr. Tiefel disclaims
beneficial ownership of such shares.
(8) All directors, nominees and executive officers as a group (other than
J.W. Marriott, Jr. and Richard E. Marriott) beneficially owned an
aggregate of 1,874,376 shares or 1.5 percent of Company Common Stock
outstanding as of October 15, 1997.
(9) Represents shares of SMS Common Stock to be issued to Sodexho upon
consummation of the Transactions. Bellon S.A., a privately held
corporation, beneficially owns approximately 42 percent of Sodexho. Mr.
Bellon and members of his family beneficially own approximately 68
percent of Bellon S.A., and subsidiaries of Sodexho beneficially own
approximately 19 percent of Bellon S.A.
(10) Includes: (i) 7,850 shares subject to options exercisable within 60 days,
and (ii) 10,380 shares held by three trusts for the benefit of John
Marriott's children, in which his wife and Mrs. J.W. Marriott, Jr. serve
as co-trustees. These shares are reported as beneficially owned by both
John Marriott and J.W. Marriott, Jr., but are included only once in
reporting the number of shares owned by all directors, nominees and
executive officers as a group. The shares do not include 365,420 shares
held by J.W. Marriott, Jr. and Mrs. J.W. Marriott, Jr., as co-trustees of
two trusts established for the benefit of John Marriott (such shares are
included in footnotes (2) and (3)).
(11) Includes 1,600 shares held by Mr. Altobello's wife. Mr. Altobello
disclaims beneficial ownership of such shares.
(12) Represents approximate number of shares of SMS Common Stock to be issued
to Sodexho upon consummation of the Transactions based upon shares
outstanding at October 15, 1997. Sodexho's address is 3, avenue Newton,
78180 Montigny-Le-Brettoneux, France. For information on the beneficial
ownership of Sodexho, see Note 9 above.
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DESCRIPTION OF THE SMS CAPITAL STOCK
The following description of the capital stock of SMS is based on the SMS
Amended and Restated Certificate of Incorporation (the "SMS Charter") and its
Amended and Restated Bylaws (the "SMS Bylaws"), which are to be in effect as
of the Effective Date. The SMS Charter will replace the Company's restated
certificate of incorporation and the SMS Bylaws will replace the Company's
restated bylaws (the "Company Charter" and "Company Bylaws," respectively).
The following description is qualified in its entirety by reference to the SMS
Charter (attached hereto as Appendix H) and the SMS Bylaws (attached hereto as
Appendix I).
GENERAL
As of the Effective Date, the SMS Charter will authorize the issuance of 300
million shares of SMS Common Stock, and 1 million shares of preferred stock,
without par value ("SMS Preferred Stock"). As of the Special Meeting Record
Date, approximately 125.4 million shares of Company Common Stock were issued
and outstanding, which represents approximately 31.4 million shares of SMS
Common Stock after giving effect to the proposed SMS Reverse Stock Split.
Based on share information as of the Special Meeting Record Date, SMS expects
to issue approximately 29.2 million shares of SMS Common Stock to Sodexho in
connection with the Acquisition, after giving effect to the proposed SMS
Reverse Stock Split. Upon consummation of the Transactions, after giving
effect to the issuance of SMS Common Stock to Sodexho and the SMS Reverse
Stock Split, approximately 60.5 million shares of SMS Common Stock will be
outstanding. All outstanding shares of SMS Common Stock are, and such shares
when issued to Sodexho will be, fully paid and non-assessable.
COMMON STOCK
Voting Rights
Holders of SMS Common Stock will be entitled to one vote per share on all
matters voted on generally by the stockholders, including the election of
directors, and except as otherwise required by law or except as provided with
respect to any series of SMS Preferred Stock, the holders of such shares will
possess all voting power. Because the SMS Charter will not provide for
cumulative voting rights, the holders of a plurality of the voting power of
the then outstanding shares of capital stock entitled to be voted generally in
the election of directors represented at a meeting will be able to elect all
the directors standing for election at such meeting.
Dividend Rights; Rights Upon Liquidation
Subject to any preferential rights of holders of any SMS Preferred Stock
that may be outstanding, holders of shares of SMS Common Stock will be
entitled to receive dividends on such stock out of assets legally available
for distribution when, as and if authorized and declared by the SMS Board and
to share ratably in the assets of SMS legally available for distribution to
its stockholders in the event of its liquidation, dissolution or winding-up.
Transfer Restriction
The SMS Charter will contain a restriction on the transfer or issuance of
SMS Common Stock. Such restriction will provide that, during the three-year
period following the Spinoff, any transfer or issuance of equity securities of
SMS (including SMS Common Stock) that would result in any person or persons
acting pursuant to a plan (or a series of related transactions) having
beneficial ownership of 50 percent or more of the outstanding equity
securities of SMS will be void ab initio. The purpose of such restriction is
to protect the Tax-Free Status of the Spinoff. Such restriction will not apply
to any such transfer or issuance if the SMS Board receives a ruling from the
IRS satisfactory to the SMS Board, or an opinion of counsel satisfactory to
the SMS Board and New Marriott, that such transfer or issuance will not
adversely effect the Tax-Free Status of the Spinoff.
Miscellaneous
Holders of SMS Common Stock will have no preferences or preemptive,
conversion or exchange rights. Shares of SMS Common Stock will not be liable
for further calls or assessments by SMS, and the holders of
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SMS Common Stock will not be liable for any liabilities of SMS. First Chicago
Trust Company of New York will act as Transfer Agent and registrar for the SMS
Common Stock.
Rights Plan
For a description of the preferred stock purchase rights that attach to each
outstanding share of SMS Common Stock, see "CERTAIN ANTITAKEOVER PROVISIONS
APPLICABLE TO SMS."
PREFERRED STOCK
The SMS Charter will authorize the SMS Board to provide for the issuance,
from time to time, of SMS Preferred Stock in series, and to fix the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereon. Because the SMS
Board will have the power to establish the preferences and rights of the
shares of any such series of SMS Preferred Stock, it may afford holders of any
SMS Preferred Stock voting rights and preferences, powers and rights senior to
the rights of SMS Common Stock, which could adversely affect the rights of
holders of SMS Common Stock. No shares of SMS Preferred Stock will be
outstanding directly following the Transactions. As of the Effective Date,
however, 300,000 shares of Series A Junior Participating Preferred Stock of
SMS ("SMS Junior Preferred Stock") will have been authorized and reserved for
issuance in connection with the Company Rights Plan.
COMPARISON OF STOCKHOLDERS' RIGHTS UPON AMENDMENT OF THE COMPANY CHARTER AND
COMPANY BYLAWS
Proposal One relates in part to approval of the amendment and restatement of
the Company Charter and Company Bylaws. The rights of the Company's
stockholders are currently governed by the DGCL, the Company Charter and the
Company Bylaws. In the event the Transactions are approved by the Company's
stockholders, at the Effective Date the rights of the Company's stockholders
will be governed by the DGCL, the SMS Charter and the SMS Bylaws. Set forth
below is a summary of the material changes in the SMS Charter and SMS Bylaws
from the Company Charter and Company Bylaws. This summary does not purport to
be complete and is qualified in its entirety by reference to the relevant
provisions of the DGCL, the Company Charter, the Company Bylaws, the SMS
Charter and the SMS Bylaws. Copies of the SMS Charter and the SMS Bylaws are
attached hereto as Appendix H and Appendix I, respectively, and are
incorporated by reference herein. Copies of the Company Charter and the
Company Bylaws are available for inspection at the principal office of the
Company and will be sent to stockholders upon request.
Name of the Company
The name of the Company will be changed to "Sodexho Marriott Services, Inc."
Capitalization
The Company Charter authorizes the issuance of 300 million shares of common
stock and 1 million shares of preferred stock. The SMS Charter will provide
for the SMS Reverse Stock Split. See "--SMS Reverse Stock Split." The SMS
Reverse Stock Split will not affect the number of authorized shares.
Board of Directors
The Company Bylaws provide that the number of directors will be fixed from
time to time by the Company Board, but will not be less than three. The
Company currently has ten directors, divided into classes consisting of three,
three and four directors, respectively, with terms expiring at the annual
meetings of stockholders to be held in 1998, 1999 and 2000, respectively.
Thereafter directors hold office for a term expiring at the third succeeding
annual meeting of stockholders after their election. The SMS Bylaws will
provide that the number of directors will be fixed from time to time by the
SMS Board, but will not be less than three nor more than nine. The Stockholder
Agreement, however, provides that for the first three years after the
Effective Date the SMS Board will have eight members. Under the SMS Bylaws,
all directors will be elected each year at the annual
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meeting of stockholders. Pursuant to the Stockholder Agreement, Sodexho will
have the right to nominate three directors to the SMS Board. See "THE
TRANSACTIONS--Arrangements between Sodexho and SMS--Stockholder Agreement."
The Company Charter and Company Bylaws provide that directors may be
removed, with or without cause, only with the approval of the holders of at
least 66 2/3 percent of the voting power of the shares entitled to vote for
election of directors (the "voting stock"), voting together as a single class.
Under the SMS Bylaws, a majority of the voting stock will be sufficient to
effect such removal.
Meetings of Directors
The Company Bylaws provide that special meetings of the Company Board may be
called by the Chairman of the Company Board, the President or the Secretary on
the written request of any two directors. Forty-eight hours' notice is
required if delivered by mail; twenty-four hours' notice if delivered by
telephone; or shorter notice if deemed appropriate. The SMS Bylaws will
provide that special meetings of the SMS Board may be called by the Chairman
of the SMS Board or the President, and will be called by the Chairman of the
SMS Board, the President or the Secretary on the written request of three
directors. Three days' notice will be required.
Under the Company Bylaws, a number of directors that is not less than one-
third of the total number of the full board nor less than two constitutes a
quorum for the transaction of business. Under the SMS Bylaws, a majority of
the total number of directors will constitute a quorum.
Committees
The Company Bylaws and the SMS Bylaws each provide generally for the
creation of committees by majority vote of the Board. Committees of the
Company must consist of two or more directors; committees of SMS will require
one or more directors. In addition, the SMS Bylaws will specifically provide
for the creation of a compensation committee and an audit committee.
Special Meetings of Stockholders
The Company Charter provides that special meetings of stockholders may be
called only by the Company Board pursuant to a resolution approved by a
majority of the entire Company Board. The SMS Bylaws will provide that special
meetings of stockholders may be called by the SMS Board or the Chairman of the
SMS Board, and will be called by the Secretary at the request in writing of
holders of record of a majority of the outstanding capital stock of SMS
entitled to vote.
Action of Stockholders
The Company Charter provides that any action by stockholders must be
effected at an annual or special meeting of stockholders and may not be
effected by written consent. The SMS Bylaws will provide that stockholders may
act by written consent provided that such consent is signed by stockholders
having not less than the minimum number of votes that would be necessary to
take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
Advance Notice of Stockholder-Proposed Business
The Company Bylaws provide that a stockholder must give timely written
notice to the Secretary of the Company if the stockholder intends to bring any
business before a meeting of stockholders or to make nominations for the
Company Board. The Company's advance notice provisions require stockholders to
give such written notice not later than (i) 120 days before an annual meeting
(or 90 days, in the case of nominations) or (ii) seven days following the date
on which notice of a special meeting is first given to stockholders, as
applicable. The advance notice provisions in the SMS Bylaws require
stockholders to give such written notice
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not less than 90 days nor more than 120 days prior to a stockholder meeting
(or, if less than 100 days' notice is given of a stockholder meeting, 10 days
after the notice of such meeting).
Special Approval for Certain Transactions
The Company Charter contains a provision requiring approval by the holders
of 66 2/3 percent of the voting stock for mergers and certain other business
combinations involving the Company and any holder of more than 25 percent of
such voting power unless the transaction (i) is approved by a majority of the
members of the Company Board who are not affiliated with such stockholder and
who were directors before such stockholder held more than 25 percent of the
voting stock of the Company or (ii) meets certain minimum price and procedural
requirements. The SMS Charter will not contain such a provision. As a result,
to the extent stockholder approval is required under applicable law, such
actions will be able to be taken by the affirmative vote of a majority of the
outstanding stock entitled to vote thereon in accordance with the DGCL.
The Company Charter requires the approval of shares representing at least 66
2/3 percent of the Company's voting power for any proposal for the Company to
reorganize, merge or consolidate with any other corporation, or sell, lease or
exchange substantially all of its assets or business. The SMS Charter will not
contain such a requirement. As a result, to the extent stockholder approval is
required under applicable law, such actions will be able to be taken by the
affirmative vote of a majority of the outstanding stock entitled to vote
thereon in accordance with the DGCL.
Restriction on Transfer
The SMS Charter will contain a restriction on the transfer or issuance of
SMS Common Stock. Such restriction will provide that, during the three-year
period following the Spinoff, any transfer or issuance of equity securities of
SMS (including SMS Common Stock) that would result in any Person or Persons
acting pursuant to a plan (or a series of related transactions) having
beneficial ownership of 50 percent or more of the outstanding equity
securities of SMS will be void ab initio. The purpose of such restriction is
to protect the tax-free status of the Spinoff. Such restriction will not apply
to any such transfer or issuance if the SMS Board receives a ruling from the
IRS satisfactory to the SMS Board, or an opinion of counsel satisfactory to
the SMS Board and New Marriott, that such transfer or issuance will not
adversely effect the tax-free status of the Spinoff. The Company Charter does
not contain such a restriction.
Amendments of Governing Documents
The Company Charter requires the approval of 66 2/3 percent of the voting
stock to amend or repeal, or adopt provisions inconsistent with, certain
provisions of the Company Charter. These provisions relate to the election of
directors, actions by stockholders, 66 2/3 percent supermajority voting
requirements to amend the Company Bylaws, business combinations with holders
of more than 25 percent of the voting stock of the Company, and approval of
mergers and asset sales. The SMS Charter will provide that, except as provided
below, the SMS Charter may be amended in accordance with the DGCL, and as a
result any amendment to the SMS Charter will be able to be adopted, upon
proposal by the SMS Board, by a majority of the outstanding stock entitled to
vote thereon. For a period of three years following the Spinoff, the
provisions of the SMS Charter containing restrictions on transfer may only be
amended upon the affirmative vote of two-thirds of the members of the full SMS
Board and holders of two-thirds of the outstanding shares of SMS Common Stock.
The Company Charter and the Company Bylaws require the approval of 66 2/3
percent of the voting stock to amend or repeal, or adopt provisions
inconsistent with, certain provisions of the Company Bylaws. These provisions
relate to election of directors, vacancies, nomination of directors, notices,
amendments to the Company Bylaws, prohibition on stockholder action by written
consent and limitations on the calling of special stockholder meetings. The
SMS Charter and SMS Bylaws will permit amendment of the SMS Bylaws by either
the affirmative vote of a majority of the SMS Board or by the affirmative vote
of a majority of the stockholders entitled to vote thereon.
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SMS REVERSE STOCK SPLIT
General
The Company Board has determined that it would be advisable in connection
with the Transactions to effect the SMS Reverse Stock Split. If the SMS
Charter, which provides for the SMS Reverse Stock Split, is approved by the
stockholders, each four shares of Company Common Stock outstanding immediately
prior to the Effective Date will be converted automatically into one share of
SMS Common Stock. To avoid the existence of fractional shares of SMS Common
Stock, stockholders who would otherwise be entitled to receive fractional
shares of SMS Common Stock ("Fractional SMS Stockholders") will receive
payment in cash in lieu thereof. See "THE TRANSACTIONS--Manner of Effecting
the Transactions; Book-Entry System."
Background of and Reasons for the SMS Reverse Stock Split
On February , 1998, the Company Board adopted resolutions approving the
amendment and restatement of the Company Charter, including the SMS Reverse
Stock Split, and directing that the amendment and restatement of the Company
Charter be placed on the agenda for the consideration of the stockholders at
the Special Meeting to approve the Transactions.
On February , 1998, the closing price per share of Company Common Stock on
the NYSE was $ . This price is based on the market perception of the value of
all the Company's businesses, including the New Marriott Business which will
be distributed to the holders of Company Common Stock in the Spinoff. The
Company Board believes that after the Spinoff the market prices of SMS Common
Stock will be at a reduced level that may impair the acceptability of SMS
Common Stock by portions of the financial community and the investing public.
Many investors look upon low priced stock as unduly speculative in nature
and, as a matter of policy, avoid investment in such stocks. The Company Board
also believes that a significantly reduced per share price of SMS Common Stock
will reduce the effective marketability of the shares because of the
reluctance of many leading brokerage firms to recommend low priced stock to
their clients. Further, various brokerage house policies and practices tend to
discourage individual brokers from dealing in low priced stocks. Some of those
policies and practices pertain to the payment of brokers' commissions and to
time-consuming procedures which function to make the handling of low priced
stocks unattractive to brokers from an economic standpoint. Additionally,
several institutional investors have policies prohibiting them from holding
low priced stock in their own portfolios. In addition, the structure of
trading commissions also tends to have an adverse impact upon holders of low
priced stock because the brokerage commission on a sale of low priced stock
generally represents a higher percentage of the sales price than the
commission on higher priced issues.
The Company Board believes that the decrease in the number of shares of SMS
Common Stock outstanding as a consequence of the SMS Reverse Stock Split and
the resulting anticipated increased price level will result in greater
interest in the SMS Common Stock by the financial community and the investing
public than if the SMS Reverse Stock Split were not effected.
There can be no assurance, however, that the foregoing will occur or that
the market prices of the SMS Common Stock immediately after implementation of
the SMS Reverse Stock Split will increase, and if they increase, there can be
no assurance that such increases can be maintained for any period of time, or
that such market price will approximate four times the market price before the
SMS Reverse Stock Split.
Dissenting stockholders have no appraisal rights under the DGCL or under the
Company Charter or Company Bylaws in connection with SMS Reverse Stock Split.
Effects of the SMS Reverse Stock Split
General Effects. The principal effect of the SMS Reverse Stock Split will be
to decrease the number of outstanding shares of SMS Common Stock from
125,415,165 shares to approximately 31,353,791 shares based
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on share information as of January 28, 1998. Assuming that approximately
29,174,763 shares of SMS Common Stock are issued to Sodexho after giving
effect to the SMS Reverse Stock Split, the total number of shares outstanding
after giving effect to the SMS Reserve Stock Split and the Transactions would
be 60,528,554 shares, based on share information as of January 28, 1998. The
SMS Reverse Stock Split would not affect the proportionate equity interest in
SMS of any holder of SMS Common Stock, except as may result from the
provisions for the elimination of fractional shares as described below. The
SMS Reverse Stock Split will not affect the registration of the SMS Common
Stock under the Exchange Act or the application for continued listing of the
SMS Common Stock on the NYSE.
In order that SMS may avoid the expense and inconvenience of issuing and
transferring fractional shares of SMS Common Stock, fractional shares will be
aggregated and sold on behalf of Fractional SMS Stockholders, who will receive
payment in cash in lieu of receiving fractional shares of SMS Common Stock.
See "THE TRANSACTIONS--Manner of Effecting the Transactions; Book-Entry
System."
The SMS Reverse Stock Split may leave certain stockholders with one or more
"odd lots" of SMS Common Stock, (i.e., stock in amounts of less than 100
shares). These odd lots may be more difficult to sell, or require greater
transactions cost per share to sell, than shares in even multiples of 100.
Effect on SMS Stock Plans
All of the outstanding options and other awards under the SMS Stock Plans
will be subject to adjustment in the number of shares covered thereby, and the
exercise price thereof, in the event of the SMS Reverse Stock Split by
appropriate action of the Company Compensation Policy Committee. If the SMS
Reverse Stock Split is approved and effected, each of the outstanding options
will thereafter evidence the right to purchase one-fourth of the number of
shares of SMS Common Stock previously covered thereby and the exercise price
per share will be approximately four times the previous exercise price. Each
of the outstanding grants of shares would thereafter evidence the contingent
obligation to deliver one-fourth of the number of shares of SMS Common Stock
previously covered thereby.
As of the Effective Date, 10.0 million shares of SMS Common Stock will be
available for the issuance of awards under the SMS Stock Plans for conversion
awards and future awards for SMS Employees after (i) giving effect to the
Spinoff and the SMS Reverse Stock Split and (ii) cancellation of awards to
persons other than SMS Employees as a result of the Spinoff. See "MANAGEMENT
OF SMS--SMS Stock Plans."
Effect on LYONs. Pursuant to the LYONs Allocation Agreement, holders of
LYONs that exercise their conversion rights after the Effective Date will be
entitled to receive 8.76 shares of New MAR Common Stock, 8.76 shares of New
MAR-A Common Stock and 8.76 shares of SMS Common Stock in exchange for each
$1,000 face amount of LYONs. See "THE TRANSACTIONS--Arrangements between SMS
and New Marriott--LYONs Allocation Agreement and Supplemental Indenture." If
the SMS Reverse Stock Split is effected, holders of LYONs will be entitled to
receive 2.19 shares of SMS Common Stock rather than 8.76 shares of SMS Common
Stock.
Changes in Stockholders' Equity. As an additional result of the SMS Reverse
Stock Split, SMS's stated capital (which consists of the par value per share
of SMS Common Stock multiplied by the number of shares of SMS Common Stock
issued) based on pro forma information as of September 12, 1997 will be
reduced by approximately $186 million to approximately $62 million on the
Effective Date, after giving effect to the issuance of SMS Common Stock to
Sodexho. Following the SMS Reverse Stock Split, the stated capital will be
decreased because the number of shares of SMS Common Stock issued and
outstanding will be reduced. Correspondingly, SMS's capital in excess of par
value, which consists of the difference between the SMS's stated capital and
the aggregate amount paid to SMS upon the issuance by SMS of all currently
outstanding SMS Common Stock, will be increased by approximately $186 million.
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Using share data from January 28, 1998, the following table illustrates the
principal effects of the SMS Reverse Stock Split discussed in the preceding
paragraphs, in each case assuming 29,174,763 shares of SMS Common Stock are
issued to Sodexho after giving effect to the SMS Reverse Stock Split.
<TABLE>
<CAPTION>
PRIOR TO SMS REVERSE AFTER SMS REVERSE
SPLIT AND AMENDMENT SPLIT AND AMENDMENT
NUMBER OF SHARES OF SMS COMMON STOCK TO SMS CHARTER TO SMS CHARTER
------------------------------------ -------------------- -------------------
<S> <C> <C>
Authorized......................... 300,000,000 300,000,000
Outstanding, prior to issuance to
Sodexho........................... 125,415,165 31,353,791
Shares issued to Sodexho........... 116,699,052 29,174,763(1)
Reserved for issuance under the SMS
Stock Plans(2).................... 40,000,000 10,000,000
Reserved for issuance upon
conversion of the LYONs........... 4,732,688 1,183,172
Available for future issuance by
action of the SMS Board (after
giving effect to the above
reservations)..................... 13,153,095 228,288,274
</TABLE>
- --------
(1) Shares to be issued to Sodexho will be on a post-SMS Reverse Stock Split
basis.
(2) Reflects the conversion and redenomination of stock options and other
awards under the SMS Stock Plans and the limitation on available shares
imposed by the Company Board as of the Effective Date. See "MANAGEMENT OF
SMS--SMS Stock Plans."
Assuming the SMS Charter, which includes the amendment effecting the SMS
Reverse Stock Split, is approved, the SMS Charter will be filed with the
Secretary of State of the State of Delaware on the Effective Date in
connection with the consummation of the Transactions. The SMS Charter and the
proposed SMS Reverse Stock Split would become effective upon such filing.
Reservation of Rights
The Company Board reserves the right to abandon the SMS Reverse Stock Split
without further action by the stockholders at any time before the filing of
the SMS Charter with the Secretary of State of Delaware, notwithstanding
authorization of the SMS Reverse Stock Split by the stockholders.
FOR THE REASONS STATED ABOVE, THE COMPANY BOARD UNANIMOUSLY RECOMMENDS THAT
ALL STOCKHOLDERS VOTE FOR THE APPROVAL OF THE SMS CHARTER AND SMS BYLAWS.
Certain members of the Company Board, however, may be deemed to have conflicts
of interest in connection with the Transactions. See "CONFLICTS OF INTEREST."
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CERTAIN ANTITAKEOVER PROVISIONS APPLICABLE TO SMS
GENERAL
Certain of the provisions of the SMS Charter, the SMS Bylaws, Section 203 of
the DGCL and the Company Rights Plan (after the Effective Date, the "SMS
Rights Plan") may have the effect of impeding the acquisition of control of
SMS by means of a tender offer, a proxy fight, open market purchases or
otherwise in a transaction not approved by the SMS Board. These provisions are
designed to reduce, or have the effect of reducing, the vulnerability of SMS
to an unsolicited proposal for the restructuring or sale of all or
substantially all the assets of SMS or an unsolicited takeover attempt which
is unfair to SMS stockholders.
CHARTER AND BYLAW PROVISIONS
Preferred Stock
Under the SMS Charter, the SMS Board will have the authority, without
further stockholder approval, to issue SMS Preferred Stock in series, and to
fix the designations, powers, preferences and rights of the shares of each
such series and any qualifications, limitations or restrictions thereon.
Pursuant to this authority, the SMS Board could create and issue a series of
SMS Preferred Stock with rights, preferences or restrictions having the effect
of discriminating against an existing or prospective holder of such securities
as a result of such holder beneficially owning or commencing a tender offer
for a substantial amount of SMS Common Stock. One of the effects of authorized
but unissued and unreserved shares of capital stock may be to render more
difficult or discourage an attempt by a potential acquiror to obtain control
of SMS by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of SMS's management. The issuance of such
shares of capital stock may have the effect of delaying, deferring or
preventing a change in control of SMS without any further action by the
stockholders of SMS.
Transfer Restriction
The SMS Charter will contain a restriction on the transfer or issuance of
SMS equity securities, as described under "DESCRIPTION OF THE SMS CAPITAL
STOCK--Common Stock--Transfer Restriction." The purpose of such restriction is
to protect the Tax-Free Status of the Spinoff. An additional effect of such
restriction, however, is to prevent any person or persons from owning 50
percent or more of the outstanding equity securities of SMS for the three-year
period following the Spinoff, unless such person or persons can provide the
SMS Board with a satisfactory IRS ruling or a legal opinion satisfactory to
New Marriott and the SMS Board.
SECTION 203 OF THE DGCL
Section 203 of the DGCL prohibits a corporation which has voting stock
traded on a national securities exchange, designated on The NASDAQ Stock
Market or held of record by more than 2,000 stockholders from engaging in
certain business combinations, including a merger, sale of substantial assets,
loan or substantial issuance of stock, with an interested stockholder (defined
as the owner of 15 percent or more of the corporation's voting stock), or an
interested stockholder's affiliates or associates, for a three-year period
beginning on the date the interested stockholder acquires 15 percent or more
of the outstanding voting stock of the corporation. The restrictions on
business combinations do not apply if (i) prior to such date, the board of
directors gives prior approval to the business combination or the transaction
in which the 15 percent ownership level is exceeded, (ii) the interested
stockholder acquires, in the transaction pursuant to which the interested
stockholder becomes the owner of 15 percent or more of the outstanding stock,
85 percent of the corporation's stock (excluding those shares owned by persons
who are directors and also officers as well as employee stock plans in which
employees do not have a confidential right to determine whether shares held
subject to the plan will be tendered in a tender or exchange offer) or (iii)
the business combination is approved by the board of directors and authorized
at a meeting of stockholders by the holders of at least two-thirds of the
outstanding voting stock, excluding shares
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owned by the interested stockholder. A Delaware corporation may elect,
pursuant to its certificate of incorporation or bylaws, not to be governed by
this provision; neither the SMS Charter nor the SMS Bylaws will contain such
an election.
Because the Company Board gave prior approval to the Transactions, including
the issuance of shares of SMS Common Stock to Sodexho, the provisions of
Section 203 of the DGCL do not apply to Sodexho.
SMS RIGHTS PLAN
The Company Rights Plan will continue in effect after the Transactions and
is referred to thereafter as the "SMS Rights Plan". Pursuant to the SMS Rights
Plan, each share of SMS Common Stock after the SMS Reverse Stock Split will
also represent four rights ("SMS Rights"). Following the occurrence of certain
events and except as described below, each SMS Right will entitle the
registered holder thereof to purchase from SMS one one-thousandth of a share
(an "SMS Unit") of SMS Junior Preferred Stock at a price (the "SMS Right's
Purchase Price") of $150 per SMS Unit. The SMS Rights are not exercisable
until the SMS Occurrence Date (defined below). The SMS Rights will expire on
September 26, 2003, unless earlier exercised in connection with a transaction
of the type described below or redeemed by SMS.
Until an SMS Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of SMS, including, without limitation, the right to
vote or to receive dividends.
Initially, the SMS Rights attached to all Company Common Stock certificates
representing shares then outstanding, and no separate certificates
representing the SMS Rights (the "SMS Rights Certificates") were distributed.
On the Effective Date, as a result of the SMS Reverse Stock Split, each share
of SMS Common Stock will also represent four SMS Rights. Until the SMS
Occurrence Date (or earlier redemption or expiration of SMS Rights), the SMS
Rights are transferrable only with the SMS Common Stock, and the surrender or
transfer of any certificate of the SMS Common Stock also constitutes the
transfer of the SMS Rights associated with the SMS Common Stock represented by
such certificate. The SMS Rights will separate from the SMS Common Stock upon
the earlier of (i) ten days following the date (an "SMS Stock Acquisition
Date") of a public announcement that a person or group of affiliated or
associated persons (an "SMS Acquiring Person") has acquired, or obtained the
right to acquire, beneficial ownership of 20 percent or more of the
outstanding shares of SMS Common Stock or (ii) ten business days following the
commencement of a tender offer or exchange offer, the consummation of which
would result in a person or group becoming the beneficial owner of 30 percent
or more of such outstanding shares of SMS Common Stock (such date being called
the "SMS Occurrence Date").
For purposes of the SMS Rights Plan, a Person is not deemed to beneficially
own "Exempt Shares," which include (i) shares of SMS Common Stock beneficially
owned on September 27, 1993 and held continuously thereafter, (ii) shares of
SMS 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 SMS Common Stock
with respect to Exempt Shares which were held by such person continuously
thereafter.
As soon as practicable following a SMS Occurrence Date, SMS Rights
Certificates will be mailed to holders of record of SMS Common Stock as of the
close of business on the SMS Occurrence Date. After such time, such separate
SMS Rights Certificates alone will evidence the SMS Rights and may trade
independently from the SMS Common Stock.
In the event (i) SMS is the surviving corporation in a merger with an SMS
Acquiring Person and the SMS Common Stock is not changed or exchanged, or (ii)
any person becomes the beneficial owner of 30 percent or more of the then
outstanding shares of SMS Common Stock (except pursuant to an offer for all
outstanding shares of SMS Common Stock which the SMS Board determines to be
fair to and otherwise in the best interests of SMS and its stockholders), each
holder of an SMS Right will, in lieu of the right to receive one one-
thousandth
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of a share of SMS Junior Preferred Stock, thereafter have the right to
receive, upon exercise, SMS Common Stock (or, in certain circumstances, cash,
property or other securities of SMS) having a value equal to two times the
exercise price of the SMS Right. Notwithstanding any of the foregoing,
following the occurrence of either of the events set forth in this paragraph,
all SMS Rights that are (or, under certain circumstances specified in the SMS
Rights Plan, were) beneficially owned by any SMS Acquiring Person will be null
and void.
In the event that, at any time following the SMS Stock Acquisition Date, (i)
SMS is acquired in a merger or other business combination transaction in which
SMS is not the surviving corporation or shares of SMS Common Stock are changed
into or exchanged for stock, cash or other property, or (ii) 50 percent or
more of SMS's assets or earning power is sold or transferred, each holder of
an SMS Right (except SMS Rights which previously have been voided as set forth
above) will 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 SMS Right.
In general, SMS may redeem the SMS Rights in whole, but not in part, at any
time until ten days following the SMS Stock Acquisition Date, at a price of
$.01 per SMS Right. The decision to redeem requires the concurrence of a
majority of Specified SMS Directors. The term "Specified SMS Directors" means
those directors of the SMS Board who are not (i) officers of SMS or its
affiliates; (ii) certain family members of J. Willard Marriott, Sr., (iii) an
SMS Acquiring Person or its affiliate or associate, or (iv) any person or its
affiliate or associate who has made a tender or exchange offer for 30 percent
or more of the SMS Common Stock. Immediately upon the action of the SMS Board
ordering redemption of the SMS Rights, the SMS Rights will terminate and the
only right of the holders of SMS Rights will be to receive the $.01 per SMS
Right redemption price.
The purchase price payable and the number of shares of SMS Junior Preferred
Stock or other securities or property issuable upon exercise of the SMS Rights
are subject to adjustment upon the occurrence of certain events with respect
to SMS, including stock dividends, subdivisions, combination,
reclassifications, rights or warrants offerings of the SMS Junior Preferred
Stock at less than the then-current market price and certain distributions of
property or evidences of indebtedness of SMS to holders of the SMS Junior
Preferred Stock, all as set forth in the SMS Rights Plan.
The SMS Rights Plan may have certain antitakeover effects. The SMS Rights
will cause substantial dilution to a person or group that attempts to acquire,
or merge with, SMS without conditioning the offer on the SMS Rights being
rendered inapplicable. The SMS Rights do not prevent the SMS Board from
approving any merger or other business combination since the SMS Rights may be
redeemed by the SMS Board as described above.
The SMS Rights Plan has been amended such that the SMS Rights are not and
will not become exercisable as a result of the Transactions.
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SECURITY OWNERSHIP OF NEW MARRIOTT
The following table sets forth information as to the shares of New Marriott
Common Stock that would have been beneficially owned (or deemed to be
beneficially owned pursuant to the rules of the SEC) as of October 15, 1997,
by each director of New Marriott, each of the executive officers of New
Marriott named in the Summary Compensation Table included elsewhere herein,
all directors and executive officers of New Marriott as a group, and
beneficial holders of five percent or more of outstanding New Marriott Common
Stock, in each case based on beneficial ownership of Company Common Stock as
of October 15, 1997, and after giving effect to the issuance of one share of
New MAR Common Stock and one share of New MAR-A Common Stock for each share of
Company Common Stock as a result of the Spinoff. Shares of New MAR Common
Stock and New MAR-A Common Stock are aggregated for purposes of the table.
<TABLE>
<CAPTION>
SHARES OF NEW MARRIOTT PERCENT OF
COMMON STOCK COMMON STOCK
NAME BENEFICIALLY OWNED(1) OUTSTANDING
- ---- ---------------------- ------------
<S> <C> <C>
DIRECTORS:
J.W. Marriott, Jr........................ 26,963,466(2)(3) 10.4
Richard E. Marriott...................... 26,196,192(2)(4) 10.2
Dr. Henry Cheng Kar-Shun................. 2,600 *
Gilbert M. Grosvenor..................... 4,200 *
Floretta Dukes McKenzie.................. 870 *
Harry J. Pearce.......................... 10,000 *
W. Mitt Romney........................... 10,000 *
Roger W. Sant............................ 20,000 *
William J. Shaw.......................... 1,249,524(5) *
Lawrence M. Small........................ 85,000(6) *
NAMED EXECUTIVE OFFICERS:
Joseph Ryan.............................. 119,638(5) *
Michael A. Stein......................... 202,854(5) *
William R. Tiefel........................ 881,202(5)(7) *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP (20 INCLUDING THE FOREGOING)....... 48,414,796(2)(8) 19.0
</TABLE>
- --------
* Less than 1 percent
(1) Based on the number of shares outstanding at, plus the number of shares
acquirable by the specified person(s) within 60 days of, October 15, 1997.
Does not give effect to conversion of employee stock options and other
stock awards as a result of the Spinoff, which will depend on the trading
prices of the Company Common Stock immediately prior to, and the New
Marriott Common Stock immediately following, the Spinoff.
(2) Includes: 3,150,040 shares held by J.W. Marriott, Jr. and Richard E.
Marriott as co-trustees of 16 trusts for the benefit of their children and
5,073,574 shares owned by The J. Willard Marriott Foundation, a charitable
foundation in which J.W. Marriott, Jr., Richard E. Marriott and their
mother serve as co-trustees. These shares are reported as beneficially
owned by both J.W. Marriott, Jr. and Richard E. Marriott, but are included
only once in reporting the number of shares owned by all directors,
nominees and executive officers as a group. The shares included herein do
not include: (i) 3,929,260 shares owned and controlled by certain other
members of the Marriott family, (ii) 3,334,770 shares held by a charitable
annuity trust, created by the will of J. Willard Marriott, in which J.W.
Marriott, Jr. and Richard E. Marriott have a remainder interest and in
which their mother is trustee, or (iii) 250,802 shares held by the adult
children of J.W. Marriott, Jr. and Richard E. Marriott, as trustees of 25
trusts established for the benefit of the grandchildren of J.W. Marriott,
Jr. and Richard E. Marriott.
(3) Includes, in addition to the shares referred to in footnote (2): (i)
1,908,500 shares subject to options exercisable within 60 days, (ii)
804,860 shares held as trustee of two trusts for the benefit of Richard E.
Marriott, (iii) 136,426 shares owned by J.W. Marriott, Jr.'s wife (Mr.
Marriott disclaims beneficial
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ownership of such shares), (iv) 1,340,534 shares owned by four trusts for
the benefit of J.W. Marriott, Jr.'s children, in which his wife serves as a
co-trustee, (v) 43,118 shares owned by six trusts for the benefit of J.W.
Marriott, Jr.'s grandchildren, in which his wife serves as a co-trustee,
(vi) 160,000 shares, owned by JWM Associates Limited Partnership, whose
general partner is J.W. Marriott, Jr. and (vii) 5,415,180 shares owned by
Family Enterprises, whose general partner is a corporation in which J.W.
Marriott, Jr. is a controlling stockholder.
(4) Includes, in addition to the shares referred to in footnote (2): (i)
111,400 shares subject to options exercisable within 60 days, (ii) 599,378
shares held as trustee of two trusts established for the benefit of J.W.
Marriott, Jr., (iii) 136,012 shares owned by Richard E. Marriott's wife,
(iv) 1,207,656 shares owned by four trusts for the benefit of Richard E.
Marriott's children, in which his wife serves as a co-trustee, and (v)
4,605,458 shares owned by First Media Limited Partners, whose general
partner is a corporation in which Richard E. Marriott is the controlling
stockholder.
(5) Includes shares of unvested restricted stock awarded under the Company
1993 Stock Plan and the Company 1996 Stock Plan as follows: Mr. Ryan:
64,000 shares; Mr. Stein: 30,000 shares; Mr. Shaw: 54,000 shares; and Mr.
Tiefel: 48,000 shares. Shares of restricted stock are voted by the holder
thereof. See "MANAGEMENT OF NEW MARRIOTT--Executive Officer Compensation--
Summary of Compensation."
(6) Includes 4,000 shares held by two trusts for the benefit of non-family
members in which Mr. Small is trustee and 1,000 shares held by Mr. Small
as custodian for a non-family member minor child. Mr. Small disclaims
beneficial ownership of all such shares.
(7) Includes 20,000 shares held by Mr. Tiefel's wife. Mr. Tiefel disclaims
beneficial ownership of such shares.
(8) All directors, nominees and executive officers as a group (other than J.W.
Marriott, Jr. and Richard E. Marriott) would have beneficially owned an
aggregate of 3,748,752 shares or 1.5 percent of New Marriott Common Stock
outstanding as of October 15, 1997, based on the number of shares of
Company Common Stock beneficially owned by such persons of such date.
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DESCRIPTION OF THE NEW MARRIOTT CAPITAL STOCK
GENERAL
New Marriott's authorized capital stock consists of 100 shares of common
stock, no par value, of which 100 shares are issued and outstanding and are
owned by the Company. Prior to the Effective Date, New Marriott's Certificate
of Incorporation will be amended by the New Marriott Board and by the Company,
as sole stockholder of New Marriott (the "New Marriott Certificate"). Under
the New Marriott Certificate, which will be substantially in the form set
forth in Appendix I to this Proxy Statement, the total number of shares of all
classes of stock that New Marriott will have authority to issue will be
810,000,000, of which (i) 10,000,000 will be shares of preferred stock,
without par value, (ii) 500,000,000 will be shares of New MAR Common Stock and
(iii) 300,000,000 will be shares of New MAR-A Common Stock. The New MAR Common
Stock and New MAR-A Common Stock are sometimes referred to together herein as
"New Marriott Common Stock." Based on the number of shares of Company Common
Stock outstanding at January 28, 1998, (i) approximately 125.4 million shares
of New MAR Common Stock, constituting approximately 41.8 percent of the
authorized New MAR Common Stock and (ii) approximately 125.4 million shares of
New MAR-A Common Stock, constituting approximately 25 percent of the
authorized New MAR-A Common Stock, will be issued to the Company and
distributed to stockholders of the Company in the Spinoff. All of the shares
of New Marriott Common Stock issued in the Spinoff will be validly issued,
fully paid and non-assessable.
COMMON STOCK
New Marriott will have two classes of New Marriott Common Stock--New MAR
Common Stock and New MAR-A Common Stock. The New MAR Common Stock and the New
MAR-A Common Stock have different terms, which are described below.
Voting Rights
Each holder of New MAR Common Stock will be entitled to one vote for each
share registered in his or her name on the books of New Marriott on all
matters submitted to a vote of stockholders. Subject to the Minority Rights
Protection Provision (as defined below), each holder of New MAR-A Common Stock
will be entitled to ten votes for each share registered in his or her name on
the books of New Marriott on all matters submitted to a vote of stockholders.
Except as otherwise provided by law, the holders of New MAR Common Stock and
New MAR-A Common Stock will vote as one class. The shares of New MAR Common
Stock and New MAR-A Common Stock will not have cumulative voting rights. As a
result, subject to the voting rights, if any, of the holders of any shares of
New Marriott's preferred stock which may at the time be outstanding, the
holders of New MAR Common Stock and New MAR-A Common Stock entitled to
exercise more than 50 percent of the voting rights in an election of directors
will be able to elect 100 percent of the directors to be elected if they
choose to do so. In such event, the holders of the remaining New MAR Common
Stock and New MAR-A Common Stock voting for the election of directors will not
be able to elect any persons to the New Marriott Board. The New Marriott
Certificate will provide that the New Marriott Board will be classified into
three classes, each serving a three-year term, with one class to be elected in
each of three consecutive years.
Dividend Rights
Under the New Marriott Certificate, each share of New MAR Common Stock and
New MAR-A Common Stock will have identical rights with respect to dividends
and distributions, subject to the following: (i) the New Marriott Board may
declare a Regular Cash Dividend (as defined below) on each share of New MAR
Common Stock, on an annual basis, equal to up to 125 percent (one hundred and
twenty-five percent) (rounded up to the nearest penny) of the per share
Regular Cash Dividend declared on each share of New MAR-A Common Stock, but in
no case will the Regular Cash Dividend on each share of New MAR Common Stock
be less than the equivalent Regular Cash Dividend per share of New MAR-A
Common Stock; (ii) if the New Marriott Board decides, in its discretion, to
declare a Special Dividend (as defined below), such dividend will be paid in
equal amounts per share of New MAR Common Stock and New MAR-A Common Stock;
and (iii) if the New Marriott
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Board decides, in its discretion, to declare a dividend payable in shares of
New MAR Common Stock or New MAR-A Common Stock, the dividend will be paid in
equal amounts per share of New MAR Common Stock and New MAR-A Common Stock,
except that, at the discretion of the New Marriott Board, the dividend may be
paid to the holders of New MAR Common Stock in either New MAR Common Stock or
in New MAR-A Common Stock and the dividend may be paid to the holders of New
MAR-A Common Stock in either New MAR-A Common Stock or in New MAR Common
Stock. As used herein, the term "Regular Cash Dividend" means dividends of New
Marriott payable quarterly in cash consistent with practices employed in the
past by the Company Board, subject to change at the discretion of the New
Marriott Board; and the term "Special Dividend" means any dividend of cash or
other property or assets (including securities), other than a Regular Cash
Dividend.
Mergers and Consolidations; Dissolution and Liquidation
In the event of a merger, consolidation or combination of New Marriott with
another entity (whether or not New Marriott is the surviving entity) or in the
event of dissolution or liquidation of New Marriott, the holders of shares of
New MAR Common Stock and the holders of New MAR-A Common Stock will each be
entitled to receive the same per share consideration.
Convertibility
At the discretion of the New Marriott Board, all, but not less than all, of
the then outstanding shares of New MAR Common Stock may be converted into New
MAR-A Common Stock on a share-for-share basis. In addition, if the New MAR
Common Stock becomes ineligible for trading on a national securities exchange
or the National Association of Securities Dealers Automated Quotation System,
the New MAR Common Stock will be converted automatically into New MAR-A Common
Stock on a share-for-share basis.
Minority Rights Protection Provision
After the Spinoff, New Marriott stockholder voting rights disproportionate
to equity ownership could be acquired through acquisitions of New MAR-A Common
Stock without corresponding purchases of New MAR Common Stock. In order to
reduce somewhat the likelihood of New MAR-A Common Stock and New MAR Common
Stock trading at significantly different market prices and to give holders of
New MAR Common Stock the opportunity to participate in any premium paid in the
future relating to the acquisition of 15 percent or more of the New MAR-A
Common Stock by a buyer who has not acquired a proportionate number of shares
of New MAR Common Stock, the New Marriott Certificate includes a "Minority
Rights Protection Provision" as described below. The Minority Rights
Protection Provision might have an anti-takeover effect by making New Marriott
a less attractive target for a takeover bid. As described below, there can be
no assurance that New Marriott will in all instances be able to identify
readily persons whose holdings subject them to the Minority Rights Protection
Provision.
Certain Definitions. For purposes of the Minority Rights Protection
Provision, the following definitions apply:
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For purposes of this definition, control when used with respect
to any specified Person means the possession of the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms controlling and controlled have meanings correlative to the foregoing.
"Person" means any individual, partnership, joint venture, limited liability
company, corporation, association, trust, incorporated organization,
government or governmental department or agency or any other entity.
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The following shares of New MAR-A Common Stock will be excluded for the
purpose of determining the shares of New MAR-A Common Stock beneficially owned
or acquired by any Person or group but not for purpose of determining shares
outstanding:
(i) shares beneficially owned by such Person or group (or, in the case of
a group, shares beneficially owned by Persons that are members of such
group) immediately after the Spinoff;
(ii) shares acquired by will or by the laws of descent and distribution,
or by gift that is made in good faith and not for the purpose of
circumventing the Minority Rights Protection Provision, or by termination
or revocation of a trust or similar arrangement or by a distribution from a
trust or similar arrangement if such trust or similar arrangement was
created, and such termination, revocation or distribution occurred or was
effected, in good faith and not for the purpose of circumventing the
Minority Rights Protection Provision, or by reason of the ability of a
secured party (following a default) to exercise voting rights with respect
to, or to dispose of, shares that had been pledged in good faith as
security for a bona fide loan, or by foreclosure of a bona fide pledge
which secures a bona fide loan;
(iii) shares acquired upon issuance or sale by New Marriott;
(iv) shares acquired by operation of law (including a merger or
consolidation effected for the purpose of recapitalizing such Person or
reincorporating such Person in another jurisdiction but excluding a merger
or consolidation effected for the purpose of acquiring another Person);
(v) shares acquired in exchange for New MAR Common Stock by a holder of
New MAR Common Stock (or by a parent, lineal descendant or donee of such
holder of New MAR Common Stock who received such New MAR Common Stock from
such holder) if the New MAR Common Stock so exchanged was acquired by such
holder directly from the corporation as a dividend on shares of New MAR-A
Common Stock;
(vi) shares acquired by a plan of New Marriott qualified under Section
401(a) of the Code, or any successor provision thereto, or acquired by
reason of a distribution from such a plan;
(vii) shares beneficially owned by a Person or group immediately after
the Spinoff which are thereafter acquired by an Affiliate of such Person or
group (or by the members of the immediate family (or trusts for the benefit
thereof) of any such Person or Affiliate) or by a group which includes such
Person or group or any such Affiliate; and
(viii) shares acquired indirectly through the acquisition of securities,
or all or substantially all of the assets, of a Person that has a class of
its equity securities registered under Section 12 (or any successor
provision) of the Exchange Act.
Notwithstanding anything to the contrary contained in the Minority Rights
Protection Provision, no Person (and no group including such Person) will be
deemed to have acquired after the Spinoff beneficial ownership of any shares
of New MAR-A Common Stock owned by any other Person solely by reason of such
Person being or becoming an officer, director, executive, trustee, executor,
custodian, guardian, and/or other similar fiduciary or employee of or for such
other Person under circumstances not intended to circumvent the Minority
Rights Protection Provision.
For purposes of calculating the number of shares of New MAR Common Stock
beneficially owned or acquired by any Person or group, shares of New MAR
Common Stock acquired by gift will be deemed to be beneficially owned by such
Person or member of a group if such gift was made in good faith and not for
the purpose of circumventing the Minority Rights Protection Provision; and
only shares of New MAR Common Stock owned of record by such Person or member
of a group or held by others as nominees of such Person or member of a group
and identified as such to New Marriott will be deemed to be beneficially owned
by such Person or group (provided that shares of New MAR Common Stock with
respect to which such Person or member of a group has sole investment and
voting power will be deemed to be beneficially owned thereby).
Subject to the other definitional provisions applicable to the Minority
Rights Protection Provision, "beneficial ownership" will be determined
pursuant to Rule 13d-3 (as in effect on the date on which the New
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Marriott Certificate becomes effective) promulgated under the Exchange Act,
and the formation or existence of a "group" will be determined pursuant to
Rule 13d-5(b) (as in effect on the date on which the New Marriott Certificate
becomes effective) promulgated under the Exchange Act, in each case subject to
the following additional qualifications:
(i) relationships by blood or marriage between or among any Persons will
not constitute any of such Persons as a member of a group with any such
other Person(s), absent affirmative attributes of concerted action; and
(ii) any Person acting in his official capacity as a director or officer
of New Marriott will not be deemed to beneficially own shares when such
ownership exists solely by virtue of such Person's status as a trustee (or
similar position) with respect to shares held by plans or trusts for the
general benefit of employees or former employees of New Marriott, and
actions taken or agreed to be taken by a Person in such Person's official
capacity as an officer or director of New Marriott will not cause such
Person to become a member of a group with any other Person.
Description of Minority Rights Protection Provision. If any Person or group
acquires after the Spinoff beneficial ownership of 15 percent or more of the
then outstanding New MAR-A Common Stock, and such Person or group (a
"Significant New Marriott Stockholder") does not then own an equal or greater
percentage of all then outstanding shares of New MAR Common Stock, the
Minority Rights Protection Provision requires that such Significant New
Marriott Stockholder must commence within a 90-day period beginning the day
after becoming a Significant New Marriott Stockholder a public cash tender
offer to acquire additional shares of New MAR Common Stock, as described below
(a "Minority Rights Protection Transaction") or the Significant New Marriott
Stockholder will not be permitted to vote the recently acquired New MAR-A
Common Stock. The 15 percent ownership threshold of the number of shares of
New MAR-A Common Stock which triggers a Minority Rights Protection Transaction
may not be waived by the New Marriott Board, nor may this threshold be amended
without stockholder approval, including a majority vote of the outstanding New
MAR Common Stock voting separately as a class.
In a Minority Rights Protection Transaction, the Significant New Marriott
Stockholder must make a public cash tender offer to acquire from the holders
of New MAR Common Stock at least that number of additional shares of New MAR
Common Stock determined by (i) multiplying (x) the percentage of the number of
shares of outstanding New MAR-A Common Stock that are beneficially owned by
such Significant New Marriott Stockholder, and were acquired after the
Spinoff, by (y) the total number of the shares of New MAR Common Stock
outstanding on the date such Person or group became a Significant New Marriott
Stockholder, and (ii) subtracting therefrom the excess (if any) of the number
of shares of New MAR Common Stock beneficially owned by such Significant New
Marriott Stockholder at such time over the number of shares of New MAR Common
Stock beneficially owned by such Person or group at the Spinoff. Such number
of shares of New MAR Common Stock is referred to as the "New MAR Common Stock
Shortfall." The Significant New Marriott Stockholder must acquire all shares
of New MAR Common Stock validly tendered or, if the number of such shares
tendered exceeds the number determined pursuant to such formula, a pro-rata
number from each tendering holder (based on the number of shares tendered by
each tendering stockholder).
For example, if a stockholder owns 4 percent of the outstanding shares of
New MAR-A Common Stock and 4 percent of the New MAR Common Stock immediately
after the Spinoff and thereafter acquires an additional 16 percent of the
outstanding shares of New MAR-A Common Stock without acquiring any additional
shares of New MAR Common Stock, such stockholder must either commence a tender
offer for an additional 16 percent of the New MAR Common Stock at the
prescribed price or such stockholder will not be allowed to vote the 16
percent of the New MAR-A Common Stock acquired after the Spinoff.
Alternatively, such stockholder could sell 2 percent of the outstanding New
MAR-A Common Stock, thus dropping the net amount of the New MAR-A Common
Shares acquired after the Spinoff to 14 percent, leaving the stockholder with
an aggregate of 18 percent of the New MAR-A Common Shares, all of which could
be voted.
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The offer price for any shares required to be purchased by the Significant
New Marriott Stockholder pursuant to this provision would be the greater of:
(i) the highest price per share paid by the Significant New Marriott
Stockholder for any share of New MAR-A Common Stock in the six-month period
ending on the date such person or group became a Significant New Marriott
Stockholder; and (ii) the highest reported sale price for a share of New MAR-A
Common Stock on the NYSE on the business day preceding the date the
Significant New Marriott Stockholder commences the required tender offer.
If a Significant New Marriott Stockholder fails to undertake a Minority
Rights Protection Transaction within the time provided therefor, the voting
rights of shares of New MAR-A Common Stock beneficially owned by such
Significant New Marriott Stockholder equal to the New MAR Common Stock
Shortfall would be automatically suspended until such time that such
Significant New Marriott Stockholder either completes the requisite Minority
Rights Protection Transaction or divests the excess New MAR-A Common Stock
that triggered such requirement.
PREFERRED STOCK
The New Marriott Certificate will specify that the New Marriott Board is
authorized to provide for the issuance of shares of preferred stock, from time
to time, in one or more series, and to fix any voting powers, full or limited
or none, and the designations, preferences and relative, participating,
optional or other special rights, applicable to the shares to be included in
any such series and any qualifications, limitations or restrictions thereon.
No shares of preferred stock of New Marriott will be outstanding immediately
following the Spinoff. However, as of the Effective Date, 800,000 shares of
the New Marriott Series A Junior Participating Preferred Stock (the "New
Marriott Junior Preferred Stock") will have been authorized and reserved for
issuance in connection with the New Marriott stockholder rights plan described
in "--Rights Plan and Junior Preferred Stock."
RIGHTS PLAN AND JUNIOR PREFERRED STOCK
If the Transaction Proposals are approved by the Company's stockholders and
the Spinoff is consummated, the New Marriott Board will adopt a stockholder
rights plan and cause to be issued, with each share of New Marriott Common
Stock issued to the Company's stockholders in the Spinoff, one New Marriott
Right. The New Marriott Rights will be governed by a rights agreement (the
"New Marriott Rights Plan") to be entered into between New Marriott and an
independent third party acting as right agent. The following is a summary of
the anticipated material terms of the New Marriott Rights Plan.
New Marriott Rights
Following the occurrence of the New Marriott Occurrence Date (as defined
below) and except as described below, each New Marriott Right will entitle the
registered holder thereof to purchase from New Marriott one one-thousandth of
a share (a "New Marriott Unit") of New Marriott Junior Preferred Stock at a
price (the "New Marriott Right's Purchase Price") of $ per New Marriott
Unit, subject to adjustment. The New Marriott Rights are not exercisable until
the New Marriott Occurrence Date. The New Marriott Rights will expire on the
tenth anniversary of the adoption of the New Marriott Rights Plan, unless
exercised in connection with a transaction of the type described below or
unless earlier redeemed by New Marriott.
Until a New Marriott Right is exercised, the holder thereof, as such will
have no rights as a stockholder of New Marriott, including, without
limitation, the right to vote or to receive dividends.
Initially, ownership of the New Marriott Rights will be attached to all New
Marriott Common Stock certificates representing shares then outstanding, and
no separate certificates representing the New Marriott Rights (the "New
Marriott Rights Certificates") will be distributed. Until the New Marriott
Occurrence Date (or earlier redemption or expiration of New Marriott Rights),
the New Marriott Rights will be transferable only with the New Marriott Common
Stock, and the surrender or transfer of any certificate of New Marriott Common
Stock
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will also constitute the transfer of the New Marriott Rights associated with
the New Marriott Common Stock represented by such certificate. The New
Marriott Rights will separate from the New Marriott Common Stock and a New
Marriott Occurrence Date will occur upon the earlier of (i) 10 days following
the date (a "New Marriott Stock Acquisition Date") of a public announcement
that a person or group of affiliates or associated persons (a "New Marriott
Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 15 percent or more of the outstanding shares of either New MAR
Common Stock or New MAR-A Common Stock or (ii) 10 business days following the
commencement of or announcement of an intention to make a tender offer or
exchange offer, the consummation of which would result in the New Marriott
Acquiring Person becoming the beneficial owner of 15 percent or more of the
outstanding shares of either New MAR Common Stock or New MAR-A Common Stock
(the "New Marriott Occurrence Date").
For purposes of the New Marriott Rights Plan, a person or entity will not be
deemed to beneficially own "Exempt Shares," which include (i) shares of New
Marriott Common Stock acquired by such person or entity in the Spinoff and
held continuously thereafter (including those shares of New Marriott Common
Stock to be received by the Marriott family), (ii) shares of New Marriott
Common Stock acquired by such person or entity by gift, bequest and certain
other transfers, which shares were Exempt Shares immediately prior to such
transfer and were held by such person or entity continuously thereafter, and
(iii) shares acquired by such person or entity in connection with certain
distributions of New Marriott Common Stock with respect to Exempt Shares which
were held by such person or entity continuously thereafter.
As soon as practicable following a New Marriott Occurrence Date, New
Marriott Rights Certificates will be mailed to holders of record of New
Marriott Common Stock as of the close of business on the New Marriott
Occurrence Date. After such time, such separate New Marriott Rights
Certificates alone will evidence the New Marriott Rights and could trade
independently from the New Marriott Common Stock.
In the event (i) New Marriott is the surviving corporation in a merger with
a New Marriott Acquiring Person and the New Marriott Common Stock is not
changed or exchanged, or (ii) a New Marriott Acquiring Person becomes the
beneficial owner of 15 percent or more of the then-outstanding shares of
either New MAR Common Stock or New MAR-A Common Stock (except pursuant to an
offer for all outstanding shares of New Marriott Common Stock that the New
Marriott Board determines to be fair to and otherwise in the best interests of
New Marriott and its stockholders), each holder of a New Marriott Right will,
in lieu of the right to receive one one-thousandth of a share of New Marriott
Junior Preferred Stock, thereafter have the right to receive, upon exercise,
New MAR Common Stock (or, in certain circumstances, cash, property or other
securities of New Marriott) having a value equal to two times the exercise
price of the New Marriott Right. Notwithstanding any of the foregoing,
following the occurrence of any of the events set forth in this paragraph, all
New Marriott Rights that are (or, under certain circumstances specified in the
New Marriott Rights Plan, were) beneficially owned by any New Marriott
Acquiring Person will be null and void. However, New Marriott Rights are not
exercisable following the occurrence of either of the events set forth above
until such time as the New Marriott Rights are no longer redeemable by New
Marriott as set forth below.
For example, at an exercise price of $ per New Marriott Right, each New
Marriott Right not owned by a New Marriott Acquiring Person (or by certain
related parties) following an event set forth in the preceding paragraph would
entitle its holder to purchase $ worth of New MAR Common Stock (or other
consideration, as noted above) for $ . Assuming that a share of New MAR
Common Stock had a per share value of $ at such time, the holder of each
valid New Marriott Right would be entitled to purchase 10 shares of New MAR
Common Stock for $ .
In the event that, at any time following the New Marriott Stock Acquisition
Date, (i) New Marriott is acquired in a merger or other business combination
transaction in which New Marriott 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 percent or
more of New Marriott's assets or earning power is sold or transferred, each
holder of a New Marriott Right (except New Marriott Rights which previously
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have been voided as set forth above) will thereafter have the right to
receive, upon exercise, common stock of the acquiring person or entity having
a value equal to two times the exercise price of the New Marriott Right.
In general, the New Marriott Board may redeem the New Marriott Rights in
whole, but not in part, at any time until 10 days following the New Marriott
Stock Acquisition Date, at a price of $.01 per New Marriott Right. After the
redemption period has expired, the New Marriott right of redemption may be
reinstated if a New Marriott Acquiring Person reduces its beneficial ownership
to 10 percent or less of the outstanding shares of New Marriott Common Stock
in a transaction or series of transactions not involving New Marriott.
Immediately upon the action of the New Marriott Board ordering redemption of
the New Marriott Rights, the New Marriott Rights will terminate and the only
right of the holders of New Marriott Rights will be to receive the $.01 per
New Marriott Right redemption price.
The purchase price payable, and the number of shares of New Marriott Junior
Preferred Stock or other securities or property issuable upon exercise of the
New Marriott Rights are subject to adjustment upon the occurrence of certain
events with respect to New Marriott, including stock dividends, subdivisions,
combinations, reclassifications, rights or warrants offerings of New Marriott
Junior Preferred Stock at less than the then-current market price and certain
distributions of property or evidences of indebtedness of New Marriott to
holders of New Marriott Junior Preferred Stock, all as set forth in the New
Marriott Rights Plan.
The New Marriott Rights have certain antitakeover effects. The New Marriott
Rights may cause substantial dilution to a person or group that attempts to
acquire New Marriott on terms not approved by the New Marriott Board, except
pursuant to an offer conditioned on a substantial number of New Marriott
Rights being acquired. The New Marriott Rights should not interfere with any
merger or other business combination approved by the New Marriott Board since
the New Marriott Rights may be redeemed by New Marriott as set forth above.
New Marriott Junior Preferred Stock
In connection with the New Marriott Rights Plan, 800,000 shares of New
Marriott Junior Preferred Stock will be authorized and reserved for issuance
by the New Marriott Board. No shares of New Marriott Junior Preferred Stock
will be outstanding as of the Effective Date. The following statements with
respect to the New Marriott Junior Preferred Stock are subject to the detailed
provisions of the New Marriott Certificate and the certificate of designation
relating to the New Marriott Junior Preferred Stock (the "New Marriott Junior
Preferred Stock Certificate of Designation"). These statements do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, the terms of the New Marriott Certificate and the New Marriott
Junior Preferred Stock Certificate of Designation.
Subject to the prior payment of cumulative dividends on any class of
preferred stock ranking senior to the New Marriott Junior Preferred Stock, a
holder of New Marriott Junior Preferred Stock will be entitled to cumulative
dividends out of funds legally available therefor, when, as and if declared by
the New Marriott Board, at a quarterly rate per share of New Marriott Junior
Preferred Stock equal to the greater of (a) $10.00 or (b) 1000 times (subject
to adjustment upon certain dilutive events) the aggregate per share amount of
all cash dividends and 1000 times (subject to adjustment upon certain dilutive
events) the aggregate per share amount (payable in kind) of all noncash
dividends or other distributions (other than dividends payable in New Marriott
Common Stock or a subdivision of the outstanding shares of New Marriott Common
Stock) declared on New MAR Common Stock since the immediately preceding
quarterly dividend payment date for the New Marriott Junior Preferred Stock
(or since the date of issuance of the New Marriott Junior Preferred Stock if
no such dividend payment date has occurred).
A holder of New Marriott Junior Preferred Stock will be entitled to 1000
votes (subject to adjustment upon certain dilutive events) per share of New
Marriott Junior Preferred Stock on all matters submitted to a vote of
stockholders of New Marriott. Such holders will vote together with the holders
of New Marriott Common Stock as a single class on all matters submitted to a
vote of stockholders of New Marriott.
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In the event of a merger or consolidation of New Marriott that results in
New Marriott Common Stock being exchanged or changed for other stock,
securities, cash or other property, the shares of New Marriott Junior
Preferred Stock will similarly be exchanged or changed in an amount per share
equal to 1000 times (subject to adjustment upon certain dilutive events) the
aggregate amount of stock, securities, cash or other property, as the case may
be, into which each share of New Marriott Common Stock has been exchanged or
changed.
In the event of liquidation, dissolution or winding up of New Marriott, a
holder of New Marriott Junior Preferred Stock will be entitled to receive
$1000 per share, plus accrued and unpaid dividends and distributions thereon,
before any distribution may be made to holders of shares of stock of New
Marriott ranking junior to the New Marriott Junior Preferred Stock, and the
holders of New Marriott Junior Preferred Stock are entitled to receive an
aggregate amount per share equal to 1000 times (subject to adjustment upon
certain dilutive events) the aggregate amount to be distributed per share to
holders of New Marriott Common Stock.
The New Marriott Junior Preferred Stock is not subject to redemption. The
terms of the New Marriott Junior Preferred Stock will provide that New
Marriott is subject to certain restrictions with respect to dividends and
distributions on and redemptions and purchases of shares of stock of New
Marriott ranking junior to or on a parity with the New Marriott Junior
Preferred Stock in the event that payment of dividends or other distributions
payable on the New Marriott Junior Preferred Stock are in arrears.
REASONS FOR THE PROPOSED DUAL CLASS CAPITALIZATION OF NEW MARRIOTT
The Company and New Marriott believe that the issuance of two classes of New
Marriott common stock with different voting rights (the "Dual Class
Capitalization") is in the best interest of New Marriott and its stockholders.
The Company Board believes that the Dual Class Capitalization will (a) provide
New Marriott with greater flexibility in financing its growth, (b) promote
continuity in the leadership, involvement and substantial voting interests of
the Marriott family, (c) provide additional liquidity to stockholders, (d)
help foster the maintenance of long-term business relationships with hotel and
senior living community owners, franchisees and other third parties, and (e)
enhance New Marriott's ability to attract and retain highly qualified key
employees.
The material advantages of the Dual Class Capitalization considered by the
Company Board are described below, and the material disadvantages of such Dual
Class Capitalization are set forth in "--Certain Potential Disadvantages of
the Dual Class Capitalization."
Financing Flexibility
New Marriott plans aggressively to grow its businesses through the addition
of new management contracts and franchises, internal development of new hotels
and senior living communities and strategic acquisitions. The Company has a
history of acquiring businesses which open up new markets, increase market
share or broaden its service offerings, and New Marriott plans actively to
seek opportunities created by the current consolidation trends in the lodging
and senior living service industries.
By permitting New Marriott to issue shares of either high-voting or low-
voting common stock, the Dual Class Capitalization will provide New Marriott
with increased flexibility to issue common stock (i) to raise equity capital
(either through direct issuances of stock or through issuances of convertible
securities) for a variety of corporate purposes, including to finance future
capital expenditures, (ii) as consideration for future acquisitions and (iii)
in connection with employee stock plans as a means of attracting, compensating
and retaining key employees, without significantly diluting the voting power
of the Company's existing stockholders (who will be New Marriott's initial
stockholders). By providing New Marriott with the ability to issue low-voting
New MAR
Common Stock as described above, the Dual Class Capitalization would help
mitigate any reluctance Marriott family members and senior management of New
Marriott might otherwise have to support the issuance of significant
additional shares of authorized common stock of New Marriott because of the
voting dilution such issuance would entail. For a description of the interests
in the Company held by Marriott family members and senior management of New
Marriott, see "SECURITY OWNERSHIP OF NEW MARRIOTT."
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Continuity
The Company Board believes that the Marriott name and family association are
key attributes of New Marriott, which travelers and others associate with high
quality, service, consistency and integrity. These key attributes are largely
attributable to the leadership and commitment of the Marriott family to the
business since its inception. The Company's history of growth, profitability
and financial strength over a period of many years is due in large part to the
continuous, stable leadership provided by Marriott family members, including
their emphasis on long-term results and their ability to forge strategic
relationships with business partners. The Dual Class Capitalization is
expected to reduce the risk of disruption in the continuity of New Marriott's
current operating policies and long-range strategy that might otherwise result
if members of the Marriott family were to dispose of a significant percentage
of their equity interest in New Marriott for estate tax, diversification or
other reasons, or if an unsolicited takeover bid forced an abrupt change of
control and management of New Marriott. Approval of the Proposals, including
ratification of the Dual Class Capitalization, would enable New Marriott to
issue shares of New MAR Common Stock for financing, acquisition and
compensation purposes without significantly diluting the voting power of New
Marriott's initial stockholders, including the interests of the Marriott
family and senior management of New Marriott, although their economic
interests would be diluted by any such share issuance. Members of the Marriott
family have informed the Company and New Marriott that they have no current
plans or arrangements to sell or otherwise dispose of the New MAR Common
Stock. However, the Dual Class Capitalization would permit any initial group
of stockholders that would hold substantial voting power of New Marriott (such
as members of the Marriott family if they were to vote as a group) to retain
such voting power even if such persons substantially reduced their equity
positions in New Marriott.
Stockholders' Flexibility and Liquidity
Stockholders who receive New MAR-A Common Stock and who desire to maintain
their voting positions will be able to do so even if they decide to sell or
otherwise dispose of up to nearly one-half of their equity interest in New
Marriott. The Dual Class Capitalization thus would give all stockholders as of
the Spinoff Record Date, including members of the Marriott family and senior
management of New Marriott, increased flexibility to dispose of a substantial
portion of their equity interest in New Marriott without affecting their
relative voting power. In addition, because stockholders who are interested in
maintaining their voting interest in New Marriott may be more willing to sell
shares of New Marriott if such sale does not result in a decrease in their
relative voting power, the Dual Class Capitalization may result in increased
trading of equity securities of New Marriott, thereby increasing liquidity. It
is anticipated that both the New MAR-A Common Stock and the New MAR Common
Stock will be listed on the NYSE as well as other U.S. exchanges. Furthermore,
the presence of two classes of common stock with different voting rights may
allow holders of New MAR Common Stock, including members of the Marriott
family, to increase voting power without increasing equity investment by
selling shares of New MAR Common Stock and buying shares of New MAR-A Common
Stock with the proceeds (subject to minority protection provisions). Any such
sales of New MAR Common Stock would be taxable events. See "DESCRIPTION OF THE
NEW MARRIOTT CAPITAL STOCK--Common Stock--Minority Rights Protection
Provision."
Business Relationships
To the extent that hotel and senior living community owners, franchisees and
other third parties with significant long-term business relationships with New
Marriott may have concerns about potential changes in the continued leadership
and involvement of the Marriott family, the implementation of the Dual Class
Capitalization may, by promoting stability and continuity, encourage and
strengthen such business relationships.
Key Employees
The Dual Class Capitalization may enhance New Marriott's ability to attract
and retain highly qualified key employees by providing added assurance as to
the continued leadership and involvement of the Marriott family
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and the high standards of service and quality which they have instilled in the
Company since its inception. In addition, by enabling New Marriott to issue
New MAR Common Stock as part of its equity-based compensation plans, such as
the 1998 New Marriott Stock Plan, New Marriott will have the flexibility to
allow key employees to continue to participate in the growth of New Marriott
without materially diluting the voting power of existing stockholders.
CERTAIN POTENTIAL DISADVANTAGES OF THE DUAL CLASS CAPITALIZATION
While the Company Board has determined that implementation of the Dual Class
Capitalization is in the best interests of New Marriott and its stockholders,
the Dual Class Capitalization may also be considered to have certain
disadvantages, including those set forth below.
Change of Control Impact
Members of the Marriott family currently own approximately 19.7 percent of
the existing Company Common Stock and therefore, immediately after the Spinoff
will own approximately 19.7 percent of New MAR Common Stock and 19.7 percent
of New MAR-A Common Stock. While members of the Marriott family have informed
the Company and New Marriott that there are no agreements among them to act in
concert, if those persons were to vote together, they could exercise that
degree of voting power over New Marriott. In the event that the Dual Class
Capitalization is implemented, the Marriott family members, acting in concert,
could retain substantially all of such voting power even if some or all of
their members chose to reduce their total equity position by 50 percent.
Because such persons could dispose of a substantial portion of their economic
interest in New Marriott without significantly reducing their voting
interests, implementation of the Dual Class Capitalization may limit the
future circumstances in which a sale or transfer of equity by members of the
Marriott family could subsequently lead to a merger proposal or tender offer
or to a proxy contest for the removal of incumbent directors, since such
voting interests could be exercised in opposition to any such action.
Consequently the Dual Class Capitalization may deprive stockholders of New
Marriott of an opportunity to sell their shares at a premium over prevailing
market prices and may also make it more difficult to replace the New Marriott
Board and management of New Marriott.
Security For Credit
The Company and New Marriott do not expect that the adoption of the Dual
Class Capitalization will affect the ability of stockholders to use either the
New MAR Common Stock or the New MAR-A Common Stock as security for the
extension of credit by financial institutions, securities brokers or dealers.
Investment By Institutions
Implementation of the Dual Class Capitalization may affect the decision of
certain institutional investors, possibly including institutional investors
that currently hold Company Common Stock, that would otherwise consider
investing in and retaining shares of New Marriott Common Stock. The holding of
comparatively low voting shares may not be permitted by the investment
policies of certain institutional investors or may be less attractive to
managers of certain institutional investors. The Company and New Marriott
cannot predict the effect, if any, the Dual Class Capitalization will have on
the continued holdings of those institutional investors who currently own
Company Common Stock.
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CERTAIN ANTITAKEOVER PROVISIONS APPLICABLE TO NEW MARRIOTT
Before the Effective Date, the New Marriott Certificate and the Bylaws of
New Marriott (the "New Marriott Bylaws") will be amended by the Company, as
sole stockholder of New Marriott, to make the New Marriott Certificate and New
Marriott Bylaws substantially similar to the Company Certificate and Company
Bylaws as currently in effect. Certain provisions of the New Marriott
Certificate and New Marriott Bylaws, as well as the New Marriott Rights Plan
and certain provisions of the DGCL, may have an antitakeover effect with
respect to New Marriott. The preferred stock of New Marriott, if issued, could
also have an antitakeover effect. See "DESCRIPTION OF THE NEW MARRIOTT CAPITAL
STOCK--Preferred Stock."
GENERAL
There has been a history of the accumulation of substantial stock holdings
in public companies by third parties as a prelude to proposing a takeover or a
restructuring or sale of all or part of the target company or another similar
extraordinary corporate action. Such actions are often undertaken by the third
party without advance notice to, or consultation with, the management or board
of directors of the target company. In many cases, the purchaser seeks
representation on the company's board of directors in order to increase the
likelihood that its proposal will be implemented by the company. If the
company resists the efforts of the purchaser to obtain representation on the
company's board, the purchaser may commence a proxy contest to have its
nominees elected to the board in place of certain directors or the entire
board. In some cases, the purchaser may not truly be interested in taking over
the company, but may use the threat of a proxy fight and/or a bid to take over
the company as a means of forcing the company to repurchase its equity
position at a substantial premium over market price.
The Company and New Marriott believe that the imminent threat of removal of
New Marriott's management or the New Marriott Board in such situations would
severely curtail the ability of management or the New Marriott Board to
negotiate effectively with such persons or entities. The management or the New
Marriott Board would be deprived of the time and information necessary to
evaluate the takeover proposal, to study alternative proposals and to help
ensure that the best price is obtained in any transaction involving New
Marriott which may ultimately be undertaken. If the real purpose of a takeover
bid were to force New Marriott to repurchase an accumulated stock interest at
a premium price, management or the New Marriott Board would face the risk
that, if it did not repurchase the stock interest of such person or entity,
New Marriott's business and management would be disrupted, perhaps
irreparably.
Certain provisions of the New Marriott Certificate and Bylaws, in the view
of the Company and New Marriott, together with the New Marriott Rights Plan,
will help ensure that the New Marriott Board, if confronted by a surprise
proposal from a third party that has acquired or proposes to acquire a block
of stock, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to act in what it believes to be the best
interests of the stockholders. In addition, certain other provisions of the
New Marriott Certificate are designed to prevent a purchaser from utilizing
two-tier pricing and similar inequitable tactics in the event of an attempt to
take over New Marriott.
These provisions, individually and collectively, will make difficult and may
discourage a merger, tender offer or proxy fight, even if such transaction or
occurrence may be favorable to the interest of the stockholders and may delay
or frustrate the assumption of control by a holder of a large block of New
Marriott and the removal of incumbent management, even if such removal might
be beneficial to the stockholders. Furthermore, these provisions may deter or
could be utilized to frustrate a future takeover attempt which is not approved
by the incumbent New Marriott Board, but which the holders of a majority of
the shares may deem to be in their best interest or in which stockholders may
receive a substantial premium for their stock over prevailing market prices of
such stock. By discouraging takeover attempts, these provisions might have the
incidental effect of inhibiting certain changes in management (some or all of
the members of which might be replaced in the course of a change of control)
and also the temporary fluctuations in the market price of the stock which
often result from actual or rumored takeover attempts.
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NEW MARRIOTT CERTIFICATE AND BYLAWS
The New Marriott Certificate will contain several provisions that will make
difficult an acquisition of control of New Marriott, by means of a tender
offer, open market purchases, a proxy contest or otherwise, that is not
approved by the New Marriott Board. The New Marriott Bylaws will also contain
provisions that could have an antitakeover effect.
The purposes of the relevant provisions of the New Marriott Certificate and
the New Marriott Bylaws are to discourage certain types of transactions,
described above, which may involve an actual or threatened change of control
of New Marriott and to encourage persons or entities seeking to acquire
control of New Marriott to consult first with the New Marriott Board to
negotiate the terms of any proposed business combination or offer. The
provisions are designed to reduce the vulnerability of New Marriott to an
unsolicited proposal for a takeover that does not contemplate the acquisition
of all outstanding shares or is otherwise unfair to stockholders of New
Marriott or an unsolicited proposal for the restructuring or sale of all or
part of New Marriott. The Company and New Marriott believe that, as a general
rule, such proposals would not be in the best interests of New Marriott and
its stockholders.
Set forth below is a description of such provisions in the New Marriott
Certificate and Bylaws. Such description is intended as a summary only and is
qualified in its entirety by reference to the New Marriott Certificate and New
Marriott Bylaws, the forms of which are attached to this Proxy Statement as
Appendix J and Appendix K, respectively.
Classified Board of Directors
The New Marriott Certificate provides for the New Marriott Board to be
divided into three classes serving staggered terms so that directors' initial
terms will expire either at the 1998, 1999 or 2000 annual meeting of
stockholders. Starting with the 1998 annual meeting of New Marriott
stockholders, one class of directors will be elected each year for three-year
terms. See "MANAGEMENT OF NEW MARRIOTT--New Marriott Board of Directors."
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the New Marriott Board
in a relatively short period of time. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in
a majority of the New Marriott Board. Such a delay may help ensure that the
New Marriott Board, if confronted by a holder attempting to force a stock
repurchase at a premium above prices, a proxy contest, or an extraordinary
corporate transaction, will have sufficient time to review the proposal and
appropriate alternatives to the proposal and to act in what it believes are
the best interest of the stockholders.
The classified board provision could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to obtain control of
New Marriott, even though such an attempt might be beneficial to New Marriott
and its stockholders. The classified board provision could thus increase the
likelihood that incumbent directors will retain their positions. In addition,
since the classified board provision is designed to discourage accumulations
of large blocks of New Marriott's stock by purchasers whose objective is to
have such stock repurchased by New Marriott at a premium, the classified board
provision could tend to reduce the temporary fluctuations in the market price
of New Marriott's stock that could be caused by accumulations of large blocks
of such stock. Accordingly, stockholders could be deprived of certain
opportunities to sell their stock at a temporarily higher market price.
The Company and New Marriott believe that a classified board of directors
will help to assure the continuity and stability of the New Marriott's
business strategies and policies as determined by the Board, because generally
a majority of the directors at any given time will have had prior experience
as directors of New Marriott. The classified board provision will also help
assure that the New Marriott Board, if confronted with an unsolicited proposal
from a third party that has acquired a block of the voting stock of New
Marriott, will have sufficient time to review the proposal and appropriate
alternatives and to seek the best available result for all stockholders.
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Removal; Filling Vacancies
The New Marriott Certificate provides that, subject to any rights of the
holders of preferred stock, only a majority of the New Marriott Board then in
office will have the authority to fill any vacancies on the New Marriott
Board, including vacancies created by an increase in the number of directors.
In addition, the New Marriott Certificate provides that a new director elected
to fill a vacancy on the New Marriott Board will serve for the remainder of
the full term of his or her class and that no decrease in the number of
directors will shorten the term of an incumbent. Moreover, the New Marriott
Certificate provides that directors may be removed with or without cause only
by the affirmative vote of holders of at least 66 2/3 percent of the voting
power of the shares entitled to vote at the election of directors, voting
together as a single class. These provisions relating to removal and filing of
vacancies on the New Marriott Board will preclude stockholders from enlarging
the New Marriott Board or removing incumbent directors and filing the
vacancies with their own nominees.
Limitations on Stockholder Action by Written Consent; Special Meetings
The New Marriott Certificate and New Marriott Bylaws provide that
stockholder action can be taken only at an annual or special meeting of
stockholders and prohibit stockholder action by written consent in lieu of a
meeting. The New Marriott Certificate and New Marriott Bylaws provide that,
subject to the rights of holders of any series of preferred stock, special
meetings of stockholders can be called only by a majority of the entire New
Marriott Board. Stockholders are not permitted to call a special meeting or to
require that the New Marriott Board call a special meeting of stockholders.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting by or at
the direction of the New Marriott Board.
The provisions of the New Marriott Certificate and New Marriott Bylaws
restricting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by a majority of the entire New Marriott
Board. These provisions would also prevent the holders of a majority of the
voting power of the voting stock from using the written consent procedure to
take stockholder action and from taking action by consent without giving all
the stockholders of New Marriott entitled to vote on a proposed action the
opportunity to participate in determining such proposed action. Moreover, a
stockholder could not force stockholder consideration of a proposal over the
opposition of the New Marriott Board by calling a special meaning of
stockholders prior to the time the New Marriott Board believed such
consideration to be appropriate.
The Company and New Marriott believe that such limitations on stockholder
action will help to assure the continuity and stability of the New Marriott
Board and New Marriott's business strategies and policies as determined by the
New Marriott Board, to the benefit of all of New Marriott's stockholders. If
conformed with an unsolicited proposal from stockholders in New Marriott, the
New Marriott Board will have sufficient time to review such proposal and to
seek the best available result for all stockholders, before such proposal is
approved by such stockholders by written consent in lieu of a meeting or
through a special meeting of stockholders.
Nominations of Directors and Stockholders Proposals
The New Marriott Bylaws establish an advance notice procedure with regard to
the nomination other than by or at the direction of the New Marriott Board of
candidates for election as directors (the "Nomination Procedure") and with
regard to stockholder proposals to be brought before an annual or special
meeting of stockholders (the "Business Procedure").
The Nomination Procedure provides that only persons who are nominated by or
at the direction of the New Marriott Board, or by a stockholder who has given
timely prior written notice to the Secretary of New Marriott prior to the
meeting at which directors are to be elected, will be eligible for election as
directors. The Business Procedure provides that stockholders proposals must be
submitted in writing in a timely manner in order to be considered at any
annual or special meeting. To be timely, notice must be received by New
Marriott (i) in the case of an annual meeting, not less than 90 days prior to
the first anniversary of the prior year's annual meeting;
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provided, that in the event that the date of the annual meeting is advanced
more than 30 days or delayed more than 60 days from such anniversary date,
such notice must be delivered not later than the close of business on the
seventh day following the day on which notice of such meeting is first given
to stockholders, or (ii) in the case of a special meeting not later than the
seventh day following the day on which notice of such meeting is first given
to stockholders for both a director nomination and a stockholder proposal.
Under the Nomination Procedure, notice to New Marriott from a stockholder
who proposes to nominate a person at a meeting for election as a director must
contain certain information about the person, including age, business and
residence addresses, principal occupation, the class and number of shares of
New Marriott stock beneficially owned, the consent to be nominated and such
other information as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee, and certain
information about the stockholder proposing to nominate that person. Under the
Business Procedure, notice relating to a stockholder proposal must contain
certain information about such proposal and about the stockholder who proposes
to bring the proposal before the meeting, including the class and number of
shares of New Marriott Common Stock beneficially owned by such stockholder. If
the Chairman or other officer presiding at a meeting determines that a person
was not nominated in accordance with the Nomination Procedure, such person
will not be eligible for election as a director, or if he or she determines
that the stockholder proposal was not properly brought before such meeting,
such proposal will not be introduced at such meeting. Nothing in the
Nomination Procedure or the Business Procedure will preclude discussion by any
stockholder of any nomination or proposal properly made or brought before an
annual or special meeting in accordance with the above-mentioned procedures.
The purpose of the Nomination Procedure is, by requiring advance notice of
nomination by stockholders, to afford the New Marriott Board a meaningful
opportunity to consider the qualification of the proposed nominees and, to the
extent deemed necessary or desirable by the New Marriott Board, to inform
stockholders about such qualifications. The purpose of the Business Procedure
is, by requiring advance notice of stockholder proposals, to provide a more
orderly procedure for conducting annual meetings of stockholders and, to the
extent deemed necessary or desirable by the New Marriott Board, to provide the
New Marriott Board with a meaningful opportunity to inform stockholders, prior
to such meetings, of any proposal to be introduced at such meetings, together
with any recommendation as to the New Marriott Board's position or belief as
to action to be taken with respect to such proposal, so as to enable
stockholders better to determine whether they desire to attend such meeting or
grant a proxy to the New Marriott Board as to the disposition of any such
proposal. Although the New Marriott Bylaws do not give the New Marriott Board
any power to approve or disapprove stockholder nomination for the election of
directors or of any other proposal submitted by stockholders, the New Marriott
Bylaws may have the effect of precluding a nomination for the election of
directors or precluding the conducting of business at a particular stockholder
meeting if the proper procedures are not followed, and may discourage or deter
a third party from conducting a solicitation of proxies to elect its own slate
of directors or otherwise attempting to obtain control of New Marriott, even
if the conduct of such solicitation or such attempt might be beneficial to New
Marriott and its stockholders.
Fair Price Provision
Article Fifteen of the New Marriott Certificate (the "Fair Price Provision")
requires the approval by the holders of 66 2/3 percent of the voting power of
the outstanding capital stock of New Marriott entitled to vote generally in
the election of directors (the "New Marriott Voting Stock") as a condition for
mergers and certain other business combinations ("Business Combinations")
involving New Marriott and any holder of more than 25 percent of such voting
power (a "Substantial New Marriott Stockholder") unless (i) the transaction is
approved by a majority of the members of the New Marriott Board who are not
affiliated with the Substantial New Marriott Stockholder and who were
directors before the Substantial New Marriott Stockholder became a Substantial
New Marriott Stockholder (the "Disinterested Directors") or (ii) certain
minimum price and procedural requirements are met.
The Fair Price Provision is designed to prevent a third party from utilizing
two-tier pricing and similar inequitable tactics in a takeover attempt. The
Fair Price Provision is not designed to prevent or discourage tender
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offers for New Marriott. It does not impede an offer for at least 66 2/3
percent of the New Marriott Voting Stock in which each stockholder receives
substantially the same price for his or her shares as each other stockholder
or which the New Marriott Board has approved in the manner described herein.
Nor does the Fair Price Provision preclude a third party from making a tender
offer for some of the shares of New Marriott Voting Stock without proposing a
Business Combination in which the remaining shares of New Marriott Voting
Stock are purchased. Except for the restrictions on Business Combinations, the
Fair Price Provision will not prevent a Substantial New Marriott Stockholder
having a controlling interest of the New Marriott Voting Stock from exercising
control over New Marriott or increasing its interest in New Marriott.
Moreover, a Substantial New Marriott Stockholder could increase its ownership
to 66 2/3 percent and avoid application of the Fair Price Provision. However,
the separate provisions contained in the New Marriott Certificate and the
Bylaws relating to "Classified Board of Directors" discussed above will, as
therein indicated, curtail a Substantial New Marriott Stockholder's ability to
exercise control in several respects, including that stockholder's ability to
change incumbent directors who may oppose a Business Combination or to
implement a Business Combination by written consent without a stockholder
meeting. The Fair Price Provision would, however, discourage some takeover
attempts by persons or entities intending to acquire New Marriott in two steps
and to eliminate remaining stockholder interests by means of a business
combination involving less value per share than the acquiring person would
propose to pay for its initial interest in New Marriott. In addition,
acquisitions of stock by persons or entities attempting to acquire control
through market purchases may cause the market price of the stock to reach
levels which are higher than would otherwise be the case. The Fair Price
Provision may thereby deprive some holders of the New Marriott Common Stock of
an opportunity to sell their shares at a temporarily higher market price.
Although the Fair Price Provision is designed to help assure fair treatment
of all stockholders vis-a-vis other stockholders in the event of a takeover,
it is not the purpose of the Fair Price Provision to assure that stockholders
will receive a premium price for their shares in a takeover. Accordingly, the
New Marriott Board is of the view that the adoption of the Fair Price
Provision would not preclude the New Marriott Board's opposition to any future
takeover proposal that it believes would not be in the best interests of New
Marriott and its stockholders, whether or not such a proposal satisfies the
minimum price criteria and procedural requirements of the Fair Price
Amendment.
Amendment of the New Marriott Certificate and Bylaws
The New Marriott Certificate contains provisions requiring the affirmative
vote of the holders of at least 66 2/3 percent of the voting power of the
stock entitled to vote generally in the election of directors to amend certain
provisions of the New Marriott Certificate and New Marriott Bylaws (including
the provisions discussed above). These provisions will make it more difficult
for stockholders to make changes in the New Marriott Certificate or New
Marriott Bylaws, including changes designed to facilitate the exercise of
control over New Marriott. In addition, the requirement for approval by at
least a 66 2/3 percent stockholder vote will enable the holders of a minority
of New Marriott's capital stock to prevent holders of a less-than-66 2/3
percent majority from amending such provisions of the New Marriott Certificate
or Bylaws.
Dual Class Stock
New Marriott will have two classes of common stock. New MAR Common Stock and
New MAR-A Common Stock. The existence of two classes of New Marriott Common
Stock may have certain antitakover effects. See "DESCRIPTION OF THE NEW
MARRIOTT CAPITAL STOCK--Certain Potential Disadvantages of the Dual Class
Capitalization."
NEW MARRIOTT RIGHTS PLAN
The New Marriott Rights Plan has certain antitakover effects that are
described in "DESCRIPTION OF THE NEW MARRIOTT CAPITAL STOCK--Rights Plan and
Junior Preferred Stock."
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SECTION 203 OF THE DGCL
Under Section 203 of the DGCL as applicable to New Marriott, certain
"business combinations" (defined generally to include (i) mergers or
consolidations between a Delaware corporation and an interested stockholder
(as defined below) and (ii) transactions between a Delaware corporation and an
interested stockholder involving the assets or stock of such corporation or
its majority-owned subsidiaries, including transactions which increase the
interested stockholder's percentage ownership of stock) between a Delaware
corporation, whose stock generally is publicly traded or held of record by
more than 2,000 stockholders, and an interested stockholder (defined generally
as those stockholders, who, on or after December 23, 1987, become beneficial
owner of 15 percent or more of a Delaware corporation's voting stock) are
prohibited for a three-year period following the date that such stockholder
became an interested stockholder, unless (i) prior to the date such
stockholder became an interested stockholder, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction that made such stockholder an interested
stockholder, the interested stockholder owned at least 85 percent of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding voting stock owned by officers who are also directors and
voting stock held in employee benefit plans in which the employees do not have
a confidential right to tender or vote stock held by the plan), or (iii) the
business combination was approved by the board of directors of the corporation
and ratified by two-thirds of the voting stock which the interested
stockholder did not own. The three-year prohibition also does not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of certain extraordinary transactions
involving the corporation and a person who had been an interested stockholder
during the previous three years or who became an interested stockholder with
the approval of a majority of the corporation's directors.
Prior to effecting the Spinoff, the New Marriott Board will take action to
preapprove the acquisition of shares of New Marriott Common Stock as a result
of the Spinoff by certain stockholders in the Company, such that stockholders
in the Company who are not subject to the restriction contained in Section 203
of the DGCL prior to the Spinoff with respect to business combinations with
the Company will not, as a result of the receipt of New Marriott Common Stock
in the Spinoff, become subject to Section 203 restrictions subsequent to the
Spinoff with respect to a business combination with New Marriott. Such
preapproval will not apply to stockholders in the Company who are "interested
stockholders" in the Company under Section 203 prior to the Spinoff and who
are subject to Section 203 restrictions with respect to business combinations
with the Company, such that such interested stockholders will continue to
subject to Section 203 restriction with respect to a business combination with
New Marriott upon receipt of New Marriott Common Stock in the Spinoff. The
Company believes that there are not any stockholders that currently constitute
"interested stockholders" under Section 203; however, any stockholder who
became the beneficial owner of 15 percent or more of the Company Common Stock
between the date hereof and the Effective Date would become an interested
stockholder in the Company and also in New Marriott upon consummation of the
Spinoff.
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LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF NEW MARRIOTT
Articles Eleventh and Sixteenth of the New Marriott Certificate and Section
7.7 of the New Marriott Bylaws (the "New Marriott Director Liability and
Indemnification Provisions") limit the personal liability of New Marriott
directors to the company or its stockholders for monetary damages for breach
of fiduciary duty. The New Marriott Director Liability and Indemnification
Provisions are substantially identical to comparable provisions contained in
the Company Certificate and the Company Bylaws.
The New Marriott Director Liability and Indemnification Provisions define
and clarify the rights of certain individuals, including New Marriott
directors and officers, to indemnification by New Marriott in the event of
personal liability or expenses incurred by them as a result of certain
litigation against them. Such provisions are consistent with Section 102(b)(7)
of the DGCL, which is designed, among other things, to encourage qualified
individuals to serve as directors of Delaware corporations by permitting
Delaware corporations to include in their certificates of incorporation a
provision limiting or eliminating directors' liability for monetary damages
and with other existing DGCL provisions permitting indemnification of certain
individuals, including directors and officers. The limitations of liability in
the New Marriott Director Liability and Indemnification Provisions may not
affect claims arising under the federal securities laws.
In performing their duties, directors of a Delaware corporation are
obligated as fiduciaries to exercise their business judgment and act in what
they reasonably determine in good faith, after appropriate consideration, to
be the best interests of the corporation and its stockholders. Decisions made
on that basis are protected by the so-called "business judgment rule." The
business judgment rule is designed to protect directors from personal
liability to the corporation or its stockholders when business decisions are
subsequently challenged. However, the expense of defending lawsuits, the
frequency with which unwarranted litigation is brought against directors and
the inevitable uncertainties with respect to the outcome of applying the
business judgment rule to particular facts and circumstances mean that, as a
practical matter, directors and officers of a corporation rely on indemnity
from, and insurance procured by, the corporation that serves as a financial
backstop in the event of such expenses or unforeseen liability. The Delaware
legislature has recognized that adequate insurance and indemnity provisions
are often a condition of an individual's willingness to serve as director of a
Delaware corporation. The DGCL has for some time specifically permitted
corporations to provide indemnity and procure insurance for its directors and
officers.
The Company maintains directors' and officers' insurance coverage which it
believes to be comparable to that maintained by companies of similar size in
similar lines of business.
The New Marriott Director Liability and Indemnification Provisions will be
approved, along with the rest of the New Marriott Certificate and the New
Marriott Bylaws, by the Company, as sole stockholder of New Marriott before
the Effective Date.
Set forth below is a description of the New Marriott Director Liability and
Indemnification Provisions. Such description is intended as a summary only and
is qualified in its entirety by reference to the New Marriott Certificate and
the New Marriott Bylaws.
LIMITATION OF LIABILITY FOR DIRECTORS
Article Sixteenth of the New Marriott Certificate protects directors against
monetary damages for breaches of their fiduciary duty of care, except as set
forth below. Under the DGCL, absent Article Sixteenth, directors could
generally be held liable for gross negligence for decisions made in the
performance of their duty of care but not for simple negligence. Article
Sixteenth eliminates director liability for negligence in the performance of
their duties, including gross negligence. In a context not involving a
decision by the directors (i.e., a suit alleging loss to the company due to
the directors' inattention to a particular matter) a simple negligence
standard might apply. Directors remain liable for breaches of their duty of
loyalty to the company and its stockholders, as well
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as acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law and transactions from which a director derives
improper personal benefit. Article Sixteenth does not eliminate director
liability under Section 174 of the DGCL, which makes directors personally
liable for unlawful dividends or unlawful stock repurchases or redemptions and
expressly sets forth a negligence standard with respect to such liability.
While Article Sixteenth provides directors with protection from awards of
monetary damages for breaches of the duty of care, it does not eliminate the
directors' duty of care. Accordingly, Article Sixteenth will have no effect on
the availability of equitable remedies such as an injunction or rescission
based upon a director's breach of the duty of care. The provisions of Article
Sixteenth that eliminate liability as described above will apply to officers
of New Marriott only if they are directors of New Marriott and are acting in
their capacity as directors, and will not apply to officers of the New
Marriott who are not directors. The elimination of liability of directors for
monetary damages in the circumstances described above may deter persons from
bringing third-party or derivative actions against directors to the extent
those actions seek monetary damages.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the DGCL, directors and officers as well as other
employees and individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in
connection with specified actions, suits or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation--a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of New Marriott, and with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. A
similar standard of care is applicable in the case of derivative actions,
except that indemnification only extends to expenses (including attorneys'
fees) incurred in connection with defense or settlement of such an action and
the DGCL requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to New Marriott.
Section 7.7 of the New Marriott Bylaws provides that New Marriott will
indemnify any person to whom, and to the extent, indemnification may be
granted pursuant to Section 145 of the DGCL.
Article Eleventh of the New Marriott Certificate provides that each person
who was or is made a party to, or is otherwise involved in any action, suit or
proceeding by reason of the fact that he or she is or was a director, officer
or employee of New Marriott or is or was serving at the request of New
Marriott as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (an "indemnitee"), whether the basis
of such proceeding is alleged activity in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless
by New Marriott to the fullest extent authorized by the DGCL, as the same
exists or may be amended (but, in the case of any such amendment, only to the
extent that such amendment permits New Marriott to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably incurred or
suffered by such indemnitee in connection therewith and such indemnification
shall continue as to an indemnitee who has ceased to be a director, officer or
employee and shall inure to the benefit of the indemnitee's heirs, executors
and administrators; provided that except with respect to proceedings to
enforce rights to indemnification, New Marriott shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by such
indemnitee only if such proceeding (or part thereof) was authorized by the
board of directors. Article Eleven also provides that the right of
indemnification will be in addition to and not exclusive of all other rights
to which that director, officer or employee may be entitled.
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APPOINTMENT OF INDEPENDENT AUDITORS
APPOINTMENT OF PRICE WATERHOUSE LLP AS SMS'S INDEPENDENT AUDITORS
Subject to stockholder approval, the Company Board, in accordance with the
terms of the Acquisition Agreement, has appointed Price Waterhouse LLP, a firm
of independent public accountants, as independent auditors, to examine and
report to stockholders on the consolidated financial statements of SMS and its
subsidiaries for fiscal year 1998, which appointment would become effective
from and after the consummation of the Transactions. Price Waterhouse LLP
would replace Arthur Andersen LLP, the Company's independent auditors for
fiscal 1997. Representatives of Price Waterhouse LLP will be present at the
Special Meeting and will be given an opportunity to make a statement. They
will be available to respond to appropriate questions.
The action of the Company Board in appointing Price Waterhouse LLP as SMS's
independent auditors for fiscal year 1998, effective from and after the
consummation of the Transactions, is subject to ratification by an affirmative
vote of the holders of a majority of shares of Company Common Stock present in
person or represented by proxy at the Special Meeting.
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF PRICE
WATERHOUSE LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
APPOINTMENT OF ARTHUR ANDERSEN LLP AS NEW MARRIOTT'S INDEPENDENT AUDITORS
Subject to stockholder approval, the Company, as sole stockholder of New
Marriott, has appointed Arthur Andersen LLP, a firm of independent public
accountants, as independent auditors, to examine and report to stockholders on
the consolidated financial statements of New Marriott and its subsidiaries for
fiscal year 1998. Representatives of Arthur Andersen LLP will be present at
the Special Meeting and will be given an opportunity to make a statement. They
will be available to respond to appropriate questions.
The action of the Company in appointing Arthur Andersen LLP as New
Marriott's independent auditors for fiscal year 1998 is subject to
ratification by an affirmative vote of the holders of a majority of shares of
Company Common Stock present in person or represented by proxy at the Special
Meeting.
THE COMPANY BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF ARTHUR
ANDERSEN LLP AS NEW MARRIOTT'S INDEPENDENT AUDITORS.
SUBMISSION OF STOCKHOLDER PROPOSALS
If the Transactions are consummated, SMS will convene an annual meeting of
stockholders currently expected to be held in May, 1998. After the Effective
Date, however, the SMS Board may consider adopting a new fiscal year-end more
appropriate to the food services and facilities management business. In that
event, the SMS Board may decide to reschedule the 1998 annual stockholders
meeting as appropriate. If such a decision is made, SMS will promptly make a
public announcement and file a Form 8-K with the SEC. Any stockholder wishing
to submit a proposal for inclusion in the Proxy Statement for the 1998 Sodexho
Marriott Services, Inc. Annual Meeting under the stockholder proposal rules of
the Commission must have submitted the proposal so that it was received by the
Company at its principal executive offices no later than November 24, 1997 in
order for it to be considered for inclusion in the SMS 1998 Proxy Statement.
In the event that the SMS Board decides to reschedule the 1998 annual
stockholder meeting, it will also announce a revised date by which stockholder
proposals must be submitted.
If the Transactions are consummated, New Marriott will convene an annual
meeting of stockholders currently expected to be held in May 1998. Stockholder
proposals intended to be included in the Proxy Statement for the 1998 New
Marriott Annual Meeting under the stockholder proposal rules of the Commission
must have been received at New Marriott's principal executive offices no later
than November 24, 1997 in order to be considered for inclusion in the New
Marriott 1998 Proxy Statement.
If for any reason the Transactions are not consummated, stockholder
proposals intended to be presented at the Company's 1998 Annual Meeting of
Stockholders must have been received at New Marriott's principal executive
offices no later than November 24, 1997.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT INCORPORATES BY REFERENCE DOCUMENTS NOT INCLUDED HEREIN
OR DELIVERED HEREWITH. THOSE DOCUMENTS (EXCLUDING EXHIBITS UNLESS SPECIFICALLY
INCORPORATED HEREIN) ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
SECRETARY, CORPORATE LEGAL DEPARTMENT, MARRIOTT INTERNATIONAL, INC., 10400
FERNWOOD ROAD, BETHESDA, MARYLAND 20817. TELEPHONE REQUESTS MAY BE DIRECTED TO
(301) 380-3000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY MARCH 1, 1998.
The following documents filed with the Commission by the Company (File No.
1-12188) are incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended January 3, 1997
(containing audited financial statements).
2. Quarterly Reports on Form 10-Q for the fiscal quarters ended March 28,
1997, June 20, 1997 and September 12, 1997.
3. Current Reports on Form 8-K dated March 18, 1997, June 21, 1997,
September 18, 1997 and October 1, 1997, Form 8-K/A dated June 21, 1997 and
Form 8-A/A filed on October 15, 1997.
The following sections are not set forth in this Proxy Statement but instead
incorporate by reference the equivalent sections in the Annual Report on Form
10-K of the Company for the fiscal year ended January 3, 1997 and the
Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended
September 12, 1997: "Selected Financial Data of the Company," "Supplementary
Financial Information of the Company" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--The Company." The
Company's Consolidated Financial Statements are incorporated herein by
reference to the Annual Report on Form 10-K of the Company for the fiscal year
ended January 3, 1997.
All documents filed by the Company under Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date hereof and prior to the date of the
Special Meeting will be deemed to be incorporated herein by reference and to
be a part hereof from the date of such filing. Any statement contained herein
or in a document incorporated or deemed to be incorporated herein by reference
will be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein or in any other subsequently filed document
which also is, or is deemed to be, incorporated herein by reference modifies
or supersedes such statement. Any such statement so modified or superseded
will not be deemed to constitute a part hereof, except as so modified or
superseded.
FORM 10-K ANNUAL REPORT
Any stockholder who desires a copy of the Company's 1996 Annual Report on
Form 10-K, filed with the SEC, may obtain a copy (excluding exhibits) without
charge by addressing a request to the Secretary, Marriott International, Inc.,
Marriott Drive, Dept. 52/862, Washington, D.C. 20058. A charge equal to the
reproduction cost will be made if the exhibits are requested.
By Order of the Board of Directors
W. David Mann
Secretary
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INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
TERM NUMBER
- ---- ------
<S> <C>
Acquisition.............................................................. 5
Acquisition Agreement.................................................... 17
Acquisition Proposal..................................................... 37
Affiliate................................................................ 140
Amendment Agreement...................................................... 33
American Appraisal....................................................... 8
approved retirees........................................................ 98
broker non-votes......................................................... 21
Business Combinations.................................................... 152
Business Procedure....................................................... 151
CAGR..................................................................... 27
CCA...................................................................... 93
Code..................................................................... 16
Combined Business Material Adverse Effect................................ 39
Combined Fee............................................................. 47
Company.................................................................. 1
Company Board............................................................ 5
Company Bylaws........................................................... 127
Company Charter.......................................................... 127
Company Common Stock..................................................... 5
Company Deferred Compensation Plan....................................... 42
Company Forecast......................................................... 26
Company Guarantees....................................................... 116
Company 1995 Directors Plan.............................................. 43
Company 1993 Stock Plan.................................................. 43
Company 1996 Stock Plan.................................................. 43
Company Parties.......................................................... 38
Company Profit Sharing Plan.............................................. 42
Company Rights Plan...................................................... 41
Company Senior Note Amount............................................... 35
Company Senior Notes..................................................... 35
Company Senior Notes Indenture........................................... 35
Company Stock Plans...................................................... 43
Comparable Acquisitions.................................................. 29
Contract Services Comparables............................................ 28
Core MMS Business........................................................ 44
Corporate Tax............................................................ 16
Covered Claims........................................................... 45
Designated Directors..................................................... 46
DGCL..................................................................... 9
Disinterested Directors.................................................. 152
Distribution Agreement................................................... 19
DRS...................................................................... 48
Dual Class Capitalization................................................ 146
EBIT..................................................................... 27
EBITDA................................................................... 27
Effective Date........................................................... 7
Employee Benefits Allocation Agreement................................... 42
EPS...................................................................... 27
</TABLE>
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<TABLE>
<CAPTION>
PAGE
TERM NUMBER
- ---- ------
<S> <C>
Excess Shares........................................................... 50
Exchange Act............................................................ 37
Executive Officer Incentive Plan........................................ 107
Exempt Shares........................................................... 135
Existing Bank Facility.................................................. 6
Existing Bank Facility Amount........................................... 36
Fairness Opinion........................................................ 26
Fair Price Provision.................................................... 152
Family Enterprises...................................................... 115
Fiduciary Termination................................................... 37
Financial Performance Data.............................................. 27
First Call.............................................................. 27
Former Employees........................................................ 42
Forum Group............................................................. 25
Fractional SMS Stockholders............................................. 131
FY...................................................................... 27
Gardner Merchant........................................................ 51
Gardner Merchant Acquisition............................................ 51
Guaranteed SMS Facility................................................. 119
Headquarters............................................................ 46
Host Marriott........................................................... 83
Host Marriott Common Stock.............................................. 109
Host Marriott Option.................................................... 109
Host Marriott Credit Agreement.......................................... 116
Host Marriott Distribution.............................................. 109
Host Marriott Services.................................................. 109
Host Marriott Services Distribution..................................... 109
Host Marriott Lodging Management Agreements............................. 116
Host Marriott Senior Living Management Agreements....................... 116
HSR Act................................................................. 39
I/B/E/S................................................................. 27
ICC..................................................................... 5
ICC Conversion Options.................................................. 99
ICC Stock Option Plan................................................... 97
indemnitee.............................................................. 156
Individual Performance Plan............................................. 107
interested stockholders................................................. 154
IRS..................................................................... 8
LIBOR................................................................... 119
Lodging Comparables..................................................... 27
LTM..................................................................... 27
LYONs................................................................... 36
LYONs Allocation Agreement.............................................. 36
LYONs Amount............................................................ 36
LYONs Indenture......................................................... 36
Marriott Corp. Stock Plan............................................... 109
Marriott International Option........................................... 109
McIntosh Mill........................................................... 115
MCS..................................................................... 53
MDS..................................................................... 45
</TABLE>
160
<PAGE>
<TABLE>
<CAPTION>
PAGE
TERM NUMBER
- ---- ------
<S> <C>
Merger Sub.............................................................. 17
Merrill Lynch........................................................... 8
MES..................................................................... 53
Minority Rights Protection Provision.................................... 140
Minority Rights Protection Transaction.................................. 142
MHCS.................................................................... 53
MMS..................................................................... 10
MMS Business............................................................ 6
MMS Canada.............................................................. 34
MMS UK.................................................................. 53
Morgan Guaranty......................................................... 119
MORI.................................................................... 115
MSS..................................................................... 53
MVCI.................................................................... 78
MWC..................................................................... 34
Named Executive Officers................................................ 125
New MAR Common Stock.................................................... 7
New MAR Common Stock Shortfall.......................................... 142
New MAR-A Common Stock.................................................. 7
New Marriott............................................................ 1
New Marriott Acquiring Person........................................... 144
New Marriott Board...................................................... 100
New Marriott Business................................................... 6
New Marriott Bylaws..................................................... 149
New Marriott Certificate................................................ 139
New Marriott Common Stock............................................... 7
New Marriott Compensation Committee..................................... 110
New Marriott Director Liability and Indemnification Provisions.......... 155
New Marriott Employees.................................................. 42
New Marriott Facility................................................... 121
New Marriott Junior Preferred Stock..................................... 143
New Marriott Junior Preferred Stock Certificate of Designation.......... 145
New Marriott Occurrence Date............................................ 144
New Marriott Profit Sharing Plan........................................ 42
New Marriott Rights Certificates........................................ 143
New Marriott Rights Plan................................................ 143
New Marriott Rights' Purchase Price..................................... 143
New Marriott Stock Acquisition Date..................................... 144
New Marriott Stock Plan................................................. 110
New Marriott Unit....................................................... 143
New Marriott Voting Stock............................................... 152
New World Development................................................... 101
Noncompetition Agreement................................................ 44
Nomination Procedure.................................................... 151
NYSE.................................................................... 7
old certificates........................................................ 49
Omnibus Agreement....................................................... 33
Operating Agreements.................................................... 56
Person.................................................................. 140
Philadelphia Mortgage................................................... 116
</TABLE>
161
<PAGE>
<TABLE>
<CAPTION>
PAGE
TERM NUMBER
- ---- ------
<S> <C>
Proposal Five........................................................... 20
Proposal Four........................................................... 20
Proposal One............................................................ 19
Proposal Six............................................................ 20
Proposal Three.......................................................... 20
Proposal Two............................................................ 19
Proposals............................................................... 5
Regular Cash Dividend................................................... 140
Replacement SMS Debt.................................................... 6
Reporting Persons....................................................... 114
Request for Physical Certificates....................................... 49
Restructuring Agreements................................................ 33
Revolving SMS Facility.................................................. 119
REVPAR.................................................................. 61
RHG..................................................................... 35
RHG Finance............................................................. 6
RHG Senior Note Amount.................................................. 36
RHG Senior Notes........................................................ 35
RHG Senior Notes Indenture.............................................. 35
Rule 144A Securities.................................................... 120
SEC..................................................................... 48
Secured SMS Facility.................................................... 119
Securities Act.......................................................... 39
Selected Balance Sheet, Cash Flow & Credit Data......................... 27
Significant New Marriott Stockholder.................................... 142
Services Agreements..................................................... 116
SMS..................................................................... 1
SMS Acquiring Person.................................................... 135
SMS Allocable Portion................................................... 44
SMS Board............................................................... 9
SMS Business............................................................ 42
SMS Bylaws.............................................................. 127
SMS Charter............................................................. 127
SMS Common Stock........................................................ 5
SMS Compensation Committee.............................................. 97
SMS Deferred Compensation Plan.......................................... 42
SMS Employees........................................................... 42
SMS Junior Preferred Stock.............................................. 128
SMS 1993 Stock Plan..................................................... 96
SMS 1998 Stock Plan..................................................... 96
SMS Occurrence Date..................................................... 135
SMS Preferred Stock..................................................... 127
SMS Profit Sharing Plan................................................. 42
SMS Reverse Stock Split................................................. 33
SMS Rights.............................................................. 135
SMS Rights Plan......................................................... 134
SMS Rights Certificates................................................. 135
SMS Right's Purchase Price.............................................. 135
SMS Stock Acquisition Date.............................................. 135
</TABLE>
162
<PAGE>
<TABLE>
<CAPTION>
PAGE
TERM NUMBER
- ---- ------
<S> <C>
SMS Stock Plans......................................................... 96
SMS Unit................................................................ 135
SMS Allocable Portion................................................... 44
Sodexho................................................................. 2
Sodexho Canada.......................................................... 5
Sodexho North America................................................... 5
Sodexho North America Businesses........................................ 22
Sodexho North America Forecasts......................................... 26
Sodexho Parties......................................................... 38
Solvency Opinion........................................................ 32
Special Dividend........................................................ 140
Special Meeting......................................................... 5
Special Meeting Record Date............................................. 6
Special Purpose Subsidiary.............................................. 119
Specified SMS Directors................................................. 136
Spinoff................................................................. 5
Spinoff Record Date..................................................... 34
Subsidiary Guarantors................................................... 119
Substantial New Marriott Stockholder.................................... 152
Superior Proposal....................................................... 37
Synergies............................................................... 26
Tax-Free Status......................................................... 16
Tax Sharing Agreement................................................... 13
Term SMS Facility....................................................... 119
Trademark License Agreement............................................. 43
Transaction Documents................................................... 33
Transactions............................................................ 5
Transfer Agent.......................................................... 21
voting stock............................................................ 129
</TABLE>
163
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NEW MARRIOTT MI, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................... F-2
COMBINED STATEMENT OF INCOME............................................... F-3
COMBINED BALANCE SHEET..................................................... F-5
COMBINED STATEMENT OF CASH FLOWS........................................... F-6
NOTES TO COMBINED FINANCIAL STATEMENTS..................................... F-8
SODEXHO NORTH AMERICA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................... F-22
COMBINED CONSOLIDATED BALANCE SHEET........................................ F-23
COMBINED CONSOLIDATED STATEMENT OF OPERATIONS.............................. F-24
COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS.............................. F-26
COMBINED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY.................... F-28
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS........................ F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Marriott International, Inc.:
We have audited the accompanying combined balance sheet of New Marriott MI,
Inc. ("New Marriott") as of January 3, 1997 and December 29, 1995, and the
related combined statements of income and cash flows for each of the three
fiscal years in the period ended January 3, 1997. These financial statements
are the responsibility of New Marriott's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of New Marriott as of January
3, 1997 and December 29, 1995, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended January 3, 1997,
in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
October 28, 1997
F-2
<PAGE>
NEW MARRIOTT MI, INC.
COMBINED STATEMENT OF INCOME
THIRTY-SIX WEEKS ENDED SEPTEMBER 12, 1997 AND SEPTEMBER 6, 1996
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
SALES
Lodging
Rooms...................................................... $2,950 $2,473
Food and beverage.......................................... 1,027 901
Other...................................................... 791 588
------ ------
4,768 3,962
Contract Services............................................ 1,409 888
------ ------
6,177 4,850
------ ------
OPERATING COSTS AND EXPENSES
Lodging
Departmental direct costs
Rooms..................................................... 656 571
Food and beverage......................................... 780 690
Remittances to hotel owners (including $437 and $287,
respectively, to related parties) 1,041 863
Other operating expenses................................... 1,896 1,528
------ ------
4,373 3,652
Contract Services............................................ 1,374 853
------ ------
5,747 4,505
------ ------
OPERATING PROFIT
Lodging...................................................... 395 310
Contract Services............................................ 35 35
------ ------
Operating profit before corporate expenses and interest.... 430 345
Corporate expenses........................................... (60) (44)
Interest expense............................................. (18) (27)
Interest income.............................................. 19 25
------ ------
INCOME BEFORE INCOME TAXES................................... 371 299
Provision for income taxes................................... 145 114
------ ------
NET INCOME................................................... $ 226 $ 185
====== ======
EARNINGS PER SHARE
Pro Forma Primary Earnings per Share........................... $ .85 $ .69
====== ======
Pro Forma Primary Shares....................................... 267.4 269.2
====== ======
Net Income for Pro Forma Fully Diluted Earnings per Share...... $ 232 $ 188
====== ======
Pro Forma Fully Diluted Earnings per Share..................... $ .83 $ .68
====== ======
Pro Forma Fully Diluted Shares................................. 278.1 276.4
====== ======
</TABLE>
See Notes to Combined Financial Statements
F-3
<PAGE>
NEW MARRIOTT MI, INC.
COMBINED STATEMENT OF INCOME
FISCAL YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995 AND DECEMBER 30, 1994
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
SALES
Lodging
Rooms.............................................. $3,619 $3,273 $3,036
Food and beverage.................................. 1,361 1,289 1,210
Other.............................................. 874 765 703
------ ------ ------
5,854 5,327 4,949
Contract Services.................................... 1,413 928 797
------ ------ ------
7,267 6,255 5,746
------ ------ ------
OPERATING COSTS AND EXPENSES
Lodging
Departmental direct costs
Rooms............................................. 843 772 727
Food and beverage................................. 1,038 973 922
Remittances to hotel owners (including $438, $300
and $243, respectively, to related parties)...... 1,256 1,120 999
Other operating expenses........................... 2,265 2,102 1,999
------ ------ ------
5,402 4,967 4,647
Contract Services.................................... 1,357 898 783
------ ------ ------
6,759 5,865 5,430
------ ------ ------
OPERATING PROFIT
Lodging.............................................. 452 360 302
Contract Services.................................... 56 30 14
------ ------ ------
Operating profit before corporate expenses and
interest.......................................... 508 390 316
Corporate expenses................................... (73) (59) (63)
Interest expense..................................... (37) (9) (7)
Interest income...................................... 37 39 29
------ ------ ------
INCOME BEFORE INCOME TAXES........................... 435 361 275
Provision for income taxes........................... 165 142 113
------ ------ ------
NET INCOME........................................... $ 270 $ 219 $ 162
====== ====== ======
EARNINGS PER SHARE
Pro Forma Primary Earnings per Share (Unaudited)....... $ 1.00 $ .83 $ .61
====== ====== ======
Pro Forma Primary Shares (Unaudited)................... 269.7 263.0 263.8
====== ====== ======
Net Income for Pro Forma Fully Diluted Earnings per
Share................................................. $ 276 $ 219 $ 162
====== ====== ======
Pro Forma Fully Diluted Earnings per Share
(Unaudited)........................................... $ .99 $ .83 $ .61
====== ====== ======
Pro Forma Fully Diluted Shares (Unaudited)............. 277.6 263.9 263.8
====== ====== ======
</TABLE>
See Notes to Combined Financial Statements
F-4
<PAGE>
NEW MARRIOTT MI, INC.
COMBINED BALANCE SHEET
SEPTEMBER 12, 1997, JANUARY 3, 1997 AND DECEMBER 29, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 12, JANUARY 3, DECEMBER 29,
1997 1997 1995
------------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents................... $ 339 $ 239 $ 198
Accounts and notes receivable.......... 731 426 424
Inventories, at lower of average cost
or market............................. 130 124 136
Prepaid taxes.......................... 182 149 160
Other.................................. 61 46 47
------ ------ ------
1,443 984 965
------ ------ ------
Property and equipment................... 1,427 1,824 984
Intangible assets........................ 1,471 333 126
Investments in affiliates................ 532 491 538
Notes and other receivable............... 355 292 334
Other assets............................. 253 274 232
------ ------ ------
$5,481 $4,198 $3,179
====== ====== ======
LIABILITIES AND EQUITY
Current liabilities
Accounts payable....................... $ 825 $ 716 $ 634
Accrued payroll and benefits........... 339 264 216
Self-insurance......................... 49 50 58
Other payables and accruals............ 551 374 287
------ ------ ------
1,764 1,404 1,195
------ ------ ------
Long-term debt........................... 107 384 180
Self-insurance........................... 212 191 182
Other long-term liabilities.............. 686 478 371
Convertible subordinated debt............ 306 297 -
Equity
Investments and net advances from
Marriott International, Inc........... 2,406 1,444 1,251
------ ------ ------
$5,481 $4,198 $3,179
====== ====== ======
</TABLE>
See Notes to Combined Financial Statements
F-5
<PAGE>
NEW MARRIOTT MI, INC.
COMBINED STATEMENT OF CASH FLOWS
THIRTY-SIX WEEKS ENDED SEPTEMBER 12, 1997 AND SEPTEMBER 6, 1996
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
THIRTY-SIX
WEEKS ENDED
------------
1997 1996
----- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $ 226 $ 185
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization................................. 85 56
Income taxes.................................................. 83 62
Timeshare activity, net....................................... (45) (27)
Other......................................................... 81 65
Working capital changes....................................... 35 112
----- -----
Cash provided by operations..................................... 465 453
----- -----
INVESTING ACTIVITIES
Capital expenditures............................................ (328) (157)
Acquisitions.................................................... (856) (294)
Dispositions.................................................... 437 55
Loan advances................................................... (63) (79)
Loan collections and sales...................................... 29 94
Other........................................................... (120) (81)
----- -----
Cash used in investing activities............................... (901) (462)
----- -----
FINANCING ACTIVITIES
Issuances of long-term debt..................................... 10 3
Repayments of long-term debt.................................... (9) (90)
Issuance of convertible subordinated debt....................... - 288
Advances from (to) Marriott International, Inc.................. 535 (43)
----- -----
Cash provided by financing activities........................... 536 158
----- -----
INCREASE IN CASH AND EQUIVALENTS.................................. 100 149
CASH AND EQUIVALENTS, beginning of period......................... 239 198
----- -----
CASH AND EQUIVALENTS, end of period............................... $ 339 $ 347
===== =====
</TABLE>
See Notes to Combined Financial Statements
F-6
<PAGE>
NEW MARRIOTT MI, INC.
COMBINED STATEMENT OF CASH FLOWS
FISCAL YEARS ENDED JANUARY 3, 1997, DECEMBER 29, 1995 AND DECEMBER 30, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................... $ 270 $ 219 $ 162
Adjustments to reconcile to cash provided by
operations:
Depreciation and amortization...................... 89 67 56
Income taxes....................................... 69 61 30
Timeshare activity, net............................ (95) (192) (44)
Other.............................................. 61 46 71
Working capital changes:
Accounts receivable................................ (30) (31) (23)
Inventories........................................ 13 (6) 1
Other current assets............................... 2 (8) (8)
Accounts payable and accruals...................... 125 125 55
------ ------ ------
Cash provided by operations.......................... 504 281 300
------ ------ ------
INVESTING ACTIVITIES
Capital expenditures................................. (293) (127) (86)
Acquisitions......................................... (307) (210) -
Dispositions of property and equipment............... 65 42 -
Loans to Host Marriott Corporation................... (16) (210) (48)
Loan repayments from Host Marriott Corporation....... 141 250 30
Other loan advances.................................. (73) (143) (64)
Other loan collections and sales..................... 155 37 15
Other................................................ (158) (120) 13
------ ------ ------
Cash used in investing activities.................... (486) (481) (140)
------ ------ ------
FINANCING ACTIVITIES
Issuances of long-term debt.......................... - 11 12
Repayments of long-term debt......................... (133) (14) (33)
Issuance of convertible subordinated debt............ 288 - -
Advances (to) from Marriott International, Inc....... (132) 215 (176)
------ ------ ------
Cash provided by (used in) financing activities...... 23 212 (197)
------ ------ ------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS............ 41 12 (37)
CASH AND EQUIVALENTS, beginning of year................ 198 186 223
------ ------ ------
CASH AND EQUIVALENTS, end of year...................... $ 239 $ 198 $ 186
====== ====== ======
</TABLE>
See Notes to Combined Financial Statements
F-7
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In September 1997, the Board of Directors of Marriott International, Inc.
(the "Company") approved a special distribution (the "Spinoff") to holders of
the Company's common stock of all outstanding shares of common stock of New
Marriott MI, Inc. ("New Marriott"). The Spinoff is subject to stockholder
approval, receipt of a favorable ruling from the Internal Revenue Service and
receipt of other customary regulatory approvals. Prior to the Spinoff, the
Company will transfer to New Marriott all of the assets and liabilities used
in conducting the business of owning, developing, managing, operating and
franchising hotels, timeshare operations and senior living facilities, and
conducting the business of wholesale food distribution. New Marriott is
expected to be renamed "Marriott International, Inc." and will be publicly
traded subsequent to the Spinoff. For each share of common stock in the
Company, shareholders will receive one share of Common Stock in New Marriott
and one share of Class A Common Stock in New Marriott. The Company's name
after the Spinoff will be Sodexho Marriott Services, Inc. ("SMS").
For the purposes of governing certain of the ongoing relationships between
New Marriott and SMS after the Spinoff and to provide for orderly transition,
New Marriott and SMS will enter into various agreements including the
Distribution Agreement, Employee Benefits Allocation Agreement, Liquid Yield
Option Notes ("LYONs") Allocation Agreement, Tax Sharing Agreement, Trademark
and Trade Name License Agreement, Noncompetition Agreement, Benefit Services
Agreement, Procurement Services Agreement, Distribution Services Agreement and
other transitional services agreements. Effective as of the Spinoff date,
these agreements will provide, among other things, that New Marriott will
assume sponsorship of certain of the Company's employee benefit plans and
insurance programs as well as succeed to the Company's liability to LYONs
holders under the LYONs Indenture, a portion of which will be allocated back
to SMS.
These combined financial statements present the financial position, results
of operations and cash flows of New Marriott as if it were a separate entity
for all periods presented. The Company's historical basis in the assets and
liabilities of New Marriott has been carried over. All material intercompany
transactions and balances between entities included in these combined
financial statements have been eliminated. Sales by New Marriott to the
Company, of $406 million in 1996, $325 million in 1995 and $292 million in
1994 have not been eliminated. Changes in Investment and Net Advances from
Marriott International, Inc. represent the net income of New Marriott plus the
net change in cash transferred between New Marriott and the Company and
certain non-cash items.
New Marriott has operated as a unit of the Company, utilizing the Company's
centralized systems for cash management, payroll, purchasing and distribution,
employee benefit plans, insurance and administrative services. As a result,
substantially all cash received by New Marriott was deposited in and
commingled with the Company's general corporate funds. Similarly, operating
expenses, capital expenditures and other cash requirements of New Marriott
were paid by the Company and charged directly or allocated to New Marriott.
Certain assets and liabilities related to New Marriott's operations are
managed and controlled by the Company on a centralized basis. Such assets and
liabilities have been allocated to New Marriott based on New Marriott's use
of, or interest in, those assets and liabilities. In the opinion of
management, the Company's methods for allocating costs, assets and liabilities
are believed to be reasonable. After the Spinoff, New Marriott intends to
perform these functions independently and expects that the costs incurred will
not be materially different from those currently allocated.
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.
F-8
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Fully Diluted Earnings Per Share (Unaudited)
The number of shares used to compute pro forma fully diluted earnings per
share is based on (i) the common shares to be issued in the Spinoff, adjusted
for issuances and purchases of common shares by the Company (ii) the dilutive
impact of common equivalent shares issuable to New Marriott employees, and
(iii) the dilutive impact of the LYONs. Net income for pro forma fully diluted
earnings per share represents net income plus the after-tax amount of interest
on the LYONs.
Fiscal Year
New Marriott's fiscal year ends on the Friday nearest to December 31. The
1996 fiscal year includes 53 weeks, while 1995 and 1994 fiscal years include
52 weeks.
Interim Period Financial Statements
The combined interim financial statements have been prepared without audit.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. New Marriott believes the
disclosures made are adequate to make the interim financial information
presented not misleading.
In the opinion of management, the accompanying combined interim financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of New
Marriott as of September 12, 1997, and the results of operations and cash
flows for the 36 week periods ended September 12, 1997 and September 6, 1996.
Interim results are not necessarily indicative of fiscal year performance
because of seasonal and short-term variations.
Managed Hotel Operations
As of January 3, 1997, New Marriott operated 506 hotels under long-term
management agreements whereby remittances to owners, of $1,045 million, $958
million and $820 million in 1996, 1995 and 1994, respectively, were based
primarily on hotel profits.
Working capital and operating results of managed hotels operated with New
Marriott's employees are consolidated because the operating responsibilities
associated with such hotels are substantially the same as if the hotels were
owned. The combined financial statements include the following related to
managed hotels: current assets and current liabilities of $320 million at
January 3, 1997, and $337 million at December 29, 1995; sales of $4,506
million in 1996, $3,993 million in 1995 and $3,763 million in 1994; and
operating expenses, including remittances to owners, of $4,219 million in
1996, $3,759 million in 1995 and $3,556 million in 1994.
International Operations
The combined statement of income includes the following related to
international operations: sales of $224 million in 1996, $189 million in 1995
and $179 million in 1994; and income of $54 million in 1996, $39 million in
1995 and $35 million in 1994.
Profit Sharing Plans
New Marriott contributes to profit sharing and other defined contribution
plans for the benefit of employees meeting certain eligibility requirements
and electing participation in the plans. Contributions are determined annually
by the Board of Directors. The cost of these plans was charged to New Marriott
based on salaries and wages of participating employees and totaled $29 million
for 1996, $22 million for 1995 and $16 million for 1994.
F-9
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Self-Insurance Programs
The Company is self-insured for various levels of general liability,
workers' compensation, and employee medical coverage. Estimated costs of these
self-insurance programs are accrued at present values of projected settlements
for known and anticipated claims.
General and Administrative Expenses
The Company provided certain corporate general and administrative services
to New Marriott and the cost of those services was allocated to New Marriott
based on the services provided.
Interest Expense
The interest expense reflected in the combined statement of income is based
upon the historical debt of New Marriott.
Cash and Equivalents
New Marriott considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents. The Company
uses drafts in its cash management system. At January 3, 1997 and December 29,
1995, outstanding drafts of the Company allocated to New Marriott are included
in accounts payable and totaled $124 million and $106 million, respectively.
At January 3, 1997 and December 29, 1995, cash included $133 million and $94
million, respectively, related to managed properties. The Company's
centralized cash has been allocated to New Marriott.
Derivative Financial Instruments
Derivative financial instruments are used by New Marriott only to hedge
interest rate and foreign exchange risks.
New Accounting Standards
New Marriott adopted Statement of Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and FAS No. 122, "Accounting for Mortgage Servicing
Rights" in the first quarter of 1996, with no material effect on its combined
financial statements. New Marriott adopted FAS No. 123, "Accounting for Stock-
Based Compensation," in the fourth quarter of 1996 by increasing disclosures
about the effect of the Company stock compensation plans on New Marriott. FAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" was adopted during the first quarter of 1997,
with no material effect on the combined financial statements. New Marriott
will adopt FAS No. 128, "Earnings Per Share" and FAS No. 129, "Disclosure of
Information about Capital Structure" in the fourth quarter of 1997, and FAS
No. 130, "Reporting Comprehensive Income" and FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" during 1998. These
statements are not expected to have a material effect on New Marriott's
financial statements.
RELATIONSHIP WITH HOST MARRIOTT
The Company, New Marriott and Host Marriott Corporation ("Host Marriott")
have entered into agreements which provide, among other things, for (i) New
Marriott to manage lodging properties owned or leased by Host Marriott (the
"Host Marriott Lodging Management Agreements"), (ii) New Marriott to manage
senior living communities owned by Host Marriott (the "Host Marriott Senior
Living Management Agreements"), (iii) the Company to advance up to $225
million to Host Marriott under a line of credit which matures in 1998 (the
"Host Marriott Credit Agreement"), (iv) the Company to guarantee Host
Marriott's performance in connection with certain loans or other obligations
(the "Company Guarantees") and (v) New Marriott to provide Host Marriott with
various administrative and consulting services and a sublease of office space
(the "Service Agreements"). The $225 million secured credit facility under the
Host Marriott Credit Agreement was terminated by mutual consent on June 19,
1997. Upon consummation of the Spinoff, New
F-10
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Marriott will replace the Company under these agreements and guarantees. The
Company has the right to purchase up to 20 percent of the voting stock of Host
Marriott if certain events involving a change of control occur. This right
will be assigned to New Marriott upon consummation of the Spinoff.
The Host Marriott Lodging Management Agreements provide for New Marriott to
manage Marriott hotels, Courtyard hotels and Residence Inns owned or leased by
Host Marriott. Each Host Marriott Lodging Management Agreement, when entered
into, reflects market terms and conditions and is substantially similar to the
terms of management agreements with third-party owners regarding lodging
facilities of a similar type. New Marriott recognized sales of $1,787 million,
$1,274 million and $937 million and operating profit (before corporate
expenses and interest) of $95 million, $59 million and $35 million during
1996, 1995 and 1994, respectively, from the lodging properties owned or leased
by Host Marriott. Additionally, Host Marriott is a general partner in several
unconsolidated partnerships that own lodging properties operated by New
Marriott under long-term agreements. New Marriott recognized sales of $1,769
million, $1,878 million and $1,805 million and operating profit (before
corporate expenses and interest) of $121 million, $115 million and $101
million in 1996, 1995 and 1994, respectively, from the lodging properties
owned by these unconsolidated partnerships. New Marriott also leases land to
certain of these partnerships and recognized land rent income of $22 million,
$21 million and $20 million in 1996, 1995 and 1994, respectively.
The Host Marriott Senior Living Management Agreements provide for New
Marriott to manage independent full-service senior living communities owned by
Host Marriott. These agreements, entered into on June 21, 1997, reflect market
terms and conditions and are substantially similar to the terms of management
agreements with third-party owners regarding senior living communities of a
similar type.
At December 29, 1995, advances of $22 million were outstanding under the
Host Marriott Credit Agreement and are included in investments in affiliates.
There were no outstanding balances under this agreement at January 3, 1997.
Under this agreement, interest on outstanding balances up to $112.5 million
accrues at the London Interbank Offered Rate ("LIBOR") plus three percent, and
interest on outstanding balances from $112.5 million to $225 million accrues
at LIBOR plus four percent. In December 1996, Host Marriott repaid to New
Marriott the $109 million first mortgage loan on the Philadelphia Marriott
Hotel. New Marriott recognized $17 million, $23 million and $24 million in
1996, 1995 and 1994, respectively, in interest and fee income under this and
other credit agreements with Host Marriott.
New Marriott has provided, and expects to provide in the future, financing
to Host Marriott for a portion of the cost of acquiring properties to be
operated or franchised by New Marriott. In this regard, New Marriott invested
an aggregate of $80 million in 1995, principally in the form of mortgage
loans. In 1996, New Marriott invested $57 million in connection with Host
Marriott's acquisition of a controlling interest in two hotels (over 900
rooms) in Mexico City, Mexico, both of which are now operated by New Marriott.
In the aggregate, from the beginning of 1994, through the end of 1996, Host
Marriott acquired and converted 12 full-service hotels (5,000 rooms) to the
Marriott brand and completed construction of two full-service hotels (1,600
rooms) operated by New Marriott.
Under the Company Guarantees, the Company has guaranteed Host Marriott's
performance to lenders and other third parties. At January 3, 1997, these
guarantees were limited to $126 million applicable to guarantees by or debt
obligations of Host Marriott and debt obligations of Host Marriott affiliates.
No payments have been made by the Company pursuant to these guarantees.
On December 29, 1995, Host Marriott distributed to its shareholders through
a special dividend all of the outstanding shares of common stock of Host
Marriott Services Corporation ("HM Services"), which owns and operates food,
beverage and merchandise concessions at airports, on toll roads and at arenas
and other tourist attractions. New Marriott provides certain administrative
and data processing services to HM Services for which New Marriott charged $11
million in 1996. In addition, New Marriott provides and distributes food and
supplies to HM Services, for which New Marriott charged $77 million in 1996,
and (prior to the special dividend) $65 million in 1995 and $65 million in
1994.
F-11
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
New Marriott also provides certain administrative services to Host Marriott
(including the services provided to HM Services prior to the special dividend)
for which New Marriott charged $19 million in 1996, $25 million in 1995 and
$28 million in 1994, including reimbursements, pursuant to the Services
Agreements.
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Land....................................................... $ 433 $ 330
Buildings and leasehold improvements....................... 847 380
Furniture and equipment.................................... 323 265
Timeshare properties....................................... 335 218
Construction in progress................................... 183 44
------ ------
2,121 1,237
Accumulated depreciation and amortization.................. (297) (253)
------ ------
$1,824 $ 984
====== ======
</TABLE>
Property and equipment is recorded at cost, including interest, rent and
real estate taxes incurred during development and construction. Interest
capitalized as a cost of property and equipment totaled $9 million in 1996, $8
million in 1995 and $4 million in 1994. Replacements and improvements that
extend the useful life of property and equipment are capitalized. Depreciation
is computed using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over the shorter of the asset
life or lease term. Land with an aggregate book value of $264 million at
January 3, 1997 is leased to certain partnerships affiliated with Host
Marriott. Most of this land has been pledged to secure debt of these lessees.
New Marriott has agreed to defer receipt of rentals on this land, if
necessary, to permit the lessees to meet their debt service requirements.
ACQUISITIONS AND DISPOSITIONS
Renaissance Hotel Group N.V.
On March 29, 1997, New Marriott acquired substantially all of the
outstanding common stock of Renaissance Hotel Group N.V. ("RHG"), an operator
and franchisor of 150 hotels in 38 countries under the Renaissance, New World
and Ramada International brands. The purchase cost, of approximately $937
million, was funded by the Company. The acquisition has been accounted for
using the purchase method of accounting. The purchase cost has been allocated
to the assets acquired and liabilities assumed based on estimated fair values,
as follows;
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Current assets................................................. $ 144
Hotel management, franchise and license agreements............. 380
Other assets................................................... 7
Current liabilities............................................ (117)
Long-term debt................................................. (140)
Other long-term liabilities.................................... (123)
Goodwill....................................................... 786
-----
Purchase cost.................................................. $ 937
=====
</TABLE>
Goodwill is being amortized on a straight-line basis over 40 years. Amounts
allocated to management and license agreements are being amortized on a
straight-line basis over the lives of the agreements.
F-12
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
New Marriott's reported results of operations include RHG's operating
results from the date of acquisition. Summarized below are the unaudited pro
forma combined results of operations of New Marriott, as if RHG had been
acquired at the beginning of the respective periods (in millions).
<TABLE>
<CAPTION>
THIRTY-SIX THIRTY-SIX FIFTY-THREE
WEEKS ENDED WEEKS ENDED WEEKS ENDED
SEPTEMBER 12, SEPTEMBER 6, JANUARY 3,
1997 1996 1997
------------- ------------ -----------
<S> <C> <C> <C>
Sales............................... $6,376 $5,430 $8,123
====== ====== ======
Net income.......................... $ 222 $ 170 $ 242
====== ====== ======
</TABLE>
Pro forma net income includes an adjustment for interest expense of $12
million, $37 million and $53 million for the 36 weeks ended September 12,
1997, 36 weeks ended September 6, 1996 and 53 weeks ended January 3, 1997
respectively as if the acquisition borrowings had been incurred by New
Marriott. Amortization expense reflects the impact of the excess of the
purchase price over the net tangible assets acquired. The unaudited pro forma
combined results of operations do not reflect New Marriott's expected future
results of operations.
Dr. Henry Cheng Kar-Shun is the Managing Director of New World Development
Company Limited ("New World Development") and, together with his family and
affiliated corporations, owns or otherwise controls approximately 35 percent
of New World Development's common stock. Effective June 1, 1997, Dr. Cheng was
appointed to the Company's Board of Directors. Dr. Cheng, New World and their
affiliates own all or a portion of 87 hotels that are operated by New Marriott
and, prior to New Marriott's acquisition of RHG, owned a majority of RHG
common stock. New World Development and other affiliates of Dr. Cheng have
indemnified RHG, its subsidiaries and New Marriott for certain lease, debt,
guarantee and other obligations in connection with the formation of RHG as a
hotel management company in 1995.
Certain Property Sales
During 1996, New Marriott sold and leased back four senior living
communities. The excess of the sales price over the net book value of $9
million will be recognized as a reduction of rent expense over the 20-year
initial lease terms.
On April 3, 1997, New Marriott agreed to sell and leaseback, under long-
term, limited-recourse leases, 14 limited service hotels for approximately
$149 million in cash. Concurrently, New Marriott agreed to pay security
deposits of $15 million, which will be refunded upon expiration of the leases.
These operating leases have initial terms of 17 years, and are renewable at
the option of New Marriott. By September 12, 1997, sales of 10 of these hotels
had closed, resulting in an $18 million excess of the sales price over the net
book value, which will be recognized as a reduction of rent expense over the
17-year initial lease terms. On October 10, 1997, New Marriott agreed to, in
the future, sell and leaseback, under long-term limited-recourse leases,
another nine limited service hotels for approximately $129 million in cash.
Concurrently, the Company agreed to pay security deposits of $13 million,
which will be refunded upon expiration of the leases. These operating leases
have initial terms of 15 years and are renewable at the option of New
Marriott. Upon closing of the sales of these hotels, any excess of the sales
price over the net book value will be recognized as a reduction of rent
expense over the 15-year initial lease terms.
F-13
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
On April 11, 1997, New Marriott sold five senior living communities for cash
consideration of approximately $79 million. On September 12, 1997, New
Marriott agreed to sell another seven senior living communities for cash
consideration of approximately $93 million. The sales of two of these
properties closed on September 12, 1997. New Marriott will continue to operate
all of these communities under long-term management agreements.
Forum Group, Inc.
On March 25, 1996, New Marriott acquired all of the outstanding shares of
common stock of Forum Group, Inc. ("Forum"), an operator of 43 senior living
communities, 34 of which were owned or partially owned by Forum, for total
cash consideration of approximately $303 million. The acquisition by New
Marriott was funded by the Company, and has been accounted for using the
purchase method of accounting. The purchase cost has been allocated to the
assets acquired and liabilities assumed based on estimated fair values, as
follows;
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Current assets................................................ $ 40
Property and equipment........................................ 531
Other assets.................................................. 29
Current liabilities........................................... (45)
Long-term debt................................................ (363)
Other long-term liabilities................................... (58)
Goodwill...................................................... 169
-----
Purchase cost................................................. $ 303
=====
</TABLE>
The excess of New Marriott's investment in Forum over the fair value of
Forum's identifiable net tangible and intangible assets of approximately $169
million is being amortized over 35 years. New Marriott's results of operations
include Forum from the date of acquisition.
Unaudited pro forma sales of New Marriott for 1996 and 1995, as if Forum had
been acquired at the beginning of the respective fiscal years were $7,316
million and $6,444 million. Unaudited pro forma net income of New Marriott for
1996 and 1995, as if Forum had been acquired at the beginning of the
respective fiscal years was $267 million and $215 million.
Pro forma net income includes an adjustment for interest expense of $4
million and $25 million for 1996 and 1995, respectively, as if the acquisition
had been funded with New Marriott borrowings. Depreciation and amortization
expense, included in pro forma net income, reflects the impact of the
revaluation of property, plant and equipment to its estimated fair value and
the excess of the purchase price over the net tangible assets acquired.
On June 21, 1997, New Marriott sold 29 retirement communities acquired as
part of the Forum acquisition, to Host Marriott for approximately $550
million, including approximately $87 million to be received as expansions at
certain communities are completed resulting in no gain or loss. The $463
million received at closing, which is subject to adjustment based on
finalization of working capital levels at the properties, was comprised of
$205 million in cash, $187 million of outstanding debt, $50 million of notes
receivable due in 12 months, and $21 million of notes receivable due January
1, 2001. The notes receivable from Host Marriott bear interest at nine
percent. Under the terms of sale, Host Marriott purchased all of the common
stock of Forum which, at the time of the sale, included the 29 communities,
certain working capital and associated debt. New Marriott will continue to
operate these communities under long-term management agreements.
F-14
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Ritz-Carlton Hotel Company LLC
On April 24, 1995, New Marriott acquired a 49 percent beneficial ownership
interest in The Ritz-Carlton Hotel Company LLC, which owns the management
agreements on the Ritz-Carlton hotels and resorts, the licenses for the Ritz-
Carlton trademarks and trade name as well as miscellaneous assets. The
investment was acquired for a total consideration of approximately $200
million. New Marriott expects to acquire the remaining 51 percent over the
next several years. The investment in The Ritz-Carlton Hotel Company LLC is
accounted for using the equity method of accounting.
The excess of New Marriott's investment in The Ritz-Carlton Hotel Company
LLC over its share of the net tangible assets is being amortized over 25
years. New Marriott's income from The Ritz-Carlton Hotel Company LLC is
included in lodging operating profit in the accompanying combined statement of
income. New Marriott received distributions of $20 million and $6 million in
1996 and 1995, respectively, from its investment in The Ritz-Carlton Hotel
Company LLC. Such amounts were based upon an annual, cumulative preferred
return on invested capital.
Note Sales
New Marriott periodically sells, with limited recourse, notes receivable
originated by Marriott Vacation Club International in connection with the sale
of timesharing intervals. Net proceeds from these transactions totaled $148
million in 1996 and $83 million in 1994. At January 3, 1997 the unpaid balance
of all timeshare notes sold with limited recourse was $244 million.
Additionally, during 1996, New Marriott sold, without recourse, $113 million
of first mortgage loans on Marriott lodging and senior living properties.
INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Hotel management and franchise agreements.................... $ 178 $ 149
Goodwill..................................................... 184 16
Other........................................................ 30 8
------ ------
392 173
Accumulated amortization..................................... (59) (47)
------ ------
$ 333 $ 126
====== ======
</TABLE>
Intangible assets increased by $1,138 million in the 36 weeks ended
September 12, 1997, principally as a result of the acquisition of RHG.
Intangible assets are amortized on a straight-line basis over periods of
three to 40 years. Amortization expense totaled $12 million in 1996, $6
million in 1995 and $5 million in 1994.
INCOME TAXES
Total deferred tax assets and liabilities as of January 3, 1997 and December
29, 1995, were as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Gross deferred tax assets.................................... $ 389 $ 336
Valuation allowance.......................................... (12) -
------ ------
Net deferred tax assets...................................... 377 336
Deferred tax liabilities..................................... (292) (237)
------ ------
Net deferred taxes........................................... $ 85 $ 99
====== ======
</TABLE>
F-15
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets and liabilities as
of January 3, 1997 and December 29, 1995 follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
(IN MILLIONS)
<S> <C> <C>
Self-insurance............................................. $ 103 $ 104
Employee benefits.......................................... 106 106
Deferred income............................................ 15 16
Other reserves............................................. 25 20
Frequent stay programs..................................... 78 63
Partnership interests...................................... (37) (32)
Property and equipment..................................... (118) (88)
Finance leases............................................. (25) (18)
Other, net................................................. (62) (72)
------- ------
Net deferred taxes......................................... $ 85 $ 99
======= ======
</TABLE>
New Marriott utilized $19 million of alternative minimum tax credit
carryforwards during 1995.
No provision for U.S. income taxes, or additional foreign taxes, has been
made on the cumulative unremitted earnings of non-U.S. subsidiaries ($38
million as of January 3, 1997) because management considers these earnings to
be permanently invested. These earnings could become subject to additional
taxes if remitted as dividends, loaned to New Marriott or a U.S. affiliate, or
if New Marriott sells its interests in the affiliates. It is not practicable
to estimate the amount of additional taxes which might be payable on the
unremitted earnings.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Current--Federal............................................ $102 $ 46 $ 43
--State.................................................. 21 16 20
--Foreign................................................ 13 15 15
---- ---- ----
136 77 78
---- ---- ----
Deferred--Federal........................................... 24 57 34
--State.................................................. 4 10 1
--Foreign................................................ 1 (2) -
---- ---- ----
29 65 35
---- ---- ----
$165 $142 $113
==== ==== ====
</TABLE>
The current tax provision does not reflect the benefit attributable to New
Marriott relating to the exercise of employee stock options of the Company of
$27 million in 1996, $20 million in 1995 and $16 million in 1994.
A reconciliation of the U.S. statutory tax rate to New Marriott's effective
income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. statutory tax rate.................................... 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit................ 4.0 4.8 4.8
Corporate-owned life insurance............................. (0.8) (1.3) -
Tax credits................................................ (2.2) (1.5) (0.7)
Goodwill amortization...................................... 0.6 0.2 0.3
Other, net................................................. 1.4 2.2 1.7
---- ---- ----
Effective rate........................................... 38.0% 39.4% 41.1%
==== ==== ====
</TABLE>
F-16
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Cash paid for income taxes, net of refunds, was $131 million in 1996, $123
million in 1995 and $119 million in 1994.
As part of the Spinoff, SMS and New Marriott will enter into a tax sharing
agreement which reflects each party's rights and obligations with respect to
deficiencies and refunds, if any, of federal, state or other taxes relating to
the business of the Company and New Marriott prior to the Spinoff. The tax
sharing agreement also will express each party's intention with respect to
certain tax attributes of New Marriott after the Spinoff.
New Marriott is included in the consolidated federal income tax return of
the Company. The income tax provision reflects the portion of the Company's
historical income tax provision attributable to the operations of New
Marriott. Management believes the income tax provision, as reflected, is
comparable to what the income tax provision would have been if New Marriott
had filed a separate return during the periods presented.
LEASES
Summarized below are New Marriott's future obligations under leases at
January 3, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
----------- ------- ---------
(IN MILLIONS)
<S> <C> <C>
1997....................................................... $ 4 $ 110
1998....................................................... 3 108
1999....................................................... 2 105
2000....................................................... 2 102
2001....................................................... 1 99
Thereafter................................................. 14 1,016
--- ------
Total minimum lease payments............................... 26 $1,540
======
Less amount representing interest.......................... 13
---
Present value of minimum lease payments.................... $13
===
</TABLE>
Most leases contain one or more renewal options, generally for five or 10
year periods.
Rent expense consists of:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Minimum rentals............................................... $110 $102 $101
Additional rentals............................................ 133 102 131
---- ---- ----
$243 $204 $232
==== ==== ====
</TABLE>
F-17
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
LONG-TERM DEBT
Long-term debt at January 3, 1997 and December 29, 1995, consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------ ------
(IN MILLIONS)
<S> <C> <C>
Secured debt, average interest rate of 7.2% at January 3,
1997
maturing through 2020..................................... $ 283 $ 82
Unsecured debt:
Endowment deposits (non-interest bearing)................. 107 98
Other..................................................... 1 2
Capital lease obligations................................... 13 9
------ ------
404 191
Less current portion........................................ 20 11
------ ------
$ 384 $ 180
====== ======
</TABLE>
Subsequent to the Spinoff, New Marriott expects to enter into a bank
revolving credit facility in the range of $1.5 billion under commercially
competitive terms.
The 1996 combined statement of cash flows excludes $363 million of Forum
debt (including capital leases) at the date of acquisition by New Marriott.
Non-recourse debt assumed in 1995 of $77 million and retired in 1996 of $29
million, is not reflected in the statement of cash flows.
Assets with a net book value of $377 million have been pledged or mortgaged
to secure debt of New Marriott.
Aggregate debt maturities, excluding capital lease obligations, are: 1997--
$16 million; 1998--$72 million; 1999--$39 million; 2000--$56 million; 2001--
$13 million and $196 million thereafter.
Cash paid for interest was $19 million in 1996, $2 million in 1995 and $3
million in 1994.
CONVERTIBLE SUBORDINATED DEBT
On March 25, 1996, $540 million (principal amount at maturity) of zero
coupon convertible subordinated debt in the form of LYONs due 2011 was issued.
Each $1,000 LYON is convertible at any time, at the option of the holder, into
8.76 shares of the Company's common stock. The LYONs were issued at a discount
representing a yield to maturity of 4.25 percent. New Marriott records the
LYONs at the discounted amount with accretion recorded as interest expense.
Gross proceeds from the LYONs issuance were $288 million.
At the option of the holder, New Marriott may be required to repurchase each
LYON on March 25, 1999, or March 25, 2006, for $603.71 or $810.36 per LYON,
respectively. In such event, New Marriott may elect to purchase the LYONs for
cash, common stock, or any combination thereof.
The LYONs are redeemable by the obligor at any time on or after March 25,
1999, for cash equal to the issue price plus accrued original issue discount.
The LYONs are expressly subordinated to the Company's $1.1 billion of Senior
Indebtedness, including guarantees, as defined in the indenture governing the
LYONs. Upon consummation of the Spinoff, each LYON will be convertible into
8.76 shares of New Marriott's Common Stock, 8.76 shares of New Marriott's
Class A Common Stock and 2.19 shares of SMS's common stock (after giving
effect to a one-for-four reverse stock split).
F-18
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INVESTMENTS AND NET ADVANCES FROM MARRIOTT INTERNATIONAL, INC.
The following is an analysis of the Company's investment in New Marriott.
<TABLE>
<CAPTION>
(IN MILLIONS)
----------------------------------
SEPTEMBER 12,
1997 1996 1995 1994
------------- ------ ------ -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance at beginning of year or period..... $1,444 $1,251 $ 763 $ 715
Net income................................. 226 270 219 162
Net cash transactions with the Company..... 535 (132) 215 (176)
Employee stock plan issuance and other..... 201 55 54 62
------ ------ ------ -----
Balance at end of year or period........... $2,406 $1,444 $1,251 $ 763
====== ====== ====== =====
</TABLE>
EMPLOYEE STOCK PLANS
Under the Company's 1996 comprehensive stock plan ("Comprehensive Plan"),
the Company may award to participating New Marriott employees (i) options to
purchase the Company's common stock ("Stock Option Program"), (ii) deferred
shares of the Company's common stock and (iii) restricted shares of the
Company's common stock. In addition, the Company has an employee stock
purchase plan ("Stock Purchase Plan") in which New Marriott employees may
participate. In accordance with the provisions of Opinion No. 25 of the
Accounting Principles Board, no compensation cost is recognized for the Stock
Option Program or the Stock Purchase Plan.
Deferred shares granted to officers and key employees under the
Comprehensive Plan generally vest over 10 years in annual installments
commencing one year after the date of grant. Certain employees may elect to
defer receipt of shares until termination or retirement. New Marriott accrues
compensation expense for the fair market value of the shares on the date of
grant, less estimated forfeitures. During 1996, the Company awarded 359,549
deferred shares to New Marriott employees under this plan. Compensation cost
recognized during 1996 was $8 million.
Restricted shares under the Comprehensive Plan are issued to officers and
key employees and distributed over a number of years in annual installments,
subject to certain prescribed conditions including continued employment. New
Marriott recognizes compensation expense for the restricted shares over the
restriction period equal to the fair market value of the shares on the date of
issuance. During 1996, the Company awarded 168,500 deferred shares to New
Marriott employees under this plan. Compensation cost recognized during 1996
was $2 million.
Under the Stock Purchase Plan, eligible employees may purchase Company
common stock through payroll deductions at the lower of market value at the
beginning or end of each plan year.
Employee stock options may be granted to officers and key employees at not
less than fair market value on the date of grant. Nonqualified options expire
up to 15 years after the date of grant. Most options are exercisable in
cumulative installments of one-fourth at the end of each of the first four
years following the date of grant.
For purposes of the following disclosures required by FAS No. 123,
"Accounting for Stock-Based Compensation", the fair value of each option
granted has been estimated on the date of grant using the Black-Scholes
option-pricing model, with the following assumptions used for grants in 1996
and 1995: annual dividends consistent with the Company's current dividend
policy, which resulted in payments of $0.32 in 1996 and $0.28 in 1995;
expected volatility of 25 percent in 1996 and 26 percent in 1995; risk-free
interest rate of 6.1 percent in 1996 and 5.9 percent in 1995; and expected
life of seven years. The weighted-average fair value of each option granted
during 1996 was $19. Pro forma compensation cost for 1996 and 1995 awards
under the Stock Option
F-19
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Program and 1996 and 1995 employee purchases pursuant to the Stock Purchase
Plan, recognized in accordance with FAS No. 123, would reduce New Marriott's
net income from $270 million to $261 million in 1996, and from $219 million to
$216 million in 1995. Since the pro forma compensation cost for the Stock
Option Program is recognized over the four-year vesting period, the foregoing
pro forma reductions in New Marriott's net income are not representative of
anticipated amounts in future years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of noncurrent financial assets and liabilities and other
financial instruments are shown below. The fair values of current assets and
current liabilities are assumed to be equal to their reported carrying
amounts.
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Notes and other receivable...................... $479 $479 $519 $520
Long-term debt, convertible subordinated debt
and other long-term liabilities................ 674 631 111 64
</TABLE>
Notes and other receivable are valued based on the expected future cash
flows discounted at risk adjusted rates. Valuations for long-term debt,
convertible subordinated debt and other long-term liabilities are determined
based on quoted market prices or expected future payments discounted at risk
adjusted rates.
The Company has guaranteed to lenders and other third parties the
performance of certain affiliates in connection with financing transactions
and other obligations. These guarantees are limited, in the aggregate, to $331
million and $205 million (including the Company Guarantees of $193 million and
$126 million) at January 3, 1997 and September 12, 1997, respectively, with
expected funding of zero. As of January 3, 1997 and September 12, 1997, the
Company's unfunded mortgage loan commitments to unaffiliated owners of lodging
and senior living properties aggregated approximately $141 million and $132
million, respectively. Letters of credit outstanding at January 3, 1997 and
September 12, 1997, totaled $153 million and $138 million, respectively. New
World and another affiliate of Dr. Cheng have severally indemnified the
Company for loan guarantees with a maximum funding of $18 million and
guarantees by RHG of leases with minimum annual payments of approximately $59
million. The fair values of such guarantees, letters of credit and commitments
are immaterial. Upon consummation of the Spinoff, New Marriott will replace
SMS as guarantor or obligor under these guarantees and commitments, or will
indemnify SMS in respect of them.
F-20
<PAGE>
NEW MARRIOTT MI, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
BUSINESS SEGMENTS
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Identifiable assets
Lodging................................................. $2,414 $2,329 $1,595
Contract Services....................................... 1,279 377 305
Corporate............................................... 505 473 501
------ ------ ------
$4,198 $3,179 $2,401
====== ====== ======
Capital expenditures
Lodging................................................. $ 158 $ 76 $ 40
Contract Services....................................... 122 44 40
Corporate............................................... 13 7 6
------ ------ ------
$ 293 $ 127 $ 86
====== ====== ======
Depreciation and amortization
Lodging................................................. $ 55 $ 45 $ 37
Contract Services....................................... 24 11 10
Corporate............................................... 10 11 9
------ ------ ------
$ 89 $ 67 $ 56
====== ====== ======
</TABLE>
New Marriott is a diversified hospitality company with operations in two
business segments: Lodging, which operates and franchises lodging properties
under ten brand names, and operates vacation timesharing resorts; and Contract
Services, consisting of the development, ownership and operation of senior
living communities and wholesale food distribution.
The results of operations of New Marriott's business segments are reported
in the combined statement of income. Segment operating expenses include
selling, general and administrative expenses directly related to the
operations of the businesses, aggregating $446 million in 1996, $380 million
in 1995 and $339 million in 1994.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder of
International Catering Corporation and Sodexho Financiere du Canada, Inc.:
In our opinion, the accompanying combined consolidated balance sheet and the
related combined consolidated statements of operations, of cash flows and of
stockholder's equity present fairly, in all material respects, the financial
position of International Catering Corporation ("ICC") and Sodexho Financiere
du Canada, Inc. ("Sodexho Canada") and their subsidiaries (collectively,
"Sodexho North America") at August 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Sodexho North
America's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audits of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
October 15, 1997
F-22
<PAGE>
SODEXHO NORTH AMERICA
(WHOLLY OWNED SUBSIDIARIES OF SODEXHO ALLIANCE, S.A.)
COMBINED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED AUGUST
ENDED 31,
NOVEMBER 30, ------------------
1997 1997 1996
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 21,845 $ 22,809 $ 21,086
Accounts and notes receivable, net of
allowance for doubtful accounts of $2,847,
$2,420 and $2,403, respectively............ 113,350 84,423 74,432
Inventories................................. 14,548 14,478 12,320
Deferred taxes.............................. 6,836 6,793 7,947
Other....................................... 3,026 2,964 3,662
-------- -------- --------
Total current assets...................... 159,605 131,467 119,447
Property and equipment........................ 24,357 24,352 25,957
Intangible assets............................. 93,788 96,782 104,616
Deferred taxes................................ 678 681 -
Other assets.................................. 29,509 26,105 14,584
-------- -------- --------
$307,937 $279,387 $264,604
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt........... $ 14,710 $ 14,711 $ 12,769
Line of credit.............................. 1,000 6,000 -
Accounts payable............................ 80,519 59,100 54,101
Accrued payroll and benefits................ 26,550 25,064 20,673
Accrued insurance........................... 5,304 6,244 4,662
Other payables and accruals................. 33,665 26,324 22,431
-------- -------- --------
Total current liabilities................. 161,748 137,443 114,636
Long-term debt................................ 66,387 66,714 81,427
Accrued insurance............................. 7,028 8,337 8,646
Deferred taxes................................ - - 309
-------- -------- --------
Total liabilities......................... 235,163 212,494 205,018
Commitments and contingencies
Stockholder's equity:
Common stock................................ 6,838 6,838 6,838
Additional paid-in capital.................. 53,844 53,844 53,844
Cumulative foreign currency translation..... (288) (186) (90)
Retained earnings (accumulated deficit)..... 12,380 6,397 (1,006)
-------- -------- --------
Total stockholder's equity................ 72,774 66,893 59,586
-------- -------- --------
$307,937 $279,387 $264,604
======== ======== ========
</TABLE>
F-23
<PAGE>
SODEXHO NORTH AMERICA
(WHOLLY OWNED SUBSIDIARIES OF SODEXHO ALLIANCE, S.A.)
COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues.......................................... $881,925 $834,003 $598,533
Operating expenses
Cost of sales and operating expenses............ 751,184 705,453 523,633
Selling, general and administrative expenses.... 91,639 92,993 55,745
Depreciation and amortization................... 19,068 19,864 13,801
-------- -------- --------
861,891 818,310 593,179
-------- -------- --------
Operating income.................................. 20,034 15,693 5,354
Interest expense.................................. (7,187) (7,438) (5,373)
Other income...................................... 295 214 269
-------- -------- --------
Income before income taxes........................ 13,142 8,469 250
Provision for income taxes........................ (5,739) (3,632) (643)
-------- -------- --------
Net income (loss)................................. $ 7,403 $ 4,837 $ (393)
======== ======== ========
</TABLE>
F-24
<PAGE>
SODEXHO NORTH AMERICA
(WHOLLY OWNED SUBSIDIARIES OF SODEXHO ALLIANCE, S.A.)
COMBINED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues.................................................. $264,794 $240,263
Operating expenses
Cost of sales and operating expenses.................... 220,913 201,914
Selling, general and administrative expenses............ 26,469 23,130
Depreciation and amortization........................... 5,931 4,842
--------- ---------
253,313 229,886
--------- ---------
Operating income.......................................... 11,481 10,377
Interest expense.......................................... (1,659) (1,790)
Other income.............................................. 631 468
--------- ---------
Income before income taxes................................ 10,453 9,055
Provision for income taxes................................ (4,470) (3,866)
--------- ---------
Net income ............................................... $ 5,983 $ 5,189
========= =========
</TABLE>
F-25
<PAGE>
SODEXHO NORTH AMERICA
(WHOLLY OWNED SUBSIDIARIES OF SODEXHO ALLIANCE, S.A.)
COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1997 1996 1995
-------- --------- -------
<S> <C> <C> <C>
Operating activities:
Net income (loss).............................. $ 7,403 $ 4,837 $ (393)
Adjustments to reconcile to cash provided by
operations:
Depreciation and amortization.............. 19,068 19,864 13,801
(Gain) loss on sale of property and
equipment................................. (228) (112) 99
Deferred income taxes...................... 151 (442) (2,312)
Working capital changes:
Accounts and notes receivable.................. (9,105) (15,028) (943)
Inventories.................................... (2,176) (222) 131
Other assets................................... (15,604) (4,281) (909)
Accounts payable and accrued expenses.......... 14,650 12,957 6,978
-------- --------- -------
Cash provided by operating activities............ 14,159 17,573 16,452
-------- --------- -------
Investing activities:
Capital expenditures........................... (6,594) (9,191) (6,975)
Dispositions of property and equipment......... 943 2,070 315
Cash and cash equivalents acquired during the
period........................................ - - 7,435
-------- --------- -------
Cash (used by) provided by investing
activities.................................... (5,651) (7,121) 775
-------- --------- -------
Financing activities:
Dividends paid................................. - (3,200) (2,150)
Advance on line of credit...................... 6,000 - -
Issuances of long-term debt.................... - 102,202 -
Repayments of long-term debt................... (12,768) (113,126) (5,237)
-------- --------- -------
Cash used by financing activities.............. (6,768) (14,124) (7,387)
-------- --------- -------
Effect of exchange rate changes on cash.......... (17) (11) -
Net increase (decrease) in cash and cash
equivalents..................................... 1,723 (3,683) 9,840
Cash and cash equivalents at beginning of
period.......................................... 21,086 24,769 14,929
-------- --------- -------
Cash and cash equivalents at end of period....... $ 22,809 $ 21,086 $24,769
======== ========= =======
Supplemental cash flow information:
Cash paid during the period for:
Interest..................................... $ 7,153 $ 10,803 $ 1,840
Income taxes, net of refund.................. $ 5,375 $ 1,715 $ 2,957
</TABLE>
F-26
<PAGE>
SODEXHO NORTH AMERICA
(WHOLLY OWNED SUBSIDIARIES OF SODEXHO ALLIANCE, S.A.)
COMBINED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Operating activities:
Net income............................................. $ 5,983 $ 5,189
Adjustments to reconcile to cash provided by
operations:
Depreciation and amortization...................... 5,930 4,842
Gain on sale of property and equipment............. (3) (99)
Working capital changes:
Accounts and notes receivable.......................... (28,916) (33,502)
Inventories............................................ (98) (2,136)
Other assets........................................... (4,810) (3,841)
Accounts payable and accrued expenses.................. 28,136 61,961
--------- ---------
Cash provided by operating activities.................... 6,222 32,414
--------- ---------
Investing activities:
Capital expenditures................................... (1,975) (479)
Dispositions of property and equipment................. 135 260
--------- ---------
Cash used by investing activities...................... (1,840) (219)
--------- ---------
Financing activities:
Payments on line of credit............................. (5,000) -
Repayments of long-term debt........................... (324) (334)
--------- ---------
Cash used by financing activities...................... (5,324) (334)
--------- ---------
Effect of exchange rate changes on cash.................. (22) 3
Net (decrease) increase in cash and cash equivalents..... (964) 31,864
Cash and cash equivalents at beginning of period......... 22,809 19,959
--------- ---------
Cash and cash equivalents at end of period............... $ 21,845 $ 51,823
========= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest............................................. $ 355 $ -
Income taxes, net of refund.......................... $ 839 $ 133
</TABLE>
F-27
<PAGE>
SODEXHO NORTH AMERICA
(WHOLLY OWNED SUBSIDIARIES OF SODEXHO ALLIANCE, S.A.)
COMBINED CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED CUMULATIVE
------------------ EARNINGS FOREIGN TOTAL
OUTSTANDING PAR PAID-IN (ACCUMULATED CURRENCY STOCKHOLDER'S
SHARES VALUE CAPITAL DEFICIT) TRANSLATION EQUITY
----------- ------ ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ICC
Balance, August 31,
1994................... 10,417,000 $ - $30,781 $ 2,062 $ - $32,843
Contributed capital..... - - 22,840 - - 22,840
Cash dividend declared.. - - - (2,150) - (2,150)
Net loss................ - - - (819) - (819)
---------- ------ ------- ------- ----- -------
Balance, August 31,
1995................... 10,417,000 - 53,621 (907) - 52,714
---------- ------ ------- ------- ----- -------
SODEXHO CANADA
Balance, August 31,
1994................... 90,238 6,838 223 (2,162) (58) 4,841
Cumulative foreign
currency translation
gain................... - - - - 368 368
Net income.............. - - - 426 - 426
---------- ------ ------- ------- ----- -------
Balance, August 31,
1995................... 90,238 6,838 223 (1,736) 310 5,635
---------- ------ ------- ------- ----- -------
Combined balances,
August 31, 1995........ 10,507,238 $6,838 $53,844 $(2,643) $ 310 $58,349
========== ====== ======= ======= ===== =======
ICC
Balance, August 31,
1995................... 10,417,000 - 53,621 (907) - 52,714
Cash dividend declared.. - - - (3,200) - (3,200)
Net income.............. - - - 4,508 - 4,508
---------- ------ ------- ------- ----- -------
Balance, August 31,
1996................... 10,417,000 - 53,621 401 - 54,022
---------- ------ ------- ------- ----- -------
SODEXHO CANADA
Balance, August 31,
1995................... 90,238 6,838 223 (1,736) 310 5,635
Cumulative foreign
currency translation
loss................... - - - - (400) (400)
Net income.............. - - - 329 - 329
---------- ------ ------- ------- ----- -------
Balance, August 31,
1996................... 90,238 6,838 223 (1,407) (90) 5,564
---------- ------ ------- ------- ----- -------
Combined balances,
August 31, 1996........ 10,507,238 $6,838 $53,844 $(1,006) $ (90) $59,586
========== ====== ======= ======= ===== =======
ICC
Balance, August 31,
1996................... 10,417,000 - 53,621 401 - 54,022
Net income.............. 7,125 7,125
---------- ------ ------- ------- ----- -------
Balance, August 31,
1997................... 10,417,000 - 53,621 7,526 - 61,147
---------- ------ ------- ------- ----- -------
SODEXHO CANADA
Balance, August 31,
1996................... 90,238 6,838 223 (1,407) (90) 5,564
Cumulative foreign
currency translation
loss................... - - - - (96) (96)
Net income.............. - - - 278 278
---------- ------ ------- ------- ----- -------
Balance, August 31,
1997................... 90,238 6,838 223 (1,129) (186) 5,746
---------- ------ ------- ------- ----- -------
Combined balances,
August 31, 1997........ 10,507,238 $6,838 $53,844 $ 6,397 $(186) $66,893
========== ====== ======= ======= ===== =======
ICC
Balance, August 31,
1997................... 10,417,000 - 53,621 7,526 - 61,147
Net income.............. - - - 5,694 - 5,694
---------- ------ ------- ------- ----- -------
Balance, November 30,
1997................... 10,417,000 - 53,621 13,220 - 66,841
---------- ------ ------- ------- ----- -------
SODEXHO CANADA
Balance, August 31,
1997................... 90,238 6,838 223 (1,129) (186) 5,746
Cumulative foreign
currency translation
loss................... - - - - (102) (102)
Net income.............. - - - 289 289
---------- ------ ------- ------- ----- -------
Balance, November 30,
1997................... 90,238 6,838 223 (840) (288) 5,933
---------- ------ ------- ------- ----- -------
Combined balances,
November 30, 1997...... 10,507,238 $6,838 $53,844 $12,380 $(288) $72,774
========== ====== ======= ======= ===== =======
</TABLE>
F-28
<PAGE>
SODEXHO NORTH AMERICA
(WHOLLY OWNED SUBSIDIARIES OF SODEXHO ALLIANCE, S.A.)
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
Description of Operations and Principles of Combination and Consolidation
The combined consolidated financial statements include the consolidated
accounts of ICC and subsidiaries and Sodexho Canada and subsidiaries, which
are wholly owned by Sodexho Alliance, S.A. ("Sodexho"). All material
intercompany accounts and transactions between the entities in Sodexho North
America have been eliminated in combination and consolidation. Sodexho North
America is primarily engaged in providing contract food, catering and
housekeeping services in health care, educational, business and industrial
facilities throughout the United States and Canada.
Interim Period Financial Statements
The combined consolidated interim financial statements are unaudited.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. Sodexho North America believes the
disclosures made are adequate to make the interim financial information
presented not misleading.
In the opinion of management, the accompanying combined consolidated interim
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
Sodexho North America as of November 30, 1997 and the results of operations
and cash flows for the three months ended November 30, 1997 and 1996. Interim
results are not necessarily indicative of fiscal year performance because of
seasonal and short-term variations.
Use of Estimates
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Acquisition of Gardner Merchant Holdings, Inc. and its Subsidiaries
In September 1995, Sodexho transferred 100 percent of the outstanding shares
of Gardner Merchant Holdings, Inc. and its subsidiaries ("GMH") to ICC. The
transaction has been accounted for by ICC as a purchase as of February 1,
1995, the date of Sodexho's acquisition of the worldwide operations of Gardner
Merchant, of which GMH was a wholly owned subsidiary. Accordingly, the assets
acquired and liabilities assumed were recorded at their estimated fair values
at that date. The purchase price of GMH was approximately $123.1 million,
comprised of $71.0 million of debt with Sodexho, $29.3 million of debt with a
bank, and $22.8 million of contributed capital.
These financial statements reflect the operations of GMH from the date of
acquisition.
The following unaudited pro forma amounts (in thousands) summarize the
effect of the business acquired as if the acquisition had occurred on
September 1, 1994. This pro forma information is presented for informational
purposes only. It is derived from historical information and does not purport
to represent the actual results that may have occurred, nor is it necessarily
indicative of future results of operations of the combined enterprises.
F-29
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31, 1995
---------------
(UNAUDITED)
<S> <C>
Pro forma revenue.......................................... $781,940
Pro forma net income....................................... $ 849
</TABLE>
Cash and Cash Equivalents
Sodexho North America considers all highly liquid investments with a
maturity of 90 days or less at the time of purchase to be cash equivalents.
Cash equivalents of $684,000 and $4,874,000 at August 31, 1997 and 1996,
respectively, consist primarily of overnight and term deposits. Included in
accounts payable at August 31, 1997 and 1996 are amounts of $31,261,000 and
$14,062,000, respectively, relating to cash book overdrafts.
Inventories
Inventories are stated at the lower of cost or market. The cost for the
inventories was determined using the first-in, first-out ("FIFO") method.
Client Investments
Included in other assets are client investments, which represent amounts
provided to clients at contract inception for the purchase of property and
equipment pertaining to the contract and are amortized over the life of the
related contract. When a contract terminates prior to its scheduled
termination date, any unamortized client investment balance generally must be
repaid by the customer to Sodexho North America.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets. Buildings
are depreciated over their estimated useful life of 20 years. Equipment,
furniture and fixtures are depreciated over their estimated useful lives
ranging from 3 to 8 years. Leasehold improvements are amortized on a straight-
line basis over the lesser of their estimated useful life, or lease term.
Expenditures for maintenance and repairs are charged to expense as incurred.
Intangibles
Intangibles consist primarily of customer contracts, noncompete contracts,
and goodwill. Customer contracts and noncompete contracts are amortized on a
straight-line basis over the estimated remaining lives of the customer
relationships ranging from 5 to 19 years. Goodwill represents the excess cost
over the fair value of businesses acquired and is amortized on a straight-line
basis over thirty years. The carrying value of goodwill and other intangibles
is evaluated periodically as it relates to the operating performance and
future undiscounted cash flows of each operating business acquired.
Adjustments are made if the sum of expected future net cash flows is less than
the net book value.
Self Insurance
Sodexho North America is self-insured for workers' compensation costs up to
predetermined amounts above which third-party insurance applies. The self-
insurance liability for workers' compensation totaling $11,358,000 and
$11,035,000 at August 31, 1997 and 1996, respectively, was determined based on
estimates of the ultimate settlement value of reported claims and of costs
related to claims incurred but not reported.
F-30
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest-Rate Swap Agreements
Sodexho North America has entered into interest-rate swap agreements in
order to manage its exposure to interest-rate fluctuations. The swap
agreements are contracts to exchange floating rate for fixed-rate interest
payments periodically over the life of the agreements without the exchange of
the underlying notional amounts. The notional amounts of interest-rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. In the unlikely event that a
counterparty fails to meet the terms of an interest-rate swap agreement,
Sodexho North America's exposure is limited to the interest rate differential
on the notional amount. Sodexho North America does not anticipate
nonperformance by any of the counterparties. The notional amounts are reduced
as principal payments on the underlying debt are made. Net interest
differentials to be paid or received related to interest-rate swap agreements
are accrued and ultimately recognized as an adjustment to interest expense
over the life of the agreements. The fair values of interest rate swap
agreements are the estimated amounts that Sodexho North America would receive
or pay to terminate the agreements at the reporting date, taking into account
current interest rates and the current creditworthiness of the counterparties.
Common Stock
During February 1996, ICC's Board of Directors approved an increase in the
authorized common stock from 1,000 shares of common stock, no par value, to
10,820,000 shares of common stock, no par value, to enable ICC to effect a
10,417-for-1 stock split. All share data, including the 1996 stock option plan
information, is stated to reflect the split. As described in the Stock Option
Plans note, as of August 31, 1997, there were 403,000 shares reserved for
issuance under the 1996 Stock Option Plan.
Revenues
Revenues are recognized at the time services are rendered or products
delivered. Revenues include reimbursements for food and payroll costs incurred
on behalf of customers under contracts in which Sodexho North America manages
food service programs for a fee. Losses, if any, are provided for at the time
management determines the cost will ultimately exceed contract revenue for the
duration of the contract.
Income Taxes
Sodexho North America accounts for certain income and expense items
differently for financial reporting and income tax purposes. Deferred tax
assets and liabilities are determined based on the difference between the
financial statement and tax bases of assets and liabilities applying enacted
statutory tax rates in effect for the year in which the differences are
expected to reverse.
Foreign Currency Translation
In accordance with Statement of Financial Accounting Standards No. 52.
"Foreign Currency Translation," the financial statements of Sodexho Canada are
translated into U.S. dollars as follows: assets and liabilities at year-end
exchange rates; income, expenses and cash flows at average exchange rates; and
shareholders' equity at historical exchange rates. The resulting translation
adjustment is recorded as a component of stockholders' equity.
Fair Value of Financial Instruments
The carrying amount of cash, cash equivalents, accounts receivable, line of
credit, accounts payable, accrued payroll and benefits, accrued insurance and
other payables and accruals approximates their fair value because of the short
maturity of these financial instruments. The fair value of long-term
instruments is estimated based on market values for similar instruments and
approximates their carrying values at August 31, 1997 and 1996.
F-31
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Concentrations of credit risk with respect to accounts receivable are
limited because a large number of customers make up Sodexho North America's
customer base, thus spreading trade credit risk. In addition, Sodexho North
America performs ongoing evaluations of customers' financial position. Sodexho
North America does not require collateral and maintains reserves for potential
uncollectible amounts which, in the aggregate, have not exceeded management
expectations.
Reclassifications
Certain amounts in the prior year financial statements have been
reclassified to conform with the current year's presentation.
Stock-Based Compensation
ICC applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. Compensation expense
determined under the methodology of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), for
awards made during fiscal 1997 and 1996, is substantially the same as that
recorded.
Property and Equipment
The components of property and equipment are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
---------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 4,683 $ 4,748
Buildings and improvements................................ 10,133 10,290
Equipment, furniture and fixtures......................... 42,370 40,439
------- -------
57,186 55,477
Less--accumulated depreciation............................ 32,834 29,520
------- -------
$24,352 $25,957
======= =======
</TABLE>
Depreciation expense totaled $7,426,000, $7,684,000 and $4,861,000 for
fiscal years 1997, 1996 and 1995, respectively.
Intangible Assets
The components of intangible assets are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Customer contracts...................................... $ 98,316 $ 98,316
Goodwill................................................ 51,592 51,618
Non-compete agreements.................................. 509 509
-------- --------
150,417 150,443
Less--accumulated amortization.......................... 53,635 45,827
-------- --------
$ 96,782 $104,616
======== ========
</TABLE>
F-32
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amortization expense of intangible assets totaled $7,827,000, $8,311,000 and
$6,276,000 for fiscal years 1997, 1996 and 1995, respectively.
Client Investments
Included in other assets are client investments as follows:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Client investments...................................... $ 35,771 $21,562
Accumulated amortization................................ (11,557) (9,511)
-------- -------
$ 24,214 $12,051
======== =======
</TABLE>
Amortization expense of client investments totaled $3,815,000, $3,869,000
and $2,664,000 for fiscal years 1997, 1996 and 1995, respectively.
Borrowings and Letter of Credit Arrangements
Borrowings are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31,
---------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
ICC term loan, secured by accounts receivable of ICC, in the
original principal amount of $5 million, bearing interest at
a fixed rate of 7.21%, with principal payments of $312.50
plus interest due quarterly through January 1, 1999.......... $ 1,875 $ 3,125
ICC term debt unsecured, in the original principal amount of
$100.3 million, guaranteed by Sodexho, bearing interest at an
adjusted LIBOR rate (6.38% and 6.84% at August 31, 1997 and
1996, respectively) with principal payments of varying
amounts plus interest due in semi-annual installments through
February 26, 2002............................................ 79,399 90,801
Other......................................................... 151 270
------- -------
81,425 94,196
Less--current portion......................................... 14,711 12,769
------- -------
$66,714 $81,427
======= =======
</TABLE>
During fiscal 1996, ICC, through Sodexho, refinanced debt totaling $100.3
million assumed in 1995 in connection with the acquisition of GMH. ICC used
the proceeds to pay the amount of principal and interest outstanding on ICC's
debt with a bank and Sodexho.
For the three months ended November 30, 1997 and during fiscal 1997 and
1996, ICC had a $30.0 million, $30.0 million and $10.0 million revolving line
of credit, respectively, available with a bank which matures on April 30, 1998
and provides for interest on advances charged, as designated by ICC at the
time of an advance, at either the bank's prime rate or an adjusted LIBOR rate
(6.24 percent and 6.58 percent at November 30 and August 31, 1997,
respectively). Variable interest on prime rate advances is payable monthly,
while interest on LIBOR advances is payable at the end of a fixed interest
rate period of one, two or three months as selected by ICC at the time of an
advance. A quarterly commitment fee of 0.125 percent of the unused portion of
the line of credit is payable during the term of the line of credit. The
credit facility is secured by qualified accounts
F-33
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
receivable of ICC and contains various covenants which, among other things,
require that ICC meet certain financial requirements in relation to net
income. ICC had $0.3 million, $0.3 million and $6.3 million of outstanding
letters of credit issued against the $30.0 million, $30.0 million and $10.0
million revolving line of credit at November 30, 1997, August 31, 1997 and
1996, respectively. The letters of credit are provided as collateral in
connection with ICC's workers' compensation, insurance and performance bonds
for certain governmental customers' contracts. The letters of credit agreement
provides for a fee equal to 0.5 percent of the aggregated principal amount of
each letter of credit per year. Of the remaining amounts available under the
revolving line of credit of $29.7 million, $29.7 million and $3.7 million at
November 30, 1997, August 31, 1997 and 1996, respectively, ICC had outstanding
borrowings of $1.0 million at November 30, 1997, $6.0 million at August 31,
1997 and no outstanding borrowings at August 31, 1996.
For the three months ended November 30, 1997 and during fiscal 1997 and
1996, ICC had an additional $18.0 million, $15.0 million and $10.0 million
revolving line of credit, respectively, available with a bank. Under the terms
of the agreement, the line of credit is to be used exclusively for the purpose
of issuing letters of credit as collateral in connection with ICC's workers
compensation insurance and performance bonds for certain governmental
customers' contracts. The agreement provides for a fee equal to 0.45 percent
of the aggregate principal amount of each letter of credit per year. The
agreement is a continuing agreement that remains in effect until terminated by
ICC or the bank. ICC had $13.2 million, $14.7 million and $7.6 million of
outstanding letters of credit issued against the $18.0 million, $15.0 million
and $10.0 million revolving line of credit at November 30, 1997, August 31,
1997 and 1996, respectively.
During the three months ended November 30, 1997 and during fiscal 1997 and
1996, Sodexho Canada had available $1.4 million, $1.4 million and $0.4 million
revolving lines of credit with two banks, which provide for interest on
advances charged at the banks' prime rate plus 0.25 percent. The $1.4 million
credit facility is secured by a guarantee from Sodexho. There were no
outstanding balances on these lines of credit at November 30, 1997, August 31,
1997 and 1996.
During the three months ended November 30, 1997 and during fiscal 1997 and
1996, Sodexho Canada had an additional $4.3 million revolving line of credit
available with a bank. Under the terms of the agreement, the line of credit is
to be used exclusively for the purpose of issuing letters of credit as
collateral on performance bonds for certain customer contracts. The agreement
provides for a fee equal to 0.5 percent of the aggregate principal amount of
each letter of credit per year. Sodexho Canada had $3.6 million of outstanding
letters of credit issued against the $4.3 million revolving line of credit at
November 30, 1997, August 31, 1997 and 1996, respectively.
As of August 31, 1996, ICC has exchanged its floating rate obligations on a
$45.5 million notional principal amount for a fixed-rate payment obligation of
5.86 percent per annum for the one-year period ending August 31, 1997 and on a
$45.4 million notional principal amount for a fixed-rate payment obligation of
5.86 percent per annum for the one-year period ending August 31, 1997. ICC
charged $193,000 and $316,000 to interest expense related to these agreements
for fiscal 1997 and 1996, respectively. As of August 31, 1996, ICC estimates
it would have received $124,000 to terminate the agreements. These agreements
terminated on August 31, 1997.
Aggregate maturities of long-term borrowings at August 31, 1997 (in
thousands) are as follows:
<TABLE>
<S> <C>
1998............................................................... $14,709
1999............................................................... 22,040
2000............................................................... 21,396
2001............................................................... 18,496
2002............................................................... 4,784
-------
Total............................................................ $81,425
=======
</TABLE>
F-34
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------
1997 1996 1995
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................ $4,200 $2,700 $ 1,645
State.......................................... 1,230 1,050 919
Foreign........................................ 158 324 391
------ ------ -------
Total current................................ 5,588 4,074 2,955
------ ------ -------
Deferred:
Federal........................................ 145 (298) (1,596)
State.......................................... 37 (76) (614)
Foreign........................................ (31) (68) (102)
------ ------ -------
Total deferred............................... 151 (442) (2,312)
------ ------ -------
Provision for income taxes....................... $5,739 $3,632 $ 643
====== ====== =======
</TABLE>
For the seven-month period ended August 31, 1995, ICC filed a separate tax
return for GMH. Beginning in fiscal year 1996, ICC included GMH in its
consolidated returns.
As of August 31, 1997, ICC had net operating loss carryforwards from GMH for
tax purposes, expiring at various dates through August 31, 2010, the use of
which is subject to certain restrictions.
The following is a reconciliation of the effective tax rate with the federal
statutory income tax rate:
<TABLE>
<CAPTION>
AUGUST 31,
------------------
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Federal statutory income tax rate...................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit.................... 6.4% 7.6% 80.5%
Permanent differences between book and tax............. 3.7% 0.7% 96.7%
Other.................................................. (0.4%) 0.6% 46.0%
---- ---- -----
Effective income tax rate.............................. 43.7% 42.9% 257.2%
==== ==== =====
</TABLE>
Permanent differences between financial and tax reporting amounts consist
primarily of nondeductible goodwill and the nondeductible portion of meals and
entertainment expense.
F-35
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Self-insurance......................................... $ 5,822 $ 5,440
Accruals............................................... 1,766 2,466
Allowance for doubtful accounts........................ 1,017 1,009
Deferred income........................................ 858 1,308
Net operating loss carryforwards....................... 293 270
Property and equipment................................. 346 -
Other.................................................. 2,754 1,712
------- -------
Gross deferred tax assets.............................. 12,856 12,205
------- -------
Deferred tax liabilities:
Intangible assets...................................... (5,382) (4,551)
Other.................................................. - (16)
------- -------
Gross deferred tax liabilities......................... (5,382) (4,567)
------- -------
Net deferred tax assets................................ $ 7,474 $ 7,638
======= =======
</TABLE>
A valuation allowance has not been established against the net deferred tax
asset as management expects that it is more likely than not that the net
deferred tax assets will be realized.
The federal income tax returns of GMH for the years ended January 31, 1993,
1994 and 1995 and the seven-month period ended August 31, 1995 are currently
under audit by the U.S. Internal Revenue Service.
Retirement Plans
During fiscal 1996, ICC maintained the defined contribution plan of GMH.
This plan was intended to qualify under Internal Revenue Code Section 401(k).
Under the terms of the plan, certain employees were eligible for
participation. Amounts charged to expense under this plan were $491,000 and
$513,000 for fiscal 1996 and 1995, respectively. Effective March 1, 1996, this
plan was merged with ICC's noncontributory defined contribution plan.
During fiscal 1997, ICC also maintained GMH's nonqualified supplemental
retirement plan for management and certain officers. Amounts charged to
expense under this plan were $185,000, $214,000 and $132,000 for fiscal 1997,
1996 and 1995, respectively.
ICC's noncontributory defined contribution pension plan includes a deferred
arrangement that is intended to qualify under Internal Revenue Code Section
401(k). Under the terms of this plan, certain employees are eligible for
participation. Effective March 1, 1996, the 401(k) plan of GMH was merged into
this plan. Amounts charged to expense under this plan were $2,768,000,
$1,830,000 and $1,901,000 for fiscal 1997, 1996 and 1995, respectively.
ICC also maintains a nonqualified supplemental retirement plan for certain
officers. Amounts charged to expense under this plan were $120,000, $47,000
and $39,000 for fiscal 1997, 1996 and 1995, respectively.
F-36
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock Option Plans
Effective September 1, 1992, ICC established a long-term incentive plan (the
"1992 ICC Plan") which provided that certain officers and key employees be
granted up to 399,000 phantom stock units. The 1992 ICC Plan was amended on
December 23, 1993. The amended plan entitled holders of units at the end of
the five-year performance period (August 31, 1997) to a lump-sum cash payment
for each unit equal to the difference between the unit value at such time and
the base unit value.
Effective August 31, 1995, ICC terminated the 1992 ICC Plan. The amount
charged to compensation expense under this plan, including a settlement
payment to the optionees made as a result of the termination of the 1992 ICC
Plan, whereupon all outstanding units were redeemed, was $1.4 million for
fiscal 1995.
Effective March 1, 1996, ICC established the 1996 Stock Option Plan (the
"1996 ICC Plan") which provides for up to 403,000 incentive stock options.
Under the 1996 Plan, options may be granted to certain officers and key
employees at the discretion of the Board of Directors of ICC, which also has
authority to determine the price at which options will be granted and the
vesting period.
Transactions under the 1996 ICC Plan during the years ended August 31, 1997
and 1996 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------------
1997 1996
----------------- -----------------
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of period.... 373,500 $10.00 - -
Granted............................... 5,500 $13.30 386,800 $10.00
Forfeited............................. (16,800) $10.00 (13,300) $10.00
------- -------
Outstanding at period end............. 362,200 373,500
======= =======
Options available for future grants... 40,800 29,500
======= =======
</TABLE>
No options are exercisable at August 31, 1997 and 1996.
The following table summarizes information about employee options
outstanding at August 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING CONTRACTUAL
RANGE OF EXERCISE PRICES NUMBER OUTSTANDING LIFE (YEARS)
------------------------ ------------------ ---------------------
<S> <C> <C>
$10.00 - $13.30 362,200 9
</TABLE>
The options vest two and one-half years from the date of grant. The 1996 ICC
Plan incorporates a put feature exercisable by the optionee with respect to
any shares issued on any exercise of the option, during the one-year period
subsequent to the end of the vesting period (the "Put Period"). A call feature
is exercisable by ICC with respect to any shares issued on any exercise of the
option during the one-year period subsequent to the end of the Put Period.
Options granted to employees who terminate their employment with ICC prior to
becoming fully vested in the plan are forfeited. The put and call features
terminate in the event of an initial public offering by ICC. Compensation
expense is measured as the difference between the exercise price at the date
of the grant and the formula price to be paid by ICC upon repurchase and is
recognized over the vesting period. Changes, either increases or decreases, in
the formula price between the date of grant and measurement date results in a
change in the measure of compensation, which is recognized over the remaining
vesting period. The amounts charged to compensation expense under this plan
for fiscal 1997 and 1996 were $1,745,000 and
F-37
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
$265,000, respectively. In the event of a "change in control" as defined in
the 1996 ICC Plan, ICC may, under certain circumstances, be required to record
a charge to earnings at the time such event takes place, for an amount
significantly in excess of that recorded prior to the change.
Common Stock
Common stock consists of the following:
<TABLE>
<CAPTION>
AUGUST 31,
-------------
1997 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
ICC Common Stock; no par value, 10,820,000 shares
authorized, 10,417,000 shares issued and outstanding at
August 31, 1997 and 1996.................................. $ - $ -
Sodexho Canada Common Stock; $76 par value, 90,238 shares
issued and outstanding.................................... 6,838 6,838
------ ------
Combined consolidated.................................... $6,838 $6,838
====== ======
</TABLE>
Related Party Transactions
Revenues for fiscal 1997, 1996 and 1995 include $163,000, $347,000 and
$781,000, respectively, related to technical and marketing services provided
to various affiliates. Operating expenses include $4,050,000, $3,310,000 and
$2,668,000, respectively, of charges from affiliates for fiscal 1997, 1996 and
1995, respectively. Accounts receivable and payable from affiliates are
insignificant at August 31, 1997 and 1996.
Lease Commitments
Sodexho North America leases certain facilities and equipment under
operating lease contracts. Future minimum rental commitments under
noncancelable leases are summarized (in thousands) as follows:
<TABLE>
<S> <C>
1998............................................................... $ 4,100
1999............................................................... 2,925
2000............................................................... 1,814
2001............................................................... 1,384
2002............................................................... 1,181
Thereafter......................................................... 948
-------
Total............................................................ $12,352
=======
</TABLE>
Rent expense from operating lease agreements was approximately $4,223,000,
$2,968,000 and $1,682,000 for fiscal 1997, 1996 and 1995, respectively.
Litigation
Sodexho North America is involved in various legal proceedings arising in
the normal course of business. Management believes that the resolution of
these matters will not have a material effect on the combined consolidated
financial statements.
F-38
<PAGE>
SODEXHO NORTH AMERICA
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequent Event
On September 30, 1997, Sodexho entered into a definitive agreement with
Marriott International, Inc. (the "Company") to combine its food service
businesses in North America with the Company's food service and facilities
management business in North America into a separate public entity to be named
"Sodexho Marriott Services, Inc." ("SMS"). Subsequent to the combination,
which is anticipated in early 1998, Sodexho will own approximately 49 percent
of SMS and the current Company stockholders will own approximately 51 percent.
The combination is subject to the satisfactory outcome of certain conditions,
including among others, certain stockholder approvals.
F-39
<PAGE>
APPENDIX A--DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT
BETWEEN
MARRIOTT INTERNATIONAL, INC.
(TO BE RENAMED "SODEXHO MARRIOTT SERVICES, INC.")
AND
NEW MARRIOTT MI, INC.
(TO BE RENAMED "MARRIOTT INTERNATIONAL, INC.")
DATED AS OF
SEPTEMBER 30, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
<C> <S>
Definitions......................................................... 2
Section 1.1. General................................................ 2
Section 1.2. Interpretation......................................... 13
ARTICLE II
Restructuring and Related
Transactions....................................................... 13
Issuance of Spinco
Section 2.1. Stock................................................. 13
Transfer of Assets to
Section 2.2. Spinco................................................ 13
Assumption and
Satisfaction of
Section 2.3. Liabilities........................................... 13
Transfers Not Effected
Prior to the
Section 2.4. Distribution.......................................... 13
Section 2.5. Certain Contracts...................................... 14
No Representations or
Section 2.6. Warranties; Consents.................................. 14
Conveyancing and
Assumption
Section 2.7. Instruments........................................... 15
Financing and Net
Section 2.8. Tangible Assets....................................... 15
Section 2.9. MMS UK................................................. 18
ARTICLE III
The Distribution.................................................... 19
Cooperation Prior to the
Section 3.1. Distribution.......................................... 19
Conditions Precedent to
Section 3.2. the Distribution...................................... 19
Section 3.3. The Distribution....................................... 20
ARTICLE IV
Indemnification..................................................... 20
Indemnification by
Section 4.1. Parent................................................ 20
Indemnification by
Section 4.2. Spinco................................................ 20
Environmental
Indemnification by
Section 4.3. Spinco................................................ 21
Insurance Proceeds; Tax
Section 4.4. Benefits; Mitigation.................................. 21
Procedure for
Section 4.5. Indemnification....................................... 22
Joint and Several
Liability for Certain
Section 4.6. Employment Claims..................................... 23
Section 4.7. Remedies Cumulative.................................... 23
Survival of
Section 4.8. Indemnities........................................... 24
ARTICLE V
Certain Additional Matters.......................................... 24
Section 5.1. Spinco Board........................................... 24
Resignations; Parent
Section 5.2. Board................................................. 24
Section 5.3. Certificate and Bylaws................................. 24
Compliance with IRS
Section 5.4. Ruling Undertakings................................... 24
Section 5.5. Name................................................... 24
ARTICLE VI
Access to Information and Services.................................. 24
Provision of Corporate
Section 6.1. Records............................................... 24
Section 6.2. Access to Information.................................. 25
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Section 6.3. Production of Witnesses................................... 25
Section 6.4. Reimbursement............................................. 25
Section 6.5. Retention of Records...................................... 25
Section 6.6. Confidentiality........................................... 26
Section 6.7. Privileged Matters........................................ 26
ARTICLE VII
Insurance................................................................ 27
Section 7.1. Policies and Rights Included Within the Spinco Assets..... 27
Section 7.2. Policies and Rights Included Within the Parent Assets..... 27
Section 7.3. Post-Distribution Date Claims............................. 27
Section 7.4. Insurance Administration.................................. 28
Section 7.5. Existing Insurance Programs............................... 28
Section 7.6. Existing Self Insurance Programs.......................... 29
Section 7.7. Surety Bonds and Letters of Credit........................ 29
Section 7.8. Directors and Officers Policy............................. 29
ARTICLE VIII
Miscellaneous............................................................ 30
Section 8.1. Complete Agreement: Construction.......................... 30
Section 8.2. Expenses.................................................. 30
Section 8.3. Governing Law............................................. 30
Section 8.4. Notices................................................... 30
Section 8.5. Amendments................................................ 31
Section 8.6. Successors and Assigns.................................... 31
Section 8.7. Termination............................................... 31
Section 8.8. Subsidiaries.............................................. 31
Section 8.9. No Third-Party Beneficiaries.............................. 31
Section 8.10. Titles and headings....................................... 31
Section 8.11. Exhibits and Schedules.................................... 31
Section 8.12. Legal Enforceability...................................... 31
Section 8.13. Consent to Jurisdiction; Waiver of Jury Trial............. 32
</TABLE>
A-ii
<PAGE>
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT is made as of this 30th day of September, 1997
between MARRIOTT INTERNATIONAL, INC., a Delaware corporation to be renamed
"Sodexho Marriott Services, Inc." ("PARENT"), and NEW MARRIOTT MI, INC., a
Delaware corporation to be renamed "Marriott International, Inc." and (prior
to the Distribution referred to below) a wholly-owned subsidiary of Parent
("SPINCO").
Recitals
WHEREAS, Parent, directly and through subsidiaries, conducts both the
Retained Business (as hereinafter defined) and the Spinco Business (as
hereinafter defined);
WHEREAS, International Catering Corporation, a Delaware corporation
("COMPANY"), holds and engages in the U.S. food and facilities management
services operations of Sodexho Alliance, S.A., a societe anonyme organized and
existing under the laws of France ("SELLER");
WHEREAS, Sodexho Financiere du Canada Inc., a Canadian corporation ("SODEXHO
CANADA"), holds the Canadian food and facilities management services operation
of Seller;
WHEREAS, the Board of Directors of Parent has determined that it is in the
best interests of Parent and the stockholders of Parent to acquire Company and
Sodexho Canada and to combine the operations of Company and Sodexho Canada
with the Retained Business, and thereby to achieve certain anticipated
synergies and efficiencies of such a combined operation;
WHEREAS, as a condition to the acquisition of Company and Sodexho Canada and
subject to the terms and conditions hereof, Parent has agreed with Seller to
distribute the shares of Spinco capital stock to the shareholders of Parent
and to restructure its existing debt in a series of transactions that will
separate the Retained Business from the Spinco Business, pursuant to the
following:
(1) Parent will transfer (the "ASSET TRANSFER"), as a capital
contribution, all of the assets and liabilities of the Spinco Business
(other than corporate debt except to the extent it is legally required to
be transferred), to Spinco, a newly formed subsidiary of Parent, in a
transaction intended to qualify as a tax-free reorganization under Section
368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "CODE");
(2) Parent will cause Marriott Worldwide Corporation to distribute to it
the capital stock of Marriott Corporation of Canada, Ltd. ("MMS CANADA"),
which, together with its Subsidiaries, holds substantially all of the
Retained Business conducted in Canada;
(3) Parent will distribute (the "DISTRIBUTION") all of the outstanding
shares of capital stock of Spinco to the holders of Parent common stock, in
a transaction intended to qualify as a tax-free distribution under Section
355 of the Code;
(4) each issue of corporate debt of Parent and RHG Finance (as
hereinafter defined) will, subject to and in accordance with the terms and
conditions hereof, either (i) remain obligations of Parent, which may be
refinanced by Parent in connection with the transactions contemplated
hereby, (ii) become obligations of Spinco, in which case Parent will incur
additional corporate debt the proceeds of which will be contributed to
Spinco in such amounts as are necessary to place Spinco in the same
financial position Spinco would have been in had the corporate debt
remained the obligations of Parent, as contemplated in clause (i) above, or
(iii) be treated partly as contemplated by clause (i) and partly as
contemplated by clause (ii); and
(5) pursuant to the Agreement and Plan of Merger (the "MERGER AGREEMENT")
dated as of even date herewith by and among Parent, Marriott-ICC Merger
Corp., a Delaware corporation ("ACQUISITION"), Spinco, Seller and Company,
Parent will acquire 100% of the stock of Company (the "MERGER") and 100% of
the stock of Sodexho Canada in exchange for approximately 49% of the
outstanding stock of Parent;
A-1
<PAGE>
WHEREAS, in connection with the foregoing, Parent and Spinco have determined
that it is necessary and desirable to set forth the principal corporate
transactions required to effect the Asset Transfer and the Distribution, and
to set forth the agreements that will govern certain matters following the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I
Definitions
Section 1.1. General. As used in this Agreement, the following terms shall
have the following meanings:
"ACQUISITION" has the meaning specified in the Recitals hereto.
"ACTION" means any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
"ADJUSTED NET TANGIBLE ASSETS" means, with respect to the Retained Business,
the amount by which "stockholders equity" exceeds "intangible assets" as
reflected on a consolidated balance sheet for the Retained Business prepared
in accordance with the Agreed Accounting Procedures as of immediately prior to
and without giving effect to the consummation of the transactions contemplated
by this Agreement and the Transaction Documents (including the Distribution,
the Merger and the transactions referred to in Section 2.8 hereof), adjusted
by (x) subtracting therefrom (I) the aggregate tender premiums, consent
premiums and other costs actually incurred and not yet paid in connection with
the Parent Tender Offers and the related Supplemental Indentures, (II) accrued
and unpaid interest through the Distribution Date on the Revolving Credit
Facility and on all Parent Senior Notes purchased in the Parent Tender Offers
or retained by Parent, and (III) to the extent not already reflected on such
balance sheet the amount of the Liability of the Retained Business with
respect to any deferred cash payments pursuant to Section 2.05(d)(ii) of the
Benefits Allocation Agreement, (y) adding thereto (I) a tax benefit adjustment
in an amount equal to the product of 40% and the amount described in clauses
(x) (I) and (x) (III) above, (II) the Final UK Adjusted Net Tangible Assets,
and (III) the amount of the Estimated Adjusted Net Tangible Assets Payment and
(z) eliminating from such balance sheet, to the extent otherwise included
thereon, (I) any Liability for accrued and currently payable income taxes (it
being understood that such accrued taxes as of the Distribution Date are dealt
with in the Tax Sharing Agreement), (II) any Liability for expenses which are
to be borne by Parent pursuant to Section 4 of the Omnibus Agreement, (III)
any Spinco Assets or Spinco Liabilities, and (IV) any Liability, or any
reserve for any Liability, that Spinco has agreed to bear pursuant to the
Transaction Documents (including any such Liabilities with respect to Retained
Individuals (i) for Assumed Deferred Compensation Liabilities, (ii) related to
claims incurred in connection with the Parent Medical/Dental Plans, (iii) in
respect of the Marriott International, Inc. Short-Term Disability Plan or (iv)
relating to Post-retirement Medical/Dental Benefits to which Parent Terminees
have become entitled as of the Cut-off Date (as each such capitalized term set
forth in this parenthetical is defined in the Benefits Allocation Agreement)).
For the avoidance of doubt, it is further understood and agreed that there
shall be eliminated from the calculation of Adjusted Net Tangible Assets (to
the extent otherwise present in such calculation) (a) any Liability in respect
of funded debt evidenced by the LYONs, the Parent Senior Notes, the RHG Senior
Notes, the Revolving Credit Facility and the indebtedness incurred to
refinance any of the foregoing, except to the extent expressly set forth in
clause (x) (II) above and (b) any Liability of Parent arising under or
pursuant to any Transaction Document to be executed after the date hereof with
respect to obligations thereunder performed by or on behalf of Spinco on or
before the Distribution Date.
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person. For purposes of this
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definition, "control," when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" shall have meanings correlative
to the foregoing. Notwithstanding the foregoing, (i) the Affiliates of Parent
shall not include Spinco, the Spinco Subsidiaries or any other Person which
would be an Affiliate of Parent solely by reason of Parent's ownership of the
capital stock of Spinco prior to the Distribution or the fact that any officer
or director of Spinco or any of the Spinco Subsidiaries shall also serve as an
officer or director of Parent or any of the Retained Subsidiaries, and (ii)
the Affiliates of Spinco shall not include Parent, the Retained Subsidiaries
or any other Person which would be an Affiliate of Spinco solely by reason of
Parent's ownership of the capital stock of Spinco prior to the Distribution or
the fact that any officer or director of Spinco or any of the Spinco
Subsidiaries shall also serve as an officer or director of Parent or any of
the Retained Subsidiaries.
"AGENT" means the distribution agent appointed by Parent to distribute the
Spinco Capital Stock pursuant to the Distribution.
"AGREED ACCOUNTING PROCEDURES" means the accounting methodologies, policies,
practices, assumptions and procedures used by Parent in the preparation of the
consolidated balance sheet for the Retained Business at January 3, 1997, as
articulated and/or modified (x) in accordance with Schedule 1.1(a) hereto and
(y) if and to the extent necessary (and only if and to the extent necessary)
(I) to correct any material discrepancy between such methodologies, policies,
practices and procedures and GAAP and (II) properly to reflect, consistent
with GAAP and with such Agreed Accounting Procedures, events, facts or
circumstances occurring subsequent to January 3, 1997 and not already
reflected in such consolidated balance sheet.
"AGREEMENT" means this Distribution Agreement, together with all exhibits
and schedules hereto, as the same may be amended from time to time in
accordance with the terms hereof.
"ASSET" means, with respect to any party, except as otherwise provided
herein, such party's right, title and interest in and to the rights,
properties, assets, claims, contracts and businesses of every kind, character
and description, whether real, personal or mixed, whether accrued, contingent
or otherwise, and wherever located, owned or used primarily by such party and
its subsidiaries, including the following: (i) all cash, cash equivalents,
notes and accounts receivable (whether current or non-current); (ii) all
certificates of deposit, banker's acceptances and other investment securities;
(iii) each of the following, in each case throughout the world: all registered
and unregistered trademarks, service marks, service names, trade styles and
trade names (including trade dress and other names, marks and slogans) and all
associated goodwill; all registered and unregistered copyrights; all patents;
all applications for any of the foregoing together with all rights to use all
of the foregoing and all other rights in, to, and under the foregoing; all
know-how, inventions, discoveries, improvements, processes, formulae (secret
or otherwise), specifications, trade secrets, whether patentable or not,
licenses and other similar agreements, confidential information, and all
drawings, records, books or other indicia, however evidenced, of the
foregoing; (iv) all rights existing under all contracts and other business
arrangements; (v) all real estate and all plants, buildings and other
improvements thereon; (vi) all leasehold improvements and all machinery,
equipment (including all transportation and office equipment), fixtures, trade
fixtures and furniture; (vii) all office supplies, production supplies, spare
parts, other miscellaneous supplies and other tangible property of any kind;
(viii) all raw materials, work-in-process, finished goods, consigned goods and
other inventories; (ix) all computer hardware, software, computer programs and
systems and documentation relating thereto; all databases and reference and
resource materials; (x) all prepayments or prepaid expenses; (xi) all claims,
causes of action, choices in action, rights of recovery and rights of set-off
of any kind; (xii) the right to receive mail, accounts receivable payments and
other communications; (xiii) all customer lists and records pertaining to
customers and accounts, personnel records, all lists and records pertaining to
suppliers and agents, and all books, ledgers, files and business records of
every kind; (xiv) all advertising materials and all other printed or written
materials; (xv) all permits, licenses, approvals and authorizations of
governmental authorities or third parties relating to the ownership,
possession or operation of the Assets; (xvi) all capital stock, partnership
interests and other equity or ownership interests or rights, directly or
indirectly, in any subsidiary or other entity; (xvii) all
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goodwill as a going concern and all other intangible properties; and (xviii)
all employee contracts, including the right thereunder to restrict the
employee from competing in certain respects.
"ASSET TRANSFER" has the meaning specified in the Recitals hereto.
"BENEFITS ALLOCATION AGREEMENT" means the Employee Benefits and Other
Employment Matters Allocation Agreement by and between Parent and Spinco,
which agreement shall be entered into on the date hereof in the form attached
as Exhibit B hereto.
"BUSINESS DAY" means any calendar day which is not a Saturday, Sunday or
bank holiday under the laws of New York or Maryland.
"CLAIMS ADMINISTRATION" means the processing of pre-Distribution claims made
under the Policies (including Self Insurance Programs), including the
reporting of claims to the insurance carrier, management and defense of claims
and providing for appropriate releases upon settlement of claims under the
Casualty Claims Administration Agreement.
"CODE" has the meaning specified in the Recitals hereto.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMPANY" has the meaning specified in the Recitals hereto.
"CONSENTS" has the meaning specified in Section 3.1.
"CONTRACT" means any agreement, arrangement, note, bond, mortgage,
indenture, or other evidence of indebtedness, commitment, franchise,
concession, contract, indemnity, indenture, instrument, lease (including any
real estate lease), license or understanding, whether or not in writing.
"CONVEYANCING AND ASSUMPTION INSTRUMENTS" means, collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfer and the assumption of Liabilities in the manner contemplated by
this Agreement and the Transaction Documents.
"DISTRIBUTION" has the meaning specified in the Recitals hereto.
"DISTRIBUTION DATE" means the date on which the Distribution shall be
effected as determined by the Parent Board, subject to the terms and
conditions of this Agreement.
"DISTRIBUTION DATE STATEMENT" has the meaning set forth in Section 2.8(f).
"DISTRIBUTION RECORD DATE" means the date established by the Parent Board as
the date for taking a record of the Holders of Parent Common Stock entitled to
participate in the Distribution, subject to the terms and conditions of this
Agreement.
"ESTIMATED ADJUSTED NET TANGIBLE ASSETS PAYMENT" has the meaning specified
at Section 2.b. of the Omnibus Agreement.
"ESTIMATED SECTION 2.8(E) PAYMENT" has the meaning specified at Section 2.b.
of the Omnibus Agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING ENVIRONMENTAL LAWS" has the meaning set forth in Section 4.3(a).
"FINAL UK ADJUSTED NET TANGIBLE ASSETS" has the meaning specified in the UK
Stock Purchase Agreement.
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"FINANCING OBLIGATIONS" means all (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, notes, debentures or similar instruments,
(iii) obligations under capitalized leases and deferred purchase arrangements,
(iv) forward commitments, (vi) reimbursement or other obligations relating to
letters of credit or similar arrangements, and (v) obligations to guarantee,
directly or indirectly, any of the foregoing types of obligations on behalf of
others.
"FORM 10" means the registration statement on Form 10 to be filed by Spinco
with the Commission to effect the registration of the Spinco Capital Stock
pursuant to the Exchange Act.
"FRANCHISE AGREEMENTS" means all agreements to which Parent or any of its
Subsidiaries is a party pursuant to which Parent (either directly or through
any such Subsidiary) has granted franchise rights with respect to the
operation of lodging properties, and all other franchise rights either granted
or received by Parent or any of its Subsidiaries relating to the Spinco
Business. For the avoidance of doubt, the foregoing shall exclude any interest
of the NANA Joint Venture as franchisee.
"GAAP" means generally accepted accounting principles in the United States.
"GARDNER MERCHANT" means Sodexho-Gardner Merchant Alliance Ltd., a company
registered in England, and a wholly-owned subsidiary of Seller.
"GOVERNMENTAL ENTITY" means any United States or any foreign, federal, state
or local government, court, administrative agency or commission or other
governmental or regulatory body or authority.
"HOLDERS" means the holders of record of Parent Common Stock as of the
Distribution Record Date.
"INDEMNIFIABLE LOSSES" has the meaning specified in Section 4.2.
"INDEMNIFYING PARTY" has the meaning specified in Section 4.4.
"INDEMNITEE" has the meaning specified in Section 4.4.
"INFORMATION" has the meaning specified in Section 6.2.
"INSURANCE ADMINISTRATION" means, with respect to each Policy (including
Self Insurance Programs), the accounting for premiums, retrospectively rated
premiums, defense costs, adjuster's fees, indemnity payments, deductibles and
retentions as appropriate under the terms and conditions of each of the
Policies; and the reporting to excess insurance carriers of any losses or
claims in accordance with Policy provisions, and the distribution of Insurance
Proceeds as contemplated by this Agreement.
"INSURANCE PROCEEDS" means those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the
insured, in either case net of any applicable premium adjustment,
retrospectively-rated premium, deductible, retention, cost or reserve paid or
held by or for the benefit of such insured.
"INSURED CLAIMS" means those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies
(including Self Insurance Programs), whether or not subject to deductibles,
co-insurance, uncollectibility or retrospectively rated premium adjustments,
but only to the extent that such Liabilities are within applicable Policy
limits, including aggregate limits.
"INTELLECTUAL PROPERTY" means all registered and unregistered trademarks,
service marks, service names, trade styles and trade names (including trade
dress and other names, marks and slogans) and all associated goodwill, all
registered and unregistered copyrights, all patents, all applications for any
of the foregoing together with all rights to use all of the foregoing and all
other rights in, to, and under the foregoing, all know-how, inventions,
discoveries, improvements, processes, formulae (secret or otherwise),
specifications, trade secrets,
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whether patentable or not, licenses and other similar agreements, confidential
information, and all drawings, records, books or other indicia, however
evidenced, of the foregoing, in each such case, throughout the world.
"IRS" means the Internal Revenue Service.
"IRS RULING" means the letter ruling issued by the IRS in response to the
Ruling Request.
"LAW" means any statute, law, constitutional provision, code, regulation,
ordinance, rule, judgment, order, decree, permit, concession, grant,
franchise, license, agreement, directive, binding guideline or policy or rule
of common law, requirement of, or other governmental restriction of or
determination by, or any interpretation of any of the foregoing by, in each
case whether now or hereafter in existence, any Governmental Entity.
"LIABILITIES" means any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and
expenses relating thereto, and including those debts, liabilities and
obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
"LIEN" means any mortgage, pledge, lien, encumbrance, charge, adverse claim
(whether pending or, to the knowledge of the Person against whom the adverse
claim is being asserted, threatened), defect of title or restriction of any
nature whatsoever on any property or property interest (regardless of whether
such property or property interest is real or personal, tangible or
intangible, or otherwise), or a security interest of any kind, including any
conditional sale or other title retention agreement, any third party option or
other agreement to sell and any filing of or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statute) of any
jurisdiction (other than a financing statement which is filed or given solely
to protect the interest of a lessor).
"LOCS" has the meaning specified in Section 7.7.
"LYONS" means the Liquid Yield Option(TM) Notes due 2011 of Parent issued
under the LYONs Indenture.
"LYONS ALLOCATION AGREEMENT" means the LYONs Allocation Agreement between
Parent and Spinco, which shall be entered into on or prior to the Distribution
Date substantially on the terms described in Exhibit C-1 hereto.
"LYONS AMOUNT" means the Issue Price plus Original Issue Discount (each such
term as defined in the LYONs Indenture) accrued to the Distribution Date on
the share of the LYONs allocated to Parent pursuant to the LYONs Allocation
Agreement.
"LYONS INDENTURE" means the Indenture dated as of March 25, 1996 between
Parent and the LYONs Trustee, together with all supplemental indentures
executed thereunder.
"LYONS SUPPLEMENTAL INDENTURE" means the LYONs Supplemental Indenture, which
shall be entered into on or prior to the Distribution Date substantially on
the terms described in Exhibit C-2 hereto.
"LYONS TRUSTEE" means The Bank of New York, as trustee under the LYONs
Indenture.
"MEETING RECORD DATE" means the record date established by the Parent Board
for determining stockholders of Parent entitled to vote at the Special
Meeting.
"MERGER AGREEMENT" has the meaning specified in the Recitals hereto.
"MMS" means Marriott Management Services Corp., a New York corporation and a
wholly-owned subsidiary of Parent.
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"MMS CANADA" has the meaning specified in the Recitals hereto.
"MMS UK" means Marriott Management Services (U.K.) Ltd., a company
registered in England and a wholly owned subsidiary of MMS.
"NANA JOINT VENTURES" means the joint ventures between Nana Development
Corporation and MMS pursuant to (i) the Second Amended and Restated Joint
Venture Agreement dated as of November 1, 1993 and any amendments thereto,
(ii) the Limited Liability Company Agreement of NANA-Marriott Properties, LLC
dated as of June 14, 1996, and (iii) the Limited Liability Company Agreement
of NANA-Marriott Properties II, LLC dated as of May 23, 1997.
"NONCOMPETITION AGREEMENT" means the Noncompetition Agreement between Parent
and Spinco, which agreement shall be entered into on or prior to the
Distribution Date substantially in the form of Exhibit D attached hereto,
pursuant to which Spinco and Parent will establish certain noncompetition
arrangements.
"NYSE" means the New York Stock Exchange.
"OMNIBUS AGREEMENT" means the Omnibus Restructuring Agreement dated as of
even date herewith by and among Spinco, Parent, Acquisition, Seller and
Company.
"ORDER" means any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent) of any Governmental Entity.
"PARENT" has the meaning specified in introductory paragraph hereto.
"PARENT ASSIGNMENT SUPPLEMENTAL INDENTURE" has the meaning set forth in
Section 2.8(a).
"PARENT BOARD" means the Board of Directors of Parent.
"PARENT BOOKS AND RECORDS" means the books and records (including
computerized records) of Parent and the Retained Subsidiaries and all books
and records owned by Parent and its Subsidiaries which relate primarily to the
Retained Business, are necessary to operate the Retained Business, or are
required by law to be retained by Parent, including all such books and records
relating to Retained Employees, all files relating to any Action pertaining to
the Retained Liabilities, original corporate minute books, stock ledgers and
certificates and corporate seals, and all licenses, leases, agreements and
filings, relating to Parent, the Retained Subsidiaries or the Retained
Business (but not including the Spinco Books and Records, provided that Parent
shall have access to, and shall have the right to obtain duplicate copies of,
the Spinco Books and Records in accordance with the provisions of Article VI).
"PARENT COMMON STOCK" means the common stock, par value $1.00 per share, of
Parent.
"PARENT CONSENT SOLICITATION" has the meaning set forth in Section 2.8(a).
"PARENT GROUP" means Parent and the Retained Subsidiaries, collectively.
"PARENT INDEMNIFIABLE LOSS" has the meaning specified in Section 4.2.
"PARENT INDEMNITEES" has the meaning specified in Section 4.2.
"PARENT RIGHTS PLAN" means the Rights Agreement between Parent and The Bank
of New York, as Rights Agent, dated October 8, 1993, as amended.
"PARENT SENIOR NOTE AMOUNT" means the sum of (i) the principal amount of the
Parent Senior Notes purchased in the Parent Tender Offers, (ii) the amount of
cash contributed by Parent to Spinco in respect of Parent Senior Notes assumed
by Spinco pursuant to Section 2.8(a)(ii)(B), and (iii) the principal amount of
Parent Senior Notes retained by Parent in accordance with Section
2.8(a)(ii)(A).
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"PARENT SENIOR NOTES" means the following four series of notes issued
pursuant to the Parent Senior Note Indenture: (i) the Series A Senior Notes
due December 15, 2003 ($150 million aggregate principal amount outstanding),
issued under a supplemental indenture dated as of December 9, 1993, (ii) the
Series B Senior Notes due April 15, 2005 ($200 million aggregate principal
amount outstanding), issued under a supplemental indenture dated as of April
19, 1995, (iii) the Series C Senior Notes due June 1, 2007 ($150 million
aggregate principal amount outstanding), issued under a supplemental indenture
dated as of May 31, 1995, and (iv) the Series D Senior Notes due December 1,
1999 ($100 million aggregate principal amount outstanding), issued under a
supplemental indenture dated as of December 6, 1996.
"PARENT SENIOR NOTES INDENTURE" means the Indenture dated as of December 1,
1993 between Parent and the Parent Senior Notes Trustee, together with all
supplemental indentures executed thereunder.
"PARENT SENIOR NOTES TRUSTEE" means Chemical Bank, as trustee under the
Parent Senior Notes Indenture.
"PARENT TENDER OFFER" has the meaning set forth in Section 2.8(a).
"PARENT TENDER OFFER STATEMENT" has the meaning set forth in Section 2.8(a).
"PARENT TENDER SUPPLEMENTAL INDENTURE" has the meaning set forth in Section
2.8(a).
"PERSON" means any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
"PHASE I INSURANCE PERIOD" refers to the period from October 1, 1987 through
October 8, 1993.
"PHASE II INSURANCE PERIOD" refers to the period from October 9, 1993
through the Distribution Date.
"POLICIES" means insurance policies and insurance contracts of any kind
relating to the Spinco Business or the Retained Business as conducted prior to
the Distribution Date, including primary and excess policies, comprehensive
general liability policies, automobile, aircraft and workers' compensation
insurance policies, and self-insurance and captive insurance company
arrangements, including any "fronted policies" with respect to Self Insurance
Programs, together with the rights, benefits and privileges thereunder.
"PRIVILEGED INFORMATION" means all Information (whether written or oral) as
to which Parent, Spinco or any of their Subsidiaries are entitled to assert
the protection of a Privilege.
"PRIVILEGES" means all privileges that may be asserted under applicable law
including privileges arising under or relating to the attorney-client
relationship (including the attorney-client and work product privileges), the
accountant-client privilege and privileges relating to internal evaluative
processes.
"PROXY STATEMENT" means the proxy statement to be provided to the holders of
Parent Common Stock as of the Meeting Record Date in connection with the
Special Meeting.
"RELATED AGREEMENTS" means the following: the Merger Agreement, the
Conveyancing and Assumption Instruments, the Benefits Allocation Agreement,
the Trademark License Agreement, the Noncompetition Agreement, the Omnibus
Agreement, the Transitional Services Agreements and the LYONs Allocation
Agreement.
"RETAINED ASSETS" means (i) the capital stock of the Retained Subsidiaries,
(ii) the Retained Real Property, (iii) Assets relating to the Retained
Business, determined on a basis consistent with the Retained Business
Financial Statements, (iv) all of the Assets expressly allocated to Parent or
any of the Retained Subsidiaries under this Agreement or the Transaction
Documents, (v) any intercompany receivable from MMS UK to Parent or any of its
Subsidiaries, (vi) all stock, options and warrants of CorporateFamily
Solutions, Inc. owned by MMS and all agreements between MMS and
CorporateFamily Solutions, Inc., and (vii) any other Assets of Parent and its
Affiliates relating primarily to the Retained Business.
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"RETAINED BUSINESS" means the businesses conducted by Parent and its
Affiliates which consist of (i) providing food and facilities management
services to businesses and industrial operations, health care facilities,
schools and universities, (ii) providing commercial laundry services, (iii)
managing the Retained Conference Centers, and (iv) business undertaken
pursuant to the NANA Joint Ventures, each of the foregoing as and to the
extent conducted through Parent's Marriott Management Services strategic
business unit.
"RETAINED BUSINESS FINANCIAL STATEMENTS" means the audited consolidated
balance sheet for the Retained Business as at January 3, 1997 and the related
consolidated statements of operations, changes in stockholder's equity and
changes in financial position or cash flow for the 53 week period ended
January 3, 1997, previously delivered to Seller.
"RETAINED CONFERENCE CENTERS" means each of the conference centers
identified on Schedule 1.1(b).
"RETAINED EMPLOYEES" has the meaning specified in the Benefits Allocation
Agreement.
"RETAINED EMPLOYMENT LIABILITIES" has the meaning specified in the Benefits
Allocation Agreement.
"RETAINED LIABILITIES" means (i) all Liabilities or portions of Liabilities
arising primarily out of or in connection with the Retained Assets or the
Retained Business determined on a basis consistent with the Retained Business
Financial Statements, (ii) all Liabilities under Contracts included in the
Retained Assets, whether such Liabilities arise before, upon or after the
transactions contemplated by this Agreement and including any Liabilities
under such Contracts resulting from the consummation of the transactions
contemplated by this Agreement (including actions, claims or proceedings
relating thereto), (iii) all Liabilities of Parent or any Retained Subsidiary
under, or to be retained or assumed by Parent or any of the Retained
Subsidiaries pursuant to, this Agreement or any of the Transaction Documents,
including the Retained Employment Liabilities, (iv) all Financing Obligations
of Parent or any Retained Subsidiary, except to the extent otherwise provided
in Section 2.8, (v) the Retained Self Insurance Liabilities, and (vi) all
Liabilities for the payment of outstanding drafts and checks of Parent to the
extent attributable to the Retained Business existing as of the Distribution
Date.
"RETAINED POLICIES" means all Policies, current or past, which are owned or
maintained by or on behalf of any member of the Parent Group (or any of its
predecessors) which relate to the Retained Business but do not relate in whole
or in part to the Spinco Business.
"RETAINED REAL PROPERTY" means the ownership interests of Parent and its
Affiliates in the real property and real estate development projects
identified on Schedule 1.1(c).
"RETAINED SELF INSURANCE LIABILITIES" has the meaning specified in Section
7.6.
"RETAINED SUBSIDIARIES" means the direct or indirect Subsidiaries of Parent
identified on Schedule 4.1(b) to the Merger Agreement.
"REVOLVING CREDIT FACILITY" means the Credit Agreement dated as of March 27,
1997 among Parent, the Banks named therein and the Agents thereunder.
"REVOLVING CREDIT FACILITY AMOUNT" means the sum of (i) the principal amount
of indebtedness for borrowed money under the Revolving Credit Facility
outstanding immediately prior to the consummation of the transactions
contemplated hereby and repaid on the Closing Date as contemplated by Section
2.8(d) and (ii) the principal amount of indebtedness for borrowed money, if
any, outstanding immediately prior to the transactions contemplated hereby
that remains outstanding under the Revolving Credit Facility after giving
effect to the repayment contemplated by clause (i) above.
"RHG" means Renaissance Hotel Group N.V., a Netherlands corporation.
"RHG ASSIGNMENT SUPPLEMENTAL INDENTURE" has the meaning set forth in Section
2.8(b).
"RHG FINANCE" means RHG Finance Corporation, a Delaware corporation.
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"RHG SENIOR NOTE AMOUNT" means the amount of cash contributed by Parent to
Spinco pursuant to Section 2.8(b)(ii).
"RHG SENIOR NOTES INDENTURE" means the Indenture dated as of October 1, 1995
among RHG Finance, as Issuer, RHG, as Guarantor, Parent, as Additional
Guarantor and the RHG Senior Notes Trustee, together with all supplemental
indentures executed thereunder.
"RHG SENIOR NOTES TRUSTEE" means The First National Bank of Chicago, as
trustee under the RHG Senior Notes Indenture.
"RHG SENIOR NOTES" means the RHG Finance 8 7/8% Guaranteed Notes due October
1, 2005 ($120 million aggregate principal amount outstanding), issued under
the RHG Senior Notes Indenture.
"RHG TENDER OFFER" has the meaning set forth in Section 2.8(b).
"RHG TENDER OFFER STATEMENT" has the meaning set forth in Section 2.8(b).
"RULING REQUEST" means the private letter ruling request to be filed by
Parent with the Internal Revenue Service, as supplemented and amended from
time to time, with respect to certain tax matters relating to the Asset
Transfer, the Distribution and the Merger.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELF INSURANCE PROGRAMS" means those self-insured programs (such as
programs that utilize "fronted policies") administered by Parent for the
benefit of its employees, properties and operating businesses, including,
prior to the Distribution, the employees, properties and operating businesses
of Spinco.
"SELLER" has the meaning specified in the Recitals hereto.
"SHARED POLICIES" means all Policies, current or past, which are owned or
maintained by or on behalf of Parent or any of its Subsidiaries or their
respective predecessors which relate to both the Retained Business and the
Spinco Business, and all other Policies not constituting Spinco Policies or
Retained Policies. Without limiting the foregoing, Shared Policies include all
workers compensation Policies, all general liability Policies, all automobile
liability Policies, all property Policies, the Texas workers compensation
benefit plans, the Texas workers compensation liability Policies, the
Fiduciary Insurance Policy of Parent and the directors and officers Policy of
Parent.
"SODEXHO CANADA" has the meaning specified in the Recitals hereto.
"SPECIAL MEETING" means the Special Meeting of the stockholders of Parent at
which the Distribution and certain other matters relating to the Distribution
and the Merger are to be ratified and approved.
"SPINCO" has the meaning specified in the introductory paragraph hereto.
"SPINCO ASSETS" has the meaning specified in Section 2.2.
"SPINCO BOARD" means the Board of Directors of Spinco.
"SPINCO BOOKS AND RECORDS" means the books and records (including
computerized records) of Spinco and the Spinco Subsidiaries and all books and
records owned by Parent and its Subsidiaries which relate primarily to the
Spinco Business or are necessary to operate the Spinco business including all
such books and records relating to Spinco Employees, all files relating to any
Action being assumed by Spinco as part of the Spinco Liabilities, original
corporate minute books, stock ledgers and certificates and corporate seals,
and all licenses, leases, agreements and filings, relating to Spinco, the
Spinco Subsidiaries or the Spinco Business (but not including the Parent Books
and Records, provided that Spinco shall have access to, and have the right to
obtain duplicate copies of,the Parent Books and Records in accordance with the
provisions of Article VI).
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"SPINCO BUSINESS" means all businesses conducted by Parent and its
Subsidiaries (including Spinco and the Spinco Subsidiaries) other than the
Retained Business, including (i) the ownership, development, management,
operation and franchising of hotels and conference centers (other than the
Retained Conference Centers), including all hotels in the "Marriott,"
"Courtyard by Marriott," "Residence Inns by Marriott," "Fairfield Inns by
Marriott," "Fairfield Suites," "Marriott Executive Residences," "TownPlace
Suites by Marriott," "Renaissance," "New World," "Ramada," "Ramada
International," and "Ritz-Carlton" hotel chains, (ii) the ownership,
development, management, franchising and operation of senior living
facilities, (iii) the ownership, development, management and operation of
vacation timeshare programs, as conducted primarily by Marriott Ownership
Resorts, Inc. and its Subsidiaries, (iv) the distribution services business
conducted through Parent's Distribution Services division, (v) the provision
of home housekeeping and related repair, maintenance and upkeep services
through Marriott Home Solutions, Inc. or otherwise, (vi) the provision of
event management services through Marquis Events International or otherwise,
and (vii) all businesses, ventures and enterprises under consideration or
development by the New Ventures Division of Parent on or prior to the
Effective Time.
"SPINCO BYLAWS" means the Bylaws of Spinco, substantially in the form
attached as an exhibit to the Form 10.
"SPINCO CAPITAL STOCK" means each class of the capital stock of Spinco
(together with any rights issued pursuant to any shareholder rights plan
described in the Form 10).
"SPINCO CERTIFICATE" means the Restated Certificate of Incorporation of
Spinco, substantially in the form attached as an exhibit to the Form 10.
"SPINCO EMPLOYEES" has the meaning specified in the Benefits Allocation
Agreement.
"SPINCO EMPLOYMENT LIABILITIES" has the meaning specified in the Benefits
Allocation Agreement.
"SPINCO GROUP" means Spinco and the Spinco Subsidiaries, collectively.
"SPINCO INDEMNIFIABLE LOSS" has the meaning specified in Section 4.1.
"SPINCO INDEMNITEES" has the meaning specified in Section 4.1.
"SPINCO LIABILITIES" means all Liabilities of Parent and its Subsidiaries
other than the Retained Liabilities, including (i) all of the Liabilities of
the Spinco Group under, or to be retained or assumed by Spinco or any of the
Spinco Subsidiaries pursuant to, this Agreement or any of the Transaction
Documents, including the Spinco Employment Liabilities and the Financing
Obligations that are to be assumed by Spinco pursuant to Section 2.8, (ii) all
Liabilities under Contracts included in the Spinco Assets, whether such
Liabilities arise before, upon or after the transactions contemplated by this
Agreement and including any Liabilities under such Contracts resulting from
the consummation of the transactions contemplated by this Agreement (including
actions, claims or proceedings relating thereto), (iii) all Liabilities for
payment of outstanding drafts of Parent to the extent attributable to the
Spinco Business existing as of the Distribution Date, (iv) the Spinco Self
Insurance Liabilities, and (v) any Liabilities arising out of actions, claims,
or proceedings relating to the transactions contemplated by the Merger
Agreement and this Agreement (other than Retained Liabilities and those
Liabilities relating to Taxes which shall be allocated pursuant to the Tax
Sharing Agreement).
"SPINCO OPERATING AGREEMENTS" means the existing management, operating,
lease, franchise or license agreements that relate to the Spinco Business.
"SPINCO POLICIES" means all Policies, current or past, which are owned or
maintained by or on behalf of Parent or any of its Affiliates or predecessors,
which relate to the Spinco Business but do not relate to the Retained
Business, and which Policies are either maintained by the Spinco Group or
assignable to the Spinco Group.
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"SPINCO SELF INSURANCE LIABILITIES" has the meaning specified in Section
7.6.
"SPINCO SUBSIDIARIES" means the Transferred Subsidiaries and all
Subsidiaries of Spinco or the Transferred Subsidiaries at the time of the
Distribution.
"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 non-corporate 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.
"SURETY BONDS" has the meaning specified in Section 7.7.
"TAX SHARING AGREEMENT" means the Tax Sharing and Indemnification Agreement
by and among Spinco, Seller and Parent, which agreement shall be entered into
on or prior to the Distribution Date pursuant to the Merger Agreement.
"THIRD-PARTY CLAIM" has the meaning specified in Section 4.5.
"TRADEMARK LICENSE AGREEMENT" means the Trademark and Trade Name License
Agreement between Parent and Spinco, pursuant to which Spinco will license
certain intellectual property rights to Parent, which agreement shall be
entered into on or prior to the Distribution Date in substantially the form of
Exhibit A attached hereto.
"TRANSACTION DOCUMENTS" has the meaning set forth in the Merger Agreement.
"TRANSFERRED LEASED LAND" means the land specified on Schedule 1.1(d) which
is owned by Parent and leased to certain partnerships owning hotels used in
connection with the Spinco Business.
"TRANSFERRED SUBSIDIARIES" means the Subsidiaries identified on Schedule
1.1(g).
"TRANSFERRED SUBSIDIARY STOCK" means all of the issued and outstanding
capital stock of the Transferred Subsidiaries.
"TRANSITIONAL SERVICES AGREEMENTS" means the agreements to be entered into
between Parent and Spinco on or prior to the Distribution Date, providing for
furnishing of certain services by Spinco or Parent or their respective
Subsidiaries, after the Distribution Date, in substantially the forms of the
following exhibits (or, in case of exhibits in the form of term sheets,
incorporating the terms set forth therein):
<TABLE>
<S> <C>
Employee Benefits Transition
Administration Services Agreement.............................. Exhibit E-1
Procurement Services Agreement.................................. Exhibit E-2
MARRPAY(R) Services Agreement................................... Exhibit E-3
MDS Distribution Services Agreement............................. Exhibit E-4
Casualty Claims Administration Agreement........................ Exhibit E-5
Risk Management Consulting Agreement............................ Exhibit E-6
Headquarters Sublease........................................... Exhibit E-7
Information Systems and Telecommunications Agreement............ Exhibit E-8
Miscellaneous Services Agreement................................ Exhibit E-9
Headquarters Management Services Agreements..................... Exhibit E-10
Employee Relocation Services Agreement.......................... Exhibit E-11
</TABLE>
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"UK STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated as of
even date herewith by and among Parent, MMS, Seller, Marriott Worldwide
Corporation, MMS UK and Gardner Merchant pursuant to which MMS agrees to sell
the capital stock of MMS UK to Gardner Merchant.
Section 1.2. Interpretation. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement. For all purposes of
this Agreement, except as otherwise expressly provided, (i) the enumeration of
one or more items following the term "including" shall not be interpreted as
excluding any items not so enumerated, (ii) defined terms shall include the
plural as well as the singular, (iii) all references to "Articles," "Sections"
or other subdivisions are to designated Articles, Sections and other
subdivisions of the body of this Agreement, (iv) pronouns of either gender or
neuter shall include, as appropriate, the other pronoun forms, and (v) the
words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section
or other subdivision.
ARTICLE II
Restructuring and Related Transactions
Section 2.1. Issuance of Spinco Stock. Prior to the Distribution Date,
Parent shall take all steps necessary so that, immediately prior to the
Distribution Date, the number of shares of Spinco Capital Stock outstanding
and held by Parent shall equal the number of shares necessary to effect the
Distribution. The Distribution shall be effected as described in Article III.
Section 2.2. Transfer of Assets to Spinco. Prior to the Distribution Date,
Parent shall take or cause to be taken all actions necessary to cause the
transfer, assignment, delivery and conveyance to Spinco of all of Parent's and
its Subsidiaries' right, title and interest in the Spinco Assets. The "SPINCO
ASSETS" means all Assets of Parent and its Subsidiaries other than the
Retained Assets, and shall include the following Assets:
(i) the Transferred Subsidiary Stock;
(ii) all Intellectual Property owned by Parent and its Subsidiaries,
other than Intellectual Property used exclusively in the Retained Business
that does not include the word "Marriott" or variants thereof, "Mar" used
as a prefix or "J.W.";
(iii) the Spinco Operating Agreements;
(iv) the Franchise Agreements;
(v) the Spinco Books and Records;
(vi) the Transferred Leased Land;
(vii) the Assets identified on Schedule 2.2;
(viii) All of the other Assets to be assigned to Spinco under this
Agreement or the Transaction Documents; and
(ix) all other Assets relating primarily to the Spinco Business.
Section 2.3. Assumption and Satisfaction of Liabilities. Except as set forth
in the Benefits Allocation Agreement, the Tax Sharing Agreement or other
Transaction Documents effective as of and after the Distribution Date, (a)
Spinco shall, and shall cause the Spinco Subsidiaries to, assume, pay, perform
and discharge in due course all of the Spinco Liabilities and (b) Parent
shall, and shall cause the Retained Subsidiaries to, pay, perform and
discharge in due course all of the Retained Liabilities.
Section 2.4. Transfers Not Effected Prior to the Distribution. To the extent
that any transfers contemplated by this Article II shall not have been fully
effected on the Distribution Date, the parties shall cooperate to effect such
transfers as promptly as shall be practicable following the Distribution Date.
Nothing
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herein shall be deemed to require the transfer of any Assets or the assumption
of any Liabilities which by their terms or operation of law cannot be
transferred or assumed; provided, however, that Parent and Spinco and their
respective Subsidiaries and Affiliates shall cooperate in seeking to obtain
any necessary consents or approvals for the transfer of all Assets and
Liabilities contemplated to be transferred pursuant to this Article II. In the
event that any such transfer of Assets or Liabilities has not been consummated
effective as of the Distribution Date, the party retaining such Asset or
Liability shall thereafter hold such Asset in trust for the use and benefit of
the party entitled thereto (at the expense of the party entitled thereto) and
retain such Liability for the account of the party by whom such Liability is
to be assumed pursuant hereto, and take such other actions as may be
reasonably required in order to place the parties, insofar as reasonably
possible, in the same position as would have existed had such Asset been
transferred or such Liability been assumed as contemplated hereby. As and when
any such Asset or Liability becomes transferable, such transfer and assumption
shall be effected forthwith. The parties agree that, except as set forth in
this Section 2.4, as of the Distribution Date each party hereto shall be
deemed to have acquired complete and sole beneficial ownership over all of the
Assets, together with all rights, powers and privileges incidental thereto,
and shall be deemed to have assumed in accordance with the terms of this
Agreement all of the Liabilities, and all duties, obligations and
responsibilities incidental thereto, which such party is entitled to acquire
or required to assume pursuant to the terms of this Agreement.
Section 2.5. Certain Contracts. Spinco and Parent each acknowledges that
certain Contracts, including each of the Contracts identified on Schedule 2.5
hereto, may place obligations upon both Spinco (or the Spinco Subsidiaries)
and Parent (or the Retained Subsidiaries) and/or may provide rights that
benefit both the Spinco Business and the Retained Business. If any such
Contract provides material benefits to both the Spinco Business and the
Retained Business, then Spinco and Parent each agrees to use its commercially
reasonable efforts to cause such Contracts to be amended or modified so that
each of (i) Spinco or a Spinco Subsidiary and (ii) Parent or a Retained
Subsidiary shall be able to enforce directly any rights or benefits material
to it under such Contract. If a counterparty to such a Contract is not willing
to enter into such an amendment or modification on terms and conditions
reasonably acceptable to Spinco and Parent, then Spinco shall, and shall cause
the Spinco Subsidiaries to, and Parent shall, and shall cause the Retained
Subsidiaries to, at the request of the other party, take such steps as may be
necessary to cause to be available to the other party the benefits which the
other party would have been able to obtain had the other party received the
right to enforce such contract pursuant to the preceding sentence. The party
requesting such action shall reimburse the other party for all expenses
reasonably incurred in taking such action.
Section 2.6. No Representations or Warranties; Consents. Each of the parties
hereto understands and agrees that no party hereto is representing or
warranting in any way, in this Agreement or in any other agreement or document
contemplated by this Agreement or otherwise, (i) as to the value or freedom
from encumbrance of, or any other matter concerning, any Assets of such party
or (ii) as to the legal sufficiency to convey title to any Asset transferred
pursuant to this Agreement or any Transaction Document, including any
Conveyancing or Assumption Instruments. It is also agreed and understood that
there are no warranties, express or implied, as to the merchantability or
fitness of any of the Assets either transferred to or retained by the parties,
as the case may be, and all such Assets shall be "as is, where is" and "with
all faults." The absence of warranties shall not affect the allocation of
Liabilities under this Agreement. Similarly, each party hereto understands and
agrees that no party hereto is representing or warranting in any way, in this
Agreement or in any other agreement or document contemplated by this Agreement
or otherwise, that the obtaining of any consents or approval, the execution
and delivery of any amendatory agreements and the making of any filings or
applications contemplated by this Agreement will satisfy the provisions of any
or all applicable laws or judgments or other instruments or agreements
relating to such Assets. Notwithstanding the foregoing, the parties shall use
their good faith efforts to obtain all consents and approvals, to enter into
all reasonable amendatory agreements and to make all filings and applications
which may be reasonably required for the consummation of the transactions
contemplated by this Agreement, and shall take all such further actions as
shall be reasonably necessary to preserve for each of the Spinco Group and the
Parent Group, to the greatest extent feasible, the economic and operational
benefits of the allocation of Assets and Liabilities provided for in this
Agreement. In case at any time after the Distribution Date any further action
is necessary or desirable to carry out the purposes of this Agreement, the
proper officers and directors of each party to this Agreement shall take all
such necessary or desirable action.
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Section 2.7. Conveyancing and Assumption Instruments. In connection with the
Asset Transfer and the assumptions of Liabilities contemplated by this
Agreement, the parties hereto agree that (a) the transfers of Assets
contemplated hereby shall be effected by delivery by Spinco to Parent, and by
Parent to Spinco, as the case may be, of (i) with respect to those Assets
which are evidenced by capital stock certificates or similar instruments,
certificates duly endorsed in blank or accompanied by stock powers or other
instruments of assignment executed in blank, (ii) with respect to any real
property interest and any improvements thereon, a quitclaim deed or the
equivalent thereof in accordance with local practice, and (iii) with respect
to all other Assets, such good and sufficient instruments of contribution,
transfer and delivery, in form and substance reasonably satisfactory to Parent
and Spinco as shall be necessary to vest in Parent or Spinco, as the case may
be, all of the right, title and interest of Spinco or Parent, as the case may
be, in and to any such Assets, and (b) the assumption of the Spinco
Liabilities contemplated pursuant to Section 2.3 hereof shall be effected by
delivery by Parent to Spinco of such good and sufficient instruments of
assumption, in form and substance reasonably satisfactory to Parent and
Spinco, as shall be necessary for the assumption by Spinco of the Spinco
Liabilities. Each of the parties hereto also agrees to deliver to any other
party hereto such other documents, instruments and writings as may be
reasonably requested by such other parties hereto in connection with the
transactions contemplated hereby. Notwithstanding any other provisions of this
Agreement to the contrary, (x) the instruments of transfer or assumption
referred to in this Section 2.7 shall not include any additional or separate
representations and warranties, and (y) in the event and to the extent that
there is any conflict between the provisions of this Agreement and the
provisions of any of the instruments of transfer or assumption referred to in
this Section 2.7, the provisions of this Agreement shall prevail and govern.
Section 2.8. Financing and Net Tangible Assets.
(a) Parent Senior Notes. It is the intent of Parent and Spinco that Parent
remain directly obligated with respect to all indebtedness evidenced by the
Parent Senior Notes. However, retaining such liabilities in Parent following
the consummation of the Distribution and the transactions contemplated thereby
may be deemed to require the consent of the holders of each series of the
Parent Senior Notes. Therefore, Parent and Spinco agree to undertake the
following transactions with respect to each series of the Parent Senior Notes:
(i) Parent shall prepare a tender offer statement and consent
solicitation (each, a "PARENT TENDER OFFER STATEMENT") with respect to each
series of the Parent Senior Notes pursuant to which (x) Parent will offer
to purchase all issued and outstanding Parent Senior Notes of such series
(each, a "PARENT TENDER OFFER") and (y) Parent will solicit consents to a
supplemental indenture with respect to such series (each, a "PARENT CONSENT
SOLICITATION") containing such amendments to the pertinent Parent Senior
Notes Indenture as may be determined by Parent in its sole discretion to be
necessary or appropriate in connection with the Distribution and the
retention by Parent of the obligations under such series (each, a "PARENT
TENDER SUPPLEMENTAL INDENTURE"). The terms and conditions upon which Parent
shall offer to purchase each series of Parent Senior Notes will be
determined by Parent in its sole discretion. Parent shall comply with the
applicable tender offer rules, including Rule 13e-4 under the Exchange Act,
and any other applicable laws or regulations in connection with the Parent
Tender Offers, the Parent Consent Solicitations and the Parent Tender Offer
Statements. The timing of the commencement of the Parent Tender Offers will
be determined by Parent in its reasonable judgment. Any provisions of this
Agreement that conflict with such laws and regulations shall be deemed to
be superseded by the provisions of such laws and regulations.
(ii) Spinco and Parent agree to take the following actions, depending
upon the extent to which holders of any series of Parent Senior Notes agree
to tender their Parent Senior Notes and consent to the pertinent Parent
Tender Supplemental Indenture:
(A) If holders of a majority of a series of Parent Senior Notes
execute and deliver consents to enter into the pertinent Parent Tender
Supplemental Indenture, then (1) Parent and the Parent Senior Notes
Trustee will execute and deliver the pertinent Parent Tender
Supplemental Indenture, (2) Parent will consummate the Parent Tender
Offer for such series in accordance with the terms of the pertinent
Parent Tender Offer Statement and applicable law (including purchasing
all Parent Senior Notes of such series that have been validly tendered
and not withdrawn), (3) any Parent Senior Notes that were
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<PAGE>
not validly tendered or were withdrawn will remain obligations of
Parent, entitled to the benefits of the Parent Senior Notes Indenture,
as amended by the Parent Tender Supplemental Indenture, and (4) all
costs of the Parent Tender Offer and Parent Consent Solicitation
(including the principal amount of the Parent Senior Notes purchased,
any premiums paid in connection therewith and accrued and unpaid
interest thereon) will be paid by Parent; and
(B) If holders of a majority of a series of Parent Senior Notes do
not execute and deliver consents to enter into the pertinent Parent
Tender Supplemental Indenture, then (1) Parent, Spinco and the Parent
Senior Notes Trustee will execute and deliver a supplemental indenture
to the pertinent Parent Senior Notes Indenture pursuant to which Parent
will assign to Spinco, and Spinco will assume from Parent, all rights
and obligations of Parent under such Parent Senior Notes Indenture
(each, a "PARENT ASSIGNMENT SUPPLEMENTAL INDENTURE"), as a result of
which any Parent Senior Notes that were not validly tendered or were
withdrawn will become obligations of Spinco, (2) Parent will consummate
the Parent Tender Offer for such series in accordance with the terms of
the pertinent Parent Tender Offer Statement and applicable law
(including purchasing all Parent Senior Notes of such series that have
been validly tendered and not withdrawn), (3) Parent will contribute to
Spinco prior to the Distribution, in addition to any other assets to be
contributed to Spinco by Parent in connection with the Distribution,
cash in an amount equal to the principal amount of all Parent Senior
Notes of such series not acquired by Parent pursuant to such Parent
Tender Offer, and (4) all costs of the Parent Tender Offer and Parent
Consent Solicitation (including the principal amount of any Parent
Senior Notes purchased, any premiums paid in connection therewith and
accrued and unpaid interest thereon) will be paid by Parent.
(b) RHG Senior Notes. It is the intent of Parent and Spinco that the
indebtedness evidenced by the RHG Senior Notes be refinanced. However,
refinancing such indebtedness will require that Parent tender for such
indebtedness. Therefore, Parent and Spinco agree to undertake the following
transactions with respect to the RHG Senior Notes:
(i) Parent, RHG and RHG Finance shall prepare a tender offer statement
and any related consent solicitation (the "RHG TENDER OFFER STATEMENT")
with respect to the RHG Senior Notes pursuant to which RHG Finance will
offer to purchase all issued and outstanding RHG Senior Notes (the "RHG
TENDER OFFER"). The terms and conditions upon which RHG shall offer to
purchase the RHG Senior Notes will be determined by Parent in its sole
discretion. Parent, RHG and RHG Finance shall comply with the applicable
tender offer rules, including Rule 13e-4 under the Exchange Act, and any
other applicable laws or regulations in connection with the RHG Tender
Offer and the RHG Tender Offer Statement. The timing of the commencement of
the RHG Tender Offer will be determined by Parent in its reasonable
judgment. Any provisions of this Agreement that conflict with such laws and
regulations shall be deemed to be superseded by the provisions of such laws
and regulations.
(ii) (1) Parent, RHG, RHG Finance, Spinco and the RHG Senior Notes
Trustee will execute and deliver a supplemental indenture to the RHG Senior
Notes Indenture pursuant to which Parent will assign to Spinco, and Spinco
will assume from Parent, all rights and obligations of Parent under the RHG
Senior Notes Indenture (the "RHG ASSIGNMENT SUPPLEMENTAL INDENTURE"), as a
result of which any RHG Senior Notes that were not validly tendered or were
withdrawn will remain obligations of RHG Finance that are guaranteed by RHG
and Spinco, rather than being guaranteed by RHG and Parent, (2) RHG Finance
will consummate the RHG Tender Offer in accordance with the terms of the
RHG Tender Offer Statement and applicable law (including purchasing all RHG
Senior Notes that have been validly tendered and not withdrawn), (3) Parent
will contribute to Spinco prior to the Distribution, in addition to any
other assets to be contributed to Spinco by Parent in connection with the
Distribution, cash in an amount equal to the principal amount of all RHG
Senior Notes (including the principal amount of any RHG Senior Notes
acquired by RHG Finance pursuant to the RHG Tender Offer), and (4) costs of
the RHG Tender Offer (including the principal amount of any RHG Senior
Notes purchased, any premiums paid in connection therewith and accrued and
unpaid interest thereon) will be paid by Spinco.
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(c) Liquid Yield Option Notes. It is the intent of Parent and Spinco that
the rights of the holders evidenced by the LYONs issued by Parent be allocated
between Parent and Spinco in the manner described in the LYONs Allocation
Agreement and that, prior to the Distribution, Parent, Spinco and the LYONs
Trustee will execute and deliver the LYONs Supplemental Indenture.
(d) Credit Facility. It is the intent of Parent and Spinco that the
indebtedness outstanding under the Revolving Credit Facility be retained by
Parent. Therefore, on or prior to the Distribution, Parent will either obtain
the consent of the lenders and the agent under the Revolving Credit Facility
to the consummation of the Distribution and the transactions contemplated
thereby or refinance the amounts outstanding thereunder.
(e) Refinancing; Cash Contribution to Spinco. It is the intent of Parent and
Spinco that Parent incur indebtedness the net proceeds of which are sufficient
to finance the Parent Tender Offers, the RHG Tender Offer, the Parent Consent
Solicitations, the refinancing of the Revolving Credit Facility (if
necessary), the cash required to be contributed to Spinco to the extent that
Spinco becomes obligated with respect to any indebtedness intended to be
retained by Parent or refinanced as provided in Sections 2.8(a) and 2.8(b) and
all fees and expenses incurred in connection therewith that are to be borne by
Parent. Therefore, Parent shall use its reasonable efforts to borrow funds in
such amounts as are necessary, together with the capital contributions to be
made by Seller to the Company as contemplated by the Merger Agreement, to
provide net proceeds to Parent sufficient to refinance the indebtedness of
Parent and pay the other amounts described above. In connection with the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents, either (I) Parent will transfer to Spinco cash in an
amount equal to the excess of (x) $1,444,000,000, over (y) the sum of the
Parent Senior Note Amount, the RHG Senior Note Amount, the Revolving Credit
Facility Amount and the LYONs Amount, or (II) if the sum of the amounts set
forth in clause (y) is greater than $1,444,000,000, Spinco will transfer to
Parent cash in an amount equal to such excess (such payment, whether to be
made by Parent or Spinco, the "SECTION 2.8(E) PAYMENT"). Pursuant to the
Omnibus Agreement, either Parent or Spinco will make the Estimated Section
2.8(e) Payment on the Distribution Date. Within 5 Business Days following the
Distribution Date, the parties shall confirm the amount of the Section 2.8(e)
Payment. Within 2 Business Days of such confirmation, either Parent will pay
to Spinco, or Spinco will pay to Parent, any difference between the Estimated
Section 2.8(e) Payment and the Section 2.8(e) Payment, together with interest
on such difference from the Distribution Date through and including the date
of such payment at a rate per annum calculated as 6-month LIBOR (appearing on
the Dow Jones/Telerate Monitor on Telerate Access Service Page 3750,
determined at 11:00 AM London time on the Distribution Date and, if necessary,
each 6-month anniversary thereof) plus one percent (1.00%), computed based
upon a year of 360 days and actual days elapsed. Any such payment pursuant to
this Section 2.8(e) will be made by wire transfer of immediately available
funds in U.S. Dollars.
(f) Net Tangible Assets Adjustment.
(i) Within 60 days after the Distribution, Spinco will prepare and
deliver or cause to be delivered to Parent a statement (the "DISTRIBUTION
DATE STATEMENT") that includes a consolidated balance sheet of the Retained
Business as of the moment immediately prior to the consummation of the
transactions contemplated by this Agreement and the Transaction Documents,
prepared in accordance with the Agreed Accounting Procedures, and a
calculation, set forth in reasonable detail, of the Adjusted Net Tangible
Assets of the Retained Business as of such time. The Distribution Date
Statement shall be accompanied by a report of Spinco's independent public
accountants stating, without qualification, that such balance sheet and
such calculation have been prepared in accordance with this Section 2.8(f).
Parent will assist Spinco in the preparation of the Distribution Date
Statement by making available to Spinco and its representatives, upon
reasonable notice and during normal business hours, (x) all information
reasonably requested by Spinco, and (y) all employees and representatives
of Parent as may be reasonably requested by Spinco. Spinco will afford
Parent's representatives reasonable access, upon reasonable notice and
during reasonable hours, to Spinco's records and information during the
preparation of the Distribution Date Statement and a reasonable opportunity
to participate in the preparation thereof.
(ii) Parent and Spinco acknowledge and agree that the purpose of the
procedures and adjustments contemplated by this Section 2.8(f) is to ensure
that the Adjusted Net Tangible Assets of the Retained
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Business, determined as provided herein and in accordance with the Agreed
Accounting Procedures, is equal to $103.2 million, as hereinafter provided.
For the avoidance of doubt, it is expressly agreed that no objection may be
raised and no adjustment may be proposed to any entry or item contained in
the Distribution Date Statement except on grounds that such item or entry
is not in accordance with the provisions of this Agreement or the Agreed
Accounting Procedures consistently applied; without prejudice, however, to
a party's right to challenge or propose adjustment to items or entries on
grounds that such items or entries are not so in accordance with the
provisions of this Agreement and the Agreed Accounting Procedures,
consistently applied.
(iii) Following the delivery of the Distribution Date Statement to
Parent, Parent will have the right to review the Distribution Date
Statement to determine whether it was prepared in accordance with this
Agreement and the Agreed Accounting Procedures. Spinco will permit Parent
and its independent public accountants access at all reasonable times to
all of the working papers, analyses and schedules of Spinco utilized or
prepared in connection with the preparation of the Distribution Date
Statement. Within the 30-day period after receipt of the Distribution Date
Statement, Parent will, in a written notice to Spinco, either accept the
Distribution Date Statement or describe in reasonable detail any proposed
adjustments to such Distribution Date Statement and the reasons therefor,
in which case Parent's notice will include a special report of Parent's
independent public accountants stating that such adjustments are required
in accordance with this Section 2.8(f). If Spinco has not received such
notice of proposed adjustments within such 30-day period, Parent will be
deemed irrevocably to have accepted the Distribution Date Statement.
(iv) Parent and Spinco will negotiate in good faith to resolve any
disputes over any proposed adjustments to the Distribution Date Statement.
However, if any such dispute is not resolved within 30 days following the
receipt by Spinco of the proposed adjustments, Parent and Spinco jointly
will engage KPMG Peat Marwick to resolve such disputes in accordance with
the standards set forth in this Section 2.8(f), which resolution will be
final and binding. Each party will bear a portion of the fees and expenses
of such accounting firm equal to the proportion to the disputed amount
determined in favor of the other party.
(v) Upon the acceptance of the Distribution Date Statement by Parent or
the resolution in writing of any disputes arising out of any proposed
adjustments, (A) if the Adjusted Net Tangible Assets of the Retained
Business as set forth on the Distribution Date Statement as so accepted or
as modified to resolve such disputes is greater than $103.2 million, Parent
will promptly (but in no event more than five days thereafter) pay to
Spinco the amount of such excess, together with interest as computed below,
or (B) if the Adjusted Net Tangible Assets of the Retained Business as set
forth on the Distribution Date Statement as so accepted or as modified to
resolve such disputes is less than $103.2 million, Spinco will promptly
(but in no event more than five days thereafter) pay to Parent the amount
of such difference, together with interest as computed below. Interest will
be payable on the amounts set forth above from the Distribution Date
through and including the date of such payment at a rate per annum
calculated as 6-month LIBOR (appearing on the Dow Jones/Telerate Monitor on
Telerate Access Service Page 3750, determined at 11:00 AM London time on
the Distribution Date and, if necessary, each 6-month anniversary thereof)
plus one percent (1.00%), computed based upon a year of 360 days and actual
days elapsed. Any such payment pursuant to this Section 2.8(f) will be made
by wire transfer of immediately available funds in U.S. Dollars.
Section 2.9. MMS UK. Prior to the closing of the sale of MMS UK to Gardner
Merchant under the UK Stock Purchase Agreement, MMS UK and its Subsidiaries
shall be deemed to be included within the Retained Assets, the Retained
Business, the Retained Liabilities, and the Retained Subsidiaries for purposes
of this Agreement and the Transaction Documents. Following the closing under
the UK Stock Purchase Agreement, MMS UK and its Subsidiaries shall be deemed
to be excluded from the Retained Assets, the Retained Business, the Retained
Liabilities and the Retained Subsidiaries. MMS UK and its Subsidiaries shall
not be deemed at any time or for any purpose to be included within the Spinco
Assets, the Spinco Business, the Spinco Liabilities or the Spinco Subsidiaries
for purposes of this Agreement and the Transaction Documents.
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ARTICLE III
The Distribution
Section 3.1. Cooperation Prior to the Distribution.
(a) Parent shall prepare the Proxy Statement (which shall set forth
appropriate disclosure concerning Spinco and the Spinco Subsidiaries, the
Spinco Business, the Distribution, the Merger and certain other matters) and
Spinco shall file with the Commission the Form 10 (which shall include or
incorporate by reference the Proxy Statement). Parent and Spinco shall use
their respective reasonable efforts to cause the Form 10 to be declared
effective under the Exchange Act or, if either Parent or Spinco reasonably
determines that the Distribution may not be effected without registering the
Spinco Capital Stock pursuant to the Securities Act, Parent shall use its
reasonable efforts to cause the Spinco Capital Stock to be registered pursuant
to the Securities Act and thereafter effect the Distribution in accordance
with the terms of this Agreement, including by preparing and filing on an
appropriate form of registration statement under the Securities Act covering
the Spinco Capital Stock and using its reasonable efforts to cause such
registration statement to be declared effective.
(b) Parent and Spinco shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Benefits Allocation Agreement and the obligations assumed by Spinco under the
LYONs Allocation Agreement.
(c) Parent and Spinco shall take all such action as may be necessary or
appropriate under state securities or "blue sky" laws in connection with the
transactions contemplated by this Agreement and the Transaction Documents.
(d) Parent and Spinco shall prepare, and Spinco shall file and seek to make
effective, an application to permit listing of the Spinco Capital Stock either
on the NYSE or any other national securities exchange or national market
system as may be selected by Spinco in its sole discretion (to the extent
permitted pursuant to the listing requirements of such exchange or national
market system).
(e) Parent and Spinco shall use all reasonable efforts to obtain any
consents and approvals of, and to make any notices to and filings with, any
Governmental Entity or any other Person or entity necessary or desirable in
connection with the transactions contemplated hereby.
(f) Parent and Spinco will use all reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary or
desirable under applicable law, to consummate the transactions contemplated
under this Agreement.
Section 3.2. Conditions Precedent to the Distribution. The obligations of
Parent to effect the Distribution shall be subject to the satisfaction of the
following conditions:
(i) the transactions contemplated by Sections 2.2 and 2.3 shall have been
consummated in all material respects;
(ii) the Spinco Board, comprised as contemplated by Section 5.1, shall
have been elected by Parent, as sole stockholder of Spinco, and the Spinco
Certificate and Spinco Bylaws shall have been adopted and shall be in
effect;
(iii) the Ruling Request shall have been granted in form and substance
satisfactory to the Parent Board, in its sole discretion;
(iv) Parent shall have received the opinion of American Appraisal
Associates, Inc. or other appraisal or valuation experts selected by
Parent, in form and substance satisfactory to Parent, as to the solvency of
Parent and Spinco after giving effect to the transactions contemplated
hereby and by the Merger Agreement, and such opinion shall not have been
withdrawn;
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(v) each condition to the Closing under the Merger Agreement set forth in
Article VII thereof, other than the condition set forth in Section 7.3(f)
as to the consummation of the Distribution, shall have been fulfilled or
waived by the party for whose benefit such condition exists;
(vi) the Distribution Record Date shall have been set by the Parent
Board;
(vii) the Form 10 (or the registration statement referred to in Section
3.1(a) hereof) shall have been declared effective by the Commission;
(viii) the Distribution and the Merger shall have been approved by the
stockholders of Parent at the Special Meeting; and
(ix) the Spinco Capital Stock shall have been accepted for listing or
quotation in accordance with Section 3.1(d) hereof.
provided, however, that any such condition may be waived by the Parent
Board in its sole discretion if Seller shall have consented thereto.
Section 3.3. The Distribution. On the Distribution Date, subject to the
conditions and rights of termination set forth in this Agreement, Parent shall
deliver to the Agent a share certificate representing all of the then
outstanding shares of Spinco Capital Stock owned by Parent and shall instruct
the Agent to distribute, on or as soon as practicable following the
Distribution Date, such Spinco Capital Stock to the Holders. Spinco agrees to
provide all share certificates that the Agent shall require in order to effect
the Distribution.
ARTICLE IV
INDEMNIFICATION
Section 4.1. Indemnification by Parent. Except as otherwise expressly set
forth in the Transaction Documents, Parent shall indemnify, defend and hold
harmless Spinco and each of the Spinco Subsidiaries, and each of their
respective directors, officers, employees, agents and Affiliates and each of
the heirs, executors, successors and assigns of any of the foregoing (the
"SPINCO INDEMNITEES") from and against the Retained Liabilities and any and
all losses, Liabilities, damages, including the costs and expenses of any and
all Actions, threatened Actions, demands, assessments, judgments, settlements
and compromises relating thereto and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any such Actions or threatened Actions (collectively, "SPINCO
INDEMNIFIABLE LOSSES" and, individually, a "SPINCO INDEMNIFIABLE LOSS") of the
Spinco Indemnitees arising out of or due to the failure or alleged failure of
Parent or any of its Affiliates (i) to pay, perform or otherwise discharge in
due course any of the Retained Liabilities, or (ii) comply with the provisions
of Section 5.4(b).
Section 4.2. Indemnification by Spinco. Except as otherwise expressly set
forth in the Transaction Documents, Spinco shall indemnify, defend and hold
harmless Parent and each of the Retained Subsidiaries, and each of their
directors, officers, employees, agents and Affiliates and each of the heirs,
executors, successors and assigns of any of the foregoing (the "PARENT
INDEMNITEES") from and against the Spinco Liabilities and any and all losses,
Liabilities, damages, including the costs and expenses of any and all Actions,
threatened Actions, demands, assessments, judgments, settlements and
compromises relating thereto and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any such Actions or threatened Actions (collectively, "PARENT
INDEMNIFIABLE LOSSES" and, individually, an "PARENT INDEMNIFIABLE LOSS") of
the Parent Indemnitees arising out of or due to the failure or alleged failure
of Spinco or any of its Affiliates to (i) pay, perform or otherwise discharge
in due course any of the Spinco Liabilities or (ii) comply with the provisions
of Section 5.4(a). The "Spinco Indemnifiable Losses" and the "Parent
Indemnifiable Losses" are collectively referred to as the "INDEMNIFIABLE
LOSSES."
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Section 4.3. Environmental Indemnification by Spinco.
(a) Spinco shall indemnify, defend and hold harmless each of the Parent
Indemnitees from and against any Parent Indemnifiable Losses of the Parent
Indemnitees (i) arising out of or relating to Existing Environmental Laws and
attributable to the accidental discharge of waste water from the Lohmar
Laundry Facility of the Retained Business located in Santa Clara, California
prior to the Distribution Date and (ii) arising out of, or relating to, the
listing of the Marriott Tucson Linen facility located in Tucson, Arizona on
the Arizona state clean-up or superfund list and on the Federal Comprehensive
Environmental Response, Compensation and Liability Information System list as
a result of events, facts and circumstances prior to the Distribution Date,
including any remedial, investigatory or cleanup costs and expenses incurred
by any Parent Indemnitee in connection with such matter; provided, that (A)
any costs and expenses forming the basis for any Parent Indemnifiable Losses
are limited to those that are commercially reasonable in the absence of the
indemnification set forth in this Section 4.3, and (B) Parent Indemnifiable
Losses do not include costs attributable to the time or efforts of any Parent
Indemnitee. As used herein, "EXISTING ENVIRONMENTAL LAWS" means those
applicable provisions of any federal, state or local law, statute, ordinance,
common law, rule, regulation, permit, directive, license, approval, guidance,
interpretation, order, or other legal requirement relating to the protection
of safety, human health or the environment, including any requirement
pertaining to the manufacture, processing, distribution, use, treatment,
storage, disposal, transportation, handling, reporting, licensing, permitting,
investigation or remediation of materials that are or may constitute a threat
to human health or the environment that are both in effect and required to be
met on or prior to the Distribution Date. Without limiting the foregoing, each
of the following is an Existing Environmental Law: the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C. (S) 9601 et
seq.), the Hazardous Material Transportation Act (49 U.S.C. (S) 1801 et seq.),
the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean
Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. (S) 2601 et seq.), the Safe Drinking Water Act (42 U.S.C. (S) 300f et
seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), and
the Atomic Energy Act (42 U.S.C.(S) 2011 et seq.), as such laws have been or
are in the future, on or prior to the Distribution Date, amended or
supplemented, and each similar federal, state or local statute, and each rule
and regulation promulgated under such federal, state and local laws.
(b) This Section 4.3 and the indemnification hereunder shall survive the
Distribution Date and shall remain in effect for two years thereafter. Any
matter as to which a claim has been asserted by notice to Spinco that is
pending or unresolved at the end of any applicable limitation period shall
continue to be covered by this Section 4.3 notwithstanding any applicable
statute of limitations (which the parties hereby waive) until such matter is
finally terminated or otherwise resolved by the parties under this Agreement
or by a court of competent jurisdiction and any amounts payable hereunder are
finally determined and paid.
Section 4.4. Insurance Proceeds; Tax Benefits; Mitigation. The amount which
any party (an "INDEMNIFYING PARTY") is or may be required to pay to any other
Person (an "INDEMNITEE") pursuant to Sections 4.1, 4.2 or 4.3 shall be reduced
(including retroactively) by (i) any Insurance Proceeds or other amounts
actually recovered by or on behalf of such Indemnitee in reduction of the
related Indemnifiable Loss and (ii) any Tax benefits realized or realizable by
such Indemnitee based on the present value thereof by reason of such Loss and
shall be increased by any Tax liability incurred by such Indemnitee based on
such indemnity payment. If an Indemnitee shall have received the payment
required by this Agreement from an Indemnifying Party in respect of an
Indemnifiable Loss and shall subsequently actually receive Insurance Proceeds,
Tax benefits or other amounts in respect of such Indemnifiable Loss as
specified above, then such Indemnitee shall pay to such Indemnifying Party a
sum equal to the amount of such Insurance Proceeds, Tax benefits or other
amounts actually received. The Indemnitee shall take all reasonable steps to
mitigate all Losses, including availing itself of any defenses, limitations,
rights of contribution, claims against third parties and other rights at law
(it being understood that any out-of-pocket costs paid to third parties in
connection with such mitigation shall constitute Losses), and shall provide
such evidence and documentation of the nature and extent of any Loss as may be
reasonably requested by the Indemnifying Party.
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Section 4.5. Procedure for Indemnification.
(a) Except as may be set forth in a Transaction Document, if an Indemnitee
shall receive notice or otherwise learn of the assertion by a Person
(including any governmental entity) who is not a party to this Agreement or to
any of the Transaction Documents of any claim or of the commencement by any
such Person of any Action (a "THIRD-PARTY CLAIM") with respect to which an
Indemnifying Party may be obligated to provide indemnification pursuant to
this Agreement, such Indemnitee shall give such Indemnifying Party written
notice thereof promptly after becoming aware of such Third-Party Claim;
provided, that the failure of any Indemnitee to give notice as required by
this Section 4.5 shall not relieve the Indemnifying Party of its obligations
under this Article IV, except to the extent that such Indemnifying Party is
prejudiced by such failure to give notice. Such notice shall describe the
Third-Party Claim in reasonable detail, and shall indicate the amount
(estimated if necessary) of the Indemnifiable Loss that has been or may be
sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying
Party must confirm in writing that it agrees that the Indemnitee is entitled
to indemnification hereunder in respect of such Third-Party Claim. Within 30
days of the receipt of notice from an Indemnitee in accordance with Section
4.5(a) (or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to
assume responsibility for such Third-Party Claim (provided that if the
Indemnifying Party does not so notify the Indemnitee of its election within 30
days after receipt of such notice from the Indemnitee, the Indemnifying Party
shall be deemed to have elected not to assume responsibility for such Third-
Party Claim), and such Indemnitee shall cooperate in the defense or settlement
or compromise of such Third-Party Claim. After notice from an Indemnifying
Party to an Indemnitee of its election to assume responsibility for a Third-
Party Claim, such Indemnifying Party shall not be liable to such Indemnitee
under this Article IV for any legal or other expenses (except expenses
approved in advance by the Indemnifying Party) subsequently incurred by such
Indemnitee in connection with the defense thereof; provided that if the
defendants in any such claim include both the Indemnifying Party and one or
more Indemnitees and in such Indemnitees' reasonable judgment a conflict of
interest between such Indemnitees and such Indemnifying Party exists in
respect of such claim, such Indemnitees shall have the right to employ
separate counsel and in that event the reasonable fees and expenses of such
separate counsel (but not more than one separate counsel reasonably
satisfactory to the Indemnifying Party) shall be paid by such Indemnifying
Party. If an Indemnifying Party elects not to assume responsibility for a
Third-Party Claim (which election may be made only in the event of a good
faith dispute that a claim was inappropriately tendered under Section 4.1, 4.2
or 4.3, as the case may be) such Indemnitee may defend or (subject to the
following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
claim without prior written notice to the Indemnifying Party, which shall have
the option within fifteen days following the receipt of such notice (i) to
disapprove the settlement and assume all past and future responsibility for
the claim, including reimbursing the Indemnitee for prior expenditures in
connection with the claim, or (ii) to disapprove the settlement and continue
to refrain from participation in the defense of the claim, in which event the
Indemnifying Party shall have no further right to contest the amount or
reasonableness of the settlement if the Indemnitee elects to proceed
therewith, or (iii) to approve the amount of the settlement, reserving the
Indemnifying Party's right to contest the Indemnitee's right to indemnity, or
(iv) to approve and agree to pay the settlement. In the event the Indemnifying
Party makes no response to such written notice from the Indemnitee, the
Indemnifying Party shall be deemed to have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to compromise any
Third-Party Claim, the Indemnitee shall make available to such Indemnifying
Party any personnel and any books, records or other documents within its
control or which it otherwise has the ability to make available that are
necessary or appropriate for such defense.
(d) Notwithstanding anything else in this Section 4.5 to the contrary, an
Indemnifying Party shall not settle or compromise any Third-Party Claim unless
(i) such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a
written release from all liability in
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respect of such Third-Party Claim and (ii) such settlement does not provide
for any non-monetary relief by Indemnitee unless Indemnitee consents thereto.
In the event the Indemnitee shall notify the Indemnifying Party in writing
that such Indemnitee declines to accept any such settlement or compromise,
such Indemnitee may continue to contest such Third-Party Claim, free of any
participation by such Indemnifying Party, at such Indemnitee's sole expense.
In such event, the obligation of such Indemnifying Party to such Indemnitee
with respect to such Third-Party Claim shall be equal to (i) the costs and
expenses of such Indemnitee prior to the date such Indemnifying Party notifies
such Indemnitee of the offer to settle or compromise (to the extent such costs
and expenses are otherwise indemnifiable hereunder) plus (ii) the lesser of
(A) the amount of any offer of settlement or compromise which such Indemnitee
declined to accept and (B) the actual out-of-pocket amount such Indemnitee is
obligated to pay subsequent to such date as a result of such Indemnitee's
continuing to pursue such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not result from
a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 30 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 30-
day period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 30-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 4.4, if the
amount of any Indemnifiable Loss shall, at any time subsequent to the payment
required by this Agreement, be reduced by recovery, settlement or otherwise,
the amount of such reduction, less any expenses incurred in connection
therewith, shall promptly be repaid by the Indemnitee to the Indemnifying
Party.
(g) In the event of payment by an Indemnifying Party to any Indemnitee in
connection with any Third-Party Claim, such Indemnifying Party shall be
subrogated to and shall stand in the place of such Indemnitee as to any events
or circumstances in respect of which such Indemnitee may have any right or
claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
Section 4.6. Joint and Several Liability for Certain Employment
Claims. Where Employment Claims (as defined in the Benefits Allocation
Agreement) alleging or involving joint and several liability asserted against
Spinco and Parent are not separately traceable to liabilities relating to
Spinco Individuals or Retained Individuals (as such terms are defined in the
Benefits Allocation Agreement) or to employment by or with a Spinco Business
or a Retained Business, any liability shall be apportioned between Spinco and
Parent in accordance with the ratio that the aggregate wages of each party's
employees bears to the aggregate wages of the employees of both parties for
the most recent fiscal year of Parent ending before the Distribution Date as
follows: The percentage of the liability assumed by Spinco shall equal the
ratio of (i) the aggregate wages of Spinco Employees (as of the Distribution
Date) as determined by reference to the federal income tax wage base on
Internal Revenue Services Forms W-2 for the most recent fiscal year of Parent
ended prior to the Distribution Date ("Forms W-2") to (ii) the combined
aggregate wages of Spinco Employees and Retained Employees (each, as of the
Distribution Date) on Forms W-2; and the percentage of the liability assumed
by Parent shall equal the ratio of (i) the aggregate wages of Retained
Employees (as of the Distribution Date) on Forms W-2 to (ii) the combined
aggregate wages of Spinco Employees and Retained Employees (each, as of the
Distribution Date) on Forms W-2. Each party will indemnify, defend and hold
harmless the other to the extent of the indemnifying party's apportioned
percentage determined in accordance with this Section 4.6.
Section 4.7. Remedies Cumulative. The remedies provided in this Article IV
shall be cumulative and shall not preclude assertion by any Indemnitee of any
other rights or the seeking of any and all other remedies against any
Indemnifying Party.
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Section 4.8. Survival of Indemnities. The obligations of each of Spinco and
Parent under this Article IV shall survive the sale or other transfer by it of
any Assets or businesses or the assignment by it of any Liabilities, with
respect to any Indemnifiable Loss of the other related to such Assets,
businesses or Liabilities.
ARTICLE V
Certain Additional Matters
Section 5.1. Spinco Board. Spinco and Parent shall take all actions which
may be required to constitute, effective as of the Distribution Date, the
persons identified in the Form 10 as the directors of Spinco.
Section 5.2. Resignations; Parent Board.
(a) Spinco shall cause all of its directors and Spinco Employees to resign,
effective as of the Distribution Date, from all boards of directors or similar
governing bodies of Parent or any of its Retained Subsidiaries on which they
serve, and from all positions as officers or employees of Parent or any of its
Retained Subsidiaries in which they serve, except to the extent described in
the Proxy Statement. Parent shall cause all of its directors and the Retained
Employees to resign from all boards of directors or similar governing bodies
of Spinco or any of its subsidiaries on which they serve, and from all
positions as officers or employees of Spinco or any of its subsidiaries in
which they serve, except to the extent specified in the preceding sentence.
Section 5.3. Certificate and Bylaws. On or prior to the Distribution Date,
Spinco shall adopt the Spinco Certificate and the Spinco Bylaws, and shall
file the Spinco Certificate with the Secretary of State of the State of
Delaware.
Section 5.4. Compliance with IRS Ruling Undertakings.
(a) Spinco shall, and shall cause each of the Spinco Subsidiaries to, comply
with each representation, covenant and statement made, or to be made, to any
taxing authority in connection with the IRS Ruling or any other ruling
obtained, or to be obtained, by Parent and Spinco acting together, from any
such taxing authority with respect to any transaction contemplated by this
Agreement.
(b) Parent shall, and shall cause each of its Subsidiaries to, comply with
each representation, covenant and statement made, or to be made, to any taxing
authority in connection with the IRS Ruling or any other ruling obtained, by
Parent and Spinco acting together, from any such taxing authority with respect
to any transaction contemplated by this Agreement.
Section 5.5. Name. Effective as of the Distribution Date, Parent shall
change its corporate name to "Sodexho Marriott Services, Inc.," subject to the
terms and conditions of the Trademark License Agreement. Immediately
thereafter, Spinco shall change its corporate name to "Marriott International,
Inc." Parent and Spinco agree to request in applications to the NYSE that the
trading symbol for the Spinco Capital Stock shall be "MAR" and that the
trading symbol for the Parent Common Stock shall be otherwise. All references
to Parent and Spinco herein shall be references to such corporation both
before and after such corporate name change.
ARTICLE VI
Access to Information and Services
Section 6.1. Provision of Corporate Records.
(a) Except as may otherwise be provided in a Transaction Document, Parent
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Spinco's cost) to
Spinco of the Spinco Books
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and Records in its possession, except to the extent such items are already in
the possession of Spinco or a Spinco Subsidiary. Such Spinco Books and Records
shall be the property of Spinco, but shall be available to Parent for review
and duplication until Parent shall notify Spinco in writing that such records
are no longer of use to Parent.
(b) Except as may otherwise be provided in a Transaction Document, Spinco
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions
contemplated in Article II, for the transportation (at Parent's cost) to
Parent of the Parent Books and Records in its possession, except to the extent
such items are already in the possession of Parent or a Retained Subsidiary.
The Parent Books and Records shall be the property of Parent, but shall be
available to Spinco for review and duplication until Spinco shall notify
Parent in writing that such records are no longer of use to Spinco.
Section 6.2. Access to Information. Except as may otherwise be provided in a
Transaction Document, from and after the Distribution Date, Parent shall
afford to Spinco and its authorized accountants, counsel and other designated
representatives reasonable access (including using reasonable efforts to give
access to persons or firms possessing information) and duplicating rights
during normal business hours to all records, books, contracts, instruments,
computer data and other data and information relating to pre-Distribution
operations (collectively, "INFORMATION") within Parent's possession insofar as
such access is reasonably required by Spinco for the conduct of its business,
subject to appropriate restrictions for classified or Privileged Information.
Similarly, except as otherwise provided in a Transaction Document, Spinco
shall afford to Parent and its authorized accountants, counsel and other
designated representatives reasonable access (including using reasonable
efforts to give access to persons or firms possessing information) and
duplicating rights during normal business hours to Information within Spinco's
possession, insofar as such access is reasonably required by Parent for the
conduct of its business, subject to appropriate restrictions for classified or
Privileged Information. Information may be requested under this Article VI for
the legitimate business purposes of either party, including audit, accounting,
claims (including claims for indemnification hereunder), litigation and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and the transactions
contemplated hereby.
Section 6.3. Production of Witnesses. At all times from and after the
Distribution Date, each of Spinco and Parent shall use reasonable efforts to
make available to the other, upon written request, its and its subsidiaries'
officers, directors, employees and agents as witnesses to the extent that such
persons may reasonably be required in connection with any Action.
Section 6.4. Reimbursement. Except to the extent otherwise contemplated in
any Transaction Document, a party providing Information or witness services to
the other party under this Article VI shall be entitled to receive from the
recipient, upon the presentation of invoices therefor, payments of such
amounts, relating to supplies, disbursements and other out-of-pocket expenses
(at cost) and direct and indirect expenses of employees who are witnesses
(including reasonable attorney's fees for individual counsel to such
witnesses) or otherwise furnish assistance (at cost), as may be reasonably
incurred in providing such Information or witness services.
Section 6.5. Retention of Records. Except as otherwise required by law or
agreed to in a Transaction Document or otherwise in writing, each of Parent
and Spinco may destroy or otherwise dispose of any of the Information, which
is material Information and is not contained in other Information retained by
Parent or Spinco, as the case may be, at any time after the tenth anniversary
of this Agreement, so long as, prior to such destruction or disposal, (a) it
shall provide no less than 90 or more than 120 days prior written notice to
the other, specifying in reasonable detail the Information proposed to be
destroyed or disposed of and (b) if a recipient of such notice shall request
in writing prior to the scheduled date for such destruction or disposal that
any of the Information proposed to be destroyed or disposed of be delivered to
such requesting party, the party proposing the destruction or disposal shall
promptly arrange for the delivery of such of the Information as was requested
at the expense of the party requesting such Information.
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Section 6.6. Confidentiality. Each of Parent and its Subsidiaries on the one
hand, and Spinco and its Subsidiaries on the other hand, shall hold, and shall
cause its consultants and advisors to hold, in strict confidence, all
Information concerning the other in its possession or furnished by the other
or the other's representatives pursuant to this Agreement (except to the
extent that such Information has been (i) in the public domain through no
fault of such party or (ii) later lawfully acquired from other sources or
independently developed by such party), and each party shall not release or
disclose such Information to any other Person, except its auditors, attorneys,
financial advisors, rating agencies, bankers and other consultants and
advisors, unless compelled to disclose by judicial or administrative process
or, as reasonably advised by its counsel or by other requirements of law, or
unless such Information is reasonably required to be disclosed in connection
with (x) any litigation with any third-parties or litigation between the
Parent Group and the Spinco Group, (y) any contractual agreement to which the
Parent Group or the Spinco Group are currently parties, or (z) in exercise of
either party's rights hereunder.
Section 6.7. Privileged Matters. Parent and Spinco recognize that legal and
other professional services that have been and will be provided prior to the
Distribution Date have been and will be rendered for the benefit of both the
Parent Group and the Spinco Group and that both the Parent Group and the
Spinco Group should be deemed to be the client for the purposes of asserting
all Privileges. To allocate the interests of each party in the Privileged
Information, the parties agree as follows:
(i) Parent shall be entitled, in perpetuity, to control the assertion or
waiver of all Privilege in connection with Privileged Information which
relates solely to the Retained Business, whether or not the Privileged
Information is in the possession of or under the control of Parent or
Spinco. Parent shall also be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged
Information that relates solely to the subject matter of any claims
constituting Retained Liabilities, now pending or which may be asserted in
the future, in any lawsuits or other proceedings initiated against or by
Parent, whether or not the Privileged Information is in the possession of
or under the control of Parent or Spinco.
(ii) Spinco shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which
relates solely to the Spinco Business, whether or not the Privileged
Information is in the possession of or under the control of Parent or
Spinco. Spinco shall also be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged
Information which relates solely to the subject matter of any claims
constituting Spinco Liabilities, now pending or which may be asserted in
the future, in any lawsuits or other proceedings initiated against or by
Spinco, whether or not the Privileged Information is in the possession of
Spinco or under the control of Parent or Spinco.
(iii) Parent and Spinco agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions in this
Section 6.7, with respect to all Privileges not allocated pursuant to the
terms of Sections 6.7(i) and 6.7(ii). All Privileges relating to any
claims, proceedings, litigation, disputes, or other matters which involve
both Parent and Spinco in respect of which Parent and Spinco retain any
responsibility or liability under this Agreement, shall be subject to a
shared Privilege.
(iv) No party may waive any Privilege which could be asserted under any
applicable law, and in which the other party has a shared Privilege,
without the consent of the other party, except to the extent reasonably
required in connection with any litigation with third-parties or as
provided in Section 6.7(v). Consent shall be in writing, or shall be deemed
to be granted unless written objection is made within twenty (20) days
after notice upon the other party requesting such consent.
(v) In the event of any litigation or dispute between a member of the
Parent Group and a member of the Spinco Group, either party may waive a
Privilege in which the other party has a shared Privilege, without
obtaining the consent of the other party, although such waiver of a shared
Privilege shall be effective only as to the use of Information with respect
to the litigation or dispute between the Parent Group and the Spinco Group,
and shall not operate as a waiver of the shared Privilege with respect to
third-parties.
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(vi) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of either
party, each party agrees that it shall negotiate in good faith, shall
endeavor to minimize any prejudice to the rights of the other party, and
shall not unreasonably withhold consent to any request for waiver by the
other party. Each party specifically agrees that it will not withhold
consent to waiver for any purpose except to protect its own legitimate
interests.
(vii) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of
Information subject to a shared Privilege or as to which the other party
has the sole right hereunder to assert a Privilege, or if any party obtains
knowledge that any of its current or former directors, officers, agents or
employees have received any subpoena, discovery or other requests which
arguably calls for the production or disclosure of such Privileged
Information, such party shall promptly notify the other party of the
existence of the request and shall provide the other party a reasonable
opportunity to review the Information and to assert any rights it may have
under this Section 6.7 or otherwise to prevent the production or disclosure
of such Privileged Information.
(viii) The transfer of the Spinco Books and Records and the Parent Books
and Records and other Information between Parent and its Subsidiaries and
Spinco and its Subsidiaries, is made in reliance on the agreement of Parent
and Spinco, as set forth in Sections 6.6 and 6.7, to maintain the
confidentiality of Privileged Information and to assert and maintain all
applicable Privileges. The access to information being granted pursuant to
Sections 6.1 and 6.2 hereof, the agreement to provide witnesses and
individuals pursuant to Section 6.3 hereof and the transfer of Privileged
Information between Parent and its Subsidiaries and Spinco and its
Subsidiaries pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Agreement or
otherwise.
ARTICLE VII
Insurance
Section 7.1. Policies and Rights Included Within the Spinco Assets. Without
limiting the generality of the definition of the Spinco Assets, the Spinco
Assets shall include (i) any and all rights of an insured party under each of
the Shared Policies, specifically including rights of indemnity and the right
to be defended by or at the expense of the insurer, with respect to all
injuries, losses, liabilities, damages and expenses incurred or claimed to
have been incurred on or prior to the Distribution Date by any party in or in
connection with the conduct of the Spinco Business or, to the extent any claim
is made against Spinco or any of its Subsidiaries, the Retained Business, and
which injuries, losses, liabilities, damages and expenses may arise out of
insured or insurable occurrences or events under one or more of the Shared
Policies, (ii) all of the Shared Policies (including existing Self Insurance
Programs), and (iii) the Spinco Policies. All Shared Policies, including
Shared Policies that have previously expired, shall be transferred to Spinco.
Section 7.2. Policies and Rights Included Within the Parent Assets. Without
limiting the generality of the definition of the Retained Assets, the Retained
Assets shall include (i) any and all rights of an insured party under each of
the Shared Policies, specifically including rights of indemnity and the right
to be defended by or at the expense of the insurer, with respect to all
injuries, losses, liabilities, damages and expenses incurred or claimed to
have been incurred on or prior to the Distribution Date by any party in or in
connection with the conduct of the Retained Business or, to the extent any
claim is made against Parent or any of its Subsidiaries, the Spinco Business,
and which injuries, losses, liabilities, damages and expenses may arise out of
insured or insurable occurrences or events under one or more of the Shared
Policies (including Self-Insurance Programs), and (ii) the Retained Policies.
Section 7.3. Post-Distribution Date Claims. If, subsequent to the
Distribution Date, any Person shall assert a claim against Parent or any of
its Subsidiaries with respect to any injury, loss, liability, damage or
expense incurred or claimed to have been incurred prior to the Distribution
Date and which injury, loss, liability, damage or expense may arise out of
Insured Claims under one of the Shared Policies, Spinco shall at the time
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<PAGE>
such claim is asserted be deemed to assign, without need of further
documentation, to Parent any and all rights of an insured party under the
applicable Shared Policy with respect to such asserted claim, specifically
including rights of indemnity and the right to be defended by or at the
expense of the insurer.
Section 7.4. Insurance Administration.
(a) Insurance and Claims Administration. Subject to any contrary provisions
of the Risk Management Consulting Agreement or the Casualty Claims
Administration Agreement, from and after the Distribution Date:
(i) Spinco shall be responsible for the (A) Insurance Administration of
the Shared Policies and the Spinco Policies, and (B) Claims Administration
with respect to the Spinco Liabilities and Parent Liabilities; provided,
that the administration of the Shared Policies and the Spinco Policies by
Spinco is in no way intended to limit, inhibit or preclude any right to
insurance coverage for any Insured Claim of a named insured under the
Shared Policies and the Spinco Policies, including Parent, its Subsidiaries
and any of their operations; and
(ii) Spinco shall conduct for the benefit of the Parent Group (A)
Insurance Administration of the Retained Policies under the Risk Management
Consulting Agreement, and (B) Claims Administration with respect to the
Retained Liabilities under the Casualty Claims Administration Agreement;
provided, that the administration of the Retained Policies by Spinco is in
no way intended to limit, inhibit or preclude any right to insurance
coverage for any Insured Claim of a named insured under the Retained
Policies, including Parent, its Subsidiaries and any of their operations.
In connection with the foregoing, Parent will assign to Spinco, and Spinco
will assume, all rights and obligations of Parent under the casualty claims
administration agreement between Parent and Host Marriott Corporation dated as
of October 8, 1993 and any other casualty claims administration agreements to
which Parent is a party.
(b) Insurance Premiums. Spinco shall pay the premiums and losses under
insured deductible programs with respect to the Shared Policies and the Spinco
Policies, as required under the terms and conditions of the respective
Policies. Parent shall promptly reimburse Spinco for that portion of such
premiums and losses under insured deductible programs paid by Spinco as are
attributable to the Retained Liabilities. Any question as to whether premiums
or losses are attributable to the Retained Liabilities shall be determined by
Spinco's auditors, subject to review by Parent's auditors. Spinco shall have
the right but not the obligation to pay the premiums and losses under insured
deductible programs, to the extent that Parent does not pay premiums and
losses under insured deductible programs with respect to Retained Liabilities
(retrospectively-rated or otherwise), with respect to Retained Policies, as
required under the terms and conditions of the respective Policies, whereupon
Parent shall promptly reimburse Spinco for such premiums.
(c) Allocation of Insurance Proceeds. Insurance Proceeds received with
respect to claims, costs and expenses under the Policies shall be paid to
Spinco with respect to the Spinco Liabilities and to Parent with respect to
the Retained Liabilities. Payment of the allocable portions of indemnity costs
of Insurance Proceeds resulting from the liability Policies will be made to
the appropriate party upon receipt from the insurance carrier. In the event
that the aggregate limits on any Shared Policies are exceeded, the parties
agree to provide an equitable allocation of Insurance Proceeds received after
the Distribution Date based upon their respective bona fide claims. The
parties agree to use their best efforts to cooperate with respect to insurance
matters.
(d) Existing Risk Management Consulting Arrangements. All existing risk
management consulting arrangements to which Parent or its Subsidiaries is a
party will, prior to the Distribution, be assigned to and assumed by Spinco.
Section 7.5. Existing Insurance Programs. In the event that Insured Claims
of both Spinco and Parent exist relating to the same occurrence, Spinco and
Parent agree to jointly defend and to waive any conflict of interest necessary
to the conduct of that joint defense. Nothing in this Section 7.5 shall be
construed to limit or otherwise alter in any way the indemnity obligations of
the parties to this Agreement, including those created by this Agreement, by
operation of law or otherwise.
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Section 7.6. Existing Self Insurance Programs. In addition to assuming all
existing Self Insurance Programs of Parent prior to the Distribution, Spinco
shall retain responsibility for satisfying all Liabilities under the existing
Self Insurance Programs relating to the Spinco Business (the "SPINCO SELF
INSURANCE LIABILITIES"). Parent shall retain all responsibility for all
Liabilities under the existing Self Insurance Programs relating to the
Retained Business (the "RETAINED SELF INSURANCE LIABILITIES").
Section 7.7. Surety Bonds and Letters of Credit. Schedule 7.7 sets forth the
surety bonds posted by or on behalf of the Parent Group to secure obligations
for self-insured workers' compensation losses as required by various state
insurance departments (the "SURETY BONDS") and the letters of credit issued
for the account of the Parent Group to insurance companies that front Parent's
workers' compensation, general and automobile liability insurance ("LOCS").
The parties' respective obligations with respect to such Surety Bonds and LOCs
shall be as follows:
(i) with respect to LOCs for the Phase I Insurance Period (which are
currently issued in the name of Host Marriott Corporation and its
Subsidiaries for the account of Parent), (x) after the Distribution Spinco
will provide, in the name of Host Marriott Corporation, LOCs to secure
obligations relating to the Phase I Insurance Period for such time as may
be required by law, (y) Parent will reimburse Spinco for the premiums and
other costs of such LOCs attributable to the Retained Business, and (z)
Parent and Spinco agree to provide to Host Marriott Corporation any
security reasonably requested by Host Marriott Corporation with respect to
such LOCs;
(ii) with respect to LOCs for the Phase II Insurance Period, (x) Spinco
shall keep such LOCs in place after the Distribution to secure obligations
relating to the Phase II Insurance Period for such time as may be required
by law, (y) Parent will promptly reimburse Spinco for the fees and other
costs of such LOCs attributable to the Retained Business, and (z) Parent
agrees to provide to Spinco any security reasonably requested by Spinco
with respect to such LOCs;
(iii) with respect to Surety Bonds (which are posted in the name of
Parent), (w) Parent will assign to Spinco, and Spinco will assume, the
rights and obligations under such Surety Bonds, (x) the parties shall keep
such Surety Bonds in place after the Distribution to secure obligations
relating to the period prior to the Distribution for such time as may be
required by law, (y) Parent will promptly reimburse Spinco for the fees and
other costs of such Surety Bonds attributable to the Retained Business, and
(z) Parent agreed to provide to Spinco any security reasonably requested by
Spinco with respect to such LOCs;
(iv) with respect to LOCs, Surety Bonds or other collateral or security
for the Phase I Insurance Period and Phase II Insurance Period procured or
retained by Spinco attributable to the Retained Business, Parent will, in
addition to any amounts reimbursed pursuant to clauses (i), (ii) and (iii)
above, pay to Spinco a credit enhancement fee equal to 0.25% per annum of
the amount of such collateral or security, payable quarterly; and
(v) Seller shall execute a guarantee pursuant to which Seller will
guarantee 100% of the obligations of Parent with respect to such Surety
Bonds and LOCs.
Notwithstanding the foregoing, Spinco shall be responsible for payment of
(and shall indemnify Parent against) all obligations constituting Spinco
Liabilities (and shall reimburse Parent for any payment made directly by
Parent with respect to Spinco Liabilities) and Parent shall be responsible for
payment of (and shall indemnify Spinco against) all obligations constituting
Retained Liabilities (and shall reimburse Spinco for any payments made
directly by Spinco on behalf of Retained Liabilities), consistent with the
allocation of Spinco Liabilities and Retained Liabilities set forth herein.
Section 7.8. Directors and Officers Policy. Parent's directors and officers
Policy, which will be assigned to Spinco prior to the Distribution, will be
endorsed so that such Policy will continue to cover acts and omissions of
directors and officers of Parent prior to the Distribution.
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<PAGE>
ARTICLE VIII
Miscellaneous
Section 8.1. Complete Agreement: Construction. This Agreement, including the
Schedules and Exhibits and the Transaction Documents and other agreements and
documents referred to herein, shall constitute the entire agreement between
the parties with respect to the subject matter hereof and thereof and shall
supersede all previous negotiations, commitments and writings with respect to
such subject matter. Notwithstanding any other provisions in this Agreement to
the contrary, in the event and to the extent that there shall be a conflict
between the provisions of this Agreement and the provisions of the Transaction
Documents, then the Transaction Documents shall control.
Section 8.2. Expenses. Except as otherwise set forth in this Agreement or
any Transaction Document, all costs and expenses in connection with the
preparation, execution, delivery and implementation of this Agreement, the
Distribution and with the consummation of the transactions contemplated by
this Agreement shall be charged to Parent.
Section 8.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of laws thereof.
Section 8.4. Notices. All notices and other communications hereunder shall
be in writing and shall be delivered by hand or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other addresses for a party as shall be specified by
like notice) and shall be deemed given on the date on which such notice is
received:
To Spinco:
New Marriott MI, Inc.
(to be renamed "Marriott International, Inc.")
10400 Fernwood Road
Bethesda, MD 20817
Attn: Chief Financial Officer
Telecopy: 301/380-8150
with a copy to:
New Marriott MI, Inc.
(to be renamed "Marriott International, Inc.")
10400 Fernwood Road
Bethesda, MD 20817
Attn: General Counsel
Telecopy: 301/380-6727
and a copy to:
O'Melveny & Myers LLP
555 13th Street, N.W.
Washington, D.C. 20004-1109
Attn: Jeffrey J. Rosen
Telecopy: 202/383-5414
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To Parent:
Marriott International, Inc.
(to be renamed "Sodexho Marriott Services, Inc.")
10400 Fernwood Road
Bethesda, MD 20817
Attn: Chief Financial Officer
Telecopy: 301/380-8150
with a copy to:
Marriott International, Inc.
(to be renamed "Sodexho Marriott Services, Inc.")
10400 Fernwood Road
Bethesda, MD 20817
Attn: General Counsel
Telecopy: 301/380-6727
Section 8.5. Amendments. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
Section 8.6. Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns.
Section 8.7. Termination. This Agreement shall terminate and the
Distribution shall be abandoned upon termination of the Merger Agreement at
any time prior to the Distribution Date. In the event of such termination, no
party shall have any liability to any other party pursuant to this Agreement.
Section 8.8. Subsidiaries. Each of the parties hereto shall cause to be
performed, and hereby guarantees the performance of, all actions, agreements
and obligations set forth herein to be performed by any Subsidiary of such
party which is contemplated to be a Subsidiary of such party on and after the
Distribution Date.
Section 8.9. No Third-Party Beneficiaries. Except for the provisions of
Article V relating to Indemnities, this Agreement is solely for the benefit of
the parties hereto and their respective Subsidiaries and Affiliates and should
not be deemed to confer upon third-parties any remedy, claim, Liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.
Section 8.10. Titles and headings. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
Section 8.11. Exhibits and Schedules. The Exhibits and Schedules shall be
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
Section 8.12. Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
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Section 8.13. Consent to Jurisdiction; Waiver of Jury Trial. Each party
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement shall be instituted in any State or Federal court
sitting in New York City, Borough of Manhattan (and each party agrees not to
commence any legal action or proceeding except in such courts), and each party
irrevocably submits to the jurisdiction of such courts in any such action or
proceeding. Each party irrevocably consents to service of process in any such
action or proceeding upon it by mail at its address set forth in Section 8.4
of this Agreement. The foregoing provisions shall not limit the right of any
party to bring any such action or proceeding or to obtain execution on any
judgment rendered in any such action or proceeding in any other appropriate
jurisdiction or in any other manner. EACH PARTY HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
Marriott International, Inc.
(To Be Renamed "Sodexho Marriott
Services, Inc.")
/s/ William J. Shaw
By: William J. Shaw
Title: President and Chief Operating
Officer
New Marriott MI, Inc.
(To Be Renamed "Marriott
International, Inc.")
/s/ William J. Shaw
By: William J. Shaw
Title: President and Chief Operating
Officer
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<PAGE>
APPENDIX B --ACQUISITION AGREEMENT
AGREEMENT AND PLAN OF MERGER
DATED AS OF SEPTEMBER 30, 1997
BY AND AMONG
MARRIOTT INTERNATIONAL, INC.
(TO BE RENAMED "SODEXHO MARRIOTT SERVICES, INC."),
MARRIOTT-ICC MERGER CORP.,
NEW MARRIOTT MI, INC.
(TO BE RENAMED "MARRIOTT INTERNATIONAL, INC."),
SODEXHO ALLIANCE, S.A.
AND
INTERNATIONAL CATERING CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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ARTICLE I
<C> <S> <C>
The Distribution; Seller Contribution................................... 1
Section 1.1. The Distribution......................................... 1
Section 1.2. The Seller Contribution and Canadian Transfer............ 2
ARTICLE II
The Merger.............................................................. 2
Section 2.1. The Merger............................................... 2
Section 2.2. Effective Time........................................... 2
Section 2.3. Effects of the Merger.................................... 2
Section 2.4. Certificate of Incorporation............................. 2
Section 2.5. By-Laws.................................................. 2
Section 2.6. Directors of Surviving Corporation....................... 2
Section 2.7. Officers................................................. 2
Section 2.8. Conversion of Company Shares and Company Options......... 2
Section 2.9. Conversion of Acquisition Shares......................... 3
Section 2.10. Closing.................................................. 4
ARTICLE III
Representations and Warranties of Seller and Company.................... 4
Section 3.1. Organization............................................. 4
Section 3.2. Capitalization........................................... 5
Section 3.3. Authority Relative to this Agreement..................... 6
Section 3.4. Consents and Approvals; No Violations.................... 6
Section 3.5. Absence of Certain Changes............................... 7
Section 3.6. No Undisclosed Liabilities............................... 7
Section 3.7. [Reserved]............................................... 7
Financial Statements; Changes; Contingencies;
Section 3.8. Distributions............................................ 7
Section 3.9. Proxy Statement and Form 10.............................. 8
Section 3.10. No Default............................................... 8
Section 3.11. Litigation; Compliance with Law.......................... 8
Section 3.12. Employee Benefit Plans; ERISA............................ 9
Section 3.13. Assets; Intellectual Property............................ 10
Section 3.14. Contracts................................................ 11
Section 3.15. Taxes.................................................... 12
Section 3.16. Labor Matters............................................ 13
Section 3.17. Accounting Records; Internal Controls.................... 13
Section 3.18. Insurance................................................ 13
Section 3.19. Permits.................................................. 13
Section 3.20. Business Relationships................................... 13
Section 3.21. Environmental Compliance................................. 13
Section 3.22. Accounts Receivable...................................... 14
Section 3.23. Transactions with Certain Persons........................ 14
Section 3.24. Certain Fees............................................. 15
Section 3.25. Certain Operations....................................... 15
Section 3.26. Investment Representation................................ 15
</TABLE>
B-i
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<TABLE>
<CAPTION>
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ARTICLE IV
<C> <S> <C>
Representations and Warranties of Parent and Acquisition................ 15
Section 4.1. Organization............................................. 15
Section 4.2. Capitalization........................................... 16
Section 4.3. Authority Relative to this Agreement..................... 17
Section 4.4. Consents and Approvals; No Violations.................... 18
Section 4.5. Absence of Certain Changes............................... 18
Section 4.6. No Undisclosed Liabilities............................... 18
Section 4.7. Reports.................................................. 18
Financial Statements; Changes; Contingencies;
Section 4.8. Distributions............................................ 19
Section 4.9. Proxy Statement and Form 10.............................. 20
Section 4.10. No Default............................................... 20
Section 4.11. Litigation; Compliance with Law.......................... 20
Section 4.12. Employee Benefit Plans; ERISA............................ 20
Section 4.13. Assets; Intellectual Property............................ 22
Section 4.14. Contracts................................................ 23
Section 4.15. Taxes.................................................... 24
Section 4.16. Labor Matters............................................ 24
Section 4.17. Accounting Records; Internal Controls.................... 24
Section 4.18. Insurance................................................ 25
Section 4.19. Permits.................................................. 25
Section 4.20. Business Relationships................................... 25
Section 4.21. Environmental Compliance................................. 25
Section 4.22. Accounts Receivable...................................... 26
Section 4.23. Transactions with Certain Persons........................ 26
Section 4.24. Certain Fees............................................. 26
Section 4.25. Parent Rights Plan....................................... 26
ARTICLE V
Representations and Warranties of Spinco................................ 26
Section 5.1. Organization............................................. 26
Section 5.2. Authority Relative to this Agreement..................... 26
Section 5.3. Consents and Approvals; No Violations.................... 27
ARTICLE VI
Covenants............................................................... 27
Section 6.1. Conduct of Business of Company........................... 27
Section 6.2. Conduct of Retained Business............................. 29
Section 6.3. Acquisition Proposals.................................... 30
Section 6.4. Access to Information.................................... 31
Section 6.5. Reasonable Efforts....................................... 32
Section 6.6. Consents................................................. 32
Section 6.7. Antitrust Filings........................................ 33
Section 6.8. Public Announcements..................................... 33
Section 6.9. Financial Statements..................................... 33
Section 6.10. Registration of Spinco Shares............................ 34
Section 6.11. Stockholders' Approval................................... 34
Section 6.12. Tax Ruling............................................... 34
Section 6.13. Tax Sharing Agreement.................................... 35
</TABLE>
B-ii
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<TABLE>
<CAPTION>
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<C> <S> <C>
Section 6.14. Notices of Certain Events................................ 35
Section 6.15. Transaction Documents.................................... 35
Section 6.16. Retention of Auditors.................................... 36
Section 6.17. Termination or Redemption of Parent Rights Plan.......... 36
ARTICLE VII
Conditions to Consummation of the Merger................................ 36
Conditions to Each Party's Obligation to Effect the
Section 7.1. Merger................................................... 36
Conditions to the Obligation of Seller and Company to
Section 7.2. Effect the Merger........................................ 36
Conditions to Obligations of Parent, Spinco and
Section 7.3. Acquisition to Effect the Merger......................... 38
ARTICLE VIII
Termination; Amendment; Waiver.......................................... 39
Section 8.1. Termination.............................................. 39
Section 8.2. Effect of Termination.................................... 40
Section 8.3. Amendment................................................ 40
Section 8.4. Extension; Waiver........................................ 40
ARTICLE IX
Miscellaneous........................................................... 40
Section 9.1. Survival................................................. 40
Section 9.2. Entire Agreement......................................... 40
Section 9.3. Governing Law............................................ 40
Section 9.4. Notices.................................................. 40
Section 9.5. Successors and Assigns; No Third Party Beneficiaries..... 41
Section 9.6. Counterparts............................................. 41
Section 9.7. Interpretation........................................... 41
Section 9.8. Schedules................................................ 42
Section 9.9. Legal Enforceability..................................... 42
Section 9.10. Specific Performance..................................... 42
Section 9.11. Consent to Jurisdiction; Waiver of Jury Trial............ 42
Section 9.12. Certain Expenses......................................... 42
</TABLE>
B-iii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION NO.
- ---- -----------
<S> <C>
Acquired Companies....................................... Recitals
Acquired Company Material Contract....................... 3.14(a)
Acquired Company Financial Statements.................... 3.6
Acquisition.............................................. Recitals
Acquisition Proposal..................................... 6.3(c)
Acquisition Share........................................ 2.10
Affiliate................................................ 3.2(b)
Agreement................................................ Recitals
Antitrust Authorities.................................... 6.7(a)
Antitrust Law............................................ 6.7(a)
Audit.................................................... 3.15(i)
Benefits Allocation Agreement............................ Distribution Agreement
Business Day............................................. 9.4
Canadian GAAP............................................ 3.12(f)
Certificate of Merger.................................... 2.2
Closing.................................................. 2.10
Closing Date............................................. 2.10(c)
Code..................................................... 2.8
Combined Business Material Adverse Effect................ 7.2(a)
Commission............................................... 3.4(a)
Company.................................................. Recitals
Company Auditors......................................... 3.8(a)
Company Business......................................... 3.13
Company Canadian Plans................................... 3.12(f)
Company Material Adverse Effect.......................... 3.1(a)
Company Options.......................................... 2.8(c)
Company Plans............................................ 3.12(a)
Company Share............................................ 2.9(a)
Confidentiality Agreement................................ 6.4(c)
Contract................................................. 3.4(b)
Corporate Governance Arrangements........................ 6.13
DGCL..................................................... 2.1(b)
Distribution............................................. Recitals
Distribution Agreement................................... Recitals
Effective Time........................................... 2.2
Encumbrance.............................................. 3.2(a)
ERISA.................................................... 3.12(a)
ERISA Affiliate.......................................... 3.12(a)
Exchange Act............................................. 3.4(a)
Form 10.................................................. Distribution Agreement
GAAP..................................................... 3.8(a)
Governmental Entity...................................... 3.4(a)
HSR Act.................................................. 3.4(a)
Intellectual Property.................................... 3.13
IRS...................................................... 3.12(a)
Law...................................................... 3.4(b)
LYONs.................................................... Distribution Agreement
Merger................................................... 2.1
MMS...................................................... Recitals
</TABLE>
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<TABLE>
<CAPTION>
TERM SECTION NO.
- ---- -----------
<S> <C>
MMS Canada............................................... Distribution Agreement
MMS UK................................................... Recitals
Multiemployer Plan....................................... 3.12(b)
OFT...................................................... 3.4(a)
Omnibus Agreement........................................ 3.1(a)
Parent................................................... Recitals
Parent Auditors.......................................... 4.8(a)
Parent Canadian Plans.................................... 4.12(h)
Parent Common Stock...................................... 2.8(a)
Parent Material Adverse Effect........................... 4.1
Parent Plans............................................. 4.12(a)
Parent Rights Plan....................................... 4.25
Parent SEC Documents..................................... 4.7(a)
Parent Share............................................. 2.9(a)
Parent Stock Options..................................... 4.2
Parent Stockholder Approval.............................. 4.3
PBGC..................................................... 4.12(a)
Permit................................................... 3.19
Person................................................... 2.8(a)
Potential Acquiror....................................... 6.3
Proxy Statement.......................................... Distribution Agreement
Required Regulatory Approvals............................ 3.4(a)
Retained Business........................................ 4.1
Retained Business Financial Statements................... 4.6
Retained Employees....................................... Distribution Agreement
Retained Subsidiaries.................................... 4.1
SEC...................................................... 4.7(a)
Securities Act........................................... 3.4(a)
Seller................................................... Recitals
Seller Contribution...................................... Recitals
Seller Material Adverse Effect........................... 3.1(a)
Sodexho Canada........................................... Recitals
Spinco................................................... Recitals
Spinco Assets............................................ Distribution Agreement
Spinco Material Adverse Effect........................... 5.1
Spinco Subsidiaries...................................... Distribution Agreement
Subsidiary............................................... 2.8(a)
Surviving Corporation.................................... 2.1
Surviving Corporation Shares............................. 2.10
Taxes.................................................... 3.15(i)
Tax Returns.............................................. 3.15(i)
Tax Sharing Agreement.................................... 6.13
Transaction Documents.................................... 3.1(a)
UK Stock Purchase Agreement.............................. Recitals
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 30, 1997 (this
"AGREEMENT"), is among MARRIOTT INTERNATIONAL, INC., a Delaware corporation to
be renamed "Sodexho Marriott Services, Inc." ("PARENT"), MARRIOTT-ICC MERGER
CORP., a Delaware corporation and a direct wholly-owned subsidiary of Parent
("ACQUISITION"), NEW MARRIOTT MI, INC., a Delaware corporation and a wholly-
owned subsidiary of Parent to be renamed "Marriott International, Inc."
("SPINCO"), SODEXHO ALLIANCE, S.A., a societe anonyme organized under the laws
of France ("SELLER"), and INTERNATIONAL CATERING CORPORATION, a Delaware
corporation and a wholly-owned subsidiary of Seller ("COMPANY").
RECITALS
WHEREAS, the Boards of Directors of Parent, Acquisition, Seller and Company
deem it advisable and in the best interests of their respective stockholders
to combine the businesses of Parent's management services division and Company
on the terms and conditions hereinafter set forth;
WHEREAS, pursuant to the terms of the Distribution Agreement dated as of the
date hereof (the "DISTRIBUTION AGREEMENT") between Parent and Spinco, Parent
will contribute the assets and certain of the liabilities of all of its
businesses other than Parent's management services division to Spinco;
WHEREAS, as provided in the Distribution Agreement, Parent will make a
distribution (the "DISTRIBUTION") to its stockholders as of the Distribution
Record Date (as hereinafter defined), on a pro rata basis, of 100% of the
shares of capital stock of Spinco issued and outstanding immediately prior to
such distribution;
WHEREAS, as soon as reasonably possible following the date hereof Parent
will cause its wholly-owned subsidiary, Marriott Management Services Corp., a
New York corporation ("MMS"), to sell to Seller or its designee the businesses
of Parent's management services division conducted in the United Kingdom
through Marriott Management Services (U.K.) Ltd., a limited company registered
in England ("MMS UK"), pursuant to a stock purchase agreement dated as of the
date hereof (the "UK STOCK PURCHASE AGREEMENT");
WHEREAS, as provided herein, Seller will make a cash contribution to Company
prior to the Merger (as defined herein) in an amount determined in accordance
with the terms hereof (the "SELLER CONTRIBUTION"); and
WHEREAS, immediately following the Distribution and the Seller Contribution,
(i) Acquisition will merge with and into Company and Seller will transfer to
Parent all of the outstanding capital stock of Sodexho Financiere du Canada
Inc. ("SODEXHO CANADA" and, together with Company, "ACQUIRED COMPANIES"), in
each case pursuant to the terms hereof, (ii) all of the issued and outstanding
shares of Company common stock will be converted into common stock of Parent
in such amounts as are determined herein, and (iii) all issued and outstanding
shares of Acquisition will be converted into all the outstanding capital stock
of the Surviving Corporation, as a result of which Company (as the Surviving
Corporation in the merger) will become a wholly-owned subsidiary of Parent.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, Parent, Acquisition, Spinco, Seller and Company hereby
agree as follows:
ARTICLE I
The Distribution; Seller Contribution
Section 1.1. The Distribution. Upon the terms and subject to the conditions
of the Distribution Agreement, prior to the Effective Time, the parties
thereto shall effect the transactions contemplated by the Distribution
Agreement including, immediately prior to the Effective Time, the
Distribution.
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Section 1.2. The Seller Contribution and Canadian Transfer.
(a) Immediately prior to the Effective Time, Seller will make the Seller
Contribution to Company in an amount equal to $304,000,000 in immediately
available funds. Following the Effective Time, Seller will pay Parent, or
Parent will pay Seller, as the case may be, any amounts determined in
accordance with Exhibit A based on target Adjusted Net Tangible Assets for the
Acquired Companies, on a combined basis, of $269,000,000.
(b) Seller shall transfer to Parent all of the outstanding capital stock of
Sodexho Canada, which contribution shall be made (and effective) at the
Effective Time, by delivering to Parent the certificates evidencing such
stock, properly endorsed for transfer to or accompanied by a duly executed
stock power in favor of Parent or its nominee and otherwise in a form
acceptable for transfer on the books of Sodexho Canada.
ARTICLE II
The Merger
Section 2.1. The Merger. Upon the terms and subject to the conditions
hereof, at the Effective Time in accordance with the Delaware General
Corporation Law (the "DGCL"), Acquisition shall be merged (the "MERGER") with
and into Company. From and after the Effective Time, Company shall continue as
the surviving corporation (the "SURVIVING CORPORATION") and the separate
corporate existence of Acquisition shall cease.
Section 2.2. Effective Time. The Merger shall become effective at such time
(the "EFFECTIVE TIME") as a certificate of merger in the form set forth as
Exhibit B hereto (the "CERTIFICATE OF MERGER") is filed with the Delaware
Secretary of State. Such filing shall be made simultaneously with or as soon
as practicable after the closing of the transactions contemplated by this
Agreement in accordance with Section 2.10.
Section 2.3. Effects of the Merger. The Merger shall have the effects set
forth in the DGCL. As of the Effective Time, Company shall be a wholly-owned
subsidiary of Parent.
Section 2.4. Certificate of Incorporation. The certificate of incorporation
of Company in effect immediately prior to the Effective Time will be the
certificate of incorporation of the Surviving Corporation after the Effective
Time, and thereafter may be amended in accordance with its terms and as
provided by the DGCL.
Section 2.5. By-Laws. The by-laws of Company as in effect immediately prior
to the Effective Time shall be the by-laws of the Surviving Corporation after
the Effective Time, and thereafter may be amended in accordance with their
terms and as provided by the certificate of incorporation of the Surviving
Corporation and the DGCL.
Section 2.6. Directors of Surviving Corporation. The individuals identified
on Schedule 2.6 hereto shall be the initial directors of the Surviving
Corporation and will hold office from the Effective Time until their
respective successors are duly elected or appointed and qualify in the manner
provided in the certificate of incorporation and by-laws of the Surviving
Corporation, or as otherwise provided by the DGCL.
Section 2.7. Officers. The individuals identified on Schedule 2.7 hereto
shall be the initial officers of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the certificate of
incorporation and by-laws of the Surviving Corporation, or as otherwise
provided by the DGCL.
Section 2.8. Conversion of Company Shares and Company Options At the
Effective Time:
(a) By virtue of the Merger and without any action on the part of Seller
other than the transfer of the stock of Sodexho Canada to Parent, all shares
of common stock, par value $0.001 per share, of Company (each, a "COMPANY
SHARE") issued and outstanding immediately prior to the Effective Time (all of
which are held by
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<PAGE>
Seller) shall be converted into the right to receive, and become exchangeable
for, a number of shares of validly issued, fully paid and nonassessable common
stock of Parent, par value $1.00 per share (the "PARENT COMMON STOCK") (each
such share, a "PARENT SHARE"), upon the surrender of the certificate(s)
formerly representing such Company Shares, such that Seller shall, in the
aggregate, have the right to receive a number of Parent Shares which, when
added to Parent Shares issuable upon exercise of options issued pursuant to
Section 2.8(c), equal 49% of the Parent Shares (other than Parent Shares held
in the treasury of Parent or held by any wholly owned Subsidiary of Parent)
issued and outstanding immediately after the Effective Time. As used in this
Agreement, (x) the term "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 non-corporate
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;
and (y) the term "PERSON" means any individual, corporation, partnership,
association, trust, estate or other entity or organization, including any
governmental entity or authority.
The Parent Shares issuable under this Agreement (including upon exercise of
options issued pursuant to Section 2.8(c), unless Parent Shares issuable
thereunder are covered by an effective registration statement on Form S-8 or
other appropriate form) shall not be registered or qualified under the
Securities Act or any state securities law, and shall bear the following
legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. NO TRANSFER OR SALE OF THESE SECURITIES OR ANY INTEREST
THEREIN MAY BE MADE WITHOUT SUCH REGISTRATION AND QUALIFICATION UNLESS
THE ISSUER RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE ISSUER STATING THAT SUCH
TRANSFER OR SALE DOES NOT REQUIRE REGISTRATION OR QUALIFICATION UNDER
APPLICABLE LAW.
(b) Each Company Share held in the treasury of Company or held by any
Subsidiary of Company immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
cancelled and retired and cease to exist.
(c) Pursuant to Company's 1996 Stock Option Plan, Company has granted, and
there are currently outstanding, 381,300 options, each of which accords the
holder thereof the right to purchase a Company Share (each, a "COMPANY
OPTION"). Each holder of Company Options outstanding immediately prior to the
Effective Time shall have their Company Options treated as follows: (i) 42% of
the Company Options held by such holder shall be settled in cash for $36.21
each; and (ii) 58% of the Company Options held by such holder shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive, and become exchangeable for, options to
purchase Parent Shares on terms determined by the Surviving Corporation's
Board of Directors within two days after the Closing Date (as defined in
Section 2.10), the number and exercise price of such options to be determined
in accordance with the methodology set forth in Section 424 of the Internal
Revenue Code of 1986, as amended (the "CODE").
Section 2.9. Conversion of Acquisition Shares. Each share of common stock of
Acquisition (each such share, an "ACQUISITION SHARE") issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
exchangeable for one share of common stock of the Surviving Corporation. From
and after the Effective Time, Acquisition shall be entitled to treat
outstanding certificates which immediately prior to the Effective Time
represented Acquisition Shares as evidencing ownership of the number of shares
of common stock of the Surviving Corporation (the
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<PAGE>
"SURVIVING CORPORATION SHARES") which the holder of the Acquisition Shares
represented by such certificates is entitled to receive pursuant to this
Section 2.9, and the holder of such certificates shall not be required to
surrender such certificates for exchange. Surviving Corporation Shares which
the holder of Acquisition Shares is entitled to receive in the Merger shall be
deemed to have been issued at the Effective Time.
Section 2.10. Closing. The closing (the "CLOSING") of the transactions
contemplated by this Agreement and the Transaction Documents (as defined in
Section 3.1(a)) shall take place at the offices of O'Melveny & Myers LLP, 555
13th Street, N.W., Washington, D.C., on the last day of Parent's accounting
period immediately following (a) the vote of stockholders of Parent approving
and adopting the Merger, the Distribution and the transactions contemplated
thereby (assuming each of the other conditions set forth in Article VII has
been satisfied or waived), or (b) such later date on which the last of the
conditions set forth in Article VII hereof is satisfied or waived, or at such
other time and place as Parent, Acquisition, Spinco, Seller and Company shall
agree (the date on which the Closing occurs being the "CLOSING DATE").
ARTICLE III
Representations and Warranties of Seller and Company
Except as otherwise indicated on Seller's Disclosure Schedule dated
September 30, 1997 previously delivered to Parent and Acquisition ("SELLER'S
DISCLOSURE SCHEDULE"), Seller and Company each represent and warrant to Parent
and Acquisition as follows:
Section 3.1. Organization.
(a) Each of Seller and each Acquired Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each Acquired Company is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in
such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not, when taken together with all other such failures,
have or reasonably be expected to have a material adverse effect on (x) the
business, operations, properties, assets, conditions (financial or other) or
results of operations of Seller and its Subsidiaries taken as a whole, or the
ability of Seller to perform its obligations under or to consummate the
transactions contemplated by this Agreement and the Transaction Documents (as
defined below) (a "SELLER MATERIAL ADVERSE EFFECT"), or (y) the business,
operations, properties, assets, conditions (financial or other) or results of
operations of the Acquired Companies and their Subsidiaries taken as a whole,
or the ability of either Acquired Company to perform its obligations under or
consummate the transactions contemplated by this Agreement and the Transaction
Documents (a "COMPANY MATERIAL ADVERSE EFFECT"). True, accurate and complete
copies of the certificate of incorporation and by-laws (or other
organizational documents) of each Acquired Company, as in effect on the date
hereof, including all amendments thereto, have heretofore been delivered to
Parent. For purposes of this Agreement, "TRANSACTION DOCUMENTS" means the
Omnibus Restructuring Agreement dated as of the date hereof among the parties
hereto (the "OMNIBUS AGREEMENT"), the Distribution Agreement, the UK Stock
Purchase Agreement, the Certificate of Merger, the Tax Sharing Agreement (as
defined in Section 6.13), the documents to be entered into consistent with the
Corporate Governance Term Sheet attached hereto as Exhibit D, the Assistance
Agreement in the form attached hereto as Exhibit E-1, the Royalty Agreement to
be entered into consistent with the Royalty Agreement Term Sheet attached
hereto as Exhibit E-2 and, to the extent not included in any of the foregoing,
each Related Agreement (as defined in the Distribution Agreement).
(b) Neither Acquired Company has any Subsidiaries except those listed in
Section 3.1(b) of Seller's Disclosure Schedule. Neither Acquired Company has
any interest, direct or indirect, or any commitment to purchase any interest,
direct or indirect, in any other Person. The business of each Acquired Company
and its Subsidiaries reflected in the Acquired Company Financial Statements
(as defined in Section 3.6) has not been
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<PAGE>
conducted through any other Subsidiaries or Affiliates (as defined below) of
Seller. Except as disclosed in Section 3.1(b) of Seller's Disclosure Schedule,
each direct and indirect Subsidiary of each Acquired Company is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each Subsidiary of each Acquired Company is
duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good standing would not, when taken together with
all other such failures, have or reasonably be expected to have a Company
Material Adverse Effect. Neither Acquired Company nor their respective
Subsidiaries derive any revenue from business outside of the United States of
America and Canada. As used in this Agreement, "AFFILIATE" means, with respect
to any specified Person, any other Person directly or indirectly controlling
or controlled by, or under direct or indirect common control with, such
specified Person. For purposes of this definition, "CONTROL," when used with
respect to any Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "CONTROLLING" and
"CONTROLLED" shall have meanings correlative to the foregoing.
Section 3.2. Capitalization.
(a) The authorized capital stock of Company consists of 10,820,000 Company
Shares, of which 10,417,000 Company Shares are issued and outstanding, all of
which are owned beneficially and of record by Seller. The authorized capital
stock of Sodexho Canada consists of 90,238 shares of common stock, all of
which are issued, outstanding and owned beneficially and of record by Seller.
All of the issued and outstanding Company Shares and shares of capital stock
of Sodexho Canada are validly issued, fully paid and non-assessable and free
of preemptive rights and are free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever (collectively, "ENCUMBRANCES"). Except as set forth in Section
3.2(a) of Seller's Disclosure Schedule, there are not now, and at the
Effective Time there will not be, any shares of capital stock of either
Acquired Company issued or outstanding or any outstanding subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or
exchange under any outstanding security, instrument or other agreement
obligating either Acquired Company or any Subsidiary of either Acquired
Company to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of either Acquired Company or
obligating either Acquired Company or any of their Subsidiaries to grant,
extend or enter into any such agreement or commitment. Following the Merger,
neither Acquired Company will have any obligation to issue, transfer or sell
any shares of its capital stock pursuant to any employee benefit plan or
otherwise.
(b) There are not now, and at the Effective Time there will not be, any
voting trusts, proxies or other agreements or understandings to which Seller
or any Subsidiary of Seller is a party or is bound with respect to the voting
of any shares of capital stock of either Acquired Company or any of their
Subsidiaries.
(c) All of the issued and outstanding shares of capital stock (or other
equity interests) of each Subsidiary of each Acquired Company are validly
issued, fully paid and non-assessable and free of preemptive rights, and those
owned directly or indirectly by each Acquired Company are owned free and clear
of any Encumbrances. Each Acquired Company owns directly or indirectly all of
the issued and outstanding shares of the capital stock (and other equity
interests) of its Subsidiaries. Except as set forth in Section 3.2(c) of
Seller's Disclosure Schedule, there are not now, and at the Effective Time
there will not be, any shares of capital stock (or other equity interests) of
any Subsidiary of either Acquired Company issued or outstanding or any
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating either Acquired Company or any Subsidiary of either
Acquired Company to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of the capital stock (or other equity interests) of
any Subsidiary of such Acquired Company or obligating such Acquired Company or
any of its Subsidiaries to grant, extend or enter into any such agreement or
commitment.
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<PAGE>
Section 3.3. Authority Relative to this Agreement. Each of Seller and
Company has full corporate power and authority to execute and deliver this
Agreement and each Transaction Document to which it is a party, as the case
may be, and, subject to the Required Regulatory Approvals (as defined below),
to consummate the transactions contemplated hereby and thereby. The execution
and delivery by each of Seller and Company of this Agreement and each
Transaction Document to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by the Boards of Directors of Seller and Company, and Seller, as
holder of all the outstanding Company Shares, has approved and adopted this
Agreement and the Merger. No other corporate proceedings on the part of Seller
or Company, including any approval by the stockholders of Seller, are or will
be necessary to authorize this Agreement or any Transaction Document or to
consummate the transactions contemplated hereby or thereby. This Agreement has
been duly and validly executed and delivered by each of Seller and Company and
constitutes a valid and binding agreement of each of Seller and Company, and
each Transaction Document to which Seller or Company will be a party, when
executed and delivered by such party, will be a valid and binding agreement of
each of Seller and Company, enforceable against each of Seller and Company in
accordance with its terms except to the extent that enforcement thereof may be
limited by (a) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws, now or hereafter in effect, relating to the
creditors' rights generally and (b) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity).
Section 3.4. Consents and Approvals; No Violations.
(a) Except for any approvals required under the Securities Exchange Act of
1934, as amended, and all rules and regulations thereunder (the "EXCHANGE
ACT"), and the Securities Act of 1933, as amended, and all rules and
regulations thereunder (the "SECURITIES ACT"), the expiration of any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR ACT"), the confirmation by the Office of
Fair Trading of the United Kingdom (THE "OFT") that it is not the intention of
the Secretary of State to refer the transactions contemplated hereby to the
Monopolies and Mergers Commission, the filing and recordation of the
Certificate of Merger as required by the DGCL (such filings and approvals are
collectively referred to as the "REQUIRED REGULATORY APPROVALS"), such filings
and approvals as may be required under the "takeover" or "blue sky" laws of
various states, and as disclosed in Section 3.4(a) of Seller's Disclosure
Schedule or as contemplated by this Agreement, no declaration, filing or
registration with, or notice to, or authorization, consent or approval of, any
Governmental Entity or any other Person is necessary for the execution and
delivery of this Agreement and the Transaction Documents by Seller or Company
or the consummation by Seller or Company of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as the
case may be, would not, in the aggregate, have or reasonably be expected to
have a Seller Material Adverse Effect or a Company Material Adverse Effect.
For purposes of this Agreement, "GOVERNMENTAL ENTITY" means any court, agency,
authority, board, bureau, commission, department, regulatory or administrative
body, office or instrumentality of any nature whatsoever of any governmental
or quasi-governmental unit (including the New York Stock Exchange or any other
national stock exchange), whether federal, state, parish, county, district,
municipality, city, political subdivision or otherwise, domestic or foreign,
or any other entity exercising executive, legislative, judicial regulatory or
administrative functions of or pertaining to government, whether now or
hereafter in effect.
(b) Except as set forth in Section 3.4(b) of Seller's Disclosure Schedule,
the execution and delivery by each of Seller and Company of this Agreement and
each Transaction Document to which it is a party do not, and the consummation
by Seller and Company of the transactions contemplated hereby and thereby will
not, in any material respect, violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the properties or assets of Seller or any of its
Subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or by-laws (or other organizational documents) of Seller
or any of its Subsidiaries, (ii) subject to obtaining the Required Regulatory
Approvals, any material Law (as defined below) applicable to Seller or any of
its Subsidiaries or any of their respective
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properties or assets, (iii) any Acquired Company Material Contract (as defined
in Section 3.14) or (iv) any material Contract (as defined below) to which
Seller or any of its Subsidiaries is now a party or by which Seller or any of
its Subsidiaries or any of their respective properties or assets may be bound
or affected. For purposes of this Agreement, "LAW" means any statute, law,
constitutional provision, code, regulation, ordinance, rule, judgment, order,
decree, permit, concession, grant, franchise, license, agreement, directive,
binding guideline or policy or rule of common law, requirement of, or other
governmental restriction of or determination by, or any interpretation of any
of the foregoing by, in each case whether now or hereafter in existence, any
Governmental Entity; and "CONTRACT" means any agreement, arrangement, note,
bond, mortgage, indenture, or other evidence of indebtedness, commitment,
franchise, concession, contract, indemnity, indenture, instrument, lease
(including any real estate lease), license or understanding, whether or not in
writing.
Section 3.5. Absence of Certain Changes. Except (a) as set forth in Section
3.5 of Seller's Disclosure Schedule or (b) as contemplated by this Agreement,
from August 31, 1996 until the date hereof, neither Acquired Company nor any
of their respective Subsidiaries has (i) taken any actions that, if taken by
an Acquired Company or any of its Subsidiaries during the period from the date
hereof through the Effective Time, would constitute a material breach of
Section 6.1 hereof, (ii) suffered any changes, events or circumstances that,
in the aggregate, would result or reasonably be expected to result in a
Company Material Adverse Effect, or (iii) conducted its business or operations
in any material respect other than in the ordinary and usual course of
business, consistent with past practices.
Section 3.6. No Undisclosed Liabilities. Except in connection with the
Merger and the Distribution or as expressly disclosed and described in Section
3.6 of Seller's Disclosure Schedule, neither Acquired Company or any of their
respective Subsidiaries had at August 31, 1996, or has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature except (a) liabilities, obligations or contingencies
(i) which are accrued or reserved against in the financial statements of the
Acquired Companies provided pursuant to Section 3.8 hereof (the "ACQUIRED
COMPANY FINANCIAL STATEMENTS") or reflected in the notes thereto or (ii) which
were incurred after August 31, 1996 in the ordinary course of business and
consistent with past practices and (b) liabilities, obligations or
contingencies which (x) have not and would not reasonably be expected to have
a Seller Material Adverse Effect or Company Material Adverse Effect or (y)
have been discharged or paid in full prior to the date hereof.
Section 3.7. [Reserved]
Section 3.8. Financial Statements; Changes; Contingencies; Distributions.
(a) Seller and Company have delivered to Parent (x) consolidated balance
sheets for Company and its Subsidiaries at August 31, 1996 and 1995 and the
related consolidated statements of operations, cash flow, and changes in
stockholder's equity for the twelve month periods ended August 31, 1996 and
1995 and (y) consolidated balance sheets for Sodexho Canada and its
Subsidiaries at August 31, 1996 and 1995 and the related consolidated
statements of operations, cash flow and changes in stockholder's equity for
the twelve month periods ended August 31, 1996 and 1995. All such financial
statements have been audited by Price Waterhouse LLP (the "COMPANY AUDITORS")
whose reports thereon are included with such financial statements. The
financial statements referred to in item (x) above have been prepared in
conformity with U.S. generally accepted accounting principles ("GAAP") applied
on a consistent basis (except for changes, if any, required by GAAP and
disclosed therein) and the financial statements referred to in item (y) above
have been prepared in conformity with Canadian generally accepted accounting
principles applied on a consistent basis (except for changes, if any, required
by Canadian generally accepted accounting principles and disclosed therein).
The statements of operations and cash flow present fairly in all material
respects the results of operations and cash flows of each Acquired Company and
its respective Subsidiaries for the respective periods covered, and the
balance sheets present fairly in all material respects the financial condition
of each Acquired Company and its respective Subsidiaries as of their
respective dates. Seller and Company have made available to Parent and
Acquisition copies of each management letter or other letter delivered to
either of them by the Company Auditors (or management points relating thereto)
in connection with such financial statements or relating to any review by
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the Company Auditors of the internal controls of each Acquired Company during
the two-year period ended August 31, 1996, and have made available to the
Parent Auditors and/or Parent's management for inspection all reports and
working papers produced or developed by the Company Auditors or management in
connection with their examination of such financial statements, other than
those such reports and working papers prepared by the Company Auditors
relating to (i) assessment of risk of the engagement, (ii) planning for the
engagement, and (iii) other such reports and working papers not customarily
provided by independent auditors to third party purchasers in transactions of
this size and kind. Since August 31, 1994, there has been no change in any of
the significant accounting policies, practices or procedures of either
Acquired Company and/or its Subsidiaries.
(b) Seller and Company have delivered to Parent an unaudited combined
balance sheet for the Acquired Companies and their Subsidiaries at August 31,
1997, and the related unaudited combined statement of operations for the year
then ended. Such unaudited financial statements have been prepared in
conformity with GAAP applied on a consistent basis except for changes, if any,
required by GAAP and disclosed therein. The statement of operations presents
fairly the results of operations of the Acquired Companies and their
Subsidiaries for such period, and the balance sheet presents fairly in all
material respects the financial condition of the Acquired Companies as of such
date. All such financial statements reflect all adjustments (which, except as
otherwise indicated on such financial statements, consist only of normal
recurring adjustments not material in amount and include estimated provisions
for year-end adjustments) necessary for a fair presentation. At the date of
such balance sheet, neither the Acquired Companies nor any of their
Subsidiaries had any material liability (actual, contingent or accrued) that,
in accordance with GAAP applied on a consistent basis, should have been shown
or reflected therein but was not except for the omission of notes with respect
to contingent liabilities that in the aggregate did not materially exceed
those so reported in the most recent of the audited statements delivered and
that were of substantially the same type as so reported.
(c) Except as set forth in Section 3.8(c) of Seller's Disclosure Schedule,
there has been no dividend or other distribution of assets or securities
whether consisting of money, property or any other thing of value, declared,
issued or paid since the date of the most recent financial statements
described in Section 3.8(a) by either Acquired Company or any of their
Subsidiaries, except for cash dividends paid out in the ordinary course.
Section 3.9. Proxy Statement and Form 10. None of the information to be
provided by Seller or either Acquired Company to Parent or Acquisition for
inclusion in the Proxy Statement or the Form 10 (each as defined in the
Distribution Agreement) (or any registration statement contemplated pursuant
to Article III of the Distribution Agreement) will be false or misleading with
respect to any material fact or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Section 3.10. No Default. Except as set forth in Section 3.10 of Seller's
Disclosure Schedule, neither Seller nor any of its Subsidiaries (i) is in
default or violation (and no event has occurred which with notice or the lapse
of time or both would constitute a default or violation) of any term,
condition or provision of its charter or by-laws (or other organizational
documents) or (ii) is in default or violation (and no event has occurred which
with notice or lapse of time or both would constitute a default or violation)
in any material respect of any term, condition or provision of (a) any
Acquired Company Material Contract, or (b) any material order, writ,
injunction, decree, statute, rule or regulation applicable to either Acquired
Company or any of their respective Subsidiaries.
Section 3.11. Litigation; Compliance with Law.
(a) Except as set forth at Section 3.11(a) of Seller's Disclosure Schedule,
as of the date hereof, there are no actions, suits, claims, proceedings or
investigations pending or, to the best knowledge of Seller and Company,
threatened, involving either Acquired Company or any of their respective
Subsidiaries or any of their respective properties or assets (or any Person
whose liability therefrom may have been retained or assumed by either Acquired
Company or any of their respective Subsidiaries either contractually or by
operation of law), by or before any Governmental Entity or by any Person which
have had or would reasonably be expected to result in
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damages in excess of $100,000 or have a Company Material Adverse Effect.
Neither Acquired Company, any of their Subsidiaries or any of their respective
properties or assets is subject to any outstanding order, writ, injunction or
decree which would reasonably be expected to have a Seller Material Adverse
Effect or a Company Material Adverse Effect or materially impair or interfere
with the operation of either Acquired Company's business as currently
conducted.
(b) Except as set forth in Section 3.11(b) of Seller's Disclosure Schedule,
each Acquired Company and its Subsidiaries are now being and in the past have
been operated in compliance in all material respects with all Laws.
Section 3.12. Employee Benefit Plans; ERISA.
(a) Except for those matters set forth in Section 3.12(a) of Seller's
Disclosure Schedule, (i) each "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and all other employee benefit, bonus, incentive, stock option (or
other equity-based), severance, change in control, welfare (including post-
retirement medical and life insurance) and fringe benefit plans (whether or
not subject to ERISA) maintained or sponsored by Company or its Subsidiaries
or any trade or business, whether or not incorporated, that would be deemed
under Section 414 of the Code to be a "single employer" (each, an "ERISA
AFFILIATE") with Company, for the benefit of any U.S. employee or former U.S.
employee of Company or any of its ERISA Affiliates (the "COMPANY PLANS") is,
and has been, operated in all material respects in accordance with its terms
and in substantial compliance (including with respect to the making of
governmental filings) with all applicable Laws, including ERISA and the
applicable provisions of the Code, (ii) each of the Company Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the Internal Revenue Service (the "IRS") to be so qualified and
(iii) there are no material pending or, to the knowledge of Company,
threatened claims (other than routine claims for benefits) by, on behalf of or
against any of the Company Plans or any trusts related thereto other than
routine benefit claim matters. All Company Plans are listed in Section 3.12(a)
of Seller's Disclosure Schedule.
(b) (i) No Company Plan, other than a "multiemployer plan" (within the
meaning of Section 3(37) of ERISA (a "MULTIEMPLOYER PLAN") is subject to Title
IV of ERISA or Section 412 of the Code, (ii) neither Company nor any of its
ERISA Affiliates has incurred any material withdrawal liability (including any
contingent or secondary withdrawal liability) within the meaning of Sections
4201 and 4204 of ERISA to any Multiemployer Plan which has not been satisfied
in full, and (iii) other than with respect to any Multiemployer Plan, there
has been no act or omission resulting in liability under Chapter 43 of the
Code or Sections 409, 502(c), 502(i), 502(l) or 4071 of ERISA with respect to
any Company Plan.
(c) Neither Company nor any of its ERISA Affiliates has failed to make any
contribution or payment to any Company Plan or Multiemployer Plan which, in
either case has resulted or could result in the imposition of a material
Encumbrance or the posting of a material bond or other material security under
ERISA or the Code.
(d) Except as otherwise set forth on Section 3.12(d) of Seller's Disclosure
Schedule or as expressly provided for in this Agreement, the consummation of
the transactions contemplated by this Agreement will not (i) entitle any
current or former employee or officer of either Acquired Company or any ERISA
Affiliate of Company to severance pay, unemployment compensation or any other
payment, or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation due any such employee or officer.
(e) Except as set forth on Section 3.12(e) of Seller's Disclosure Schedule,
neither Acquired Company nor any of their respective Subsidiaries have any
employment or consulting agreements, written or oral, with any employees that
provide for annual base compensation in excess of $150,000. Seller has
provided to Parent copies of each such employment or consulting agreement that
provides for annual base compensation in excess of $150,000, and has made all
other such agreements available to Parent. Section 3.12(e) of Seller's
Disclosure Schedule sets forth a list of all employees or former employees of
the Acquired Companies or their Subsidiaries to whom any of them owes
severance pay in sums of $150,000 or more as of the date hereof.
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(f) Section 3.12(f) of Seller's Disclosure Schedule lists each employee
benefit, bonus, incentive compensation, deferred compensation, pension,
retirement, stock option (or other equity based), severance, change in
control, welfare (including post-retirement medical and life insurance),
fringe benefit plan and any other employment arrangement maintained or
sponsored by Sodexho Canada or any of its Subsidiaries for the benefit of any
Canadian employee or former Canadian employee of Sodexho Canada (the "COMPANY
CANADIAN PLANS"). Except as otherwise set forth in Section 3.12(f) of Seller's
Disclosure Schedule, each Company Canadian Plan has been operated in all
material respects in accordance with its terms and in substantial compliance
with all applicable Laws, and there are no material pending or, to the
knowledge of either Acquired Company, threatened claims (other than routine
claims for benefits) by, on behalf of or against any of the Company Canadian
Plans or any trusts related thereto other than routine benefit claim matters.
Neither Sodexho Canada nor any of its Subsidiaries has incurred any material
withdrawal liability to any Company Canadian Plan which would be the
equivalent of a Multiemployer Plan, and neither Sodexho Canada nor any of its
Subsidiaries has failed to make any contribution to any Company Canadian Plan
which has resulted or could result in the imposition of a material
Encumbrance. With respect to any Company Canadian Plan that is a defined
benefit plan, (x) Seller has provided Parent with copies of the most recent
actuarial valuation report if an actuarial valuation report is required by the
relevant Canadian Governmental Entity, and (y) except as set forth in Section
3.12(f) of Seller's Disclosure Schedule, as of the date hereof, the fair
market value of the assets of each such plan (excluding for these purposes any
accrued but unpaid contributions) exceeds the present value of all benefits
accrued under each such plan determined on a basis as required by law and in
accordance with Canadian generally accepted accounting principles applied on a
consistent basis (except for changes, if any, required by Canadian generally
accepted accounting principles and disclosed therein ("CANADIAN GAAP")).
Section 3.13. Assets; Intellectual Property.
(a) Except as set forth in Section 3.13(a) of Seller's Disclosure Schedule,
the Acquired Companies and their Subsidiaries collectively own or have rights
to use all material properties and assets (including Intellectual Property)
necessary to permit them to conduct the business of the Acquired Companies and
their Subsidiaries as it is currently being conducted (the "COMPANY
BUSINESS"). As used in this Agreement, "INTELLECTUAL PROPERTY" means all
registered and unregistered trademarks, service marks, service names, trade
styles and trade names (including trade dress and other names, marks and
slogans) and all associated goodwill, all registered and unregistered
copyrights, all patents, all applications for any of the foregoing together
with all rights to use all of the foregoing and all other rights in, to, and
under the foregoing, all know-how, inventions, discoveries, improvements,
processes, formulae (secret or otherwise), specifications, trade secrets,
whether patentable or not, licenses and other similar agreements, confidential
information, and all drawings, records, books or other indicia, however
evidenced, of the foregoing, in each such case, throughout the world.
(b) Neither Acquired Company nor any of their Subsidiaries now or since
January 1, 1995 has used Intellectual Property which conflicts with or
infringes upon any proprietary rights of others except where such conflict or
infringement would not have or reasonably be expected to have a Company
Material Adverse Effect.
(c) Section 3.13(c) of Seller's Disclosure Schedule lists any and all
Intellectual Property that is material to either Acquired Company or any of
their Subsidiaries and in which either Acquired Company or any of their
Subsidiaries has an interest and the nature of such interest therein. Such
assets include all licenses, permits, authorizations or other rights with
respect to any of the foregoing. Except as set forth in Section 3.13(c) of
Seller's Disclosure Schedule, no Acquired Company uses any such Intellectual
Property by consent of any other Person or is required to and does not make
any payments to others with respect thereto. Each Acquired Company and its
Subsidiaries has in all material respects performed all obligations required
to be performed by it and none of such entities is in default in any material
respect under any Material Contract relating to any of the foregoing. Each
Acquired Company and its Subsidiaries have taken reasonable actions necessary
to maintain and protect such Intellectual Property.
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Section 3.14. Contracts.
(a) Section 3.14(a) of Seller's Disclosure Schedule lists each Contract to
which either Acquired Company or any of their Subsidiaries is a party or to
which they or any of their properties is subject or by which any thereof are
bound that is an Acquired Company Material Contract (as defined below).
"ACQUIRED COMPANY MATERIAL CONTRACTS" are those that (i) after September 1,
1996 obligate either Acquired Company or any of their respective Subsidiaries
to pay an amount of $250,000 or more in any 12 month period, (ii) contain a
covenant not to compete or otherwise significantly restricts business
activities (other than such a covenant that applies only to a particular
account covered by a management agreement or franchise agreement related
thereto), (iii) provide for the extension of credit other than consistent with
normal credit terms or in an aggregate principal amount of more than
$15,000,000, or provide for the mortgage, pledge or grant of a security
interest in assets of either Acquired Company or any of their Subsidiaries or
for a guarantee by either Acquired Company or any of their Subsidiaries of the
obligations of any other Person, (iv) contain a right or obligation of or to
any Affiliate of Seller other than the Acquired Companies and their
Subsidiaries, or to any officer or director of either Acquired Company or any
of their Subsidiaries, other than those Contracts entered into in the ordinary
course of business, (v) represent a Contract contributing unit level profit
equal to or exceeding 2% of aggregate unit level profit measured for the most
recently concluded fiscal year, (vi) require either Acquired Company or any of
their Subsidiaries to buy or sell goods or services with respect to which
there will be material losses or will be costs and expenses materially in
excess of expected receipts, (vii) are for the employment of any officer or
employee and provide for annual base compensation in excess of $150,000, or
are "golden parachute" or similar agreements with any officer or employee,
(viii) are with any labor union, (ix) are with any vendor, manufacturer, or
distributor or representative and have an unexpired term as of August 31, 1997
of one year or more and contain any dollar or volume purchasing requirements
in excess of $250,000, (x) are with the federal government or a governmental
agency or department exceeding $250,000 in annual revenues, (xi) are a lease
to or from either Acquired Company or any of their Subsidiaries of real or
personal property with individual monthly rental amounts of at least $10,000,
(xii) were not made in the ordinary course of business, (xiii) create any
joint ventures, partnerships or other similar arrangements, or (xiv) contain a
"change of control" or similar provision relating to a change of control of
either Acquired Company or any of their Subsidiaries triggered by the
transactions contemplated by this Agreement or any Transaction Document.
Unless so noted in Section 3.14(a) of Seller's Disclosure Schedule, each such
Acquired Company Material Contract was entered into in the ordinary course of
business. True, correct and complete copies of the Acquired Company Material
Contracts, including all amendments and supplements, have been made available
to Parent. Each Acquired Company Material Contract is valid and subsisting;
the Acquired Company party thereto has duly performed in all material respects
all its obligations thereunder to the extent that such obligations to perform
have accrued; and no material breach or default, alleged material breach or
default, or event which would (with the passage of time, notice or both)
constitute a material breach or default thereunder by such Acquired Company,
as the case may be (or, to the best knowledge of Seller, any other party or
obligor with respect thereto), has occurred or as a result of this Agreement
or its performance will occur. Except as set forth in Section 3.14(a)(xv) of
Seller's Disclosure Schedule, consummation of the transactions contemplated by
this Agreement will not (and will not give any Person a right to) terminate or
modify any rights of, or accelerate or augment any obligation of, either
Acquired Company under any Acquired Company Material Contract.
(b) During the twelve months immediately prior to the date hereof, no
contract of either Acquired Company or its Subsidiaries with a customer that,
but for its cancellation or termination, would be deemed an Acquired Company
Material Contract pursuant to clause (v) of Section 3.14(a), has been
cancelled or otherwise terminated and during such time, to the knowledge of
Seller, no such cancellation or termination has been threatened.
(c) Seller has delivered to Parent, pursuant to a letter dated September 30,
1997, (i) a complete list of client management accounts of the Acquired
Companies and their Subsidiaries, as of August 31, 1997, (ii) each binding bid
of either Acquired Company or their Subsidiaries providing for an investment
of $250,000 or more over the life of the proposed Contract and (iii) an aging
schedule of all accounts receivable of the Company and its Subsidiaries as of
August 31, 1997, and an aging schedule of all accounts receivable of Sodexho
Canada and its Subsidiaries as of August 15, 1997.
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Section 3.15. Taxes. Except as otherwise disclosed in Section 3.15 of
Seller's Disclosure Schedule:
(a) Each Acquired Company and its Subsidiaries have filed (or have had filed
on their behalf) or will file or cause to be filed, all Tax Returns (as
defined in Section 3.15(i) hereof) required by applicable Law to be filed by
any of them prior to the Effective Time, and all such Tax Returns and
amendments thereto are, or when filed will be, true, complete and correct in
all material respects.
(b) Each Acquired Company and its Subsidiaries have paid (or have had paid
on their behalf) all Taxes (as defined in Section 3.15(i) hereof) due with
respect to any period ending prior to or as of the Effective Time, or where
payment of Taxes is not yet due, have established (or have had established on
their behalf and for their sole benefit and recourse), or will establish or
cause to be established before the consummation of the Effective Time, an
adequate accrual for the payment of all such Taxes which have accrued prior to
the Effective Time. The accrual for Taxes set forth on the balance sheet of
each Acquired Company and its Subsidiaries at August 31, 1996 referenced in
Section 3.8 hereof is adequate for the payment of all Taxes accrued as of such
date.
(c) There are no Encumbrances for any Taxes upon the properties or assets of
either Acquired Company or any of their Subsidiaries, other than statutory
liens for Taxes not yet due and payable and Encumbrances for real estate Taxes
being contested in good faith.
(d) No Audit (as defined in Section 3.15(i) hereof) is pending with respect
to any Taxes due from either Acquired Company or any of their Subsidiaries.
There are no outstanding waivers extending the statutory period of limitation
relating to the payment of Taxes due from either Acquired Company or any of
their Subsidiaries for any taxable period ending on or prior to the Effective
Time.
(e) Neither Acquired Company nor any of their Subsidiaries is a party to, is
bound by, or has any obligation under, a tax sharing contract or other
agreement or arrangement for the allocation, apportionment, sharing,
indemnification, or payment of Taxes.
(f) Neither Company nor any of its Subsidiaries has made an election under
Section 341(f) of the Code.
(g) The statute of limitations for all Tax Returns of each Acquired Company
and its Subsidiaries for all years through 1993 have expired for all federal,
state, local and foreign tax purposes, or such Tax Returns have been subject
to a final Audit.
(h) Neither Acquired Company nor any of their Subsidiaries has received any
written notice of any material deficiency, assessment or adjustment from the
IRS or any other domestic or foreign governmental taxing authority that has
not been fully paid or finally settled, and any such deficiency, adjustment or
assessment shown on such schedule is being contested in good faith through
appropriate proceedings and adequate reserves have been established under
Acquired Company's financial statements therefor. To the best knowledge of
Seller, there are no material deficiencies, assessments or adjustments
threatened, pending or assessed with respect to either Acquired Company or any
of their Subsidiaries, other than those referred to in the immediately
preceding sentence.
(i) For purposes of this Agreement: "AUDIT" means any audit, assessment or
other examination of Taxes or Tax Returns by the IRS or any other domestic or
foreign governmental authority responsible for the administration of any
Taxes, proceeding or appeal of such proceeding relating to Taxes; "TAXES"
means all federal, state, local and foreign taxes, and other assessments of a
similar nature (whether imposed directly or through withholding) including,
but not limited to income, excise, withholding, property, sales, use (or any
similar taxes), gains, transfer, franchise, payroll, value-added, Social
Security, business license fees, customs, duties and other taxes, assessments,
charges, or other fees imposed by a governmental authority, including any
interest, additions to tax, or penalties applicable thereto; and "TAX RETURNS"
means all federal, state, local and foreign tax returns, declarations,
statements, reports, schedules, forms and information returns and any amended
Tax Return relating to Taxes.
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Section 3.16. Labor Matters. Except as set forth in Section 3.16 of Seller's
Disclosure Schedule, neither Acquired Company nor any of their Subsidiaries
has, since December 31, 1996, (i) been subject to, or, to the knowledge of
Seller, threatened with, any material strike, lockout or other labor dispute
or engaged in any material unfair labor practice, or (ii) received written
notice of any pending petition for certification before the National Labor
Relations Board with respect to any material group of employees of either
Acquired Company or any Subsidiary which is not currently organized.
Section 3.17. Accounting Records; Internal Controls. Each Acquired Company
and its Subsidiaries have records that accurately and validly reflect its
transactions, and accounting controls sufficient to insure that such
transactions are (i) executed in accordance with management's general or
specific authorization and (ii) recorded in conformity with GAAP or Canadian
generally accepted accounting principles, as the case may be, so as to
maintain accountability for assets.
Section 3.18. Insurance. Except as set forth in Section 3.18 of Seller's
Disclosure Schedule, each Acquired Company and its Subsidiaries are, and at
all times since their organization have been, insured with reputable insurers
(or self-insured) against all risks normally insured against, and in such
amounts as are customary, by companies in similar lines of business, and all
of the insurance policies and bonds required to be maintained by each Acquired
Company and its Subsidiaries are in full force and effect. Section 3.18 of
Seller's Disclosure Schedule lists all insurance policies and bonds that are
material to the Company Business. Amounts reserved for all risks covered by
self-insurance on the combined balance sheet for the Acquired Companies and
their Subsidiaries delivered pursuant to Section 3.8(b) are reasonable and
customary. Neither Acquired Company nor any of their Subsidiaries is in
default in any material respect under any such policy or bond. Each Acquired
Company and each of their Subsidiaries has timely filed claims with insurers
with respect to all material matters and occurrences for which it has
coverage. All insurance policies maintained by each Acquired Company and its
Subsidiaries will remain in full force and effect and may reasonably be
expected to be renewed (or replaced with comparable policies) on reasonably
comparable terms in favor of Parent following consummation of the Merger
(subject to such entities' continuing compliance with the applicable terms
thereof and any right of insurers to terminate without cause), and neither
Acquired Company nor any of its Subsidiaries has received notice or other
indication from any insurer or agent of any intent to cancel or not so renew
any of such insurance policies.
Section 3.19. Permits. Each Acquired Company and its Subsidiaries holds all
material Permits (as defined below) that are required by any Governmental
Entity to permit it to conduct the Company Business as now conducted, and all
such Permits are valid and in full force and effect and will remain in full
force and effect upon consummation of the Merger, except for those Permits
identified on Section 3.19 of Seller's Disclosure Schedule. To the knowledge
of Seller and Company, no suspension, cancellation or termination of any of
such Permits is threatened or imminent as a result of the transactions
contemplated by this Agreement or otherwise. As used herein, "PERMIT" means
any license, permit, franchise, certificate of authority or order, or any
extension, modification or waiver of the foregoing, issued by any Governmental
Entity.
Section 3.20. Business Relationships. Section 3.20 of Seller's Disclosure
Schedule lists the names of and describes all Contracts with the three largest
distributors of goods and the ten largest producers of goods purchased by each
Acquired Company and its Subsidiaries (by dollar volume for the most recently
ended fiscal year). To the knowledge of Seller and Company, no material
supplier or distributor is reasonably likely to cease supplying or
distributing, as the case may be, goods or services or substantially reduce
its supplies or distribution services in relation to the Company Business as a
result of the consummation of this Agreement and the transactions contemplated
hereby.
Section 3.21. Environmental Compliance. Except as set forth in Section 3.21
of Seller's Disclosure Schedule:
(a) The Company Real Property (as defined below) and the improvements
thereon and the soil and groundwater thereunder (i) do not contain and are
not contaminated by any Hazardous Material (as defined below) in violation
of any Environmental Law (as defined below); (ii) do not contain
underground storage
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tanks in violation of any Environmental Law; (iii) are not used in
violation of any Environmental Law for the generation, treatment, storage
or disposal of any Hazardous Material, or for mining, land filling, dumping
or commercial petroleum product storage purposes, or as a gasoline station
or a dry cleaning establishment; (iv) have not had any release of any
Hazardous Material from, on, in or upon it that would reasonably be
expected to result in a material liability to either Acquired Company; and
(v) have never been the subject of any material remedial action or a lien
or encumbrance for an environmental problem.
(b) Each Acquired Company is in material compliance with all
Environmental Laws and has obtained and is in material compliance with all
permits required pursuant to Environmental Laws, and neither Acquired
Company nor Seller has received any notices, demands, requests for
information, complaints or orders, and no investigation, action, claim,
suit or proceeding is pending or threatened by any Governmental Entity,
with respect to any matters relating to either Acquired Company and
relating to or arising out of any Environmental Laws.
(c) There are no material liabilities of or relating to either Acquired
Company arising under or relating to any Environmental Law, and to the best
knowledge of Seller, there are no facts, conditions, circumstances or
situations which could reasonably be expected to result in or be the basis
for any such liability.
(d) Seller has delivered to Parent the true and complete copies of all
documents, notices, reports, studies, analyses, tests, permits and other
written materials identified in Section 3.21 of Seller's Disclosure
Schedule and any environmental reports or audits in the possession of
Seller or either Acquired Company relating to the Company Real Property.
(e) As used herein, "COMPANY REAL PROPERTY" means all assets of either
Acquired Company or any of their Subsidiaries consisting of real property,
appurtenances thereto, rights in connection therewith, and any interest
therein, whether owned or leased; "ENVIRONMENTAL LAWS" means any applicable
federal, state or local law, statute, ordinance, common law, rule,
regulation, permit, directive, license, guidance, order, or other legal
requirement, in each case as in effect on the date hereof, relating to the
protection of human health and safety or the environment, including any
requirement pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting,
licensing, permitting, investigation or remediation of hazardous or toxic
materials. Without limiting the foregoing, each of the following is an
Environmental Law: the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. (S) 9601 et seq.), the Hazardous Material
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution
Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S)
7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et
seq.), the Safe Drinking Water Act (42 U.S.C. (S) 300f et seq.), the
Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), and the
Atomic Energy Act (42 U.S.C. (S) 2011 et seq.), as such laws have been
amended or supplemented as of the date hereof, and each similar applicable
federal, state or local statute, and each rule and regulation promulgated
under such federal, state and local laws; "HAZARDOUS MATERIAL" means any
substance or material meeting any one or more of the following criteria:
(i) it is or contains a substance designated as a hazardous waste,
hazardous substance, hazardous material, pollutant, contaminant or toxic
substance under any Environmental Law; (ii) it is toxic, explosive,
corrosive, reactive, ignitable, infectious, radioactive, mutagenic or
otherwise hazardous; (iii) its presence at some quantity requires
investigation, notification or remediation under any Environmental Law or
common law; or (iv) it is or contains, without limiting the foregoing
clauses (i)-(iii), asbestos, polychlorinated biphenyls, petroleum
hydrocarbons, petroleum derived substances or waste, crude oil or any
fraction thereof, nuclear fuel or waste, natural gas or synthetic gas.
Section 3.22. Accounts Receivable. The accounts receivable of the Acquired
Companies and their Subsidiaries were incurred in the ordinary course of
business and are not subject in the aggregate to material counterclaim or set-
off.
Section 3.23. Transactions with Certain Persons. Except as set forth on
Section 3.23 of Seller's Disclosure Schedule, during the past three years
neither Acquired Company nor any of their Subsidiaries have purchased or
leased any property or obtained any services from, or sold or leased any
property or furnished any
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services to (except with respect to remuneration for services rendered as a
director, officer or employee of either Acquired Company or any of their
Subsidiaries), in the ordinary course of business or otherwise, Seller, any
Affiliate of Seller or any of their respective officers, directors or
employees, holders, directly or indirectly, of 10 percent or more of their
outstanding capital stock, or, to the knowledge of Seller, any spouse, child
or parent of any of the foregoing.
Section 3.24. Certain Fees. Neither Acquired Company nor any of their
Subsidiaries has employed any financial advisor or finder or incurred any
liability for any financial advisory or finders' fees in connection with this
Agreement or the transactions contemplated hereby.
Section 3.25. Certain Operations. Except as set forth on Section 3.25 of
Seller's Disclosure Schedule, neither Acquired Company nor any of their
Subsidiaries is or will be engaged at the Effective Time in any activity or
business that either (x) comes within the definition of Host Business (as
defined in the Noncompetition Agreement dated as of October 8, 1993, as
amended, among Parent, Host Marriott Corporation and Host Marriott Services
Corporation) or (y) would, if engaged in by Parent, breach the terms of the
Noncompetition Agreement dated as of December 15, 1989 among Parent (as
assignee of Host Marriott Corporation), Host International, Inc., Caterair
Holdings Corporation and Caterair International Corporation.
Section 3.26. Investment Representation. Seller is acquiring the Parent
Shares to be issued in the Merger for its own account, for investment purposes
only and not with a view to or for sale in connection with the distribution
thereof.
ARTICLE IV
Representations and Warranties of Parent and Acquisition
Except as otherwise indicated on Parent's Disclosure Schedule dated
September 30, 1997 previously delivered to Seller and Company, Parent and
Acquisition represent and warrant to Seller and Company as follows:
Section 4.1. Organization.
(a) Each of Parent and its Subsidiaries that will be owned, directly or
indirectly, by Parent following the Distribution (the "RETAINED SUBSIDIARIES")
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each of Parent and the Retained
Subsidiaries is duly qualified or licensed and in good standing to do business
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or
licensing necessary, except in such jurisdictions where the failure to be so
duly qualified or licensed and in good standing would not, when taken together
with all other such failures, have or reasonably be expected to have a
material adverse effect ("PARENT MATERIAL ADVERSE EFFECT") on (x) the
business, operations, properties, assets, conditions (financial or other) or
results of operations of the Retained Business (as defined below), as a whole
or (y) the ability of Parent or Acquisition to perform their respective
obligations under or consummate the transactions contemplated by this
Agreement or, in the case of Parent, the Distribution Agreement or any other
Transaction Document. True, accurate and complete copies of each of Parent's
and Acquisition's certificates of incorporation and by-laws, in each case as
in effect on the date hereof, including all amendments thereto, have
heretofore been delivered to Seller and Company. For purposes of this
Agreement, "RETAINED BUSINESS" has the meaning set forth in the Distribution
Agreement; provided that, for all purposes of this Agreement (other than the
net tangible assets adjustment contemplated by Section 2.8(f) of the
Distribution Agreement), (i) the Retained Business will be deemed, from the
date hereof until the consummation of the transactions contemplated by the UK
Stock Purchase Agreement, to include the business and operations of MMS UK,
and (ii) thereafter, the Retained Business will be deemed not to include the
business and operations of MMS UK.
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(b) After the Distribution, Parent will have no Subsidiaries other than the
Retained Subsidiaries, all of which are listed in Schedule 4.1(b). At such
time, except as set forth in this Agreement or in Section 4.14(a)(xiii) of
Parent's Disclosure Schedule, Parent will have no interest, direct or
indirect, and will have no commitment to purchase any interest, direct or
indirect, in any other Person. Except as set forth in Section 4.1(b) of
Parent's Disclosure Schedule, the business of Parent and the Retained
Subsidiaries reflected in the Retained Business Financial Statements (as
defined in Section 4.6) has not been conducted through any other Subsidiaries
or Affiliates of Parent. Each Retained Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted. Each Retained Subsidiary is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in
such jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not, when taken together with all other such failures,
have or reasonably be expected to have a Parent Material Adverse Effect.
Section 4.2. Capitalization.
(a) The authorized capital stock of Parent consists of 301,000,000 shares,
consisting of 300,000,000 Parent Shares and 1,000,000 shares of preferred
stock of Parent. At September 26, 1997, 127,503,586 Parent Shares were issued
and outstanding and no shares of preferred stock of Parent were outstanding.
All of the issued and outstanding Parent Shares are validly issued, fully paid
and non-assessable and free of preemptive rights. As of September 26, 1997,
13,800,151 Parent Shares were issuable upon the exercise of outstanding vested
and non-vested options and as of September 12, 1997, 4,434,452 Parent Shares
were issuable upon the vesting of deferred bonus awards and deferred stock
agreements (together, "PARENT STOCK OPTIONS") granted under any stock option
plan, program or similar arrangement of Parent or any of its Subsidiaries,
each as amended (excluding cash balances in Parent's employee stock purchase
plan). Since September 12, 1997, Parent has not granted any Parent Stock
Options or issued any shares of its capital stock except as set forth on
Section 4.2(a) of Parent's Disclosure Schedule or except upon exercise of
Parent Stock Options or pursuant to any existing Parent Plan in accordance
with the current terms of such Parent Plan. Except (i) as set forth in Section
4.2(a) of Parent's Disclosure Schedule, (ii) pursuant to Plans listed on
Section 4.12(a) of Parent's Disclosure Schedule, (iii) as provided in the
Benefits Allocation Agreement (as defined in the Distribution Agreement), (iv)
pursuant to the LYONs (as defined in the Distribution Agreement) and any
amendments thereto contemplated by the Distribution Agreement and (v) pursuant
to the Parent Rights Plan (as defined in Section 4.25), there are not now, and
at the Effective Time there will not be, any shares of capital stock of Parent
issued or outstanding or any outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement obligating Parent or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional Parent Shares or obligating Parent or any of its Subsidiaries
to grant, extend or enter into any such agreement or commitment.
(b) The authorized capital stock of Acquisition consists of 100 Acquisition
Shares, of which 100 Acquisition Shares were issued and outstanding, all of
which are owned beneficially and of record by Parent. All of the issued and
outstanding Acquisition Shares are validly issued, fully paid and non-
assessable and free of preemptive rights and are free and clear of any
Encumbrances. Except as set forth in Section 4.2(b) of Parent's Disclosure
Schedule, there are not now, and at the Effective Time there will not be, any
shares of capital stock of Acquisition issued or outstanding or any
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating Acquisition to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of the capital stock of
Acquisition or obligating Acquisition to grant, extend or enter into any such
agreement or commitment. Following the Merger, Acquisition will have no
obligation to issue, transfer or sell any shares of its capital stock pursuant
to any employee benefit plan or otherwise.
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(c) There are not now, and at the Effective Time there will not be, any
voting trusts, proxies or other agreements or understandings to which Parent
or any Subsidiary of Parent is a party or is bound with respect to the voting
of any shares of capital stock of Parent or any Retained Subsidiary.
(d) All of the issued and outstanding shares of capital stock (or other
equity interests) of each Retained Subsidiary are validly issued, fully paid
and non-assessable and free of preemptive rights, and those owned directly or
indirectly by Parent are owned free and clear of any Encumbrances. Parent owns
directly or indirectly all of the issued and outstanding shares of the capital
stock (and other equity interests) of each Retained Subsidiary. Except as set
forth in Section 4.2(d) of Parent's Disclosure Schedule, there are not now,
and at the Effective Time there will not be, any shares of capital stock (or
other equity interests) of any Retained Subsidiary issued or outstanding or
any outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement obligating Parent or any Retained Subsidiary to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of the
capital stock (or other equity interests) of any Retained Subsidiary or
obligating Parent or any Retained Subsidiary to grant, extend or enter into
any such agreement or commitment.
Section 4.3. Authority Relative to this Agreement. Each of Parent and
Acquisition has full corporate power and authority to execute and deliver this
Agreement, the Distribution Agreement and each other Transaction Document to
which it is a party, as the case may be, and, subject to the Required
Regulatory Approvals, to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement, the Distribution
Agreement and each other Transaction Document by Parent or Acquisition, and
the consummation of the transactions contemplated hereby and thereby have been
duly and validly authorized by the Boards of Directors of Parent and
Acquisition, and no other corporate proceedings on the part of Parent or
Acquisition, are or will be necessary to authorize this Agreement, the
Distribution Agreement or any other Transaction Document or to consummate the
transactions contemplated hereby and thereby other than (x) the approval and
adoption of the Distribution and the Merger and related matters by the
stockholders of Parent (the "PARENT STOCKHOLDER APPROVALS") and (y) the
establishment by the Board of Directors of Parent of the date for taking a
record of the holders of Parent's common stock entitled to participate in the
Distribution and the date on which the Distribution shall be effected. This
Agreement and the Distribution Agreement each has been duly and validly
executed and delivered by each of Parent and Acquisition, and constitutes a
valid and binding agreement of each of Parent and Acquisition, as the case may
be, and each other Transaction Document to which Parent or Acquisition will be
a party, when executed and delivered by the parties thereto, will be a valid
and binding agreement of each of Parent and Acquisition, as the case may be,
enforceable against each of Parent and Acquisition, as the case may be, in
accordance with their respective terms except to the extent that enforcement
thereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws, now or hereafter in
effect, relating to the creditors' rights generally and (b) general principles
of equity (regardless of whether enforceability is considered in a proceeding
at law or in equity).
Section 4.4. Consents and Approvals; No Violations.
(a) Except for the Required Regulatory Approvals, Parent Stockholder
Approvals, such filings and approvals as may be required under the "takeover"
or "blue sky" laws of various states, and as disclosed in Section 4.4(a) of
Parent's Disclosure Schedule or as contemplated by this Agreement, no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any Governmental Entity or any other Person is
necessary for the execution and delivery of this Agreement, the Distribution
Agreement and each other Transaction Document by Parent or Acquisition as the
case may be, or the consummation by Parent or Acquisition, as the case may be,
of the transactions contemplated hereby and thereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in
the aggregate, have or reasonably be expected to have a Parent Material
Adverse Effect.
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(b) Except as set forth in Section 4.4(b) of Parent's Disclosure Schedule,
the execution and delivery of this Agreement, the Distribution Agreement and
each other Transaction Document by each of Parent and Acquisition, as the case
may be, do not, and the consummation by Parent and Acquisition, as the case
may be, of the transactions contemplated hereby and thereby will not, in any
material respect, violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the properties or assets of Parent or any of its
Subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or by-laws of Parent or Acquisition, (ii) subject to
obtaining the Required Regulatory Approvals and the Parent Stockholder
Approvals, any material Law applicable to Parent or Acquisition or any of
their respective properties or assets, (iii) any Retained Business Material
Contract (as defined in Section 4.14) or (iv) any material Contract to which
Parent or Acquisition is now a party or by which Parent or Acquisition or any
of their respective properties or assets may be bound or affected or (v) any
material Contract to which Parent or any Retained Subsidiary is a party that
is intended to be included in the Spinco Assets (as defined in the
Distribution Agreement) pursuant to the Distribution Agreement and that does
not provide for the release of Parent or such Retained Subsidiary from the
obligations thereunder upon the assignment thereof to Spinco or a Spinco
Subsidiary.
Section 4.5. Absence of Certain Changes. Except (a) as set forth in Section
4.5 of Parent's Disclosure Schedule, (b) as set forth in any document filed
prior to the date hereof pursuant to the Exchange Act, or (c) as contemplated
by this Agreement, the Distribution Agreement and the other Transaction
Documents, from January 3, 1997 until the date hereof, with respect to the
Retained Business, neither Parent nor any of its Subsidiaries has (i) taken
any actions that, if taken by Parent or any of its Subsidiaries during the
period from the date hereof through the Effective Time, would constitute a
breach of Section 6.2 hereof, (ii) has suffered any changes that, in each
case, in the aggregate, would reasonably be expected to result in a Parent
Material Adverse Effect or (iii) conducted its business or operations in any
material respect other than in the ordinary and usual course of business,
consistent with past practices.
Section 4.6. No Undisclosed Liabilities. Except as (x) disclosed in any
document filed prior to the date hereof pursuant to the Exchange Act, (y)
incurred in connection with the Merger and the Distribution or (z) as
expressly disclosed and described in Section 4.6 of Parent's Disclosure
Schedule, neither Parent, with respect to the Retained Business, nor any
Retained Subsidiary had at January 3, 1997, or has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature except (a) liabilities, obligations or contingencies
(i) which are accrued or reserved against in the financial statements of the
Retained Business delivered pursuant to Section 4.8 (the "RETAINED BUSINESS
FINANCIAL STATEMENTS") or reflected in the notes thereto or (ii) which were
incurred after January 3, 1997, and were incurred in the ordinary course of
business and consistent with past practices and (b) liabilities, obligations
or contingencies which (x) have not and would not reasonably be expected to
have a Parent Material Adverse Effect or (y) have been discharged or paid in
full prior to the date hereof.
Section 4.7. Reports.
(a) Since January 1, 1995, Parent and each of its Subsidiaries required to
make filings under the Securities Act or the Exchange Act have filed with the
Securities and Exchange Commission (the "SEC"), all material reports, forms,
statements and other documents (including all exhibits, amendments and
supplements thereto; collectively, including any financial statements or
schedules included or incorporated by reference therein, the "PARENT SEC
DOCUMENTS") required to be filed by them under the Securities Act, the
Exchange Act and the rules and regulations thereunder. Each of the Parent SEC
Documents, as of its filing date and at each time thereafter when the
information included therein was required to be updated pursuant to the rules
and regulations of the SEC, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations thereunder. None of the Parent SEC Documents, as of
their respective filing dates or any date thereafter when the information
included therein was required to be updated pursuant to the rules and
regulations of the SEC, contained or will contain any untrue statement of a
material
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fact or omitted or will omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets (including the related notes) included in the
Parent SEC Documents filed prior to or after the date of this Agreement fairly
presents or will fairly present in all material respects the consolidated
financial position of Parent and its Subsidiaries as of the respective dates
thereof, and the other related statements (including the related notes)
included therein fairly present or will fairly present in all material
respects the results of operations and the cash flows of Parent and its
Subsidiaries for the respective periods or as of the respective dates set
forth therein. Each of the financial statements (including the related notes)
included in the Parent SEC Documents filed prior to or after the date of this
Agreement has been prepared or will be prepared in all material respects in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except (i) as otherwise noted therein, (ii) to
the extent required by changes in generally accepted accounting principles or
(iii) in the case of unaudited financial statements, normal recurring year-end
audit adjustments.
(b) Parent has previously delivered to Seller and Company copies of (i)
Annual Reports on Form 10-K for the fiscal year ended January 3, 1997 and for
each of the two immediately preceding fiscal years, as filed with SEC, (ii)
proxy and information statements relating to (x) all meetings of its
stockholders (whether annual or special) and (y) actions by written consent in
lieu of a stockholders' meeting from January 1, 1995 until the date hereof and
(iii) all other reports or registration statements filed by Parent with the
SEC since January 1, 1995 (other than Registration Statements on Form S-8).
Section 4.8. Financial Statements; Changes; Contingencies; Distributions.
(a) Parent has delivered to Seller and Company consolidated balance sheets
for the Retained Business at January 3, 1997 and December 29, 1995 and the
related consolidated statements of operations, cash flows and changes in
stockholder's equity for the 52 or 53 week periods ended January 3, 1997 and
December 29, 1995. All such financial statements have been audited by Arthur
Andersen, LLP (the "PARENT AUDITORS"), whose reports thereon are included with
such financial statements. All such financial statements have been prepared in
conformity with GAAP applied on a consistent basis (except for changes, if
any, required by GAAP and disclosed therein). The statements of operations and
cash flow present fairly in all material respects the results of operations
and cash flows of the Retained Business for the respective periods covered,
and the balance sheets present fairly in all material respects the financial
condition of the Retained Business as of their respective dates. Parent and
Acquisition have made available to Seller and Company copies of each
management letter or other letter delivered to Parent by the Parent Auditors
(or management points relating thereto) in connection with such financial
statements or relating to any review by the Parent Auditors of the internal
controls of Parent during the two-year period ended January 3, 1997, and have
made available to the Company Auditors for inspection all reports and working
papers produced or developed by Parent Auditors or management in connection
with their examination of such financial statements, including such reports
and working papers prepared by the Parent Auditors relating to assessment of
risk of the engagement and planning for the engagement but excluding the
billing analysis prepared by such auditors. Except as set forth in the
Retained Business Financial Statements or the Parent SEC Documents since
December 31, 1994, there has been no change in any of the significant
accounting policies, practices or procedures of Parent and/or its
Subsidiaries.
(b) Parent and Acquisition have delivered to Seller and Company the
unaudited consolidated balance sheet for the Retained Business at June 20,
1997, and the related unaudited consolidated statements of operations and cash
flows for the period then ended. All such interim unaudited financial
statements have been prepared in conformity with GAAP applied on a consistent
basis except for changes, if any, required by GAAP and disclosed therein. The
statements of operations and cash flows present fairly the results of
operations and cash flows of the Retained Business for the respective periods
covered, and the balance sheets present fairly in all material respects the
financial condition of the Retained Business as of their respective dates. All
such interim financial statements reflect all adjustments (which, except as
otherwise indicated as such financial statements, consist only of normal
recurring adjustments not material in amount and include estimated provisions
for year-end adjustments) necessary for a fair presentation. At the dates of
such balance sheets, the Retained Business had no material
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liability (actual, contingent or accrued) that, in accordance with GAAP
applied on a consistent basis, should have been shown or reflected therein but
was not except for the omission of notes with respect to contingent
liabilities that in the aggregate did not materially exceed those so reported
in the most recent of the audited statements delivered and that were of
substantially the same type as so reported.
(c) Except as set forth at Section 4.8(c) of Parent's Disclosure Schedule,
there has been no dividend or other distribution of assets or securities
whether consisting of money, property or any other thing of value, declared,
issued or paid subsequent to the date of the most recent financial statements
described in Section 4.8(a) by Parent or any Retained Subsidiary, except for
cash dividends paid in the ordinary course.
Section 4.9. Proxy Statement and Form 10. None of the information to be
included in the Proxy Statement or the Form 10 (each as defined in the
Distribution Agreement) or any registration statement contemplated pursuant to
Article III of the Distribution Agreement will be false or misleading with
respect to any material fact or will omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. Except
for information provided by Seller or Company in writing for inclusion
therein, the Proxy Statement and the Form 10 (or any registration statement
contemplated pursuant to Article III of the Distribution Agreement), including
any amendments thereto, will comply in all material respects with the Exchange
Act and the Securities Act.
Section 4.10. No Default. Except as set forth in Section 4.10 of Parent's
Disclosure Schedule, neither Parent nor any of the Retained Subsidiaries (i)
is in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of its charter or its by-laws, or (ii) is in default or
violation (and no event has occurred which with notice or lapse of time or
both would constitute a default or violation) in any material respect of any
term, condition or provision of (a) any Retained Business Material Contract,
or (b) in each case only with respect to the Retained Business, any material
order, writ, injunction, decree, statute, rule or regulation applicable to
Parent or any of the Retained Subsidiaries.
Section 4.11. Litigation; Compliance with Law.
(a) Except as set forth in Section 4.11(a) of Parent's Disclosure Schedule,
as of the date hereof and only with respect to the Retained Business, there
are no actions, suits, claims, proceedings or investigations pending or, to
the best knowledge of Parent or Acquisition, threatened, involving Parent or
any of the Retained Subsidiaries or any of their respective properties or
assets (or any Person whose liability therefrom may have been retained or
assumed by Parent or any of the Retained Subsidiaries either contractually or
by operation of law), by or before any Governmental Entity or by any Person
which have had or would reasonably be expected to result in damages in excess
of $100,000 or have a Parent Material Adverse Effect. None of Parent, any of
the Retained Subsidiaries or any of their respective properties or assets is
subject to any outstanding order, writ, injunction or decree relating to the
Retained Business which would reasonably be expected to have a Parent Material
Adverse Effect or materially impair or interfere with the operation of the
Retained Business as currently conducted.
(b) Except as disclosed by Parent in the Parent SEC Documents filed since
January 3, 1997 or in Section 4.11(b) of Parent's Disclosure Schedule, Parent
(with respect to the Retained Business), the Retained Subsidiaries and
Acquisition are now being and in the past have been operated in compliance in
all material respects with all Laws.
Section 4.12. Employee Benefit Plans; ERISA.
(a) Except for those matters set forth in Section 4.12(a) of Parent's
Disclosure Schedule, (i) each "employee benefit plan" (as defined in Section
3(3) of ERISA, and all other employee benefit, bonus, incentive, stock option
(or other equity-based), severance, change in control, welfare (including
post-retirement medical and life insurance) and fringe benefit plans (whether
or not subject to ERISA) maintained or sponsored by Parent or its ERISA
Affiliates, for the benefit of any U.S. employee or former U.S. employee of
Parent or any of its
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ERISA Affiliates employed in the Retained Business (the "PARENT PLANS") is,
and has been, operated in all material respects in accordance with its terms
and in substantial compliance (including with respect to the making of
governmental filings) with all applicable Laws, including ERISA and the
applicable provisions of the Code, (ii) each of the Parent Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has been
determined by the IRS to be so qualified, (iii) no "reportable event," as such
term is defined in Section 4043(c) of ERISA (for which the 30-day notice
requirement to the Pension Benefit Guaranty Corporation (the "PBGC") has not
been waived), has occurred with respect to any Parent Plan that is subject to
Title IV of ERISA, and (iv) there are no material pending or, to the knowledge
of Parent, threatened claims (other than routine claims for benefits) by, on
behalf of or against any of the Parent Plans or any trusts related thereto
other than routine benefit claim matters. All Parent Plans are listed in
Section 4.12(a) of Parent's Disclosure Schedule.
(b) (i) No Parent Plan has incurred an "accumulated funding deficiency" (as
defined in Section 302 of ERISA or Section 412 of the Code), whether or not
waived, (ii) neither Parent nor any of its ERISA Affiliates has incurred any
liability under Title IV of ERISA except for required premium payments to the
PBGC, which payments have been made when due, and no events have occurred
which are reasonably likely to give rise to any liability of Parent or any of
its ERISA Affiliates under Title IV of ERISA or which could reasonably be
anticipated to result in any claims being made against Seller or Company by
the PBGC, (iii) neither Parent nor any of its ERISA Affiliates has incurred
any material withdrawal liability (including any contingent or secondary
withdrawal liability) within the meaning of Sections 4201 and 4204 of ERISA to
any Multiemployer Plan which has not been satisfied in full, and (iv) other
than with respect to any Multiemployer Plan, there has been no act or omission
resulting in liability under Chapter 43 of the Code or Sections 409, 502(c),
502(i), 502(l) or 4071 of ERISA with respect to any Parent Plan.
(c) Except as set forth on Section 4.12(c) of Parent's Disclosure Schedule,
with respect to each Parent Plan that is subject to Title IV of ERISA, (i)
Parent has provided to Seller copies of the most recent actuarial valuation
report prepared for such Parent Plan prior to the date hereof, (ii) the assets
and liabilities in respect of the accrued benefits as set forth in the most
recent actuarial valuation report prepared by the Parent Plan's actuary fairly
present the funded status of such Parent Plan in all material respects, and
(iii) since the date of such valuation report there has been no material
adverse change in the funded status of any such Parent Plan.
(d) Neither Parent nor any of its ERISA Affiliates has failed to make any
contribution or payment to any Parent Plan or Multiemployer Plan which, in
either case has resulted or could result in the imposition of a material
Encumbrance or the posting of a material bond or other material security under
ERISA or the Code.
(e) Except as otherwise set forth on Section 4.12(e) of Parent's Disclosure
Schedule or as expressly provided for in this Agreement or in the Benefits
Allocation Agreement, the consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee or officer
of Parent or any ERISA Affiliate to severance pay, unemployment compensation
or any other payment, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer.
(f) Except as set forth on Section 4.12(f) of Parent's Disclosure Schedule,
Parent and its Subsidiaries do not have any employment or consulting
agreements, written or oral, with any employees of the Retained Business that
provide for annual base compensation in excess of $150,000. Parent has
provided to Seller copies of each such employment or consulting agreement that
provides for annual base compensation in excess of $150,000, and has made all
other such agreements available to Seller. Section 4.12(f) of Parent's
Disclosure Schedule sets forth a list of all employees or former employees
associated with the Retained Business to whom Parent owes severance pay in
sums of $150,000 or more as of the date hereof.
(g) Parent has the right, and will have the right after the Effective Time,
to amend or terminate any Parent Plan and any Parent Canadian Plan, and
specifically to the extent any Parent Plan provides post-retirement medical
and life insurance benefits.
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(h) Section 4.12(h) of Parent's Disclosure Schedule lists each employee
benefit, bonus, incentive compensation, deferred compensation, pension,
retirement, stock option (or other equity based), severance, change in
control, welfare (including post-retirement medical and life insurance),
fringe benefit plan and any other employment arrangement maintained or
sponsored by Parent or its Subsidiaries for the benefit of any Canadian
employee or former Canadian employee of Parent or its Subsidiaries employed in
the Retained Business (the "PARENT CANADIAN PLANS"). Except as otherwise set
forth in Section 4.12(h) of Parent's Disclosure Schedule, each Parent Canadian
Plan has been operated in all material respects in accordance with its terms
and in substantial compliance with all applicable Laws, and there are no
material pending or, to the knowledge of Parent, threatened claims (other than
routine claims for benefits) by, on behalf of or against any of the Parent
Canadian Plans or any trusts related thereto other than routine benefit claim
matters. Neither Parent nor any of its Subsidiaries has incurred any material
withdrawal liability to any Company Canadian Plan which would be the
equivalent of a Multiemployer Plan, and neither Parent nor any of its
Subsidiaries has failed to make any contribution to any Parent Canadian Plan
which has resulted or could result in the imposition of a material
Encumbrance. With respect to any Parent Canadian Plan that is a defined
benefit plan, (x) Parent has provided Seller with copies of the most recent
actuarial valuation report if an actuarial valuation report is required by the
relevant Canadian Governmental Entity, and (y) except as set forth in Section
4.12(h) of Parent's Disclosure Schedule, as of the date hereof, the fair
market value of the assets of each such plan (excluding for these purposes any
accrued but unpaid contributions) exceeds the present value of all benefits
accrued under each such plan determined on a basis as required by law and in
accordance with Canadian GAAP.
(i) Each employee's benefit, bonus, incentive compensation, deferred
compensation, pension, retirement, stock option (or other equity based),
severance, change in control, welfare (including post-retirement medical and
life insurance), fringe benefit plan and any other employment arrangement
maintained or sponsored by MMS UK or its Subsidiaries for the benefit of their
employees has been operated in all material respects in accordance with its
terms and in substantial compliance with all applicable Laws, and there are no
material pending or, to the knowledge of Parent, threatened claims (other than
routine claims for benefits) by, on behalf of or against any of such plans.
All material plans maintained by MMS UK or its Subsidiaries for the provision
of retirement income to their employees are listed in Section 4.12(i) of
Parent's Disclosure Schedule and all such plans that are funded defined
benefit pension schemes are funded in accordance with the recommendations of
the relevant United Kingdom Government Entity.
Section 4.13. Assets; Intellectual Property.
(a) Except as set forth in Section 4.13(a) of Parent's Disclosure Schedule,
upon consummation of the Distribution, Parent and the Retained Subsidiaries
will own or have rights to use all material properties and assets (including
Intellectual Property) necessary to permit Parent and the Retained
Subsidiaries to conduct the Retained Business as it is currently being
conducted.
(b) Neither Parent nor any of the Retained Subsidiaries now or since
December 31, 1994 has used Intellectual Property which conflicts with or
infringes upon any proprietary rights of others except where such conflict or
infringement would not have or reasonably be expected to have a Parent
Material Adverse Effect.
(c) Section 4.13(c) of Parent's Disclosure Schedule lists any and all
Intellectual Property that is material to the Retained Business and in which
the Parent or any Retained Subsidiary has an interest and the nature of such
interest therein. Such assets include all licenses, permits, authorizations or
other rights with respect to any of the foregoing. Except as set forth in
Section 4.13(c) of Parent's Disclosure Schedule, Parent does not use any such
Intellectual Property by consent of any other Person and is not required to
and does not make any payments to others with respect thereto. Parent has in
all material respects performed all obligations required to be performed by
it, and none of such entities is in default in any material respect under any
material Contract relating to any of the foregoing. Parent and the Retained
Subsidiaries have taken reasonable actions necessary to maintain and protect
such Intellectual Property.
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Section 4.14. Contracts.
(a) Section 4.14(a) of Parent's Disclosure Schedule lists each Contract in
respect of the Retained Business to which Parent or any Retained Subsidiary is
a party or to which they or any of their properties used primarily in the
Retained Business is subject or by which any thereof are bound that is a
Retained Business Material Contract (as defined below). "RETAINED BUSINESS
MATERIAL CONTRACTS" are those that (i) after January 3, 1997 obligate Parent,
in respect of the Retained Business, or any Retained Subsidiary, to pay an
amount of $250,000 or more in any 12 month period, (ii) contain a covenant not
to compete or otherwise significantly restrict business activities (other than
such a covenant that applies only to a particular account covered by a
management agreement or franchise agreement related thereto), (iii) provide
for the extension of credit other than consistent with normal credit terms or
in an aggregate principal amount of more than $15,000,000, or provide for the
mortgage, pledge or grant of a security interest in assets of the Retained
Business or for a guarantee by the Parent or any Retained Subsidiary of the
obligations of any other Person in connection with the Retained Business, (iv)
contain a right or obligation of or to any Affiliate of Parent other than
Parent and the Retained Subsidiaries, or to any officer or director of Parent
or any of the Retained Subsidiaries other than those contracts entered into in
the ordinary course of business, (v) represent a Contract contributing unit
level profit equal to or exceeding 2% of aggregate unit level profit measured
for the most recently concluded fiscal year, (vi) require Parent (in respect
of the Retained Business) or any Retained Subsidiary to buy or sell goods or
services with respect to which there will be material losses or will be costs
and expenses materially in excess of expected receipts, (vii) are for the
employment of any Retained Employee and provide for annual base compensation
in excess of $150,000, or are "golden parachute" or similar agreements with
any Retained Employee, (viii) are with any labor union, (ix) are with any
vendor, manufacturer, or distributor or representative and have an unexpired
term as of June 20, 1997 of one year or more and contain any dollar or volume
purchasing requirements in excess of $250,000, (x) are with the federal
government or a governmental agency or department exceeding $250,000 in annual
revenues, (xi) are leases to or from Parent (with respect to the Retained
Business) or one of the Retained Subsidiaries of real or personal property
with individual monthly rental amounts of at least $10,000, (xii) were not
made in the ordinary course of business, (xiii) create any joint ventures,
partnerships or other similar arrangements relating to the Retained Business,
or (xiv) contain a "change of control" or similar provision relating to a
change of control of the Parent or any of its Subsidiaries triggered by the
transactions contemplated by this Agreement or any Transaction Document.
Unless so noted in Section 4.14(a) of Parent's Disclosure Schedule, each such
Retained Business Material Contract was entered into in the ordinary course of
business. True, correct and complete copies of the Retained Business Material
Contracts, including all amendments and supplements, have been made available
to Seller. Each Retained Business Material Contract is valid and subsisting;
each of Parent and any Retained Subsidiary has duly performed in all material
respects all its obligations thereunder to the extent that such obligations to
perform have accrued; and no material breach or default, alleged material
breach or default, or event which would (with the passage of time, notice or
both) constitute a material breach or default thereunder by Parent or a
Retained Subsidiary, as the case may be (or, to the best knowledge of Parent,
any other party or obligor with respect thereto), has occurred or as a result
of this Agreement or its performance will occur. Except as set forth in
Section 4.14(a) of Parent's Disclosure Schedule, consummation of the
transactions contemplated by this Agreement will not (and will not give any
Person a right to) terminate or modify any rights of, or accelerate or augment
any obligation of, Parent or any Retained Subsidiary under any Retained
Business Material Contract.
(b) During the twelve months immediately prior to the date hereof, no
contract of the Retained Business with a customer that, but for its
cancellation or termination, would be deemed a Retained Business Material
Contract pursuant to clause (v) of Section 4.14(a), has been cancelled or
otherwise terminated and during such time, to the knowledge of Parent, no such
cancellation or termination has been threatened.
(c) Parent has delivered to Seller, pursuant to a letter dated September 30,
1997, (i) a complete list of client management accounts of the Retained
Business, as of August 22, 1997, (ii) each binding bid of Parent, with respect
to the Retained Business, or any Retained Subsidiary, providing for an
investment of $250,000 or more over the life of the proposed Contract and
(iii) an aging schedule of all accounts receivable of the Retained Business as
of August 15, 1997.
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Section 4.15. Taxes. Except as otherwise disclosed in Section 4.15 of
Parent's Disclosure Schedule:
(a) Parent and each of its Subsidiaries have filed (or have had filed on
their behalf) or will file or cause to be filed, all Tax Returns required by
applicable Law to be filed by any of them prior to the Effective Time, and all
such Tax Returns and amendments thereto are, or when filed will be, true,
complete and correct in all material respects.
(b) Parent and each of its Subsidiaries have paid (or have had paid on their
behalf) all Taxes due with respect to any period ending prior to or as of the
Effective Time, or where payment of Taxes is not yet due, have established (or
have had established on their behalf and for their sole benefit and recourse),
or will establish or cause to be established before the consummation of the
Effective Time, an adequate accrual for the payment of all such Taxes which
have accrued prior to the Effective Time other than Taxes directly
attributable to the transactions contemplated by the Distribution Agreement.
The accrual for Taxes set forth on the balance sheet of Parent at January 3,
1997 referenced in Section 4.8 hereof is adequate for the payment of all Taxes
accrued as of such date.
(c) There are no Encumbrances for any Taxes upon the properties or assets of
Parent or any of its Subsidiaries which properties or assets are used
primarily in the Retained Business, other than statutory liens for Taxes not
yet due and payable and Encumbrances for real estate Taxes being contested in
good faith.
(d) No Audit is pending with respect to any Taxes due from Parent or any of
its Subsidiaries relating to the Retained Business or the Retained
Subsidiaries. There are no outstanding waivers extending the statutory period
of limitation relating to the payment of Taxes due from Parent or any
Subsidiary for any taxable period ending on or prior to the Effective Time.
(e) Other than the Tax Sharing Agreement (as defined in Section 6.13),
neither Parent nor any Subsidiary is a party to, is bound by, or has any
obligation under, a tax sharing contract or other agreement or arrangement for
the allocation, apportionment, sharing, indemnification, or payment of Taxes.
(f) Neither Parent nor any of its Subsidiaries has made an election under
Section 341(f) of the Code.
(g) The statute of limitations for all Tax Returns of Parent and each of its
Subsidiaries for all years through 1991 have expired for all federal, state,
local and foreign tax purposes, or such Tax Returns have been subject to a
final Audit.
(h) Neither Parent nor any of its Subsidiaries has received any written
notice of any material deficiency, assessment or adjustment from the IRS or
any other domestic or foreign governmental taxing authority relating to the
Retained Business or the Retained Subsidiaries that has not been fully paid or
finally settled, and any such deficiency, adjustment or assessment shown on
such schedule is being contested in good faith through appropriate proceedings
and adequate reserves have been established on Parent's financial statements
therefor. To the best of Parent's knowledge, there are no material
deficiencies, assessments or adjustments threatened, pending or assessed with
respect to Parent or any of its Subsidiaries relating to the Retained Business
or the Retained Subsidiaries, other than those referred to in the immediately
preceding sentence.
Section 4.16. Labor Matters. Except as set forth in Section 4.16 of Parent's
Disclosure Schedule, neither Parent, Acquisition, nor any Retained Subsidiary
has, since December 31, 1996, in each case only with respect to the Retained
Business, (i) been subject to, or, to the knowledge of Parent, threatened
with, any material strike, lockout or other labor dispute or engaged in any
material unfair labor practice, or (ii) received written notice of any pending
petition for certification before the National Labor Relations Board with
respect to any material group of Retained Employees (as defined in the
Distribution Agreement) which is not currently organized.
Section 4.17. Accounting Records; Internal Controls. Each of Parent and the
Retained Subsidiaries have records that accurately and validly reflect its
transactions in respect of the Retained Business, and
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accounting controls sufficient to insure that such transactions are (i)
executed in accordance with management's general or specific authorization and
(ii) recorded in conformity with GAAP or with Canadian or English generally
accepted accounting principles, as the case may be, so as to maintain
accountability for assets.
Section 4.18. Insurance. Except as set forth in Section 4.18 of Parent's
Disclosure Schedule, with respect to the Retained Business only, Parent and
each Retained Subsidiary is, and at all times since its organization has been,
insured with reputable insurers (or self-insured) against all risks normally
insured against, and in such amounts as are customary, by companies in similar
lines of business, and all of the insurance policies and bonds required to be
maintained by Parent and each Retained Subsidiary are in full force and
effect. Section 4.18 of Parent's Disclosure Schedule lists all insurance
policies and bonds that are material to the Retained Business. Amounts
reserved for all risks covered by self-insurance on the Retained Business
Balance Sheet as of June 20, 1997 are reasonable and customary. Neither Parent
nor any Retained Subsidiary is in default in any material respect under any
such policy or bond. Each of Parent and each Retained Subsidiary has timely
filed claims with insurers with respect to all material matters and
occurrences relating to the Retained Business for which it has coverage. All
insurance policies maintained by Parent and each Retained Subsidiary relating
to the Retained Business will remain in full force and effect and may
reasonably be expected to be renewed (or replaced with comparable policies) on
reasonably comparable terms in favor of Parent following consummation of the
Merger (subject to such entities' continuing compliance with the applicable
terms thereof and any right of insurers to terminate without cause), and
neither Parent nor any Retained Subsidiary has received notice or other
indication from any insurer or agent of any intent to cancel or not so renew
any of such insurance policies.
Section 4.19. Permits. Each of Parent and the Retained Subsidiaries holds
all material Permits that are required by any Governmental Entity to permit it
to conduct the Retained Business as now conducted, and all such Permits are
valid and in full force and effect and will remain in full force and effect
upon consummation of the Merger, except for those Permits identified on
Section 4.19 of Seller's Disclosure Schedule. To the knowledge of Parent, no
suspension, cancellation or termination of any of such Permits is threatened
or imminent as a result of the transactions contemplated by this Agreement and
the Distribution Agreement or otherwise.
Section 4.20. Business Relationships. Section 4.20 of Parent's Disclosure
Schedule lists the names of and describes all Contracts with the three largest
distributors of goods and the ten largest producers of goods purchased by
Parent and the Retained Subsidiaries (by dollar volume for the most recently
ended fiscal year) with respect to the Retained Business. To the knowledge of
Parent, no material supplier or distributor is reasonably likely to cease
supplying or distributing, as the case may be, goods or services or
substantially reduce its supplies or distribution services in relation to the
Retained Business as a result of the consummation of this Agreement and the
transactions contemplated hereby.
Section 4.21. Environmental Compliance. Except as set forth in Section 4.21
of Parent's Disclosure Schedule:
(a) The Parent Real Property (as defined below) and the improvements thereon
and the soil and groundwater thereunder (i) do not contain and are not
contaminated by any Hazardous Material in violation of any Environmental Law;
(ii) do not contain any underground storage tanks in violation of any
Environmental Law; (iii) are not used in violation of any Environmental Law
for the generation, treatment, storage or disposal of any Hazardous Material,
or for mining, land filling, dumping or commercial petroleum product storage
purposes, or as a gasoline station or a dry cleaning establishment; (iv) have
not had any release of any Hazardous Material from, on, in or upon it that
would reasonably be expected to result in a material liability to the Retained
Business; and (v) have never been the subject of a remedial action or a lien
or encumbrance for an environmental problem. As used herein, "PARENT REAL
PROPERTY" means all assets of Parent or any Retained Subsidiary used in
connection with the Retained Business consisting of real property,
appurtenances thereto, rights in connection therewith, and any interest
therein, whether owned or leased.
(b) With respect to the Retained Business, Parent is in material compliance
with all Environmental Laws and has obtained and is in material compliance
with all permits required pursuant to Environmental Laws, and
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Parent has not received any notices, demands, requests for information,
complaints or orders, and no investigation, action, claim, suit or proceeding
is pending or threatened by any Governmental Entity, with respect to any
matters relating to Parent and relating to or arising out of any Environmental
Laws.
(c) There are no material liabilities of or relating to Parent with respect
to the Retained Business arising under or relating to any Environmental Law,
and to the best knowledge of Parent, there are no facts, conditions,
circumstances or situations which could reasonably be expected to result in or
be the basis for any such liability.
(d) Parent has delivered to the Seller true and complete copies of all
documents, notices, reports, studies, analyses, tests, permits and other
written materials identified in Section 4.21 of Parent's Disclosure Schedule
and any environmental reports or audits in the possession of Parent relating
to the Parent Real Property.
Section 4.22. Accounts Receivable. The accounts receivable of the Retained
Business were incurred in the ordinary course of business and are not subject
in the aggregate to material counterclaim or set-off.
Section 4.23. Transactions with Certain Persons. Except as set forth on
Section 4.23 of Parent's Disclosure Schedule and the Parent SEC Documents,
during the past three years Parent and the Retained Subsidiaries have not
purchased or leased any property or obtained any services from, or sold or
leased any property or furnished any services to (except with respect to
remuneration for services rendered as a director, officer or employee of
Parent or the Retained Subsidiaries), in the ordinary course of business or
otherwise, any Affiliate of Parent other than the Retained Subsidiaries, or
any of such Affiliates' respective officers, directors or employees, holders,
directly or indirectly, of 10 percent or more of their outstanding capital
stock, or, to the knowledge of Parent, any spouse, child or parent of any of
the foregoing.
Section 4.24. Certain Fees. Except as set forth on Section 4.24 of Parent's
Disclosure Schedule, neither Parent nor any of its Subsidiaries has employed
any financial advisor or finder or incurred any liability for any financial
advisory or finders' fees in connection with this Agreement or the
transactions contemplated hereby.
Section 4.25. Parent Rights Plan. The Board of Directors of Parent has taken
all action necessary to render the rights issued pursuant to the Rights
Agreement, dated as of October 8, 1993, as amended, between Parent and The
Bank of New York, as Rights Agent (the "PARENT RIGHTS PLAN"), inapplicable to
the Merger, this Agreement and the transactions contemplated hereby.
ARTICLE V
Representations and Warranties of Spinco
Spinco represents and warrants to Seller and Company as follows:
Section 5.1. Organization. Spinco is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as now being
conducted. Spinco is duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except in such jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not, when taken
together with all other such failures, have or reasonably be expected to have
a material adverse effect ("SPINCO MATERIAL ADVERSE EFFECT") on the ability of
Spinco to perform its obligations under or consummate the transactions
contemplated by this Agreement, the Distribution Agreement or any other
Transaction Document to which it is a party.
Section 5.2. Authority Relative to this Agreement. Spinco has full corporate
power and authority to execute and deliver this Agreement, the Distribution
Agreement and the Transaction Documents to which it is a party and, subject to
the Required Regulatory Approvals, to consummate the transactions contemplated
hereby
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and thereby. The execution and delivery of this Agreement, the Distribution
Agreement and the other Transaction Documents to which it is a party by
Spinco, and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by the Board of Directors of
Spinco and no other corporate proceedings on the part of Spinco are or will be
necessary to authorize this Agreement, the Distribution Agreement and the
other Transaction Documents to which it is a party or to consummate the
transactions contemplated hereby and thereby. This Agreement and the
Distribution Agreement each has been duly and validly executed and delivered
by Spinco and each constitutes a valid and binding agreement of Spinco, and
each other Transaction Document, when executed and delivered by the parties
thereto, will be a valid and binding agreement of Spinco, enforceable against
Spinco in accordance with their respective terms, except to the extent that
enforcement thereof may be limited by (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws, now
or hereafter in effect, relating to the creditors' rights generally and (b)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
Section 5.3. Consents and Approvals; No Violations.
(a) Except for the Required Regulatory Approvals, such filings and approvals
as may be required under the "takeover" or "blue sky" laws of various states,
and as disclosed in Section 4.4(a) of Parent's Disclosure Schedule or as
contemplated by this Agreement, no declaration, filing or registration with,
or notice to, or authorization, consent or approval of, any Governmental
Entity or any other Person is necessary for the execution and delivery of this
Agreement, the Distribution Agreement and the other Transaction Documents to
which it is a party by Spinco or the consummation by Spinco of the
transactions contemplated hereby and thereby, other than such declarations,
filings, registrations, notices, authorizations, consents or approvals which,
if not made or obtained, as the case may be, would not, in the aggregate, have
or reasonably be expected to have a Spinco Material Adverse Effect.
(b) Except as set forth in Section 4.4(b) of Parent's Disclosure Schedule,
the execution and delivery of this Agreement, the Distribution Agreement and
the other Transaction Documents to which Spinco is a party by Spinco and the
consummation by Spinco of the transactions contemplated hereby and thereby
will not, in any material respect, violate, conflict with or result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, or result in the creation of any
Encumbrance upon any of the properties or assets of Spinco or any of its
Subsidiaries under any of the terms, conditions or provisions of (i) the
charter or by-laws of Spinco, (ii) subject to obtaining the Required
Regulatory Approvals, any material Law applicable to Spinco or any of its
properties or assets or (iii) any material Contract to which Parent or any
Retained Subsidiary is a party that is intended to be included in the Spinco
Assets pursuant to the Distribution Agreement and that does not provide for
the release of Parent or such Retained Subsidiary from the obligations
thereunder upon the assignment thereof to Spinco or a Spinco Subsidiary.
ARTICLE VI
Covenants
Section 6.1. Conduct of Business of Company. Except as contemplated by this
Agreement or as specifically set forth in Schedule 6.1 of Seller's Disclosure
Schedule, during the period from the date of this Agreement to the Effective
Time, Seller will cause each Acquired Company and its Subsidiaries to conduct
its operations according to its ordinary course of business, consistent with
past practice, will use its commercially reasonable efforts to (i) preserve
intact its business organization, (ii) maintain its material rights and
franchises, (iii) keep available the services of its officers and key
employees, and (iv) keep in full force and effect insurance comparable in
amount and scope of coverage to that maintained as of the date hereof. Without
limiting the generality of and in addition to the foregoing, and except as
otherwise contemplated by this Agreement, neither Acquired Company nor any of
their Subsidiaries will, without the prior written consent of Parent;
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(a) amend its charter or by-laws (or other organizational documents);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities or, except as
required by law, amend any of the terms of any such securities or
agreements outstanding on the date hereof, except for (i) the issuance by
Company of Company Shares upon exercise of Company Options outstanding on
the date hereof and (ii) the granting of options upon cancellation of
existing options, so long as the aggregate number of options outstanding at
any time prior to the Effective Time does not exceed the number of options
outstanding on the date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeem or otherwise acquire any of its securities or any
securities of its Subsidiaries; provided, however, that each Acquired
Company (and its Subsidiaries) may, prior to the Effective Time, declare
and pay cash dividends in respect of their capital stock;
(d) (i) pledge or otherwise encumber shares of capital stock of either
Acquired Company or any of their Subsidiaries; or (ii) except in the
ordinary course of business consistent with past practices, (A) incur,
assume or prepay any long-term debt or incur, assume, or prepay any
obligations with respect to letters of credit or any material short-term
debt, unless after the incurrence or assumption thereof all such debt for
the Acquired Companies and their Subsidiaries does not in the aggregate
exceed $105 million; (B) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for any
material obligations of any other person except wholly owned Subsidiaries
of each Acquired Company; (C) make any material loans, advances or capital
contributions to, or investments in, any other Person; (D) change the
practices of either Acquired Company or its Subsidiaries with respect to
the timing of payments or collections; or (E) except as contemplated by
existing credit arrangements set forth on Seller's Disclosure Schedule,
mortgage or pledge any properties or assets of either Acquired Company or
any of its Subsidiaries or create or permit to exist any material
Encumbrance thereupon;
(e) except (i) for arrangements entered into in the ordinary course of
business consistent with past practices, (ii) as contemplated by this
Agreement with respect to the Company Options, or (iii) as required by Law,
enter into, adopt or materially amend or change the funding or accrual
practices of any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, pension, retirement, deferred compensation, employment,
severance or other employee benefit agreements, trusts, plans, funds or
other arrangements of or for the benefit or welfare of any employee of
either Acquired Company or any of its Subsidiaries (or any other person for
whom either Acquired Company or any of its Subsidiaries will have
liability), or (except for normal increases in the ordinary course of
business that are consistent with past practices) increase in any manner
the compensation or fringe benefits of any employee of either Acquired
Company or any of its Subsidiaries (or any other person for whom either
Acquired Company or any of its Subsidiaries will have liability) or pay any
benefit not required by any existing plan and arrangement (including the
granting of stock options, stock appreciation rights, shares of restricted
stock or performance units) or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(f) transfer, sell, lease, license or dispose of any lines of business,
Subsidiaries, divisions, operating units or facilities (other than
facilities currently closed or currently proposed to be closed) outside the
ordinary course of business or enter into any material commitment or
transaction outside the ordinary course of business;
(g) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the properties or assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any properties or assets of any other
Person (other than the purchase of properties or assets in the ordinary
course of business and consistent with past practice), in each case where
such action would be material to the Acquired Companies and their
Subsidiaries;
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(h) except as may be required by Law, take any action to terminate or
materially amend any of its pension plans or retiree medical plans with
respect to or for the benefit of any employee of either Acquired Company or
any of its Subsidiaries (or any other person for whom either Acquired
Company or any of its Subsidiaries will have liability);
(i) materially modify, amend or terminate any Acquired Company Material
Contract or waive any material rights or claims of either Acquired Company
or any of its Subsidiaries thereunder, except in the ordinary course of
business consistent with past practice; provided, that the provisions of
this Section 6.1(i) shall not apply to any arrangement, agreement or
contract proposal previously submitted by either Acquired Company or a
Subsidiary thereof which proposal, upon acceptance thereof, cannot be
revised or withdrawn;
(j) effect any material change in any of its methods of accounting in
effect as of August 31, 1996, except as may be required by Law or GAAP;
(k) enter into any Acquired Company Material Contract other than in the
ordinary course of business; or
(l) enter into a legally binding commitment with respect to, or any
agreement to take, any of the foregoing actions.
Section 6.2. Conduct of Retained Business. Except as contemplated by this
Agreement, the Distribution Agreement, the UK Stock Purchase Agreement or the
Benefits Allocation Agreement or as specifically set forth in Schedule 6.2 of
Parent's Disclosure Schedule, during the period from the date of this
Agreement to the Effective Time, Parent and the Retained Subsidiaries will
each conduct the Retained Business according to its ordinary course of
business, consistent with past practice, will use its commercially reasonable
efforts to (i) preserve intact the Retained Business organization, (ii)
maintain its material rights and franchises with respect to the Retained
Business, (iii) keep available the services of officers and key employees of
the Retained Business, and (iv) keep in full force and effect insurance
comparable in amount and scope of coverage to that maintained as of the date
hereof. Without limiting the generality of and in addition to the foregoing,
and except as otherwise contemplated by this Agreement, the Distribution
Agreement, the UK Stock Purchase Agreement or the Benefits Allocation
Agreement, neither Parent nor any Retained Subsidiary will, without the prior
written consent of Seller:
(a) amend its charter or by-laws (or other organizational documents);
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other securities or, except as
required by Law, amend any of the terms of any such securities or
agreements outstanding on the date hereof; except (i) as contemplated by
this Agreement, the Distribution Agreement and the other Transaction
Documents and (ii) pursuant to securities or agreements outstanding on the
date hereof;
(c) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its
capital stock or redeem or otherwise acquire any of its securities or any
securities of any Retained Subsidiary; provided, however, that Parent and
the Retained Subsidiaries may declare cash dividends in respect of their
capital stock;
(d) (i) pledge or otherwise encumber shares of capital stock of any
Retained Subsidiary; or (ii) except in the ordinary course of business
consistent with past practices, permit any Retained Subsidiary to (A)
incur, assume or prepay any long-term debt or incur, assume, or prepay any
obligations with respect to letters of credit or any material short-term
debt; (B) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for any material
obligations of any other person except wholly owned Retained Subsidiaries;
(C) make any material loans, advances or capital contributions to, or
investments in, any other Person; (D) change the practices of the Retained
Business with respect to the timing of payments or collections; or (E)
mortgage or pledge any properties and assets of the Retained Business or
any Retained Subsidiary or create or permit to exist any material
Encumbrance thereupon;
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(e) except (i) for arrangements entered into in the ordinary course of
business consistent with past practices, (ii) as contemplated in the
Benefits Allocation Agreement, or (iii) as required by Law, enter into,
adopt or materially amend or change the funding or accrual practices of any
bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreements, trusts, plans, funds or other arrangements of or for
the benefit or welfare of any Retained Employee (or any other person for
whom the Retained Business will have liability), or (except for normal
increases in the ordinary course of business that are consistent with past
practices) increase in any manner the compensation or fringe benefits of
any Retained Employee (or any other person for whom the Retained Business
will have liability) or pay any benefit not required by any existing plan
and arrangement (including the granting of stock options, stock
appreciation rights, shares of restricted stock or performance units) or
enter into any contract, agreement, commitment or arrangement to do any of
the foregoing;
(f) transfer, sell, lease, license or dispose of any lines of business,
Subsidiaries, divisions, operating units or facilities (other than
facilities currently closed or currently proposed to be closed) relating to
the Retained Business outside the ordinary course of business or enter into
any material commitment or transaction with respect to the Retained
Business outside the ordinary course of business;
(g) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the properties and assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any properties and assets of any
other Person (other than the purchase of properties and assets in the
ordinary course of business and consistent with past practice) that would
become part of the Retained Business, in each case where such action would
be material to the Retained Business;
(h) except as may be required by Law, take any action to terminate or
materially amend any of its pension plans or retiree medical plans with
respect to or for the benefit of Retained Employees or any other person for
whom the Retained Business will have liability;
(i) materially modify, amend or terminate any Retained Business Material
Contract or waive any material rights or claims of the Retained Business
thereunder, except in the ordinary course of business consistent with past
practice; provided, that the provisions of this Section 6.2(i) shall not
apply to any arrangement, agreement or contract proposal previously
submitted by Parent or a Subsidiary thereof which proposal, upon acceptance
thereof, cannot be revised or withdrawn;
(j) effect any material change in any of its methods of accounting in
effect as of January 3, 1997, except as may be required by Law or GAAP;
(k) enter into any Retained Business Material Contract other than in the
ordinary course of business; or
(l) enter into a legally binding commitment with respect to, or any
agreement to take, any of the foregoing actions.
Section 6.3. Acquisition Proposals.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, unless Seller shall otherwise agree in writing,
Parent shall not, and shall not authorize any officer, director or employee or
any investment banker, attorney, accountant or other agent, advisor or
representative of Parent or any of its Subsidiaries or Affiliates over which
it exercises control to, directly or indirectly, (i) initiate, solicit,
negotiate, encourage, or provide confidential information to facilitate the
making of any Acquisition Proposal (as defined in Section 6.3(b) hereof), (ii)
enter into any agreement with respect to any Acquisition Proposal or give any
approval of the type referred to in Section 6.3(b) with respect to any
Acquisition Proposal or (iii) participate in any discussions regarding any
Acquisition Proposal; provided, however, that, in response to any unsolicited
Acquisition Proposal, Parent and its Subsidiaries may (at any time prior to
the Parent Stockholder Approvals) furnish information concerning its business,
properties or assets to the Person (a "POTENTIAL ACQUIROR") making such
Acquisition Proposal and participate in negotiations with the Potential
Acquiror if (x) Parent's Board of Directors is advised by one or more of its
independent financial advisors that such Potential Acquiror has the
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financial wherewithal to consummate such a potential Acquisition Proposal, (y)
Parent's Board of Directors reasonably determines, after receiving advice from
Parent's financial advisor, that such Acquisition Proposal would involve
consideration to Parent's stockholders and other terms that taken as a whole
are superior to the Distribution and the Merger, and (z) based upon advice of
counsel to such effect, Parent's Board of Directors determines in good faith
that it is necessary to so furnish information and negotiate in order to
comply with its fiduciary duty to stockholders of Parent; provided, further,
that nothing herein shall prevent Parent's Board of Directors from taking, and
disclosing to Parent's stockholders, a position contemplated by Rules 14D-9
and 14e-2 promulgated under the Exchange Act with regard to any tender offer.
In the event Parent shall determine to provide any information as described
above, or shall receive any offer of the type referred to in this Section 6.3,
it shall promptly inform Seller orally or in writing as to the fact that
information is to be provided and shall furnish to Seller a description of the
material terms thereof. Parent will keep Seller informed of the status and
material details (including amendments or proposed amendments of any such
proposed Acquisition Proposal).
(b) For purposes of this Agreement, the term "ACQUISITION PROPOSAL" means
any bona fide proposal, in writing, made by a Person to acquire beneficial
ownership (as defined under Rule 13(d) of the Exchange Act), pursuant to a
merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer or exchange offer or similar transaction,
involving Parent, the Retained Subsidiaries or the Retained Business,
including any single or multi-step transaction or series of related
transactions (other than the transactions contemplated by this Agreement and
the Distribution Agreement) which is structured to permit such Person to
acquire beneficial ownership of any material portion of the assets of, or any
material portion of the equity interest in any of Parent, the Retained
Subsidiaries or the Retained Business; provided, however, that the term
"ACQUISITION PROPOSAL" shall not include any transaction or series of
transactions which relate solely to the businesses to be owned by Spinco and
the Spinco Subsidiaries following the Distribution so long as the consummation
of such transaction or transactions (x) would not reasonably be anticipated to
adversely affect or delay the consummation of the Merger, the Distribution or
the transactions contemplated hereby and (y) could not cause Spinco to cease
to be engaged in the conduct of the active trade or businesses relied upon for
the purposes of satisfying the requirements of Section 355(b) for purposes of
the ruling request described in Section 6.12.
(c) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, unless Parent shall otherwise agree in writing,
Seller shall not, and shall not authorize any officer, director or employee or
any investment banker, attorney, accountant or other agent, advisor or
representative of Seller, either Acquired Company or any of their respective
Subsidiaries or Affiliates over which they exercise control to, directly or
indirectly, (i) initiate, solicit, negotiate, encourage, or provide
confidential information to facilitate any Company Acquisition Proposal (as
defined in Section 6.3(d) hereof), (ii) enter into any agreement with respect
to any Company Acquisition Proposal or give any approval of the type referred
to in Section 6.3(d) with respect to any Company Acquisition Proposal or (iii)
participate in any discussions regarding any Company Acquisition Proposal.
(d) For purposes of this Agreement, the term "COMPANY ACQUISITION PROPOSAL"
means any bona fide proposal, in writing, made by a Person to acquire
beneficial ownership (as defined under Rule 13(d) of the Exchange Act),
pursuant to a merger, consolidation or other business combination, sale of
shares of capital stock, sale of assets, tender offer or exchange offer or
similar transaction, involving either Acquired Company or any of their
Subsidiaries, including any single or multi-step transaction or series of
related transactions (other than the transactions contemplated by this
Agreement and the Distribution Agreement) which is structured to permit such
Person to acquire beneficial ownership of any material portion of the assets
of, or any material portion of the equity interest in either Acquired Company
or any of their Subsidiaries.
Section 6.4. Access to Information.
(a) Between the date of this Agreement and the Effective Time, upon
reasonable notice and at reasonable times, and subject to any access,
disclosure, copying or other limitations imposed by applicable Law or any
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Contract of either Acquired Company or their Subsidiaries, each Acquired
Company will give Parent and/or Acquisition and their authorized
representatives reasonable access to all offices and other facilities of each
Acquired Company and to all books and records of each Acquired Company and its
Subsidiaries, and will permit Parent and Acquisition to make such inspections
as they may reasonably require, and will cause its officers and those of its
Subsidiaries to furnish Parent and Acquisition with such financial and
operating data and other information with respect to such Acquired Company and
its Subsidiaries as Parent or Acquisition may from time to time reasonably
request. Parent, Acquisition and their authorized representatives will conduct
all such inspections in a manner which will minimize any disruptions of the
business and operations of each Acquired Company and its Subsidiaries.
(b) Between the date of this Agreement and the Effective Time, upon
reasonable notice and at reasonable times, and subject to any access,
disclosure, copying or other limitations imposed by applicable Law or any of
Parent's or the Retained Subsidiaries' contracts, Parent will give Seller,
Company and their authorized representatives reasonable access to all offices
and other facilities of Parent and the Retained Subsidiaries and to all books
and records of Parent and the Retained Subsidiaries that relate to the
Retained Business, and will permit Seller and Company to make such inspections
as they may reasonably require, and will cause its officers and those of the
Retained Subsidiaries to furnish Seller and Company with such financial and
operating data and other information with respect to Parent and the Retained
Subsidiaries as Seller or Company may from time to time reasonably request, so
long as such information and inspections relate solely to the Retained
Business. Seller, Company and their authorized representatives will conduct
all such inspections in a manner which will minimize any disruptions of the
business and operations of Parent and the Retained Subsidiaries. For purposes
of this Section 6.4(b), information that relates to the Retained Business
shall be deemed to include portions of the Tax Returns filed by Parent and its
Subsidiaries relating to the Retained Business and books and records relating
thereto and such other information relating to Taxes and Tax Returns as would
be available to Parent under the terms of the Tax Sharing Agreement if it were
in effect on the date hereof in the form attached hereto as Exhibit C.
(c) Parent, Spinco, Acquisition, Seller and Company agree that the
provisions of the Confidentiality Agreement dated as of July 17, 1997 (the
"CONFIDENTIALITY AGREEMENT") by and between Parent and Seller shall remain
binding and in full force and effect and that the terms of the Confidentiality
Agreement are incorporated herein by reference; provided that (x) actions
taken by Parent, Seller and their Subsidiaries that are permitted by Section
2.01(a) of the Benefits Allocation Agreement shall be deemed not to breach the
Confidentiality Agreement and (y) the second full paragraph on page 5 thereof
is superseded by the terms hereof (and therefore is of no further force or
effect). Prior to the Effective Time, Parent will assign its rights and
obligations with respect to Spinco and the Spinco Business under the
Confidentiality Agreement to Spinco, which assignment is hereby consented to
by Seller.
Section 6.5. Reasonable Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to use all commercially
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things reasonably necessary, proper or advisable under
applicable Laws to consummate and make effective the transactions contemplated
by this Agreement and the Distribution Agreement (including (i) cooperating in
the preparation and filing of the Proxy Statement, the Form 10 (or any
registration statement contemplated pursuant to Article III of the
Distribution Agreement), and any amendments to any thereof; (ii) taking of all
action reasonably necessary, proper or advisable to secure any necessary
consents or waivers from any Governmental Entity or other Person; (iii)
contesting any pending legal proceeding relating to the Merger or the
Distribution; and (iv) executing any additional instruments necessary to
consummate the transactions contemplated hereby and thereby). In case at any
time after the Effective Time any further action is necessary to carry out the
purposes of this Agreement, the proper officers and directors of each party
hereto shall use all reasonable efforts to take all such necessary action.
Section 6.6. Consents. Each of Parent, Spinco, Acquisition, Seller and
Company shall cooperate and use their respective reasonable efforts to make
all filings and obtain all consents and approvals of governmental
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authorities and other third parties, including collective bargaining
representatives, necessary to consummate the transactions contemplated by this
Agreement and the Distribution Agreement. Each of the parties hereto will
furnish to the other party such necessary information and reasonable
assistance as such other persons may reasonably request in connection with the
foregoing.
Section 6.7. Antitrust Filings.
(a) In addition to and without limiting the agreements contained in Section
6.6 and under the UK Stock Purchase Agreement, Parent, Spinco, Acquisition,
Seller and Company will (i) take promptly all actions necessary to make the
filings required of Parent, Seller or any of their affiliates under the
applicable Antitrust Laws (as defined below), (ii) comply at the earliest
practicable date with any request for additional information or documentary
material received by Parent, Seller or any of their affiliates from the
Federal Trade Commission or the Antitrust Division of the Department of
Justice pursuant to the HSR Act and from the Commission or other foreign
governmental or regulatory authority pursuant to Antitrust Laws, and (iii)
cooperate with the other parties hereto in connection with any filing under
applicable Antitrust Laws and in connection with resolving any investigation
or other inquiry concerning the transactions contemplated by this Agreement or
the Distribution Agreement commenced by any of the Federal Trade Commission,
the Antitrust Division of the Department of Justice, the OFT, state attorneys
general, the Commission or other foreign governmental or regulatory
authorities ("ANTITRUST AUTHORITIES"). As used herein, "ANTITRUST LAW" means
the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, and all other federal, state and
foreign statutes, rules, regulations, orders, decrees, administrative and
judicial doctrines, and other Laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade.
(b) In furtherance and not in limitation of the covenants contained in
Section 6.6 and Section 6.7(a) hereof and under the UK Stock Purchase
Agreement, Parent, Spinco, Acquisition, Seller and Company shall each use all
reasonable efforts to resolve such objections, if any, as may be asserted with
respect to the Distribution, the Merger or any other transactions contemplated
by this Agreement or the Distribution Agreement under any Antitrust Law. If
any administrative, judicial or legislative action or proceeding is instituted
(or threatened to be instituted) challenging the Distribution, the Merger or
any other transactions contemplated by this Agreement or the Distribution
Agreement as violative of any Antitrust Law, Parent, Acquisition, Seller and
Company shall each take all reasonable action as may be required by the
applicable Antitrust Authority in order to resolve such objections as such
Antitrust Authority may have to such transactions under any Antitrust Law, so
long as such actions would not reasonably be expected to adversely affect in a
substantial way the benefits and opportunities that any party reasonably
expects to receive from the transactions contemplated by this Agreement and
the Distribution Agreement.
(c) Each of Parent, Spinco, Acquisition, Seller and Company shall promptly
(i) inform the other parties of any material communication received by such
party from any Antitrust Authority regarding any of the transactions or
filings contemplated hereby and (ii) advise the other parties with respect to
any understanding, undertaking or agreement (whether oral or written) which
such party proposes to make or enter into with any of the foregoing parties
with regard to any of the transactions contemplated hereby.
Section 6.8. Public Announcements. Parent, Spinco, Acquisition, Seller and
Company will consult with each other before issuing any press release or
otherwise making any public statements with respect to the Distribution or the
Merger and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by Law or by
obligations pursuant to any listing agreement with any securities exchange. If
any party issues a release or public statement, it shall promptly provide a
copy thereof to the other parties.
Section 6.9. Financial Statements.
(a) For the periods following the date hereof, Seller and Company will make
available to Parent and Acquisition as soon as available unaudited combined
balance sheets for the Acquired Companies and their
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Subsidiaries for each fiscal quarter and the related unaudited consolidated
statements of operations and cash flows and changes in stockholder's equity
for the periods then ended. All such financial statements shall be prepared in
conformity with GAAP applied on a consistent basis except for changes, if any,
required by GAAP and disclosed therein. The statements of operations and cash
flows shall present fairly the results of operations and cash flows of the
Acquired Companies and their Subsidiaries for the respective periods covered,
and the balance sheets shall present fairly in all material respects the
financial condition of the Acquired Companies and their Subsidiaries as of
their respective dates. All such interim financial statements shall reflect
all adjustments (which, except as otherwise indicated on such financial
statements, consist only of normal recurring adjustments not material in
amount and include estimated provisions for year-end adjustments) necessary
for a fair presentation.
(b) For the periods following the date hereof, Parent and Acquisition will
make available to Seller and Company as soon as available unaudited
consolidated balance sheets for the Retained Business for each fiscal quarter
and the related unaudited consolidated statements of operations and cash flows
and changes in stockholder's equity for the periods then ended. All such
financial statements shall be prepared in conformity with GAAP applied on a
consistent basis except for changes, if any, required by GAAP and disclosed
therein. The statements of operations and cash flows shall present fairly the
results of operations and cash flows of the Retained Business for the
respective periods covered, and the balance sheets shall present fairly in all
material respects the financial condition of the Retained Business as of their
respective dates. All such interim financial statements shall reflect all
adjustments (which, except as otherwise indicated on such financial
statements, consist only of normal recurring adjustments not material in
amount and include estimated provisions for year-end adjustments) necessary
for a fair presentation.
Section 6.10. Registration of Spinco Shares. If Parent reasonably determines
that the Distribution may not be effected without registering the shares of
common stock of Spinco to be distributed in the Distribution pursuant to the
Securities Act, Parent, as promptly as practicable, shall use its efforts to
cause the shares of Spinco to be registered pursuant to the Securities Act and
thereafter effect the Distribution in accordance with the terms of the
Distribution Agreement including by preparing and filing on an appropriate
form a registration statement under the Securities Act covering the shares of
Spinco and using commercially reasonable efforts to cause such registration
statement to be declared effective and preparing and making such other filings
as may be required under applicable state securities laws.
Section 6.11. Stockholders' Approval. Parent shall, in accordance with
applicable Law, its Certificate of Incorporation and its By-laws:
(a) duly call, give notice of, convene and hold a special meeting of its
stockholders for the purpose of considering and taking action upon this
Agreement;
(b) subject to its fiduciary duties under applicable Law, include in the
Proxy Statement prepared for distribution to stockholders of Parent in
advance of the stockholders' meeting in accordance with Regulation 14C
promulgated under the Exchange Act a recommendation of its Board of
Directors that the Merger and the Distribution are in the best interests of
the stockholders of Parent and recommending approval and adoption of this
Agreement and the Merger; and
(c) prepare and file with the SEC the Proxy Statement, respond promptly
to any comments made by the SEC with respect to the Proxy Statement and any
preliminary version thereof, cause the Proxy Statement to be mailed to its
stockholders and, subject to its fiduciary duties under applicable Law, use
its best efforts to obtain the necessary approvals of this Agreement by its
stockholders.
Seller and Company will provide Parent with the information concerning Seller
and each Acquired Company required to be included in the Proxy Statement.
Section 6.12. Tax Ruling. Parent, Spinco, Acquisition, Seller and Company
shall promptly prepare and submit to the IRS a private letter ruling request
seeking confirmation that the transactions contemplated by the Distribution
Agreement and this Agreement qualify as a tax-free transaction under Sections
355 and 368 of the Code. The receipt of such a private letter ruling is a
condition to the obligations of the parties hereunder. Each
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party agrees and acknowledges that the receipt of such a private letter ruling
may be conditioned on the making of additional representations to the IRS, on
one or more party's acceptance of and agreement to certain covenants which may
restrict such party's future activities, on changes to certain rights and
obligations of the parties hereunder, or on changes to certain aspects of the
structure of the transactions contemplated by the Distribution Agreement and
this Agreement (including the Corporate Governance Arrangements set forth in
Exhibit D hereto (the "CORPORATE GOVERNANCE ARRANGEMENTS")). Each party agrees
to consider any such proposed representations, covenants or changes in good
faith and to agree thereto unless so agreeing would be reasonably likely (x)
to deprive such party of benefits that are a material portion of the benefits
expected to be derived by such party and its Affiliates following the
Distribution from the transactions contemplated by the Distribution Agreement
and this Agreement or (y) to inflict upon such party burdens or risks that are
material in comparison to the benefits expected to be derived by such party
and its Affiliates following the Distribution from such transactions; provided
that the parties shall have agreed upon any adjustments to the terms and
conditions of the transactions contemplated hereby that are reasonably
necessary in order to reflect, to the extent practicable, the economic effect
of any such proposed representations, covenants or changes that have a
reasonably identifiable economic effect on the transactions contemplated in
this Agreement. The parties agree to negotiate any such adjustments in good
faith.
Section 6.13. Tax Sharing Agreement. Attached hereto as Exhibit C is a form
of Tax Sharing and Indemnification Agreement (the "TAX SHARING AGREEMENT") to
which the parties have agreed and which, subject to the next two sentences,
the parties agree to execute on or prior to the Closing Date. Such form of Tax
Sharing Agreement may require modification in light of the final
representations and warranties made to the IRS in support of such private
letter ruling and of any changes to the transaction made pursuant to Section
6.12. The parties agree to make such modifications to the form of Tax Sharing
Agreement as are necessary (x) to reflect such representations and warranties
and any such changes, (y) to include covenants not to cause such
representations and warranties to be untrue and (z) to provide indemnification
consistent with the existing form of Tax Sharing Agreement for breaches of
such representations, warranties and covenants and for any failure of the same
to be true or to be performed.
Section 6.14. Notices of Certain Events. (a) Seller and Company shall
promptly notify Parent and Acquisition of (i) any notice or other
communication from any Person alleging that the consent of such Person is or
may be required in connection with the transactions contemplated by this
Agreement, (ii) any notice or other communication from any Governmental Entity
in connection with the transactions contemplated by this Agreement and (iii)
any actions, suits, claims, investigations or proceedings commenced or, to the
knowledge of Seller and Company, threatened against, relating to or involving
or otherwise affecting either Acquired Company or any Subsidiary of either
Acquired Company that, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 3.11 or that relate
to the consummation of the transactions contemplated by this Agreement, and
(b) Parent and Acquisition shall promptly notify Seller and Company of (i) any
notice or other communication from any Person alleging that the consent of
such Person is or may be required in connection with the transactions
contemplated by this Agreement, (ii) any notice or other communication from
any Governmental Entity in connection with the transactions contemplated by
this Agreement and (iii) any actions, suits, claims, investigations or
proceedings commenced or, to the knowledge of Parent and Acquisition,
threatened against, relating to or involving or otherwise affecting Parent or
any Retained Subsidiary that, if pending on the date of this Agreement, would
have been required to have been disclosed pursuant to Section 4.11 or that
relate to the consummation of the transactions contemplated by this Agreement.
Section 6.15. Transaction Documents. Simultaneously with the execution
hereof, Parent and certain of its Subsidiaries are entering into the
Distribution Agreement, the Omnibus Agreement and certain other Transaction
Documents. The parties acknowledge that other Transaction Documents are not
being entered into on the date hereof but instead either (i) have been
negotiated and are attached as exhibits or schedules to either this Agreement
or the Distribution Agreement or (ii) have their principal terms set forth in
term sheets attached as exhibits or schedules to either this Agreement or the
Distribution Agreement. The execution and delivery of all such other
Transaction Documents are conditions to the consummation of the transactions
contemplated
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hereby and by the Transaction Documents. Therefore, the parties shall
negotiate in good faith to finalize definitive documentation for all
Transaction Documents as soon as reasonably practicable and either (x) execute
such Transaction Documents, which would become effective upon consummation of
the Merger, or (y) execute such Transaction Documents immediately prior to the
consummation of the Merger. It is the intent of the parties that all such
Transaction Documents be finalized by November 1, 1997. The failure of any
party to comply with the provisions of this Section 6.15 shall not excuse such
party from its obligations under this Agreement or the Omnibus Agreement to
consummate the transactions contemplated hereby or thereby.
Section 6.16. Retention of Auditors. Prior to the Effective Time, Parent
will cause Price Waterhouse LLP to be appointed as its auditors, on customary
and arms-length terms and conditions, so long as Price Waterhouse LLP
satisfies requirements of applicable law. For the avoidance of doubt, the
provisions of this Section 6.16 shall not impact the procedures set forth in
Exhibit A hereto or in Section 2.8(f) of the Distribution Agreement.
Section 6.17. Termination or Redemption of Parent Rights Plan. At Seller's
request, Parent shall take all actions necessary to enter into amendments to
the Parent Rights Plan, the effect of which would be to terminate the Parent
Rights Plan or cause the rights issued under the Parent Rights Plan to be
extinguished, canceled, redeemed or otherwise made inapplicable; provided that
any costs incurred in redeeming any such rights shall be borne by Seller.
ARTICLE VII
Conditions to Consummation of the Merger
Section 7.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger is subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) This Agreement and the Distribution Agreement shall have been adopted
by the affirmative vote of the stockholders of Parent by the requisite vote
in accordance with applicable Law;
(b) No statute, rule, regulation, order, decree or injunction shall have
been enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits the consummation of the Distribution, the Merger or the
transactions contemplated hereby;
(c) Any waiting period applicable to the Merger under the Antitrust Laws
shall have terminated or expired and all other Required Regulatory
Approvals shall have been received;
(d) Parent shall have received a favorable IRS ruling on qualification of
the transactions contemplated by the Distribution Agreement, in form and
substance reasonably satisfactory to Parent and Seller, subject to the
provisions of Section 6.12; and
(e) The closing under the UK Stock Purchase Agreement shall have
occurred.
Section 7.2. Conditions to the Obligation of Seller and Company to Effect
the Merger. The obligation of Seller and Company to effect the Merger is
further subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) The representations and warranties of Parent, Acquisition and Spinco
contained in this Agreement (without giving effect in any such
representation or warranty to any materiality or Parent Material Adverse
Effect standard, qualification or exception contained therein) shall be
true at and as of the Effective Time with the same effect as though made at
and as of such time (except for representations and warranties which speak
as of a different date, which shall be true as of such date); provided,
however, that the representations and warranties of Parent, Acquisition and
Spinco need not be true, correct and complete at and as of the Effective
Time (or at such different date) so long as such representations and
warranties which are not true, correct or complete at and as of the
Effective Time (taken together but without giving effect to any
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materiality or Parent Material Adverse Effect standard, qualification or
exception contained therein) would not, in the aggregate, have a material
adverse effect on the business, operations, properties, assets, conditions
(financial or otherwise) or results of operations of Company and the
Retained Business, taken as a whole (a "COMBINED BUSINESS MATERIAL ADVERSE
EFFECT"); and provided further that, if the transactions contemplated by
the UK Stock Purchase Agreement are consummated, the representations and
warranties of Parent, Acquisition and Spinco at and as of the Effective
Time will be deemed not to include representations and warranties
concerning MMS UK and its business and operations;
(b) Each of Parent, Spinco and Acquisition shall have (x) performed in
all material respects its obligations under this Agreement (including
Section 6.15 hereof) that are required to be performed by it at or prior to
the Effective Time pursuant to the terms hereof, (y) executed and delivered
any Transaction Document to which it is a party in the form (or according
to the terms) contemplated by this Agreement and the Distribution Agreement
(with only such changes as have been approved by Seller in its reasonable
discretion) and (z) performed in all material respects its obligations
under each such Transaction Document that are required to be performed by
it at or prior to the Effective Time pursuant to the terms thereof;
(c) Each of Parent, Acquisition and Spinco will furnish Seller and
Company with such certificates and other documents to evidence the
fulfillment of the conditions set forth in this Section 7.2 as Seller and
Company may reasonably request;
(d) Each of Parent, Acquisition and Spinco shall deliver to Seller and
Company the following with respect to Parent, Acquisition or Spinco, as the
case may be, each, unless otherwise noted, dated as of the Effective Time:
(i) Certified copies of the Certificate of Incorporation of such
Person, together with a good standing certificate from the Secretary of
State of its jurisdiction of incorporation and each other state in
which such Person is qualified as a foreign corporation to do business
and, to the extent generally available, a certificate or other evidence
of good standing as to payment of any applicable franchise or similar
taxes from the appropriate taxing authority of each of such
jurisdictions, each dated a recent date prior to the Effective Time;
(ii) Copies of the By-laws of such Person, certified as of the
Effective Time by such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of this
Agreement and, if applicable, the Transaction Documents, certified as
of the Effective Time by the corporate secretary or an assistant
secretary of such Person as being in full force and effect without
modification or amendment; and
(iv) Signature and incumbency certificates of the officers of such
Person executing the Agreement and the Transaction Documents;
(e) Other than consents and approvals that relate solely to the Retained
Business, any third party consents and approvals required to be set forth
at Section 4.4(b) of Parent's Disclosure Schedule (whether or not actually
set forth at such Section) that are still required shall have been
received, unless Seller and Spinco shall have entered into arrangements
satisfactory to Seller with respect to any such third party consents and
approvals that have not been received;
(f) All of the capital stock of MMS Canada shall be held directly by
Parent;
(g) The Board of Directors of Parent will have taken all action necessary
to render the rights issued pursuant to the terms of the Parent Rights Plan
inapplicable to the Merger, this Agreement and the transactions
contemplated hereby; and
(h) The Distribution shall have been consummated in accordance with the
terms of the Distribution Agreement (which shall not have been amended
without the consent of Seller, such consent not to be unreasonably
withheld) and each supplemental indenture contemplated by Section 2.8 of
the Distribution Agreement that is required to be entered into pursuant to
such Section shall be in form and substance reasonably satisfactory to
Seller.
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Section 7.3. Conditions to Obligations of Parent, Spinco and Acquisition to
Effect the Merger. The obligations of Parent, Spinco and Acquisition to effect
the Merger are further subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) The representations and warranties of Seller and Company contained in
this Agreement (without giving effect in any such representation or
warranty to any materiality or Company Material Adverse Effect standard,
qualification or exception contained therein) shall be true at and as of
the Effective Time with the same effect as though made at and as of such
time (except for representations and warranties which speak as of a
different date, which shall be true as of such date); provided however,
that the representations and warranties of Seller and Company need not be
true at and as of the Effective Time (or at such different date) so long as
such representations and warranties which are not true at and as of the
Effective Time (taken together but without giving effect to any materiality
or Company Material Adverse Effect standard, qualification or exception
contained therein) shall not constitute a Combined Business Material
Adverse Effect;
(b) Each of Seller and Company shall have (x) performed in all material
respects its obligations under this Agreement (including Section 6.15
hereof) that are required to be performed by it at or prior to the
Effective Time pursuant to the terms hereof, (y) executed and delivered any
Transaction Document to which it is a party in the form (or according to
the terms ) contemplated by this Agreement and the Distribution Agreement
(with only such changes as have been approved by Parent in its reasonable
discretion) and (z) performed in all material respects its obligations
under each such Transaction Document that are required to be performed by
it at or prior to the Effective Time pursuant to the terms thereof;
(c) Each of Seller and Company will furnish Parent and Acquisition with
such certificates and other documents to evidence the fulfillment of the
conditions set forth in this Section 7.3 as Parent or Acquisition may
reasonably request;
(d) Each of Seller and Company shall deliver to Parent, Spinco and
Acquisition the following with respect to Seller and Company, as the case
may be, each, unless otherwise noted, dated as of the Effective Time:
(i) Certified copies of the Certificate of Incorporation of each
Acquired Company together with a good standing certificate from the
Secretary of State of its jurisdiction of incorporation and each other
state in which each Acquired Company is qualified as a foreign
corporation to do business and, to the extent generally available, a
certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing
authority of each of such jurisdictions, each dated a recent date prior
to the Effective Time;
(ii) Copies of the By-laws of each Acquired Company, certified as of
the Effective Time by such Acquired Company's corporate secretary or an
assistant secretary;
(iii) Resolutions of the Board of Directors of such Person approving
and authorizing the execution, delivery and performance of the
Agreement, and, if applicable, the Transaction Documents, certified as
of the Effective Time by the corporate secretary or an assistant
secretary of such Person as being in full force and effect without
modification or amendment; and
(iv) Signature and incumbency certificates of the officers of such
Person executing the Agreement;
(e) Other than consents and approvals that relate solely to the Retained
Business, any third party consents and approvals required to be set forth
at Section 3.4(b) of Seller's Disclosure Schedule (whether or not actually
set forth at such Section) that are still required shall have been
received;
(f) The Distribution shall have been consummated in accordance with the
terms of the Distribution Agreement; and
(g) Any Contracts between Seller or any of its Affiliates and any
Acquired Company or any of their Affiliates relating to the matters covered
by the Assistance Agreement attached hereto as Exhibit E-1 and the Royalty
Agreement Term Sheet attached hereto as Exhibit E-2 shall have been
terminated.
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ARTICLE VIII
Termination; Amendment; Waiver
Section 8.1. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time (notwithstanding approval of the Merger by the
stockholders of Parent, Acquisition or Company) prior to the Effective Time:
(a) by mutual written consent of Parent, Acquisition, Spinco, Seller and
Company;
(b) by Parent, Acquisition, Spinco, Seller or Company if any court of
competent jurisdiction or other Governmental Entity shall have issued a
final order, decree or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the consummation of the Distribution or
the Merger and such order, decree, ruling or other action is or shall have
become nonappealable;
(c) by Seller or Company if there shall have been a breach of any
covenant in this Agreement or any Transaction Document on the part of
Parent, Spinco or Acquisition which (x) materially adversely affects (or
materially delays) the consummation of the Merger and the other
transactions contemplated hereby or thereby and (y) has not been cured
prior to 30 days following notice of such breach;
(d) by the Parent, Spinco or Acquisition if there shall have been a
breach of any covenant in this Agreement or any Transaction Document on the
part of Seller or Company which (x) materially adversely affects (or
materially delays) the consummation of the Merger and the other
transactions contemplated hereby or thereby and (y) has not been cured
prior to 30 days following notice of such breach;
(e) by Parent, Spinco, Acquisition, Seller or Company if stockholders of
Parent fail to approve and adopt the Distribution, the Merger and the other
transactions contemplated hereby at the meeting called for such purpose (or
any adjournment thereof);
(f) by Parent, if (i) the Board of Directors of Parent shall have
determined in good faith, based on the advice of outside counsel, that it
is necessary, in order to comply with its fiduciary duties to Parent's
stockholders under applicable law, to terminate this Agreement to enter
into an agreement with respect to or to consummate a transaction
constituting a Superior Proposal (as defined below), (ii) Parent shall have
given notice to Seller advising Seller that Parent has received a Superior
Proposal from a third party, specifying the material terms and conditions
(including the identity of the third party), and that Parent intends to
terminate this Agreement in accordance with this Section 8.1(f) and (iii)
either (A) Seller shall not have revised its Acquisition Proposal within
ten days from the time on which such notice is deemed to have been given to
Seller, or (B) if Seller within such period shall have revised its
Acquisition Proposal, the Board of Directors of Parent, after receiving
advice from Parent's financial advisor, shall have determined in its good
faith reasonable judgment that the third party's Acquisition Proposal is
superior to Seller's revised Acquisition Proposal;
(g) by Parent, Spinco, Acquisition, Seller or Company if the consummation
of the Merger has not occurred by June 30, 1998;
(h) by Parent, Spinco, or Acquisition if a condition to closing set forth
in Section 7.1 or Section 7.3 becomes incapable of being satisfied; or
(i) by Seller or Company if a condition to closing set forth in Section
7.1 or Section 7.2 becomes incapable of being satisfied.
As used herein, the term "SUPERIOR PROPOSAL" means an Acquisition Proposal by
a Person which the Board of Directors of Parent determines in its good faith
reasonable judgment to be more favorable to Parent's stockholders than the
Distribution and the Merger (based on advice of Parent's independent financial
advisor that the value of the consideration provided for in such proposal is
superior to the value of the consideration provided for in the Merger and the
other transactions contemplated hereby), for which financing, to the extent
required, is then committed and for which Parent's Board of Directors
determines, in its good faith reasonable judgment, that such proposed
transaction is reasonably likely to be consummated without undue delay.
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Section 8.2. Effect of Termination. Except as specified in Section 9.12, in
the event of the termination and abandonment of this Agreement pursuant to
Section 8.1, this Agreement shall forthwith become void and have no effect,
without any liability on the part of any party hereto or its affiliates,
directors, officers or shareholders, other than the provisions of this Section
8.2 and Article IX hereof. Nothing contained in this Section 8.2 shall relieve
any party from liability for any breach of any agreement or covenant contained
in this Agreement or any Transaction Document.
Section 8.3. Amendment. This Agreement may be amended by an instrument
executed by Parent, Spinco, Acquisition, Seller and Company at any time before
or after adoption of the Merger by the stockholders of Parent.
Section 8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions of the other parties
hereto contained herein. Any agreement on the part of any party to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE IX
Miscellaneous
Section 9.1. Survival. Except as otherwise expressly set forth in the
Distribution Agreement or another Transaction Document, the representations,
warranties, covenants and agreements made herein shall not survive beyond the
Effective Time; provided that the covenants and agreements contained in
Sections 6.5, 6.6 and 6.10 hereof shall survive beyond the Effective Time
without limitation.
Section 9.2. Entire Agreement. Except for the provisions of the
Confidentiality Agreement which shall continue in full force and effect as
modified hereby, this Agreement and the Transaction Documents (including the
schedules and exhibits referred to herein and therein) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior negotiations, commitments, agreements and
understandings, both written and oral, between the parties or any of them with
respect to the subject matter hereof.
Section 9.3. Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York (regardless of
the Laws that might otherwise govern under applicable principles of conflicts
Law) as to all matters, including matters of validity, construction, effect,
performance and remedies.
Section 9.4. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon (a) confirmation of receipt of a
facsimile transmission, (b) confirmed delivery by a standard overnight carrier
or when delivered by hand or (c) the expiration of five Business Days (or
seven Business Days if from the United States to France or vice versa) after
the day when mailed by certified or registered mail, postage prepaid,
addressed at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to Parent, Spinco or Acquisition, to:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Chief Financial Officer
Telecopy: 301/380-8150
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with a copy to:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: General Counsel
Telecopy: 301/380-6727
and a copy to:
O'Melveny & Myers LLP
555 13th Street, N.W.
Washington, D.C. 20004
Attention: Jeffrey J. Rosen
Telecopy: 202/383-5414
(b) If to Seller or Company, to:
Sodexho Alliance, S.A.
3, Avenue Newton
78180 Montigny--le--Bretonneux
France
Attention: Denis Robin
Telecopy: 011-331-3085-5088
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Paul R. Kingsley
Telecopy: 212/450-4800
As used in this Agreement, "BUSINESS DAY" means any calendar day which is not
a Saturday, Sunday or a public holiday under the laws of New York or Maryland.
Section 9.5. Successors and Assigns; No Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either party (whether by operation
of law or otherwise) without the prior written consent of the other party.
Notwithstanding the preceding sentence or anything in any Transaction Document
to the contrary, prior to consummation of the transactions contemplated
hereby, Spinco may assign its rights and obligations hereunder and under the
other Transaction Documents to any wholly-owned U.S. subsidiary of Parent
other than a Retained Subsidiary, which wholly owned subsidiary shall,
following the Distribution, own all of the assets of Parent and its
Subsidiaries (including shares of capital stock of Subsidiaries and any other
ownership interests in any Person) other than the Retained Business. In the
event of such an assignment and assumption, the assignor shall be released
from all of its obligations under this Agreement and the assignee shall become
Spinco for all purposes under this Agreement and the Transaction Documents.
This Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any rights, benefits or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 9.6. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument.
Section 9.7. Interpretation. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement. For all
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purposes of this Agreement, except as otherwise expressly provided, (i) the
enumeration of one or more items following the term "including" shall not be
interpreted as excluding any items not so enumerated, (ii) defined terms shall
include the plural as well as the singular, (iii) all references to
"Articles," "Sections" or other subdivisions are to designated Articles,
Sections and other subdivisions of the body of this Agreement, (iv) pronouns
of either gender or neuter shall include, as appropriate, the other pronoun
forms, and (v) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision. References to the "knowledge" or "best
knowledge" of Parent, Acquisition or any Subsidiary of Parent shall mean (and
be limited) to the actual knowledge of the individuals identified in Section
9.7 of Parent's Disclosure Schedule. References to the "knowledge" or "best
knowledge" of Seller, Company, or any Subsidiary of Seller shall mean (and be
limited) to the actual knowledge of the individuals identified in Section 9.7
of Seller's Disclosure Schedule.
Section 9.8. Schedules. The Schedules hereto shall be construed with and as
an integral part of this Agreement to the same extent as if the same had been
set forth verbatim herein.
Section 9.9. Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without affecting the validity or enforceability of the
remaining provisions hereof. Any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction. If any provision of this Agreement is so broad as to
be unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 9.10. Specific Performance. Each of the parties hereto acknowledges
and agrees that in the event of any breach of this Agreement, each non-
breaching party would be irreparably and immediately harmed and could not be
made whole by monetary damages. It is accordingly agreed that the parties
hereto (a) will waive, in any action for specific performance, the defense of
adequacy of a remedy at law and (b) shall be entitled, in addition to any
other remedy to which they may be entitled at law or in equity, to compel
specific performance of this Agreement in any action instituted in any state
or federal court sitting in New York. The parties hereto consent to personal
jurisdiction in any such action brought in any state or federal court sitting
in New York and to service of process upon it in the manner set forth in
Section 9.4 hereof.
Section 9.11. Consent to Jurisdiction; Waiver of Jury Trial. Each party
irrevocably agrees that any legal action or proceeding arising out of or
relating to this Agreement shall be instituted in any State or Federal court
sitting in New York City, Borough of Manhattan (and each party agrees not to
commence any legal action or proceeding except in such courts), and each party
irrevocably submits to the jurisdiction of such courts in any such action or
proceeding. Seller hereby agrees that service of process in any such action or
proceeding may be made upon Company, and the Seller irrevocably appoints
Company as its true and lawful agent to receive on behalf of itself and its
properties, service of process in any such action or proceeding, and Company
irrevocably accepts such appointment. Each party irrevocably consents to
service of process in any such action or proceeding upon it by mail at its
address set forth in Section 9.4 of this Agreement (or, in the case of Seller
and Company, upon Company at its principal U.S. offices, located at 153 Second
Avenue, Waltham, Massachusetts, 02254-1164). Any party serving process upon
Company as agent for Seller shall also provide a copy to Seller at its notice
address in accordance with Section 9.4. The foregoing provisions shall not
limit the right of any party to obtain execution on any judgment rendered in
any such action or proceeding in any other appropriate jurisdiction or in any
other manner. Seller agrees that a final judgment against it in any legal
action or proceeding arising out of or relating to this Agreement shall be
conclusive and may be enforced in any other jurisdiction within or outside the
United States by suit on the judgment, a certified or exemplified copy of
which judgment shall be conclusive evidence thereof, or by any other means
provided by law. EACH PARTY HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT.
Section 9.12. Certain Expenses. (a) If this Agreement is terminated by
Parent pursuant to Section 8.1(f) hereof, Parent shall pay promptly to Seller
an amount equal to the reasonable fees and expenses paid or
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payable by or on behalf of Seller and Company to their attorneys, accountants,
consultants and advisors in connection with the negotiation, execution and
delivery of this Agreement; provided that such payment shall in no event
exceed $5,000,000. Such payment shall be made in same day funds no later than
five Business Days after receipt by Parent of a statement (including invoices)
describing in reasonable detail such fees and expenses.
(b) If following a termination pursuant to Section 8.1(f) hereof, Parent
shall, within twelve months following the date of such termination, consummate
an Acquisition Proposal with the Person that made the Superior Proposal that
resulted in this Agreement being terminated, then Parent shall promptly pay to
Seller a fee equal to $75,000,000. Such payment shall be made in same day
funds no later than five Business Days after the consummation of such
transaction.
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In Witness Whereof, each of the parties has caused this Agreement and Plan
of Merger to be executed on its behalf by its officers thereunto duly
authorized, all as of the day and year first above written.
Marriott International, Inc.
(to be renamed "Sodexho Marriott
Services, Inc.")
By: /s/ William J. Shaw
------------------------------
Name: William J. Shaw
Title:President and Chief
Operating Officer
Marriott-ICC Merger Corp.
By: /s/ William J. Shaw
------------------------------
Name: William J. Shaw
Title:President
New Marriott MI, Inc.
(to be renamed "Marriott
International, Inc.")
By: /s/ William J. Shaw
-------------------------------
Name: William J. Shaw
Title:President and Chief
Operating Officer
Sodexho Alliance, S.A.
By: /s/ Bernard Carton
--------------------------------
Name: Bernard Carton
Title:Vice President, Finance
International Catering Corporation
By: /s/ Michel Landel
--------------------------------
Name: Michel Landel
Title:President
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EXHIBIT A TO MERGER AGREEMENT
NET TANGIBLE ASSETS ADJUSTMENT FORMULA
1. DEFINITIONS. Unless specified below, capitalized terms have the meaning
ascribed to them in the Agreement and Plan of Merger (the "AGREEMENT") to
which this Exhibit A is attached. As used in this Exhibit A, the following
terms shall have the following meanings:
"ADJUSTED NET TANGIBLE ASSETS" means, with respect to the Acquired
Companies and their Subsidiaries on a combined basis, the amount by which
"stockholders equity" exceeds "intangible assets" as reflected on the
combined balance sheet of the Acquired Companies prepared in accordance
with the Agreed Accounting Procedures as of immediately prior to and
without giving effect to the consummation of the transactions contemplated
by the Agreement and the Transaction Documents other than the making of the
Seller Contribution contemplated by Section 1.2(a) of the Agreement.
"AGREED ACCOUNTING PROCEDURES" means the accounting methodologies,
policies, practices, assumptions and procedures used by Seller in the
preparation of the combined balance sheet for the Acquired Companies at
August 31, 1997, as articulated and/or modified if and to the extent
necessary (and only if and to the extent necessary) (I) to correct any
material discrepancy between such methodologies, policies, practices and
procedures and GAAP and (II) properly to reflect, consistent with GAAP and
with such Agreed Accounting Procedures, events, facts or circumstances
occurring subsequent to August 31, 1996 and not already reflected in such
consolidated balance sheet; provided that (i) any events, facts or
circumstances which occur more than 30 days after the Closing Date will not
be taken into account in connection with the preparation of the
Distribution Date Statement and (ii) no write-downs or write-ups of (or
valuation reserves for) deferred tax assets will be made (or provided)
because of any concern about whether Parent will have sufficient taxable
income to utilize such assets.
2. ADJUSTMENT PROCEDURES. (a) Within 60 days after the Distribution, Seller
will prepare and deliver or cause to be delivered to Parent and Spinco a
statement (the "CLOSING DATE STATEMENT") that includes a combined balance
sheet for the Acquired Companies as of the moment immediately prior to the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents (other than the making of the Seller Contribution
contemplated by Section 1.2(a) of the Agreement), prepared in accordance with
the Agreed Accounting Procedures, and a calculation, set forth in reasonable
detail, of the Adjusted Net Tangible Assets for the Acquired Companies, on a
combined basis, as of such time. The Closing Date Statement shall be
accompanied by a report of the Company Auditors stating, without
qualification, that such balance sheet and such calculation have been prepared
in accordance with this Exhibit A. Seller will afford Parent's and Spinco's
representatives reasonable access, upon reasonable notice and during
reasonable hours, to records and information of the Acquired Companies during
the preparation of the Closing Date Statement and a reasonable opportunity to
participate in the preparation thereof.
(b) Spinco, Parent and Seller acknowledge and agree that the purpose of the
procedures and adjustments contemplated by this Exhibit A is to ensure that
the Adjusted Net Tangible Assets of the Acquired Companies, on a combined
basis, determined as provided herein and in accordance with the Agreed
Accounting Procedures, is equal to the sum of $269,000,000. For the avoidance
of doubt, it is expressly agreed that no objection may be raised and no
adjustment may be proposed to any entry or item contained in the Closing Date
Statement except on grounds that such item or entry is not in accordance with
the provisions of this Exhibit A or the Agreed Accounting Procedures
consistently applied; without prejudice, however, to a party's right to
challenge or propose adjustment to items or entries on grounds that such items
or entries are not so in accordance with the provisions of this Exhibit A and
the Agreed Accounting Procedures, consistently applied.
(c) Following the delivery of the Closing Date Statement to Parent and
Spinco, Parent and Spinco will have the right to review the Closing Date
Statement to determine whether it was prepared in accordance with this Exhibit
A and the Agreed Accounting Procedures. Seller will permit Parent and Spinco
and their independent public accountants access at all reasonable times to all
of the working papers, analyses and schedules of Seller
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and the Acquired Companies utilized or prepared in connection with the
preparation of the Closing Date Statement. Within the 30-day period after
receipt of the Closing Date Statement, Parent and Spinco will, in a written
notice to Seller, either accept the Closing Date Statement or describe in
reasonable detail any proposed adjustments to the Closing Date Statement and
the reasons therefor, in which case the notice from Parent and Spinco will
include a special report of the independent public accountants of Spinco and
Parent stating that such adjustments are required in accordance with this
Exhibit A. If Seller has not received such notice of proposed adjustments
within such 30-day period, Parent and Spinco will be deemed irrevocably to
have accepted the Closing Date Statement.
(d) Parent, Spinco and Seller will negotiate in good faith to resolve any
disputes over any proposed adjustments to the Closing Date Statement. However,
if any such dispute is not resolved within 30 days following the receipt by
Seller of the proposed adjustments, Parent, Spinco and Seller jointly will
jointly engage KPMG Peat Marwick to resolve such disputes in accordance with
the standards set forth in this Exhibit A, which resolution will be final and
binding. Each party will bear a portion of the fees and expenses of that
accounting firm equal to the proportion of the disputed amount determined in
favor of the other party.
(e) Upon the acceptance of the Closing Date Statement by Parent and Spinco
or the resolution in writing of any disputes arising out of any proposed
adjustments, (A) if the Adjusted Net Tangible Assets of the Acquired
Companies, on a combined basis, as set forth on the Closing Date Statement as
so accepted or as modified to resolve such disputes is greater than
$269,000,000, Parent will promptly (but in no event more than five days
thereafter) pay to Seller the amount of such excess, together with interest as
computed below, or (B) if the Adjusted Net Tangible Assets of the Acquired
Companies, on a combined basis, as set forth on the Closing Date Statement as
so accepted or as modified to resolve such disputes is less than $269,000,000,
Seller will promptly (but in no event more than five days thereafter) pay to
Parent the amount of such difference, together with interest as computed
below. Interest will be payable on the amounts set forth above from the
Distribution Date through and including the date of such payment at a rate per
annum calculated as 6-month LIBOR (appearing on the Dow Jones/Telerate Monitor
on Telerate Access Service Page 3750 determined at 11:00 AM London time on the
Closing Date and, if necessary, each 6-month anniversary thereof) plus one
percent (1.00%), computed based on a 360-day year and the number of days
elapsed. Any such payment under this Exhibit A will be made by wire transfer
of immediately available funds in U.S. Dollars.
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APPENDIX C -- OMNIBUS AGREEMENT
OMNIBUS RESTRUCTURING AGREEMENT
THIS OMNIBUS RESTRUCTURING AGREEMENT, dated as of September 30, 1997 (this
"AGREEMENT"), is entered into by and among MARRIOTT INTERNATIONAL, INC., a
Delaware corporation to be renamed "Sodexho Marriott Services, Inc."
("PARENT"), MARRIOTT-ICC MERGER CORP., a Delaware corporation and a direct
wholly-owned subsidiary of Parent ("ACQUISITION"), NEW MARRIOTT MI, INC., a
Delaware corporation and a wholly-owned subsidiary of Parent to be renamed
"Marriott International, Inc." ("SPINCO"), SODEXHO ALLIANCE, S.A., a societe
anonyme organized under the laws of the Republic of France ("SELLER"), and
INTERNATIONAL CATERING CORPORATION, a Delaware corporation and a wholly-owned
subsidiary of Seller ("COMPANY"), with respect to the transactions
contemplated by the Agreement and Plan of Merger dated as of even date
herewith (the "MERGER AGREEMENT") by and among the parties hereto, and by the
Distribution Agreement dated as of even date herewith (the "DISTRIBUTION
AGREEMENT") by and between Parent and Spinco. Capitalized terms used but not
defined herein shall have the respective meanings ascribed thereto in the
Merger Agreement.
In consideration of the premises and the representations, warranties,
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Acquisition, Spinco, Seller and Company hereby agree as
follows:
1. PROPOSED TRANSACTIONS
Subject to the terms and conditions of the Distribution Agreement, the
Merger Agreement and the other Transaction Documents, the parties have
undertaken to consummate the following transactions and other related
transactions:
a. Parent will sell to a Subsidiary of Seller the operations of the
Retained Business located in the United Kingdom, pursuant to the UK Stock
Purchase Agreement.
b. Parent will cause the capital stock of MMS Canada to be distributed to
it by Marriott Worldwide Corporation.
c. Parent and RHG Finance will tender for and solicit consents with
respect to certain of their outstanding public debt instruments and Parent
will refinance certain of its bank debt.
d. Parent and its Subsidiaries will contribute the Spinco Assets to
Spinco and the Spinco Subsidiaries, and Spinco and the Spinco Subsidiaries
will assume the Spinco Liabilities, with certain adjustments and additional
transfers contemplated by the Distribution Agreement.
e. Parent will distribute the capital stock of Spinco to its
shareholders.
f. Seller will contribute $304 million to Company.
g. Seller will transfer to Parent the capital stock of Sodexho Canada,
which holds the Canadian food and facilities management operations of
Seller, and simultaneously therewith Acquisition will merge with and into
Company, as a result of which Company will become a wholly owned subsidiary
of Parent. In consideration thereof, Parent will issue new shares of its
common stock to Seller which, when added to common stock issuable upon
exercise of options to purchase common stock of Parent received in the
Merger upon conversion of options to purchase stock of Company, shall equal
49% of the then-outstanding common stock of Parent.
The transactions referred to in paragraphs (c) to (g) are collectively
referred to as the "CLOSING DATE TRANSACTIONS").
2. OBLIGATION TO CLOSE; CERTAIN PRE-CLOSING ACTIONS
a. The parties hereto acknowledge and agree that, although pursuant to the
Merger Agreement, the Distribution Agreement and the other Transaction
Documents the closing of one or more of the Closing Date
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Transactions may be conditioned upon the closing of other Closing Date
Transactions, in fact all such closings shall occur simultaneously as a single
closing (the "CLOSING"). Notwithstanding anything to the contrary in the
Transaction Documents, each party agrees that it shall not be excused from its
obligation to close any one Closing Date Transaction because any other Closing
Date Transaction has yet to be consummated, so long as (i) the other parties
shall be ready, willing and able to effect the Closing Date Transactions at
the Closing, and (ii) all conditions to such party's performance at the
Closing under the Transaction Documents other than conditions requiring that
any other Closing Date Transaction has been consummated shall have been
satisfied. Each party agrees that, at or prior to the Closing, as appropriate,
it will execute and deliver, and will cause its Subsidiaries to execute and
deliver, the Transaction Documents to which they are intended to be parties,
as contemplated by this Agreement, the Merger Agreement and the Distribution
Agreement.
b. Not less than 5 Business Days prior to the Closing Date, the parties
shall estimate in good faith the following: (i) the amount of the adjustment
to be made to Adjusted Net Tangible Assets contemplated by clause (x)(I) of
the definition thereof in the Distribution Agreement, (ii) the amount of the
adjustment to be made to Adjusted Net Tangible Assets contemplated by clause
(x)(II) of the definition thereof in the Distribution Agreement and (iii) the
Section 2.8(e) Payment (as defined in the Distribution Agreement) that will be
required to be made by either Parent or Spinco (the "ESTIMATED SECTION 2.8(E)
PAYMENT"). On the Closing Date, (I) Spinco will pay to Parent the sum of (A)
60% of the amount determined pursuant to clause (i) of the preceding sentence
and (B) the amount determined pursuant to clause (ii) of the preceding
sentence (such aggregate amount, the "ESTIMATED ADJUSTED NET TANGIBLE ASSETS
PAYMENT") and (II) either Spinco will pay to Parent, or Parent will pay to
Spinco, the Estimated Section 2.8(e) Payment (it being understood that if
Parent is obligated to make the Estimated Section 2.8(e) Payment, the parties
will offset the amounts payable under this sentence so only one payment is
made hereunder).
c. Prior to the Closing Date, Parent will contribute to Spinco all assets
and operations that currently relate to the cash management functions of
Parent, except those relating exclusively to the Retained Business.
3. DEBT REFINANCING
Section 2.8 of the Distribution Agreement contemplates tender offers by
Parent and RHG Finance for certain of their respective outstanding publicly
held debt, a refinancing of certain of Parent's bank debt and certain cash
payments to Spinco. Parent and Seller intend to consummate such tenders and
refinancing and to make such payments with the proceeds of (x) new debt (the
"NEW SMS DEBT") comprised of approximately $600 million of senior secured debt
(the "SENIOR SMS DEBT") and $620 million of subordinated debt (the
"SUBORDINATED SMS DEBT"), each to be arranged by Seller, and (y) the cash
referenced in 1(f) above. In connection therewith:
a. Sodexho has previously provided to Parent a letter, dated September
15, 1997, from Societe Generale, S.A., to Sodexho with respect to the
financing of the New SMS Debt. The aforesaid letter has not been withdrawn,
rescinded or amended in any respect whatsoever.
b. Each party shall reasonably cooperate with the other in connection
with the contemplated debt tender offers and refinancing, including mutual
consultation with respect to the terms and conditions thereof and access to
information in accordance with Section 6.4 of the Merger Agreement.
c. The terms and conditions of the New SMS Debt shall be determined by
Seller in good faith and in the best interests of Parent and its
shareholders other than Seller. Seller shall be obligated to arrange the
New SMS Debt, and the obligations of Seller and Company to consummate the
Closing Date Transactions shall not be subject to any financing conditions
of any nature whatsoever.
d. Seller hereby agrees to guarantee, on customary terms and conditions
to be agreed with the providers of the New SMS Debt, $620 million of the
Subordinated SMS Debt through its final maturity. In consideration for any
such guarantee, Parent shall pay to Seller a guarantee fee equal to 0.50%
per annum of the outstanding principal amount of New SMS Debt subject to
such guarantee. If Seller determines in good faith that it is in the best
interests of Parent and its shareholders (other than Seller) that the
Subordinated SMS Debt be financed without the guarantee of Seller, or with
a guarantee of less than $620
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million, then Seller may, with the prior written consent of Parent and
Spinco, arrange the Subordinated SMS Debt without such guarantee, or with
such lesser guarantee. Parent and Spinco will exercise the foregoing
consent right in good faith in the best interest of Parent's shareholders
other than Seller.
e. The parties acknowledge and agree that if (i) the conditions set forth
in the Transaction Documents (as modified by Section 2.a. above) to the
performance by Seller of its obligations at the Closing are otherwise
satisfied, (ii) the New SMS Debt is not arranged and available for the
Closing and (iii) the Closing fails to occur (other than because of a
breach by Parent, Spinco or Acquisition of this Agreement, the Distribution
Agreement, the Merger Agreement or any Transaction Documents), Seller and
Company each shall be in material breach of this Agreement and the Merger
Agreement and Parent, Spinco and Acquisition shall have the remedies herein
and therein contemplated.
4. TRANSACTION EXPENSES
The parties agree that (i) except as provided in clause (iii) below, (A) any
fees and expenses of Merrill Lynch & Co., Inc., Arthur Andersen LLP and
O'Melveny & Myers LLP and (B) any costs of obtaining third party or regulatory
consents required to be obtained by Parent or Spinco in connection with the
transactions contemplated by the Distribution Agreement and the Merger
Agreement shall be for the account of Spinco, (ii) except as provided in
clause (iii) below, (A) any fees and expenses of Societe Generale, S.A., Price
Waterhouse LLP and Davis Polk & Wardwell and (B) any costs of obtaining third
party or regulatory consents required to be obtained by Seller or Company in
connection with the transactions contemplated by the Distribution Agreement
and the Merger Agreement shall be for the account of Seller, and (iii) (A) if
the Closing Date Transactions occur, any fees and expenses of any of the
foregoing firms, accountants or investment bankers incurred in connection with
the New SMS Debt, and (B) costs of obtaining third party or regulatory
consents relating to the Retained Business, shall be, in each case, for the
account of Parent.
5. OTHER SELLER GUARANTEES
Seller hereby agrees to guarantee the following: (i) the payment when due of
any deferred compensation amounts payable by Parent under Marriott
International, Inc. Executive Deferred Compensation Plan to any Retained
Employees (as such terms are defined in the Benefits Allocation Agreement),
(ii) the obligations of Parent under the LYONs Allocation Agreement and the
LYONs Indenture (as such terms are defined in the Distribution Agreement) and
(iii) Parent's obligations set forth in Article VII of the Distribution
Agreement.
6. DAMAGES
Each party hereto acknowledges and agrees that in the event that the Closing
shall not occur as a result of a breach of this Agreement, the Merger
Agreement, the Distribution Agreement or any Transaction Document, then (x) if
the breaching party is Seller or Company, Seller will be liable for and will
promptly pay to Parent the sum of $75,000,000 as liquidated damages (and not
as a penalty), and (y) if the breaching party is Parent, Spinco or
Acquisition, Parent will be liable for and will promptly pay to Seller the sum
of $25,000,000 as liquidated damages (and not as a penalty). The parties agree
that the amounts referred to above are a reasonable estimate of the damages
that would be sustained by Seller or Parent, as the case may be, in the event
the Closing does not occur.
7. MISCELLANEOUS
a. Jurisdiction; Dispute Resolution. Each party irrevocably agrees that any
legal action or proceeding arising out of or relating to this Agreement shall
be instituted in any State or Federal court sitting in New York City, Borough
of Manhattan (and each party agrees not to commence any legal action or
proceeding except in such courts), and each party irrevocably submits to the
jurisdiction of such courts in any such action or proceeding. Seller hereby
agrees that service of process in any such action or proceeding may be made
upon Company, and Seller irrevocably appoints Company as its true and lawful
agent to receive on behalf of itself and its properties service of process in
any such action or proceeding and Company irrevocably accepts such
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appointment. Each party irrevocably consents to service of process in any such
action or proceeding upon it by mail at its address set forth in Section 7.f.
below (or, in the case of Seller and Company, upon Company at its principal
U.S. offices, located at 153 Second Avenue, Waltham, Massachusetts, 02254-
1164). Any party serving process upon Company as agent for Seller shall also
provide a copy to Seller at its notice address in accordance with Section 7.f.
The foregoing provisions shall not limit the right of any party to obtain
execution on any judgment rendered in any such action or proceeding in any
other appropriate jurisdiction or in any other manner. Seller agrees that a
final judgment against it in any legal action or proceeding arising out of or
relating to this Agreement shall be conclusive and may be enforced in any
other jurisdiction within or outside the United States by suit on the
judgment, a certified or exemplified copy of which judgment shall be
conclusive evidence thereof, or by any other means provided by law. EACH PARTY
HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT.
b. Amendment. This Agreement may be amended by an instrument executed by
Parent, Acquisition, Spinco, Seller and Company at any time before or after
adoption of the Merger by the stockholders of Parent.
c. Extension; Waiver. At any time prior to the consummation of the Closing
Date Transactions, the parties may (a) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (b) waive
any inaccuracies in the representations and warranties of the other parties
contained herein or in any document, certificate or writing delivered pursuant
hereto or (c) waive compliance with any of the agreements or conditions of the
other parties hereto contained herein. Any agreement on the part of any party
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
d. Entire Agreement. Except for the provisions of the Confidentiality
Agreement (as modified by the Merger Agreement) which shall continue in full
force and effect, this Agreement, the Distribution Agreement, the Merger
Agreement and the other Transaction Documents constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
other prior negotiations, commitments, agreements and understandings, both
written and oral, between the parties or any of them with respect to the
subject matter hereof.
e. Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of New York (regardless of the Laws that
might otherwise govern under applicable principles of conflicts Law) as to all
matters, including matters of validity, construction, effect, performance and
remedies.
f. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (a) confirmation of receipt of a
facsimile transmission, (b) confirmed delivery by a standard overnight carrier
or when delivered by hand or (c) the expiration of five Business Days (or
seven Business Days if from the United States to France or vice versa) after
the day when mailed by certified or registered mail, postage prepaid,
addressed at the following addresses (or at such other address for a party as
shall be specified by like notice):
i. If to Parent, Spinco or Acquisition, to:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Chief Financial Officer
Telecopy: 301/380-8150
with a copy to:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: General Counsel
Telecopy: 301/380-6727
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and a copy to:
O'Melveny & Myers LLP
555 13th Street, N.W.
Washington, D.C. 20004
Attention: Jeffrey J. Rosen
Telecopy: 202/383-5414
ii. If to Seller or Company, to:
Sodexho Alliance, S.A.
3, Avenue Newton
78180 Montigny-le-Bretonneux
France
Attention: Denis Robin
Telecopy: 011-331-3085-5088
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Paul R. Kingsley
Telecopy: 212/450-4800
As used in this Agreement, "BUSINESS DAY" means any calendar day which is not
a Saturday, Sunday or a public holiday under the laws of New York or Maryland.
g. Successors and Assigns; No Third Party Beneficiaries. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties and their respective successors and permitted assigns, but neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any party (whether by operation of law or otherwise) without
the prior written consent of the other parties; provided, however that Spinco
may assign its rights and obligations hereunder as provided in the Merger
Agreement. This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
h. Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same instrument.
i. Legal Enforceability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
affecting the validity or enforceability of the remaining provisions hereof.
Any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
If any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
[Remainder of page left blank intentionally]
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In Witness Whereof, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
Marriott International, Inc.
(to be renamed "Sodexho Marriott
Services, Inc.")
By: /s/ William J. Shaw
-------------------------------
Name: William J. Shaw
Title:President and Chief
Operating Officer
Marriott-ICC Merger Corp.
By: /s/ William J. Shaw
--------------------------------
Name: William J. Shaw
Title:President
New Marriott MI, Inc.
(to be renamed "Marriott
International, Inc.")
By: /s/ William J. Shaw
--------------------------------
Name: William J. Shaw
Title:President and Chief
Operating Officer
Sodexho Alliance, S.A.
By: /s/ Bernard Carton
--------------------------------
Name: Bernard Carton
Title:Vice President, Finance
International Catering Corporation
By: /s/ Michel Landel
--------------------------------
Name: Michel Landel
Title:President
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APPENDIX D--AMENDMENT AGREEMENT
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT, dated as of January 28, 1998 (this "AMENDMENT"),
by and among MARRIOTT INTERNATIONAL, INC., a Delaware corporation to be
renamed "Sodexho Marriott Services, Inc." ("PARENT"), MARRIOTT-ICC MERGER
CORP., a Delaware corporation and a direct wholly-owned subsidiary of Parent
("ACQUISITION"), NEW MARRIOTT MI, INC., a Delaware corporation and a wholly-
owned subsidiary of Parent to be renamed "Marriott International, Inc."
("SPINCO"), SODEXHO ALLIANCE, S.A., a societe anonyme organized under the laws
of the Republic of France ("SELLER"), and INTERNATIONAL CATERING CORPORATION,
a Delaware corporation and a wholly-owned subsidiary of Seller ("COMPANY"),
amends (1) the Agreement and Plan of Merger dated as of September 30, 1997
(the "MERGER AGREEMENT") by and among the parties hereto, (2) the Distribution
Agreement dated as of September 30, 1997 (the "DISTRIBUTION AGREEMENT") by and
between Parent and Spinco and (3) the Omnibus Restructuring Agreement dated as
of September 30, 1997 (the "OMNIBUS AGREEMENT") by and among the parties
hereto (collectively, the "AGREEMENTS").
Recitals
WHEREAS, the parties hereto entered into the Agreements in order to (i)
distribute the shares of Spinco capital stock to the stockholders of Parent
and restructure Parent's existing debt in a series of transactions that will
separate Parent's management services division from Parent's other businesses
and (ii) combine the businesses of Parent's management services division and
Seller's North American management services division;
WHEREAS, the Agreements contemplate that Seller will make a cash
contribution to Company prior to the merger referred to in the Merger
Agreement in an amount equal to $304 million;
WHEREAS, the parties hereto have agreed that, in lieu of the contribution
referred to above, Seller shall make a cash payment to Parent in the amount of
$304 million simultaneously with the consummation of such merger, as a result
of which the Parent Common Stock to be issued to Seller pursuant to the Merger
Agreement will be issued in exchange for (i) the stock of Company, (ii) the
stock of Sodexho Canada and (iii) $304 million in cash;
WHEREAS, the parties hereto have agreed to amend the Agreements to make
certain other changes, including to the form of Tax Sharing Agreement.
NOW, THEREFORE, in consideration of the premises and agreements, provisions
and covenants contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereby agree as follows:
ARTICLE I
Definitions
Section 1.1. General. Capitalized terms used but not defined herein shall
have the respective meanings ascribed thereto in the Merger Agreement.
Section 1.2. Interpretation. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Amendment. For all purposes of
this Amendment, except as otherwise expressly provided, (i) the enumeration of
one or more items following the term "including" shall not be interpreted as
excluding any items not so enumerated, (ii) defined
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terms shall include the plural as well as the singular, (iii) all references
to "Articles," "Sections" or other subdivisions are to designated Articles,
Sections and other subdivisions of the body of this Amendment, (iv) pronouns
of either gender or neuter shall include, as appropriate, the other pronoun
forms, and (v) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Amendment as a whole and not to any particular
Article, Section or other subdivision.
ARTICLE II
Amendments to Merger Agreement
From and after the date hereof, the Merger Agreement is hereby amended as
follows:
Section 2.1. Amendments to Recitals to the Merger Agreement. The Recitals to
the Merger Agreement are hereby amended by deleting the fifth and sixth
recitals in their entireties and inserting in lieu thereof the following:
"WHEREAS, immediately following the Distribution, (i) Acquisition will
merge with and into Company, Seller will transfer to Parent all of the
outstanding capital stock of Sodexho Financiere duCanada Inc. ("SODEXHO
CANADA" and, together with Company, "ACQUIRED COMPANIES") and Seller will
make a cash payment to Parent of $304,000,000 (the "SELLER PAYMENT"), in
each case pursuant to the terms hereof, (ii) all of the issued and
outstanding shares of Company common stock will be converted into common
stock of Parent in such amounts as are determined herein and (iii) all
issued and outstanding shares of Acquisition will be converted into all the
outstanding capital stock of the Surviving Corporation, as a result of
which Company (as the Surviving Corporation in the merger) will become a
wholly-owned subsidiary of Parent."
Section 2.2. Amendments to Article I of the Merger Agreement.
(a) The title of Article I of the Merger Agreement is hereby amended to read
"THE DISTRIBUTION; SELLER PAYMENT; CANADIAN TRANSFER."
(b) Section 1.2 of the Merger Agreement is hereby amended by deleting it in
its entirety and replacing it with the following:
"Section 1.2. Seller Payment and Canadian Transfer.
(a) At the Effective Time, Seller will make the Seller Payment to Parent
in an amount equal to $304,000,000 in immediately available funds.
Following the Effective Time, Seller will pay Parent, or Parent will pay
Seller, as the case may be, any amounts determined in accordance with
Exhibit A based on target Adjusted Net Tangible Assets for the Acquired
Companies, on a combined basis, of negative $35,000,000.
(b) Seller shall transfer to Parent all of the outstanding capital stock
of Sodexho Canada, which contribution shall be made (and effective) at the
Effective Time, by delivering to Parent the certificates evidencing such
stock, properly endorsed for transfer to or accompanied by a duly executed
stock power in favor of Parent or its nominee and otherwise in a form
acceptable for transfer on the books of Sodexho Canada."
Section 2.3. Amendment to Section 2.8(a) of the Merger Agreement. Section
2.8(a) of the Merger Agreement is hereby amended by deleting the first
sentence in its entirety and replacing it with the following:
"By virtue of the Merger and without any action on the part of Seller other
than the transfer of the stock of Sodexho Canada to Parent and making of
the Seller Payment, all shares of common stock, par value $0.001 per share,
of Company (each, a "COMPANY SHARE") issued and outstanding immediately
prior to the Effective Time (all of which are held by Seller) shall be
converted into the right to receive, and become exchangeable for, a number
of shares of validly issued, fully paid and nonassessable common stock of
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Parent, par value $1.00 per share (the "PARENT COMMON STOCK") (each such
share, a "PARENT SHARE"), upon the surrender of the certificate(s) formerly
representing such Company Shares, such that Seller shall, in the aggregate,
have the right to receive a number of Parent Shares which, when added to
Parent Shares issuable upon exercise of options issued pursuant to Section
2.8(c), equal 49% of the Parent Shares (other than Parent Shares held in
the treasury of Parent or held by any wholly owned Subsidiary of Parent)
issued and outstanding immediately after the Effective Time."
Section 2.4. Amendments to Exhibit A of the Merger Agreement.
(a) Section 1 of Exhibit A of the Merger Agreement is amended by deleting
the words "other than the making of the Seller Contribution contemplated by
Section 1.2(a) of the Agreement" from the definition of "Adjusted Net Tangible
Assets."
(b) Section 2(a) of Exhibit A of the Merger Agreement is amended by deleting
the words "(other than the making of the Seller Contribution contemplated by
Section 1.2(a) of the Agreement)" appearing in the first sentence.
(c) Section 2(b) of Exhibit A of the Merger Agreement is amended by deleting
the words "to the sum of $269,000,000" and replacing it with the words "in the
aggregate to negative $35,000,000."
(d) Section 2(e) of Exhibit A of the Merger Agreement is amended by deleting
each occurrence of the number "$269,000,000" and replacing it with the words
"negative $35,000,000."
(e) Exhibit C of the Merger Agreement is deleted in its entirety and
replaced with the document attached hereto as Exhibit 1.
ARTICLE III
Amendments to Distribution Agreement
From and after the date hereof, the Distribution Agreement is hereby amended
as follows:
Section 3.1. Amendment to Recitals to the Distribution Agreement. The
Recitals to the Distribution Agreement are hereby amended by deleting
subparagraph (5) of the fifth recital in its entirety and replacing it with
the following:
"(5) pursuant to the Agreement and Plan of Merger (the "MERGER
AGREEMENT") dated as of even date herewith by and among Parent, Marriott-
ICC Merger Corp., a Delaware corporation ("ACQUISITION"), Spinco, Seller
and Company, in exchange for approximately 49% of the outstanding stock of
Parent, Parent will (a) acquire 100% of the stock of Company (the
"MERGER"), (b) acquire 100% of the stock of Sodexho Canada and (c) receive
from Seller a cash payment of $304 million;"
Section 3.2. Amendments to Section 1.1 of the Distribution Agreement.
(a) The definition of "Retained Liabilities" is hereby amended by adding the
following at the end thereof: "; provided that all Liabilities arising under
the deeds delivered pursuant to Section 2.7(a)(ii) shall not constitute
Retained Liabilities."
(b) The definition of "Spinco Liabilities" is hereby amended by deleting the
word "and" immediately following the phrase "(iv) the Spinco Self Insurance
Liabilities," and adding the following at the end thereof: "and (vi) all
Liabilities arising under the deeds delivered pursuant to Section 2.7(a)(ii)."
Section 3.3. Amendment to Section 2.7(a) of the Distribution
Agreement. Section 2.7(a) is hereby amended by deleting the words "quitclaim
deed" occurring in clause (ii) thereof and replacing it with the words
"special warranty deed."
Section 3.4. Amendment to Section 2.8(e) of the Distribution
Agreement. Section 2.8(e) is hereby amended by deleting the second sentence
thereof in its entirety and replacing it with the following:
"Therefore, Parent shall use its reasonable efforts to borrow funds in such
amounts as are necessary, together with the cash payment to be made by
Seller to Parent as contemplated by the Merger Agreement, to provide net
proceeds to Parent sufficient to refinance the indebtedness of Parent and
pay the other amounts described above."
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Section 3.5. Amendment to Schedule 1.1(b) of the Distribution
Agreement. Schedule 1.1(b) of the Distribution Agreement is deleted in its
entirety and replaced with the document attached hereto as Schedule 1.
ARTICLE IV
Amendment to Omnibus Agreement
From and after the date hereof, the Omnibus Agreement is hereby amended as
follows:
Section 4.1. Amendments to Section 1. of the Omnibus Agreement.
(a) Section 1.f. of the Omnibus Agreement is amended by deleting the text
thereof in its entirety.
(b) Section 1. of the Omnibus Agreement is further amended by relabeling
subsection g. as subsection f., deleting the last sentence thereof in its
entirety and replacing it with the following:
"In consideration thereof and for a $304 million cash payment to be made
simultaneously therewith by Seller to Parent, Parent will issue new shares
of its common stock to Seller which, when added to common stock issuable
upon exercise of options to purchase common stock of Parent received in the
Merger upon conversion of options to purchase stock of Company, shall equal
49% of the then-outstanding common stock of Parent."
(c) Section 1. of the Omnibus Agreement is further amended by changing the
reference in the last sentence thereof from "(g)" to "(f)."
ARTICLE V
Miscellaneous
Section 5.1. Effect of Amendment. The Amendments made by this Amendment
shall be effective as of the date hereof and for all times hereafter. Except
as amended hereby, the Agreements shall remain in full force and effect.
Section 5.2. Entire Agreement. Except for the provisions of the
Confidentiality Agreement (as modified by the Merger Agreement) which shall
continue in full force and effect, this Amendment, the Merger Agreement, the
Distribution Agreement, the Omnibus Agreement and the other Transaction
Documents constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all other prior negotiations,
commitments, agreements and understandings, both written and oral, between the
parties or any of them with respect to the subject matter hereof.
Section 5.3. Governing Law. This Amendment shall be governed by and
construed in accordance with the Laws of the State of New York (regardless of
the Laws that might otherwise govern under applicable principles of conflicts
Law) as to all matters, including matters of validity, construction, effect,
performance and remedies.
Section 5.4. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, each of the parties has caused this Amendment Agreement
to be executed on its behalf by its officers thereunto duly authorized, all as
of the day and year first above written.
Marriott International, Inc.
(to be renamed "Sodexho Marriott
Services, Inc.")
By: /s/ Raymond G. Murphy
--------------------------------
Name: Raymond G. Murphy
Title: Senior Vice President and
Treasurer
Marriott-ICC Merger Corp.
By: /s/ Raymond G. Murphy
--------------------------------
Name: Raymond G. Murphy
Title: Senior Vice President and
Treasurer
New Marriott MI, Inc.
(to be renamed "Marriott
International, Inc.")
By: /s/ Raymond G. Murphy
--------------------------------
Name: Raymond G. Murphy
Title: Senior Vice President and
Treasurer
Sodexho Alliance, S.A.
By: /s/ Bernard Carton
--------------------------------
Name: Bernard Carton
Title: Senior Vice President and
Chief Financial Officer
International Catering Corporation
By: /s/ Michel Landel
--------------------------------
Name: Michel Landel
Title: President
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APPENDIX E--FORM OF TAX SHARING AGREEMENT
TAX SHARING AND INDEMNIFICATION AGREEMENT
DATED AS OF , 199
BY AND AMONG
MARRIOTT INTERNATIONAL, INC.
(TO BE RENAMED "SODEXHO MARRIOTT SERVICES, INC.")
NEW MARRIOTT MI, INC.
(TO BE RENAMED "MARRIOTT INTERNATIONAL, INC.")
AND
SODEXHO ALLIANCE S.A.
<PAGE>
TAX SHARING AND INDEMNIFICATION AGREEMENT
This TAX SHARING AND INDEMNIFICATION AGREEMENT (this "AGREEMENT"), is
entered into effective as of the Distribution Date (as hereinafter defined),
by and among Marriott International, Inc., a Delaware corporation to be
renamed Sodexho Marriott Services, Inc. ("MARRIOTT"), New Marriott MI, Inc., a
Delaware corporation and a wholly owned subsidiary of Marriott to be renamed
Marriott International, Inc. ("SPINCO"), and Sodexho Alliance, S.A., a societe
anonyme organized under the laws of France ("SODEXHO").
RECITALS
WHEREAS, Marriott, Marriott-ICC Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Marriott, Spinco, International Catering
Corporation, a Delaware corporation and a wholly owned subsidiary of Sodexho
("ICC"), and Sodexho have entered into an Agreement and Plan of Merger dated
as of September 30, 1997 (the "MERGER AGREEMENT");
WHEREAS, Marriott and Spinco have entered into the Distribution Agreement
dated as of September 30, 1997 (the "DISTRIBUTION AGREEMENT"); and
WHEREAS, Marriott and Spinco wish to provide for the allocation of all
responsibilities, liabilities and benefits relating to or affecting Taxes (as
hereinafter defined) paid or payable by either of them or their affiliated
Groups (as hereinafter defined) for all taxable periods, whether beginning
before, on or after the Distribution Date and to provide for certain other
matters.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements set forth herein, the
parties hereto hereby agree as follows:
ARTICLE I
Definitions
Section 1.01 General.
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and the
plural forms of the terms defined):
"ADJUSTED MMS GROUP" shall mean MMS and the MMS Subsidiaries.
"AFFILIATE" shall mean, with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person. For purposes of this
definition, "CONTROL," when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "CONTROLLING" and "CONTROLLED" shall have meanings correlative
to the foregoing.
"AFFILIATED GROUP" shall have the meaning set forth in Section 3.01(a)
hereof.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted federal tax laws.
"COMBINED STATE TAX RETURNS" shall have the meaning set forth in the Section
2.02(b) hereof.
"COMBINED TAXES" shall have the meaning set forth in the Section 3.01(b)
hereof.
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"DISTRIBUTION" shall mean the distribution of 100% of the capital stock of
Spinco by Marriott to the Marriott shareholders and related transactions
undertaken pursuant to the Distribution Agreement, which is intended to
qualify for tax-free treatment under Code Section 368(a)(1)(D) and Section
355.
"DISTRIBUTION AGREEMENT" shall have the meaning set forth in the Recitals.
"DISTRIBUTION DATE" shall mean the date on which the Distribution occurs or
is deemed to occur for federal income tax purposes. For purposes of this
Agreement, the Distribution shall be deemed effective as of the close of
business on the Distribution Date.
"EQUITY SECURITIES" shall mean any stock or other equity securities treated
as stock for tax purposes, or options, warrants, rights, convertible debt, or
any other instrument or security that affords any Person the right, whether
conditional or otherwise, to acquire stock.
"FIFTY PERCENT OR GREATER INTEREST" shall have the meaning of a "50 percent
or greater interest" as defined in Section 355(e)(4)(A) of the Code.
"FINAL DETERMINATION" shall mean the final resolution of liability for any
Tax for a taxable period, (i) by IRS Form 870 or 870-AD (or any successor
forms thereto), on the date of acceptance by or on behalf of the taxpayer, or
by a comparable form under the laws of other jurisdictions; except that a Form
870 or 870-AD or comparable form that reserves (whether by its terms or by
operation of law) the right of the taxpayer to file a claim for refund and/or
the right of the taxing authority to assert a further deficiency shall not
constitute a Final Determination; (ii) by a decision, judgment, decree, or
other order by a court of competent jurisdiction, which has become final and
unappealable; (iii) by a closing agreement or accepted offer in compromise
under Section 7121 or 7122 of the Code, or comparable agreements under the
laws of other jurisdictions; (iv) by any allowance of a refund or credit in
respect of an overpayment of Tax, but only after the expiration of all periods
during which such refund may be recovered (including by way of offset) by the
Tax imposing jurisdiction; or (v) by any other final disposition, including by
reason of the expiration of the applicable statute of limitations or by mutual
agreement of the parties.
"FORWARDING RESPONSIBILITIES" shall have the meaning set forth in Section
4.03 hereof.
"GOVERNMENTAL ENTITY" shall mean any court, agency, authority, board,
bureau, commission, department, regulatory or administrative body, office or
instrumentality of any nature whatsoever of any governmental or quasi-
governmental unit (including the New York Stock Exchange or any other national
stock exchange), whether federal, state, parish, county, district,
municipality, city, political subdivision or otherwise, domestic or foreign,
or any other entity exercising executive, legislative, judicial regulatory or
administrative functions of or pertaining to government, whether now or
hereafter in effect.
"GROUP" shall mean the Spinco Group or the MMS Group.
"HYPOTHETICAL RETURN" shall have the meaning set forth in Section 3.02(a)
hereof.
"ICC" shall have the meaning set forth in the Recitals.
"INDEMNIFIED AMOUNT" shall have the meaning set forth in Section 4.03(a)
hereof.
"INDEMNITEE" shall have the meaning set forth in Section 4.02 hereof.
"INDEMNITOR" shall have the meaning set forth in Section 4.02 hereof.
"IRS" shall mean the Internal Revenue Service.
"JOINT TAX RETURN" shall mean any Tax Return that includes the Retained
Business and the Spinco Business.
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"MARRIOTT" shall have the meaning set forth in the Preamble.
"MARRIOTT (CANADA)" shall mean Marriott Corporation of Canada Ltd., a
Canadian corporation and a wholly-owned subsidiary of Marriott.
"MARRIOTT TAX ITEM" shall mean a Tax Item solely attributable to the
Retained Business.
"MARRIOTT TAX RULING REPRESENTATIONS" shall mean those representations made
by Marriott in connection with the request for the Tax Ruling.
"MERGER AGREEMENT" shall have the meaning set forth in the Recitals.
"MMS" shall mean Marriott Management Services Corp., a New York corporation
and a wholly-owned subsidiary of Marriott.
"MMS GROUP" shall mean Marriott, MMS and the MMS Subsidiaries.
"MMS INDEMNITEE" shall mean Marriott, MMS, each Affiliate of MMS and each of
their respective Representatives and each of the heirs, executors, successors
and assigns of any of the foregoing.
"MMS SUBSIDIARIES" shall mean all direct and indirect Subsidiaries of
Marriott through which Marriott conducts the Retained Business, as set forth
on Schedule 1.1, attached hereto.
"MMS (U.K.)" shall mean Marriott Management Services (U.K.) Ltd., a United
Kingdom corporation and a wholly-owned subsidiary of MMS.
"1997 TAXABLE YEAR" shall mean Marriott's consolidated federal income
taxable year ending January 2, 1998.
"1998 TAXABLE YEAR" shall mean Marriott's consolidated federal income
taxable year ending January 1, 1999.
"OTHER TAXES" shall have the meaning set forth in Section 3.01(d) hereof.
"OTHER TAX RETURNS" shall have the meaning set forth in Section 2.02(d)
hereof.
"PERSON" shall mean an individual, corporation, partnership, association,
trust, estate or other entity or organization, including any Governmental
Entity or authority.
"POST-DISTRIBUTION TAXABLE PERIOD" shall have the meaning set forth in
Section 2.04 hereof.
"PRE-DISTRIBUTION TAXABLE PERIOD" shall have the meaning set forth in
Section 2.02(a) hereof.
"PROHIBITED SALE OR ISSUANCE" shall have the meaning set forth in Section
5.04(d).
"REPRESENTATION DATE" shall mean any date on which Marriott or Spinco makes
any representation to the IRS, to Spinco or Marriott, or to tax counsel for
the purpose of obtaining a Subsequent Ruling or an opinion pursuant to Section
5.05(c) hereof.
"REPRESENTATIVE" shall mean with respect to any Person, any of such Person's
directors, officers, employees, agents, consultants, advisors, accountants,
attorneys and representatives.
"RESTRICTED PERIOD" shall mean the period beginning on the date hereof and
ending on the three-year anniversary of the Distribution Date.
"RETAINED BUSINESS" shall have the meaning ascribed to such term in the
Distribution Agreement.
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"ROLLBACK ITEMS" shall have the meaning set forth in Section 3.04(d) hereof.
"ROLLOVER ITEMS" shall have the meaning set forth in Section 3.04(d) hereof.
"RULING DOCUMENTS" shall mean the request for a ruling under Section
368(a)(1)(D) and Section 355 of the Code submitted to the IRS regarding the
Tax-Free Status of the Distribution.
"SHORT PERIOD" shall mean the period commencing on January 3, 1998, and
ending on the Distribution Date.
"SODEXHO" shall have the meaning set forth in the Preamble.
"SODEXHO TAX RULING REPRESENTATIONS" shall mean those representations made
by Sodexho in connection with the request for the Tax Ruling.
"SPINCO" shall have the meaning set forth in the Preamble.
"SPINCO BUSINESS" shall have the meaning ascribed to such term in the
Distribution Agreement.
"SPINCO GROUP" shall mean Spinco and the Spinco Subsidiaries.
"SPINCO INDEMNITEE" shall mean each Affiliate of Spinco and each of their
respective Representatives and each of the heirs, executors, successors and
assigns of any of the foregoing.
"SPINCO SUBSIDIARIES" shall mean all direct and indirect Subsidiaries of
Marriott, other than MMS and any MMS Subsidiary, as set forth on Schedule 1.2,
attached hereto.
"STRADDLE PERIOD" shall mean a taxable period that includes but does not end
on the Distribution Date, including the 1998 Taxable Year for federal income
tax purposes.
"SUBSEQUENT RULING" shall mean a ruling from the IRS confirming that the
consummation of a transaction or existence of a condition subsequent to the
Distribution will not result in loss of Tax-Free Status.
"SUBSIDIARY" shall mean, 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 or 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 non-corporate 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 a majority ownership interest.
"TAX" shall mean any of the Taxes.
"TAX DEFICIENCY" shall mean an assessment of Taxes as a result of a Final
Determination.
"TAX DETRIMENT" shall mean any item of income, gain, recapture of credit or
any other Tax Item which increases Taxes paid or payable.
"TAX-FREE STATUS" shall mean the qualification of the Distribution (i) as a
transaction described in Section 368(a)(1)(D) and Section 355(a)(1) of the
Code, (ii) as a transaction in which the stock distributed thereby is
qualified property for purposes of Section 355(c)(2) of the Code, and (iii) as
a transaction in which Marriott
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recognizes no income or gain other than intercompany items or excess loss
accounts taken into account pursuant to the Treasury Regulations promulgated
pursuant to Section 1502 of the Code.
"TAX ITEM" shall mean any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credit or any other item which increases
or decreases Taxes paid or payable, including an adjustment under Code Section
481 resulting from a change in accounting method.
"TAX REFUND" shall mean a refund of Taxes as the result of a Final
Determination.
"TAX RETURN" shall mean any return, filing, questionnaire, information
return or other document required to be filed, including requests for
extensions of time, filings made with estimated tax payments, claims for
refund and amended returns that may be filed, for any period with any taxing
authority (whether domestic or foreign) in connection with any Tax or Taxes
(whether or not a payment is required to be made with respect to such filing).
"TAX RULING" shall mean the private letter ruling to be issued by the IRS in
respect of the Tax-Free Status of the Distribution, and related federal income
tax consequences.
"TAXES" shall mean all forms of taxation, whenever created or imposed, and
whether of the United States or elsewhere, and whether imposed by a local,
municipal, governmental, state, foreign, federation or other body, and without
limiting the generality of the foregoing, shall include income, sales, use, ad
valorem, gross receipts, license, value added, franchise, transfer, recording,
withholding, payroll, employment, excise, occupation, unemployment insurance,
social security, business license, business organization, stamp,
environmental, premium and property taxes, together with any related interest,
penalties and additions to any such tax, or additional amounts imposed by any
taxing authority (domestic or foreign) upon the MMS Group, the Spinco Group or
any of their respective members or divisions or branches.
"TRUE-UP PROVISION" shall mean the provisions of Section 2.8(f) of the
Distribution Agreement, which govern the treatment of adjustments to net
tangible assets and related items for Marriott and Spinco.
Section 1.02 Interpretation. The descriptive headings herein are inserted
for convenience or reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement. For all purposes of
this Agreement, except as otherwise expressly provided, (i) the enumeration of
one or more items following the term "including" shall not be interpreted as
excluding any items not so enumerated, (ii) defined terms shall include the
plural as well as the singular, (iii) all references to "Articles," "Sections"
or other subdivisions are to designated Articles, Sections and other
subdivisions of the body of this Agreement, (iv) pronouns of either gender or
neuter shall include, as appropriate, the other pronoun forms, and (v) the
words "herein," "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section
or other subdivision.
ARTICLE II
Filing of Tax Returns
Section 2.01 Manner of Filing. All Tax Returns filed after the Distribution
Date shall be prepared on a basis which is consistent with the consummation of
the transactions as set forth in the Distribution Agreement, the Marriott Tax
Ruling Representations, the Sodexho Tax Ruling Representations and the Tax
Ruling (in the absence of a controlling change in law or circumstances) and
shall be filed on a timely basis (including extensions) by the party
responsible for such filing under this Agreement. In the absence of a
controlling change in law or circumstances, all Tax Returns filed after the
date of this Agreement shall be prepared on a basis consistent with the
elections, accounting methods, conventions, and principles of taxation used
for the most recent taxable periods for which Tax Returns involving similar
Tax Items have been filed, to the extent that a failure to do so would result
in a Tax Detriment to the other party hereto or a member of its Group. Subject
to the provisions of this Agreement, all decisions relating to the preparation
of Tax Returns shall be made by the
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party responsible under this Agreement for such preparation (subject to any
party's rights to review such Tax Returns as are provided in this Agreement).
Each party to this Agreement will provide the information for the filing of
such Tax Returns in the manner set forth in Section 4.05(a), and will provide
copies of all Tax Returns (or appropriate portions thereof) filed after the
Distribution Date to any other party to this Agreement to the extent such
returns relate to such other party.
Section 2.02 Pre-Distribution Tax Returns.
(a) Consolidated Returns. The Marriott consolidated federal income Tax
Returns required to be filed for all taxable periods ending on or before the
Distribution Date ("PRE-DISTRIBUTION TAXABLE PERIODS") that have not been
filed prior to the Distribution Date shall be prepared and filed by Spinco,
and Marriott hereby irrevocably designates, and agrees to cause each of its
Subsidiaries to so designate, Spinco as its agent to take any and all actions
necessary or incidental to the preparation and filing of such Returns. Spinco
agrees to provide Marriott with (i) a pro forma federal income Tax Return for
the MMS Group for the 1997 Taxable Year no later than August 1, 1998 (and
Spinco will incorporate thereon any reasonable comments timely provided in
writing by Marriott in respect of the pro forma Tax Return for the 1997
Taxable Year for the MMS Group), (ii) a copy of each such Tax Return for the
1997 Taxable Year as soon as it is filed, and (iii) the pro forma tax returns
for the Spinco Group members for the Short Period no later than December 31,
1998 (which pro forma tax returns will form the basis for the inclusion of the
Spinco Group for the Short Period in Marriott's consolidated federal income
Tax Return for the 1998 Taxable Year).
(b) Combined, Consolidated and Unitary Returns. All state and local
combined, consolidated and unitary corporate income Joint Tax Returns
("COMBINED STATE TAX RETURNS") required to be filed for all Pre-Distribution
Taxable Periods, that have not been filed prior to the Distribution Date,
shall be prepared and filed by Spinco, and Marriott hereby irrevocably
designates, and agrees to cause each of its Subsidiaries to so designate,
Spinco as its agent to take any and all actions necessary or incidental to the
preparation and filing of such Joint Tax Returns. Spinco agrees to provide
Marriott with a pro forma Combined State Tax Return for the MMS Group for the
1997 taxable year as soon as is practicable (and Spinco will incorporate
thereon any reasonable comments timely provided in writing by Marriott in
respect of the Combined State Tax Returns for the 1997 taxable year).
(c) Returns for Marriott (Canada). All Tax Returns for Marriott (Canada) for
Pre-Distribution Taxable Periods required to be filed for all Pre-Distribution
Taxable Periods, that have not been filed prior to the Distribution Date,
shall be prepared and filed by Spinco, and Marriott hereby agrees to cause
Marriott (Canada) to designate Spinco as its agent to take any and all actions
necessary or incidental to the preparation and filing of such Returns. Spinco
agrees to provide Marriott with a copy of such Tax Returns for the 1997
taxable year as soon as is practicable before they are filed (and Spinco will
incorporate thereon any reasonable comments timely provided in writing by
Marriott in respect of such Tax Returns for the 1997 taxable year).
(d) Other Returns. All other Tax Returns not described elsewhere in this
Section 2.02, including separate state returns, local tax returns and payroll
tax returns ("OTHER TAX RETURNS"), required to be filed for all Pre-
Distribution Taxable Periods, that have not been filed prior to the
Distribution Date, shall be prepared and filed by the party which prepared and
filed such Other Tax Return for the most recent period for which such Other
Tax Return was filed, or, if no such Other Tax Return was filed in such
period, the party responsible under the appropriate law of the taxing
jurisdiction. The parties hereto intend that, under this Section 2.02(d), no
member of the Spinco Group shall be responsible for preparing or filing such
Other Tax Returns that are currently prepared and filed by or on behalf of
members of the Adjusted MMS Group, including any sales, use or property Tax
Returns. Schedule 2.02(d) sets forth the agreed-upon list of the Other Tax
Returns filed by or on behalf of the Adjusted MMS Group (and listing the
entity actually filing such Other Tax Return) for the most recent periods,
which schedule shall be finalized on the Distribution Date. Notwithstanding
the foregoing, any Other Tax Returns which were historically prepared and
filed by Marriott on behalf of members of the Adjusted MMS Group, shall be
prepared and filed by Spinco, and Marriott hereby irrevocably designates
Spinco as its agent to take any and all actions necessary or incidental to the
preparation and filing of such Other Tax Returns. Spinco
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agrees to provide Marriott with a copy of each such Other Tax Return that has
been filed historically by Marriott on behalf of the Adjusted MMS Group as
soon as possible before it is required to be filed, and to incorporate thereon
any reasonable comments timely provided in writing by Marriott in respect of
such Other Tax Returns before Spinco files such Other Tax Return.
Section 2.03 Straddle Period Tax Returns.
(a) Consolidated Returns. The Marriott consolidated federal income Tax
Returns required to be filed for all Straddle Periods shall be prepared and
filed by Marriott. Marriott agrees to provide Spinco with a copy of each such
Tax Return four weeks before it is filed, and to incorporate thereon any
reasonable comments timely provided in writing by Spinco. As provided for in
Section 2.02(a) hereof, Spinco agrees to provide to Marriott by December 31,
1998, pro forma tax returns for the Spinco Group for the Short Period.
(b) Combined, Consolidated and Unitary Returns. All Combined State Tax
Returns for all Straddle Periods shall be prepared and filed by Marriott.
Marriott agrees to provide Spinco with a copy of each such Combined State Tax
Return as soon as is practicable before it is filed, and to incorporate
thereon any reasonable comments timely provided in writing by Spinco. To
assist Marriott in the preparation of such Tax Returns, Spinco agrees to
provide to Marriott by December 31, 1998, any information necessary for
Marriott to prepare such Tax Returns.
(c) Returns for Marriott (Canada). All Tax Returns for Marriott (Canada) for
all Straddle Periods shall be prepared and filed by Marriott. Marriott agrees
to provide Spinco with a copy of each such Tax Return as soon as is
practicable before it is filed, and to incorporate thereon any reasonable
comments timely provided in writing by Spinco. Spinco agrees to provide to
Marriott by December 31, 1998, any information necessary for Marriott to
prepare such Tax Returns.
(d) Other Returns. All Other Tax Returns that are required to be filed for
Straddle Periods shall be prepared and filed by the party which prepared and
filed such Tax Return for the most recent period for which such Tax Return was
filed or if no such Tax Return was filed in such period, the party responsible
under the appropriate law of the taxing jurisdiction. Schedule 2.02(d) sets
forth the agreed-upon list of Tax Returns that have been filed for the most
recent periods. The parties hereto intend that, under this Section 2.03(d), no
member of the Spinco Group shall be responsible for preparing or filing such
Tax Returns that are currently prepared and filed by members of the Adjusted
MMS Group, including any sales, use or property Tax Returns.
(e) Delayed Distribution Date. Notwithstanding anything to the contrary in
this Agreement, in the event the Distribution Date has not occurred before May
31, 1998, Spinco shall have the right to prepare and file all Tax Returns for
the Straddle Period and shall take such other steps and shall have such other
authority delegated to it by Marriott as Spinco in its discretion shall deem
necessary to prepare and file such returns in a timely manner. In the event
Spinco exercises such a right, the parties hereto shall execute an amendment
to this Agreement that shall set forth the procedures for Spinco's preparation
of such Tax Returns for the Straddle Period and the mechanisms for Spinco's
payment of Taxes reflected on such Tax Returns in such a manner as is
consistent with the principles set forth in this Agreement.
Section 2.04 Post-Distribution Tax Returns. All Tax Returns for periods
beginning after the Distribution Date ("POST-DISTRIBUTION TAXABLE PERIODS")
shall be (i) the responsibility of the Spinco Group if such Tax Returns relate
solely to a member or members of the Spinco Group or their respective assets
or businesses, and (ii) the responsibility of the MMS Group if such Tax
Returns relate solely to a member or members of the MMS Group or their
respective assets or businesses.
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ARTICLE III
Liability for Taxes
Section 3.01 Pre-Distribution Taxable Period Tax Liabilities.
(a) Pre-Distribution Taxable Period Consolidated Federal Income Tax
Liabilities. Spinco shall pay, on a timely basis, all Taxes due with respect
to the consolidated federal income tax liability for all Pre-Distribution
Taxable Periods of the affiliated group of which Marriott is the common parent
(the "AFFILIATED GROUP"). Notwithstanding the foregoing, any payments in
respect of the Spinco Group's Tax Return for the Short Period will be
determined and governed by Section 3.02 and Section 3.03 hereof. As provided
in Section 2.8(f) of the Distribution Agreement, the Distribution Agreement's
definition of Adjusted Net Tangible Assets, and the "Distribution Date
Statement" referred to in Section 2.8(f) of the Distribution Agreement, in
connection with the transfer of the Spinco Business to Spinco, Marriott shall,
in effect, transfer to Spinco 100% of the income tax provisions of Marriott
for accrued income taxes as at the Distribution Date. Any tax provisions
relating to sales, use and property Taxes accrued as at the Distribution Date
shall be treated in accordance with Section 3.03(g) hereof.
(b) Pre-Distribution Taxable Period Combined Consolidated and Unitary
Corporate Income Tax Liabilities. Spinco or a member of the Spinco Group shall
pay, on a timely basis, all Taxes due with respect to any Combined State Tax
Returns ("COMBINED TAXES") for Pre-Distribution Taxable Periods.
(c) Tax Liability for Marriott (Canada). Spinco shall pay, on a timely
basis, all Taxes due with respect to Marriott (Canada) for all Pre-
Distribution Taxable Periods.
(d) Pre-Distribution Taxable Period Liabilities for Other Taxes. All Taxes
due with respect to Other Tax Returns ("OTHER TAXES") for Pre-Distribution
Taxable Periods shall be paid by the party responsible under this Agreement
for filing the Other Tax Return pursuant to which such Taxes are due. Spinco
hereby assumes and agrees to pay directly to the appropriate taxing authority
that amount of all Other Taxes (except for sales, use and property Taxes,
which are provided for in Section 3.03(g) hereof, and for Other Taxes with
respect to Other Tax Returns filed by any MMS Subsidiary, as reflected on
Schedule 2.02(d), which shall be paid directly to Marriott for payment to the
appropriate taxing authority) that are due with respect to Other Tax Returns
filed by Marriott or any MMS Subsidiary for Pre-Distribution Taxable Periods.
Section 3.02 Straddle Period Tax Liabilities.
(a) Straddle Period Consolidated Federal Income Tax Liabilities. Except as
otherwise provided in Section 2.03(e) and Section 4.05(a) of this Agreement,
Marriott shall pay, on a timely basis, all Taxes due with respect to the
consolidated federal income tax liability for all Straddle Periods of the
Affiliated Group. Spinco hereby assumes and agrees to pay directly to Marriott
its allocable share of the Taxes for the Straddle Period, in accordance with
the following:
(i) Spinco's allocable share of liability for Taxes for the Straddle
Period will be the net hypothetical consolidated federal income tax
liability for the Affiliated Group determined pursuant to a hypothetical
pro forma tax return prepared by Spinco (the "HYPOTHETICAL RETURN") that
shall be prepared as though the Short Period were a taxable period ending
on the Distribution Date, which hypothetical tax liability may be positive
or negative (provided, however, that any Taxes attributable to, resulting
from, arising from, or caused by a loss, in part or in whole, of Tax-Free
Status shall be treated as occurring the day after the Distribution Date
for these purposes). The Hypothetical Return shall be prepared by
determining the items of income, expense, deduction, loss or credit on a
"closing of the books" basis as of the Distribution Date and shall be
provided by Spinco to Marriott, on an estimated basis, within twelve weeks
after the Distribution Date, and shall incorporate thereon any reasonable
comments timely provided in writing by Marriott. Subject to the foregoing,
the Hypothetical Return shall be prepared on a basis consistent with the
elections, accounting methods, conventions, and principles of taxation used
for the most recent taxable periods for which Tax Returns involving similar
Tax Items have been filed, to the extent that a failure to do so would
result in a Tax Detriment to the other party hereto or a member of its
Group.
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(ii) In determining Spinco's allocable share of any Tax liability as set
forth in the Hypothetical Return, (A) those extraordinary expenses (and
related income tax deductions) incurred in connection with the Distribution
and acquisition of ICC, whether on or before the Distribution Date, that
are described in Clause (x)(I) of the definition of "Adjusted Net Tangible
Assets" of the Distribution Agreement shall be allocated to the portion of
the Straddle Period after the Distribution Date; and (B) all other
extraordinary expenses (and related income tax deductions) incurred in
connection with the Distribution and acquisition of ICC shall be allocated
for tax and other purposes to the Short Period.
(iii) After the Distribution Date, Spinco shall timely pay all amounts
payable in respect of the Affiliated Group's quarterly estimated federal
income tax payments for the Short Period; such payments shall be made
directly to Marriott, which will, to the extent Tax is owed by the
Affiliated Group, forward such payments to the IRS.
(iv) If the calculations made pursuant to this Section 3.02(a) indicate
that Spinco's allocable share of the consolidated federal income tax
liability for the 1998 Taxable Year exceeds the sum of (A) any estimated
payments, deposits or credits made or applied with respect to the Short
Period (which shall be made or applied in accordance with past practice),
and (B) the estimated tax payments made in accordance with Section
3.02(a)(iii) hereof, then within 30 days of the filing of Marriott's
consolidated federal income tax return for the 1998 Taxable Year, Spinco
shall pay Marriott the amount of any such excess.
(v) If the calculations made pursuant to this Section 3.02(a) indicate
that the sum of (w) any estimated payments, deposits or credits made or
applied with respect to the Short Period made before the Distribution Date
(which shall be made or applied in accordance with past practice), and (x)
the estimated tax payments made in accordance with Section 3.02(a)(iii)
hereof, exceeds Spinco's allocable share of the consolidated federal income
tax liability for the 1998 Taxable Year, then within 30 days of the filing
of Marriott's consolidated federal income tax return for the 1998 Taxable
Year, Marriott shall pay Spinco the amount of any such excess. For these
purposes, if Spinco's allocable share of the consolidated federal income
tax liability is negative (for example, in the event that the Hypothetical
Return reflects a loss or a refund due for the Short Period), Marriott
shall pay to Spinco such negative amount plus the sum of (y) any estimated
payments, deposits or credits made or applied with respect to the Short
Period made before the Distribution Date (which shall be made or applied in
accordance with past practice), and (z) the estimated tax payments made in
accordance with Section 3.02(a)(iii) hereof.
(vi) All calculations and determinations required to be made pursuant to
this Section 3.02(a) shall be made by Spinco on a basis reasonably
consistent with prior years.
(b) Straddle Period Combined Consolidated and Unitary Corporate Income Tax
Liability. Except as otherwise provided in Section 2.03(e) and Section 4.05(a)
of this Agreement, Marriott shall pay, on a timely basis, all Combined Taxes
due with respect to all Straddle Periods. In accordance with the principles
set forth in Section 3.02(a) hereof, Spinco hereby assumes and agrees to pay
directly to Marriott its allocable share of all Combined Taxes for all
Straddle Periods, and Marriott hereby assumes and agrees to pay directly to
Spinco any overpayments by Spinco or any "negative tax liabilities."
(c) Tax Liability for Marriott (Canada). Except as otherwise provided in
Section 2.03(e) and Section 4.05(a) of this Agreement, Marriott shall pay, on
a timely basis, all Taxes due with respect to Marriott (Canada) for all
Straddle Periods. In accordance with the principles set forth in Section
3.02(a) hereof, Spinco hereby assumes and agrees to pay directly to Marriott
its allocable share of Marriott (Canada)'s Taxes for the Straddle Period, and
Marriott hereby assumes and agrees to pay directly to Spinco any overpayments
by Spinco or any "negative tax liabilities."
(d) Straddle Period Other Taxes. In the case of all Other Taxes (except for
sales, use and property Taxes, which are provided for in Section 3.03(g)
hereof) that are due with respect to Other Tax Returns filed by Marriott or
any MMS Subsidiary for Straddle Periods, and in accordance with the principles
set forth in Section 3.02(a) hereof, Spinco hereby assumes and agrees to pay
directly to Marriott its allocable share of all Taxes for all Straddle
Periods, and Marriott hereby assumes and agrees to pay directly to Spinco any
overpayments by Spinco or any "negative tax liabilities." Where the system set
forth in Section 3.02(a) hereof is not feasible in
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calculating the portion of Other Taxes for a Straddle Period for which Spinco
or Marriott is responsible under this Section 3.02, the amount of such Other
Taxes for which Spinco or Marriott is responsible shall be determined by
prorating the actual tax due for the Straddle Period on a daily proration
basis or by some other reasonable method on which Spinco and Marriott agree
(and Spinco and Marriott hereby agree to cooperate in good faith in
determining any such mutually acceptable method). The amount of such Other Tax
borne by Spinco shall be the amount allocated to the portion of the Straddle
Period ending on the Distribution Date.
Section 3.03 Other Allocations of Tax Liabilities.
(a) In implementing this Article III, the parties shall make any adjustments
that are necessary to insure that, with respect to all Taxes for Straddle
Periods, payment and reimbursement between the parties reflects the principle
that Spinco is to be liable for Taxes attributable to the portion of Straddle
Periods ending on the Distribution Date and Marriott is to bear responsibility
for Taxes attributable to the portion of Straddle Periods after the
Distribution Date (other than sales, use and property Taxes, the liability for
which is provided for in Section 3.03(g) hereof).
(b) Notwithstanding anything to the contrary in this Agreement, in
determining Spinco's allocable share of any Tax liability (under Section 3.01,
Section 3.02 or this Section 3.03), any increase in the Tax liability
resulting from any act or omission not in the ordinary course of business
(other than transactions contemplated by this Agreement, the Distribution
Agreement or the Merger Agreement) on the part of any member of the MMS Group
occurring on the Distribution Date, after the Distribution has been effected,
shall be deemed to arise in a taxable period which begins after the
Distribution Date.
(c) Notwithstanding anything to the contrary in this Agreement, in
determining Spinco's allocable share of any Tax liability (under Section 3.01,
Section 3.02 or this Section 3.03), any increase in the Tax liability
resulting from any act or omission not in the ordinary course of business
(other than transactions contemplated by this Agreement, the Distribution
Agreement or the Merger Agreement) on the part of any member of the Spinco
Group occurring on the Distribution Date, after the Distribution has been
effected, shall be deemed to arise in a taxable period which begins before the
Distribution Date.
(d) Notwithstanding anything to the contrary in this Article III, whenever
any party hereto is required to make any of the calculations or determinations
referred to therein, such party shall provide the other party with (i) copies
of any material calculations or determinations as soon as is practicable after
such calculations or determinations have been made, and prior to the
applicable Tax Returns' being filed, sufficient to enable the other party to
verify mathematical accuracy and (ii) if requested by the other party, access
during reasonable business hours to copies of any Returns, reports or other
statements sufficient to enable the other party to verify reasonably
consistent treatment with prior years.
(e) Notwithstanding anything to the contrary in this Agreement, any Tax
liabilities of MMS (U.K.) shall be governed exclusively by the Stock Purchase
and Sale Agreement to be entered into among Marriott, MMS, Sodexho and a
subsidiary of Sodexho respecting MMS's sale of MMS (U.K.) to Sodexho (or a
Sodexho Affiliate); provided, however, that any gain or loss incurred in the
sale of MMS (U.K.) shall be governed by this Agreement.
(f) Marriott shall not be responsible for or liable for any Taxes of ICC or
attributable to ICC which are attributable to periods prior to Marriott's
acquisition of ICC, and the Spinco Group shall not be responsible for or
liable for any Taxes of ICC or attributable to ICC for any period, and Sodexho
and its Affiliates shall be liable for and shall indemnify, defend and hold
harmless Marriott against any liability, payment, cost and/or expense
(including any Tax liability, lawyers' fees and accountants' fees) ("ICC TAX
LIABILITY") incurred by Marriott in respect of any Taxes of ICC or
attributable to ICC which are attributable to periods prior to Marriott's
acquisition of ICC, and shall indemnify, defend and hold harmless Spinco
against any ICC Tax Liability incurred by any member of the Spinco Group in
respect of any Taxes of ICC which are attributable to any period.
(g) Notwithstanding any other provision of this Agreement, Marriott and the
MMS Group shall be responsible for, and shall be entitled to receive and
retain all refunds relating to, all sales, use, and property taxes incurred
with respect to the Retained Business for the Pre-Distribution Taxable Period,
the Straddle Taxable Period, and the Post-Distribution Taxable Period, and the
portion of any reserve for Taxes relating to such sales,
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use and property Taxes related to the Retained Business shall be retained by
Marriott following the Distribution and shall be reflected in the Distribution
Date Statement described in Section 2.8(f) of the Distribution Agreement.
Section 3.04 Redetermined Tax Liabilities.
(a) Pre-Distribution Taxable Period Tax Returns. In the case of any Final
Determination regarding a Tax Return for a Pre-Distribution Taxable Period,
any Tax Deficiency shall be paid to the appropriate taxing authority by, and
any Tax Refund received from the appropriate taxing authority shall be paid
to, Spinco, and Marriott shall forward any such Tax Refund to Spinco within
ten days after receipt thereof; provided, however, that (i) any Final
Determination respecting consolidated federal income Taxes for the Short
Period shall be provided for in Section 3.04(b) hereof, and (ii) any Final
Determination respecting sales, use or property Taxes shall be provided for in
Section 3.03(g) hereof.
(b) Straddle Period Joint Tax Returns. In the case of any Final
Determination regarding a Straddle Period Tax Return (which, for purposes of
this Section 3.04(b), shall include Marriott's consolidated federal income Tax
Return for the 1998 Taxable Year), Spinco's allocable share of any Tax
Deficiency shall be paid to the appropriate taxing authority by, and Spinco's
allocable share of any Tax Refund received from the appropriate taxing
authority shall be paid to, Spinco, and Marriott shall forward Spinco's
allocable share of any such Tax Refund to Spinco within ten days after receipt
thereof. For purposes of this Section 3.04(b), Spinco's allocable share of Tax
respecting any Final Determination shall be the excess of (A) Spinco's
allocable share of Tax, determined under the principles of Section 3.02(a),
with respect to a recomputed Hypothetical Return that takes into account the
Final Determination, over (B) Spinco's allocable share of Tax as determined
using the most recent Hypothetical Return (either the original Hypothetical
Return or a recomputed Hypothetical Return generated with respect to a prior
Final Determination). For purposes of this Section 3.04(b), the MMS Group's
allocable share of Tax respecting any Final Determination shall be the amount
of such Final Determination, less Spinco's allocable share as determined in
the immediately preceding sentence. Whether or not there is a Tax Deficiency
or Tax Refund or whether or not a payment is required to or from the
appropriate taxing authority, Marriott shall make payments to Spinco or
receive payments from Spinco based upon the following principles:
(i) Marriott shall make a payment to Spinco in an amount equal to any
increase in the MMS Group's allocable share of Tax (including any
applicable interest or penalties, which is or has been imposed by any
taxing authority with respect to any additional Taxes resulting from such
adjustments, or any such interest that would have been imposed but for any
offsetting Tax Items) with respect to such Tax Return, less any payments
previously made by Marriott to Spinco (or directly to the appropriate
taxing authority) or any Refund amount received by Spinco attributable to
the MMS Group's allocable share of Tax.
(ii) Spinco shall make a payment to Marriott in an amount equal to any
decrease in the MMS Group's allocable share of Tax (including any
applicable interest or penalties, which is or has been imposed by any
taxing authority with respect to any additional Taxes resulting from such
adjustments, or any such interest that would have been imposed but for any
offsetting Tax Items) with respect to such Tax Return, less any payments
previously made by Spinco to Marriott (or directly to the appropriate
taxing authority) or any Refund amount received by Marriott attributable to
the MMS Group's allocable share of Tax.
(iii) Payments made pursuant to subsections (i) and (ii) above shall be
adjusted to take into account the amounts of any offsetting adjustments
that result in an increase or decrease in the MMS Group's allocable share
of Taxes with respect to any Tax Return for another period (as determined
under the above principles), resulting from adjustments to Marriott Tax
Items in such Final Determination. This Section 3.04 shall be applied in a
manner that avoids any duplications of payments.
(c) Liability for Taxes with Respect to Post-Distribution Periods. Except as
otherwise provided in Section 3.04(a) or Section 3.04(b) of this Agreement,
the Spinco Group shall pay all Taxes and shall be entitled to receive and
retain all refunds of Taxes resulting from a Final Determination with respect
to periods beginning after the Distribution Date which are attributable to the
Spinco Business. Except as otherwise provided in Section 3.04(a) or Section
3.04(b) of this Agreement, the MMS Group shall pay all Taxes and shall be
entitled to receive and
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retain all refunds of Taxes resulting from a Final Determination with respect
to periods beginning after the Distribution Date which are attributable to the
Retained Business.
(d) Rollover Items. Notwithstanding anything to the contrary in this
Agreement, (i) with respect to any tax items for which, pursuant to a Final
Determination, taxable income is recognized in a period before the
Distribution Date with respect to an asset or other item (including an
intangible asset or a capitalized expense) and such items will generate a
corresponding tax benefit or benefits (excluding permanent timing changes) to
the MMS Group in a tax period ending after the Distribution Date ("ROLLOVER
ITEMS"), Marriott shall pay to Spinco an amount equal to the amount of such
tax benefit or benefits attributable to such Rollover Items, determined at the
highest marginal corporate tax rate set by statute for such periods, and (ii)
with respect to any tax items for which, pursuant to a Final Determination,
taxable income is recognized by the MMS Group in a taxable period ending after
the Distribution Date with respect to an asset or other item (including an
intangible asset or a capitalized expense), and such Rollback Items will
generate a corresponding tax benefit or benefits (excluding permanent timing
changes) to a member of the Spinco Group ("ROLLBACK ITEMS"), Spinco shall pay
to Marriott an amount equal to the amount of such tax benefit or benefits
attributable to such Rollback Items, determined at the highest marginal
corporate tax rate set by statute for such periods. Any payment to be made
under this Section 3.04(d) shall be appropriately discounted to the present
value of any reduction in Taxes, to reflect the time-value-of-money (the
discount rate to be equal to LIBOR plus one percent for the period in which
such payment is to be made).
(e) Calculation and Payment of Amounts. Except in the case of Tax Returns
that include only MMS and the MMS Subsidiaries, all calculations and
determinations required to be made pursuant to this Section 3.04 shall be made
by Spinco in good faith and on a basis reasonably consistent with prior years.
Any payments made by the parties hereunder to each other shall be treated by
each of the parties as satisfaction of liabilities of such paying party and
shall not be subject to any gross-up or additional payment.
(f) Other Tax Liabilities and Refunds. Any Tax Liability or Refund with
respect to a Pre-Distribution Taxable Period Joint Tax Return not arising from
an adjustment to, or change in, a Tax Item (e.g., change in applicable law)
shall be allocated to Spinco. Any Tax Liability or Refund with respect to a
Straddle Period Joint Tax Return not arising from an adjustment to, or change
in, a Tax Item (e.g., change in applicable law) shall be allocated by Spinco
between Spinco and Marriott in a manner consistent with Section 3.02(a)
hereof.
(g) The provisions of Section 3.03(d) hereof shall apply with respect to the
calculations and allocations to be made by Spinco pursuant to this Section
3.04.
Section 3.05 Carrybacks. Any Tax Refund resulting from the carryback by
Spinco of any Tax Item arising after the Distribution Date to a Pre-
Distribution Taxable Period or a Straddle Period shall be for the account of
Spinco, and Marriott shall promptly pay over to Spinco any such Tax Refund
that it receives. Spinco shall be permitted to file, and Marriott shall fully
cooperate with Spinco in connection with, any such Tax Refund claim. To the
extent that any carryback by Marriott of any Tax Item arising after the
Distribution Date causes a Tax Detriment to the Spinco Group, Marriott shall
reimburse Spinco for the cost to the Spinco Group of such Tax Detriment.
ARTICLE IV
Indemnity, Tax Notices, Audits and Exchange of Information
Section 4.01 Indemnity for Breach. Spinco shall be liable for and shall
indemnify, defend and hold harmless the MMS Indemnitees from and against any
payment required to be made as a result of the breach by a member of the
Spinco Group of any representation, warranty, covenant or agreement under this
Agreement. Marriott shall be liable for and shall indemnify, defend and hold
harmless the Spinco Indemnitees from and against any payment required to be
made as a result of the breach by a member of the MMS Group of any
representation, warranty, covenant or agreement under this Agreement.
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Section 4.02 Notice of Indemnity Issue. Whenever a party hereto becomes
aware of the existence of an issue which could increase the liability for any
Tax of the other party hereto or any member of its Group or require a payment
hereunder (hereinafter an "INDEMNITEE"), the Indemnitee shall in good faith
promptly give notice to such other party (hereinafter the "INDEMNITOR") of
such issue. The failure of any Indemnitee to give such notice shall not
relieve any Indemnitor of its obligations under this Agreement except to the
extent such Indemnitor or its Affiliate is actually materially prejudiced by
such failure to give notice.
Section 4.03 Forwarding Responsibilities. If Marriott or Spinco, or any
member of the MMS Group or Spinco Group, fails to comply in any respect
whatsoever with any of its responsibilities under the Agreement relating to
promptly forwarding any communications with and refunds received from any
taxing authority ("FORWARDING RESPONSIBILITIES"), then:
(a) If such failure relates to a communication other than a refund, the
party failing to fulfill the Forwarding Responsibilities (or any member of
such party's Group) shall be liable for and shall indemnify and hold Spinco
and the Spinco Group, or Marriott and the MMS Group, as the case may be,
harmless from and against any costs or expenses (including Taxes and
lawyers' and accountants' fees) ("INDEMNIFIED AMOUNT") incurred by or
imposed upon the party to receive such communication, or any member of the
party's Group, as a result of such delay with respect to such
communication.
(b) If such failure relates to a refund, the party failing to fulfill the
Forwarding Responsibilities (or any member of such party's Group) shall be
liable to Spinco and the Spinco Group, or Marriott and the MMS Group, as
the case may be, for the full amount of such refund, plus interest accruing
as of the date such communication should have been forwarded at the prime
rate as published in The Wall Street Journal, plus any costs or expenses
(including lawyers' and accountants' fees) incurred by or imposed upon the
party to receive such refund, or any member of the party's Group, as a
result of such delay with respect to such refund.
(c) Whenever an Indemnitee receives any written communication by any
means from any Governmental Entity that relates to or could have an effect
on Taxes for any Pre-Distribution Taxable Period or Straddle Period, the
Indemnitee shall immediately thereupon forward such communication to the
Indemnitor at the address provided in Section 4.03(d). The failure of any
Indemnitee to give such notice shall not relieve any Indemnitor of its
obligations under this Agreement except to the extent such Indemnitor or
its Affiliate is prejudiced by such failure to give notice.
(d) All communications forwarded pursuant to Section 4.03(d) hereunder
shall be delivered by hand including overnight business courier or mailed
by registered or certified mail (return receipt requested) to the parties
at the following addresses (or to such other person as a party hereto shall
designate in writing by notice provided under Section 6.03 hereof):
To Spinco or any member of the Spinco Group:
Senior Vice President-Taxes
New Marriott MI, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
To Marriott or any member of the MMS Group:
Sodexho Marriott Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Chief Financial Officer
Section 4.04 Audit Matters. Spinco shall have primary responsibility for
conducting the audit of any Joint Tax Return relating to or having an effect
on any Pre-Distribution Taxable Period or Straddle Period, and Spinco shall
have primary responsibility for conducting any subsequent litigation relating
thereto. Marriott shall have the right, directly or through its designated
representatives, to review in advance and comment upon all submissions made in
the course of such audits, appeals, or litigation and to be present at,
directly or by its representatives, all conferences, meetings or proceedings
with any taxing authority, and all appearances before
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any court, the subject matter of which is or includes an item for which the
MMS Group could be liable under this Agreement; in addition, if the
disposition, resolution or compromise of such audit or appeal will or might
reasonably be expected to result in Marriott having an increased Tax
liability, or any other adverse Tax consequence, for any period beginning
after the Distribution Date, Marriott shall have the right, exercisable within
10 days of its receipt of notice of a proposed disposition of the audit or
appeal, to veto the disposition of any audit adjustment with respect to such
periods, such veto not to be unreasonably exercised. Each party shall bear its
own internal expenses of participation in such audits, appeals, or litigation.
The expenses of hiring outside counsel or accountants by either party with
respect to the matters contemplated by this Section 4.04 shall be borne (i) by
Spinco for matters relating to Pre-Distribution Taxable Periods (other than
periods ending on the Distribution Date), and (ii) 50% by Spinco and 50% by
MMS Group for all Straddle Periods (which for these purposes includes those
periods ending on the Distribution Date). If Spinco declines to defend any
matter provided for in this Section 4.04, Marriott has the right to pay,
compromise or contest the matter, and Spinco shall bear Marriott's costs in
those actions.
Section 4.05 Cooperation and Exchange of Information.
(a) Preparation of Returns. Marriott shall, and shall cause each appropriate
member of the MMS Group to, prepare and submit to Spinco, at Marriott's
expense, (i) in accordance with past practice, but in no event later than July
1, 1998, all information as Spinco shall reasonably request to enable Spinco
to file the Marriott consolidated federal income tax return for the 1997
Taxable Year, and (ii) in accordance with past practice, but in no event later
than August 1, 1998, all information that Spinco shall reasonably request to
enable Spinco to file any state and local combined or unitary corporate income
tax returns for the 1997 Taxable Year. Spinco shall, and shall cause each
appropriate member of the Spinco Group to, prepare and submit to Marriott, at
Spinco's expense, in accordance with past practice, but in no event later than
July 1, 1999, all information as Marriott shall reasonably request to enable
Marriott to file the Marriott consolidated federal income tax return for the
1998 Taxable Year (other than the pro forma tax returns for the Spinco Group,
which will be provided by December 31, 1998, as provided for in Section
2.02(a) hereof), and (ii) in accordance with past practice, but in no event
later than August 1, 1999, all information that Marriott shall reasonably
request to enable Marriott to file any state and local combined or unitary
corporate income tax returns for the 1998 Taxable Year. Notwithstanding the
foregoing provisions of this Section 4.05(a), if the Distribution Date is
delayed until after May 31, 1998, then, in order to facilitate the orderly
preparation and filing of the tax returns for Marriott for the balance of the
1998 Taxable Year, Spinco, if it so elects under Section 2.03(e) hereof, will
prepare at its expense, and submit to Marriott for its review and approval,
the Marriott consolidated federal income tax and state income tax returns for
the 1998 Taxable Year, and shall take such other steps and shall have such
other authority delegated to it by Marriott as Spinco in its discretion shall
deem necessary to prepare and file such returns in a timely manner.
(b) Cooperation. Marriott, on behalf of itself and each member of the MMS
Group, agrees to provide the Spinco Group with such cooperation and
information as Spinco shall reasonably request in connection with the
preparation or filing of any Tax Return (or Hypothetical Return) or claim for
refund not inconsistent with this Agreement or in conducting any audit or
other proceeding in respect to Taxes. Such cooperation and information shall
include designation of an officer of Spinco as an officer of Marriott and MMS
for the purpose of signing Tax Returns, receiving and cashing refund checks
and defending audits as well as promptly forwarding copies of appropriate
notices and forms or other communications received from or sent to any taxing
authority which relate to the Affiliated Group or the Retained Business and
providing copies of all relevant Tax Returns, together with accompanying
schedules and related workpapers, documents relating to rulings or other
determinations by taxing authorities, including foreign taxing authorities,
and records concerning the ownership and Tax basis of property, which either
party may possess. It is expressly the intention of the parties to this
Agreement to take all actions necessary to establish Spinco as the sole agent
for tax purposes of each member of the Affiliated Group with respect to all
combined, consolidated and unitary Tax Returns of the Affiliated Group for
Pre-Distribution Taxable Periods as if Spinco were the common parent of the
Affiliated Group, and as the sole agent for tax purposes of Marriott for all
Tax Returns of Marriott for Pre-Distribution Taxable Periods. Marriott and MMS
shall make, or shall cause the members of the MMS Group to make, their
employees and facilities available on a
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mutually convenient basis to provide explanation of any documents or
information provided hereunder, without charge to Spinco.
(c) Record Retention. Marriott and Spinco agree to retain all Tax Returns,
related schedules and workpapers, and all material records and other documents
as required under Section 6001 of the Code and the regulations promulgated
thereunder relating thereto existing on the date hereof or created through the
Distribution Date, until the expiration of the statute of limitations
(including extensions) of the taxable years to which such Tax Returns and
other documents relate and until the Final Determination of any payments which
may be required in respect of such years under this Agreement. Spinco and
Marriott agree to advise each other promptly of any such Final Determination.
Any information obtained under this Section 4.05 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of Tax
Returns or claims for refund or in conducting any audit or other proceeding.
Spinco shall be the owner of those Tax Returns, related schedules and
workpapers, and all material records and other documents relating to those Tax
Returns, relating to all Pre-Distribution Taxable Periods and that portion of
the Straddle Period ending on the Distribution Date (except for those Tax
Returns, related schedules and workpapers, and all material records and other
documents relating to those Tax Returns, prepared and filed by members of the
Adjusted MMS Group). Marriott shall be the owner of those Tax Returns, related
schedules and workpapers, and all material records and other documents
relating to those Tax Returns, relating to all Post-Distribution Taxable
Periods and that portion of the Straddle Period following the Distribution
Date.
(d) Special Indemnification. If any member of the Spinco Group or the MMS
Group, as the case may be, supplies information to a member of the other Group
pursuant to this Section 4.05 and an officer of the requesting party signs a
statement or other document under penalties of perjury in reliance upon the
accuracy of such information, then a duly authorized officer of the party
supplying such information shall certify upon request, under penalties of
perjury, the accuracy and completeness of the information so supplied. Spinco
agrees to indemnify and hold harmless each member of the MMS Group and its
directors, officers and employees, and Marriott agrees to indemnify and hold
harmless each member of the Spinco Group and its directors, officers and
employees, from and against any cost, fine, penalty or other expense of any
kind attributable to the negligence or willful misconduct of a member of the
Spinco Group or the MMS Group, as the case may be, in supplying a member of
the other Group with inaccurate or incomplete information.
ARTICLE V
Matters Relating to the Distribution
Section 5.01 Representations of Spinco.
(a) Spinco hereby represents and warrants to Marriott and Sodexho that, as
of the Distribution Date, (i) it has examined the Ruling Documents and (ii) to
its best knowledge after due inquiry, the facts presented and the
representations made therein (including the representations in the Ruling
Documents to the extent that they relate to the plans, proposals, intentions,
and policies of Spinco, Marriott and its Subsidiaries) are true, complete and
correct.
(b) Spinco hereby represents and warrants to Marriott and Sodexho that it
has no plan or intention of taking any action, or failing or omitting to take
any action, that would (i) cause the Distribution not to have Tax-Free Status,
(ii) cause any representation or factual statement made in the Ruling
Documents to be untrue, or (iii) be inconsistent with information provided to
the IRS in connection with Tax Ruling.
(c) Spinco hereby represents and warrants to Marriott and Sodexho that the
Distribution is not part of a plan (or series of related transactions)
pursuant to which any Persons will acquire stock representing a Fifty Percent
or Greater Interest in Spinco.
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Section 5.02 Covenants of Spinco.
(a) Spinco shall not, and Spinco shall cause each Spinco Group member not
to, take any action, or fail or omit to take any action that would (i) cause
the Distribution not to have Tax-Free Status, or (ii) cause any representation
made in the Ruling Documents to be untrue.
(b) During the two-year period beginning on the Distribution Date, Spinco
shall not cease, or permit any of its Subsidiaries or Affiliates to cease to
be engaged in the conduct of the active trade or business relied upon for
purposes of satisfying the requirements of Section 355(b) of the Code for
purposes of the Tax Ruling.
(c) Until the first day after the Restricted Period, Spinco (or any
successor thereof) shall not (i) solicit any Person to make a tender offer for
the Equity Securities of Spinco or any successor thereof, (ii) participate in
or support any unsolicited tender offer for the Equity Securities of Spinco or
any successor thereof, or (iii) approve any proposed business combination or
any transaction which, in each case, results in any Persons acquiring an
interest in Spinco or any successor thereof such that such Persons own a Fifty
Percent or Greater Interest in Spinco or any successor thereof; provided,
however, that this Section 5.02(c) shall not prevent Spinco from purchasing
Spinco stock pursuant to a stock purchase program satisfying the requirements
of Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696.
Section 5.03 Representations of Marriott and Sodexho.
(a) Marriott and Sodexho each hereby represents and warrants to Spinco that,
as of the Distribution Date, (i) it has examined the Ruling Documents and (ii)
to its best knowledge after due inquiry, to the extent descriptive of the MMS
Subsidiaries and the Retained Business (including the representations in the
Ruling Documents to the extent that they relate to the plans, proposals,
intentions, and policies of Marriott with respect to the MMS Subsidiaries or
with respect to the Retained Business), the facts presented and the
representations made therein are true, complete and correct.
(b) Marriott and Sodexho each hereby represents and warrants to Spinco that
it has no plan or intention of taking any action, or failing or omitting to
take any action, that would (i) cause the Distribution not to have Tax-Free
Status, (ii) cause any representation or factual statement made in the Ruling
Documents to be untrue, or (iii) be inconsistent with information provided to
the IRS in connection with Tax Ruling.
(c) Marriott and Sodexho each hereby represents and warrants to Spinco that
the Distribution is not part of a plan (or series of related transactions)
pursuant to which any Persons will acquire stock representing a Fifty Percent
or Greater Interest in Marriott or any successor to Marriott.
Section 5.04 Covenants of Marriott and Sodexho.
(a) Neither Marriott, Sodexho, nor any Affiliate of Sodexho shall take any
action, fail or omit to take any action, or permit any Member of the MMS Group
or to take any action or fail or omit to take any action, that would (i) cause
the Distribution not to have Tax-Free Status or (ii) cause any representation
made in the Ruling Documents to be untrue.
(b) During the two-year period beginning on the Distribution Date, Marriott
shall not cease, or permit any of its Subsidiaries or Affiliates to cease, to
be engaged in the conduct of the active trade or business relied upon for
purposes of satisfying the requirements of Section 355(b) of the Code for
purposes of the Tax Ruling.
(c) Until the first day after the Restricted Period, Sodexho will not hold,
acquire or exercise any right or interest in Marriott or its successors
(including the exercise of any rights respecting the corporate governance of
Marriott or its successors), such that Sodexho and any direct or indirect
Subsidiary, parent, Affiliate of, or any Person otherwise related to, or that
could be treated as acting pursuant to a plan or arrangement with, Sodexho
will collectively hold a Fifty Percent or Greater Interest in Marriott or any
successor thereof.
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(d) Until the first day after the Restricted Period, Marriott shall not sell
or otherwise issue to any Person (a "PROHIBITED SALE OR ISSUANCE"), or redeem
or otherwise acquire from any Person, any Equity Securities of Marriott or any
successor thereof; provided, however, that (i) Marriott may issue (x) Equity
Securities in respect of the Liquid Yield Option Notes due March 25, 2011, and
(y) any compensatory options or shares of Marriott stock issued to employees
of the MMS Group where the issuance of such shares, or shares of Marriott
stock issued pursuant to the exercise of such options, shall not constitute a
Prohibited Sale or Issuance of Equity Securities and (ii) Marriott may
purchase its Equity Securities pursuant to a stock purchase program satisfying
the requirements of Section 4.05(1)(b) of Rev. Proc. 96-30, 1996-1 C.B. 696,
provided that such purchase will not violate the provisions of Section 5.04(f)
below.
(e) Until the first day after the Restricted Period, Sodexho shall not (i)
individually, or with any direct or indirect Subsidiary, parent, or Affiliate
of, or any Person otherwise related to, or that could be treated as acting
pursuant to a plan or arrangement with, Sodexho, acquire or hold collectively
a Fifty Percent or Greater Interest in Marriott or any successor thereof, and
(ii) permit any Equity Securities of Marriott or any successor thereof to be
acquired or held in any manner that would allow a Person or group of Persons
to hold a Fifty Percent or Greater Interest in Marriott or any successor
thereof.
(f) Until the first day after the Restricted Period, Marriott (or any
successor thereof) shall not (i) solicit any Person to make a tender offer for
the Equity Securities of Marriott or any successor thereof, (ii) participate
in or support any unsolicited tender offer for the Equity Securities of
Marriott or any successor thereof, or (iii) approve any proposed business
combination or any transaction which, in each case, results in any Persons
acquiring an interest in Marriott or any successor thereof such that such
Persons own a Fifty Percent or Greater Interest in Marriott or any successor
thereof.
Section 5.05 Joint Covenants.
(a) Any of the provisions of Section 5.02(b) and (c), and Section 5.04(b),
(c), (d), (e) and (f) shall be waived with respect to any particular
transaction or transactions if Spinco or Marriott has obtained (i) a ruling
from the IRS, in form and substance reasonably satisfactory to the other party
hereto, to the effect that such proposed transaction will not adversely affect
the Tax-Free Status of the Distribution, or (ii) an opinion of counsel, which
opinion and counsel shall be reasonably satisfactory to the other party
hereto, that to effect the proposed transaction will not adversely affect the
Tax-Free Status of the Distribution. Waiver with respect to one transaction or
group of transactions shall not constitute a waiver with respect to any other
transaction.
(b) Until the first day after the Restricted Period, Marriott, Sodexho and
Spinco, as the case may be, will provide written notice to the other party
hereto of any action described in Section 5.02 or Section 5.04 hereof, without
regard to the exceptions thereto, within a period of time sufficient to enable
the other party to seek a Subsequent Ruling or opinion of counsel, or to
prepare and seek injunctive relief in a court of competent jurisdiction. Each
such notice shall set forth the terms and conditions of the proposed
transaction, including the nature of any related action proposed to be taken
by the board of directors of Marriott or Spinco, as the case may be, the
approximate number of Equity Securities (if any) proposed to be sold or
otherwise issued, the approximate value of any assets (or assets of any
Affiliates) proposed to be transferred, and the proposed timetable for such
transaction, all with sufficient particularity to enable the other party to
prepare and seek such Subsequent Ruling or opinion of counsel, or seek such
injunctive relief. Promptly, but in any event within 30 days, after the other
party receives such written notice from the party seeking to effect the
transaction, the party receiving notice shall notify Marriott or Spinco, as
the case may be, in writing of any intent to seek a Subsequent Ruling or
opinion of counsel. In the event a party intends to seek a Subsequent Ruling,
such party must notify the other party of the proposed date for the initial
submission thereof, which date shall not be more than 60 days after so
notifying Marriott or Spinco of its intent to seek such Subsequent Ruling,
provided that such 30-day period (from the preceding sentence) or 60-day
period, as the case may be, shall be appropriately extended for any period of
noncompliance by Marriott or Spinco with this Section.
(c) Each party hereto shall cooperate with the other party in connection
with a party's request for a Subsequent Ruling or opinion of counsel. Such
cooperation shall include providing any information and/or representations
reasonably requested to enable a party to obtain and maintain any Subsequent
Ruling or opinion of counsel. From and after any Representation Date until the
first day after the two-year anniversary of the date
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that a party receives the correlative Subsequent Ruling or opinion of counsel,
the parties hereto shall not take (nor refrain from taking) any action that
would have caused a representation given in connection with any such
Subsequent Ruling or opinion of counsel to have been untrue as of the relevant
Representation Date, had such party intended to take (or refrain from taking)
such action on the relevant Representation Date.
Section 5.06 Indemnification Relating to the Distribution.
(a) Spinco agrees to indemnify, defend and hold harmless the MMS Indemnitees
from and against any costs or expenses (including Taxes and lawyers' and
accountants' fees) resulting from (i) a breach by Spinco of any representation
or covenant hereof; or (ii) the loss of Tax-Free Status by reason of the
acquisition by any Person or Persons of a direct or indirect interest in
Spinco or any successor thereof such that such Person owns or Persons own a
Fifty Percent or Greater Interest in Spinco or any successor thereof.
(b) Marriott and Sodexho agree to indemnify, defend and hold harmless the
Spinco Indemnitees from and against any costs or expenses (including Taxes and
lawyers' and accountants' fees) resulting from (i) a breach by Marriott or
Sodexho of any representation or covenant hereof, or (ii) the loss of Tax-Free
Status by reason of the acquisition by any Person or Persons of a direct or
indirect interest in Marriott or any successor thereof such that such Person
owns or Persons own a Fifty Percent or Greater Interest in Marriott or any
successor thereof.
Section 5.07 Changes Resulting from Tax Ruling Process. To the extent the
IRS requires the parties to change the transactions undertaken in connection
with the Distribution or acquisition of ICC, or to change the rights and
obligations of the parties respecting the Distribution or acquisition of ICC,
in order for the parties to obtain the Tax Ruling, or the IRS requires
representations or covenants from the parties that are not contained in this
Article 5 (and such representations or covenants are material), and the
parties hereto agree to any such changes pursuant to Section 6.12 of the
Merger Agreement, the parties hereto agree to amend this Agreement and revise
the representations and covenants of this Article V to reflect such changes.
Section 5.08 Injunction. The parties hereto agree that the payment of
monetary compensation would not be an adequate remedy to a breach of the
obligations contained in Section 5.02(a) and (c) and Section 5.04(a), (c),
(d), (e) and (f) hereof, and each party consents to the issuance and entry of
an injunction to prevent a breach of the obligations contained in those
Sections; provided, however, that the foregoing shall be without prejudice to
and shall not constitute a waiver of any other remedy either party may be
entitled to at law or at equity hereunder.
Section 5.09 Procedures regarding Transfer Restriction.
(a) Marriott shall not knowingly give effect on the books of the Corporation
to any purported transfer of shares of Common Stock in violation of Article 7
of Marriott's Certificate of Incorporation.
(b) Marriott shall give its transfer agent stop-transfer instructions with
respect to any proposed transfers of Marriott's common stock by Sodexho that
would be in violation of Article 7 of Marriott's Certificate of Incorporation
or the Stockholder Agreement dated as of the date hereof between Marriott and
Sodexho.
(c) In the event that the Board of Directors of Marriott is provided with an
opinion of counsel pursuant to Section 6 of Article 7 of Marriott's
Certificate of Incorporation, Marriott shall provide a copy of such opinion to
Spinco. Within seven days of receipt of such opinion, Spinco shall provide
written notice to Marriott as to whether such opinion is satisfactory to
Spinco in its reasonable discretion in accordance with the terms of such
Section 6 of Article 7.
ARTICLE VI
Miscellaneous
Section 6.01 Expenses. Except as otherwise expressly provided in this
Agreement or in the Distribution Agreement, each party shall bear any and all
expenses that arise from their respective obligations under this Agreement.
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Section 6.02 Amendment. This Agreement may not be amended except by an
agreement in writing, signed by the parties hereto. Anything in this Agreement
or the Distribution Agreement to the contrary notwithstanding, in the event
and to the extent that there shall be a conflict between the provisions of
this Agreement and the Distribution Agreement, the provisions of this
Agreement shall control.
Section 6.03 Notices. All notices and other communications hereunder,
excepting those notices provided for in Section 4.02 hereunder, shall be in
writing and shall be delivered by hand including overnight business courier or
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other addresses for a party as
shall be specified by like notice) and shall be deemed given on the date on
which such notice is received:
To Spinco or any member of the Spinco Group:
New Marriott MI, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Senior Vice President-Taxes
With a copy to:
O'Melveny & Myers LLP
555 13th Street, NW
Suite 500 West
Washington, DC 20004
Attention: Jeffrey J. Rosen
To Sodexho, Marriott or any member of the MMS Group:
Sodexho Marriott Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Chief Financial Officer
With a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Paul R. Kingsley
Section 6.04 Resolution of Disputes. Any disputes between the parties with
respect to this Agreement shall be resolved by a "Big Six" public accounting
firm or a law firm satisfactory to Spinco and Marriott, whose fees and
expenses shall be shared equally by Spinco and Marriott.
Section 6.05 Application to Present and Future Subsidiaries. This Agreement
is being entered into by Spinco and Marriott on behalf of themselves and each
member of the Spinco Group and MMS Group, respectively. This Agreement shall
constitute a direct obligation of each such member and shall be deemed to have
been readopted and affirmed on behalf of any corporation which becomes a
member of the Spinco Group or MMS Group in the future. Spinco and Marriott
hereby guarantee the performance of all actions, agreements and obligations
provided for under this Agreement of each member of the Spinco Group and the
MMS Group, respectively. Spinco and Marriott shall, upon the written request
of the other, cause any of their respective group members formally to execute
this Agreement. This Agreement shall be binding upon, and shall inure to the
benefit of, the successors, assigns and persons controlling any of the
corporations bound hereby for so long as such successors, assigns or
controlling persons are members of the Spinco Group or the MMS Group or their
successors and assigns.
Section 6.06 Term. This Agreement shall commence on the date of execution
indicated below and shall continue in effect until otherwise agreed to in
writing by Spinco and Marriott, or their successors.
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Section 6.07 Legal Enforceability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
Section 6.08 Governing Law. This Agreement shall be governed by the laws of
the State of New York.
In Witness Whereof. the parties have executed this Agreement as of the date
above first written.
Marriott International, Inc.
By:
---------------------------------
Name:
Title:
New Marriott MI, Inc.
By:
---------------------------------
Name:
Title:
Sodexho Alliance S.A.
By:
---------------------------------
Name:
Title:
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APPENDIX F--MERRILL LYNCH FAIRNESS OPINION
November 6, 1997
Board of Directors
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Ladies and Gentlemen:
We understand that pursuant to (i) a distribution agreement dated as of
September 30, 1997 (the "Distribution Agreement") by and among Marriott
International, Inc. (the "Company") and New Marriott MI, Inc., a wholly owned
subsidiary of the Company ("New Marriott"), the Company proposes to contribute
its lodging, food distribution and senior living businesses to New Marriott
and to distribute the outstanding shares of New Marriott Common Stock and
Class A Common Stock (together, the "New Marriott Shares") to the stockholders
of the Company (collectively, the "Spinoff"), (ii) an Agreement and Plan of
Merger dated as of September 30, 1997 (the "Acquisition Agreement") by and
among the Company, New Marriott, Marriott-ICC Merger Corp. ("Merger Corp."), a
wholly owned subsidiary of the Company, International Catering Corporation
("ICC"), a wholly owned subsidiary of Sodexho Alliance S.A. ("Sodexho"), and
Sodexho, and an omnibus restructuring agreement, dated as of September 30,
1997 (the "Omnibus Agreement"), by and among the Company, Merger Corp., New
Marriott, Sodexho and ICC, immediately following the Spinoff, Sodexho will
transfer to the Company all of the issued and outstanding capital stock of
Sodexho Financiere du Canada Inc. ("Sodexho Canada" and, together with ICC,
"Sodexho North America"), and Merger Corp. will be merged with and into ICC,
as a result of which ICC will become a wholly owned subsidiary of the Company
(together, the "Acquisition") and (iii) a stock purchase agreement dated as of
September 30, 1997 (the "Stock Purchase Agreement") by and among Sodexho,
Sodexho-Gardner Merchant Alliance, Ltd. ("Sodexho UK"), the Company, Marriott
Management Services Corp. ("MMS"), a wholly owned subsidiary of the Company,
Marriott Worldwide Corporation, a wholly owned subsidiary of the Company, and
Marriott Management Services (U.K.), Ltd. ("MMS UK"), a wholly owned
subsidiary of the Company, on October 31, 1997, MMS sold to Sodexho UK for $50
million in cash all of the issued and outstanding stock of MMS UK (the "UK
Stock Sale"). As used herein, "SMS" refers to the Company after consummation
of the Transactions (as defined below).
We understand that immediately following the Spinoff, the Company will
complete its tender for approximately $720 million of its outstanding public
debt and repay approximately $700 million of its outstanding bank debt with
aggregate proceeds of approximately $1.2 billion of new debt incurred by SMS
(of which up to $620 million will be guaranteed by Sodexho). To the extent
that the aggregate debt of the Company retained or repaid by SMS is less than
$1.444 billion, SMS will pay the difference to New Marriott in cash, and to
the extent that the aggregate debt of the Company retained or repaid by SMS is
greater than $1.444 billion, New Marriott will pay the difference to SMS in
cash. Simultaneously, (a) the Company's Liquid Yield Option Notes will be
assumed by New Marriott, and SMS has agreed to remain liable for a
proportionate share thereof based on the relative estimated equity value of
SMS and New Marriott, (b) Sodexho will pay $304 million in cash to the
Company, (c) the Acquisition will be consummated, and (d) New Marriott will be
renamed "Marriott International, Inc." In connection with the Acquisition, (i)
Sodexho and holders of outstanding ICC stock options (who will receive, in
replacement of such options, options to purchase shares of capital stock of
SMS ("SMS Shares")) will receive SMS Shares or, in the case of option holders,
options representing, in the aggregate, 49% of the outstanding SMS Shares,
(ii) the Company's stockholders will retain approximately 51% of the
outstanding SMS Shares, and (iii) the name of SMS will be changed to "Sodexho
Marriott Services, Inc." (The Spinoff, the Acquisition, the UK Stock Sale and
the other transactions described above are collectively referred to herein as
the "Transactions.") All transactions constituting the Transactions will be
deemed, as between the parties, to occur simultaneously, except that the
Spinoff shall be deemed to have occurred immediately prior to the other
transactions constituting the Transactions.)
You have asked us whether, in our opinion, the terms of the Transactions,
taken as a whole, are fair, from a financial point of view, to the
stockholders of the Company.
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In arriving at the opinion set forth below, we have:
(i) reviewed certain publicly available business and financial
information relating to the Company that we deemed to be relevant;
(ii) reviewed certain information, including financial forecasts,
relating to the businesses, earnings, cash flow, assets, liabilities and
prospects of the Company, New Marriott and SMS, furnished to us by
management of the Company;
(iii) conducted discussions with members of senior management and
representatives of the Company concerning the matters described in clauses
(i) and (ii) above, as well as the respective businesses and prospects of
the Company, New Marriott and SMS before and after giving effect to the
Transactions;
(iv) reviewed the historical market prices and trading activity for the
Company and compared them with those of certain publicly traded companies
that we deemed to be relevant;
(v) reviewed the Distribution Agreement, including the exhibits and
schedules thereto;
(vi) reviewed certain information, including financial forecasts,
relating to the businesses, earnings, cash flow, assets, liabilities and
prospects of Sodexho North America, provided by or derived from information
provided by Sodexho furnished to us by management of the Company, as well
as information concerning the amount and timing of the cost savings and
synergies expected to result from the Acquisition provided to us by
management of Sodexho and the Company;
(vii) conducted discussions with members of senior management and
representatives of the Company concerning the matters described in clause
(vi) above;
(viii) reviewed the terms of the New Marriott Shares as set forth in the
forms of the certificate of incorporation and bylaws of New Marriott
attached as exhibits to the preliminary Proxy Statement relating to the
Transactions;
(ix) compared the historical and projected results of operations of the
Company, New Marriott, SMS and Sodexho North America with those of certain
companies that we deemed to be relevant;
(x) reviewed the Omnibus Agreement, Acquisition Agreement and the Stock
Purchase Agreement, including the exhibits and schedules thereto;
(xi) compared the proposed financial terms of the Transactions with the
financial terms of certain other transactions that we deemed to be
relevant;
(xii) evaluated the potential pro forma impacts of the Transactions;
(xiii) reviewed the preliminary Proxy Statement relating to the
Transactions, including the exhibits thereto; and
(xiv) reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by the Company and
Sodexho, and we have not independently verified such information or undertaken
an independent appraisal of the assets of the Company, New Marriott, SMS or
Sodexho North America. With respect to the financial forecasts furnished by
the Company and Sodexho, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgment of
the Company's or Sodexho's management as to the expected future financial
performance of the Company, New Marriott, SMS or Sodexho North America, as the
case may be. We assume no responsibility for and express no view as to such
forecasts or the assumptions upon which they are based.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof.
We have assumed, with your consent, that the Transactions will comply with
applicable United States, foreign, federal and state laws, including, without
limitation, laws relating to the payment of dividends,
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<PAGE>
bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent
transfer or other similar laws now or hereafter in effect affecting creditors'
rights generally. We have assumed, with your consent, that receipt of the New
Marriott Shares in connection with the Spinoff will be tax-free for federal
income tax purposes to the stockholders of the Company and that none of the
Company, New Marriott, Sodexho North America and SMS will recognize income,
gain or loss as a result of the Spinoff or the Acquisition (excluding the UK
Stock Sale).
We have been retained by the Board of Directors of the Company as an
independent contractor to act as financial advisor to the Company with respect
to the Transactions and will receive a fee for our services. We have, in the
past, provided, and continue to provide, financial advisory and financing
services to the Company and have received, and continue to receive, customary
fees for the rendering of such services. In addition, in the ordinary course
of our securities business, we may actively trade debt and/or equity
securities of the Company, Sodexho and, following the Transactions, New
Marriott and SMS, for our own account and for the accounts of our customers,
and we therefore may from time to time hold a long or short provision in such
securities.
It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the
Transactions, does not address the Board of Directors' underlying business
decision to effect the Transactions (including the proposed issuance of New
Marriott Common Stock and Class A Common Stock) and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote on matters relating to the Transactions. We are not expressing any
opinion herein as to the prices (i) at which shares of the Company's common
stock will trade between the date hereof and consummation of the Transactions
or (ii) at which either the New Marriott Shares or SMS Shares will trade.
On the basis of, and subject to the foregoing, we are of the opinion that
the terms of the transactions, taken as a whole, are fair, from a financial
point of view, to the stockholders of the Company.
Very truly yours,
/s/ Merrill Lynch, Pierce,Fenner &
Smith Incorporated
MERRILL LYNCH, PIERCE, FENNER &
SMITH
INCORPORATED
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APPENDIX G--AMERICAN APPRAISAL SOLVENCY OPINION
December 22, 1997
Board of Directors
Marriott International, Inc.
10400 Fernwood Road
Bethesda, MD 20817
and
the Banks referred to below:
Ladies and Gentlemen:
This letter is furnished by American Appraisal Associates, Inc. ("AAA") at
the request of the Board of Directors of Marriott International, Inc., a
Delaware corporation, ("MII"), as further described below.
We understand that MII has announced a plan (the "Reorganization") to
contribute the lodging, senior living services and distribution services
businesses currently carried out by MII (including the "Marriott" and related
trademarks and trade names) to New Marriott MI, Inc., a Delaware corporation
and a wholly owned subsidiary of MII ("Spinco"). MII will retain the food and
facilities management services businesses currently carried out by MII.
Following the Reorganization, all of the issued and outstanding Common Stock
and Class A Common Stock of Spinco will be distributed to the stockholders of
MII as of the applicable record date (the "Spinoff"). The Spinoff is
conditioned upon, among other things, receipt of a favorable tax ruling from
the IRS that the Spinoff will be tax-free, and the approval of the
stockholders of MII.
Immediately following the Spinoff, MII will acquire (the "Acquisition")
Sodexho North America ("SNA"), consisting of International Catering
Corporation, a Delaware corporation ("ICC"), Sodexho Financiere du Canada,
Inc., a Canadian corporation, and their respective subsidiaries, all of which
are wholly-owned direct or indirect subsidiaries of Sodexho Alliance S.A., a
French societe anonyme ("Sodexho"). In addition, MII will be renamed Sodexho
Marriott Services, Inc. ("SMS"), and Spinco will be renamed Marriott
International, Inc. ("New MII").
We also understand that in connection with the Reorganization and the
Acquisition, Sodexho will pay $304 million to SMS, and Sodexho will receive a
number of shares of common stock of SMS which, together with shares of common
stock issuable upon exercise of certain employee stock options, equals
approximately 49% of the outstanding shares of common stock of SMS after
giving effect to such issuance, and existing MII stockholders will own
approximately 51% of SMS. In addition, SMS will refinance (the "Refinancing")
certain indebtedness.
The financing (the "SMS Financing") to accomplish the Refinancing of SMS
will include (i) $735 million from a senior secured credit facility (the "SMS
Senior Secured Facility") comprised of (a) $235 million revolving credit
facility (including $100 million letter of credit subfacility) and (b) $500
million term facility; and (ii) $620 million from an unsecured senior
guaranteed credit facility (the "SMS Senior Guaranteed
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Facility"). Both the SMS Senior Secured Facility and the SMS Senior Guaranteed
Facility will be provided by a group of banks led by Societe Generale and
Morgan Guaranty Trust Company of New York (collectively, the "SMS Banks").
Alternatively, SMS may elect to raise $620 million from the private placement
of Rule 144A senior subordinated guaranteed notes in lieu of the SMS Senior
Guaranteed Facility (the "SMS Private Placement"). The financing established
for New MII (the "New MII Financing") as part of the Transaction (as defined
herein) will include a $1.5 billion revolving credit facility (the "New MII
Revolver") provided by a group of banks led by Citicorp Securities, Inc.
(collectively the "New MII Banks"). The SMS Banks and the MII Banks are
collectively referred to as the "Banks".
The Reorganization (including the Spinoff), the Acquisition, the
Refinancing, the SMS Financing, the New MII Financing and the transactions
contemplated thereby, any changes in MII's, SMS's or New MII's assets and
liabilities as a result of the Reorganization, and the payment of related fees
and expenses are collectively referred to as the "Transaction."
You have requested our opinion (the "Opinion") as to whether, assuming the
Transaction is consummated substantially as proposed:
(a) The fair value of the aggregate assets of each of MII, before
consummation of the Transaction, and SMS and New MII, after consummation of
the Transaction, will exceed each of its respective total liabilities
(including, without limitation, subordinated, unmatured, unliquidated,
disputed and contingent liabilities);
(b) The present fair saleable value of the aggregate assets of each of
MII, before consummation of the Transaction, and SMS and New MII, after
consummation of the Transaction, will be greater than each of its
respective probable liabilities on their respective debts as such debts
become absolute and matured;
(c) Each of SMS and New MII, after consummation of the transaction, will
be able to pay its respective debts and other liabilities, including
contingent liabilities and other commitments, as they mature;
(d) Each of SMS and New MII, after consummation of the Transaction, will
not have unreasonably small capital for the businesses in which it is
engaged, as the managements of MII and SNA have indicated such businesses
are now conducted and as the managements of SMS and New MII have indicated
that their respective businesses are proposed to be conducted following the
consummation of the Transaction; and
(e) The excess of the fair value of the aggregate assets of MII, before
consummation of the Transaction, over the total identified liabilities,
including contingent liabilities, of MII before consummation of the
Transaction, is equal to or exceeds the fair value of the Spinoff to
stockholders of MII plus the stated capital of MII.
In rendering our Opinion, we have valued the aggregate assets of MII, before
consummation of the Transaction, and of each of SMS and New MII, after
consummation of, and giving effect to, the Transaction each on a consolidated
basis and as a going concern. The valuation included the aggregate assets of
MII's business enterprise (total invested capital excluding cash and
equivalents) represented by the total net working capital, tangible plant,
property and equipment, and intangible assets of the business enterprise
before consummation of, and giving effect to, the Transaction, and that of SMS
and New MII after consummation of, and giving effect to, the Transaction, each
on a consolidated basis. We believe that this is a reasonable basis to value
each of MII, before, and SMS and New MII, after, consummation of, and giving
effect to the Transaction, on a consolidated basis, and nothing has come to
our attention that causes us to believe that either SMS or New MII, on a
consolidated basis, after giving effect to the Transaction, is not a going
concern. For purposes of the Opinion, the following terms will have the
meanings set forth below:
(1) "Fair value" means the amount at which the aggregate assets would
----------
change hands between a willing buyer and a willing seller, within a
commercially reasonable period of time, each having reasonable knowledge of
the relevant facts, neither being under any compulsion to act, with equity
to both;
(2) "Present fair saleable value" means the amount that may be realized
---------------------------
if the aggregate assets are sold with reasonable promptness in an arms-
length transaction under present conditions in a current market for the
sale of assets of a comparable business enterprise;
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(3) "Contingent liabilities" means the maximum estimated amount of
----------------------
contingent liabilities, of a specified entity and time, which contingent
liabilities have been identified to us by responsible officers and
employees of MII and SNA, their respective accountants and financial
advisors, and such other experts as we deemed necessary to consult, and
valued by AAA after consultation with responsible officers and employees of
MII and SNA and/or such industry, economic and other experts as we deemed
necessary to consult (the valuation of contingent liabilities to be
computed in light of all the facts and circumstances existing at the time
of such valuation as the maximum amount that can reasonably be expected to
become an actual or matured liability), which contingent liabilities may
not meet the criteria for accrual under Statement of Financial Accounting
Standards No. 5 and therefore may not be recorded as liabilities under
GAAP;
(4) "Able to pay its debts and other liabilities including contingent
----------------------------------------------------------------
liabilities and other commitments, as they mature" means that assuming the
-------------------------------------------------
Transaction has been consummated as proposed (and taking into consideration
additional borrowing capacity under SMS's and New MII's borrowing
facilities) during the period covered by the financial projections (the
"Financial Projections") prepared by the managements of SMS and New MII,
respectively, each of SMS and New MII will have positive cash flow after
paying its scheduled anticipated indebtedness; the realization of current
assets in the ordinary course of business will be sufficient to pay
recurring current debt, short-term debt, long-term debt service and other
contractual obligations, including contingent liabilities, as such
obligations mature; and the cash flow will be sufficient to provide cash
necessary to repay long-term indebtedness as such debt matures; and
(5) "Will not have unreasonably small capital for the businesses in which
--------------------------------------------------------------------
it is engaged" means that an entity will not lack sufficient capital for
-------------
the needs and anticipated needs for capital of the business, including
contingent liabilities, as the managements of MII and SNA have indicated
their businesses are being conducted and as the managements of SMS and New
MII have indicated that their businesses are proposed to be conducted
following the consummation of the Transaction.
In connection with our opinion of the fair value and the present fair
saleable value of each of MII, before consummation of, and giving effect to,
the Transaction, and SMS and New MII, after consummation of, and giving effect
to, the Transaction, we were provided historical and projected operating
results. In addition to this information, we were provided other operating
data and information, all of which has been accepted, without independent
verification, as representing a fair statement of historical and a reasonable
estimate of projected results of each of MII, before consummation of, and
giving effect to, the Transaction, and SMS and New MII, after consummation of,
and giving effect to, the Transaction, in the opinion of the managements of
MII and SNA (in regard to information relating to MII and SNA, respectively,
before the Transaction) and New MII and SMS (in regard to information relating
to New MII and SMS, respectively, after the Transaction). However, in the
course of our investigation nothing has led us to believe that our acceptance
and reliance on such operating data and information was unreasonable.
The determination of the fair value and present fair saleable value of MII,
before the consummation of the Transaction, and SMS and New MII after
consummation of, and giving effect to, the Transaction was based on the
generally accepted valuation principles used in the market and discounted cash
flow approaches, described as follows:
Market Approach--Based on correlation of: (a) current stock market prices
of publicly held companies whose businesses are similar to that of MII, SMS
and New MII and premiums paid over market price by acquirers of total or
controlling ownership in such businesses; and (b) acquisition prices paid
for total ownership positions in businesses whose lines of business are
similar to that of MII, SMS and New MII.
Discounted Cash Flow Approach--Based on the present value of MII's, SMS's,
and New MII's individual future debt-free operating cash flow as estimated
by their respective managements, and contained in the Financial
Projections. The present value is determined by discounting the projected
operating cash flow at a rate of return that reflects the financial and
business risks individually.
In the course of our investigation of contingent liabilities, certain areas
brought to our attention by management of MII, SNA, SMS and New MII included:
(1) contracts and commitments; (2) consents and
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approvals; (3) tax audit exposure; (4) environmental exposure; (5) employee
benefits programs; and (6) various lawsuits and claims filed and/or pending.
Provisions for the ongoing expenses related to contingent liabilities,
deemed to be material by the respective managements of MII, SNA, SMS and New
MII, are included in the projections of income and expenses presented in the
Financial Projections. We have taken these contingent liabilities into account
in rendering our Opinion and have concluded that such liabilities do not
require qualification of our Opinion. Our conclusion is based upon, among
other things: (i) our review of various acquisition transactions, including
highly leveraged transactions involving public corporations engaged in
businesses similar to those of MII, SMS and New MII; (ii) the opinion of the
respective managements of MII, SMS and New MII that the issues concerning
various lawsuits, claims and other identified contingent liabilities do not
and are not reasonably likely to have a material adverse effect on their
respective consolidated financial positions; and (iii) our discussions with
respective managements of MII, SMS and New MII, their accountants, consultants
and outside counsel concerning, and our investigation of, the contingent
liabilities identified to us.
We have assumed that the total identified liabilities of MII, SMS and New
MII will be only those liabilities set forth in the Financial Projections and
the Pro Forma Balance Sheets (as defined below) of SMS and New MII and the
identified contingent liabilities referred to herein. In the course of our
investigation, nothing came to our attention which caused us to believe such
assumptions to be unreasonable. The Pro Forma Balance Sheets are the unaudited
pro forma balance sheets of each of New MII and SMS as of September 12, 1997,
each adjusted to give effect to: (a) the Transaction, and (b) the application
of the proceeds of any related financing, and restated by us to reflect the
fair value and present fair saleable value of SMS and New MII.
The respective managements of MII, SNA, SMS and New MII have represented to
us, and we have relied on the representations of the respective managements of
MII, SNA, SMS and New MII that the Pro Forma Balance Sheets fairly reflect the
effect of the Transaction on the financial condition of SMS and New MII, and
the Financial Projections reasonably estimate the future financial condition
and performance of SMS and New MII, after consummation of the Transaction.
Nothing has come to our attention which would lead us to believe our reliance
on such representations to be unreasonable.
In connection with our Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
(i) Reviewed the Transaction documents and SEC reporting and/or filing
documents, including the MII preliminary proxy statement on Schedule
14A and exhibits thereto as filed with the SEC on November 12, 1997,
and commitment letters and term sheets for the SMS Financing and the
New MII Financing;
(ii) Reviewed the Financial Projections and inquired of managements of MII,
SNA, SMS and New MII, as to the foundation for any such projections
and the basic assumptions made in the preparation of projections
relating to the type of business, geographic markets, economic
conditions, and capital facilities and working capital requirements;
(iii) Reviewed audited and unaudited historical income statements of MII
and SNA, balance sheets and statements of sources and uses of funds
of MII and SNA as provided by management and their accountants;
(iv) Visited MII's headquarters to discuss historical and projected
operating results and industry data, including the impact of future
trends on the industry and SMS and New MII, as well as the effects of
the Transaction;
(v) Reviewed internal financial analyses and other internally generated
data, including asset valuations;
(vi) Inquired of managements of MII, SNA, SMS and New MII and their
respective financial advisors as to estimated levels of cash and
working capital required by SMS and New MII;
(vii) Reviewed certain publicly available economic, financial and market
information as it relates to the business operations of MII and SNA;
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(viii) Reviewed information regarding businesses similar to MII and SNA
and investigated the financial terms and post-transaction performance of
recent acquisitions;
(ix) Discussed all the foregoing information, where appropriate, with
managements of MII, SNA, SMS and New MII and their respective employees,
agents, accountants and financial advisors;
(x) Met with members of the senior management of MII, SMS and New MII to
discuss the business, properties, past history, results of operations and
prospects of MII and SNA, including discussions of the competitive
environment in which SMS and New MII will operate;
(xi) Held discussions with representatives of MII's independent
accounting firms and counsel to discuss certain matters; and
(xii) Conducted such other studies, analyses and investigations as we
deemed relevant or necessary for purposes of the Opinion.
Although we have not independently verified the accuracy and completeness of
the financial projections and forecasts, or any of the assumptions, estimates,
or judgments referred to therein, or the basis therefor, and although no
assurances can be given that such financial projections and forecasts can be
realized or that actual results will not vary materially from those projected,
nothing has come to our attention during the course of our engagement which
has led us to believe that any information reviewed by us or presented to us
in connection with our rendering of the Opinion is unreasonable in any
material respect or that it was unreasonable for us to utilize and rely upon
the financial projections or forecasts, financial statements, assumptions,
estimates, and judgments or statements, as the case may be, of the managements
of MII, SNA, SMS and New MII and their outside counsel, accountants and
financial advisors, as well as industry and economic information referred to
hereinabove.
Our Opinion is subject to the following assumptions:
(i) Under the terms and conditions of the various financing documents,
operating cash flow may be used to satisfy indebtedness of SMS and New MII
as it matures (subject to the restrictions contained in the financing
documents) or indebtedness of SMS and New MII may be refinanced, in
conformity with common business practice to the extent consistent with
covenants in the various financing documents;
(ii) The terms and conditions of an SMS Private Placement will not differ
materially from the existing term sheet of the SMS Senior Guaranteed
Facility; and
(iii) Material changes in the industry or in the financial market
conditions which might affect SMS and New MII from and after the
Transaction, and which are not reasonably foreseeable, are not taken into
account.
Based upon the foregoing and such other matters as we consider relevant and
subject to the foregoing qualifications, it is our Opinion as of the date
hereof that:
(a) The fair value of the aggregate assets of each of MII, before
consummation of the Transaction, and SMS and New MII, after consummation of
the Transaction, will exceed each of its respective total liabilities
(including, without limitation, subordinated, unmatured, unliquidated,
disputed and contingent liabilities);
(b) The present fair saleable value of the aggregate assets of each of
MII, before consummation of the Transaction, and SMS and New MII, after
consummation of the Transaction, will be greater than each of its
respective probable liabilities on its debts as such debts become absolute
and matured;
(c) Each of SMS and New MII, after consummation of the Transaction, will
be able to pay its respective debts and other liabilities, including
contingent liabilities and other commitments, as they mature;
(d) Each of SMS and New MII, after consummation of the Transaction, will
not have unreasonably small capital for the businesses in which it is
engaged, as the managements of MII and SNA have indicated such businesses
are now conducted and as the managements of SMS and New MII have indicated
that their respective businesses are proposed to be conducted following the
consummation of the Transaction; and
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<PAGE>
(e) The excess of the fair value of the aggregate assets of MII, before
consummation of the Transaction, over the total identified liabilities,
including contingent liabilities, of MII before consummation of the
Transaction, is equal to or exceeds the fair value of the Spinoff to
stockholders of MII plus the stated capital of MII.
In connection herewith, we further advise you that we have reached our
conclusion of fair market value and present fair saleable value in light of
business and market conditions as they exist on the date hereof. While various
judgments and estimates which we consider reasonable and appropriate under the
circumstances were made by us in the determination of value, no assurance can
be given by us that the sale price which might ultimately be realized in any
actual transaction, if and when effected, will be the amount we believe to be
the fair value or present fair saleable value.
Our Opinion is intended for use by the Board of Directors of MII and the
Banks and is not intended to supplement or to substitute for the due diligence
of the Banks or any other party to the extent required, in this or any related
transaction.
This Opinion is solely for the use of the above mentioned addressees, their
successors, assignees, transferees or participants, and is not to be quoted,
or referred to, in whole or in part, in any written document other than in (i)
a filing and disclosure of the Opinion with the Securities and Exchange
Commission (the "SEC") and any state securities commission or blue sky
authority, or other governmental authority or agency if such filing or
disclosure is required pursuant to the rules and regulations thereof, or
required by applicable law in the opinion of MII's counsel; (ii) the
disclosure of the Opinion upon the demand, order or request of any court,
administrative or governmental agency or regulatory body (whether or not such
demand, order or request has the force of law) or as may be required or
appropriate in response to any summons, subpoena, or discovery requests; or
(iii) the attachment of the Opinion as an exhibit to the loan documents
governing any financing by the Banks or by other banks (the "Other Banks")
who, in the future, may extend credit to, or as an exhibit to any documents
governing the existing financing; (iv) the disclosure of the Opinion in
connection with (A) the prospective sale, assignment, participation or any
other disposition by any Bank, any Other Bank, and/or other financing sources
of any right or interest in the debt financing by such Bank, any Other Bank,
and/or other financing sources, (B) an informational or proxy statement to be
distributed to MII's shareholders, (C) an audit of any Bank, any Other Bank,
and/or other financing sources by an independent public accountant or any
administrative agency or regulatory body or (D) the exercise of any right or
remedy by any Bank, any Other Bank, and/or other financing sources in
connection with the debt financing; (v) the disclosure of the Opinion as may
be requested, required or ordered in, or to protect a Bank's, an Other Bank's,
and/or other financing sources' interest in, any litigation, governmental
proceeding or investigation to which any Bank, any Other Bank, and/or other
financing sources is subject or purported to be subject; or (vi) the
disclosure of the final Opinion as otherwise required by, or as reasonably
determined by any Bank, any Other Bank, and/or other financing sources to be
required by, any law, order, regulation of ruling applicable to such Bank,
such other Bank, and/or other financing sources. SMS or New MII shall notify
AAA in advance of any filing referred to in clause (i) above. No other use of
or reference to the final Opinion may be made without the prior written
consent of AAA, which consent shall not be unreasonably withheld.
This letter is being delivered on the assumption that the Transaction will
be completed and consummated substantially as described above.
Very truly yours,
American Appraisal Associates, Inc.
By /s/
----------------------------------
Lee P. Hackett
Executive Vice President
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APPENDIX H--FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF SMS
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MARRIOTT INTERNATIONAL, INC.
Marriott International, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "CORPORATION"), hereby certifies as
follows:
1. The present name of the Corporation is "Marriott International, Inc."
The name under which the Corporation was originally incorporated is
"Marriott Hotel Productions, Inc." The original Certificate of
Incorporation was filed with the Secretary of State of the State of
Delaware on July 2, 1971.
2. This Amended and Restated Certificate of Incorporation has been duly
adopted and proposed to the stockholders of the Corporation by the Board of
Directors of the Corporation, and has been approved and adopted by the
stockholders of the Corporation, in accordance with Sections 242 and 245 of
the General Corporation Law of the State of Delaware.
3. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the
Certificate of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation as heretofore amended is
hereby restated and further amended to read in its entirety as hereinafter
set forth:
ARTICLE 1
Name
The name of the Corporation is Sodexho Marriott Services, Inc.
ARTICLE 2
Registered Office
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street in the City of Wilmington,
County of New Castle, Delaware 19801. The name of the Corporation's registered
agent at such address is The Corporation Trust Company.
ARTICLE 3
Purpose
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE 4
Capitalization
The total number of shares of stock which the Corporation shall have
authority to issue is 301,000,000, consisting of 1,000,000 shares of Preferred
Stock, without par value (hereinafter referred to as "PREFERRED STOCK"), and
300,000,000 shares of Common Stock, par value $1.00 per share (hereinafter
referred to as "COMMON STOCK"). Of the Preferred Stock shares, 300,000 shall
be designated as Series A Junior Participating
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Preferred Stock, without par value, having the designations, powers,
preferences and rights, and subject to the qualifications, limitations and
restrictions, set forth in Appendix A hereto.
Effective as of the date of filing of this Certificate of Incorporation (the
"Effective Time"), each four issued and outstanding shares of Common Stock
shall be combined into one share of validly issued, fully paid and
nonassessable Common Stock. The number of authorized shares, the number of
shares of treasury stock and the par value of the Common Stock shall not be
affected by the foregoing combination of shares. Each stock certificate that
prior to the Effective Time represented shares of Common Stock shall,
following the Effective Time, represent the number of shares of Common Stock
into which the shares of Common Stock represented by such certificate shall be
combined. The Corporation shall not issue fractional shares or scrip as a
result of the combination of shares, but shall arrange for the disposition of
fractional shares on behalf of those record holders of Common Stock at the
Effective Time who would otherwise be entitled to fractional shares as a
result of the combination of shares.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to provide for the issuance of
shares of Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware (hereinafter referred to as a
"PREFERRED STOCK DESIGNATION"), to establish from time to time the number of
shares to be included in each such series, and to fix the designations,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The authority of the
Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(1) The designation of the series, which may be by distinguishing number,
letter or title.
(2) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(3) The amounts payable on, and the preferences, if any, of shares of the
series in respect of dividends, and whether such dividends, if any, shall
be cumulative or noncumulative.
(4) Dates at which dividends, if any, shall be payable.
(5) The redemption rights and price or prices, if any, for shares of
series.
(6) The terms and amount of any sinking fund provided for the purchase or
redemption of shares of the series.
(7) The amounts payable on, and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation.
(8) Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other
security, of the Corporation or any other corporation, and, if so, the
specification of such other class or series of such other security, the
conversion or exchange price or prices or rate or rates, any adjustments
thereof, the date or dates at which such shares shall be convertible or
exchangeable and all other terms and conditions upon which such conversion
or exchange may be made.
(9) Restrictions on the issuance of shares of the same series or of any
other class or series.
(10) The voting rights, if any, of the holders of shares of the series.
The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof. Except as may be provided in this Certificate of
Incorporation or in a Preferred Stock Designation or by applicable law, the
holders of shares of Common Stock shall be entitled to one vote for each such
share upon all questions presented to the stockholders, the Common Stock shall
have the exclusive right to vote for the election of directors and for all
other purposes, and holders of Preferred Stock shall not be entitled to
receive notice of any meeting of stockholders at which they are not entitled
to vote. The holders of shares of Common Stock shall at all times, except as
otherwise provided in this Certificate of Incorporation or as required by law,
vote as one
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class, together with the holders of any other class or series of stock of the
Corporation accorded such general voting rights.
The Corporation shall be entitled to treat the person in whose name any
share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
ARTICLE 5
By-Laws
In furtherance of, and not in limitation of, the powers conferred by law,
the Board of Directors is expressly authorized and empowered:
(1) to adopt, amend or repeal the Bylaws of the Corporation; provided,
that the Bylaws adopted by the Board of Directors under the powers hereby
conferred may be amended or repealed by the Board of Directors or by the
stockholders having voting power with respect thereto; and
(2) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as expressly
provided in this Certificate of Incorporation or in any Preferred Stock
Designation, no stockholder shall have any right to inspect any account,
book or document of the Corporation other than such rights as may be
conferred by applicable law.
The Corporation may in its Bylaws confer powers upon the Board of Directors
in addition to the foregoing and in addition to the powers and authorities
expressly conferred upon the Board of Directors by applicable law.
ARTICLE 6
Board of Directors
Subject to the rights of the holders of any series of Preferred Stock, or
any other series or class of stock as set forth in this Certificate of
Incorporation, to elect additional directors under specified circumstances,
the number of directors of the Corporation shall be fixed in such manner as
prescribed by the Bylaws of the Corporation and may be increased or decreased
from time to time in such manner as prescribed by the Bylaws.
Unless and except to the extent that the Bylaws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
ARTICLE 7
Restrictions on Transfer
(1) Restrictions on Transfer. (a) Except as provided in Section 6 of this
Article 7, during the Restricted Period no Transfer of any Equity Securities
shall be made by any Person if such Transfer would result in any Person or
Persons acting pursuant to a plan (or a series of related transactions) having
a Fifty Percent or Greater Interest. Except as provided in Section 6 of this
Article 7, any attempted or purported Transfer of shares of Equity Securities
during the Restricted Period that, if effective, would result in any Person or
Persons acting pursuant to a plan (or a series of related transactions) having
a Fifty Percent or Greater Interest shall be void ab initio, and the intended
transferee shall acquire no rights or interest in such shares of Equity
Securities.
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(b) Except as otherwise provided in this Certificate of Incorporation, the
Equity Securities shall be freely transferable.
(2) Remedies for Breach. If the Board of Directors of the Corporation shall
determine in good faith that a Person has attempted to acquire, may acquire or
intends to acquire Beneficial Ownership of any shares of Equity Securities or
any interest therein in a Transfer that is or would be void pursuant to
Section 1(a) of this Article 7, the Board of Directors shall be empowered to
take any action it deems advisable to refuse to give effect to or to prevent
such purported Transfer, including, but not limited to, refusing to give
effect to such attempted or purported Transfer on the books of the
Corporation, demanding the repayment of any distributions received in respect
of shares of Equity Securities acquired in violation of Section 1(a) of this
Article 7 or instituting proceedings to enjoin or rescind such attempted or
purported Transfer.
(3) Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire Equity Securities in a Transfer which may result in a violation of
Section 1(a) of this Article 7 shall immediately give written notice thereof
to the Corporation and shall provide to the Corporation such other information
as the Corporation may request in order to determine the effect, if any, of
such purported Transfer or attempted Transfer on the Tax Free Status of the
Distribution. Failure to give such notice shall not otherwise limit the rights
and remedies of the Board of Directors provided herein in any way.
(4) Remedies Not Limited. Nothing contained in this Article 7 shall limit
the authority of the Board of Directors to take such other action as it deems
necessary or advisable to protect the Tax Free Status of the Distribution.
(5) Ambiguity. In the case of any ambiguity in the application of any of the
provisions of this Article 7, including any definition contained in Section 10
of this Article 7, the Board of Directors shall have the power to determine
the application of the provisions of this Article 7 with respect to any
situation based upon its reasonable belief, understanding or knowledge of the
circumstances.
(6) Exceptions. Notwithstanding any other provision of this Article 7, the
restrictions contained in Section 1(a) of this Article 7 shall not apply to
any Transfer of any Equity Securities if there is provided to the Board of
Directors a ruling from the Internal Revenue Service satisfactory to the Board
of Directors in its reasonable discretion, or an opinion of counsel
satisfactory to each of the Board of Directors and New Marriott in its
reasonable discretion, to the effect that such Transfer will not adversely
affect the Tax Free Status of the Distribution. In determining the effect, if
any, of a proposed Transfer on the Tax Free Status of the Distribution, the
Board of Directors may require such representations and undertakings from such
Persons and may impose such other conditions on the effectiveness of the
Transfer as the Board deems necessary in its reasonable discretion.
(7) Severability. If any provision of this Article 7 or any application of
any such provision is determined in a final and nonappealable judgment of a
court of competent jurisdiction to be void, invalid or unenforceable, the
validity of the remaining provisions shall not be affected and other
applications of the provision so determined to be void, invalid or
unenforceable shall be affected only to the extent necessary to comply with
the determination of such court.
(8) New York Stock Exchange Transactions. Nothing in this Article 7 shall
preclude the settlement of any transaction entered into through the facilities
of the New York Stock Exchange, Inc.
(9) Amendment. During the Restricted Period, the provisions set forth in
this Article 7 may not be amended, altered, changed or repealed in any
respect, and no other provision may be adopted, amended, altered, changed or
repealed which would have the effect of modifying or permitting the
circumvention of the provisions set forth in this Article 7, unless such
action is (i) proposed to the stockholders of the Corporation with the
approval of not less than two-thirds (66 2/3%) of the total number of
directors of the Corporation and (ii) approved by the affirmative vote of the
holders of not less than two-thirds (66 2/3%) of the total voting power of all
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outstanding securities of the Corporation then entitled to vote generally in
the election of directors, voting together as a single class.
(10) Definitions. For purposes of this Article 7, the following terms shall
have the following meanings:
"BENEFICIAL OWNERSHIP" means, with respect to any Person, ownership of
Equity Securities equal to the sum (without duplication) of (i) the amount of
Equity Securities directly owned by such Person, (ii) the amount of Equity
Securities held by all Persons related to such Person (within the meaning of
Sections 267(b) or 707(b)(1) of the Code) and (iii) the amount of Equity
Securities which are attributable to such Person taking into account
constructive ownership rules of Section 318(a)(2) of the Code, as modified by
Section 355(e)(4)(c)(ii) of the Code. The terms "BENEFICIAL OWNER",
"BENEFICIALLY OWN", "BENEFICIALLY OWNS" and "BENEFICIALLY OWNED" shall have
correlative meanings.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DISTRIBUTION" means the distribution of 100% of the capital stock of New
Marriott by the Corporation to the Corporation's stockholders pursuant to the
Distribution Agreement dated as of September 30, 1997 between the Corporation
and New Marriott.
"EQUITY SECURITIES" means any stock of the Corporation or other equity
securities treated as stock for tax purposes, or options, warrants, rights,
convertible debt, or any other instrument or security that affords any Person
the right, whether conditional or otherwise, to acquire stock of the
Corporation.
"FIFTY PERCENT OR GREATER INTEREST" means Beneficial Ownership of 50% or
more (by value or by voting power) of the Equity Securities of the
Corporation.
"GOVERNMENTAL ENTITY" means any court, agency, authority, board, bureau,
commission, department, regulatory or administrative body, office or
instrumentality of any nature whatsoever of any governmental or quasi-
governmental unit (including the New York Stock Exchange or any other national
stock exchange), whether federal, state, parish, county, district,
municipality, city, political subdivision or otherwise, domestic or foreign,
or an other entity exercising executive, legislative, judicial regulatory or
administrative functions of or pertaining to government, whether now or
hereafter in effect.
"PERSON" means an individual, corporation, limited liability company,
partnership, estate, trust, association, private foundation within the meaning
of Section 509(a) of the Code, joint stock company or other entity or
organization, including any Governmental Entity or authority.
"NEW MARRIOTT" means New Marriott MI, Inc. (to be renamed Marriott
International, Inc. upon the consummation of the Distribution).
"RESTRICTED PERIOD" means the period ending on , 2001.
"TAX FREE STATUS" shall mean the qualification of the Distribution (i) as a
transaction described in Section 368(a)(1)(D) and Section 355(a)(1) of the
Code, (ii) as a transaction in which the stock distributed thereby is
qualified property for purposes of Section 355(c)(2) of the Code, and (iii) as
a transaction in which the Corporation recognizes no income or gain other than
intercompany items or excess loss accounts taken into account pursuant to the
Treasury Regulations promulgated pursuant to Section 1502 of the Code.
"TRANSFER" means any sale, transfer, gift, assignment, devise or other
disposition of a share of Equity Securities, or any interest therein
(including the granting of any option (including, but not limited to, an
option to acquire an option or any series of such options)), whether voluntary
or involuntary, whether of record or of Beneficial Ownership, and whether by
operation of law or otherwise (including, but not limited to, any transfer of
an interest in other entities which results in a change in the Beneficial
Ownership of shares of Equity Securities). The terms "TRANSFERS" and
"TRANSFERRED" shall have correlative meanings.
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ARTICLE 8
Indemnification
Each person who was or is a party or is threatened to be made a party to, or
is involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"PROCEEDING"), by reason of the fact that he or she or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation, shall be indemnified and held harmless by the Corporation to the
fullest extent permitted from time to time by the General Corporation Law of
the State of Delaware as the same exists or may hereafter be amended (but, if
permitted by applicable law, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment) or any other applicable laws as presently or
hereafter in effect. The Corporation may, by action of the Board of Directors,
provide indemnification to employees and agents (other than a director or
officer) of the Corporation, to directors, officers, employees or agents of
any subsidiary of the Corporation, and to each person serving at the request
of the Corporation or any of its subsidiaries as a director, officer, partner,
member, employee or agent of another corporation, partnership, limited
liability company, joint venture, trust or other enterprise, with the same
scope and effect as the foregoing indemnification of directors and officers of
the Corporation. The Corporation shall be required to indemnify any person
seeking indemnification in connection with a Proceeding (or part thereof)
initiated by such person only if such Proceeding (or part thereof) was
authorized by the Board of Directors or is a Proceeding to enforce such
person's claim to indemnification pursuant to the rights granted by this
Certificate of Incorporation or otherwise by the Corporation. Without limiting
the generality or the effect of the foregoing, the Corporation may enter into
one or more agreements with any person which provide for indemnification
greater or different than that provided in this Article 8. Any amendment or
repeal of this Article 8 shall not adversely affect any right or protection
existing hereunder in respect of any act or omission occurring prior to such
amendment or repeal.
ARTICLE 9
Directors' Liability
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. Any amendment or repeal of this
Article 9 shall not adversely affect any right or protection of a director of
the Corporation existing hereunder in respect of any act or omission occurring
prior to such amendment or repeal.
If the General Corporation Law of the State of Delaware shall be amended to
authorize corporate action further eliminating or limiting the liability of
directors, then a director of the Corporation, in addition to the
circumstances in which such director is not liable immediately prior to such
amendment, shall be free of liability to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as so amended.
ARTICLE 10
Amendments
Except as may be expressly provided in this Certificate of Incorporation,
the Corporation reserves the right at any time and from time to time to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation or a Preferred Stock Designation, and any other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted, in the manner now or hereafter prescribed herein or by
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applicable law, and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomsoever
by and pursuant to this Certificate of Incorporation in its present form or as
hereafter amended are granted subject to the right reserved in this Article
10; provided that (i) any amendment or repeal of Article 8 or Article 9 of
this Certificate of Incorporation shall not adversely affect any right or
protection existing thereunder in respect of any act or omission occurring
prior to such amendment or repeal; and (ii) no Preferred Stock Designation
shall be amended after the issuance of any shares of the series of Preferred
Stock created thereby, except in accordance with the terms of such Preferred
Stock Designation and the requirements of applicable law.
In Witness Whereof, Marriott International, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its and attested
to by its Secretary as of , 1998.
Marriott International, Inc.
By:
----------------------------------
Name:
Title:
ATTEST:
-----------------------------
Name:
Title: Secretary
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APPENDIX A
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 10.01. 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 300,000.
Section 10.02. 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, 1000 times the aggregate per share amount of all cash
dividends, and 1000 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 common stock, par value $1 per share, of the Corporation (the
"COMMON STOCK") or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the 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 September 27, 1993 (the
"RIGHTS DECLARATION DATE") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding 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
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of 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 10.03. 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 1000 votes on all matters submitted to a vote of the
stockholders
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of the Corporation. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding 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 Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of 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
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 "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 thereon, 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 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 or, 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 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 him at his 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
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shall be called during the period within 60 days immediately preceding the
date fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of 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 Common Stock as set forth herein) for taking any corporate action.
Section 10.04. 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 or 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 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
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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 10.05. Reacquired 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 10.06. 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 $1000 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 thereto, the holders of
shares of 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) 1000 (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 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 Common Stock, respectively,
holders of Series A Junior Participating Preferred Stock and holders of shares
of 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 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 Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding 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 Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding prior to such event.
Section 10.07. Consolidation, Merger, Etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchange 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
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(subject to the provision for adjustment hereinafter set forth) equal to 1000
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 Common Stock is changed or exchanged. In the event the Corporation
shall at any time after the Rights Declaration Date (i) declare any dividend
on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding 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 be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior
to such event.
Section 10.08. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
Section 10.09. 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 10.10. 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 10.11. 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 holders 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.
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APPENDIX I--FORM OF AMENDED AND RESTATED BYLAWS OF SMS
AMENDED AND RESTATED
BYLAWS
OF
SODEXHO MARRIOTT SERVICES, INC.
* * * * *
ARTICLE 1
Offices
Section 1.01. Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 1.02. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
Section 1.03. Books and Records. The books and records of the Corporation
may be kept within or without of the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE 2
Meetings of Stockholders
Section 2.01. Time and Place of Meetings. All meetings of stockholders shall
be held at such place, either within or without the State of Delaware, on such
date and at such time as may be determined from time to time by the Board of
Directors (or the Chairman in the absence of a designation by the Board of
Directors).
Section 2.02. Annual Meetings. Annual meetings of stockholders shall be held
to elect the Board of Directors and transact such other business as may
properly be brought before the meeting.
Section 2.03. Special Meetings. Special meetings of stockholders may be
called by the Board of Directors or the Chairman of the Board and shall be
called by the Secretary at the request in writing of holders of record of a
majority of the outstanding capital stock of the Corporation entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Section 2.04. Notice of Meetings and Adjourned Meetings; Waivers of
Notice. (a) Whenever stockholders are required or permitted to take any action
at a meeting, a written notice of the meeting shall be given which shall state
the place, date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended ("DELAWARE LAW"), such notice
shall be given not less than 10 nor more than 60 days before the date of the
meeting to each stockholder of record entitled to vote at such meeting. Unless
these bylaws otherwise require, when a meeting is adjourned to another time or
place (whether or not a quorum is present), notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the Corporation
may transact any business which might have been transacted at the original
meeting. If the adjournment is for more than 30 days, or after the adjournment
a new record date is fixed for the adjourned meeting, a notice of the
adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 2.05. Quorum. Unless otherwise provided under the certificate of
incorporation or these bylaws and subject to Delaware Law, the presence, in
person or by proxy, of the holders of a majority of the outstanding capital
stock of the Corporation entitled to vote at a meeting of stockholders shall
constitute a quorum for the transaction of business.
Section 2.06. Voting. (a) Unless otherwise provided in the certificate of
incorporation and subject to Delaware Law, each stockholder shall be entitled
to one vote for each outstanding share of capital stock of the Corporation
held by such stockholder. Unless otherwise provided in Delaware Law, the
certificate of incorporation or these bylaws, the affirmative vote of a
majority of the shares of capital stock of the Corporation present, in person
or by proxy, at a meeting of stockholders and entitled to vote on the subject
matter shall be the act of the stockholders.
(b) Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to a corporate action in writing without a meeting
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
Section 2.07. Action by Consent. (a) Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any
annual or special meeting of stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding capital stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders
are recorded. Delivery made to the Corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective
to take the corporate action referred to therein unless, within 60 days of the
earliest dated consent delivered in the manner required by this section and
Delaware Law to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery
to its registered office in Delaware, its principal place of business, or an
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
Section 2.08. Organization. At each meeting of stockholders, the Chairman of
the Board, if one shall have been elected, (or in his absence or if one shall
not have been elected, the President) shall act as chairman of the meeting.
The Secretary (or in his absence or inability to act, the person whom the
chairman of the meeting shall appoint secretary of the meeting) shall act as
secretary of the meeting and keep the minutes thereof.
Section 2.09. Order of Business. The order of business at all meetings of
stockholders shall be as determined by the chairman of the meeting.
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Section 2.10. Notice of Business. At any meeting of stockholders, only such
business shall be conducted as shall have been brought before the meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
the Corporation who is a stockholder of record at the time of giving of the
notice provided for in this Section 2.10, who shall be entitled to vote at
such meeting and who complies with the notice procedures set forth in this
Section 2.10. For business to be properly brought before a stockholder meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 90 days nor more than 120 days prior
to the meeting; provided, however, that in the event that less than 100 days'
notice or prior public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must be received no
later than the close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made. Each such notice shall set forth: (a) the name and address of the
stockholder proposing such business; (b) a brief description of the business
desired to be brought before the meeting, including the text of any proposal
to be introduced, the reasons for conducting such business at the meeting and
any material interest of the stockholder in such business; (c) the class and
number of shares of stock held of record, owned beneficially and represented
by proxy by such stockholder as of the record date for the meeting (if such
date shall then have been made publicly available) and as of the date of such
notice; and (d) a representation that the stockholder intends to appear in
person or by proxy at the meeting to introduce the business specified in the
notice.
Notwithstanding anything in the bylaws to the contrary, no business shall be
conducted at a stockholder meeting except in accordance with the procedures
set forth in this Section 2.10. The chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
the bylaws, and if he should so determine, he shall so declare to the meeting
and any such business not properly brought before the meeting shall not be
transacted. Notwithstanding the foregoing, a stockholder shall also comply
with all applicable requirements of the Securities Exchange Act of 1934, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 2.10.
ARTICLE 3
Directors
Section 3.01. General Powers. Except as otherwise provided in Delaware Law
or the certificate of incorporation, the business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
Section 3.02. Number, Election and Term of Office. The number of directors
which shall constitute the whole Board shall be fixed from time to time by
resolution of the Board of Directors but shall not be less than three nor more
than nine. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 3.12 herein, and each director so
elected shall hold office until his successor is elected and qualified or
until his earlier death, resignation or removal. Directors need not be
stockholders.
Section 3.03. Quorum and Manner of Acting. Unless the certificate of
incorporation or these bylaws require a greater number, at all meetings of the
Board of Directors or any committee thereof a majority of the total number of
directors or members, as the case may be, shall constitute a quorum for the
transaction of business, and the affirmative vote of a majority of the
directors or members, as the case may be, present at meeting at which a quorum
is present shall be the act of the Board of Directors. When a meeting is
adjourned to another time or place (whether or not a quorum is present),
notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Board of Directors or committee may transact any
business which might have been transacted at the original meeting. If a quorum
shall not be present at any meeting of the Board of Directors or committee,
the
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directors or members, as the case may be, present thereat may adjourn the
meeting, from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 3.04. Time and Place of Meetings. The Board of Directors shall hold
its meetings at such place, either within or without the State of Delaware,
and at such time as may be determined from time to time by the Board of
Directors (or the Chairman in the absence of a determination by the Board of
Directors).
Section 3.05. Annual Meeting. The Board of Directors shall meet for the
purpose of organization, the election of officers and the transaction of other
business, as soon as practicable after each annual meeting of stockholders, on
the same day and at the same place where such annual meeting shall be held.
Notice of such meeting need not be given. In the event such annual meeting is
not so held, the annual meeting of the Board of Directors may be held at such
place either within or without the State of Delaware, on such date and at such
time as shall be specified in a notice thereof given as hereinafter provided
in Section 3.07 herein or in a waiver of notice thereof signed by any director
who chooses to waive the requirement of notice.
Section 3.06. Regular Meetings. After the place and time of regular meetings
of the Board of Directors shall have been determined and notice thereof shall
have been once given to each member of the Board of Directors, regular
meetings may be held without further notice being given.
Section 3.07. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President and shall be
called by the Chairman of the Board, President or Secretary on the written
request of three directors. Notice of special meetings of the Board of
Directors shall be given to each director at least three days before the date
of the meeting in such manner as is determined by the Board of Directors.
Section 3.08. Committees. (a) The Corporation shall have two standing
committees: the audit committee and the compensation committee.
(b) The audit committee shall have the following powers and authority: (i)
employing independent public accountants to audit the books of account,
accounting procedures and financial statements of the Corporation and to
perform such other duties from time to time as the audit committee may
prescribe, (ii) receiving the reports and comments of the Corporation's
internal auditors and of the independent public accountants employed by the
committee and to take such action with respect thereto as may see appropriate,
(iii) requesting the Corporation's consolidated subsidiaries and affiliated
companies to employ independent public accountants to audit their respective
books of account, accounting procedures and financial statements, (iv)
requesting the independent public accountants to furnish to the compensation
committee the certifications required under any present or future stock
option, incentive compensation or employee benefit plan of the Corporation,
(v) reviewing the adequacy of internal financial controls, (vi) approving the
accounting principles employed in financial reporting, (vii) approving the
appointment or removal of the Corporation's general auditor, and (viii)
reviewing the accounting principles employed in financial reporting. None of
the members of the audit committee shall be an officer or full-time employee
of the Corporation or of any subsidiary or affiliate of the Corporation.
(c) The compensation committee shall have the following powers and
authority: (i) determining and fixing the compensation for all senior officers
of the Corporation and those of its subsidiaries that the compensation
committee shall from time to time consider appropriate, as well as all
employees of the Corporation and its subsidiaries compensated at a rate in
excess of such amount per annum as may be fixed or determined from time to
time by the Board of Directors, (ii) performing the duties of the committees
of the Board of Directors provided for in any present or future stock option,
incentive compensation or employee benefit plan of the Corporation or, if the
compensation committee shall so determine, any such plan of any subsidiary of
the Corporation and (iii) reviewing the operations of and policies pertaining
to any present or future stock option, incentive compensation or employee
benefit plan of the Corporation or any Subsidiary that the compensation
committee shall from time to time consider appropriate. None of the members of
the compensation committee shall be an officer or full-time employee of the
Corporation or of any subsidiary of the Corporation.
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(d) In addition, the Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more additional committees, each
committee to consist of one or more of the directors of the Corporation. Any
such committee, to the extent provided in the resolution of the Board of
Directors, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting
an agreement of merger or consolidation, recommending to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommending to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amending the bylaws of the
Corporation; and unless the resolution of the Board of Directors or the
certificate of incorporation expressly so provide, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock. Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
(e) Regular meetings of committees shall be held at such times as may be
determined by resolution of the Board of Directors or the committee in
question and no notice shall be required for any regular meeting other than
such resolution. A special meeting of any committee shall be called by
resolution of the Board of Directors, or by the Secretary or an Assistant
Secretary upon request of the chairman or a majority of the members of any
committee. Notice of special meetings shall be given to each member of the
committee in the same manner as that provided for in Section 3.07 of these
Bylaws.
Section 3.09. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee
thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
Section 3.10. Telephonic Meetings. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or such committee, as the
case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 3.11. Resignation. Any director may resign at any time by giving
written notice to the Board of Directors or to the Secretary of the
Corporation. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
Section 3.12. Vacancies. Unless otherwise provided in the certificate of
incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all the stockholders
having the right to vote as a single class may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the certificate of
incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of directors elected by such
class or classes or series thereof then in office, or by a sole remaining
director so elected. Each director so chosen shall hold office until his
successor is elected and qualified, or until his earlier death, resignation or
removal. If there are no directors in office, then an election of directors
may be held in accordance with Delaware Law. Unless otherwise provided in the
certificate of incorporation, when one or more directors shall resign from the
Board, effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have the power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective, and each director so chosen shall hold
office as provided in the filling of other vacancies.
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Section 3.13. Removal. Any director or the entire Board of Directors may be
removed, with or without cause, at any time by the affirmative vote of the
holders of a majority of the outstanding capital stock of the Corporation
entitled to vote and the vacancies thus created may be filled in accordance
with Section 3.12 herein.
Section 3.14. Compensation. Unless otherwise restricted by the certificate
of incorporation or these bylaws, the Board of Directors shall have authority
to fix the compensation of directors, including fees and reimbursement of
expenses.
Section 3.15. Nomination of Directors. Only persons who are nominated in
accordance with the procedures set forth in these bylaws shall be eligible to
serve as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of stockholders (a) by
or at the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 3.15, who shall be entitled to vote for the
election of directors at the meeting and who complies with the notice
procedures set forth in this Section 3.15. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant
to timely notice in writing to the secretary of the Corporation. To be timely,
a stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than 90 days nor more
than 120 days prior to the meeting; provided, however, that in the event that
less than 100 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be
timely must be received no later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made. Each such notice shall set forth: (a) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (b) the class and number of shares of
stock held of record, owned beneficially and represented by proxy by such
stockholder as of the record date for the meeting (if such date shall then
have been made publicly available) and as of the date of such notice; (c) a
representation that the stockholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (d) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (e) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission,
had the nominee been nominated, or intended to be nominated, by the board of
directors; and (f) the consent of each nominee to serve as a director of the
Corporation if so elected.
At the request of the Board of Directors, any person nominated by the Board
of Directors for election as a director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be
eligible to serve as a director of the Corporation unless nominated in
accordance with the procedures set forth in this bylaw. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
a nomination was not made in accordance with the procedures prescribed by the
bylaws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 3.15, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, and the rules
and regulations thereunder with respect to the matters set forth in this
Section 3.15.
ARTICLE 4
Officers
Section 4.01. Principal Officers. The principal officers of the Corporation
shall be a President, a Chief Executive Officer, a Chief Financial Officer,
one or more Executive Vice Presidents, one or more Senior Vice Presidents, one
or more Vice Presidents, a Treasurer, one or more Assistant Treasurers, a
Secretary, and one or more Assistant Secretaries. The Secretary who shall have
the duty, among other things, to record the proceedings of the meetings of
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stockholders and directors in a book kept for that purpose. The Corporation
may also have such other principal officers, including one or more
Controllers, as the Board may in its discretion appoint. One person may hold
the offices and perform the duties of any two or more of said offices, except
that no one person shall hold the offices and perform the duties of President
and Secretary.
Section 4.02. Election, Term of Office and Remuneration. The principal
officers of the Corporation shall be elected annually by the Board of
Directors at the annual meeting thereof. Each such officer shall hold office
until his successor is elected and qualified, or until his earlier death,
resignation or removal. The remuneration of all officers of the Corporation
shall be fixed by the Board of Directors. Any vacancy in any office shall be
filled in such manner as the Board of Directors shall determine.
Section 4.03. Subordinate Officers. In addition to the principal officers
enumerated in Section 4.01 herein, the Corporation may have one or more
Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such
other subordinate officers, agents and employees as the Board of Directors may
deem necessary, each of whom shall hold office for such period as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any principal officer the power to appoint and to remove any such
subordinate officers, agents or employees.
Section 4.04. Removal. Except as otherwise permitted with respect to
subordinate officers, any officer may be removed, with or without cause, at
any time, by resolution adopted by the Board of Directors.
Section 4.05. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors (or to a principal officer if the
Board of Directors has delegated to such principal officer the power to
appoint and to remove such officer). The resignation of any officer shall take
effect upon receipt of notice thereof or at such later time as shall be
specified in such notice; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4.06. Powers and Duties. The officers of the Corporation shall have
such powers and perform such duties incident to each of their respective
offices and such other duties as may from time to time be conferred upon or
assigned to them by the Board of Directors.
ARTICLE 5
Stock Certificates and Transfers
Section 5.01. Stock Certificates and Transfers. (a) The interest of each
stockholder of the Corporation shall be evidenced by certificates for shares
of stock in such form as the appropriate officers of the Corporation may from
time to time prescribe; provided that the Board of Directors may provide by
resolution or resolutions that all or some of all classes or series of the
stock of the Corporation shall be represented by uncertificated shares.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every
holder of uncertificated shares shall be entitled to have a certificate signed
by, or in the name of the Corporation by the Chairman of the Board of
Directors, or the President or any other authorized officer and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the Corporation representing the number of shares registered in
certificate form. Except as otherwise expressly provided by law, the rights
and obligations of the holders of uncertificated stock and the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical.
(b) The certificates of stock shall be signed, countersigned and registered
in such manner as the Board of Directors may by resolution prescribe, which
resolution may permit all or any of the signatures on such certificates to be
in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to
be such officer, transfer agent or registrar before such
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certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
(c) The shares of the stock of the Corporation represented by certificates
shall be transferred on the books of the Corporation by the holder thereof in
person or by his attorney, upon surrender for cancellation of certificates for
the same number of shares, with an assignment and power of transfer endorsed
thereon or attached thereto, duly executed, with such proof of the
authenticity of the signature as the Corporation or its agents may reasonably
require. Upon receipt of proper transfer instructions from the registered
owner of uncertificated shares such uncertificated shares shall be canceled
and issuance of new equivalent uncertificated shares or certificated shares
shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the Corporation. Within a reasonable time after the
issuance or transfer of uncertificated stock, the Corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to Delaware Law
or, unless otherwise provided by Delaware Law, a statement that the
Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative participating, optional or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Section 5.02. Lost, Stolen or Destroyed Certificates. No certificate for
shares or uncertificated shares of stock in the Corporation shall be issued in
place of any certificate alleged to have been lost, destroyed or stolen,
except on production of such evidence of such loss, destruction or theft and
on delivery to the Corporation of a bond of indemnity in such amount, upon
such terms and secured by such surety, as the Board of Directors or its
designee may in its or his discretion require.
ARTICLE 6
General Provisions
Section 6.01. Fixing the Record Date. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than 60 nor less than 10 days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided that the Board of Directors may fix a new record date for
the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than 10 days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by Delaware Law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by Delaware Law, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting shall
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be at the close of business on the day on which the Board of Directors adopts
the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 6.02. Dividends. Subject to limitations contained in Delaware Law
and the certificate of incorporation, the Board of Directors may declare and
pay dividends upon the shares of capital stock of the Corporation, which
dividends may be paid either in cash, in property or in shares of the capital
stock of the Corporation.
Section 6.03. Year. The fiscal year of the Corporation shall be as specified
by the Board of Directors.
Section 6.04. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and shall be in such form as may be
approved from time to time by the Board of Directors. The seal may be used by
causing it or a facsimile thereof to be impressed, affixed or otherwise
reproduced.
Section 6.05. Voting of Stock Owned by the Corporation. The Board of
Directors may authorize any person, on behalf of the Corporation, to attend,
vote at and grant proxies to be used at any meeting of stockholders of any
corporation (except this Corporation) in which the Corporation may hold stock.
Section 6.06. Waiver of Notice. Whenever any notice is required to be given
to any stockholder or director of the Corporation under the provisions of
Delaware Law, a waiver thereof in writing, signed by the person or persons
entitled to such notice, whether before or after the time stated therein,
shall be deemed equivalent to the giving of such notice. Neither the business
to be transacted at, nor the purpose of, any annual or special meeting of the
stockholders or any meeting of the Board of Directors or committee thereof
need be specified in any waiver of notice of such meeting.
Section 6.07. Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the audit committee, and it shall be
the duty of the audit committee to cause such audit to be made annually.
Section 6.08. Resignations. Any director or any officer, whether elected or
appointed, may resign at any time upon notice of such resignation to the
Corporation.
Section 6.09. Indemnification and Insurance. (a) Each person who was or is a
party or is threatened to be made a party to, or is involved in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "PROCEEDING"), by reason of the
fact that he or she or a person of whom he or she is the legal representative,
is or was a director, officer, employee or agent of the Corporation or a
Subsidiary, or is or was serving at the request of the Corporation or a
Subsidiary as a director, officer, partner, member, employee or agent of
another corporation, partnership, limited liability company, joint venture,
trust or other enterprise, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted from time to time by Delaware Law
as the same exists or may hereafter be amended (but, if permitted by
applicable law, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment) or any other applicable laws as presently or hereafter in effect,
and such indemnification shall continue to a person who has ceased to be such
a director, officer, employee or agent and shall inure to the benefit of his
or her heirs, executors and administrators; provided, that the Corporation
shall indemnify any such
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person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof)
was authorized by the Board of Directors or is a Proceeding to enforce such
person's claim to indemnification pursuant to the rights granted by this
Bylaw. The Corporation shall pay the expenses incurred by such person in
defending any such Proceeding in advance of its final disposition upon receipt
(unless the Corporation upon authorization of the Board of Directors waives
such requirement to the extent permitted by applicable law) of an undertaking
by or on behalf of such person to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation as authorized by this Bylaw or otherwise.
(b) The indemnification and the advancement of expenses incurred in
defending a Proceeding prior to its final disposition provided by, or granted
pursuant to this Bylaw shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, other provision of these bylaws, agreement, vote
of stockholders or Disinterested Directors or otherwise. No repeal,
modification or amendment of, or adoption of any provision inconsistent with,
this Section 6.09, nor to the fullest extent permitted by applicable law, any
modification of law, shall adversely affect any right or protection of any
person granted pursuant hereto existing at or with respect to any events that
occurred prior to, the time of such repeal, amendment adoption or
modification.
(c) The Corporation may maintain insurance, at its expense, to protect
itself and any person who is or was a director, officer, partner, member,
employee, or agent of the Corporation or a Subsidiary or of another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
Delaware Law.
(d) If any provision or provisions of this Bylaw shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (i) the validity,
legality and enforceability of the remaining provisions of this Bylaw
(including, without limitation, each portion of any paragraph of this Bylaw
containing any such provision held to be invalid, illegal or unenforceable,
that is not itself held to be invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (ii) to the fullest extent
possible, the provisions of this Bylaw (including, without limitation, each
such portion of any paragraph of this Bylaw containing any such provision held
to be invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
(e) For purposes of these Bylaws:
(i) "DISINTERESTED DIRECTOR" means a director of the Corporation who is
not and was not a party to the proceeding or matter in respect of which
indemnification is sought by the claimant.
(ii) "SUBSIDIARY" means a corporation, a majority of the capital stock of
which is owned directly or indirectly by the Corporation.
(f) Any notice, request, or other communication required or permitted to be
given to the Corporation under this Bylaw shall be in writing and either
delivered in person or sent by telecopy, telex, telegram, overnight mail or
courier service, or certified or registered mail, postage prepaid, return
receipt requested, to the Secretary of the Corporation and shall be effective
only upon receipt by the Secretary.
Section 6.10. Amendments. These bylaws or any of them, may be altered,
amended or repealed, or new bylaws may be made, by the stockholders entitled
to vote thereon at any annual or special meeting thereof or by the Board of
Directors.
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APPENDIX J--FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEW
MARRIOTT
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NEW MARRIOTT MI, INC.
(ORIGINALLY INCORPORATED ON SEPTEMBER 19, 1997)
FIRST. The name of the corporation is NEW MARRIOTT MI, INC.
-----
SECOND. The address of its registered office in the State of Delaware is
------
1013 Centre Road, City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
THIRD. The purpose of the corporation is to engage in, promote, and carry on
-----
in any part of the world any lawful acts or activities for which corporations
may be organized under the Delaware General Corporation Law.
FOURTH. The total number of shares of all classes of stock which the
------
corporation shall have authority to issue is eight hundred ten million
(810,000,000) consisting of:
(i) eight hundred million (800,000,000) shares of common stock, with par
value of $0.01 per share, of which
(a) three hundred million (300,000,000) shares are designated as
Class A Common Stock (the "Class A Common Stock") and
(b) five hundred million (500,000,000) shares are designated as
Common Stock (the "Common Stock"); and
(ii) ten million (10,000,000) shares of preferred stock, without par
value (the "Preferred Stock"). Of the Preferred Stock shares, (i) Eight
Hundred Thousand (800,000) shall be designated as Series A Junior
Participating Preferred Stock with a par value of $0.01 per share.
No holder of stock of any class of the corporation, whether now or hereafter
authorized or issued, shall be entitled as such, as a matter of right, to
subscribe for or purchase any part of any new or additional issue of stock of
any class whatsoever, or of any securities convertible into stock of any
class, or any character or to which are attached or with which are issued
warrants or rights to purchase any such stock, whether now or hereafter
authorized, issued or sold, or whether issued for moneys, property or
services, or by way of dividend or otherwise, or any right or subscription to
any thereof, other than such, if any, as the board of directors in its
discretion may from time to time fix, pursuant to authority hereby conferred
upon it; and any shares of stock or convertible obligations with warrants or
rights to purchase any such stock, which the board of directors may determine
to offer for subscription, may be sold without being first offered to any of
the holders of the stock of the corporation of any class or classes or may, as
such board shall determine, be offered to holders of any class or classes of
stock exclusively or to the holders of all classes of stock, and if offered to
more than one class of stock, in such proportions as between such classes of
stock as the board of directors, in its discretion, may determine.
A. Provisions Relating to Preferred Stock. The Preferred Stock may be issued
--------------------------------------
from time to time in one or more series pursuant to a resolution or
resolutions providing for such issue duly adopted by the board of directors
(authority to do so being hereby expressly vested in the board) and such
resolution or resolutions shall also set forth the voting powers, full or
limited or none, of each such series of Preferred Stock and shall fix the
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions of each such
series of Preferred Stock.
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B. Provisions Relating to Common Stock
-----------------------------------
1. General. The Class A Common Stock and the Common Stock shall be subject
to the express terms of the Preferred Stock and any class or series thereof.
The powers, preferences and rights of the Class A Common Stock and the Common
Stock and the qualifications, limitations and restrictions thereof, shall in
all respects be identical, except as otherwise required by law or as expressly
provided in this Restated Certificate of Incorporation.
2. Voting Rights. Except as may otherwise be required by law or by the
provisions of such resolution or resolutions as may be adopted by the board of
directors pursuant to Section A of this Article Fourth or as otherwise
expressly provided in this Restated Certificate of Incorporation:
(a) The holders of shares of Class A Common Stock shall be entitled to
ten votes for each share of Class A Common Stock held on all matters voted
upon by the stockholders of the corporation and shall vote together with
the holders of Common Stock and together with the holders of any other
series of stock who are entitled to vote in such manner and not as a
separate class;
(b) The holders of shares of Common Stock shall be entitled to one vote
for each share of Common Stock held on all matters voted upon by the
stockholders of the corporation and shall vote together with the holders of
Class A Common Stock and together with the holders of any other classes or
series of stock who are entitled to vote in such manner and not as a
separate class.
3. Dividends and Distributions. Subject to the rights of the holders of the
Preferred Stock, the holders of Class A Common Stock and Common Stock shall be
entitled to receive when, as and if declared by the board of directors, out of
funds legally available therefor, dividends and other distributions payable in
cash, property, stock or otherwise. Each share of Class A Common Stock and
each share of Common Stock shall have identical rights with respect to
dividends and distributions, subject to the following:
(a) any Regular Cash Dividend (as defined below) declared and paid on
each share of Common Stock may, at the discretion of the board of
directors, equal up to 125% (one hundred twenty-five percent) (rounded up
to the nearest penny) of the per share Regular Cash Dividend declared and
paid on each share of Class A Common Stock, but in no case shall the
Regular Cash Dividend on each share of Common Stock be less than the
equivalent Regular Cash Dividend per share of Class A Common Stock;
(b) if the board of directors, in its discretion, should declare a
Special Dividend (as defined below), such dividend shall be paid in equal
amounts per share of Common Stock and Class A Common Stock; and
(c) whenever, at the discretion of the board of directors, a dividend or
distribution is payable in shares of Common Stock and/or Class A Common
Stock, such stock dividend will be paid in equal amounts per share of
Common Stock and Class A Common Stock; provided, however, that, at the
discretion of the board of directors, such stock dividend may be paid to
the holders of Common Stock either in Common Stock or in Class A Common
Stock or a combination thereof and, similarly, a stock dividend may be paid
to the holders of Class A Common Stock either in Class A Common Stock or in
Common Stock or a combination thereof.
As used herein, the term "Regular Cash Dividend" shall mean dividends of the
corporation payable quarterly in cash consistent with practices established
and revised from time to time by the board of directors in its sole
discretion; and the term "Special Dividend" shall mean any dividend of cash or
other property or assets (including securities), other than a Regular Cash
Dividend. Any decision by the board of directors determining whether a
dividend constitutes a Regular Cash Dividend shall be conclusive, binding and
not subject to review or challenge.
4. Conversion. Upon a resolution of the board of directors:
(i) each share of Common Stock shall be converted automatically into one
share of Class A Common Stock if at any time the board of directors, in its
sole discretion, decides that all, but not less than all, of the then
outstanding shares of Common Stock shall be so converted; and
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(ii) each share of Common Stock shall be converted automatically into one
share of Class A Common Stock if the Common Stock is excluded from trading
on a national securities exchange or listing on the National Association of
Securities Dealers Automated Quotation System (and the Class A Common Stock
is, or is eligible to be, traded on a national securities exchange or
listed on the National Association of Securities Dealers Automated
Quotation System) (the "NASDAQ").
In making the determination referred to in (ii) above, the board of
directors may conclusively rely upon information and documentation available
to it, including but not limited to information or certification from any
transfer agent for the common stock (the "Transfer Agent"), filings made with
the Securities and Exchange Commission or any stock exchange or self-
regulatory organization. The determination of the board of directors that a
class of common stock has been excluded from trading on, or is eligible for
trading on, a national securities exchange or has been excluded from listing
on, or is eligible for listing on the NASDAQ shall be conclusive and binding.
At the time specified in a resolution of the board of directors referred to in
this Paragraph 4, the shares of the Common Stock so converted shall be deemed
changed automatically into shares of Class A Common Stock and stock
certificates and uncertificated shares formerly representing shares of Common
Stock shall thereupon and thereafter be deemed to represent a like number of
shares of the Class A Common Stock, the total number of shares of the Class A
Common Stock the corporation shall have authority to issue shall be eight
hundred million (800,000,000) and the total number of shares of the Common
Stock the corporation shall have authority to issue shall be zero (0).
5. Dissolution and Liquidation; Mergers and Consolidations.
(a) In the event of a liquidation, distribution or sale of assets,
dissolution or winding up of the corporation, whether voluntary or
involuntary, and after the holders of the Preferred Stock have been paid in
full the amounts to which they are entitled, if any, or a sum sufficient for
such payment in full has been set aside, the remaining net assets of the
corporation, of whatever kind, shall be divided among and paid ratably to the
holders of Class A Common Stock and Common Stock in proportion to the number
of shares of Class A Common Stock or Common Stock, as the case may be, held by
them respectively.
(b) In the event of a merger, consolidation or combination of the
corporation with another entity (whether or not the corporation is the
surviving entity), the holders of Common Stock and Class A Common Stock shall
be entitled to receive the same per share consideration in that transaction,
except that any common stock that holders of Common Stock are entitled to
receive in any such event may differ as to voting rights and otherwise to the
extent and only to the extent that the Common Stock and the Class A Common
Stock differ as set forth in Section B of this Article Fourth.
6. Minority Rights Protection Provision.
(a) If, at any time after the date upon which the Common Stock and the Class
A Common Stock are distributed to the holders of common stock of Marriott
International, Inc. (to be renamed Sodexho Marriott
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Services, Inc.) (the "Distribution"), any Person or group, each as hereinafter
defined in this Paragraph 6, acquires beneficial ownership of shares
representing 15% or more of the number of then outstanding Class A Common
Stock and such Person or group (a "Significant Shareholder") does not then
beneficially own an equal or greater percentage of all then outstanding shares
of Common Stock, all of which Common Stock must have been acquired by such
Person or group after the Distribution, such Significant Shareholder must,
within a ninety-day period beginning the day after becoming a Significant
Shareholder, make a public cash tender offer in compliance with all applicable
laws and regulations to acquire additional shares of Common Stock as provided
in this Paragraph 6 (a "Minority Rights Protection Transaction"). The 15%
ownership threshold of the number of Class A Common Shares which triggers a
Minority Rights Protection Transaction may not be waived by the board of
directors, nor may this threshold in this Restated Certificate of
Incorporation be amended without shareholder approval, including a majority
vote of the outstanding Common Stock voting separately as a class.
(b) In each Minority Rights Protection Transaction, the Significant
Shareholder must make a public cash tender offer to acquire from the holders
of Common Stock at least that number of additional shares of Common Stock
determined by (i) multiplying (x) the percentage of the number of shares of
outstanding Class A Common Stock beneficially owned and acquired after the
Distribution by such Significant Shareholder by (y) the total number of shares
of Common Stock outstanding on the date such Person or group became a
Significant Shareholder, and (ii) subtracting therefrom the number of shares
of Common Stock beneficially owned by such Significant Shareholder on the date
such Person or group became a Significant Shareholder and which were acquired
after the Distribution (as adjusted for stock splits, stock dividends and
similar recapitalizations). The Significant Shareholder must acquire all
shares of Common Stock validly tendered and not withdrawn or, if the number of
shares of Common Stock tendered to the Significant Shareholder and not
withdrawn exceeds the number of shares required to be acquired pursuant to
this subparagraph (b), the number of shares acquired from each tendering
holder shall be pro rata based on the percentage that the number of shares
tendered by such stockholder bears to the total number of shares tendered and
not withdrawn by all tendering holders.
(c) The cash offer price for any shares of Common Stock required to be
purchased by the Significant Shareholder pursuant to this Paragraph 6 shall be
the greater of: (i) the highest price per share paid by the Significant
Shareholder for any share of Class A Common Stock in the six-month period
ending on the date such Person or group became a Significant Shareholder (or
such shorter period after the Distribution if the date such Person or group
became a Significant Shareholder is not more than six months following the
Distribution); and (ii) the highest reported sale price for a share of Class A
Common Stock on the New York Stock Exchange (or if the Class A Common Stock is
not listed on the New York Stock Exchange, on any other national securities
exchange on which the Class A Common Stock is listed; or if the Class A Common
Stock is not listed on any national securities exchange, on the NASDAQ Market)
on the business day preceding the date the Significant Shareholder commences
the required tender offer. For purposes of subparagraph (d) below, the
applicable date for each calculation required by clauses (i) and (ii) of the
preceding sentence shall be the date on which the Significant Shareholder
becomes required to engage in the Minority Rights Protection Transaction for
which such calculation is required.
(d) A Minority Rights Protection Transaction shall also be required to be
effected by any Significant Shareholder each time that the Significant
Shareholder acquires after the Distribution beneficial ownership of additional
shares of Class A Common Stock in an amount equal to or greater than the next
higher integral multiple of 5% in excess of 15% (e.g., 20%, 25%, 30%, etc.) of
the number of shares of outstanding Class A Common Stock if such Significant
Shareholder does not then own an equal or greater percentage of all then
outstanding shares of Common Stock (all of which shares of Common Stock must
have been acquired by such Significant Shareholder after the Distribution,
including pursuant to a previous Minority Rights Protection Transaction). Such
Significant Shareholder shall be required to make a public cash tender offer
to acquire that number of shares of Common Stock prescribed by the formula set
forth in subparagraph (b) above, and must acquire all shares validly tendered
and not withdrawn or a pro rata portion thereof, as specified in such
subparagraph (b), at the price determined pursuant to subparagraph (c) above,
even if a previous Minority Rights Protection Transaction resulted in fewer
shares of Common Stock being tendered than required in the previous offer.
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(e) If any Significant Shareholder fails to commence an offer required by
this Paragraph 6 of this Section B of this Article Fourth within the ninety-
day period beginning the day after becoming a Significant Shareholder, or to
purchase shares validly tendered and not withdrawn (after proration, if any),
such Significant Shareholder shall not be entitled to vote any shares of Class
A Common Stock beneficially owned by such Significant Shareholder and acquired
by such Significant Shareholder after the Distribution. To the extent that the
voting power of any shares of Class A Common Stock is so discontinued, such
shares shall not be included in the determination of aggregate voting shares
for any purpose under this Restated Certificate of Incorporation or applicable
law. The requirement to engage in a Minority Rights Protection Transaction
shall be satisfied by the making of the requisite offer and purchasing validly
tendered and not withdrawn shares pursuant to this Paragraph 6, even if the
number of shares tendered is less than the number of shares included in the
required offer.
(f) The Minority Rights Protection Transaction requirement shall not apply
to any increase in percentage beneficial ownership of shares of Class A Common
Stock resulting solely from a change in the aggregate amount of shares of
Class A Common Stock outstanding, provided that any acquisition after such
change which results in any Person or group having acquired after the
Distribution beneficial ownership of 15% or more of the number of then
outstanding shares of Class A Common Stock (or, after the last acquisition
which triggered the requirement for a Minority Rights Protection Transaction,
additional shares of Class A Common Stock in an amount equal to the next
higher integral multiple of 5% in excess of the number of shares of Class A
Common Stock then outstanding) shall be subject to any Minority Rights
Protection Transaction requirement that would be imposed pursuant to this
Paragraph 6.
(g) In connection with subparagraphs (a) through (d) and (f) above, the
following shares of Class A Common Stock shall be excluded for the purpose of
determining the number of shares of Class A Common Stock beneficially owned or
acquired by any Person or group but not for the purpose of determining shares
outstanding:
(i) shares beneficially owned by such Person or group (or, in the case of
a group, shares beneficially owned by Persons that are members of such
group) immediately after the Distribution;
(ii) shares acquired by will or by the laws of descent and distribution,
or by gift that is made in good faith and not for the purpose of
circumventing this Paragraph 6, or by termination or revocation of a trust
or similar arrangement or by a distribution from a trust or similar
arrangement if such trust or similar arrangement was created, and such
termination, revocation or distribution occurred or was effected, in good
faith and not for the purpose of circumventing this Paragraph 6, or by
reason of the ability of a secured party (following a default) to exercise
voting rights with respect to, or to dispose of, shares that had been
pledged in good faith as security for a bona fide loan, or by foreclosure
of a bona fide pledge which secures a bona fide loan;
(iii) shares acquired upon issuance or sale by the corporation;
(iv) shares acquired by operation of law (including a merger or
consolidation effected for the purpose of recapitalizing such Person or
reincorporating such Person in another jurisdiction but excluding a merger
or consolidation effected for the purpose of acquiring another Person);
(v) shares acquired in exchange for Common Stock by a holder of Common
Stock (or by a parent, lineal descendant or donee of such holder of Common
Stock who received such Common Stock from such holder) if the Common Stock
so exchanged was acquired by such holder directly from the corporation as a
dividend on shares of Class A Common Stock;
(vi) shares acquired by a plan of the corporation qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended, or any successor
provision thereto, or acquired by reason of a distribution from such a
plan;
(vii) shares beneficially owned by a Person or group immediately after
the Distribution which are thereafter acquired by an Affiliate, as defined
in subparagraph (j) below, of such Person or group (or by the members of
the immediate family (or trusts for the benefit thereof) of any such Person
or Affiliate) or by a group which includes such Person or group or any such
Affiliate; and
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(viii) shares acquired indirectly through the acquisition of securities,
or of all or substantially all of the assets, of a Person that has a class
of its equity securities registered under Section 12 (or any successor
provision) of the Securities Exchange Act of 1934, as amended (the "1934
Act").
Notwithstanding anything to the contrary contained in this Article Fourth,
no Person (and no group including such Person) shall be deemed to have
acquired after the Distribution beneficial ownership of any shares of Class A
Common Stock owned by any other Person solely by reason of such Person being
or becoming an officer, director, executive, trustee, executor, custodian,
guardian, and/or other similar fiduciary or employee of or for such other
Person under circumstances not intended to circumvent the provisions of this
Paragraph 6.
(h) In connection with subparagraphs (a) through (d) and (f) above, for
purposes of calculating the number of shares of Common Stock beneficially
owned or acquired by any Person or group, shares of Common Stock acquired by
gift shall be deemed to be beneficially owned by such Person or member of a
group if such gift was made in good faith and not for the purpose of
circumventing the operations of this Paragraph 6; and only shares of Common
Stock owned of record by such Person or member of a group or held by others as
nominees of such Person or member of a group and identified as such to the
corporation shall be deemed to be beneficially owned by such Person or group
(provided that shares of Common Stock with respect to which such Person or
member of a group has sole investment and voting power shall be deemed to be
beneficially owned thereby).
(i) All calculations with respect to percentage beneficial ownership of
either issued and outstanding shares of Class A Common Stock or Common Stock
shall be based upon the number of issued and outstanding shares reported by
the corporation on the last to be filed of (i) the corporation's most recent
Annual Report on Form 10-K, (ii) its most recent Quarterly Report on Form 10-
Q, (iii) its most recent Current Report on Form 8-K, and (iv) its most recent
definitive proxy statement filed with the Securities and Exchange Commission.
(j) For purposes of this Paragraph 6, the term "Person" means any
individual, partnership, joint venture, limited liability company,
corporation, association, trust, incorporated organization, government or
governmental department or agency or any other entity (other than the
corporation). Subject to subparagraphs (g) and (h) above, "beneficial
ownership" shall be determined pursuant to Rule 13d-3 (as in effect on January
1, 1998) promulgated under the 1934 Act, and the formation or existence of a
"group" shall be determined pursuant to Rule 13d-5(b) (as in effect on January
1, 1998) promulgated under the 1934 Act, in each case subject to the following
additional qualifications:
(i) relationships by blood or marriage between or among any Persons will
not constitute any of such Persons as a member of a group with any such
other Person(s), absent affirmative attributes of concerted action; and
(ii) any Person acting in his official capacity as a director or officer
of the corporation shall not be deemed to beneficially own shares where
such ownership exists solely by virtue of such Person's status as a trustee
(or similar position) with respect to shares held by plans or trusts for
the general benefit of employees or former employees of the corporation,
and actions taken or agreed to be taken by a Person in such Person's
official capacity as an officer or director of the corporation will not
cause such Person to become a member of a group with any other Person.
For purposes of this Paragraph 6, an "Affiliate" of any Person means any
other Person directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person. For purposes of this
definition, control when used with respect to any specified Person means the
possession of the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms controlling and controlled have meanings
correlative to the foregoing.
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FIFTH. The name and mailing address of the incorporator is as follows:
-----
NAME MAILING ADDRESS
----- 1013 Centre Road
Harold J. Wood Wilmington, Delaware 19805
SIXTH. The corporation is to have perpetual existence.
-----
SEVENTH. The private property of the stockholders shall not be subject to
-------
the payment of the corporate debts to any extent whatsoever.
EIGHTH. Except as otherwise fixed by or pursuant to the provisions of
------
Article FOURTH hereof relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock and the Class A
Common Stock as to dividends or upon liquidation to elect additional directors
under specified circumstances, the number of the directors of the corporation
shall be fixed from time to time by or pursuant to the Bylaws of the
corporation. The directors, other than those who may be elected by the holders
of any class or series of stock having a preference over the Common Stock and
the Class A Common Stock as to dividends or upon liquidation, shall be
classified, with respect to the time for which they severally hold office,
into three classes, as nearly equal in number as possible, as shall be
provided in the manner specified in the Bylaws of the corporation, one class
to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 1998, another class to be originally elected for a
term expiring at the annual meeting of stockholders to be held in 1999, and
another class to be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2000, with each class to hold office
until its successor is elected and qualified. At each annual meeting of the
stockholders of the corporation, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Advance notice of stockholder nominations for the election of directors
shall be given in the manner provided in the Bylaws of the corporation.
Except as otherwise provided for or fixed by or pursuant to the provisions
of Article FOURTH hereof relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock and the Class A
Common Stock as to dividends or upon liquidation to elect directors under
specified circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the board of
directors resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
board of directors. Any directors elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified. No
decrease in the number of directors constituting the board of directors shall
shorten the term of any incumbent director.
Subject to the rights of any class or series of stock having a preference
over the Common Stock and the Class A Common Stock as to dividends or upon
liquidation to elect directors under specified circumstances, any director may
be removed from office, but only for cause and only by the affirmative vote of
the holders of at least 66 2/3% of the voting power of all the shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class.
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least 66 2/3% of the
voting power of all the shares of the corporation entitled to vote generally
in the election of directors, voting together as a single class, shall be
required to alter, amend or adopt any provision inconsistent with or repeal
this Article EIGHTH.
The directors shall have the power to fix the amount to be reserved as
working capital and to authorize and cause to be executed, mortgages and liens
without limit as to amount, upon the property and franchises of this
corporation.
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The Bylaws shall determine whether and to what extent the accounts and books
of this corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right of inspecting any
account, or book, or document of this corporation, except as conferred by law
or the Bylaws, or by resolution of the stockholders or directors.
The stockholders and directors shall have power to hold their meetings and
keep the books, documents and papers of the corporation outside the State of
Delaware, at such places as may be from time to time designated by the Bylaws
or by resolution of the stockholders or directors.
The directors shall have power by a resolution passed by a majority vote of
the whole board, under suitable provision of the Bylaws, to designate two or
more of their number to constitute an executive committee, which committee
shall for the time being, as provided in said resolution or in the Bylaws,
have and exercise any or all the powers of the board of directors which may be
lawfully delegated in the management of the business and affairs of the
corporation, and shall have power to authorize the seal of the said
corporation to be affixed to all papers which may require it.
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter set forth herein or, in the absence of specific provision herein, in
the manner prescribed by the statutes of the State of Delaware, and all rights
conferred on officers, directors and stockholders herein are granted subject
to this reservation.
Election of directors need not be by written ballot unless the Bylaws of the
corporation shall so provide.
NINTH. The amount of capital with which this corporation will commence
-----
business is the sum of One Thousand Dollars ($1,000).
TENTH. The corporation may enter into contracts or transact business with
-----
one or more of its officers or directors, or with any firms of which one or
more of its officers or directors is a member, or may invest its funds in the
securities of and may enter into contracts, or transact business with any
corporation or association in which any one or more of its officers or
directors is a stockholder, officer or director, and in the absence of bad
faith, or unfair dealing, such contract or transaction or investment shall not
be invalidated or to any extent affected by the fact that any such officer or
officers or any such director or directors has or may have interests therein
which are or might be adverse to the interests of the corporation, provided
that the remaining directors are sufficient in number to ratify and approve
the transaction.
ELEVENTH. Each person who was or is made a party or is threatened to be made
--------
a party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director, officer or employee
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereafter an "indemnitee"), whether the
basis of such proceeding is alleged activity in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as
a director, officer, employee or agent, shall be indemnified and held harmless
by the corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer or employee and shall inure to the benefit of
the indemnitee's heirs, executors and administrators; provided that except
with respect to proceedings to enforce rights to indemnification, the
corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the board of directors. The
foregoing right of indemnification shall be in addition to and not exclusive
of all other rights to which such director, officer, or employee may be
entitled.
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TWELFTH. The affirmative vote of the holders of shares representing not less
-------
than sixty-six and two-thirds percent (66 2/3%) of the voting power of the
corporation shall be required for the approval of any proposal for the
corporation to reorganize, merge, or consolidate with any other corporation,
or sell, lease, or exchange substantially all of its assets or business. The
amendment, alteration or repeal of this Article TWELFTH, or any portion
hereof, shall require the approval of the holders of shares representing at
least sixty-six and two-thirds percent (66 2/3%) of the voting power of the
corporation.
THIRTEENTH. Notwithstanding the provisions of Article TWELFTH, any action
----------
required or permitted to be taken by the stockholders of the corporation must
be effected at a duly called annual or special meeting of such holders and may
not be effected by any consent in writing by such holders. Except as otherwise
required by law and subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock and the Class A
Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the corporation may be called only by the board of directors
pursuant to a resolution approved by a majority of the entire board of
directors. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
66 2/3% of the voting power of all the shares of the corporation entitled to
vote generally in the election of directors, voting together as a single
class, shall be required to alter, amend or adopt any provision inconsistent
with or repeal this Article THIRTEENTH.
FOURTEENTH. The board of directors shall have power to make, alter, amend
----------
and repeal the Bylaws of the corporation (except insofar as the Bylaws of the
corporation adopted by the stockholders shall otherwise provide). Any Bylaws
made by the directors under the powers conferred hereby may be altered,
amended or repealed by the directors or by the stockholders. Notwithstanding
the foregoing and anything contained in this Certificate of Incorporation to
the contrary, Sections 3.1, 3.2 and 3.13 of Article III and Articles VIII and
IX of the Bylaws shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least 66 2/3% of the voting power of all the shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 66 2/3% of the voting power of all the shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend or adopt any
provision inconsistent with or repeal this Article FOURTEENTH.
FIFTEENTH. In addition to any affirmative vote required by law or this
---------
Certificate of Incorporation, and except as otherwise expressly hereinafter
provided in this Article:
(i) any merger or consolidation of the corporation or any Subsidiary (as
hereinafter defined) with (a) any Interested Stockholder (as hereinafter
defined) or (b) any other corporation (whether or not such other
corporation is an Interested Stockholder) which is, or after such merger or
consolidation would be, an Affiliate (as hereinafter defined) of an
Interested Stockholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder or any Affiliate of any Interested Stockholder of
any assets of the corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) of Fifteen Million Dollars or more,
or
(iii) the issuance or transfer by the corporation or any Subsidiary (in
one transaction or series of transactions) of any securities of the
corporation or any Subsidiary to any Interested Stockholder, or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value of Fifteen Million Dollars or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate or any Interested Stockholder; or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the
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effect, directly or indirectly, of increasing the proportionate share of
the outstanding shares of any class of equity or convertible securities of
the corporation or any Subsidiary which is directly or indirectly owned by
an Interested Stockholder or any Affiliate of any Interested Stockholder:
shall require the affirmative vote of the holders of at least 66 2/3% of the
voting power of all the shares of the corporation entitled to vote generally
in the election of directors (the "Voting Stock"), voting together as a single
class (it being understood that for purposes of this Article FIFTEENTH, each
share of the Voting Stock shall have the number of votes granted to it
pursuant to Article FOURTH of this Certificate of Incorporation). Such
affirmative vote shall be required, notwithstanding the fact that no vote may
be required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article FIFTEENTH shall mean
any transaction which is referred to in any one or more of clauses (i) through
(v) of the first paragraph of this Article.
The provisions of this Article FIFTEENTH shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by law and any other provision of
this Certificate of Incorporation, if either of the conditions hereinafter
specified under (a) or (b) are met:
(a) The Business Combination shall have been approved by a majority of
the Disinterested Directors (as hereinafter defined), or
(b) All of the following conditions shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
Common Stock and the Class A Common Stock in such Business Combination
shall be at least equal to the higher of the following:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Stockholder for any shares of Common Stock or
Class A Common Stock acquired by it (1) within the two-year period
immediately prior to the first public announcement of the proposal
of the Business Combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder, whichever
is higher; and
(b) the Fair Market Value per share of either the Common Stock or
the Class A Common Stock on the Announcement Date or on the date on
which the Interested Stockholder became an Interested Stockholder
(such latter date referred to in this Article as the "Determination
Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any other class of outstanding Voting Stock shall be at least
equal to the highest of the following (it being intended that the
requirements of this paragraph shall be required to be met with respect
to every class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Stockholder for any shares of such class of
Voting Stock acquired by it (1) within the two-year period
immediately prior to the Announcement Date or (2) in the transaction
in which it became an Interested Stockholder, whichever is higher:
(b) (if applicable) the highest preferential amount per share
which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation; and
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(c) the Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date, whichever is
higher.
(iii) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock and the Class
A Common Stock) shall be cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of Voting
Stock. If the Interested Stockholder has paid for shares of any class
of Voting Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or
the form used to acquire the largest number of shares of such class of
Voting Stock previously acquired by it.
(iv) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business Combination:
(a) except as approved by a majority of the Disinterested Directors,
there shall have been no failure to declare and pay at the regular date
therefor any full quarterly dividends (whether or not cumulative) on
the outstanding Preferred Stock; (b) there shall have been (1) no
reduction in the annual rate of dividend paid on the Common Stock and
the Class A Common Stock (except as necessary to reflect any
subdivision of the Common Stock and the Class A Common Stock), except
as approved by a majority of the Disinterested Directors, and (2) an
increase in such annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect of
reducing the number of outstanding shares of Common Stock or the Class
A Common Stock, unless the failure so to increase such annual rate is
approved by a majority of the Disinterested Directors; and (c) such
Interested Stockholder shall have not become the beneficial owner of
any additional shares of Voting Stock except as part of the transaction
which results in such Interested Stockholder becoming an Interested
Stockholder.
(v) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the corporation, whether in anticipation of or in
connection with such Business Combination or otherwise.
(vi) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to public stockholders of the corporation
at least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
For the purposes of this Article FIFTEENTH:
A. A "person" shall mean any individual, firm, corporation, partnership,
trust or other entity.
B. "Interested Stockholder" shall mean any person (other than the
corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more than 25%
of the voting power of the outstanding Voting Stock; or
(ii) is an Affiliate of the corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 25% or more of the voting
power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933.
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C. A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b) the right to vote
pursuant to any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
D. For the purposes of determining whether a person is an Interested
Stockholder pursuant to paragraph B of this Article, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned
through application of paragraph C of this Article but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on January 1, 1998.
F. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph B of this Article, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the corporation.
G. "Disinterested Director" means any member of the board of directors
who is unaffiliated with the Interested Stockholder and was a member of the
board of directors prior to the time that the Interested Stockholder became
an Interested Stockholder, and any successor of a Disinterested Director
who is unaffiliated with the Interested Stockholder and is recommended to
succeed a Disinterested Director by a majority of Disinterested Directors
then on the board.
H. "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date
in question of a share of such stock on the Composite Tape for New York
Stock Exchange--Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or if such Stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation with respect to a share of such stock during the 30-
day period preceding the date in question on the National Association of
Securities Dealers, Inc., Automated Quotations System or any system then in
use, or if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by the board in
good faith; and (ii) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined by
a majority of Disinterested Directors then on the board of directors.
I. In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used
in paragraph b(i) and (ii) of this Article shall include the shares of
Common Stock and the Class A Common Stock and/or the shares of any other
class of outstanding Voting Stock retained by the holders of such shares.
A majority of the Disinterested Directors of the corporation shall have the
power and duty to determine for the purposes of this Article FIFTEENTH, on the
basis of information known to them after reasonable inquiry, (A) whether a
person is an Interested Stockholder, (B) the number of shares of Voting Stock
beneficially owned by any person, (C) whether a person is an Affiliate or
Associate of another, (D) whether the assets which are the
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subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
Fifteen Million Dollars or more.
Nothing contained in this Article FIFTEENTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
Notwithstanding any other provisions of this Certificate of Incorporation or
the Bylaws of the corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws of the corporation), the affirmative vote of the holders of at least 66
2/3% or more of the voting power of all the shares of the corporation entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, amend or adopt any provisions inconsistent
with or repeal this Article FIFTEENTH.
SIXTEENTH. No director of the corporation shall be liable to the corporation
---------
or its stockholders for monetary damages, for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
Any amendment or repeal of this Article SIXTEENTH shall not adversely affect
any right or protection of a director of the corporation existing hereunder in
respect of any act or omission occurring prior to such amendment or repeal.
If the Delaware General Corporation Law shall be amended to authorize
corporate action further eliminating or limiting the liability of directors,
then a director of the corporation, in addition to the circumstances in which
such director is not liable immediately prior to such amendment, shall be free
of liability to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
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APPENDIX K--FORM OF AMENDED AND RESTATED BYLAWS OF NEW MARRIOTT
AMENDED AND RESTATED BYLAWS
OF
NEW MARRIOTT MI, INC.
ARTICLE I
OFFICES
Section 1.1 The registered office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 1.2 The Corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from
time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 All meetings of the shareholders for the election of directors
shall be held in Montgomery County, State of Maryland, at such place as may be
fixed from time to time by the board of directors or at such other place
either within or without the State of Delaware as shall be designated from
time to time by the board of directors and stated in the notice of the
meeting. Meetings of shareholders for any other purpose may be held at such
time and place, within or without the State of Delaware, as shall be stated in
the notice of the meetings or in a duly executed waiver of notice thereof.
Section 2.2 Annual shareholders' meetings shall be held on the second
Tuesday of May of each year, or at such other time as may be designated by the
board of directors, in the notice of the annual meeting, for the purpose of
electing directors and considering such other business as may properly come
before the meeting.
Section 2.3 Written notice of the annual meeting stating the place, date and
hour of the meeting shall be given to each shareholder entitled to vote at
such meeting not less than ten days nor more than sixty days before the date
of the meeting.
Section 2.4 The officer responsible for the Corporation's stock ledger shall
prepare at least ten days before every shareholders' meeting a complete list
of shareholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address and number of shares registered in the name of
each shareholder. The list shall be available for examination by any
shareholder for any purposes germane to the meeting, during ordinary business
hours in the Office of the Corporate Secretary at the Corporation's
Headquarters for a period of at least ten days prior to the meeting. The list
shall also be available at the shareholders' meeting for the inspection of any
shareholders.
Section 2.5 Written notice of a special meeting, stating the place, date and
hour of the meeting, and the purpose or purposes for which the meeting is
called, shall be given to each shareholder entitled to vote at such meeting,
not less than ten nor more than sixty days before the date of the meeting.
Section 2.6 Business transacted at any special meeting of shareholders shall
be limited to the purposes stated in the notice.
Section 2.7 The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however,
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such quorum shall not be present or represented at any meeting of the
shareholders, the shareholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might
have been transacted at the meeting as originally notified. If the adjournment
is for more than 30 days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting.
Section 2.8 When a quorum is present at any meeting, the vote of the holders
of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the Certificate of Incorporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question.
Section 2.9 Each shareholder shall at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such shareholder or such greater or lesser number
of votes per share as may be fixed by or pursuant to the Certificate of
Incorporation, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
Section 3.1 Except as otherwise fixed by or pursuant to the provisions of
Article FOURTH of the Certificate of Incorporation relating to the rights of
the holders of any class or series of stock having a preference over the
Common Stock as to dividends or upon liquidation to elect additional directors
under specified circumstances, the number of the directors of the Corporation
shall be fixed from time to time by the board of directors but shall not be
less than three. The directors, other than those who may be elected by the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, shall be classified, with respect
to the time for which they severally hold office, into three classes, as
nearly equal in number as possible, as determined by the board of directors of
the Corporation, one class to be originally elected for a term expiring at the
annual meeting of shareholders to be held in 1998, another class to be
originally elected for a term expiring at the annual meeting of shareholders
to be held in 1999, and another class to be originally elected for a term
expiring at the annual meeting of shareholders to be held in 2000, with each
class to hold office until its successor is elected and qualified. At each
annual meeting of the shareholders of the Corporation, the successors of the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of shareholders held in the
third year following the year of their election. Advance notice of shareholder
nominations for the election of directors shall be given in the manner
provided in Section 3.13 of Article III of these Bylaws.
Section 3.2 Except as otherwise provided for or fixed by or pursuant to the
provisions of Article FOURTH of the Certificate of Incorporation relating to
the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation to elect directors
under specified circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the board of
directors resulting from death, resignation, disqualification, removal or
other cause shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
board of directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified. No
decrease in the number of directors constituting the board of directors shall
shorten the term of any incumbent director. Subject to the rights of any class
or series of stock having a preference over the Common Stock as to dividends
or upon liquidation to elect directors under specified circumstances, any
director may be removed from office, with cause and only by the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of
the voting power of all the shares of the Corporation entitled to vote
generally in the election of directors, voting together as a single class.
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Section 3.3 The business of the Corporation shall be managed by its board of
directors which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done
by the shareholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 3.4 The board of directors of the Corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 3.5 The first meeting of each newly elected board of directors shall
be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the shareholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the shareholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.6 Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 3.7 Special meetings of the board may be called by the chairman of
the board, the president, or the secretary on the written request of any two
directors. Notice thereof stating the place, date and hour of the meeting
shall be given to each director either by mail not less than forty-eight (48)
hours before the date of the meeting, by telephone or telegram not less than
twenty-four (24) hours notice before the date of the meeting, or on such
shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
Section 3.8 At all meetings of the board of directors such number of
directors as shall be not less than one-third of the total number of the full
board of directors nor less than two shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the board of
directors, except as may be otherwise specifically provided by statute or by
the Certificate of Incorporation. If a quorum shall not be present at any
meeting of the board of directors the directors present thereat may adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 3.9 Unless otherwise restricted by the Certificate of Incorporation
or these Bylaws, any action required or permitted to be taken at any meeting
of the board of directors or of any committee thereof may be taken without a
meeting, if all members of the board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the board or committee.
Section 3.10 The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to
consist of two or more of the directors of the Corporation, which, to the
extent provided in the resolution, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
Corporation and may authorize the seal of the Corporation to be affixed to all
papers which may require it; provided, in the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of any such absent or
disqualified member. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
board of directors.
Section 3.11 Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
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COMPENSATION OF DIRECTORS
Section 3.12 The directors may be paid their expenses, if any, of attendance
at each meeting of the board of directors and may be paid a fixed sum for
attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefore.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
NOMINATION OF DIRECTORS
Section 3.13 Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, nominations for the election of directors may be made by the
board of directors or a proxy committee appointed by the board of directors or
by any shareholder entitled to vote in the election of directors. However, any
shareholder entitled to vote in the election of directors at a meeting may
nominate a director only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with respect to an election of directors at an
annual meeting of shareholders, ninety days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event the
date of the annual meeting is advanced more than thirty days or delayed by
more than sixty days from such anniversary date, notice by the shareholder
must be so delivered not later than the close of business on the seventh day
following the day on which notice of such meeting is first given to
shareholders, and (ii) with respect to an election to be held at a special
meeting of shareholders for the election of directors, the close of business
on the seventh day following the date on which notice of such meeting is first
given to shareholders. Each such notice shall set forth: (a) the name and
address of the shareholder who intends to make the nomination and of the
person or persons to be nominated; (b) a representation that the shareholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the shareholder and each nominee and
any other person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the shareholder; (d) such
other information regarding each nominee proposed by such shareholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the board of directors; and (e) the
consent of each nominee to serve as a director of the Corporation if so
elected. The chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
SHAREHOLDER PROPOSAL
Section 3.14. Any shareholder entitled to vote in the election of directors
and who meets the requirements of the proxy rules under the Securities
Exchange Act of 1934, as amended, may submit to the directors proposals to be
considered for submission to the shareholders of the Corporation for their
vote at the annual meeting of shareholders. The introduction of any
shareholder proposal that the directors decide should be voted on by the
shareholders of the Corporation, shall be made by notice in writing delivered
or mailed by first class United States mail, postage prepaid, to the secretary
of the Corporation, and received by the secretary not less than ninety days
prior to the first anniversary of the preceding year's annual meeting of
shareholders; provided, however, that in the event the date of the annual
meeting of shareholders is advanced more than thirty days or delayed by more
than sixty days from such anniversary date, notice by the shareholder must be
so delivered not later than the close of business on the seventh day following
the date on which notice of such meeting is first given to shareholders. Each
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the proposal and the text of the proposal to be introduced;
(b) the class and number of shares of stock held of record, owned beneficially
and represented by proxy by such shareholder as of the record date for the
meeting (if such date shall then have been made publicly available) and as of
the date of such notice; and (c) a representation that the shareholder intends
to appear in person or by proxy at the meeting to introduce the
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proposal or proposals, specified in the notice. The Chairman of the meeting
may refuse to acknowledge the introduction of any shareholder proposal not
made in compliance with the foregoing procedure.
Notwithstanding any other provision of these Bylaws, the Corporation shall
be under no obligation to include any shareholder proposal in its proxy
statement materials if the board of directors reasonably believes that the
proponent(s) thereof have not complied with Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, and the Corporation shall not be required to include
in its proxy statement materials any shareholder proposal not required to be
included in its proxy materials in accordance with such Act, rules and
regulations.
ARTICLE IV
NOTICES
Section 4.1 Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be
given to any director or shareholder, it shall not be construed to mean
personal notice, but such notice may be given in writing, by mail, addressed
to such director or shareholder, at his address as it appears on the records
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 4.2 Whenever any notice is required to be given under the provisions
of the statutes or of the Certificate of Incorporation or of these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 5.1 The officers of the Corporation shall consist of a president, a
secretary, a treasurer, and, if deemed necessary, expedient, or desirable by
the board of directors, a chairman and/or a vice chairman of the board of
directors, chief executive officer, chief operating officer, chief financial
officer, chief legal officer, controller, one or more executive vice
presidents, senior vice presidents, vice presidents, assistant vice
presidents, assistant secretaries, assistant treasurers and such other
officers with such titles as the resolution of the board of directors choosing
them shall designate. Except as may otherwise be provided in the resolution of
the board of directors choosing him/her, no officer need be a director of the
Corporation. Any number of offices may be held by the same person as the
directors may determine.
Section 5.2 Corporate officers shall be appointed at the first board of
directors' meeting held after the annual shareholders' meeting and at such
other meetings as the board may determine.
Section 5.3 Corporate officers shall serve for such terms and shall have
such duties and powers as may be designated in the Bylaws or by the board of
directors.
Section 5.4 Corporate officers shall hold office until a successor is
elected and qualified or until their earlier resignation or removal from
office. Any officer may resign at any time upon written notice to the
Corporation. Corporate officers may be removed at any time by majority vote of
the board of directors. Vacancies in corporate offices may be filled by the
board of directors.
THE CHAIRMAN OF THE BOARD
Section 5.5 The chairman of the board shall preside at all meetings of
shareholders and directors.
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THE VICE-CHAIRMAN OF THE BOARD
Section 5.6 The vice-chairman of the board shall preside at meetings of
shareholders and directors if the chairman of the board is absent or unable to
serve as chairman at any such meeting.
THE PRESIDENT
Section 5.7 The president shall have general and active supervision of the
business of the Corporation and shall see that all orders and resolutions of
the board of directors are carried into effect and shall be responsible to the
chairman, as well as to the board of directors for the execution of such
duties and powers. The president shall, in the absence or inability to act of
the chairman and vice-chairman of the board, assume and carry out all
responsibilities set forth with respect to such chairman and vice-chairman.
Section 5.8 He shall execute bonds, mortgages, and other contracts requiring
a seal, under the seal of the Corporation, except where required or permitted
by law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to
some other officer or agent of the Corporation.
THE VICE PRESIDENTS
Section 5.9 Executive vice presidents, senior vice presidents, vice
presidents, and assistant vice presidents shall have duties and powers as the
board of directors may designate.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 5.10 The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all the proceedings
of the meetings of the Corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the Corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his signature.
Section 5.11 The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 5.12 The treasurer shall have the custody of the Corporate funds and
securities and shall deposit all monies and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the board of directors.
Section 5.13 The treasurer shall have the authority to invest the normal
funds of the Corporation in the purchase and acquisition and to sell and
otherwise dispose of these investments upon such terms as he may deem
desirable and advantageous, and shall, upon request, render to the president
and the directors an accounting of all such normal investment transactions.
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Section 5.14 He shall disburse the funds of the Corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors,
at its regular meetings, or when the board of directors so requires, an
account of all his transactions as treasurer and of the financial condition of
the Corporation.
Section 5.15 If required by the board of directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement,
or removal from office, of all books, papers, vouchers, money, and other
property of whatever kind in his possession or under his control belonging to
the Corporation.
Section 5.16 The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
Section 5.17 The controller shall keep the Corporation's accounting records
and shall prepare accounting reports of the operating results as required by
the board of directors and governmental authorities.
Section 5.18 The controller shall establish systems of internal control and
accounting procedures for the protection of the Corporation's assets and
funds.
ARTICLE VI
CERTIFICATES OF STOCK
Section 6.1 The interest of holders of stock in the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe; provided, that
the board of directors may provide by resolution or resolutions that all or
some of all classes or series of the stock of the Corporation shall be
represented by uncertificated shares. Notwithstanding the adoption of such a
resolution by the board of directors of the Corporation, every holder of stock
represented by a certificate and upon request every holder of uncertificated
shares shall be entitled to have a certificate signed by, or in the name of
the Corporation by, the chairman or vice-chairman of the board of directors,
or the president or a vice president, and by the secretary or an assistant
secretary, or by the treasurer or an assistant treasurer of the Corporation,
representing the number of shares owned by him in the Corporation registered
in certificated form. All certificates shall also be signed by a transfer
agent and by a registrar. Except as otherwise expressly provided by law, the
rights and obligations of the holders of uncertificated stock and the rights
and obligations of the holders of certificates representing stock of the same
class and series shall be identical.
Section 6.2 All signatures which appear on the certificate may be facsimile
including, without limitation, signatures of officers of the Corporation or
the signatures of the stock transfer agent or registrar. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent, or registrar at the date of issue.
Section 6.3 If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the designations,
preferences, and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided, however, that
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock,
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a statement that the Corporation will furnish without charge, to each
shareholder who so requests, the designations, preferences, and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations, or restrictions of such
preferences and/or rights.
LOST CERTIFICATES
Section 6.4 The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen, or destroyed. When authorizing
such issue of a new certificate or certificates, the board of directors may,
in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
TRANSFERS OF STOCK
Section 6.5 The shares of the stock of the Corporation represented by
certificates shall be transferred on the books of the Corporation by the
holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof
of the authenticity of the signature as the Corporation or its agents may
reasonably require. Upon receipt of proper transfer instructions from the
registered owner of uncertificated shares such uncertificated shares shall be
canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall
be recorded upon the books of the Corporation. Within a reasonable time after
the issuance or transfer of uncertificated stock, the Corporation shall send
or cause to be sent to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Delaware Law or, unless otherwise provided by Delaware Law, a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
FIXING RECORD DATE
Section 6.6 In order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for
the adjourned meeting.
REGISTERED SHAREHOLDERS
Section 6.7 The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 7.1 Dividends upon the capital stock of the Corporation, subject to
the provisions of the Certificate of Incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 7.2 Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 7.3 The board of directors shall present at each annual meeting and
at any special meeting of the shareholders when called for by vote of the
shareholders a full and clear statement of the business and condition of the
Corporation.
CHECKS
Section 7.4 All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
Section 7.5 The fiscal year of the Corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 7.6 The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization, and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION OF OFFICERS, ETC.
r Section 7.7 (a) Each person who was or is a party or is threatened to be
made a party to or is otherwise involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding") (other than an action by or in
the right of the Corporation) by reason of the fact that such person is or was
a director, officer or employee of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
activity in an official capacity as a director, officer, employee or agent or
in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than permitted prior thereto), against all expense,
liability and loss (including attorneys' fees, judgments, fines and amounts
paid in settlement) actually
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and reasonably incurred by such person in connection with such proceeding;
provided that, (i) except with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee
only if such proceeding (or part thereof) was authorized by the board of
directors, and (ii) such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe such person's conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which such person reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful.
(b) The Corporation shall indemnify each person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such
person acted in good faith and in a manner such person reasonably believed to
be in or not opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer or employee of the Corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsections (a) and (b) of this Section 7.7, or
in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. For purposes of
determining the reasonableness of any such expenses, a certification to such
effect by any member of the Bar of the State of Delaware, which member of the
Bar may have acted as counsel to any such director, officer or employee, shall
be binding upon the Corporation unless the Corporation establishes that the
certification was made in bad faith.
(d) Any indemnification under subsections (a) and (b) of this Section 7.7
(unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer or employee is proper in the circumstances because any
such person has met the applicable standard of conduct set forth in
subsections (a) and (b) of this Section 7.7. Such determination shall be made
(i) by the board of directors, by a majority vote of directors who were not
parties to such action, suit or proceeding, or (ii) if there are no such
directors or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the shareholders.
(e) Expenses (including attorneys' fees) incurred by an officer, director or
employee of the Corporation in defending any civil, criminal, administrative
or investigative action, suit or proceeding, shall be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director, officer or
employee to repay such amount if it shall ultimately be determined that any
such person is not entitled to be indemnified by the Corporation as authorized
by this Section 7.7. Notwithstanding the foregoing, no advance shall be made
by the Corporation if a determination is reasonably and promptly made by a
majority vote of those directors who are not parties to such action, suit or
proceeding, or, if there are no such directors or if such directors so direct,
by independent legal counsel in a written opinion, that, based upon the facts
known to such directors or counsel at the time such determination is made,
such person acted in bad faith and in a manner that such person did not
believe to be in or not opposed to the best interests of
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the corporation, or, with respect to any criminal proceeding, that such person
had reasonable cause to believe his conduct was unlawful.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this Section 7.7 shall not be deemed
exclusive of any other rights to which any person seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office.
(g) The Corporation may but shall not be required to purchase and maintain
insurance on behalf of any person who is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any capacity, or
arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under
this Section 7.7. The Corporation may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of
credit) to ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
(h) For purposes of this Section 7.7, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers, and employees, so that any
person who is or was a director, officer or employee of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Section 7.7 with respect to the resulting or surviving
corporation as such person would have had with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this Section 7.7, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include
any service as a director, officer or employee of the Corporation which
imposes duties on, or involves services by, such director, officer or employee
with respect to an employee benefit plan, its participants or beneficiaries;
and a person who acted in good faith and in a manner such person reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed
to the best interests of the Corporation" as referred to in this Section 7.7.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Section 7.7 shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) This Section 7.7 shall be interpreted and construed to accord, as a
matter of right, to any person who is or was a director, officer or employee
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, the full measure of indemnification
and advancement of expenses permitted by Section 145 of the Business
Corporation Law of the State of Delaware.
(l) Any costs incurred by any person in enforcing the provisions of this
Section 7.7 shall be an indemnifiable expense in the same manner and to the
same extent as other indemnifiable expenses under this Section 7.7.
(m) No amendment, modification or repeal of this Section 7.7 shall have the
effect of or be construed to limit or adversely affect any claim or right to
indemnification or advancement of expenses made by any person
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who is or was a director, officer or employee of this Corporation with respect
to any state of facts which existed prior to the date of such amendment,
modification or repeal, whether or not the Corporation has been notified of
such claim, or such right has been asserted, prior to such date. Accordingly,
any amendment, modification or repeal of this Section 7.7 shall be deemed to
have prospective application only and shall not be applied retroactively.
BOOKS AND RECORDS
Section 7.8 No shareholder shall have any right of inspecting any account,
or book, or paper or document of this Corporation, except as conferred by law
or by resolution of the shareholder or directors.
Section 7.9 The accounts, books, papers and documents of this Corporation
shall be kept at the principal office of the Corporation in Montgomery County,
Maryland or at such other place or places as may be required by law or
designated by resolution of the shareholders or directors.
ARTICLE VIII
BYLAW AMENDMENTS
Subject to the provisions of the Certificate of Incorporation, these Bylaws
may be altered, amended or repealed at any regular meeting of the shareholders
(or at any special meeting thereof duly called for that purpose) by a majority
vote of the shares represented and entitled to vote at such meeting; provided
that in the notice of such special meeting notice of such purpose shall be
given. Subject to the laws of the State of Delaware, the Certificate of
Incorporation and these Bylaws, the board of directors may by majority vote of
those present at any meeting at which a quorum is present amend these Bylaws,
or enact such other Bylaws as in their judgment may be advisable for the
regulation of the conduct of the affairs of the Corporation, except that
Sections 3.1, 3.2 and 3.13 of Article III and Articles VIII and IX of the
Bylaws may be amended only by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the voting power of all the
shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class.
ARTICLE IX
SHAREHOLDER ACTION
Any action required or permitted to be taken by the shareholders of the
Corporation must be effected at a duly called annual or special meeting of
such holders and may not be effected by any consent in writing by such
holders. Except as otherwise required by law and subject to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, special meetings of shareholders of
the Corporation may be called only by the board of directors pursuant to a
resolution approved by a majority of the entire board of directors.
END OF BYLAWS
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CERTIFICATE
I, ___________, certify that I am the duly elected and qualified Secretary
of NEW MARRIOTT MI, INC., a Delaware Corporation, and, as such, have access to
the records of the Corporation.
I also certify that the attached copy of the Bylaws of NEW MARRIOTT MI, INC.
is a true and correct copy and that there have been no amendments to the
Bylaws that are not reflected in this copy.
IN WITNESS WHEREOF, I have affixed my official signature and seal of the
Corporation this ___ day of ______, 199_.
NEW MARRIOTT MI, INC.
Secretary
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APPENDIX L--NEW MARRIOTT 1998 COMPREHENSIVE STOCK PLAN
MARRIOTT INTERNATIONAL, INC.
1998 COMPREHENSIVE STOCK AND CASH INCENTIVE PLAN
ARTICLE 1. ESTABLISHMENT, OBJECTIVES, AND DURATION
1.1 ESTABLISHMENT OF THE PLAN. New Marriott MI, Inc., a Delaware corporation
and, prior to the Distribution, a wholly-owned subsidiary of Marriott
International, Inc., to be renamed Marriott International, Inc. after the
Distribution (the "Company"), hereby establishes an incentive compensation
plan to be known as the "Marriott International, Inc. 1998 Comprehensive Stock
and Cash Incentive Plan" (hereinafter referred to as the "Plan"), as set forth
in this document.
The Plan shall become effective as of the Distribution Date (as defined
below, the "Effective Date") and shall remain in effect as provided in Section
1.3 hereof.
1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to promote and enhance
the long-term growth of the Company by aligning the personal interests of
Employees and Non-Employee Directors to those of Company shareholders and
allowing such Employees and Non-Employee Directors to participate in the
growth, development and financial success of the Company.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of key individuals.
1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date, as
described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 17 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions.
ARTICLE 2. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1 "ALLOCATION AGREEMENT" means the Employee Benefits and Other Employment
Matters Allocation Agreement by and between Marriott International, Inc. (To
Be Renamed Sodexho Marriott Services, Inc.) and New Marriott MI, Inc. (To Be
Renamed Marriott International, Inc.) dated as of September 30, 1997.
2.2 "AWARD" means, individually or collectively, a grant under this Plan of
Nonqualified Stock Options, Incentive Stock Options, Restricted Stock,
Deferred Stock, Special Recognition Stock Awards, 1998 Conversion Awards,
Other Share-Based Awards, Other Cash Performance-Based Awards, Non-Employee
Director Share Awards and Stock Units.
2.3 "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.4 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5 "BENEFICIARY" means the person or persons designated pursuant to Article
14 hereof.
2.6 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.7 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
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2.8 "COMMITTEE" means the Compensation Policy Committee of the Board, as
specified in Article 3 herein, or such other Committee appointed by the Board
to administer the Plan with respect to grants of Awards.
2.9 "COMPANY" means New Marriott MI, Inc. which, after the Distribution,
will be renamed Marriott International, Inc., together with any and all
Subsidiaries, and any successor thereto as provided in Article 20 herein.
2.10 "CURRENT AWARD" means a Deferred Stock Bonus Award granted under the
terms and conditions described in Section 8.2(c) hereof.
2.11 "COVERED EMPLOYEE" means a Participant who, as of the date of grant,
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.12 "DEFERRED AWARD" means a Deferred Stock Bonus Award granted under the
terms and conditions described in Section 8.2(b) hereof.
2.13 "DEFERRED STOCK" means an Award granted to a Participant as described
in Article 8 herein.
2.14 "DEFERRED STOCK BONUS AWARD" means a grant of a right to receive Shares
on a deferred basis, pursuant to Article 8.2 hereof.
2.15 "DEFERRED STOCK AGREEMENT" means an Award granted to a Participant as
described in Article 8.3 herein.
2.16 "DIRECTOR" means any member of the Board.
2.17 "DISABILITY" means a permanent and total disability, within the meaning
of Code Section 22(e)(3), as determined by the Committee in good faith, upon
receipt of sufficient competent medical advice from one or more individuals,
selected by or satisfactory to the Committee, who are qualified to give
professional medical advice.
2.18 "DISTRIBUTION" means the distribution of all the outstanding shares of
capital stock of the Company as provided in the Distribution Agreement.
2.19 "DISTRIBUTION AGREEMENT" means the Distribution Agreement between
Marriott International, Inc. (To Be Renamed Sodexho Marriott Services, Inc.)
and the Company dated as of September 30, 1997.
2.20 "DISTRIBUTION DATE" means the date on which the Distribution shall be
effected pursuant to the Distribution Agreement.
2.21 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.22 "EMPLOYEE" means any individual who is, or will become, a full-time,
active, non-union employee of the Company. Any Employee who, at the request
and on the assignment of the Company specifically referencing this provision
of the Plan, becomes an employee of another employer shall continue to be
treated as an Employee for all purposes hereunder during the period of such
assignment. Directors who are not employed by the Company shall not be
considered Employees under this Plan.
2.23 "ENGAGING IN COMPETITION" means (i) engaging, individually or as an
employee, consultant or owner (more than 5%) of any entity, in any business
engaged in significant competition with any business operated by the Company;
(ii) soliciting and hiring a key employee of the Company in another business,
whether or not in significant competition with any business operated by the
Company; or (iii) using or disclosing confidential Company information, in
each case, without the approval of the Company.
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2.24 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.25 "FAIR MARKET VALUE" means the average of the highest and lowest quoted
selling prices for the Shares on the relevant date, or (if there were no sales
on such date) the average so computed on the nearest day before or the nearest
day after the relevant date, as reported in The Wall Street Journal or a
similar publication selected by the Committee.
2.26 "FEE DEFERRAL ELECTION" means an election made by a Non-Employee
Director to defer the receipt of Fees, as described in Section 12.3 hereof.
2.27 "FEES" means all or part of any retainer and/or fees payable to a Non-
Employee Director in his or her capacity as such.
2.28 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein, which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.29 "INSIDER" shall mean an individual who is, on the relevant date, an
officer, Director or more than ten percent (10%) beneficial owner of any class
of the Company's equity securities that is registered pursuant to Section 12
of the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.30 "1998 CONVERSION AWARD" means an Award made pursuant to Article 13 to
reflect the effect of the Distribution on outstanding awards which were made
under the Predecessor Plans and which were held by the grantee immediately
before the Distribution.
2.31 "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee of the
Company.
2.32 "NON-EMPLOYEE DIRECTOR SHARE AWARD" shall mean an award of Shares to a
Non-Employee Director, as described in Section 12.2 herein.
2.33 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.34 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.35 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.36 "OTHER CASH PERFORMANCE-BASED AWARDS" means an Other Cash Performance-
Based Award, as described in Article 10 herein.
2.37 "OTHER SHARE-BASED AWARD" means an Other Share-Based Award, as
described in Article 10 herein.
2.38 "PARTICIPANT" means an individual who has an outstanding Award granted
under the Plan.
2.39 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.40 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance objectives, or upon the occurrence of
other events as determined by the Committee, in its discretion), and the
Shares are subject to a substantial risk of forfeiture, as provided in Article
7 herein.
2.41 "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
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2.42 "PREDECESSOR PLANS" means the Marriott International, Inc. 1993
Comprehensive Stock Incentive Plan, the Marriott International, Inc. 1996
Comprehensive Stock Incentive Plan and the Marriott International, Inc. 1995
Non-Employee Directors' Deferred Stock Compensation Plan.
2.43 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Article 7 herein.
2.44 "SHARES" means the shares of Common Stock of the Company and shares of
Class A Common Stock of the Company, or of any successor company adopting this
Plan.
2.45 "SPECIAL RECOGNITION STOCK AWARD" means an Award granted to a
Participant pursuant to Article 9 herein.
2.46 "STOCK UNITS" means the credits to a Non-Employee Director's Stock Unit
Account, each of which represents the right to receive one Share upon
settlement of the Stock Unit Account.
2.47 "STOCK UNIT ACCOUNT" means the bookkeeping account established by the
Company pursuant to Section 12.3.
2.48 "SUBSIDIARY" means any corporation, partnership, joint venture or other
entity in which the Company owns a majority of the equity interest by vote or
by value or in which the Company has a majority capital or profits interest.
2.49 "TERMINATION OF SERVICE" means termination of service as a Non-Employee
Director in any of the following circumstances:
(a) Where the Non-Employee Director voluntarily resigns or retires;
(b) Where the Non-Employee Director is not re-elected (or elected in the
case of an appointed Non-Employee Director) to the Board by the
shareholders; or
(c) Where the Non-Employee Director dies.
2.50 "YEAR OF SERVICE" means a period of twelve (12) consecutive calendar
months during which an Employee was paid for 1200 or more hours of work for
the Company
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Compensation Policy
Committee of the Board, or by any other Committee appointed by the Board, the
members of which shall be "Non-Employee Directors" within the meaning of Rule
16b-3 under the Exchange Act, or any successor provision. The members of the
Committee shall be appointed from time to time by, and shall serve at the
discretion of, the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Articles
of Incorporation or Bylaws of the Company, and subject to the provisions
herein, the Committee shall have full power to select Employees and Directors
who shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan; establish, amend, or waive rules and regulations for the
Plan's administration; and (subject to the provisions of Article 17 herein)
amend the terms and conditions of any outstanding Award to the extent such
terms and conditions are within the discretion of the Committee as provided in
the Plan. Further, the Committee shall make all other determinations which may
be necessary or advisable for the administration of the Plan. The Committee's
determinations under the Plan (including without limitation, determinations of
the persons to receive Awards, the form, amount and timing of such Awards, the
terms and provisions of such Awards and the Award Agreements evidencing such
Awards) need not be uniform and may be made by the Committee selectively among
persons who receive, or are eligible to receive, Awards under the Plan,
whether or not such persons are similarly situated. As permitted by law, the
Committee may delegate its authority under the Plan to a Director or Employee.
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3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee or its designee pursuant to the provisions of the Plan and all
related orders and resolutions of the Board shall be final, conclusive and
binding on all parties.
3.4 UNANIMOUS CONSENT IN LIEU OF MEETING. A memorandum signed by all members
of the Committee shall constitute the act of the Committee without the
necessity in such event to hold a meeting.
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES. Subject to Sections 4.2 and 4.3 herein, (a) in the
aggregate, no more than 35 million shares of Common Stock of the Company and
21 million shares of Class A Common Stock of the Company may be issued
pursuant to Awards granted under the Plan, and (b) the maximum aggregate
number of Shares that may be subject to any Awards (other than 1998 Conversion
Awards) granted in any one fiscal year to any single Employee shall be
500,000. No more than 20% of the Shares available for Awards will be issued
with respect to Awards other than Options and Non-Employee Directors Awards.
4.2 LAPSED AWARDS. If any Award granted under the Plan is canceled,
terminates, expires, or lapses for any reason, any Shares subject to such
Award shall again be available for the grant of an Award under the Plan.
4.3 ADJUSTMENTS IN AUTHORIZED SHARES AND AWARDS. In the event of any change
in corporate capitalization, such as a stock split, or a corporate
transaction, such as any merger, consolidation, separation, including a spin-
off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Code Section 368) or any partial or complete liquidation of
the Company, (a) such adjustment shall be made in the number and class of
Shares which may be delivered under Section 4.1 and the Award limits set forth
in Section 4.1 as may be determined to be appropriate and equitable by the
Committee, in its sole discretion, to prevent dilution or enlargement of
rights; and (b) the Committee or the board of directors, compensation
committee or similar body of any other legal entity assuming the obligations
of the Company hereunder, shall either (i) make appropriate provision for the
protection of outstanding Awards by the substitution on an equitable basis of
appropriate equity interests or awards similar to the Awards, provided that
the substitution neither enlarges nor diminishes the value and rights under
the Awards; or (ii) upon written notice to the Participants, provide that
Awards will be exercised, distributed, canceled or exchanged for value
pursuant to such terms and conditions (including the waiver of any existing
terms or conditions) as shall be specified in the notice. Any adjustment of an
ISO under this paragraph shall be made in such a manner so as not to
constitute a "modification" within the meaning of Section 424(h)(3) of the
Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Employees shall be eligible to participate in this Plan
with respect to Awards specified in Articles 6 through 10. Non-Employee
Directors shall be eligible to participate in the Plan with respect to Awards
specified in Article 12. Persons eligible to receive 1998 Conversion Awards
under the Allocation Agreement shall be eligible to participate in the Plan
with respect to Awards specified in Article 13.
5.2 ACTUAL PARTICIPATION BY EMPLOYEES. Subject to the provisions of the
Plan, the Committee may, from time to time, select from all eligible
Employees, those to whom Awards shall be granted and shall determine the
nature and amount of each Award.
ARTICLE 6. STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Employees in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
Options may include provisions for reload of Options exercised by the tender
of Shares or the withholding of Shares with respect to the exercise of the
Options.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other
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provisions as the Committee shall determine. The Award Agreement also shall
specify whether the Option is intended to be an ISO within the meaning of Code
Section 422, or an NQSO whose grant is intended not to fall under the
provisions of Code Section 422.
6.3 OPTION PRICE. The Option Price for each grant of an Option under this
Article 6 shall be at least equal to one hundred percent (100%) of the Fair
Market Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option granted under this Article 6 shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that no Option shall be exercisable later than the
fifteenth (15th) anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions
as the Committee shall in each instance approve, which need not be the same
for each grant or for each Employee.
The ability of an Employee to exercise an Option is conditioned upon the
Employee not committing any criminal offense or malicious tort relating to or
against the Company.
6.6 PAYMENT. Options granted under this Article 6 shall be exercised by the
delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company
in full either: (a) in cash or its equivalent, or (b) if permitted in the
governing Award Agreement, by tendering previously acquired Shares having an
aggregate Fair Market Value at the time of exercise equal to the total Option
Price (provided that the Shares which are tendered must have been held by the
Participant for at least six (6) months prior to their tender to satisfy the
Option Price), or (c) if permitted in the governing Award Agreement, by a
combination of (a) and (b).
The Committee also may allow cashless exercise as permitted under the
Federal Reserve Board's Regulation T, subject to applicable securities law
restrictions, or by any other means which the Committee determines to be
consistent with the Plan's purpose and applicable law.
6.8 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed or traded, and under any blue sky or state securities laws applicable
to such Shares.
6.9 TERMINATION OF EMPLOYMENT OR LEAVE OF ABSENCE. In the event that an
Employee, during the Employee's lifetime has been on leave of absence for a
period of greater than twelve (12) months (except a leave of absence approved
by the Board or the Committee, as the case may be), or ceases to be an
Employee of the Company or of any Subsidiary for any reason, including
retirement, the portion of any Option which is not exercisable on the date on
which the Employee ceased to be an Employee or has been on leave for over
twelve (12) months (except a leave of absence approved by the Board or the
Committee, as the case may be) shall expire on such date and any unexercised
portion thereof which was otherwise exercisable on such date shall expire
unless exercised within a period of three (3) months (one year in the case of
a Participant who is Disabled) from such date, but in no event after the
expiration of the term for which the Option was granted; provided, however,
that in the case of an optionee of an NQSO who is an "Approved Retiree" (as
hereinafter defined), said optionee may exercise such Option until the sooner
to occur of (i) the expiration of such Option in accordance with its original
term; or (ii) one (1) year from the date on which the Option latest in time
awarded to the Participant under the Plan has become fully exercisable under
Section 6.5 hereof. For purposes of the proviso to the preceding sentence:
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(a) An "Approved Retiree" is any optionee who (A) retires from employment
with the Company with the specific approval of the Committee on or after
such date on which the optionee has completed 20 Years of Service or has
attained age 55 and completed 10 Years of Service, and (B) has entered into
and has not breached an agreement to refrain from Engaging in Competition
in form and substance satisfactory to the Committee;
(b) Any time period during which an optionee may continue to exercise an
Option within clause (ii) of said proviso shall count in determining
compliance with any schedule established pursuant to Section 6.5 herein;
and
(c) If an Approved Retiree is subsequently found by the Committee to have
violated the provisions of the agreement to refrain from Engaging in
Competition referred to in clause (a)(B) of this sentence, such Approved
Retiree shall have ninety (90) days from the date of such finding within
which to exercise any Options or portions thereof which are exercisable on
such date, any Options or portions thereof which are not exercised within
such ninety- (90-) day period shall expire and any Options or portion
thereof which are not exercisable on such date shall be canceled on such
date.
In the event of the death of an optionee during the three-month period
described above for exercise of an Option by a terminated optionee or one on
leave for over 12 months (except a leave of absence approved by the Board or
the Committee, as the case may be), the Option shall be exercisable by the
optionee's personal representatives, heirs or legatees to the same extent and
during the same period that the optionee could have exercised the Option if
the optionee had not died.
In the event of the death of an optionee while an Employee of the Company or
any Subsidiary, an outstanding Option granted to the deceased Employee (but
only if the one-year waiting period set forth in Section 6.5 herein has
elapsed) shall be exercisable by the decedent's personal representatives,
heirs or legatees at any time prior to the expiration of one (1) year from the
date of death of the optionee, but in no event after the expiration of the
term for which the Option was granted.
Notwithstanding anything in Section 6.5 to the contrary, in the event of the
death of an optionee while an Approved Retiree of the Company or any
Subsidiary, an outstanding Option granted to the deceased Employee (regardless
of whether the one-year waiting period set forth in Section 6.5 herein has
elapsed) shall be exercisable by the decedent's personal representatives,
heirs or legatees at any time prior to the expiration of one (1) year from the
date of death of the optionee, but in no event after the expiration of the
term for which the Option was granted.
6.10 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
ISOs granted to a Participant under the Plan shall be exercisable during
his or her lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may be
sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution. Further, except as otherwise provided in a Participant's
Award Agreement, all NQSOs granted to a Participant under this Article 6
shall be exercisable during his or her lifetime only by such Participant.
ARTICLE 7. RESTRICTED STOCK
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Employees in such amounts as the Committee shall
determine.
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7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the
Period(s) of Restriction, the number of Shares of Restricted Stock granted,
and such other provisions as the Committee shall determine.
7.3 TRANSFERABILITY. Except as provided in this Article 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Committee and specified in
the Restricted Stock Award Agreement, or upon earlier satisfaction of any
other conditions, as specified by the Committee in its sole discretion and set
forth in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during his or her lifetime only to such Participant.
7.4 OTHER RESTRICTIONS. The Committee shall impose such conditions and/or
restrictions on any Shares of Restricted Stock granted pursuant to the Plan as
it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted
Stock, restrictions based upon the achievement of specific performance
objectives (Company-wide, business unit, and/or individual), time-based
restrictions on vesting following the attainment of the performance
objectives, and/or restrictions under applicable Federal or state securities
laws.
The Company shall retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 7, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
Distribution of Shares of Restricted Stock is conditioned upon the
Participant not committing any criminal offense or malicious tort relating to
or against the Company.
7.5 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
7.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying
Shares while they are so held. Such dividends may be paid currently, accrued
as contingent cash obligations, or converted into additional shares of
Restricted Stock, upon such terms as the Committee establishes.
The Committee may apply any restrictions to the dividends that the Committee
deems appropriate. Without limiting the generality of the preceding sentence,
if the grant or vesting of Restricted Stock granted to a Covered Employee is
designed to comply with the requirements of the Performance-Based Exception,
the Committee may apply any restrictions it deems appropriate to the payment
of dividends declared with respect to such Restricted Stock, such that the
dividends and/or the Restricted Stock maintain eligibility for the
Performance-Based Exception.
7.7 TERMINATION OF EMPLOYMENT. In the event a Participant's employment with
the Company is terminated because of the Participant's Disability or death
during the Period of Restriction, the Period of Restriction shall end and the
Participant's rights thereunder shall inure to the benefit of his or her
Beneficiary.
In the event that a Participant's employment with the Company is terminated
for any reason other than death or Disability during the Period of
Restriction, such Participant's outstanding Restricted Shares shall be
forfeited to the Company without payment.
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ARTICLE 8. DEFERRED STOCK
8.1 AWARD OF DEFERRED STOCK. Subject to the terms and provisions of the
Plan, Deferred Stock Bonus Awards or Deferred Stock Agreements may be granted
to Employees at any time and from time to time as shall be determined by the
Committee. The Committee shall have complete discretion in determining the
amount of Deferred Stock granted to each Employee (subject to Article 4
herein) and, consistent with the provisions of the Plan, in determining the
terms and conditions pertaining to such Awards of Deferred Stock.
8.2 DEFERRED STOCK BONUS AWARDS. Deferred Stock Bonus Awards may be granted
as part of a management incentive program under which part of the annual
performance bonus awarded to managers and other key Employees is made in
Deferred Stock. Subject to the terms of the Plan, Deferred Stock Bonus Awards
shall have such terms and conditions as determined by the Committee. As
determined by the Committee and subject to the terms of the Plan, Participants
selected by the Committee in its discretion may elect to receive their
Deferred Stock Bonus Award in the form of either a Current Award or a Deferred
Award.
(a) METHOD OF ELECTION. Each Participant who is granted a Deferred Stock
Bonus Award and selected by the Committee in its discretion may elect, in
writing, on a form to be furnished by the Company, to receive a Current
Award or a Deferred Award. Notwithstanding the foregoing, any eligible
Participant who does not elect to receive a Deferred Award within the time
designated by the Company shall be granted a Current Award.
(b) DEFERRED AWARD.
(i) VESTING. Deferred Stock granted in connection with a Deferred
Award shall contingently vest, pro rata, in annual installments
commencing one year after the date of the Deferred Stock Bonus Award
and continuing on each January 2 thereafter until the expiration of a
ten-year period from such commencement date. Notwithstanding the
foregoing, all unvested Deferred Stock subject to a Deferred Award
shall vest upon the Participant's: (1) termination of employment
following attainment of age 55 with ten (10) Years of Service; (2)
termination of employment with retirement approval from the Committee
and with twenty (20) Years of Service; (3) Disability, or (4) death.
Subject to Section 4.3 herein, unvested Deferred Stock shall not
continue to vest following termination of employment for any other
reason.
(ii) DISTRIBUTION OF SHARES. Vested Shares will be distributed to the
Participant in two (2) to ten (10) approximately equal annual
installments, as elected by the Participant, or over such shorter
period as determined by the Committee. Such distribution shall commence
in the month of January following the date the Participant terminates
employment; provided, however, that the Participant may elect to
receive his or her vested Shares in a single distribution which shall
take place in the month of January following his or her termination of
employment.
All such elections made pursuant to this Section 8.2(b)(ii), shall be
made at the time the Deferred Stock Bonus Award is granted, and shall
be made, in writing, on a form prescribed by the Committee. Upon a
Participant's death, all undistributed vested Deferred Stock will be
distributed in one distribution as provided in Article 10 herein.
(c) CURRENT AWARD.
(i) Distribution of Shares. Shares subject to a Current Award will be
distributed in ten (10) consecutive, approximately equal, annual
installments, commencing one (1) year after the date of the Deferred
Stock Bonus Award. If a Participant dies prior to distribution of all
Shares to which he or she is entitled, the remaining Shares will be
distributed in one distribution as provided in Article 10 herein.
(ii) Forfeiture of Shares. Any undistributed Shares subject to a
Current Award will be forfeited and the Deferred Stock Bonus Award
relating thereto terminated, without payment, if the Participant's
employment with the Company is terminated for any reason other than the
Participant's: (1) termination of employment at or beyond age 55 with
10 Years of Service, (2) retirement after 20 Years of Service with
approval from the Committee, (3) Disability, or (4) death. Any
undistributed Shares
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not subject to forfeiture shall continue to be distributed to the
Participant under the distribution schedule which would have applied to
those Shares if the Participant had not terminated employment, or over
such shorter period as may be determined by the Committee.
(d) CONDITIONS. Distribution of Shares under Current Awards and Deferred
Awards is conditioned upon:
(i) the Participant not committing any criminal offense or malicious
tort relating to or against the Company;
(ii) the Participant not Engaging in Competition; and
(iii) the Participant having provided the Committee with a current
address where the Deferred Stock Bonus Award may be distributed.
If said conditions are not met, all undistributed Shares will be forfeited
and the Deferred Stock Bonus Award terminated, without payment.
(e) LUMP SUM PAYMENTS. Notwithstanding anything in the Plan to the
contrary, any Participant entitled upon termination of employment to
receive a distribution pursuant to this Article 8 which has a total Fair
Market Value at the time of such termination of $3,000 or less shall
receive such distribution in one lump sum as soon as possible following
termination of employment.
8.3 DEFERRED STOCK AGREEMENTS. Deferred Stock Agreements represent Deferred
Stock granted to a Participant subject to the following conditions:
(a) VESTING. Deferred Stock granted pursuant to this Section 8.3 shall
contingently vest over a specified number of years, as determined by the
Committee. Subject to Section 4.3 herein, unless otherwise provided in the
Deferred Stock Agreement, if the Participant's employment with the Company
is terminated for any reason, other than death or Disability, all Deferred
Stock which is not vested before such termination of employment shall be
forfeited and the Deferred Stock Agreement terminated without payment. If
the Participant's employment with the Company is terminated as a result of
death or Disability, all unvested Deferred Stock shall immediately vest.
(b) DISTRIBUTION OF SHARES. Vested Deferred Stock granted pursuant to
this Section 8.3 shall be distributed to the Participant in the form of
Shares in the manner specified in the Deferred Stock Agreement, or over
such shorter period as the Committee may direct. Such distribution shall
commence on January 2 following the first to occur of the date the
Participant (i) retires, (ii) becomes Disabled, or (iii) attains at least
age 65 and is no longer employed by the Company. Upon the Participant's
death or as soon as practicable thereafter, all unpaid vested Deferred
Stock shall be distributed in the form of Shares, in one distribution, as
provided in Article 13 hereof.
(c) CONDITIONS. Distribution of Shares subject to Deferred Stock
Agreements is conditioned upon:
(i) the Participant not Engaging in Competition,
(ii) the Participant not committing any criminal offense or malicious
tort relating to or against the Company; and
(iii) the Participant having provided the Committee with a current
address where the Deferred Stock may be distributed.
If said conditions are not met, all undistributed Deferred Stock will be
forfeited and the Deferred Stock Agreement terminated without payment.
8.4 ASSIGNMENT. A Participant's rights under a Deferred Stock Agreement or
Deferred Stock Bonus Award may not, without the Company's written consent, be
assigned or otherwise transferred, nor shall they be subject to any right or
claim of a Participant's creditors, provided that the Company may offset any
amounts owing to or guaranteed by the Company, or owing to any credit union
related to the Company against the value of Deferred Stock and underlying
Shares to be distributed under Deferred Stock Agreements and Deferred Stock
Bonus Awards.
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ARTICLE 9. SPECIAL RECOGNITION STOCK AWARDS
Subject to the terms and provisions of the Plan, the Committee or its
designee, at any time and from time to time, may grant Special Recognition
Stock Awards to Employees in such amounts and upon such conditions as the
Committee or its designee shall determine.
ARTICLE 10. OTHER AWARDS
10.1 GRANT OF OTHER SHARE-BASED AWARDS. The Committee may grant Other Share-
Based Awards to Participants in such number, and upon such terms, and at any
time and from time to time, as shall be determined by the Committee.
10.2 TERMS OF OTHER SHARE-BASED AWARDS. Other Share-Based Awards shall
contain such terms and conditions as the Committee may from time to time
specify and may be denominated in cash, in Shares, in Share-equivalent units,
in Share appreciation units, in securities or debentures convertible into
Shares or in a combination of the foregoing and may be paid in cash or in
Shares, all as determined by the Committee. Other Share-Based Awards may be
issued alone or in tandem with other Awards granted to Employees.
10.3 OTHER SHARE-BASED AWARD AGREEMENT. Each Other Share-Based Award shall
be evidenced by an Award Agreement that shall specify such terms and
conditions as the Committee shall determine.
10.4 OTHER CASH PERFORMANCE-BASED AWARDS. The Committee may grant Other Cash
Performance-Based Awards based on performance measures set forth in Article 11
not based on Shares upon such terms and at any time and from time to time as
shall be determined by the Committee. Each such Other Cash Performance-Based
Award shall be evidenced by an award agreement that shall specify such terms
and conditions as the Committee shall determine. An Other Cash Performance-
Based Award not based upon Shares shall not decrease the number of Shares
under Article 4 which may be issued pursuant to other Awards. No individual
shall be eligible to receive a payment with respect to cash performance-based
awards in excess of $4 million in any calendar year. Other Cash Performance-
Based Awards may relate to annual bonus or long-term performance awards.
ARTICLE 11. PERFORMANCE MEASURES FOR AWARDS
11.1 PERFORMANCE MEASURES. Unless and until the Committee proposes for
shareholder vote and shareholders approve a change in the general performance
measures set forth in this Article 11, the attainment of which may determine
the degree of payout and/or vesting with respect to Awards granted to Covered
Employees which are designed to qualify for the Performance-Based Exception,
the performance measure(s) to be used for purposes of such Awards shall be
chosen from among the following alternatives:
(a) Consolidated cash flows,
(b) Consolidated financial reported earnings,
(c) Consolidated economic earnings,
(d) Earnings per share,
(e) Business unit financial reported earnings,
(f) Business unit economic earnings,
(g) Business unit cash flows, and
(h) Appreciation in the Fair Market Value of Shares either alone or as
measured against the performance of the stocks of a group of companies
approved by the Committee.
11.2 ADJUSTMENTS. The Committee shall have the discretion to adjust the
determinations of the degree of attainment of the preestablished performance
objectives; provided, however, that Awards which are designed to qualify for
the Performance-Based Exception, and which are held by Covered Employees, may
not be adjusted upward (the Committee shall retain the discretion to adjust
such Awards downward).
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11.3 COMMITTEE DISCRETION. In the event that applicable tax and/or
securities laws change to permit Committee discretion to alter the governing
performance measures without obtaining shareholder approval of such changes,
the Committee shall have sole discretion to make such changes without
obtaining shareholder approval. In addition, in the event that the Committee
determines that it is advisable to grant Awards which shall not qualify for
the Performance-Based Exception, the Committee may make such grants without
satisfying the requirements of Code Section 162(m).
ARTICLE 12. DIRECTORS' SHARE AWARDS AND FEE DEFERRAL ELECTIONS
12.1 ELIGIBILITY. Only Non-Employee Directors shall be eligible to receive
Non-Employee Director Share Awards and to make Fee Deferral Elections.
12.2 NON-EMPLOYEE DIRECTOR SHARE AWARDS. On the first full trading day
immediately following each annual meeting of the stockholders of the Company,
each Non-Employee Director designated by the Board shall receive a Non-
Employee Director Share Award of a number of Shares determined by the Board
before such annual meeting. Each Non-Employee Director Share Award shall be
fully vested and nonforfeitable when granted.
12.3 FEE DEFERRAL ELECTIONS.
(a) Elections to Defer Payment of Fees. Payment of all or any part of any
Fees payable to a Non-Employee Director may be deferred by election of the
Non-Employee Director. Each such election must be made in writing on a form
prescribed by the Committee and delivered to the Company prior to the month
during which the Fees will be earned and must be irrevocable for that
month. Each election shall remain in effect for subsequent months until
revoked in writing, and any such revocation shall become effective no
earlier than the first day of the first month commencing after such
revocation is received by the Company.
(b) Crediting Stock Units to Accounts. Amounts deferred pursuant to a Fee
Deferral Election shall be credited as of the date of deferral to a Stock
Unit Account in Stock Units. The number of Stock Units credited to a Stock
Unit Account with respect to any Non-Employee Director shall equal (i) the
amount deferred pursuant to the Fee Deferral Election divided by (ii) the
Fair Market Value of a Share on the date on which the Fees subject to the
Fee Deferral Election would have been paid but for the Fee Deferral
Election, with fractional units calculated to at least three (3) decimal
places.
(c) Fully Vested Stock Units. All Stock Units credited to a Non-Employee
Director's Stock Unit Account pursuant to this Section 12.3 shall be at all
times fully vested and nonforfeitable.
(d) Credit of Dividend Equivalents. As of each dividend payment date with
respect to Shares, each Non-Employee Director shall have credited to his or
her Stock Unit Account an additional number of Stock Units equal to the
product of (i) the per-share cash dividend payable with respect to a Share
on such dividend payment date multiplied by the number of Stock Units
credited to his or her Stock Unit Account as of the close of business on
the record date for such dividend, divided by (ii) the Fair Market Value of
a Share on such dividend payment date. If dividends are paid on Shares in a
form other than cash, then such dividends shall be notionally converted to
cash, if their value is readily determinable, and credited in a manner
consistent with the foregoing and, if their value is not readily
determinable, shall be credited "in kind" to the Non-Employee Director's
Stock Unit Account.
(e) Payment of Stock Units. Upon Termination of Service, the Stock Units
credited to a Non-Employee Director's Stock Unit Account shall be paid to
the Non-Employee Director in an equal number of shares of Stock in a single
lump sum or in substantially equal annual installments over a period not to
exceed ten (10) years, as elected by the Non-Employee Director pursuant to
rules established from time to time by the Committee.
(f) Delivery of Stock Certificates. The Company shall issue and deliver
to the Non-Employee Director a stock certificate for Shares in payment of
Stock Units as soon as practicable following the date on which Stock Units
are payable, provided, however, that no stock certificate shall be
delivered with
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respect to the payment of any Stock Unit prior to the expiration of six (6)
months from the date such Stock Unit was credited to the Non-Employee
Director's Stock Unit Agreement.
12.4 UNFUNDED STATUS. The interest of each Non-Employee Director in any Fees
deferred under this Article 12 (and any Stock Units or Stock Unit Account
relating thereto) or in any Director Stock Award shall be that of a general
creditor of the Company. Stock Unit Accounts and Stock Units (and, if any, "in
kind" dividends) credited thereto shall at all times be maintained by the
Company as bookkeeping entries evidencing unfunded and unsecured general
obligations of the Company.
ARTICLE 13. 1998 CONVERSION AWARDS
All 1998 Conversion Awards which, under the Allocation Agreement, are to be
denominated in equal numbers of shares of Common Stock and Class A Common
Stock of the Company, shall be issued under the Plan as provided in the
Allocation Agreement. The Committee shall administer all such 1998 Conversion
Awards under this Plan, giving service credit to the grantee of each such 1998
Conversion Award to the extent required under the Allocation Agreement. All
1998 Conversion Awards shall be subject to substantially similar terms and
conditions as provided in the holder's corresponding awards under the
Predecessor Plan.
ARTICLE 14. BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of the Participant's death before
the Participant has received any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a
form prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 15. DEFERRALS
The Committee may permit or require a Participant to defer such
Participant's receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option, or the payment of or the lapse or waiver of restrictions with respect
to any other Award. If any such deferral election is required or permitted,
the Committee shall, in its sole discretion, establish rules and procedures
for such payment deferrals.
ARTICLE 16. RIGHTS OF PARTICIPANTS
16.1 EMPLOYMENT OR SERVICE. Nothing in the Plan shall interfere with or
limit in any way the right of the Company to terminate any Participant's
employment or service at any time, nor confer upon any Participant any right
to continue in the employ or service of the Company.
16.2 PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected
to receive a future Award.
ARTICLE 17. AMENDMENT, MODIFICATION, AND TERMINATION
17.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time and
from time to time, alter, amend, suspend or terminate the Plan in whole or in
part; provided, however, that the Board may, in its sole discretion, condition
the adoption of any amendment of the Plan on the approval thereof by the
requisite vote of the shareholders of the Company entitled to vote thereon.
17.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. Subject to the restriction set forth in Article 11 herein
on the exercise of upward discretion with respect to Awards which have been
designed to comply with the Performance-Based Exception, the Committee may
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make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4.3 hereof) affecting the Company
or the financial statements of the Company or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee determines that
such adjustments are appropriate in order to prevent dilution or enlargement
of the benefits or potential benefits intended to be made available under the
Plan.
17.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan or any Award shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
17.4 COMPLIANCE WITH CODE SECTION 162(M). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes
are made to Code Section 162(m) to permit greater flexibility with respect to
any Award or Awards available under the Plan, the Committee may, subject to
this Article 17, make any adjustments it deems appropriate.
17.5 SUBSTITUTION OF AWARDS IN MERGERS AND ACQUISITIONS. Awards may be
granted under the Plan from time to time in substitution for awards held by
employees or directors of entities who become or are about to become employees
or directors of the Company or a Subsidiary as the result of a merger,
consolidation or other acquisition of the employing entity or the acquisition
by the Company or a Subsidiary of the assets or stock of the employing entity.
The terms and conditions of any substitute awards so granted may vary from the
terms and conditions set forth herein to the extent that the Committee deems
appropriate at the time of grant to conform the substitute awards to the
provisions of the awards for which they are substituted.
ARTICLE 18. WITHHOLDING
18.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct from any amount otherwise due to the Participant, or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising as a
result of this Plan.
18.2 SHARE WITHHOLDING. With respect to withholding required in connection
with any Award, the Company may require, or the Committee may permit a
Participant to elect, that the withholding requirement be satisfied, in whole
or in part, by having the Company withhold Shares having a Fair Market Value
on the date the tax is to be determined equal to the minimum statutory total
tax which could be withheld on the transaction. Any election by a Participant
shall be irrevocable, made in writing, signed by the Participant, and shall be
subject to any restrictions or limitations that the Committee, in its sole
discretion, deems appropriate.
ARTICLE 19. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company against and from
any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be a party or in which he or she may
be involved by reason of any action taken or failure to act under the Plan and
against and from any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in satisfaction of any
judgment in any such action, suit or proceeding against him or her, provided
he or she shall give the Company an opportunity, at its own expense, to handle
and defend the same before he or she undertakes to handle and defend it on his
or her own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Articles of Incorporation or Bylaws, as a matter
of law, or otherwise, or any power that the Company may have to indemnify them
or hold them harmless.
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ARTICLE 20. SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase, of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation or otherwise.
ARTICLE 21. LEGAL CONSTRUCTION
21.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine, the plural shall
include the singular and the singular shall include the plural.
21.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the Plan, and the Plan shall be construed
and enforced as if the illegal or invalid provision had not been included.
21.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
21.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3
or its successors under the Exchange Act. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the
Committee.
21.5 GOVERNING LAW. To the extent not preempted by Federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Maryland.
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P R O X Y
MARRIOTT INTERNATIONAL, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING OF STOCKHOLDERS
ON MARCH 17, 1998, 10:00 A.M.
The undersigned appoints J.W. Marriott, Jr. and Richard E. Marriott as Proxies.
Each shall have the power to appoint a substitute. They are authorized to
represent and vote, as designated on the reverse side, all shares of Marriott
International, Inc. common stock held of record by the undersigned on January
28, 1998 at the Special Meeting of Stockholders to be held on March 17, 1998,
or any adjournment or postponement thereof. The Board of Directors recommends
votes FOR all of the Proposals.
(change of address)
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CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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SEE REVERSE
SIDE
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DETACH PROXY CARD HERE
To Fellow Marriott International, Inc. Stockholders:
Here is your proxy card for a Special Meeting of Marriott International, Inc.
Stockholders. Please read both sides of the card and mark, sign, and date it.
Then detach and return it promptly using the enclosed envelope. We urge you to
vote your shares.
You are invited to attend the Special Meeting of Stockholders on March 17,
1998, at 10:00 a.m. at the Westfield Conference Center, 14750 Conference Center
Drive, Chantilly, Virginia.
Your continuing interest in Marriott International, Inc. is appreciated.
Thank you in advance for voting.
(ART)
W. David Mann
Secretary
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[X] PLEASE MARK 5203
VOTES AS IN THIS
EXAMPLE.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO INSTRUCTION IS INDICATED, EACH PROXY
WILL BE VOTED "FOR" ALL OF THE PROPOSALS, AND AT THE DISCRETION OF THE PROXIES
ON ANY OTHER MATTER THAT MAY PROPERLY OCCUR.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, 5 AND 6.
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1. Approval of (a) the spinoff of New Marriott, (b) the acquisition of
Sodexho North America, (c) the amendment of the Company's certificate of
incorporation and bylaws and (d) the amendment of New Marriott's certifi-
cate of incorporation and bylaws.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. Ratification of Pierre Bellon, Benard Carton, Edouard de Royere, William J.
Shaw, Charles D. O'Dell, John W. Marriott III, Doctor R. Crants and Daniel
J. Altobello as directors of SMS, effective upon the consummation of the
Transactions.
FOR AGAINST ABSTAIN
[_] [_] [_]
3. Ratification of Gilbert M. Grosvenor, Richard E. Marriott, Harry J. Pearce,
J.W. Marriott, Jr., W. Mitt Romney, William J. Shaw, Dr. Henry Cheng Kar-
Shun, Floretta Dukes McKenzie, Roger W. Sant and Lawrence M. Small as direc-
tors of New Marriott.
FOR AGAINST ABSTAIN
[_] [_] [_]
4. Ratification of the New Marriott 1998 Comprehensive Stock Incentive Plan and
the reservation of shares pursuant to such plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
5. Ratification of the appointment of Price Waterhouse LLP as independent audi-
tors of SMS effective upon consummation of the Transactions.
FOR AGAINST ABSTAIN
[_] [_] [_]
6. Ratification of the appointment of Arthur Andersen LLP as independent audi-
tors of New Marriott.
FOR AGAINST ABSTAIN
[_] [_] [_]
SIGNATURE(S) DATE
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Sign exactly as name appears hereon. When shares are held by joint owners, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, give full title. If a corporation, sign full corporate name by
President, or other authorized officer. If a partnership, sign partnership name
by authorized trustee or partner.
MARK HERE FOR ADDRESS CHANGE AND MARK ON REVERSE SIDE [_]
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PLEASE CAREFULLY DETACH HERE AND RETURN THIS PROXY IN THE ENCLOSED REPLY
ENVELOPE.
